Monthly Archive for October, 2013

SBA Poll: Impact of Obamacare

The Question:
Obamacare will be in force January 1, 2014, and Healthcare.gov is now active - do you know how this law will impact you?

3% - We’ve used the website successfully and Obamacare will be better for us.

30% - We’ve discovered that Obamacare won’t be a better alternative than what we have.

13%- We tried to use the website but were not able to finish and discover the impact.

54% - We haven’t used the website yet and won’t until absolutely necessary.

My Comments:
As you can see, three and a half years after Obamacare became law, and three weeks after the much-anticipated launch of the website, Healthcare.gov, only a third of our small business respondents know how Obamacare will impact them. But 97% of our audience either doesn’t like what they found, still don’t know, or are resisting participating until the last minute.

It’s difficult to imagine how a law that becomes increasingly unpopular the more that’s know about it can survive. The only thing the broken website has done is prevent millions of people from discovering just how much this law is going to increase their insurance costs and decrease their coverage.

The specter of Obamacare has cast a pall over the economy since 2010, and now we’re learning that our fears were warranted. Let’s call it like it is: Obamacare is a bad law. It’s bad for America in general and it’s bad for small business specifically.

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A business is not a Chia Pet

When I have talked with would-be entrepreneurs who want to start their own business, I often observe more urgency than understanding. I continue to be amazed at how many people disregard the fact that being a business owner is a profession.

If you decided to become a surgeon, would you expect to operate on someone the day after you made that decision? If your bent was toward the ministry, wouldn’t you expect to get appropriate education and training before you would be qualified to shepherd a congregation? Or let’s say you longed to be an automobile mechanic. That desire alone wouldn’t give you the ability to diagnose a mechanical problem and successfully make the repairs, would it?

So what makes anyone think they know how to run a business just because they . . .

. . . have always wanted to?
. . . can’t stand to work for someone else another day?
. . . have this great idea that no one else has ever thought of?

A business is not a Chia Pet. It takes more than adding a little water and waiting a few minutes for green stuff to pop into your life. Successful business ownership is at the least more like growing strawberry plants, which don’t produce berries until the second year. But it’s often more like growing apple trees, which only bear fruit after several years.

Too many so-called “experts” have learned the hard and expensive way that, just because they know a lot about a product, service or industry, doesn’t mean they know how to run the business that successfully makes those things available in the marketplace.

If you want to start a business you certainly need to know your product and industry. But you also need to know the profession of business ownership. And like a surgeon, minister, auto mechanic and farmer, being a successful business owner takes education, training and time.

Before you turn in your time-card, minimize your urgency and maximize your understanding about the profession of business ownership.

Consider these four factors when buying a business

Continuing my series on buying a business, here are summaries of four more critical factors to consider when acquiring a small business.

Old sellers are the best sellers
One of the best opportunities to acquire an existing business is when you can buy one from an owner who wants to retire from a business that’s still viable. Two good reasons are: they’re less likely to change their mind before the transaction is complete, and they’re more likely to finance a larger part of the sale price to get monthly income.

But notice I said, “still viable.” Sometimes the end of the current owner’s career coincides with the end of the life of the business. Don’t buy a business that should also be retiring.

Assume skeletons in the closet
Every business has baggage. Every business! If your due diligence doesn’t find any, you didn’t look hard enough. Or even more dangerous, you want the deal so much you rationalize what you found as “not so bad.”

When you find the bad news, let the seller explain why it’s there. If you think you can live with it, try to turn it into negotiating leverage. If you can’t, walk away.

Cold feet at closing
After no small investment of time and money putting a small business acquisition together, many deals derail before consummation—sometimes literally at the closing table. Last minute reluctance doesn’t have to kill the deal if you’re prepared. The key is to anticipate this possibility and be prepared to take appropriate communication, negotiation, and contractual steps along the way to protect yourself.

Oh, by the way, you might be the one with cold feet.

When to stop negotiating
Once both parties have signed the purchase contract, what’s left is to execute the transfer. There are many steps in this process, including legal, financial, physical, and organizational hand-off. What should not be done is any further negotiation.

