Entrepreneurs: Trim the Fat and Boost your Profits!

Now more than ever, individuals are looking for ways to cut costs — personally and professionally. This is especially true for entrepreneurs preparing to sell their businesses. Higher profit margins naturally make a company much more attractive to potential buyers, and increased seller’s discretionary earnings generally equate to reaching the closing table faster and with a better selling price.

Most business owners today are using tried-and-true cost-cutting methods, as well as employing more creative techniques in order to reach their goals sooner.

Here are some suggestions you may wish to consider in the continuing quest to lower expenses:

Enjoy the electronic age
Try a voice mail system for your office and use email whenever possible. This may help reduce the hours needed for a receptionist or secretarial staff and could allow these employees to contribute in other areas. There is a variety of affordable software for businesses, which can help increase productivity within the office. Don’t forget to take advantage of the sales and marketing opportunities the Internet provides at little or no cost.

Deal directly with the source
Establish relationships with the manufacturer of products you frequently use. This may help avoid surplus charges added by third parties.

Makes vendors competitive
Sometimes business relationships can become too complacent. Check out current pricing by requesting multiple bids – especially on larger projects. Remember that sometimes the lowest-price offer may actually cost more in the long run, so be sure to examine the fine print and associated details.

Be rewarded for loyalty
For those vendors you patronize, ask about any loyalty programs they may offer. Even if none are publicly promoted, you may find a vendor will express thanks with special savings.

Outsource when appropriate
Both in terms of employees and leasing space, this is an attractive option for business owners. Outsourcing continues to grow in popularity on many levels. Temporary employees or contract workers make sense for seasonal jobs and short-term projects. Try renting or subletting space when it is needed only occasionally (such as a conference room or large space for presentations).

These are only a few of the many ways savvy business owners are making a direct, and positive, impact on their bottom lines. We’d love to hear what suggestions you might have for other entrepreneurs!

Why Business Deals Fall Apart

It is an all-too-common event for buyers and sellers of a business: the deal falls apart. After both parties have reached a tentative agreement on the sale of a business, it is emotionally and financially frustrating to watch a deal disintegrate before everyone reaches the closing table.

Why does this occur, and what can be done in advance to help prevent such a scenario? Business brokers across the country generally agree the following are the three top reasons businesses don’t sell.

Issues with pricing
Business brokers consistently encourage sellers to be realistic about the asking price of their company. A business is fairly priced when its financial records support the value perceived. During due diligence, the buyer has the opportunity to review the company’s financial data prior to closing. It is best not to give a buyer any reason to feel the original asking price was inflated.

A troublesome issue is not disclosed
Sometimes sellers feel a challenge with their business is best not disclosed initially. This represents the potential for a deal falling apart quickly down the line. Most problems will eventually surface; we all know they don’t simply disappear overnight. Once a potential buyer (either before or after an offer is made) learns about the problematic situation, what could have been handled easily becomes an off-putting surprise. The buyer feels misled – and who can blame him?

Time can easily kill a deal
This is a common observation among business brokers. Part of the value of using a business broker comes from his experience in managing the business transfer process and keeping all parties focused on the same goal. This is an emotional time for both buyer and seller, and it’s understandable that one or both can become irritated, defensive or critical when time drags on with no resolution. The closing process does take time – and certainly some deals are more complex than others. Using knowledgeable and experienced professionals will help ensure the process moves forward seamlessly and to everyone’s satisfaction.

Selling Your Business? Guidance from a Commercial Lender

In our third installment of “tips from the experts,” we discuss a topic of great importance to both buyer and seller: how will this transaction be financed?

When a buyer or seller contacts me to inquire about the business brokerage process, it has been my experience that financing is not always at the top of everyone’s mind – but it should be! Many companies listed for sale never reach the closing table, and lack of financing is almost always the reason these businesses do not sell.

While it would be a much easier process if all buyers brought 100% of the contract price and associated costs in cash to the closing table, this rarely happens.

Typically, seller financing and/or SBA loans are used for financing a sale. SBA loans are guaranteed by the Small Business Administration and are provided to small companies.

Christopher J. Kneer is vice president of commercial lending for Community Bank and specializes in both conventional and SBA loans. He explains, “Banks view business acquisitions as risky transactions for two primary reasons: change of ownership and financing of goodwill. For that reason, we utilize the SBA.”

Kneer provides these tips for potential sellers:

The time to begin preparing for the sale of your business is three years out. To get the highest price for your business, you need to have multiple and consistent years of earnings. Banks and many buyers are suspicious of one great year and dramatically different results in previous years.

Accounting quality is very important. An arm’s length CPA should be working with your company. Accounting issues and statements that do not match up from year to year are a major red flag. If there are significant line items or particular issues on your financials, be upfront and point them out. Spend the money on good accounting and it will come back twofold.

Show earnings. The time to strategically limit profits for income tax purposes is not while you are preparing to sell your business. No bank wants to see a company that loses money every year and bases its sales price on “add-backs.”

Have buyers pre-qualified. Banks want to see buyers with industry experience, proper equity injections, and liquidity. It does no good to show your businesses to those that cannot qualify for financing unless they are cash buyers.

