Plan Out Your 3-Year Vision for Attracting Clients
In practice building (and getting clients) it seems to be
that most self-employed people just hope for the best. They
simply keep doing what they’ve been doing and don’t have a
strategy for creating the practice they’d be truly and
deeply happy with. This is a big mistake in my opinion.
I used to write down my goals each year, but it never
really worked for me. I just didn’t feel really excited
about my new goals. They didn’t seem to propel me in motion
and so I kind of viewed them as being useless. I never
really looked at them, probably because they seemed like
“shoulds” rather than “really-meaningful-wants.”
Then I came across the concept of creating 3-year visions
instead of just a list of goals for the upcoming year. This
visioning wasn’t just about business goals, but also
family, financial, spiritual, and relationship goals. It
became a “holistic” way of looking at what you wanted in
your life. All the pieces looked like they would work
together, but only because you were compelled to make it
all work together, which was the first time I’d done that
in such depth.
The coolest thing about visioning 3 years out came to me
after I started doing this regularly. I noticed that ONE
year goals were never too much of a stretch. They seemed
like timid goals, goals that didn’t really get me excited.
But having to create a vision of what 3 years down the line
would look like allowed me to REALLY think BIG.
5 Ways to Quickly Improve Cash Flow
Copyright (c) 2007 George Sierchio www.actionbusinesspartners.com
Below are 5 quick ways to slow down the leaks in the money leaving your company so the money coming in can catch up
Bill Promptly. Ever find yourself so busy building your business and making deadlines that you don’t get around to billing on a regular basis? You’re not alone. In a consulting business I once owned, I often got so busy that every once in a while I forgot to have the invoices sent out until I realized I wouldn’t have the money for the next payroll. Seems like a stupid mistake, but it’s something that happens.
If you don’t already have a system in place, start (or assign an employee to start) billing for projects on a regular basis. When taking on longer-term projects or clients, negotiate in advance for regular payments based on time or upon reaching milestones instead of allowing the amount due to build up until completion of a contract.
Create Incentives for Faster Payments. Small businesses can sometimes significantly cut the time spent waiting for payment by offering a discount for quick payment. I have used this technique when necessary and have also been asked by customers if I offered that type of discount.
Basically I offered discounts of 1% or 2% for payment within 10 days. It is good for your bottom line and good for the business’s cash flow, too. The real bonus is that the customer thinks you are doing them a favor whether they choose to make the early payment or not.
Avoid Slow Pay/No Pay Customers- The best way to avoid cash flow problems because of customers or businesses not paying you is to weed out those slow pays/no pays before they become clients. So if someone is about to become a significant client or customer, do your homework.
Ask for, and check out, credit references. Call other businesses that have had a relationship with the client. You might even pay for a credit check from an organization such as Experian or Dun & Bradstreet.
Consider Consolidating Your Loans. I know it’s often tough for small businesses to borrow money. It’s also surprising how some small businesses manage to get multiple loans.
If you have several loans related to your business, review the rates and terms on each one. You may be able to consolidate two or more loans into a lower-interest account and improve your cash flow.
Trim Your Inventory. If you can’t go to a “just-in-time” inventory management system like many manufacturers have adopted then how about “just-in-less-time”? Money spent on over stocked inventory is money that isn’t producing any interest or savings for you.
10 Reasons Why Businesses Fail
Copyright (c) 2007 George Sierchio www.actionbusinesspartners.com
Almost 50% of the new companies formed in the US and Canada fail within the first 3 years. Just because that happens to be the case, it doesn’t make seeing a business that somebody worked so hard for die any easier to watch.
I hope the following information will make an impact on curtailing the business death rate.
Under capitalization. Money is the root of all evil and it may well be the leading cause of small-business failures. Far too many small-business owners underestimate how much money they’re going to need, not merely to get the business started, but also to survive the inevitable up and downs that occur while trying to make a spot for themselves in the market.
Not having enough money from the onset of your business can start a spiral that you may never get out of.
Bad cash flow. This is the often-unseen relative of a lack of capital. Even businesses that move past the embryonic stage often collapse when incoming cash doesn’t at least offset expenses and other costs.
Your business can be making a ton of revenue but if the inflow of that revenue is less than the outflow of expenses, you have bad cash flow, which will spell trouble no matter how much revenue you generate.
Inadequate planning. Not surprisingly, this is the reason problems like capitalization and bad cash flow happen in the first place. It’s critical that you map out as comprehensive a business plan as possible, covering financial issues, marketing, growth and an array of other elements.
Granted, it can be time consuming, as a well-prepared plan can take weeks or months to complete. That time may also tell you that the new business venture or company expansion is not worth the time and money it will take to accomplish.
No target market. This is a two-part issue.
