Business Loans: Simplify Business Financing
August 8, 2007
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This is a great new online business bank, iBank that specializes in matching business owners with pre-screened lenders.
You create a digital loan package that gets stored securely online (for free). This is how they explain the process:
- Register For Your Secure Vault
- Create Your Professional Loan Package
- Connect with Qualified Lenders
- Review Lender Proposals
- Select the Best Lender
- Close Your Loan
The idea behind iBank is that 40-60% of the information is the same on each loan application. So applying to multiple lenders can be a time consuming task. With iBank all your information is in your vault and therefore eliminates the duplicate effort. Check the site out if you are looking for a business loan.
SCORE Small Business Resources
June 27, 2007
Business Opportunities Weblog pointed me to new Online Resources for Entrepreneurs.
These added sections offer valuable information, tips and interactive workshops to help small business owners achieve success. Technology for Your Business, Learn Online, and Disaster Prep and Relief.
Business Planning: Q & A from Blog Business Success Radio
June 14, 2007
I was interviewed by Blog Business Success Radio today. I have added some of the text that formed the answers to the questions Wayne asked. Wayne did an excellent interview, check out the show:
You can download the show via [mp3] or iTunes. Visit Wayne’s podcast home page to listen to or download other shows. The show is 60 minutes in length and the download is 14.1 MB.
Business plans are important to any business. How much difference does it make for a company to have a solid business plan from one that does not?
The major difference was that 81% of successful firms would periodically take stock of where they stand with respect to their goals and followed up by making adjustments to their practices and expectations.
The sad news is that less than 33% of bankrupt firms with financial forecasts in their business plans actually compared their results with their forecasts and only 40% of those took any remedial action when their forecasts differed from their goals. [more]
Can a business plan, and even writing a business plan, help a business person to better understand the company simply from following the process?
Absolutely, in the last 17 years I have written, reviewed numerous business plans. When I wrote my last book, Tips and Traps for Writing an Effective Business Plan, I identified more than 467 unique, distinct touch points and wrote about each of those in my book.
If you actually read my book, did the work you will have at least considered each of those 467 areas in your business – I cannot see how anyone could do that work and not come away with knowing their business better. Can you?
One concern people have with business plans is they believe them to be too rigid. Are the numbers and processes in the plan carved in stone?
I have sold thousands of copies of my book and there are specific instructions to email me and request a copy of the financial projections. I can tell you that it the number of people who have requested my free Pro Forma financial statement spreadsheet is about 50 out of more than five thousand.
That means that people are either writing a business plan without financial statements or they are using something else to do them – my experience says that there are thousands of business plans out there without financial projections.
A business plan without financial statements is a dream and has absolutely no foundation in reality and you are kidding yourself if you think you have a business plan without documenting your costs and revenues.
As to your question, of the bankrupt forms that have financial projections only 12% of bankrupt firms reviewed their financial projections/statements and took remedial action. Whereas 81% of successful firms took remedial action – and survived!
The statistics speak for themselves, to make sure I am crystal clear, your numbers are never written in stone because they are changing constantly – if you do not track, review, and adjust your spending on a regular basis – you run a 3 times greater risk of bankruptcy.
How many business plans get written with the best of intentions, and then are left to collect dust, never to be seen again?
More than I care to think about – I heard Anthony Robbins say that only 10% of people who buy a book actually finish it.
I have thought long and hard about this fact over the years – I think the reason many business plans never get touched again is because they are a work of fiction. A work of fiction.
What do I mean by that? Every entrepreneur I have met that wants to start a business exhibits a strong desire to get started quickly. When the desire for something like starting a business is strong and you struggle to write a business plan – the temptation is equally strong to fudge the numbers.
So you tell me, if you write a business plan using ‘fudged’ financial statements would you look at it again? Likely not because it would be a reminder that you ‘fudged’ it. I know about this because I did that to myself the first seven years and I have caught clients doing the same thing.
When I ask them about why they would do something like that I get all sorts of answers. The only important thing they remember after that conversation is a greater understanding of the liabilities they could have potentially created.
