Uncovering The Real Numbers In A Business For Sale

January 31, 2010

When a prospective buyer is making an effort to find out whether or not they’re going to buy a particular business for sale, there are a variety of buy business factors to carefully consider. When prospects arise, quite apart from the question of suitability, location and longevity, the issue of real-world business valuation is front and center. At this point, the seller will provide financial documentation – and it is, of course, very much in their best interests to present their business for sale in a “glowing” light. As such, the issue of “add backs” is likely to represent one of the thorniest problems.

In a majority of cases, add backs are included to try and present the operation from a real world perspective. When compiling traditional accounting reports, it’s essential to adhere to a set of very rigid standards – there may also be additional footnotes to consider, and depending on your point of view, these can be either positive or negative. When you’re thinking about buying a business, it’s crucial that you carefully scrutinize each and every add back, as they can often make a significant difference in your final valuation figure.

When conducting a process of due diligence, it can be a fairly straightforward procedure to check recorded sales and purchases against ledgers and against reconciled bank accounts. Far more often than you might think however, the current owner will strive to draw your attention to points which may be “one-time” instances, or to extra income which might not actually appear anywhere in the books at all. You should be open to all suggestions of course but maintain a degree of skepticism at all times until you are able to validate the claims, or otherwise.

Don’t forget that for an item to be claimed as a “one off,” it must not have occurred during any of the previous years. Seller could argue that a particular expense is much larger than it should be due to a particular incident or requirement, but if you see a pattern of any kind, then the add back must be discounted.

One of the most common add backs, especially when the business can be owner operated, is to suggest the value of a manager’s salary. You need to establish that the outgoing owner was not actively involved in the operation of the business in this case and this figure is only of interest to you if you intend to assume the role of the redundant manager.

Add backs may not be asserted whenever they represent intangibles, such as the prospect of additional revenues due to a new marketing initiative that the outgoing owner has just put in place, for example. Nor should you believe an owner claim that you can reduce a certain category of expenses through renegotiation or other initiatives. After all, if the outgoing owner has not being able to do so to this point it seems reasonable to assume that an incoming “newbie” is likely to have even less ability to affect short-term change in this regard.

Be particularly wary when you are told that a business retains a lot of cash sales. You must essentially discount this notion from a strict valuation perspective, even though such a claim made, after review, may be seen as reasonable. If the owner has not entered the cash sales on the books, he or she will not have accounted for taxes correctly and it’s not fair for them to expect to receive a double benefit in this way, a net tax saving and enhanced business value.

When you have reviewed the complete list of business financials, treat each claim for add back on an individual case basis and never roll them into an inflated value. At this stage you must be particularly diligent to enable you to arrive at a real world price for this prospect.

Richard Parker is the President and founder of the prestigious Diomo Corporation – The Business Buyer Resource Center. His celebrated materials, seminars and consulting have encouraged thousands of aspiring business buyers from around the World to pursue their dream to buy a business.

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Undertake Due Diligence When Purchasing Your Internet Business

January 29, 2010

The process of due diligence is essential when looking to buy website business enterprise. It is estimated that up to 50% of all deals can fall apart during this process and this is most often due to some misrepresentations during the initial discovery, but can also often be due to an inadequate assessment by the buyer, leading to cold feet.

When you purchase an online business, you may face particular challenges not seen in a “bricks and mortar” operation. You will need to focus on the very composition of the business itself, which will be structured around the website and technology used, understand the products and services being sold, get to know who the customers are as well as the employees (especially the tech people), go through the financials and any legal issues associated with this type of business. When all said and done, you’re the one who has to be satisfied with the marketing initiatives which are under way for the core website, become an expert at generating traffic and search for expansion opportunities on a daily basis. Remember that this is much more than just a website for sale.

