Value of Buying a Business

Buying the Goodwill

As opposed to what one may commonly think, purchasing an existing business venture entails higher costs than starting from scratch. Indeed, you may not be required to spend on equipment, buildings, inventory, and the like, and you may even be handed an existing staff, but the larger fraction of the purchase depends upon what businesses refer to as “goodwill.” This pertains to the existing clientele of that particular business.

Just imagine, if the business you’re eyeing to venture in already has a steady and continuous stream of customers, the returns will be faster and you, as a new owner, will enjoy the gains early on.

Since the goodwill was already established prior to the new owner’s acquisition, it gives the new owner a solid customer ground and he won’t need to worry too much about attracting clients. The duty of the new business owner then is focused on customer retention.

Unfortunately, calculating the value of goodwill cannot be defined by a simple mathematical equation. It’s an agreement between the parties involved that must be based on the current economic conditions. Therefore, if the present greatly factors in, that explains for the higher value of the intangible goodwill.

Critical Points to Consider

If you are looking to buy a business, you must possess a strong interest in that particular sector. A business is a learning process that proves hard in the absence of interest. If you’re only in for the gains and you don’t capitalize on your own interest, sustaining its position in the market might prove difficult.

Once you’ve established your point of interest, do your research prior to acquiring your choice of business. Perform a financial evaluation, and determine the owner’s reason for giving it up. Investigate on the business’s current situation to eliminate the legal risks that could possibly happen.

Improve Productivity

I’ve observed in my work with hundreds of authors, thought leaders and experts around the globe that there is a tendency to let relationships (both internal and external) get a bit complacent. It’s the deadline that gets missed for a client that’s also become a friend. It’s evident in the assistant that starts to wind down his day a few minutes earlier than he used to. It’s the typos that find their way into an important client deliverable. It’s not laziness, it’s not incompetence, it’s complacency.

Here’s the downside. If it’s your client and you’re the one that’s gotten a little lax, there is always someone else that might be a bit more aggressive, a little hungrier, slightly more creative, or more innovative and your client can easily become intrigued by the fresh perspective. If it’s your team or suppliers you are getting less than you are paying for. It’s acceptable, it may even be great, but it is not the best that your people or organization are capable of producing. Again, it’s not mediocrity – it’s just not excellence.

So how do we overcome this? It may be a bit counter-intuitive, but tension is good. Stress can yield higher quality outcomes and insure client relationships are on solid ground. A little bit of tension or a lack of complacency not only keeps everyone on their toes but makes us more cognizant of our role in the relationship and what is expected of us. Of course you can still have an amazing relationship with your client or team but introduce a bit of tension to counter the complacency that is a part of the way humans are wired. You’ll protect your best client relationships and improve productivity across your organization in the process.

I enable thought leaders, authors and gurus to monetize their content through books, keynote speaking, the creation of training services and products, and consulting and assessment tools. I start at the strategic stage, define the target market, assist in the creation of the offerings and solutions, and lead business development, sales and marketing of those solutions.

Create a Culture for Success

Communicate optimism

Begin by looking at yourself. Do you radiate success? When you come to work do you hum “take this job and shove it” or do you energetically belt out “don’t rain on my parade”? Are you optimistic about how the day will go and do you communicate that optimism to everyone you come in contact with? It doesn’t take much to communicate optimism. A smile – an encouraging word – a zest for the work at hand – they all help to convey positive demeanor.

Don’t blame the competition

So you’ve got really tough competitors out there? Sneaky, underhanded, unethical- making up rumors about you- they’re just looking for any opportunity to steal your clients away from you. I don’t think so. Competition will always be with us. And not everyone will do business the way you want to. But…how did they get it in the first place? What was missing in your product or service? Look at your weakness and confront it. Then do something about it. Your competition can’t steal business from you. You don’t own those revenues, the clients do. It’s up to them to make sure they’re getting the best product or service or value for the dollars being spent.

Identify simple improvements

You don’t have to concentrate on just the big jobs that need to be done. Sometimes the best improvements are the simple ones. A rain drop doesn’t end a drought but many rain drops will.

