Business Value

Tips for Maximizing Business Value

Burying excessive personal expenses in the business financials can lower business value!

The most popular method of valuing a business uses a multiple of earnings over a period of years. Business owners should be aware of that while attempting to reduce the bottom line with personal expenses to minimize taxes.  Though there are a number of deductions that may be added back to determine true cash flow, not all add-backs are considered legitimate by buyers or lenders.  Being too aggressive in minimizing taxes today may cost a business owner big dollars at closing.

Some businesses may need a whole new direction!

Unfortunately, there are businesses whose market has changed so drastically that their products or services now have limited demand.  And it might not be the slow economy!  Those business owners may have to consider a whole new business model and get into the research and creative thinking mode.  A good starting point is searching ideas on the internet or getting professional help to reposition the business.

“You can’t always get what you want”

The title to the 1969 song by the Rolling Stones seems to echo what the market is telling many business owners these days.  There is no question that prices for many businesses are down and for various reasons.  But if there are offers on the table a business owner must take a hard look and be realistic as to what has to change, the business or the economy for the price to “sing along” with expectations.

Leases can make or break the sale of a business

The lease terms of the business space can be a major consideration for a buyer.  For example, a retail business with a long term lease on a good location can be attractive.  But a long term lease on a business needing more space to grow could be a detriment.  Or there can be concerns for an expiring lease when the landlord might demand a large increase.  When it comes to negotiating a new lease, business owners must carefully think through the timing of their plans for exiting their business.

Business decisions

Let’s make decisive business decisions

Decision-making is a crucial part of good business. The question then is ‘how is a good decision made? One part of the answer is good information, and experience in interpreting information.

Managers can be trained to make better decisions. They also need a supportive environment where they won’t be unfairly criticised for making wrong decisions. A climate of criticism and fear stifles risk-taking and creativity; managers will respond by ‘playing it safe’ to minimise the risk of criticism which diminishes the business’ effectiveness in responding to market changes. It may also mean managers spend too much time trying to pass the blame around rather than getting on with running the business.

Decision-making increasingly happens at all levels of a business. The Board of Directors may make the grand strategic decisions about investment and direction of future growth, and managers may make the more tactical decisions about how their own department may contribute most effectively to the overall business objectives. But quite ordinary employees are increasingly expected to make decisions about the conduct of their own tasks, responses to customers and improvements to business practice. As a result careful recruitment and selection, good training, and enlightened management are important supports to good decision making.

How do you make the best possible decisions, knowing they will have an impact on your company's future?

There are strategies you can use to avoid common pitfalls and hone your decision-making skills.  Making better, faster decisions will help you take advantage of business opportunities and avoid pitfalls.

1.     Review the problem/decision in a broad context to include as many perspectives as possible. But don’t procrastinate just to get another opinion.

2.     Make decisions as much as possible on facts rather than emotion. It is good to challenge your gut instincts; use objective data to reinforce decisions.

3.     Don’t hesitate to challenge the status quo. Staying in your comfort zone in order to be comfortable may lead you on the same path. Change does not necessarily take more effort.

4.     Be open to others opinion but trust your own ability and ability of employees to make a well-reasoned decision.

5.     Recognize that some constraints may influence the decision; financial constraints, practicality, and lack of resources to implement the decision may influence the path taken.

Decisions are not taken in isolation and the effects of any decision will depend on reactions of others. Competitive behaviour should be anticipated and can influence choices. In the end, the review process needs to be completed with minimum delays and decisions finalized. Respect for action taken with a firm unwavering approach or allowing responsible employees to decide will earn respect from the organization.

Success factors

Success factors in business

Here are some of the key factors leading to success in business.

1.     Plan for success. A good plan increases your chance of success by defining objectives, framing costs, forecasting revenue and defining risks.

2.     Management strength: a strong management group is critical. Entrepreneurs should have the confidence to surround themselves with strong people; this will pay dividends in productivity and growth of the business. Those owners who seek individuals who will follow and not lead will be constrained by their own failings.