Plan to have a seller note involved in the transaction. Due to changes in SBA financing, it is often necessary, and it also shows good faith in that you are willing to stand behind the business for sale.

Plan to stay on for a period of time. This also shows good faith that you are willing to help the new owner be successful.

Solid and sound advice.

Help! How do I create a strategic business plan?

Twenty-something years ago, I received my Bachelor of Arts degree in Business Administration from a recognized state university. But how much practical or "real world" knowledge did I gain with this diploma?

Recently, The Wall Street Journal printed a reader's question concerning business plan strategy — something that was not covered in his academic studies.

The reader began by stating he had a college degree in business, but his formal education did not include learning the specific components that make a business plan successful. He asked if there was someone who could review his business plan and give the necessary feedback to ensure its success before the plan was formally submitted to lenders and other outside parties.

Barbara Haislip responded by suggesting a free and knowledgeable resource: the Small Business Development Center (SBDC). The Office of Small Business Development Centers provides man agement assistance, information and guidance to new and established small business owners through a cooperative effort of the private sector, educational community and federal, state and local governments. The best news? This assistance is available in all 50 states and U.S. territories at no cost to the small business owner.

Haislip suggested that prior to approaching the SBDC, an entrepreneur should include the following items in his business plan:

  • discussion of customers
  • review of present and potential competition
  • presentation of marketing strategy
  • list of all resources necessary to the business

Haislip further explained most entrepreneurs will also need a financial plan (generally showing two or three years of projected income and cash-flow statements and balance sheets).

Check out www.sba.gov for more information and to find the SBDC branch closest to your business.

Maximizing Value for Your Company

by Gokul Padmanabhan – Orlando, Florida Franchisee

Sooner or later many companies end up with more than they need for a successful operation. Being a business owner myself, I confess we love to dream big and perhaps overestimate when preparing for the future. We might obtain more office space than we presently need or buy more equipment “just in case.” We often mistakenly rationalize these decisions by declaring that if business increases significantly, we will need that extra room or additional piece of equipment.

The truth is, if and when you need the added space or that new printer (which does everything but make your morning coffee), you can always purchase it at the time you most need it for practically the same price you are going to pay for it today. So, why spend the money ahead of time?

As professionals in valuing businesses, we know that a profitable organization is valued based on its earnings — not its assets. It makes sense, then, that having a smaller office or passing on the latest technological gadget does not diminish the value of your business at all. Indeed, running your business frugally and showing a healthy bottom line is a surefire way to increase the value of your business.

Business Valuation – What Is a Business Worth?

Determining the value of a business is the first step in the process of buying or selling a business. The value of a business is related to the risk involved, the ability to generate an income stream, and the value of the tangible assets.

An expert business valuation report will be based on standard valuation methodology combined with the experience and knowledge of the valuation expert. The specific purpose of the business valuation and the size of the company will determine the depth of analysis and research required.

Basic factors that influence value are:

  • Value of hard assets
  • Recast cash flow analysis: normalize earnings
  • Review factors that can impact future earnings
  • Calculate and apply external factor discounts
  • Analyze intangible values

 

The final step of a business valuation report is to make sure that the suggested price for the business passes the sanity test:

  • Will the income cover the debt service?
  • Will the cash flow provide the owner or manager with a reasonable salary?
  • Can the cash flow provide for future capital equipment requirements?
  • Will the cash flow provide a cushion to allow for fluctuations in the business cycle?

What Do Business Brokers Sell?

The great majority of business brokers are what we call general business brokers. They sell businesses mostly priced under $500,000. That figure does not include the inventory of the business or the actual real estate if it is owned by the business. Almost all surveys of average selling prices of businesses sold by business brokers show that the average selling price is less than $300,000.

Industry Breakdown:
General Business Brokerage – Businesses priced under $500,000, annual revenues of less than $750,000, and with fewer than 10 employees. This category represents almost 80 percent of all businesses.

The Larger Business – Business priced between $500,000 and $3 million, annual revenues between $750,000 and $2 million, and fewer than 100 employees. This category represents about 11 percent of all businesses.

The Mid-Size Company – Businesses priced between $3 million and $20 million, annual revenues between $2 million and $30 million, and between 20 to 100 employees. This category represents approximately 9 percent of all businesses.

The Larger Company – Businesses priced over $20 million, annual revenues over $30 million, with over 100 employees. This category represents slightly over one percent of all businesses.

How Many Businesses Are There?
Business Size:

  • 1-4 employees: 6,600,000 = 62%
  • 5-9 employees: 1,900,000 = 18%
  • 10-19 employees: 987,000 = 09%
  • 20-49 employees: 680,000 = 06%
  • 50-99 employees: 250,000 = 02%
  • 100-249 employees: 132,000 = 01%
  • 250-499 employees: 32,000 = <1%
  • 500+employees: 34,000 = <1%

Business Buyers: Who Are They?

Buyers of small business are most likely replacing lost jobs or searching for a happier alternative to corporate life. Buyers of mid-sized and large operations are, typically, private investment companies seeking businesses to build and eventually sell for a profit. This is the broadest possible look at the types of buyers out there.

