Disspelling myths for aspiring entrepreneurs

Buying or selling a business can be very time consuming and often times stressful. 

It doesn’t help matters that most business owners have never sold a business before, and very often, business buyers are on the market for the very first time.   

Therefore, it’s important to dispel some of the common myths about buying a business.

The first myth is that a buyer is going to find the perfect business.   Unfortunately, there are no perfect businesses.  Buyers need to accept the fact that every business has faults.

The key is to find the right opportunity for you as a Buyer, and make it your perfect business.  Once a buyer has decided to do this, the question then becomes “What business is the perfect opportunity for me?”

A second myth is that somehow delaying the buying process will yield a better result.  Like any big decision the investigation and analysis stage takes time, as does the negotiations and eventual closing.  However, delaying the process purposely may give another buyer the opportunity to swoop in and purchase the business right from under you.

The key to analyzing and negotiating is to make it a priority.  Understand what risks you are comfortable with and what risks you are not.  Then decide on the deal points that are most important.  Negotiate hard for an agreement that you are happy with.  Delaying with the motivation of tilting the table will likely only frustrate both sides and leave you unhappy with the result.

Another myth often believed by buyers is to look at businesses beyond what they can afford.  It is common and advisable to sellers to offer financing to buyers to buy their business.  It can mean that buyer with $100,000 can actually afford a business worth $250,000.  It does not mean they can buy a $1,000,000 business.  A buyer who overextends himself will almost guarantee failure when some unexpected problem arises.

The key is to get a solid understanding of your financial situation.  While financing may be available, it is imperative that all aspiring entrepreneurs know how much money they are prepared to invest.  Plus, and perhaps more importantly, how much they expect to make. 

A business broker is a professional that buyers should turn to for assistance when deciding to buy.  They can show the buyer a variety of businesses that are legitimately interested in selling and help them through the purchase process.  With plenty of businesses to choose from in today’s market, it is more important than ever for buyers to make sure that their efforts remain focused on choosing the right business for them.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 

William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.

Consider using the services of a business broker

There are always details to every transaction that are best handled by somebody who knows just what to do.

The allure of being a business owner, the opportunity to be the master of your own destiny and your investments can be very attractive.

The risks of owning your own business should not be understated.  Business opportunities by their very nature carry risk including obsolescence or reduced demand for service or product, regulatory laws, ineffective management, changes in the local or national economic condition, and many others. 

By purchasing an existing business instead of trying to start one from scratch, a buyer can dramatically minimize the risks associated with starting a brand new business.

When entrepreneurs decide to buy a business they should consider using the services of an expert.  A professional business broker can help by showing a buyer a variety of businesses that are legitimately interested in selling and help through the purchasing process.

They will be able to explain the owners’ motivations for selling and be able to provide pertinent information regarding the financial performance, equipment, inventory, product lines, customer base, etc. 

A professional business broker will be able to draft a letter of intention that covers all pertinent issues (i.e. non-compete agreements, trade name rights, leases, due diligence), plus any unique contingencies that are relevant to the transaction.

When making the decision to buy your own business, using a professional business broker will allow you to concentrate on the important matters associated with operating the business.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 

William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.

"You can't always get what you want"

The title to the 1969 song by the Rolling Stones seems to echo what the market is telling many business owners these days. 

There is no question that prices for many businesses are down and for various reasons.  But if there are offers on the table, a business owner must take a hard look at any offers and be realistic as to what has to change in the business or the economy for the price to go up.

In a recent evaluation of a local  clothing apparel retailer cash flows were $50,000 in each of the past 3 years.  This small business has been in the area for well over 15 years and has branded themselves a bargain retailer with a strong local following and low cost overhead. 

The more recent economic times have hurt this business; however, the owner is 65+ and wants to be able to sell for $300,000.  At that level the sale will fund his retirement plus, based on the capital investments he has made over the past few years, this seems reasonable to recoup some of those investments.

An offer of $115,000 is quickly dismissed without much thought. 

Unfortunately, what needs to be considered are the terms and the prospects of meeting the owner’s expectations. 

The terms of the offer were positioned favourably for the owner who needed only to provide minimal transition training and carry a very small vendor note.  More importantly, if you consider the $300,000 asking price this business would need to increase cash flow by nearly 3 times for buyers to make sense of the rate of return. 

Combine that with the fact that buyers typically take a 3-5 year view of historical performance, makes a successful transaction unlikely.

With the prospect of needing to continue to work a number of years and (perhaps more daunting) work at a pace that will triple current results this business owner might be best suited to work with the offer he has in hand.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 

William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.

Where are the business financials?

If business owners do not have all their financials and tax returns at their fingertips (and many don’t), it usually means they don’t refer to them to effectively manage their operations.  It also may mean they don’t understand them. 

Business owners should regularly review their financials with their accountant and other advisors to do the proper planning necessary for a successful business.  Plus, when it comes time to seek financing or sell the business, these all-important report cards must be immediately available.

Depending on the business type it is often recommended that you review your businesses performance on a monthly basis and in some cases weekly.  By staying focused on some of the key drivers a business owner can quickly analyze and assess performance, trends, and potential potholes:

·         Revenues are the driving force in any business.  A demonstrated growth in revenues and increases in profitability over the past 3 years will help drive a business’ value up. 

·         Expense controls can dictate overall profitability.  Rent and tenancy costs, advertising and promotion, interest, general office costs, maintenance, etc. are all key areas where most business can find ‘smart’ ways to minimize those expenses without jeopardizing current and future revenues.  

·         Employee wages and productivity often make the biggest impact to overall profitability.  Regularly reviewing production levels of all employees, as well as quarterly or semi-annual performance appraisals are effective ways to know the pulse of a business’ most valued resource.

·         Cost of goods and raw materials needs to be shopped.  Good vendor relationships are typically critical to securing low costs and favourable terms.  ‘Shopping around’ to ensure you are getting the best bang for your dollar is a necessity and should be scheduled into regular intervals.  It is often easier to maintain your current partnerships, however, those partners need to know and understand you will continue to demand the most competitive rates.

·         Receivables and payables can spiral out of control without a firm handle.  Depending on the cyclical nature of business or market expectations on terms; managing your cash-in and collections for some businesses is a matter of success or failure.  Taking advantage of quick pay discounts or matching extended payment terms with receivables are strategic financial decisions that need to be managed regularly.

A recommended way to ensure business owners have and review their financials is to schedule regular ‘executive time’.  Taking a Saturday morning once a month to review without interruption, dedicating the last Wednesday evening of each month to your own personal ‘board meeting’ or starting each Monday with an hour examination are all ways to ensure you prioritize your time.  By scheduling your time and prioritizing your agenda it won’t be long before you start seeing better results in profitability and build your business’ value.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 

William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.