So you're thinking of buying a profitable operating small business. Well, congratulations! Small business ownership and its operation can be one of the most financially rewarding and intellectually stimulating pursuits that you can follow in life. However, the actual process of purchasing an operating business is an extremely challenging and complicated undertaking and you'll want to be as fully prepared as you can be. You need to gather as much information as you can which will help you to find a suitable operating business for sale, to properly value the business, to successfully conduct negotiations, and finally, to actually close the deal and transfer ownership. The good news is that tens of thousands of small business sales occur every year with little or no real problems and the new owners and the sellers both realize their goals. But, you must be fully prepared and knowledgeable for this success to occur! In this article, I'll address the first aspect of finding a profitable operating business for sale; finding the right business for you!
The first step in this process is to find out whether or not you are truly a fully motivated buyer. Ask yourself these questions:
• Do you know what kind of business you want to buy?
• Are you "technically" qualified and experienced enough to run the business?
• Do you have the temperament to deal with fickle customers, demanding creditors, and difficult employees?
• Do you have the attention to detail that most businesses demand?
• Can you deal with the bookkeeping requirements of the business?
• Are you prepared to "eat, sleep, and drink" the business 24-hours a day, 7 days a week (because that's what it frequently takes)?
• Are you a good "people person" who can successfully deal with both customers and employees?
Next, you need to determine what your key reason is for buying and operating a business in addition to the obvious reason of making money:
• buying a job to earn a living
• buying prestige (many business owners are respected community leaders)
• eliminating competition if you already have a business
• buying a hobby or retirement occupation
• seeking self-fulfillment and control of your own destiny
• seeking an opportunity for a child or other family member
Now ask yourself, what is it that I really like to do, and what is it that I'm really good at? If you have determined that you are a truly motivated buyer and you know the reasons that you want to own and operate a business, then you should begin searching only for those businesses that match what you like to do and ones that match your skills, capabilities and knowledge.
Some good sources of information about businesses for sale include:
Newspaper classified advertising under Business Opportunities
Classified ads in the Business Opportunity section of your local or nearby major metropolitan newspaper remain as one of the best sources of locating businesses for sale, especially for businesses priced under $1 million. Most newspapers have a particular day of the week that features the most active day for these listings; usually the Sunday edition.
Newsletters of various kinds (in-house brokerage publications, regional and national independent publications, etc..)
There are various newsletter type publications throughout the country that collect various business for sale information to present to potential buyers. These newsletters are usually excellent sources of reasonably up-to-date information on a broad array of businesses for sale. These newsletters take the following general form:
• Local broker newsletters published by individual brokers that list only their listed businesses for sale.
• Regional and national newsletter publishers that combine many listings in a range of categories across regional and national markets.
Business brokers (most reputable ones are listed in the telephone yellow pages and with the national professional associations)
Business Brokers are also excellent sources of information regarding businesses for sale which they represent. Your local business broker should always be consulted when you're actively seeking a business for sale.
Word of mouth through friends, family, and colleagues from all walks of life
Word of mouth is probably one of the better ways to find out about a good business for sale, but it's also the most unreliable relative to conducting a specific search. However, this method shouldn't be ignored. In a way, it's like looking for a needle in a haystack; but it sometimes works very well. You just cannot sit back and let the information come to you. You should "put out the word" in your business, social, fraternal, and religious circles about your desire to purchase a business. If there are serious sellers in these groups, you may not know about it because of the need for confidentiality regarding a business for sale.
The Internet (but usually not under "business opportunities", but rather, "businesses for sale")
The Internet has become a great source of business listing information and is very useful in all parts of the country. To find information about businesses for sale just go to your favorite search engine, such as Yahoo.com, AskJeeves.com, or Google.com and conduct a key word search. The best key words are, "businesses for sale," "buy business," "sell business," or "buy sell business." It's usually best to use the advanced search capability on the search engines to better target the results you want.
