U.S. Entrepreneurship Outlook
June 29, 2005
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As a business coach I have been keeping an eye on small business statistics and ran across a report from the Global Entrepreneurship Center at Florida International University. On their publications page is the 2004 US Entrepreneurial Assessment.
Entrepreneurial Strength
According to the report about 31 million people are involved as business principals in the U.S., with 13.7 million involved in 7.4 million start-ups; 7.6 million owner-managers of 4.5 million new firms [less than 3.5 years old]; and 15 million as owner-managers of 8.6 million existing firms.
Entrepreneurial activity continues at a high level in the United States, compared to all other
advanced economies.
The U.S. context continues to be unique in several ways:
- the potential for substantial informal financial support,
- the presence of a substantial research and development sector,
- a system of regulations and procedures that is not excessively burdensome for business creation and termination,
- and a society that accepts entrepreneurship as an appropriate and respectable career option.
Statistics Reveal Only a Partial Picture at Best
The report goes on to affirm “There is no evidence that significant regulatory or policy issues require immediate attention.” I beg to differ. In a previous post I pointed out that this October there is a change coming in the bankruptcy act that will make it harder to terminate, close or quit operating a business.
Be Cautious Interpreting Statistics
Interestingly the Florida report also states “There is substantial evidence that the U.S. should not be complacent regarding the entrepreneurial sector and should continue to assess, adjust and refine the national, state, and local entrepreneurial context.”
Indeed, complacency is dangerous, especially for the entrepreneur. We need to communicate with local, regional and national government bodies the need for a supportive regulatory environment.
Lobby Government Officials
When was the last time you met with a government representative? Personally, it has been about 6 years since I had coffee with a government official, long overdue.
Whatever you opinions and political stripe, express you views. Make yourself and your opinions known. Let them know they can count on you as a sounding board on small business issues. That way you have an opportunity to have an open discussion and exchange of ideas, the first step towards understanding the needs of the small business owner.
I would love to hear reports back after meeting with government officials. Will you take up my challenge?
Making the Business Yours
June 29, 2005
Now you move from buyer to business owner.
After assuming management and operational control, you need to send a clear message to the employees, suppliers, and your customers. They need to know you are in charge and what your plans are for the business. Most important, they will need to know how they fit into your plans.
This is a unique opportunity in the life of a business. You will never again have the same chance to set the tone for your style of leadership and to establish your brand. The impact this can have on marketing and sales in the first 90 days is significant. To take advantage of this opportunity, you need a communication plan with detailed tasks, including an implementation timeline.
Chapter 22. The Transition: Making The Business Yours and Boosting Morale The First 90 Days, A Morale Boost, Sellers Remorse, The Communication Plan, Five Qualities of Effective Managers When Taking over Management, Tips for Managing the Previous Owner as an Employee, From Corporate Culture to a Sense of Community.
Executing a Deal to Buy the Business
June 29, 2005
Making a deal is all about confidence. At this point you have spent at least one month conducting a due diligence inspection, not to mention all the soul searching and research discussed at the beginning of this book.
If you do not feel confident at this point, do not proceed. Take time to review all your notes and what you discovered during the due diligence process. Have you discovered anything that you cannot live with? It is one thing to be nervous—after all it is a big decision—but it is quite another to have a valid reason (material misrepresentation, etc., by the seller) to not buy the business. Here are some questions to help you look at things afresh…
Chapter 21. Executing A Deal Reviewing Letter of Intent, , Renegotiating and Modifying Terms, Acceptance Of Your Offer, Buying With Confidence, Creating The Final Sales Agreement,
Verifying Information
June 29, 2005
The purpose of the due diligence phase is to confirm statements and claims made by the seller and also to confirm that the numbers you used to make your decision are accurate. On the basis of your accountant’s review of the financials, you will be able to redo your valuations based on actual figures, if they differ at all from the information used.
This is where the process of buying a business can get tedious. But it is important not to skip or short shrift this stage.