Under the law Directors of corporations have a fiduciary responsibility to put the needs of the business ahead of their own. If they got caught in that type of situation in bankruptcy – it would be considered fraud and could go to jail. In fact a I had a client that went to jail for fraud – committed by their manager – the court found they did not fulfill their fiduciary responsibilities and put the directors in jail for the fraud of the manager. Had they properly supervised the manager they would not have been in such a situation reasoned the judge.
Unless you practice intellectual honesty when preparing your business plan you run the risk of writing a work of fiction.
How can this neglect of the plan be changed to actively using the plan in the company’s activities?
Create an intellectually honest business plan, promise yourself to create accurate financial statements and research or get support for those things you do not understand or have no experience with.
Should a company go over their business plan, say annually, and make revisions based on changing business climates?
Even more often if major assumptions and circumstances affecting your business change.
We understand the value of the plan, what are the ways to get started on writing the business plan?
In my book I say start with the Industry analysis, Marketing analysis, and then the financial statements – no sense wasting time on the rest of the plan if the business does not make financial sense, does not have a market that is easily accessible, or an industry in upheaval.
Join Greg On Blog Business Success Radio
June 13, 2007
I will be appearing Thursday June 14 at 6 PM MST on Blog Business Success radio. You can call in and talk with host Wayne Hurlbert and myself about creating effective & powerful business plans.
The dial In Number is (347) 996-5832, call in and to ask any question on the topic of business planning.
If you cannot make subscribe to Waynes podcast [RSS].
Future of E-Commerce Is Bright
June 8, 2007
- Do you conduct business online?
- Do you sell your goods or services online?
- Do you have a way to extend the relationship with your customers in a cost effective, efficient, and accepted media?
- Do you want to implement a marketing campaign that is truly measurable and accountable?
In the last decade the cost of starting an online business has fallen dramatically:
But my back of the envelope calculation is that it is about 10x cheaper to start an Internet business today than it was in the late 90’s — due to commodity hardware, open source software, modern programming technologies, cheap bandwidth, the rise of third-party ad networks, and other infrastructure factors. Via Bubbles on the brain
In the last decade the number of people online has grown substantially:
And the market size for a new Internet business today is about 10x bigger than it was in the late 90’s — there are about 10x more people online (really!), and they are far more used to doing things on the Internet today than they were in 1999.
Today people are willing to buy online:
In 2006, revenue from skirts, suits and shoes reached $18.3 billion, surpassing that from PCs, printers and word-processing programs, which totaled $17.2 billion, according to a report to be released today by a major trade group. Via Less Risk Seen in Purchasing Clothes Online
Competition
Your competition is no longer the guy down the street. Your competition comes from the business model of the guy down the street.
If you have been feeling that your business model is tired and worn out, perhaps using a new, innovative approach via an online store is just what you need. You will however need to stop Settling for Less Than Our Dreams, Limiting Beliefs, Sideways Thinking, and Unorthodox Ideas.
The opportunity to use an online business strategy to innovate and renovate your business has never been better. As long as you are willing to renovate your attitude toward E-Commerce because Passion and Curiosity Begets Innovation, you will need to know your E-Commerce Math, and remember to do more than build a website and actually build a value engine.
Create Your Own Private Marketplace
Your database of email addresses allows you to reach out and touch someone. Using a newsletter, you can softly and gently plug your new products or services and if interested they will stop by your online store and make a purchase. First you will need to know what type of lifestyle you want because running an online business is very different.
Marketing & Demographics: Boomer Business Women, A New Boomer Book, A Baby Boomer Blog
May 9, 2007
My ChangeThis email arrived and I immediately downloaded the ebook Turning the Generational Dial: A Plea to Boomers, Gen X and Gen Y [PDF] By Carol Orsborn, PhD.
In the process I also discovered her blog, The Boomer Blog and links to her new book, Boom: Marketing to the Ultimate Power Consumer-the Baby Boomer Woman. Here is an excerpt from her ebook:
The truth is that the generational dial will flip to a new channel soon enough. And when it does, there will be something society has never before witnessed: generations in power who will not have grown into adulthood anticipating the marginalized, invisible, powerless future boomers once expected to have—but rather, the promise of lifelong vitality, relevant entertainment and the thriving careers at midlife and beyond that boomers pioneered.
