Business – Page 2 – WETONG Blog

Business Exit Strategies – ‘internal’ Transfers Versus ‘external’ Transfers

John Leonetti, Esq., M.S. Finance, CM&A.A asked:

Most business owners believe that an ‘external’ sale of their business is their only (or at least best) Exit Alternative. Typically this is because business owners know that their employees and/or fellow family members don’t have the type of money required to secure a successful exit plan for them. So often times, business owners approach (view or see) the topic of Exiting a business as meaning that they need to sell their business to an outside buyer with enough money to pay them what they want.

So while an ‘external’ sale is intuitively appealing, it’s my experience that an understanding of ‘internal’ transfers will help open up a very good dialogue with a business owner so that they can understand all their options and make a well informed decision. In fact, analysis of an ‘internal’ transfer of the business can be a powerful alternative to a business owner looking for an Exit Strategy. And, depending upon the business owner’s motives, it may be the best alternative available.

‘Internal’ transfers of ownership in a business are often times overlooked because they are not intuitively understood by the business owner and/or the business owner’s advisors. So let’s examine some of the ‘internal’ transfer methods that are available to a business owner to illustrate the benefit of a well-conceived Exit Strategy.

‘Internal’ transfer methods include Employee Stock Ownership Plans (ESOP) Transfers, Management Buyouts (Sales to Family and Management), Gifting Strategies, Private Annuities, Family Limited Partnerships, and Charitable Transfer Strategies. The three (3) primary differences between these ‘internal’ transfer alternatives versus (and the) ‘external’ transfer alternatives are:

(i) the corporate assets, including future cash flows, are leveraged to achieve these strategies;

(ii) the driving force behind these ‘engineered’ strategies is a business owner’s motive of passing the business to someone other than an outside buyer, and;

(iii) the business owners will frequently be considering tax planning and estate planning along with their Exit Strategies. ‘Internal’ transfers, as a general rule, allow for more flexibility in these areas than ‘external’ transfers.

A business owner considering an ‘internal’ transfer can set the price and terms for the transfer and say to their family and/or management team, “Here is what I want/need for my business”. For this reason, ‘internal’ transfers are often referred to as ‘controlled’ transactions because the business owner is working with ‘assets’ that they already possess in structuring their Exit from the business. So if those ‘assets’ are sufficient to achieve that business owners’ goals (based on their motives), then it is worthwhile to examine an ‘internal’ transfer.

This is in sharp contrast to a business owner attempting an ‘external’ transfer because they are often subject to a process that includes outsiders investigating their potential investment in the ‘Target Company’ and then telling the business owners, “Here is what we are willing to give you for your business”. So, the Exiting business owner can expect to lose quite a bit of control over the process. And, because many business owners possess a unique psychological mix of independence, intelligence and control orientation, losing control to an outside buyer often leads to ‘choppiness’ in a deal.

Mergers and Acquisitions professionals will often advise business owners that if the business owner wants to set the price for the deal, then the outside buyer will be setting the terms for the deal. A deal is struck when each party is ‘equally happy’. Or, as one dealmaker said, every successful ‘external’ deal is a “little miracle”.

So, one will naturally ask, “What’s the downside of an ‘internal’ transfer versus an ‘external’ transfer”? Quite simply, negotiating with family members and key employees can be inherently dangerous. These individuals (and their advisors) will require detailed and confidential information from the business owner in order to fully understand all the risks inherent in owning the business – really no different than the ‘external’ buyer. And of course, most business owners are not anxious to share all their information with their employees; it goes against the nature of the relationship amongst workers and owners.

So then, how does one go about negotiating an ‘internal’ transfer? The answer is “very carefully”. And, the most cautious first step that a business owner can take is to engage an intermediary – which can be any one of the existing advisors to that business – to assist with the transaction. Having trusted advisors involved in the process raises the level of objectivity and lowers the level of emotions when negotiating the transfer.

Because, after all, if the ‘internal’ transfer does not work out, it will not add a lot of Value to the business to have [further] frustrated employees due to that business owner’s own doing. It’s easier to place blame for a failed transaction with a third party advisor so that all parties involved can amicably return to the business of running [and not transferring] the business.

Yet another downside to an ‘internal’ transfer is the loss of potential for extraordinary gain on the transfer. As a general rule, ‘external’ buyers for businesses include ‘Strategic’ (or industry) buyers and ‘Financial’ (such as Private Equity Groups) buyers.

A Strategic Buyer of a business stands to offer the selling business owner the highest total Value in buying the business because that buyer can apply ‘synergies’ to the valuation of the deal. In other words, a buyer who is already in the same business as the seller, can eliminate duplicate expenses and acquire new customers for their existing products. These ‘synergies’ help raise the Value of the transaction to the Industry buyer, and a good M&A intermediary will argue for the sharing of those synergies with the selling business owner. This synergistic value is likely not available with an ‘internal’ transfer.

So to summarize my original point, a business owner who wants to Exit their business should be aware of the various methods by which an Exit can be directed. Thereafter, consideration should be given to that business owner’s motives. In other words, what is most important to that Exiting business owner and how can it best be accomplished?

An Exit Strategy is defined as ‘The written goals for the succession of a businesses’ ownership and control, derived from a well thought out and properly timed plan that considers all factors, all interested parties, and the personal goals of the owners in a manner and time period that is accommodative to the business, its shareholders, and potential buyers.’ Accordingly, knowing the pros and cons of ‘internal’ and ‘external’ transfers is a critical step in establishing an Exit Strategy.

Exit Strategies are hard to design and even harder to properly execute. I am pleased that you are pursuing a pro-active interest in Exit Strategies because a pro-active approach to an Exit Strategy is the only approach to a successful Exit Strategy.

Business Loan Investment Solutions – Business Opportunity Finance

Stephen Bush asked:

The success of business opportunity investment strategies will depend heavily on the quality of business financing which is arranged. Business finance strategies for business opportunity investing are more difficult than most borrowers realize, particularly if prospective business investors are primarily familiar with residential or commercial real estate investment property.

Buying a business opportunity is likely to be an extremely challenging task when arranging the business loan. This is largely due to the usual lack of commercial property as collateral for the business financing to buy a business opportunity. When buying a business that does not include commercial real estate, business borrowers need to realize that business loan options will be greatly reduced in comparison to a business purchase that can be financed with a commercial mortgage.

Business Opportunity Investment Financing Guidelines –

The guidelines and comments in this article are based upon business loan terms that are typically available from respected lenders willing to provide business financing for buying a business opportunity throughout the United States. There will always be occasional situations in which the seller is willing to privately finance the purchase of a business opportunity, and it is not practical to discuss those business financing possibilities in this article.

Length of Business Loan to Expect When Buying a Business Opportunity –

Business loan terms to buy a business will typically include a shorter amortization period than commercial real estate financing. A ten-year maximum term is common, and even that length of business financing is likely to require a commercial lease of at least ten years.

