Four Ways to Expand Your Business

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Today's challenging economy presents some unique opportunities for business expansion for those who have a unique set of circumstances. Growing your business is a constant challenge.

If you've been using the same business growth techniques for some time, here are a few fresh ideas, uniquely suited to current market conditions, which might stimulate some new thinking on how to expand your business.

Organic Growth

Organic growth is the most common form of small business expansion, and may be the way you've grown your business in the past.

In today's economy where consumers are increasingly turning to value over business loyalty, successful organic growth requires introspection. Businesses must examine their relationship with key customers to pinpoint why those customers are, or are not, happy with service levels. Today's economy may change how consumers perceive your product or service, as their needs regarding price, service levels, and other business factors may be influenced by their economic situation. Transforming this analysis into actionable business improvement initiatives involves hard work and forward thinking business strategies. It's about keeping customers happy, investing in the business, and selling and marketing aggressively.

Strengthening relationships with key customers and enhancing the value of your business's products or services is imperative if you want to grow organically.

Location Expansion

If your business has been based in a single location or region, now may be the time to set up shop in a second location or to expand your service area. This could involve opening a business in a nearby neighborhood or city, or making your services available to a broader geographic audience.

Creating a second location is much less expensive than starting a business from scratch, yet it exposes you to many new customers. As such, it can be a way to transform your existing operations into a much more profitable business. Expansion often enables you to benefit from economies of scale that were previously unavailable, providing additional profit enhancement.

Acquiring Competitors
 

It is likely that some of your competitors are struggling in this down economy, to the point where they are ready to pursue an exit opportunity. Rather than have them sell to a new competitor, you may be better off acquiring them and folding their operations into yours.

Since you know the ins and outs of your industry, and their business, you are less likely to overpay for it. You may also have good ideas on how to improve your competitor's operations, leveraging your expertise and experience. In addition, there may be economies of scale that can allow you to lower your raw materials costs or other business expenses.

Expanding Into a Related Market

Given everything that you've done right in your own business, it's very possible that you can apply those strengths to do well in a related field. When expanding into related markets, you can start the second business from scratch or acquire an existing business. Acquisitions tend to be faster, less expensive and less risky.

Expanding in a related market with complementary products or services will increase your potential customer base, and can likewise revitalize your sales cycle. The larger, more diverse customer base will also put your business in a more desirable position when you're looking to sell.

Getting Started With Business Expansion

Imagination and planning are the keys to starting a business expansion initiative. Contemplate each of the expansion methods discussed above and think through whether they are appropriate for your business.

Turn that contemplation into a list of possibilities. For example, which cities might you consider opening up in with another location? What competitors would you buy if you could get them for the right price? What related markets or complementary business lines might make sense for you to expand into?

Once you've identified some possible ways to expand, do a little market research to learn more about the expansion opportunity. For example, in fleshing out geographic expansion, you might travel to the other city and ask potential customers whether they'd be interested in doing business with you if you opened up in their neighborhood. Or, scope out the market for additional competitors that could make your expansion more, or less profitable.

In this market, it's important to keep your eyes and ears open for potential deals that may come down the road. The key is not to rest on your laurels. What you've accomplished to date may be impressive, but with a good expansion strategy in place, rest assured that the best is yet to come!

The recommendations of reading, reference materials or links mentioned, are for general informational purposes only. The materials are intended as a public service and are not a substitute for obtaining professional advice from a qualified firm, person or corporation. Consult the appropriate professional advisor for complete and up-to-the-minute information. These materials do not constitute the rendering of any legal or professional services.

http://www.2misi.com/article/2012/07/four-ways-to-expand-your-business

Run Your Business Like You Have to Sell It

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While this article was written mostly for business owners, you will learn some of the pitfalls and warning signs to look out for with businesses you may consider purchasing. As well, it will provide you with some benchmarks to evaluate how to implement these suggestions once you own the business.

By positioning your business to operate in a certain manner starting today, you'll not only sell it for more, you'll actually make more money between now and then.

