Business Services

A Business Isn't Just Numbers

Putting a price on a privately held business is not easy because businesses (rightly) report income and expenses with the objective of paying the least amount of taxes. This makes it necessary to analyze all financial statements with this understanding. Most financial statements are reported honestly, but need to be recast to reflect expenses and items that new ownership won't have. EBITDA is an acronym for earnings before interest, taxes, depreciation and amortization. It is a measure of operating cash flow. EBITDA is commonly used to normalize cash flow to forecast cash flow for future owners. EBITDA is frequently used as a multiple to derive business value. While EBITDA is a good measurement tool to assist in the valuation of a business, there are many other factors to consider.

A business is not just a compilation of numbers. Businesses are also about the people running the operation. EBITDA for one owner may be different for another owner. For example, an auto repair shop with an auto technician as the owner operator will likely have a better EBITDA than an owner with little auto repair expertise. Not that the owner with less auto repair business will be unsuccessful, but the business will be significantly different as will the EBITDA. Similarly an owner within a few years of retirement will operate a business in a very different way than a new owner making EBITDA once again very different. It's imperative to understand the nuances of a business to better understand how EBITDA can be increased. EBITDA can be significantly improved in some cases without incurring high cost to achieve it. For example a manufacturing concern may have been purchased on existing EBITDA and new ownership subcontracted non-essential manufacturing and reduced manufacturing cost while selling real estate that was no longer needed. This move made the company immediately more profitable while increasing the balance sheet of the business.

Valuing a business is more complex than simply adding up the replacement costs of equipment and adding a ratio for sales and some goodwill. The real value of a business is best defined by the amount of free cash flow that will go to the new owner and how hard must the new owner work to get the cash. For this reason a laundromat may not look good on paper but require just a few hours a week while an ad agency might have great numbers but require extensive travel and 80 hours a week to operate.

Sellers Rules of The Road

There are many reasons small businesses go up for sale. It may be retirement, owner boredom or burnout, divorce or an entrepreneur ready for the next challenge. Once a business owner is ready to sell , there are basic steps and fine-tuning to be done in order to get the best price. Here are some Sellers Rules of The Road if you're thinking about selling your business:

Keep it confidential: The process of selling is kept absolutely confidential from employees, as hard as that may be sometimes. "If you think you have a sale and it falls apart, everyone knows you want to sell," and employees may start looking for other jobs . If word gets out in the marketplace, competitors can sell against that and suppliers may change your terms.

Gather competitive intelligence: Be aware of what competitors are doing so you can show potential buyers that your firm knows the market. Review competitors' advertising and marketing materials and know what their strategy is and how it compares to yours.

Consider future growth: A buyer usually buys a business he or she believes can be improved and made more profitable. The seller should think about how the plans to grow the firm and have an answer as to why he hasn't done it. "They'll pay you for what you've achieved but they don't want to buy a business that doesn't have potential," Naideck says.

Improve business curb appeal: Make sure your online curb appeal is strong. People should Search for their company on various search engines like, Google, Yahoo, and MSN and see what prospective buyers will see .Businesscurb appeal also means sprucing up the physical spaces and by all means getting rid of clutter.

Deal with administrative issues: Make sure policies and procedural manuals are in place. A new owner wants a guide to run the business and will pay more for it. Update technology for accounting, scheduling, inventory, contact management or any key element to your business.

Diversify your supplier base: Many small firms do business on a single supplier relationship which can become less competitive over time. Have a formal system to have one or two back up suppliers that you keep engaged to keep everyone competitive.

Understand the value of institutional knowledge: Ensure that there will be some degree of management who knows the industry and customer relationships for the benefit of the new owner after you are gone. The business seller should plan to stay with the business for some period after the sale to affect a smooth transition.

Business Plan

Careful business planning is critical to maximizing the potential of a business. More importantly a business plan greatly reduces stress levels which ultimately will cause personal and business ruin. A business plan allows for focus on execution of the activities which bring the most value to the business. The Small Business Administration (SBA) has an excellent resource that includes tools to help you write a business plan in addition to sample business plans.This service is free and can be found at the Small Business Administration Business Planner.