Likely Interest Rates to Buy a Business Opportunity –

In the current business loan interest rate environment, the likely range for buying a business opportunity is 11 to 12 percent. To put this in perspective, it is not unusual for a commercial mortgage to be in the 10 to 11 percent range. The commercial loan interest rate cost to purchase a small business opportunity is typically higher than the cost of a commercial real estate loan due to the absence of business property for collateral in a business opportunity purchase.

Down Payment Requirements for Buying a Business Opportunity –

Depending on the specific type of business and some other issues, a normal down payment for a business loan to buy a business is 20 to 25 percent. The presence of seller financing might lessen the down payment needed to acquire a small business opportunity.

Buying a Business Opportunity – Refinancing Options –

A related business loan issue to anticipate when buying a business is that refinancing the business opportunity loan terms will normally be even more difficult than the original business financing. There are currently some new business loan programs in the final stages of development that could dramatically improve future refinancing options. Until these new business opportunity financing alternatives are available, it is advisable to obtain the best financing terms when the business is initially acquired and not rely upon future refinancing choices.

Lenders to Avoid When Commercial Borrowers Buy a Business Opportunity –

Perhaps the most important phase of the business loan process for buying a business opportunity is the selection of a commercial lender. In our view an even more critical stage of this process is avoiding certain lenders that are routinely unsuccessful in finalizing a business loan to buy a business.

By avoiding such lenders, commercial borrowers are likely to avoid many other business financing problems frequently associated with buying a business opportunity. Eliminating problematic lenders will be critical to the immediate success of the business financing efforts as well as to the future financial condition of the business being purchased.

Obtaining Business Insurance

Lorren Repton asked:

Think of business insurance as the copper solder that fuses a plumbing joint together; if the joint leaks, there can be major ramifications. The same holds true with business insurance; if you don’t have the coverage that a backflow prevention contractor business really needs – you’ll watch those profits flow right down the drain. You personally cannot control or eliminate every potential risk that threatens your livelihood, but business insurance can provide the added protection against these risks … if you carry the right kinds.

Choosing the right policy with all of the appropriate coverages can be a challenge when you are a backflow contractor/technician. Bob Smart, commercial lines director of Compass Insurance in Highlands Ranch, Colorado, states: “Everybody wants to lump each backflow contractor/tester/tech into the plumbing category, when in fact they are not all plumbers; that was my point of contention with the insurance carriers. I explained to Hartford [insurance carrier] that the backflow techs test the backflow apparatus – then they make a report on the valve they tested or they repair or replace the valve. They are not going in and tearing out water lines or sewer lines.

“What Hartford did…was to cover these backflow techs under an engineering class because it’s obviously more about reports and paperwork,” he continues. “I had over 30 backflow techs insured through Hartford under this engineering class and never had one claim.” Hartford has since modified this particular class of coverage with regards to backflow techs and currently does not cover backflow techs that work on fire lines, i.e., sprinkler systems, suppression systems; supplementary coverage is required or a different class should be selected.

Find an agent who understands your business.

A key component in selecting insurance coverage for a backflow contractor/technician/tester is to make sure that your agent fully understands what it is that you do and don’t do in the course of your work day. “If one agent wants to place you in the plumber class – which can cost upwards of five times the annual premium of let’s say an engineer class – find an agent who is willing to listen and really understand your business, “ says Smart. “If all you do is test backflow apparatus, then you shouldn’t be placed in a plumber class.”

Regrettably, insuring your business is not as simple as insuring your car. Because this business is unique, you’ll need to draft a package of insurance that meets your business needs and provides the level of protection you’re comfortable with.

Your first decision is to decide which types of insurance your business needs. Two types that all businesses need are property and liability insurance.

Property and Casualty Coverage

Property insurance protects the assets your business owns, including the building and equipment, from destruction or damage. Even if you run your business out of your home, you’ll need to protect your business assets with separate property insurance; your homeowner’s policy will not cover business equipment. There are two general types of property and casualty coverage: All Risk Coverage and Named Perils Coverage. As the names imply, “All Risk” will cover you for almost any type of loss whereas “named peril” coverage will only cover you for specific named causes of loss, such as fire. You need all perils coverage. Even with so called all peril coverage there will be exclusions. Make sure and review the exclusions in the policy. If there are exclusions in the policy that are important to you, you may want to try another insurance company or purchase specific coverage for the excluded situations.

Property insurance is also written as either replacement cost or actual cash value. The first will cover the actual cost necessary to replace the lost property (less the deductible). The actual cash value policy will only pay you the depreciated value of the property — almost never enough to replace what you have lost. Unless the cost is prohibitive, you should purchase replacement cost coverage. Even with replacement cost coverage you will need to make sure you have purchased a high enough limit. If your building and contents are worth $1.5 million and you only have $1 million in insurance, a total loss would still leave you $500 thousand in the hole.

To determine how much property insurance you’ll need, create an itemized list of your business’ assets and their individual dollar values. Then decide which assets you actually want to insure and for what value, which will determine the insurance premium. In some cases, you may decide against insuring a particular asset, because it just doesn’t warrant the cost of the premium. In other cases, the premium may be well worth paying.

General Liability

Liability insurance is the other kind of insurance no business should be without. General liability is just that — very general in nature and protects your business from liability arising from negligence on your part that may cause injury to others, such as a customer or employee. It also protects your company if someone is injured as a result of using your service. When you consider that the legal expenses, settlement or judgment expenses of a single lawsuit could drive your business into bankruptcy, you’ll see why this kind of insurance is considered a “must-have”. Also check whether or not your general liability insurance policy also covers product liability for the valves you may be replacing. If not, you’ll want to add this type of specific liability insurance to your package. You should include “Errors and Omissions” coverage which protects you in the event you are sued as a result of a mistake in your work.

What limits of General Liability should you purchase? According to the Insurance Industry at-large, the absolute minimum in this day and age should be $1 million; most businesses should consider increasing this to $2 or $3 million. The good news is that insurance is not priced on a straight line basis. Since smaller claims are much more likely than large ones, the first $1 million in coverage will cost the most; an additional $1 to $2 million will not cost double or triple the amount.

Different types of liability coverage have developed over the years do address specific business needs. When buying a liability policy, you should be aware that there are two types of coverage, occurrence coverage and claims-made coverage. Occurrence coverage is more expensive but covers you based on when the loss happened, even if it was many years ago. Claims-made coverage only covers you while the policy is in force and the claim is made. With occurrence coverage, as long as you always have some policy in force, you will not have gaps in coverage. With a claims-made policy, it is possible to have gaps when you have not coverage in force.

Commercial Auto Coverage

If you use any vehicles in your business, you need commercial auto coverage. Personal auto policies generally exclude coverage if the vehicle is used in business; be sure to read your policy or ask your agent. Otherwise, vehicles used in business need business auto coverage. The good news is that commercial auto coverage is usually very competitive and can even be cheaper in some cases than personal auto coverage. As is the case with General Liability, you should purchase at least $1 million in limits.

