A guide for buyers of Business now first

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Owning your own business can be very rewarding both financially and emotionally. Business ownership provides innumerable opportunities to put ideas into action and reap the rewards (and sometimes the pain).

Buying a business, rather than starting a business from scratch, has many advantages:

The business should have established customers who will provide revenues for the business almost immediately. Unlike a start-up business that needs to find customers and take them away from another business, the business buyer must retain it's existing customers. It's always easier and less expensive to retain customers than to try to find new customers.

The business you buy will have systems in place that you do not need to invent. Although it's rare for any business to have perfect systems, the business you buy will certainly have a certain way of doing things. Business buyers should always make certain they understand why the former business owner did things BEFORE changing it. The laws of unintended consequences are inescapable. Make sure you know exactly what effect changes will have before you make changes.

Financing the Purchase of the Business

Financing a business purchase is important and should be considered carefully. For businesses valued under $2,000,000 the primary financing options are the lenders who offer Small Business Administration (SBA) guaranteed loans or the business seller.

What are the advantages or disadvantages of each?

First let's look at Seller financing.

Many books on "How to buy a business" claim that a buyer should not buy a business if the seller isn't willing to finance the sale of the business. The books often say to offer the seller 25% - 40% as a down payment then pay the balance off over 5 -10 years. The theory is that the seller who finances the sale has confidence in the business and, since the buyer owes the seller money, the seller will "help" the buyer succeed.

Makes sense, right? Not so fast. Let's look at seller financing from the perspective of a business owner who wishes to sell a good business. A seller who sells the business and finances the sale takes HUGE risks. What are the risks? First, what if the buyer ignores the seller and runs the business into the ground? What if the buyer changes the whole business operation to a model that doesn't work? What if the buyer is terrible with employees and he loses some? The "experts" say so what, the seller gets the business back and still has the buyer's down payment. Sellers of good businesses don't want the business "back". If they wanted the business back they wouldn't be selling it.

Here is another reason why a business owner who wants to sell a good business shouldn't need to finance the sale and why a buyer shouldn't want the seller to finance the deal either. SBA lenders often receive a government guarantee on a business acquisition loan (7A) of about 75%. This means an SBA lender can't lose more than 25% even if the business fails and the loan goes bad. If the seller finances the deal the seller does NOT have a 75% guarantee so seller's who finance deals should charge a lot more for financing (or selling price) to account for the increased risk compared to an SBA loan. This increase in financing costs puts more leverage on the buyer and actually INCREASES the likelihood the business will fail. That's bad for the buyer and the seller.

Another common reason for seller financing is many "experts" say that small business records are so bad that only the seller knows if the business is making a profit so a seller who is willing to finance is defacto saying the business is profitable. As always, two sides to the story. Here's an example of why this is a fallacy. Let's say Mary owns a business that does carpet cleaning and some customers pay by credit card, some by check and some cash. Let's assume for whatever reason the cash income can't be identified in the company books. The books show the business is making a marginal profit but Mary says she gets about $1,000 per week in cash that needs to be considered when judging the selling price.

The books show the business is making about $20,000 per year, Mary says she's taking another $50,000 that can't be identified in the books. That's a total of $70,000 and Mary wants to sell the business for $140,000. She'll take $64,000 down and a note for 5 years at 8%. Good deal? 2 times earnings is a good deal, seller financing is good, right? Wrong. What if Mary is lying about the $50,000? You bought the business, she has your $64,000 (which is more than the books show she makes in 3 years). So you stop making payments and Mary gets the business back. Who got the better deal, Mary or the buyer?

TIP: If a business has provable cash flow and a reasonable price AND a buyer whose financial circumstance is in order, there is an SBA lender who will provide financing. There are plenty of businesses available that have provable cash flow. Inexperienced buyers should be very, very cautious about purchasing a business where the earnings can not be ascertained with reasonable certainty.

Advantages of SBA financing

Understanding the steps in getting an SBA loan makes it clear why the buyer and seller are both generally better off if the seller does not finance a transaction.

