Common Characteristics of Profitable Businesses

As a Business Broker I've had the opportunity to meet with and analyze more than 2,000 businesses. I have come to discover that there are 6 basic characteristics that are almost always found in profitable businesses.

6 Characteristics of Profitable Businesses:

1. The business owner has an firm grip on reality. They understand the good and the bad of their industry and their business.
2. The business owner spends the money to get good advice. They have an accountant, attorney and financial adviser that is competent in the specific industry and size business.
3. The business owner makes a good faith effort to have systems and procedures in place so that their product or service experience is repeatable. The vast majority of activity is done the same way each time. 
4. The business owner is always trying to find ways to do #3 better.
5. The business owner doesn't blame his employees and his customers for his results. It is shocking to me how often this is the case in bad businesses.
6. The business owner owns the business for a reason other than it's just a way to make a living. The owner might want to sell the business to fund their retirement or next venture or pass the business on to their kids or create enough profit to fund a charitable cause important to them or operate a business to allow them enough free time and money to pursue an important cause.

Businesses and business owners with the above characteristics are much more likely to be profitable, more valuable and easier to operate than businesses without these characteristics.

Are there other characteristics that are important to you as a customer? Can you identify businesses with these 6 characteristics?

What's the Value of a Small Business?  Here's your easy to use guide to Small Business Value.

Business Library of Excellent Books

Suggested reading:

The Good, the Bad and the Overlooked

What you don't know can hurt you!

What small business owners need to know about the 2013 Tax Law changes

The 2% Solution for Disputes among Business Partners and Partnerships

Preparation Avoids Business Partnership Problems that could Kill a Business     

Many people start a business with friends, neighbors, relatives or spouses and it's often a partnership 50/50 arrangement. Rarely is there a written business partnership agreement and this can be a big mistake. These arrangements often work well until there is a problem but then...the problem could be a big problem and the dispute can spin out of control quickly.

Small business partnerships should come with a warning label "Caution: Partnerships work best when the partners document the problem resolution methods before entering the partnership."

Interesting Article on getting farmers help

Some creative Entrepreneurs are on the case  CLICK HERE

Big Ideas for your business? A lesson from Burger King's new big idea.....

Is your new big idea simply an attempt to escape your poor execution of your last big idea?

I often see business owners trying to do too many things and they don't do any particularly well.

Today I read a news report that burger king is experimenting with home delivery. My first reaction was...what a terrible idea. Then I gave it some additional thought and decided yep, it is absolutely a terrible idea.

Burger king has been an under performing biz for as long as I can remember. They seem to go from one idea to the next in an apparently useless attempt to hit the jackpot.

When i read the article I said to myself "really? Home delivery? How about you focus on getting me hot French fries at the drive in window. That would be outstanding!"

How good would it be know that every time you pulled into the BK drive-in you got fresh hot fries? I think that would generate real biz.

When I think about home delivery for BK I think..."why on earth would I want to wait for mediocre BK food when I can wait the same amount of time for decent food?"

The question for you is this. Does your business do a few things very, very well or many things all done poorly?

Interesting Article on Small Business........ Cold Hard Facts

Why do businesses fail? How many businesses are there? Where do businesses succeed?

Click here for the article.

Small Business - Management and Leadership Myths and Truths - Small Businesses and Good Employees

Why do so many small business owners say "I can't get good employees?"

The business owner's assumption seems to start from the premise that good employees are either no where to be found or will only work for big companies. In my experience I find both of these assumptions to be incorrect.

There are many small businesses with good employees and I believe there are many people working in large companies who would rather be working in small companies...if....they could find the circumstances that permit it. What's the problem? There are too many small business owners who have poor to terrible management and leadership skills. I meet with hundreds of business owners a year, I know small business owners.

