Why A Business Valuation Is Critical To Baby Boomers

Every hard working adult looks forward to the time that they can stop laboring and relax during their golden years. Many baby boomer business owners anxiously awaiting retirement have postponed it due to their financial state. With more than half of the businesses in the United States owned by the baby boomer generation, there are a lot of baby boomers that fear that their company is not prepared with a proper exit strategy. Chances are they are right.

Most business owners have an idea of what they want their business to be worth when they retire, but many have never set appropriate goals around the one number that matters: the fair market value.

Baby boomers that do not wish to hand their businesses down to family members often are interested in selling their companies to fund their retirements. However, before you decide to place your business on the market, it is important that you proper due diligence long before attempting to sell.

Every business owner interested in selling his or her businesses needs to receive a a professional business valuation for their company. A business valuation ensures the transaction yields the best purchase price. Before you can even consider selling your business, you need to determine what it is worth. A business valuation will help determine on multiple levels your business worth.

If you do not know the value of your business, you may not make a wise choice when it comes to agreeing to the final sale terms. Undervaluing your business will yield a low amount of money for something that you worked so hard to build over your lifetime. Overpricing your business can cause it to remain stagnant in the marketplace, which could put a halt on your retirement plans.

By hiring a professional company to complete your business valuation, you will be able to accurately assess the key factors that drive the value of your company. There could be many different elements that increase the value of your company. Your location, trademarks, equipment, workforce, and accounts receivable collection system can all contribute to the total value of your business. Such factors are all desirable components that many interested buyers would want to build their businesses on.

Not only can a business valuation highlight positive features about your business, but it will also expose some of the negative aspects of your business. Aspects including expenses of the business can be reviewed and written off so they do not affect the amount of funds that you can expect to receive from the sale. Maximizing the value of your business will help you increase the amount of revenue that you generate from its sale. It is imperative that all baby boomers that are interested in retiring and selling off their business assets have a business valuation performed.

The Point of Budgeting In Small Business

Too many small businesses operate without budgets. And many small businesses that do have budgets aren’t getting as much out of them as they could. We’ve seen it time and again.

It isn’t because the mechanics are difficult to manage. Everyone knows the basics of how budgets work: you track money coming in, you track money going out, and you do your best to plan for the future. In fact, the very simplicity of that formula is what leads some small-business owners to consider budgets not worth the trouble.

Therefore, what we’ll discuss here isn’t what budgeting entails, because if you don’t already know that, you can find it out with ease. We’re more interested in why you should budget in the first place. Our suggestion, to put it plainly, is that budgeting is a way to amplify the very creativity and adaptability that allow small businesses to thrive.

Budgets’ Reputation

You don’t become an entrepreneur because you have a burning love of spreadsheets. At least, not usually. Being an entrepreneur isn’t supposed to be about budgeting. It isn’t supposed to be about paging through endless columns of variable costs or putting caps on spending. It’s supposed to be about having the freedom to blend innovation and risk-taking with passion and expertise. It’s supposed to be about removing barriers, not building them.

That being the case, small-business owners often see budgets as antithetical to the very spirit of entrepreneurship. According to this perspective, budgets impose stifling limitations. They’re artifacts of mega-corporate culture devised by clammy-handed people in windowless rooms with poor lighting. They may be necessary evils for sprawling, inhuman conglomerates, but when it comes to organizations that rely on individual personalities and individual decision-making, budgets are more burdensome than helpful.

You might say the constraints imposed by budgeting make small businesses less nimble. Since nimbleness is one of their main advantages over larger rivals, budgets actually decrease small businesses’ ability to compete.

Or so the story goes.

Some of it is accurate. For instance, it’s true that passion and innovation go hand in hand with entrepreneurship. It’s true that small businesses should strive to leverage their size into a competitive advantage. And it’s true that budgeting for small businesses is much different from budgeting for colossal corporations.

What’s not true is that budgets impose constraints. Budgets don’t actually impose anything. They merely describe constraints that are already present. Perhaps more importantly, they describe a business’s ability to cope with and even manipulate constraints placed on it by forces internal and external.

Constraints and Entrepreneurial Creativity

If you’re an entrepreneur, you’re aware that your business doesn’t operate in a vacuum. It’s part of a staggeringly complex system. For instance, you have your relatively immediate concerns, such as your employees and your local government. You also have your relatively big-picture concerns, such as national debt and foreign trade policy. No matter what, when you start a small business you’re going to be hemmed in by laws, regulations, and unavoidable economic realities, all of which will have a major impact on how you operate.

In other words, no small business starts out in a position of unfettered freedom. The very conditions that allow small businesses to exist also impose a variety of constraints. Working capital, interest rates, the minimum wage, the minimum competitive salary for professional employees-there are countless factors that limit what you can do and how much money it takes to do it.

