Financing is hard to get-banks don’t like your industry, your business or acquisitions in your industry. If you industry requires a high level of industry experience a buyer without that experience won’t get an acquisition loan. However, you may get a higher price by financing more of the deal.
No business or marketing plan-while a plan may not directly reduce the value of your firm (other than via the fact that companies with a plan have significantly higher profits), a business and marketing plan may add to the price a buyer is willing to pay.
Poor or no management team-buyers like to manage and lead; they don’t like to do. A poor team means a lower value.
Salary is not profit-an appraiser will want to know what is the fair market salary for the job of running the company. If you weren’t there you’d have to pay someone to be president and that salary is not profit (by a long shot).
Saturation-this is often a function of franchising and/or low barriers to entry. Eventually this leads to competition based on price and it’s hard to win in that situation.
Special skills or license needed-about 2/3 of all small businesses need an owner with general business skills and business common sense. Those are the types buyers like the most. If you have to be a PhD in an advanced scientific field to own the business, well good luck finding a someone with money who wants to own a business.
Client Profile – AutoWash Systems, Kent, WA
August 30th, 2010Tim Riley owner – AutoWash Systems is a value-added reseller of eco-friendly car wash equipment and supplies in Washington State. AutoWash is a full-service reseller offering operations consulting, new car wash development, existing car wash rehabilitation and technical service on all variations of car wash operations. From the highest volume tunnel car washes like the one AutoWash built for Costco to your local Mom and Pop self-service car wash, AutoWash is a recognized leader.
AutoWash was recognized last year on the Puget Sound Business Journal’s fastest growing private company list. One tool that AutoWash has used to grow is to strategically acquire competitors and additional products and services to increase customer satisfaction and market share. AutoWash owner and president, Tim Riley, shares “I learned a great deal about small business acquisitions when I originally bought the business with John Martinka’s assistance. These tools have greatly helped us as we negotiate with potential acquisition targets.”
Two-thirds unappreciated and one-third of workers plan a job search
August 11th, 2010According to Harris Interactive, one-third of American workers say they will search for a new job once the economy gets better. Almost half of those job hunters have experienced a loss of trust in their employers.
This couples with other 2010 studies that while workloads have increased, almost two–thirds of workers feel their extra efforts, at stagnant pay, aren’t appreciated.
Most people reading this will think that it’s the rank and file at large corporations that feel this way. Let’s not kid ourselves; it’s an issue with small business employees also.
Here’s three recent examples of what I mean, all from companies doing under $10,000,000 in sales.
1. “An incentive plan for bringing in more sales? The employees should be glad they have a job.” This was said in private. Other comments were not in private and had the employees scared the boss would even come near their department. Without change, and their was change, these employees would be leaving once the job market opens up.
2. A survey of management by a new owner had comments like, “It’s nice to be listened to” and, “The company’s greatest weakness just walked out the door” (the seller). Imagine if the company didn’t change hands. How long would these people put up with being treated with disrespect?
3. In an organization that is like the Three Musketeers, one for all and all for one, any “community” has been destroyed by the president who dictates not collaborates and always knows a better way; which infers all other ways are wrong.
Contrast that with MM Comfort Systems, a recent client profile on this blog and my newsletter. Craig has built a team and let the team “do their thing.” Capable people have a tendency to get things done when given the chance and when treated with respect.
Five more reasons to buy and own a business
August 9th, 2010Here are five more reasons why people want to own a business. The last one should be present no matter what the other reasons you have for business ownership.
Be the boss—it’s nice to tell others what to do, especially when you make the right decisions (which you know you can do).
Pre-tax expenses—pay for things with pre-tax not after-tax dollars. Things you would have anyway like a cell phone, some travel, cars, etc. All legal and a nice perk for being an owner.
Creativity—put your creativity to work. Whether it be on the design side, customer solutions, marketing magic or with customer service you can put your footprint on it.
Emotional contentment—relax; you know what you’re doing. It isn’t easy owning a business but nothing in life worth having is easy.
FUN—often overlooked by buyers but the number one reason to buy and own a business. Wake up every day with a smile on your face because it’s your business and get are getting all the benefits described above.
Client Profile – MM Comfort Systems
August 7th, 2010Craig Williamson is the owner of MM Comfort Systems in Redmond, WA. Craig purchased the company about four years ago and has done well. Here’s a short story about MM Comfort Systems.
As a heating and air conditioning company, MM Comfort Systems likes it when temperatures run hot and cold. The bigger the swings the better.
Curiously however, just the opposite of “big swings” accounts for enduring success of the business. It more of a “steady as she goes” approach around an unwavering set of core principles. At the core is a belief business is about service. If a company consistently serves needs of employees and customers the business will be rewarded. It is about conducting business in a manner that honors everyone it touches. Do this and profits will follow.
It is also about having a clear strategy and running a tight ship. For MM Comfort Systems strategy involves a balanced portfolio of revenue streams – residential new construction, residential retrofit / replacement, light commercial construction / retrofit, service agreement base and an exceptional service business. Over time, each business segment takes a turn as “hero” and then again “goat”. A balance portfolio reduces risk and allows career path diversity for employees.
The tight ship element involves “closed loop” measurement and reporting of metrics most important to success. Results are meaningful and shared at team and individual levels. With a little success and encouragement people take personal ownership of results – having some fun along the way.
Reasons 6-10 why your business isn’t worth what you hope it is
August 6th, 2010Behind the curve on technology-while some people will think this is an advantage to a buyer to do things more efficiently in reality there is a cost to hardware, software and implementation. Use your experience of your business to get technology up-to-speed, show increased efficiencies (and profits) and sell for a higher price.
Skimming cash-there isn’t a CPA around who will let a buyer be convinced to pay a price based on unreported cash. First, you are cheating the IRS. Second, is it worse that you’re skimming or worse that you say you are but really aren’t?
Too small-a business doing $2,000,000 in sales will not get the same multiple of profits as a similar business doing $20,000,000. There’s just more risk factors the smaller the business is. An issue that is a major disruption to a small firm is a minor hiccup to a larger firm.
You are blending too many personal expenses into the business-yes; there are advantages to paying for things with pre-tax dollars instead of after-tax dollars like employees have to. Carry it too far and it’s almost as bad as skimming. Bottom line, buyers and banks like to see profits. Show a lot of profit, pay some tax and it will come back to you in multiples when you sell (and make it easier to sell and finance the business).
You have to work too hard in the business-buyers look for businesses they can work on not work in. They may not have your passion for your product or service; instead they have business skills to leverage what you’ve done. Get out of the business of doing things an employee could do.