In her ebook Turning the Generational Dial: A Plea to Boomers, Gen X and Gen Y (free) she makes some great points, like:
- with an AARP study finding that as many as 8 out of 10 boomers don’t plan to retire, it’s clear that we are all in uncharted terrain.
- now “olderâ€? consumers between 43–61 have been rediscovered by the mainstream market-place – driven by numbers too big and active to be ignored as potential consumers, and it’s making some of today’s 20– and 30–somethings understandably nervous.
The Main Four Points of Carol’s ebook is:
- It’s misguided to blame boomers’ continuing dominance as stemming from selfishness.
- The lifespan has elongated the life cycle for all the generations.
- Boomers have suddenly found themselves to be the “cool generation.�
- Nobody is more surprised to still be in the limelight than the boomers themselves.
Carol Orsborn also has a new book Boom: Marketing to the Ultimate Power Consumer-the Baby Boomer Woman in addition to her other two works, The Silver Pearl: Our Generation’s Journey to Wisdom, The Soul of Business.
If you are serious about marketing and business, you must read everything you can get your hands on regarding boomers and demographics because it all shapes the demand side of the “supply and demand equation” which of course impacts our revenues.
Carol, I am adding your blog to my blogroll and looking forward to connecting with you someday soon.
Sincerely,
Live Large! You deserve the best.
Starting a Business and Most Important Part of a Business Plan
April 2, 2007
I keep forgetting to link to my blog posts on SmallBizUnplugged and BizPlanHacks, Doh! Here you go:
- The Most Important Part of The Business Plan
- Staring a business? How to Find Out How Marketable Your Company, Product Or Service Actually Is
I will try to remember and create this post everyday. I wish there was a more automated way to do this, by inserting an RSS feed but it borks and does not display properly and is inconsistent as these blogs are using the typepad/six-apart application. I cannot figure out why it is borked and have better things to do with my time.
Anyone know of a easier way than inserting an RSS feed of posts? Enjoy!
Live Large!
60 Minute Strategic Plan: Mission Impossible?
March 30, 2007
I was listening to a podcast today called, I’m there for you baby! by Neil Senturia and Barbara Bry on San Diego’s Cash 1700 AM.
Who interviewed John E. Johnson and Anne Marie Smith authors of the 60 Minute Strategic Plan. On the show John outlined the process as 2 stages, 12 Steps, and 300 words:
- What is the issue?
- What are the assumptions?
- What happens if the issue does not get resolved?
- What happens if it does get resolved?
- How will these issues effect on the company? (quantify)
- How will it affect revenues?
- Develop a Vision
- What are the best imaginable outcomes you can imagine?
- What are the obstacles?
- What is the customer impact?
- Attack the obstacles.
I realize that I have only provided 11 steps but that is all the authors mentioned on the podcast. I also checked out the authors website.
You can order the 60 Minute Strategic Plan book, I know I am ordering a copy.
I can see using this process to create clarity and focus, then using my business plan as a management tool.
What do you think? Possible or impossible?
Live Large!
Kawasaki’s VC Powerpoint Tips
March 23, 2007
Seeds of Growth pointed to Guy Kawasaki’s The 10/20/30 Rule of PowerPoint post about Mr. Kawasaki’s preference and recommendations when presenting your business plan to Venture Capitalists.
The outline Guy recommends is:
- Problem
- Your solution
- Business model
- Underlying magic/technology
- Marketing and sales
- Competition
- Team
- Projections and milestones
- Status and timeline
- Summary and call to action
This is also a great outline/checklist for a writing a business plan. Guy Kawasaki is author of The Art of the Start, Word of Mouth Marketing, and Rules For Revolutionaries.
Business Success in Just 486 Steps
February 1, 2007
Have I lost my mind? Who in their right mind would promote the number of steps required to develop your business? That would be me, when I was writing my book on the subject of writing a business plan I counted the number of tasks and strategies covered in the book.