Part 1: Not setting a target market is a huge mistake made by many business owners, even in established businesses. Who will think your products/services are useful? It’s essential to develop a marketing strategy not merely to identify who might buy from you, but why.
Make certain your marketing strategy sets you apart so customers can clearly see why they would rather go to you than a competitor. More importantly, break down your target market as much as possible, especially if your product/service is not something used by a general audience.
Part 2: A solid target market should also keep you from making the mistake of trying to provide too many services or products, which will cause you to spread yourself too thin. Small, and especially new, companies often tend to look for a way to make money in any form they can instead of sticking to core products and services.
If this happens, the company will not be able concentrate already limited resources to selling and servicing the things the company was built for.
No competitive edge. Once you have determined a target market, now you have to make them know why you are special compared to the other guys selling the same thing. To gain an edge on your competition, you need to go into business with a Unique Selling Point (USP).
This is critical to gain some mustard behind the company and having something to exploit over the competition. Whether it’s a slightly different product or customer support that goes beyond your competitors; earmark that one element that sets your business apart.
Sometimes a “me too” operation works, but that usually happens when you are the first to bring a product or service to a market that has yet to be exposed to it. Figure out your USP and that will give you something specific to help market your company both online and offline to your target market.
Inadequate flexibility. This is where being one of the little fish is much better than being a goliath company. Big business has a lot of advantages when it comes to things that cost money and resources but they are fat and very inflexible. The small company has the ability to change directions on a dime.
Never forget to remain flexible. If a product isn’t quite right or a marketing campaign isn’t really flying, don’t be afraid to tinker. Making those sorts of on-the-fly adjustments is much tougher for the big guys.
Ignoring customer service. Don’t give the farm away and do tons of things free for customers or potential customers but be prepared to give a little extra. You and your employees should be looking to help out a customer when needed to show your appreciation for them providing a paycheck.
An overbearing customer is a problem but showing a little extra courtesy that doesn’t cost too much time and effort should be a given. That’s what keeps people coming back.
Trying to be everything to the business. As an entrepreneur or manager in a smaller company, you often have to wear many hats. The thing to avoid is wearing more than what fits on your head. Don’t try to be all things to your business.
If you can’t build a website, don’t try to become a website guru or do a half baked job, get some help. When a legal issue crops up, don’t rely on your self appointed legal skills to evaluate the legal ramification. Establish a long-term relationship with an attorney, preferably one with small-business acumen.
Great boss, so-so staff. A solid business with a knowledgeable, enthusiastic owner can often be brought down by inexperienced and unmotivated employees. Make certain your employees are well-trained, fairly compensated and somehow share in the desire that you have to be part of a great business.
Uncontrolled growth. This may make no sense, but it’s true; a small business that simply succeeds too quickly often pushes itself into an early grave. If your production fails to keep pace with demand or necessary expansion coincides with insufficient cash, the growth you dream about as an entrepreneur can actually threaten your business’ very existence.
Again, cover foreseeable growth in your original plan and track it adequately to make certain that it never gets dangerously out of hand.
Finding a Business to Buy and Making an Offer
Copyright (c) 2007 George Sierchio www.business-buying-help.com
So, what is really involved when finding a business to purchase and how complicated could it be?
I’d like to say the answer to this question is “it’s very simple”, but since it really isn’t, I won’t insult your intelligence. And it is definitely not similar to searching for a home. Except for the fact that there are Brokers to help you and market trends involved to assist in valuations, there is no comparison to buying a home.
Believe me, if you have not bought or sold a business before, this process will come as a shock to you if you are looking to compare it to house hunting.
In this process, you will be highly analytical and the Seller will be highly emotional. This is their baby that they have built on their own, or like you are attempting to do, have bought from someone else and made it their life.
Hopefully I can help prepare you for the general process steps that will occur. Before you go forward and read the steps below, it is important that you have already prepared yourself to buy a business. To make sure you are ready for the information in this article, please read my other article that precedes this one entitled Buying a Business- Prepare Yourself.
Step 1: Shopping- There are many places to look for businesses for sale and there are ways to go about buying unadvertised businesses. This second way is a little complicated and too much for this article so we will stay with advertised businesses for sale.
As far as looking for advertised businesses are concerned, the internet is a great place to look. The newspaper is the worst place to look and in a moment I will tell you why.
You will find two types of businesses in your hunt: those for sale by the owner and those for sale through a Broker. Not to get too in-depth since it is a subject in itself, you are much better off sticking with Broker based sales. These can be found on Broker websites and they also occupy 95% of the listings on general business for sale sites.
I recommended staying away from newspapers because most of those ads are for sale by owner (FSBO) businesses. On top of that, they do not give you enough information to warrant truly looking into the business. Concerning dealing directly with Sellers, it is a rare instance that this is ever a good experience. The pricing is normally way off and the information is very often inaccurate. If you get past that, then the negotiating will often be very unpleasant.