With an online venture, marketing is highly important, but the technology and software used to determine the composition of the website are equally so. The website is the “window on the world” for this business, and you need to be happy with the way it has been constructed. You must get the owner to give you a full tour of the website, including the front-end and back-end, understanding the way that customers will interact with it and how transactions are handled. Find out how the website was built, if it was developed internally, who owns the source code if this is applicable, how it is managed. If any of this process is controlled by the owner, consider an agreement with him or her, following any purchase, to be available for a certain period of time in case of questions and especially of emergencies. If the entire process is outsourced, it’s crucial that you speak to the individuals doing this work before agreeing to any kind of deal.

During your initial thought making processes, you should ask yourself whether you are happy to be involved with the ongoing maintenance, coding issues, updates and all elements of website operation or whether you will be outsourcing this. Pay particular attention to how transactions are handled, credit cards processed, security and safety.

When you look at the products or services on offer by the business, consider if there is any type of exclusivity. If not, you may likely face opposition from competitors down the road. Does the business rely on certain suppliers? If so consider whether these are reliable or whether there are any alternative sources of supply available.

Marketing is everything when it comes to an Internet-based operation and you want to get a full understanding for the type of customer that you will have to deal with. Does the business market directly to consumers or to other businesses? You will need to be able to identify the unique selling proposition and the value-added benefit that the operation represents to your customers. Your support structure should be over and above and every element of the business should be aimed at over delivering to the client.

If the business has employees, take time to understand them. For people coming from a traditional corporate environment, this may involve a process of adjustment. Often they will find that the more “creative” types are a little unconventional – will this cause a potential conflict of understanding, loyalty or respect? Be wary if the operation of the business relies heavily on one particular individual or another due to their skills and consider whether you should have a “non-compete” clause of some kind in place? You will definitely need a robust non-compete with the owner!

In addition to your focus on regular financial information and ratios, consider what you might need to do to establish new merchant operations for yourself if need be. A business such as this will process almost all transactions through credit cards or online checks and it is really easy to look at histories and see whether there are any significant charge backs of any kind.

Often the value of a website can be in its domain name. Check to identify the owner of the domain name through one of the registration sites online. You should also check to see where the site is hosted and how easy it would be to assume any of these agreements. Check on the material published on their website to see whether it is original and not plagiarized in any way.

We said that marketing is everything. Do you have a good “gut feeling” for this type of business yourself? This may be important. Always ask the seller to explain their main marketing initiatives and how they have worked in the past. Make a good note of any marketing programs that did not work so that you do not try them again, at least in that type of form. Tracking and testing is very important in this sphere, so check to see what methods they used.

When you’re evaluating an Internet business, be aware of how radical or unusual it may be. Is there any possibility that regulation will be introduced in future to significantly affect its very existence? Remember that this has happened in the past, and you don’t want to be the proud owner of a new business who faces such a threat in the short term.

Richard Parker is the President and founder of the Diomo Corporation – The Business Buyer Resource Center. His inspiring materials, seminars and consulting have assisted thousands of business buyers with achieving their life long dream to buy a business.

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Several Profitable Pointers For Advanced Online Business Website Development Services

December 23, 2009

We can already see that 2010 is shaping up to be a really good year for online business services and Internet marketers globally. Social media has well and truly arrived, and the amazing advances in cutting edge smart-phone technology continue to help to ensure that more and more people discover the Internet and begin to interact on a regular basis; people are going to be spending even more time online than they ever have before. Internet marketing is truly a growth industry and it has held up especially well during this most recent and brutal recession. If you’re looking to make your move, and establish a respected name for yourself in the Internet marketing arena, you need to make an effort to claim your fair share of this opportunity soon, and to get started, all you need to do is take a good look at your website development presence and your planned initiatives as the New Year begins to unfold.

We have outlined a number of very useful areas for your consideration. Don’t be overwhelmed by all the potential you’re going to discover, and keep in mind that you can easily find plenty of help as you begin to venture into each of these areas, help which can provide you with everything you need to really boost your chances of achieving success online.

