Browsing Category: "Small Business"
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Market research is the #1 thing you must do when considering selling a product or service. Part of that is demographic. If you are selling a men’s clothing line targeted to the 50+ set, you better make sure that the market demographic supports it. So where do you get this information? Don’t rely on visual cues such as “oh I saw at least 10 old people in the pharmacy.” Be scientific and be cost effective.
The U.S. Census Bureau tracks all the useful demographic details about our cities. It is cumbersome to sift through the statistics so I use a website that helps sort the data and reduces research time significantly.
The website is ZipSkinny.com. The site enable you to choose any zip code in the US and see the following information:
- Education levels
- Income
- Occupation
- Marital Status
- Age/Gender/Race Demographics
- Stability/Newcomer Appeal
ZipSkinny also lets you compare zip code’s stats. This is useful if you are choosing between locations for a store selling high-end baby clothes for example. With ZipSkinny you can find the location with higher income and more children.
ZipSkinny provides you the high dollar market intelligence you need to make informed business decisions.
Check out the screenshot below of a sample of zipskinny’s abilities or check your own zipcode at ZipSkinny.
5 Things to Do Before Buying a Franchise
Buying a Franchise can really give you a heads up when starting your own business. You get the support of an established brand, the backing of professional advertising, and a good reputation with some franchises. Others may have little to no brand awareness and you will be risking that the franchise will take off. Even if they do, they may not be right for your area…or they may not have your best interests in mind. There are several things you need to do before you get into a franchise.
Here are 5 tips to help you on your way:
1) Research each Franchise Opportunity - What is your upfront cost going to be? Don’t just ask the company, research online, and ask other franchise owners. Make sure it’s exactly what the company is telling you. What kind of restrictions does the franchise put on you? How protected is your territory? Does the Franchise company make money selling franchises, or does your success impact them directly?
Do they have a vested interest in you doing well? These are all questions you should ask current franchise owners, as well as the franchise company. Find out how many of their franchises have failed in the first year, what the average profit margin is…etc. Know who you’re dealing with before you do business.
2) Research your Local Area - If you’re planning to open a coffee franchise, and you already have 5 Starbucks, 2 non-franchised coffee huts, and a Dunkin’ Donuts in your neighborhood…the market might already be a little crowded. Be aware of what is around you. Research the kind of establishments that have lasted in your local area and which have failed.
If you open a fast-food resteraunt in an area where people are health-conscience and other fast-food resteraunts have failed, you probably won’t have good odds of success.
3) Analyze your life - Are you really ready for this? Do you really want to work in that Franchise every day for the foreseeable future? Do you have the financial backing to make it through some tough times if you have trouble early on? Is your place in life going to support an ongoing commitment? If you are banking on your wife being half of your labor, do you plan on having kids in the next year? Think about what your life plans are and make sure it meshes with your franchise/business plans.
I realize that you can’t plan for everything, but keep in mind, owning your own business is a little bit easier to close than owning a Franchise. A franchise has certain commitments from you the fanchisee so it is more difficult to get out of a franchise without some additional costs. With a non-franchise you won’t have as many obstacles to closing.
4) Research your Lender - Can you trust your Lender? If you’re borrowing money from family to get this started - will you be ruining a family relationship if this falls through? If you’re using a local bank or other lending institution - do they have the financial backing to see you through in case you need to come back for more funds?
5) Plan an Exit Strategy - You need to have a worst case scenario exit strategy at the very least. If things don’t go well - can you sell the franchise? Can you sell it to anyone, or does the potential buyer have to be approved by the company? What happens if you have to shut down due to low sales?
These are just a few of the things you need to plan for, and be on the lookout for when preparing to buy into a franchise. There are a lot of great franchise opportunities out there, you just need to make sure that the one you’re interested in is right for you.
Sunrocket Shutting its Doors :o(
Here’s the email I received today. I was hoping the buzz on the web was wrong… Luckily this happened right before I was about to print some new business cards.
Here’s the email I received below:
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What’s My Business Worth? - Calculating Owner’s Discretionary Cash Flow
What is Owner’s Discrtionary Cash Flow (ODCF)? When you are evaluating a business for purchase this is a very important figure to calculate. Also if you are valuating your existing business, you’ll need to calculate this figure to derive the propert market value. A simple answer is “The amount of money a new owner will be able to take home out of the business annually.” Most of the components of ODCF are easy to calculate such as net profit and owner’s salary. Other components may be a little more tricky to ascertain.
The following are the most common elements of ODCF:
- Net Income
- Owner Salary
- Depreciation/Amortization
- Interest Expense
- Non-recurring expenses
- Owner perks such as car, health insurance, etc.
Below is an example calculation of ODCF:
Net Income $150,000
Depreciation 50,000
Interest 25,000
Owner Salary 100,000
Owner Travel (personal) 5,000
Owner Auto (personal) 5,000
Owner Health Insurance 8,000
———–
Owner’s Discretionary Cash Flow $343,000
In this example if the market valuation in your industry is 4x ODCF this business would be worth 4 x $343,000 = $1,372,000.
Buying a business: Asset Sale vs Stock Sale
So you’ve saved your money and now you are ready to buy that business and make your American dream come true. Do you buy the stock of the company or the assets? This is a very important decision.
If a business is set up as a corporation, the owner may want to sell you the shares of the business. This is called a stock sale. Seller like this type of deal because their profits get taxed at capital gains rates instead of income tax rates which is often higher.
An asset sale on the other hand is a sale in which you buy the underlying assets of the business. For example if you are buying a resteraunt you would buy all the equipment and assume the lease on the property or purchase the building if that’s the case.
So what’s the big difference to you - the buyer? Buying stock not only transfers the assets, but it also transfers the liabilities. If someone slipped and fell 2 days before you buy the stock you would still be on the hook for the liability. Another benefit of an asset sale is you get to depreciate all the assets by class. This can be tax-advantageous. If you do a stock purchase, the assets would have already been depreciated and you won’t get as much depreciation value to reduce your taxes.
Stock sales for small businesses generally don’t make sense for small businesses and as such are rare for small business. As a business consultant doing acquisition and brokerage I rarely see stock sales.
