Business # 4 – Fish On!

Posted by on Feb 28, 2013 in Blog, Featured | 0 comments

While businesses #2 and #3 were clicking on all cylinders, I restricted my efforts to financial support and control.  Doing so gave me the time to continue trolling for more businesses.  I would routinely get bites, only to find out they were time-consuming snags.  While perusing BizBen.com (a favorite site of mine), I came across a business in my strike zone: 65,0,10,25, low tech, easy to find and train employees, seller willing to help with financing.  To make things even better, it provided customers with an essential need, water. The company provided installation and service for electric water well pumps for residential and agriculture use.

My first concern was that the seller was represented by a business broker.  I was apprehensive about working with brokers because I thought it would affect my purchase price.  Nothing could be further from the truth.  Businesses are worth what they are worth. The market (at least this one) will not allow the seller to artificially increase the sale price to account for the broker’s commission.  As a buyer, I felt the broker was very helpful with both parties.  Setting a fair price, over coming objections and moving the process forward are key ways the broker can help complete the deal.  I can honestly say I prefer buying businesses with a broker involved.

Another concern was the owner’s daughter and granddaughter worked for the business and wanted to stayYikes!  Oh yes, and the shop was haunted.  Every Halloween the local reporter would do an article about how our shop, which used to be the town post office since 1911, was haunted.  I cannot confirm the shop was haunted, but I can confirm the owner’s daughter and granddaughter are card carrying witches.  I treaded lightly around black cats, not knowing if their employment was a deal-breaker for the seller.

freitas_post_office

The shop in Banta, CA

The seller of Business #4 was no Mr. Beasley, for sure.  He was not generous with his time or knowledge.  He was eager to close the sale and move on.  Still, I could see the potential, lots of high-margin parts sales with a low tech staff.  I was very interested in this business and the seller was interested in me.  I now had good technical and financial experience coupled with Mr. Beasley’s recommendations.  It was a great fit.  I came to terms with the seller for 50% down and 50% financed over 5 years at 6%.  After 8 weeks of training, the seller was gone.  Prior to the close, I did give plenty of notice to the daughter and granddaughter that they needed to find employment elsewhere.  In 60 short days, I was on my own.

Business #4 is an excellent niche business. It has good name recognition and many repeat customers.  The business is simple and has an easy inventory with a good markup.  The standard parts allow us to stock them on the trucks and provide all the necessary service in one trip, which customers love when they are out of water.  Overall, business #4 turned out to be a nice catch and dovetailed strategically and geographically with business #3.

Keys To Success

  • Emergency-based businesses have advantages, customers pay well for quick service and they instantly appreciate it
  • As a buyer, I feel the broker was a great help
  • All sellers are not created equal.  Be prepared to take over on day one
  • Sellers will help with the financing if they understand how it benefits them and if they trust you
  • Bring in your own key people to get things started right
  • Find your strike zone and learn to identify businesses that are a good match
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Who Is a Business Owner?

Posted by on Feb 21, 2013 in Blog, Featured | 0 comments

We recently came across some interesting statistics from a survey of business owners done by the United States Census Bureau.  We have highlighted some of the more interesting stats and provided our takes below:

One in 10 businesses (10.4 percent) was started or acquired by owners who used a credit card to finance the start-up or acquisition of their business. A similar percentage (10.7 percent) financed their start-up or acquisition with a business loan from a bank or financial institution.

Ken’s Take:

If you make yourself billable you can certainly start a business with little or no money.  Having low personal overhead allows this as well, as your business and personal finances will be closely linked in the beginning.  Being prompt and professional on billing and collections will allow you run on less working capital.  Cash is king, protect it!

Ryan’s Take:

The fact that 1 in 10 businesses is started with credit card debt scares me a bit. I guess that is the risk-adverse part of me talking.  But those credit cards are likely consumer, which means if the business fails you are personally liable.  Even from the beginning, try to remove personal liability by incorporating your business or creating an LLC.  Additionally, these legal entities reduce your risk of being personally sued and losing everything.

Among firms with payroll any time during 2007, 75.4 percent had full-time paid employees and 58.0 percent had part-time paid employees. In addition, 5.3 percent of employer firms used paid day laborers; 7.3 percent used staff from a temporary help service; 1.3 percent used leased employees; and 36.1 percent used contractors, subcontractors, independent contractors or outside consultants.

