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What Disruptors Can Teach

WHAT DISRUPTORS CAN TEACH

Disruption: it’s usually a script in which an innovative upstart overthrows an established firm. While it’s nothing new — fossil fuels disrupted the whale oil industry a few centuries ago — it’s now happening at lightning speed. Technology is partly responsible: As computer processing power grows exponentially, the realm of what’s possible broadens. Technology might be indirectly responsible in other ways, such as improving communication and making information available to the disrupting forces.

Offense Vs. Defense

Arguably, it may come down to offense vs. defense mentalities. The 800-pound gorillas of business are operating on a defense model: They’ve got lots to risk, so they can’t escape their vested interest in the status quo. Disruptors are on the offense: They’re smaller and nimbler, so it’s easier for them to change tracks.

In a recent article on ChiefExecutive.net, editor emeritus J. P. Donlon considers the dynamics of disruption, and observes that the key to success for incumbent companies is their willingness to disrupt themselves. Digging into existing models and strategies didn’t work for Blockbuster — disruptors like Netflix were rewriting the playbook.

It’s also worthwhile to examine the example of counter-intuitive disruptors: those who disrupt by returning to tradition. An over-simple illustration: Watchmaking was once the domain of a skilled echelon of craftspeople. Technology turned watch-making into a mass production factory endeavor, and eventually, companies like Shinola took the process full circle, hand assembling expensive timepieces in Detroit.

Have the Courage to Disrupt Yourself

Instead of trying to protect your traditional way of doing things, ask whether you can serve the customer better by disrupting yourself, and seizing the offense instead of playing defense. One of the great powers of social media is the window it offers on the customer experience. By actively surveying customers’ perspectives, you can understand their needs and what they perceive as shortcomings in the existing model.

Author Donlan invites you to ask yourself these questions:

  1. When was the last time you rolled-out a new product?
  2. When was the last time your business embraced change and did something innovative?
  3. Does your organization focus more on process than success?
  4. Are your management and executive ranks void of youth?
  5. When was the last time you entered a new market?
  6. Are any of your executives thought leaders?
  7. When was the last time you sought out a strategic partner to exploit a market opportunity?
  8. Do you settle for just managing your employees or do you inspire them to become innovators?
  9. Has your business embraced social media?
  10. When was the last time your executive team brought in some new blood by recruiting a major player star?

We hope you enjoyed this article. Learn more about our team of experienced business brokers! 

How To Be An Informed Buyer

HOW TO BE AN INFORMED BUYER

As a potential business buyer, you owe it yourself to be informed. Uninformed or unrealistic buyers not only make poor choices, they also frustrate the parties they work with, such as attorneys, accountants, and brokers. Additionally, while it’s essential to retain such professionals for advice and services, the ultimate responsibility rests on you for every action and decision, so take the time to be thorough.

Ask These Important Questions

As you entertain the possibility of buying a business, here are a few questions to ask and factors to consider.

Are the sellers or the business itself the subject of insolvency proceedings of any kind, such as a bankruptcy filing?

Are there any active contingent liabilities, such as pending or actual disputes with employees, customers, or other parties?

Has the seller made any commitments to employees to increase their compensation? How about to service providers, independent contractors or suppliers?

What’s the relationship with the landlord like? Make sure you know about any active or potential disputes with the landlord, and the history and resolution of any past such disputes.

Seek Detailed, Conclusive Information

You’ve got a right to accurate, timely information from the seller about whether the business is in default on financial, non-financial, taxation, contractual, warranty, or other obligations. Other factors to verify include whether there are pending or unpaid claims for rent, supplies, back wages, or anything else.

In terms of the property itself, ask for a full report on easements, zoning and surrounding property uses. Verify who provides utilities and whether the service has been adequate. Are there natural, geological, or environmental hazards affecting the real property or the business?

Make sure you’re fully informed about any potential environmental hazards relating to substances or products involved in the business. Hazards may include such issues as contaminated soil or water, paint, solvents, fuel, formaldehyde, asbestos, radon gas, medical waste, and surface or underground storage tanks,

Get a clear, itemized assessment of the remaining useful life of the business’s equipment, vehicles, fixtures, intangible assets, etc.

Immerse yourself in learning about the industry, especially if it’s new to you. Without a broad understanding of the arena, it’s hard to research and understand the overall market for the company’s products or services, or the nature of the competition.

The Risk and Responsibility are Ultimately Yours

Ultimately, you need to ask these questions and more, and then evaluate the responses critically. If any answer seems off, don’t just take someone’s word–dig in more deeply and verify the accuracy of the answers you get. When you take over a business, you potentially accept significant liability for things that may have happened prior to your involvement, so your due diligence is vital, and no one will take it as seriously as you do.