“It is unrealistic and impossible to start a business from scratch and have every one of the 486 areas covered. It takes time, time to absorb and adapt to the changes that need to be made. Tell me, which of the 486 areas your business can do without? I don’t think you can do without any of them and hope to have a profitable and sustainable business.” Via Entrepreneurship is a Evolutionary Journey
I have always said that a small business has a limited capacity to absorb change. What other reason can explain why business success takes so long?
“Just like our kids, a business takes years to mature. Like a child a business needs to learn how to walk, talk, and eat. Often it needs a lot of care and maintenance but you keep at it you will eventually evolve your business structure and systems to a point of maturity that you have either considered or integrated everyone of those 486 strategies.” Via Entrepreneurship is a Evolutionary Journey
Those stories you hear of overnight success are fleeting. Enduring business success is preceeded by years of focused effort. Just read Good to Great to real about real business success. Plus Jim Collins (the author of Good to Great) has a great website with lots of super resources.
Powerful Planning Made Simple
January 31, 2007
Being a bit of a planning geek, you know I love it when someone takes a complex subject and simplifies it. Well this young man, Emmanuel Oluwatosin, provides excellent points on planning but also on managing a business. Make sure to check out his short and insightful post.
Develop a plan in clear detail and prepare in earnest. Plan the action you must take to attain the goals. While the effort required to reach each sub-goal should be great enough to challenge you, it should not be so great or unreasonable as to discourage you. Do not plan to reach too many goals all at one time. Establish priorities. Clarify exactly what your goal is and set a deadline for each milestone. Acquire critical knowledge and skills. Identify the possible obstacles and difficulties. Via Emmanuel Oluwatosin
My only caution is to make sure you do not just skim the article, take time to stop and think about each paragraph. Then decide what changes you want to make, note them down, and then take action.
Hat tip to Ben from the Carnival of the Entrepreneurs (8th Edition) for including Emmanuel Oluwatosin in this edition. Good pick. Someday I will have to write and submit an article.
How to Get Ready to Write A Business Plan
January 25, 2007
This is a video I did a long time ago about business planning and how you can make the most of your time spent writing the plan. It covers the executive summary and what should be included in each section of your business plan.
It is a good introduction that will have you well prepared to write your business plan.
VC Funding Evolving Due To Entrepreneurs Push Back
January 11, 2007
Good news. Just like every other business segment innovators are identifying customer needs looking for new opportunities to carve out new market share and to eb more competitive. Even the VC’s are having to adjust.
CRV QuickStart provides select entrepreneurs with a loan to fund the work needed to build out your idea, enabling you to explore its potential in its earliest stage before you raise a round of formal equity financing. By offering up to $250,000 in the form of a loan (also referred to as a “convertible note”), we’re providing the capital to fuel ideas without that painful seed-stage dilution. Via Charles River Ventures – Quick Start Program
What is great about this program is if you have a great business concept and need some cash badly, you do not need to dilute your companies growth potential with a loan that the VC can use later to acquire an equity stake in your company.
If your business crashes and burns, from what I heard you are not on the hook for it personally. Check out the details for yourself Charles River Ventures – Quick Start Program to learn more.
Live Large!
Greg Balanko-Dickson
New Book: Tips and Traps for Writing an Effective Business Plan
January 5, 2007
As an incentive, if you “buy the book” from Amazon and send me a copy of your amazon receipt by fax (1-866-281-8281) you will get a ticket to participate in my 4 week tele-class (a $299 value) about business planning. I will donate $3.00 from the sale of each book for micro-loans via Kiva.org
Carol snapped this photo of me when I got my shipment of books. She caught me off guard but I cooperated, anyways.
What is also cool is that Amazon is shipping my second book “Tips and Traps for Writing an Effective Business Plan“. The cover they show is a bit different from the final printed product but is the real deal.
Does your business accomodate your life?
December 15, 2006
Thanks to Success from the Nest I have a new blog that I have added to my RSS reading list, Escape from Cubicle Nation.