Worker’s Compensation

If you are a backflow contractor that employs other backflow techs in your business, Worker’s Compensation is insurance you will want to carry. It is surprising that this is often the most misunderstood business insurance coverage since it covers exactly what it says. This coverage reimburses workers who are injured on the job for lost wages, medical and rehabilitation costs. It is required by law in virtually every state. Generally, there are two aspects of this coverage: the first covers the lost wages and medical costs of the injured employee; the second covers the employer’s liability should the injured employee or his family decide to sue. In most states the worker’s compensation system is the sole remedy for an injured worker. As a small business owner you will likely have the option of excluding yourself from worker’s compensation coverage in exchange for a reduction in your premium. Weigh this option carefully in light of your personal medical insurance, which may have an exclusion for job-related injuries.

Business Interruption Insurance

Additionally there is insurance business owners may also want to purchase to protect their businesses from incurring the kinds of losses that can close their doors: Hurricane Katrina is just one example of an unforeseen natural disaster that could force you to suspend your business operations; floods, tornadoes, and wild fires are other examples. Or, on a more commonplace level, your business could be the victim of vandalism or theft. Business Interruption insurance protects you from the loss of revenue incurred when you’re forced to close down. It usually has an interesting deductible based on the number of days you are out of business rather than a dollar amount and will generally only kick in after your business has been down X number of days. The premium for this coverage will be based on your business income and reimbursement will be made according to your average of income.

Umbrella Insurance

Is it actually possible for you to buy an insurance policy that can save you money on other insurance policies? It is and an umbrella policy is a great example. An umbrella policy is a type of liability coverage that protects you if there is a judgment against you that is larger than your limits of coverage in your General Liability or Commercial Auto policy. The good news is that since the umbrella policy is secondary, the premium can be very inexpensive. What is even better, it may be possible for you to lower your limits on your General Liability or auto policy to something less than $1 million, purchase a $2 to $3 million umbrella policy and save money overall.

Disability Insurance

Since you’re a business owner, you should also carry some kind of disability insurance. There are various kinds of disability insurance available that are tailored to the needs of business owners. All of them involve paying premiums now to cover your lost income if you become disabled or unable to carry on your business. If your business is dependent upon the expertise or knowledge of particular people in your company, you should also consider key person insurance. This type of plan helps to compensate a business for financial losses due to the death or long term disability of a key person. The insurance provides additional funds to the business until the key person can be replaced, or until he or she returns to work.

Business Owner’s Policy

Properly covering your business is a complex task, involving multiple policies each of which has its own limits and exclusions. Many small business owners can satisfy many of these through a package policy known as a Business Owner’s Policy or BOP. Often the BOP policy is priced very competitively and allows some level of customization through purchasing of additional limits and coverages. It is only available for businesses up to a certain size – ideal for a small backflow contractor — and varies from carrier to carrier. You should ask your agent.

Reading an insurance policy contract can be a daunting task. Their structure can be very confusing and they are loaded with special definitions. Despite this, it is critical that you understand your coverages; your agent can help. However, when all is said and done, just like everything else in your business, the final responsibility rests with you, the owner.

Being a successful business person means being able to anticipate events and plan for the future. Business insurance is one way of ensuring that you’re in control of your future rather than being controlled by it. Unfortunately, there is no generic plan that will meet every small business person’s needs. You’ll need to shop around, just as you would for any product, to get the business insurance that’s most suited to you as a backflow contractor.

Disclaimer

This article is intended to provide general information on commercial insurance for educational purposes only. The material here is not intended to provide specific recommendations for any individual business or type of business. Insurance is regulated in each state by that state’s Department of Insurance. Only a licensed Insurance Agent or Insurance Broker in your state is qualified to provide you with advice on your specific business insurance needs.

Small Business Financing: Where to Find Working Capital

Angela Baca asked:

Small business financing provides the working capital that is needed not only for starting up, but also, for carrying on during the early years of any business. Financial backing, which can be found in a variety of areas, is accessible from small sums to large sums of money.

This type of funding includes loans and credit and is similar to the ones used to fund large businesses. The size of the loan or advance is just a bit smaller. Fortunately, a number of funding options are available to business owners, new and established, that will provide financial backing to all types of businesses as well as all types of credit.

Business Capital Search Engines and Small Business Financing

Business capital search engines are useful tools when it comes to locating a variety of financing options for small businesses. Of course, they can also be used to locate funds for any size venture. One of the benefits of using a business capital search engine to find business financing is the amount of time and frustration that it can save someone. Another benefit is that the search results provide more than one option for consideration, allowing the borrower to have flexibility in his decision making process.

Using this type of search engine is easy and relatively quick. Of course, you’ll need to input a few specifics to get started, so think about what your expectations are for your business before you start. You’ll need to know how much you want to borrow, separated into total amount needed and working capital.

Additional information that you’ll need includes answers to the following type of questions. Are you buying a business? Are you buying a franchise? Do you need funding for equipment? If so, what type of equipment? Are you buying real estate? What is its current market value? How much do you want to borrow for the purchase of the real estate? If course, different business capital search engines might word their questions differently or request additional types of information, but this is the generalized idea of what you can expect.

Small Business Loans

Certain types of small businesses can access equity loans to finance their enterprise. The lenders use the equity held in the business property including land, equipments, and products to secure the small business loan. In fact, shares in the company can also be used to secure a business equity loan. Companies that fall into this category would include businesses with a great potential for growth. The lender recognizes the promise of success and is more than willing to accommodate the needs of the business owner in exchange for some type of security.

Funding Startups for New Small Business Financing

Small business start ups can generally take advantage of something known as micro business loans. A smaller type of loan, generally between $5,000 and $35,000, the micro loan offers new enterprises an opportunity to locate financing that is affordable. Provided by non-profit community lenders, micro loans are short-term loans having terms of six years or less. This is a perfect timeframe for start ups since the first five years are critical in establishing a successful venture. The micro business loans allow the small business entrepreneur a chance to focus on his daily operations without the need to worry about working capital.

The Small Business Administration is behind this type of small business loans so they are sometimes referred to as SBA loans. Although each lender has a set of requirements for their small business loan borrowers, specialized training and planning details for the enterprise must be completed prior to the dispersal of the loan. This strategy further ensures the success of the enterprise by offering a bit of business savvy that helps to get the owner of the start up on his feet from the very beginning.

Alternatives to SBA-backed Loans: Options in Small Business Financing

A number of alternatives to Small Business Administration backed loans or SBA loans are available to those who either don’t qualify for this type of loan or who simply prefer to try something else. Credit card receipt advances, a relative newcomer to business financing, provides an immediate source of cash revenue that can be used either to start up a small business venture or to help out with everyday operations.

With credit card receipt advances, the lender exchanges the money for future credit card receipts. This practice is also referred to as a cash advance or merchant advance. One of the benefits to this type of financing is that even individuals with no credit or bad credit can obtain it. Any small business owner who brings in a minimum monthly sales figure of $2,500 can qualify to receive as much as $100,000. Of course, this amount varies according to the actual sales produced by the business. A fee does apply, but it is well worth the ability to access so much ready cash.

Another option that does not involve any type of loan or credit is the selling of accounts receivable. The accounts receivable of any business are one of its most valuable assets. This is an excellent way to finance your business since you do not accumulate additional debt. Selling accounts receivable invoices provides ready cash in the present even though the payment hasn’t yet been collected.

