Tips of Starting a Business

You have completed your education. Now you are looking forward to build your career. You have two options: either join a reputed firm in your field or start your own business. Starting a new business is not an easy task to do, consist of a lot of risk in it. But with your own business, you will be your own master. You can employ others and thus you don’t have to work under anyone else. You can apply your own rules in you company and no one would be there to stop you. But starting a business and running it successfully are not easy tasks. If you really want to have a business of your own, then you have two options: either start a new one from the ground or you can purchase an existing business for sale.

Either you want to start a new business or purchase an existing one, there are a few basics things you have to follow:

Market Research: Market research gives you a general idea about which new products and services are in the market and can make profit. Suppose if you want to start a mobile company, then first you have to research about the latest mobile technology and services in the market. If you are buying a small existing business for sale, market research can tell you whether available products are meeting their customer needs.

Your Personality: Your personality plays an important role in your business. You will need passion, drive and a good idea to run a business. You have to know your strengths and know how to make the most out of them. Before go into the business world, first analyze yourself, either you are an industrious captain or a creator or an adviser or a doer.

Legal Structure of Business: Legal structure of business will decide various things such as how much tax you pay, the amount of paperwork your business need to do, the personal liability you may face and the ability of your business to raise money. The most common structures are sole proprietorship, partnership or corporation. You should choose a structure that most closely matches your business needs.

Naming the business: Name of the business is also very important in the success of your business. Name of your business should convey the value, expertise and uniqueness of the product or service you are providing. The name should convey information about your business that what your business is.

Writing a Business plan: Business plan is something like a strategy you need to build before starting a business. It consists of strategy, priorities and various action points such as objectives for employees, managers, hiring or building a business place, hiring people, buying resources, selling your products, arranging finance or loan for business etc.

Reasons to Perform a Business Valuation

Why a Business Valuation?

Many business owners, business buyers, business sellers and others need business valuations for a wide range of purposes. Those purposes range from considering the sale or purchase of a business to complying with a court order to settle a legal issue. Often, business owners just want to have an idea of the current value of their business.

Here are some of the reasons people come to us or use our business valuation software tool for business valuation.

Curiosity

Just as people like to check their stock portfolio from time to time, small business owners like to get an idea of their company’s value and changes in its value. Our valuation tool can give you a good idea of your business’ value, based upon your answers to several financial and non-financial questions. A basic valuation is free!

Buying a Business, Initial Evaluation

Often, business buyers are bewildered as to how a seller arrives at an asking price for his or her business. In some cases, the asking price is not based on any rhyme or reason. Before getting too involved in negotiating a business acquisition, it is a good idea to determine if the asking price is in the ballpark. A difference of 10% to 25% (asking price vs. independent valuation) is usually bridgeable. However, if the difference is much more than 25% or so, chances of buyer and seller getting to an agreement are pretty slim.

Buying a Business, Offer & Negotiation Phase

Once it’s determined that buyer and seller are in the same ballpark, a more formal valuation will be very helpful. It’s one thing to ask a seller to lower his price by 20%; It’s quite another to show that seller an independent valuation that details the reasons for your offer price.

Selling a Business, Early Preparation

The decision to sell a business rarely happens overnight, and neither should the planning. The time to start planning for the sale of a business is 1 to 3 years prior to the target date of the sale. A key element of the planning is an objective opinion your company’s value. This is important not only for setting reasonable expectations and a reasonable asking price. It’s also important because there are some clear step you can take to enhance the value of your company, and to make the sale easier and quicker, if you start the planning in advance.

Selling a Business Within One Year

If you’re planning to offer your business for sale within a year, it’s definitely time to get a valuation along with a little professional guidance. Setting the wrong asking price, or even the right asking price without documentation to support it can be deadly. Also, there is a lot you can and should do to make the business more salable (and more valuable), if you don’t wait until its too late.

Taking on a New Partner or Buying Out a Current Partner

Note that in this context we are using partner to mean any person or entity that has ownership. It can be a stockholder in a corporation, a member of an LLC, or a partner in the legal sense; a partner in a partnership entity.

More often than not there is a difference of opinion as to the value of one’s partnership (or stock or membership share) in a closely held company. A third party valuation is the best way to mitigate disagreements and arrive at a fair buyout (or buy-in) deal.

Loan Proposal

Banks and other lenders use a number of different criteria in making lending decisions. A good independent business valuation can make the difference between a loan rejection and an approval. In the current tight lending environment, a business borrower needs every advantage he can muster to get that approval.

Loan Proposal, SBA

The Small Business Administration (SBA) has specific rules for business valuations that it will accept (as detailed in SBA SOP 50-10 5b). If you are applying for a SBA direct or SBA guaranteed loan, it is important that any submitted valuation adhere to SBA rules.

