Category Archives: small business owner

Buying a Business … 1+1=3

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Buying a business can be a valuable business strategy. Synergy is an interesting concept but what can it really mean when buying a business. In my prior business I had made many acquisitions to supplement organic growth. The analysis of buying these business followed the below simplified numbers. A brief explanations of the below numbers –

Say you have 2 like businesses that both are in the business of distributing products or services to homeowners. Both companies have overhead cost of rent, advertising, utilities , insurance, phone, office cost etc. When buying a like company many of these cost become readily duplicitous – i.e. you don’t need 2 offices, you don’t need 2 phone systems.

The below example shows that when Company A buys Company B the fixed cost will not increase at all. When a company does buy another like company many of the fixed cost are eliminated but rarely are all of the fixed cost eliminated.

Financial Gain Of Buying A Business

Buying A Business

Photo (c) laboracademy.org

The example below shows the financial gain available in a well thought out acquisition and this format can be used as a starting point to analyze the synergistic benefits of such an acquisition. The fixed cost that will remain can be added to the Combined company and the projected bottom line should be reviewed to see if the bottom line still looks appealing enough to make the acquisition.

For cash flow purposes I would analyze the initial benefits of buying a like company including the cost of acquisition and the benefit that exist after the financing cost has been realized. In the below example after 5 years the bottom line improves after the note of acquisition is paid down. Financing very often can be available through the business owner selling his company. Usually the business owner can analyze the synergy and cash flow of the acquisition better than an outside banker or other financing means.

Also, when one company buys another company customers are lost and that fact should be considered in the acquisition. Will customers lost be 1%, 5%, 10%, 15%? This all depends on the type of business and parties involved.

Buying a like business can be a very effective means of growing ones company. As a business owner I suggest you open your mind to the concept, look around you at potential opportunities and do the analysis. When analyzing look at best case and worst case scenarios for both projected sales and expenses from buying a like business. As with most business transaction the best business deals are the ones that both parties benefit. When buying a business, the seller can benefit from having a means to exit out of an undesirable situation and the buyer can benefit by eliminating some competition and growing sales.

In today’s economy, businesses are struggling and from this adversity, can come opportunity.

Company A                                                                                            Company B                                                                             New       Company C

Sales $200,000                                                                                        Sales $200,000                                                  Sales                               $400,000

Variable Cost $60,000                                                                        Variable Cost $60,000                        Variable Cost                            $120,000

Fixed Overhead Cost $100,000                                                       Fixed Overhead Cost $100,000              Fixed OH                            $100,000

Profit $40,000                                                                                         Profit $40,000                                                        Profit                           $180,000

 

Global Market – How the Typhoons in Manila affects my small business in Florida Today.

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This Noobpreneur.com website “talks” about many subjects affecting entrepreneurs and small business owners. Franchising, freelancers, marketing, global economy, how to do businesses up and down our own street and how to do business around the world. Ivan ( the owner of this website) has written many post that parallel my interest and efforts as a small business owner and entrepreneur even though he comes from the other side of the globe.

Global Economy And Your Business

Recently, I have been strongly hit in the head regarding the global economy on which I operate. In pursuing my most recent venture, I had elected to hire freelance marketing. I have in the past, used with various levels of success, freelance services out of India. The company I hired and contracted with this time are in the Philippines. They contracted and agreed to perform certain services within a certain time frame. I built my plans around those agreements. They are missing their targets.

I knew they were having some “bad weather over there, but got curious as to if it may be affecting their work. They are being rampaged by storms, rains, typhoons, mud, water, and basically the wrath of Mother Nature. I am out of Southwest Florida, and we are supposed to be in the midst of our “Hurricane Season”, and have had zero storms. Five years ago, the storms were lined up and hitting us one after another and turned our lives upside down. We were evacuated off our barrier island and our lives were at a standstill. Power Lines were down, Internet service, and phones were non-functional for days.

Global Economy And Your Business

Photo (c) foreignpolicy.com

In this case, I could not reach my contact in the Philippines for days, and finally have spoken to them only to really learn of the devastation both physically and emotionally. On our local news between the story of the dog that can catch a Frisbee, and the local crime is sandwiched a short 10 second segment on the storms affecting the Philippines. What does it matter to people in Florida what is going on in the Philippines.?

After reaching to my contact, he told me the stories of his employees living in evacuation centers, mud filling a house “up to the second level”, and just basically traumatized employees trying to cope. (see attached video link http://www.youtube.com/watch?v=A_zXQhuvd6s )

He offered on several occasions to compensate me for the contract shortfall. I felt ashamed that such a thought would even be felt to be necessary. My life is my life, my work is just my work, and is not even a close second. We do live in a global economy. When doing business with India in the past and the Philippines now, I had elected to read their local newspapers to try to get a feel of what may be affecting their daily lives as I know that our work is just a derivative of the world that surrounds us. I know other parts of the world have suffered as a result of Natural disasters and catastrophic events, but living on this little barrier island in the Gulf of Mexico in SW Florida, I feel like these storms were not that far away. And when they get their lives back together, business will resume- but at this point that just does not seem so important.

