| |
| |
|
Small Business Information |
|
|
|
Cashing In Your Chips & Pastures New
No, I'm not talking about gambling or dairy cows - although business is often referred to as a gamble, I'm referring to your exit strategy. That time when you decide to 'play no more' and go off and practise your golf swing. Yup, I'm talking about selling your business? So you own the show, good for you. You may even have a sign on your desk that says "The Buck Stops Here?But Not For Long" or some other humorous sign. The reality is though that selling your business is deadly serious - here's why. --- Split Personalities You are not just one person. You are two. You are the owner of a business, if the business has shares I imagine you own them. And you are also an employee of the business (probably the GM or CEO). This means you work there too. So what? Well those two roles, those two people have different objectives. Permit me to explain. The owner is looking for value and wealth, an increasing asset, maybe dividend payouts and other shareholder perks. The CEO/GM wants a high salary, wants the increased income and they want it now. After all, what the heck has all this hard work been for? Again, what's the big deal you ask? Well if you are a financial whiz then you'll know already, but for most of us its all about the posted business net profits. If you 'piggy bank' the business and take a high salary then the business probably reports very little as net profit at year end. You will probably pay less business tax to be sure, but you'll also be showing that the business is not profitable? at least on paper. --- A Low Company Net Profit Is Not So Bad - Is It? Yes and no is the answer. We all know that the financial picture you present can be made to look many different ways (and I'm not talking about cooking the books here) just how you choose to allocate certain costs and expenditures. As the CEO/GM you would likely have worked closely with your accountant to develop a suitable tax reduction strategy. Often times this works against you when it comes time to sell because of the way that businesses are often valued. There are no hard and fast rules but there are a few obvious guidelines used by many for evaluating a business for sale and purchase. The book value: All the liabilities are subtracted from all the assets and the resulting figure is the equity or book value. (A - L = E) Boring, but it gives you an idea. Fire Sale: The value of the business is calculated at liquidation prices. Think pennies on the dollar. EEK! --- My Personal Favourite The Net Earnings equation: This formula like all of them is fairly generic, however it does give you a great way to think about things. First of all, it uses the business net profit or earnings, to calculate the figure (Now do you see why piggy banking your business when it comes time to sell is bad!) If you've got three to five years showing a nice steady net profit you can use this to calculate the next part of the equation. Then using the NE figure you treat the business like an investment and assume that the NE is like the return you'd get on some income sitting in a bank somewhere. If your average net income for the past 3 years is $50,000 then you treat that like the interest you'd make, and figure out how much you'd have to have in the bank to make that much in interest. For example, if you made 10% ROI then your imaginary savings would have to be $500,000. So if you think you can get 10% and you've been steadily churning out $50K in net profits, then your business would be worth about $500,000 (give or take a few modifiers.) --- In The Next 3 to 5 Years So if you plan to sell your business in the next 3 to 5 years you might want to take a good look at the profit your business is showing. Sure moving things around to show a greater profit will likely increase your tax liability, you may even have to forgo some of those bonuses and perks you take. However your business will then look more profitable and this will factor greatly into the overall value that you will achieve when you eventually sell your business. And that's the whole point in the end. Author: http://www.JamesBurchill.com - James is a freelance writer and consultant
MORE RESOURCES:
Small-Business - Google News |
|
|
|
RELATED ARTICLES
How to Find a Microenterprise Loan for Your Business If you're looking for start-up capital for your business, but you don't have the credit, collateral or background needed by your bank to get a business loan, then microenterprise might be your best bet.Microenterprise Development programs have been around since the 1970s. We Know Who THEY Are Am I the only one that does not have an "A" button on my computer? I have looked on the keyboard, monitor and hard drive I can not find that darn thing anywhere. Nobody will tell me where it is. 11 Things Small Business Owners Can Learn From The Miracle On Ice 1. Know Where You're Going - Coach Herb Brooks had a strategic plan for assembling the American team. Tips and Tricks for Legal Debt Collections If a customer owes your local business money, it's hard not to feel angry, like you want to do anything possible to get your money back. But the days of going all out to collect on a debt over. Contract Cleaners - A Guide for Business Part 2 In the first part of this article I put forward 7 questions that I believed were important to ask of your potential cleaning company. In this article I will explain the relevance of the first two questions and the answers you get to you as a business. Firing Underperforming Employees in Your Small Business Here are a few tips on how to hand out pink slips when it comes time to terminate an employee.As a small business owner with employees, you will likely find it necessary one day to terminate an underperforming employee - if you haven't already. Find Your Niche & Follow It - Part 1 In this series of articles I'm going to show you how to find out if there's a hungry crowd for your information product BEFORE you write a single word.Mark Twain once said: "Find out where the people are going and get there first". Personal Success - Take a Break from Business Have Some Time to Yourself One of the most important things you can have when running a successful business, is to have time for yourself. Every small business owner needs to make time to be quiet. Bad Regulators Cost Small Businesses When a regulator finds a target to go after to collect fees to insure next years budget, often it is a small business. In fact the definition of a small business includes what normal people might even think of as a medium sized business. Marketing Your Small Business with Success Stories -- The One Pager Shortcut Series --An effective and compelling way to market your business is through the use of success stories. What exactly is a success story? How does it market my business? How can I get started with my own success stories?Consider the following: What exactly is a success story? A success story briefly describes how your business served a client/customer and what results the client/customer achieved. Accounting Methods - Cash and Accrual When starting a business, you have to determine the method you are going to use for accounting and paying taxes. The two choices are the cash method and the accrual method. Top 10 Lessons for Small Business Success - As learned From My Twin 3 Year Olds Small business success is very similar to learning to walk, talk and spell. The basics have to be understood before moving on to the next step. Freelance Tips: How to Cope with Spring Fever When Theres Work to Be Done We all know how glorious those first warm days of spring feel. The trees are blooming, the birds are singing. Starting Your Small Business Where do you find more customers?How do you compete with bigger businesses?Answer. Build loyalty and rewards. How to Profile a Client At first glance, this topic may seem a little repetitive, but you will find that although you have done homework before getting a contract and already know a fair amount about your client, you, however, do not know everything that is pertinent to the job. Once you have the project underway you will be adding to your knowledge of the client. Discover How You Can Start Making Your Small Business Dream Come True As a teenager I worked for my father's small business. At 18 I worked for a small video rental business owned by two partners; there were 4 employees. Financial Strategies for a Mobile Car Wash Business Plan Writing a business plan for a mobile car wash is fairly easy, yet often operators fall down in understanding the financial strategies and costs. Bankers and Investors alike will want to see that you have a well thought out business plan to insure your start-up goes successfully. Increase the Wealth in Your Community Many of us have noticed how some nearby communities seem to be "wealthier" than other nearby communities. They seem to have more shopping markets, more restaurants, more choices; items often cost more in these communities than they do in surrounding areas, yet the affluence remains where the prices are high; people are drawn to these communities, bringing even more resources and more wealth. How to be Annoyed and Make Money When do annoyances in a relationship become too much to bear?Have you ever worked for a client that drives you up the wall and back down the other side but you keep working with them because you need the money? I am sure most of us have been in that position and were so happy when that relationship finally broke up. It felt like you were finally free and able to do what you do best somewhere else, or you fell into panic because you had no income anymore. 11 Benefits of Starting a House Cleaning Business One of the biggest fears people have about starting a house cleaning business is the fear of having no real security. But for natural entrepreneurs, security comes from designing your own life.
|
| home | site map |
| © 2006 |
