Frontdoor Store w/Backdoor Sales

Many brick and mortar businesses are struggling, so in these changing times, every retail business should have a backdoor sales strategy.

What's coming in the FRONT of a store is the traditional traffic where you are at the mercy of what comes to you: foot traffic, construction, condition and visual appeal of the store, landlords, etc. so every store should also have a BACK DOOR plan for scalable commerce, taking advantage of their two supreme brick-and-mortar assets:

• TRUST - Look in the eyes of your server and know whether you are dealing with someone who is looking out for you or looking to scam you. Online experiences can't touch this interaction (yet).

• COMMUNITY - The place where everyone knows your name. You're welcome there. You know the owner, you see regulars. Cheers. Difficult to replicate online.

These two unique aspects of a store are your true competitive advantage that few online stores can rival. The ultimate setup is an online offering combined with a local, trusting presence. (I believe it is one reason why Amazon's Whole Foods strategy is much smarter than their Amazon Fresh direct-delivery approach. It gives them a giant, local footprint to host pickup lockers, customer service, and the other pieces missing from a .com experience.

But you don't have to be big to make this strategy work for you. If you have a brick and mortar store, ask yourself, what can be shipped out of our backdoor? Say you are a kitchen goods retailer. Package your most popular items that people buy together and wrap them into gift baskets during the holiday season.

If you aren't interested in the labor and shipping, look into straight up commerce sites. Start with Amazon Marketplace or locate the niche commerce web site within your industry. Many other .coms will offer centralized storefronts like Shopify and Etsy. Others, like Commission Junction, offers substantial affiliate rewards for customer orders that you send through them and your involvement is minimal.

Your value is in the trust and local relationships you've developed face-to-face, locally -- a significant value to .coms. Local is where it's at and they are interested in what you offer!

Start out setting a goal to sell 20% of your revenues from the back door this year and 40% next year. It's possible!

Whether you are creatively packaging and shipping directly or selling and influencing purchases online, grab your reward, it can change your business in these changing times.

Window Shopping on BizBuySell

Now is a great time to go window shopping for a business of your own one day. The market tends to pick up now through springtime as owners look to sell their businesses so there are many choices now. You can buy a business without much $ down. SBA loans can be 5-10% down, in fact.

One thing I tell clients is that when you're looking for a business, BizBuySell is a terrific place to window shop. Sure, you might find a great business, but maybe it's not WHERE you want to work, it's too big or small, or the price doesn't seem quite right. But pay attention to your reaction to them.

Here are a few tips to getting the perfect business you've always wanted:

1. PAY ATTENTION TO CHARACTERISTICS. Look online to get a feel for the kind of business you want and note the attributes of that type of business. You might like the idea of a neighborhood bar, but what you really enjoy about it is that it brings a community together. Maybe an art gallery would do the same thing. Ask yourself WHY a few times and you might get to a broader attribute that applies to several kinds of businesses and won't limit your search. I personally think niche businesses are a great way to go. You might not think to search for them by name.

2. SHARE YOUR WISHES. If there is someone in the industry (like me) who can be your second set of eyes once you've established key attributes, you'll not only have better luck when something comes onto the market, but they may be able to approach the exact business you seek. Also, there are many many businesses that are available for purchase that are not listed on BizBuySell. We hear from many owners who say, "I'm not quite ready to sell yet, but if the right offer came along..." so I can put you in touch.

3. DON'T FILTER ON PRICE ALONE. A good portion of the time, owners choose to start with an asking price that they believe their business is worth, not an objective standard, so don't be intimidated by a high price when you see it. Be patient and you are likely to see that price come down over time as they become more interested in selling. Also, don't be afraid to make an offer for an amount you think it's worth. When an owner sees a real offer on paper, it's much harder to turn it down than they might realize.

So, on the next rainy day when you're in your office or cubicle feeling 'meh', Open BizBuySell and window shop for a while. Message me with what you think is your perfect business and I'll be on the lookout for you.

Cut Free Your 'Sinkers'​ Before You Sell

So you're thinking of eventually selling your business. Maybe you've built a manufacturing business with several product lines and you service a multitude of industries. While innovation and diversification is essential while you're growing your business, it might be the opposite when you sell it, so you may consider working strategically with lines-of-businesses to optimize your value.

