Wednesday, July 27, 2011

Buying a Farm or a Business?

I am sure you have heard about the best way to own a small fortune. Start with a large fortune, buy a farm, wait a few years and you’ll have a small fortune. Even though it is a little sad, it is mostly true.

Some people have always had a passion to become a farmer. They buy one, run it for a short time, find it almost impossible to make money and unless they have bought a large farm and are well capitalized they close down as fast as they had opened. Passion to be a farmer only takes you so far.

This is kind of like starting a small business, if you don’t do it right your the chances are you will be closed within a year. Did you know the US Commerce Department did a study and looked at independently owned small business owners? They found that 50% of small business owners were closed down within their first year. Even more alarming 80% of these independently owned small business owners were closed by year 5. When they studied the franchise small business owners, 95% were still open by the end of year one and 75% still open by the end of year 5. The power of buying a franchise is huge!

Almost as good as buying a franchise is buying a business which has been open longer than 5 years. They have gotten to the point where they can prove they have made it past the critical early stages of business development. With an existing business the seller can prove if they are making money and how much they are netting. They can teach the new owner about employee management, marketing, accounting, salesmanship and every other important aspect of running their business.

The longer the companies track record is the greater the information they can provide to the buyer. Knowledge is power. The more knowledge you have about the business you are buying, the better chance you will have to NOT make a mistake.

Starting a business from scratch is scary because of the lack of knowledge of the entrepreneur. That is one of the reasons so many fail. I am not saying, don’t try, but buying an existing business is normally much safer than starting a new one. In some ways it is even as safe as buying a franchise. Either way, do your homework.

Thursday, July 21, 2011

Buying an existing Business?

If you can afford it, sometimes the best way to be an entrepreneur is to buy an existing business. Many times buying an existing business can be the best deal, especially if you get it for the right price and you can make some good money from the investment.

Frequently I am asked, “What is a business worth?” There are many answers to that question but the simple answer is whatever someone is willing to pay for it. One book I read said generally it is 2 to 4 times the company’s net yearly earnings plus assets. The longer a business has been going, usually the higher the multiple someone is willing to pay. If the business has been running for 10 to 20 years and has a great track record of income, the more confidence the buyer will have that they can continue making that income. Sometimes businesses which have been in running for years can sell for 6 to 10 times income or more especially if it can be shown the industry and the company is going to remain strong.

If a business has only been open for a short time or is losing money, it might sell below what the owner has put into it. If an owner is desperate to sell for whatever the reason, they usually will be forced to sell below cost and sometimes much below. One candidate I am working with wants to open a franchise in the Phoenix, AZ area. It was going to cost him 225k to 275k to open a new franchise in the perfect industry for him. We found him a franchisee with the same franchise company and where the owner is willing to sell his 4 year old business for 115k. It already has over 300 steady paying customers and is making 40 to 50k a year. It seems the only negative is he will have to travel across town to get to his business.

It is almost a no brainer; buy a business for less than half the cost of a new one and it is already making an income. Even if he cannot increase the profits any by giving customer service (which the previous owners have not been doing) he will still payback his investment in just over 2 years.

It is important for anyone buying a business to do it the right way, making sure they are protected. Having professionals involved will be essential to prevent mistakes. Hiring a good business attorney and a CPA will be money well spent. If you are using a business broker (similar to a real estate broker but only sells existing businesses) to help you find a business, they can be of assistance. You need to be a little careful in using their advice too much for they only get paid, if you buy.

I will try to talk more about buying an existing business in my blog next week.

Wednesday, July 13, 2011

No Easy Way!

"The quickest way to double your money is to fold it and put it back into your pocket!" (Will Rogers)

There are no quick, easy ways to double your money. If there was everyone would be doing it and the market place would be out of control. Starting a business is not easy. Just ask anyone who has started one.

If you have the desire to become an entrepreneur, get some help. Do NOT do it on your own. There are many ways to find FREE help. Reading a couple good books will get you started. Books like “E Myth Revisited”, “Street Smart Franchising” and “The Educated Franchisee” will get you started and teach you about starting a business.

Your local city, county and State have organizations set up to help those looking to begin a business in their area. Generally these are at little or no cost to the member of the community. In my county we have a Small Business Development Center (SBDC) whose main purpose is to educate, consult and mentor entrepreneurs in our county. The help with business turn around, business start up, business plan development, finance management, loan package preparation, market research and many other very important aspects of starting a business. Our county also has funds set aside to help start-up businesses.

There is an organization called SCORE whose sole purpose is to help people start small businesses. Here is a quote from their web site.
“SCORE is a nonprofit association dedicated to educating entrepreneurs and helping small businesses start, grow, and succeed nationwide. SCORE is a resource partner with the U.S. Small Business Administration (SBA), and has been mentoring small business owners for more than forty years.
SCORE is a valuable network of 13,000+ volunteers who offer small business entrepreneurs confidential business counseling services at no charge. SCORE volunteers have the knowledge and experience to help any small business owner get the help they need. Our dedicated volunteers represent over 270,000 years of experience across 62 industries.”

