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10 Cardinal Rules for buying your own business

12/9/2013

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Picturephoto credit: Gord McKenna via photopin cc
Many toy with the idea of buying a business for themselves; but it’s such a risk most never take the chance. Here are 10 rules that will guide anyone to making better choices.

1 YOU are the most important consideration
It’s a mistake to first value a business as a financial investment. Most importantly it's a career investment. Your life to date has given you valuable skills and experiences. Use Reflection exercises to understand your Personal Business skills first; then seek an opportunity that will utilize them. Lesson 8 (free preview available) of the online Fit for Life workshop is a great starting point. Also the book Business Model YOU.

2 Discover your preferences 
In addition to skills, your business performance is affected by preferences. Clarify the business preferences that make a difference to you. You can download the Franchise Business Model worksheet which is further explained in the online workshop Lesson 11 (free preview available) as a guide for this. Be comfortable with your risk and sales orientations as discussed in this lesson before buying a business.

3 Search in specific business categories and geography
If you don’t know what you’re looking for, it will be extremely hard to find. Online businesses for sale directories estimate that 90% of the people registering for their services are unable to purchase a business. Most of these failures are those going there to find easy, secure sources of income. They aren’t obvious. What you can find are opportunities that may or may not fit YOU. The directories are organized by business category and geography, so having a set of these criteria to focus your search gives you a reasonable chance of finding those opportunities. Even if you use a business broker, they can do little to help you without focus from you.

4 Creatively research your financial situation
A profitable business or franchise, with good books and records, can be partially financed; however, each opportunity will have a downpayment. You may be surprised at the financing opportunities available to you with a little research. The SBA offers a number of programs, plus there are alternatives to SBA loans that are often even more attractive. Combine your risk preference with your potential financial capabilities to set the financial scope of your search. This can also be added to your search criteria.

5 Have a personal contribution for your business
A business brings resources to a market. In most cases, the owner makes a significant contribution to one of these two areas. If your potential contribution is resource management, look for opportunities with established sales assets. Look for an established brand, location, or sales network. If your contribution is sales and market management, look for established resources like a desired product line or service that appeals to you. The same logic applies to finding the right franchised business to buy.

6 Utilize Key Partners
No one is successful by themselves. Even the Lone Ranger had Tonto. Learn to develop and use Key Partners as soon as possible. These are going to be the people in your life that will help you through difficult decisions. If looking at franchises, ask other franchisees how much support is received from the franchisor? If looking at independent businesses, look for people who will be able to add to your expertise. They can be the former owner, key employees, vendors, and professionals such as financial advisors and business consultants. If married, take time to communicate wholly with your spouse. They may or may not be able to help on any given specific; but they can help you understand YOU; and you will be a big part of the business.

7 Be able to Model any target business
When you find an interesting business to buy, be able to quickly answer the question, so what makes this business work? Financial statements will not tell the story. It’s a Value Proposition that has to make sense to you and that you can easily explain. The Business Model canvas is a proven tool here. Use it or anything similar. You are going to be be buying that Value Proposition, not its cash flow.

8 Understand the cash flows
Most business opportunities are priced on cash flow. The problem is that cash flow is a concept, not something physical that can be easily measured. That allows for a lot of “creativity” in its calculation.  In general, wherever there is a reason to add to profit for cash flow, there is also a reason to subtract from it. For example, if cash sales are not completely reported on tax returns, then suspect that there are cash expenses that may also be missing. If depreciation is added-back to profits, then also be sure to subtract also capital replacement costs. If interest is added-back, then debt service should be subtracted, etc. After  first understanding your reasons to buy a business, then work on understanding the financials to establish reasonable pricing. If you are not comfortable calculating cash flows, find a key partner to help you in this area.

9 Respect the seller
Almost every independent business on the public market is there because the owner has burn-out. This could be from age, sickness, changing personal opportunities, or changes in the business. However, this doesn’t mean they don’t value their business. It’s an extension of themselves as much as a child might be. Deals happen when the owner sees in the buyer someone who can take care of their child as well as pay reasonable value for it. Franchisors are expanding their operations and are looking for team players who can help them. They are looking for someone who can compliment their system as well as afford to participate as an owner. In either case, both sides must first respect each other enough to make any financial considerations worthwhile.

