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.

So you're in business..how do you get out?

I was meeting with a business owner the other day and he said to me "When I started this business I never gave any thought to how I would get out of it, never crossed my mind."

His business now does over $3 million in sales and has significant value....but no where near the value he thinks it has.......for one reason.

He's never looked at his business the way a buyer for the business would look at it.

I see this nearly everyday. Business owners don't understand, or at least they don't have an appreciation for, the difference between a good business for them and a business that would be valuable to someone else.

A perfect example was the business owners (let's call him John) strategy as it relates to the real estate the business utilizes.

John started the business 10 years ago, it grew quickly and started generating good profits. About 6 years ago John decided he needed a new, bigger, building for his growing business. John also decided he wanted exposure on a major freeway so everyone would be able to see his business.

John located a great building with an excellent location. He went to his bank who was willing to give him a commercial real estate loan to buy the building because the business had the cash flow to pay the note. Everything was great. He moved into his new, bigger business and life was good.

However, John was only focused on making the note payments on the building. As he said to me "the business paying down the debt on the building is my retirement fund." 

Now fast forward to today. 

John's business is generating a profit for himself of $10,000 per month or $120,000 per year. Pretty good, wouldn't you say?  Maybe......maybe not.

The area around John's business has grown and property values have increased while Johns note has stayed the same. Good right? Not necessarily.

John's note is $8,000 per month which the biz can afford...BUT  the real estate is now worth much more than he paid for it. If John were to lease the property out at today's fair market value he could lease the building for $15,000 per month.

But remember John's biz profit is $10,000 per month. If John was getting fair value for the property he would get $15,000 per month which is $7,000 per month more than the $8,000 monthly note payment.

If we adjust John's monthly expenses to reflect fair value for the building then John's monthly profit drops from $10,000 per month down to $3,000 per month ($10k - $7k).

John is now stuck.  His business can't afford a fair rent but he needs the building to run his business. John's real estate value makes his business value very low. A buyer who pays fair value for the real estate won't have enough cash flow from the business to pay the note and a reasonable salary for himself.

John came to me thinking he was in a great situation and left thinking his situation was not nearly as good as he thought.

Do you have a business that one day will need to be sold? What concerns do you have as you look ahead to that day?

-->

Virtual Assistance | Delegating Your Social Media

Guest Post from Professional Virtual Assistant Susan Poirier 
(Disclosure: I use Susan's VA services and I am not receiving any compensation for this post.)

In today’s ever competitive business climate, social media is not a passing fad or simply a source of amusement for the younger generations. It represents an essential platform as part of your marketing mix. Consumer buyer behavior now reflects their consistent quest for up to the minute information about your company’s products and services. People buy from people and customers prefer the immediacy of the web, the data they can search, the recommendations they find and a community for their voice. You need to not only have an online presence but to be actively listening to your prospects, colleagues, partners, competition and clients.

Social Media (SM) is a key facet in your viral efforts to drive business to your website, enhance company recognition, build your brand, create market segments, meet your clients and prospective client needs for information and customer service, join communities, disseminate news, press releases, product launches, improve customer service, troubleshoot issues and listen to the chatter about your company.

Run Your Family Like a Business

Here's a Wall Street Journal article that helps tie the process of creating software with raising a family. Using Agile process principles for a family. Interesting concepts worth consideration.

Run Your Family Like a Business

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

Top 8 Things Business Owners Do To Crush the Value of their Business

Business Value Can be Managed if the Business Owner Can Manage Themself 

If you read too many business magazines you might find yourself believing that creating a valuable business is more luck than skill. Business value can be managed and if you manage the value you will become more profitable.

Small business owners often confuse business earnings or profit with the actual value of a business. All profits are not created (or valued) equally. A fundamental method of measuring the value of a business is applying a multiple to earnings. Take two businesses that have the exact same earnings of $100,000. Will they have the exact same value to a business buyer? No.

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."

Business Owners and the Personal Guarantee

Often when people go into business or start a small business they really don't think through the details of what they are doing day-to-day as it relates to the long term health of the business or their personal financial health.

A classic example is the Personal Guarantee. When you go into business you will need to make financial commitments to various parties like landlords, vendors, etc. Most of these commitments are promises to pay. The real question is "Who is promising to pay?" Is it your company that is promising to pay or is it you personally that is promising to pay...or is it BOTH.

When you go into business did you form a corporation? LLC? Hopefully you did because those things can give you some legal protections that, if something goes wrong, you'll wish you had.

If you ever thought you can turn your hobby into a business.......