Small business credit cards also provide ready buying power along with a great deal of flexibility since these cards can be utilized in a number of ways. Small business owners can track their employee purchases to ensure that everything is on the up and up. Plus, small business credit cards can be used to pay off debts to vendors or reduce the direct outlay of cash. In fact, the responsible use of small business credit cards will improve the credit rating of the individual, offering a better chance at obtaining a business loan in the future.

How to Start a Home Based Business Using a Business School in a Box

Bill Thomas asked:

A business school in a box is definitely the quickest, easiest and most reliable way to learn how to start a home based business. If you want to access the very best small business knowledge center money can buy and successfully operate your home based small business, then you should avoid investing in traditional business schools.

Local trade and vocational institutions, community or regional colleges and universities and even secondary schools offer night time and other nontraditional forms of training classes for adults.

Think about it – many of these local programs were designed to help home based small business and craft business community. As an added benefit, those forums offer many options for satisfying one or more of the top priorities of entrepreneurs wishing to learn more about their industry and advance their careers.

Even with all that support, the first thing you have to learn is how to start a home based business. Aspiring owners need more convenient forms of supplementary educational resources to help them develop their business domain knowledge. That’s where the business school in a box can serve you your needs.

A few top business schools are already providing or considering support for the home based business entrepreneur. We see online business school offerings gaining momentum with ever-increasing velocity.

A Boxed-Lunch of New Business Opportunity

The main drawback of most traditional business schools is that student entrepreneurs must physically attend classes, this requirement demands an unreasonable amount of time, money and effort from these struggling students. In response to these constraints many organizations now offer a “business school in a box”, a series of knowledge-based learning sessions, articles and lectures.

These programs give students ways to learn established standards and become well-versed in the various topics of business management, including accounting, finance and marketing.

Often, the business school in a box consists of packaged lessons or recorded lectures students can access online. Business concepts, ideas and theories are usually taught in these serialized lesson modules.

I think you will agree that this form of training is perfect for entrepreneurs searching for the optimal small business knowledge center solution – it can especially help out people who are trying to learn:

how to start a home based business;

how to manage a home based, small business;

how to find good home based business opportunities for moms and women.

What Comes On Your Plate?

You do realize that learning how to start a home based business or successfully operating your home based small business means working on your own without a boss or direct supervisor, don’t you?

In a word, the business school in a box format is a variation on the distance education theme, and as such, some lesson plans may not provide direct interaction with your instructor or fellow students. This kind of learning occurs through the student’s own efforts and perseverance, so you will have to be someone who works well and effectively without supervision.

Lessons are typically presented in small packages and feature home study along with assignments. Sometimes self-grading quizzes, learning simulations and projects may also be included. Depending on the institution, some subjects provide live online classes, which may give students a chance to participate in lectures and discussions in real time.

Yummy Advantages of A Business School In A Box

There are several advantages to choosing to learn more about how to start a home based business and managing your home based small business, using nontraditional methods such as a business school in a box. These include:

Convenience of Your Small Business Knowledge Center

A business school in a box is the equivalent of distance learning, a well-respected and established method of imparting knowledge. Many of today’s universities, including top business schools, use this method in order to provide better services and reach more students. Here’s an example, students in China can enroll in online business school courses being offered in USA colleges.

Since student entrepreneurs don’t need to be physically present on campus in order to participate, they can absorb lessons at their own pace and in the privacy of their homes. This forum gives them the flexibility and relative freedom to develop their ideas for a home based business and devote serious attention on how to start a home based business that they might not achieve in a traditional classroom setting.

Lower Food Costs for Your Business Education

Generally, a business school in a box package can be less expensive than the best online business schools. Most assignments and tasks assigned just require the use of available, virtually free technology, with minimal need to produce hard copies. Because program’s materials can be accessed from the home helps students save on their travel, food and lodging expenses.

With its low cost of entry, learning how to start a home based business or acquiring the knowledge to grow your home based small business this format presents an attractive alternative to other educational options.

Access to all-you-can-eat business training and coaching resources

Some of the best business schools in a box programs use combinations of teaching techniques to optimize the learning experience for their students. Other than passive lectures, for example, students can also take advantage of online classroom settings, discussion forums, chats and instant messaging in order to communicate with their instructors and classmates.

In today’s globally-focused, online-driven, socially networked economy, expanding your home based small business or getting the knowledge you need on how to start a home based business is easier, cheaper and more robust than ever before.

You will find there are more than enough educational options, regardless of whether you:

operate a home based business for moms and women;

have promising ideas for some part time home based businesses;

desire to make your efforts pay-off with a more profitable home based business.

Step by Step Procedure to Buy a Business

Bill Henthorn asked:

There are two questions you should ask yourself before purchasing any business. Why do I want to buy a business and what kind of business would fit in with your personal experience. The “why” is in many cases more important than the “what” when answering these two questions? You need to know why you want to own a business and are you ready both financially and emotionally. After you answer this question you can look into what kind of business you think you should own.

Why do you want a business?

Why you want to take on the responsibility of a business is important. Owning and running a business is a challenge to do successfully. If you want to be your own boss that is OK as long as you realize that your future earnings will be in your hands and not those who run the business where you are working now. You must have sufficient money to get the business up and running and still pay your monthly bills that you currently have. You cannot count on taking any money out of the business for several months to a year. Your own business does mean some freedom, but it also means you are the owner seven days a week and with little time off. You also need to figure if the business you are thinking of getting into is one that you can run without many extra people or is it one where you will need help. This is important for several reasons. More people means the business has to generate more income. There are also rules that need to be complied with as far as employees are concerned. Let’s assume you are financially and emotionally ready to take this big step. What kind of a business are you going to buy?

Which type of business would be a match?

The type of business depends on your interest and knowledge. If you have an area of expertise, then this area should be looked into very seriously. Are you a people person, then a business with a retail or business-to-business element would make sense. People businesses need a front person to capture the clientele. If this is your forte, then this business area should be looked into with a serious intent. One of the ways to find out which types of businesses are available is to look into a business broker and see what they have listed. Another way to find a business that may not be listed is to ask bankers you know or other business owners. Accountants could be another source of businesses that are not listed for sale. Business brokers list most of the businesses for sale in the market online. Listings by private owners and Business Brokers online are available at the Buy a Business Section of Acquireo.com.If you do not have the patience to browse each of them by state or category,Search the business you are looking for with a keyword or location

With these two questions answered or at least a tentative decision made, the buyer needs to look at each business that meets the criteria that has been set. Formal meetings that allow for full disclosure of the business’s situation both current and future are an important step in finding out more about the business. How the business has done in the past is useful for predicting the future. This meeting is also the time to find out if there are any problems coming up or like building code changes or possible lawsuits. Are there any obligations, which will be assumed that can be brought forward in time as to payment? Are key employees going to stay with the business and if not can they be easily replaced. Is there a way to quickly add to the business or change some of its functions to add to the sales? Are the prices being charged at a fair level? The real reason for these meetings is to exchange information. Win-win deals can only be made when both parties are equally informed.

