Buying a business can be a good deal until you pay for blue sky potential

Many people become entrepreneurs by buying an existing business. This is a good method to get into business for yourself because the business systems have been worked out, unneeded expenses have been eliminated and a customer base is in place. These are all good things for a new business owner because you will have immediate cash flow and lean operations. The only problem is that you probably paid too much for the business.

I have worked with many new entrepreneurs who have purchased an existing business and they just do not know why they are not making the money that was “promised” by the former owner. The new owner just cannot figure out why, at the end of the month, they do not have as much left over profit as was advertised. After investigation, it is clear to me and the new business owner that they simply paid too much for the existing business. They paid for “blue sky potential,” which they are unlikely to achieve. Blue sky is an additional premium paid for goodwill, or the potential to make more money by adding services or products. When buying a business you should pay for the value of the business and not for “blue sky.”

Valuing a business is part science, part art and part trust. The first thing that you must do is review the current owner’s “Schedule C” that is filed with the owner’s federal tax form 1040. Obtain the last 3 years’ forms. First, chart out the PROFIT of the business for the past three years to see if the profit is trending up, trending down or if it is stable. Stable profits are a good sign. Now, average the three years’ profit, multiply it by five, and you have a starting point for a negotiation of a sale price. After all, you are purchasing an income stream, and this is what needs to be valued. Most business deals seek a five-year pay back period.

You can also review the book value of the business by reviewing a very recent balance sheet, which can be pulled at any given point in time. Business owners may claim not to have a balance sheet, but their accountant does, and you need to review the current book value of the assets. You may be better off starting a negotiation by offering the owner book value of the business; however, most businesses are worth far more than the book value would indicate.

Some unscrupulous business owners will claim that part of their business is “cash sales,” implying that some income is not reported on their Schedule C. If the owner states this, run away from the deal and find a different business to buy. If the owner is willing to lie on their federal tax filings, they are just as likely to lie to you by misrepresenting their business.

So, you will have to measure the profits of the business, review the current book value of the business, and trust that the owner is transparent in their dealings to apply a proper value to the business. After all is satisfied, you can make a purchase offer.

Many people become entrepreneurs by buying an existing business. This is a good method to get into business for yourself because the business systems have been worked out, unneeded expenses have been eliminated and a customer base is in place. These are all good things for a new business owner because you will have immediate cash flow and lean operations. The only problem is that you probably paid too much for the business.

I have worked with many new entrepreneurs who have purchased an existing business and they just do not know why they are not making the money that was “promised” by the former owner. The new owner just cannot figure out why, at the end of the month, they do not have as much left over profit as was advertised. After investigation, it is clear to me and the new business owner that they simply paid too much for the existing business. They paid for “blue sky potential,” which they are unlikely to achieve. Blue sky is an additional premium paid for goodwill, or the potential to make more money by adding services or products. When buying a business you should pay for the value of the business and not for “blue sky.”

Valuing a business is part science, part art and part trust. The first thing that you must do is review the current owner’s “Schedule C” that is filed with the owner’s federal tax form 1040. Obtain the last 3 years’ forms. First, chart out the PROFIT of the business for the past three years to see if the profit is trending up, trending down or if it is stable. Stable profits are a good sign. Now, average the three years’ profit, multiply it by five, and you have a starting point for a negotiation of a sale price. After all, you are purchasing an income stream, and this is what needs to be valued. Most business deals seek a five-year pay back period.

You can also review the book value of the business by reviewing a very recent balance sheet, which can be pulled at any given point in time. Business owners may claim not to have a balance sheet, but their accountant does, and you need to review the current book value of the assets. You may be better off starting a negotiation by offering the owner book value of the business; however, most businesses are worth far more than the book value would indicate.

Some unscrupulous business owners will claim that part of their business is “cash sales,” implying that some income is not reported on their Schedule C. If the owner states this, run away from the deal and find a different business to buy. If the owner is willing to lie on their federal tax filings, they are just as likely to lie to you by misrepresenting their business.

So, you will have to measure the profits of the business, review the current book value of the business, and trust that the owner is transparent in their dealings to apply a proper value to the business. After all is satisfied, you can make a purchase offer. If you would like assistance in valuing an existing business, you may reach Michigan State University Extension educator Paul J. Werner at the following phone number: 906-524-6300.

Source: – msue.anr.msu.edu/news/buying_a_business_can_be_a_good_deal_until_you_pay_for_blue_sky_potential

Online Business Ideas – 3 Tips To Find A Profitable Idea

More than 95% of new internet businesses fail! One of the main reasons is because they don’t properly determine if their online business ideas are profitable to begin with. 