Working with a Broker is a good idea and you don’t have to work with just one company. Go to as many as you can find but only continue working with those that you feel comfortable with and those that pay attention to you. If you are a prepared Buyer and a Broker does not give you the attention you deserve, get another one within that brokerage.
You will often find listings on a particular internet site to be the same because most Brokers work on a non-exclusive basis. Don’t get confused if you see very similar listings since they are probably the same business.
By the way, when I say use a Broker, I mean a BUSINESS BROKER. Do not waste your time with any listings you find with a Real Estate Broker. The majority have conned a not-so-savvy business owner into thinking that they know how to price and sell a business just to lock them into a 6 month contract and hope a sucker comes by to purchase the business.
Don’t be that sucker. Again, this is not like selling or buying a house so stick to a Business Broker.
Step 2: Taking action- If you see something you like, take the next step in getting more info from the Seller or Broker. You will most likely need to sign a non-disclosure form. If a Brokerage gives you this form, you will only have to sign it once and it will carry over to every listing they show you.
Respect this short but very legally binding document. It should basically state that you will be receiving confidential information and you agree to keep it confidential. Confidentiality will also mean not exposing the for sale status to any employees, vendors, customers, etc.
Lastly, it will have a circumvention clause that states if you try to pull a fast one and go around the Broker after you have this vital information, you will be caught (believe me you will) and you ,as well as the Seller, will owe money to the Brokerage company. It’s shady and not right so just don’t do it.
Step 3: Information gathering- Once you have signed the non-disclosure and asked for further information, you will receive a packet of vital information. In most cases you are not going to get 3 years worth of tax documents or even P&L reports for that matter. You can ask for it, but the odds are slim on getting it.
That’s too much information at this point to give to a semi-committed Buyer. What you will get is a profile which will give the latest 12 months of revenues, expenses and cash flow information. Other provided information may be whether inventory is included in addition to its value, the value of furniture, fixtures and equipment (FFE) but not a list, an extended business description, and lease or property purchase information.
At this point the address and name of the company may be given to you, but often that is done after you have reviewed the information and request to see the business. Again, this avoids giving tire-kickers vital information and the location when they are really not serious Buyers. This may disrupt the business or waste the Seller’s time.
Step 4: Review- Once you have the vital information you need you must really review it. This is the time to ask questions. However, it is not the time to start negotiating.
If you are getting into a business that you are not very familiar with regarding the technical aspects, get some help with good questions to ask. Believe it or not, asking irrelevant questions will not be received kindly with either the Seller or the Broker you may be working with.
There is nothing wrong with going into a fairly unfamiliar business, but asking the right questions with help from a Business Advisor or Broker will become essential in this type of circumstance. Asking nothing at all, whether you know the industry or not, is also not a good idea.
Some basic questions would be:
Is there anything missing in the profile or something that doesn’t make sense? An example would be a profile that says there are 3 full time employees but there is no payroll information at all.
Is there any seasonality to the business?
Is there any heavy competition in the area?
Again, you and your advisors can come up with many questions depending on the type of business. The kinds of questions that won’t usually be answered are along the lines of very in-depth financial inquiries or those related to contacting vendors and such.
You are looking to ask mostly surface type questions to determine if you would like to get to the next level of digging into the company. There is still no real commitment to purchase at the next level, so don’t feel you need to know everything to get there.
Step 5: See the business/Seller meeting- When you have done your review and things still look interesting, this is the time to request a viewing of the business and/or a meeting with the Seller.
A meeting with the Seller will not be made to negotiate price when dealing with a Broker. This is neither the time nor the place. Doing this separately with the Broker in the middle of the Seller and you is crucial. If a Broker is not involved, this meeting will probably end up being the start of negotiations between you and the Seller.
Again, it often ends up not being pretty unless you are going to offer very close to the asking price. This is why I do not recommend dealing with FSBO businesses. Most smart Brokers will also have you conduct a visit before allowing a Broker-mediated meeting with the Seller.
Assuming a Broker is involved, they will give you the business address to visit it. Depending on the type of business, a discrete “drive-by” will be permitted or an arrangement to see the business after hours will be made. Retail establishments will almost always allow you to do the “drive-by”, which entails seeing the business through the eyes of a customer.
Talking to employees, customers or looking for the owner will get you immediately blacklisted from this business as well as any others you want to see if working with a Broker. If working with a FSBO, you will probably get yourself thrown out very quickly and the deal will be dead.
