There's no sugarcoating it: Raising money for your startup won't get much easier in 2010, since the capital market for early-stage investments is still reeling from the effects of the recession.
But there is still money out there and there are better (and worse) ways to pursue it. Here's how to make the best of the leading trends for 2010:
1.Remember: Angels didn't stop investing--they're just writing smaller checks. There will always be high-net-worth individuals and former entrepreneurs who like to invest in startups, and next year should be no different. But as long as the stock market remains rocky and liquidating stock to make investments remains painful, angels will be investing less. As an entrepreneur, you should plan to get a smaller portion of your money from angel investors, or approach more investors per round.
2.Pay more attention to "sidecar" venture funds. As venture capital firms struggle, deep-pocketed angel groups, clubs and associations will move up the food chain by creating their own managed funds--the so-called "sidecar" venture funds. These funds make sense for both angels and entrepreneurs: Angels get to keep their best deals funded, without having to rely on the ebb and flow of large VC firms. And entrepreneurs see a greater return on their investment of time pitching and building relationships with angel clubs, because clubs can provide access to more funds later on. Angel clubs are spreading nationwide; check out the Angel Capital Association website at angelcapitalassociation.org to find them.
3.Businesses with a social impact will have an edge. Not long ago, entrepreneurs who wanted to solve a social problem formed nonprofits and raised money from foundations, or they formed businesses and raised money from private investment firms. Now, smart social entrepreneurs and a new class of funders in areas such as clean tech, education and economic development are designing collaborations that benefit from tax incentives, facilitate government subsidies for early adopters and leverage the social motivations of angel investors. Examples include angel groups such as Investors Circle, socially driven investors such as Omidyar Network, Calvert and Gray Matters Capital, advocacy-driven innovation funders such as CFSI in Chicago, and double bottom-line investment funds. Expect this trend to continue in 2010, and if your business makes a meaningful social impact, don't hide it.
4.Don't expect to land VC. The venture capital industry endured a shock in 2008 and '09 that will slow the creation of new funds. But top VC funds will continue to invest and small funds within industry-specific niches will benefit from the lack of competition. Entrepreneurs with scalable business plans should look at VC as just one of many funding options.
Wednesday, December 23, 2009
Tuesday, December 22, 2009
Monday, December 21, 2009
Corporate Earnout
It's time to sell your business. You've found a buyer, and you're negotiating the terms of the sale. But there's a problem. While you predict triple-digit growth over the next three years, the buyer doubts your projections and refuses to pay more than a percentage of your asking price. The company's valuation is up in the air.
Enter the "earnout" agreement, a contract where the seller gets paid a percentage of the asking price and agrees to meet specific financial goals over a period of time to earn more money. For example, the buyer might agree to pay 90 percent of the company's purchase price upfront, with another payout contingent on fulfilling a three-year plan. An earnout agreement allows the seller and the buyer to compromise on what they feel the company is worth. Earnouts are also used when the buyer needs the seller to stick around to maximize company performance after the acquisition.
Earnouts are an attractive option in the post-dotcom era, where the focus has shifted from promising projections to post-acquisition performance. "Buyers aren't paying for potential anymore, not upfront. But they will pay for potential realized post-acquisition," says Dave Kauppi, president of Mid Market Capital, a Hinsdale, Illinois, business brokerage that works on mergers and acquisition deals.
Earning Your Keep
Earnout agreements can last up to five years and are calculated at anywhere between 10 percent and 30 percent of the purchase price, with payment made in cash or stock. Earnout goals can be based on a variety of targets, including net income, gross revenue, new clients generated, cash flow and earnings.
You'll have a nice payday if everything goes well, but understand what you're getting into. An earnout arrangement obligates you to keep working for the company after you've ceded most, or all, control to the buyer. "While the seller may have an equity interest, he's not going to make ultimate, big-picture policy decisions," says Mark J. Mihanovic, who's worked on both sides of earnout deals as a mergers and acquisitions partner with the McDermott Will & Emery law firm in Palo Alto, California. There's a risk the buyer could make poor business decisions that run the company into the ground, damaging the earnout. Noncompete clauses in these contracts, meanwhile, might keep you from pursuing similar business ideas. At the very least, chasing an earnout might take up all your time.
Your mojo to hit a series of long-term goals can fade, too, especially if you've made a lot of money from the initial sale. "The same incentive to make [the company] successful is usually not there. It's [a] natural human reaction," says Bruce Crair, a serial entrepreneur in San Marino, California, who sold business-networking company ZeroDegrees to Barry Diller's InteractiveCorp last year. Crair, 49, is bound by nondisclosure agreements regarding earn-out deals he's signed, but he has firsthand advice about surviving the arrangement. Get as much money upfront on the sale as possible, and get used to the idea of being the buyer's employee. Also understand that an earnout isn't a sure thing. "Sign the agreement with the attitude that the only money [you're] going to get is what [you] get upfront," Crair says. "Everything else is gravy."
Keeping earnout agreements simple and measurable is important, says Robert F. Bruner, a professor of business administration at the University of Virginia in Charlottesville and author of Deals From Hell: M&A Lessons That Rise Above the Ashes. "Structuring an earn-out is a real art form," he says. "You need to be very careful about the benchmarks against which the performance of the business unit will be evaluated."
Mihanovic encourages sellers to tie earnout contracts to unit sales or revenue instead of earnings--using earnings allows buyers to factor in high overhead expenses. Crair also stresses the importance of avoiding administrative chargebacks whenever possible. "Often, the parent company will charge the subsidiary companies a percentage of the parent company's costs on a pro rata basis," he says. "You need to make sure your earnouts are totally separate from that because the chargebacks aren't under your control." Finding a good lawyer who understands the fine print is essential.
Keep in mind that you're taking a gamble, and gamblers often lose. Crair notes that of the dozen or so earnout agreements he's observed, only one entrepreneur lasted more than a year. But sometimes gamblers win big. "You can allow [the buyer] to buy you out of the earnout three years into it if you're blowing away the numbers," Kauppi says. Now those are nice terms if you can get them.
Enter the "earnout" agreement, a contract where the seller gets paid a percentage of the asking price and agrees to meet specific financial goals over a period of time to earn more money. For example, the buyer might agree to pay 90 percent of the company's purchase price upfront, with another payout contingent on fulfilling a three-year plan. An earnout agreement allows the seller and the buyer to compromise on what they feel the company is worth. Earnouts are also used when the buyer needs the seller to stick around to maximize company performance after the acquisition.
Earnouts are an attractive option in the post-dotcom era, where the focus has shifted from promising projections to post-acquisition performance. "Buyers aren't paying for potential anymore, not upfront. But they will pay for potential realized post-acquisition," says Dave Kauppi, president of Mid Market Capital, a Hinsdale, Illinois, business brokerage that works on mergers and acquisition deals.
Earning Your Keep
Earnout agreements can last up to five years and are calculated at anywhere between 10 percent and 30 percent of the purchase price, with payment made in cash or stock. Earnout goals can be based on a variety of targets, including net income, gross revenue, new clients generated, cash flow and earnings.
You'll have a nice payday if everything goes well, but understand what you're getting into. An earnout arrangement obligates you to keep working for the company after you've ceded most, or all, control to the buyer. "While the seller may have an equity interest, he's not going to make ultimate, big-picture policy decisions," says Mark J. Mihanovic, who's worked on both sides of earnout deals as a mergers and acquisitions partner with the McDermott Will & Emery law firm in Palo Alto, California. There's a risk the buyer could make poor business decisions that run the company into the ground, damaging the earnout. Noncompete clauses in these contracts, meanwhile, might keep you from pursuing similar business ideas. At the very least, chasing an earnout might take up all your time.
Your mojo to hit a series of long-term goals can fade, too, especially if you've made a lot of money from the initial sale. "The same incentive to make [the company] successful is usually not there. It's [a] natural human reaction," says Bruce Crair, a serial entrepreneur in San Marino, California, who sold business-networking company ZeroDegrees to Barry Diller's InteractiveCorp last year. Crair, 49, is bound by nondisclosure agreements regarding earn-out deals he's signed, but he has firsthand advice about surviving the arrangement. Get as much money upfront on the sale as possible, and get used to the idea of being the buyer's employee. Also understand that an earnout isn't a sure thing. "Sign the agreement with the attitude that the only money [you're] going to get is what [you] get upfront," Crair says. "Everything else is gravy."
Keeping earnout agreements simple and measurable is important, says Robert F. Bruner, a professor of business administration at the University of Virginia in Charlottesville and author of Deals From Hell: M&A Lessons That Rise Above the Ashes. "Structuring an earn-out is a real art form," he says. "You need to be very careful about the benchmarks against which the performance of the business unit will be evaluated."
Mihanovic encourages sellers to tie earnout contracts to unit sales or revenue instead of earnings--using earnings allows buyers to factor in high overhead expenses. Crair also stresses the importance of avoiding administrative chargebacks whenever possible. "Often, the parent company will charge the subsidiary companies a percentage of the parent company's costs on a pro rata basis," he says. "You need to make sure your earnouts are totally separate from that because the chargebacks aren't under your control." Finding a good lawyer who understands the fine print is essential.
Keep in mind that you're taking a gamble, and gamblers often lose. Crair notes that of the dozen or so earnout agreements he's observed, only one entrepreneur lasted more than a year. But sometimes gamblers win big. "You can allow [the buyer] to buy you out of the earnout three years into it if you're blowing away the numbers," Kauppi says. Now those are nice terms if you can get them.
Thursday, December 17, 2009
Determining Your Company's Value
There comes a time in the life of every small business when its owner looks up momentarily from the daily letting of blood, sweat and tears to ask the question: Just what is this thing worth?
Whether you're considering selling the business, recruiting new investors, bringing employees into ownership or gifting the business to heirs, a business valuation can help you put a more precise number on its present and future value. But the valuation of a privately held business--particularly a small company that may not have a lot of comparable statistics in its industry to look at--is an imprecise science based partly on hard numbers and partly on soft figures, such as cash-flow projections and other intangible assets and subjective criteria. How, then, can you be sure you're getting a fair number?
For starters, you need a reputable valuation expert, preferably one recommended by an attorney or accountant you already trust, says Paul Rich, CPA and principal with the business consulting group at Rothstein Kass, a New York City-based accounting and consulting firm. Look for a CPA who is also a certified valuation analyst, or CVA, and who belongs to one or more of the various accounting associations and groups like the American Society of Appraisers, says Rich. Why? "There are rules of ethics in those societies that [members] have to subscribe to." A less scrupulous appraiser might be willing to discount your business heavily to give you the lower number you want for gifting purposes, but you could run afoul of the IRS and find yourself in hot water later on.
If the appraiser specializes in your business or industry, that's a big plus, says Harvard Business School professor Mark Bradshaw. "You have to understand the business to be able to value it--it's not just a spreadsheet exercise," he says. He adds that a specialty in small, private business valuation isn't critical, but it helps. "You could argue that since small companies have simpler operations, they should be easier to get right," he says. With smaller companies, though, doing a comparable analysis, which acknowledges that business prices fluctuate relative to the market, is more challenging than conducting a stand-alone analysis, which looks at the company's value in a vacuum. "It's harder to find that peer group," says Bradshaw. An expert or group that has experience with small, private companies will understand that complexity.
Ask for the valuation expert's method of appraisal, and make sure they're willing to sit down and explain it. David Ellrich Jr., accredited senior appraiser, CVA, and managing shareholder of Moore, Ellrich and Nealin Palm Beach Gardens, Florida, considers it part of his work to educate the business owner on the valuation process and to explain why it needs to be approached from different perspectives. Take, for example, a machine shop owner who has invested a lot in his equipment and makes a decent living. "If you look at that business from a cost approach, it might be worth a million dollars," says Ellrich. "But then you look at it [from] the market approach and you see there are machine shops going out of business all over the country, selling their machinery for pennies on the dollar. That's why you have to look at all the approaches and reconcile the conclusions."
Beware of a valuations expert who tends to rely on one simplistic calculation, such as multiplying the earnings of your business by a price/earnings ratio that's common for companies in your industry, whether big or small--you're likely to end up with a less reliable number that way. "Every simplification has problems," says Bradshaw. "The bottom line is it's an inexact science, so anyone who tries to say they know exactly what a business is worth--they're just wrong."
Rather than present you with a magic number, the valuation expert should give you a range. "I'd want someone who [could] give me sensitivity information... someone who [could] give you different scenarios and tell you what levers drive the business," says Bradshaw. "For example, if we assume your top-line sales are growing at 10 percent, this is your valuation; but if it's 12 percent, it'd be this; and if it was 8 percent, it'd be this."
Armed with that information, even if you decide not to sell the business or end up not needing the valuation, you will learn a lot about your business's current and future performance, and what it will take to keep it on track.
Whether you're considering selling the business, recruiting new investors, bringing employees into ownership or gifting the business to heirs, a business valuation can help you put a more precise number on its present and future value. But the valuation of a privately held business--particularly a small company that may not have a lot of comparable statistics in its industry to look at--is an imprecise science based partly on hard numbers and partly on soft figures, such as cash-flow projections and other intangible assets and subjective criteria. How, then, can you be sure you're getting a fair number?
For starters, you need a reputable valuation expert, preferably one recommended by an attorney or accountant you already trust, says Paul Rich, CPA and principal with the business consulting group at Rothstein Kass, a New York City-based accounting and consulting firm. Look for a CPA who is also a certified valuation analyst, or CVA, and who belongs to one or more of the various accounting associations and groups like the American Society of Appraisers, says Rich. Why? "There are rules of ethics in those societies that [members] have to subscribe to." A less scrupulous appraiser might be willing to discount your business heavily to give you the lower number you want for gifting purposes, but you could run afoul of the IRS and find yourself in hot water later on.
If the appraiser specializes in your business or industry, that's a big plus, says Harvard Business School professor Mark Bradshaw. "You have to understand the business to be able to value it--it's not just a spreadsheet exercise," he says. He adds that a specialty in small, private business valuation isn't critical, but it helps. "You could argue that since small companies have simpler operations, they should be easier to get right," he says. With smaller companies, though, doing a comparable analysis, which acknowledges that business prices fluctuate relative to the market, is more challenging than conducting a stand-alone analysis, which looks at the company's value in a vacuum. "It's harder to find that peer group," says Bradshaw. An expert or group that has experience with small, private companies will understand that complexity.
Ask for the valuation expert's method of appraisal, and make sure they're willing to sit down and explain it. David Ellrich Jr., accredited senior appraiser, CVA, and managing shareholder of Moore, Ellrich and Nealin Palm Beach Gardens, Florida, considers it part of his work to educate the business owner on the valuation process and to explain why it needs to be approached from different perspectives. Take, for example, a machine shop owner who has invested a lot in his equipment and makes a decent living. "If you look at that business from a cost approach, it might be worth a million dollars," says Ellrich. "But then you look at it [from] the market approach and you see there are machine shops going out of business all over the country, selling their machinery for pennies on the dollar. That's why you have to look at all the approaches and reconcile the conclusions."
Beware of a valuations expert who tends to rely on one simplistic calculation, such as multiplying the earnings of your business by a price/earnings ratio that's common for companies in your industry, whether big or small--you're likely to end up with a less reliable number that way. "Every simplification has problems," says Bradshaw. "The bottom line is it's an inexact science, so anyone who tries to say they know exactly what a business is worth--they're just wrong."
Rather than present you with a magic number, the valuation expert should give you a range. "I'd want someone who [could] give me sensitivity information... someone who [could] give you different scenarios and tell you what levers drive the business," says Bradshaw. "For example, if we assume your top-line sales are growing at 10 percent, this is your valuation; but if it's 12 percent, it'd be this; and if it was 8 percent, it'd be this."
Armed with that information, even if you decide not to sell the business or end up not needing the valuation, you will learn a lot about your business's current and future performance, and what it will take to keep it on track.
Monday, December 14, 2009
Selling Your Business with Seller Financing
While it’s true that fewer business-for-sale deals are being made during the recession, it’s not because potential buyers aren’t looking. Across the country, there is plenty of buy interest in businesses, but a shortage of financing is keeping many deals from getting off the ground. As a result, sellers willing to finance at least part of a business sale are finding it much easier to get their businesses sold.
By offering seller financing, a business seller allows a buyer to make a down payment, agreeing to carry a note for the remainder of the purchase price. This way, the buyer only has to come up with a portion of the total price up front and can then pay off the remainder over time.
A seller’s willingness to finance a portion of a business sale has always been a strong selling point for potential buyers, but in recent months it has become essential to many deals. With most business buyers unable to access the full amount of a business price from lending institutions, today’s sellers are faced with the decision to either lower asking prices or work with buyers to overcome sale barriers.
While seller financing could be the key in attracting buyers and taking a sale to completion, sellers should be aware that it comes with risks. Here’s what sellers need to know if they are considering “being the bank.”