Here’s the ugly truth (that nobody really wants to tell you) – if you don’t properly identify a winning business concept from the very start, you very well could be wasting thousands or millions of dollars and years of your life. Finding the right idea is essential to your success, and most entrepreneurs completely mess this up!

In this video I show you 3 proven steps to determine if your concept can and should be grown into a larger business. Don’t get discouraged if your business idea doesn’t pan out. In fact, most successful entrepreneurs have dozens of ideas that fail before they find a winning business model. 

But, they make sure to limit the “damage” of their investments before they commit a lot of time and money to the project – something that I’ll show you how to do (for free) in this short video.

The truth is that anyone nowadays can start a profitable business, if you follow a proven system. Often times people have unrealistic ideas of what is actually going to work and how fast they’re going to get there. 

When you boil everything down, everything depends on finding a great idea, and then using specific formulas to develop that idea and help solve the problems of your market.

Remember, if your product doesn’t solve a problem, that is a HUGE warning sign. Here’s one of my favorite quotes, from Zig Ziglar: “If you help enough other people get what they want, you’ll eventually get what you want.”

Three good categories to start with when you’re selecting a niche – which is especially helpful when you don’t even know where to start – are:

1.) Health
2.) Wealth
3.) Relationships

**Each of these niches can be broken down into sub-niches, and micro-niches. The example I use in this video is going from HEALTH …. WEIGHT LOSS …. WEIGHT LOSS FOR 40+ YEAR OLD WOMEN.

Another important step is — doing your research and testing the idea! If you don’t test with at least some results (either opt-ins or sales) then it might not be a good idea to go forward with your business. Further, you need to research the commercial intent of your product.

Comments:

JD Dammeier

Good points! We also believe that doing business should be something about what you love. Success follows.

Dartford SEO

Learning from your helpful advises are quite essential to every individual’s success in the industry of online businesses. Furthermore, these steps are helpful enough to become more productive and progressive when dealing services via internet. It is such a very reliable strategies indeed. Thank you for enriching our minds!

Source: – www.youtube.com/watch?v=b58qOE_n5DQ

5 ‘Bad’ Millennial Traits That Are Actually Good for Entrepreneurs

I’ll be the first to admit it: We millennials have a bad rep. They say we’re lazy, ungrateful and that we don’t grow up fast enough. (Anyone remember the Time magazine article?)

That said, we do have qualities which work in our favor. We dream big. We’re unafraid. We don’t understand the word “no.” All these attributes are very useful for entrepreneurs.

Right after college I was hired as a journalist and a few years later I founded my PR company, Sarah Rose Public Relations. In true millennial fashion, I was trying to run before I could walk. I didn’t go to business school or have an office. All I had was an idea and a longing for success.

Two years later, my company has blossomed. I have clients across the nation and the freedom to work whenever and wherever I want. I’ve watched my peers succeed too.

So for those young aspiring entrepreneurs looking to make it big, here is how to turn those stereotypically “bad” millennial traits to your advantage.

Being impatient. Our generation wants what we want when we want it NOW. We millennial entrepreneurs, however, can use “impatience” to propel us forward. We’re restless in non-leadership positions and want to get going already.

Twenty-something business owners do not play by the rules. We do not want to pay our dues by climbing the corporate ladder. Instead, we get impatient, want success now and make big changes so we can pursue our new, exciting venture (even if we’re a bit premature).

Having the attention span of a 5-year-old. In Corporate America, budding entrepreneurs often feel a sordid combination of drained and bored. They say we have short attention spans, but any millennial will tell you that when we are passionate about something, we can fixate on it for hours on end. So maybe it’s less boredom and more an inability to “stick it out” in a job we don’t enjoy.

Chinese philosopher Confucius said, “Choose a job you love, and you will never have to work a day in your life.” By choosing to pursue what we enjoy and are interested in — even if that changes from time to time — we can be an asset to any company.

Wanting fame and fortune and everything in between. Two words: reality TV. Our generation has watched average, if not below average people, become rich and famous for their debauchery, bestiality or just plain sex tapes (cough, cough Jersey Shore, Bad Girls Club, Real World, Kim Kardashian…). If idiots like The Situation can become millionaires, why can’t we?

The positive in this trait is that millennials have a healthy dose of self-aggrandizement. As entrepreneurs, we need to believe in ourselves, our vision and our dreams. Perhaps our generation takes confidence a bit too far. But in my experience, craving the limelight is the only way to bring it in.