Never say “can’t”

This is a personal favorite. I’ve sat in many meetings listening to people say “can’t” to the solutions that would create successful products or promotions. For example, you don’t know if the marketing campaign you are working on is bringing in the specific type of accounts you wanted because you can’t mine the database properly. Well, figure out how you can. Even if a solution is an up-front cost- figure how much will it cost you not to implement. Don’t be afraid to use simple solutions. Can’t automate a process right now? Figure out how it can be done by hand. There is always a work around solution to a problem.

Painless Marketing

The secret to avoiding disaster is to craft a realistic marketing plan: a plan which takes into account your time, your budget, and most important of all, your emotional makeup.

I hit upon this secret because for years I thought I was plain rotten at marketing. I wanted instant results, didn’t get them, and so avoided marketing altogether. You can imagine how successful that strategy was; I learned to love rice and baked beans.

Finally I made a deal with myself: I would create a new marketing plan, focusing solely on those marketing activities which I enjoyed, and which were easy to implement. If I felt an activity I didn’t enjoy was vital, I’d outsource it. I decided to outsource telemarketing, for example, because I only have to think about making a cold call for my palms to sweat. I did a deal with a friend: she’d make cold calls for me, and in exchange I’d write news releases for her business.

If you’d rather do your own dentistry than market, investigate these two options: “permission marketing” and “viral marketing”. Both these activities cost little, yet can get big results.

Permission marketing basically means that a customer has given a business permission to contact her with news about the business, special offers, and so on.

Permission marketing is easy to implement. In its simplest form, you send out an email newsletter to your customer database once a month. The newsletter contains news, helpful information and small adverts for your products and services. If someone has bought from you, they like what you have to offer and will buy from you again. A newsletter shouldn’t take more than a couple of hours of your time once a month, and you should see a rise in sales almost immediately.

Permission marketing works online and offline. Viral marketing is more of an online marketing tool.

In viral marketing, the business creates a free product of some kind, which it hopes that its customers will send to others, with the business’s marketing message intact.

Think in terms of something which you can offer free at your Web site. Information products are ideal. Consider electronic reports, ebooks, and e-courses. Alternatives include screensavers, free software, and images.

Just make sure that your business name and contact details are prominent, and then encourage your Web site visitors to share the item with others.

If you hate marketing, accept this fact about yourself. Then find painless ways to market.

Become a Better Decision Maker

  • Start Small. Even making small everyday decisions will help you accomplish the bigger goal. Small decisions such as what food to eat at a restaurant are not to be underestimated. A good way to start is the next time you’re eating out, look at the menu and decide what you’d like to eat. Then put the menu down and don’t change your mind. Don’t ask your companions what they’re having and base your decision on that – make the decision on your own and then stick to it.

Small steps like this can be empowering and help you to tackle the bigger decisions to come in the future.

  • Approach decisions logically. Many of us tend to make emotion-based decisions rather than logical ones. In business this can spell disaster. A good way to help you approach decisions in a logical manner may be to write down a list of pros and cons.

Simply grab a sheet of paper and label one side pros and one side cons. Then list all the good and bad points of your choice. Logically think through your comments and then make your decision. This way you can leave emotions out of the equation and concentrate purely on the facts.

  • Cut yourself some slack. Making decisions is a skill which can be learned but even pros don’t always make the right choices. Realize that making decisions effectively takes confidence and is a great first step, but your decisions may not always be the right decisions. If you happen to make the wrong decision, give yourself a break and take comfort in the fact that you thought out your decision clearly and logically and made the best choice possible at the time.

Choosing Company Name

One of the most common ways of selecting a company name is to use something personal. A quick look through your local newspaper will probably introduce you to many personalised business names. Johnson Consulting Limited, T Smith & Son Limited, Stephens & Barley Limited are some fictional examples of what may be found. This may instantly make a company recognisable locally, it can be deemed as more personal by its customers, and often works well within geographical areas. However, it does little to tell new customers what your company does.