Be Aware of the Risk
There’s no doubt that seller financing is an important part of today’s business sales, but the fact remains that it’s not the right approach for every seller. Before making the decision, sellers should evaluate owner-financing as a business investment that undoubtedly comes with risk. When providing financing, a seller stays tied to the business long after the sale has been made, counting on the new owner to turn profit and pay back the principal with interest. Unfortunately, success under the new owner is not guaranteed, and there’s a chance the seller will face the loss of interest income and extra costs associated with collecting debt. For this reason, sellers should make sure they are confident with the promise of the business and the prospective new owner before financing a sale.
Require a Down Payment
Even after they’ve made the decision to offer financing, sellers shouldn’t waive a buyer’s significant down payment on the business. This way, they can minimize their risk by distributing a larger portion of it to buyers. It’s usually in a seller’s best interest to finance no more than one-third to two-thirds of the sale price, letting the rest fall on the buyer. In certain cases where a seller has a vested interest - such as selling to a family member - financing more than this is acceptable, but as the amount increases, so does the risk.
Use Financing to Your Advantage
Many sellers view self-financing as a last-ditch attempt to sell a business, but it can actually offer benefits that cash sales don’t. Sellers can typically sell their businesses for 15 percent more by advertising a willingness to provide financing. Sellers can also use financing to multiply the principal value of a business through buyers’ future interest payments. Most financed sales can bring in an average of 8 to 10 percent interest over a 5 to 7 year note.
Get Outside Help When Necessary
The idea of owner-financing might come with a do-it-yourself mindset, but trying to go it alone can lead to complications during a transaction. A loan between a buyer and seller comes with a great deal of structures and variations that require input from legal and financial professionals to properly secure loan terms, collateral and adequate insurance coverage. Using these professionals when appropriate, can help sellers avoid headaches and sell their businesses much more smoothly.
Don't Be Pressured
No matter how important seller financing has become in today’s business-for-sale marketplace, sellers who have done their homework and still aren’t comfortable with the idea of offering it simply shouldn’t do so. It’s not rare for potential business buyers to try to strong-arm sellers into offering financing, but that’s never a legitimate reason for sellers to go ahead with it. There’s always an underlying reason why a seller doesn’t feel comfortable with owner-financing, and going against this gut feeling could lead to regret. Owners on the fence can benefit greatly from arranging a meeting with someone who sold a business using seller financing and can speak from experience. Acting as the bank can allow owners to sell faster and reap financial benefits, but in the end every seller should step back and assess their individual situation before making the leap into seller financing.
By offering seller financing, a business seller allows a buyer to make a down payment, agreeing to carry a note for the remainder of the purchase price. This way, the buyer only has to come up with a portion of the total price up front and can then pay off the remainder over time.
A seller’s willingness to finance a portion of a business sale has always been a strong selling point for potential buyers, but in recent months it has become essential to many deals. With most business buyers unable to access the full amount of a business price from lending institutions, today’s sellers are faced with the decision to either lower asking prices or work with buyers to overcome sale barriers.
While seller financing could be the key in attracting buyers and taking a sale to completion, sellers should be aware that it comes with risks. Here’s what sellers need to know if they are considering “being the bank.”
Be Aware of the Risk
There’s no doubt that seller financing is an important part of today’s business sales, but the fact remains that it’s not the right approach for every seller. Before making the decision, sellers should evaluate owner-financing as a business investment that undoubtedly comes with risk. When providing financing, a seller stays tied to the business long after the sale has been made, counting on the new owner to turn profit and pay back the principal with interest. Unfortunately, success under the new owner is not guaranteed, and there’s a chance the seller will face the loss of interest income and extra costs associated with collecting debt. For this reason, sellers should make sure they are confident with the promise of the business and the prospective new owner before financing a sale.
Require a Down Payment
Even after they’ve made the decision to offer financing, sellers shouldn’t waive a buyer’s significant down payment on the business. This way, they can minimize their risk by distributing a larger portion of it to buyers. It’s usually in a seller’s best interest to finance no more than one-third to two-thirds of the sale price, letting the rest fall on the buyer. In certain cases where a seller has a vested interest - such as selling to a family member - financing more than this is acceptable, but as the amount increases, so does the risk.
Use Financing to Your Advantage
Many sellers view self-financing as a last-ditch attempt to sell a business, but it can actually offer benefits that cash sales don’t. Sellers can typically sell their businesses for 15 percent more by advertising a willingness to provide financing. Sellers can also use financing to multiply the principal value of a business through buyers’ future interest payments. Most financed sales can bring in an average of 8 to 10 percent interest over a 5 to 7 year note.
Get Outside Help When Necessary
The idea of owner-financing might come with a do-it-yourself mindset, but trying to go it alone can lead to complications during a transaction. A loan between a buyer and seller comes with a great deal of structures and variations that require input from legal and financial professionals to properly secure loan terms, collateral and adequate insurance coverage. Using these professionals when appropriate, can help sellers avoid headaches and sell their businesses much more smoothly.
Don't Be Pressured
No matter how important seller financing has become in today’s business-for-sale marketplace, sellers who have done their homework and still aren’t comfortable with the idea of offering it simply shouldn’t do so. It’s not rare for potential business buyers to try to strong-arm sellers into offering financing, but that’s never a legitimate reason for sellers to go ahead with it. There’s always an underlying reason why a seller doesn’t feel comfortable with owner-financing, and going against this gut feeling could lead to regret. Owners on the fence can benefit greatly from arranging a meeting with someone who sold a business using seller financing and can speak from experience. Acting as the bank can allow owners to sell faster and reap financial benefits, but in the end every seller should step back and assess their individual situation before making the leap into seller financing.
Thursday, December 10, 2009
Is Now the Right Time to Buy a Business?
Over the past year, historically high levels of unemployment have left record numbers of highly skilled individuals looking for work. Many are asking themselves if now could be the right time to pursue their dream of buying a business and becoming their own boss.
With corporate jobs less secure and available now than perhaps at any time in recent history, buying a small business could be an excellent way for many of these unemployed individuals to take control of their own destiny and success. Tough economic times have created an abundance of distressed companies in the business-for-sale marketplace, meaning business buyers currently have access to great bargains. However, anyone thinking of becoming a business owner must undertake considerable research and self-evaluation before taking steps to turn the idea of buying into a reality.
Anyone thinking of purchasing a business should keep the following points in mind before going further:
Analyze Your Strengths, Weaknesses and Lifestyle Needs
While the thought of running a business is exciting and causes many would-be entrepreneurs to want to buy as quickly as possible, it's essential to properly evaluate what type of business suits you. When buyers choose the wrong businesses, their entrepreneurial dreams can quickly turn into stressful burdens.
For this reason, you should do a careful analysis of your strengths, weaknesses and lifestyle needs before diving into the buying process. Here are five critical questions to ask yourself before deciding what type of business is right for you, or if you are even cut out to be a business owner:
• What are my strengths and skills? Business buyers should also consider their personal strengths before looking for businesses to purchase. Maybe you're a skilled writer and communicator, excel at teaching concepts to others or have a knack for technology. If you buy a business that allows you to put your strengths to work, it will have a much better chance of succeeding.
• Are there any particular times I absolutely can't or don't want to work? If you buy a business that requires a schedule that will complicate your life, the business you thought would make life better will likely do just the opposite. If you're considering a specific type of business, talk with current owners of similar businesses to get a sense of what their schedules are like. Keep in mind that owning your own business does not necessarily mean more free time; it can mean just the opposite. Be prepared to handle the long hours that often come with running a business.
• Am I comfortable managing people? Just because you want to be a business owner doesn't mean you are--or need to be--a "grade A" manager of people. However, if you buy a business that won't involve a manager on staff to do it for you, you'd better make sure you're comfortable with the situation before committing. For example, should a situation occur that is hurting the success of the business, would you feel comfortable confronting employees who were at fault, or would you be more likely to pretend it's not happening?
• What size business do I want? Small businesses can range from zero to 100 employees, which means that there's no cut-and-dried small-business owner experience. An owner of a five-person company will likely have a very different role and lifestyle than an owner of a 50-person company.
Understand the Market
It's not uncommon for new business buyers to enter into the buying process without a solid understanding of the small-business market and what they should look for in an investment. These buyers are only throwing nails in the road by being unprepared and are positioning themselves for hard times ahead.
The moment you identify a business that grabs your interest, you should begin investigating the business and everything surrounding it--including the industry as a whole, competition, marketing efforts, suppliers and so on. It's important to do this early so that once you contact the seller, you'll know exactly what to ask.
You should know what a business in your location and industry of interest typically costs. Websites such as BizBuySell.com offer tools to enable you to conduct quick and easy business valuations by benchmarking the business you want to buy against businesses in the same industry. Whether you're interested in buying a casual pizza restaurant in Chicago or an auto repair shop in San Francisco, these resources will give you some guidelines for what you can and should expect from a pricing standpoint.
Finally, you should make a point to talk with existing business owners--ideally in the industry you'd like to enter--who can speak from experience and offer invaluable advice on how to approach a purchase for the best results.
While some business buyers feel equipped to go through this process alone, others opt for the help of a professional business broker. If you don't feel comfortable taking a do-it-yourself approach, a business broker can help make sure you cover all bases and avoid getting burned in a transaction.
Run the Numbers
Before taking serious steps to buy a business, it's important to know exactly what you can afford and how much income you'll need every month to live comfortably. Someone who has $500,000 in the bank is going to experience a buying scenario much different from someone who has $20,000.
If you have significant cash reserves you're willing to put toward financing the business, you won't have to worry as much about securing financing for the business through a bank. If don't have reserves, pursuing businesses for sale with a seller-financing option is probably ideal. Since bank loans are so hard to come by, seller-financed opportunities are most likely to pan out.
Seller financing--when a business seller agrees to finance part of the sale, with the buyer agreeing to pay the seller back with interest over time--has become a crucial element of business-for-sale transactions during these tough times. In many cases, seller financing can also be more advantageous to buyers because it helps ensure that sellers will remain vested in the success of the business after you take over. Your success is directly related to your ability to pay the seller back.
Narrow Down and Negotiate
If you've done your initial due diligence and have determined that buying a business is the right decision for you, it's time to narrow your options. Pinpoint the top three or so businesses for sale that most appeal to you and carefully weigh the pros and cons of each. Is one located more conveniently to where you live? Does one seem to have a longer track record of success and a more established customer base? This will make it much easier to come to an informed, justified decision on which business you should pursue.
After you correspond with the business seller and get serious about going through with a transaction, you'll enter a negotiation process. Since the down economy has created a distressed selling situation for many sellers, the time is right for you to be able to negotiate a great deal. This is when it pays to have a comprehensive understanding of business valuations and the knowledge to ensure that you arrive at a number that's fair and that you're comfortable with.
Once you reach a pricing agreement with the seller and progress to the stage of an accepted offer, it's time for more due diligence. The period of financial due diligence typically lasts from 10 to 30 days and allows you access to all of the company's books and records. Review them carefully, and if you're working with a broker, make sure that broker clearly explain to you the implications of the information.
It's a buyer's market, so if you approach your entrepreneurial dream with the right amount of consideration and research, buying a business could prove a realistic alternative to the job search. You just might find that it's time to leave your traditional job description behind and become your own boss.
With corporate jobs less secure and available now than perhaps at any time in recent history, buying a small business could be an excellent way for many of these unemployed individuals to take control of their own destiny and success. Tough economic times have created an abundance of distressed companies in the business-for-sale marketplace, meaning business buyers currently have access to great bargains. However, anyone thinking of becoming a business owner must undertake considerable research and self-evaluation before taking steps to turn the idea of buying into a reality.
Anyone thinking of purchasing a business should keep the following points in mind before going further:
Analyze Your Strengths, Weaknesses and Lifestyle Needs
While the thought of running a business is exciting and causes many would-be entrepreneurs to want to buy as quickly as possible, it's essential to properly evaluate what type of business suits you. When buyers choose the wrong businesses, their entrepreneurial dreams can quickly turn into stressful burdens.
For this reason, you should do a careful analysis of your strengths, weaknesses and lifestyle needs before diving into the buying process. Here are five critical questions to ask yourself before deciding what type of business is right for you, or if you are even cut out to be a business owner:
• What are my strengths and skills? Business buyers should also consider their personal strengths before looking for businesses to purchase. Maybe you're a skilled writer and communicator, excel at teaching concepts to others or have a knack for technology. If you buy a business that allows you to put your strengths to work, it will have a much better chance of succeeding.
• Are there any particular times I absolutely can't or don't want to work? If you buy a business that requires a schedule that will complicate your life, the business you thought would make life better will likely do just the opposite. If you're considering a specific type of business, talk with current owners of similar businesses to get a sense of what their schedules are like. Keep in mind that owning your own business does not necessarily mean more free time; it can mean just the opposite. Be prepared to handle the long hours that often come with running a business.
• Am I comfortable managing people? Just because you want to be a business owner doesn't mean you are--or need to be--a "grade A" manager of people. However, if you buy a business that won't involve a manager on staff to do it for you, you'd better make sure you're comfortable with the situation before committing. For example, should a situation occur that is hurting the success of the business, would you feel comfortable confronting employees who were at fault, or would you be more likely to pretend it's not happening?
• What size business do I want? Small businesses can range from zero to 100 employees, which means that there's no cut-and-dried small-business owner experience. An owner of a five-person company will likely have a very different role and lifestyle than an owner of a 50-person company.
Understand the Market
It's not uncommon for new business buyers to enter into the buying process without a solid understanding of the small-business market and what they should look for in an investment. These buyers are only throwing nails in the road by being unprepared and are positioning themselves for hard times ahead.
The moment you identify a business that grabs your interest, you should begin investigating the business and everything surrounding it--including the industry as a whole, competition, marketing efforts, suppliers and so on. It's important to do this early so that once you contact the seller, you'll know exactly what to ask.
You should know what a business in your location and industry of interest typically costs. Websites such as BizBuySell.com offer tools to enable you to conduct quick and easy business valuations by benchmarking the business you want to buy against businesses in the same industry. Whether you're interested in buying a casual pizza restaurant in Chicago or an auto repair shop in San Francisco, these resources will give you some guidelines for what you can and should expect from a pricing standpoint.
Finally, you should make a point to talk with existing business owners--ideally in the industry you'd like to enter--who can speak from experience and offer invaluable advice on how to approach a purchase for the best results.
While some business buyers feel equipped to go through this process alone, others opt for the help of a professional business broker. If you don't feel comfortable taking a do-it-yourself approach, a business broker can help make sure you cover all bases and avoid getting burned in a transaction.
Run the Numbers
Before taking serious steps to buy a business, it's important to know exactly what you can afford and how much income you'll need every month to live comfortably. Someone who has $500,000 in the bank is going to experience a buying scenario much different from someone who has $20,000.
If you have significant cash reserves you're willing to put toward financing the business, you won't have to worry as much about securing financing for the business through a bank. If don't have reserves, pursuing businesses for sale with a seller-financing option is probably ideal. Since bank loans are so hard to come by, seller-financed opportunities are most likely to pan out.
Seller financing--when a business seller agrees to finance part of the sale, with the buyer agreeing to pay the seller back with interest over time--has become a crucial element of business-for-sale transactions during these tough times. In many cases, seller financing can also be more advantageous to buyers because it helps ensure that sellers will remain vested in the success of the business after you take over. Your success is directly related to your ability to pay the seller back.
Narrow Down and Negotiate
If you've done your initial due diligence and have determined that buying a business is the right decision for you, it's time to narrow your options. Pinpoint the top three or so businesses for sale that most appeal to you and carefully weigh the pros and cons of each. Is one located more conveniently to where you live? Does one seem to have a longer track record of success and a more established customer base? This will make it much easier to come to an informed, justified decision on which business you should pursue.
After you correspond with the business seller and get serious about going through with a transaction, you'll enter a negotiation process. Since the down economy has created a distressed selling situation for many sellers, the time is right for you to be able to negotiate a great deal. This is when it pays to have a comprehensive understanding of business valuations and the knowledge to ensure that you arrive at a number that's fair and that you're comfortable with.
Once you reach a pricing agreement with the seller and progress to the stage of an accepted offer, it's time for more due diligence. The period of financial due diligence typically lasts from 10 to 30 days and allows you access to all of the company's books and records. Review them carefully, and if you're working with a broker, make sure that broker clearly explain to you the implications of the information.
It's a buyer's market, so if you approach your entrepreneurial dream with the right amount of consideration and research, buying a business could prove a realistic alternative to the job search. You just might find that it's time to leave your traditional job description behind and become your own boss.
Wednesday, December 9, 2009
Monday, December 7, 2009
Liquid Assets Keep the Credit Flowing
When it comes to managing our investments, we entrepreneurs want what everybody else wants: to make as much money as possible with as little risk as possible.
