In the Market for A Business?

Owning a company doesn’t necessarily mean starting one.If you’re thinking about being your own and owning a business, buying a company that’s already up and running maybe easier and faster than starting from scratch.How many times have you been in a business and noticed that the place is booming even though service is poor, then imagined what the business could be like if it were run properly?How often have you encountered incompetent ownership or management and though, “Boy, if I owned this place, I could turn it into a booming success.”?Or perhaps you want your own business, but the thought of spending lots of time, money and energy getting a new venture up and running holds you back. If any of these scenarios sound familiar, you may be the perfect candidate to buy a business. But keep in mind, buying a business successfully requires that you take certain steps.Step 1: Do the ResearchShopping for a business requires the same careful planning as starting from scratch, plus it demands studying the history of the seller’s decisions and mistakes.When you buy a business you inherit the business’s problems as well as its potential, so it is imperative that you answer the obvious question: Why is the owner selling? Some reasons:Personal – The owner may want to retire or is in poor health. This reason would not rule our your buying the business, especially if it is doing well. There is no better combination for a buyer than a motivated seller and a good business.Financial – The business is losing money or isn’t profitable enough. This reason wouldn’t eliminate the business from contention either. The problems might stem from poor management, the owner’s too-high salary, or unfavorable economic conditions that are due to change in the near future.Impending doom – The seller knows something you don’t. This reason could, and probably should, kill the deal. Some examples of this are: the market is saturated and profit margins are about to collapse; a major revenue-producing contract is expiring and won’t be renewed; new, powerful competition is moving next door, such as a major electronics warehouse store opening next to a mom-and-pop operation.Step 2: Study the BooksJust as life insurance company requires a detailed physical before insuring a person, it’s essential that you examine the books before buying a business. The books provide a snapshot of the inner workings and health of a business. Specific records that you or your expert should review include:
Income statements from the past three to five years – income statements show expenses as well as income.
Balance Sheets from the past three to five years – balance sheets show assets and liabilities as of a particular date.
Income tax returns from the past three to five years.
Loan agreements.
Credit reports from the past three years.
Contracts with major customers or current suppliers.
Patents or trademarks – these allow you to be certain that the business owns what it uses and makes you aware if any valuable patent expires, the competition could sell the previously exclusive product or service for much less, thus cutting into your projected profit margin.
Accounts receivable and accounts payable records.
Outstanding litigation.
Insurance policies.
Contracts with employees or unions.
Leases for real estate or equipment.
Records of the age and condition of any buildings and equipment.
Obviously, red flags that are cause for concern are severe or increasing losses, unpaid tax liabilities, unsettled lawsuits against the company; unfavorable or costly contracts with the employees or suppliers; and long-term leases that are well above current market rates.It’s especially important to check for outstanding litigation, since you will inherit any lawsuits pending against the company you buy, Check records at the county courthouse to make sure the owner isn’t withholding information about pending lawsuits.If a seller refuses to open up all the books, get out immediately. Also, don’t believe an owner who says the books you’re seeing aren’t the “real” books because some of the profits have been skimmed and kept out of the hands of the IRS. You shouldn’t pay for any undocumented profits, and besides, it’s illegal.Step 3: Determine the value, set a price and negotiate.If, after completing steps one and two, you’re still interested in the purchase, it’s time to determine the price and negotiate the deal.In some cases, you can take over a business simply by assuming responsibility for the debts, because the owner is doing all he or she can to get out from under them. This may be a good deal as long as the potential profitability outweighs, and can soon eliminate, the debt.In other cases, you may be able to pledge the assets of the business to obtain a loan to finance the purchase price. This is preferable to using your personal assets as collateral.There are various formulas used to determine the value and price of a business. The method may vary based on the type of business involved – retail, wholesale, manufacturing, consulting or service – and also vary with these groupings.Some methods for determining the price include:Method 1: Cost of replacing businessThe value of physical assets (building / equipment) minus depreciation plus current value of land, inventory and other assets. Drawbacks: The value of a business is determined by other things, such as profit potential and economic viability.Method 2: Book value of assetsThe value of assets after depreciation minus liabilities. Drawbacks: May over value the business since some technological equipment, such as computers, can quickly become obsolete. Land (book value) also can become overvalued suddenly if the commercial market is lagging.Method 3: Expected business earningsThe price is equal to