Raising Venture Capital or Independent Investment

Professional venture capitalists as well as independent investors are first and foremost looking for a return on their investment. While investors understand that they are taking a risk, a well documented independent valuation can go a long way toward mitigating the perceived risk, and toward getting you the right deal for the investment you need.

Estate Planning

For many business owners, the largest single element of their estate is the business they own. However, many business owners in this circumstance don’t know the value of their largest holding. For a myriad of reasons ranging from tax planning to assuring your wishes are accurately carried out without difficulty or conflict, a business valuation is essential for proper estate planning.

Estate Settlement

When a going business is an asset of an estate, a valuation is essential and often required by a court, taxing authority, or both. Unfortunately, disagreements are common in lots of aspects of estate settlement, and the value of a business that ‘s in the estate is no exception. It is not uncommon that contesting parties will each retain valuation experts who ascribe significantly different values to the same business. It is best to hire a valuation expert who has extensive experience with valuations for estate purposes and in testifying to defend his or her valuation in court.

Divorce and other Legal Purposes

Business valuations are very often needed for divorce settlements and other settlements where a court or arbitrator is called upon to make decisions regarding fairness. In these situations, it is not uncommon that contesting parties will each retain valuation experts who ascribe significantly different values to the same business. In a situation that may end up in front of a judge or arbitrator, it is best to hire a valuation expert who has experience in courtroom testimony.

Enhance the Value of a Business

There are relatively easy steps that can enhance the value and salability of many, if not most businesses. This involves analyzing the business’ weakness from a buy-sell perspective and correcting those weaknesses. Some steps for example are as easy as putting verbal agreements into writing or securing a lease renewal option. Other steps take a bit more effort but can be well worth that effort. The place to start is with an initial valuation that identifies a company’s strengths and weaknesses and the estimated cost, effort, and benefit to mitigate those weaknesses. We would be happy to discuss the possibilities of enhancing your company’s value and salability, prior to putting it on the market.

Tips on Starting a Franchise Business

A franchising business is vastly becoming a trend in the business world today. Many are enticed with the benefit it brings rather than having to build a new business from scratch. Before engaging in a franchise, here are some tips for you to know what to do to start up a franchising business:

Research and gather information for the best business franchise there is today.

There are hundreds or thousands of different franchising businesses in the market nowadays. So you need to study and do great ample time of research on what are the trends in the market as well as what kind of franchising business suitable in your area. You can check websites about more franchising business information as well as read magazines and newspapers. Also, check the reputation of the franchising business you wish to have as well as check their pricing and other relevant information about the products and services. You need to ask questions from customers of the franchising business if they are satisfied with the products and services as well as their return rate to that business.

Look for a sturdy business plan as well as great business profit model.

You need to thoroughly inspect and understand the business plan of the franchisor so that you can implement that plan for success. Check as well if the franchisor’s profit models are effective and efficient. You can check their rankings in the market as well as their number of years in the business. If they stay afloat in the market for number of years it means that this business has a strong business profit model. Thoroughly check if the products of the franchising business can be acquired elsewhere with lesser cost. For example, it would be hard to franchise a local DVD or CD stores nowadays because of the rampant distribution online. You can download songs and movies online for free. So the profits for this type of franchise are low.

Have a great deal of knowledge about the financial aspects involved.

You need to know how long it will take to earn your investment back. Also, know the cost involved in running the franchise. One is the overhead cost. Examples of this cost are salaries of the staff, tools needed for operations, as well as rentals and many more. The other kind of cost is variable cost depending on your sales. Examples are fuels for delivery van if needed in the business as well as materials essential to the outcome of the product. For example in an ice cream parlour materials needed are cups, spoons and many more.

Know and comprehend the contents of the contract.

The franchise contract is the agreement signed by both the franchisor and franchisee in the terms of running the business. These are where you put in writing all the agreed concepts in the franchising business. So if you were a franchisee you must certainly read and understand first what are the rules stipulated in the contract. Know if it is for your benefit. When you fully understand the stipulations in the contract you can ask the franchisor some amendments if it is not in your benefit. You can also hire a legal team to check on the contract but if you have read and understand it you can make sure that your legal team will not twist your arms in legal fees.

Assess yourself and know your skills and capabilities.

Most importantly, you need to assess yourself if you are prepared to handle a franchising business. Also know the skills you have as well as the skills you need to develop in order to run the franchise business to success. You need also to know how to deal with pressures from the business as well as your capabilities in handling problems.

When you do all of these listed above and assess yourself that you can run a business, then take the reign and drive your franchising business to success.