But as business owners, we also need to take other factors into consideration when making our investment choices. Unlike investors with corporate jobs and 401(k) plans, we may ultimately need to use our personal assets--our house, our stocks, our bonds, our mutual funds, even the cash value of our life insurance policies--as collateral for credit lines and business loans as our companies grow.
That's why it's important to stay liquid; that is, to put our money into the kinds of assets banks can sell quickly if we miss our payments and our businesses go under. So while it might be fun to take a flier on an up-and-coming artist or amass a huge collection of comic books or baseball cards, your lender will be happier knowing you've also got money socked away in real estate, blue chip stocks and other liquid assets that can easily be bought and sold. And you can forget about pledging stock in your fledgling startup. The possibility that your company may become the next Google won't hold much weight with the folks at the bank.
Back when I was building my internet marketing company in 1997, we found ourselves in a cash-flow bind, and I called my banker for help. Thankfully, I owned a $1 million Brooklyn brownstone that I was willing to pledge as collateral. I also had several hundred thousand dollars in an S&P 500 index mutual fund. Otherwise, I doubt Citibank would have given us that $100,000 credit line on the strength of our accounts receivable alone--much less the $1 million credit line we were able to get later on.
"The cash value of your insurance policies and stocks that have significant trading volumes are far superior [as collateral] to investments in collectibles, CDs or funds that put limits on redemptions," says William N. Tifft, a managing director at iQ Venture Partners, an advisory firm that helps emerging growth companies raise capital. "You shouldn't worry about marginally better returns on your investments. Your best return is going to be on yourself and your business."
The next time you sit down with your investment advisor, take inventory of your assets and make sure you've got enough liquidity to satisfy your banker if you need to secure a loan or a credit line. If you don't, maybe it's time to lighten your load and free up some additional liquidity in your portfolio. You'll be glad you did.
The information contained herein is provided for informational purposes only and should not be relied upon in making investment decisions. Before investing, you should always consult with a licensed investment professional. Past performance of investments discussed in this column is not an indication or guarantee of future performance.
But as business owners, we also need to take other factors into consideration when making our investment choices. Unlike investors with corporate jobs and 401(k) plans, we may ultimately need to use our personal assets--our house, our stocks, our bonds, our mutual funds, even the cash value of our life insurance policies--as collateral for credit lines and business loans as our companies grow.
That's why it's important to stay liquid; that is, to put our money into the kinds of assets banks can sell quickly if we miss our payments and our businesses go under. So while it might be fun to take a flier on an up-and-coming artist or amass a huge collection of comic books or baseball cards, your lender will be happier knowing you've also got money socked away in real estate, blue chip stocks and other liquid assets that can easily be bought and sold. And you can forget about pledging stock in your fledgling startup. The possibility that your company may become the next Google won't hold much weight with the folks at the bank.
Back when I was building my internet marketing company in 1997, we found ourselves in a cash-flow bind, and I called my banker for help. Thankfully, I owned a $1 million Brooklyn brownstone that I was willing to pledge as collateral. I also had several hundred thousand dollars in an S&P 500 index mutual fund. Otherwise, I doubt Citibank would have given us that $100,000 credit line on the strength of our accounts receivable alone--much less the $1 million credit line we were able to get later on.
"The cash value of your insurance policies and stocks that have significant trading volumes are far superior [as collateral] to investments in collectibles, CDs or funds that put limits on redemptions," says William N. Tifft, a managing director at iQ Venture Partners, an advisory firm that helps emerging growth companies raise capital. "You shouldn't worry about marginally better returns on your investments. Your best return is going to be on yourself and your business."
The next time you sit down with your investment advisor, take inventory of your assets and make sure you've got enough liquidity to satisfy your banker if you need to secure a loan or a credit line. If you don't, maybe it's time to lighten your load and free up some additional liquidity in your portfolio. You'll be glad you did.
The information contained herein is provided for informational purposes only and should not be relied upon in making investment decisions. Before investing, you should always consult with a licensed investment professional. Past performance of investments discussed in this column is not an indication or guarantee of future performance.
Friday, December 4, 2009
How can I grow my business during the recession?
There are quite a few strategies to grow a small business during a recession--both online and offline.
Blogging: Most blogging software is free. It doesn't take long to get up and running. And it's a great way to interact with your customers and potential customers. It does take some time to build an audience. In the beginning, you should anticipate spending up to an hour a day promoting your blog, commenting on other blogs and writing engaging posts.
Just a quick note: Local companies can benefit from blogging too. I once interviewed a personal injury lawyer who replaced advertising in the phone book with blogging. He now ranks on the top page in Google for "personal injury lawyer" in his home town.
LinkedIn: If you have a B2B company, LinkedIn might be a great way to make connections. You can demonstrate your industry expertise in their Question and Answer section. Not only will you be known as an expert, answering a prospective customer's question can lead to a sale.
Niche Networks: If you were to Google the phrase "social network and (your industry)" chances are you will find a group of people already talking about your industry and similar products and services. Join those groups and the conversation and start networking.
Facebook and Twitter: I would be negligent if I didn't include the popular social networking sites Facebook and Twitter. There is a good chance that your customers hang out on at least one of those platforms. First, spend some time listening to what they have to say, and then join the conversation.
Joint Venture: Are there businesses in your area that have complementary products or services to your own? For instance, if you have a landscaping business, you might be able to partner with a fencing contractor. Fencing contractors often require that trees be cut down or bushes be removed in order for them to build a fence.
Networking: For all the talk about social media and social networking, offline networking is still extremely effective. Chances are, there are several free or low cost networking events near you each month.
Blogging: Most blogging software is free. It doesn't take long to get up and running. And it's a great way to interact with your customers and potential customers. It does take some time to build an audience. In the beginning, you should anticipate spending up to an hour a day promoting your blog, commenting on other blogs and writing engaging posts.
Just a quick note: Local companies can benefit from blogging too. I once interviewed a personal injury lawyer who replaced advertising in the phone book with blogging. He now ranks on the top page in Google for "personal injury lawyer" in his home town.
LinkedIn: If you have a B2B company, LinkedIn might be a great way to make connections. You can demonstrate your industry expertise in their Question and Answer section. Not only will you be known as an expert, answering a prospective customer's question can lead to a sale.
Niche Networks: If you were to Google the phrase "social network and (your industry)" chances are you will find a group of people already talking about your industry and similar products and services. Join those groups and the conversation and start networking.
Facebook and Twitter: I would be negligent if I didn't include the popular social networking sites Facebook and Twitter. There is a good chance that your customers hang out on at least one of those platforms. First, spend some time listening to what they have to say, and then join the conversation.
Joint Venture: Are there businesses in your area that have complementary products or services to your own? For instance, if you have a landscaping business, you might be able to partner with a fencing contractor. Fencing contractors often require that trees be cut down or bushes be removed in order for them to build a fence.
Networking: For all the talk about social media and social networking, offline networking is still extremely effective. Chances are, there are several free or low cost networking events near you each month.
Thursday, December 3, 2009
Sell Your Business With Confidence
The worst time to sell a business is when you absolutely have to sell. Most buyers can sense fear and desperation, so if you don't come across as level-headed and under control, they will likely exploit every weakness to gain leverage in a transaction. Unfortunately, this is a rather common scenario in today's market; many business owners are struggling financially and are anxious to sell their businesses, but are having a tough time doing so.
It's equally harmful when an owner assumes a persona of empty bravado; this only masks the desperation--and not very well. This false bravado can send the owner into a state of denial, refusing to acknowledge that her business is on a downward trend and losing value. This is the most critical time for an owner to heed the advice of advisors. There's nothing more frustrating for a professional than to see a client in a downward spiral continue to do everything that led to the state of desperation in the first place.
So if you need to sell your business, what can you do to encourage success and avoid losing leverage by appearing desperate? Here are some important strategies to follow when navigating a business sale under difficult circumstances.
Listen to your advisors
Now is the time to ask lots of questions and to seek professional advice. Your business broker, accountant, attorney and wealth manager have probably all seen your situation before and will know how to handle it for the greatest success.
Establish a plan
Much of the desperation we see from business owners could've been avoided with proper exit planning. Planning, even in urgent situations, can help you gain understanding and clarity about your situation. A properly formulated exit plan should involve all of your key advisors, with primary and contingent plans carefully and comprehensively laid out. The creation of the plan alone can give you the power and freedom to think clearly even when times are tough.
Maintain confidentiality
Unless your situation is dire, you should tell no one outside of your immediate family and trusted advisors that you're seeking a third-party sale. Your instinct may be to take a shotgun approach and tell everyone in the hope that someone will come along and make you an offer. That could happen, but it's far more likely that, once word is out, employees, clients and vendors will start to scramble for a new employer or partner. This will only make matters worse and wreak havoc on your business. Chances are you're already under a lot of stress; there's no need to add more. Consider the benefit of working with an experienced business broker who can help safeguard the confidentiality of your business.
Stay focused
The moment you make the decision to sell your business is exactly when you need to ensure that all your efforts are focused on running the business. It can be hard to avoid pulling back from day-to-day operations or putting all your time and energy into the sale, but it's essential to stay committed to everyday tasks. Buyers like to see that a business has future prospects, even if the situation is dire.
Psychologically, you'll be in a much better position if you keep yourself and your employees fully engaged. You may be surprised at what your renewed efforts might yield in the way of business performance, which will only give you leverage when a buyer does come knocking.
Understand the need for multiple buyers
A surefire way to mitigate a desperate situation when selling your business is to have multiple interested parties. Our brokers constantly remind sellers that having only one buyer is like having no buyers. A good business brokerage firm has the marketing muscle to generate heavy buyer interest even if the business and owner are not in top form. A brokerage firm should have a large, existing database of buyers who may be interested in your business, an internet presence that attracts buyers and a trained, professional staff that knows how to manage a difficult situation. Engaging multiple buyers will enable you to get the best price and terms possible.
Price the business to sell
Now is not the time to overprice your business hoping someone will take the bait. The marketplace knows what a fair price looks like and, given your situation, you should be prepared to peg the price of the business at the low end of reasonable. This may sound counterintuitive, but the right price will actually help you attract more buyers and keep the price and terms at the highest level possible. We normally recommend a third-party valuation coupled with pre-approval from a bank so that we have as accurate a picture as possible.
Know how to meet with buyers
Business owners typically sell a business only once in their lifetime, so they're often unfamiliar with the nuances of meeting with buyers. These meetings typically determine whether a buyer is going to submit an offer, as well as the terms of the offer. There are key questions that can either reveal your desperation to the potential buyer or, if handled properly, communicate that you're motivated but won't be manipulated in a negotiation. A good business brokerage firm is able to anticipate these questions and help you rehearse how to respond in a truthful, level-headed manner.
Have multiple contingency plans
Realize that not all business-for-sale deals close successfully, especially in distressed situations. That is why it's important to have a thoughtful and credible plan B (and ideally, plan C) that can give you the additional confidence to maintain control. Make sure you can answer the question, "What will I do if I can't sell my business when I need to?" An experienced team of advisors can be an invaluable help with this and give you the peace of mind of knowing there are other options.
When you're suddenly faced with a situation that requires you to sell your business, it's difficult to avoid appearing distressed and desperate. It's absolutely essential that you don't, though, both for your ability to attract buyers and close a deal, as well as for your personal well-being. Keep these points in mind and seek the help of an experienced team of professionals.
It's equally harmful when an owner assumes a persona of empty bravado; this only masks the desperation--and not very well. This false bravado can send the owner into a state of denial, refusing to acknowledge that her business is on a downward trend and losing value. This is the most critical time for an owner to heed the advice of advisors. There's nothing more frustrating for a professional than to see a client in a downward spiral continue to do everything that led to the state of desperation in the first place.
So if you need to sell your business, what can you do to encourage success and avoid losing leverage by appearing desperate? Here are some important strategies to follow when navigating a business sale under difficult circumstances.
Listen to your advisors
Now is the time to ask lots of questions and to seek professional advice. Your business broker, accountant, attorney and wealth manager have probably all seen your situation before and will know how to handle it for the greatest success.
Establish a plan
Much of the desperation we see from business owners could've been avoided with proper exit planning. Planning, even in urgent situations, can help you gain understanding and clarity about your situation. A properly formulated exit plan should involve all of your key advisors, with primary and contingent plans carefully and comprehensively laid out. The creation of the plan alone can give you the power and freedom to think clearly even when times are tough.
Maintain confidentiality
Unless your situation is dire, you should tell no one outside of your immediate family and trusted advisors that you're seeking a third-party sale. Your instinct may be to take a shotgun approach and tell everyone in the hope that someone will come along and make you an offer. That could happen, but it's far more likely that, once word is out, employees, clients and vendors will start to scramble for a new employer or partner. This will only make matters worse and wreak havoc on your business. Chances are you're already under a lot of stress; there's no need to add more. Consider the benefit of working with an experienced business broker who can help safeguard the confidentiality of your business.
Stay focused
The moment you make the decision to sell your business is exactly when you need to ensure that all your efforts are focused on running the business. It can be hard to avoid pulling back from day-to-day operations or putting all your time and energy into the sale, but it's essential to stay committed to everyday tasks. Buyers like to see that a business has future prospects, even if the situation is dire.
Psychologically, you'll be in a much better position if you keep yourself and your employees fully engaged. You may be surprised at what your renewed efforts might yield in the way of business performance, which will only give you leverage when a buyer does come knocking.
Understand the need for multiple buyers
A surefire way to mitigate a desperate situation when selling your business is to have multiple interested parties. Our brokers constantly remind sellers that having only one buyer is like having no buyers. A good business brokerage firm has the marketing muscle to generate heavy buyer interest even if the business and owner are not in top form. A brokerage firm should have a large, existing database of buyers who may be interested in your business, an internet presence that attracts buyers and a trained, professional staff that knows how to manage a difficult situation. Engaging multiple buyers will enable you to get the best price and terms possible.
Price the business to sell
Now is not the time to overprice your business hoping someone will take the bait. The marketplace knows what a fair price looks like and, given your situation, you should be prepared to peg the price of the business at the low end of reasonable. This may sound counterintuitive, but the right price will actually help you attract more buyers and keep the price and terms at the highest level possible. We normally recommend a third-party valuation coupled with pre-approval from a bank so that we have as accurate a picture as possible.
Know how to meet with buyers
Business owners typically sell a business only once in their lifetime, so they're often unfamiliar with the nuances of meeting with buyers. These meetings typically determine whether a buyer is going to submit an offer, as well as the terms of the offer. There are key questions that can either reveal your desperation to the potential buyer or, if handled properly, communicate that you're motivated but won't be manipulated in a negotiation. A good business brokerage firm is able to anticipate these questions and help you rehearse how to respond in a truthful, level-headed manner.
Have multiple contingency plans
Realize that not all business-for-sale deals close successfully, especially in distressed situations. That is why it's important to have a thoughtful and credible plan B (and ideally, plan C) that can give you the additional confidence to maintain control. Make sure you can answer the question, "What will I do if I can't sell my business when I need to?" An experienced team of advisors can be an invaluable help with this and give you the peace of mind of knowing there are other options.
When you're suddenly faced with a situation that requires you to sell your business, it's difficult to avoid appearing distressed and desperate. It's absolutely essential that you don't, though, both for your ability to attract buyers and close a deal, as well as for your personal well-being. Keep these points in mind and seek the help of an experienced team of professionals.
Monday, November 30, 2009
Banks Eye Entrepreneurs
The economy might be on life support, but news about the death of business loans isn't telling the whole story. Some institutions, in fact, are doubling down when it comes to extending entrepreneurial credit lines. Some are even tapping some of that controversial Troubled Asset Relief Program money to help out clients in need of a little liquidity boost.
A safer bet than visiting a major bank, hat-in-hand, is to query your regional lending institution. Many have avoided the subprime mess and are sitting on liquid--lendable cash. Some have even taken a sliver of that federal TARP rescue money specifically to do what Congress and the U.S. Treasury intended: Give entrepreneurs and the American economy an injection of greenbacks in the form of business loans.
"We're entering an era when specialized institutions and community banks are the go-to source for small business," says Chris Hurn, CEO of Mercantile Commercial Capital in Altamonte Springs, Fla.
Mercantile is not a bank. Rather it's a financial services corporation that focuses on administrating and supplementing the SBA's 504 loan program. With the help of the SBA, Mercantile can offer entrepreneurs a loan on 90 percent of the value of a commercial property, with terms as long as 25 years and interest rates in the 5 percent range.
"Office buildings and industrial warehouses, day-care facilities, restaurants and hotels" are game, Hurn says. "We don't do many investor projects with speculation. We don't do multi-family residential. We don't do gigantic development projects. Our niche is generally half a million to $7 million projects."
The institution's pitch, Hurn says, is to wean business owners off money-losing leases and rents. "I finance people who go from leasing a facility to owning," he says. "It's a wealth-building strategy."