Chapter 20. Due Diligence Verifying Information, Formal Negotiations Take the time to verify everything in the letter of intent including operations, employees, customers, suppliers, management, suppliers, assets, liabilities, financial and legal review.
Finding Solutions
June 29, 2005
Eventually you and the seller will come to some sort of agreement. It will involve specifics and generalities. Needless to say a lot of information will have passed between you and the seller during negotiations. Putting it down on paper is designed to protect both parties. The document should include the price, conditions, terms, and commitments of each party that are open to negotiation prior to signing a final contract.
Chapter 19. Finding Solutions Preparing A Letter of Intent, What Is A Letter of Intent, Non-Binding Provisions, Binding Provisions, Confidentiality, Non-Solicitation Of Employees, Dealings In Good Faith, Preparation Checklist, Advanced Communication Tips
Identifying Deal Breakers
June 29, 2005
It does not take much to kill a deal. Emotions run high especially when two strong willed people are standing their ground in an attempt to make sure they get what they want.
Using the information in this chapter could help you save a deal from collapsing. Saving a deal is being prepared and organized, knowing how to communicate in difficult circumstances. Tips on standing your ground, compromising and when to walk away.
Chapter 18. Overcoming Roadblocks & Obstacles, Identifying Deal Breakers Reviewing Your List Of Concerns, Dealing With Roadblocks (Time Wasters), Removing The Obstacles (Tough To Get Over), Deal Breakers – Creating Your Stop Loss Order – Healthy Boundaries, Advanced Communication Tips - Gaining Seller Cooperation, Coming To Agreement, Note Taking – Giving Instructions To Your Attorney
Preliminary Negotiations Begin
June 29, 2005
Negotiating to buy a business is more complex than and different from any other major purchase you may have had experience with. A business succeeds because the owner found a way to tough it out during the lean times and kept refining the business until he or she found a formula that met the needs of the marketplace and was profitable. This creates a lot of emotional attachment to the business, staff, and suppliers.
This is an important factor because the emotional attachment a seller has to the business is going to impact your negotiations. I have had many owners express their concern about how the plans the buyer has for the business will affect staff and suppliers.
Chapter 17. Preliminary Negotiations Begin Let Them Talk, Protecting Each Others Interests, Information Gathering Questions, Emotional Traps To Avoid When Negotiating
The Seller as the Biggest Obstacle
June 29, 2005
The reason so many business owners continue to operate a business long after they can afford to retire is the great satisfaction and sense of purpose they get from managing their business. They love the business and for many it is the most meaningful part of their lives outside their families. Selling the business means they will lose that connection. Further, just considering selling the business forces them to consider the future. If they have not taken the time to think through what it means to be retired, this could cause negotiations to come to a complete stop for a period of time.
If you found the business for sale through advertising, you will know the price and likely the reason the business is for sale. The seller has already made a decision to sell and is prepared to meet with prospective buyers. For the most part, you can meet with the owner and ask a few questions to get the information you need to decide whether or not you want to pursue it further.
Chapter 16. Understanding The Seller’s Situation Align With The Seller, Understand Their Situation Change Your Approach, The Seller May Be Your Single Biggest Obstacle To Buying A Business, Move Negotiations Along By Helping The Seller, Understand The Psychology Driving A Business Owner - Advanced Communication Tips
Who Are You? Why Should I Care?
June 29, 2005
Sooner or later you will need to approach a business owner about buying his or her business.
On the basis of your research and an industry analysis, you have identified a business you want to learn more about. How do you approach the business owner?
The business owner may or may not have been thinking about selling the business. On the other hand, if you found the business for sale through a newspaper ad or another advertisement, your approach is much simpler. Regardless, you want to make a good impression and get things off to a good start. What are you going to say or do?
Chapter 15. Approaching Business Owners - Who Are You? Why Should I care? Match Making Made Easy, Communication Tips, Timing Is Everything, Protecting Interests, Information Gathering Questions, Keeping Notes
Does Your Business Plan Pass the Acid Test?