The U.S. government has the SBA there to help small businesses. Sometimes because of the red tape of government, they are not as helpful as they could be, but they are still a good resource. The SBA has helped many businesses get start and there is much to be learned from them and their web site.

Why wouldn’t a person use the FREE valuable resources around them? There are good people willing to give advice and help those in need. It is the smart business person who does their homework and uses the tools available to them.

There are no short cuts. Those that think there are, most of the time FAIL. Take the long way to business ownership, for it is the least risky path.

Wednesday, July 6, 2011

Freedom to Choose

Since this is the week of the 4th of July I thought I would write about something which has been on my mind and has been for a few months.

My brother Rocky recently wrote a book about his experiences in Vietnam while serving the United States of America. The book is called, ‘Sgt. Rocky, Last Warrior Standing.’ It is impossible to read his book without feeling appreciative for the soldiers protecting our country. This freedom gives us the right to succeed, to fail, to learn, work hard or do nothing or allows us the right to be anything we want to be.

In 1969 while in Vietnam and after being ambushed by the enemy Rocky wrote home to our parents and said, “I’ve suddenly been impressed with the fact that for those who fought for it, freedom is the taste the protected will never know.” Meaning many of us sit in our homes, do our daily activities and never think about what freedoms we enjoy and who paid the price for that freedom. Soldier’s fight, some die for our country and some come home without limbs. They might be the only ones that know what our freedom is really about. We Americans are being protected and never will fully understand what freedom really is all about.

What does this freedom really have to do with becoming an entrepreneur? It has everything to do with becoming whatever and whoever we want to be. Author and lecturer Wayne Dyer said, “Freedom means you are unobstructed in living your life as you choose. Anything less is a form of slavery.”

If someone wants to become a doctor, teacher, policeman, factory worker, homemaker, entrepreneur or even the President of the United States, we have that freedom. We get to choose. Thousands of Men and Women have died for America in the Philippines, Korea, Vietnam, Germany, France, Iraq, Afghanistan and all over the world to give us that right.

Most people will choose to work for others and some will choose to work for themselves. There is no right or wrong. As philosopher Eric Hoffer once said, “There can be no real freedom without the freedom to fail.” We have the freedom to do it “our way” whatever way this is. If going to school, working for the government or the corporate world is “your way” there is nothing stopping you but yourself. If becoming an entrepreneur and reaching for the sky is your dream, we have the freedom to choose that dream thanks to those soldiers who fought for us.

President Franklin D. Roosevelt said, “Men are not prisoners of fate, but only prisoners of their own minds.”

We must use our minds to improve ourselves, whatever direction we take in life. We should not imprison ourselves by mediocrity. Be better, challenge yourself and enjoy the freedom to be what you want to be. We are being protected, so enjoy our liberty and freedom from those who have laid down their lives so we can have the chance to choose.

Today, go out and thank a soldier or the veteran for his sacrifice he is giving or has given. Never take our freedom for granted.

Friday, July 1, 2011

Secrets to a successful Entrepreneur

I promised in last week’s blog I would tell you one of the most important ingredients a person must have before becoming and entrepreneur.

Last week I mentioned the Ernst & Young Entrepreneur of the year awards for 2011 were given out for the State of Utah. Two of those honored were a husband and wife team of Heidi and Orville. Even with their old fashion names they had become very successful.

In 2004, Orville started a candle making business and he had gotten it to a point where it wasn’t doing very well. He had a mountain of debt hanging over his head. As a matter of fact he told the 1,100 members of the audience at the awards ceremony he was ready to call it quits and declare bankruptcy. He said his wife, who wasn’t involved in the business at the time convinced him they should work together to turn the company around. She said, “Let’s swing for the fence!” He then told the audience, “I thank her …for setting the direction for our business and our life.”

It was reported in the newspaper, this year their company is on track to hit 500 million in revenues.

Almost always a successful entrepreneur has to have both spouses on board and be supportive of the idea and business. To be successful both parties need to be fully committed to the project and be willing to allow the entrepreneur the freedom to do what it takes to become a winner. This can be scary for the other spouse, but sometimes we must “just believe.” You don’t always have to have both working on the project but if one is negative, it is death sentence. It is good to “believe” but as Ronald Reagan said, “Trust, but verify.” Just make sure you both have done your homework before “swinging for the fence.”

In my younger married years I had a good friend who I had known for years as he had been a missionary companion of mine in Oklahoma. For many years he had been my barber and he was the best idea man I had ever met. He was an entrepreneur at heart and as he cut hair he would brain stormed some wonderful thoughts with his customers. I would see my friend almost every month and we would talk over his new business ideas. I loved talking with him and hearing what his next great business venture might be. The problem was he very rarely did any of his ideas. His wife had told him, if he ever tried them, she would leave him.

He was an unhappy entrepreneur with no escape, unless he left his wife.

There is no doubt I would not have been a successful entrepreneur without my wife fully supporting me. She went above and beyond what most spouses would do. If I had married the wrong person, I to could have been a frustrated entrepreneur with no escape.

I would have to say, the one of the most important secrets to a successful entrepreneur is a spouse who says, “Let’s swing for the fence.”