Step 6: Determine an offer price- Here is the one thing that almost all first time business Buyers do not do well. First, you need to understand that if the business was appealing enough to get you this far, then you should come up with an offer to the Seller. If you are going to completely insult them by low balling well below market value, don’t do it, but you really don’t know what they will accept without putting some kind of offer on the table. This is an automatic missed opportunity if you don’t give it a shot.
For example, a business could be on the market for $300k and it was attractive enough for you to get to Step 5 of the process. Let’s say you determined there are factors in your research that lower the value of the business such as the need to replace some of the equipment. Now you think an offer of $200k would make more sense.
Well, offer a little less than the $200k with your reasons behind it. If it is a price you can live with and it makes sense, go for it. The Seller just might take it. If the Seller balks, then you move on. That decision by the Seller will probably tell you they are unreasonable and someone you don’t want to deal with anyway.
Maybe he will change his mind before you find another suitable deal. Or maybe he will come up with a counter offer. You will never know if you don’t put it out there. Don’t make assumptions.
Hopefully you initially chose to look at this particular business because it fit all of your pre-business hunting criteria that you established. On top of that, I will assume you have conferred with an Advisor that has market/industry knowledge who determined that the original asking price made sense based on preliminary information.
If this is all ok, then the process of determining an offer price in this step should be relatively painless. The offer will sit well with you when you make it regardless of whether the Seller takes it or not. That’s the goal.
Congratulations, you are now ready to make an offer! At this point you have done everything possible to determine that this business is right for you and you have come up with a corresponding price tag.
8 BIG Small Business Mistakes
Copyright (c) 2007 George Sierchio www.actionbusinesspartners.com
Here’s an interesting notion: Do you realize that there are mistakes you can make at various stages of your business’ growth that can be slowly killing it for months or even years if you don’t watch for them?
Well, these mistakes do exist and they are not just reserved for the rookie companies. Many working businesses, including those you might think are “successful” because they’ve been around for 10+ years, are often still making them… and are possibly losing a lot of money and/or wasting a lot of time in the process.
Although some of these big and sneaky mistakes seem aimed more at service type companies, they really do fit the bill for almost any type of industry. I’ve done my best with the listings below to give examples to prove it.
Underestimating Project/Service Time- This is a big one and it pertains to service companies as well as companies that sell a product. This is a service company’s bread and butter.
If you don’t estimate your time to perform each and every service in your repertoire, you will get burned and there is little you can do about it but bite the bullet and learn from it. The best way to estimate time is to do it once yourself or watch your best employee do the task and then throw in a little fudge factor on top of it. For product companies, time becomes an issue with logistics so be aware!
Not Knowing YOUR Company Numbers/Incorrectly Setting Prices- Notice I emphasized the word “your”. It’s a common mistake to use a competitor’s as your pricing gauge without actually knowing why they use those numbers. Think about the nightmare you will get yourself into if you take a competitor’s price, cut it by 10% and then start selling.
What if the competition has a bad pricing structure and is barely making money or even losing money?!?! What if your costs are more than theirs?!?! You can use competitor as a starting point but you can’t base your whole strategy on it.
Different industries have their own variables as far as costs go and you need to be aware of them for your project or product pricing. What you pay for a product you are going to sell is not the only cost to have in your head when you are pricing products. How much your labor and materials cost for a service is only a piece of an hourly rate. Employees cost more than just salary and not every employee is part of your labor cost.
Every company has insurance to pay for. There are tons of overhead expenditures that need to be part of your price. Oh, by the way, the big one that many people forget about in their price is the quality factor. What you include as “standard services” or “standard product features” as well as job site etiquette or in store service or warranties all need to go into your pricing. I’ll get to more on why in the next segment.
Not Charging for All of Your Time & Costs- This seems like a stupid statement to some but I bet most business owners will admit that they have given away a little too much of the farm at times. Hey, there is nothing wrong with giving a little extra here and there to show you care. But either way, that’s not what I’m talking about here.
What concerns me are those that put a lot of quality into their work or products or stores and do not cover the cost for it. As an example, say you run a service company and your competitors don’t do a certain standard service that you do. You can’t just undercut their price to steal a job; you need to have that cost covered in your rate and advertise the fact that it comes with the price upfront. Stores undermine themselves, for example, when they put more people on the floor for customer service but don’t charge for it.
These things cost you money and when your competitors don’t do them it costs them less money. Put out better service and then under price them, and your competition just has to wait a little bit for you to fall on your face so they can swoop back in.
As a business owner you need to believe that you are providing your clients worthwhile wares that deserve to be paid for. If you get the chance to explain why your prices are higher, then take that opportunity and do it. If they don’t like the fact that you include things that others charge extra for later or that you treat them better, then they are most likely completely price shoppers. You don’t want them as regular customers anyway. Trust me.
