Managing A Business | Recent News/Blog

Archive for the ‘Managing a Business’ Category

Buying a Restaurant in a Major Market: Making the Dream a Reality

Friday, July 2nd, 2010

An expert restaurant broker fields hundreds of inquiries. Here’s how you can make sure you get access to the best listings first.

If you are a first time restaurant buyer you may be searching online for the latest restaurant listings. Seasoned professionals will tell you that this process is referred to as the Restaurant Buyer Internet Dating Approach. As a new buyer you are most likely confused after searching dozens of sites and expressing interest in restaurants for sale. Before you realize it you are connected with 7 different brokers on different websites with different listings.

Although it may appear that you are doing research anonymously the chances are you will be hindering your chances of getting the best listings by searching endlessly for everything from Irish pubs to fine dining Italian restaurants.

When you search online for restaurant listings you may not realize it but the same broker or firm may represent multiple restaurant listings. In most cases, when you make an inquiry it is getting sent to one source who will immediately recognize that you do not know what you are looking for and you have not pre-qualified your interests. To the broker the Restaurant Internet Dating Approach will look something like this:

Joe the Buyer Inquiry 1: I am interested in this nightclub which is generating an income of $300,000.
Joe the Buyer Inquiry 2: Please forward information on this sandwich shop which is on the market for $30,000.
Joe the Buyer Inquiry 3: Please send me information on this $1.6 million fine dining French restaurant.

When you look at this scenario do you see what the broker sees? The inquiries are so broad in price point and the operations are so varied, it clearly indicates that the buyer does not know what they want and the broker will not take you seriously.

Instead, you should be asking yourself exactly what kind of restaurant you are looking for, what kind of restaurant will take care of your family, and what you are willing to sacrifice in terms of money, time, and lifestyle, to buy the restaurant.

You must have these questions answered and then use your defined lifestyle, financial, and business requirements to focus on restaurant listings that meet your criteria. A lot of restaurant buyers think they are starting out looking for restaurants that meet their personal requirements and then they fall in love with a restaurant that is exquisite looking but not earning any income. As a general rule, the fancier restaurants that are shiny and new are usually restaurants that exceeded the budget capital during construction and are not delivering a return on investment. What’s more is that there is zero capital left to cover the marketing and make the business grow. You can usually sniff out these restaurants by the wording in their listings such as “Stunning construction. Owner spent more than $600,000 to build. Seller will sacrifice for $300,000.” Basically this is a sure sign that the restaurant is not making any money.

Instead you should look for a business that looks a little worn in appearance but may be generating a whopping 2 million dollars in sales. The equipment will look worn from continued use and the bar may smell of alcohol, cigars, and cigarettes however, the books will be showing a gross profit margin that exceeds 60 percent. The owner will be pulling in net earnings that exceed one quarter of a million dollars and everything will be clearly defined without any comments like “It may have a future.”

The moral to the story is that you must define your requirements so you can search for the restaurant that meets your criteria.

Eric Gagnon is President of We Sell Restaurants and wesellrestaurants.com, one of the nation’s leading restaurant brokerage firms. He is designated as an industry expert and frequently writes and speaks on the topic of restaurant brokerage.

Posted in Business owner, Buying a Business, Franchises, Managing a Business, Restaurant | No Comments »

Last Will and Testament of a Closely Held Business Owner Who Didn’t Plan Properly.

Thursday, June 24th, 2010

This is not a real Will. It merely suggests what could happen if a business owner does not have a
properly structured and funded succession plan for his or her company. All names referenced are
fictitious and any similarity to any real party or business is merely coincidental.

I, John Smith, presently residing in the State of Georgia, and part owner of Acme Widget
Manufacturing Company, being of sound mind and memory, do hereby declare the following:

1. I hereby leave my interest in my company to my family to be divided among them as they
see fit even though my spouse or children have no experience in operating and running a
widget company. I have the utmost confidence that after my death, everyone will get along
with each other, and that Jack Jones, my partner who owns a portion of the company, will
have no problems working with my spouse or children.

2. I hereby leave the responsibility of operating the company to my surviving partner, Jack,
whom I am sure, will not mind working twice as hard and sharing all of the profits of the
business with my family.

