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.
Monday, August 31, 2009
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.
Thursday, August 13, 2009
Business Sales Decline in Tough Economy
In the midst of possibly the worst economic downturn of our time, it’s safe to say that small business owners across the country are looking for answers on how tough times are affecting the value of their businesses. Should owners hold onto their companies until conditions improve or list them for sale now?
Business owners struggling with this decision need to consider what is happening specifically in the small business economy. A report by BizBuySell.com tracking the health of small business revealed -- as one might expect -- a decline in business-for-sale transactions and valuations. Additionally, the number of closed transactions reported in the first quarter decreased by 36 percent as compared to the same time period in 2008.
The value metrics for businesses are also dropping. By dividing the selling price of a business by its annual revenue or cash flow, we can determine how small businesses are faring in the current economic environment. Revenue multiples for closed transactions dropped 5.5 percent to .69 in the first quarter of 2009, while cash flow multiples fell 3.8 percent to 2.69. Finally, the median business sale price for closed transactions decreased 17.3 percent to $165,500. It makes sense that valuation multiples are going down. Buyers are hesitant to pay typical asking prices for a business because of less certainty that the business will bring in adequate revenues and cash flows in the future.
Buyers are also facing difficulty accessing the capital necessary for business purchases. Traditional avenues of securing capital such as SBA-backed loans have become more limited, and with recent stock market declines, fewer buyers have the funds necessary to buy without a loan. This means fewer buyers are able to bid on most businesses, creating less upward pricing pressure.
That is not to say that buyers aren’t out there. Economic conditions have made it more difficult to close deals; however, business brokers are reporting a record number of buyer inquiries as a result of the huge number of corporate layoffs over the last six to nine months. Slow closing deals notwithstanding, people are looking at entrepreneurship as an alternative to the traditional job search. Selling prices are expected to continue to decline, which could mean that in the near future, credit will slowly become more available to aspiring buyers. This should improve market conditions for small business transactions over the next few quarters.
Business owners struggling with this decision need to consider what is happening specifically in the small business economy. A report by BizBuySell.com tracking the health of small business revealed -- as one might expect -- a decline in business-for-sale transactions and valuations. Additionally, the number of closed transactions reported in the first quarter decreased by 36 percent as compared to the same time period in 2008.
The value metrics for businesses are also dropping. By dividing the selling price of a business by its annual revenue or cash flow, we can determine how small businesses are faring in the current economic environment. Revenue multiples for closed transactions dropped 5.5 percent to .69 in the first quarter of 2009, while cash flow multiples fell 3.8 percent to 2.69. Finally, the median business sale price for closed transactions decreased 17.3 percent to $165,500. It makes sense that valuation multiples are going down. Buyers are hesitant to pay typical asking prices for a business because of less certainty that the business will bring in adequate revenues and cash flows in the future.
Buyers are also facing difficulty accessing the capital necessary for business purchases. Traditional avenues of securing capital such as SBA-backed loans have become more limited, and with recent stock market declines, fewer buyers have the funds necessary to buy without a loan. This means fewer buyers are able to bid on most businesses, creating less upward pricing pressure.
That is not to say that buyers aren’t out there. Economic conditions have made it more difficult to close deals; however, business brokers are reporting a record number of buyer inquiries as a result of the huge number of corporate layoffs over the last six to nine months. Slow closing deals notwithstanding, people are looking at entrepreneurship as an alternative to the traditional job search. Selling prices are expected to continue to decline, which could mean that in the near future, credit will slowly become more available to aspiring buyers. This should improve market conditions for small business transactions over the next few quarters.
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