Marketing and branding are passions of mine. I find them truly interesting and to tell you the truth, I am pretty good at them. I am the idea person, the creative, not the accountant. As an Entrepreneur I know my strengths, my weaknesses and how to plan accordingly. Balance sheets, cash flow statements, and the thought of payroll are essential, but daunting. With the possibility of a start-up venture on the horizon, finding the right accountant is essential to the success of my business. As an entrepreneur, I know my limits and accounting is just outside of my reach.
Choosing an accountant that is the right fit for your business is essential to the daily operations that venture. Your accountant is privy to private financial, personal and business information. He or she will gain detailed information on your business overtime and they can either become your best ally or your biggest problem. As with most professionals, all accountants are not created equal and personally, I would like the best accountant for my business that I can work into my budget.
Your accountant will not only take charge of recording your financial information and formatting it into Financial Documents including your balance sheet, income statement, cash flow and tax returns. "But a good small business accountant does much more than just record transactions and passively generate documents-they actively analyze, interpret and convert that data into actionable business intelligence" (Gaebler.com). Your accountant (I prefer financial ally) should be willing and able to asses the current financial situation of your business and guide you in the direction of growth you wish to pursue. For example if you currently rent your retail storefront, but are interested in purchasing a space in the future, your financial ally can assess the situation and determine which opportunity is best for the growth of your venture.
Understanding that your personal finances directly correlate to those of your business, your ally should also provide personal financial. Whether it be retirement planning or advice on investments, he or she should guide you towards a stronger financial position over time. Your accountant is a trusted business and personal advisor assessing specific problems within your business and offering specific solutions to meet your needs.
As an Entrepreneur it is also important to be sure of your potential accountants certifications and skill sets. All accountants are not Certified Public Accountants. " A CPA has a surpassed accepted financial education levels, passed state-administered tests to prove competency and periodic re-certification exams" (Gaebler.com). While this depth of knowledge is excellent to have on hand in your business, it often will also be more costly. Many success full accountants can provide the resources essential to the financial operation of your business and many may not be a CPA. Most importantly choose an accountant that is an ideal fit for you and your business.
Choose an accountant that fits well with you and your organization. If you are civic minded and community involvement is important to you, find an accountant that shares similar interests. Overall, you the business owner will know if the accountant in front of you is the best fit for your business. Do your research, ask for references and go into the process with the knowledge of what exactly it is you are looking for. If you are like me and the thought of tackling the accounting processes for your business seems overwhelming, hire someone. Find your financial ally!
How to Choose an Accountant. Gaebler.com. 10 Jun, 2010.< http://www. gaebler.com/Choosing-Accountants.htm>.
Monday, June 14, 2010
Saturday, June 5, 2010
Financial Accountability, in the name of Enron and so many more
Scandalous to say the least...the subject of Financial Accountability, especially in terms of upper level management, has made its way to the media spotlight. With large conglomerates including the household names of Enron, WorldCom, Lehman Brothers and more declaring bankruptcy, while management to continues receive million dollar bonuses, stockholders and often employees are often left out to dry. Management must be held accountable for their actions and decisions in regards to the financial well being of their companies.
Financial Accountability refers, "to the rules that businesses (both large and small) must follow to be accountable to their stockholders and stakeholders and the general public” (Ehow.com). Management must be held accountable for effectively conducting the financial activities of the business as transparently as possible. Rules/procedures, a well-defined financial accountability structure, should be set in place through all key principles: planning, recording, internal controls and monitoring.
Accountability of various procedures throughout the accounting process are often delegated to set individuals by a governing group within the company. These individuals become the delegated authority to handle various activities throughout the financial process. Activities may include purchase requisitions, invoicing, invoice payment, expense reimbursement and more.
According to the financial accountability procedures set forth by UC Santa Cruz, “each individual is accountable for successfully completing his or her assigned activity.” They go further to state that financial activities involve processing a financial transaction in conformity with the set control standards on campus and that each financial transaction must have an audit trail leading back to the initial documentation. UC Santa Cruz is only one example of a clearly defined accountability process.
Regardless of whether a company has a clearly defined procedure to maintain Financial Accountability within the organization, effective follow up/monitoring must be conducted to ensure that key processes are followed. A financial audit, “is the review of the financial statements of a company or any other legal entity, resulting in the publication of an independent opinion on whether or not those financial statements are relevant, accurate, complete and fairly presented” (Wikipedia.com). An audit provides the assurance and credibility to the sound business decisions of a company. It also serves as a method to reduce the possibility of fraudulent business practices. A Financial audit adds overall value to the shareholders of a company through the assurance of accurate accounting and financial positioning.