3.     Develop a network. Networks of peers can be a powerful resource for support and direction.  It is great if you develop both a network within the organization and a network of peers outside of the business.

4.     Consumer focus. An unwavering commitment to the consumer is invaluable. Understanding the consumer’s wants and needs provides the best way to gain customer loyalty. Repeat business is the lifeline to continued success. This also strengthens your reputation in the marketplace.

5.     Continuous improvement. In order to stay at or near the lead in your market position there need to be continuous product improvement. Innovation and keeping pace with technological improvements provides that cutting edge performance. This also enhances productivity and profitability of the business.

6.     Know your strengths. An honest approach to management of the business can help generate growth. Don’t waste time chasing dreams or ill-conceived ideas that do not match your core values or strengths in the business.

7.     Manage time use. Entrepreneurs need to act with a sense of urgency to develop ideas. Learn to manage your time and include leisure activity. If plans are not working adapt to changes that will work even if it requires acquiring skills that may be missing in the organization. Working smart produces quality results which outperform quantity.

Business Financing

How to find financing for small business

A common issue among small businesses is locating capital for expansion or operating funds.

A major tool that can help business is strong cash flow management. Knowing cash demands, cash income flow, and reserve funding is critical. Understanding funding needs sets up the strategy to be used for financing needs whether short term or long.

Options for capital sourcing include:

-        Commercial banks. The local branch for the business can be a real ally. Treat the bank as a partner not an adversary. If the bank manager has a good understanding of the business he/she will be more supportive in times of need. As long as the business has a history of profitability, banks may be more likely to be supportive of expansion of lines of credit. If business treats the bank as an adversary, it is likely to tighten credit in difficult times and increase cost of borrowing until security is improved.

-        Government funding. These programs can offer opportunities to access low interest or even forgivable loans business can use to expand. This is particularly popular if expansion programs improve the environment, or create employment. Federal programs often focus on the environment, export expansion, tourism and other national interests. Provincial interest largely focuses on job creation and in encouraging foreign investment in local communities that will expand growth.

Review opportunities for the best fit.

-        Business Development Bank. This organization can be a source of funding for a variety of needs including expansion of operating funds, inventory expansion, financing of acquisitions including equipment, or buildings, or even acquisition of new businesses. Cost of borrowing may be a little higher than commercial banks but BDC may be more supportive of needs.

-        Private capital. This can be a source in some instances as individuals or some groups seek to invest in opportunities that could generate higher rates of return. Typically these investors will demand much higher rates of return, depending on the risk level and they often expect a multiple return on their investment. Care needs to be taken if private funding is a last resort to ensure the owner does not lose control of the business.

Choose financing options with great care but pay special attention to day to day management of the business in order to minimize the need for outside financing.

Guest blog

 This article was published by friend and former associate Jeffrey F. Paulson.

Paulsen’s Perspectives

"I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel"- Maya Angelou

How does your Lawyer make you Feel?

Typically when a client hires a lawyer, it is because of the education, legal background and life experiences of the lawyer as well as the belief that the lawyer can provide the legal advice, counsel and solutions needed to resolve the client’s legal concerns. The foremost thing on a client’s mind should be selecting the correct lawyer. Selecting the correct lawyer is dependent upon the type of relationship that the client hopes to achieve. Here is a short summary of the types of relationships a client can build with a lawyer:

Highest Level-Trust Based

The highest level of legal advice and counseling a client can receive from a lawyer is based upon trust. This type of relationship takes time to develop and involves focusing on the lawyer-client relationship as individuals. In this type of relationship, the lawyer should be someone that can tell the client what he or she thinks and not what the client wants to hear. The client comes to rely on the lawyer on both a professional and personal level.

Relationship Based

This type of relationship focuses on the client organization and involves a lawyer providing insights and ideas based upon his or her knowledge of the business organization and its objectives. This type of relationship typically leads to multiple interactions between lawyer and client based upon various legal issues and needs. These relationships are longer term and can over time lead to a Trust Based relationship.