Requirements of buyer to get an SBA loan: good credit, manageable debt relative to the ability of the buyer to service the debt, buyer income requirements BELOW that which can be provided by the buyer and business.

Requirements for business to be eligible to be purchased with SBA loan: provable earnings of business adequate to make debt payments and income to seller adequate to meet sellers's personal needs, business will likely be appraised by bank to make sure what the buyer is paying for the business is reasonable.

A buyer benefits using SBA for financing because the SBA will likely add discipline to the process for the buyer and reduce the likelihood that a buyer will make a critical mistake.

Due Diligence

Buyers - Before closing on the purchase of a business buyers should conduct adequate due diligence to ascertain if what they "think" they are buying is actually what they are buying. Due Diligence has 4 primary areas:

Industry - There is usually public information available for almost any industry. Buyers should do research to see if there are any industry issues that will positively or negatively impact the business.

Business Finances - Business buyers should retain an accountant to assist them in looking at the business books to confirm the business is earning what is claimed by the seller.

Business Operations - Before closing there is usually only so much that can be done. An important activity is to meet with the seller and discuss in detail what the seller does on a day-to-day basis so the buyer can get comfortable either filling that roll or bringing in people to fill that roll. If the seller is the guy who also repairs all the trucks then you either need to be able to repair the trucks or find someone who can!

Legal - Buyers should engage an attorney to review closing documents and make sure that the buyer understands their rights and obligations in any contracts. Good legal work BEFORE closing usually means smoother sailing after the business purchase.

Buying a business could be the best thing you ever do or maybe the worst thing. Many businesses are sold every year and the vast majority of those transactions turn out to be good for the buyer and the seller. Do your homework and you will likely be rewarded handsomely.

Copyright 2007 Daniel Elliott

Austin Business Broker

Austin Business For Sale

DAN ELLIOTT: Mr. Elliott is a Certified Business Intermediary as designated by the International Business Brokers Association. A member of the Institute of Business Appraisers,International Business Brokers Association and the M & A Source (a national organization of Merger and Acquisition specialists).Over 10 years experience in mergers, acquisitions and business sales. Experienced in representing companies with revenue up to $50,000,000. Extensive experience in Business Valuation services to determine Fair Market Values for businesses. Mr. Elliott has extensive expertise in distribution, service and manufacturing businesses.

Your own business: first steps

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What an exciting feeling you must be having at this time. You have finally made the choice to "chuck it all" and go into business for yourself. You dream of the freedom from your unreasonable boss and the wonderful feeling of writing your own paycheck. It's a lifelong journey that has to start at the first step - the very beginning.

It is my goal to take everything all those books say and boil it down to a real action plan that is a simple as it can be. Basically making it like a recipe. You really don't need all that filler; you just need to know how to get started. A bunch of fluff isn't going to help; in fact it slows you down. Instead of reading, you should be doing!

This section will be those most difficult first steps of just getting started. Effectively launching your business and then growing it for success are their own unique steps in the future. For now, I'll have to assume you have an idea already and have researched it enough to know that it is a good idea and has a bunch of customers clamoring for your product or service. Please be sure you have a good quality product and/or superior service. You are not trying to make a quick buck; you want to have a business that lasts.

I also have to assume that you already have some sort of support network in place, trusted friends, professional advisors like accountants and/or lawyers, and a maybe a mentor with excellent opinions. If you don't have them, you can pick them up along the way. But you'll need them all at some point.

You probably want to know what qualifies me for writing about this. Academically, I have an MBA in Entrepreneurship and Marketing. Professionally, I have been a consultant for many entrepreneurs, I worked at a home business franchise company for several years, and I have a few successful entrepreneurial ventures of my own. I even helped my own family launch a very successful online business selling premium pashmina and cashmere products. I'm not a super rich entrepreneur, but I'm successful and happy. My key expertise is online ecommerce, but the following ideas are relevant to starting any type of business.