10 Begin with the End in Mind
Do you want to be the one selling this business in the future due to burn-out yourself, or would you rather have used it to achieved the financial goals necessary to move to the next stage of your life? Start with clear ideas for your exit plan. A business is more than a cash flow; it’s a stage of life and will best serve you when seen in that light. Having some idea of what should come next and when you want it to happen will guide you in making better business decisions.


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Personal Business Models - Key Partners are the Key

7/3/2013

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Picturephoto credit: Alba Soler Photography cc
Personal Business Models have opened the door for individuals to reinvent themselves in a systematic way. The individual is Resource Constrained, so the process starts with YOU, as opposed to the Market. 

This idea of reinventing while still being limited is not just applicable to individuals. It applies equally to the organization that doesn't need to start-up something new, yet still needs reinvention to turn-around its situation. This will overview 5 short YouTube videos, collectively named the Lean Turn-Around series, that describe this approach to working with Business models. They conclude with a new importance to the role of Key Partners in Personal Business Models.

For those not already familiar with the Business Models canvas, there is a 2 minute introduction to the canvas here and another fast introduction to Personal Business models here. These videos were produced assuming the viewers are already familiar with the book Business Model YOU. The video windows here are small. If you click on the YouTube logo in the lower right corner, they will expand on that site.

Why your idea was worthless

Individuals and Organizations in need of reinvention did not get that way because they were short of ideas. Yet, great ideas alone cannot produce market value. This video introduces Emergent Properties, things that simply don't exist until other things get properly combined. Value doesn't exist at the idea level, so no matter how good an idea might potentially be, more basic elements are needed. In fact two more, which are presented here.

Business Model Deliverables

 Business Model YOU and its Workshops deliver much more than just one or more Personal Business canvases. Insights emerge as you work across the regions of the canvas. An example is given of reinventing a substantial business using the process and tools typically associated with a Personal canvas. Organizational and Personal Business Model Generation processes are then contrasted.

Business Model Processes

After a survey of the dozens of tools available from both processes, focus is given to some feedback tools. This section will be of particular interest to those using Personal Business Models for Personal Branding. Personal and Organizational Models are then connected along with noting a weakness necessary in the Personal (Constrained) Model Generation process.

Business Model Pivots

After going through Design and/or Reflection stages, its time to Redraw the Model and then test and Pivot. Using the canvas regions introduced earlier, Patterns of Pivots can be developed. A and C Pivot types are discussed along with a warning about not working hard on B Pivots early on.

Acting on a Personal Business Model

The conclusion of the series is a focus on how to grow your new Model. Since Personal Business Models start as Constrained, being able to address those constraints become important. It's argued that in addition to Customer Discovery, Key Partner Discovery will be necessary and examples of Key Partner types are shown. Franchise statistics are used to quantify that importance. Those relating Business Models and Networking will find this especially useful.
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Personal Business Models - 3 sources for new Channels

3/21/2013

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photo credit: Studio Antwan via photopin cc
Your Personal Business Model has tremendous Value to offer. If only you could reach the Customers who need it, YOU would be rolling in cash flow.  Business Model Channels are there to create access to prospects as well as deliver Value to Customers.

In developing the Business Model using the Business Model YOU guidelines, a lot of effort is placed on defining personal Key Resources. This same thinking naturally extends to placing similar effort into personal Key Activities and Key Partners. A useful approach is to now take this understanding and use that to develop more Business Model Channels.

Business Model Channels fundamentals

A "rookie" mistake made by those new to the Business Model canvas is to use the Channels and Customer Relationships they desire. Those working with Personal Business Models are especially suseptable because they have just spent considerable time exploring who they are and what they might become. This makes us a bit introspective. Canvas Channels and Customer Relationships should correctly be those the Customer Segments desire, not you.  Consider how YOU want to be contacted in your business relationships as a starting point. From there, start to consider how your potential Customers might feel. How would they like to be prospected? It's never out of place to ask your Customers for feedback to be sure you're getting this critical area correct.