Many people we encounter think that starting a business based on a hobby is a good idea...it rarely is.

Maybe they've read too many "Do what you love" seminar headlines. The reality is, it's either a business or a hobby and never both.

This recent article in the Wall Street Journal gives you a look into one persons attempt to turn their hobby into a business.

Point. Set. Match. I Lose!

This article published in The Wall Street Journal Small Business Management Section.

Options for Small Business Accounting

Over the years I have tried a variety of small business accounting solutions.  A huge leap forward for small businesses is the cloud based small business accounting software. Based on my experience a small business' best option is a "cloud" based solution. A cloud based small business accounting package has some significant advantages and a few disadvantages.

Advantages:

• Your software is always the current version
• You can allow direct access to your outside CPA. This may be the best feature since it allows you to very efficiently book the entries that I used to wait til the end of the month (or quarter, or year, or when the taxes get done). Now when we have something odd to book we simply call the CPA, we login together and the CPA shows us the proper booking, What used to go on someone's "to-do" list is now done correctly the first time.
• You can access your bookkeeping and accounting records from anywhere. Small business owners often complain about being tied down in their chair at the office but you don't need to be.
• You can outsource many activities which a remote user can do part time and at a lower cost because they can access your accounting system. This could save you hiring a full time person or trying to train people to do complex jobs part-time.

Disadvantage:

• There's a monthly subscription fee depending on the level of service you choose.
• Getting your CPA to use something other than Quick Books might be a challenge. But remember, you have to use the system everyday. If you find a system that works better for you than Quick Books have a discussion with your CPA about the benefits to you.

Although Quick Books is the most widely used and certainly a safe choice, I find the Quick Books "on-line" version to be slow and cumbersome. 

There is also the option of outsourcing virtually all of your bookkeeping to a company.  If you want to see what services an outsourced bookkeeping company provides go to GrowthForce they are experts at outsourcing small business accounting services.

Other related posts:

• What Do You Buy When You Buy a Business?
• Using Personal Credit Cars to Finance a Small Business

Small Business Management and Help

Every couple of years I re-read this book and every time I'm glad I did. I bet I've read it at least 7 times.

This year I'm buying a bunch to give out to business owners that seems especially receptive to the idea of creating a great business.

On a side note the Kindle price for this book is higher than the paperback version, does that seem right to you? Not to me.

Anyway, here's a link for it and yes, if you order it thru this link I'll make about 2cents, so thank you in advance, if you do.

Learning from is part of running and changing is needed to be successful over time. Here's a post on old school simple sales and marketing lessons I've learned though experience.

Either way, get your hands on this book if you run a business or should I say if your business is running you. Also, take a look at this article "Can Owning a Small Business make you Wealthy?"




For other interesting blogs from interesting people visit TheHub click here

30 Second Biz Lesson - Bad Debts!

You better get paid for what you sell or you're going to be doing a lot of catching up.

For other Business information form interesting people visit TheHub click here.

Cash vs Accrual Accounting Made Easy

Drop me a note below if you want me to take a shot at any other small business accounting or financing issues.

Also, look at Expense to profit Cash Conversion Process for more info on working capital and cash management.

Other Articles about Running a Small Business:

• Do you Really want a Business Partner? I mean really....
• Can Owning a Small Business Make You Wealthy?
• Want to Buy a Business? Here's a process..

 Full Small Business Article Library

The best business planning tool?

If you plan to be in business you'd better have a Business Plan. If you plan to start a small business this tool can be the difference between success and losing everything. If you think this Business Plan tool is expensive wait til you see how expensive it is to NOT have a well thought out and written business plan.

If you are considering starting or buying a business it's a good idea to have the best tools. It may cost you a few bucks but it could be a cost that saves you many, many thousands of dollars.

A good business planning tool will also allow you to compare options from a consistent platform.

I think the best Business Plan Software on the market today is Business Plan Pro . (Yes, this is an affiliate link and we get a few cents if you buy it but, hey, give us a break, we did the research).

The best part about this software is it's intuitive and you don't need an MBA to operate it. The Standard edition is all most people ever need. It's a product that has been around for many years and it's very practical and efficient to learn.

As you can see the layouts are clean and easy to understand.



If you are going to get into business you need a plan that is logical, well thought out and proven. Trust me, if you go to your banker with a professional business plan your odds of getting financing improve dramatically. A plan like the one Business Plan Pro produces will be a requirement for any SBA loans that you apply for or pursue.

Here's a few fatal mistakes a good business plan can help you avoid.

The best time to have a business plan is before someone asks you to see it! Get ahead of the curve...get your plan.