A popular choice for a small business is to choose a name that is ‘descriptive’. This tells prospective clients exactly what your company does. Examples of this may be to call your business The Window Company Limited, City IT Consultants Limited or The Advertising Agency Limited. Whilst this does serve to reinforce your primary business it offers little differentiation and may easily be adapted by competitors.

A less personal option is to use a company name that is ‘associative’. This type of company name helps to create an image or connection to your business activity. It is less direct than using a descriptive name but helps to position your company’s name within the market through peoples understanding of what words mean. For example a flick through the Yellow Pages will offer plenty of examples of this. A hairdresser called Classic Cuts or a printer called Selectaprint Limited are examples of what may be found. These names offer some differentiation but may not ultimately set your company aside from its competitors.

An alternative is to choose a company name that is ‘freestanding’. These names are completely abstract and not related to the companies business activities. A fictional example may be to call your catering company Zedoc Limited. There are many popular brand names that illustrate this point. Consider, Kodak, Cannon, or Pantene, these names will probably be instantly recognisable to you and conjure up a particular product or business. This is a good way of setting your company aside from the competition but it is important to consider the market that you operate in. Will your prospective clients know what your business is offering?

Choosing a company name may be a simple process, but it is not uncommon for people to deliberate over names for quite some time. Whilst company names can, and often are, changed during the life of the company most people like to choose a name that they like from the outset. Therefore consider your market, how much you want to differentiate from your competitors and what your company name should say about your organisation. Once the decision is made focus on the important business of making your company a success.

History of Invoice Factoring

Let’s say you run a small company that’s developing a unique idea. Everyone works hard in designing the product, and your sales department hits pay dirt: a large manufacturing contract. This is exactly what you wanted, but you now have a problem: you need to hire more people and invest in some machinery to fulfill the contract, but you won’t see any money until the goods are delivered.

In this situation, a lot of your options aren’t too appealing – a large loan (assuming your business has the credit,) or convincing your employees to accept a deferred payroll. In many cases the best solution is to strike a deal with an invoice factoring company. What the factoring company will do is effectively buy your invoices at a discount – the “factor,” which are typically 3 – 4% – and provide you with the up front cash that you need. When they come due, the factoring company will then collect your invoices in full. Although the invoice factoring company will collect the receivables, this is usually done in a transparent way to the customer: as far as the customer is concerned, they are simply paying an invoice to a company as they normally would.

Even if it’s not out of a need for capital, many smaller businesses also turn to factoring companies to alleviate cash flow issues. When selling to large corporations, some businesses find themselves dealing with long gaps between invoicing and payment and with little leverage to narrow it. By turning to an invoice factoring company they can create a steadier cash flow.

The Beginnings: Invoice Factoring in Early America

Factoring made its way to America almost as soon as the pilgrims did. Many early American merchants made use of factors in order to sell tobacco and cotton abroad: they would ship their goods to England where a factor would take a percentage for selling and collecting money owed, and English merchants would do the same using American factors. In this way factoring played a pivotal role in rapid growth of American industry – without factors it would have been much more difficult for merchants to maintain a steady cash flow and trade of goods overseas.

As the American economy grew, American factors were able to concentrate more and more on domestic business. From the early colonial factors, and group of around 40 large factoring companies descended, based mostly on the east coast, that played a major role in financing the textile and transportation industries until the early 1950s. In the early part of the 20th century these factoring companies began to establish percentages of receivables that they would advance companies upon the purchasing the invoices, usually around 70%-80%. This provided much of the large amounts of capital needed in these industries.

The mid 1950s saw the emergence of smaller businesses using factoring to address cash flow issues, moving the factoring industry away from the exclusive realm of large industry. As smaller businesses began to make use of factoring, the industry grew rapidly and became more competitive. The result was a trend towards mergers beginning in the 1970s that saw the number of large factoring companies reduced to around 10 by the end of the decade. At the same time, banks and other large financial institutions began to offer factoring services, and the business of factoring became the domain of large, institutional organizations.

The Impact of Invoice Factoring on Today’s Small Business Trends

The factoring industry more or less remained this way until fairly recently. The last 10 to 15 years has seen the re-emergence of small, independent factoring companies catering to a much wider range of businesses and needs. This trend has created a split market with a few mammoth factors targeting traditional factoring industries, and many small factoring companies that are continually creating new markets.