You can acknowledge the reality of these factors, but if you don’t have a budget, then you might not know the exact ways they’re affecting you. What particular constraints does a business in your industry have to deal with? Are there some that have a disproportionate impact on you because of the way your business functions? Can you make changes to reduce their impact? Are there constraints that you handle in an especially productive way? Can you turn this productivity into an advantage over your competitors? Do you approach some constraints the way everyone else does, even though you could be doing a better job with them?

These are the sort of questions a budget helps you answer. It doesn’t create limitations that weren’t there before. Rather, it gives you a way to assess the pre-existing limitations that every small business in your industry has to deal with. The more thorough your assessment of those limitations, the greater your ability to work within them, work around them, or in some cases, make them work for you.

Making limitations work for you is where entrepreneurial creativity comes into play. If you have enough details on your business’s limitations, then you’ll be better able to turn those limitations into innovations. A budget will help you marshal your creative energies and find the opportunities for profit embedded in the market’s constraints. It tells you exactly what assets you have to work with, and helps you map out how those assets can be put to the most productive use given the rules of the industry.

After all, most of the market-based constraints you experience will be shared by your competitors, who also have limited amounts of money and freedom. Which of you comes out on top won’t be determined by who has the fewest constraints, but by who does the best job of manipulating common constraints to find the possibilities they hide.

Speed, Spontaneity, and Profit

Small businesses, precisely because they’re small, tend to be better than their larger competitors at taking quick, decisive action. It’s one of their vital advantages. By the same token, it’s one of the challenges that all entrepreneurs are bound to face. You’ll be forced to react on a moment’s notice to emerging opportunities or perils in the market-that’s a given.

What’s less certain is the profitability of your reactions. Obviously, acting or adapting fast doesn’t do much good if it yields a loss.

So what information will you use to make your quick decisions? Do you have a detailed, practical breakdown of your business’s strengths and weaknesses? Do you know exactly how many resources you can afford to redeploy at a moment’s notice? Do you know how efficiently different aspects of your business tend to use the resources you devote to them? Are certain aspects of your business already strained? Are certain aspects flush with the potential for expansion?

A budget gives you a diagnostic readout of your organization. It tells you how much stress the business can handle and which areas can handle it. Hence, it helps you decide whether acting conservatively or aggressively in the short term will enhance your performance over the long term. Without a budget, you’ll be relying too much on guesswork, and many of your quick decisions may be needlessly risky.

Supply-chain Relationships

A budget not only helps you assess yourself, but also helps you assess your relationships with other entities, like vendors and subcontractors. This will be especially important when the market is in flux.

As you know, successful entrepreneurship entails evaluating the vast array of forces that constitutes the market and determining where-for someone in your industry, someone with your passion and expertise-the opportunities and roadblocks lie. But no one can predict with any certainty how the market will behave tomorrow. There will be surprises. Sudden chances and sudden setbacks.

We’ve already noted that the way you respond to these inevitable surprises will play a critical role in the profitability-or survival-of your business, and that your ability to make the right call at the right time will be drastically greater if you have a budget in place. This is not only because a budget tells you about your own resources, but also because a budget helps you deal with other organizations that affect you.

Let’s say you experience a sharp increase in demand for your product. It’s good news, but it brings up questions: Do you have enough working capital to provide your product to a large number of new customers/clients? What are the current resources of each division of your business? How many more resources does each division need if it’s going to ramp up its activities? How efficiently does each division tend to use its resources?

These are all internal questions that may well lead to others, such as: What do your vendor accounts look like? How much new inventory can you afford to purchase? What type of sales will you need if you’re going to pay off the new purchases on time? Can you afford to hire subcontractors to help with the push?

And, of equal or greater importance: What’s your plan for a downturn in demand? Will you find yourself in a precarious position with your vendors? Will you be able to keep promises to new customers? Will you be able to pay your subcontractors for the hours they’ve put in?

Indeed, budgeting can provide invaluable support for all your relationships. As noted on Inc.com, “your suppliers are in all likelihood mapping out their expectations for the year and you can help them do so by providing your outlook. As a best practice, you should share your budget and the variety of scenarios you might face to see whether they can handle each level of demand” (Field 2010).

Since your business is one element in a network of other businesses, it’s important for you to be able to communicate both your capacities and your expectations to the people you rely on. A budget serves as a tool for facilitating such communication. It gives you a concrete way of describing not only where you stand, but also where you will stand in a given scenario. Thus, it helps foster strong partnerships and avoid uncomfortable conversations.

This doesn’t mean sharing every detail of your budget, nor does it mean sharing some details with everyone. It simply means that guarding your budget like a state secret takes away some of its efficacy. You can use select portions of your budget to assist you in negotiating with critical partners-i.e., you can be prudent about the information you divulge without being obscure. How much do your current business partners know about your budget? Is it enough for them to understand your capacities and your needs?