The key to selling anything is to make it easy for someone to buy. This is especially true when it comes to a business. There are certain things that have an enormous impact upon the eventual price you will obtain.

A Problem Later is a Problem Now

If there's something in your business that would turn off a potential buyer, chances are it's also hurting your business today. Typical examples are high customer concentration, the possibility of losing a key supplier or employee, contingent liabilities, past claims, leases due to expire, inaccurate inventory, poor monitoring systems, etc.

While trying to build your business, even if you have no plans to sell it, look at it through the eyes of a possible buyer. By simply identifying possible issues, and fixing them, your business will improve immediately. Likewise, these matters will not come back to haunt you. Don't think they'll disappear or that a savvy buyer won't uncover them. They'll stick around and hurt you today and down the road.

Keep Good Books and Records

A business with super clean books gets the most action, and usually the purchase price is very close to the selling price. When the time comes to sell, a business with clean books and records will generally sell in the shortest time frame possible. In fact, this is usually the number one reason why deals fall apart (outside of major, sudden surprises).

In operating your business today, keeping great books will allow you to always have a true grasp on your cash flow and the ability to properly analyze expense and other activity.

Systems, Policies and Procedures

I once read that a company's manuals, policies and procedures should be explained in such a way that the lowest level employee can understand them. If you incorporate a methodology to deal with every possible scenario that comes up, and modify it continuously, think about the positive impact that can have when the time comes to train a new employee, expand the office, or open a new location. Instead of wasting endless hours getting people up to speed, all you need to do is "throw the book at them."

Similarly, every buyer is concerned that too much of the business may be new to them or that they won't ever be able to grasp the guts of the business. With top notch manuals, systems and procedures, this concern will be completely eliminated so they can focus on replacing you effectively.

Unless an individual comes from a like industry, or is one of your current employees or partners, they will be worried about the transfer of your knowledge. Regardless of how simple your business model may be, training a new owner to do what you do every day is crucial. The majority of people buy businesses that are in new industries. As they go deeper into evaluating your business, they usually get nervous by thinking about all of the things they don't know. If you don't have a simple mechanism to show the new owner how to get up to speed quickly, or if they fail because your job role was too overwhelming for them, you too can suffer if you've participated in the financing.

If you approach the daily running of your business like you have to sell it tomorrow, you'll find yourself implementing strategies that will immediately improve your business, and will pay you multiple dividends down the road when the day arrives to sell it.

http://www.2misi.com/article/2012/07/run-your-business-like-you-have-to-sell-it

The First Steps After You Buy a Business

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You Have to Run It

The first 90 days after you close on a business purchase will prove to be the most critical time in you new venture's short term future. There are several key factors that if done right, will set the foundation for your success. It is very important for you to lay out your plan for post closing before you take over so as to ensure the smoothest transition possible.

Don't Change Anything Yet

Unless you have an intimate knowledge of the business and the industry, much, if not everything will be new to you. While it is normal for you to jump in full steam ahead and implement many changes that you've thought about, the best thing that you can do is nothing, at least at the very beginning. That's right, no major changes at all, at least for now. Most businesses experience a downturn in the first three to six months after a new owner takes over. Don't panic, it can happen. However, if you avoid any substantial changes, things should rollover effectively.

Since so much is new, it would be impossible for you to set forth any policies or procedures that make sense. What you want to do is to first learn the business: who are the customers, what do they want and expect, understand the employees and determine their role and contribution to the business. Avoid drastic changes. The old saying that you've got to learn before you can earn is most applicable in this situation. 

The Seller's Role

Typically, there will be a period immediately after the acquisition where the former owner will be around for a transition period. This varies from deal to deal. In some cases, it can be as short as a couple of weeks while others may involve a long term training period and even an ongoing consultation/employment relationship. This can be a difficult time. Regardless of the length of the relationship, keep in mind that the seller will still have a very strong attachment to the business and the employees will take some time getting used to a new boss.

Interestingly enough, no seller has ever made it through the entire training period for any business. Sure, they have a role to offer some insights, but I've always found them to be more of a hindrance than an asset. Of course, if it's a complicated business, then this may not always hold true. If the business is far too difficult for you to take over, or, if it relies on them completely to succeed, you probably shouldn't buy it.