Ken’s Take:

The first people you hire are the most important.  Image, first impressions, and honesty are what you need.  A reputation takes years to develop, but can be destroyed in a day.

Ryan’s Take:

I was surprised that such a high percentage of businesses had full-time employees.  This makes my comments from an earlier post on employee motivation especially important.

About 2.1 percent of all firms operated as a franchised business.

Ken’s Take:

I have never owned or operated a franchise.  I have friends who have done so with mixed results.

Ryan’s Take:

Franchises are great because they provide protective cover for a new business.  They usually provide tested business processes, branding, advertising, and consultants to get you started.  However, all these things come at a cost.  The initial fees usually high and their cut of sales can dig into your precious profits.  Franchises don’t really fit my personality, but they might be a good fit for some people.

About 62.9 percent of owners reported working 40 or more hours per week in their business; the same was true for 34.3 percent of owners of non-employer firms.

Ken’s Take:

More than 40 hours is the norm for a business owner.  That being said, you must balance your life and be at the right place at the right time.  Family is really why we work so hard.

Ryan’s Take:

This obviously comes with the territory.  Doing the work (usually) and then managing the business eats up a lot of time.

Business owners were well-educated: 50.8 percent of owners of respondent firms had a college degree.

Ken’s Take:

Bill Gates and I could not wait to graduate.  We were in a hurry to get into the business.  Though college is not for everyone, I would certainly advise it.  It opens doors and provides a nice “plan B”, if needed.

Ryan’s Take:

In the business world people only really care about results, but an education can give you credibility and tip the scales while trying to close a deal.  I have found my education to be very valuable and I have constantly gone back to review things I learned in business school.  Additionally, you can’t under estimate what an education does for your network.  Those contacts are invaluable.

About 36.5 percent of owners were 55 or older, with another 29.6 percent between the ages of 45 and 54. On the other hand, 31.7 percent of owners of firms were between the ages of 25 and 44 and only 2.2 percent were younger than 25.

Ken’s Take:

I fit into all these categories.  My first business at 21, 14 businesses by age 55.  In my youth I had energy, stamina and optimism.  In my grey hair I have wisdom and experience.  Which is more valuable?  Energy, stamina and optimism carry the day when pared with a good mentor.  Oh, to be young again.

Ryan’s Take:

Stay tuned, at 31, I still don’t have businesses to call my own.

More than three in four owners (77.1 percent) reported that they founded their business, while 15.8 percent of owners reported that they purchased their business. Another  7.3 percent of owners reported they acquired their business through an inheritance, transfer of ownership or as a gift.

Ken’s Take:

I have founded 2 companies and bought 12, so I am obviously not the norm.

Ryan’s Take:

So many businesses fail it is not surprising that many do not last long enough to be sold.  It is also likely that the successful businesses are highly valued by their owners and never put up for sale.  The American Dream is starting from nothing and it seems evident from these numbers.

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Business # 3 – Finding Gold

Posted by on Feb 14, 2013 in Blog, Featured | 0 comments

Business #2 was going well, increasing my net worth and paying the bills.  Although things were good, I still continued to search for other businesses.  My mentor always preached to find gold, you need to go through a lot of dirt.  There are tons of businesses out there that are just jobs, poor paying jobs at that, but I find it interesting to follow up on leads and determine each businesses metrics.

While going through my normal routine I found a post, “Electrical Business for sale by owner.”  As usual, I followed up.  There was no broker involved so I was put through to Mr. Beasley.  We had a nice chat.  I told him of my background in the sign business and he liked my experience.  We set up a meeting in person.

Mr. Beasley and I had a lot in common.  I was six foot five, he was five foot six. We both liked to wear baseball caps and liked two kinds of pie, hot and cold.  We hit it off splendidly.  He expressed to me it was time to retire.  I reviewed the numbers and he had a very stable business, a classic 60/0/20/20.  He was the big fish in a small pond.  Everyone knew and liked Mr. Beasley.  At one point, he was named man of the year in his town.  I could see right away that there was some serious name recognition and goodwill in this company.

I took it slow. His asking price was overvalued by about 33%.  I did not argue the price.  I just continued to ask questions and find out more information.  I went on some job estimates with him and was even was invited to the company Christmas party. I took this opportunity to sell myself to his current employees.  They of course were concerned about their future.  I was sincere when I expressed the desire for them to stay and make a future together.  They recognized that Mr. Beasley was slowing down and as a new owner, I was excited to speed up the business to reach its potential.  This would ultimately provide a more secure future for us all.