Not Getting Paid Fast Enough- That’s right, the old cash flow issue. As long as you are actually making enough money to pay the bills, this problem can be solved, prevented or at least made to be not as bad as it could be. Here’s the deal:
First off all, bill customers very promptly. It is very common for a small business to not have the procedures or systems in place to get invoices generated and out the door in a timely fashion (see the next segment for more).
Again, this would seem unlikely since that’s the reason why we are doing the work- to get paid. But it is very easy for the people responsible for getting this info to the billing people to be too busy to get it there or not have enough organization to give it to them the right way.
The second part to slowing down or stopping a regular cash flow crunch is to make the quickest payment deals possible with customers and the slowest possible with vendors and employees. If there is any way not to pay employees any more than twice a month, you better do it. Contractors always have an issue with this.
If you must pay weekly, then tell them before they are hired that they will be getting the first week held back, essentially buying you a week. It will help, I promise.
Part three involves credit. If your company can get a credit card, then get it. This allows for certain important things to be bought (that you can afford) that might come up during a cash flow crunch.
Better yet, especially if you have no choice but to deal with 45+ day customer payments, do your best to get a company line of credit. This is a must if you plan on selling to the government or doing commercial service work. These clients often have 60 to 90 day wait periods.
Failure to Have Solid Systems and Procedures in Place- Too many procedures (known as “red tape”) is the reason why many people start their own business in the first place. Unfortunately, having no procedures and systems in place at all is not an alternative. Depending on the type of industry, business owners must come to a happy medium or chaos and the unknown will ensue.
Some basic examples where procedures or systems are needed include billing, collections, payroll, hr (interviewing, hiring, vacations, benefits, job responsibilities, etc.), manufacturing, operating equipment, maintaining equipment, inventory, sales calls/visits and logistics to name a few.
Even a one person show needs to have some admin procedures in place. This will make it easier to hire temps and subcontractors and control what they are doing for you. Without at least a watered down version of a system or procedure to do everyday work, you will be to blame for causing many major headaches as your company grows.
I can’t emphasize how important this is for when you bring on new employees. I’m sure you heard this before, but I am also a big proponent of having an employee handbook even for one employee. It’s amazing the trouble people can cause business owners just because they allow you to pay them.
Spending Advertising Money Just to Say You Advertise- I would almost rather see my clients not advertise then to spend without regard to tracking the results. There is no point in a marketing campaign if you do not put things in place that allow you to measure how well the plan is working.
The other wasteful part of marketing that many people make the mistake of doing, is not tracking their previously successful campaigns. Why some people think that just because a $400 dollar a month ad worked once very well for one busy season, that it will automatically work every year after that is beyond me.
Spreading Yourself Too Thin- This is a classic mistake made by every entrepreneur. The key is to figure out when you are at that “wearing too many hats” point and start getting some help. The solution here is to know your strengths and to be able see when you are not performing the duties that demand these skills.
If you are the best sales person on the company, you can’t get caught up in day-to-day operations. If you do, sales will slip and eventually you won’t have any operations to worry about. Think about this to help you figure out if you are spread too thin: Did you really go into business for yourself to work 80+ hours a week?
Not Getting Help Soon Enough- Set goals to know when to hire people to take over where you are light on knowledge. Not getting help or waiting too long can kill a company. Most people who start a business do it because they are good at the technical end or the sales end.
If you know the best way to make a widget, then your strength is in production and that is where your time should be spent. Hire an outside company or consultant to take care of the sales and marketing and then hire inside when you can afford someone full time. Don’t be something to your company that you are not. It will only hold you back.
The three big issues people like to tackle themselves but usually are least knowledgeable about are legal issues, accounting/bookkeeping issues and daily operations issues. The odds are that these three things are your weakest link so if you don’t have a partner that has the background for these subjects, then be prepared to get help as soon as possible. It’s preferable that you do this before you start a business.
Although looking for these problems at any time is a good idea, the end of a year or season is an excellent business interval to make sure you are not making these errors. Take the time, or make the time, to fix these problems. If you don’t know how to reverse the problems, then get some help. If you really don’t have enough time to either figure out if you have these issues or know they are there and can’t break away long enough to do it right, then get some help.
Buying a Business- Prepare Yourself
Copyright (c) George Sierchio www.business-buying-help.com
So you have decided that you would like to run your own show and buying an existing business versus starting from scratch is the way to go. This is a very wise decision if you have not been involved in a start-up before. The question then is: Are you ready?
The following steps need to be taken in order and looked at very seriously. This is just the beginning but it is necessary to be in the right position to make what will be a very big, life changing move.
Step 1: What type of business?- You need to decide what kind of business you want to be in. At least whittle it down to two types. If you don’t, a few things will happen. First, you will be looking for a long time in a very wide circle. It is hard to get a grasp on a good business opportunity when you have no idea where you want to be. If you are all over the place, you are not ready to buy a business.