What can you say about Facebook? This must be a staple of any online marketer’s mix. The platform has really taken the world by storm and definitely piqued the interest of the general public, essentially eclipsing an embarrassed and much-more-established MySpace in popularity. Facebook exploded to more than 100 million users in only nine months and this volume is equivalent to the population of the fourth largest country in the world! Wherever you are in your Internet marketing aspirations, a Facebook presence must be priority one…

To really get the most out of Facebook, create a company page. Many of us are familiar with what a personal page layout looks like, but to start a good social interaction with prospects and current customers, devote a presence solely to your organisation. Here, you can associate with Twitter, and other social media sites and propel your blog into the mix. Consider signing on to a number of different social media accounts. Facebook allows you to create event pages within your account and once you are established you can invite your friends, clients and prospects to “real life” events, such as a special sale at your store for example, or to webcasts or other multimedia ideas that you may have to promote your wares.

Getting the most out of Facebook is not a “set it and forget it” deal, and you will need to ensure that your presence is adequately managed. Just as a blog is not very effective unless you update it, you will not keep the interest of prospects and fans unless you keep up with your Facebook presence regularly, ideally on a daily basis. If you really want to fully realise all of these benefits, but you just don’t have the time, consider looking into the online business services of a highly-adept, executive virtual assistant.

Michelle Dale is The Managing Director of Virtual Miss Friday, an exceptional executive Virtual Assistant who assists businesses and individuals with achieving their professional goals. Want to find out more about online business building success strategies? Contact VMF Now!

Posted by Virtual Miss Friday | Filed Under **Blogs**, **Business**, **Internet**, **Marketing**, **Media**, **Motivate**, **VMF**, **eBusiness**, Advertising, Development, Everything Else, Promotion, Writing | Comments

Reaching The Real Figures In A Business For Sale

December 1, 2009

When a prospective buyer is making an effort to find out whether or not they’re going to buy a particular business for sale, there are a variety of buy business factors to carefully consider. When prospects arise, quite apart from the question of suitability, location and longevity, the issue of real-world business valuation is front and center. The seller will present a series of financial documents and it is, of course, in their best interests to portray the business for sale in a shining light. As such, the issue of “add backs” is likely to represent one of the thorniest problems.

In most instances, add backs are included in an effort to present the business from a real world point of view. When compiling traditional accounting reports, it’s essential to adhere to a set of very rigid standards – there may also be additional footnotes to consider, and depending on your point of view, these can be either positive or negative. It is very important when you buy a business to scrutinize each add back as they can often make a considerable difference to your valuation.

When performing the process of due diligence, checking recorded sales and purchases against ledgers and reconciled bank accounts is usually a fairly straightforward task. Very often however the outgoing owner will be keen to draw your attention to items which may be “one-off” or to additional income which may not necessarily appear on the books at all. You should be open to all suggestions of course but maintain a degree of skepticism at all times until you are able to validate the claims, or otherwise.

Remember that for an item to be claimed as “one time,” it must not have appeared during preceding years. Seller could argue that a particular expense is much larger than it should be due to a particular incident or requirement, but if you see a pattern of any kind, then the add back must be discounted.

Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation – The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream to buy a business.

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Excellent Suggestions On How To Buy A Business For Sale

November 30, 2009

When considering a business for sale, purchasing a wholesale distribution company requires a comprehensive understanding of the industry, the processes required to keep this particular kind of business “ticking over” and a detailed knowledge of the primary income drivers. Such an entity is very different to a traditional service business and can be far more complicated than it may seem from the outset. To sum it up, with this kind of business, it’s far more than simply a question of finding a rhythm and maintaining a continuous volume of repetition.

There are a variety of considerations to keep in mind, as in most cases, a fairly complex system of individual parts must be well established to ensure that this kind of operation functions smoothly. As a buyer you must understand that these businesses often operate on very thin margins and rely on a number of logistical elements to even function, let alone turn a profit. Your due diligence will require you to analyze each of these individually and ensure that they will not only continue to function post sale, but will allow you to post realistic goals for expansion.

For simplicity sake, a wholesale distribution business for sale can be viewed as a “middleman” enterprise, and when running such an entity, it’s essential that you pay particularly attention to your suppliers. Always make a point of meeting with them – all of them, prior to making any major decisions, and make an effort to read between the lines to find out if there’s any kind of loyalty to the outgoing owner, which might place some of your business relationships in jeopardy after the deal is finalized. Look for long-term contracts, which should be of course transferable, or get a really good feel for the terms and conditions of renewal otherwise.