Pick their brains as best you can. Always keep the relationship friendly; you never know when you'll need them and they can remain a good source for brainstorming down the road. However, this is now your business, you're the new boss, it's your show, and it's time to get the show on the road.

Prepare a comprehensive list of everything that you want them to cover during training. This includes everything from how to operate the alarm systems down to providing you with their evaluation of the employees. One subject that should be covered at length is to ask them what they would do in your situation. Ask them to outline what their business plan would like and what things they feel you should explore as the new owner.

For the first couple of weeks, let them keep their office as is. Set yourself up alongside them as watch what it is that they do each day. Observe the flow of communication with clients, employees, etc. Continually ask questions. Do not simply allow them to do their job as they did before; you need answers, so question everything.

Meeting with Employees

Set up a meeting the first day with all the employees. These people are naturally going to be nervous about you, their job and their future. Most people abhor change so be sympathetic to their situation. No matter what plans you have, let them know:

• There are no major changes planned.
• You are very optimistic about the business's future.
• Each one of them has a role to play.
• You're eager to build the business.
• You are available to speak to them at any time regarding any concerns they have.
• They are expected to contribute to the success of the business.
• You're counting on their support to build the business.
• You realize that there will be a transition period and it may take some time for them to get used to you and vice versa.

The objective of the first meeting is to set their minds at ease. Open up the floor to questions. Do not worry if not a single person has a question; they're nervous, so don't interpret this as anything other than a demonstration of their anxiety. Don't feel pressured to reply to anything that you haven't thought through and never make any promises simply to win them over.

End the meeting by asking each one of them to prepare a report, due within one week, that outlines: what they believe can be done to make them more effective at their job, and second, if they were the new owner, what suggestions they would have for the overall business. Tell them that all reports will be kept confidential, that you will review it with them individually and that you expect everyone to have it submitted on a timely manner (a note here: if any of them are late, you can expect that person to be a trouble employee and chances are they will not last).

It's Time To Get Busy!

So you've got the transition period completed, you're feeling comfortable with the business, the employees are feeling positive, you've reviewed their reports, it's now time to get down to business.

Step One: Make the Place Your Own.

Get the place cleaned up. Throw on a new coat of bright paint, have everyone clean up their work areas, remove old files and throw out unwanted furniture, old posters, etc. Give the place a new look. You do not have to spend much money at all. Set the standard by keeping your work area spotless. There's no need to be a mess, no matter what your prior work habits were. You cannot expect any employee to do anything different than you so if you want to run a well oiled, organized business, it all starts with you.

Step Two: Learn the Business and What Oils the Engine.

Perhaps the most critical thing you can do in your initial tenure is to really learn the guts of the business. The answers are readily available but you have to ask the questions. Make it your goal to speak with customers, suppliers, employees, competitors and anyone else associated with the business to get a true picture about the business and the industry and where you fit in. Generally, the customers have the answers, and quite often businesses do an awful job of satisfying the clients. They may think they do, but the truth is that most don't. As such, dig into your customers' wants so that you position the business as a place where they want to do business.

Your employees are a pivotal link in this process. Get them involved. They will be far more effective carrying out plans they have helped develop than they will executing strategies that have been dumped on them.

Based upon employee reports and fact finding, compile a detailed listing of everything you want to do in the business... eventually. You can't do it overnight. However, by noting these potential items, your business plan will begin to marinate. Work at organizing your list by the area within the business (sales, marketing, accounting, operations, etc.) and keep it up to date.

Develop a 30/60/90 day plan for each specific area of the business. Follow up diligently to ensure timelines are respected. Change does not have to be monumental or drastic; it's improvement that you're striving to achieve. 

Step Three: Sell Off Useless Assets if Applicable

If the business has acquired useless inventory, equipment, or any other obsolete asset, then get rid of it. There's no need to keep any assets around that take up space and do not produce revenue.