or less than five times the anticipated annual earnings. Example: Profit after all expenses (including your salary) will be $20,00; then, to pay the business off within the five-year formula, the business should not exceed $100,000. Drawbacks: By itself this factor means little; you must couple other factors with expected business earnings to get a complete picture.Method 4: Combination of all methods plus intangibles such as good will This is the best method. The expected earnings method should be adjusted to reflect any liabilities you’re assuming, as well as general market trends and other intangibles such as goodwill. Goodwill represents the value of the efforts the owner has poured into building the reputation of the business and developing a loyal customer base.Sellers almost always want to be compensated for goodwill, but from the buyer’s prospective, the value of goodwill should be limited to the amount of profit the business earns in excess of the earnings of the average business of its type.Goodwill built up by a former owner has a flip side that could come back to haunt you as a buyer” is the former owner’s reputation so great that customers will follow him to a new endeavor?If so, you could be out in the cold with a once-thriving business that now goes begging for customers. Find out if the former owner is planning to open up a new enterprise nearby. If necessary, have him or her sign a non compete clause in the sales contracts.Obviously, there is potential for much negotiation in determining a purchase price. Good negotiation and closing techniques are essential when you’re sizing up the seller and hammering out a deal.The answers will provide valuable insight into the business and the owner, and could put you one step ahead if you decide to negotiate a deal.It’s also a good idea to get an attorney to do paperwork and check out the business before you buy. Like everything else, there are specialists in the field.Remember, buying a business should not be a daunting experience if you do your homework and take the process one step at a time.Preliminary Questions To Ask the Owner
What did you do before you started business?
Do you enjoy what you do?
How many hours a week do you work?
How much have you invested in the business?
What’s your gross? Your profit?
How much do you take as salary?
What suppliers/ service providers do you use? For how long? How do these prices compare with others?
Is your lease transferable?
What kind of business taxes or licenses do you pay? How often do licenses need to be renewed?
What do you intend to do after selling the business?
If you had it to do again, would you still go into this business?

Why Start A Business From Home?

The are many reasons to start a home-based business: to earn extra income, to supplement an existing salary, looking to new horizons after leaving a permanent job through redundancy or company downsizing or to fulfill a lifelong dream. Whatever your motives, thanks to the growth of the internet and the changes in the way people work, there has never been a better time to start your own business. You too can take advantage of the freedom offered by running a business from home, with its lower costs, reduced travel expenses and the flexibility to choose both the environment and hours that suit you.Top Tip: You are in good company as Apple Computers, Lush Cosmetics, Facebook and even the Ford Motor company are just some of the household names that started as small home-based businesses! So, let’s get started.Step 1 – Make A Solid Commitment To Your New VentureAsk yourself a question: how many of the success stories that you have read about were founded by people who simply sat back and dreamt about it? The hard truth is that if want to achieve something then you need to make a commitment – for as long as it takes to succeed. It’s highly unlikely that you are going to make your fortune overnight, but if you persevere you will succeed. It doesn’t matter if you can only commit 15 minutes a day, what is important is that you make those minutes count by always giving 100% effort.Top Tip: Apparently Thomas Edison took 1,000 attempts before he invented the light bulb. He never said I failed 999 times; he said I spent 999 learning how not to invent a light bulb!Step 2 – Have You Got What It Takes To Become Your Own Boss?The answer is yes! It helps if you enjoy taking risks and the responsibility that goes with it. It also helps if you like hard work, making decisions and the challenges that come with owning your own venture. And finally, it’s extremely useful to be well organised, have the ability to stick to deadlines and can work with figures. But the fact is if you don’t have all of these qualities (and very few people do), then simply find someone who does. So, for example, if you aren’t familiar with the requirements surrounding keeping records, hire someone!Top Tip: Success is 5% inspiration and 95% perspiration.Step 3 – What Business?It could be that you want to start your own nail salon, a pet grooming service, be a language tutor, physiotherapist, landscape gardener, affiliate marketer, eBay seller, create self-help videos, set up an ecommerce website… the list is almost endless. The fact is that it doesn’t really matter. Because the steps to success are the same for every business. What does differ is the way that you manage and respond to the needs of your particular business or sector. If you haven’t yet decided upon a particular business, then there are literally thousands of ideas for business, covering every imaginable product and service. Whichever you choose, ask yourself the following questions:
Is there an identifiable gap in the market for your product or service?
Have you identified a product or service that you just can’t seem to find?