Success is a Journey, Not a Destination

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Success is a Journey – Not a destination.

A well repeated phrase that ones reads, nods in approval and then moves on to other matters. But what does it really mean? Taking a moment to interpret the meaning can provide a strong foundation for business and personal planning of a small business owner or entrepreneur.

 3 Scenarios of “Success”

1. Just consider all the investors in the late 1990’s that made millions in the stock market Dot-Com boom.

Buy low, sell high, make millions- you are a success. Three months later the Dow loses 600 points in one day, the market continues to fall, those millions are lost and investors are left with no gains or worse – are you still a success?

2. Fast forward to the Real Estate Collapse that we are now experiencing.

Buy an entry level house, “flip it” make some good money- Are you a success? Now take those gains, leverage those monies, buy a bigger house, “flip it” make a lot more money.-Are you a success? Things are good, this real Estate thing seems almost automatic, so you take all those monies, buy a $1,000,000,000 property with plans to fix and flip it for $1.5M, but the market turns south and all the real estate gains have gone away and you cant find a buyer for your house at $740,000- are you a success?

3. Now Consider the Entrepreneur/Small Business Owner.

You successfully start your own business. You reach break-even. Are you a success. You reach $1,000,0000 in annual sales, then $2M, then $3M – Are you a success? You sell your business for several million dollars- Are you a success? I say you have reached certain successes, but the journey continues.

Definition Of Business Success

Starting a business and reaching a level of success may make one feel successful. Successfully selling your business and making a lot of money can make you feel successful. Maybe what you do after you sell your business has more to do with your feeling of success. I have associated with several people that have successfully sold businesses, and several of them have not waited until the age of 65 to do so. Those I’ve been around that have sold their business have been more of the “whats next” and treat the successful sale of their business as a “success along the way”.

As an entrepreneur the idea of selling your business for large gains is alluring, and perhaps both inspiring and strongly motivating. The existence of a small business owner/entreprenurs is a series of successes and failures. As an entrepreneur, I say enjoy the successes you attain-heaven know the failures may be more prevalent, but effort yourself to appreciate the successes that come your way.

Business Success

Photo (c) theaposition.com

I have successfully sold my own business, do I consider myself a success – not really. I really think my success, as by my measurement will get determined by what I do next. Planning for your success is very important,. And planning how you will reach your goals and levels of success is important. Very often selling the business that you may have started and nurtured for so many years can be very fulfilling, yet keep in mind it is not always the end-game. “Success is a journey not a destination.”

You are in a great relationship with a great family life, and have good friends – Are you a success? To that I say – So far so good… keep it going.

Start or Buy a Green Business: Measure Twice – Cut Once

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I believe  a disconnect exist between all the news media exposure regarding the “green movement”, “green jobs”  and the actual mindset of most small business owners and entrepreneurs.   It is no doubt that “green” has become one of the more reported on phenomenon over the last couple of years.  The  US election had strong ties to green promises  and  future jobs.  This mantra has created general optimism.  One of the most important part of starting a new business, or buying a business is the due diligence needed to evaluate the opportunity.  Do you want to start a business or buy a business in the “green Industry”?- perform some due diligence beyond reading the headlines.

Please consider that small business owners and entrepreneurs are wired to think in the now, and fast, and today and ASAP.  Much in the Green Industry is very policy driven, and that policy comes from federal and state levels, and that policy is wired to work within targets such as long term, next year , and eventually…  To me this creates a disconnect between the small business owner/entrepreneur and the potential opportunities.

My interest in green is from somewhat a different perspective than many.  My real interest in Green began back in the early 1980’s and gas prices were once again going up.  The college I was attending had offered a major in Energy Management and I viewed this to be an industry with unlimited future, and I pursued and achieved my major in Energy Management.  We did experiments on Solar panels, reports on Global Warming, discussed world energy policy, nuclear and many other topics I did find interesting and still do.

Upon graduating with my Energy Management major, I got employed in the energy field and acquired further education and training.  My Entrepreneurial spirit got the best of me and the thought of starting and owning a business and being in direct control of my future had me in a start-up in a non-energy related business.  Sold that 20 years later and here we are in the year 2010 and wonder how far this exciting field has gone in the last 25 years.  It has gotten significant traction in the last years but where is it Jan. 2010?  And my interest in the green movement is its inter-relation with energy efficiency.  I enjoy the financial side of the green movement.  Tangible monies saved as a result of energy technologies and practices utilized.  I recognize the byproducts of many of these energy saving measures to be environmental benefits.  If you can save a kilowatt hour (kwhr), and that kwhr doesn’t need to be produced by a coal burning power plant, you have dual benefits.

My Green Business Observations

I am  and have been pursuing business opportunities in the green/energy field ( my website for this business www.energreenusa.com)  and would like to make the following observations:

1. I am located in Florida, a state strongly hit by the depressed housing market and construction market and unemployment.  I interact with owners in the solar and energy industry and people interested in solar and renewable energy. With current policy (or lack of) in Florida, the solar industry and existing business engage in the solar industry is far from healthy in my opinion (Solar is just one aspect of the various renewable energies and green products and services that comprise the market as a whole.)   It appears to be a yo-yo type industry .