After the holiday season was over Mr. Beasley looked me in the eye and said, “What it is going to take for you to buy my business?”  I told him what I could afford and the terms I could live with. I put 1/3 down and Mr. Beasley carried back a note for 2/3 of the sales price at 8% for 5 years.  We shook hands and the deal was done.

He then really surprised me.  He told me he wanted to continue to work for my newly acquired company at a very reasonable rate.  As long as he could golf twice a week and take 3 weeks of vacation whenever he wanted he was willing to stay around and help.  This of course, made him another billable employee, a very experienced one at that.

After all, Mr. Beasley just wanted someone that he liked and trusted to take over his business.  He wanted someone that would take care of his creation.  I learned a ton from Mr. Beasley.  His business was profitable and enjoyable.  Little did I know the lessons learned from him would prove valuable for future acquisitions.  Mr. Beasley worked with me for the next 6 years until his third bout of cancer finally got him.

Keys To Success

  • Negotiations are not always about price. For Mr. Beasley, it was about friendship and trust
  • A Good name and reputation have value
  • Great sellers increase the chances of a successful transfer
  • Find as many mentors as you can find, the more diverse the better
  • To find gold you need to go through a lot of dirt

If you like this article, leave a comment.  We would love to hear from you.

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A Word on Employee Motivation

Posted by on Feb 7, 2013 in Blog, Featured, HR | 0 comments

How do you motivate your employees?  Wearing many different hats, business owners may forget to take the time to evaluate what motivates their employees and whether they are getting the intended results.

Pay and Compensation

Many people assume that a high salary is a good motivator.  After all, the biggest reason I come to work is to receive a paycheck, not because I care so much about the company.  But I don’t think about my salary on a daily basis.  It gets direct-deposited into my bank account and over time, I start to feel like I am entitled to it just for showing up.  It is important to understand that base pay is used to attract talent and retain current employees.  It does nothing to make sure they are working hard each day they come to work.

Incentive (performance) pay, on the other hand, can be used to link rewards to outcomes deemed positive for the company.   This can come in the form of profit sharing, stock ownership, or bonuses based on performance appraisals.  Whatever you use, make sure the performance pay motivates positive behaviors, not just results.  Picture a scenario where a bonus is linked to a business metric, like market share, but the the employee uses poor behavior to achieve the goal to the detriment of the company.  Lastly, remember that incentive pay is the most effective near the end of the period when business results are evaluated, usually quarterly or annually.

Benefits

Typical benefits, like medical, 401K, paid time off, have a similar motivating effect to base pay.  They really only matter during the hiring process.  However, nontraditional benefits can be highly motivating.  These might include things like flexible work hours, dogs at work, on-site daycare, or a company vehicle.  These things offer daily reminders that great results are the expectation.  Most small businesses are not able to afford these perks, but there are other things that can be even bigger motivators.

Growth and Advancement

Growth and advancement opportunities are essential to high employee satisfaction.  Satisfied employees stick around longer and work harder.  Showing them that you are willing to invest in their careers will also build trust, which tends to reinforce behaviors that are beneficial to the company.  Take time to sit down with employees and find out what their career goals are.  Put together a plan that includes training and mentorship programs that enable them to reach their goals.  While this sounds reasonable, some business owners may be tentative about developing an employee to the point that they require a raise.  In this case, it is essential that the training and advancements align with the company goals.  If they do, any increase in salary will be overshadowed by the added value to the company.  Finally, hiring an over-qualified individual with little room for growth is a recipe for dissatisfaction and poor performance.  This is especially pertinent during a down economy with many desperate applicants.

If you see it, say it

One of the most powerful motivators is also the cheapest.  Recently, I was given a new role with an important, but tedious task.  I completed the task and emailed out the week’s results to the team.  My boss sent me a quick reply with the words “this is good stuff, I like this”.  This was an easy, yet powerful way for my boss to show me that my work was appreciated.  The boss will always notice the big new client or the completion of a huge project, but how often do they notice the little things?  If you let good work go unnoticed, it will eventually go undone.  So take ten seconds and tell your employees you like what they are doing.  I know how much this simple gesture did for me and I know it will allow you to motivate your employees to achieve success.

What motivates you to work hard?  What motivators should managers consider for their employees? Share your ideas with a comment!

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