Financial Accountability. Ehow.com. 4, June, 2010.
UC Santa Cruz, Financial Management. 4, June, 2010. < http://financial.ucsc.edu/ Pages/Management_Accountability.aspx>
Financial Audit, Wikipedia. 4, June, 2010. http://en.wikipedia.org/wiki/Financial_audit
Financial Accountability refers, "to the rules that businesses (both large and small) must follow to be accountable to their stockholders and stakeholders and the general public” (Ehow.com). Management must be held accountable for effectively conducting the financial activities of the business as transparently as possible. Rules/procedures, a well-defined financial accountability structure, should be set in place through all key principles: planning, recording, internal controls and monitoring.
Accountability of various procedures throughout the accounting process are often delegated to set individuals by a governing group within the company. These individuals become the delegated authority to handle various activities throughout the financial process. Activities may include purchase requisitions, invoicing, invoice payment, expense reimbursement and more.
According to the financial accountability procedures set forth by UC Santa Cruz, “each individual is accountable for successfully completing his or her assigned activity.” They go further to state that financial activities involve processing a financial transaction in conformity with the set control standards on campus and that each financial transaction must have an audit trail leading back to the initial documentation. UC Santa Cruz is only one example of a clearly defined accountability process.
Regardless of whether a company has a clearly defined procedure to maintain Financial Accountability within the organization, effective follow up/monitoring must be conducted to ensure that key processes are followed. A financial audit, “is the review of the financial statements of a company or any other legal entity, resulting in the publication of an independent opinion on whether or not those financial statements are relevant, accurate, complete and fairly presented” (Wikipedia.com). An audit provides the assurance and credibility to the sound business decisions of a company. It also serves as a method to reduce the possibility of fraudulent business practices. A Financial audit adds overall value to the shareholders of a company through the assurance of accurate accounting and financial positioning.
Financial Accountability. Ehow.com. 4, June, 2010.
UC Santa Cruz, Financial Management. 4, June, 2010. < http://financial.ucsc.edu/ Pages/Management_Accountability.aspx>
Financial Audit, Wikipedia. 4, June, 2010. http://en.wikipedia.org/wiki/Financial_audit
Wednesday, May 5, 2010
The Power of a Locally Owned Business
In the grand scheme of the global economy we all are becoming one. The lines seperating continents are disolving as the global marketplace continues to connect businesses. The potential profits to be made through the international marketplace is astounding, but is profit really the only thing that matters?
Call me a homebody, but I prefer to call it a love for my community and the small businesses that make it unique. With small business ventures generating more that 75%of the Gross National Product, it is needless to say how truely facinating they are. Entrepreneurs are the creativity of our community. They are the reason tourism driven economies survive and the reason why niche markets continue to arise. Each and everyone different from the other.
As a small business owner I would not enter the international marketplace with a good or service. The concept of "buy local" and support your local economy have really hit home during the recent economic recession. As the economy began to take a hit the small business owners, the chamber of commerce, the local Downtown Merchant Association and more band together to encourage a buy local movement. The power of the local dollar is astounding. A dollar spent in a locally owned business has a greater impact on the local community vs. a dollar spent in an international conglomerate that travels to company headquarters.
Profits are not everything. Don't get me wrong, they are helpful, but they are not what being a business owner is about. Hapiness is in pursueing your dream, opening your start up venture and freedom of being your own boss. Entrepreneurialism encompases much more than profit generation or the quest of international product expansion. What does it mean to you?
Call me a homebody, but I prefer to call it a love for my community and the small businesses that make it unique. With small business ventures generating more that 75%of the Gross National Product, it is needless to say how truely facinating they are. Entrepreneurs are the creativity of our community. They are the reason tourism driven economies survive and the reason why niche markets continue to arise. Each and everyone different from the other.
As a small business owner I would not enter the international marketplace with a good or service. The concept of "buy local" and support your local economy have really hit home during the recent economic recession. As the economy began to take a hit the small business owners, the chamber of commerce, the local Downtown Merchant Association and more band together to encourage a buy local movement. The power of the local dollar is astounding. A dollar spent in a locally owned business has a greater impact on the local community vs. a dollar spent in an international conglomerate that travels to company headquarters.