Second, the people who will most likely be helping you (advisors, brokers, etc.) will not want to be around you for long. They will be spinning their wheels with you and will quickly put you at the bottom of the list. Even sellers who are attempting to sell on their own will get annoyed with you very quickly if you bombard them with questions but otherwise don’t seem too interested in their business.
Step 2: Do you need a partner?- Partners are necessary for two things. Either they will supply you with capital or they will provide you with skills you may not have. The latter is a better reason for a partner and a combination may work as long as you are going in with an even money 50-50 deal. I don’t recommend picking a partner based on their bank account. You will most likely have major problems within 12-18 months. Trust me, I’ve been there.
Running a business by yourself, especially for the first time, is a scary proposition. But having a good accountant, lawyer and a business advisor is the way to go. At one point or another, even your best friend will turn on you as a partner.
You are better off having someone that covers your shortcomings as your employee, along with a deal to give them a small piece of the pie while they remain an employee. Having a partner or two holding a large chunk of the business over your head will quickly stifle you and make you regret the purchase.
Step 3: What kind of buyer are you?- In my experience, there are three main types of true buyers: those that look only for high cash flow, those that look for decent positive cash flow with the thought of using their experience to grow the business, and those I like to call bottom feeders.
Bottom feeders like to look for sellers in a really bad position such as fighting partners (see step 2), or negative cash flow due to an inexperienced owner. These are perfect to scoop up for next to nothing because the sellers not only want to get out, but they need to get out.
If you are a bottom feeder though, you better be good at turning things around quickly because these businesses are in major disarray. Being able to see how to get them into a positive cash flow or a good light quickly is a necessary skill too. A bottom feeder could also be looking for the opportunity to grab equipment and fixtures cheaply for their already running business.
Also keep in mind that it will be next to impossible to get seller financing from these types of purchases. The last thing these people want is to remain tied to the business or their arch enemy ex-partner.
I should point out that if these are “true” buyers, then there are also “false” buyers. These people are either the unprepared and uncommitted buyer that I am trying to not let you be or they are just looking for information. This means either they already have a business and they are trying to scope out competitor info to help them or they are prepping to start a business from scratch and could use the information to help them get a leg up in the process.
Step 4: How am I going to pay for this?- Please don’t make the mistake of thinking that because you are buying an existing business that a bank is just going to hand over the money. Even if this business is doing extremely well, this most likely will not happen. It is true that buying a solid business with strong cash flow will help, but the business type, collateral and your background are very significant.
And no, you can’t just apply for an SBA loan. These are not easy to get and yes you do have to pay them back. The government isn’t that nice. Again, business type, your personal collateral and a lot of other factors determine this loan process. Normally, this is not the fastest way to get a loan either.
Please know that your own money (including your house) as well as friends and family are going to be your main resource. Property involved in the sale is a big help. Keep in mind that the “cash based” business you may be dying to get into is the hardest to get funded by a bank. There is usually not enough proof on the books and in tax records for a bank to give you a loan based on the merits of the business. That’s the main drawback of the cash business.
There is one other way to get a loan. That would be through the seller and it’s called “holding a note”. Risky businesses like bars and restaurants (especially without property), as well as any other retail type business, are a prime target for a seller holding a note. Typically you will being putting down 30%-70% with the rest financed with or without interest for a period of 2 to 5 years.
It may take some convincing, but most sellers will give in when they realize that in order to get what the business is worth, they need to hold a note. Business Brokers come in handy when this kind of convincing is needed.
Step 5: What can I afford?- Usually the cash flow of the business is the best indicator to use for valuing a business. Often a “rule of thumb” multiple for the industry combined with factors such as location, years in business, revenue trends, market situations, etc. are used to multiply against the cash flow. When this is the case, the buyer and seller will be closer to being on the same page for determining a fair price.
It is also a good indicator to use because this is how you will determine if you can pay off a loan using the business cash flow. For instance, say a business has a $100k cash flow and you buy it for $200K with 50k down. That means you have a note for $150k. Say that the note has a 2 year time frame with no interest from the seller. That means you will be paying out $75k a year for two years.
Can you survive personally on $25k or less a year for 2 years? Don’t forget that things will probably slip a little when you take over and that you may need additional capital as is often the case. Do you have enough in the bank to handle this for 2 years?
You need to know this. Having these scenarios in your head ahead of time will eliminate looking at businesses that don’t completely fit your needs. This will also avoid wasting time, money and energy. It’s not as simple as finding a business with a great cash flow and hoping all is well.
Hopefully this very simplified example will show you that it takes money to make money even in an established business. If it were that easy, anybody could buy a company with a million dollar cash flow.