Thursday, May 28, 2009
Tuesday, May 26, 2009
Before You Buy That Small Business
Buying an existing business is often safer than starting one on your own. But watch out for these red flags.
There's no doubt that buying an existing small business is less risky than starting one from scratch. Why? Because, unlike a startup:
• the business has equipment and inventory;
• the business already has a location, and maybe there's a few more years left on the lease;
• the business has employees, some of whom you may actually want to keep;
• the business has customers, most of whom probably will stick with you (unless this is a professional service business or practice); and
• most importantly, the business has a track record--you can look at the business' books, records and tax returns and get some sense of how much money you will make.
But there's still risk. Whenever you buy an existing business and look at its records, you're looking at the past. There's no guarantee things won't change going forward.
When doing your "due diligence" on a small business you want to buy, consider these five factors:
Demographic and political changes: If lots of business owners in town are looking to sell, there's a reason. How is the community changing? Is the population increasing, or declining? Is the population skewing older, or younger? Is a "miracle mile" shopping strip diverting traffic? Go to the local Planning and Development Office and see if there are any proposed zoning law changes that would change the "permitted use" at the business location.
Owner's Discretionary Income, or ODI: This is what the seller is taking out of the business after paying his suppliers, his employees, his rent, his overhead expenses and his taxes. If you can't live on the current ODI, or if ODI has been declining for several years, watch out!
The location of the nearest big competitor: If you're looking to buy a retail or service business, chances are there's at least one franchise or "big box" competitor that will wipe you off the map if they ever come to town. Where's the nearest outlet or franchisee? If you're buying a local hardware store, don't be afraid to call Home Depot and Lowe's and find out if they have plans to build a local store anytime soon. You might just learn what they're going to build on that 2-acre parcel just off the interstate.
Sales taxes: When you buy the assets of a business, you avoid responsibility for the seller's debts, obligations and liabilities (other than his lease and other debts you expressly agree to assume and continue paying). Except . . . for sales taxes. If your seller has been underreporting his sales taxes, and the state tax authority finds out about it, they can come after you for everything the seller owed. You can sue your seller, of course, but by then he's fled to Timbuktu and can't be tracked down. Don't pay a penny for a small business until you know the seller has filed all state and local sales tax returns. Ask your attorney if you can get a "clearance certificate" from the state tax authority saying they won't come after you for any sales taxes your seller owed.
Local business reputation: Don't rely on just "hard data." Go to the library and skim the local newspapers going back at least five years. Is the business active in the community? Is it written up frequently? Is there negative publicity?
There's no doubt that buying an existing small business is less risky than starting one from scratch. Why? Because, unlike a startup:
• the business has equipment and inventory;
• the business already has a location, and maybe there's a few more years left on the lease;
• the business has employees, some of whom you may actually want to keep;
• the business has customers, most of whom probably will stick with you (unless this is a professional service business or practice); and
• most importantly, the business has a track record--you can look at the business' books, records and tax returns and get some sense of how much money you will make.
But there's still risk. Whenever you buy an existing business and look at its records, you're looking at the past. There's no guarantee things won't change going forward.
When doing your "due diligence" on a small business you want to buy, consider these five factors:
Demographic and political changes: If lots of business owners in town are looking to sell, there's a reason. How is the community changing? Is the population increasing, or declining? Is the population skewing older, or younger? Is a "miracle mile" shopping strip diverting traffic? Go to the local Planning and Development Office and see if there are any proposed zoning law changes that would change the "permitted use" at the business location.
Owner's Discretionary Income, or ODI: This is what the seller is taking out of the business after paying his suppliers, his employees, his rent, his overhead expenses and his taxes. If you can't live on the current ODI, or if ODI has been declining for several years, watch out!
The location of the nearest big competitor: If you're looking to buy a retail or service business, chances are there's at least one franchise or "big box" competitor that will wipe you off the map if they ever come to town. Where's the nearest outlet or franchisee? If you're buying a local hardware store, don't be afraid to call Home Depot and Lowe's and find out if they have plans to build a local store anytime soon. You might just learn what they're going to build on that 2-acre parcel just off the interstate.
