So you want to sell your small business that you built from scratch! That’s great, but are you going to sleep at night? Here are a few tips you should consider when selling a small business:
Know what your small business is worth. Compare your small business to the industry, and the regional market share you possess. If you are the value of your small business, you will have a hard time selling it for what it is worth.
Make a liquidation plan of your small business. There are “asset sales” and “stock sales” of a small busines corporation. Find out the difference and consult a financial advisor about which would be better.
Value your small business by its individual assets, first. This valuation will help you understand your tax picture. You should know this before you sign the contract to sell, or maybe before you accept an offer.
Don’t warrant anything. Your small business financial statements are probably not audited, so don’t act like they are. If they are audited, let the CPA attest to its validity. Be careful of what assurances you make about your small business.
Have you considered the option of consulting to your small business after you sell it? This could build a comfort level in the buyer and intice them to make the deal.
Consult your financial advisor before making any decisions to sell your small business. It could be the difference between crafting a great deal, or life-long regret.
This economy has spurred many to open their own small business because their income decreased, their employer closed down, or they were laid off. Whatever the reason, here are some tips:
The first question I ask a married person starting their small business is, “What does your spouse do for a living?” The first 1 or 2 years of a new small business can be tough, and that second income can be the difference between you closing your doors, or seeing year 3. If your spouse can shoulder the major financial burden for a year, try reducing her salary tax withholdings. Your small business income will probably be lower than the previous year, creating a smaller tax liability.
Do you know what kind of legal structure you want? Sole proprietor, C Corporation, S Corporation, LLC? If you have a partner who is the money person, and have unequal distributions, an LLC may be your best structure for a new small business.
If you are a professional, what restrictions are there imposed by the licensing board on your choice of entity?
How is your overall personal debt? If it is high, you may want to pay it off before making the leap into a new small business. You will need cash for your small business. Cash is king.
How are you going to issue payroll? QuickBooks has a good payroll function for a small business, but complicated payroll issues can take a lot of your time.
In regards to payroll taxes, do not use the government as a bank. This is so common in small business. I have seen small businesses and medium-sized businesses pay the net payroll, but not the taxes withheld. Be very careful, because criminal penalties can arise if you spend the money.
Insurance? Don’t forget. You don’t want your small business to be the source of legal liability on your personal assets. It could mean the difference between you paying a deductible of $5,000 or losing your house. Make sure to consult an attorney on this point before starting your small business.
How are you planning to market your small business? This is a constant effort. Start by looking at other professional organizations that compliment your business. For example, I only go to CPA functions for continuing education. I prefer to meet at lawyer’s functions, contractors, entertainers, and other persons that I can introduce myself for additional business.
If you are hiring employees, check the workers comp rates. In manual labor small businesses, this seems to be a large chunk of the budget.
A few other tips are to budget your expenditures, create a web page, and match your costs to your job.
Is your small business healthy? How do you know? Do you just look at one indicator, or several? Combining the historical Dupont Model and Mobley Matrix tools can open your eyes to the real health of your small business, especially when presented in a graphical format.
In 2004,I was part of a team that conducted a pre-published reviewed of Driving Your Company’s Value, Strategic Benchmarking for Value, by Mard, Dunne, Osborne, and Rigby. One approach used by these authors was combining the DuPont Model and the Mobley Index to gauge the health of a business.
The DuPont Model was created in 1919 by a finance executive at E.I. du Pont de Nemours & Company.It demonstrated that a company’s Return on Equity was actually a summary of the company’s profitability, turnover, and leverage.
The Mobley Matrix was created in the fifties by Lou Mobley, who became the founding director of the IBM Executive School. He discovered the relationship between cash flow and financial statements.
There is a correlation between the two tools displaying many metrics that gauge the health of your small business. These measures can open your eyes to operating cash problems, excessive debt, and many other hidden ailments.
However,this could be a little overwhelming to the small business owner who is an expert in his/her business and did not have time to go to business school. So, we place the model, and matrix, in an interactive graphical format. The measures are presented in a concise format for the owner to utilize.
Small business owners need to have a complete handle on their operations. Just knowing Sales and whether you have enough cash to make payroll is not enough. In fact, by time a small business owner discovers what was obvious from out tools, it is usually too late.
Small safeguards can save you consumer fraud giant headaches. Many safeguards are common sense, but in today’s information age, sometimes the sence isn’t so common.
Do not readily give out personal information. For example, some restaurants request a credit card number over the phone when making reservations. Do not give it, and go to another restaurant. Your protection is only as good as their security. Even if the restaurant’s employees are trustworthy, credit card information could be left unattended for the others to view.
Be careful of copied documents or identifications. Years ago, I was asked to prove my residence in a city three different ways for my son’s baseball all-star qualification. One identification they were requesting was a copy of a driver’s license. Parents were unaware that a driver’s license number and birthdate are invaluable data for bank accounts and other privacy circumstances. If you must provide a copy of such, black out the sensitive information. The document you may be handing over may pass through many hands.