At a time when troubled big banks are trimming their small-business loan departments to benefit their own troubled balance sheets, Hurn is concerned that the federal government isn't cultivating economic growth where it could count the most--at the entrepreneurial level.
"There have been about 300 lenders get out of the SBA loan business"--many that have taken TARP money, Hurn says. "It compounds the problem when we know that small businesses lead us out of recession. They're making the situation worse than it needs to be. Rather than strengthen the success of sectors like small business, we've got a government philosophy that says we need to prop up failure."
So don't expect Mercantile to prop up just any mogul-in-training. Most willing lenders are survivors of this mess specifically because they've been wary about who gets their legal tender. You can bet your bottom dollar that they're not about to weaken their lending criteria in this climate. But if you have good credit, if your business shows positive cash flow and if you have collateral such as property, you can probably get a loan.
Hurn says he asks one question when evaluating a potential customer: "Is there enough capital spun off by a company to cover the debt on the loan?"
"It's not that complicated," he says. "We look at tax returns, we take rent, profits, we look at non-cash expenses; add all that, and that gives an idea of the capital spun off on the business. We compare that to the annualized debt on the loan. Say the business spins $1.20 for every dollar of debt payments. If it's that or higher, chances are we'll approve the loan. We'll also look at credit scores and make sure you're a good boy or girl."
While major banks focus on balance sheets, the leaders of some small, regional and midsize institutions want to make it clear that entrepreneurial lending is the lifeblood of American business. They want to keep it flowing.
A safer bet than visiting a major bank, hat-in-hand, is to query your regional lending institution. Many have avoided the subprime mess and are sitting on liquid--lendable cash. Some have even taken a sliver of that federal TARP rescue money specifically to do what Congress and the U.S. Treasury intended: Give entrepreneurs and the American economy an injection of greenbacks in the form of business loans.
"We're entering an era when specialized institutions and community banks are the go-to source for small business," says Chris Hurn, CEO of Mercantile Commercial Capital in Altamonte Springs, Fla.
Mercantile is not a bank. Rather it's a financial services corporation that focuses on administrating and supplementing the SBA's 504 loan program. With the help of the SBA, Mercantile can offer entrepreneurs a loan on 90 percent of the value of a commercial property, with terms as long as 25 years and interest rates in the 5 percent range.
"Office buildings and industrial warehouses, day-care facilities, restaurants and hotels" are game, Hurn says. "We don't do many investor projects with speculation. We don't do multi-family residential. We don't do gigantic development projects. Our niche is generally half a million to $7 million projects."
The institution's pitch, Hurn says, is to wean business owners off money-losing leases and rents. "I finance people who go from leasing a facility to owning," he says. "It's a wealth-building strategy."
At a time when troubled big banks are trimming their small-business loan departments to benefit their own troubled balance sheets, Hurn is concerned that the federal government isn't cultivating economic growth where it could count the most--at the entrepreneurial level.
"There have been about 300 lenders get out of the SBA loan business"--many that have taken TARP money, Hurn says. "It compounds the problem when we know that small businesses lead us out of recession. They're making the situation worse than it needs to be. Rather than strengthen the success of sectors like small business, we've got a government philosophy that says we need to prop up failure."
So don't expect Mercantile to prop up just any mogul-in-training. Most willing lenders are survivors of this mess specifically because they've been wary about who gets their legal tender. You can bet your bottom dollar that they're not about to weaken their lending criteria in this climate. But if you have good credit, if your business shows positive cash flow and if you have collateral such as property, you can probably get a loan.
Hurn says he asks one question when evaluating a potential customer: "Is there enough capital spun off by a company to cover the debt on the loan?"
"It's not that complicated," he says. "We look at tax returns, we take rent, profits, we look at non-cash expenses; add all that, and that gives an idea of the capital spun off on the business. We compare that to the annualized debt on the loan. Say the business spins $1.20 for every dollar of debt payments. If it's that or higher, chances are we'll approve the loan. We'll also look at credit scores and make sure you're a good boy or girl."
While major banks focus on balance sheets, the leaders of some small, regional and midsize institutions want to make it clear that entrepreneurial lending is the lifeblood of American business. They want to keep it flowing.
Monday, November 23, 2009
IU Panel: Years Before Economy is Restored
Indiana University economists believe it will take three to five years to restore the economy and reach full employment. Those predictions are among the key points in the 2010 economic forecast from the IU Kelley School of Business Outlook Panel. The researchers believe households are likely to continue being cautious with spending and small businesses will still be dealing with tight credit in 2010. The forecast is also calling for the national unemployment rate to peak above 10 percent, while payrolls add nearly 2 million jobs by the end of 2010.
Thursday, November 19, 2009
What's Your Business REALLY Worth?
A recent article in INC magazine titled ”Street Smarts,” by Norm Brodsky (his column is worth the price of the magazine)addressed the subject of the title above. However, in the very first paragraph of the article, Mr. Brodsky stated,
“Unfortunately, most of them [business owners] have grossly inflated notions of what their companies are worth.” Mr. Brodsky is not one to mince words. Some of his examples were: “One company had lost money on sales of about $60 million, and yet its owners thought it was worth between $50 million and $100 million … Another company had a net profit of less than $335,000 on sales of about $6.5 million – and still the owners somehow came to believe it was worth between $100 million and $200 million.”
Mr. Brodsky feels that the reason for this is “… our egos can get us in trouble when it comes to putting a dollar value on something we’ve created. We generally take the highest valuation we’ve heard for a company somewhat like ours – and multiply it.”
He goes on to point out that prospective acquirers are more concerned about profits, especially Free Cash Flow, than sales. Too many company owners use some rule of thumb based on sales. He also points out that company owners tend to use a comparison of a similar business across town that sold for some multiple of sales and then apply it to their company. There are so many variables of how sales (and subsequently earnings) are generated that no two companies are ever alike. Business owners tend to forget the negatives of their business; e.g., sales from just a few customers, lack of contracts with customers and suppliers, lack of product diversity, out-dated equipment, etc. Also, as Mr. Brodsky points out,
“Before you try to sell, make sure you know what buyers want.”
Turning to another expert voice, here is some good advice from Allen Hahn, Senior Vice President of Valuation Research Corporation: “The level of EBIT or EBITDA used for negotiating a purchase price is the ‘normalized’ level that will be available to the new owners from the assets acquired. Often times this requires elimination of unusual, inappropriate or non-recurring expenses. Buyers will typically consider a company’s last twelve months of financial performance. However, projected results may be more relevant if a structural change has recently occurred in the business (loss of a key customer, acquisition, etc.) that renders historical results less meaningful.”
What does all of this mean? It means that owners should disregard rules of thumb based on what the company across town sold for; it means that owners should not use a multiple based on what the business did four or five years ago, or what they think the business will do next year.
Business owners should first put their egos aside, then look long and hard at the company’s cash flow, realistically assess the negatives (and positives) of their business and “make sure you know what buyers want.”
“Unfortunately, most of them [business owners] have grossly inflated notions of what their companies are worth.” Mr. Brodsky is not one to mince words. Some of his examples were: “One company had lost money on sales of about $60 million, and yet its owners thought it was worth between $50 million and $100 million … Another company had a net profit of less than $335,000 on sales of about $6.5 million – and still the owners somehow came to believe it was worth between $100 million and $200 million.”
Mr. Brodsky feels that the reason for this is “… our egos can get us in trouble when it comes to putting a dollar value on something we’ve created. We generally take the highest valuation we’ve heard for a company somewhat like ours – and multiply it.”
He goes on to point out that prospective acquirers are more concerned about profits, especially Free Cash Flow, than sales. Too many company owners use some rule of thumb based on sales. He also points out that company owners tend to use a comparison of a similar business across town that sold for some multiple of sales and then apply it to their company. There are so many variables of how sales (and subsequently earnings) are generated that no two companies are ever alike. Business owners tend to forget the negatives of their business; e.g., sales from just a few customers, lack of contracts with customers and suppliers, lack of product diversity, out-dated equipment, etc. Also, as Mr. Brodsky points out,
“Before you try to sell, make sure you know what buyers want.”
Turning to another expert voice, here is some good advice from Allen Hahn, Senior Vice President of Valuation Research Corporation: “The level of EBIT or EBITDA used for negotiating a purchase price is the ‘normalized’ level that will be available to the new owners from the assets acquired. Often times this requires elimination of unusual, inappropriate or non-recurring expenses. Buyers will typically consider a company’s last twelve months of financial performance. However, projected results may be more relevant if a structural change has recently occurred in the business (loss of a key customer, acquisition, etc.) that renders historical results less meaningful.”
What does all of this mean? It means that owners should disregard rules of thumb based on what the company across town sold for; it means that owners should not use a multiple based on what the business did four or five years ago, or what they think the business will do next year.
Business owners should first put their egos aside, then look long and hard at the company’s cash flow, realistically assess the negatives (and positives) of their business and “make sure you know what buyers want.”
Monday, November 16, 2009
The Three Ways to Negotiate
Basically, there are three major negotiation methods.
1. Take it or leave it. A buyer makes an offer or a seller makes a counter-offer – both sides can let the “chips fall where they may.”
2. Split the difference. The buyer and seller, one or the other, or both, decide to split the difference between what the buyer is willing to offer and what the seller is willing to accept. A real oversimplification, but often used.
3. This for that. Both buyer and seller have to find out what is important to each. So many of these important areas are non-monetary and involve personal things such as allowing the owner’s son to continue employment with the firm. The buyer may want to move the business. There is an old adage that advises, “Never negotiate your own deal!”
The first thing both sides have to decide on is who will represent them. Will they have their attorney, their intermediary or will they go it alone? Intermediaries are a good choice for a seller. They have done it before, are good advocates for their side and they understand the company and the seller. How do the parties get together in a win-win negotiation? The first step is for both sides to work with their advisors to settle on the price and deal structure positions. Both sides should be able to present their side of these issues. Which is more important – price or terms, or non-monetary items? Information is vital to a buyer. Buyers should keep in mind that the seller knows more about the business than he or she does. Both buyer and seller need to anticipate what is important to the other and keep that in mind when discussing the deal. Buyer and seller should do due diligence on each other. Both buyer and seller must be able to walk away from a deal that is just not going to work.
1. Take it or leave it. A buyer makes an offer or a seller makes a counter-offer – both sides can let the “chips fall where they may.”
2. Split the difference. The buyer and seller, one or the other, or both, decide to split the difference between what the buyer is willing to offer and what the seller is willing to accept. A real oversimplification, but often used.
3. This for that. Both buyer and seller have to find out what is important to each. So many of these important areas are non-monetary and involve personal things such as allowing the owner’s son to continue employment with the firm. The buyer may want to move the business. There is an old adage that advises, “Never negotiate your own deal!”
The first thing both sides have to decide on is who will represent them. Will they have their attorney, their intermediary or will they go it alone? Intermediaries are a good choice for a seller. They have done it before, are good advocates for their side and they understand the company and the seller. How do the parties get together in a win-win negotiation? The first step is for both sides to work with their advisors to settle on the price and deal structure positions. Both sides should be able to present their side of these issues. Which is more important – price or terms, or non-monetary items? Information is vital to a buyer. Buyers should keep in mind that the seller knows more about the business than he or she does. Both buyer and seller need to anticipate what is important to the other and keep that in mind when discussing the deal. Buyer and seller should do due diligence on each other. Both buyer and seller must be able to walk away from a deal that is just not going to work.
Thursday, November 12, 2009
Make the Most of Your Advertising Dollars
These days, most U.S. markets are buyer's markets, meaning that consumers have great leverage to get a lot of value for their dollars.
Right now, this is especially true in the advertising world. Which is good news if you're just starting your company or revamping your existing marketing strategies.
In fact, this is in stark contrast to a few years ago, when advertisers in some markets were being bumped in favor of higher-paying advertisers for the same TV or radio spot, or were stuck on waiting lists for outdoor billboards in high-traffic areas.
We're also shifting from an economic winter to an economic spring. This means you can pump your ad budget up with loads of added value that could result in increased reach and frequency--both of which are key to getting more business and profits for your company.
So to make sure your ad budget will be a wise investment as opposed to an unnecessary expense, here are a few things to remember:
1. Leads are more important than branding. No matter what the media or ad agency experts tell you, generating leads for your business is more important than building a brand at this point, especially in startup mode.
The most critical component of your campaign will be drilling down to find media that deliver your message to people actively looking to buy your product or service, as well as those looking for a new, lower-cost or better service provider. To truly build your brand, you need to be that provider.
2. Negotiate, negotiate, negotiate. Since it is a buyer's market right now, you're in a good position to push for as much value as possible. In TV, this may mean additional mentions into or out of commercial breaks. For radio, it may mean more frequency or co-sponsorship of a local promotion or event. And for print, it may mean a bigger ad or additional placements, or even space for an advertorial.
3. Remember PR. These days it's great to be contrarian: optimistic because everyone is pessimistic, or opening and running a business when everyone else is getting laid off or is fearful of starting his or her own company.
4. E-mail is a necessity, but don't forget direct mail. E-mail marketing has taken off in the past few years, but there are limitations. Double opt-ins--where people have to confirm twice that they want to receive your emails--are the norm these days. Even so, click-through rates average less than half of 1 percent.
Remember, marketing is all about numbers. Be sure to test, measure and track your ads to determine how many leads they generate.
It may be a buyer's market, but as always, it's important to know what you are buying and to make sure you are getting ROI and strong leads from your advertising dollars.
Right now, this is especially true in the advertising world. Which is good news if you're just starting your company or revamping your existing marketing strategies.
In fact, this is in stark contrast to a few years ago, when advertisers in some markets were being bumped in favor of higher-paying advertisers for the same TV or radio spot, or were stuck on waiting lists for outdoor billboards in high-traffic areas.
We're also shifting from an economic winter to an economic spring. This means you can pump your ad budget up with loads of added value that could result in increased reach and frequency--both of which are key to getting more business and profits for your company.
So to make sure your ad budget will be a wise investment as opposed to an unnecessary expense, here are a few things to remember:
1. Leads are more important than branding. No matter what the media or ad agency experts tell you, generating leads for your business is more important than building a brand at this point, especially in startup mode.
The most critical component of your campaign will be drilling down to find media that deliver your message to people actively looking to buy your product or service, as well as those looking for a new, lower-cost or better service provider. To truly build your brand, you need to be that provider.
2. Negotiate, negotiate, negotiate. Since it is a buyer's market right now, you're in a good position to push for as much value as possible. In TV, this may mean additional mentions into or out of commercial breaks. For radio, it may mean more frequency or co-sponsorship of a local promotion or event. And for print, it may mean a bigger ad or additional placements, or even space for an advertorial.
3. Remember PR. These days it's great to be contrarian: optimistic because everyone is pessimistic, or opening and running a business when everyone else is getting laid off or is fearful of starting his or her own company.
4. E-mail is a necessity, but don't forget direct mail. E-mail marketing has taken off in the past few years, but there are limitations. Double opt-ins--where people have to confirm twice that they want to receive your emails--are the norm these days. Even so, click-through rates average less than half of 1 percent.
Remember, marketing is all about numbers. Be sure to test, measure and track your ads to determine how many leads they generate.
It may be a buyer's market, but as always, it's important to know what you are buying and to make sure you are getting ROI and strong leads from your advertising dollars.
Monday, November 9, 2009
My Planning's Off. What Now?
I've said many times that what really matters in business planning is the planning, not just the plan. This time around I'd like to go into more detail about that moment of truth when you're working your plan, time has passed, but the plan is out of synch with reality. What do you do then?
Just asking this question means you're already on the right track. You can't get to this point without having done several things right:
• You have a business plan. I'm hoping that your plan lives on your computer, not just on paper. It's all right to have a printout, but it's far more important that you still have it on the computer where you can manage it easily.
• You've reviewed your plan. This is another good sign. It means your business plan had specifics in it. You had some numbers projected in your plan, probably forecasts of sales, expenses and costs. I hope you also included a milestones table, listing dates, deadlines and responsibilities for the tasks you included as part of the plan.
• You can compare your plan to your progress. You're getting actual business numbers back from your accounting system and comparing them to those in your plan.
If the three points above don't apply to you, you're missing out on the benefits of planning for managing your business. An idea-only plan--without specifics--can be useful but not nearly as useful as a planning-to-manage-your-company plan. If these points do apply to you, congratulations; but you still have the problem of what you do with the difference between plan and actual.
Step One: Review the Assumptions
I hope your plan includes a list of assumptions. This is a normal part of any modern business plan. Here's where you put the assumptions to use. Examine each assumption and figure out which ones, if any, have changed.
Step Two: Comparison of Plan vs. Actual
In the finance world we call it variance: the difference between plan and actual. Variance is positive when there are more sales or profits, or reduced costs or expenses. It's negative when sales and profits are lower, or expenses and costs have increased.