If you want your small business to attract high quality employees here are the things I would focus on:

1. Your integrity - Say what you'll do, then do what you say.
2. Always be respectful to employees and customers, even when you're angry. Whatever anyone hears you say is what they assume you'll say when they aren't near.
3. Even if you know the answer, help the employee figure it out. 
4. Let your employees make little mistakes and then show the leadership compassion when you unscramble the problem.
5. Focus local  for employees, a short commute is high value these days.
6. Don't be afraid to hire people smarter than you...and...when you do hire someone smarter than you let them help you.
7. Focus on total compensation not just the salary. Put in place bonus plans so that when the business does well, everyone does well.
8. Hire slow, fire fast.

That's a start. Get focused on getting better people and you will have the opportunities. Now the real question is, how do you become a business owner who deserves better people?

Good article on getting work done - 7 steps to Better Personal Productivity

These ideas for getting more done make a lot of sense to me, I think I'll keep them handy so I can stay on track for the big projects. I've done #3 successfully and I've victimized myself on #6.

Read the article here.

When I first got into the workforce I had a boss tell me, the distance between good and great is not as far as we like to use for an excuse. I've always tried to remember that.

Business Owners...Save Your Life...Now!

This post is a bit in left field for me but I ran across this study that is compelling and struck a nerve with me. Business owners often have way too much stress in their lives and the demands of the business can cause them to ignore their personal health while they slave away at keeping their business healthy.

Here's an article on how meditation can dramatically improve heart health and even save your life...and I believe it! Think about it.. 50% reduction in heart attacks.

Read Article Here

20 minutes twice a day to save your life? That's a great investment.

I am going to start this program and I'll let you know my progress. I hope you decide to try it, please let me know how you do.

Hmmm...Bad news for road-side businesses?...The tax man wants your customers too!

At least someone in government thinks having government employees running gas stations and C-Stores is a good idea..... I have my doubts..

Here's a story on a politician trying to reverse a 50 year old law that prohibits the government from setting up retail businesses on the interstate highway system.

Read Here..

Another example of why Buy Sell Agreements are so important

This may be an extreme example but the fundamentals are in many business problems we see on a regular basis.

Just because your business partner is your spouse it doesn't mean business judgement should be suspended.

Read about the Los Angeles Dodgers bankruptcy soap opera here.

Why are Entrepreneurs Better for the Economy than Bureaucrats?

Entrepreneurs, "My business will lose a trillion dollars this year if I don't do something. I'm cutting back on everything right now!"

Congressman, "We'll have a trillion dollar budget deficit this year...we need committee meetings for the next 8 months."

I rest my case.

Time to Look at Smart Growth for Your Small Business?

Business owners often get caught in the squeeze between seeing opportunity to grow but not having the resources to hire people or get more space. Managing a small business needs to be a creative process.

If you find yourself in this position (and if not now you certainly will if you grow) spend a few minutes looking at a 3rd party fulfillment service. Think of it as an expansion that you can make without hiring people or signing a big lease.

Take a look here. 

What is Working Capital and why is it Important?

Many small business owners don't understand or appreciate the need to have a good handle on working capital and how it is generated or consumed by the business. Let's take 2 examples on opposite ends of the business spectrum.

First a Day Spa. At a day spa the customer comes in, pays for the services and then gets the services - no accounts receivables to collect...no money, no service. Also, a Day Spa sell lots and lots of Gift Certificates. With gift certificates the biz collects $100 for a gift certificate and has the cash for weeks, months, years or even forever before the service is delivered. That's called negative working capital. I get your money before I incur the cost of providing the service.

Now lets look at an office supply business. A customer calls up, orders 5 cases of paper for delivery at a cost of $200 and the customer wants you to "bill" them. Which means they will pay in about 30 days. This $200 order requires a lot of working capital...you had to buy the paper, pay the driver, pay the person who took the order all BEFORE the customer pays you the $200. All those expenses you had to pay out before the customer paid you needs working capital to pay.

That's why understanding working capital is critical, if you are in a business that needs working capital to grow you'd better figure out where the working capital is coming from before you start to grow. Many. many profitable businesses have gone out of business because they didn't account for, and plan for, the working capital needs of the business.

The hard work of un-fooling yourself...........

As I've written before, during the 1st quarter of the new year I find myself trying to take extra time to plan and evaluate. Some of this is an natural reaction to reviewing the financials in preparation for filling taxes. Some of it is just my reaction to something I've heard or read somewhere.