Buying a business outside of your experience or knowledge

If the business is one where you will need training to learn the business, make sure you have a timely agreement with the old owner for their help for a period of time. You would also be well advised to have the owner introduce you to the important clients that have made the company successful. This introduction could be the difference in keeping the client and losing them to a competitor.

Learn as much as you can about the competition. These are the people who can move in on a new owner. Make sure they have not suddenly developed a product that is superior to what you will be selling. Also find out if you can who they sell to and why the old owner could not make any headway with the competitor’s clients.

Price negotiation

With the exchange of information out of the way, the hardest part of any purchase comes into play. The price that the business will sell for is usually a negotiated sum. There are many ways to come up with the selling price. The owner will have a price in mind and you will have an offering price you will start the bargaining with. Another price can be obtained from a third party who is certified to set prices for businesses that are put up for sell. The certified brokers have passed a series of tests that qualify them to come up with an unbiased value for the business being sold. This price is fair to both the buyer and the seller, because it is arrived at by standard business evaluation principles. This expert price is the result of hard work and careful analysis of the business both current and future prospects.

Terms of the deal

Once a price is set, the terms of the deal can be negotiated. There is always a cash price and a price, which involves terms. Most owners are willing to carry back some of the purchase price in order to expedite the sale. This is an area that usually can be dealt with by reasonable bargaining and private negotiating.

Banks can be a source of funds for some buyers if they have assets and very good credit. Sometimes a person can arrange for private financing among friends of relatives. The seller is always a potential lender for the buyer if they have a big enough deposit. Some times the seller’s asking price is too high, but the buyers counter offer can be “I will meet your price, but you will need to give me very good terms”. This is all part of the buy-sell negotiating. Simple rules should be in play during the negotiating. Remember the seller wants to sell and if you make reasonable counteroffers, there is a good chance that one of them will be accepted. Do not try to win by just being stubborn. Compromise is the way to make the sell happen for the buyer and the seller.

Conclusions

Keep the old owner on your side, as you never know when you may need them for something that comes up after you have made the purchase. The problem may have happened to them in the past and they may know the perfect solution.

The final advice for buying a business, is do your homework and do not believe that all will just go smoothly during the first year. There will be problems, and since you are the owner, you will have to resolve them in a timely manner. If you have to employ others, treat them with respect and if they know the business, ask them what they would do if they were in your shoes. Knowledge is power and respect will help you gain the employees willingness to share with you.

Firm and fair are the traits of a good employer.

Business Credit Cards Make Business Life Easier

Art Taylor asked:

If you are a small business owner then the best way to establish credit is by applying for a business credit card. By completing a business credit card application in the name of your business you are now building credit for the business and are more likely to receive favorable terms as far as interest rates and lines of credit are concerned.

These days, easily accessible credit has become an indispensable part of many businesses day to day fiscal operations. Because of this, businesses both large and small can find offers that are virtually specialized to meet their specific needs. So, business credit cards are available from a range of lenders, and these cards offer set credit limits to businesses, and enable businesses to make purchases up to the agreed limit and then spread the repayments by making a minimum repayment each month. These business credit cards are not tied to personal credit.

Business credit cards offer unique business oriented benefits and generally offer high lines of credit. These credit cards can offer rewards, savings on business products and services and the purchasing power of a credit card. Business credit cards will help your business grow; there is no doubt about it. Business owners also understand that securing a business credit card early on in the life of the business, helps the business to build its credit track record; and that the sooner a track record is established, the sooner the business will be able to carry the business credit card liabilities on its own.

Business credit cards are allocated for business use only and provide a simple track record of company expenses. Credit cards for businesses in general, and for small business in particular, have become increasingly popular as more and more businesses started realizing the benefits. Business credit cards have become popular as a source of financing for small businesses, since business credit card issuers often give up to 60 days in which you can pay the full statement amount, which can help your cash flow considerably. Business credit cards have gradually become one of the most common forms of business credit that assists businesses meet their urgent requirements, even when there is a deficiency of cash. Business, both large and small, are no different from private consumers when it comes to the benefits of credit cards, and many businesses rely on the convenience and flexibility of these cards in order to aid the smooth running of their finances. These credit cards open valuable avenues of financial assistance in the future through the bank or company that issued the small business credit line.

Business credit cards often secure preferential exchange rates to the business traveler. Card holders sometimes qualify for frequent miles or discounts on certain flights and at certain hotels. Business credit card issuers also arrange for worldwide emergency and travel assistance.

Business credit cards offering zero percent interest rates and reward rich incentives are advertised widely and business credit cards are going to be more widely marketed to small business owners in upcoming months.

As you can see, business credit cards are a wonderful thing if used properly and are a must for business people.

So, if you have a business do not put it off any longer, get a business credit card and save more time and money for your company today.

Business Manager

Jose Vanegas asked:

Defining a Business Manager.

When an individual thinks of a Business Manager, their mind often leads to a man or woman that is in charge of a business. Often times, this case holds true, but with new technology other types of Business Managers are being used. Such a Business Manager is not a human, but in fact can be a computer program.

Prophet can ACT as a Business Manager.

Although there are many different computer programs that are available to ACT as a Business Manager, one of the most popular and effective forms of a Business Manager is the software program known as Prophet. Prophet is a Business Manager software program that is made available by Avidian, a computer company that specializes in customer relationship management, also known as CRM. CRM is highly important for many companies, as it is the relationship between a customer and a company that regulates the sales for a company. If there is a positive CRM relationship established, there is a high certainty that a client will be a repeat purchaser. Many companies give thanks to Prophet as their acting Business Manager, as the program can generate multiple sales for a company.

The multiple factors of Prophet as a Business Manager.

There are many factors that Prophet plays upon as a Business Manager. For example, Prophet can regulate a client’s contact database for all of its customers. This means that as an acting Business Manager, all of a company’s clientele can be regulated and organized into an electronic file. A company can keep electronic records of all of their clients, including a company name, physical address, telephone number, and an e-mail address for the contact individual at the company. A Business Manager can do the same things for a company, but it will take much more time to keep everything as organized as a computer program such as Prophet can. Prophet also acts as a wonderful organizer, keeping all of the business contact information in order, as well as easily and readily accessible.

Prophet can save money as an acting Business Manager.

Another reason why many companies are turning to computer programs for a Business Manager instead of working with a person within the company is due largely for costs. The price of Prophet’s Business Manager is quite affordable (starting cost is around $100.00), which makes for a wonderful investment for any company. It is hard to find a Business Manager system such as Prophet that is as affordable as it is. The competitors are much higher, and a lot less cost effective than Prophet. Prophet has proven that as a Business Manager, that the software can keep track of sales, hold notes on accounts for reference, provide graphs and charts of projected sales as well as sales past, and the most beneficial means of gaining additional profits. Prophet’s Business Manager is indeed geared towards multi-tasking, which is what many companies are looking for.

Prophet can ACT as a Business Manager for companies large and small.

