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Tip #32
Business owners must take advantage of the
new technologies!
Yes, it's overwhelming. There is so much new technology
invading our world it can be hard to understand and realize
it's impact.
Business owners have to figure out what might
help their businesses grow. Whether it be email campaigns,
social media, e-commerce, more functional websites, cloud
computing or new equipment, business owners need to embrace
it.
Businesses that do not keep up with the new technologies
may find their companies difficult to sell!
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Tip #31
Buyers and Sellers usually have a very different
view of the value of a business.
Most business owners think their business should be priced
more than it's worth -- mainly because of all of their hard
work over the years. But they have to realize there are certain
economics and realities that dictate the price.
Besides
the various methods of business valuation, the cash flow
ultimately must provide the new owner a return on cash investment,
ability to service debt and a reasonable salary for
the owner and/or manager.
Unfortunately, too many business
owners find major disappointment because the marketplace
has not accepted their unrealistic asking price.
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Tip #27
Who will survive?
Many businesses are going through very tough times with
no end in sight. But as we know, as bad a situation as people
may be in, it can always be worse - much worse.
Business
owners have to be strong, optimistic and provide leadership
in these difficult times. They also need to seek good
advice and make smart decisions to keep their businesses
surviving until things improve. Or in some cases, they
might have to consider selling their company before the
situation gets even worse.
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Tip #26
Owner burnout is bad for business!
Many business owners have operated their companies for
too long and have lost their interest or drive. As a result, the
business can flounder and stop growing.
Not only do revenues
and profits suffer, but the value of the company goes
downhill. And it only gets worse in a down economy. When
a business owner hits burnout, he or she must learn how to
deal with it, or take steps to sell the company.
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Tip #25
Burying excessive personal expenses in the
business financials can lower business value!
The most popular method of valuing a business uses a multiple
of earnings over a period of years.
Business owners
should be aware of that while attempting to reduce the bottom
line with personal expenses to minimize taxes. Though
there are a number of deductions that may be added back
to determine true cash flow, not all add-backs are considered
legitimate by buyers or lenders.
Being too aggressive
in minimizing taxes today may cost a business owner big
dollars at closing.
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Tip #23
"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.
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Tip #22
So, where is that Pot of Gold at the end of the
rainbow?
That Pot of Gold will only be there for businesses that have
been structured to sell – easy to read financials, profitable
bottom line, key employees in place, growing market, quality
products and services - a whole host of issues.
Business
owners who are too aggressive on minimizing taxes and fail
to show profits might be very disappointed in the value of
their business when it comes time to sell. Business owners
need to understand what buyers are looking for and need to
put plans in place to get there.
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Tip #21
Leases can make or break the sale
of a business!
The lease terms of the business space can be a major consideration
for a buyer. For example, a retail business with
a long term lease on a good location can be attractive.
But
a long term lease on a business needing more space to
grow could be a detriment. Or there can be concerns for an
expiring lease when the landlord might demand a large
increase.
When it comes time to negotiating a new lease,
business owners must carefully think through the timing of
their plans for exiting their business.
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Tip #20
Business owners may have to finance the sale
of their business.
In today's tough economy, obtaining financing for the sale of
a business can be challenging. Banks might not like the
financials or might not be able to supply the funds even if
they approved of the deal.
If a good qualified buyer doesn't
have all cash, business owners may have to consider providing
some if not all of the financing for the sale of their
company.
Of course there can be risks to seller financing,
but there are also potential advantages such as higher sale
price, a greater pool of buyers and an easier closing process.
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Tip #19
Will the business numbers look good to anyone
Business owners can operate their company as they wish,
but when they are ready to sell, will it appeal to buyers? If
the numbers don't make sense or show profits, who would
want to buy it? Business owners who want top dollar for
their company must be able to reveal all elements of owner
cash flow that buyers and lenders will accept. Otherwise,
there will be only disappointing offers or no offers at all!
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Tip #18
Don't let your customers forget you are out there!
When sales are slow, business owners have a tendency to
cut back on all marketing expenses. Today, there are various
ways of cost effective advertising to keep in contact with
customers and prospects that might be considered. Talking
to marketing consultants, reading books or searching on the
internet are ways to find out what is working for others.
There are direct mail campaigns such as postcards or coupon
books. Internet advertising or email campaigns can hit
directly at the target audience. Not communicating with customers
and prospects will only hasten the sales slide and
reduce the value of the business.
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Tip #17
Financial statements others can understand!