Sales taxes: When you buy the assets of a business, you avoid responsibility for the seller's debts, obligations and liabilities (other than his lease and other debts you expressly agree to assume and continue paying). Except . . . for sales taxes. If your seller has been underreporting his sales taxes, and the state tax authority finds out about it, they can come after you for everything the seller owed. You can sue your seller, of course, but by then he's fled to Timbuktu and can't be tracked down. Don't pay a penny for a small business until you know the seller has filed all state and local sales tax returns. Ask your attorney if you can get a "clearance certificate" from the state tax authority saying they won't come after you for any sales taxes your seller owed.
Local business reputation: Don't rely on just "hard data." Go to the library and skim the local newspapers going back at least five years. Is the business active in the community? Is it written up frequently? Is there negative publicity?
Wednesday, May 20, 2009
When It's Time to Shutter Your Business
If your best offerings just haven't sold, the entrepreneurial excitement is gone, and you're not staring down problems, it might be time to move on.
Business lore is replete with stories of tenacious entrepreneurs who hit it big after years of trial and -- mostly -- error. But if your company is not making a profit, and doesn't seem likely to after six years, it is probably time to look for a new venture, says George Cloutier, a business turnaround expert with American Management Services in West Palm Beach, Fla.
"The capacity of small business owners to hang in and stick it out continuously amazes me, even after 25 years in this business," Cloutier says. "But when your financials are not working and you're losing money faster than you can bring it in, or find it from investors, that's a strong suggestion that your products are not being accepted."
What went wrong? It's impossible to tell without a professional evaluation of your business plan, product line, capitalization, sales efforts, and other details. But Cloutier says there are common mistakes that often doom startups: flawed business models, poor product introduction, under capitalization and bad timing. "Many entrepreneurs think that a nice Web site will make a business work. But especially in fashion, you have to be all over the industry, showing yourself, working directly with clients. Manufacturers' reps can't do the selling for you. And now that we're hitting the wall in the economy, and angel investors are not around anymore, the chances of turning this around are tough," he says.
Never Risk Losing Everything
The positive feedback you received about your idea is outweighed by the fact that customers are not buying, Cloutier says. "The positive feedback you need is products selling, especially in a do-or-die situation."
Robert Chell, an organizational psychologist who does small business consulting in Indian Wells, Calif., agrees: "In starting companies, friends often tell us what we want to hear, not what we need to hear. When we are heavily invested in an idea, we often distort what we hear or we do not effectively listen because we are too busy attempting to refute it," he says.
When should you think about quitting? Joe Kennedy, author of The Small Business Owner's Manual, says maybe it's time when you've already unleashed your best products and ideas into the market and they did not work out well. Other signs include not being excited or enthusiastic about your venture and losing touch with why your competitors are succeeding, or not.
"If you could lose everything if the business continues at the current rate," you should consider closing up shop. "Never put everything on the line," Kennedy says, particularly in a down economy when you suspect your company is too financially weak to survive.
Consider a Partner or an Advisory Board
If you're absolutely committed to your company and want to continue trying, evaluate your own strengths and weaknesses and consider hiring or partnering with someone who has the skills you lack, says Paul O'Reilly, a small business consultant with O'Reilly & Associates in Los Angeles.
"Since so many talented people have been laid off, there may be someone out there ready, willing, and able to invest their time and energy into your company. In other ways, these tough times may make finding anyone willing to take a risk a tough task," he says.
Get help creating a business plan, if you don't have one, through an entrepreneurship program at your local community college or university extension course. You might also consider creating a board of advisors, O'Reilly suggests, who could serve as a support system and sounding board. "Small businesses usually lack this kind of support and, thus, often feel isolated and unsure of whom they can ask for advice and feedback," he notes.