Prophet is not only helpful for companies, but for individuals and major organizations as well. For an individual, Prophet Business Manager is great for a small business. This is often the choice for entrepreneurs that have a very small staff, usually under 10 people. Just as a major company can keep track of transactions and sales projections, a small business owner can as well. Sales lead management is filtered all throughout the Business Manager, which is one of the main reasons why there is such a high demand for Prophet software. Business owners are constantly looking for additional outlets for their company, and can find such business management with Prophet.

Large size companies can benefit from Prophet as a Business Manager, too.

For those that are dealing with a larger sized company, Prophet is a wonderful tool for Business Manager as well. This is what is known as the “professional edition” of the Business Manager end of Prophet. The Professional Edition of Prophet offers the same incentives for acting Business Manager as in the small company, but it is also available as a network. When Prophet software acts as a network for a Business Manager, it can be manipulated in a variety of ways. For instance, when Prophet is networked as a Business Manager, it can simultaneously share information with those that are connected to the system of information. That being said, those that are linked with the Business Manager network can generate sales and the likes with the program. Workers that are connected to the Prophet Business Manager network can also see where others in the company have left notes of relevance on an account. This is highly important; as a note may be a flag on an account, such as payments rendered, or accounts past due of payments.

Conglomerate companies can save a lot of money utilizing Prophet as a Business Manager.

For conglomerate companies, a Business Manager is a must. A Business Manager in a large company keeps track of sales, and is responsible for where there needs to be sales generated. Prophet acts as a Business Manager on many levels, and this aspect is no exception. Prophet can be seen as a Business Manager in large, corporate setting, as it can be a Business Manager on many folds. Prophet as a Business Manager in a corporate setting can lead to an ease in record keeping, while showing where there is need for improvement in other areas. As an acting Business Manager, Prophet can demonstrate all of the duties as set forth with other levels of sales. Furthermore, as the principal Business Manager, Prophet is created to hold a plethora of information, as well as keep it all organized. Prophet certainly does the job well with the Business Manager program for corporate organizations.

Palm Pilot can operate Prophet.

Another addition that is important to many Prophet Business Manager users is the fact that it can be displayed on a Palm Pilot. A Palm Pilot, or a personal hand held electronic organizer, is compatible with the Prophet software, and makes for a great mobile Business Manager device. There are many features and benefits that can be generated from using Palm Pilot as a Business Manager. For instance, a Palm Pilot that is doubled as a Business Manager can become the equivalent of a computer, as it shares Business Manager information like the regular Prophet program would on a computer. In essence, the Palm Pilot is a mobile version of Prophet’s Business Manager software.

An overall view of how Prophet is an essential tool acting as a Business Manager.

A Business Manager is indeed an essential tool for any company, but utilizing Prophet as a Business Manager is even more efficient. The information that is needed is easily accessible, and can be transferred time and again. As a Business Manager, Prophet can utilize its electronic resources to generate sales slips and projections. Prophet is not only a Business Manager of today, but also a Business Manager of the future.

About Avidian Technologies:

Avidian Technologies is a software company specializing in creating software solutions for users of Outlook and Exchange. Prophet, developed by Avidian Technologies on the .NET platform, is the leading contact management and sales CRM software built in Outlook. The company is headquartered in Redmond, Washington. For more information, please visit http://www.avidian.com or call 1-800-860-5534.

5 Principles to Ensure your Business Grows

Naithan Tarrant asked:

Principle # 1 having a clear vision

Many times when I ask business owners (and particularly new business owners) what they want to achieve with – where do they want to take – their business in the next 5 years, along with asking them what profit margins do they want to achieve and What markets do they want to get into?, they are unable to tell me the answer.

When you come to plan business growth, or even start a new business, one important question needs to be asked? Why do you want to grow your business (and please don’t just say ‘to make more money.’) What is it you want to get from it? What is your outcome? What do you want to achieve from it?

An architect doesn’t say to a builder “Place some bricks over there. Build a wall so high here. Maybe a window this big there” They begin with the end in mind. The architect knows what size the building needs to be, what supports, joists, levels of foundations are needed. They know what materials are needed to get the job done, and how much it will cost and how long it will take. They have clarity as to what they want to achieve. It’s the same in business.

The clearer you are about what it is you want to achieve with your business, when you want to achieve it and what you are going to do to achieve it, the easier it will be to achieve and the quicker you will able to achieve it.

Why not try the following experiment to understand this principle.

Make sure you are in a room with lots of space and stand in the middle of the room away from anything you can bump into. Pick a point on the wall in front of you. This point is going to represent your business’s future. Then you will need to close your eyes and spin around five times. Finally without opening your eyes point to the spot on the wall that was depicting your business’s future. When you think you are pointing to it, open your eyes and see how you did.

How did you do? Did you point to your businesses future?

Ok I know it’s a silly game but you would have got the principle behind it. So many business owners spend their time moving around with ‘their eyes shut’ thinking they know where their business’s future is when unfortunately they don’t know at all, far from it.

Before moving on to the next principles please take a few moments to write down in a note pad or on a piece of paper that you can keep safe, the following question. ‘Where do I want this business to be in 5 years time?’ Then write out your answer making it as clear and concise as possible, because this is going to be the starting point for you to build your business the way you truly want.

Principle # 2 moving from point A to point B

In principle one I talked about the importance of knowing where you want to end up. In this principle I want to talk about how to get there.

If I were to ask you what is the shortest and most direct route from point A to point B? You would more than likely answer; ‘a straight line!’ After all everyone knows that from learning geometry in school. Yet so many business owners I come across who want to grow their business go in every direction but the most obvious and simplest one, a straight line.

A great example of this is a new business owner I met once who told me that he was going to set up a graphic design company helping new businesses to create their branding. Great I thought he knows exactly where he is going. The problem was he started getting involved in so many other things too. He began providing web design, organising printing jobs, and then adding photography as well. In fact he started doing everything but graphic design. He was like the motorist who wanted to go from London to Leeds (obvious route straight up the M1) but went via Southampton, Bristol, Birmingham and Manchester first.

If you are going to be a Graphic Designer, be a Graphic Designer. Be a good one then maybe once you have reached your destination add extra things then, not the other way round.

If you decide that to grow your business you need to do a specific task, think about what is the easiest and shortest, most direct way of doing it. Then stick to it, don’t deviate, divert, get distracted or add other things.

Another thing I commonly see with business owners (especially new business owners) is the urge to not take the simple route. It probably is great to come up with a completely new way of doing something, but to be honest by the time you have created a new fuel injected, glittery, all singing all dancing way of doing it, you could have done the simple thing and taken the most direct route.

Take your note book or piece of paper that you wrote your five year vision on and now underneath that write out how you are going to get there. This is going to take you some time but it is important to ensure that before you start on your journey you know where you are going. Remember the straighter and more direct the route, the better.

Principle # 3 focus your attention

Have you had the same experience as me when it comes to the day before you go away on holiday? You’re at work and you have stacks of jobs still outstanding on your desk. It can be filing, invoices to send out, accounts to pay, it doesn’t matter what the jobs are that still need doing; the point is you actually get them all done! Why is that? They have been sat there for ages then suddenly the day before you go away on holiday you get them all completed. That’s amazing isn’t it? No! That is what is known as focused attention?