3. In the event my family wants to sell my company to Jack, I hereby leave it up to them to
work it out with Jack as to the price and terms of the sale.

4. In the event such a sale takes place and the sales price is paid out over a period of time, I
have the utmost confidence that Jack or his estate shall pay my family the terms of the
sales contract even if Jack dies or becomes disabled.

5. In the event my family wants to sell my share of the business to an outside party, I hereby
direct that they negotiate any terms they want without consulting Jack, and request, but do
not demand, that Jack get along with any other new owner of the company.

6. If I have a buy-out agreement with my company or Jack that has not been recently
updated, I direct that my family sell my interest in the company at whatever price the old
agreement says, even though it won’t reflect current fair market value.

7. In the event Jack or the company has no life insurance on my life, I really don’t care if Jack
or the business becomes insolvent and cannot afford to pay my family the buy-out price.

8. I hereby direct the IRS to ascertain the value of my interest for estate tax purposes. I am
sure the IRS, as a division of the government, will consider the needs of my family when
determining any estate tax attributed to my business holdings.

9. I direct that all lines of credit that my business has at the time of my death be paid off at my
death because I think the interests of my lenders are more important than those of my
family and my business partner.

10. If I leave my business interest to my family and federal estate tax is due, I know my family
will work twice as hard to pay the taxes due to the IRS and any state taxing authority.

11. If all or part of my business interest passes to my minor children upon my death, I direct my
children’s guardian or trustee to sell the business as quickly as possible, regardless of
price, because I do not want to burden my children’s guardian or trustee with the fiduciary
responsibility of running a widget company.
IN WITNESS WHEREOF, I, John Smith, do hereby affirm this to be my wishes with respect to the
business I spent my lifetime building.

/s/ John Smith

Please consult with your Guardian Financial Representative if you have any questions concerning
this document.

Donald Kemp
678-860-4639

The foregoing information regarding estate, charitable and or business planning techniques is not intended to be tax, legal or

investment advice and is provided for general educational purposes only. Neither Guardian, nor its subsidiaries, agents or

employees provide tax or legal advice. You should consult with your tax and legal advisor regarding your individual situation.

GEAR # 2008-6496 Approved: 09/15/2008 Expiration: 11/06/2011

Guardian Financial Representatives may call their assigned BRC Consultant directly or the BRC for Advanced Markets, at
1.800.871.7780, Option 3, Option 1, for additional information./s/ John Smith

Posted in Business owner, Managing a Business, Professionals | No Comments »

If Your Company Went Out of Business, Would Anybody Notice?

Wednesday, June 23rd, 2010

One of the truly jarring dimensions of the Great Recession is the death sentence it has imposed on of hundreds of brands, even whole companies, that were once familiar parts of the business landscape — not just bankruptcies, but liquidations and flat-out disappearances. Once-proud automobile nameplates, including GM’s Oldsmobile and Pontiac, and Ford’s Mercury, have become history. The ghosts of once-prominent (and now liquidated) retailers, from Circuit City to Virgin Megastores to Linens N Things, haunt shopping malls from coast to coast. And then there are the obituaries for so many newspapers, including the Rocky Mountain News and the Seattle Post-Intelligencer, and many more too depressing to list.

The fact that “going out of business” has become such a growth business got me thinking about a question I heard years ago from advertising legend Roy Spence, cofounder of GSD&M, who told me he heard it from strategy guru Jim Collins. Whomever the original source, it’s a question I’ve posed time and again to organizations and their leaders who are searching for the courage to make big positive change in tough economic times.

The question is as profound as it is simple — and it’s worth taking seriously as you evaluate your approach to strategy, competition, and innovation. Here it is: If your company went out of business tomorrow, would anybody really miss you and why? Think about it for a moment. Why might a company be missed? First, because it’s providing a product or service so unique that it can’t be provided nearly as well by the five or six other companies that are its main rivals. BMW falls into this camp, maybe Ritz-Carlton and Emirates Airlines. But really, how many products or service do you know for which this is true? Your car? Your dishwasher? Your mutual funds? Your credit cards? In all of these categories, aren’t there plenty of pretty-good alternatives to whatever choice you’re making today?

