Tips Tidbits & Trivia. History may repeat itself! Interesting tidbits that can help you buy better businesses.
While the first question a business owner asks is, "What kind of price can I expect in the marketplace if I sell my business," the real question is not the price paid for the business, but how much will you take home. The Federal Tax Laws determine how much money you will actually be able to put in the bank. How your business is legally formed can be important in determining your tax status when selling your business. For example: Is your business a corporation, partnership or proprietorship? If you are incorporated, is the business a C corporation or a sub-chapter S corporation? There are some tax rules that impact certain businesses on seller financing. The point of this tip is that before you consider price or even selling your business, it is important that you discuss the tax implications of a sale of your business with a tax advisor that is experienced in business transfer transactions. A business broker will be able to recognize potential problems and can refer you to ...
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Many business owners have operated their companies for too long and have lost their interest or drive. As a result, the business may flounder or stop growing. Not only will revenues and profits suffer, the value of the company will as well. And it only gets worse in a down economy. When a business owner hits burnout, he or she must overcome or take steps to sell the company. Click here for "Inc. Magazine Article - Overcoming Burnout."
Burying excessive personal expenses in the business financials can lower business value! The most popular method of valuing a business uses a multiple of earnings over a period of years. Business owners should be aware of that while attempting to reduce the bottom line with personal expenses to minimize taxes. Though there are a number of deductions that may be added back to determine true cash flow, not all add-backs are considered legitimate by buyers or lenders. Being too aggressive in minimizing taxes today may cost a business owner big dollars at closing. Click here for "Addbacks Frequently Used to Maximize Business Value."
Not all businesses need to have cutting edge technology, but a company can't fall too far behind. Buyers will be concerned if they must make a large investment in the latest technology to get the company to a competitive level. A business owner should do the research and purchase the necessary technology to keep the company on par in its industry or be prepared to accept a lesser value for the business. Also see: A Strong Online Presence Adds Value
Many companies have a few large customers that dominate their overall sales. After all, nobody wants to turn down business! But when it comes time to sell the company, this becomes a huge problem. Most buyers won't look at a business whose revenues could drop dramatically from the possible loss of one or more of those customers. Business owners have to find a way to diversify their customer base before they ever decide to sell their business.
Small business owners often run their companies and treat their employees like a family — which has cultural meaning. A successful small business 'family' has clear core principles and goals that directly impact growth. When we talk of a strong "corporate culture," that’s what we’re talking about, shared values, shared goals, and a single vision directed from the top. If the culture fosters revenue generation that is repeatable under new ownership, the business is more valuable and will bring a higher price when it is time to sell. According to a new Bain & Company 10-year study of more than 2,000 companies, there are five key principles that the most successful companies had in common. These principles help companies create a repeatable formula to stay focused on what really makes them profitable: Principle #1—having a well-defined core to your business, and understanding how you have made it work for you Principle #2—having up to 10 non-negotiable principl ...
Setting goals and achieving them are so important in every aspect of business, but many businesspeople and entrepreneurs do not pay enough attention to the gap between where they are and where they want to be. Gap analysis is the process of looking at the difference between your goal and where you currently are. Typically, when entrepreneurs look at the various goals they want to achieve, they often evaluate them incorrectly. If the strategic goal of a firm is to have sales of $15 million for 2010, the focus is on the wrong metric. Rather than focusing on total sales, the emphasis should be on the gap between the $12 million in sales they had in 2009 and the $15 million in sales they want to achieve in 2010. The $3 million shortfall is the performance gap, and gap analysis focuses on that amount as opposed to the total $15 million, presenting a much clearer picture of what must be done to achieve the goal. This approach assumes that everything required to maintain the current $12 million sales level is als ...