When is it better to cut-and-run? Can I sell a spin-off business separately?

Resources. How much dedicated resource is this line of business consuming? If creating a new line of lids on a run that mainly produces your bases, the incremental 10% adjustment to the same machine using the same materials, might not be worth pulling the plug. But if you have dedicated equipment, staff, and marketing invested in this, you'll have to prove the ROI of that to a buyer. If it doesn't pencil out, it might be better to split it off or cut it free before you sell.

Development phase. If you build awnings, but are developing a new cover that you've built for the outdoor team sports market, how far are you from seeing a return? If you're encouraged by the sales so far, then you might describe the opportunity to the buyer as being "almost there", but keep in mind that they will want to see proof of sales. If you don't have sales, many buyers see it as just an idea and maybe even a time/resource sink.

Strategic value. Lines of business can be sold off separately, but the books need to coincide. This is different than "cooking the books" which is to falsify information. Rather, you are organizing information into meaningful entities that are truly self-sustaining and quantifiable. You may find a strategic buyer for a particular line of business. Ask these questions when you consider peeling off certain aspects of the business:

1. Could this spin-off operate independently without support from the Mothership? Coming back to our 'lid and base' example, you probably could not spin off the lid business because it depends heavily on the existing equipment, materials, and labor already producing the bases. If the incremental resources required are over 40%, it is not likely to have a lot of value to buyer separately unless the buyer has that equipment, etc.

2. Is there a meaningful allocation of resources I can supply to the buyer? The main question a buyer will have is 'how much effort and resource will this spin-off take? This will require some accounting allocations and acrobatics. You will have to do a fully-allocated analysis with your accountant so that the % of the building, labor, equipment, etc is all factored into the cost. Then, the buyer will have to decide whether those resources exist in their business or if they'll need to acquire them. If they need to acquire them, you'll discuss the cost to buy those resources and the initial and long-term utilization rate based on sales forecasts.

As you get ready to sell, consider using lines-of-business to help strengthen the value by dropping the weight before it sinks or drive the value up by spinning it off into a separate entities (and lean on your accountant to do a great job with the books).

You might try to sell the whole business at first and then offer to spin off or cut certain lines as the buyer reflects their value on the company. The payoff could be well worth it.

Young Entrepreneurs Who Can

I've worked with many business buyers and found that young entrepreneurs can afford to be the bravest of all. Why?

Young minds believe they are invincible -- beautifully-blended with a concoction of hope, ambition, and energy. Logically speaking, they may have very little, therefore have very little to lose.

An incredible young man named Jesse, tag-teamed with his friend Mike and bought The Ballard Station with 100% conviction that they would make it successful. They hurdled each barrier, financial and administrative, thrown their way and now host the community with trivia nights, Seahawks games, and a place where everybody knows your name. Stop by The Ballard Station and meet Jesse. See their story.

The only thing stopping more young entrepreneurs is their belief that there is no way to AFFORD to buy a business. They see a price tag of $250,000 and think that if they don't have that much money in the bank they can't have it. That's too bad. Financing is not a big barrier when you're borrowing to buy a proven-profitable business. Most smaller businesses can be purchased with the same down payment you would put down on a nice car. I tell my buyers to plan on putting down 10% of the company you buy. The rest can be financed.

On the other hand, older entrepreneurs find they can afford, financially, to take the risk and have maybe built up that "play stash" and realize that life is too short to be afraid. Without the prospect of risking the kids' college fund or falling short on the mortgage, they have the financial freedom to play.

Maybe the two should go in together and create the best-of-both-worlds!

In the middle is the space fraught with more worry, mortgages, tuition -- yet a few brave warriors surge ahead with confidence to achieve their dreams. Good on ya, mate!

What's backwards about birthday wishes

Who thought it was a bright idea to keep birthday wishes a secret when you blow out your candles?

Why not scream to the world how much you want a PONY! How will you ever get a pony if you don't tell the very people who could make that happen?

There are a handful of people on LinkedIn who really harness the power of the headline by publishing exactly what they are looking for. I like that. I search for that. It brings me joy.

So when I ran across Tara Johnson's profile and she says she wants a career in the media/entertainment industry, I happened to know of something that could make that a reality for her. It's worth a look, right?

If we do find you what you REALLY want, are you committed to take the steps to get it? I work hardest for my clients who have commitment -- removing barriers, reducing risks, improving the chances for success when buying an existing, profitable business.