A second mistake is to not realize that these are plural terms. We are really looking for the best mix of Business Model Channels, not trying to find the best one.

Types of Business Model Channels

Business Model Generation classifies Channels as Owned and Partnered. For example, you can do your own selling, or pay a commission to a Key Partner to do it for you. This is an elegant way to look at someone else's  business model Channels.

For your own model, I would like to offer an alternative approach as well. Your Channels frequently directly relate to your Key Resources, Key Activities, and Key Partners. In the example, your own selling is a Key Activity and the commission sales a contribution of a Key Partner.

This gives us 3 sources of Personal Business Model Channels - Resource Channels, Activity Channels, and Partner Channels. 

Key Resource Channels

These are by far the most desirable (and generally most costly) Channels for a Personal Business model. I see that all the time as a business broker. Entrepreneurs frequently contact us to purchase an established business in order to own more Channels. Examples of Key Resource Channels are an established reputation or brand, a popular location, satisfied past customers, internet pages with high page authority, and a sales force in place. You can "own" these Channels, so they are easier to manage and keep healthy.

Key Activity Channels

The opposite of Key Resource Channels are Key Activity Channels. These are typically the least costly because they tend to be "do it yourself selling". Examples are types of Direct Selling which include mail (and email) campaigns, personal and telephone cold calling, and internet blogging. There are also Indirect selling approaches which include networking organizations, public speaking, publishing, workshops, and events. They may be low cost to initiate; however, these are the Channels that also do not scale well (or sell very well when it comes time to exit your model). There is a commonly held belief that any new career must start here and over time develop Key Resources. All it takes is courage. While courage is essential, if customers are not willing to pay more than cost for your value as you present it, courage only leads to financial losses. You will frequently find this misleading message embedded in career and business development advice.

Key Partner Channels

A practical alternative strategy is to work together with Key Partners. These Channels can be both cost effective and scalable; however, they will require you be a good Key Partner in return. Key Partner Channels can be VARS, Distributors, Retailers, Professional Referral partners, even Customers who are now "fans" and enjoy being able to recommend you to their contacts. Actively looking to promote Key Partner relationships into Key Partner Channels may launch a new Personal Business Model more easily than a Customer Discovery/Validation process. 

Finding Your Channel mix

Your model is based on a mix of Resources, Activities, and Partners (RAP). The development of a corresponding mix of Channels from them should feel natural, even inviting. If it doesn't, the problem may be your RAP is insufficient for the model's Value Proposition or Customer Segments and needs to be adjusted. In the end, a good business model should just make good sense.


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Launching Personal Business Models - Key Partner Discovery

3/5/2013

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How can we act on a reinvented Personal Business Model?  Key Partner Discovery is a safe and powerful catalyst to boost your career plans.

Getting a Personal Business Model off the ground

The ACT section of Business Model YOU has sound advice on using Customer Discovery as a place to start. It's very reasonable to take a newly developed Business Model to the streets and test if it's something that 1) people really want, and 2) they are willing to purchase. There are countless examples of ideas the flew past the first test only to fail the second.

However, Cold calling, which is often what Customer Discovery really becomes for an individual, is distasteful or even overwhelmingly threatening. It can easily stop an individual's ACT phase dead in its tracks.

Customer Discover is not the only way we can "get out of the building" and test a model. Look to the other side of the Business Model Canvas to Key Partners. Working with Key Partners is much less threatening and often more rewarding than going directly after customers.

Take a moment to watch this video by the author of Business Model YOU discussing the development of the book. Ask yourself, does this seem to be an example of Customer Discovery or Key Partner Discovery? The process of building out from Key Partners is natural for the individual.

What makes a Key Partner?