5 Myths About SBA Loans

FIVE MYTHS ABOUT SBA LOANS

The Small Business Administration (SBA) is a federal agency established in 1953 to support entrepreneurs and small businesses. Their mission is “to maintain and strengthen the nation’s economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters.”

A big part of the support they offer is in the form of loans, and we see lots of misconceptions out there about how SBA loans work, and their pros and cons. Here are five myths about SBA loans, along with the real story.

MYTH #1: The SBA lends money to small business owners

TRUTH: Banks and credit unions make the loans, the SBA simply helps guaranty them. It’s like having a rock-solid co-signer for a personal loan. The SBA guarantees that the bank won’t lose the principal they loaned you if you default, so the bank experiences less risk and is, therefore, more likely to approve the loan, and may offer a larger amount. The SBA guarantees a large portion (between 50-85%, depending on program) of the loan.

Each institution evaluates and approves or declines loans based on their own criteria, so if you’re declined by one, you should still apply at other institutions.

Myth #2: The SBA demands extensive collateral

TRUTH: While the SBA does require that lenders take collateral when available, the lack of collateral does not automatically disqualify applicants. The SBA will help those small businesses whose collateral doesn’t meet lending standards, which also helps borrowers overcome some of the challenges linked with lower credit scores. Borrowers without real estate equity to pledge should seek out lenders who are experienced at relying on the business’s financial strength for repayment.

MYTH #3: SBA loans require a ton of burdensome paperwork

TRUTH: The SBA has revamped their process to streamline it for applicants. Today’s applications are typically processed within 3 to 5 business days, and Preferred Lender Program (PLP) institutions can provide even faster turnaround because they are qualified to approve applications in-house without SBA oversight.

Working with a PLP lender is generally recommended because they are better acquainted with all the ins and outs of the SBA loan process. They’ll know how to determine eligibility, how to optimally structure the loan, and what documents are necessary.

MYTH #4: I can only borrow once from the SBA

TRUTH: The SBA does not limit the number of loans to a single borrower or business. They do observe a limit of $5 million in loans outstanding at any time to a single guarantor. Until a borrower hits that limit, they may take out multiple loans for acquisition, working capital, real estate or other expansions.

MYTH #5: I’ve got a successful business, so I don’t need an SBA loan

TRUTH: SBA loans offer favorable terms, so they are actually very suitable for successful businesses. They offer longer terms, lower down payments, flexible payments and no balloon payments. A business seeking capital should absolutely investigate the SBA option.

If you have any questions about this article or about buying or selling your business, please give us a call at 612-331-8392.

Source: https://www.1hourloanusa.com/.

How to Prepare Your Business to Sell

Selling a business is a milestone most business owners will eventually encounter. Whether motivated by retirement, potential profit, or external circumstances, selling a business is a high-stakes undertaking and demands plenty of due diligence to ensure the best outcome.

Even if you’re not ready to sell, it’s smart to view your business through a buyer’s lens. Just as you’d want to keep your home in good condition in case you suddenly need to put it on the market, you benefit from a business in which loose ends are tied up and books and documents are in order.

Here are 5 steps to take to ensure that your business is ready to go on the market and attract top-value offers.

First…Obtain a business valuation. Hire an experienced professional entity to analyze your business and establish its value. Business brokers, investment banking firms and accounting firms offer this service. Find one with experience in your industry, and get an objective assessment of your business’s financial situation, market position, strengths, and weaknesses. Opportunities in Business has been doing valuations for over 30 years.

Second…Put your books in order. Buyers typically require at least a three-year financial track record, and it’s important that your taxes are up to date and in order.

Third…Review and organize all legal paperwork. Track down all permits, leases, incorporation papers, licensing agreements, vendor contracts, customer contracts, etc..

Fourth…Focus on sales and growth. Buyers will closely examine the growth potential of your company. As you ramp up to putting your business on the market, it’s a good strategy to grow your sales efforts and invest in growth initiatives. Don’t focus exclusively on gross revenue; most buyers will rely on net or EBITDA (earnings before interest, taxes, depreciation, and amortization). An attractive EBITDA is key to a higher price.

Fifth…Perform a SWOT analysis, defining your strengths, weaknesses, opportunities, and threats. Buyers will negotiate by targeting your weaknesses and threats: you’ve got to be prepared to defend yourself, and to counter with emphasis on strengths and opportunities. Identify and address problems now. If you have fires, put them out. If you have skeletons, rehearse how to explain them succinctly and clearly, and then move on.

If you’d like to talk to an expert about your business and what you need to do to sell it, please give us a call at 612-331-8392.

How to Select a Business Broker

Smart sellers engage business brokers to maximize value and ensure a smooth transaction. As you shop for a business brokerage firm, it’s your responsibility to ask the right questions so you select the right party to sell your business.