Step 6: Commitment to buy- This sounds obvious but it really isn’t. You will be wasting a lot of your time, seller time and broker time if you are not absolutely sure you are ready to do this. In addition, you will waste money if you get an advisor involved to help you determine if this business is a fit and worth purchasing (I highly recommend this by the way) without being mentally ready and committed.
Believe me when I tell you that a seller or broker is not going to give you much financial and business information unless you are committed enough in the buying process. An uncommitted buyer is very easy to spot, especially to a business broker.
Congratulations! You are now ready to start shopping for a business and will be prepared to buy when the right opportunity presents itself. I know I have said it a few times before, but I highly recommend using a business advisor to prepare yourself in determining the right business and price range for you before business hunting.
Again, having a broker between you and the seller is also a good idea. Most importantly, do not get a lawyer involved at this time. Unless you need a pre-emptive agreement made between you and a potential partner, attorneys are unnecessary and a hindrance at this stage. They really should not be introduced into the process until you are in the due diligence stage.
Choosing to Buy a Business
Copyright (c) 2007 George Sierchio www.business-buying-help.com
Buying a business can be a complicated process. This is not at all like buying a house. Facts such as location, age, industry and your experience all play a part in making the purchase of a business complex and difficult to compare to other similar businesses.
Even more so, the seller’s mindset and reasons for selling as well as their importance to the business will complicate things and be a variable concerning the value of the company.
I am in no way trying to discourage you from buying a business, but I am letting you know that things are not cut and dry in this type of transaction. You must be mentally prepared and committed to purchasing a business before you even bother looking.
A plan must be made to fit your business objectives. Are you looking for a business based on the industry, cash flow, price, size or other factors you have determined important to you? When the right opportunity comes up, it is best to move swiftly, which can only be done if well prepared.
Why would you choose to buy an existing business instead of building one from scratch?
Expansion
If you are in the position where you already own a company and you are looking to branch out into a new market or add a new product/service mix to a current market, buying a business is a good idea. That is, if there is a viable competitor that exists and is willing to sell.
Checking with area business brokerages and also making a list of competitors to solicit an offer to is the way to go.
Momentum
Buying a business is a great way to begin a new business venture with a running start. As long as the business is making money, you can continue operating it as it has been prior to making major changes.
I highly recommend not changing much at all in a profitable business until you have had enough time to find out where you can make changes. Coming in like gang busters is never a good idea. There may be very particular reasons why certain things happen in the business the way they do and a change without knowing this could blow up in your face.
Additionally, making swift changes could also disrupt your employees causing problems very quickly.
Opportunity
Sometimes being a bottom feeder is not a bad thing. That’s the term used for those who choose to look for viable business that are running at a loss or recently closed shop. These could be businesses that will never do well due to location but have the inventory and equipment you could use in an existing business or use at a very good location that is available to you.
They could also be perfectly good businesses that the current owner has let slip because they are not interested any more or because they just can’t cut it as an owner. In these cases, your skills would be the key that is currently missing and will quickly turn the business around. Obviously any entities fitting these profiles can be bought at a bargain price.
Know why you want to run a business and what your skills are.
Pitfalls
A bad reason to purchase a business is to actually buy yourself a job. Buying a job will quickly turn into a very ugly scene to those involved in your business, as well as family and friends, when you are not making the money you need to survive.
In many instances, you will be making less money than you were as an employee elsewhere. It takes time to build up enough cash flow to take a consistent and fruitful salary, especially when you need to pay off business loans. True entrepreneurial spirit will get you through the lows and make the highs an even greater experience.
Another pitfall to buying a business is funding. Money becomes an issue very quickly when you purchase a business. You are laying out much more money up front than when you are starting from nothing. You can’t just quit.
This brings with it a tremendous amount of drive for many people to pay back the money or get it back into their savings account. But it also brings about a tremendous amount of stress knowing you owe a lot of money and may be stuck.
Also, be aware that you will most likely need some reserve funds when you take over a business for dips that often initially occur. One of the main reasons for business failure is lack of capital.
Skills
When you build a business, you learn about the various aspects of operating a company and dealing with employees as they come. You may develop the skills necessary to deal with them or realize you need help. When you buy a business these things are already there and you will be relying on skills you may not have.
For example, if the previous owner was the main salesperson and you do not have these skills, you will be in big trouble very quickly. Many people make the mistake of starting or buying a business that is in the industry they know well regarding technical issues, such as making a widget or stocking a store. What they don’t realize is that there is a lot more involved with owning a company than there is with just being an employee.
Business Breakdown
Every company has 3 main parts to it; Technical, Sales & Operations. It is very rare for an owner to have all 3 of these skills. The importance of realizing that these aspects of a company exist, and which aspects you actually have experience with, is incredible. It will immediately affect how well you do with your new business.
