Article Contributed by Ray Haiber
As a small Business Broker in Arizona one of the most common questions I receive from small business owners and entrepreneurs I meet is the following: How do I get a quick idea what my business might be worth? More often that not, most of these individuals are just looking for a rough “street valuation” to determine if they should sell now or sometime in the future. Although there are many unique factors to consider when valuing any individual business, and there are generally no definitive or concrete rules on what any particular existing business maybe worth at any given time, below are a few widely used quick business valuation methods that should give most small business owners an adequate starting point to help determine what their business might be worth in today’s market place.
Multiple of Seller’s Adjusted Net Cash Flow:
The most widely used method to value and determine an asking price for a small business is based on the adjustment or recasting of a business’s most recent annual profit and loss statement. The goal in this process is to determine the true earning power of the business by adding back to the net profit all the non-essential or discretionary expenses not necessary to run the business to demonstrate a more realistic net cash flow for the owner.
Once this number is determined, the next step is to multiply it by a business category related multiple (service, retail, manufacturing, etc) that are widely used as rules of thumb by the business valuation and business brokerage community. For instance, in general terms small service related businesses are generally valued at a multiple of somewhere 2 to 2.5 times the Sellers annual adjusted net cash flow. Small manufacturing businesses generally receive higher multiples that can be in the 3 to 3.5 times range.
There are a variety of resources available to the public to find and research cash flow multiples that may be relevant or specific to your business. This includes well known guides such as the Business Reference Guide by Tom West, and business for sale directories such as BizBuySell.com that provide a data base of recent business sales and the multiples achieved. You may also want to visit fastbusinessvaluations.com which provides a free online business valuation calculator based on widely used industry related valuation multiples.
I would also recommend if you are considering selling your business to contact a local professional business broker in your area. He or she may be able to provide you with valuable information about recent sales in your market of similar businesses like yours, and the net cash flow multiple that they eventually sold at. You can find small business brokers in your area by visiting a directory like findabusinessbroker.com.
Industry Rules Of Thumb:
Another commonly used quick business valuation method is to use a general rule of thumb. A rule of thumb valuation basically consists of using a simple formula that estimates the value of a business through a set of established and very general business pricing guidelines. For example:
Auto Repair Shop: 35% of annual revenues
Full Service Gas Station: 2 to 3 times Sellers Adjusted net
Fast Food Business: 40% of annual revenues
Janitorial Service: 2 times Sellers Adjusted net
Motels: $20,000 per room
Keep in mind like all quick valuation methods “rules of thumb” are subject to the various unique characteristics of each target business being valued. Reference books like the aforementioned “Business Reference Guide” offer a comprehensive and excellent database of “rules of thumb’ by individual business category.
Market Comparables:
With the advent of the Internet, business owners now have the ability in most cases to view dozens (sometimes more) of real time listings of businesses very similar to their own on large online “business for sale” directories. Although it’s been my observation that many of these small businesses listed for sale tend to be overpriced, these directories such as bizbuysell.com still can provide a very useful source of free raw data, including rough comparables of both “for sale” and “sold” business listings. Keep in mind also that very few businesses will ultimately sell at there listed asking price, but if priced properly, (and the price can be supported with good financial records) many should ultimately sell with in 80% of their asking price.
Liquidation Value:
This is a relatively simple and fast way to value a small business by determining what the sale or liquidation of all the businesses’ hard assets (equipment, inventory, receivables) would generate in total proceeds on the open market after paying off any liabilities or debt associated with the business. Although a business liquidation valuation is a relatively straight for ward process, it does have significant draw backs as a valuation method because it does not take in to account the value of important factors such as goodwill, established customer/client base, future growth potential, and more.
Summary:
Keep in mind that even though all these valuation methods above offer either a quick and inexpensive way to get a rough idea of the value of most small businesses, or can be used as pricing guidelines when selling a business, at the end of the day a business is worth what some else is willing to pay for it.
About Author:
Ray Haiber has 10 years experience as a professional franchise opportunities sales consultant. Visit here to get a fast and
Article Contributed by Ray Haiber
With the recent passing of the huge economic stimulus package there has been some speculation about whether some of its provisions will create or spur the development of new franchise business opportunities in certain industries like health care or renewable energy. The obvious question is whether major government incentives and investments in these 2 highlighted industry sectors will create sustainable franchise business models after the initial boost from the stimulus spending bill plays out.
In my opinion the answer is that this is a very realistic development given the scope of the stimulus bill and some of stated new policies of the current administration regarding health care and energy. In fact, potential small business opportunities emerging from the stimulus bill are becoming more obvious, (particularly in renewable energy) and appear to have a very good chance to create some viable franchising opportunities for entrepreneurs.
