Small Business Ideas – How to Find the Perfect Business for You to Start

Many people who want to start their own small business have yet to do so because they simply cannot decide on what business to start. The reasons for this indecision are many. However the main culprit may very well be that the individual has yet to find an idea that truly sparks his interest. While finding a concept upon which to build a business is a very unique and highly personalized endeavor, a simple method does exist that makes this discovery process easier.

It is a well known fact that people are consistently more successful in their business endeavors when they enjoy what they do. This enjoyment can come from many aspects of the business. Perhaps the business owner likes working with the products he sells. Maybe he enjoys having the freedom to make quick decisions. Often times simply the business environment or atmosphere plays a key role in positively driving business enjoyment. Regardless of the reasons, the first and most important step in finding a business to start is figuring out what it truly is that you want to get out of your business.

To start, set aside an hour or two of time where you can do some serious, uninterrupted thinking. The goal and outcome of this mental jam session is to define a list of desired criteria for your business. In other words, how do you want to define the nature of your business? Note that your business criteria are not the same thing as your business! Rather, your business criteria will help you filter business ideas to determine the best one for you to start.

To help walk through the process, assume that Samantha is thinking of starting her own small business. Samantha is in her mid-20′s and has always dreamed of starting her own company. She struggles, however, with finding a business idea that really excites her. Using the process outlined in this article, Samantha first sets aside some personal time where she will define the criteria for her ideal business. While your criteria should include 15-20 items, we will narrow Samantha’s list to five. Here is her criteria list:

  • “I want my business to be involved with children”
  • “In my business, I want to work outdoors”
  • “I want to start my business with less than $5,000″
  • “I want to run my business out of my apartment”
  • “I want my business to be service-oriented”

Once you have established your own set of criteria, the next step is to prioritize each item. Priority values should be high, medium and low. These priorities correspond to how relatively important each criteria is to you. Your initial inclination may likely be to rank all of the items with a “high” priority. Unfortunately this approach will not help you when it comes time to narrow down business ideas. Your goal should be to have approximately 30% high priority items, 50% medium priority items and 20% low priority items. We will now revisit Samantha and her example. After thinking carefully about her priorities and interests, Samantha segmented her business criteria into the following brackets:

High Priority

  • “I want to start my business with less than $5,000″
  • “I want to run my business out of my apartment”

Medium Priority

  • “I want my business to be service-oriented”
  • “I want my business to be involved with children”

Low Priority

  • “In my business, I want to work outdoors”

Priorities are crucial for this process since they are used to score and rank potential business ideas. While you can certainly apply your own scoring values to the priorities, the following values are good guidelines:

  • High Priority = 10 points
  • Medium Priority = 5 points
  • Low Priority = 1 point

The final step in the process is to list out and rank all business ideas that interest you. The priorities you just defined are used to score and rank the business ideas. Going back to Samantha’s example, she has identified the following business ideas that pique her interest:

  • Day care operations
  • Swim lessons
  • Limousine service
  • Graphic artist
  • Public relations

Samantha applies her criteria to each business idea and then scores accordingly. She uses the priorities and scoring values she defined above. A zero value indicates that the business idea does not meet a certain criteria.

  • Day care operations (0 + 0 + 5 + 0 + 0) = 5 points
  • Swim lessons (10 + 10 + 5 + 5 + 1) = 31 points
  • Limousine service (0 + 10 + 5 + 0 + 1) = 16 points
  • Graphic artist (10 + 10 + 5 + 0 + 0) = 25 points
  • Public relations (10 + 10 + 5 + 0 + 0) = 25 points

To help clarify the scoring, take the Graphic Artist business idea as an example.

  • Can I start this business with less than $5,000? Yes, +10 points
  • Can I run this business out of my apartment? Yes, +10 points
  • Is this business service oriented? Yes, +5 points
  • Is this business involved with children? No, +0 points
  • Do I work outdoors in this business? No, +0 points

As you can see from the scoring above, Samantha’s best business bet based on her criteria and priorities is Swim Lessons (31 points). While this may very well not be the exact business she chooses to start, she can certainly identify other business ideas that are similar in nature to those that scored highly.

The process outlined above provides a logical, repeatable and customizable process for evaluating potential business ideas. Applying unique business criteria and priorities, prospective business owners can use this process to come up with business ideas that best fit their personal and professional preferences and goals.