One of the main reasons why businesses fail to grow, and in particular new businesses fail to survive, is because the business owner will do everything else but focus their attention on their business.

I had a client who recently called me in a panic. They are an Estate agent and their sales had suddenly begun to dry up. They weren’t selling their properties like they used to. When I sat down with them it came apparent why their sales had dried up when I asked them the question, ‘Talk me through a typical day’

They told me about all the paperwork they had to do, the filing that needed doing, the advertising that had to be sorted out and so on and so on. Not once did they mention the viewings they need to arrange or the actual selling of property they needed to do. Why not? Because their attention was focused on everything else but the actual thing they were there for; selling houses. As soon as they redirected their focus, sales began to rise.

New business owners do this all the time. They spend time sorting out their new office, getting the furniture all straight and correct. They focus on getting their letter head right and their paper work systems in order. They focus on anything and everything except the most important thing to insure their survival… getting customers!

Why is Tiger Woods so successful at golf? Quite simply, he focuses his attention on being the best. He doesn’t worry about or waste time designing golf courses. He isn’t putting all his attention into opening golf academies. When he is not hitting a ball 400 yards he is practising hitting it 400 yards. When he is not winning tournaments with great short game play, he is practising his short game play so he does win tournaments that way. It is because of his focused attention that he has been #1 in the golf rankings for such a long time now, winning more tournaments than any current player and the reason why he was the #1 highest paid sports star in 2006, earning a massive $100 million.

Now that you have written down where you want to be in five years time and then followed it up by planning the most direct route to get there, I want you to write down the key areas you believe you need to focus on to ensure you get there in five years or less. What areas do you need to really focus your attention? What will need the most attention? Once you have written them down, keep referring to them to ensure you are not deviating from them and getting off track.

Principle # 4 who do you do business with?

This may seem like an obvious question to you, but you would be surprised to discover that many businesses that fail to grow do so because they have forgotten who they do business with.

I knew of a very successful business that went from start up to one of the fastest growing and most successful businesses in the whole of the UK, all within 2 years. Within 4 years it went into administration.

The main reason why the company went into administration was a simply one. It grew so fast in the first place because they had a unique service that none of their competition provided. What’s more there was a need for it, but only in a particular market place. The company wanted to expand by moving into market areas where they were unknown. The problem was the company had lost sight of what made them successful in the first place and stopped focusing on the service that gave them that success. They tried to be a player in a market place unfamiliar to them. The company had a number of outlets located in different towns across the region and before long the previously successful outlets had to increase their performance to support the new ones who were not doing so well. Eventually because these new outlets were not being successful, the existing ones could no longer support them, and the company had to call in the administrators.

It costs 6 times more to generate new clients than it does to service and keep selling to the ones you already have. So let me ask you – Who are your clients? Who is providing you with your revenue? If you don’t know exactly, you need to find out because not only is it more cost effective but 80% of your revenue will come from around 20% of your customers, those that have bought from you in the past. So as long as you have provided them with a good service in the past they will buy from you again. If you are bringing out a new product or service, tell them about it, get them to buy it from you. Don’t make the mistake of looking for new clients when you have them already at your door step.

In your book / on your piece of paper write out a list of your top 20 – 50 customers. The ones you deal with the most and who buy from you the most. Once you know who they are then you can focus your attention on having them buy from you again and again.

Principle # 5 who can help you?

The most successful businesses and those business owners, who know how to build a successful business, know the power of leverage.

There are three main sources we use in business:

• Time

• Money

• Energy

Each one of these sources if we use them personally, are a drain on both our business and ourselves. Think about it for a moment. Business’s that fail to grow do so because they are wasting either time, money, or energy and in the worst case, all three. If you are a one man operation are you wasting time and energy doing the filing, accounts, invoices, bills, orders etc? If you employ staff are they wasting time and energy by focusing on things that are not important, or to put it as principle # 3 says, not focusing their attention. Is the job or task you are currently doing really important? Can it be done later or if you really tap into leverage, can someone else be doing it? Can you be using someone else’s time, money or energy?

In you note book / on your piece of paper Write out all the tasks you currently do daily in you business and ask the following questions about each task.

• Is it going to eventually save me time or am I wasting time?

• Will I be making money doing this task or wasting money?

• Can only I do this task or can I pass it on to someone else?

For your business to really truly grow you need to learn to tap into OPT, OPM and OPE:

Other Peoples Time,

Other Peoples Money

Other Peoples Energy.

Those who do this successfully are seeing not only their business grow, and their profits increase, but as a result they have more time, more money and more energy to do the things they really want, be it in business or in their private life.

By going through these five principles and working on the task I set you on each one, you have begun to create a plan that will help you work towards growing your business. You can also visit www.yourbusinessgrowthcoach.com and try our 10 Day Business Boost programme to begin boosting your profits immediately – ITS FREE – plus if you would like to discuss how as Your Business Growth Coach I can help you and your business in other ways, call me on 0800 2982910 to discuss further.

Buying a Business – the Basics

Willard Michlin asked:

Buying a business in today’s economic climate requires that you, the buyer, be on the ball, with regard to business basics. This economic climate, as far as businesses are concerned, is a sellers market.

With the corporate downsizing, economic downturn and other factors, there are a lot of very knowledgeable buyers out there looking for one of the very few good business to buy. This means that you, as a buyer have a lot of competition. Consequently, you need to be well prepared. Professional business buyers, report that it takes anywhere from 3 months to 3 years to find the right business. So, if anything, what can be done to speed this looking process and at the end finally get a good business?

The decision – the first step is deciding to buy a business. Once you have made this decision and you are definite and firm about the fact that you are definitely buying a business, the process has started.

The second step is to decide what kind of business. This is really really important. What are the criteria for this business you are looking to buy? Do not make a wish list or what would be nice. Make a list of what is important. For example, if your standard of living requires $100,000 income, do not compromise by looking at businesses that make only $50,000.

That is unless you consider yourself a knowledgeable business manager and marketing person who knows that any business they buy will double in income and sales. That kind of buyer can buy a business that makes no profit and probably should.

Other criteria include; is it something you can handle? What kind of work are you willing to do? If you like sales and do not like running a factory, buy a distribution company, or sales organizations, and do not buy a manufacturing firm, unless you have a partner that likes running a production line.

I have people call me to inquire about buying a body shop that have no automotive experience at all. You can buy an auto repair shop, muffler shop, brake shop or lube store, and learn the business, with no experience to start. You probably should not buy a salvage yard body shop, or scrap yard with out being raised in the business. If you are a salesman you can buy almost any business.

All manufacturing, distribution or retail sales require good personal sales skills. If you are poor at communication skills or English is a second language, consider buying a liquor store, gas station or hamburger stand, just a few of the businesses that do not require, personal selling, or do they?

About you – There are some things you need to prepare for the brokers when they start coming to you with possible businesses. You need to make sure that you have your down payment sorted out. Expected down payments are anywhere from 25% to 100% of the selling price. So make sure you know what you want to spend and then make sure you have the down payment easily available.