If you can increase your efforts toward achieving your goal, find a new goal, or find a new way to reach your goal, you're more likely to succeed eventually -- if you have a sound business model and desirable product line to begin with, Chell says. If you find yourself spinning your wheels with anxiety, leaning on defense mechanisms or rationalization, and using escapism rather than confronting your problems head on, it's probably time to move on.
Business lore is replete with stories of tenacious entrepreneurs who hit it big after years of trial and -- mostly -- error. But if your company is not making a profit, and doesn't seem likely to after six years, it is probably time to look for a new venture, says George Cloutier, a business turnaround expert with American Management Services in West Palm Beach, Fla.
"The capacity of small business owners to hang in and stick it out continuously amazes me, even after 25 years in this business," Cloutier says. "But when your financials are not working and you're losing money faster than you can bring it in, or find it from investors, that's a strong suggestion that your products are not being accepted."
What went wrong? It's impossible to tell without a professional evaluation of your business plan, product line, capitalization, sales efforts, and other details. But Cloutier says there are common mistakes that often doom startups: flawed business models, poor product introduction, under capitalization and bad timing. "Many entrepreneurs think that a nice Web site will make a business work. But especially in fashion, you have to be all over the industry, showing yourself, working directly with clients. Manufacturers' reps can't do the selling for you. And now that we're hitting the wall in the economy, and angel investors are not around anymore, the chances of turning this around are tough," he says.
Never Risk Losing Everything
The positive feedback you received about your idea is outweighed by the fact that customers are not buying, Cloutier says. "The positive feedback you need is products selling, especially in a do-or-die situation."
Robert Chell, an organizational psychologist who does small business consulting in Indian Wells, Calif., agrees: "In starting companies, friends often tell us what we want to hear, not what we need to hear. When we are heavily invested in an idea, we often distort what we hear or we do not effectively listen because we are too busy attempting to refute it," he says.
When should you think about quitting? Joe Kennedy, author of The Small Business Owner's Manual, says maybe it's time when you've already unleashed your best products and ideas into the market and they did not work out well. Other signs include not being excited or enthusiastic about your venture and losing touch with why your competitors are succeeding, or not.
"If you could lose everything if the business continues at the current rate," you should consider closing up shop. "Never put everything on the line," Kennedy says, particularly in a down economy when you suspect your company is too financially weak to survive.
Consider a Partner or an Advisory Board
If you're absolutely committed to your company and want to continue trying, evaluate your own strengths and weaknesses and consider hiring or partnering with someone who has the skills you lack, says Paul O'Reilly, a small business consultant with O'Reilly & Associates in Los Angeles.
"Since so many talented people have been laid off, there may be someone out there ready, willing, and able to invest their time and energy into your company. In other ways, these tough times may make finding anyone willing to take a risk a tough task," he says.
Get help creating a business plan, if you don't have one, through an entrepreneurship program at your local community college or university extension course. You might also consider creating a board of advisors, O'Reilly suggests, who could serve as a support system and sounding board. "Small businesses usually lack this kind of support and, thus, often feel isolated and unsure of whom they can ask for advice and feedback," he notes.
If you can increase your efforts toward achieving your goal, find a new goal, or find a new way to reach your goal, you're more likely to succeed eventually -- if you have a sound business model and desirable product line to begin with, Chell says. If you find yourself spinning your wheels with anxiety, leaning on defense mechanisms or rationalization, and using escapism rather than confronting your problems head on, it's probably time to move on.
Monday, May 18, 2009
Lending Criteria for Start-Up or Purchased Business
Key Factors in Granting Credit:
Cash flow or debt service coverage
Depends on industry; however, a typical minimum debt service coverage is 1.2x. Debt service coverage calculation being defined as (Earnings before Interest, Depreciation & Amortization less Distributions) divided by (Annual Principal + Interest).