You really want a pony? Your own charter boat company? Landscaping firm? Winery? I WANT TO KNOW.

Selling A Business: Under the Hood

How does a business get sold and what goes on under the hood during the transaction?

Tom, an Engineer working at Boeing, is sitting in his cubicle browsing business ads over lunch on BizBuySell.com and finds an amazing classic car restoration business for sale. As a passionate classic car enthusiast, he thinks, I've accumulated some savings, I wonder if I could buy the business and work here until the business takes off and I can eventually transition to it full-time? I wonder how this all works? 

Most people haven't had much exposure to how businesses are bought and sold, so here's how it works:

• BUSINESS VALUE IS ESTABLISHED: The business is valued by a broker or consultant working with the seller so you, as a buyer know what the business is generally worth based on industry and market standards. But, like any home sales, there are many variables, so anything is negotiable!

• BUYER IS FINANCIALLY QUALIFIED: Like real estate, a buyer might be qualified to finance a home based on their income, credit score, assets. However, unlike home purchasing, there are two additional variables with business purchases: 1) Industry Experience and 2) Seller Financing. Even if you don’t think you can afford a business with what you have in the bank, you can borrow against assets like your 401K or stock options (LRS can help you set that up. They set up mine so feel free to ask me about details and options). You may also request some financing be held by the Seller. Any remainder can be financed by a traditional or SBA loan.

• AN OFFER IS MADE: Many know of Letters of Intent, a statement of intention to buy the business at a certain time with certain conditions. Similarly, with slightly stronger intent, a Contingent Offer to Purchase can be made where, upon satisfaction of specified contingencies (such as obtaining financing, approval for lease transfer, inspection of building) the business will be purchased on a specified price on a specified date. The transaction is not binding until a Waiver of Contingencies is signed by the Buyer. A Broker typically will draw up these documents and you can have them reviewed by an attorney or CPA.

The buyer and seller may have a meeting during the time of the offer so questions around operations and the lifestyle of the business can be understood.

• DUE DILIGENCE BEGINS: This is the period aimed to erase Buyer’s concerns and contingencies. Documents are supplied for review, lists of questions and answers and exchanged, culminating in the signing of the Waiver of Contingencies. An example of some documents that are requested: List of Key Customers; Contracts; Equipment list and value, maintenance records, tax returns.

• PREP FOR CLOSING: Many documents are files with the City, State, and Federal agencies as we prep for closing day. Records are obtained on both parties to ensure no debt is going to follow the buyer and vice versa. Pre-paid items such as rent and taxes are prorated, employee contracts with the Seller are closed up. There is a final amount due at closing that is supplied to the Buyer who brings the amount as a cashier’s check to the closing. This cashier’s check is often a compilation of personal funds, bank loan and may have a partial Seller note to offset the balance due.

• CLOSING! Buyer and Seller arrive at closing and sign necessary paperwork. Personal IDs are verified and a cashier’s check is placed in a Trust Account to be disbursed to Seller as soon as taxes are verified a few days later. Buyer walks away from the Closing Meeting with the keys to their business to open the same day or next day. (See Employee Question Below)

COMMON QUESTIONS:

What goes with the business and what stays with the Seller? 

While everything is negotiable, most of what you see goes with the business especially if it was used to generate revenue in the previous year. This includes employees. The Buyer is not obligated to retain all of the employees but typically keeps them on until they have transitioned the business.   

Items on the Balance Sheet such as cash balance stay with the Seller as do liabilities such as credit card debt. Accounts receivable is typically negotiable depending on the nature of the business and how much of the product has been delivered to the customer. Generally, the entity who delivered the product/service might request more of the AR but will also be responsible for collecting it. Sometimes AR is sold to the Buyer at a discount to collect. 

Inventory goes to the Buyer during the sale but is usually a price added onto the selling price since inventory varies. The price of most businesses is the price WITHOUT inventory, unless otherwise specified. 

Many components stay with the business but are transferred in name to the buyer for equipment leases, vendors/service contracts, certification/credentials.

What’s negotiated are items such as gift cards (paid for but not redeemed), unfinished work-in-progress. 

Buyers generally get their own: Liability insurance, employment contracts with the employees, Point-of-Sale systems, bank accounts, specialized credentials that follow an individual not a business, if any are needed.