For organizations, Key Partners are sought where Key Resources and Key Activities they DO NOT HAVE can be outsourced. For individuals, Key Partners are frequently those who compliment the Key Resources and  Activities that they DO HAVE.  It's a far more vital role. In a Personal Business Model (PBM), it's very possible for Key Partners to develop into Channels; and then for the Channel's Customer's to develop back into more Key Partners. Almost any established individual practitioner will tell you most business now comes from "referrals." This is known as a positive feedback loop in Systems Dynamics.

The ability to provide positive feedback in any form is a prized attribute of a Key Partner and one to be sought right away in launching a reinvented PBM. Unlike sales prospects, partner prospects are eager to find sources of feedback that will help their business models as well as yours. In a sense, this is recommending Networking as an alternative to Cold Calling; however, those who understand canvas thinking have a unique advantage in this area over a group of people who just pass leads along. Your understanding of how the canvas pieces fit together help you better recognize the Key Partner potential in others.

Key Partner YOU

More importantly, it helps you recognize the Key Partner potential in yourself. Who has Value Propositions that are complimented by yours? Who can benefit from the insights produced by your value story? Not everyone has learned to think like that. Start to gather ideas about the kind of Key Partner YOU make by reviewing your answers in the  "Personality and Environment" exercise. Then look again at the "Get Out!" exercise in Section 4 of Business Model YOU substituting Partner Discovery for Customer Discovery. It becomes less threatening and more exhilarating. 

Career reinvention is just a fact of life in today's changing world and we can expect to need to reprocess any career multiple times. Our personal Key Partners make this more achievable and rewarding. The take-away - it never hurts to become a better partner now.

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7 ways to build a Premium YOU

1/9/2013

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As a business broker, I frequently discuss valuation with interested small business sellers. The discussion often starts like this:

"Tell me about your products(services)?
We have an established reputation for being the best source for what we do in the area.
How is your pricing?
We are competitively priced,not too high and not too low."


Do you see the problem? If a premium Value is really being given the customer, why doesn't that result in a premium Revenue Stream?

This isn't just a problem with a business organization. As individual employees, professionals, or contractors are we providing a real premium value or only enough for a competitive revenue stream? 

The Personal Business Model canvas developed in Business Model YOU not only helps individuals reinvent themselves, it serves as a map for developing the premium aspects of their value. Competitive pricing is the natural result of a focus on primarily the Value Proposition and the Customer Segments. To be worth a premium, further separate YOU from the competition (Professional Branding) by considering your other 7 canvas areas.

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1 - Key Partners
No one works in total isolation. When people look to you as the "point man" for those you work with, they see greater value in everything you do. You get to there by clearly defining that team on the canvas, and then finding ways to promote your partners (even is that doesn't immediately help you). Being able to promote a Key Partner's value increases your own.

2 - Key Activities
We tend to focus on developing those activities which meet our goals; however, people will pay a premium if what you give them helps meets THEIR goals. Would the nature of your Key Activities change if you knew your customer's goals and how to achieve them?

3 - Key Resources
This is the cornerstone of the Personal Business model. Have you identified personal resources you own that are not being used in your model? Finding ways to offer these to your customers increases your value to them, even if it isn't directly related to a main Value Proposition. Do you know about a cheap and easy way to keep up with necessary records? I bet there are potential customers who would love to know how you do it (and love YOU for sharing that).

4 - Cost Structure
Competitive pricing is a result of supply and demand. Non-competitive pricing can happen when either value is high or costs are low. Technology and/or organization often drives down costs and there seems to be no end to the possibilities of using them to reduce costs. When reducing costs leads to additional sales, the premium is in the volume rather than the price.

5 - Customer Relationships
Your relationships are more than just between you and the people who pay you. There is a community that encompasses what is done. Participating in that community is what increases the value of your personal stock in the minds of others in it. Community activity may not result in a direct sale; however, it is very hard for it to not result in increasing your premium value to others.

6 - Channels
We are in an information age and that is changing everything in business. There is a need in every community for participants to band together and share how that effects them and what to do about it. There is always a place to increase value through helping to teach new skills to those seeking them. The fact you teach in any capacity increases your credibility an exposure.