June 29, 2005
Market Size and Market Share
Determining the size of your market and how much market share (percentage of the market that buys from you) you need to be profitable is a crucial measurement. It can make the difference between affluence and bankruptcy.
In doing research for a client once, I discovered that the size of their market was much smaller than anticipated. When I calculated how much market share they needed to succeed, it turned out that they would have to achieve a market share of 150 percent. Everyone would have to buy their service 1.5 times! Not realistic and not achievable, so we refocused by adding markets they had not previously targeted.
Chapter 14. Does Your Business Plan Pass The Acid Test? Role Of Market Share, Cash Flow Projections, Sensitivity To Fluctuations In Costs & Changes In Revenue, Interpreting The Sensitivity Analysis, The Difference between Cash Flow and Profitability
The Financial Information You Need to Organize
June 29, 2005
Before your accountant can work on financial projections, you need to gather and organize the raw financial information to pass on to him or her. The documents needed include a list of assets (an appraisal may also be required), inventory, and the last three years of financial statements.
Chapter 13. Business Finance What You Need To Know To Help Your Accountant Build Your Pro-Forma Financial Statements, Role of Your CPA, Owner/Seller Financing, Tips dealing With Banks and Seller Financing
Create an Acquisition Plan
June 29, 2005
An acquisition plan is a type of business plan focused on the unique issues in buying a business, especially one that involves purchasing the shares or stock of a business. The purpose of committing your acquisition plan to paper is to look ahead and plan how you will go about assuming or taking possession of the business in question.
Chapter 12. PREpare or REpair – Create An Acquisition Plan Pulling It All Together And Down On Paper, The acquisition Target, Why Is It for Sale, Market, Impact of Change In Ownership plus tips on preparing a acquisition plan and documenting the changes, ideas that you have.
Following the Money Trail
June 29, 2005
Financial statements are like a trail of breadcrumbs that will teach you everything you want to know about a business. This chapter will not turn you into an accountant, but you will be able to carry on a conversation with the seller, your accountant, and attorney. If you cannot read the financial statements provided by the seller, you will not have a complete picture of the business.
Without a basic understanding of what financial statements contain, you will be dependent on professional advisers. You will still need an accountant, but with the basics you can carry on a conversation and ask intelligent questions. You are the business owner—or soon will be—and many financial decisions will have to be made. Having a rudimentary understanding of business financials will help you get started.
Chapter 11. Show Me The Money – Understanding Financial Statements Power Tools, Introduction To Understanding Financial Statements, Financing Is the Least of Your Worries, Eight Reasons to Buy an Existing Business (Instead of Starting from Scratch), Factoring in the Baby Boomer Demographic, Trust the Process, Make It Work for You, It’s All in the Details, Do Not Agree to a Short Due Diligence Period…
Beware of Your Comfort Zone
June 29, 2005
Buying a business is like a dance. You know you want to dance but you’ve got to have the courage and desire to actually ask someone to dance, or if someone asks you to the dance, to actually participate. Therein lies the biggest trap when buying a business: confidence or the lack thereof.
This chapter contains practical tips on cmmunication skills and reading people.
Chapter 10. Selling The Seller - Gaining Cooperation Comfort Zone, Confidence, Free Money, Negotiate Do Not Demand, A Healthy Ego Is A Beautiful Thing, Listening, Communication Skills, Body Language
One of the best reasons to buy a business, the employees.
June 29, 2005
Evaluating the employees of the business you are interested in buying is difficult, but important. You may not be able to do a full evaluation until you take over the business.
We are in a service based economy that relies on employees to deliver a service that will be experienced by the customer. A good business has good employees.
Chapter 9. Uncovering Hidden Secrets - The H Factor Information You Need From The Seller About The Employees, Be Cautious In Your Communications With Employees, Set Boundaries With The Owner, Get The Information You Need By Listening, Pay Attention.
How much is a business worth to a buyer?
June 29, 2005
Determining the value of a business is subjective, but there are common models and formulas used to assess the value of a business. Whether that number accurately reflects the true value of the business is a decision only you, the buyer, can make.
