Buying a building? Think future as well as present

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We’d like to buy a building. We also want to invest in developing more sales. Unfortunately we have limited funds to work with and we’re thinking this building could be a once-in-a-lifetime opportunity. How much do we need to buy a building? What is the best decision to make?

Thoughts of the day… Investing in growth is essential to the future health of any business. On the other hand, a building is a tangible asset, something that most service businesses lack. Make sure you have a handle on all anticipated costs. Cash flow is going to be king as you consider taking on new expenses and juggling priorities. Think long term, while you manage through the short term.

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Growth Revenue, Profits Make Business Valuable

80% of business owners, dominated by baby boom generation owners, are thinking of selling their businesses.

I’m worried about retirement. I never thought about wealth building as I ran and grew my business. This business has to be worth a lot more than it is now, for me to live in the style I’m already used to. What can I do.

You spend your time worrying about the day to day of the business. You love what you do, at least most of the time. You live on the cash flow the business produces. You have only a vague idea of what you will need in assets to retire on. When you’re ready to stop working, you’ll likely close the doors or sell the business for much less than it could be worth. That headset is going to cost you.

What makes a business valuable to a future buyer? Growth – of both revenue and profits. A business that runs itself. Debt free, asset rich. A proprietary system or product, a patent, something unique that has a ready market of buyers. A business that doesn’t depend on the current owner.

Here are some questions to ask yourself:

  • Who is likely to want to buy the business? Which buyers will be able to pay what the business is worth?
  • How much does the business need to be worth, in order to secure retirement; how does that compare to what the business is worth today?
  • What can be done to get multiple buyers to compete for the business?

One of the biggest challenges to building a saleable asset is the dirty little secrets of most privately held businesses. They’re no where near profitable enough. There aren’t enough reserves. The businesses aren’t strong enough to sell for optimum value.

Excess cash gets used up chasing growth and digging out of problems. In the good years the owner increases spending to avoid taxes. In lean years the owner becomes the bank of last resort, lending money back to the business from personal accounts, and doing without a paycheck in order to close the cash flow gap. Profits flat-line somewhere close to zero year after year.

When planning for long term exit value, the business owner’s approach to profit has to change. The business must make money and pay taxes. Benefit comes from building up reserves, to fuel growth and prove asset value.

Another challenge is the owner’s behavior as central to the successful operation of the business. The business sits on the owner’s shoulders. Owners count themselves lucky if they get a week off for a vacation.

The business has to be able to run without the owner. That means employees have to practice running the business without the owner’s around.  Vacations are a good way for the business to practice running itself, while the owner gets time away to visualize what life would be like without having to work.

If you plan to retire in the next year, and the business isn’t ready for sale, you’re in crisis, and need to spend nearly every waking hour figuring out how to turn things around.  If you are 3 years out from retirement, you need to be working on wealth building every day. If you’re 5 years out, or more, wealth building has to be a top strategic priority that you work on every week.

Get some practice at buying and selling. Look at acquiring small businesses. Think about adding asset value to your company. If you find a great fit, at a great price, it may be just the thing to add to your portfolio of business holdings.

Learn about the mistakes, and successes of other small business owners. Get experience by kicking the tires of businesses that are already for sale. Use real live examples to make a list of things to-do and not-do-do, to help you prepare your business for a successful sale.

Think of it this way: all these years, you’ve taken care of the business. If you do it right, when you’re ready to exit, it’s time for the business to take care of you.

Looking for a good book? Exiting Your Business, Protecting Your Wealth, by John M. Leonetti

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Andi Gray is president of Strategy Leaders Inc., www.StrategyLeaders.com, a business consulting firm that specializes in helping entrepreneurial firms grow. She can be reached by phone at 877-238-3535. Do you have a question for Andi?  Please send it to her, via e-mail at AskAndi@StrategyLeaders.com or by mail to Andi Gray, Strategy Leaders Inc., 5 Crossways, Chappaqua, NY 10514. Visit www.AskAndi.com for an entire library of Ask Andi articles.

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