7 - Revenue Streams
Most of us believe a Sale ends when the Revenues are finally collected. Once we realize the single most important source of new business is referrals, it becomes clear that a sale isn't really over until the customer stops making referrals. With this in mind, consider what happens after funds are collected and value is delivered? What could compliment the value transaction 7, 30, 60, 90, or even 180 days later? Anyone who delivers value from this perspective deserves a premium.

The Personal Business Model is a source for continual improvement as well as reinvention. I look forward to more future conversations like:


"How is your pricing?
People understand how valuable we really are to them."
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Six reasons for Selling Your Business Now

11/13/2012

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Is Now the Time For Selling Your Business?

Have you been thinking about selling your business but just can’t decide if now is the best time?  Do you find yourself repeatedly analyzing the economic situation and wishing you had a crystal ball? There are positive signs and there are negative signs…

If you’re still up in the air and can’t quite decide whether or not to hit the exit plan button, here are six reasons you might want to consider getting out now.

1.You’re less interested in fighting the good fight

A lot of business owners took the Great Recession in the teeth. If you’ve got your business stabilized and the prospect of possibly having to fight through another recession leaves you panic-stricken, it could be time for you to get out.

2. The worst is behind you 

Let’s say you were mentally ready to consider selling a few years ago and then 2008 hit and 2009 was bad, and in 2010 and 2011 you made cuts and adjustments, sonow you’re starting to see some profit and revenue growth.  With your numbers going in the right direction for selling your business, so now might be just the right time to make your move.

3. The tax man is coming

Governments around the world are looking for money to fund the cost of an aging population. At some point this will mean increased taxes for business owners.

4. Nobody is lucky forever
If you’re lucky enough to be in a business that actually benefits from a bad economy, congratulations... you’ve probably just had the four best years of your business life. But no cycle lasts forever and right now might be a great time to take some chips off the table.

5. The coming glut

As a business owner, demographics are not on your side. As the baby boomers start to retire in droves, we’re going to have a glut of small businesses coming on the market. That’s great if you’re buying; but if you’re a seller, you may want to avoid the flood and head for higher ground now.

6. The closing window

Since 2008, it’s been tougher for private equity companies to raise money; so many firms had their last successful round of fundraising a number of years ago.Many of these funds have a five-year window in which to invest or they have togive the money back to the people who gave it to them. Some boutique private equity firms will make investments in companies that have at least one million dollars in pre-tax profits (larger private equity firms will not go below $3million in EBITDA); so if you’re in the seven-figure club, you could get a bidding war going for your business among private equity buyers keen to invest their money before they have to give it back.


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Business Sellability Curb Appeal - 3 steps to take now

10/12/2012

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Buying  a business is something like buying a house. You go to view one that looks interesting in the ad. The next step is judging its curb appeal. How does it look on the inside? The outside? What about the location? What is your general impression?

Like a house, your business projects an image to potential buyers. When they come to see your business for the first time, your “curb appeal” can attract business buyer —or cause them to walk away from it. 

Do you need to improve your curb appeal? Here's a three-step plan: 

1. Fix Your Leaky Faucets

Perhaps, like many other business owners, you started your business from scratch with one or two employees and now you have 20 people working for you. But do you have the appropriate HR infrastructure in place for that size of a company?  Perhaps you even take pride in your informal management style, but it can prove to be a liability when it comes time to sell.

Make sure your human resources policies are at least as stringent as those of the company you hope will buy your business. Some basics to improve curb appeal here is to have in place:
  • Policy making it clear you forbid any form of harassment or discrimination;
  • A written letter of employment for each staff member;
  • A formal description of your bonus system; 
  • Written policies for employee expenses, travel and benefits.

 2. Assemble Your Binder

When you go to buy a house, it will give you confidence if the owner has the instruction manuals for the appliances, information on where they were purchased, and who to call if one of them breaks down.

Similarly,when a potential buyer looks at your company, he wants to see that you have your business information in order.  Documenting your office procedures, core processes, and other intellectual capital can help you attract more bidders and a higher price for your company, while also lowering the chance of the deal falling apart during diligence. 

