Cash is the fuel that makes a business run. It is needed to pay salaries including your own, fund marketing programs to acquire and retain new customers, invest in equipment and facilities, pay rent, supplies and many more day-to-day activities. Most financial experts recommend three to six months of operating expenses, but using this for every business in every situation is misleading.
To determine how much cash you need, you must look at the following key areas.
How Much Cash Have You Been Using?
If you’re an established business owner, look at your monthly cash flow report (or go to the next paragraph if you’re a start-up). This report will provide an historical and seasonal perspective. Note the cash received from sales and the cash spent. The net of these two is often referred to as the “net burn rate.” For example, if you have $50,000 in sales and $30,000 in expenses, then your net burn is +$20,000
Your “gross burn rate” only takes cash expenditures into account; in our example, that’s $30,000 and is the more conservative amount, since it does not assume any sales are made. Historical spending patterns are a good starting point in considering future spending plans. Continue reading →
So, you want to sell your business. For most of us, it is a once in a lifetime event. There is no reason to expect that you should know the intricacies of a transaction.
That is why it is oh so important to have good advisers help walk you through the process.
One of the fundamental decisions you will need to make is whether the transaction will be an asset or stock sale. It will depend upon your individual circumstances as well as your business structure. Continue reading →
Have you ever heard of it? Well, if you are thinking of selling your business in the next few years, it is a term that you should get familiar with.
The value gap is the difference in price between what the seller thinks his/her business should sell for and what a buyer is willing to pay for it. Bluntly, it is unrealistic expectations on the part of the seller.
Sadly, it is one of the bigger reasons why deals go awry in the lower-to-mid market tier. And, it can be avoided.
Causes of the Gap
There are a variety of reasons why a seller may think that their business is worth more than what others are willing to pay for it.
Don’t make the all-too-common mistake of dismissing the value of planning for your business. Every well-run business needs to manage strategy, tactics, milestones, metrics and essential business numbers.
Do it right, and planning is easy to do, great for managing and developing accountability.
Remember these two key points:
Good planning doesn’t require a big, formal, traditional business plan document. A lean business plan is much easier than a traditional plan. It just consists of bullet-point lists and tables. You can do it yourself.
What really makes the difference is keeping the plan live. It doesn’t take more than an hour or two per month. The planning process means you track results, review, and revise often enough to keep your plan fresh.
Should you grow your business? It is a simple question with an assumed answer. The answer, of course, is YES! But, I am not sure it is quite so simple.
Before you invest your hard-earned money and time, think about what you want to accomplish and why. Then, carefully consider your options.
Decide to Grow
We have all heard horror stories of businesses that over-extended, only to lose it all. If your expansion strategy is not well conceived or executed, it could be a costly misadventure, both in terms of money and focus on the existing business.
If your business is well-established, has a loyal customer base, is reasonably protected from the competition, profitable and affords you the lifestyle you have sought (both in terms of discretionary income and time) then think hard before you take on an expansion strategy. Understand your goals – both financial and personal, before moving forward. Continue reading →
Personally, I love this approach. I mentioned it recently to a group of entrepreneurs in the Emerging Leaders class here in Seattle and it seemed to fit in perfectly with what they are working on. They have all been in business for 3 or more years and are now creating new strategic growth plans for their businesses of the future. In order to do this without all the “constraints” that experience and beliefs dictate are “true,” we have to look at it as Day 1, and then consider – what will you do differently?
Think of it like Groundhog Day. You get to keep doing it over and over again but with a different template, different knowledge, and a different environment. If you were recreating your business, what would Day 1 look like now? Who’s to say you can’t give it a try? Continue reading →
Carolyn Walters’ small business clients know they can ask her more than just tax questions. While “tax is the heart and soul of what I do,” she says as the owner of Financial Solutions Accounting and Tax in Greensboro, NC, she has expanded her business to offer a variety of different services.
“The challenges that small businesses have usually end up in my lap one way or another,” she says with a chuckle.
Walters wants to be the first resource her small business clients turn to when they have questions about small business financing and credit. “Quite a few of my clients are looking at ways to expand and grow their businesses, and that takes money,” she says.
Some of them have the funds they need to grow, but others will need to borrow. And even those who don’t have to borrow may find it advantageous to do so. “If you can get credit at low rates and still maintain the integrity of the business goals you are trying to accomplish, it may make sense,” Walters says. Continue reading →