Obsessing with the online world. Facebook, Twitter, Instagram, Pinterest, LinkedIn, Tumblr and Google+. These sites are in our blood, our DNA. Some see this obsession with social media as a negative. But for entrepreneurs being digitally savvy is extremely important. One of the main advantages is for networking.

For instance, my sister’s ex-boyfriend’s twin sister works at Bleacher Reporter. Great! I can reach out to her via LinkedIn, we can Gchat about my new sports client, she’ll connect me to her editor and the next thing I know my pitch is passed along to a journalist who writes about it for their basketball section. #Winning.

Lacking experience and our maturity level. They say youth is wasted on the young, but us millennial entrepreneurs take our energy and channel it into building an empire. Many of us don’t have huge responsibilities – think husband, wife, mortgage and kids.

We’re energized and full of ambition. Being in our twenties, we’re not old enough to be jaded but also not young enough to be disempowered. This can be a huge advantage for aspiring entrepreneurs looking to jump head first into a startup.

Source: Entrepreneur

Selling a Business – 8 Factors That Influence Selling a Business

Selling a business successfully requires a number of factors, not only related to the quality of the company and the offering terms, but also the external influences working in the marketplace. California business sales statistics help to reveal that one or a combination of the following factors greatly influence how many businesses are sold in California each month.

Selling a business influences include:

1. Holidays or life events: The Christmas celebration, or a milestone birthday of a seller, are examples of occasions that either can speed up or slow down the selling process. Holidays and other diversions that involve family events, often interrupt the marketing effort or delay scheduling the completion of an agreement. But sometimes the reverse is true. An owner who wants to sell by the end of the year, or before his daughter graduates from college, will be motivated to push for quick negotiations, a short due diligence period and a closing date scheduled ASAP.

2. Job market: Corporate downsizing in a community almost certainly will put demand pressures on the local selling a business market. While most people out of work seek employment elsewhere, there are entrepreneurs among the newly unemployed who plan to buy a business for sale.

3. Financing availability: The recent financial meltdown offers a clear case study of how a shortage of funds from lenders can negatively impact the demand for small and mid-sized businesses. The slowdown in volume of businesses changing hands in late 2009 and through much of 2010 was a direct result of the shortage of money needed to complete transactions. Loosening of the purse strings in the past few months has resulted in a more robust business sales environment.

4. Stock market and investments: When faced with alternatives, investors put their money where they expect the best combination of high return and low risk. But these motivations don’t always result in the same behaviors. A booming stock market influences some entrepreneurs to divert excess funds into corporate equities. For others, it’s a chance to profit by selling current investments and–encouraged by the more positive economic outlook–to enter the business for sale marketplace.

5. Real estate equity: The decline in home values and the pressures it put on the economy during the past three years influenced many would-be business buyers to “watch and wait.” When entrepreneurs had substantial home equity they were far more tempted to use their resulting borrowing power to purchase a small business for sale. As equity disappeared however, individuals not only had less financial ability to make a business purchase, they also became less positive about their chances of success owning a company in a troubled economy.

6. Consumer sentiment/confidence: For the most part, someone considering the purchase of a small or mid-market business will delay moving forward on that idea when polls show that most people are worried about the economy. That’s not the time to get into a retail company or even most business-to-business enterprises. For bargain-hunters in the business for sale marketplace however, a decline in consumer confidence signals the possible opportunity to acquire a sound business at a “distressed” price.

7. Businesses for sale supply: Like any demand and supply dynamic, the availability of good businesses for sale strongly influences the market, the prices, and the likelihood of finding a buyer. During a healthy economy when business owners enjoy strong profitability, business buyers find it more difficult to find a desirable company for sale and to get sellers in agreement on prices that can easily be paid off. It’s often the predictions of a sagging business climate that motivates more owners to quickly implement their exist strategies.

8. World events: Much like the stock market that reacts to news about changes to the political landscape and natural disasters, the market of small businesses for sale can be influenced by major events–even those events well outside of the business world. A retail business owner, for example, may delay her plans to sell if she concludes that a natural disaster in a nearby community will hurt the marketability of her enterprise for a while.

While it’s important to look at the profitability and pricing of a business for sale to determine the chances that a buyer will be found in a short period of time, there are key external factors that can determine the likely success of someone selling a business.

The easy part is knowing some of the factors that can influence the marketplace for small and mid-sized businesses. The hard part is understanding which factors have the most influence at any one time, and exactly how each affects the marketplace.

Source: http://eastbayscore.org/wordpress/?p=511