But variance isn't the end; it's the beginning of the analysis. It's not just numbers; it's the people and the activities involved. For example, expenses lower than planned are always a positive variance, but what if expenses were lower because the marketing programs weren't implemented? That would mean the variance is really the result of a failure to work the plan.
Regardless of whether the variance is positive or negative, the question is always: What management is required? If your plan included a good sense of who's in charge of what, then you know whom to talk to when things don't go according to plan. What went wrong? What should we do better from now on? What has to change? And remember: Changed assumptions are the best reason to change a plan.
Step Three: Revise the Plan Accordingly
It's about the planning process. Avoid falling into blame mode. Give credit easily. Revise wherever it will make the continuing management more likely to succeed. It's not a guessing game, it's like steering: You correct constantly to stay on course and keep heading for your destination.
A business is a web of interrelated factors. Sales and marketing programs affect cash flow, employee management affects morale, and morale affects productivity. I imagine a loose web of things that swing together. When sales go one way, we need to track the other things that need to move along with sales. Planning isn't about just guessing; it's about being able to follow the links in the web as things change.
Ultimately you develop strategic choice based on your judgment. Yes, your plan will be wrong because all plans are wrong. But having a plan will help you figure out what you misjudged. And then you can decide whether your best course is to give things more time or to let them go. And always look first to see what assumptions have changed.
Just asking this question means you're already on the right track. You can't get to this point without having done several things right:
• You have a business plan. I'm hoping that your plan lives on your computer, not just on paper. It's all right to have a printout, but it's far more important that you still have it on the computer where you can manage it easily.
• You've reviewed your plan. This is another good sign. It means your business plan had specifics in it. You had some numbers projected in your plan, probably forecasts of sales, expenses and costs. I hope you also included a milestones table, listing dates, deadlines and responsibilities for the tasks you included as part of the plan.
• You can compare your plan to your progress. You're getting actual business numbers back from your accounting system and comparing them to those in your plan.
If the three points above don't apply to you, you're missing out on the benefits of planning for managing your business. An idea-only plan--without specifics--can be useful but not nearly as useful as a planning-to-manage-your-company plan. If these points do apply to you, congratulations; but you still have the problem of what you do with the difference between plan and actual.
Step One: Review the Assumptions
I hope your plan includes a list of assumptions. This is a normal part of any modern business plan. Here's where you put the assumptions to use. Examine each assumption and figure out which ones, if any, have changed.
Step Two: Comparison of Plan vs. Actual
In the finance world we call it variance: the difference between plan and actual. Variance is positive when there are more sales or profits, or reduced costs or expenses. It's negative when sales and profits are lower, or expenses and costs have increased.
But variance isn't the end; it's the beginning of the analysis. It's not just numbers; it's the people and the activities involved. For example, expenses lower than planned are always a positive variance, but what if expenses were lower because the marketing programs weren't implemented? That would mean the variance is really the result of a failure to work the plan.
Regardless of whether the variance is positive or negative, the question is always: What management is required? If your plan included a good sense of who's in charge of what, then you know whom to talk to when things don't go according to plan. What went wrong? What should we do better from now on? What has to change? And remember: Changed assumptions are the best reason to change a plan.
Step Three: Revise the Plan Accordingly
It's about the planning process. Avoid falling into blame mode. Give credit easily. Revise wherever it will make the continuing management more likely to succeed. It's not a guessing game, it's like steering: You correct constantly to stay on course and keep heading for your destination.
A business is a web of interrelated factors. Sales and marketing programs affect cash flow, employee management affects morale, and morale affects productivity. I imagine a loose web of things that swing together. When sales go one way, we need to track the other things that need to move along with sales. Planning isn't about just guessing; it's about being able to follow the links in the web as things change.
Ultimately you develop strategic choice based on your judgment. Yes, your plan will be wrong because all plans are wrong. But having a plan will help you figure out what you misjudged. And then you can decide whether your best course is to give things more time or to let them go. And always look first to see what assumptions have changed.
Friday, November 6, 2009
Current Inventory
Niche Marketing—Child Safety Service/Product: This company provides a popular children’s safety service/product. Unique business revenue structure and marketing method has proven extremely successful with a database in excess of 1,200 clients. The company is home-based and while it currently operates mostly in the Indianapolis and Central Indiana region, the owner has been approached by national companies. It can be expanded and duplicated. Rev: $211,978 CF: $144,106 Ask: $390k
Midas Franchise: One of the most recognized names in auto repair and maintenance. This store is well established with a great location on a major thoroughfare and exceptionally clean. Rev: $700k CF: $106k Ask: $229k, RE is available
Auto Repair Facility: This 5 bay auto service shop has been established for close to 50 years. They are located in a large growing community on a major thoroughfare in the Indianapolis area. This shop is a full service repair facility that includes all assets. They are well known for their exceptional service and dedication to the community. The Seller will introduce the buyer to major fleet accounts and to other clients as needed. Rev: $1.1M CF: $272k Ask: $880k, RE is available
Midas Franchise: One of the most recognized names in auto repair and maintenance. This store is well established with a great location on a major thoroughfare and exceptionally clean. Rev: $700k CF: $106k Ask: $229k, RE is available
Auto Repair Facility: This 5 bay auto service shop has been established for close to 50 years. They are located in a large growing community on a major thoroughfare in the Indianapolis area. This shop is a full service repair facility that includes all assets. They are well known for their exceptional service and dedication to the community. The Seller will introduce the buyer to major fleet accounts and to other clients as needed. Rev: $1.1M CF: $272k Ask: $880k, RE is available
Thursday, November 5, 2009
Local lenders support small-biz loan initiative
Small-business lenders in Indiana are supporting a proposal announced by President Obama that would increase the size of government-backed loans.
Under the plan announced Wednesday, loan amounts made through the U.S. Small Business Administration’s flagship 504 and 7(a) programs would increase to $5 million. Current maximums are $4 million for 504 loans and $2 million for 7(a) lending.
The initiative would be funded by the Troubled Asset Relief Program and would need to be approved by federal lawmakers.
“I think that increasing the caps on SBA lending is absolutely the way to go,” said Joe DeHaven, president and CEO of the Indiana Bankers Association. “It’s the correct way to spur small-business loans.”
The credit crunch has severely slowed lending activity, although most bankers contend that capital remains available to clients with a solid credit history. Still, the number of SBA-backed loans in Indiana dropped nearly 30 percent in fiscal 2009 from the previous year.
For the fiscal year ended Sept. 30, 1,035 loans totaling $266.8 million were made through the two SBA programs. That compares with 1,460 loans totaling $307 million in the previous fiscal year.
“We’re still cautious, but I think we are lending to credit-worthy borrowers,” said Scott Burns, vice president of SBA lending at the Indianapolis office of Pittsburgh-based PNC Financial Services Inc. “And you’ll see [lending] starting to step up over the next year.”
Burns thinks Indiana’s large manufacturing base could benefit most from the proposed increase, because a mid-size factory can’t purchase a lot of equipment with a $2 million loan.
The Washington, D.C.-based Independent Community Bankers of America issued a statement supporting the proposal, as did the National Association of Development Companies.
NADCO is the trade association for the nation’s certified development companies that make 504 loans. Jean Wojtowicz, director of the Indiana Statewide Certified Development Corp. in Indianapolis, is chairwoman of Virginia-based NADCO.
“Raising the ceiling on SBA 504 loans to $5 million is a big step toward bringing more job-creation money to Main Street,” Wojtowicz said.
504 loans typically are used to purchase land, buildings and equipment.
The SBA currently guarantees as much as 90 percent of loans it backs through approved financial institutions. The guarantee provides an incentive for banks to lend to small businesses that are more at risk of defaulting.
Under the plan announced Wednesday, loan amounts made through the U.S. Small Business Administration’s flagship 504 and 7(a) programs would increase to $5 million. Current maximums are $4 million for 504 loans and $2 million for 7(a) lending.
The initiative would be funded by the Troubled Asset Relief Program and would need to be approved by federal lawmakers.
“I think that increasing the caps on SBA lending is absolutely the way to go,” said Joe DeHaven, president and CEO of the Indiana Bankers Association. “It’s the correct way to spur small-business loans.”
The credit crunch has severely slowed lending activity, although most bankers contend that capital remains available to clients with a solid credit history. Still, the number of SBA-backed loans in Indiana dropped nearly 30 percent in fiscal 2009 from the previous year.
For the fiscal year ended Sept. 30, 1,035 loans totaling $266.8 million were made through the two SBA programs. That compares with 1,460 loans totaling $307 million in the previous fiscal year.
“We’re still cautious, but I think we are lending to credit-worthy borrowers,” said Scott Burns, vice president of SBA lending at the Indianapolis office of Pittsburgh-based PNC Financial Services Inc. “And you’ll see [lending] starting to step up over the next year.”
Burns thinks Indiana’s large manufacturing base could benefit most from the proposed increase, because a mid-size factory can’t purchase a lot of equipment with a $2 million loan.
The Washington, D.C.-based Independent Community Bankers of America issued a statement supporting the proposal, as did the National Association of Development Companies.
NADCO is the trade association for the nation’s certified development companies that make 504 loans. Jean Wojtowicz, director of the Indiana Statewide Certified Development Corp. in Indianapolis, is chairwoman of Virginia-based NADCO.
“Raising the ceiling on SBA 504 loans to $5 million is a big step toward bringing more job-creation money to Main Street,” Wojtowicz said.
504 loans typically are used to purchase land, buildings and equipment.
The SBA currently guarantees as much as 90 percent of loans it backs through approved financial institutions. The guarantee provides an incentive for banks to lend to small businesses that are more at risk of defaulting.
Monday, November 2, 2009
SBA Announces Maximum Fixed Rate
Historically, SBA has been permitted to publish a maximum allowable fixed rate for its guaranteed loans in the Federal Register, see 13 CFR 120.213(a). However, up to this point, the Agency has not done so. Lenders have been reluctant to make fixed rate loans under the 7a program because they have been restricted to a maximum rate equal to the Prime Rate (or LIBOR Base Rate) plus the maximum rate spreads identified in 13 CFR 120.214 (d) and (e) and 13 CFR 120.215. Currently, this results in a maximum rate of approximately 6.00%, which is not a rate most lenders are willing (or able) to lock in at for a long-term loan.
Yesterday, the SBA published in the Federal Register, its guidelines for calculating fixed rates for long term 7a loans, effective October 1, 2009.
The new guidance establishes a calculation for a "Fixed Base Rate" which is equal to the LIBOR Base Rate plus the average of the 5-year and 10-year LIBOR SWAP Rate (each as established on the first calendar day of the month). The maximum allowable fixed rate for 7(a) loans (excluding SBA Express and Export Express) will be calculated using the Fixed Base Rate plus the same spreads available on variable rate 7a loans, typically between 2.25% and 2.75%. See 13 CFR 120.214 (d) and (e) and 13 CFR 120.215.
Accordingly, the maximum fixed rate for loans with a maturity greater than seven years would be 9.17% using the September, 2009 LIBOR Base Rate (3.26), plus the average 5 and 10 year LIBOR Swap Rates (3.16), plus the maximum spread (2.75).
"This is good news for lenders and borrowers" says Bob Stephan of Coastal Securities, "Borrowers want to take advantage of this low interest rate environment to lock in a fixed rate, but lenders need a rate higher than what was previously allowed, in order to make offering a fixed rate feasible." Additionally, Stephan says that lenders can sell the guaranteed portion of their fixed-rate loans for a premium in the 4 point range and can still retain a 1% servicing fee, thereby reducing their exposure to these fixed rate loans.
Yesterday, the SBA published in the Federal Register, its guidelines for calculating fixed rates for long term 7a loans, effective October 1, 2009.
The new guidance establishes a calculation for a "Fixed Base Rate" which is equal to the LIBOR Base Rate plus the average of the 5-year and 10-year LIBOR SWAP Rate (each as established on the first calendar day of the month). The maximum allowable fixed rate for 7(a) loans (excluding SBA Express and Export Express) will be calculated using the Fixed Base Rate plus the same spreads available on variable rate 7a loans, typically between 2.25% and 2.75%. See 13 CFR 120.214 (d) and (e) and 13 CFR 120.215.
Accordingly, the maximum fixed rate for loans with a maturity greater than seven years would be 9.17% using the September, 2009 LIBOR Base Rate (3.26), plus the average 5 and 10 year LIBOR Swap Rates (3.16), plus the maximum spread (2.75).
"This is good news for lenders and borrowers" says Bob Stephan of Coastal Securities, "Borrowers want to take advantage of this low interest rate environment to lock in a fixed rate, but lenders need a rate higher than what was previously allowed, in order to make offering a fixed rate feasible." Additionally, Stephan says that lenders can sell the guaranteed portion of their fixed-rate loans for a premium in the 4 point range and can still retain a 1% servicing fee, thereby reducing their exposure to these fixed rate loans.
Thursday, October 29, 2009
Local Lenders Support Small-Biz Loan Initiative
Small-business lenders in Indiana are supporting a proposal announced by President Obama that would increase the size of government-backed loans.
Under the plan announced Wednesday, loan amounts made through the U.S. Small Business Administration’s flagship 504 and 7(a) programs would increase to $5 million. Current maximums are $4 million for 504 loans and $2 million for 7(a) lending.
The initiative would be funded by the Troubled Asset Relief Program and would need to be approved by federal lawmakers.
“I think that increasing the caps on SBA lending is absolutely the way to go,” said Joe DeHaven, president and CEO of the Indiana Bankers Association. “It’s the correct way to spur small-business loans.”
The credit crunch has severely slowed lending activity, although most bankers contend that capital remains available to clients with a solid credit history. Still, the number of SBA-backed loans in Indiana dropped nearly 30 percent in fiscal 2009 from the previous year.
For the fiscal year ended Sept. 30, 1,035 loans totaling $266.8 million were made through the two SBA programs. That compares with 1,460 loans totaling $307 million in the previous fiscal year.
“We’re still cautious, but I think we are lending to credit-worthy borrowers,” said Scott Burns, vice president of SBA lending at the Indianapolis office of Pittsburgh-based PNC Financial Services Inc. “And you’ll see [lending] starting to step up over the next year.”
Burns thinks Indiana’s large manufacturing base could benefit most from the proposed increase, because a mid-size factory can’t purchase a lot of equipment with a $2 million loan.
The Washington, D.C.-based Independent Community Bankers of America issued a statement supporting the proposal, as did the National Association of Development Companies.
NADCO is the trade association for the nation’s certified development companies that make 504 loans. Jean Wojtowicz, director of the Indiana Statewide Certified Development Corp. in Indianapolis, is chairwoman of Virginia-based NADCO.
“Raising the ceiling on SBA 504 loans to $5 million is a big step toward bringing more job-creation money to Main Street,” Wojtowicz said.
504 loans typically are used to purchase land, buildings and equipment.
The SBA currently guarantees as much as 90 percent of loans it backs through approved financial institutions. The guarantee provides an incentive for banks to lend to small businesses that are more at risk of defaulting.
Under the plan announced Wednesday, loan amounts made through the U.S. Small Business Administration’s flagship 504 and 7(a) programs would increase to $5 million. Current maximums are $4 million for 504 loans and $2 million for 7(a) lending.
The initiative would be funded by the Troubled Asset Relief Program and would need to be approved by federal lawmakers.
“I think that increasing the caps on SBA lending is absolutely the way to go,” said Joe DeHaven, president and CEO of the Indiana Bankers Association. “It’s the correct way to spur small-business loans.”
The credit crunch has severely slowed lending activity, although most bankers contend that capital remains available to clients with a solid credit history. Still, the number of SBA-backed loans in Indiana dropped nearly 30 percent in fiscal 2009 from the previous year.
For the fiscal year ended Sept. 30, 1,035 loans totaling $266.8 million were made through the two SBA programs. That compares with 1,460 loans totaling $307 million in the previous fiscal year.
“We’re still cautious, but I think we are lending to credit-worthy borrowers,” said Scott Burns, vice president of SBA lending at the Indianapolis office of Pittsburgh-based PNC Financial Services Inc. “And you’ll see [lending] starting to step up over the next year.”
Burns thinks Indiana’s large manufacturing base could benefit most from the proposed increase, because a mid-size factory can’t purchase a lot of equipment with a $2 million loan.
The Washington, D.C.-based Independent Community Bankers of America issued a statement supporting the proposal, as did the National Association of Development Companies.
NADCO is the trade association for the nation’s certified development companies that make 504 loans. Jean Wojtowicz, director of the Indiana Statewide Certified Development Corp. in Indianapolis, is chairwoman of Virginia-based NADCO.
“Raising the ceiling on SBA 504 loans to $5 million is a big step toward bringing more job-creation money to Main Street,” Wojtowicz said.