What if the buyer doesn’t know the business or how to run it?

Generally, a transitional training period is provided by the Seller to the Buyer which can range from 2 weeks in a business like a restaurant or retail to 3-6 months in a business such as manufacturing or services. 

The Buyer also has the option to offer the Seller a Contractors Agreement if they want them to stay on longer. This is a paid contract that is negotiated as part of the sale. Your broker can also complete these agreements for you with a few questions such as rate of pay, length of tenure, responsibilities, and which terms will satisfy the contract.

What counts as “Inventory” and what are “Supplies” and “FFE”? 

These are commonly misunderstood terms. The only thing that counts as inventory are the items that have a margin attached to them. Cups and fruit for a smoothie bar, shampoo for a salon. If you sell it for a profit, it’s inventory. If you use it in your business (receipt paper, cleaning items, but it’s not directly sold then they are Supplies. If it’s a fixture in the business such as shelving and computers (again, not resold), then it’s “Furniture, Fixtures, and Equipment (FFE)”.  

All of the components of the business sale are allocated by a CPA along with your broker to help you properly allocate the price paid for the business across: Inventory, Supplies, Assets, Real Estate, Goodwill, and Non-Compete. 

When does the buyer get to speak to employees? 

Divulging a sale to employees can sometimes be risky and cause disruption, so until the business transaction is closed, many choose to keep the sale quiet until then. This is negotiable, but a best practice is at close of business before the day of closing or the morning after closing, the Buyer and Seller go in together and notify employees, emphasizing minimal disruption to them during what’s hoped to be a smooth transition. Employees mainly want to know whether they will have a job, so the Buyer should swiftly interview and draw up new employment agreements with the employees. Generally, these agreements keep a similar pay grade for a time until they can be adapted based on performance and new management structure. 

Can franchises be sold? 

Most can, yes. There is a transfer clause in most franchise agreements which may include a transfer fee (usually under $20K), which can be negotiated as part of the sale. The Buyer will still need to qualify under the Franchise Agreement and obtain necessary training but buying an existing franchise can be a cost-effective way to obtain a franchise that is already successful!

How does the lease get transferred? 

Most leases have a transfer clause stating that a lease cannot be transferred without the express approval of the landlord. Most landlords are supportive of a transfer to a party with good credit and payment history. It is essential to get an approval of transfer before proceeding to closing. 

If you have further questions, please reach out!

Alternatives to College, But Still an Education

Three things have occurred since I went to college:

1. College tuition has massively increased even when accounting for inflation. The average annual increase in college tuition from 1980-2014 grew by nearly 260% compared to the nearly 120% increase in all consumer items according to Business Insider. Our young adults are signing up for student loans out of high school and then strapped with between $30,000-100,000 in debt, which is a nice down-payment on a home and a wedding. This generation is delaying or opting out of both, as a result.

2. Alternative education options have become viable and real. There are viable online and trade options for earning degrees and learning professions online and affordably like never before.

3. Young professionals change jobs frequently, unlike our life-long professional ancestors. No longer does a graduate take a job out of college and stay there through retirement. Today, the average person changes jobs ten to fifteen times (with an average of 12 job changes) during his or her career according to Balance Careers.

It was also notable that many companies no longer require a college education if you have experience and proof of expertise.

Surprisingly, in nearly ALL of the college marketing collateral I received, colleges claim 70 -90% of students from THEIR schools graduated in 4 years. Yet the national numbers say that more than 58% of college students take SIX years or more to graduate. That's hard on the pocketbook when there are so many other options now.

As the mother of 3 teens (one in college, one entering college), I asked myself whether the ROI was there for education given these factors. For my eldest, the answer was, maybe. For my next, I said, "why not something else?"

Because I am also a business broker, I deeply believe that one of the greatest gifts is the opportunity to build on an existing success. Investing in a business is securing a foundation to grow, improve, and reap benefits of what you bring to the business to make it better.

Compared to starting a business from scratch, investing in an existing business takes the biggest hurdle away -- surviving the first 3 uncertain years. Most small businesses fail in the first 3 years, but not one that has been in operation for 10 or 15 years. Changes in management and ownership are merely a manageable transition.

