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How Do You Measure the Risks and Rewards That Are Associated with Your Business?

Entrepreneurs are risk takers by nature. Whether it is the formation of a new venture or the expansion of existing business, entrepreneurs face different types and degrees of risk before any rewards can be realized. In pursuit of their dreams, entrepreneurs come to realize the delicate balance that exists between risks and rewards.

It’s a given fact that starting and running your own business is inherently risky. In fact, according to the Small Business Administration, the risk of failure is extraordinarily high for entrepreneurs starting new ventures. Nearly 10% of all firms fail each year and nearly 61% of manufacturing firms close their doors within the first five years of operation.

The small business failures are sobering statistics. So, before you “bet the farm” on that new business venture or the expansion of your existing business, calculate and understand the potential risks and rewards. First, it’s critical that you understand and assess how much risk you can tolerate in your new venture or the expansion of your existing business. Make sure you have a realistic view of your business opportunity and the upsides and downsides associated with pursuing it.

The rewards for launching a new business or expanding an existing business, however, can be great. Studies show that entrepreneurs account for a large proportion of the country’s wealth and entrepreneurs have higher savings rates than that of traditional workers.

It is important to determine how much risk you can withstand in a new venture or the expansion of an existing business. Before you even consider launching or expanding an existing business, you need to have strategies in place to offset potential losses or unforeseen challenges. As you assess your potential risk factors, be brutally honest and consider these questions:

* How many years can you go without making a profit?

* Can you tolerate possible financial loss?

* Can you survive the loss of all your invested capital?

* Have you taken steps to mitigate risk with insurance?

* Are you sharing personal risk with investors?

* Have you set aside savings to cover potential losses or dry spells?

* Do you have a contingency plan if you lose a key client or employee?

* Can you afford to risk your capital, services, and reputation?

A feasibility study is a great tool that can help you to assess risk and reward. It provides a detailed investigation and an analysis of factors that influence your project to determine whether or not the project is viable. The study examines the economic, marketing, technical, managerial, and financial aspects of your proposed business idea. The feasibility study is based on a cost benefit analysis of your actual business, and the study is used to support your decision-making process. A feasibility study is an effective way to safeguard against the waste of resources of time, people, or money that may be exhausted before an idea or project is deemed viable.

Whether you are applying for a SBA business loan, seeking funds for expansion or plant modernization, or deciding which steps come next in growing your business, a detailed feasibility study will give you the professional support that you need to make your case. A thorough feasibility analysis investigates the impact that each of following issues can have on your idea or project:

* Economic (labor, utilities, transportation, economic impact, etc.)

* Marketing (availability, plans, competition, targets and potential, etc.)

* Technical (site, equipment, modernization, constraints, etc.)

* Financial (cash flow, costs)

* Managerial (assessments, recruiting, training, and development)

The result of the feasibility study is a thorough analysis of the feasibility of your proposed business idea or project. If your idea or project is deemed feasible from the results of the study, then the next step is to proceed with a formal business plan.

Selling a Business – 12 Steps to Success

Simply put, selling a business is complex. Business owners who decide to sell their business should be prepared, patient, responsible, and realistic about the process. When owners strategically plan the sale of their business, from start to finish, they put themselves in a much better position to succeed. Below are some essential steps required for successfully selling a business.

Commitment to selling

Deciding to sell a business is one of the greatest challenges that a business owner will face. When debating your company’s future ownership, it is imperative that when the business owner makes a rational decision to sell, they see the plan through. It is only human nature to question if it’s the right time to sell, but those owners who see their calculated decision through, will be successful in the end.

Bring in professionals

The sale of your business will require the expertise of many professionals. In order to maximize deal value, terms and closure seek out trusted advisors to protect your best interests. In most business transactions, this team would consist of an attorney, business broker, and CPA. Mixed into these roles and responsibilities is that of a business valuator. More times than not, CPA firms do not specialize in business valuations and getting the price right from the start is a must to maximize seller’s value.

Selling a business is a long, arduous process full of hurdles and bumps in the road. It is at the business owner’s peril if they try to go at it alone. Not only will they most likely encounter unforeseen challenges and mishaps, but their business will most likely deteriorate while they’re trying to juggle all of the responsibilities involved in successfully selling a business.

Conduct a business valuation

An independent, third party business valuation is expected in today’s business selling marketplace. The objective and value of a business appraisal is to set a fair asking price so that your business assets (both tangible and intangible) are fairly valued and attractive to savvy buyers. The business valuation will validate your asking price, enabling a seller to significantly reduce buyer negotiations and confidently stand by their asking price. In some cases, the professional broker will have access to a reputable business valuation firm and may be able to facilitate the process of preparing your company for a business valuation. Many brokers do offer an opinion of value, but using the expertise of a credible, business valuation firm can be one of the best decisions a business owner will make; inaccurately valuing a business (high or low) can be very damaging to a business seller.