504 loans typically are used to purchase land, buildings and equipment.
The SBA currently guarantees as much as 90 percent of loans it backs through approved financial institutions. The guarantee provides an incentive for banks to lend to small businesses that are more at risk of defaulting.
Monday, October 26, 2009
Restaurant Financing 2009 Update Re-cap
2009 Restaurant Financing Update
Roughly 50,000 SBA loans since 2000
$11 Billion 7(a) and 504
1 out of 9 SBA Loans finance restaurants
15% failure rate
12% of all Charge-offs since 2000
1 Million Restaurants in United States
(1 Restaurant for every 320 Americans)
Nathaniel Booker, President of First Innovative Financial Group, Inc. explains, "Quite often many of the deals that we have done are in strip centers, sometimes in malls. This is why it's very critical underwrite the business.
When you underwrite the business, you're underwriting the owner, management is very critical.
You want someone who has experience operating a restaurant. If they are opening up a second or third location you mitigate your risk of loss. When you're opening up a new location you need projections that are listed and supportable. Many of them don't do what I consider very critical analysis regard to table turn.
Chris Hurn, President & CEO of Mercantile Capital Corporation explains, "I want to see that they know their space well. If they're a sit down or fast casual, knowing what else is around that particular location is helpful.
"I'm a big believer that you can tell a lot about a company with the kind of measures restaurants have in place to try and make it such that the employee's enjoy what they do and then actually show it to the customers as well.
"Is the experience delivered consistently every single time? In the case of restaurants, do the waiters or waitresses check their attitudes at the door and they put on a performance when they're there. These are all non-financial, intangible items, but it's important to know that. It helps a lender contemplate doing a particular loan to know some of these things because it gives you a better feel for what this concept is going to be like and whether they should actually do it or not.
Roughly 50,000 SBA loans since 2000
$11 Billion 7(a) and 504
1 out of 9 SBA Loans finance restaurants
15% failure rate
12% of all Charge-offs since 2000
1 Million Restaurants in United States
(1 Restaurant for every 320 Americans)
Nathaniel Booker, President of First Innovative Financial Group, Inc. explains, "Quite often many of the deals that we have done are in strip centers, sometimes in malls. This is why it's very critical underwrite the business.
When you underwrite the business, you're underwriting the owner, management is very critical.
You want someone who has experience operating a restaurant. If they are opening up a second or third location you mitigate your risk of loss. When you're opening up a new location you need projections that are listed and supportable. Many of them don't do what I consider very critical analysis regard to table turn.
Chris Hurn, President & CEO of Mercantile Capital Corporation explains, "I want to see that they know their space well. If they're a sit down or fast casual, knowing what else is around that particular location is helpful.
"I'm a big believer that you can tell a lot about a company with the kind of measures restaurants have in place to try and make it such that the employee's enjoy what they do and then actually show it to the customers as well.
"Is the experience delivered consistently every single time? In the case of restaurants, do the waiters or waitresses check their attitudes at the door and they put on a performance when they're there. These are all non-financial, intangible items, but it's important to know that. It helps a lender contemplate doing a particular loan to know some of these things because it gives you a better feel for what this concept is going to be like and whether they should actually do it or not.
Friday, October 23, 2009
Monday, October 19, 2009
Learn From Your Mistakes
If we want business success, we have to look clearly at our mistakes--and stop repeating them. We need to work with our team, not against them, to do this. Too often business owners tell me, “It was just a small mistake.” But, there are no small mistakes. Why?
• A small mistake can have big consequences.
• Repeating small mistakes can lose customers, kill a business or cost an employee his job.
In fact, every mistake has at least six different sizes:
1. The size of the mistake itself, which is usually small.
2. The size of the consequences if the mistake is not found and corrected, which can be huge.
3. The size of the time and cost it will take to fix the mistake.
4. The size of the causes of the mistake.
5. The size of the effort to prevent the mistake from happening again.
6. The size of the benefits from ensuring the mistake doesn’t happen again.
• A small mistake can have big consequences.
• Repeating small mistakes can lose customers, kill a business or cost an employee his job.
In fact, every mistake has at least six different sizes:
1. The size of the mistake itself, which is usually small.
2. The size of the consequences if the mistake is not found and corrected, which can be huge.
3. The size of the time and cost it will take to fix the mistake.
4. The size of the causes of the mistake.
5. The size of the effort to prevent the mistake from happening again.
6. The size of the benefits from ensuring the mistake doesn’t happen again.
Friday, October 16, 2009
Thursday, October 15, 2009
New SBA Changes
The U.S. Small Business Administration dramatically altered its requirements regarding goodwill financing. The current rules, which were implemented on March 1, 2009, restricted lenders' ability to finance goodwill under the 7a program to the lesser of 50% of the purchase price or $250,000, whichever is less.
The new rules released today significantly modify the existing rules. In summary, the new rules provide that if the purchase price of a business includes intangible assets (including but not limited to goodwill, client/customer lists, patents, copyrights, trademarks, and agreements not to compete) in excess of $500,000, the borrower must provide an equity injection of at least 25% of the purchase price of the business to process the loan under PLP delegated authority. The new regulations further provide that the borrower's equity can be any combination of a direct contribution from the borrower and a seller note that is on full standby for minimum of two years. The new SOP provides that exceptions to this new policy may still be submitted under CLP or GP processing.
New requirements effective as of 10/1/09
The new rules released today significantly modify the existing rules. In summary, the new rules provide that if the purchase price of a business includes intangible assets (including but not limited to goodwill, client/customer lists, patents, copyrights, trademarks, and agreements not to compete) in excess of $500,000, the borrower must provide an equity injection of at least 25% of the purchase price of the business to process the loan under PLP delegated authority. The new regulations further provide that the borrower's equity can be any combination of a direct contribution from the borrower and a seller note that is on full standby for minimum of two years. The new SOP provides that exceptions to this new policy may still be submitted under CLP or GP processing.
New requirements effective as of 10/1/09
Wednesday, October 14, 2009
Business Planning for the Rest of Us
So let's say you don't need a business plan. You say your understanding has always been that business plans are for starting companies. Or maybe because you're not looking to take your existing company to market, borrow money from a bank, sell it or get new investment, you don’t need a plan. Those are myths, and they don’t really argue against business planning. But let's suspend disbelief for a bit and settle for this question: If I don't need a business plan, do I not want to plan my business?
Here are some reasons to have a plan, regardless of whether or not you need to show one to some outsider:
1. Long-term goals: You want to manage, develop, review and implement long-term business strategy.
2. Business management: You need to manage teams, tasks and accountability. The problem of who does what, when and how much it costs comes up again and again. Responsibility has to be defined. All of this needs to be written down. You need to know what's going to happen. You need to coordinate between people, vendors, events and so on.
3. Cash-flow management: You need to manage money. You have to watch sales to be able to manage expenses and, more important, cash flow. You don't need any surprises.
4. Staying strong: You want to keep your business healthy. That means watching for new opportunities, threats and new developments in your market. You don't want to stagnate.
All of these goals are related to business planning. None of them, however, relates directly to the classic business plan document. They don't involve validating your market or showing off your management team. Nor do they involve valuing your company for investment or proving your company to bankers.
They are about managing the company, not explaining it.
My suggestion: Don't throw out the baby with the bathwater. Do your planning, whether or not you develop a full, formal business plan. Do just what's necessary, not what the formal business plan would involve.
But what is it, then? Where is it, how do you do it, how do you share it? Here are my recommendations:
• Assume the plan will live on your computer. Don't worry about printing it out.
• If you're more than one person in your business, get the others involved. If you're a lot of people, then get the important managers involved. Share the planning process. Do a SWOT (strengths, weaknesses, opportunities, threats) analysis. Set up a schedule for review meetings for comparing plan vs. actual results and making course correction.
• Define your strategy in simple bullet points, perhaps pictures. Identify what's special and different about your business--a focused target market, and what you're offering to solve somebody's problems. Include the SWOT. Don't worry about format or tools or software; do whatever works best for you.
• Set up a list of dates and deadlines and decide who does what. Determine what is supposed to happen to make that strategy happen.
• Run some basic numbers: sales forecast and expense budget.
You don't have to stop life, even temporarily. Don't wait for the big plan to be done. Get going. Put your plan together one piece at a time, on your own schedule, and keep it somewhere easily accessible. Before you know it, you'll be planning to manage your business.
Here are some reasons to have a plan, regardless of whether or not you need to show one to some outsider:
1. Long-term goals: You want to manage, develop, review and implement long-term business strategy.
2. Business management: You need to manage teams, tasks and accountability. The problem of who does what, when and how much it costs comes up again and again. Responsibility has to be defined. All of this needs to be written down. You need to know what's going to happen. You need to coordinate between people, vendors, events and so on.
3. Cash-flow management: You need to manage money. You have to watch sales to be able to manage expenses and, more important, cash flow. You don't need any surprises.
4. Staying strong: You want to keep your business healthy. That means watching for new opportunities, threats and new developments in your market. You don't want to stagnate.
All of these goals are related to business planning. None of them, however, relates directly to the classic business plan document. They don't involve validating your market or showing off your management team. Nor do they involve valuing your company for investment or proving your company to bankers.
They are about managing the company, not explaining it.
My suggestion: Don't throw out the baby with the bathwater. Do your planning, whether or not you develop a full, formal business plan. Do just what's necessary, not what the formal business plan would involve.
But what is it, then? Where is it, how do you do it, how do you share it? Here are my recommendations:
• Assume the plan will live on your computer. Don't worry about printing it out.
• If you're more than one person in your business, get the others involved. If you're a lot of people, then get the important managers involved. Share the planning process. Do a SWOT (strengths, weaknesses, opportunities, threats) analysis. Set up a schedule for review meetings for comparing plan vs. actual results and making course correction.
• Define your strategy in simple bullet points, perhaps pictures. Identify what's special and different about your business--a focused target market, and what you're offering to solve somebody's problems. Include the SWOT. Don't worry about format or tools or software; do whatever works best for you.
• Set up a list of dates and deadlines and decide who does what. Determine what is supposed to happen to make that strategy happen.
• Run some basic numbers: sales forecast and expense budget.
You don't have to stop life, even temporarily. Don't wait for the big plan to be done. Get going. Put your plan together one piece at a time, on your own schedule, and keep it somewhere easily accessible. Before you know it, you'll be planning to manage your business.
Tuesday, October 13, 2009
Fever Staying in Indianapolis
Indiana's only WNBA franchise is staying put. Despite concerns about the future of the Indiana Fever, owner Herb Simon and other team officials say they "look forward to another great season in 2010 and for many years to come." The announcement is in a letter to fans posted on the team's Web site.
Thursday, September 24, 2009
Who is your Target Audience?
Taking the time to define your target audience just might save you money.
In today's economy you want to make every marketing dollar count. Without a clearly defined target audience, your marketing is like throwing darts blindfolded. Every once in a while you'll get lucky.
Three specific benefits
Defining the characteristics of your target audience guides you in the following three ways:
• You have a better idea where to advertise. As you define your target audience, you are also able to better define what the members of that audience may read, what websites they might visit, and what resources they might use. The more targeted the resource, the more targeted your marketing dollars.
• You have a better idea how to advertise. If you take the time to consider the life experiences, the values, the motivators, and the needs of your prospects, you are more likely to be able to "speak their language." Just compare the advertising during a Saturday morning stock show to the advertising during a tween sitcom.
• You are better able to tailor your products and services. Or, said in reverse, it prevents you from wasting time and money on the creation of products or services that don't fit your target audience.
Advertise where your target audience is; speak to the specific needs and values of your prospects; and provide products and services that fit those needs. The result? You have a better chance of hitting the mark and increasing your business. It all starts with defining your target.
In today's economy you want to make every marketing dollar count. Without a clearly defined target audience, your marketing is like throwing darts blindfolded. Every once in a while you'll get lucky.
Three specific benefits
Defining the characteristics of your target audience guides you in the following three ways:
• You have a better idea where to advertise. As you define your target audience, you are also able to better define what the members of that audience may read, what websites they might visit, and what resources they might use. The more targeted the resource, the more targeted your marketing dollars.
• You have a better idea how to advertise. If you take the time to consider the life experiences, the values, the motivators, and the needs of your prospects, you are more likely to be able to "speak their language." Just compare the advertising during a Saturday morning stock show to the advertising during a tween sitcom.
• You are better able to tailor your products and services. Or, said in reverse, it prevents you from wasting time and money on the creation of products or services that don't fit your target audience.
Advertise where your target audience is; speak to the specific needs and values of your prospects; and provide products and services that fit those needs. The result? You have a better chance of hitting the mark and increasing your business. It all starts with defining your target.
Monday, September 21, 2009
Recession Proof Industries
Whenever possible, you should look at starting businesses in industries that are considered “recession proof”. These are the industries where consumers will still pay for the products or services offered even when money is tight. Recession proof industries tend to be:
Food
Health care, including psychology and substance abuse
Computers and IT--especially fixing other peoples computers. People aren't buying new equipment; they're fixing what they have to save money.
Security / criminal justice / police
Education--adults go back to school when they lose their jobs; more high school graduates will go to college because they can't find jobs out of high school
International business--just because the economy is bad in the US doesn't mean it is everywhere else
Food
Health care, including psychology and substance abuse
Computers and IT--especially fixing other peoples computers. People aren't buying new equipment; they're fixing what they have to save money.
Security / criminal justice / police
Education--adults go back to school when they lose their jobs; more high school graduates will go to college because they can't find jobs out of high school
International business--just because the economy is bad in the US doesn't mean it is everywhere else
Thursday, September 17, 2009
Steve Jobs
“Sometimes when you innovate, you make mistakes. It is best to admit them quickly and get on with improving your other innovations.”
Richard Branson
“Business opportunities are like buses, there's always another one coming.”
Walt Disney
“A man should never neglect his family for business.”
Donald Trump
“I like thinking big. If you're going to be thinking anything, you might as well think big.”
"Coco" Chanel
“Success is often achieved by those who don't know that failure is inevitable.”
Henry Ford
“The competitor to be feared is one who never bothers about you at all, but goes on making his own business better all the time.”
Steve Jobs
“Sometimes when you innovate, you make mistakes. It is best to admit them quickly and get on with improving your other innovations.”
“Sometimes when you innovate, you make mistakes. It is best to admit them quickly and get on with improving your other innovations.”
Richard Branson
“Business opportunities are like buses, there's always another one coming.”
Walt Disney
“A man should never neglect his family for business.”
Donald Trump
“I like thinking big. If you're going to be thinking anything, you might as well think big.”
"Coco" Chanel
“Success is often achieved by those who don't know that failure is inevitable.”
Henry Ford
“The competitor to be feared is one who never bothers about you at all, but goes on making his own business better all the time.”
Steve Jobs
“Sometimes when you innovate, you make mistakes. It is best to admit them quickly and get on with improving your other innovations.”
Monday, September 14, 2009
Six Ways to Speed Up SBA Loan Approval
Earlier this year, the Small Business Administration set aside $375 million to temporarily eliminate loan fees and increase the agency's loan guarantee to 90% for certain loans. The moves were part of the American Recovery and Reinvestment Act (ARRA), which was signed into law by President Obama in mid-February. So far, the SBA has used about 55% of those funds; they have translated to $6 billion in loans under the 7(a) and 504 programs, says John J. Miller, an SBA spokesman.
However, barring another act of Congress, SBA-backed loans will revert to their pre-Recovery Act status by the end of November or December, Miller says. The impact will be palpable. Loans made once the funds run out will only get a 75% to 85% guarantee, down from 90%. The decrease will make it tougher to get approved for a loan because lower guarantees raise a bank's risk, says Eric Grimstead, a business advisor at the Center for Economic Vitality at Western Washington University in Bellingham, Wash. In addition, business owners taking out loans through the SBA loan will have to pay a 2% to 3% loan guarantee fee again, he says.
November is more than two months away, but given that the SBA loan approval process can take as long as 120 days, applicants had better get cracking, says Dave Mulcahy, the director of the Small Business Development Center at Lamar University in Beaumont, Texas.
Here are six ways to speed up the application process for SBA loans:
Update your financials
To accelerate a loan's approval, prepare and provide at least three years of tax returns and up-to-date financial statements, including income and cash-flow statements, balance sheets and sales projections, says Tom Burke, the senior vice president of Wells Fargo SBA lending in Minneapolis. If you don't have a business plan, write one. And if you don't have a marketing plan, write one of those too, he says. "Business owners have to be able to show that they can pay everyone back," Burke says.
Tap a preferred lender
Use a preferred SBA lender such as TD Banknorth or KeyBank, Grimstead says. Conventional wisdom says business owners should consult a bank with which they already work, but if that institution doesn't currently work with SBA loan programs, the process can be take weeks longer than comparable loans at SBA-ready lenders, he says. Not only is there a massive learning curve when working with SBA programs, which are complex and change frequently, but nonpreferred lenders also have to send loans into the SBA for approval, which can take up to four weeks, Burke says. Conversely, preferred lenders are generally able to underwrite their own SBA loans, he says.