Seven Things You Need to Know About Selling Your Business

1. Alternatives to Selling

The IPO

If you business is large enough, you can consider an initial public offering (IPO) in which you will sell your company’s shares publicly on the open market. This can be a good alternative to selling the business, but IPO’s require the outlay of large sums of money that may be out of reach for your company. If you have money available to finance an IPO, research the IPOs of similar-size companies in your field and look at their track record and whether they experienced accelerated growth.

An IPO for your company will mean that you will lose a significant amount of control. You will be face outside investors, strict Securities and Exchange Commission regulations and record-keeping rules. Your company information will become a matter of public record.

Selling Corporate Assets

Sometimes it becomes difficult to cut back or restructure your business into a smaller business by selling some of your corporate assets, but this may be the best alternative to selling the business outright. If you consider selling off part of your business, hire an outside financial advisor to appraise your assets and determine a fair market price for the assets you are considering selling. Choose assets that are not directly tied to your core business. Choose assets for which there is a strong market. Obtain input from legal and accounting experts.

2. Ways to Determine The Value of Your Business

If you decide that you must sell your business, there are a number of ways to value your company and determine your selling price.

Informal and formal appraisals

Find out the selling prices of similar businesses in your area and compare their companies to yours. You can also contact the national trade association for your industry. You can also hire a professional business appraiser. This method is the most credible and your potential buyers will be more likely to accept the formal appraisal.

Market-based valuation

One commonly used method of valuation is based upon past experiences selling of similar businesses. A business broker may recommend an asking price based on the sale prices of similar businesses in your area and industry. This is similar to find comparable sales for residential real estate, and it is the least expensive. It is commonly used for the sale of small businesses.

Asset-based valuation

Your business assets may be considered at book value to determine the liquidation value of the business. The result is a fire-sale price that will be the bare minimums value.

Earnings-based valuation

Your company’s historical financial results will be considered and future income projections will be calculated and multiplied times a “Cap Rate,” the interest rate usually earned in the market.

Price Building

Price building is a valuation method that looks at the assets, leases, real estate, and goodwill of the business. It considers the value of the tangible assets on the balance sheet and the valuable intangibles that create the company’s value in determining the amount a buyer would be expected to pay for the business. The intangibles include location, unique product or service, profitability, favorable lease, goodwill, and good employees. The tangible assets will be real estate, equipment, and inventory.

After you inventory the tangible assets and calculate their value, you will estimate a value for the intangible assets. The rule of thumb for valuing these intangibles is that their combined value should be approximately one year’s net income. Add together the value for the tangible assets, the intangible assets, the agent’s commission, and other costs of sale to calculate your asking price.

Return on investment (ROI)

Consider your annual business net profit to calculate the buyer’s return on investment. Divide your net profit by the buyer’s original cash investment, and the result is the return on investment. The typical ROI is 12 to 25 percent. The higher the ROI, the higher the sales price is likely to be.

3. Prepare Your Business for Sale

Prepare in advance

The best results come from an owner who starts preparing his or her business for sale at least one year in advance. The owner should carefully review the financial statements and have a cleare understanding of the company’s revenue and growth potential.

Prepare company records and contracts

All company records must be entered to clearly document all company transactions so that potential buyers can review and evaluate the company’s financial status. Examine all supplier and customer contracts to be sure that their terms and conditions will not require renegotiation by the new owner and to be sure that they are financially good for the company. Review your real estate leases to find out if they require renegotiation upon sale. Analyze the equipment leases and other material contracts from the buyer’s perspective.

Write a policies and procedures manual and consider employees

Create a procedures manual that documents the best way to run the business and deal with its employees. Remember the importance of keeping key employees during a sale and whether they will be crucial to the new owner’s success. If they are, the new owner will want to know which employees will stay with the company after the sale. Have a company meeting to explain to employees that your are selling the business and tell them what effect the sale will have on their jobs.

Evaluate and update company assets

Do a complete inventory or all assets, equipment, and inventory. If your computer systems are obsolete, upgrading the system will make it easier to sell your business. If company assets include real estate, decide whether you should or sell the real estate before the company is listed for sale.

4. Legal Consequences of Selling a Business

Disclosure

You must make a complete disclosure to the buyer about all aspects of the business.
Open up the books for inspection. Show them all leases and other relevant contracts. Do not withhold any information from a potential buyer. Your failure to disclose material information could be considered fraud.