  • Individual Buyer: This is typically an individual who will purchase a business and be directly involved with the day-to-day management of the company. Many of them have come out of corporate America and are first-time buyers. Others are buyers who have owned a business in the past and are looking to once again become their 'own boss'. They generally will attempt to match the type of background or experience that they have with a given business opportunity. The individual buyer usually seeks a business that is financially healthy that will pay them a reasonable salary and any debt service required to purchase the business. Their financing sources are generally SBA loans, owner financing or loans from family members. They very rarely will pay all cash for a business. These buyers will usually limit themselves to transactions involving less than $1 million, cash.

 

  • Strategic Buyer: This buyer is almost always a company, having its goal entering new market share, gaining new technology, or eliminating some element of competition. In essence, it is part of this buyer's strategy (hence the name) to acquire other businesses as part of a long-term plan. Strategic buyers can be either in the same business as the company under consideration, or a competitor. Strategic buyers will be looking chiefly at businesses with sales over $20 million, with a proprietary product and/or unique market share, and effective management in place and willing to remain.

 

  • Synergistic Buyer: The synergistic category of a buyer is usually a company looking to grow by acquiring products or services of a complementary nature. The joining of the two companies will produce more or be worth more than just the sum of their parts. They now have the opportunity to sell the existing customer base additional products or services.

 

  • Industry Buyer: This type is often a competitor or a highly similar operation. This buyer already knows the industry well and, therefore, does not generally pay for the expertise and knowledge of the seller. The industry buyer is interested mainly in combining manufacturing facilities, consolidating overhead, and utilizing the combined sales forces, expanding their operation geographically. These buyers will pay for assets but in most cases, they will not pay for goodwill, covenants not to compete, or seller consulting agreements.

 

  • Financial Buyer: Financial buyers are influenced by a demonstrated return on investment, coupled with their ability to get financing on as large a portion of the purchase price as possible. Working on the theory that debt is the lowest cost of capital, these buyers purchase businesses with the sole purpose of making the maximum amount of money with the least amount of their capital invested.

Buy A Franchise – Convenient Hair Care for the Entire Family

As a walk-in, no-appointment hair cut salon, we are the largest salon franchise in the world. We have perfected a system for delivering value-priced hair cuts to the entire family in a convenient environment. Being positioned in the $55 billion dollar market for the past 28 years, we currently have over 2,800 franchisees.

This opportunity allows you to keep your job and hire a manager to run your salons. Our segment of the hair cutting industry is very recession resistant, very predictable, a simple business plan, technology resistant and a cash business with no sales required!

An ideal candidate for ownership has strong management skills, business management experience, is profit-oriented and needs no hair care experience! The desire to own multiple units is ideal. To give you an idea of our current franchisee ownership, 70% have a white collar executive background, 15% as a diversified business owner and 15% are semi-retired. Our average franchisee owns 5-6 salons after 5 years of operation. It is important for our owners to be skilled at recruiting and motivating staff, somewhat analytical, can follow a system and understand the basics of business.

We can provide you with a very strong Item 19 from our FDD, which outlines average salon revenues, operating cash flow and top 20% of salons earnings. All of our units are 100% franchisee owned with a very high success rate.

Again, this is an opportunity that you can keep your job and build a simple, very profitable #1 branded business. Selecting a franchise is a big step. If you are someone who is transitioning out of Corporate America and has an exit strategy for the future, but wants to keep your professional career, we feel confident of our management opportunity and encourage you to go here to find out if this Beauty/Personal Care, Hair Salon franchise could be a good fit for you!

Buy A Franchise – Residential Cleaning Service

As a maid service franchise owner, you don't lift a broom – you hire people to do the cleaning for your customers. You'll have the satisfaction of growing, managing and motivating a team of employees, but best of all you'll be in a great business for yourself.

Here are some top features of our opportunity:

  • Lifestyle business: M-F, 8-5
  • Cash business, no receivables or bad debt
  • Recurring and predictable revenue (97% retention rate of customers year after year)
  • No inventory
  • By the end of year 2, a manager can be promoted or hired and run 90% of the business
  • Strong Item 19 earning claim!

 

Our initial investment is very affordable as we believe it's important that our new owners get off to the best start possible, saving hard-earned capital to launch the business, retaining more profits to grow their new business. We believe in selling the right size territory to each new franchise owner, using sophisticated demographic data and mapping so a territory can satisfy growth projections.

Our system provides its owners incredible freedom, with weekends off and the opportunity to build an extremely profitable business, all with the credibility of the most recognizable name in residential house cleaning. We have over 25 years of brand equity and millions of satisfied customers. Over the last decade, residential housecleaning has become one of the fastest growing industries in the country. Over 12 million households use paid domestic services.

Our business generates repeat, cash paying customers. There is low inventory with a quick start-up timeframe and our customers find our franchisees. No strong selling required! With multiple revenue streams, it's easy to get excited out the advantages of our business model.

If you have a can-do problem-solving attitude, good management, and leadership background and are ambitious to succeed, lead and belong to a winning team…go here to find our more about ownership of a Cleaning; Maid Service business.