Policy injects some money into the industry, most policy is short term, policy money is exhausted and the industry slows down.  This process get repeated it seems year after year.  I also know of very qualified/licensed individual that work in the solar industry part-time, because the thought is the market is not there to support a full-time business.  I also attend Solar/energy advocacy meetings that attempt to show support of the industry that is full of individuals interested in entering this field, but where are the job opportunities?  Many jobs fall into the contractor categories, but the current market doesn’t seem able to support existing contractors.  Various consulting jobs may surface, but expertise  (that not everyone may have) is needed  and shrinking budgets from potential clients slow these opportunities down as well.

2.  Ok- so it was said that with stimulus money behind the “green movement” we would be creating lots of jobs- where are the jobs.  Numbers and statistics can be “massaged” to represent various results but certainly the empirical info in Florida is not impressive.

The economic stimulus bill’s investments in clean energy have not created many green jobs yet, according to the Council of State Governments.

Only 13,000 green jobs had been created or saved by the stimulus bill through Oct. 10, 2009 according to the council’s analysis of data collected by states. Ohio led the nation with 2,500 green jobs. Rhode Island, by contrast, reported no green jobs as a result of the stimulus bill.

The top programs for green jobs were the Department of Energy’s weatherization assistance program and energy efficiency block grants, and the Environmental Protection Agency’s clean water and drinking water state revolving funds – As reported in the Washington Business journal

3.  The Entrepreneur or business owner interest in the Green movement may be:

– “how much “green” can I make from this business opportunity ?”

-“I feel good about being in this industry that can have positive impact on the environment”

– “Am I missing out on some significant opportunities? ”

– “Can I buy an existing green business with a history of revenues and or profit?”

Green business

Photo (c) jimsimcoe.com

Conducting a search of “green or energy businesses” that are for sale that have a history of revenues and profits show very limited opportunities.  Possibly the largest opportunities are for entrepreneurs to start new ventures and build them and potentially sell those successful businesses down the road.  I am a fan of the energy saving part of the green movement and believe energy independence to be very sound policy for our country.  I support involvement and interest in this field.   But conduct proper due diligence before you proceed with your green business.  The newspapers, and news broadcast say green is great, governments are sending lots of stimulus money towards the green movement, but proper research and how you approach the “green industry”  in your part of your world will dictate your sustained success in this  potentially large industry.

Competitors – Rotten SOB’s or Valuable Strategic Alliance?

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Competitors – Friend or Foe ?

Competitors can simply be defined as
“one selling or buying goods or services in the same market as another”
… per Merriam Dictionary

or “those rotten SOB’s that undercut my pricing, run their business without any regards for proper business ethics, and generally derate our entire industry”
… per an upset business owner

Small Business And Competitors

How do you view your competitors? As small business owners we all have competitors. Sometimes they are just down the street or across the globe. I am in the business of helping small business owners buy and sell businesses. Very often when a small business owner desires to sell their business, their competitor may be the first logical party to approach. The relationship that a small business owner has with those competitors is potential buyers of their business will dictate the viability of effective dialogue. When running your business a competitor can be a valuable alliance.

With my previous business, we had fairly open relationships with many of our competitors, and found that at times working together could prove to be mutually beneficial. We had a production company and many of our supplies came from far away. Very often we would coordinate with nearby competitors on shipping arrangements to “share truckloads” to reduce both of our cost. We also would fall short of certain supplies that would potentially shut down our production lines. Maybe we would get a sudden large customer, or just mis-allocate. We would put a call into our local competitors, arrange to buy some supplies from them, and they would do the same with us.

We were competitors, but were business men first and recognized the value of mutually beneficial arrangements. Furthermore, In my previous business we incurred a significant disaster to our production facility which caused our business to shut down to rebuild. The relationships we had built throughout the years with competitors, had the owners of those competitors business on the phone with us offering assistance. And this assistance was invaluable in allowing us to transition through this difficult event. Some of their assistance resulted in additional short term business for them. Other assistance resulted in significant long term relationship building between our 2 companies. I would like to think I would have done the same for them.

Business Competitors

Photo (c) prosper-consulting.com

Very often industry matters, panels, trade groups require the interaction of competitors to benefit the group and or industry. “A rising tide raises all ships”. Is true when you have competitors that can work together, you can benefit the entire industry.

But it would be naive to think that issues will not occur between competitors. You seek the same customers as competitors, and very often it is you or your competitor that gains that new customer, and you want it to be you-your competitor wants it to be him.

Building a relationship with competitors can be beneficial. It doesn’t mean that you need to go out for a beer once a week. But it does mean that you can pick up a phone and make a business request and know that your competitor can do the same with you. It is not always possible to have a mutually beneficial relationship with a competitor. But it should at least be considered and or explored.