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Selling a Small Business – Why Selling a Smaller Business is Different

If you are a business owner thinking of selling a small business, the process is somewhat different than selling a much larger, more involved company.

Smaller businesses are bought by investors for different reasons and, depending on the size of the company, attract completely different buyer profiles. This article looks at some of the differences in selling a small business from the owner’s point of view.

Micro-Businesses
What is meant by “micro businesses” are businesses that are valued at less than $100,000. There are many different types of micro-businesses and each can attract a different buyer profile. For instance, if you own a small, home-based business valued at $75,000 or so, this usually attracts a potential buyer that is completely different than the person looking for a business valued up to $250,000. To expand, businesses valued under $100,000 or so usually fall into a number of categories. They can be home-based businesses where a good buyer candidate can be a stay-at-home parent looking to augment an income. At this lower price range the business may also be a service based business such as landscaping or home inspection, as an example. This type of business is attractive to the “do it yourselfer” who is purely looking to ‘buy a job’ and a book of existing accounts. The $100,000 and under price range might also reflect a business that could be larger but has suffered a setback and has the potential for stronger earnings going forward, with right management in place. Micro businesses do not necessarily mean ‘micro earnings’. Many smaller companies have excellent income potential and could make a great investment for the right buyer. The point is, when you are selling a small business (especially a micro business) please don’t merely characterize the type of potential buyer based on price. Smaller businesses are attractive to many people for many different reasons.

Small businesses valued in the $300,000 price range
The price point of $300,000 is a ‘sweet spot’ for selling a business in that it is a price that is ‘doable’ by a relatively large pool of buyers. Businesses valued at approximately $300,000 (typically) earn an income to an owner/operator that is over $100,000. This size of business is attractive in that it allows an owner to operate it and pay off debt and earn a comfortable living off of the business income. That price range is within reach for many people, especially home owners who can finance a portion of the business purchase with home equity. If you own a small business in the $300,000 range and if your business is profitable, priced right, stable and showing consistent returns, there should be a relatively large pool of buyers for your business.

Small businesses valued up to $750,000
If you own a business valued in the neighbourhood of $750,000 this is still characterized as a “small business” but it would attract a completely different type of buyer (or investor) to your company. Selling a small business in this higher price range usually attracts a buyer with more financial resources or perhaps a partnership or group of buyers. Many times, the idea with buying a business at this price range is that it can earn enough income to justify hiring a manager with enough cashflow left over to pay the debt and earn a return for the buyers.

If you are thinking of selling a small business think about the type of buyer that would be ‘ideal’ to purchase your company. Think in terms of price and financial ability but also pay attention to things like aptitude and lifestyle choice. There are many small business resources on the internet to answer some of your questions. Talk to a business broker to help you sell a smaller business.

Small Businesses For Sale – How Buying a Smaller Company is Different

Buying a small business for sale, as opposed to a larger, more complex operation is a unique experience. Small business ownership truly is the ‘front line’ of entrepreneurial ism but it is not for everyone. This article will explore why small businesses for sale are unique and how owning a smaller company may be a different type of investment worth exploring.

Hands-On Owner/Operator
Many times (but not always) a smaller company requires that the owner of the venture be hand-on with the operations in order to make it a success. Unlike a larger corporation where tasks are assigned and roles delineated, a small business requires the owner to wear many different hats. Although it is possible for the owner to take a ‘silent’ role in the company, in most small business sales the purchaser is usually looking for a business where they can take an active role in the operation. This would allow them to take the company in direction that they want. Also, many entrepreneurs feel that no outside manager would be able to do as good a job running the business as they would due to the vested interest that an owner inherently has in a business.

Many People Looking to Buy a Job
Small businesses for sale are often valued on the basis of ‘Seller’s Discretionary Earning’ or in other words, the financial metric that indicates the money that an owner/operator would earn in the business. The reason that a small business for sale is valued on this basis is that buyers want to understand what their ‘take’ is for running the basis. If businesses were valued on cashflow metrics that excluded the owner’s salary, then the concept of ‘buying a job’ then becomes intrinsically less intuitive. It is a common measuring stick that is applied to many different types of small businesses. When you look at purchasing a small business, try to understand what your ‘take’ would be as an owner/operator and how much money you would have left over after serving your debt. Determine if this is enough to live off of and if it is provides enough of a return on your investment.

Buying a Local Small Business if you Know the Market
Some of the most successful small business purchases are made by people who know a local market extremely well and find a business that they can sink their teethe into – even if it was a business that they had not previously considered. Consider the example of a former steelworker who buys a bar in Hamilton, Ontario or a former Bay St. executive who buys a small marketing business in downtown Toronto, Ontario. There are many examples across Canada where a new owner’s only real value-add to a business purchase is familiarity with a local market. They key is knowing your market well enough to understand “what will work.”

