Thursday, December 18, 2008

Running your business in tough economic times

There have been many, many businesses that have taken advantage of difficult times and positioned themselves for the future. Running a business in good times is almost idiot proof. It's what you do in tough times that makes the difference between a great business and a business that you just ride along with the tide. My rules for managing in tough times:

Train your people in an area that could increase gross margins (moth dollars and %)

Outsource, outsource, outsource

Conserve cash, delay investments, avoid the "buy more for a sale" mentality

LOWER your break-even point while RAISING your gross margin %.     

Focus on cash, conserve it and use it wisely.

Sunday, December 14, 2008

Find a job or buy a business... a choice worth investigating.

Buying a business could help you achieve your retirement goals. Today's economic problems have changed the future for many people who thought they had a job for life (or at least a job until they decided not to have a job). In times like these, finding a new job is not only difficult but maybe even unwise.

Have you thought about buying a job? You can if you buy a business.....but you're thinking "oh, but it's so risky"... I doubt it's any riskier than going to work one day and getting fired because some idiot in New York bet that oil prices would go up forever or bet that people who took out mortgages they couldn't afford would some how hit the Lotto so they could make the payments.

What's the risk in owning your own business? First you might ask... are you smart enough to run it? In my experience with thousands of business owners I can tell you, I.Q. and education have very little to do with success.

Why do small businesses succeed? Because the owners understand what it takes to get people to pay for the product or service they provide. It's not rocket science.

But you say, with the economy so bad nobody is spending money. Wrong, the economy looks like it will be down about 5 % in this last quarter of 2008. Guess what that means? 95% of the money spent last year is still being spent. Have you stopped spending money on EVERYTHING? Electricity? Food? Toothpaste? Beer? Gas? Internet? get the idea.

Just look around your neighborhood. Even in this economy you will see many, many businesses whose owners are doing a lot better than an unemployed person who used to have a job.

What does it take to buy a business? Here's simple formula that can give you a general idea of the financial requirements of a business purchase:
Whatever salary you want to replace, you should have about that much money for a down payment. If you want to replace a $50,000 per year salary, you need about $50,000 for a down payment.... $100k salary...need about $100k down payment, etc.

Where do you get the down payment? There is a tax break for you! You can use money in 401(k) or I.R.A. to fund the down payment (see CPA or got to with no penalty or taxes for withdrawal.

But you say "that's my retirement money!". First it won't be if you need to withdrawal it to live on and secondly you have no idea if it will increase in value over time.

If you own a small business that could be your retirement..SELLING IT. In fact you are likely to buy the business who is retiring!

Where do you find a business to buy near where you live? First you can check There are other business brokers out there but Sunbelt is the biggest with about 250 offices in the U.S.

While you're worried about finding a job, also spend some time worrying about how you can gain the security of owning your own business. I do and you can to.

Sunday, December 7, 2008

What effect has the credit crisis had?

What effect has the credit crisis had on buying and selling small businesses?

As is usually the case the answer is...."it depends"!

If you are a buyer and you qualify for an SBA loan AND the business you are buying qualifies for an SBA loan, then little has changed from a credit availability situation. At this time interest rates are down a little and there are fewer SBA lenders active in the market but there are banks willing to make SBA loans.

The biggest change we will see in the short term is that the poor economy is hurting businesses earnings and when earnings go down.... prices go down. If you are serious about buying a small biz this could be a great opportunity. BUT do your homework. Make sure you know why the biz earnings are down, don't just assume it's the general economy. Sometimes (often times) the biz earnings decline because of mistakes the current owner has made. Even when the economy is good some businesses lose sales and profits.

Your job is to figure out if the earnings decline is caused by something you can remedy or has there been a fatal mistake made by the seller (i.e., moved to a cheaper location but customers didn't follow them? competitive landscape change? Regulatory restrictions?, etc.).

Do your homework, move quickly, eyes wide open and take advantage when you have a good opportunity.