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HOW TO BUY AND/OR SELL A SMALL BUSINESS FOR MAXIMUM PROFITA Step-by-Step Guide
By René V. Richards
Atlantic Publishing Group, Inc.Copyright © 2006 Atlantic Publishing Group, Inc.
All right reserved.
Chapter OneTHE NOVICE ENTREPRENEUR: UNDERSTANDING YOURSELF
The key issues addressed in Chapter 1 are the following:
Your Profile as a Buyer and/or Seller
Individual Goals and Objectives
Your Personal Resource
In order to succeed at any given business, the first building block should be an understanding of yourself in a business environment. What are your requirements as a buyer and/ or seller? What situation fits your individual goals, objectives, and career assets?
Are you flexible, adaptable, and an "outside the box" individual? Or are you happier with an environment that is structured and routine and offers very few surprises? A successful entrepreneur is an individual well-acquainted with his or her own individual strengths and weaknesses.
Regardless whether you are a buyer or seller, there are certain characteristics that will help to make your journey a successful one. What are the characteristics most often associated with successful business owners? We list the most common here and offer a brief discussion of each in the following paragraphs.
2. Highly motivated
4. Excellent leader
5. Flexible and adaptable
If you will take the time to perform the self-assessment, you may make some surprising discoveries, not the least of which might be your next entrepreneurial step. Whether you are a buyer, seller, or current owner, developing a greater understanding of you, your goals, and objectives as well as your strengths and weaknesses, only serves to make you a more knowledgeable individual.
Self-starters and highly motivated people have half the battle won when they start. The first few years of business ownership are grueling, hard, and often a test of will. The ability to show up every day for sixteen hours a day just because not showing up is not an option can test anyone's limits. It is during these days (when "the will to survive and thrive" is the only reason you can find to make it another day) that you must possess the motivation and desire to continue. I don't believe there's a successful first-generation business owner anywhere who is not in possession of this one characteristic; it will get you through the rough spots and help you to persevere in order to see the dream to culmination.
Multi-talented has everything to do with your position as an owner, leader, and manager. You will find at some point that you are everything to everyone. Hopefully, you won't have to fill all these shoes at once; but over the life of the business, you will wear many different hats and be many things to the employees, vendors, and customers with whom you do business. You will discover as you begin that you will need knowledge of every facet of the business you're in. The only way to gain that knowledge is to work with a particular department or area. You need to understand job requirements, information requirements, information output, and individual costs associated with individual areas; and you will need to perform an analysis of productivity and efficiency. Incidentally, you will need to do all of this while you fill the role of CEO, CIO, and owner. Your role as a leader will infiltrate and penetrate every level of the operation.
Leadership of the company and the employees will consume more of you and your abilities than we can possibly cover in this section. We touch on the subject of management again in Chapter 10, but it does not begin to discuss all the information you will need in order to be an effective leader and manager. I would recommend, however, that you check out some of the great books on management, management practices, and management theories available at any bookstore prior to finishing this book.
Flexibility and adaptability seem to work as a team, no matter where you find them. You will need to become an Olympic gymnast of sorts, bending, giving, twisting, changing, moving, and rearranging much of your life, your habits, your view of job requirements, and, last but not least, your personal life. The ability not only to change but to welcome change is as important as your possession of the ability to be a self-starter and to be motivated
We've discussed the characteristics of the more successful business owners, and while it is true that these are general characteristics, there are buyers and sellers that defy all normal benchmarks. The spirit of the individuals, their goals and objectives, and their resources also play a huge role in the successful business venture. As you evaluate yourself and review your business profile, you should remember that the modern-day entrepreneur is comparable to the Spanish explorers, Christopher Columbus, the religious immigrants, and the pioneers of early America.
A successful entrepreneur is an individual well-acquainted with the assumption of risks, the search for freedom, and the desire for independence.