The Bank

Speaking of business relationships: you don’t want to mess around with the bank. Plain and simple. This is a relationship that should be as friendly and open as possible. And what do bankers like? Budgets. As the American Bankers Association (ABA) says, “You are flying in the dark financially if you don’t have a budget for all income and expenses.”

Come to them without a budget, and bankers are going to feel like you’re wasting their time. They’re certainly not going to be interested in loaning you money (or more money). “Prepare for your financial review with your banker,” says ABA. “Have current inventories, cash flows and balance sheets ready.”

When your banker asks you how your debt is structured, and whether you have an imbalance between long- and short-term debt, what are you going answer? Trust us: if you show up to that meeting with a budget, you’ll be glad you did.

Flexibility

Just as the market’s unpredictability makes budgets useful, it also makes them fallible. A budget is like any plan: it will contain inaccurate predictions and require ongoing revision. That’s simply a condition of commerce; some academic models are predicated on entrepreneurs having perfect foresight, but we all know that’s not the case. Businesspeople, even the world’s most celebrated financial prognosticators, get it wrong sometimes.

That doesn’t render planning completely useless. Even if your plans don’t entirely match the way reality unfolds, they serve as benchmarks against which you can assess your progress. They record where you wanted to go, where you actually went, and why the two didn’t coincide. In that way, they indicate which areas of your business are performing well, and which need to be modified in order to meet next quarter’s goals.

When it comes to small-business planning, certainty is off the table. Nothing is guaranteed, including budgets. But setting expectations and monitoring progress remain indispensable to long-term survival. They help small-business owners analyze why they’re drifting off course, and also help them formulate corrective measures.

3 Ways to Start Business Referral Networking for the Shy

Does the thought of networking at local business gatherings make you break out in a sweat, start your heart racing, and overwhelm you with nausea? Well, I guess we’ve figured out you’re not an extrovert. So, promoting your business in front of an audience is not your thing. But, guess what?That’s okay! You don’t have to be a social animal to build a successful business referral network. Here are some tips that can help you adapt business networking to your less “in the spotlight” personality.

Don’t worry about large social business settings. You can build an excellent business network by quietly helping to solve problems and as a result, make lasting business contacts. Here are three great ways to get you on the road to building an excellent referral network that can help grow your business:

As you come across prospects for a business with whom you would like to network, make the referral and send that business (owner or salesperson) an email or note letting them know you gave them a referral and who you referred.

You probably cringe at the idea of business networking groups and their breakfast meetings, but do you take part in any social activities? You can still network in social situations and use those activities to build your business referral network! Maybe you’re in a local recreational activity (poker game with friends; quilting), local organization or cause (church; non-profit fund drive), hobby (fishing; boating), or sport (tennis; cycling). It could be almost anything that you do or attend regularly. These are all opportunities to develop friendships with people who have a common passion or interest like yours, help each other on a social level and eventually develop some networking opportunities. I’m absolutely positive that at least some of these people you meet will own a business or be in sales and could use referrals. This is an example of “doing what you love” and using that passion to build valuable networking relationships. There are connections that can eventually help you get more referrals and grow your business. An important thing to remember in these situations is to have fun first, make friends, and enjoy the social activity. Use natural opportunities to seek referrals (both giving and getting)… and don’t force any situation. Building your business this way is often slow, but can also yield very good results over time.

Consider an online business referral network that allows you to connect with local business people whom you can meet and create referral relationships. These online networks don’t make you go to meetings or do presentations like the local groups that gather weekly. If you join an online site, most of your interactions will be through their website. However, I would still recommend that you periodically talk to each business member in the network you create on at least a quarterly basis, if for not other reason than just to say “hi” and see how their business is going. It’s a great opportunity to ask them if you can help them with anything in particular, and also update them on your business. It’s important to realize that the internet doesn’t necessarily replace the phone and/or in-person interactions that you may need in order to make long-term business networking a real success. The internet simply it simply enhances your ability to network and automates some of the tasks.

Business networking doesn’t have to be about weekly group business meetings, presentations or putting yourself in very uncomfortable public situations. Great business networking is simply about helping people solve problems. By referring someone to a good business you are helping them solve an issue. By providing a referral to a good business that you know, you are helping them solve the problem of getting new customers. When you solve problems, people remember you… and with often try to help you in return. Business networking, especially when it involves the passing of a referral, is about trust. Trust is built over time. So, don’t worry about getting thrown into a random group of people at a local networking group. Seek out specific businesses that you trust and network within social activities that you enjoy. Online business referral networks that are made up of local members are also a non-aggressive, “soft” way to find business people who might like to be part of your personal referral network. Using any of these methods can help you on the path to building solid relationships that can help grow your business by getting more referrals.