How to Establish Your Business

This first part is really what most people don't know how to do. It's the fundamental process of actually setting up the business. All the good ideas in the world have to start at the beginning. It's not the fun part, but it has to be done.

It may seem elementary to you, but why haven't you done it yet?

So, let's start from the start.

1) Giving Your Business a Name

Your business' name is important. It is your customers' first impression and your public identity. You probably want to choose a name that is professional, but also may hold some meaning to you and your potential customers. My personal and professional opinion is to not get too elaborate with your name. Make it simple and direct so you don't have to waste a lot of time branding or explaining to your customer just what it is you do or sell.

For example, for my family's business selling pashmina products, we decided to go with The Pashmina Store. There is no question what the business is. Simple and direct...and the URL was available (which is very important).

Most people have a desire to name their business after themselves, using something like their family name, their first name, or their initials. This is a perfectly acceptable; as long as you get the idea across about what it is you are selling. For example, if you are selling raincoats and your name is Smith, you may call your business Smith's Raincoats or even Raincoats by Smith.

Take the time you need to select on a business name that you're happy with, says what you do, and has a good URL for a website. You should run your name choices by your friends and family to gauge their reaction and to get their thoughts.

2) Register Your URL

I know, you just decided on a name and have nothing close to a legal business yet. But I suggest snapping up the best available URL (or web addresses) as soon as you can. In this day and age, your website and the URL will be a large part of you business identity. It will also be the source of your email addresses, so getting a good URL matters. We were lucky enough to get http://www.thepashminastore.com for the pashmina and cashmere business, I hope you are as fortunate for your venture.

It is best to investigate available URLs even as you decide on a company name. Try to get the URL of your exact business name, or as close as possible. I suggest getting a ".com" rather than ".net" or other since that is what most people know.

You can research names and register at websites such as Register.com and GoDaddy.com. There is a small fee, but it is worth it if you are serious about your business. These two services even will help you inexpensively set up and host a website and email service.

3) Your Business' Legal Organization

Next, you will have to determine what legal structure is best for your new business. Early in a business' life, a sole proprietorship is most common. However, it is beneficial to know the different types of legal business structures before you decide for certain. You'll need to know all about them as you grow, in any event.

You'll most likely want to discuss the options with your accountant and/or attorney as well. To get you started, here are the three most common forms of business.

1. Proprietorship. As mentioned earlier, this is the most popular structure when starting a new small business. It is also the easiest to start. In most states and cities, all it typically requires is a D.B.A. ("doing business as") and a tax ID number, which would likely be your Social Security number.

A proprietorship provides you the maximum amount of control over your business...but it also leaves you the most potential liability. In short, you are personally accountable for your business and all of its debts and legal issues.

2. Partnership. This form of business is common if your business requires you to take on a business partner for expert knowledge or financial needs. A partnership is a legal definition of your business relationship and defines which party is responsible for what aspect of the business venture.

For example, you may be the engineering type who can make the product. Another person may be the talkative type who can sell sand in the desert. Yet another person may be the main financial backer. Whatever your circumstances, a partnership allows you to define each person's part in the business and put it down on paper in a legal manner.

3. Corporation. This is the most official and potentially complicated legal form of business. This is also the most expensive type of business entity, but it does provide everyone involved the least amount of liability.

It is very common to start as a proprietorship or partnership and then change to a corporation after the business is established and growing.

4) Business Registration

Again, most likely you will start as a sole proprietorship. The process is very simple and inexpensive. But the process can vary a bit between states and even cities and counties.

The goal here is to get your business name registered as a D.B.A, or "doing business as". You will need this in most areas to open a business checking account. The fees are typically minimal, but vary on your location. Your County Registrar is most likely to be the office you will need to contact to ask about what the process is to get your D.B.A. The methods will vary by location and in some rare instances you may not even have to register. Just be sure to ask about all of the steps to make sure you're covered.

After you have made some calls or used the Internet to find out the steps in your area, you will most likely need to go fill out paperwork at the government office that handles the registration. The good news is that the paperwork is generally light and the wait is not too long. They or you will be responsible for checking to make sure the DBA name is not already taken, and in many cases you will be able to check on the Internet before you even go.