Heath Care
According to what I have read, the economic stimulus package includes nearly $20 billion dollars to help digitize or computerize health and medical records in the United States. I would think this could present some serious potential opportunities for small business owners and entrepreneurs because obviously private companies will become involved in providing services for this enormous and long term project.
Even with the recent news that Sam’s Club and Dell intend to enter this market by selling software to digitize medical records doesn’t mean there will not be plenty of other niche opportunities and markets available to develop and service. According to recent stats only about 17% of doctors offices are currently digitizing medical records. And with nearly 800,000 active physicians in the United States, many with small to medium size practices, their will undoubtedly be opportunities for smaller players to develop business franchising models that can service business opportunities that emerge from this program.
Renewable Energy
From what I have read and heard nearly $60 billion of the $790 billion stimulus bill will be spent on alternative and clean energy projects and other environmental related projects and research. This includes billions of dollars for greening government buildings, weatherizing homes and businesses, and providing significant tax credits and grants to help fund and subsidize renewable energy applications across the board.
Surely this type of massive government investment will almost certainly spawn a number of new franchising concepts to service the emerging business and consumer needs that will be created by this commitment. This would conceivably include the development of solar power franchises that would provide installation of photovoltaic panels for residential and commercial applications. Or green consulting franchises that would provide expertise to commercial businesses on how to “go green” or conserve energy. Or maybe new home improvement related franchise businesses will emerge that specializes in weatherization and residential energy efficiency.
In summary it’s going to be an interesting time to see how the franchising industry will adapt and ultimately capitalize on the potential business opportunities and new markets that will be created and supported by the stimulus bill spending. My guess is that it should ultimately produce some viable and profitable franchise companies that may someday become familiar household names and brands.
About Author:
Ray Haiber has 10 years experience as a professional Arizona Business Broker. View and research franchise opportunities for sale across the USA here including master and area development opportunities.
Article Contributed by Tony Massaro
Do you really have a handle on the things that cost your business money? Are you as prepared as you need to be to handle incidents? Do you know how to improve your bottom line in this tight economy?
Projections for the rest of 2009 are not good. Job shops aren’t getting orders and they’re failing to hit their production run projections. Schedules are being pushed off a couple of months.
So, how should you spend the rest of the year if you want to remain profitable? As tax partner at Porte Brown LLC, an Elk Grove Village accounting firm that serves privately held businesses, I suggest you:
– Thoroughly review your business processes
– Become willing to reinvent the business
– Get aware of Lean Manufacturing principles, even if yours is a service business
Why You Need to Evaluate Your Business Now
The processes and structures that worked before may not work now in this new economy. You may need to develop new processes or adapt existing ones to meet your immediate needs. For example, your business may benefit from:
– Regular management or employee meetings to report on the status of business activities.
– Tracking systems to ensure that customer requests are received, assigned and fulfilled. Now is the time to improve customer service and increase customer loyalty.
– Quality control processes to ensure that the same high level of customer satisfaction is maintained.
– Incorporating budgeting procedures to ensure that costs are controlled, properly allocated, and charged back to the client, if appropriate.
– A defined process for monitoring receivables and collecting on accounts that become past due.
How to Effectively Evaluate You Business
When you evaluate your business, you want to avoid becoming part of the problem. You want to look out for self-fulfilling prophecies. I’ve seen it thousands of times with my clients –When it’s all gloom and doom, people start pulling back. This automatically leads to even more gloom and doom.
Here’s what you should do instead…
1. Take a fine-tooth comb to your business and make sure your processes are right. Put all of your processes into a flowchart. Look at everything you make. How can you do it better? Can one person do two machines?
2. Look at your industry’s best practices including: lean manufacturing, accounting and marketing. This is the time to align your business processes so your operation is more effective and more profitable. If you follow this tip, you will minimize waste and reduce inventory.
3. Get a handle on which operations are making you the most profits. If you have three different products, or services, put the costs and profits down on paper so you can see them. Allocate sales costs, labor, overhead and other items and then determine which services or products are profitable.
Ultimately, the review may mean you reinvent your business. And, don’t be afraid of reinventing your business.
Why You Shouldn’t Fear Reinventing Your Business
America has reinvented itself several times. You, as a business owner or executive, must do the same thing. You need to evaluate what your business does and reinvent it so you can compete during this down economy.
A review inevitably means decisions. Often, those decisions will involve people. I’m a big advocate of reacting fast. If you feel overstaffed and there’s no light at the end of the tunnel, then somebody has to go – as distasteful as it is.
You often can build back up with temporary help. Temps are good because you can send them home when business tails off again.