Business plans should be a work-in-progress. Even successful, growing businesses should maintain a current business plan. There are many resources available to assist in the development of a business plan; however, the principals must roll up their sleeves and do much of the heavy lifting. Professionals and software providers can help produce the business plan but it must be fully owned by the principals doing the execution of the plan. If the principals don't own the plan, it will likely be a document that doesn't get looked at after the bank financing comes through or the exercise is complete. The most qualified people to write business plans, marketing plans or sales plans are the people working in the business.

Transferring A Business

90% of businesses offered for sale never transfer. Businesses that are not properly prepared will likely not sell or sell below what the business is worth. Selling a business is unlike real estate where you put a for sale sign up and have buyers parade through until someone makes an offer. Businesses must maintain confidentiality so no one knows it's for sale as to to do no harm to the current business.

Every business requires unique preparation to be ready for sale. Many sellers believe increasing sales or improving business systems or similar improvements will make a business more valuable. This may or not be true depending on your business. Different buyers pay different amounts for the same business. The highest price actually comes from the business that has the right things wrong with it from a buyer that is skilled at fixing what is wrong.

How To Sell Your Business For The Most Money

Download Free Report

The demands of running day to day operations of a business often limit the time available to increase business value. Large public companies are taking an ever increasing share in what was traditionally small business. Small Business can use some of the same techniques large public companies use to sell their business for more. Download free report to begin increasing the value of your business.

Difference Between Buying a Job Versus A Business?

Many worry that their job will be cut next or they may not last the next round of layoffs. With high unemployment and the constant news of more job cuts can makes anyone worry about their own job security. Their may be a temptation to go out and buy a business to take control of your own destiny.

No one should ever buy a job; buying a business is fine. The difference between the two are somewhat philosophical but important in how you approach and find the right business opportunities in the sea of businesses for sale. Buying a job is looking for something to occupy the same hours you would be working for someone else with similar income or perhaps a little more. Buying a business is about brining your unique skills and energy to take the business to the next level and far surpass your current economic state. A business is not a pass time but a passion that will fill up far more hours than your W-2 wage and earnings would ever show.

You must do a thorough self evaluation and then make the right choice for you. Never buy a job.

Advertising On A $1000 Budget

Many business don't advertise enough. Businesses can become invisible in their marketplace by failing to advertise effectively. Some would argue the cost of advertising is prohibitive, but the irony is, more advertising leads to more money and and more importantly profit.

Advertising with a $1000 budget is possible and can be effective with pay per click (PPC) advertising. You get customers that are looking to buy your product or service your selling right when they want it. PPC advertising is something every business should be doing. Google, Yahoo, Bidvertiser and Miva are just a few companies that offer this service. Businesses can even have budgets as low as $100 and still get benefits unlike most other advertising. Best of all, PPC advertising can be turned on and off to suit the needs and the budget of the business. PPC programs offer quantifiable results which allow for ineffective advertising to be modified or halted so little money is wasted.

The PPC advertising model is performance based. Success is measured by click performance. The goal is to theoretically get a sale for every click. In reality 2-3% success rate is normal. Not too much different than other advertising models except you can measure your performance and constantly make adjustments to improve performance. Print advertising does not afford this luxury or accommodate modest budgets.

Marketing & Sales

As a rule of thumb, 10% of sales should be going into supporting marketing and sales activities. Sales should always be increasing and if they are not, there should be a sense of urgency to grow sales immediately. There are many reasons for sales to decrease like, the economy, increased competition or technology, but that should not be a reason to allow your business to decline. Businesses must adapt to its business environment and find ways to grow regardless of challenges.

Marketing is different than sales. Marketing focuses on the needs of the buyer and the need to satisfy the customer through product offering. Sales focuses on the needs of the seller and the need to convert product to cash. Put another way, sales is about influencing customers to buy your product and marketing is about the company making the product the customer wants.