Step Four: The Marketing Plan

In concert with Step Two, assemble the marketing plan for the business. Keep in mind that marketing, is without a doubt the simplest thing to do in a business and something that is made overly complicated by most companies. Marketing is simply a matter of finding out what the customers want, and then giving it to them at terms that make sense to you and them. End of story. You may buy a business that excels at marketing, which is great. However, marketing also requires continuous testing and measuring. So even if they're great at it, make certain that you set forth additional strategies within this discipline.

Step Five: The Business Plan

Business plan can prove to be an invaluable document and a blue print for success, Therefore, it is needed, but must be done correctly. A business plan does not have to be a long document with unrelated information and useless pie charts and graphs. On the contrary. Done right and it can be a bullet point description of:

• Everything you want to do
• Who is going to do it?
• How it's going to get done
• When is it going to be completed?
• How will it be continually measured

Now you're set. You've got a solid understanding of the business. You know what the customers want. You have a plan to deliver it. Your employees are sold on you; they've contributed to the company's plan. Focus like a laser beam and execute. Measure absolutely everything. Strive to get better in every way and everyday! If you constantly think about how you can make your business bigger, better and faster then you cannot help but be successful!

http://www.2misi.com/article/2012/07/the-first-steps-after-you-buy-a-business

Three Hotel Acquisition Tips

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http://www.2misi.com/article/2012/07/three-hotel-acquisition-tips

Buying a hotel can be a complicated process, even with previous experience owning and running an establishment. The business for sale marketplace is very dynamic and each hotel is so unique that both pros and novices alike must do extensive research and preparation before diving into a deal.

With the following three tips as starting points, buyers can be sure to find out what they need to know to get well on their way to owning the hotel of their dreams.

Understand Your Parameters

One of the biggest mistakes people made when purchasing a business is not having a solid grasp on how it will affect their lives. It's not uncommon for hotel buyers to get so excited by the prospect of owning a new business that they rush into it without asking themselves some very important questions, such as:

Will owning this business lead to a lifestyle that made me happy?

It's no secret that owning a hotel can be a lot of work, but still, many buyers aren't aware of just how life changing and time consuming it can be. First time buyers might have an unrealistic view of what a hotel owner needs to put into the business, believing the staff will be able to do most of what it takes to keep things running smoothly and profitably. Then, when they find themselves doing tasks they never thought they'd have to do, they might become disillusioned and overwhelmed, jeopardizing their health and the health of the business.

Do the financials make sense?

For one, buyers need to make sure they'll be able to secure a loan to buy the hotel, and that they are confident the cash flow from the purchase will be able to cover the loan payments. One essential consideration is whether or not the seller of the hotel is willing to finance part of the sale. If not, it can be extremely difficult to obtain a sufficient loan, and learning about this issue later rather than sooner will just lead to unnecessary headaches.

Even if a buyer determines that accessing a loan won't be a problem, there's still the issue of whether or not cash flow from the business will be adequate to support the type of lifestyle desired. This is why it's so important to make sure to get accurate, detailed financial reports from the seller, and to come up with a solid estimate of how much money is required each month to live a secure, satisfying life.

In addition to basic financials, buyers should be sure to check fundamental business metrics such as the occupancy rate of the hotel, as well as room rates. To put the business fundamentals in better perspective, potential buyers should investigate the room rates at nearby hotels for comparison. If possible, interested buyers should also stay at the hotel as a guest for a few days before approaching the seller to get a first hand look at hotel operations, customer satisfaction, and occupancy rates. All of this takes a lot of time, but it's essential. Buyers are much better off putting the effort in before taking the plunge into a purchase than after they are already tied to the business.

Get Familiar with the Market

It's more likely that a hotel purchase can go wrong if a buyer doesn't have a thorough understanding of the market both locally and nationally, including a list of all possible properties that meet buying criteria and knowledge of business for sale trends and cash flow and revenue multiples.

Negotiate with Patience

Negotiation is an essential part of any business for sale transaction, but one that is too often underutilized by business buyers.