Profits are not everything. Don't get me wrong, they are helpful, but they are not what being a business owner is about. Hapiness is in pursueing your dream, opening your start up venture and freedom of being your own boss. Entrepreneurialism encompases much more than profit generation or the quest of international product expansion. What does it mean to you?
Is a Just In Time Inventory Systems Right For Your Business
Just in Time inventory control has been mastered by major conglomerates including the infamous Toyota Motor Company and Dell. According to Wikipedia JIT is, " an inventory strategy that strives to improve a business's return on investment by reducing in-process inventory and associated carrying costs." In lay mans terms, keeping exactly enough inventory on hand to meet demand, without tying up operational dollars in excess back stock. In theory the overall concept is genius, but in actuality the a JIT system does have its drawbacks.
Pros
In addition to an increase in company profits, a lean inventory system will also allow your company to decrease both the space of your warehouse and the costs associated with maintaining it. According to a company spokesman for Dell, "With our pull-to-order system, we've been able to eliminate warehouses in our factories and have improved factory output by double by adding production lines where warehouses used to be." A smaller warehouse will equate to a lower rent/mortgage payment,lower wage expenses as less staff will be required to maintain overstock merchandise, and possibly greater production output.
JIT has a tendency to generate additional profits for a business through the reduction in "clearance"/obsolete merchandise. Less overstock will allow a business to be better responsive to their customers needs. With less inventory on hand, a change in demand for a certain product or a change in technology, will have less of an impact. Remaining inventory should be minimal and easily replaced with new merchandise.
Cons
A Just in Time inventory system requires a company to have the right amount of material/product at the right time. Thus leaving the company vulnerable a drastic change in the demand or supply of a product. For example a tire company may only keep (8) tires of a specific brand in stock at a time to meet their forecasted demand. Unfortunately, three customers have entered the store on the same day requesting this specific brand of tire. The company does not have enough inventory on hand to meet the required demand and will loose the potential income from the third prospective customer. On the opposite end of the spectrum, a small soap making company uses a specific scent that it only purchase from certain manufacturers. The company must order enough of the scent to meet their anticipate demand, but due to a hiccup further down the supply chain, the scent is unavailable. This unforeseen problem also equates to a loss in potential income.
Environmental Concerns also pose an issue to the JIT concept. Keeping the right material on hand at the right time will require additional shipments from suppliers. Each shipment equates to additional fossil fuel and material usage. With the focus on "green" business practices. Environmentally conscious customers, employees and business owners may shy away from the concept.
As with any inventory system, Just in Time has many strengths and weaknesses. You the business owner must determine if the JIT concept is right for your business. Regardless of whether you choose to implement the JIT system you can implement lean inventory practices to increase your operating profit.
Wikipedia, Just in Time (business). 30 Apr. 2010..
Just in Time Inventory Management Strategy and Lean Manufacturing. Academicmind.com. 1 May. 2010.
Pros
In addition to an increase in company profits, a lean inventory system will also allow your company to decrease both the space of your warehouse and the costs associated with maintaining it. According to a company spokesman for Dell, "With our pull-to-order system, we've been able to eliminate warehouses in our factories and have improved factory output by double by adding production lines where warehouses used to be." A smaller warehouse will equate to a lower rent/mortgage payment,lower wage expenses as less staff will be required to maintain overstock merchandise, and possibly greater production output.
JIT has a tendency to generate additional profits for a business through the reduction in "clearance"/obsolete merchandise. Less overstock will allow a business to be better responsive to their customers needs. With less inventory on hand, a change in demand for a certain product or a change in technology, will have less of an impact. Remaining inventory should be minimal and easily replaced with new merchandise.
Cons
A Just in Time inventory system requires a company to have the right amount of material/product at the right time. Thus leaving the company vulnerable a drastic change in the demand or supply of a product. For example a tire company may only keep (8) tires of a specific brand in stock at a time to meet their forecasted demand. Unfortunately, three customers have entered the store on the same day requesting this specific brand of tire. The company does not have enough inventory on hand to meet the required demand and will loose the potential income from the third prospective customer. On the opposite end of the spectrum, a small soap making company uses a specific scent that it only purchase from certain manufacturers. The company must order enough of the scent to meet their anticipate demand, but due to a hiccup further down the supply chain, the scent is unavailable. This unforeseen problem also equates to a loss in potential income.