Therefore, when I learned that my daughter was 100% committed to interior design and she even had the knack for it, I thought I'd turn my $120,000 college education into a $80,000 investment in a business she could grow. A great career start with a $40,000 reserve for online education and travel. (thus still earning an education at a flexible rate).

At the same time, I could help support her with marketing and business finance, giving me the opportunity to apply my own education and work together as a family.

Why not, instead, learn to be an entrepreneur through real-life training?

If this is something you might consider for your own son or daughter, think about some of the businesses that are for sale right now as examples in the Puget Sound:

• Auto body and repair shop with acreage and a 2-story home on the property

• Home-service businesses that have crew for everyday labor including window-washing, garage-door repair and landscaping.

• Spa/Acupuncture/Facial facilities with trained staff.

• Small manufacturing companies like a print/sign business or a custom frame shop or this custom kiosk manufacturer selling for the cost of buying a car. Or, for fun, how about a long-board manufacturer.

• Several franchise options giving them even more bumpers to learn from

Personally, I would steer away from restaurants as a starter business. Unless you have family experience, they are risky to run and can fail fast.

Of course, if your son or daughter wants to be a dentist, doctor, nurse, lawyer, engineer, you'll probably be on the traditional route and that's just fine.

If you'd like to look at a business acquisition for your son or daughter, we have many creative ways to get you in with financing, training, mentoring, and more.

One additional benefit is that if you own a business and you choose to take college classes, your tuition (if related to your business) is tax deductible. If it is not related to your business, you can still take a $5K+ deduction for tuition. That's a nice scholarship!

Building a Personal Empire, Step-by-Step

There is a brilliant entrepreneur that has purchased several businesses from our firm. "Tim" has developed a repeatable plan for strategic acquisitions, connecting synergistic businesses into a portfolio of his own. He agreed to let me share some of the basic principles he applies:

1. FOUNDATION: He locates his "anchor tenant" - a bigger, predictably profitable business that acts as the foundation for the rest of his work. He assigns his best General Manager to run the business day-by-day while, after a year or so, he seeks related acquisitions

2. SPIN-OFF: His second purchase (usually once the first is into a 2nd year) is either: a) A supplier or b) A business that can be run by the same GM. He may also consider geographic diversity and cross-functional employees in the equation. He may repeat this step several times to gain more of the supply chain or take advantage of opportunities for new acquisitions if they are too good to pass up or if the business isn't attractive to most buyers stand-alone.

3. DIVERSIFIED AUDIENCE ACQUISITION: At some point in any business life cycle, there is usually a plateau, even in a high-performing business. To burst through that still period, Tim makes an acquisition to acquire a business purely based on its target customer. He looks for businesses that have contracts with customers that are the Collection's next likely purchase and lets those customers help define the new direction for the conglomerate. "The audience acquisition purchase is usually a nimble company with the ability to adapt to a new scenario. It might be a strong sales or marketing team, a home-based business, or one with few large assets," Tim advises.

The beauty of a diversified portfolio is that every investment decision is made on the margin, meaning that each investment that is to be considered a sunk cost in one business can be leveraged with ZERO incremental investment in the 2nd, 3rd or 4th business.

I thought it would be fitting to supply this strategic plan with a few real-world examples of businesses that are for sale at the time of this writing. One small and one large example:

SMALL BUSINESS ACQUISITIONS

ANIMAL-CENTRIC: You may be following the immense market opportunity of pet-centric businesses in America. Today, a strategic buyer could pick up 3 or 4 related businesses, all affordably priced, and connect them with shared resources and audiences:

• Dog training company: Asking $150,000. This is your anchor business with the longest history of predictable earnings. A single trainer earns the company about $180,000 with low overhead and a proven, repeatable technique for training.

• Pet Supply Delivery: Asking $30,0000 - This acquisition would give you a distribution mechanism and connect you with more prospect clients. Be sure to enable the staff to share leads across businesses. This business can be relocated.

• Retail Pet Food and Supplies business: Asking $55,000 -- This business gives you an anchor Seattle location from which to dispatch the rest of your services. You may consider adding another location in Bellingham for $300K once the core businesses can help fund it.

• Dog walking business: Asking $45,000 - This company doesn't have huge earnings, but fits the portfolio by supplying a regular stream of customers over time. Think of this business as the new customer acquisition arm of the company.