Businesses typically sell for 10-20% less than a seller's initial selling price, so there is no need for a buyer to be shy when it comes to asking for a lower price. It's likely the seller won't jump at the initial offer, so in this case patience is key. Buyers shouldn't budge significantly on their offers, but at the same time they should not be rigid to the point of forcing sellers to turn elsewhere. In addition, buyers need to ensure the seller will allow them to retain key employees and supplier relationships once they take over, and confirm precisely what level of training, advice and oversight the previous owner will provide after the transition. As such, the negotiation process can take a while, but it typically pays off in the end.

During the negotiation process, though, sometimes deals fall through. It's bound to happen. For this reason, buyers should avoid becoming too attached to a single hotel. If they do, they'll likely be devastated when a transaction doesn't work out, and be left without a "plan B." Instead, they should keep a running list of "key properties" that they frequently revisit throughout the process and can turn to if their top choice deal fails to pan out.

Buying an Internet Business

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http://www.2misi.com/article/2012/07/buying-an-internet-business

Perhaps the best part about an online venture is that you can get into one quickly and inexpensively whether you buy an existing one or start one from scratch - although multiples for some successful online ventures are far greater than most bricks and mortar businesses because of many of the factors you'll read about here.

Additionally, because an online business can be run from anywhere at anytime, it's an ideal business to have if you're not yet ready to take the full plunge into your own business or you like to travel, work remotely or casually.

Don't be misled thinking it's all fun and games. But, it's the kind of business where, if you put in the effort up front and automate every aspect of it, it will pay enormous ongoing dividends relative to the time expenditure.

If you want to buy an existing profitable venture, keep in mind that the multiples may be higher than traditional small business valuations since there are so many great benefits to them although they really should not be much greater than an offline business. You should also know that the financials of most pure Internet businesses are generally simpler to investigate because there are generally no cash sales, and almost all of the transactions are via credit card.

Here's what you need to be aware of when buying an existing online business:

• Online businesses go far beyond building a website. It's not an: "if I build it they will come" business. Sure, you can have clients worldwide, but they have to find you before they can buy your goods and services. You need to figure out how to get people to the store (the website). In other words, you need to market your website.
• Niche products work great.
• You'll need to do extensive research to learn about the competition, the industry, products, competition, etc.
• You need a bullet proof non compete clause with the seller since it's so easy for them to open up a competing business in another name, country, etc. That is why you must have a large balance of sale as part of the deal.
• Make sure that any products or services being sold, if not proprietary, are going to be available to you from the various suppliers.
• Stay away from fads, or any products that may become subject to government intervention or stricter controls, such as pharmaceuticals.
• Verify any potential liabilities, guarantees, etc., that may have been offered in the past. Get copies of old site versions from the owner. Some sites began by offering 1-2-or 5 year guarantees on their product. These claims can come back to haunt you. You'll need the seller to indemnify you from any future claims, or you need to have a mechanism to offset any claims against the balance of sale.
• Get detailed listings of all individuals who have access to the site's backend or passwords for accounts. In fact, make certain that you change all passwords once you take over.
• If the seller developed the site, bring in a tech savvy individual to review the actual programming. Quite often the site evolved through the seller's design and he/she may have kept adding little bits of programming to it. While it may make sense to them, it may very well be a "plate of spaghetti" to someone else and can never be figured out.
• Get copies and ownership to all source code for the site.
• Meet with the webmaster and any other people who work on the site if you won't be doing the work yourself, and make certain that the relationship will continue.
• Investigate the credit card processing. You might have to put up significant personal guarantees with the merchant bank to process credit cards. In fact, you may want to check this out in the very early stages of your investigation.

An online venture, when set up and run properly, is, without question, the best business model around. The key, of course, is to provide a profitable product or service in a sustainable business model.

Buying a Wholesale or Distribution Business

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Having been in the distribution business for many years, I can understand how it can be attractive as a business to buy. The key consideration is to determine what drives the revenue and profits of the particular entity. It will either be sales or logistics and you must be certain that whichever one is the "driver" must be your greatest strength.