Confidentiality, Confidentiality, Confidentiality

It is obvious that the majority of business owners do not want to hang a for sale sign on their business, alerting employees, customers, and vendors of their intentions. Maintaining discreetness during the sale of your business is a must. All parties advising you on the sale of your business should first sign a confidentiality agreement. You can prepare a simple mutual NDA or ask these professionals for their boilerplate agreements. In addition, all potential buyers will need to sign a non-disclosure agreement before any material information about the business is shared. Once the business is being listed, your broker should operate carefully as a blind business listing is meant to peak buyer interest, not to give them enough details to figure which specific business is for sale. It is at the owner’s peril if they do not ensure confidentiality is maintained throughout the process; if a prospective deal goes south or if the seller changes their mind about selling, the business will be protected going forward when confidentiality has been preserved.

Get your affairs in order

When entertaining prospective buyers, they will want to closely analyze your financial statements, both past and current. It is important that all adjustments and reporting be made prior to presenting balance sheets as any material change prior to closing will have an impact on the final purchase price. In addition, larger operations with $5MM+ in annual sales should have their financial statements audited. While this is not cheap, it reassures buyers that your asking price is fair based on legitimate financial reports and studies have indicated this serves as a value driver in purchase price. Other areas you should focus on include lease agreements (if you do not own real estate), key employee contracts, key client contracts, etc. Finally, get your physical business location(s) in presentable order by cleaning, organizing and preparing for VIP visitors.

Package the business

Presenting your company’s information to buyers is going to be important to ensure they are informed, educated and more importantly disclosed about the state of your business. They’ll want to learn about your operation, industry, financial performance and future prospects. A confidential, presentation package is needed with most buyers. Professional business brokers should be able to extend these types of value added services in order to properly package your business for a professional presentation.

Market the business

Finding qualified buyers that meet your criteria is absolutely critical. This step requires an added layer of discretion. Take time to use the right marketing channels for your type of business, discreetly promote the business to buyers, and rigorously qualify interested parties. The more popular outlets for business listings include local/national newspapers, internet directories, direct mail and networking. Your intermediary should facilitate and execute this step so that you can do the next step. Your representative’s role in this phase is to attract, identify, qualify and introduce appropriate buyers for your business.

Keep Running Your Business

While selling your business may prove distracting, it is imperative that the owner continue to run his or her operation; almost as if it wasn’t for sale. While you will be making sure your ducks are in row and ready to put on its best face for potential buyers, taking care of your employees and your customers is important. It is to the owner’s detriment if business sales decline, staff begins asking questions, and if the sale takes longer than anticipated. Maintain business as usual and let your business selling team run the ball to the goal line.

Entertain multiple buyers

A business seller who is entertaining several qualified buyers is in a position of strength leading up to the sale of a business. Not only will this inherently solidify the value of a business with the prospects of a bidding war, it will ensure the most appropriate buyer is found for the future health of the company. Selling a business is not just about money, it is also about a simpatico with a buyer and their intentions with the business operation. Looking out for the overall best interests of your employees, customers, and brand should be an emphasis for a responsible business owner.

Due Diligence is a two-way street

Following an Offer to Purchase or Letter of Intent, your qualified buyer is most certainly going to conduct due diligence on your business, its financials, customer lists, employee contracts, vendor relationships and other elements you claim to be in place with the sale of the business. While this is a normal process, typically lasting a couple of weeks (sometimes longer based on deal size), due diligence should not just be from the buyer.

You, the business owner, should be conducting due diligence on the potential buyer. Beyond financial buying power and purchase price, you should be interested in their background, intentions with the business and its key employees, management philosophies, maintaining culture, etc. Instruct your business broker to find out why inquiring buyers are interested in your business, ask for a resume, and dig for answers.

Close the Deal

The professional team you assemble to help execute the sale of your business, should serve as a buffer between you and potential buyers when it comes to negotiations. Common areas that are negotiated are purchase price, terms and deal structure, non-competes, owner training/support, etc. Your business broker is a conduit and should be able to effectively represent you when it comes to terms, inclusions, and exclusions. Above all else, it is critical that you not only rely on your broker, but also your attorney, when negotiating, drafting and accepting terms in the Purchase Agreement. The seller’s attorney and buyer’s attorney will need to actively communicate with one another to get everyone to the closing table and seal the deal.

Don’t fumble the handoff

Most buyers will seek assistance from the seller in the transition of the business. The involvement and seller participation is going to significantly vary by industry and type of acquisition, but you should prepare to stay on board for a reasonable period of time. This is an essential step in the successful transfer of a business so that the company’s operations, employees, customers and overall stability are protected. Just as a quarterback has to mechanically hand the ball to a running back, so does a seller hand the business off to a buyer. If this is rushed or done in a nonchalant manner, the business could stumble, take a dip and experience rough road ahead. A responsible business seller will dedicate time to work with the new owner, at no cost, typically lasting several weeks to a couple of months. Any period longer should come at the business buyer’s expense and a previously agreed upon rate of compensation.