Second, a company might be missed because it has created a workplace so dynamic and energetic that most employees would be hard-pressed to find a similar environment somewhere else. To be sure, in this brutal economy, having any job beats being jobless. But how many places have you worked in, or how many workplaces do you know of, where folks are so fired up to report for duty on Monday morning that if they had to go find a new job on Tuesday morning they’d miss their old surroundings? These days, the only thing lower than customer satisfaction is employee satisfaction.

Finally, a company might be missed because it has forged a uniquely emotional connection with customers that other companies can’t replicate. That is, a relationship based not just on the economic value it has to offer, but the values with which it conducts itself. Apple is an obvious passion brand in the performance-obsessed technology world — maybe the greatest passion brand in the whole world. HBO comes to mind as a passion brand in the notoriously fickle media market, a network that has doesn’t just have viewers but devoted followers. But ultimately, in a world of non-stop competition and endless choices, how many companies and brands do you know that have achieved the status that Kevin Roberts, of Saatchi & Saatchi, calls a lovemark — in his words, a product, service or entity that inspires “loyalty beyond reason.”

The fact is, precious few companies meet any of these three criteria — which may be why so many companies feel like they are on the verge of going out of business. So the next time colleagues urge you to think small and downsize your dreams, ask why they believe that playing it safe is playing it smart. That’s what they thought at Oldsmobile and Mercury and Circuit City and the Rocky Mountain News — and look how it worked out for them!

Here’s the real message: If your customers can live without you, eventually they will.

Here’s the big challenge: If you do business the way everybody else does business, you’ll never do any better.

Here’s the urgent question: If your company went out of business, would anybody notice?

Good luck as you work on your answers.

Posted in Business owner, Customer Service, Managing a Business, Professionals | 1 Comment »

Outsourcing Support Functions……Sort of

Sunday, April 11th, 2010

The outsourcing craze continues in the US and, for the most part, I’m a supporter of it IF you can maintain or improve quality while lowering costs. Unfortunately, that is not always the case but that is a subject for a different article (just call customer service for any of your credit card or loan accounts).

Functions that are not considered a part of the company’s core competency are typically prime for outsourcing. This includes corporate overhead functions. Corporate overhead (i.e. headquarters or non operational functions) can include but is not limited to Human Resources, Legal, Information Technology, Internal Audit, and Corporate Accounting. These groups function for the overall good of the company and, in theory, their costs need to be spread out to operational units since they are the beneficiaries of these services.

Allocation of corporate overhead can be a hot topic at period, quarter, and year end if you have any sort of P&L responsibilities. There are few things that can irritate a business unit manager more than seeing arbitrarily allocated corporate overhead, usually based on headcount or a percentage of total sales, as an expense line item that takes away from their bottom line profitability, especially when they didn’t received any services.

For example, let’s say there was a huge legal issue at one plant or location that required half of the legal department’s time for the year. Common sense would say to assign half of the legal costs to that plant for the year. Through arbitrary allocation, however, other locations would bear a disproportionate share of the legal costs and the location with the legal issues would get a huge expense break in comparison to the legal services they directly consumed. Doesn’t seem right does it!?

Sound activity based costing methods would properly assign those costs directly to the location that consumed the services. I am full supporter of activity based allocations but there is one thing it does not evaluate, value. The costs may be properly assigned but were the services of any value? Could they have received these services at a lower cost or greater benefit elsewhere?

If you’ve read other articles of mine you know that I’m a stickler for metrics and measuring performance and I firmly believe that you can’t manage what you don’t measure. That being said, overhead functions need to be held accountable for their services just like the operational units are.

Let’s stick with the legal scenario. Have the legal department complete annual budget and determine internal hourly rate based on staffing. The goal being that you internally bill out all of your time to the businesses so, at the end of the year, the legal cost center is zero or if you bill more than budget, you actually have income (albeit internal). Inform businesses of your hourly rate and they will be charged directly for legal services if used. The businesses will also have option to use outside legal services instead of being forced to use in house services.

There are two important performance dynamics this scenario creates:

One, the in-house legal department is forced to create value or the businesses will go elsewhere. Their metric is the costs that remain in their cost center at period end. If they provide value and bill hours, their cost center will be zero or negative. If not, costs will remain and they will be forced explain themselves to senior management. This also forces them to market themselves to the businesses like a real, for profit, law firm would.