Environmental Concerns also pose an issue to the JIT concept. Keeping the right material on hand at the right time will require additional shipments from suppliers. Each shipment equates to additional fossil fuel and material usage. With the focus on "green" business practices. Environmentally conscious customers, employees and business owners may shy away from the concept.
As with any inventory system, Just in Time has many strengths and weaknesses. You the business owner must determine if the JIT concept is right for your business. Regardless of whether you choose to implement the JIT system you can implement lean inventory practices to increase your operating profit.
Wikipedia, Just in Time (business). 30 Apr. 2010.
Just in Time Inventory Management Strategy and Lean Manufacturing. Academicmind.com. 1 May. 2010.
Sunday, May 2, 2010
The Woes of Credit and Fraud
Small businesses are more vulnerable to fraud than their larger counterparts. According to a study conducted by the Association for Certified Fraud Examiners, "The current report (Spring, 2008) indicates that frauds perpetrated against small businesses continue to cost more on average than those against larger firms. The average cost of a fraud event targeting businesses with fewer than 100 employees was $200,000 for the period of January 2006 through February 2008." Staggering figures such as these can have a profound impact on the bottom line of small businesses nationwide.
The primary reason larger firms are hit with less internal fraud is because of their strict systems of checks and balances. Employees (often screened by an background check) understand the internal control systems at hand when they are hired. They are aware of the procedures the company has implemented to monitor both monetary and inventory transactions.
A breakdown in the internal controls of a small business venture in some cases may lead to fraud. Sadly enough, the most precedented form of fraud in the small business world is internal theft. Otherwise known as occupational fraud. Fraudulant practices can include, but are not limited to missapropriation of cash and/or assets (the most common), false invoicing, check tampering, embezzelment, false register voids, and the list continues. These dishonest business practices made by the employees that you work with daily and often those whom you trust can equate to major financial losses. Employees are aware of the consequences if they choose to conduct dishonest business practices.
How can you prevent internal fraud as a small business owner? Ensure that you have the internal controls in place to deter such actions and enforce them. Begin with hiring the right employees for your team. Conduct extensive background checks, contact references and have them take an approved drug test. Secondly, ensure that your internal controls are in place, that enployees understand that a system of checks and balances are in place. Thirdly, monitor the cash flow within your business. Practices including cash/till audits, inventory audits, security surveilance systems, and more will allow you to keep an eye on what goes in an out of your business. Other steps including, making yourself the final approval for all expenditures. Notice that the credit card bill for gas for the company van is a little high? Are you sure that your employees are not filling up their personal vehicle while they are at the station? Lastly, ensure that you have an employee policy on fraud. The policy should state your stance on fradulant business practices and the consequences for such actions.
Are you trying to obtain financing for your start-up venture? Review the 4 C's of Credit to ensure that you are prepared to exceed the expectations of your lending institution.
The 4 C's of Credit are frequently used to determine/evaluate credit risk.
Character
Creditors will delve into the financial history of a potential borrower to determine their financial character prior to lending. Your credit history and your credit score will give potential lenders great insight into your financial past. The higher the credit score the greater the chance of obtaining credit.
Capacity
The ability of your venture to generate the revenues required to fulfill the payments on your loan is referred to as your capacity. Capacity is often difficult to determine when a business is in the start-up phase without a proven track record. Creditors wish to obtain as little risk as possible, thus a financial history with a positive cash flow will make the process of obtaining a loan much easier.
Capital
As a small business owner, capital equals the assets within the scope of your business venture. Your machinery, office equipment, building (if owned), inventory, liquid cash and more are considered capital by a lending institution. While these assets are considered with care, primarily due to the depreciation and liquidation value, they do add credibility to your financial history.
Collateral
This is the point where potentials determine exactly how much you are willing to risk to secure financing for your business. Collateral is the personal investment you the business owner is willing to contribute. Whether you are using hard earned cash, the equity in your home, or another form, all equate to collateral that lessens the risk for the potential lender. The borrower is willing to invest their personal cash and assets into obtaining financing for their business will be much more likely to obtain financing for their venture.
Business Owners Toolkit. Detecting and Deteering Fraud. 28, Apr. 2010.http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P14_1000.