Needs Based

This type of relationship is based upon problem solving and providing solutions to a client’s existing problems. Often, this type of relationship is not ongoing and the client needs a lawyer specialized in a particular legal specialty to resolve the immediate legal issue. If there are multiple interactions between the lawyer and the client, this type of relationship can lead to a Relationship Based relationship.

Service Based

This is the most basic relationship that can exist between a lawyer and a client. The lawyer in this instance is retained to answers questions and provide information and legal guidance that is timely and of high quality. This type of relationship may be a one-time engagement or it can potentially develop into a Relationship Based relationship or in rarer situations, a Trust Based relationship.

How the Selection of the Correct Lawyer can make Clients Feel

Unfortunately too often I hear of relationships between lawyers and clients that do not feel good at all. Clients may not like how the lawyer made them feel and frankly the lawyer may not like how the client made them feel. Focusing on the type of relationship the client wishes to establish with a lawyer and having an understanding between the lawyer and client on the type of relationship desired should help avoid these negative feelings.

As a lawyer, I strive to ensure that all my clients never forget how I make them feel and that these feelings are always positive.

Paulsen Law Firm PLLC - "Formed with clients in mind………"Copyright 2011. All rights reserved. Paulsen Law Firm PLLC, Bloomfield Hills, Michigan 48302. 248-456-0646. www.paulsenlawfirm.com

Strategic Planning

Better Strategic Planning

Here are a few key tips to improve your Strategic planning:

1.     Develop a core team. This should include at least 6 leaders/managers from various areas of the company.

2.     Set aside sufficient time for broad strategic thinking. This is not a process to be done ad hoc between other business functions. Find a location where interruptions are minimized.

3.     Ensure the planning group is committed to the organization goals. If the planning group does not buy-in and become part of the process the Strategic plan will be still-born.

4.     Allow free and open discussion in the planning sessions regardless of rank. No one person has a monopoly on all of the good ideas. The CEO should not lead the discussions; hire an outsider if possible to facilitate who can more easily moderate and ensure full participation from all members.

5.     The plan must be implemented when complete. A great plan that sits on a shelf is useless.

6.     Create an action plan for implementation with measurable goals, accountability, and deadlines. Everyone must understand their role in implementation before leaving the session.

7.     Don’t write the plan on a stone tablet. Good strategic plans are flexible enough to respond to market changes but remember it is broad in scope and doesn’t change daily.

8.     Make strategic planning a continuous process not just a single event. Performance reviews should be done no less than quarterly with a focus on results and accountability. There should be clear and meaningful consequences for missed deadlines or failure to achieve goals.

Thoughts on Mentoring for small business

Small business owners can benefit from relationships they build with peers in the business community. Discussing business struggles with others who may be experiencing similar hardships can be constructive in resolving issues. Mentors offer wisdom and knowledge acquired from their experience with growing their business.

Mentoring can be used in a variety of situations and different mentors may be used.

There is no need to rely on a single mentor. It is rare that one mentor will have expertise on all operational issues so it is useful to search out several sources. Find a group of people you can work with that you would trust to have the best interest of your business in mind.

 The relationship with a mentor does not have to be a formal or long term contractual relationship. It can be a few hours of mentoring sessions, or periodic reviews over time depending on the current needs.

If you can find someone who knows your business and industry well the mentoring is likely to be more relevant and satisfying.

Mentoring can be used across the organization ranging from coaching younger executives to time spent with the most senior group. If the business environment is changing rapidly a mentor may be valuable guiding the organization through the process of managing change.

Remember, mentoring is not likely free advice; the relationship with a mentor should satisfy the needs of both the organization and the person providing the service. There may be fees involved but a business may also provide the mentor with a unique opportunity to see a new perspective on an issue and fees may be waved in lieu of the experience gained by the mentor.

You can determine when a mentor will be of benefit through self-assessment and determining the challenges the business faces. If you can resolve the issues with resources internally you do not need a mentor but if the answer to the question is you lack the talent in house it may be time to seek the support of one or more persons with the right kind of advice.