It is possible to have a great business and not spend all your time working. It is up to you to design it that way, then have the willpower to stick to your plans, despite temptation. Via Escape from Cubicle Nation
What I like about Pamela’s “Avoid becoming the stressed-out, overworked entrepreneur” post, is the effort she made in writing a complete article, for example:
“There is a difference between working hard to build your business and running yourself into the ground… here are some things that may help pull you back out (or avoid altogether, if you haven’t started up yet)”
I especially like her first two points 1. Price your services appropriately. 2. Schedule in time to work on your business.
Over on my Biz Plan Hacks blog I wrote an article, “How Do I Set A Profitable Hourly Rate To Charge For My Services?” so you know why I like the point Pamela makes. Plus the “Eleven Traits & Attributes Of Entrepreneurs” and point number ten states that “[entrepreneurs]…know they cannot do it all themselves.”
Many entrepreneurs are already doing those things and are tired and weary despite their best efforts. What are they to do? Here is my list:
- Time Audit: conduct a time audit to see where you are spending your time and energy and look for ways to improve.
- Develop New Habits: developing new habits that will help you move forward. Pick something that bugs you about the way you operate the business and change it. Pick an area that will require a change in your schedule, process, or method. Then turn it into a new habit.
- Reward Yourself: when was the last time you took a holiday? If you think you cannot afford to take a holiday then you likely really need one. Get a fellow entrepreneur or friend to look in on your business or manage it for you when you are away. Then you can reciprocate for him/her.
- Renew Your Vision: when you started your business you were excited and passionate about what you were going to do and how you were going to do it. Building a new vision for your business will invigorate and refocus your staff and yourself.
Who Needs Money to Start a Business? Got $8,000?
March 20, 2006
I hate it when business writers use statistics without providing the proper context. It casts a dark shadow on small business success.
Forbes blog cites a paper from Erik Hurst an associate professor of economics at University of Chicago’s Graduate School of Business research seems to debunk the myth that access to capital or liquidity stimulates entrepreneurship.
In the short interview on Forbes.com Hurst states they found the average investment to start a business was $8,000. Neither did getting an inheritance or increased equity due to rising home equity have any measurable impact on starting a business. Hurst surmises that, “Money does not seem to create the ability to become a business owner.”
This Study Fails to Provide a Accurate Context
I was not surprised that the study found an average investment of $8,000 because in the last decade the number of small, small (no employees) or solo-entrepreneur firms skyrocketed.
The other statement that caused me to discount the entire study is Hursts statement “And small businesses fail at an alarming rate.” in my recent article It’s Time to Stop Surviving and Focus on Thriving I quantify the actual failure rate and here. Both the Forbes author and Hurst failed to quantify or provide an adequate context to the history of business startup.
The Facts
I reported in Entrepreneurial Activity Soars the number of U.S. Businesses grew from 7,200,770 businesses in 1992 to 20,038,163 in the year 2000 (source: 2000 U.S. Census) and a little over 8,000,000 had no employees.
The part that I think Hurst gets right is that they found an average investment of $8,000 which tells me that in the last decade or so, solo-entrepreneurs startups were created solely to employ the owner. Most of those would be service-based businesses that require much less capital. With a good computer, Internet access, a desk, and phone – you have a business. Business start for a lot of reasons but not because people have a bunch of cash laying around – they started a business because they wanted to create something.
Why did you start your business?
Accessing Retirement Funds to Start or Buy a Business
February 19, 2006
Should you use retirement funds to start or buy a business? According to a 2004 article at Entrepreneur Magazine you shouldn’t and the article makes some good points. In the USA there have been some changes to tax law to allow you to ‘borrow’ from your 401(k) account.
The keyword here is ‘borrow’ the money does have to be paid back. In some cases I think it has legitimate use and application to help fund a startup or purchase of an existing business. Especially when a bank requires 25 per cent of the total investment to buy a building or a business to come from you the entrepreneur. An extra $50,000 could make a big difference in the way a lender would view your application.