If you want the curb appeal to attract a buyer one day, your business needs a binder with instructions for basic functions, such as:
  • ·      Opening up in the morning and closing down at night;
  • ·      Forms and step-by-step instructions for routine tasks;
  • ·      Templates for key documents;
  • ·      Emergency numbers for service providers;
  • ·      Billing procedures for customers.
  • ·      How your company is positioned in the market and your marketing tools.

3. Document Your Intangibles


Intangibles for house buying might include: Is the house near a good school or day care? What kind of neighborhood is it?  What kind of commute are you looking at to get to work?

Your business also has intangible, often intellectual, assets that a potential buyer needs to be made aware of, such as
  • ·      Proprietary research you’ve conducted;
  • ·      A formula for acquiring new customers;
  • ·      Criteria you use to evaluate a potential new location;
  • ·      Your unique approach to satisfying a customer.

As with selling a house, your company's curb appeal can go a long way toward closing a deal.


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Demographics of Small Business Buyers

9/23/2012

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We think of small business buyers as young aggressive types out to make their fortune. This study of US Census data shows a different story. The data is a comparison of the change in the number of business owners by age from the year 2000 to 2010. 

We had thought that at this point baby boomers would be selling their assets to liquidate for retirement. The net result would be a buyer's market as an over-supply would drive down prices. If this was happening we would see the data showing fewer older small business owners and more younger ones. Just the opposite has happened.

Many baby boomers today are both financially unable to retire and rapidly becoming unemployable. They are people with some retirement funds and many business skills; but with a serious problem. They are seeing buying a business as the solution. Since the start-up failure rate is so high, that is rarely seen as desirable. Buying an existing independent business with an established history or buying a franchise with an established success rate are both viable options.

What the census data in the graph is telling us is the baby boomers are in the market selling their businesses or franchises to other baby boomers. Baby Boomers are the current market's primary business buyers. New tools are now available for both the business buyer and the business seller we are seeing.

Many business sellers are not aware of the dynamics of how their business might be valued. We have seen where an understanding of the value drivers involved can more than double the business value annually. When this is representing the core of your retirement funding, what else could be more important? This is the case for Exit Planning.

Business buyers must understand both the seller's business model and their own Personal Business Model. A business doing well in the seller's hands doesn't mean it will do well in the Buyer's hands. The new book, Business Model YOU, takes any individual through the process of developing and understanding their own Personal Business Model.

Lastly, both sides of a business sale are complex and there is little room for an aging baby boomer to make mistakes. Getting the assistance  of a skilled business broker will be one of the best strategies possible. Our brokerage is centered around the Executive Advocate philosophy described on this website. Contact us to learn more how we can help.
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Using a Business Line of Credit when buying a business

9/13/2012

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Many aspire to buy a business but can't quite seem to get started. While there are many low cost opportunities to buy a business or buy a franchise, often the budding entrepreneur doesn't know how small deal financing works.

There are 2 types of business loans - term loans and lines of credit. Term loans are really designed to serve long term capitalization needs and provide large sums of money for long period of time. SBA loans are usually for at least $250,000  for 10 to 25 years and are term loans. The payments make sense when this large amount is spread out over this long period. They stop making sense for the lender when the amount borrowed is too small and not worth the effort to create them. They also stop making sense for the borrower when the term is too short and the high payments cause a problem with their cash flow.

Smaller amounts and/or smaller loan periods are the domain of lines of credit. We need to be looking here to solve the issues we find in smaller deals. 

When you start looking for business lines of credit you will find 2 types, secured and unsecured. The interest charged on the line is a function of the risk involved, so secured lines have better rates, often 3 to 6 percent over prime and unsecured lines are more expensive, often 6 to 12 percent over prime. So the next question becomes, does the borrower have some personal security to put against the business Line of Credit or not?