Will the Bulk Sales Law Apply to your business?

“Bulk sales” laws were enacted to prevent business owners from defrauding creditors by transferring their assets to another individual or entity to keep their assets away from creditors. When one corporation receives the assets of another company, it is expected to assume its debts and accountable for the debts. If, however, one business transfers all of its assets to another business, but the receiving business does not assume all of the debts, you must consult an attorney to be sure you comply with the law.

5. Collect Outstanding Accounts Receivable

Create an aggressive collections plan

You should make collections a top priority and devise a systematic method for collections. Put your collections plan in writing and share it with the employees who are part of the collections team. Make sure everyone consistently carries out the plan. Contact your past-due account holders by email to remind them that their account is overdue. Tell them how many days they are late and the precise amount that they owe.Ask recipients to acknowledge your e-mail. If you do not receive a response on your first e-mail, send another email advising them that you will contact your attorney.

Hire a collections agency or attorney

Hiring a collections agency as a last resort may be the only way to recover your money. When you create your aggressive collections plan, collect some names of reputable firms and make some initial inquiries to know what to expect. Their fees will be between 25 and 40 percent of the amounts collected. If you have very large overdue accounts, you may want to hire a collections attorney with experiece in collecting outstanding accounts receivable.

6. Define your priorities

Sales price and terms

Decide exactly what you want from the sale. Do you have to have an all-cash deal or can you finance part of the sale price? Is it important to you that the buyer continue your business traditions? Decide on the minimum price that you will take. Do you have to have a lump sum at closing or can you accept payments over time?

Time your decision to sell

When the national economy is strong and your business is having its best year, you will receive the highest dollar value for your business. keep an eye on what the national economy is doing and be flexible about when you will sell. Sell early if you can avoid being caught up in a bad economic cycle.

Prepare to sell

The average time for a businesses to sell is approximately one year. Start planning two years in advance of the date you want to sell. Also, prepare your business for the sale by cleaning, painting, and doing whatever you can do to make your business premises more attractive. Keep your clean and attractive every day, because you never know when a potential buyer will drive by.

Get professional help

Do not make the mistake of thinking that you can sell your business without help from professionals. In the course of the sale, there are numerous federal, state, local, and tax issues to consider. Use your time wisely and spend your time running your business successfully to increase its sales appeal. Ask for help from your accountant; lawyer; business broker; and business appraiser.

7. Consider the tax consequences

How income is taxed

If you owned your business for at least one year, the increased value of your business will be taxed as a long-term capital gain at approximately 20 percent. If you owned your business for less than one year, the increased value will be taxed as personal income at more than 30 percent. When you sell the company’s assets, they are classified as capital assets and will be taxed as long-term capital gain or ordinary income. When you sell inventory, the proceeds will be classified and taxed as ordinary income or loss.

As you prepare your business for sale, you should make succession-management plans. Prepare the firm’s next generation of leadership to include capable managers. The absence of a succession strategy is considered to be a company weakness. The lack of a practical succession plan can complicate a potential IPO, discourage a buyout, and be less desirable for underwriters or institutional investors.

Jo Ann Joy, Esq., MBA, CEO

The future of your business starts here!

You may contact Jo Ann by phone at (602) 663-7007, by fax at (602) 324-7582, by email at [email protected] Business Solutions.net, and by mail at 2313 East Ocotillo Rd., Phoenix, AZ 85016. I have many published articles, and I will send any article to you free of charge. Most consultations are free.

For information about other important legal, tax, and business topics, free copies of articles, or EBooks, please visit our website at http://www.IndigoBusinessSolutions.net Copyright 2006. All rights reserved. Indigo Business Solutions is a registered trade name.

“I Want to Buy Your Business For $500,000 Cash”-The Ins and Outs of Selling Your Service Business

“I Want to Buy Your Business For $500,000 Cash”. Are you waiting for an offer like this for your business? Is it realistic? Do people really sell their service businesses and can they make very much money when they do? Yes…you absolutely can sell your business for big bucks, with a lot of careful planning! Here’s what you need to know.

Determining If You Really Want to Sell
First, start with examining why you want to sell your business. Do you have another career opportunity? Are you going to retire? Do you want to start another business? Or, are you just sick of the troubles that plague many small businesses? Investigating your motives can save you a lot of wasted time and energy.