So, for under $300,000 (for which you may only need to drum up $50-60K on your own), you have acquired 4 related small businesses, all synergistic! None of them (except the anchor business) is perfect as a stand-alone acquisition so you'll probably get a great deal.

HINT: The bank will more easily lend on the collection and see the connections with your master plan.

LARGE BUSINESS ACQUISITIONS

FIRE PREVENTION: Today there are, coincidentally, 3 businesses for sale that service the fire prevention market. Most of the details on these businesses are confidential, but contact me for an NDA and I can step through them with you.

You have a choice of two potential anchor tenants here:

• Sprinkler and Related Installation: Commercial customers who are either building, remodeling, or bringing themselves up to code. Solid, repeatable business. Large-scale.

• Commercial Insulation: Supplies the "sealing up" of a commercial building with fire-resistant insulation and asbestos removal. The business has been earning consistent revenues for over 20 years. Large-scale.

• Fire Extinguisher Maintenance Services Business: This is a relatively small acquisition that makes obvious sense combined with the others. Low overhead but a few vans, tools, and expert employees.

• Commercial HVAC Company: This company is also selling its commercial property with the business so it will be easier to obtain funding with an asset-based loan. They also feature a full- sheet metal shop for custom projects which would come in handy for both of the other businesses above.

As you can see, there are some incredible puzzle pieces to fit together making the sum of the whole FAR more profitable and fundable than any one individually. I'd be happy to work with you and connect you to funding sources who favor this approach whether large or small.

Careful what you sign up for in the spring!

Compared to your hibernating winter body, the warm, sunny days of spring create a physical change: like a lizard in a lamp, your temperature goes up, your activity increases, and your mind is flooded with serotonin!

"YIPPEE! Nothing can stop me!"

My phone has been ringing off the hook this week from buyers inquiring about businesses after our FIRST sunny day in Seattle in weeks (many, many weeks).

I want to pause for a moment to reflect that what seems like a good idea the first day of spring should not be the thing that weighs you down in the winter. If you have a full-time job, say at Amazon, Expedia, or Microsoft, buying a business MIGHT seem a good idea on the first sunny day of spring, but be sure you know what you are signing up for. Businesses without an owner's presence are often subject to decreased employee and customer satisfaction, issues with quality and overall upkeep. As much as I'd like to sell you a business, I also want to make sure that it makes sense for you.

Yes, spring can make us joyous, but spring fever is also described as a "hangover" from a period of dormancy. Like hibernating animals, we pass through moments of elation and confusion. It's a real, chemically-based thing.

So kick up your heels, but don't sign any contracts until a few days have passed to let your ideas soak in the sun AND reality.

But when you do want to buy a business, please call me. ;-)

High Aim Vision: Driving (Life) Lessons

I raced my first autocross last week --where you challenge yourself and your car to extremes. Utterly exhilarating. But beside that, the importance of high aim vision becomes evident.

High aim vision means looking high into your path's distance which forces you to engage you in two simultaneous things:

1- vision, anticipation, and planning for what's in your addressable future.

2- trusting that your instincts, reactions, and reflexes will address what crosses your immediate path. This means LETTING GO of trying to focus on the closest view.

Both need to happen for a smooth ride (plus an occasional glance at your dashboard).

So many good business lessons here.

I, for one, am guilty of periodically trying to control my immediate path in my business --- at the expense of a distraction from my high aim future. (The one that is truly addressable and within my control)--making for a bumpy ride.

At first, it's hard to trust in "the Force" to react to your immediate path and bring your eyes up to focus on the future, but try it on your next road trip. Your mind is amazingly reliable in reacting to immediate stimuli. It really works and feeling this experience firsthand really makes you think about how well this applies to work, and life. 

 Experiment with how your ride changes when your site is high vs. low. 

An under-utilized investment channel

You've got your "safe" investments, your diversified portfolio, but what else is there?

1.  Money markets? Savings accounts? .95%? Yawn.

2. Government bonds? .3-2.8%? Great for a sliver of your worth.

3. The stock market? Obviously, but either you are diluted through diversification or you are at high risk in a business or set of businesses that you have no control over.

4. The freezer. My grandpa's style! 

5. A local, profitable business! Many business owners have built a successful business, been profitable for decades, and are now retiring. Many of these businesses can be run by existing staff and you can become an absentee owner.