In the USA: How to Borrow from Your Retirement Account
If you are interested in financing your business, you should know …about a tax law change that allows you to borrow up to $50,000 tax-free from your 401(k) retirement account. Any business with no employees can establish a self-employed 401(k) plan that comes with a loan feature. It doesn’t matter if your business is a startup or has been around for years. You can run your business part-time or full-time in the form of a sole proprietorship, 1099 contractor, partnership,LLC, or corporation.
In Canada: The Self-Directed RRSP
In a self-directed plan, you make your own investment choices. These decisions can be based on information given to you by your tax or financial adviser. In fact, many Canadians allow their financial planners to look after their self-directed plans. However, as the owner of the plan, you always have the final say in how it’s managed and the types of investments purchased.
Yes, there are limitations and you should seek the counsel of a financial planner before using these funds to make sure you understand all the terms, risks, and requirements when making a decision to tap your retirement funds to start your business.
Answers from the Author: Tips and Traps When Buying a Business
January 26, 2006
What motivated you to write a book about buying a business?
Baby boomers, are just now beginning to seriously consider retirement options as the oldest of them start to turn 59 (as of 2005). For baby boomer business owners’ greatest problem is to figure out a way to retire and extract the equity that has built up in their businesses. That will mean selling their business to convert their equity into cash or retirement income.
This spells an opportunity for younger baby boomers and Generation Xers to buy a healthy, existing business versus starting from scratch.
What specific life/work experiences do you have that makes you qualified to write about buying a business?
I have been a fulltime business coach since 1991 and have experience in 32 industries and 100’s of entrepreneurs. This broad experience provides me with a unique perspective on the opportunity and process of buying a business.
What problem are you trying to solve or situation you are trying to change with this book?
Bridge the information gap and provide a structured process to buy a business step-by-step.
Who do you see benefiting the most from your book Tips and Traps When Buying a Business book?
The book provides beginners and experienced entrepreneurs with the information they need to maintain objectivity, negotiate with confidence, and create a plan to take over a business. Younger baby boomers (now 41) and the older Generation Xers (age 40) are in a unique position to be able to capitalize on the opportunity created by the hundreds of thousands of baby boomer business owners that need to extract the cash trapped in their corporations.
What are the consequences for business if they do not heed your advice?
Business owners (sellers) who hold onto their businesses too long will be forced to sell quickly and end up with less cash than if they had sold the business to a buyer sooner.
Why would someone buy a business?
There are at least 15 reasons here are a few.
- Cheaper to buy a business than start one from scratch because the seller has already paid those costs.
- Reduced risk of failure. When you buy a business you get a list of established customers, established cash flow, shorter time to market.
- Seller Financing. If the deal is structured properly, sellers get huge tax advantages by financing the purchase, which does not affect your ability to borrow on a personal basis.
What is the difference between buying an established business versus a franchise?
A franchise is a great option if you are more of a manager than an entrepreneur because you just follow the training provided by the franchisor and will likely end up with a profitable business. Whereas, the entrepreneur will be better suited to buying an established business because they get the advantages of a franchise (proven systems, marketing, cash flow etc.) without the burden of franchise fees with a lot more flexibility.
What is the best method to find a business to buy?
It is not looking in the newspaper, web sites, or business brokers because the best businesses never make it to market and are quietly sold or given away each year. The book was written to provide you with the information, tools, and concepts to help you identify potential acquisition targets without using business brokers, classified ads, or web site directories.
How do you determine a fair price when buying a business?
This is the most common question I get asked and also the most complex to answer.
Valuation is not absolute. Valuation is simply what a company is worth to the buyer and seller of a business. In reality, business valuation is a matter of supply and demand, and the business is worth as much as a buyer is willing to pay.
Whether you evaluate a business according to the value of a third-party appraiser provides or a business plan demonstrates remember, it is at best a guess. A guess based on assumptions. How accurate your assumptions turn out to be only time will tell.
The actual value of a business is dependent on market conditions and your plans for the business. Your plans for the business can make all the difference in the world. So the answer is, it depends.