Timing is everything when selling your business and you want to be sure that you are selling for the right reasons, and at the best time to get the best price. Often people are motivated to sell because they are tired of re-occurring problems, low profitability, staff conflicts or the tedium of doing the same old thing. Like selling your house, when selling your business for top dollar you are going to need to fix all of the glaring problems before anyone is willing to take the business off of your hands. Sometimes after fixing all of the “glaring problems”, owners regain new love for their businesses and decide that selling is not for them. So, closely examine why you are interested in selling, and consider if good systems were put in place to decrease your business pains, would you still be interested in selling?

Making Your Business Attractive and Preparing Your Business For Sale
So, you have decided to sell, what’s next? I suggest you make a selling plan that maps out how you will make your business look as attractive as possible. It took me two years to prepare my business for sale because I wanted top dollar. Buyers are willing to pay a good price for a business that they can walk in and begin making money with on day one.

There are many things that you will need to do, but here are a few suggestions to get started:

1. Make sure all of your financial statements are accurate and up to date.

2. Rectify any legal issues, and be sure that you are operating above-board on all levels.

3. Get a computer system, and make sure all of your client, scheduling and service information is loaded in.

4. If possible, replace any sub-contracting staff with employees. New owners want to know that the “recipe” making you successful will also make them successful. Because of the restrictions over work controls for contractors, potential buyers may be weary.

5. Get your employee turnover and employee management system under control. Potential buyers are going to have burning questions about how you handle the tricky employee issues. And, in addition to quieting your prospects’ concerns, you want a stable staffing situation while you go through the critical months during a sale. One ill-placed employee coupe during a sale could be a deal breaker.

6. Document all of the systems that run your business. What’s your client acquisition system, recruiting plan, employee management approach, training system, and all of the hundreds of details that you store in your head about how to run your business?

7. Clean up your marketing. Your image and brand are a big part of what you are selling, and the stronger the image, the more attractive the offer. Also, update your written marketing plan to include all of your marketing methods, key competitors, marketing strategy, etc.

8. Become an absentee owner. If a buyer can see that the business can be ran without you, then they know that they can do the same.

9. Check your profitability. New owners will want to see at least two years of consistent sales and profitability. They are going to need to see that they can make a good salary plus whatever payment they would need to make to a bank loan or contract sale to you.

10. Keep your sale plans confidential, especially from your staff. Eventually you will need to let your staff in on the secret, but until a solid deal is in place, you don’t want staff members to leave for fear of a big change.

Setting Your Price
There are many methods for determining the price of your business. Your best bet is to see if you can gather information on comparable business sales. This can be tricky, but you can research books, business brokers or business valuing companies for calculation methods for your industry business. Check several sources to get an accurate idea of valuing similar businesses in your area, because ultimately the sale is determined by what the market will bare. If you cannot find any statistics that exactly represent your business, then look for a similar service, or small business numbers in a comparable area. Be careful of people trying to tell you that you are only selling a “client list”, because if you’re business is really “turn key” ready, then the value should be much higher than a “client list” sale.

Also, when setting the price, do your research, and try to keep emotion out of it. Unfortunately, blood, sweat and tears don’t count for anything. If your research shows that the sales range is $100,000 a year to low too bring in a good value, then you are better off taking a year to get the sales up to snuff, instead of asking for an unrealistic price.

Putting Your Business on the Market
When it comes time to put your business on the market, choose your broker wisely. Look for someone who has experience selling a business like yours and understands the value in a service business. Find out how they plan to market the business, how many businesses they have sold, and how long has it taken him/her to sell them. With a broker comes commissions and contracts, both which should be reviewed carefully. Commissions can be anywhere form 5% – 20% of the sale price with hefty minimums. If you get a good broker, this could be well worth it, but check them out carefully.

Many brokers provide all of the forms and contract required to keep you from needing an attorney during the sale, but you may want to have your attorney check out the contract before you sign it. It’s not unusual for the contract to require a commission regardless of whether or not the buyer comes from their efforts or not or whether or not they did any marketing at all. Remember that before you sign, everything is negotiable.

Enjoying Your Life

Ok, you’ve done it. Now what? Well, it’s likely that your sale will include 3-6 weeks of training for the new owner, and possibly some consulting over the first year. But, once that’s finished you can get on with enjoying your life and moving onto your next endeavor. Good luck, and let me know how it goes.