INDIVIDUAL GOALS AND OBJECTIVES
You must have a clear understanding of your goals and business objectives at the outset. When you begin with a plan that adequately defines where you want to go and why, you are very likely to arrive at your destination with a great story to tell. You predetermine your fate if you have no clear objective, and you certainly aren't in a position to lead others. As a business owner, you are the captain of the ship; it will be your responsibility to guide and direct your employees.
If you will take a week and write down the following questions and answer them honestly, you will be in a position to set your goals and objectives from a realistic point of view, with the ability to realize and achieve. Many startup businesses simply lack the knowledge and experience that are needed to truly appreciate sales forecasts, pre-planned budgeting, and business plans. With this in mind, a clear understanding of your own goals and objectives will often mean the difference between success and failure.
There are many motivators for making the decision to buy or sell a business, and you need to fully understand yours. Freedom, independence, wealth, creativity, the chance to make a difference in your community, or the opportunity to work with cutting-edge technology are some of the most-often-cited reasons; however, the objective here is to determine your reason. If you're currently in business, why do you want to sell? Have you given any thought to what your direction will be after the sale?
If freedom and independence are your reasons for business ownership, what will it take for you to feel that you've accomplished that objective? If retirement is the objective, what is it that you hope to achieve as a retired individual? Do you feel comfortable with a highly structured environment, or are you seeking freedom and independence through an environment that offers lots of flexibility and adaptability? If wealth is your objective, what level of wealth will signal success? Do you need several million, or maybe only one or two? If creativity is your objective, how do you intend to incorporate the creative freedom you desire into your proposed buy or sale? The answers here aren't meant to be lengthy essays; simple, concise, and direct answers that establish your objectives are all that you need.
At what level are you comfortable in joining the business community? It's comparable to a swimmer. If you're a novice swimmer, start at the shallow end. If you're an expert swimmer, jump into the deep end. Understanding your limitations, your strengths, and your weaknesses will help you in determining where you stand in the business arena. This is a crucial step in your self-evaluation. Take enough time to accurately and objectively assess your comfort zone. Let me also say here that a true businessperson is never 100 percent comfortable with all the aspects of a business; a little discomfort will keep you alert! Stepping into business ownership is quite a leap within itself; you don't want to bite off more than you can comfortably chew. If you're at the point of leaving the business community as a seller, where do you begin in preparing yourself and at what level will you leave? Do you want to exit as an owner or stay on as a business consultant?
How to get there will come in the form of a business plan if you're buying (or a selling memorandum if you're selling), but for now, put together a brief timeline that clearly states your starting point, your business goals, your personal goals in relation to the business goals, and a brief review of how you intend to accomplish those goals. When you take the time to do a step-by-step guide of your intentions-your goals and objectives-you will sometimes discover that you are not as clear as you thought yourself to be and that your resources and experience may not be all you need to get you where you want to go.
Make a list in the very beginning of people you can call on, persons who are trusted mentors, advisors, and experts in some area of business. You will need trusted associates, a strong marriage (if you're married), and understanding friends. No entrepreneurial effort has ever achieved its greatest potential on one man's (or woman's) efforts alone. You cannot be an expert in all the areas where you will need a working knowledge in order to succeed. Establishing an active network of business associates, family members, and peers will only enhance your level of success.
YOUR PERSONAL RESOURCES
I saved this topic as the final area of review in your assessment of your personal business profile for a reason. Available resources are truly a necessity, but without an adequate understanding of yourself, your resources, both the tangible ones and the intangible ones, will not help you determine your path. Now that you have established your motives, goals, and objectives and have taken an accurate assessment of your business characteristics, you can successfully evaluate your arsenal of resources as they relate to your business profile.
You've now taken a look at your individual goals and objectives; there is, however, one more area that will greatly influence the goals and objectives you establish and will play a major role in your ability to succeed: your family. What role does your family play in your personal life? To what extent do your family and personal life influence your business life? You will need answers to these questions. Sit down with your family and discuss the possibility of buying a business and the effect it might have on your personal life. Your role as a father, mother, or spouse will most surely be affected, and you (as well as your family) need to be prepared for these changes. You can rest assured that the purchase and operation of a business will be a test of your relationship with your family and a testament to your strength and devotion if you survive with your family intact.