Can you make a living from your hobby or something you are passionate about?
Can you offer a product or service better than someone else?
Top Tip: At this initial stage it’s also worth exploring the common mistakes that start-ups make and how to avoid them.Step 4 – Developing Your Business IdeaThe next step is to dig a little deeper and define exactly what products and services you intend to sell and, equally importantly, who you are going to sell them to. Even if you already have a fixed idea of what you want to sell, you still need to focus more intensely. It’s not enough to say you are going to sell pet products, you need to focus on what types of pets and as a consequence what products those pets would need. Marketing your product and conducting a little market research yourself can make all the difference between success and failure. You can discover the buying habits of your target market, geographical location and even who your competitors are. You can gather a great deal of this information, by simply spending some time searching the internet and gathering a list of businesses that are already trading in your chosen field. In addition you can scour the ads in local newspapers and shops to see who is out there or even conduct your own market research by asking people in the street if they would be interested in your services.Top Tip: Your family and friends often say it’s a great idea, even if they think otherwise, just so they don’t hurt your feelings. So ask some independent people.Step 5 – Do You Need A Business Plan?The good news is that not every business requires a formal plan, especially if your home-based operation doesn’t require any outside funding. Click here to learn more about Sources of Funding for Start-ups. The problem with a business plan is that not only will you have to learn how to put a plan together, they can also take weeks to prepare, time that may be better spent concentrating on getting your business off the ground. In fact, studies have shown that having a formal business plan for a small home-based venture really makes no difference to the ultimate success of the business. The time when you may need to produce a business plan is when you’re looking for potential financial support. It’s not just for banks, but also if you have to approach family, friends or business connections. The clearer your vision and the more organised you look, the more likely you are to get the support you desire.Top Tip: Matt Coffin, founder of LowerMyBills.com, secured funding of $4 million from investors simply by using a 10-page PowerPoint presentation!Step 6 – Initial Start-up CostsOK so let’s assume you have your idea, have spent some time examining the sector and its market potential, now is the time to make sure you have all the tools necessary to carry out the first phase of your venture. Below is a list of the most common items that a home-based business requires to starting functioning:
A computer and associated software
Internet access
Build a website
Fixed and/or mobile phone
Business cards
Access to sufficient stock – if you’re selling products
A designated space, preferably in a quiet location
A desk
It’s not a long list and can all be obtained without breaking the bank.Step 7 – Additional Finance And FundingIt may be that you are starting up a business while you are still employed or have another source of income to cover you while the business finds its feet. If you don’t require any outside funding then skip this section for the time being and move on to the next. But there are a number of reasons why you might require funding, above and beyond simply paying for office equipment, website development, advertising etc. One of the main requirements is sufficient funds to cover personal expenses while the business gets under way and your customers start paying you! As a rule of thumb, many business advisors suggest that you should have at least three months’ money squirreled away, as it may be this long before you start seeing any returns. So where do you go for funding? Well to start with there are your own savings (if you don’t have faith in your idea, who will?), then there are family members, friends and business associates. A little further afield there are additional sources of funding, such as bank loans, grants and equity funding from private investors. In these instances you are strongly advised to produce a business plan in order to persuade and secure the necessary funding.Step 8 – Keeping RecordsNot the most enjoyable aspect of running a business, but nevertheless essential. It is extremely important to keep an accurate record of your income and expenditure from day one – start as you mean to go on and introduce a proper system. Not only does it enable you to keep a close eye on how well your business is progressing, it’s also a legal requirement!A few tips:
Retain and file all your invoices and receipts that relate to your business (if in doubt, keep them anyway and ask your accountant if you can claim on them)
As you will be using part of your home for business, keep copies of the utility bills so that you can work out how much relates to your business
You need to be able to show what you have spent personally and what is spent on your business. So having a separate bank account will make life a lot easier
If you are employing staff, then you must keep records of their wages and tax and National Insurance you have deducted and paid to HM Revenue & Customs (HMRC)
Keeping good records will pay huge dividends in the long term as you will reduce your overall tax bill, make filling in tax returns much easier and help ensure you pay your tax bills on time and avoid any interest or penalties.Step 9 – Promoting Your New BusinessPeople used to say “build the best mousetrap in the world and people will beat a path to your door”. But today there are so many businesses offering such a wide variety of products, how do you know which door to open? You have at your disposal a vast array of both online advertising services and more conventional offline advertising services, which when combined create a powerful weapon to attract and retain those all-important customers!Step 10 – Don’t Leave It Until Tomorrow. Start Today!