Restrict access to your personal information. Passwords on computers are essential. Access to your computer can provide information to undesirable eyes
Do not let anyone cash your checks without a phone call from the bank. Visit your bank and arrange to block the cashing of all checks unless they phone your cell phone. This procedure has prevented the fraudulent check cashing four times in five years for me. The last time, a bank called me for check cashing by a client who did not write the check. Individuals produce fraudulent checks and cash them at your bank.
Do not return calls to suspicious area codes. Scammers text messages, or leave phone messages with some urgent message. They entice you to call a number that is to the Caribbean (e.g., “809” area code) and keep you on the line as long as possible. That can bring charges up to $25 per minute. I have also heard of some scams that transfer your call around the world amounting to hundreds of dollars on your bill. Be careful. Here are some other area codes.
When I hear, “Think outside the box,” I cringe. I believe that this command frustrates analytical people; they do not know what to do, or how to do it because there are no rules or assumptions.Instead, I like to tell people to use the right side of their brain – the creative side.A strategic planning approach, The Blue Ocean Strategy, facilitates this type of thinking.
There is no easy way to quickly describe BOS, except by example. Cirque du Soleil is a good example of a company that meets the BOS criteria (focus, divergence, and compelling tagline).For example, compare this circus to Ringling Bros. using the following factors: star performers, animal shows, 3-ring arenas, aisle concessions, theme, unique venue, and artistic dances. Cirque du Soleil concluded that the public really did not want star performers, animal shows, 3-ring arenas, and aisle concessions.In addition, star performers and animal shows were very expensive.They decided to do away with the three, but added theme, unique venue and artistic dances. This created a unique market because they were discarding what the public did not value, and added new aspects that the public would value.Instead of being in a “bloody” red ocean competing on price or quality, they could be competitive by offering a new experience for the audience.
If you are in the artistic world, maybe I can stretch this example to Paul Simon.In 1986, he could have composed music using the same style such as folk (Simon & Garfunkel), or a pop (Kodachrome).However, he used his artistic ability to expand his use of world music. In 1986 he released Grammy award-winning Graceland, which featured the groundbreaking use of African rhythms and performers. In 1990, he followed with the album The Rhythm of the Saints, which featured Brazilian musical themes. These albums helped to popularize world music as a genre.It essentially created a blue ocean for him without competition in a new genre.
Now this is not to say that every blue ocean does not turn red, because once the idea is manifested, there is a window of uncontested opportunity.So, what a business must do is continually develop blue oceans and keep ahead of the competition.
This alone will not confirm success. To stop at a strategic plan level will only bring frustration, because the process will not be complete. In order to be successful, you must properly impliment, monitor, and alter a strategy.
I remember when I was a little boy, how I used to marvel at the futuristic gadgets that Walter Cronkite would display in the Sunday night program, The 21st Century.The program was designed around scientific advances that could re-shape our lives in the next century.The 21st Century seemed so far away to a little boy in the 1960s.But here we are.
In the 1996, my interest was piqued with Bill Gate’s books, The Road Ahead. In this book, Bill Gates predicted that we were nearing a society where financial transactions, product research, file transfers, and such could be transacted though the internet on a device the size of a checkbook.
How ironic, within the next decade, Steven Jobs would spearhead the invention of the Iphone.Users now bring up all sorts of applications including social networks like Facebook, Twitter, etc. These social networks are becoming the foundation of the new business communication.
But, how do these social networks impact business? So many businesses just stick their toe in the SN waters. Can business really take advantage them?
The answer is a guarded “yes”.
The advantages of such networks are communication and visibility. Implemented correctly, vehicles like FaceBook, LinkedIn, Twitter, blogging, and others can enhance your company’s visibility, and draw the world to your web site.With increased visibility comes opportunity.
There is a downside to these opportunities, however. Employees can post criticism on blogs that may hurt the firm’s reputation.In addition, the opportunities with any of these networks can be a bottomless pit sapping into employees time with no immediate response.
Like any tool, the internet can be the piece of your strategy that increases your market share, if used correctly. If used incorrectly, it could be a wasteful tool.
So, here are a few basic tips when your business ventures into social media:
Concentrate on building relationships, not just numbers. It’s nice to see the numbers grow, but if many are not viable business contacts, then so what?
Don’t spam people with your services. Give them something to take home with them every time you connect.
Build partnerships among those who have similar business interests, or work in a similar industry.
Don’t just copy what others are doing in your industry. Set yourself apart by using your core competancies to create your own uncompetative ocean (i.e., Blue Ocean).
Be consistent, be creative, but be real in your daily social networking business strategy.
Write about relevant topics that concern your market place.
These six points will give you a start in developing a real social networking strategy for your business. A very important point not listed, though is that you start today.
So you found the perfect company to buy! That’s great, but are you going to sleep at night? Here are a few strategic planning tips you should consider when buying a company:
Do your due diligence. Investigate the trends of Accounts Receivables, Cash, Accounts Payables, Officer Loans, Sales, and Cost of Goods Sold over five years. The trends will tell you a lot about the past, present, and possibly the future of a company. If these trends look bad, ask the hard questions, and demand support for their responses.