The 2 best ways a business buyer can provide security for an Line of Credit are:
1) A Home Equity Line of Credit (HELOC). If you already have a mortgage, your mortgage company already has your home appraisal and may be able to setup a HELOC at little to no cost.
2) A Securities Line of Credit. This is a relatively new entry in the market. If the the buyer has a securities account that they are willing to transfer to the lender, the lender can use that as the security for a line of credit. The risk here is that if the stock market crashes. Then lender will sell off all your stock at low prices when they call-in the loan. If you have ever purchased stock on margin, it's the same idea.

The advantages to the borrower on both of the above is that they get to keep and enjoy their assets while they are simultaneously used to secure a business line of credit.

Unsecured business lines of credit are next. Everyone in the unsecured Line of Credit market has gone to using credit cards as the primary instrument to manage the account. Issuance is based on your personal credit history. If you go to a large business credit card lender, say Capital ONE (the "what's in your wallet" guys), they will gladly issue you a business credit card but you will find the activity on that card is reported against you personal credit. We work with over 300 lenders who will base the initial issuance of a business credit card against your personal line of credit; but the activity on it is only posted to the business PAYDEX score and not your personal score. 

The advantages of this are it allows you to continue to increase your available credit by getting more cards over time and should the business cash flow have problems, it will not effect your personal credit (probably the main reason our clients like this.) This avenue is best for $25k to $50k of quick credit; but makes sense up to $100k. You can only use your personal credit history so quickly before raising a red flag. This means getting $25k to $50K can be done in around 30 days, getting more generally takes longer. 

There is a website at http://www.prequalifyhere.com that explains this program in detail. The process is the borrower sets up a credit reporting account (cost will be about $50) and then submits their user-name and password. A credit counselor can then examine their personal history and advise how much credit it may be worth. 

With the possible exception of a HELOC from an existing mortgage company, these loans will have an origination fee. The true cost of the loan needs to be determined by also including the terms and the anticipated usage. For example, while the origination cost of an unsecured business line of credit may be higher than a secured line, the lenders generally have introductory offers with their credit cards that can be used to bring down their total cost. What may not be so attractive at the beginning can be the best solution in the end.

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Planning to Sell Your Business? How to answer THE Question 

8/29/2012

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Many business owners believe that selling your business is similar to passing the baton in a 400 meter relay: once you’re finished running, you get to relax.  In reality, buyers will insist that you stay on for a transition period – anywhere from six months to five years – during which time you continue to work in your business to help the buyer capitalize on the investment they’re making.

THE Question

When in the process of trying to sell your business, a prospective buyer will ask you – often times casually –  “Why do you want to sell your business?” These eight seemingly innocuous words have derailed more deals than any others.

Buyers ask THE question to evaluate how likely and willing you are to stay on or if you already have one foot out the door.

Obviously you don’t want to lie, but there is a right and wrong way to answer THE Question. Answers like “I want to slow down a bit” or “I want to travel” or “we’ve got a baby on the way and I want to spend more time at home” communicate to a potential buyer that you plan on winding down when they take over. However,what they want to hear is your intention to help them realize the potential locked inside your business.

 Here are some suggested responses based on your age.

  • If you’re under 40, you clearly aren’t ready to “retire” so you need to communicate that you see an upside to sell you business and merge with theirs:       “In order for us to get to the next level, we need to find a partner with more <insert sales people,distribution, geographic reach, capital or whatever the partner brings to the table>.”
  • If you’re between40-55 years old,most people will understand the need to shore up your personal balance sheet:       “I’ve reached a time in my life where I want to create some liquidity fromthe value I’ve created so far, and at the same time I want to find a partnerwho can help us get to the next level.”
  •  If you’re over 55, you can start to talk aboutretirement, but you want to make sure you communicate that you still have lotsof energy and passion for your business:       “I’m at a stage where I need to start thinking about retirement. It’s along way off yet, but I want to be proactive.”

Rehearse your answer to THE Question so it becomes a natural response when you are inevitably askedTHE Question by a potential acquirer. 


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    Bob Fariss writes about the issues facing Executives in career development. He teaches Business Model Thinking  and also represents individuals with an entrepreneurial flair seeking to sell, buy, or start-their own business.

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