After the paperwork and name check, you will have to pay a fee, which is generally small. Once it is all done, be sure they give you a notarized copy of your registration as you will need it at the bank to open a business bank account and possibly for other things.

I wish to remind you that what I offer are general guidelines and information to help get you started. It is always a good idea to discuss your options with an accountant or lawyer to determine what is best for you and your individual circumstances.

5) Obtaining a Business Address

This is a step that you can skip if you simply plan to use your home address or an existing business location as your address. But in most cases, you'll start working out of your home and probably wish to protect your privacy and create an aura of having a larger business by getting a new business address.

This process is as simple as going to the post office or a private mail box center (PMB) such as The UPS Store. I suggest a PMB over the post office because you can usually use a street address and list your box number as a "suite" to help create a more positive image versus having your address be a P.O. Box number.

6) Your Business Phone Numbers

Like the business address, you can skip this step if you plan on using an existing phone number. But you should consider adding a second phone number to your home or office to be used just for your new business. You can even get what is called an "overlay" and put a new phone number on top of your existing phone. It will go to the same phone as you have now, and in most cases you can assign a different ring tone so you know it is for the business.

A toll-free number is also an important item to have, but you don't have to have it right out of the gate. But studies show that customers are more likely to contact you if you have a toll-free number. They are not that expensive to set up and the charges are based on usage, so if you use it a lot you should be getting more than enough business to cover the expense.

Remember that you phone voice is important. Talk with a smile - the customer can hear that smile. Be sure you have a pleasant and professional sounding message for your voice mail as well. And call back your customers who leave messages as fast as you can. Your competition probably isn't taking care of them fast, so you should.

7) Business Banking Account Formation

Having a separate business banking account is advised since it will help you keep your financial records straight. It will save you a lot of time during tax season to keep your business and personal spending separate. I suggest using a larger bank, such as Bank of America or Wells Fargo, which serves the business community. They will offer a wider range of services and possibly be a good source of business loans to help fund your growth.

You may want to call several banks in your area to compare their small business service options and the associated fees. Once you decide on the right bank for your needs, make sure you know what paperwork to take when you open the account. In most cases they will require at least your notarized D.B.A certificate.

8) Logos, Business Cards, Letterhead and Such

Some people may tell you to invest lots of money upfront to develop a great logo and then put it on expensive letterhead. These people have never started a business on a budget. While you do want to appear professional, you can do just fine with your own computer and printer while you wait to grow big enough to afford such materials.

Most likely your word processing program or other such program already has a letterhead template. That is fine to use for now. Choose a nice font for your new "logo" and use some color for it, if you wish. Do purchase some nice paper to put it on. Then simply print out as needed.

On your letterhead, make sure you get all of your important information across in a professional way. In general, you'll want to include your business name, mailing address, phone number, fax number and email address.

The same goes for business cards and envelopes. You can buy nice envelopes and business card stock and use your existing program templates to create professional materials as needed.

Having a designed logo or company motto on your letterhead is a personal choice. Make sure it looks good and reflects the business. Also make sure it looks good when it is made very big or very small since it will be used in various formats.

The Next Steps

Once you finish Step 8, you're in basic business shape. It is difficult to tell you what to do next since there are so many types of business and different ways to go about it.

In general, you'll need to start letting people know about your business and getting customers. This may mean developing a website that sells products or promotes your services. It can be as simple as handing out business cards to everyone you meet. Or maybe it is "pounding the pavement" and meeting people to tell them what you are doing.

But there are a few things to keep in mind that relate to any business. The Nike slogan has it right when they proclaim "Just Do It." Nobody is coming to you, so you have to reach out to them. And it takes time and effort. Yes, you do have to "work" and "sell" no matter what those advertisements may promise for their wonderful business opportunity.

Here's the "secret" to success: You will have to work harder than your competition, treat your customers better than your competition, offer a better product and or service than your competition, just plain be better than the rest. Yes, that is the secret!