In too many cases, business financials are so confusing that
no one can understand them or analyze them. And it's not
uncommon that the tax returns don't match up with the Profit
and Loss Statements. These can become major problems
when the business owner tries to obtain financing or sell his
or her company. It is absolutely critical that a business has
a set of financial statements and annual tax returns that are
easy to understand and make sense to anyone who has to
review them.
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Tip #16
What about that Big Customer?
Many companies have a single customer or a few large customers
that dominate their overall sales. After all, nobody
wants to turn down business! But when it comes time to sell
the company, this becomes a huge problem. Most buyers
won't look at a business whose revenues could drop dramatically
after closing from the possible loss of those customers.
Some how, some way, business owners have to
find a way to diversify their customer base before they ever
decide to sell their business.
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Tip #13
Keeping up with Technology
Not all businesses need to have cutting edge technology,
but a company can't fall too far behind. Buyers will be concerned
if they must make a large investment in the latest
technology to get the company to a competitive level. A
business owner should do the necessary research and purchase
the technology to keep the company on par in its industry
or be prepared to accept a lesser value for the business.
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Tip #12
"My business could be a Gold Mine for a new
owner!"
The statement "with a little sales and marketing, a new
owner could make a fortune with my business" has been
heard over and over by prospective buyers. The question of
course is: "Mr. Business Owner, why haven't you made that
effort?" Buyers are not willing to pay the business owner
for their future efforts and investment necessary to grow the
business. Business owners must take those steps themselves,
which not only will increase their revenues and profits
in the short term, but will greatly improve the value of
their business.
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Tip #11
Business Owners Must Make Bold Decisions in
Tough Times!
Business owners must be pro-active to reverse any downward
trends and they must initiate a plan immediately! They
cannot be complacent and just hope for the best. They
must consider bold or even painful moves such as drastically
cutting expenses and staff, adding new product lines or
services, hiring a marketing consultant or even acquiring
another company. But sitting back and not taking immediate
action is not an option!
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Tip #10
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 can also 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. And when it
comes time to seek financing or sell the business, these all important
report cards must be immediately available.
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Tip #9
Business Owners should be planning for their
own future.
Business owners are so busy running their companies every
day, they never seem to have time to plan for exiting the
business. But they can't avoid planning for this critical time
in their lives. Presenting a business for sale is very different
than managing it with the business owner's personal
management style and priorities. It can take years to properly
prepare a business for sale to get the highest price.
Business owners should start creating an exit strategy at the
earliest possible opportunity!
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Tip #8
Realistic Expectation of Business Value
Unfortunately, most business owners have a very inflated
view of the value of their company. And why not? They
have put so much money, time and heart into it. But they
need to realize the price is based on what someone else is
willing to pay for it. Periodically having an evaluation prepared
by a professional is a good way to help determine
what the business owner needs to do to reach his or her
goals.
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Tip #7
Understating Inventory
Reporting a lower inventory to their accountant is something
many business owners have been doing for a long
time. And many accountants just accept the number. In
addition to the obvious concerns, when it comes to selling
the business, big problems can arise.
How will the inventory
be valued in the Purchase Allocations? And who is going to
have to pay the various taxes on the larger amount?
Business
owners should give their accountants an accurate inventory
value each year to avoid troubles at the closing table!
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Tip #6
Business Owners Who Are Afraid to Raise Prices!
Good profit margins are what it is all about. Too many
business owners are scared to death to raise prices for
fear of losing customers.
In many cases, competition
does make it difficult. But there are many situations if
business owners would do some research, they would find
out there isn't as much resistance as they thought. And
when they finally raise prices, they find out they lose very
few customers and make a lot more money (also increasing
the value of the business).
Don't wait too
long. Business owners should check out their competition,
warn their customers in advance and then raise prices in
an orderly fashion that makes good business sense.
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Tip #5
Business Owners Who Do It All!
Some businesses can't survive without the owners trying to
do everything themselves. And they have no key employees
to help manage the operations.
Buyers for businesses like
these may be concerned if they themselves can't replace
the skills and experience of the owner. As a result, these
businesses may have very little value to anyone else.
Business
owners who don't delegate need to make a strong effort
to have experienced key people in place before they
ever try to sell their companies.
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Tip #4
Burying Personal Expenses and Assets in the Business Financials
Minimizing tax liability is a strategy all business owners think
about. But when it comes time to obtain financing or sell the
business, buried personal expenses and assets can create
a problem in determining the true cash flow.
Buyers and
bankers won't always give credit to many of these items. As
a result, the cash flow can be suspect. And when you apply
a multiplier to determine the value of the business, the results
can be disappointing.
It is in the best interest of a business
owner to show a healthy bottom line in the years preceding
the sale of their business to get the highest price
possible.
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