The primary reason larger firms are hit with less internal fraud is because of their strict systems of checks and balances. Employees (often screened by an background check) understand the internal control systems at hand when they are hired. They are aware of the procedures the company has implemented to monitor both monetary and inventory transactions.
A breakdown in the internal controls of a small business venture in some cases may lead to fraud. Sadly enough, the most precedented form of fraud in the small business world is internal theft. Otherwise known as occupational fraud. Fraudulant practices can include, but are not limited to missapropriation of cash and/or assets (the most common), false invoicing, check tampering, embezzelment, false register voids, and the list continues. These dishonest business practices made by the employees that you work with daily and often those whom you trust can equate to major financial losses. Employees are aware of the consequences if they choose to conduct dishonest business practices.
How can you prevent internal fraud as a small business owner? Ensure that you have the internal controls in place to deter such actions and enforce them. Begin with hiring the right employees for your team. Conduct extensive background checks, contact references and have them take an approved drug test. Secondly, ensure that your internal controls are in place, that enployees understand that a system of checks and balances are in place. Thirdly, monitor the cash flow within your business. Practices including cash/till audits, inventory audits, security surveilance systems, and more will allow you to keep an eye on what goes in an out of your business. Other steps including, making yourself the final approval for all expenditures. Notice that the credit card bill for gas for the company van is a little high? Are you sure that your employees are not filling up their personal vehicle while they are at the station? Lastly, ensure that you have an employee policy on fraud. The policy should state your stance on fradulant business practices and the consequences for such actions.
Are you trying to obtain financing for your start-up venture? Review the 4 C's of Credit to ensure that you are prepared to exceed the expectations of your lending institution.
The 4 C's of Credit are frequently used to determine/evaluate credit risk.
Character
Creditors will delve into the financial history of a potential borrower to determine their financial character prior to lending. Your credit history and your credit score will give potential lenders great insight into your financial past. The higher the credit score the greater the chance of obtaining credit.
Capacity
The ability of your venture to generate the revenues required to fulfill the payments on your loan is referred to as your capacity. Capacity is often difficult to determine when a business is in the start-up phase without a proven track record. Creditors wish to obtain as little risk as possible, thus a financial history with a positive cash flow will make the process of obtaining a loan much easier.
Capital
As a small business owner, capital equals the assets within the scope of your business venture. Your machinery, office equipment, building (if owned), inventory, liquid cash and more are considered capital by a lending institution. While these assets are considered with care, primarily due to the depreciation and liquidation value, they do add credibility to your financial history.
Collateral
This is the point where potentials determine exactly how much you are willing to risk to secure financing for your business. Collateral is the personal investment you the business owner is willing to contribute. Whether you are using hard earned cash, the equity in your home, or another form, all equate to collateral that lessens the risk for the potential lender. The borrower is willing to invest their personal cash and assets into obtaining financing for their business will be much more likely to obtain financing for their venture.
Business Owners Toolkit. Detecting and Deteering Fraud. 28, Apr. 2010.http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P14_1000.
Friday, April 23, 2010
Why are Large Firms Slow to Change?
I an economy where change is inevitable, why are large firms slow to change? Large conglomerates, you know, the fortune 500's of today's society are faced with the change or die concept. Natural selection for the current economy.
Large firms often have difficulty adjusting to a changing business environment. They suffer from what Richard Daft refers to as "structural inertia" or the inability to adapt to a changing market. Regardless of whether it is the large investment in company assets (equipment, property,trained staff, etc.), decision makers/higher ups with firm viewpoints, or the difficulty in regards to changing company culture, these larger more established firms are finding it difficult to adapt to changing business environments.
The larger the organization, the larger the investment in assets. Equipment, a building and highly trained staff require a hefty investment by the company. If an organization invests in the above for a product, they will be less likely to react quickly to a change in the product mix in the near future. With funds tied up in their current product the organization will be less soluble, thus slower to react to a changing market.
By nature, large firms are bureaucratic with policies and procedures set firmly in place to maintain corporate structure and compliance. "By nature a bureaucracy causes businesses to be slow to respond to changing markets and customer demands" (Melvin). These structured environments provide the highest manager on the food chain with primary decision making power. This isolation of the primary decision makers
equates to a lapse from the time ideas and opportunities are addressed before they make it up the corporate ladder and are implemented.