A resource can be defined as a limited supply of an asset with economic value. You have two sets: intangible and tangible. Intangible assets can't really be seen, moved, sold, or even adequately assessed with a value. But they are valuable nonetheless and therefore just as important as a resource. Your skills and business experience are your intangible assets. The tangible resources are, of course, resources you can physically see, move, touch, and assess with a value. Your tangible resources include your investment capital, cash flow, and professional advisors for different areas of the business process.
What about your skills? What do you bring to the table in a skills assessment? Your skills are basically a statement of your capabilities. What can you do as a business owner that would contribute to the success of the business? Managerial knowledge and skills, situational analysis, and business knowledge are the most desirable skills you could possess; they're not, however, the only skills you might possess. The ability to manage people, quickly assess a situation or analyze a process, and a varied array of business knowledge will see you through the majority of everyday business situations. The skills you possess are as important as the characteristics you need. Take a moment to do a skills and work experience inventory. Start with a clean sheet of paper. Make a list of your skills and experience; if you've worked as a business professional, you will more than likely have a résumé. Review the information on your résumé; it is an effective statement of your work- and business-related skills as well as your work experience. Now build on that information. You might be surprised at the results.
What about your experience? Where have you spent most of your adult working life? Over the course of your life, you learn from your mistakes, you learn from those around you, and you learn from business situations and exposure. Many of the managerial courses that are taught rely on day-to-day situations in the workplace to effectively communicate certain techniques. You accumulate experience as you accumulate age and live your life. Many times, this can prove to be a most valuable asset, especially when running a business; juggling different personalities, stressful environments, and customer deadlines can prove overwhelming without some prior experience.
Your tangible resources would be assets necessary for the actual financing of the business. What, specifically, are those assets? A general definition of those resources would be investment capital or owner equity, adequate cash flow for operations, trusted professional advisors, and the time necessary to bring the dream to realization. We're going to take a brief look at each of these resources as they will be covered in more detail during later chapters.
Investment capital or owner equity is the investment you have available to put into the business you're looking to buy. Generally, investment capital is cash or stock. However, this is not necessarily the case; your investment may be in the form of equipment, machinery, land, or buildings. The investment capital should be an item or items that would be needed by the business and add value to the business. Generally, lending institutions, venture capitalists, and any other institution in the business of providing financing for business purchases will require that you, as the buyer, make an investment in the business also. The general rule of thumb will be a required buyer investment of around 10 to 20 percent of the assessed value of the business.
Adequate cash flow for the business is an often overlooked but crucial part of business operations. It is often overlooked because this resource is not cash you're going to necessarily have to put into the business but is more of an emergency buffer. If, for instance, the business you purchase does not initially produce enough to maintain an adequate cash flow, then the needed shortfall must come from you, the buyer. Many businesses fail because of a lack of adequate cash flow for the first few months. I have heard numerous associates lament, "If only there had been enough cash to get the business through the three months of declining sales, we would have made it." It can be a make-or-break issue.
There cannot be enough emphasis placed on professional advisors who can provide trusted, unbiased, objective advice. There are so many different pieces of the puzzle when you set out to buy a business: accounting, legal, tax, business organization, management, and employee issues, just to name the most common. You are a business owner; you're not an accountant, a lawyer, or a human resources manager. Yet you're going to need advice and input in all of these areas. Three of the greatest concerns are accounting, tax, and legal issues. Making the right choices from the very beginning based on accurate and reliable information will chart your course for the first five years of your business operations. Your greatest responsibility at this point is to find the right people to provide the right advice and information.
Excerpted from HOW TO BUY AND/OR SELL A SMALL BUSINESS FOR MAXIMUM PROFIT by René V. Richards Copyright © 2006 by Atlantic Publishing Group, Inc.. Excerpted by permission.
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