Often buyers will hear business brokers refer to the asking price for a business as a multiple, for example, 2 times annual earnings (twice the annual net profit). Certainly there are industry norms and history that brokers and sellers use to come up with a ballpark price but that does not necessarily help you as a buyer. In fact reliance on any one valuation method, may cause you pay too much. I recommend buyers use multiple valuation models to examine the price of a business they want to buy.
My book explains how to use five different valuation methods, however answering question of “What is a fair price to buy a business – requires some work on your part – and might be counterintuitive. Let me explain.
The only safe way to figure out a fair price to pay for buy a business is to write a business plan before you sign on the dotted line. The process of writing a business plan forces you to examine every aspect of the business – what is great about writing a business is that you will see the business at a more granular level and likely uncover opportunities to restructure and reorganize the business – thereby increasing its profits. Which of course makes buying the business easier and more appealing.
I have seen cases where a new owner was able to restructure the business, increase its profits and pay off the seller quicker all because they did a little extra work upfront.
What are some of the common mistakes people make when buying a business?
Buying a business is like falling in love. Initially you are cautious and wary, but as you begin to dance, you realize that you like each other, then excitement builds and you start to overlook important details. As the song says, “Slow down you move to fast.”
What are some of the important trends in business and buying a business?
Entrepreneurship has exploded in Canada and the US. 17 per cent of baby boomers state that they plan to start a business in retirement and even more boomer business owners plan on keeping their businesses well into retirement. Buying a business reduces the risk on their retirement cash when compared to starting a business. A start up has no customers, no cash flow, and has to setup from scratch whereas a established business has proven systems, cash flow, and relationships with existing customers.
How do you finance the purchase of a business?
You can finance in one of three ways: use a bank, get investors, or my favorite seller financing. Bank financing can be used if you have a great credit, personal assets you are willing to pledge as security after you make your own investment in the business. Typically, a bank will want to see you invest at least 25 per cent of the purchase yourself. Depending on where you live there may be other assistance available through government sources or programs. Investors or venture capital might be an option except that you will give up a portion of your equity and in some cases they will want majority control.
Seller financing when well structured is often the best option for both the seller and the buyer. The seller ends up saving a lot on taxes that would otherwise be paid to the tax department and as the buyer you get financing without typical bank encumbrances and if desired the ongoing advice and support of the seller.
Should you buy a business in an industry you have not worked in?
No. You do not know what you do not know. If you have a specific type of business you want to own – go get a job working in the kind of business you want to buy. Two things happen, you get to learn about the business on someone else’s dime and if you don’t like it, you quit and move on. It is much harder and more expensive to exit a business you own than to quit a job as an employee.
Do you have any other books?
My second book Tips and Traps for Writing an Effective Business Plan is due in stores in September 2006.
What is the difference between a business coach, life coach, and other professional advisors?
Generally professional business advisors simply told you all of the ’stuff’ that you should be doing. While the information may have been good, oftentimes life gets in the way of implementation, and you continue doing what you have always done.
That’s where personal effectiveness (life coach) comes in: time management, goal setting, and other personal effectiveness strategies ensure that you actually make things happen.
Personal effectiveness has its limitations. I am sure you recognize that a positive attitude and passion are great, but if you don’t know the first steps to take (as well as make sure those steps are in the right direction), you will be positive – but broke!
That’s where business effectiveness (from a business coach) comes in – a business coach will have many programs and strategies to improve your profits, make you a better leader, help you to systemize tour business, and help you maintain a better staff!
Not only will you know what to do, but you will also take positive actions every week that will literally drive your business forward!
The reason that this process always works is relatively simple. It combines the best learning of both personal and business effectiveness through the ages. Successful people have a lot in common. Successful businesses have a lot in common. Most business coaches have relevant experience and are trained in how to help you implement a combination of these powerful lessons.
Buying a Business? Avoid the Valuation Trap
January 24, 2006
I was speaking to a reporter yesterday, he was interviewing me about my book, Tips and Traps When Buying a Business. I have to admit that I mishandled answering his question I was not prepared for the way he asked the question.