This trend towards newer, smaller invoice factoring companies is a reflection of contemporary business trends. The pace with which smaller companies develop and operate, particularly in the competitive technology and service sectors, requires a steady cash flow that can’t always be provided by receivables. An example of this can be seen in the emergence of temporary staffing agencies. These companies have large payrolls and depend heavily on cash flow. The competitive nature of this industry puts many temp agencies in a position where their payroll is due before their invoices are, and many smaller factoring companies have come about to provide solutions for this gap between payables and receivables.

Save Small Business Money

On your start menu, go into the ‘control panel’.

Then select ‘printers and faxes’.

When you see your printer, right click on it and select ‘properties’.

What we are going to do is set the default settings to ‘Black and white’ & ‘Draft’ quality prints.

The reason we are going to do this is to conserve ink.

I find that more than 95% of the pages I print simply don’t require color.

I’d venture to guess that you don’t need high quality for most of your prints either.

You’ll see that the print quality for draft settings is barely distinguishable from full quality black and white and also that your printer will print the pages much faster.

So, you’ll be avoiding the hassles of getting new print cartridges and printing faster!

Watch as your printer zoom through pages with these settings!

This can save you lots of time and money, so I suggest you keep these settings.

If you want print something of highly quality, you can manually set the print quality when you are printing that particular job (which is probably only 5-10% of the time).

Often times I find that I start printing something, only to realize that it is set on regular settings, using more ink than necessary.

By setting the defaults to draft quality and plain paper, you only have to remember to change the settings on those somewhat rare occasions when you want to print color or a higher quality black and white print.

Changing Business Insurance

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Build Business Credit

Prepare Business Plan And Structure

You are now in the world of business credit, not consumer credit. This means that you are trying to project yourself in a business-like way. In preparing yourself to do this, you will have the added bonus of preparing yourself for the transition from being an employee to being a business man or woman. The more business-like you become, the better your business will do in the future.

But first things first. Your first job is to convince potential lenders you are going to have a viable business. The quality of your preparation is important; if you go seeking business credit without doing your homework, you will be sent back to the drawing board.

To begin with, set up a proper business structure, and if you require any licenses, make sure those are in place. Also, prepare a business plan, with the aid of an advisor if necessary. You can use this to show that you have thought about the business: the products, the markets, the competition, pricing, and all the other elements of the business. Be prepared to defend your projections for sales, and your estimate of start up and running costs.

Again, this has the added bonus of being a good preparation for you, regardless of seeking credit for your business. You will become a better business person for preparing your business plan. Hopefully, that will stand you in good stead as your business grows successfully. Planning will become a part of your monthly or annual routine.

Another preparatory move that will help you is, in the US at least, getting a business credit profile. This can help you to build up business credit without using your personal credit. The benefits in having a business credit profile are many. Most importantly, you will have more cash for the business, convenience in purchasing, protection of your personal assets, limiting of personal liability from the business, and the ability to prepare your business for future lending needs.

Become A Good Credit Customer

You will, of course, need to buy equipment, services, stocks and other materials for your new business. If you can find vendors who will grant you credit, all the better; but is best if they are companies who will report your credit history to the major business credit reporting agencies. Dunn and Bradstreet is probably the best know internationally. Unlike with personal credit ratings, or FICO scores, with business credit scores income or income potential play an important roll. The top scores are reserved for the large stable businesses, but with careful and diligent business and crdit practice, you too can achieve a good credit rating.

Obtain A Credit Assessment

In order to enter the business credit market, it is best to do a credit assessment. This will determine if you comply with the lender and credit bureau’s requirements. Once you have done that, look for businesses that issue credit without the need for established business or personal credit checks or guarantees. Once you have transacted business with vendors on credit, you can utilize those references to build your credit profile with the credit reporting agencies.

In many US states, there are non-profit organizations and/or government organizations that will help you with obtaining business credit. Often there are loans available for start-up businesses or even government grants. Check your state government, or national government if not in the US, web sites for such organizations.