Two, it puts decision making back in the hands of operations. Now they can choose their legal services. In some instances, a local resource may make more sense or internal corporate expertise is the best route. In others, they may feel the in house source is incompetent or simply unresponsive and they’d like to send a message to headquarters. If managed properly, there are many different benefits that could arise:

1. A newly efficient and effective in house legal department that delivers value consistently to the business units,
2. Determine that outsourcing legal services is best based on cost/benefit, and
3. Determine your “star” performers based on business requests and chargeability, and eliminate subpar performers

A hybrid of in sourcing and outsourcing may be an effective way to increase your business performance and is definitely something worth considering in your business.

http://www.derrickstrand.com

Posted in Business owner, Managing a Business, Professionals | 1 Comment »

Why Your Brand Needs to Be on Facebook Now

Saturday, March 27th, 2010

Dallas Lawrence is Chair of the Social and Digital Media Practice at Levick Strategic Communications, the nation’s top crisis communications firm. He blogs on emerging digital media trends and best practices for social media engagement on Bulletproof Blog. Connect with him on Twitter @dallaslawrence.

With 450 million users globally (and millions more being added each week) Facebook () is dominating the web in unparalleled ways. Yet, even as the social network has steadily grown over its short but remarkable history, many brands have remained on the sidelines of the social media revolution.

Facebook was the most visited site on the web for the week ending on March 13, 2010, surpassing even Google in week-long stats for the first time in history, according to Hitwise. The shift in user habits and audience targeting is palpable and it provides marketers, brand managers, issue advocates, and political campaigns today with an age old choice: Adapt and change or face irrelevance and extinction.

A Social Media Parable

In many ways, the fundamental decision facing those looking to compete in the next decade of social media dominance is reminiscent of Dr. Spencer Johnson’s bestselling business tale Who Moved My Cheese? It’s the story of two mice named Sniff and Scurry and two “littlepeople” named Hem and Haw who find themselves facing this same predicament.

As the fable unfolds, the book’s four main characters arrive in their maze one day to find that their once abundant cheese supply has disappeared. Sniff and Scurry knew this day was coming. They recognized that their cheese supply was dwindling and set out to find a new source.

Hem and Haw, on the other hand, hadn’t noticed that their cheese was running out. Rather than adapt, they retreated into the all-too-human reactions of fear, denial, and disbelief as they hopelessly waited for the change to prove passing.

For those who have not read this late-90s change agent bible, I won’t spoil the ending. The moral of the story however is clear: Change happens. To survive it, you must anticipate it; and to be successful, you must embrace it.

Realizing the Critical Value of Facebook

In the modern day maze that is the digital and social media realm, these lessons were again on display as the online community debated the value of the new Facebook user statistics this past week.

Viewed simply, the cheese moved again this month –- and just as intelligent companies adapted their marketing and communications models for the advent of Google () over the last decade, Facebook’s dominance has forced another “change or become extinct” moment. To thrive in a rapidly changing marketplace, corporate communicators must understand that the shift now underway is just as powerful as the one that transformed Google into the modern Yellow Pages and turned a Silicon Valley start-up into a $200 billion everyday necessity.

Unfortunately, most of today’s C-Suite decision makers lack the foresight of Dr. Johnson’s furry friends Sniff and Scurry. Far too many executives still see Facebook as a vast, uncontrollable outpost for college slackers –- one better equipped for picture sharing and random life updates than corporate reputation management, crisis response, and brand bulletproofing.

But the numbers don’t lie. Almost half-a-billion users each spend an average of nearly 6 hours per month on the site –- inhabiting networks that are largely free of corporate messaging, spam, and expensive advertising. This ought to make at least a few corporate titans rethink that next $1 million Super Bowl ad buy (even if Google did buy its first in 2010).

3 Ways Your Brand can Get Started on Facebook

Facebook users are openly sharing their life’s passions, personal interests, and their affinity –- or lack thereof –- for corporate brands, political candidates, and the key public policy stances. In effect, they are openly sharing every bit of marketing data a 21st century company covets.