Sources of repayment
Credit history (business and personal on the owners)
Feasibility of project
Owner's equity position in project (General rule: 20% down payment or equity is required)
Required Financial Information - Start-Up Business
Personal financial statements of all owners who own 20% or more of the business
Last 3 years of federal tax returns for owners
A Business Plan that includes:
1. Description of product or service
2. Ownership information, resumes, and responsibilities
3. Market analysis, including competition
4. Contingency plans
5. Loan request and uses of monies
6. Beginning balance sheet, reflecting owner's equity in business
7. Projected cash flow for 2 years, first year should reflect month-to-month
Required Financial Information - Purchased Business
Last 3 years of federal tax returns of the business
Year to Date balance sheet and income statement for business
Recent Account Receivable & payable agings (if applicable)
Inventory listing (if applicable)
Personal financial statements of all owners who will own 20% or more of the business
Last 3 years of federal tax returns for owners
Business Plan
Projected cash flow for two years
Cash flow or debt service coverage
Depends on industry; however, a typical minimum debt service coverage is 1.2x. Debt service coverage calculation being defined as (Earnings before Interest, Depreciation & Amortization less Distributions) divided by (Annual Principal + Interest).
Sources of repayment
Credit history (business and personal on the owners)
Feasibility of project
Owner's equity position in project (General rule: 20% down payment or equity is required)
Required Financial Information - Start-Up Business
Personal financial statements of all owners who own 20% or more of the business
Last 3 years of federal tax returns for owners
A Business Plan that includes:
1. Description of product or service
2. Ownership information, resumes, and responsibilities
3. Market analysis, including competition
4. Contingency plans
5. Loan request and uses of monies
6. Beginning balance sheet, reflecting owner's equity in business
7. Projected cash flow for 2 years, first year should reflect month-to-month
Required Financial Information - Purchased Business
Last 3 years of federal tax returns of the business
Year to Date balance sheet and income statement for business
Recent Account Receivable & payable agings (if applicable)
Inventory listing (if applicable)
Personal financial statements of all owners who will own 20% or more of the business
Last 3 years of federal tax returns for owners
Business Plan
Projected cash flow for two years
Friday, May 15, 2009
White Paper - The Fabled Wealth Transfer:Urban Legend or Reality?
According to the Federal Reserve Survey of Consumer Finances, 50,000 businesses changed hands in 2001, which was about average. By 2004, the Federal Reserve Survey reported the number of companies sold increased to 350,000 and it goes on to project that by 2009, 750,000 will be sold. This can admittedly be a little misleading: while there are 23, 343,000 businesses in the United States, only 5, 697,759 actually have employees, obviously leaving a lot of very small and home‐based businesses (a total of 17, 646,000 of them in fact). Nevertheless, these too will usually require some sort of support services in transferring the business to a third party.
But to put the real middle market baby boomer business transfer opportunity into perspective, consider this. The US Census Bureau in 2002 estimated there are a total of 5, 697,759 businesses in the United States with one or more employees (usually many, many more) with sales totaling in excess of $22 trillion. Assuming a conservative 50% value to revenue ratio, that equates to a market value of $11 trillion. While Census data indicates that many of even these totals are small mom‐and‐pop businesses (79% of them in fact with under $1 million in sales), almost 21%, or 1.2 million, are middle market firms with sales of $1million to $1 billion annually. Collectively these 1.2 million firms had sales totaling $9.8 trillion and carry a conservative market value of $4.93 trillion. Most of these, based on population data, will be sold or otherwise disposed of (left to family members, for example) by baby boomer who own about 67% of those middle market businesses. In fact, based on the assumption that most of these will be disposed of by their owners at around age 65, there will be over 800,000 middle market businesses with an estimated total value of $3.3 trillion disposed of between 2011 and 2029. On average, about 43,000 a year from 2011 until 2029, and that is just the baby boomers and…just the middle market....
If you’re a business owner, the best favor you can do yourself is to begin to think about exit planning now, even if you have no intention of selling your company. The second imperative is to get professional help from a financial professional trained in this field.