Then you need to get your financing options determined. You can get yourself pre-qualified for a business loan or an SBA loan if the business you are buying is required by you to show a profit on the books. SBA loans are only available to businesses that have shown a 5-year profit on their tax returns. If you are looking at businesses that are heavily unrecorded income, you must have cash or seller financing.

Being your own broker – You should determine who is going to make your offer. A broker, or yourself? If it is you then you should locate the necessary offer forms and study them carefully. Determine what must be in your offer so that you can put in an offer, the instant you find a business that meet your requirements. This is an important step, as putting in an offer tends to lock out other buyers while you look over the business. Make sure you have contingencies in your offer, which means you have lots of “get out of the deal” clause.

I would like to suggest, for the less experienced buyer to hire as a consultant the sharpest attorney or business broker you can find and pay him for his time to watch your rear end, in negotiations and in reviewing the companies you are considering buying. In real estate we call this a buyers agent, except with businesses the listing agent will not always co-operate in splitting the commission. This means you need to be willing to pay your agent an hourly fee for helping you. Let me give you a real example.

David and his father were looking for a business to buy. They were interested in a Scrap yard that I was selling. I asked their buying agent to bring them over so I could interview them and to explain this business to them. In 3 minutes it was clear that they should not even consider this business. We spent the balance of the meeting talking about the businesses they had looked at and the pros and cons of each. I gave them my honest suggestions about each from their description. They thanked me and left.

Two months later David calls and asked if he could come talk to me. He told me about an FSBO “For Sale by Owner,” who would never pay any agent a commission unless he got his price + the commission. That of course doesn’t make sense to a buyer. David told me about the deal and I gave him my honest opinion about it. David asked what my time was worth and gave me a check for an hour’s time.

Two months again passed and David called and said, “I need to see you today.” He proceeded to tell me about a Car Wash Soap manufacturing company that was suppose to be making $500,000 profit per year. The asking price was $2 Million. David wanted several things from me. He wanted my opinion of the business, he wanted me to help get the price down to a more reasonable amount and he wanted me to verify the income. It took me 30 hours of reviewing the books and talking to the seller to determine that the business was making only $350,000 per year including what was not on the books. The books were made complicated, intentionally so that no one could understand what was going on.

I related my findings and told David he had to do his own negotiations but I would coach him every step of the way. David paid my fee and I didn’t hear from David for one year. When he called, I asked what happened to the car wash soap business. He filled me in on the story.

He bought the business for more than I suggested because he saw where he could improve the business instantly. The profit turned out not to be $500,000 as the seller guaranteed, but exactly $350,000 as I had determined. David took over sales and marketing and within 1 year had the company profit up to the $500,000 he was promised.

David now had found a related business that had been listed with an agent who did not understand the business he was marketing and could not sell it. David was now talking to the seller directly. The seller wanted $550,000. David wanted me to negotiate, on a consulting fee bases with the seller to get the price down.

I instructed David that I would appraise the business, and convince the seller that my appraisal was accurate, but David had to do the negotiations. The seller would never talk to me about the inside details if he was negotiating with me directly. This time I spent 5 hours with the seller, not the books, to determine the business was worth $350,000. The seller would not take the price, but felt I had done an excellent appraisal. I suggested to David to wait 60 days and open discussions again. I also told him the seller would eventually take the $350,000.

I again didn’t hear from David, this time for 6 months. When David called I asked for his report on what happened. The seller called him after one month and sold the business to him for my appraised amount, just as predicted. What did David want this time? Two guys wanted to buy the business and David wanted me to justify a price of $500,000? I did my updated analysis and got paid. I will not find out what happened until David calls me with my next assignment.

Get the word out – Now that you have got all of your preliminary work done you are ready to go looking for businesses. You are ready to look for businesses for sale. Go on to the Internet and look at sites that have businesses for sale. Look in the classified section of your county newspapers and look at what is for sale. Contact business brokers and tell them what you are looking for in detail. Call on broker listings and FSBO (For Sale by Owners.) When you find something interesting you move through the steps with a broker, accountant or attorney or without a broker, accountant or attorney.

Find out what financial records they have. This will eliminate 75% of the businesses. The records are false because of cash sales and/or cash payroll. A lot of auto repair shops pay their mechanics a base salary on the books and the balance in cash. This is crazy and illegal. They have cash sales, which are illegal, and not reported and then they give this money to the employees illegally. Have fun figuring out the profit on these businesses. Some businesses do not want to give you any financials. They do not even want to lie to you about the numbers; they just do not give them to you. You need financials even to just see what the operating expenses are.

Cash income — The problem with cash income, besides being illegal is it is unconfirmed. Jack bought a body shop doing $60,000 sales on the books. The seller showed Jack records that proved to Jack, an experienced body shop owner that the business was really doing $125,00 month in sales. After escrow closed Jack was given the production records for the last 5 years by the general manager that stayed with the company. The business was doing $60,000. Exactly what was on the books! There was no cash. The seller reported every dime. I **** to say it but if someone were willing to lie to the government and their business broker, why would they tell you the truth?

Find out what the seller wants – the next key step is to ensure that you find out exactly what the seller wants. You have already stated what you wanted when you got the word out. Now, you need to make sure you understand what the seller wants. Make sure you get full information on this from the broker or seller. On this step, you are basically finding out what the seller wants for his or her business exactly. That includes, down payment, seller carry back terms, time he is willing to train you to run the business, and what he is including in the price. Inventory can be included or extra. Leased equipment basically has you as the buyer assuming the debt, where financing on owned equipment is paid off in escrow or the price is lowered because you are assuming the debt. With all of this information, you can begin your negotiations.

Negotiate – Ok, now you know what the seller wants and you know what you want. On this step, the objective is to get the two wants to match up and agree with each other, so that the deal can take place. What you are trying to do at this stage is decide if you are going to go ahead with the deal or if you are going to continue talking with the broker and the seller until what they want is closer to what you want. The key here is keeping the conversation going (negotiate). As long as the conversation is going, it is much more likely to result in the deal taking place. So keep the conversation going!

Almost the final action – after the negotiations and an agreement has been reached, there is one final action that is vital. Your offer is in, but you are not done yet! Due diligence is required. Here you must get documentation on the financial figures you have been given. You want to verify that what you have been told is indeed the case. Get Profit and loss statements, business tax returns and other important documents. If you have been told that a body shop has a contract with the local city to service all their vehicles, or some such story, ask for and see the contract and verify that a valid contract does indeed exist. Part of this final action is ensuring that you have the advise of a competent professional as well.

Escrow – Never buy an asset sale purchase without an escrow. We have already established that the sellers may be lying to you about any number of things, but they may have debts that they do not even know about. The escrow will do a “bulk sale notice” that gives creditors of the business a chance to file their claims, and if they do not the buyer cannot be held liable. The escrow also makes sure that the payroll taxes; sales taxes; federal and state income taxes are paid in full. The IRS has come into companies and assessed for many years of unpaid taxes. As the buyer you would get stuck with this bill, if you didn’t do an escrow.

Conclusion – Following the above steps will see you through most of the pitfalls in buying a business.