You need to already know who will be handling the areas that you do not have the background in, especially if they were occupied by the former owner.
Are you coming from the world of big business?
I really think it is important for me to point out that the small/medium business world is a much different place than big business. If you are getting into your own business after only knowing what the big corporate world is like, you are in for a huge shock.
Traditional courses taught in an MBA program, other than some Entrepreneurial courses, are not going to help you in most situations. Also, the skills gained in running a department are not going to cut it either.
There are no department budgets here and there are very little separations from the owner and the low man on the totem pole. At first, you will be doing a lot of things you might have normally considered to be “not my job”.
Every dime coming in and going out is yours and your ultimate responsibility. You will most likely know every employee and a lot of your suppliers very well making things very personal. Decisions are made very quickly in this arena, there is very little time for wasteful meetings. Be ready for the ride of your life.
A Few Final Thoughts
Hopefully I did not discourage you from wanting to own your own business or for taking the path to buy one. My point is that owning a company is a great experience but it really isn’t for everyone. Even if you have all of the above points covered in your reasoning for buying a business and plans to deal with issues that are new to you, you may not like it.
Seek help in preparing yourself to buy a business, finding a business, determining if it fits your criteria and determining if the price is right. I recommend using a business advisor, business broker and accountant to help you. Bring in the attorney when you are fully prepared to go to contract and purchase the business.
Three Reasons Networking Events Increase Your Referral Business
As every entrepreneur knows, referrals are the lifeblood of
small business. Events hosted by professional associations,
college alumni groups and your local chamber of commerce
are the perfect opportunity to expand your network of
professional contacts. Networking leads to a direct
increase in the number of referrals you receive for new
customers, earning you new business. Yet as a business
coach, I’ve learned that small business owners rarely take
the time to attend networking functions.
There are three key reasons that networking for referrals
makes good business sense-especially for entrepreneurs:
1. Referrals come to you pre-sold.
When a network contact sends you a referral, they’ve
already done a good part of the selling for you. This is a
fantastic concept if you don’t enjoy prospecting for new
business. With every networking event you attend, have a
goal of meeting new people whose business contacts
complement yours. With a robust network, you’ve got your
own pro-bono sales force enthusiastically working for you
seven days a week. You couldn’t build a better sales team
than that!
Discover the Real Secret of Earning More and Working Less
There’s one way that you can quickly and easily start earning more and working less in your business.
That’s by getting someone else to do most of the work.
Maybe you’ve heard all about the power of outsourcing.
Certainly many people tried to convince me of its value
when I first set up my business.
But, like many business owners, I resisted embracing it.
All the reasons seemed good at the time – I didn’t know how
to find people, I thought I could do it better myself and I
was reluctant to spend money that didn’t seem necessary.
Yet at the same time, there were not enough hours in the
day to do everything that was needed. And I gradually
realized that I didn’t even know how to do many of the
things that were essential for running a business.
It was only when I simply ran out of time to do everything
needed that I began to see the true value of outsourcing.
And boy do I regret not doing it sooner.
7 ways to earn more and work less every day
They say every cloud has a silver lining. But when I recently spent a whole day desperately giving the kiss of life to a relatively new computer, it was hard to see the bright side.
Yet, when the machine finally started working again, I made
a fantastic discovery.
That little icon at the bottom of my screen that flashed as
each new email arrived was no longer there. And, not only
did I survive the day quite happily, I realized I was much
more productive.
It helped me recognize the importance of taking control of
my time. As business owners, time is arguably our most
precious resource. We can choose to sell it, invest it or
waste it. So the more effectively we use it, the greater
our chances of success.
Here are my 7 tips for mastering time.
1. Know how much your time is worth – The first step in
getting control over your time is knowing its real value.
The most obvious way to value your time is just to divide
your annual earnings figure by the number of hours you work
in a year.
But our number of productive hours is much lower than the
actual hours we work. So to get a better picture of the
real value of your time, estimate your number of productive
hours – for most people it’s less than three a day.
Once you know your hourly value, you should ask yourself if
what you are doing is worth your hourly rate. Outsourcing
activities is now so easy that you can often pay someone
else significantly less to carry out tasks.
2. Clone yourself (or your work) – While it’s not yet
possible to clone yourself, you can easily clone your own
work without any ethical issues. When you’ve written
something, leverage it for maximum benefit. With a little
additional work, a presentation script easily becomes a
magazine article or a sales letter, for example.
3. Spend more time on output than input – Are you spending
too much of your time reading emails and learning new
things? When you’re inputting information, you’re not
outputting. And it’s only output (like working for clients
and developing products) that makes money. New knowledge
and different ideas are valuable but sometimes us info
junkies need to go on an info diet!