Once you sell a business, you’ll only know how much you got for it. There’s no way of knowing how much you could have gotten if you had professional advice. But the difference is almost always substantial. “When business owners get professional help, they can occasionally get two or three times as much as when they sell it themselves,” says Dennis Roberts, CEO of the McLean Group. “And without a doubt, the owner will almost always be able to get at least 20 percent more than he or she otherwise might have; so the fees are worth it.” Roberts notes that his figures are based on extensive review on large numbers of reported transactions and business comparables.
If there’s a dark side for the business owner in all of this, it’s this: All these sales will be happening in a relatively short amount of time. The tidal wave is business owners hitting age 65 in the next 20 year, and there are a lot of them. At some point, there will begin to be a glut and a need for buyers, which could conceivably drive prices down. The best way to avoid getting caught in that is to get ready now.
But to put the real middle market baby boomer business transfer opportunity into perspective, consider this. The US Census Bureau in 2002 estimated there are a total of 5, 697,759 businesses in the United States with one or more employees (usually many, many more) with sales totaling in excess of $22 trillion. Assuming a conservative 50% value to revenue ratio, that equates to a market value of $11 trillion. While Census data indicates that many of even these totals are small mom‐and‐pop businesses (79% of them in fact with under $1 million in sales), almost 21%, or 1.2 million, are middle market firms with sales of $1million to $1 billion annually. Collectively these 1.2 million firms had sales totaling $9.8 trillion and carry a conservative market value of $4.93 trillion. Most of these, based on population data, will be sold or otherwise disposed of (left to family members, for example) by baby boomer who own about 67% of those middle market businesses. In fact, based on the assumption that most of these will be disposed of by their owners at around age 65, there will be over 800,000 middle market businesses with an estimated total value of $3.3 trillion disposed of between 2011 and 2029. On average, about 43,000 a year from 2011 until 2029, and that is just the baby boomers and…just the middle market....
If you’re a business owner, the best favor you can do yourself is to begin to think about exit planning now, even if you have no intention of selling your company. The second imperative is to get professional help from a financial professional trained in this field.
Once you sell a business, you’ll only know how much you got for it. There’s no way of knowing how much you could have gotten if you had professional advice. But the difference is almost always substantial. “When business owners get professional help, they can occasionally get two or three times as much as when they sell it themselves,” says Dennis Roberts, CEO of the McLean Group. “And without a doubt, the owner will almost always be able to get at least 20 percent more than he or she otherwise might have; so the fees are worth it.” Roberts notes that his figures are based on extensive review on large numbers of reported transactions and business comparables.
If there’s a dark side for the business owner in all of this, it’s this: All these sales will be happening in a relatively short amount of time. The tidal wave is business owners hitting age 65 in the next 20 year, and there are a lot of them. At some point, there will begin to be a glut and a need for buyers, which could conceivably drive prices down. The best way to avoid getting caught in that is to get ready now.
Tuesday, May 12, 2009
The IRA Job Machine
Kip T. Tobin lives in Akron, Ohio, and in 2003 he found himself out of a job after working 20 years for a rubber importer. Rubber City, as Akron is still called, had by that time shed most of its traditional tire industry and been reduced largely to Goodyear. Tobin needed a new career.
Instead of seeking another perch inside the corporate ranks, Tobin attended a franchise fair in Washington, D.C., and in June 2005 acquired the Akron franchise of Express Employment Professionals, an employment agency. The franchise license cost Tobin $25,000, and he was expected to invest another $130,000 to $175,000 to get it off the ground.
Tobin didn't have that much available in ready cash, but he did have an IRA worth much more. He could have cashed it in, paying ordinary income tax and a 10% early distribution penalty. Not an appealing prospect. Instead, Tobin, at the employment company's suggestion, went to a specialist broker who, through a series of complicated legal transactions, arranged for him to use his tax-deferred savings account to finance his new business--without the money first being distributed and taxed.