There are hundreds of businesses available around you right now for purchase. They are making money today and have been for years. They can generate immediate ROI with 2-3X return in the coming few years by simply picking up the business as an ongoing concern with the current staff, equipment, inventory, and lease or building. 

You'll see proven documentation of their success from their financials and tax returns, so you have little risk (unless you make dramatic changes). They can be small manufacturers, service businesses, pawn shops, retailers, yogurt stores. You'd be surprised how much your local mini-mart can earn in a year. 

For an even better return, you can get a great deal on a business that might be little dusty. With a little sprucing up, some marketing, new offerings, hours, or remodeling, revenue can be doubled in a year or two. Many of these businesses are $80-$200K and many even offer seller financing at 7-10%. 

Because the small business is local, you can keep your eyes on it whether you are an owner/operator or you hire a management team and keep your full-time job. I have many businesses available in Seattle's Eastside and South--even franchises that are selling their location. 

Time and time again, we see a better outcome in existing-business acquisition scenarios than startups launching from scratch and working for the first three years just to break even!

Skip the painful start and hit the ground running where someone has already plowed the starting-year ground for you. 

I'd love to share some of the stories from investors who took the step to take on an existing business

3 practical tips when selling your business

I won't get into the heavier aspects of selling a business here. (I'm keeping it on the light side for the holidays). But there are some down-to-earth, practical things to consider when selling your main street business:

1. A good lease. If you want someone to buy your business, you should have an attractive lease in place that has at least another year on it. If you're on a month-to-month lease, renew it before you sell. This gives you instant value, especially if you can negotiate on the merits of your history of on-time payments, good credit, and relationship you have with your landlord. A new buyer may not have the same footing as you do. (Make sure the lease is assumable.) If you're getting an SBA loan, your lease will have to extend past the loan term for them to approve your loan.

2. A plan for your debt. Buyers won't want to assume a Seller's debt, so have a plan for how you'll take care of it when they ask. Most of the time, it is paid off from the proceeds of the sale but if you're upside-down, then restructuring your payments to manage them over time might be your second option. But remember that your debt should not define your asking price on the business. Your business should be priced on its value, not on the amount you need to pay off your debts. 

3. Consider offering partial seller financing. Sellers have an additional opportunity to earn some money as interest by offering partial seller financing. This not only makes your business more attractive to a buyer, but carrying say, a 7% note is going to make your money work harder than most other investment options. Plus, if your buyer defaults, you get the business back and can resell it again. Of course, you want your buyer to have skin in the game so only consider partial seller financing. 

Good luck and if you need any help, let know.

Modern Metrics Lessons from Fat-Fingered Dialers

When I was a data-entry grunt at an ad firm in Minneapolis (now Saatchi & Saatchi), I was tasked with compiling stats from a company that provided phone systems to businesses to determine how often people mis-dialed.  Presumably, there was a new feature to reduce dialing errors, so we wanted to scope how big the problem was.

It was big.

Fifty-five percent (yes, 55%) of the touches to a phone at the time (this was in the late 80's) were mistakes.  This didn't mean they necessarily fully dialed the wrong number, but pushed numbers they didn't mean to push.  These are Oops-I-have-to-dial-9-to-get-out or Oops-that-was-a-2-not-a-3 moments. 

I was astounded by the number so I went to my supervisor, "these numbers are saying that people dial more WRONG numbers than right ones.  Can that be true?"  The supervisor shrugged it off and said, "numbers don't lie."

OK, so why does that matter now?  Well, think of the intricate data we collect about our clicks, views, and conversions from our social media ad or email campaigns.  I know I've accidentally clicked an ad or two--or seventeen.

Need I say more? 

What's the Difference between a Business Broker and Real Estate Broker?

Answer: Residential and commercial real estate brokers sell the physical space, while business brokers sell the business inside.

While there are some common traits, neither are better or worse, they are only different areas of focus.

That may be all you want to know, but read on for more interesting tidbits:

• Confidentiality. Both may utilize a listing service, but the business broker must keep the identity of the seller confidential in public as not to disrupt employees or customers who are still active with the business.

• Compliance. Both operate with fiduciary responsibilities and fall under professional codes of conduct and principles monitored by industry associations and government bodies. Business brokers also have special filings for business sales transactions.