Ensure the right fit
When scanning the list of preferred lenders, find ones that cater to businesses like yours, Burke says. For instance, some banks won't authorize SBA loans to start-ups. Others may avoid restaurants or other similarly risky ventures, he says. Also, take into account differences in banks' credit policies. For instance, Wells Fargo will extend a real estate loan for 25 years, but other banks do so for just 20 years.
Hedge your bets
Even if you secure the word of a preferred lender, make sure you've applied to a couple other banks backups, Grimstead says. "Some borrowers get three or six or even 12 weeks into the process only to get a 'no' from someone at the bank," he says. To slash your risk of rejection, apply to a few different banks at the same time. (Note that going through the application process at several banks will not harm your credit, says Mulcahy, from the SBDC in Beaumont, Texas.)
Offer more backup
SBA loan programs often require less of a down payment than typical business loans, says Becky Naugle, the state director for the Kentucky Small Business Development Center at the University of Kentucky in Lexington. For instance, banks providing normal business loans might require owners to put 20% to 40% down, but banks working through an SBA program might require just 10% down. Despite this lower standard, consider putting more down or offering some sort of personal guarantee, she says. "If particularly risky business owners can mediate a [bank's] risk by having a personal guarantee, that could push it through faster," she says.
Get help
An experienced business advisor can also help push your company's loan through quicker, Burke says. Check out a local Small Business Development Center, or tap a volunteer business professional in your area via SCORE, a nonprofit business counseling service, he says. There's also at least one SBA district officer in each state whom business owners can ask questions about SBA loans.
However, barring another act of Congress, SBA-backed loans will revert to their pre-Recovery Act status by the end of November or December, Miller says. The impact will be palpable. Loans made once the funds run out will only get a 75% to 85% guarantee, down from 90%. The decrease will make it tougher to get approved for a loan because lower guarantees raise a bank's risk, says Eric Grimstead, a business advisor at the Center for Economic Vitality at Western Washington University in Bellingham, Wash. In addition, business owners taking out loans through the SBA loan will have to pay a 2% to 3% loan guarantee fee again, he says.
November is more than two months away, but given that the SBA loan approval process can take as long as 120 days, applicants had better get cracking, says Dave Mulcahy, the director of the Small Business Development Center at Lamar University in Beaumont, Texas.
Here are six ways to speed up the application process for SBA loans:
Update your financials
To accelerate a loan's approval, prepare and provide at least three years of tax returns and up-to-date financial statements, including income and cash-flow statements, balance sheets and sales projections, says Tom Burke, the senior vice president of Wells Fargo SBA lending in Minneapolis. If you don't have a business plan, write one. And if you don't have a marketing plan, write one of those too, he says. "Business owners have to be able to show that they can pay everyone back," Burke says.
Tap a preferred lender
Use a preferred SBA lender such as TD Banknorth or KeyBank, Grimstead says. Conventional wisdom says business owners should consult a bank with which they already work, but if that institution doesn't currently work with SBA loan programs, the process can be take weeks longer than comparable loans at SBA-ready lenders, he says. Not only is there a massive learning curve when working with SBA programs, which are complex and change frequently, but nonpreferred lenders also have to send loans into the SBA for approval, which can take up to four weeks, Burke says. Conversely, preferred lenders are generally able to underwrite their own SBA loans, he says.
Ensure the right fit
When scanning the list of preferred lenders, find ones that cater to businesses like yours, Burke says. For instance, some banks won't authorize SBA loans to start-ups. Others may avoid restaurants or other similarly risky ventures, he says. Also, take into account differences in banks' credit policies. For instance, Wells Fargo will extend a real estate loan for 25 years, but other banks do so for just 20 years.
Hedge your bets
Even if you secure the word of a preferred lender, make sure you've applied to a couple other banks backups, Grimstead says. "Some borrowers get three or six or even 12 weeks into the process only to get a 'no' from someone at the bank," he says. To slash your risk of rejection, apply to a few different banks at the same time. (Note that going through the application process at several banks will not harm your credit, says Mulcahy, from the SBDC in Beaumont, Texas.)
Offer more backup
SBA loan programs often require less of a down payment than typical business loans, says Becky Naugle, the state director for the Kentucky Small Business Development Center at the University of Kentucky in Lexington. For instance, banks providing normal business loans might require owners to put 20% to 40% down, but banks working through an SBA program might require just 10% down. Despite this lower standard, consider putting more down or offering some sort of personal guarantee, she says. "If particularly risky business owners can mediate a [bank's] risk by having a personal guarantee, that could push it through faster," she says.
Get help
An experienced business advisor can also help push your company's loan through quicker, Burke says. Check out a local Small Business Development Center, or tap a volunteer business professional in your area via SCORE, a nonprofit business counseling service, he says. There's also at least one SBA district officer in each state whom business owners can ask questions about SBA loans.
Friday, September 11, 2009
Business Opportunities
#H-N856 Busy Tanning Salon:
This profitable tanning salon has been in business since 1983. 14 tanning beds of various models, 1 spray booth, 1 stand-up booth, a handheld spray system (technician applied spray tan) and a teeth whitening station.
Rev: $175,555 CF: $57,422 Ask: $120k
#H-N852 Special Needs Transportation Company:
This is a special needs transportation company with an outstanding history of excellent and reliable service. Transportation includes; nursing homes, doctor visits, hospital treatments and rehabilitation appointments or events such as; airport transportation, weddings and most any special need. This is a 24 hour service provider with numerous varieties of vehicles to suit any patient’s request. Rev: $659k CF: $213k
#E-N850 Dry Cleaning Plant:
This well known dry cleaning business has been located at this busy major intersection since 1958, and is well established in the neighborhood. It is a production facility and offers a full range of dry cleaning and laundry services on site.
Rev: $232,144 Ask:$199k
#I-1529 Lawn & Garden Equipment Sales & Service:
Established for over 15 years, this business has a reputation to be the “go to” place for quality sales and service on name brand lawn and snow removal equipment. The business provides delivery and pick up service and handles both residential and commercial grade products.
Rev: $746K CF: $57K Ask: $75k+inv.
This profitable tanning salon has been in business since 1983. 14 tanning beds of various models, 1 spray booth, 1 stand-up booth, a handheld spray system (technician applied spray tan) and a teeth whitening station.
Rev: $175,555 CF: $57,422 Ask: $120k
#H-N852 Special Needs Transportation Company:
This is a special needs transportation company with an outstanding history of excellent and reliable service. Transportation includes; nursing homes, doctor visits, hospital treatments and rehabilitation appointments or events such as; airport transportation, weddings and most any special need. This is a 24 hour service provider with numerous varieties of vehicles to suit any patient’s request. Rev: $659k CF: $213k
#E-N850 Dry Cleaning Plant:
This well known dry cleaning business has been located at this busy major intersection since 1958, and is well established in the neighborhood. It is a production facility and offers a full range of dry cleaning and laundry services on site.
Rev: $232,144 Ask:$199k
#I-1529 Lawn & Garden Equipment Sales & Service:
Established for over 15 years, this business has a reputation to be the “go to” place for quality sales and service on name brand lawn and snow removal equipment. The business provides delivery and pick up service and handles both residential and commercial grade products.
Rev: $746K CF: $57K Ask: $75k+inv.
Thursday, September 10, 2009
Creative Ways to Get the Cash Flowing
In ordinary times, cash is merely king. When sales slump and costs rise, cash can claim a far more grandiose title: emperor of the universe, anyone? No matter how lofty its status or how stressful the environment, keeping cash flowing comes down to two things: accelerating the stream of cash coming into your business and slowing its outgo. But these days, says Tom Long, founder of Solid Oak Consulting, entrepreneurs need to take an especially creative approach to maintaining cash flow. Here are some ideas to get your creative juices flowing:
• Make a careful and detailed cash-flow projection before you decide what, if anything, to do to improve your cash situation. And don’t rely on your accounting software to do it for you. Few software packages have the ability to do that job well. Your best bet is an electronic spreadsheet, such as Microsoft Excel.
• Personally call people who owe you money to request payment. When the owner rather than an administrative assistant calls to collect, Long says, it gives the matter a particular urgency.
• Don’t delay paying your own bills in order to conserve cash. Long says, “All kinds of challenges and problems can occur from that.”
• On the other hand, don’t pay bills early--unless the seller offers a substantial discount for quick settlement. In that case, paying in 30 days to get a percentage point or two off the total can be well worth it.
• Lease rather than buy equipment--even sell your building and lease it back. That can free up sizable amounts of cash. “Small businesses often want to own,” Long says. “But they’re not always looking at whether something’s worth having.”
• Factor your invoices. If you thought of your company as one that didn’t have to factor its invoices, think again. Factoring, in which financial institutions buy receivables for a discount and then take over collections, is something large companies embrace more readily than small ones. But it’s just another form of financing: “I’ve never shied away from it,” Long says. A variant called purchase-order financing can provide the advance cash you need to handle an unusually large or complex order.
• Make a careful and detailed cash-flow projection before you decide what, if anything, to do to improve your cash situation. And don’t rely on your accounting software to do it for you. Few software packages have the ability to do that job well. Your best bet is an electronic spreadsheet, such as Microsoft Excel.
• Personally call people who owe you money to request payment. When the owner rather than an administrative assistant calls to collect, Long says, it gives the matter a particular urgency.
• Don’t delay paying your own bills in order to conserve cash. Long says, “All kinds of challenges and problems can occur from that.”
• On the other hand, don’t pay bills early--unless the seller offers a substantial discount for quick settlement. In that case, paying in 30 days to get a percentage point or two off the total can be well worth it.
• Lease rather than buy equipment--even sell your building and lease it back. That can free up sizable amounts of cash. “Small businesses often want to own,” Long says. “But they’re not always looking at whether something’s worth having.”
• Factor your invoices. If you thought of your company as one that didn’t have to factor its invoices, think again. Factoring, in which financial institutions buy receivables for a discount and then take over collections, is something large companies embrace more readily than small ones. But it’s just another form of financing: “I’ve never shied away from it,” Long says. A variant called purchase-order financing can provide the advance cash you need to handle an unusually large or complex order.
Monday, September 7, 2009
Think Like a Negotiator
When celebrity hairstylist and beauty expert Billy Lowe, 38, decided to relocate his six-figure business from Beverly Hills, Calif., to West Hollywood, he took advantage of the downturn in the economy to negotiate a deal with his new landlord. For bargaining power, Lowe stressed the benefits of his occupancy: He already had a loyal following of high-caliber clients; he would give the building a clean, polished, updated look; and the landlord would incur costs if the building sat vacant for too long. The landlord was convinced and agreed to both a reduction in rent by about $400 per month and a three-year lease at a fixed price.
Meanwhile, Ken Wisnefski, 37, founder of WebiMax.com, a provider of online lead generation services in Mount Laurel, New Jersey, managed to secure a better advertising deal. By committing to a longer-term advertising contract, he cut his ad costs in half. He projects 2009 sales to exceed $1 million.
Knowing how to negotiate is always important, but when cash is tight and sales are down, this skill alone can make a huge difference. In fact, Jim Camp, a negotiations coach and author of Start With No: The Negotiating Tools That the Pros Don’t Want You to Know, estimates that 90 percent of an entrepreneur’s failure is due not to poor business planning, but rather a failure to negotiate properly. So how do you seal a better deal? Camp offers the following tips:
• Create a vision. Just as Lowe did, it’s essential to clearly demonstrate how this partnership or contract will benefit the other party. “You’ve got to be in their world, creating a vision for them on what this does for them,” Camp says. “So often people get bogged down in facts and figures and data.”
• Don’t believe you have all the power and avoid using terminology like “take it or leave it.” “Negotiations are done in an entirely emotional arena,” Camp says. “The human mind functions in the emotional until it makes a decision. People who are rough or aggressive or pushy often create an emotional reaction that they’re never going to be able to overcome.”
• Know what you want to get out of the deal and make sure it’s achievable. “So often I run into entrepreneurs who don’t really know what they want,” Camp says. “They have to know what they want. That’s a critical piece to the puzzle.”
• Don’t compromise beforehand. “Never ever go into a meeting with a fallback position,” Camp says. “That’s the worst thing you can do.”
• Invest in the skill. Don’t rely only on your natural talent because negotiation really is a science. Read a book, sign up for a course and look at each negotiation experience as an opportunity to learn and improve.
Meanwhile, Ken Wisnefski, 37, founder of WebiMax.com, a provider of online lead generation services in Mount Laurel, New Jersey, managed to secure a better advertising deal. By committing to a longer-term advertising contract, he cut his ad costs in half. He projects 2009 sales to exceed $1 million.
Knowing how to negotiate is always important, but when cash is tight and sales are down, this skill alone can make a huge difference. In fact, Jim Camp, a negotiations coach and author of Start With No: The Negotiating Tools That the Pros Don’t Want You to Know, estimates that 90 percent of an entrepreneur’s failure is due not to poor business planning, but rather a failure to negotiate properly. So how do you seal a better deal? Camp offers the following tips:
• Create a vision. Just as Lowe did, it’s essential to clearly demonstrate how this partnership or contract will benefit the other party. “You’ve got to be in their world, creating a vision for them on what this does for them,” Camp says. “So often people get bogged down in facts and figures and data.”
• Don’t believe you have all the power and avoid using terminology like “take it or leave it.” “Negotiations are done in an entirely emotional arena,” Camp says. “The human mind functions in the emotional until it makes a decision. People who are rough or aggressive or pushy often create an emotional reaction that they’re never going to be able to overcome.”
• Know what you want to get out of the deal and make sure it’s achievable. “So often I run into entrepreneurs who don’t really know what they want,” Camp says. “They have to know what they want. That’s a critical piece to the puzzle.”
• Don’t compromise beforehand. “Never ever go into a meeting with a fallback position,” Camp says. “That’s the worst thing you can do.”
• Invest in the skill. Don’t rely only on your natural talent because negotiation really is a science. Read a book, sign up for a course and look at each negotiation experience as an opportunity to learn and improve.
Thursday, September 3, 2009
Help is on the Way
The new SBA SOP was released and is effective 10/1/09.
Here is one material change:
With its release today of SOP 50 10 5(B), the U.S. Small Business Administration dramatically altered its requirements regarding goodwill financing. The current rules, which were implemented on March 1, 2009, restricted lenders' ability to finance goodwill under the 7a program to the lesser of 50% of the purchase price or $250,000, whichever is less.
The new rules released today significantly modify the existing rules. In summary, the new rules provide that if the purchase price of a business includes intangible assets (including but not limited to goodwill, client/customer lists, patents, copyrights, trademarks, and agreements not to compete) in excess of $500,000, the borrower must provide an equity injection of at least 25% of the purchase price of the business to process the loan under PLP delegated authority. The new regulations further provide that the borrower's equity can be any combination of a direct contribution from the borrower and a seller note that is on full standby for minimum of two years. The new SOP provides that exceptions to this new policy may still be submitted under CLP or GP processing.
Here is one material change:
With its release today of SOP 50 10 5(B), the U.S. Small Business Administration dramatically altered its requirements regarding goodwill financing. The current rules, which were implemented on March 1, 2009, restricted lenders' ability to finance goodwill under the 7a program to the lesser of 50% of the purchase price or $250,000, whichever is less.
The new rules released today significantly modify the existing rules. In summary, the new rules provide that if the purchase price of a business includes intangible assets (including but not limited to goodwill, client/customer lists, patents, copyrights, trademarks, and agreements not to compete) in excess of $500,000, the borrower must provide an equity injection of at least 25% of the purchase price of the business to process the loan under PLP delegated authority. The new regulations further provide that the borrower's equity can be any combination of a direct contribution from the borrower and a seller note that is on full standby for minimum of two years. The new SOP provides that exceptions to this new policy may still be submitted under CLP or GP processing.
Monday, August 31, 2009
Start a Business Without Going Broke
Starting a business is difficult enough when the economy is strong but when you decide to start a business amid a 9.7 percent unemployment rate--while foreclosures are at an all-time high and bankruptcies are reaching epic proportions--the odds for success seem hopeless.
For startups willing to defy the odds, there are many advantages to starting a small business during a recession, and it can even be done without burring yourself in debt. Experts will tell you that the absolute best time to start a business is during a recession, and several well-known, highly successful businesses were launched during weakened economies.
Why did these companies succeed against the odds? They succeeded because the founders recognized a need in the market and filled it. Identifying that market need is the key to success for any business--regardless of what the economic climate is when those market needs are fulfilled.