For those still wary of change but now ready to dip their toe into the waters and begin to understand and benefit from the power of social, there are three free and relatively painless steps to begin the journey through the social media maze:

First, evaluate your current advertising efforts and identify how they can best be tailored to Facebook. Consider allocating 10% of your current Google AdWords or online advertising budget to a 90-day trial run on Facebook. Be sure to develop clear benchmarks for success, and remember, unlike Google AdWords, Facebook ads rely on both keywords and a variety of demographic information –- information you no doubt have already identified as key indicators of your target audience(s). You can now put this information to use to further micro-target your advertising buy, narrow the net you are throwing in the online marketplace, and increase the return on your investment.
Second, conduct a survey of your employees to see who is already on Facebook and thus, who may be your company’s most social media-savvy employees. You may find that your workplace is brimming with talent just waiting to be unleashed. For now, these future brand ambassadors may be ideal candidates to develop your Facebook presence and initial advertising program.
Finally — and this may seem obvious — become a face on Facebook yourself. Become familiar with the site, its features and the value hundreds of millions of people find in the world’s most populous online community. It may ultimately not be for you personally, but as with almost every new platform, the best way to understand its value is to give it a try yourself.

For those still looking for meaning in the numbers released earlier this month, the message is clear: Not only has the cheese moved again, the entire creamery has up and relocated. It won’t be coming back. And no manner of hemming and hawing is going to change that fact.

Tags: Social Media
Posted in Business owner, Managing a Business, Professionals, Social Media, Social and Digital Media | No Comments »

Entrepreneurial ADHD

Tuesday, March 9th, 2010

Do you have a dozen different projects going on all at once?

According to Mary Ellen Tribby, that may be an awful mistake.

Example: An entrepreneur is selling health information. Her first product is a special report on vitamin C.

Then she reads something interesting about vitamin D. And starts to write a vitamin D report, too.

Before you know it, she has four or five information products in various stages of completion.

You know how much money a project in progress makes you? Nothing. Nada. Zilch. Zero. Zip.

MaryEllen says it’s far better than to start and finish one project, and get it out into the marketplace.

That way, you can start earning revenues that fund the development of project number two while keeping your cash flow positive.

How about you? Are you good at completing and launching products and projects? Or do you just keep starting more and more without ever finishing any of them?

Posted in Business owner, Managing a Business, Professionals, Sales Techniques | 1 Comment »

Rules That Warren Buffett Lives By

Monday, March 1st, 2010

Warren Buffett is arguably the world’s greatest stock investor. He’s also a bit of a philosopher. He pares down his investment ideas into simple, memorable sound bites. Do you know what his homespun sayings really mean? Does his philosophy hold up in today’s difficult environment? Find out below.

More from Investopedia.com:

• The Buffett Philosophy

• Baby Buffett Portfolio: His 6 Best Long-Term Picks

• Think Like Warren Buffett

“Rule No. 1: Never Lose Money. Rule No. 2: Never Forget Rule No. 1.”

Buffett personally lost about $23 billion in the financial crisis of 2008, and his company, Berkshire Hathaway, lost its revered AAA ratings. So how can he tell us to never lose money?

He’s referring to the mindset of a sensible investor. Don’t be frivolous. Don’t gamble. Don’t go into an investment with a cavalier attitude that it’s OK to lose. Be informed. Do your homework. Buffett invests only in companies he thoroughly researches and understands. He doesn’t go into an investment prepared to lose, and neither should you.

Buffett believes the most important quality for an investor is temperament, not intellect. A successful investor doesn’t focus on being with or against the crowd.

The stock market will swing up and down. But in good times and bad, Buffett stays focused on his goals. So should we. (This esteemed investor rarely changes his long-term investing strategy no matter what the market does.

More from Yahoo! Finance:

• Warren Buffett’s Worst Mistakes

• 10 Things Millionaires Won’t Tell You

• Watch Out for New Credit Card Traps

Visit the Banking & Budgeting Center

“If The Business Does Well, the Stock Eventually Follows”

The Intelligent Investor by Benjamin Graham convinced Buffett that investing in a stock equates to owning a piece of the business. So when he searches for a stock to invest in, Buffett seeks out businesses that exhibit favorable long-term prospects. Does the company have a consistent operating history? Does it have a dominant business franchise? Is the business generating high and sustainable profit margins? If the company’s share price is trading below expectations for its future growth, then it’s a stock Buffett may want to own.

