Entrepreneurs: Trim the Fat and Boost your Profits!
February 02, 2011 10:38:57 PM
Now more than ever, individuals are looking for ways to cut costs -- personally and professionally. This is especially true for entrepreneurs preparing to sell their businesses. Higher profit margins naturally make a company much more attractive to potential buyers, and increased seller’s discretionary earnings generally equate to reaching the closing table faster and with a better selling price.
Most business owners today are using tried-and-true cost-cutting methods, as well as employing more creative techniques in order to reach their goals sooner.
Here are some suggestions you may wish to consider in the continuing quest to lower expenses:
Enjoy the electronic age
Try a voice mail system for your office and use email whenever possible. This may help reduce the hours needed for a receptionist or secretarial staff and could allow these employees to contribute in other areas. There is a variety of affordable software for businesses, which can help increase productivity within the office. Don’t forget to take advantage of the sales and marketing opportunities the Internet provides at little or no cost.
Deal directly with the source
Establish relationships with the manufacturer of products you frequently use. This may help avoid surplus charges added by third parties.
Makes vendors competitive
Sometimes business relationships can become too complacent. Check out current pricing by requesting multiple bids – especially on larger projects. Remember that sometimes the lowest-price offer may actually cost more in the long run, so be sure to examine the fine print and associated details.
Be rewarded for loyalty
For those vendors you patronize, ask about any loyalty programs they may offer. Even if none are publicly promoted, you may find a vendor will express thanks with special savings.
Outsource when appropriate
Both in terms of employees and leasing space, this is an attractive option for business owners. Outsourcing continues to grow in popularity on many levels. Temporary employees or contract workers make sense for seasonal jobs and short-term projects. Try renting or subletting space when it is needed only occasionally (such as a conference room or large space for presentations).
These are only a few of the many ways savvy business owners are making a direct, and positive, impact on their bottom lines. We’d love to hear what suggestions you might have for other entrepreneurs!
Selling Your Business? Guidance from a Commercial Lender
December 20, 2010 12:45:18 AM
In our third installment of “tips from the experts,” we discuss a topic of great importance to both buyer and seller: how will this transaction be financed?
When a buyer or seller contacts me to inquire about the business brokerage process, it has been my experience that financing is not always at the top of everyone’s mind – but it should be! Many companies listed for sale never reach the closing table, and lack of financing is almost always the reason these businesses do not sell.
While it would be a much easier process if all buyers brought 100% of the contract price and associated costs in cash to the closing table, this rarely happens.
Typically, seller financing and/or SBA loans are used for financing a sale. SBA loans are guaranteed by the Small Business Administration and are provided to small companies.
Christopher J. Kneer is vice president of commercial lending for Community Bank and specializes in both conventional and SBA loans. He explains, “Banks view business acquisitions as risky transactions for two primary reasons: change of ownership and financing of goodwill. For that reason, we utilize the SBA.”
Kneer provides these tips for potential sellers:
- The time to begin preparing for the sale of your business is three years out. To get the highest price for your business, you need to have multiple and consistent years of earnings. Banks and many buyers are suspicious of one great year and dramatically different results in previous years.
- Accounting quality is very important. An arm’s length CPA should be working with your company. Accounting issues and statements that do not match up from year to year are a major red flag. If there are significant line items or particular issues on your financials, be upfront and point them out. Spend the money on good accounting and it will come back twofold.
- Show earnings. The time to strategically limit profits for income tax purposes is not while you are preparing to sell your business. No bank wants to see a company that loses money every year and bases its sales price on “add-backs.”
- Have buyers pre-qualified. Banks want to see buyers with industry experience, proper equity injections and liquidity. It does no good to show your businesses to those that cannot qualify for financing unless they are cash buyers.
- Plan to have a seller note involved in the transaction. Due to changes in SBA financing, it is often necessary, and it also shows good faith in that you are willing to stand behind the business for sale.
- Plan to stay on for a period of time. This also shows good faith that you are willing to help the new owner be successful.
Solid and sound advice.
Time to Maximize Your Marketing Efforts!
December 08, 2010 12:55:31 AM
Part Two in our series of “tips from the experts” focuses on marketing, an often overlooked and misunderstood component that is vital to the success of a business.
As a business broker, I have noticed one of the first questions generally asked by potential buyers (especially when they meet the seller for the first time) involves marketing – is there a plan in place; what works; what doesn’t work; who is the target customer?
Laura Woodard, president of GrassRoots Marketing Group, Inc., emphasizes the importance of having a marketing plan in place. Woodard notes, “An integrated, well-designed and efficient plan for growth is essential for any size business in any type of industry. Although it may sound simple, most companies struggle with this process.”
Woodard shares the following tips to help entrepreneurs begin creating or updating their marketing plans:
- Know your customer
- Put the plan in writing
- Prepare a budget for marketing
- Don't just monitor the plan; measure it
If you are planning to sell your business soon – or if your exit strategy is several years down the road – there is no time like the present to create or review your marketing plan. Use these guidelines to take the first step!