The corporate culture for many large firms has been created over an extended period of time. Employees and managers alike become are trained in the methods of the current culture.In a changing environment many will become resistant to the change in the corporate culture that they are accustomed to. If employees and staff fail to perceive the potential benefits of a change in the current corporate culture they may become less cooperative and begin to fear the change. This avoidance may spread like wildfire throughout an organization as the previous stability has been removed and they are uncertain about their changing environment.
The rather slow ability of large firms to change does however open the door for new businesses to emerge and fill the current niche. These new firms will begin to siphon customers from established firms and may eventually become the conglomerate of tomorrow. Large firms must find ways to adapt to changing markets and become flexible like their smaller counterparts.
Daft, Richard. Organization Theory and Design. Cengage Learning, 2008. Apr. 23, 2010.
Melvin, Katherine. Size Matters - Large vs. Small Companies. Mar. 10, 2010..
Large firms often have difficulty adjusting to a changing business environment. They suffer from what Richard Daft refers to as "structural inertia" or the inability to adapt to a changing market. Regardless of whether it is the large investment in company assets (equipment, property,trained staff, etc.), decision makers/higher ups with firm viewpoints, or the difficulty in regards to changing company culture, these larger more established firms are finding it difficult to adapt to changing business environments.
The larger the organization, the larger the investment in assets. Equipment, a building and highly trained staff require a hefty investment by the company. If an organization invests in the above for a product, they will be less likely to react quickly to a change in the product mix in the near future. With funds tied up in their current product the organization will be less soluble, thus slower to react to a changing market.
By nature, large firms are bureaucratic with policies and procedures set firmly in place to maintain corporate structure and compliance. "By nature a bureaucracy causes businesses to be slow to respond to changing markets and customer demands" (Melvin). These structured environments provide the highest manager on the food chain with primary decision making power. This isolation of the primary decision makers
equates to a lapse from the time ideas and opportunities are addressed before they make it up the corporate ladder and are implemented.
The corporate culture for many large firms has been created over an extended period of time. Employees and managers alike become are trained in the methods of the current culture.In a changing environment many will become resistant to the change in the corporate culture that they are accustomed to. If employees and staff fail to perceive the potential benefits of a change in the current corporate culture they may become less cooperative and begin to fear the change. This avoidance may spread like wildfire throughout an organization as the previous stability has been removed and they are uncertain about their changing environment.
The rather slow ability of large firms to change does however open the door for new businesses to emerge and fill the current niche. These new firms will begin to siphon customers from established firms and may eventually become the conglomerate of tomorrow. Large firms must find ways to adapt to changing markets and become flexible like their smaller counterparts.
Daft, Richard. Organization Theory and Design. Cengage Learning, 2008. Apr. 23, 2010.
Melvin, Katherine. Size Matters - Large vs. Small Companies. Mar. 10, 2010.
Friday, April 16, 2010
To Buy or Not to Buy, That is the Question
In a world of budgeting, saving and a credit crises, the majority of the public does to have access to infinite resources to purchase a largely successful conglomerate. While everyone does not necessarily have the opportunity to buy a business with a proven track record of profitability, everyone does have the opportunity to create a venture of their own.Think about it for a moment. You have decided that you would like to own a certain type of business. You are ready to unleash your passion, do you buy a form of that businesses with proven profitability or do you create your own path and launch a start-up? The choice is really yours or I guess I should say your budget's.
Operating Business
A business that is already in operation has overcame the original obstacles of start up. It has an established customer base, location, inventory and suppliers, and trained employees on staff. These benefits leave room for you to purchase the business and make the necessary updates without starting from scratch. Statistically this proves to be a better idea than launching a venture of your own, but the industry average for successfully complete ting a business purchase from "putting in an offer that is accepted and that offer going to the closing table is 50%" (Sierchio). Buyers must be well prepared/informed and ready to discover discrepancies in the sellers information. You must find out exactly why the business is for sale and ensure that this is a problem that you can fix. Poor management and lack of training are fixable, but a poor location may be a little bit more difficult.
Business Start-up
For many entrepreneurs purchasing a business that is all ready in operation is out of their budgetary means, myself included. These entrepreneurs decide to unleash their passion and launch their own business. Statistics are no longer on your side, but drive very well may be. These entrepreneurs must find an affordable location for their business, search for vendors, advertise, hire employees and begin the process of building a client base. Everything that comes with the purchase of a profitable business, you must now create on your own. These objectives alone can cost a small fortune, thus do not underestimate during the formation of your business plan. You are going to need all of the funding you can get and you are still going to have to think very "guerrilla minded". According to essortment, "When you open a business from the ground floor, you make the rules and you decided how you want it to run. Your business is designed completely by you." I find this extremely motivating, it speaks directly to my entrepreneurial drive.