There are all types of complexities in planning and executing the sell of a business. The smart business owner will enlist the services of professionals who can help them carry out a full exit strategy which will most often lead to: securing a higher purchase price, selling to the most qualified buyer(s), ensuring the business is prepared for a handoff, and protecting the futures of existing management, employees and clients.

Contact Fair Market Valuations at 877.VALU.BIZ today to learn more about our business valuation services and to schedule an in-person, no obligation meeting with one of our professional experts.

How To Choose The Perfect Online Business

Are you looking for a great online business? Do you think choosing the right one is important? If so, then of course you’re right. Deciding which online business to join is the first really important decision you have to make after deciding to start a business in the first place. In this article I’m going to teach you 7 key factors you should research and consider before deciding to join any online business.

Company

The company is important because of course you want the business to be around for a while and you want to feel safe that you will get paid what you have earned. When researching different businesses, here are a few things to consider:

oHow long has the business been established?

oDoes it look like there is still plenty of room for strong growth?

oIs the business debt free? This isn’t a requirement, but it is nice to know.

oWho owns/started the business? What kind of background and experience do they have?

oDoes the business have many complaints? Look them up on http://www.bbb.org. If they have complaints, is there a reasonable amount of them?

Product

The product is the core of your new online business. Surprisingly, many people start an online business without even giving the product consideration. I think this is a big mistake. If you join a business with a good product and good business plan, you have 2 ways to increase your paycheck. You can offer the business plan to those interested in a home based business and the product to those who aren’t interested in starting an online business, but really like the product you are offering.

Be careful of products that could be labeled as “fads”. You should ask yourself – was the product or something similar available 2 or 3 years ago? If not, are you taking a risk that it may not be around for much longer? You have to remember, even if you are focused on the income opportunity and aren’t particularly interested in the product, others looking for an income opportunity may choose highly based on the product.

Initial Investment

Obviously how much money you have to spend to get your new business started can be a big factor. But don’t only consider the investment you have to spend to get started; also consider the investment that everyone you recruit has to make to get started.

Some online businesses charge cheap startup costs and cheap monthly fees. Generally these companies will rely on members recruiting lots of members before they start making the big bucks. With lower startup costs ($50 a month or so), it is generally easier to get people to join but you also generally get paid less per person that you recruit.

Some companies have a higher startup cost and higher monthly fees. Generally these companies will offer a higher commission for recruiting a new member and you may not have to recruit as many in order to start making commissions. However sometimes it’s harder to get new members to make the larger investment to join.

Promotion Strategy

Will your strategy be to promote the product and while doing so people will also join the business? Or would it be better to promote this as a business opportunity with a good product backing it up? Or you could even do both. I look for businesses where I can use either strategy depending on my audience. Either way can be just as good as the other, but it’s good to think about your preference and if the particular business or product you are considering will work for it. Some people are more comfortable talking about a product that they know will benefit people then they are talking about the business opportunity and visa versa.

Market

It’s very important to know who your market would be for this product/opportunity. You obviously don’t want to start investing your time or money in a market that wont be around for long. Where will the market be in 10 years? Is it a large market? Is it a growing market? For example, I currently invest in a couple of businesses that have products appealing to baby boomers. Health is becoming a very important issue for babby boomers. If I was looking for a way to market to this group, I might look for a business that sold nutritional products.

Think about if about 10 years ago, you found a business opportunity that allowed you to create a “long term” residual income with a business whose product revolved around Beenie Babies. That opportunity would have sounded great at the time, but would your market opportunities have looked like? Do you think your investigation would have shown a stable market?

Compensation Plan

The first time you look at a compensation plan it can be quite confusing. I glance at the compensation plan when I am just first starting to investigate a business and just make sure it appears reasonable for the business and product I will be promoting. Then if I think it looks promising, I carefully investigate the business to make sure it looks good in all other factors (like the ones mentioned above).

After I’ve decided that this is a good business I really analyze to compensation plan. Use very low estimates when estimating. Don’t just assume you will recruit 5 members who will recruit 5 members who will recruit 5 members. I usually “test” the compensation plan with numbers such as what, if I recruit 2 members who recruit 2 members who recruit 2 members. Then instead of assuming that I get 10 levels deep in 30 to 60 days, I assume I get about 6 or 7 levels deep in about a year or so. The idea is to be conservative with your estimates so you don’t expect too much from the beginning and then get disappointed.

You

The last thing I would like to point out is that there are tons of great online business opportunities available that many people enjoy and succeed with, but that doesn’t mean they would be a good fit for you personally. With all the different business opportunities available, it can be difficult to find one that is perfect for you. You’re the only one that can really decide what works for you when considering your likes, dislikes, time availability, budget restrictions, strengths and weaknesses.