• Approach to pricing. Business brokers help clients establish a probable selling price by evaluating financials and the earning potential of the business for the next owner, while commercial real estate brokers are not typically trained in this sort of assessment.

• Finding buyers. When Buyers look to buy a business, most do not generally go to a real estate broker to find listings (but some will do so on occasion). Business Brokers generally reach out to buyers in groups, associations, personal networks, or through specialized web site listings. Business Brokers generally work as an ambassador between the buyer and seller who get to know each other and work together. Real estate transactions typically do not connect the buyer and seller together.

• Research sources. Real estate brokers rely on industry sales, comparable properties while business brokers reference industry-specific standards around establishing a fair and attractive asking price.

• Compensation. Both are fee-based and are usually paid for a successful sale. Some brokers have a retainer fee. Paulson Exchange operates with a finders fee, not a commission. Compared to real estate, is more common for Business Brokers to represent both sides of the sale than in real estate since business brokers are connecting both parties around a short-term partnership until the business is fully transitioned.

• After the sale. Most real estate brokers have limited responsibility after the sale while business brokers often work together with the Buyer to help get their new business set up and running, sometimes working with Sellers to help find their next venture.

If you haven't heard about a business broker before, you're not alone, there are only around 3,000 full-time small business brokers in the US. 

I hope that helps.

Connecting teams to the bigger picture: Lessons from a Great Middle School Teacher

What was on the whiteboard of my middle-school teacher’s class was brilliant

I was at my daughter's curriculum night last week when one of my kids' favorites, Mrs. Donohoe, showed us the image you see above: 

I'll point out some brilliant thinking:  In each class, she prepares the kids with the uber-cause.  The top is the BIG PICTURE.  It's what the kids are doing this MONTH (what's our learning goal?)  Below it, what they are doing this WEEK to advance toward that goal.  Finally, the tactical view of TODAY and what specifics we are diving into right now, furthering the goal.   

It illustrates a great model -- think how nice it would be for every meeting to blatantly attach itself to the bigger picture in three easy steps --all attached to timelines.  I find that adding the word "so that" between each helps: 

IN THIS MEETING, we are discussing options for field communications methods, SO THAT
NEXT MONTH we can announce our field summit agenda, SO THAT
in JANUARY 2017  we can roll out our product suite with field buy-in and local events. 

Thought it was a good idea worth sharing. 

A Startup with a Better Start: Kangaroo Style

You know the stats: An alarming number of startups fail. Depending on whose study you reference, 60-80% of startups fail in the first five years.

On the flip side, 92% of business who have made it at least five years will survive another five years. 

Now we switch to kangaroos. Kangaroos are best-known for carrying their young in their pouch. When the joey is born, it is guided safely into their comfy pouch, to gestate for 120 to 450 days. Inside the pouch, the joey is warm, protected, and feeds by nursing. The mother kangaroo is even able to nurse two joeys at different developmental stages at the same time. 

You probably see where this is going. Using the kangaroo technique, you give your startup a better start inside of an established business. Instead of starting a solo startup and spending 1/3 of your time seeking investors who may end up owning more of your company than you had ever hoped (their money is not free); buy a small business that is ALREADY generating cash and embed your startup inside of that company.   

Let's say your startup idea is to develop a new SAAS-based security service. Think of how much value an offering like that would be to, say a physical security business that is already generating a million dollars a year. 

Don't think you can afford it? You'd be surprised how affordable most of these small businesses are. If you can find a way to access equity or cash for 10% of the asking price you see, you can likely afford it. SBA loans and Seller Notes are typically your answer.

Millions of small business owners (often retiring Baby Boomers who have worked the business for decades and gotten the cash out of the business' life) are selling and from the listings I see, they are not greedy or unrealistic about their asking price.

Examples: A security door manufacturer in Oregon was grossing $600K with room to grow and open to a fair asking price for their established business. Imagine how that cash flow could be applied as R&D to your product development while it also raises the innovation and revenue opportunity for that established business and their existing customers. 

Did I mention that the employees are already running the business so you can still focus on your innovation? 

So, if you're sitting in a cubicle right now, contemplating your startup, but unsure if you're ready to take the risk, don't.  Take away the risk and then make your dream a reality in the safe pouch of an established business.

Call me if you need ideas on what good businesses might be a good match for you.  There are plenty to choose from. 

Kris @ 425-830-0867