Hewlett Packard was started in a garage during the Great Depression with startup costs of just $538. It was the first technology company to exceed $100 billion in revenue and is currently operating in almost every country worldwide. Burger King got its start during the recession of 1954; the Whopper was added to the menu during the recession of 1957. Microsoft was started during the 1975 recession. Bill Gates dealt with primitive computer languages until the creation of MS-DOS, which IBM Corp purchased, starting the company's climb to fortune.
For startups willing to defy the odds, there are many advantages to starting a small business during a recession, and it can even be done without burring yourself in debt. Experts will tell you that the absolute best time to start a business is during a recession, and several well-known, highly successful businesses were launched during weakened economies.
Why did these companies succeed against the odds? They succeeded because the founders recognized a need in the market and filled it. Identifying that market need is the key to success for any business--regardless of what the economic climate is when those market needs are fulfilled.
Hewlett Packard was started in a garage during the Great Depression with startup costs of just $538. It was the first technology company to exceed $100 billion in revenue and is currently operating in almost every country worldwide. Burger King got its start during the recession of 1954; the Whopper was added to the menu during the recession of 1957. Microsoft was started during the 1975 recession. Bill Gates dealt with primitive computer languages until the creation of MS-DOS, which IBM Corp purchased, starting the company's climb to fortune.
Thursday, August 27, 2009
Tips for Starting a Business In a Recession
The high risk of failure during recession requires that the startup costs are kept as low as possible. Businesses that start and survive during a recession are in the best position to take advantage of the inevitable economic upturn. Businesses that postpone launch until the economy shows signs of strengthening are that much further behind, and give a head start to competitors who took the risk of starting during a recession. Keep starting costs low by:
• Keeping your day job. If you're lucky enough to still have a job, try starting your business in your off-hours. You'll have the steady income from your existing job to pay your living expenses and can focus on making your new business profitable without the risk.
• Not buying, leasing or renting office space. Most businesses can be started right from your home. Don't waste money on an office space or retail storefront before absolutely necessary. Use your kitchen table, home office, basement or garage as office space. Some businesses will never need to venture outside the home.
• Not hiring employees. If you need help from other people, use contract workers and issue 1099s instead of hiring employees.
• Not wasting money on advertising. There are countless ways to advertise your business, product or service without spending money. If you--the maker of your product or provider of your service--can't sell yourself, no one else can, either.
• Keeping your day job. If you're lucky enough to still have a job, try starting your business in your off-hours. You'll have the steady income from your existing job to pay your living expenses and can focus on making your new business profitable without the risk.
• Not buying, leasing or renting office space. Most businesses can be started right from your home. Don't waste money on an office space or retail storefront before absolutely necessary. Use your kitchen table, home office, basement or garage as office space. Some businesses will never need to venture outside the home.
• Not hiring employees. If you need help from other people, use contract workers and issue 1099s instead of hiring employees.
• Not wasting money on advertising. There are countless ways to advertise your business, product or service without spending money. If you--the maker of your product or provider of your service--can't sell yourself, no one else can, either.
Wednesday, August 26, 2009
SBA Update
Treasury Set to Buy SBA Loans With $15 Billion in Bailout Funds –July 23, 2009
The Treasury Department is finalizing a $15 billion initiative to stimulate lending by the Small Business Administration by using funds from the federal bailout program to buy up SBA loans. After private investors grew reluctant last year about buying SBA loans from the firms that finance them, these firms found themselves weighed down with old loans, which prevented them from funding new loans for small businesses.
The Treasury Department is finalizing a $15 billion initiative to stimulate lending by the Small Business Administration by using funds from the federal bailout program to buy up SBA loans. After private investors grew reluctant last year about buying SBA loans from the firms that finance them, these firms found themselves weighed down with old loans, which prevented them from funding new loans for small businesses.
Tuesday, August 25, 2009
Buying a Business - 10 Things It Takes
Despite all of our talk about the importance of getting more listings, we don’t want to forget the buyer. Many of the brokers we have talked to recently say that buyers don’t seem to be an issue. However, having too many buyers can take time away from the listing process. Since statistics indicate that only about one out of 15 buyers actually buys, you need to be able to separate the serious buyer from the others. It is probably not a good idea to hand the following list of ten items to a buyer and ask him or her to read it and respond to them. However, it is important that you discover a buyer’s reaction to the following. If you include these points in your conversation with the buyer, they will offer a good indicator of whether he or she is really a buyer.
1. People who are serious about being in business for themselves have to realize that they will really be the proverbial “chief cook and bottle washer.” Too many prospective business owners want to be the Chief Executive Officer of the business. Being the CEO of your own business doesn’t mean that you sit behind the big desk and plan on how to increase the price of the business’s stock. It means that you will be changing light bulbs, emptying the trash, stocking shelves – and everything else that needs to done in running a business. That’s what it takes to own and manage one’s own business.
2. Prospective business buyers must understand that they will be buying someone else’s “baby.” A business that another person has built, nurtured and developed. A business in which the owner has spent many, many hours — one that has supported the owner and his or her family. It may be important to the present owner that he or she feels comfortable with a potential new owner. The buyer should consider who he or she is in the eyes of a prospective seller.
3. There is the famous line from a mid 1990's hit movie that goes, “Show me the money.” Buyers shouldn’t begin the business-buying process unless they have the necessary funds or know exactly where they will come from.
4. Buyers think that when businesses are enjoying good times – they are overpriced. When economic times aren’t so good – they want to buy a business for way less than it is worth. Timing works both ways. There is a right time to buy and a right time to sell – when it is right for both the buyer and the seller is the right time.
5. There are no sure things. There is always a risk in buying a business. If a buyer is looking for a sure thing – buying a business is not it.
6. Owning one’s own business is a big responsibility. There are usually employees to consider, customers or clients to attend to – and suppliers and vendors to work with. There is also the financial responsibility.
7. Buying the right business generally takes time. Patience is required. However, one can’t be a procrastinator – when the right business comes along, one must be able to act.
8. Those who are considering buying a business should have a viable reason for doing so, should have discussed it with those who are involved, and have a willingness to do what it takes.
9. Too many potential business buyers don’t have the courage to make that “leap of faith” necessary to actually pull the trigger and purchase a business. Many of them get to the edge, but can’t make the leap. Buying one’s own business is a serious step – if you can’t make the jump, no sense going any further. Unfortunately, many don’t realize they can’t until the process is about to begin.
10. Buyers – and sellers too – should seek professional help. The professional business broker has been there and can assist in making the transition a lot easier.
1. People who are serious about being in business for themselves have to realize that they will really be the proverbial “chief cook and bottle washer.” Too many prospective business owners want to be the Chief Executive Officer of the business. Being the CEO of your own business doesn’t mean that you sit behind the big desk and plan on how to increase the price of the business’s stock. It means that you will be changing light bulbs, emptying the trash, stocking shelves – and everything else that needs to done in running a business. That’s what it takes to own and manage one’s own business.
2. Prospective business buyers must understand that they will be buying someone else’s “baby.” A business that another person has built, nurtured and developed. A business in which the owner has spent many, many hours — one that has supported the owner and his or her family. It may be important to the present owner that he or she feels comfortable with a potential new owner. The buyer should consider who he or she is in the eyes of a prospective seller.
3. There is the famous line from a mid 1990's hit movie that goes, “Show me the money.” Buyers shouldn’t begin the business-buying process unless they have the necessary funds or know exactly where they will come from.
4. Buyers think that when businesses are enjoying good times – they are overpriced. When economic times aren’t so good – they want to buy a business for way less than it is worth. Timing works both ways. There is a right time to buy and a right time to sell – when it is right for both the buyer and the seller is the right time.
5. There are no sure things. There is always a risk in buying a business. If a buyer is looking for a sure thing – buying a business is not it.
6. Owning one’s own business is a big responsibility. There are usually employees to consider, customers or clients to attend to – and suppliers and vendors to work with. There is also the financial responsibility.
7. Buying the right business generally takes time. Patience is required. However, one can’t be a procrastinator – when the right business comes along, one must be able to act.
8. Those who are considering buying a business should have a viable reason for doing so, should have discussed it with those who are involved, and have a willingness to do what it takes.
9. Too many potential business buyers don’t have the courage to make that “leap of faith” necessary to actually pull the trigger and purchase a business. Many of them get to the edge, but can’t make the leap. Buying one’s own business is a serious step – if you can’t make the jump, no sense going any further. Unfortunately, many don’t realize they can’t until the process is about to begin.
10. Buyers – and sellers too – should seek professional help. The professional business broker has been there and can assist in making the transition a lot easier.
Friday, August 21, 2009
Major Business Lender Against Ropes
July 17, 2009 - CIT, a major lender to small- and medium-sized businesses today sought federal help to avoid a potential collapse.
The institution's woes could hurt already struggling businesses that rely on CIT for cash flow lines of credit that allow them to keep inventory at proper levels. As a result, some experts are speculating that consumers could see less variety on retailers' shelves come fall and extending through the holiday shopping season.
Meanwhile some critics are pointing out that the Obama Administration has failed so far to step forward with a bailout. Some are piling the CIT situation atop a litany of complaints they say add up to an anti-business administration.
"Letting them fail is another huge blow to companies in our realm," Brett Parker, chief financial officer for Strike Holdings LLC, a bowling alley chain, told the Wall Street Journal.
The institution's woes could hurt already struggling businesses that rely on CIT for cash flow lines of credit that allow them to keep inventory at proper levels. As a result, some experts are speculating that consumers could see less variety on retailers' shelves come fall and extending through the holiday shopping season.
Meanwhile some critics are pointing out that the Obama Administration has failed so far to step forward with a bailout. Some are piling the CIT situation atop a litany of complaints they say add up to an anti-business administration.
"Letting them fail is another huge blow to companies in our realm," Brett Parker, chief financial officer for Strike Holdings LLC, a bowling alley chain, told the Wall Street Journal.
Wednesday, August 19, 2009
Is Your Business Fit to be Sold?
With closed deals at a record low, it’s safe to say many business owners looking to sell now are finding it a struggle to stay positive. The news might seem anything but encouraging; yet it doesn’t mean there’s no hope for selling a business successfully in this market. The truth is that some deals are closing, but in almost all of these cases there are some key attributes involved. Any business owner with a company on the market or who is planning to do so should be aware of the following four considerations.
1. Clear potential for profitability: Anyone looking to purchase a business wants to feel confident in the ability of that business to make money in the future. If business sellers don’t make their companies’ potential for profitability crystal clear, they’ll have a hard time keeping potential buyers interested long enough to get a deal off the ground. Any seller with evidence of steady, reliable cash flow and revenues automatically has a leg up, which could mean the difference between selling and not selling in today’s formidable market. If buyers can see a business has managed to maintain its profitability during these tough times, they’ll know there’s stronger potential for when the market improves and there’s less risk in moving forward with a transaction.
2. Strategic value: Not only is it important for business sellers to show potential buyers they’ve maintained profitability during these difficult economic times, but also to provide evidence the business has the potential to grow and thrive to a greater extent down the line. Sellers who can offer buyers a focused plan for growth--which might detail strategies such as acquiring competitors or expanding to a complementary product or service--are having an easier time closing deals.
3. Seller financing: There’s been a lot of emphasis placed on a seller’s willingness to finance at least part of any business-for-sale deal in recent months, and for good reason. Transactions that require buyers to come up with the entire purchase price of a business simply aren’t able to close in the majority of today’s cases. Buyers are faced with major drops in savings and retirement accounts as a result of stock market declines and they’ve been hit with increasingly limited access to SBA-backed commercial loans. As a result, the sellers willing to finance part of the sale price and allow buyers to pay them back with interest later are having the greatest level of success.
4. Physical assets for debt financing: It’s no secret that banks are more cautious about lending now than during any time in recent memory. As a result, businesses with greater amounts of tangible assets--such as capital equipment or owned real estate--are having much more success securing purchase loans.
While we expect the small business market to improve in the coming months, for now business owners considering going to market should think carefully about whether their businesses are fit to sell during these tough times. If they’re not, owners would be wise to take steps to make their companies more marketable before going ahead with a plan to sell. However, if the business can appeal to buyers with these attributes, sellers can have great success overcoming current economic roadblocks.
1. Clear potential for profitability: Anyone looking to purchase a business wants to feel confident in the ability of that business to make money in the future. If business sellers don’t make their companies’ potential for profitability crystal clear, they’ll have a hard time keeping potential buyers interested long enough to get a deal off the ground. Any seller with evidence of steady, reliable cash flow and revenues automatically has a leg up, which could mean the difference between selling and not selling in today’s formidable market. If buyers can see a business has managed to maintain its profitability during these tough times, they’ll know there’s stronger potential for when the market improves and there’s less risk in moving forward with a transaction.
2. Strategic value: Not only is it important for business sellers to show potential buyers they’ve maintained profitability during these difficult economic times, but also to provide evidence the business has the potential to grow and thrive to a greater extent down the line. Sellers who can offer buyers a focused plan for growth--which might detail strategies such as acquiring competitors or expanding to a complementary product or service--are having an easier time closing deals.
3. Seller financing: There’s been a lot of emphasis placed on a seller’s willingness to finance at least part of any business-for-sale deal in recent months, and for good reason. Transactions that require buyers to come up with the entire purchase price of a business simply aren’t able to close in the majority of today’s cases. Buyers are faced with major drops in savings and retirement accounts as a result of stock market declines and they’ve been hit with increasingly limited access to SBA-backed commercial loans. As a result, the sellers willing to finance part of the sale price and allow buyers to pay them back with interest later are having the greatest level of success.
4. Physical assets for debt financing: It’s no secret that banks are more cautious about lending now than during any time in recent memory. As a result, businesses with greater amounts of tangible assets--such as capital equipment or owned real estate--are having much more success securing purchase loans.
While we expect the small business market to improve in the coming months, for now business owners considering going to market should think carefully about whether their businesses are fit to sell during these tough times. If they’re not, owners would be wise to take steps to make their companies more marketable before going ahead with a plan to sell. However, if the business can appeal to buyers with these attributes, sellers can have great success overcoming current economic roadblocks.
Monday, August 17, 2009
What's Your Online Networking ROI?
Are you Tweeting, LinkedIn, Digging, or Del.icio.us? Seems like every day I see a new article explaining how to use social media to build my business. But when I talk to business owners about social-media marketing, it seems like more of a timewaster for most than a useful business tool.
I think many owners are doing lots of online marketing not because it's effective, but because it's so much easier than picking up the phone or putting yourself out there in the flesh. Or because it's cheaper than direct mail. Or because they hope somewhere down the road, it's going to pay off.
I've been as guilty of it as anybody. I've spent probably a few hours each week marketing my freelance writing company on LinkedIn and a few other social-media outlets. I also hit the online job boards for freelance writers. They're so easy to click through, and fun to browse!
But recently, I analyzed this marketing activity. I found that in nine months of online marketing, I landed one small writing job that paid $500.
In the same timeframe, I went to two evening networking events sponsored by MediaBistro for freelance writers and editors, lasting a couple hours each. At the first one, I found an ongoing articles client that has paid me about $2,000 so far.
At the second one, I met an editor who oversees online content for a major corporation. Chatting him up, I discovered he knew two previous editors of mine - who have since called him to sing my praises. If this connection pays off, it could easily become a copywriting account worth $10,000-$20,000 a year or more.
So there you have my results from more than 100 hours of online marketing, compared with perhaps seven hours of real-world marketing if I count commuting time. See if you can guess which one I'm planning to do more of in the back half of this year.
Have you analyzed the effectiveness of your social-media marketing? If it's not productive, take a hard look at how much time you're spending online. Then get up from your desk, go out and meet some live humans. Worked for me.
I think many owners are doing lots of online marketing not because it's effective, but because it's so much easier than picking up the phone or putting yourself out there in the flesh. Or because it's cheaper than direct mail. Or because they hope somewhere down the road, it's going to pay off.
I've been as guilty of it as anybody. I've spent probably a few hours each week marketing my freelance writing company on LinkedIn and a few other social-media outlets. I also hit the online job boards for freelance writers. They're so easy to click through, and fun to browse!
But recently, I analyzed this marketing activity. I found that in nine months of online marketing, I landed one small writing job that paid $500.
In the same timeframe, I went to two evening networking events sponsored by MediaBistro for freelance writers and editors, lasting a couple hours each. At the first one, I found an ongoing articles client that has paid me about $2,000 so far.
At the second one, I met an editor who oversees online content for a major corporation. Chatting him up, I discovered he knew two previous editors of mine - who have since called him to sing my praises. If this connection pays off, it could easily become a copywriting account worth $10,000-$20,000 a year or more.
So there you have my results from more than 100 hours of online marketing, compared with perhaps seven hours of real-world marketing if I count commuting time. See if you can guess which one I'm planning to do more of in the back half of this year.
Have you analyzed the effectiveness of your social-media marketing? If it's not productive, take a hard look at how much time you're spending online. Then get up from your desk, go out and meet some live humans. Worked for me.
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