Today Tobin and two other employees are gainfully employed finding work for professionals in the Akron area precisely because he was able to crack his IRA penalty-free to start a new business.
With little credit available to entrepreneurs in the recession, the method, known as a "Rollover as Business Start-ups," has become much more popular recently. A transaction typically works like this:
The owner of the account creates a "C" corporation, which then adopts an off-the-shelf 401(k) plan. Employees of the new company are allowed to roll funds over from their personal IRAs into its 401(k). The corporation then issues stock and establishes a qualified profit-sharing plan that allows employees to exchange assets in their 401(k)s for that stock.
Reputable brokers provide written guarantees that they will fight the IRS on their dime if it ever challenges the client's transactions. An additional protection would be to get an outside tax accountant or lawyer to vet the setup and to privately apply to the IRS for a favorable opinion letter or "determination."
Instead of seeking another perch inside the corporate ranks, Tobin attended a franchise fair in Washington, D.C., and in June 2005 acquired the Akron franchise of Express Employment Professionals, an employment agency. The franchise license cost Tobin $25,000, and he was expected to invest another $130,000 to $175,000 to get it off the ground.
Tobin didn't have that much available in ready cash, but he did have an IRA worth much more. He could have cashed it in, paying ordinary income tax and a 10% early distribution penalty. Not an appealing prospect. Instead, Tobin, at the employment company's suggestion, went to a specialist broker who, through a series of complicated legal transactions, arranged for him to use his tax-deferred savings account to finance his new business--without the money first being distributed and taxed.
Today Tobin and two other employees are gainfully employed finding work for professionals in the Akron area precisely because he was able to crack his IRA penalty-free to start a new business.
With little credit available to entrepreneurs in the recession, the method, known as a "Rollover as Business Start-ups," has become much more popular recently. A transaction typically works like this:
The owner of the account creates a "C" corporation, which then adopts an off-the-shelf 401(k) plan. Employees of the new company are allowed to roll funds over from their personal IRAs into its 401(k). The corporation then issues stock and establishes a qualified profit-sharing plan that allows employees to exchange assets in their 401(k)s for that stock.
Reputable brokers provide written guarantees that they will fight the IRS on their dime if it ever challenges the client's transactions. An additional protection would be to get an outside tax accountant or lawyer to vet the setup and to privately apply to the IRS for a favorable opinion letter or "determination."
Thursday, May 7, 2009
You Don't Have to Quit Your Day Job
There may be almost as many part-time entrepreneurs holding down full-time employment as those whose business is their full-time job. In 2002, as part of its decennial survey of business owners, the U.S. Census Bureau found that nearly 9.6 million of the more than 20.5 million business owners surveyed didn't consider their business their primary source of income. Even among the roughly 5.6 million businesses that were substantial enough to have employees, nearly 1.6 million business owners said their enterprise wasn't their primary source of income.
Entrepreneurs have good reason for working full time at a job and part time on their businesses, experts say. "For some people, especially in economic times like these when they're worried about their regular job, starting a part-time business gives them a safety net," says Paula Englis, an associate professor at Berry College and the University of Twente. Part-time startups by full-time employees may also offer a source of extra income when future pay raises are likely to be infrequent or nonexistent, she adds.
Running a business while still employed can also make good business sense. An entrepreneur with a full-time job to fall back on is under less pressure to make a venture succeed quickly, Englis notes. "It also gives you the opportunity to make a few mistakes and not have that mean the end of the business."
Part-time businesses can also be easier to start because they require less funding and the entrepreneur can raise the necessary funds by diverting earnings from a full-time job. "Given the financial environment now," says Englis, "it's going to be hard to go out and raise capital to start a full-time business."
Before you rush out to start a part-time venture, however, consider the potential downsides. Perhaps the worst would be if your part-time enterprise interferes with your full-time job. "You can't burn the candle at both ends without some risk," warns Bruce Kemelgor, a professor of entrepreneurship at the University of Louisville. If the time and energy you're devoting to the business results in poor attendance or impaired performance, you could lose your job.