He said: “You speak about valuation but you do not provide hard facts about valuation.” And I responded by saying that I dealt with the valuation topic by providing explanation about business valuation methods. But he was not really satisfied with that answer.
After hanging up the phone, I thought of how I wish had answered his question.
He wanted to know if there were any rules of thumb about business valuation and of course there are industry norms and methods used by accounting firms. I have seen valuations range from one or two times annual earnings to as much as seven (7) times.
Buying a Business Is Unlike Anything You Have Ever Done
I think our shopping habits from other large purchases ??? say a house ??? lead us to try to figure out ‘how much business we cab afford’ to buy. Like a candy store and say “I would like to buy $100,000 worth of that red one.” I realize this example is extreme but I use it to make a point.
The price matters not if you cannot afford it. How do you know if you can afford to buy a business? You could base it on how much money you have to invest or how much you can invest and borrow the rest from investors or a bank. Wait, that is the worst way to make a decision on whether to pursue buying a business.
It is About What You Can Do With the Business
It does not even matter how much the owner is asking for the business because you will not buy it if you cannot afford it. The only way you will really know if you can afford to buy the business or not, is to write a business plan. If your business plan shows you can make money plus repay the loans and you really like the business ??? buy it.
I had a customer pay seven times annual earnings to buy a business. The circumstances were unique, the buyer had no cash and the owner financed the purchase 100%. Did he overpay for the business, probably, but if you were selling it and taking some risk you would want to be rewarded for the risk right?
Where else could you find someone willing to finance a 1.5 million dollar purchase for someone with no money?
In this situation, the buyer was a key employee and made the owner a lot of money working for three years while the owner got a chance to ‘test drive’ the buyer. I say the buyer earned the 100% financing through sweat equity.
Before You Run Out Pitching Sellers to Finance 100% of the Purchase??
I want to say that you can afford to buy any business that makes money and makes sense from a business perspective – but that requires a bit more of an explanation. Here is the real important lesson. Buying a business is a complex decision with many variables that could make a significant difference between making a ‘buy’ or ‘no buy’ decision.
If you rush into making a deal I guarantee that you will overlook something, either pay too much or find out something you’d wish you had known before you signed on the dotted line.
Buying a Business is a Technical Decision – Not an Emotional One
I have calculated that there are at least 467 factors that go into making a business succeed. If you want to buy a business without paying too much or ending up with an albatross, take your time. Time is the great equalizer.
The seller has been with the business for years and that gives him or her a significant advantage. He will know the recipe to the ’secret sauce’ and knows where the bodies have been dumped. (I apologize for being so graphic but you get the idea) To get the advantage back in your favor, you need time ??? time to observe the business through at least one full billing cycle – and you need structure.
Structure? Structure? What is Structure?
Bringing structure to buying a business is all about the ‘process’. The process I recommend is to write a business plan before you sign on the dotted line. I have read lots of books and articles that talk about writing a business plan immediately after taking you get the keys. I only coach people who are buying a business ??? so I have no distractions or conflicts ??? the only thing that matters is you the buyer.
My book will give you the structure, process, and coach you through the process to buy a business. It also includes a guide on how to write an ‘Acquisition Plan’ a.k.a. business plan. If you are diligent and work the process, write a business plan, you will know exactly how much the business is worth ??? when is the best time to have that information? Before or after you sign on the dotted line?
I have to warn you. My view is not a commonly held viewpoint because it involves work and slows buyers down and sales people, brokers, and sellers will want you to make a quick decision. Resist! My book will give you tips on how to handle yourself, sell the seller, and how to get the time you need to properly evaluate buying the business in question.
You Can Pay Me Now or Pay Me Later
You can pay me now and buy the book or pay me later to help you fix the mess you got yourself into, I hope you choose to pay me now and buy the book. It is an easy read and will open your eyes and give you the information you need to maintain control and make a profitable business decision.
Goals, Plans, Actions
December 24, 2005
“Our goals can only be reached through a vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.” – Stephen A. Brennan, American basketball coach
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