Understand Your Risk Exposure
When you look at small businesses for sale, take a look at what your overall risk exposure is. For instance, if you’re considering a retail business in a mall location with $10,000 in monthly rent, then you need to understand what would happen if sales dipped by 10% – will the business be able to weather such a downturn? On the flip side, you may consider a business with extremely low overhead so the risk exposure to you on that front may be low but what if the vast majority of sales rely on a few key customers. How will you prosper if a few of them were to go elsewhere. The point is that small businesses for sale do have many of the same risks as some bigger companies. Examine the overall company very closely and try to understand what your overall exposure would be in a ‘worst case scenario’.

Buying a small business can be one of the most exciting challenges you can undertake. Contact Steve Skrlac if you would like to discuss the process of buying a small business in southern Ontario, Canada.

Earn Extra Income Online – Planning Your Business and Setting Your Goals

Many people today want to generate income online. If you are preparing to start a new internet business so that you can be paid to work at home, there are steps you should take to ensure that your business has a strong foundation.

If you do not make plans and set goals for your future, you have no idea where you will end up because you did not know where you were going in the first place. Many people just sit back and let life happen to them; they make no plans at all. You do not want that to happen to you and your new business. In order to accomplish what you want to do, earn extra income online, you must plan. Who, what, when, where, why and how. Those are the types of things you must consider in your planning.

Plans and goals for your own internet business are different from each other. Your plans for your online business income should include what you want to do, how you expect to do it, etc. Your goals are the numbers and dates you assign to the plans. Your plan might be to start a business to sell kites; your goal could be to open your kite business on July 1, 2010. If your plan is to sell kites, your goal could be to sell 100 kites the first month, and increase that number by 10% per month for the first year. Your plan might be to have this business be your single source of income within five years; your goal might be to be earning a profit of $50,000 by July 1, 2015. See, if you assign dates and numbers to your plans, then you have measurable goals. With measurable goals you can examine the results of your business and determine if you are reaching your goals.

What will be the source of your income?

First you must determine what your business will be. What will you do to earn the income you want from this business? Will you sell products or information or services?

Things to consider if you want to sell products include the following: You will have to 1) buy the products, or 2) make the products, or 3) sell on consignment, or 4) work with a company that will drop ship for you. Consider the advantages and disadvantages of each of these options. If you are buying products to sell, the products are immediately available, but this could require an initial outlay of cash. If you are making everything you sell, be sure to consider the time required for making your products so they are available for sale. If you are selling through a drop shipper, it is convenient that you do not have to buy products before you sell them, but keep in mind that you are giving up control of the availability of what you sell. It would be unfortunate if you were to sell something your drop shipper normally stocks to a customer only to find out that the drop shipper is out of the product you sold, and maybe does not even know when he will have more available. This is your business on the line. Your arrangements with all of the businesses you will be dealing with for products and supplies should all be made in advance so you know you can do exactly what you want to do.

Selling information can often require only a small investment. You could sell information 1) in the form of an e-Book or 2) digitally. Many people are looking to buy information on the internet. Information can be sold through a website or on auction sites such as eBay. eBay is a quick and easy way to get started with very little cash outlay.

Services you could sell could include typing services, filling out surveys, or transcription services. Other ways to sell your services include helping other people who also want to start a new business.

Put your plan and goals in writing.
Your new business will impact your life in many ways. You may have to work harder than you have ever worked before to get your business up and running. That is why it is important to put your plans in writing – so you are sure you have considered all aspects of the business and its impact on you, your life, even your family. You need to understand the amount of time you will be spending in your business and the expenses you will be facing for 1) getting the business started, and 2) maintaining the business.

You must plan where you will work. If you plan to work at home, you will probably need a quiet place away from other household activities.

You must plan for the hours you will work. If you are working at home, you can often work around such things as getting the kids ready for school or driving them to piano lessons. But you must be sure that you do have the time to properly take care of the business that you will be doing.

Another important consideration to include in your written plan is this: WHY? Why do you want to start this business? There are many, many reasons that people start businesses. You just need to understand why you want to start your business, and put it in writing.

Plan your marketing.

Marketing is involved no matter what you are selling. You must plan how the sales will be made, how many sales do you need to make per day, or week, or month to accomplish your goals. Without marketing, no one will know you are there. Your marketing might involve an ad on other websites, press releases on the internet and in your local newspaper, ads in appropriate magazines referring to your website, website placement on search engines so those looking for what you have to offer can find you easily, emails to specially targeted lists of possible buyers for what you are selling. If you are selling e-Books or digital information on auctions such as eBay, your auction ad is your advertising.

When you start any marketing plan, you must be able to measure the results. Some forms of marketing will be more effective than others. And certainly you will want to use those that are most effective. Locate software that will help you track your marketing efforts; some of these software products are free.

Once your plans and goals are in place to start an online business from home, you are ready to begin putting your business together. Best of luck!