Friday, January 14, 2011

Do you know yourself? Do you know your clients? What Kind of business owner are you?

I had a chance to meet with John Warrillow recently. He's the author of an excellent new book that talks about business owners and how they think. It's titled Built to Sell

If you have a dream of selling your business or growing your small business into a bigger business that one day can be sold, this book should help you.

If you're a business owner, or hope to one day be a business owner, this book is important for you...if you are an advisor to business owners this book is critical!

What kind of business owner are you? What kind of business owners are your clients?

  • Mountain Climber
  • Freedom Fighter
  • Craftsperson

Take the time to figure it out, it could be worth a lot of money to you one day soon.

Give it a read, I'll bet you'll be glad you did.

Click here for the link to the book.

Tuesday, January 4, 2011

Thinking about buying a business? Here's a way to figure what is possible

If you want to own your own small business there are really only two ways to get into business. You can start a business from scratch, often called a start-up. Or you can buy an existing business from a business owner who is ready to sell their business.

There is much written about starting a business. The biggest problem with a start-up is in the time it takes a start-up to become cash flow positive and unfortunately many never become cash flow positive and they fold.

Buying an existing business is often a good choice. If you do it right you can be cash flow positive immediately and financing for purchasing a business is often very favorable. In a previous post I wrote about "Why would someone sell be their perfectly good business?" and it talks about why business owners choose to sell good businesses.

If you want to buy an existing, profitable, business you need to answer a couple of questions about your situation before you begin your search.

First, how much money do you have available for a down payment before borrowing any money from any banks, credit cards, etc. It will be very, very difficult to buy a good business without a down payment.

Second, what's the minimum amount of money you need to make from the business to live on once you buy the business.

If those two numbers are reasonably close to each other you have a decent shot at buying a business.

Here is a "typical" deal:

Business earnings (Seller's Discretionary Earnings)  $75,000
Selling Price of business   $200,000
Down payment    $50,000
 Earnings/Salary you need  $50,000
Get an SBA Loan for $150,000
Annual Payments for your SBA Loan $20,500 (10 years @ 6.5%)

Business earnings $75,000 - $20,500 (debt payments) = $54,500 to you the new owner.

Also, when thinking about your down payment there is a mechanism to use you 401(k) funds to buy a business without incurring early withdrawal penalties nor tax obligations.

If you want to be in business for yourself it's always a good idea to get informed and look at all your options.

Sunday, January 2, 2011

Why would someone sell me their perfectly good business?

Often small business buyers wonder about this. There is an all too frequent buyer attitude that says "If it is a good business they wouldn't be willing to sell it to me!"
Here are some reasons we see business owner want to sell:
  1. Divorce of husband and wife owners
  2. Partnership disputes
  3. Owner health issues
  4. Kids don't want the business and the owner has gotten to retirement age.
  5. The business has gotten bigger than the skills of the owner
  6. The business needs professional management
  7. The industry is changing faster than the owner wants to change (in this case the owner is always convinced the market is wrong and he is right).
  8. The business is totally debt free and the owner doesn't want to take on debt to grow.
There are many other reasons that make sense to the seller, even if it doesn't always make sense to the buyer. the tricky part is, because confidentiality is so important it takes some work to locate a good business to buy. Finding a good business for sale and buying it from a seller who has a good reason to sell could be a formula for success in a business acquisition.