The signed contract stipulating the terms of the deal is now a legally binding document. Any subsequent negotiation will likely corrupt the work that has gone before. Don’t sign the purchase contract until you have no more deal points to negotiate.

Finally, buying a business is likely the most important transaction you’ll ever make. Do it for the right reasons, be patient, resist the urgency of others, conduct proper due diligence, negotiate the best deal for yourself, and be prepared to operate what you’re buying.

Just like in marriage, no one should enter into the state of business ownership inadvisably.

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Check out my latest segment below on The Small Business Advocate Show® where I talk more in-depth about the four factors of buying a business.

Four factors to keep in mind when buying a business

Light and darkness, success and failure

The movement of small business owners throughout their day is a constant transition from darkness to light. When something good happens, our world seems newly illuminated. Every struggle, every setback, seems to cause darkness to return. But we know every dark moment is an opportunity for light. The only question is, will our efforts produce a flicker or a beam? And isn’t not knowing what makes the anticipation sweeter?

Should we long for a life without struggle? Wouldn’t constant light become boring? Remember, the enemy of vision is not darkness, it’s glare.

In one of my favorite books, Anam Cara, my late friend and favorite Irishman, John O’Donohue, wrote, “We are the sons and daughters of the darkness AND the light.” Indeed.

Light and darkness, success and failure — what would be the value of one without the other?

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SBA Poll: How will you retire?

The Question:
What will be the most likely exit (retirement) scenario from your business when the time comes?

31% - I expect to sell my business to a new owner.

14% - I plan to sell (or convey) my business to family members.

6%- I will probably just lock up one day and not come back.

50% - Since I probably won’t retire, I’ll just go out feet first.

My Comments
These responses are not too far out of line with what I think is the reality for most small businesses. How do they stack up to your own expectations?

I’m going to have more to say about this, with some industry statistics, in an upcoming Feature Article. Stay tuned and thanks for participating.

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When buying a business, consider these business principles

Continuing my series on buying a business, here are a few points when considering this ownership option. Thanks to Russell Brown’s “Laws of the Business Buying and Selling Jungle” for the inspiration.

—Buyer beware – of himself.

In the securities industry, full disclosure is the coin of the realm. But in the marketplace, caveat emptor — let the buyer beware — is the fair warning standard. If a seller misleads or misrepresents something, legal redress may be available. But business purchases that don’t work out are born more from inept buyers than from seller malfeasance.

—What’s a business worth?

Many metrics and factors are used to divine the value of a business, including strategic elements outside of the empirical. But primarily, you should focus on the business’s ability to generate earnings — net profits. With the exception of strategic factors, if the prospective business isn’t creating acceptable earnings and you don’t know how to change that, don’t buy the business.

—Disregard unreported cash.

If a prospective seller tells you about unreported business income in order to justify the asking price, that’s at least strike one against continuing to pursue this seller. Do you really want to buy a business from someone who admits to breaking the law and then tries to trade on it?

—Match questions to the process.

Ask a seller too early about something you’ll discover during the due diligence process and you’ll likely get hyperbole or a lie. Then when the due diligence produces the truth, you’ll have an embarrassed seller and perhaps a deal that goes south.

—Beware the desperate seller.

With the exception of death, illness, disability, etc., an owner desperate to sell probably has desperate circumstances. Sometimes this converts into a buying opportunity, but often it manifests in a sale price that can’t be justified by the performance of the company. Translation: The seller needs someone to solve his financial problems and his price is based on the extent of the problem, not on the true value of the business.

—Don’t bring lawyers in too soon.

You’re going to want an attorney to help put your business acquisition together. But when lawyers are introduced into the process too soon, the chance of having a deal that won’t get done is greatly increased. Lawyers are like medication: They can save your life, but they must be administered properly.

When buying a business, information orderly process, and patience are your friends.

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Check out my latest segment from The Small Business Advocate Show® where I talk more about buying a business.

Six principles to practice when buying a business

Check out more of Jim’s great content HERE!

Take this week’s poll HERE!

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