One would think that generating sales is the main ingredient and surely that makes sense. If your greatest strength lies in selling, then you'll want to find a wholesale - distribution business where sales drives the business. However; there are many businesses in this sector where logistics are key and that can be in a stocking distributor, or local wholesaler where having the products in stock, available to ship in an efficient manner, are what generates the customer activity.

What to Consider When Buying a Wholesale - Distribution Business

• Does the company have any element of exclusivity in the product it distributes?
• What is the relationship with the suppliers? Are there contracts in place? If so, will these transfer to you? If not, can you get them or what is your potential exposure?
• Be sure that you meet the key supplier(s) prior to closing.
• Are there any customer concentration issues?
• Do you have a keen eye for product? One surefire way to build the business is to add additional products to your base and sell them to your existing distribution channel.
• Do you have access to additional funds for expansion?
• What are the working capital requirements and specifically, what is the DSO (Days Sales Outstanding) because receivables and cash flow can get pretty tight in these businesses.
• The purchase will generally include an optimal operational level of inventory. You want to be certain that the inventory is good and re-saleable and not obsolete. Verify the items against the prior 12 month's sales for each item.
• Is location critical to the business' success? If so, be sure that you have a solid, long term lease in place.
• If the company has delivery vehicles you will want to get a valuation done but more importantly you need to know how long they will last before needing replacement. Be sure to adjust the Owner's Benefit downward for future capital expenditures to allow for replacement costs.
• Can your customers potentially buy these items from a cheaper offshore supplier?
• Does the business thrive based upon price, or quality, or service?
• Margins in these businesses can be quite slim and so the systems in place could have a dramatic impact on the profitability. If they do not have state of the art systems, you'll want to determine what it will cost to implement them.
• What does the owner do each day? Is he the "face" of the business? How easily can their skill set and "know how" be transferred to you?

It is especially important that you do an exhaustive job of researching the industry and properly preparing yourself for the process of buying a wholesale or distribution business.

http://www.2misi.com/article/2012/07/buying-a-wholesale-or-distribution-business

Buying a Manufacturing Business

Despite the fact that the manufacturing base has been shifting offshore for the past several years, many prospective business buyers look to get into manufacturing. The challenge of course is that locating a solid manufacturing business with a bright future gets more difficult to find everyday. As a general rule, the only manufacturing businesses that are not vulnerable to having the competition move offshore are ones that either have a proprietary or patented product, or that provide "just in time" inventory to their customers thereby eliminating offshore production and the long lead times that go with it.

Determining what "drives" the business and making sure that specific component matches with your strengths is the key to success for a new owner of an existing business. Many businesses require general business skills and the intricacies of the business can be learned during a transitional period. However; this is not the case with a manufacturing business. The single most important attribute that you must have when buying a manufacturing business is prior experience in this sector. This is not the type of business that you can easily or quickly learn after you take over.

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http://www.2misi.com/article/2012/07/buying-a-manufacturing-business

 

What to Consider When Buying a Manufacturing Business

• What assurances are in place that the company can continue to manufacture domestically?
• Does the company compete on price, quality, or service or have a process/product exclusive to them?
• Any customer concentration issues?
• Do you have access to additional funds for future capital expenditures? On this note be sure to adjust the Owner's Benefit downwards to accommodate future capital expenditures.
• Is there any pending technology that could render your product or process obsolete?
• Can the client base be expanded? How?
• Can you add new products to your offering?
• What is the condition of the equipment? Is it the latest technology or antiquated?
• What does the owner do each day?
• Are the systems up to date to manage the manufacturing process?
• You will want to learn about the typical "Work in Progress" levels since this almost always becomes an issue in closing the deal.
• What sources does the company use for raw materials? Will they continue to sell to you and on what trade terms?

Many industrialists have made fortunes in the manufacturing business. Despite the fact that we are shifting to a serviced based economy, there will always be certain industries and products that will require domestic manufacturing. Naturally, you will want to be certain that is the case for any business you consider.

There is also a high degree of gratification in creating and producing a product and many owners of these types of businesses will identify this a key aspect to what they like about the manufacturing sector. Although opportunities remain in the manufacturing industry, it is critical that you conduct your research and properly educate yourself about buying a manufacturing business.