During a recent walk I was thinking about something I read in a blog article by Michael Hyatt, by the way, if you are unfamiliar with him I recommend his blog. He writes a lot of good stuff about business and some interesting stuff about managing life. In one of his articles he hinted at something that I reformulated for my own use. What I'm talking about is trying to identify the business and personal habits, processes or practices that I automatically assume make sense but on closer investigation I'll find out the idea either was never a good idea or it's an idea who's time has passed.

Once I decided to take a look I couldn't believe how difficult it is to then decide which things to look at! I decided I'd look back at the prior week for some clues or direction. I had thought that the prior week was really pretty uneventful and not very interesting nor complex. But then I started breaking down the events and connecting the dots it got messy. I'm now convinced that many things are simple but few things are uncomplicated.

I then made the leap of logic that goes like this, "If I'm trying to figure out what I'm fooling myself about, then obviously I've already fooled myself and how will I recognize it?" Now what do I do?

It wasn't nearly as difficult as I thought. Here's what I did. I went to someone in our office and asked the brilliantly insightful question, "What do we do that's dumb?" Much to my surprise (and a bit of disappointment) they didn't need to think about it at all, nearly before the words came out of my mouth the person had listed 3 things.... bang..bang..bang!

To shorten this post I won't bore you with the details but here are the results of looking into the 3 things identified for me:

What is CRM and does my small business need it?

Hard as it is to imagine, there was a time not terribly long ago when a sales or service person for a small business would go out into the field without a PDA or Smart Phone—or any phone at all. The reason for the current ubiquity of the communication devices in small business is obvious: it makes customer service or the new term, Customer Relationship Management  (CRM), easier and more effective. The success of any small business is built around this engine and the latest innovation in the field of CRM is also the most powerful yet seen, primarily because it is among the simplest-to-implement of all emerging information technologies. We speak, of course, of Cloud-Based Solutions.

Until recently any information gathered by, say, a serviceman sent into the field would have to be relayed through a series of data channels, each administered by an individual working within his or her own cataloging system, until it eventually found its way to the appropriate sales rep who is ultimately responsible for the client's satisfaction and continuing patronage of the business. Meanwhile, the client is already calling the rep and asking about progress on the issue. And the rep has no idea there was an issue to begin with.

Want to Know How a Business Appraiser Looks at Small Business Value?

Factors that Increase or Decrease Business Value

By: George D. Abraham

CEO & Chief Appraiser

Business Evaluation Systems

There's a range of key factors that can affect the value of a business.  While some of these factors are outside of the owner's control, steps can be taken to make the business as valuable as possible. Start planning well in advance and consider inserting an exit strategy into your original business plan. Then start implementing the factors that increase value and eliminate the factors that decrease the value.

Financial Statements

Just how good are your financials. Are they minimal or do they show an in-depth look at your business.  Can you easily track the flow of revenue and expenses flowing from the invoice to the financials to the tax returns?  Can your track the sales of your top 5 customers? Can you easily prove all of the perks you receive from the company?  Today's accounting software easily lets you do all of this and much more.  When a buyer is interested in a company, the ease at which the owner can prove the financial performance of his or her business has a direct impact on value. Incomplete or inaccurate financials tells the buyer that no one is watching and tracking the Company's performance and therefore the future performance (of real importance to the buyer) is unpredictable.  Value is created or destroyed by the ability to see the Company's future.  The longer the buyer can see that the Company will perform in the future as represented, the more secure they are and less risk is perceived.  To the contrary, when the future is a guess, risk is increased and value is decreased. 

It's a new year, winter is raging and opportunities await....

This time of year I like to take several days away from my day-to-day business, hide out somewhere cold but with a good fireplace and sort through the current opportunities and challenges of my business. I make it a point to seriously limit email and phones so I can think more clearly without the usual "noise" of day to day activity.

I'm always curious about how (or if) other business owners do the same and what approach they take to an annual review or plan. Please let me know your routine and your success with it.

Here's my approach:

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.