Here are some questions to get you started, grouped into three general categories: experience, marketing, and administration. Choosing the best broker for your situation is crucial to getting top dollar with minimal headaches, so take your time interviewing candidates.

EXPERIENCE

How long have you been a business broker?

Experience is crucial in this business–it’s a huge part of the value proposition you’re paying for with your commission. If the agent you’re interviewing doesn’t have a long track record, they can still do a good job providing that they get adequate support from their highly experienced colleagues. Ask detailed questions to confirm that you’ll be benefiting from experienced professionals. Also, confirm how long they’ve been with their present firm. While it’s normal to change firms occasionally, excessive transitions suggest a problem.

In what industries have you sold businesses?

If the broker hasn’t sold any businesses in your industry, they can still do a good job if they exercise due diligence and learn about the field. Ask them to share their experience in your industry. If it’s new to them, they should explain how experience with other clients will contribute to success, and how they’ll come up to speed in your industry.   

How many listings do you have?

A qualified business broker should have a number of active listings at any time–generally between 15 and 20. If their number is on the low side, find out why. If their number is on the high side, ask them about the size and performance of their administrative and support staff.

How many businesses do you sell annually?

A typical annual volume is eight to ten businesses a year. If the number is lower, find out why. If they sell very large businesses, a smaller number may be acceptable, but it’s important to learn more.

How many businesses have you sold in total?

More sales equals more experience. Again, if your prospective broker doesn’t have extensive experience, but has excellent support from colleagues and the resources of a large, established firm, she or he may be a suitable candidate.

What is your closing ratio?

When you get an offer, you want it to close successfully. Find out the closing ratio of your candidate, and ask what pitfalls they’ve encountered in the past which have disrupted closing, and what steps they’ve taken to address the problems.

Do you have testimonials?

Ask for testimonials and contact references. However, remember that business sales are confidential and brokers cannot disclose the information on any completed transactions without the seller’s permission.

MARKETING

How do you determine the value of my business?

A professional valuation of your business is one of the main benefits of retaining a business broker. You want a brokerage which stringently determines your business’s worth. They must consult industry standards, examine business comps and run calculations to come up with an accurate and realistic number. They also need to be transparent in this process, sharing the data with you to justify their conclusions. Correct pricing is crucial to a timely sale.

Do you have a database of buyers? How big?

A digital database sorting potential buyers can speed up a sale.

ADMINISTRATION

What’s your process for qualifying buyers?

Brokers have a duty to protect your privacy, so they shouldn’t share details about your business recklessly. Before the firm shares financials on your business, what measures do they take to qualify buyers?

Do you assist with obtaining financing?

Financing has undergone big changes in recent years. Make sure your broker knows what financial institutions are interested in financing your business.

Do you have reliable attorneys, lenders and tax specialists?

Deals often disintegrate because other parties such as attorneys, lenders and tax specialists drop the ball. Seek a firm that has established relationships with these professionals. There are a lot of moving parts in a high-stakes transaction, so clear expectations and a proven sequence of steps are crucial. For example, to minimize tax liability they must engage tax specialists to assist with structuring the deal before the business changes hands.

Check-out our recent list of businesses we’ve sold! 

Replacement ink and toner cartridges

TYPE OF BUSINESS:  This business offers replacement ink cartridges and toner cartridges for all major brands of printers, copiers, fax and postage machines.  This includes HP, Epson, Canon, Brother, Lexmark, Dell and Samsung.  They carry a full line of black ink cartridges, color ink cartridges, black toner cartridges and color toner cartridges.  This business was established in 2006 by the current owners.  The business is located in a first ring suburb of Minneapolis.  The sales are about 50% business and 50% individuals.  The owner works 4-5 days per week with very flexible hours – responsible for the “office work”, ordering, marketing and some deliveries.  New owner needs to spend more time trying to get more business accounts.

EQUIPMENT:   The equipment is in good shape and is well maintained.

EMPLOYEES:  The business operates with 3 part time employees.  1 earns $13/hours and works about 35 hours/ week; 1 earns $10/hour and works about 14 hours/ week and 1 earns $5/ cartridge and works about 28 hours/week.

GROSS SALES/ CASH FLOW:  Gross sales for 2013 were $284,469; 2012 were $295,831, 2011 were $311,977, 2010 were $303,712 and $2009 were $326,696.  Cash flow to an owner operator based on 2013 sales was $80,000+. 

ASKING PRICE: The asking price for the business $175,000.00.  Included in the asking price is inventory of about $35,000.00 (at cost) and the equipment, which is valued at $5-$7,000.00.

REASON FOR SALE:  Personal reasons.  Caring for ill parents.