What You Should NEVER Cut
When you’re evaluating your business and making necessary changes, there is ONE thing you should not change. Do NOT cut your marketing budget. Cutting marketing and advertising is the wrong thing to do when times slow. You’re already concerned about the lack of new customers. So, if you cut your marketing budget, how do you expect to get more new customers into your sales funnel?
Instead, you should be looking at your business processes and systems. Find out how you can run your business more efficiently and more effectively.
By following these tips you can increase your bottom line, even during the recession. And, if you need help – don’t be afraid to ask the experts!
About the Author
Tony Massaro, CPA and Partner of Porte Brown LLC, helps small to medium sized business owners evaluate their business and improve their bottom lines even in a slowing economy. To discover how you can remain profitable simply by reviewing your business processes and analyzing how you can manage a more effective and efficient business go to: http://www.portebrown.com
Article Contributed by Roxanne Emmerich
The dysfunctional workplace is a killer. Untreated it will kill off your customer base, your profits, and your joy for living as surely as anything.
As managers, leaders and top executives within your organization you’ve got to kill the conflicts in your workplace first before dysfunction takes hold.
The Top Ten Workplace Conflicts That Disrupt Organizations – and the Cure for Each
No. 1: No teamwork
The best managers lead a team – not just a group of individual employees. If you have employees at odds and you show no desire to fix it then you are leading your organization to a disaster.
So, make sure that the most direct supervisor meets with those involved in a workplace conflict to learn what it will take to resolve it and to secure a firm commitment to do so. Don’t forget to spell out immediate consequences in the event of failure.
No. 2: Saying one thing and meaning another.
If you have an employee with a pattern of saying, “But what I meant was…”, call them on it. Requiring the offender to have all communications checked for clarity for a period of time usually nips this in the bud fast.
No. 3: Giving lip service to new ideas then undercutting them in private.
You’ll want to enlist everyone’s help in keeping this workplace conflict out. Make it clear that dissenting opinions are welcomed during decision making, but that once a decision is made, undercutting will not be tolerated.
No. 4: Defensiveness at reasonable suggestions.
As a manager, it is your responsibility to let your team know that you consider a willingness to improve to be one of the hallmarks of a person with a bright future in your company. Defensiveness should be viewed as what it is – an unwillingness to improve one’s self.
No. 5: Attraction to chaos.
Pot stirring is a violation of principles and a threat to productivity. Counterbalance the pleasure they get from drama with a greater measure of negative consequences.
No. 6: Not following through on commitments.
Let your team know that they are expected to acknowledge errors and make a commitment to clean up every last bit of the resulting mess.
No. 7: Deflecting blame.
Deflecting blame equals deflecting responsibility. Make it clear that the only acceptable behavior is acceptance of responsibility and (as above) quick work to clean up the mess.
No. 8: People pretending like they “never got the memo.”
If there was no breakdown in the actual system, make it clear that the employee is responsible for consistently accessing internal communications like memos and emails so that he is never again “out of the loop.”
No. 9: Refusing to deal with conflict directly.
Conflict resolution is an essential part of a manager’s job. Performance reviews can and should count disruptive interpersonal conflicts against managers on whose watch they occur.
No. 10: Gossiping and backstabbing.
Once you establish a zero-tolerance policy for talking behind another person’s back, give your people permission to address conflict head-on, out loud, courageously and honestly. And make it clear that giving or receiving gossip is not acceptable.
You may have noticed a refrain coming back again and again in this advice: Make it clear. Once you’ve made the determination to purge your workplace of dysfunctional behavior, your greatest ally and most powerful tool will be clarity. Follow the advice in this article and in my new book “Thank God It’s Monday” and you will terminate all workplace conflicts and improve your organization’s productivity.
About the Author
Roxanne Emmerich is renowned for her ability to transform “ho hum” workplaces into massive results-oriented “bring-it-on” environments. To discover how you can ignite the passion of your employees, catapult performance to new levels, and boost employee morale of your company, subscribe to the Thank God It’s Monday™ e-zine at http://www.ThankGoditsMonday.com
Planning Ahead
BusinessAdvicePro: Long range plans, not yours, not anyone else’s, should be taken seriously. Long range plans NEED to have the flexibility to change or you should be ready to wipe them out completely. I personally feel long range plans are extremely difficult to make, too exact plans anyhow. Thus – if anyone asks me about plans, my most regular answer during the past 5 or 10 years has been – you mean something in the longer term than 3 hours? No idea. I can’t put myself to do such plans. Of course I know that I’m interested in learning about business and marketing. I’m doing that, most likely 3 more hours. But after that? Well, probably, probably or most likely also tomorrow and next week. Most likely. But it’s far from a plan, it’s an idea, a possibility. This is of course an extreme example but you get the point.
Max Gunther on planning ahead [BusinessAdvicePro]