If you're concerned that your business might pose a problem, Englis recommends consulting with your company's HR department. You may have signed a non-compete agreement as a condition of employment that could influence what kind of business you start. Unless you plan to go into business in competition with your employer, however, few companies have ironclad prohibitions against sideline ventures, Englis says.
Perhaps the biggest problem with part-time businesses is that it's hard for them to reach their potential when they receive only a portion of their founders' attention and effort.
Tip sheet
1. Know what you want. Having a clear idea of your objective in starting a part-time business will help you decide what kind of business to start and how to run it.
2. Pick something you enjoy doing. Much of the reward of part-time entrepreneurship may consist of the pleasure you gain from it, not the money, so make sure you like the work you'll be engaged in.
3. Pick something you know. If your business is related to a favorite hobby or professional sideline, you'll have an extra edge because of your background or expertise in the field.
4. Have a business plan. Even a part-time business needs a full-size business plan. Be sure you're especially able to describe a viable business model for generating profits.
5. Be patient. When you can't work at it full time, your business idea will take longer to get under way and grow to maturity.
6. Take care to separate your job, business and personal responsibilities. A part-time business can interfere with work and family relationships if you let it.
7. Have an exit plan. Decide in advance when and how you'll sell or otherwise get out of your part-time business. Otherwise, it could become a full-time burden.
Entrepreneurs have good reason for working full time at a job and part time on their businesses, experts say. "For some people, especially in economic times like these when they're worried about their regular job, starting a part-time business gives them a safety net," says Paula Englis, an associate professor at Berry College and the University of Twente. Part-time startups by full-time employees may also offer a source of extra income when future pay raises are likely to be infrequent or nonexistent, she adds.
Running a business while still employed can also make good business sense. An entrepreneur with a full-time job to fall back on is under less pressure to make a venture succeed quickly, Englis notes. "It also gives you the opportunity to make a few mistakes and not have that mean the end of the business."
Part-time businesses can also be easier to start because they require less funding and the entrepreneur can raise the necessary funds by diverting earnings from a full-time job. "Given the financial environment now," says Englis, "it's going to be hard to go out and raise capital to start a full-time business."
Before you rush out to start a part-time venture, however, consider the potential downsides. Perhaps the worst would be if your part-time enterprise interferes with your full-time job. "You can't burn the candle at both ends without some risk," warns Bruce Kemelgor, a professor of entrepreneurship at the University of Louisville. If the time and energy you're devoting to the business results in poor attendance or impaired performance, you could lose your job.
If you're concerned that your business might pose a problem, Englis recommends consulting with your company's HR department. You may have signed a non-compete agreement as a condition of employment that could influence what kind of business you start. Unless you plan to go into business in competition with your employer, however, few companies have ironclad prohibitions against sideline ventures, Englis says.
Perhaps the biggest problem with part-time businesses is that it's hard for them to reach their potential when they receive only a portion of their founders' attention and effort.
Tip sheet
1. Know what you want. Having a clear idea of your objective in starting a part-time business will help you decide what kind of business to start and how to run it.
2. Pick something you enjoy doing. Much of the reward of part-time entrepreneurship may consist of the pleasure you gain from it, not the money, so make sure you like the work you'll be engaged in.
3. Pick something you know. If your business is related to a favorite hobby or professional sideline, you'll have an extra edge because of your background or expertise in the field.
4. Have a business plan. Even a part-time business needs a full-size business plan. Be sure you're especially able to describe a viable business model for generating profits.
5. Be patient. When you can't work at it full time, your business idea will take longer to get under way and grow to maturity.
6. Take care to separate your job, business and personal responsibilities. A part-time business can interfere with work and family relationships if you let it.
7. Have an exit plan. Decide in advance when and how you'll sell or otherwise get out of your part-time business. Otherwise, it could become a full-time burden.
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