Purchase Commercial Properties With Construction Loans

Investing in real estate provides a number of benefits but also can be an expensive and risky undertaking especially in commercial properties. There are ways however, to be able to lower the risk while increasing the return through the use of construction loans.Normally, construction loans are used to handle the construction of buildings usually from the ground up. They can also be used to purchase already established properties that are older, in need of repair or may be under producing for the area. These properties can include everything from the strip mall that has only a few stores to the apartment complex that while in a good location may not be able to keep solid, established renters.Purchasing older investment properties has some distinct advantages. For starters it allows the investor to purchase the property at a significant discount. It also provides a piece of property that can have a significant amount of leverage. Using a construction loan in order to purchase the property means that, provided the loan being used does not exceed between seventy-five and eighty percent of the final value of the property, a property can be purchased with only fifteen to twenty percent of the total cost coming into the investment.Here is an example:There is a property. It could be a strip mall or an apartment complex. It is in a prime location but the asking price is significantly higher than the rent that can be gathered from the property itself at its current condition. The down payment would exceed the amount of the loan the property would be able to support. Now, let’s say that the property were to be upgraded with additional features; in the case of residential location it could be new countertops, appliances and perhaps expanding the size of the apartments. Alternatively, in the case of a strip mall, adding larger store fronts to attract slightly larger stores or down size to attract a number of smaller businesses, than the property’s final stabilized value now increases enough to support the loan necessary to purchase it.In this manner a construction loan can be used to purchase a property for seventy-five to eighty percent of its “after repair value” know and ARV. The investor can improve it and then either add it to the investment pool, or have it remarketed for sale at a significantly higher value.How the construction loan process works:Pre qualification is the best first step in the construction loan process. This helps to determine if the loan amount is within the budget, and helps to give an idea of what the payments will be. This helps to figure for the investor what the property will need to make in order to provide not just the basic monthly payment but also a return.Construction loans can either be found through local banks, depending on the bank but more often than not, a construction loan can be found through national lenders. If as an investor there is little experience in construction loans, be sure to locate an officer with extensive background to avoid complications. Watch out for the following things; higher interest rates that are locked in from the initial start of the loan processes, non competitive long term lock in addition to a fee, bad customer service. Experienced lenders who offer a low rate upfront offer the best construction loans.Construction loans can be found in the following terms, 30 year fixed, 15 year fixed, 1 year ARM and then 3/1 to 10/1 ARM in addition to interest only loans. The type of loan chosen would be partially based on what the investor has planned for the property.Construction loans are also usually handed out in payments based on the completion of each phase of the construction.Constructions phases include, soft costs, hard costs, closing costs, inspection fees, reserves, and the final property pay off.Soft costs – these costs include permit fees, architectural plans, and any engineering fees, which may accompany the property renovation or purchase.Hard costs – these are the actual costs derived from doing the physical construction itself.Closing costs – Origination, lender, title, and closing fees.Inspection fees – this includes all the funding necessary for each type of inspection that is done on the property.Reserves – contingency and interest payments set aside in case any emergency or issues not already factored in occurExisting property pay off – this covers the cost of the property itself for purchase. This is either for the lot, or the lot and building depending on the type of commercial property being purchased.Budgeting is highly important in the construction loan process because payments of the loan are not handed out in lump sum but handed out, as each phase of the process is complete. The amount handed out is designed to cover just the expenses for that phase and no more. Receipts, quotes and estimates are required in order to have the funds released for payment.Construction loans can be a powerful asset in the hands of an investor. This loan type allows property that would normally be passed over on regular loans due to the necessity of repair or other reason that makes the property a high risk for the lender. It also allows investors to purchase the property at significant discounts, repair or upgrade the location and then resell for a significant profit.Construction loans are based on the final stabilized value of the property and cannot exceed a percentage of that value. However, the down payment is usually significantly lower than on other types of properties allowing an investor to purchase property, which may have on initial inspection, been outside of the investor’s price range.These loans work on any type of commercial property, whether the investment is in residential facilities or in facilities that are strictly for commercial businesses. Lower down payments, the ability to purchase properties in good locations that are under productive, and the possibility of a significantly higher return makes investing in commercial property, by using construction loans, a strong tool to consider.