Chapter 8. The Art Of Business Valuation Value Of Hard & Soft Assets, Value Of Market Position, Evaluating How Much To Pay For A Business, Industry Comparisons, Trend Analysis, CPA Analysis, Common Valuation Methods: Sales Multiple Method, Earnings Multiple Method, Discounted Cash Flow Analysis Method, Asset Valuation Method, Use Multiple Valuation Models To Analyze Business Value, Other Considerations That Impact Value, Understanding Business Valuation, Valuation Is Not Absolute
Paying for goodwill when buying a business. Yes or no?
June 29, 2005
Goodwill is an intangible asset which gets its value from the business’s good name, strategic location, high employee morale, and other factors that translate into above-average earning power. As a buyer, you may be asked to pay goodwill. The amount of goodwill can vary greatly from business to business.
Chapter 7. The Goodwill Controversy Impact Of Goodwill On The Price Of A Business, The Buyers Conclusion, Accountants View Of Goodwill, A Business Owners View Of Goodwill, Every Successful Business Has Goodwill, Is The Price Inflated Or Is It A Fair Price, Do The Math, Create Your Own Goodwill Upfront, You Can Pay Me Now Or You Can Pay Me Later, Seller Financing
There is a lot more than meets the eye when buying a business.
June 29, 2005
Once you have determined the focus of your business search, it is time to shift from a strategic to a tactical approach to locate business acquisition targets. You can use a business broker or look in the newspapers or search on the Internet, but the best businesses never make it to the brokers and newspapers. These businesses are just silently sold. Therefore, a more intelligent and targeted approach is needed.
Chapter 6. Locating An Acquisition Target Do You Need A Business Plan? Industry Analysis, Competitive Factors, Industry Financial Health, Cash Flow Demands, Business Development, Expansion, Diversification, Personal Values, Relationships, Specific Assets, Government Regulations, Market Analysis, Market Size & Market Share, External Factors
Your personality and choosing a business to buy.
June 29, 2005
Fit: Certain types of businesses will lend themselves to certain personality types and work experience. For example, a retail business located within a mall will have a lot of existing foot traffic and should not require a lot of advertising. In most cases, you will be making a contribution to the mall’s advertising and marketing budget as a fixed fee or a percentage of your revenues. A retail operation is a good fit for someone who does not want to go out and try to find new business. However, there is a downside because you cannot just go out and grab people off the street to make them come to your store. You have to be patient and wait for them to come into the store.
On the other hand, in a business-to-business operation your sales team can go out and approach new customers and derive new business as a result. They can find customers you had never considered or known about. This type of business requires a strong sales team and management skills.
Industry: Investigate the competitive factors involved in obtaining new customers. These issues include price, delivery, change, or evolution in products or services, and the reputation and image of the industry.
Is this a mature industry? Is it in decline or experiencing a fundamental restructuring? What is the size of the industry? Who holds the lion’s share in the market? What percentage of market share do you need to acquire in order to achieve your business goals? What is the short-term and long-term outlook?
Chapter 5. Finding A Business That Fits You Perspective, A Good Fit, Networking, Business Types, Personal Interests, Locating Businesses That Are Not For Sale
Role of professional advisers when buying a business.
June 29, 2005
You want your professional advisers to work with you to help you find potential errors, omissions, or problems on the seller’s side. Their greatest value is that they do not have the same vested interest that you have; they are not buying the business themselves but helping you to buy a business. By working with them you get an independent third-party perspective. They have no emotional ties in the transaction and are free to speak from an unemotional perspective.
Often owners get emotionally attached to making a deal. When this happens, I recommend that you spend time working with your advisers. Ask them specific questions and ask for their opinion. Ultimately you will be making the decision, but their perspective could help balance your desire to make a deal with information and perspective you had not previously enjoyed.
Chapter 4. Working With Professional Advisors Defensive Strategy, The Team, Your Agenda, Working With CPA’s, The Deal Before The Deal, Business Brokers, Informal Advisors.
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Getting the Price Right
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