Buffett never buys anything unless he can write down his reasons why he’ll pay a specific price per share for a particular company. Do you do the same?

“It’s Far Better to Buy a Wonderful Company at a Fair Price Than a Fair Company at a Wonderful Price”

Buffett is a value investor who likes to buy quality stocks at rock-bottom prices. His real goal is to build more and more operating power for Berkshire Hathaway by owning stocks that will generate solid profits and capital appreciation for years to come. When the markets reeled during the recent financial crisis, Buffett was stockpiling great long-term investments by investing billions in names like General Electric and Goldman Sachs.

To pick stocks well, investors must set down criteria for uncovering good businesses, and stick to their discipline. You might, for example, seek companies that offer a durable product or service and also have solid operating earnings and the germ for future profits. You might establish a minimum market capitalization you’re willing to accept, and a maximum P/E ratio or debt level. Finding the right company at the right price — with a margin for safety against unknown market risk — is the ultimate goal.

Remember, the price you pay for a stock isn’t the same as the value you get. Successful investors know the difference.

“Our Favorite Holding Period Is Forever”

How long should you hold a stock? Buffett says if you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes. Even during the period he called the “Financial Pearl Harbor,” Buffett loyally held on to the bulk of his portfolio.

Unless a company has suffered a sea change in prospects, such as impossible labor problems or product obsolescence, a long holding period will keep an investor from acting too human. That is, being too fearful or too greedy can cause investors to sell stocks at the bottom or buy at the peak — and destroy portfolio appreciation for the long run.

You may think the recent financial meltdown changed things, but don’t be fooled: those unfussy sayings from the Oracle of Omaha still RULE!

Posted in Business owner, Managing a Business, Professionals | No Comments »

Customer Service Processes-Companies Still Don’t Get It!

Monday, February 15th, 2010

A key component of customer loyalty is how well a company handles complaints. I have a fresh example to illustrate! I bought a top of the line, king size memory foam mattress six months ago and it already has a lump in the middle. It has a 15 year warranty on it so I called customer service. They are sending out a third party to determine if there is a defect which is fine.

The customer service representative then informed me that if the mattress is defective and needs to be replaced, there is a $50 charge that I must pay for them to deliver the new one and take away the defective one. I told her that doesn’t make sense that I would have to pay a delivery charge for their defective mattress. She calmly and politely informed me that in the small print of the agreement that I signed, it clearly stated that I was responsible for these charges if the mattress was defective. I didn’t check the small print but I’m sure it is there.

I’m not sure what occurred in their customer service process design meetings (if there were any) but they were obviously looking at the process from an internal, short term financial point of view. The cost to deliver goods was to be passed on to the consumer……for their defect!!

Although this may satisfy the short term financial metric, it fails miserably on the longer term, more critical metric, customer satisfaction. In my opinion, there is a simple solution that satisfies both metrics. They could deliver the new replacement mattress free of charge (what a concept!).

This satisfies the customer who is upset that the product was defective but at least the company stands by their product and makes the replacement as positive of an experience as possible.

From the financial perspective, a financial analyst could determine the defective mattress rate (for simplicity, let’s say one defect for every 50 sold). If the average delivery cost is $50/replacement, then that cost could be spread over every 50 mattresses sold by adding a dollar to every initial delivery or adding a dollar to the sales price. The customer, at the time of sale, could care less if the delivery fee is $20 or $21 or if the sales price goes up a dollar. It would be transparent to them.

The end result is a satisfied customer who would consider buying from the same store again and the cost of redelivery is covered indirectly. The result of their current process is that I will never buy another mattress from them.

They won’t be able to measure that directly but it will show up in future sales since there will be less repeat business over the long term. I know this sounds so basic but I am continually amazed at how many companies do not understand customer service and satisfaction.

This isn’t any different than the nice hotel that wants to charge me, on a separate line item, an extra .50 for a newspaper. Just give me the freaking’ newspaper and build the cost into my nightly rate!!