My first job out of college was as an executive recruiter, a headhunter. I was successful at this job. In fact, I was one of the tops in the nation. It wasn't because I was naturally better than anyone else, it was because I worked harder and I worked consistently. Have a plan for the day, the week, the month, the year...and do it consistently. Get into a routine and stick to it. You'll get sidetracked along the way, of course, but keeping your efforts consistent will pay off. You'll make you own "luck."

Since you are your own boss, you do have a little luxury to make a schedule that fits your lifestyle. If you want to start at 10:00 AM, or play golf for lunch, or work late at night, that is fine. But stick to the schedule and make it your routine. This will help you get over the initial feelings of being scared and overwhelmed and start getting you comfortable with your new professional life and on your way to success.

Along the way, you'll start to discover what your strengths and weaknesses are. You don't have to be an expert at anything really; you just have to be average to above-average at a lot of things as an entrepreneur. If there are glaring weaknesses in you business skills, you simply have to work at them. You can read a book, take a class, whatever...but you'll naturally get better each and every day just by doing your business.

Finally, do not get so frustrated in the beginning that you quit before you even get started. Depending on what you start with and what (or who) you already know it is going to take some time. Even minimal success is probably going to take several months and maybe a year or more. Make sure you are mentally and financially ready for at least a year.

If you're not ready now, don't worry. You now know the steps and what to expect to even get started. It is better to take you time and be well-prepared than to rush off and make a mistake that you will regret for years to come.

Launching and growing your business are the essential main steps 2 and 3. But those are whole other beasts that are best discussed at another time. Until then, I wish you the best of luck and hope that your new business is an incredible success.

Blair Rhodes is an entrepreneur himself and has helped several people launch their own successful business. After earning an MBA at the University of Texas at Austin, Blair worked as a headhunter, in the movie business, at several successful Internet startups, at a franchise marketing company and as an importer. He currently focuses on his own ventures, including The Pashmina Store and is developing several other ecommerce businesses.

What to expect the first year in Network Marketing

His first year in network marketing can be exhilarating. Can also be scary if you are not one hundred percent, prepared for the task of managing your own business. The challenges can be overwhelming if you are careful. Stick with it, though, and you have a chance at a career where income continues to grow each year.

Businesses that fail, usually within the first year and many fail for the same reasons. With a little help, must not become a statistic in your business. His first year in network marketing can set the stage for all the years to come.Start with the right foot. expect challenges – they come to all companies, but they know soar above them.

Know why you want your business. Prestige? Money?Being your own boss? Those are all valid reasons, but knowing why you want your business and be able to manage their business are on the opposite end of the spectrum. Excitement and desire cannot compensate for the lack of knowledge.

Expect to be overwhelmed, sometimes you're bad at managing.? You know something about the skills of basic business? If you cannot manage the daily life and business skills are not something you possess, you need to get busy educating yourself.

You may require more effort, but you can still be successful in your business marketing. If you aren't the person more organized by nature, learn to overcome that – even if you have to take the online help. Misplacing keys will not have the same impact as misplacing information of a potential customer.

Expect the competition to be fierce. Dig in your heels and determined to end up as a success story. The great thing about network marketing is that it is not a closed field.There is always room for another, provided that you know how does business.

Expect to be discouraged sometimes this is caused by expectations.Maybe some of your downline left. Maybe your upline is not useful as you need them to be.Whatever discouragement heads your way, if you get knocked down, not a tent there.Get back only that marketing succeed are those who stick with it long-term.

Expect growth. there exists the possibility of a big income and collect a large downline through network marketing, but sometimes a business fails because they didn't know what to do with growth.

Whatever happens in your first year of network marketing, you can bet that it won't be boring. are you embark on a journey that can take you farther you never dreamed was possible. So hang in there and enjoy the ride!

Tags: be your own boss, network marketing, right foot, expectations, lack of knowledge, business skills, running your own business, how to run your own business

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