In a very competitive environment, if this prospect has any kind of exclusivity this could be a definite bonus. Try and analyze the entire market and see where you could sell additional products or services through the established distribution channel already in place.

Also, common issues are customer concentration problems whereby a few clients may represent a disproportionate volume of the revenue. Protect yourself with performance based deal terms.

As mentioned, wholesale businesses generally operate on thin margins. Due to this setup, financial arrangements and agreements are of primary importance. Review whatever kind of working capital needs you will require and be especially critical of cash flow analysis. How many days of grace do your suppliers afford you and what are the payment histories of your principal clients?

As with any business for sale, make sure that the assets purchased have a realistic value. Generally speaking, you may expect to inherit a fairly large inventory and you should get an independent valuation to ensure that this stock is not outdated and is saleable at the values claimed in the short run. Likewise, when you purchase wholesale distribution business assets, they must be fairly valued, especially with regard to transportation. The distribution fleet should not be in need of potentially costly repairs or replacement.

If the entire operation is housed within leased premises, one of your first ports of call should be the rental or leasing company. Whether we like it or not, the property owner or management company can have a significant say over the business transfer process and you must be happy that you can attain a solid, long-term lease within your financial parameters.

As a final buy business tip, always be wary if the business owner, as an individual or in concert with other partners such as family members, has a particularly visible “face.” Sometimes an entire business can be driven by personalities or the crafty marketing skills of the owner or his advisors. These may not be transferable assets!

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Expert Virtual Assistant Services Can Revolutionise An Online Business Enterprise

November 29, 2009

When it comes to your own business, you might not immediately consider virtual assistant services when you’re thinking about your response to the directive for environmental sustainability, the necessary requirement to become “greener,” for everyone’s welfare. However, you should give some serious thought to this, as every organisation must consider its overall impact on the environment, be in control of and take responsibility for its carbon footprint. Considerable emphasis is being placed on environmental issues these days, with significant legislation pending in the U.S. Congress and already passed in countries like the UK. Thankfully, this kind of legislation will require larger companies to re-evaluate all levels of their operations, to pro-actively reduce their energy usage, or face a variety of penalties and fines. As the public becomes more and more aware of energy related climate change, each and every one of us will need to pay particular attention to this cause or be “called out.”

As you begin your own process of discovery, to find out exactly what type and scope of footprint your business creates, you’ll realise that you have to account for all of your internally managed services and your actual expenditures for doing business to begin with. Now, not only do you need to look at overhead costs critically from a purely economic point of view, but you also need to assuage your stakeholders, clients and a questioning public and reduce your overhead liabilities as effectively as possible.

Virtual assistant services make sense from a “green” point of view, and from many other different perspectives as well. Instead of relying on “employees” to travel to and from work five days a week, burning up valuable energy resources and emitting carbon gases with their vehicles, your reliable virtual assistant services eliminate this necessity, and as a single expert virtual assistant can provide comprehensive online solutions for a variety of clients simultaneously, the VA not only consolidates a large part of their client’s footprints, but saves each business owner time and money as well.

By using a virtual assistant service, you can eliminate your electricity spend, energy use and consequent emissions associated with the power to light your office, to run the computer equipment and to generally maintain a typical office set-up. Once again, top-notch VA’s have consolidated their position.

You might not yet know that trees are commonly refereed to as carbon dioxide “sinks,” utilising for their own benefit a certain quantity of these potentially dangerous greenhouse gases that may otherwise disperse into our atmosphere and thereby contribute to our accelerating climate change issues. We should therefore avoid the use of paper products as much as possible, thereby saving as many trees as possible. Virtual assistant services work electronically, using private networks, e-mail, teleconferencing and providing electronic versions of documents for clients.

Make no mistake about it, each and every business will be found accountable for its liabilities and must fully justify its systems and processes. From an environmental – as well as an economic point of view, it makes the ultimate sense to check out virtual assistant services for your business operations.

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