Some companies just don’t get it!!

Derrick Strand

dstrand@derrickstrand.com

www.derrickstrand.com

Posted in Customer Service, Managing a Business | No Comments »

Are you running your business or is it running you?

Monday, February 15th, 2010

There’s no worse feeling than knowing your business is out of control and you don’t know what to do about it. That gnawing feeling in your gut that keeps you awake at night is the realization that your business has become an albatross around your neck and a heavy weight on your mind. My experience in working with business owners over the past 25 years is that feeling will suck the life out of you and take away the joy of owning your business if you don’t do something about it. But- what to do? I recommend that you consider starting with identifying what you’re focused on. You get what you focus on so make sure you’re focused on the right things. Most business owners either don’t know what to focus on or they know but get distracted. Does that sound like you? If so, there’s hope at the end of the tunnel.

First I suggest you break your business down into three areas: Sales, Managing, and Money. Then identify the most important and urgent issues in each area followed by an action plan to deal with them. After you begin working towards resolving these issues you’ll start to feel better and gain some measure of control over what’s happening. Even though you can’t control everything, knowing that you’re dealing with the most important things proactively will give you a sense of accomplishment.

“The Success of Your Business is My Business”

Charlie Ferneyhough

CEO Consulting

804-360-7879

cjferne@juno.com

Posted in Managing a Business, Professionals | No Comments »

Figuring Out What Your Business is Worth

Wednesday, January 13th, 2010

Use several different methods to set a price that maximizes the value in your business.

Before you can put your business on the market, you need to figure out how much it’s worth. Price your business too high and you’ll scare off potential buyers. Price it too low and you’ll leave money on the table. But if you hope for precision, you’ll be disappointed. No pricing formula, expert estimate, or clairvoyant can provide a sales figure that’s exactly “right.” You won’t know how much it is really worth until the day a buyer writes you a check.

Valuation Methods

Even though setting the ideal price is next to impossible, you can arrive at a reasonable asking price, or a price range. Some approaches to pricing a business are:

• Income valuation approach. This analyzes the business’s revenue, assuming that the buyer is looking at a business as just one more type of investment competing with stocks, bonds, real estate, and so on. The question then becomes “What kind of return can the buyer expect?”

• Asset-based approach. This totals up the value of all of the assets, starting with tangible ones such a furniture and including intangible ones, such as trademarks or copyrights. This approach usually uses your assets’ resale value, not how much it would cost to replace them.

• Industry formulas and rules of thumb. There are formulas that may be used in your industry, such as three times your earnings averaged over a three-year period, or two times the book value of your company. These guides can give you a rough idea of the current market, but not much more.

• Comparables. The ideal approach is usually to see what other enterprises similar to yours have sold for — but it works only if such sales have occurred recently. Because small businesses tend to be unique, you’re unlikely to find a recently sold business whose location, sales volume, number of employees, and other factors are the same as yours.

Professional Help

Professional resources you can use in pricing your business include accountants, brokers, appraisers, and educational seminars. Accountants will help you organize and evaluate your financial data. Brokers, besides knowing about potential buyers, may also be able to track down elusive information about sales of comparable businesses. Appraisers can help you set a price for the business or just value your business’s assets.

Naming Your Price

Depending on your business, the low end of your price range will probably be little more than the liquidation value of the assets. The high end is likely to be based on income projections and on what an enthusiastic buyer might pay for the right to receive (and hopefully increase) those earnings in the future. If you have a healthy business — especially one with a well-established customer base and positive reputation — you’ll probably pick an initial asking price towards the top of your range and then, if necessary, be prepared to back off a bit in negotiating.

Several factors that don’t involve the business’s income, assets, or comparables also go into pricing a business. These include:

• terms of payment

• type of buyer

• market demand, and

• your personal needs.

You’ll need to take into account the general economic climate as well as trends in your industry — positive or negative. And, of course, if you have to sell quickly, you may need to settle for less.

Need More Help?

The Complete Guide to Selling a Business, by attorney Fred S. Steingold. guides you through the entire selling process, from setting and negotiating a price, to preparing a sales agreement and going to the closing.

Posted in Financing, Managing a Business, Selling a Business | No Comments »

Recent News/Blog