Two Ways to Buy
You have chosen to buy a business that is already in operation. Way to go moneybags! There are two basic methods to purchasing a business, the acquisition of stock or through the purchase of the assets. Stock acquisitions involve either a direct stock purchase or a merger. This method may reveal previously unknown contingent liabilities that you will be responsible for after purchase. The purchase of assets both tangible and intangible on the other hand proves to be a tax advantage for you the buyer. Not only can you opt to purchase only the assets that you feel are necessary for the successful operation of the business, you may also reduce your company taxes through the mark up and depreciation of tangible assets. While this method is not nearly as appealing for the seller it is a clear advantage for you the buyer.
Goodwill
Many businesses come with an implied "goodwill" concept. For example the trademark associated with certain franchises will come with an implied "goodwill" towards the brand. The concept may be transferred to the buyer during the initial stages of operation, but it is the responsibility of the new owner to maintain the "goodwill" within the business. You may choose to purchase a business that has a proven client base and a track record of profitability, but if you provide poor customer service and an inferior product you are tainting the "goodwill" of the business. The seller can not be held liable for your indiscretions as the new owner of this business. The concept technically/contractually can not be transferred or purchased.
Click Here to view George Sierchio's article on Buy-a-Business.
Gaeblers Resources for Entrepreneurs also has a great article on the Ways to Buy a Business. Click Here to view the article.
Operating Business
A business that is already in operation has overcame the original obstacles of start up. It has an established customer base, location, inventory and suppliers, and trained employees on staff. These benefits leave room for you to purchase the business and make the necessary updates without starting from scratch. Statistically this proves to be a better idea than launching a venture of your own, but the industry average for successfully complete ting a business purchase from "putting in an offer that is accepted and that offer going to the closing table is 50%" (Sierchio). Buyers must be well prepared/informed and ready to discover discrepancies in the sellers information. You must find out exactly why the business is for sale and ensure that this is a problem that you can fix. Poor management and lack of training are fixable, but a poor location may be a little bit more difficult.
Business Start-up
For many entrepreneurs purchasing a business that is all ready in operation is out of their budgetary means, myself included. These entrepreneurs decide to unleash their passion and launch their own business. Statistics are no longer on your side, but drive very well may be. These entrepreneurs must find an affordable location for their business, search for vendors, advertise, hire employees and begin the process of building a client base. Everything that comes with the purchase of a profitable business, you must now create on your own. These objectives alone can cost a small fortune, thus do not underestimate during the formation of your business plan. You are going to need all of the funding you can get and you are still going to have to think very "guerrilla minded". According to essortment, "When you open a business from the ground floor, you make the rules and you decided how you want it to run. Your business is designed completely by you." I find this extremely motivating, it speaks directly to my entrepreneurial drive.
Two Ways to Buy
You have chosen to buy a business that is already in operation. Way to go moneybags! There are two basic methods to purchasing a business, the acquisition of stock or through the purchase of the assets. Stock acquisitions involve either a direct stock purchase or a merger. This method may reveal previously unknown contingent liabilities that you will be responsible for after purchase. The purchase of assets both tangible and intangible on the other hand proves to be a tax advantage for you the buyer. Not only can you opt to purchase only the assets that you feel are necessary for the successful operation of the business, you may also reduce your company taxes through the mark up and depreciation of tangible assets. While this method is not nearly as appealing for the seller it is a clear advantage for you the buyer.
Goodwill
Many businesses come with an implied "goodwill" concept. For example the trademark associated with certain franchises will come with an implied "goodwill" towards the brand. The concept may be transferred to the buyer during the initial stages of operation, but it is the responsibility of the new owner to maintain the "goodwill" within the business. You may choose to purchase a business that has a proven client base and a track record of profitability, but if you provide poor customer service and an inferior product you are tainting the "goodwill" of the business. The seller can not be held liable for your indiscretions as the new owner of this business. The concept technically/contractually can not be transferred or purchased.
Click Here to view George Sierchio's article on Buy-a-Business.
Gaeblers Resources for Entrepreneurs also has a great article on the Ways to Buy a Business. Click Here to view the article.
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