Create a Strategic Plan. Most new owners do not know what this means. The main point is to visualize where your company is in relation to its industry and where you want it to be. The strategic plan will include your internal strengths and weakness. Be honest and don’t look at the business through rose-colored glasses. An honest strategic plan before you buy the business can alert you of business aspects that you overlooked.
Plan for technology. Technology can help you monitor your strategic plan. Along with your budgeting plan, strategic plans have benchmarks that a company wants to meet. Use technology as a “thermometer” of your business health. A few troubling metrics can signal a bigger problem down the road. Also, how will social networking and search engine optomization help you in achieving your goals?
Cash is king. Always capitalize your company adequately and properly. Sometimes the best capitalized companies are those who squander their resources, while the poorest companies may have the best ideas but no capital to get there. Again, your strategic plan along with your maketing and budget plans should give you an honest idea of what it will cost to finance your company. Many feel that once you arrived at that number, multiply it by three because your sales will usually lag behind your estimates for a lot longer than you think.
Consult experts: There are many forms of strategic planning. If you have a good grasp of you industry, you can solicit the help of a strategist and business plan professional to help you organize the plan. Never venture out in a new direction without professional help. A couple of hours of consulting with a CPA or an attorney can save the business down the line.
Like the word LOVE, the meaning of business accountant may change depending on one’s level of commitment. Love could refer to a relationship that is casual, sexual, or even metaphysical. Such is the case with the business accountant. No, I don’t mean that you should have a steamy relationship with your business accountant; that would give a whole new meaning to the term of double-entry accounting. What I am getting at is how much to you utilize your business accountant to further business or financial life.
Many would be surprised to learn that business accountants, especially the business management types, act as the “orchestra conductors” of the business world. When lawyers, insurance brokers, real estate agents, or pension consultants need information, they think of calling the client’s business accountant. That is because we have our finger on the financial pulse of clients and know where to find answers. We are not saying that the average business accountant has all the legal, insurance or real estate knowledge necessary to answer your every question. But, we are saying is that a good business accountant serves as a compass to direct you to other professionals who can navigate among a company or client’s historical information.
So many business transactions involve the changing of money. Who else knows records? The ever–increasing speed and capacity of technology helps the business accountant to sift through information and report it with faster speed than most other players.
But how else could you use your business accountant? Many businesses restrict their interaction to taxes or financial statements. We perform those functions, but they deal with historical data. Better yet, we as business accountants, act as strategic planners. We can use your historical information to plan and propose a plan of action for growing your business. The starting point of predicting your financial potential is to have your business accountant lay out your financial history and adapt it to changing market conditions. Your business accountant can then work with your marketing persons, productions staff, and sales people to carve a future where your business can break new ground. This process can transform your business into a leader in new technology, services, or products.
Does your business stand out from the competition? Does your business accountant provide you with the necessary information, processes, and tools to set your business apart and allow it to make money? Is your business accountant committed to your company by using creative ways to reinvent your business?
Many business owners who retain such individuals fail to look at all the components. To compute the real cost of a CFO or bookkeeper, a business owner must add their salaries, payroll taxes, worker’s compensation charges, sick leave, vacation leave, training, parking, to name the basics. Then, you may send your CFO or bookkeeper to seminars or outside training. That’s a double-whammy.
But now comes a cost of an internal CFO or bookkeeper that is new to smaller owners, health insurance. Under the new laws, most smaller businesses will be required to provide health insurance. Even with the credits, probably not available to a company for a CFO, the cost will take a chunk out of the bottom line.
Now some businesses need an internal controller, a CFO, or a bookkeeper. They function quickly with inventory shipments and cost analysis. But many companies don’t need both a CFO and bookkeeper because of the advancement of technology and the web.
Many business owners are not familiar with paperless and remote accounting technology. As a firm that provides outside CFO and bookkeeper services, we do. We fill that gap for the business owner, usually at a fraction of the cost of a CFO and bookkeeper.
How do we do it? Our bookkeepers are trained like the staff accountants. They provide the small business owner with the skill set to manage the bookkeeping function while being guided by our accountants who act as outside CFOs. A client does not need the constant skills of a CFO and bookkeeper if they have other employees, like an office manager that fills the day to day functions. As outside CFOs and bookkeepers, we provide a specific skill set that targets the needs of the business owner from bookkeeping to accounting, and tax services to strategic planning. As outside CFOs and bookkeepers, we help manage your business. Our business connections provide a whole host of referrals for such things as insurance, financial planners, pension consultants, etc. Our skill set provide the business owner with much more than an accounting function like a CFO or bookkeeper, we provide a whole business startup and operation specialty.
But we don’t stop there. Within our function of acting as an outside CFO or bookkeeper, we help owners increase their top line by strategic planning. Unlike a CFO or bookkeepers who restrict themselves to historical information, we look to the horizon and strategically help the business owner grow their business. Yes, we provide the usual function of a CFO or bookkeeper in this manner, but how does that help a business owner grow his or her business?
The time has come of age for the external CFO and bookkeeping staff for many companies. The cost of keeping such a staff in house does not make sense for the on-hands business owner who is trying to get to the next level.
