Business Model What Are You Using, is it the Correct One For You?

Every company needs to have a specific Business Model will contain information such as the type of business you want, type of customers you will have, what product or services your will sell and these will help to determine the business structure you will need.

Here are 5 of the Many Important Questions that when answered, will help you determine your Business Model:

  • Question #1: Is your business a part time or full time?
  • Question #2: Is your business a brick and mortar business? Do you have a physical location, where your customers will come to buy your goods and or services?
  • Question #3: Is your business completely online?
  • Question #4: How will you perform the work related to your business? Do you have employees? These can be answered by having a business plan developed for your business.
  • Question #5: Are you an independent sales rep? Will you work in a team or MLM basis?

These are just a few of many questions you need to determine the answers for in order to accurately craft your business model. Just knowing this, will also help you in choosing the actual structure of your business.

Your business structure refers to what type of classification for government reporting purposes. For example, will your business be a sole proprietor, partnership, form of a corporation (S-Corp, C-Corp) or even a LLC or LLP?

In regards to the different types of business structures make sure that you have contacted your accountant or CPA. They’ll be able to assist you in determining the best structure type. It would be best to also contact your legal adviser and business attorney to discuss your structure and business model chosen.

Now if you don’t have this setup yet in your business, you know your assignment. Create a business model and structure for your business. Get started as soon as possible so you can reap the financial rewards.

It is crucial to set these up from day one. However, if you have already started your business you can catch up. The key is to not wait and procrastinate. Take action now.

Remember, by properly taking the time and efforts to properly setup your business as a business, through setting up and properly implementing the basic Business Systems, you would be in the top 3% who are completing said systems. If you want better chances for your business to be SUCCESSFUL, you will have to take actions and complete the steps.

So for the second Basic Business System, you have to determine your Business Model and Structure based upon what your business plan is for your business.

Fitness Business Operations

The popularity of launching a fitness business has caught the attention of many a fitness expert and consultant all over the globe. In most of the developed nations and also in many developing nations, the requirement and awareness among the public towards maintaining fitness and health levels among the public has increased tremendously. Hence there is a definite requirement of fitness experts and consultants to cater to this huge existing as well as ever growing market for fitness. Also, it is only these experts and consultants in the field of fitness, who have first recognized the huge promise that a fitness business has in terms of launching a successful venture. Again, it is only these experts and consultants who have themselves launched a number of fitness businesses across the globe. One can find numerous fitness centers or fitness equipment sellers or even gyms to have mushroomed up within a single colony in a small town in any of the developed nations. Such is the promise that a fitness business possesses, because fitness for the public is now more of a necessity than a luxurious hobby which was pursued in the early and mid ’90s by only the privileged in the society. However, times have tremendously changed in terms of awareness as well as pursuing of fitness related activity by the common masses.

Even though fitness businesses are numerous in number, they have their own positive as well as negative effects as far as the business owner is concerned. Every fitness expert or consultant starts his or her fitness business with the idea of nothing but growth in mind. However, at one point in time, there is a general trend that such business that are started, get stagnated in terms of operations and also as far as the business returns are concerned. The reason for this trend is very simple. The fitness business owner tends to treat every aspect of the business as their own assigned task that can be performed properly only by they themselves. This is a very negative approach that tends to make the business to get completely stagnated. The fitness business owner, in spite of being helped by staff, tends to perform most of these routine business operations by themselves. It could be more of a mindset developed due to being a fitness expert or a subject matter expert in the particular field.

However, they need to keep in mind one single aspect that once launched into business they need to develop a keen acumen for business. Of course they also need to develop their subjective skills. But the subject skills here should not be confused with the normal business operations. If it comes to general administration of the business, there are always staff to do them. They could otherwise hire staff to do them. But this does not end up to be the case in terms of an average fitness business owner. They want to even attend every phone call coming in from customers, process all the invoices, etc, all by themselves. This very negative approach eats up on all their time and energy to think in terms of planning and formulating strategic business processes that could make them increase their business and let it grow. Conversely, the negative trend among these fitness business owners in performing only the do nothing but their routine tasks that lets their business growth suffer. Hence, the main need of the hour for an average fitness business owner is to develop the attitude to delegate work. If they feel that they are under staffed, they should not quite hesitate to fetch for help by recruiting more staffs.

Once they have put in place this routine of their business, they have ample time to concentrate on planning and formulating business strategies that could increase their business. They need to really concentrate on this aspect because this is the only aspect that would be deciding the future course of their businesses, as to whether or not they would reach the short term goals formulated as well as keep the way open for the business to grow.

Selling Your Business – More Than a Price Tag

You’ve spent years — maybe a lifetime — building a business, and now you’re ready to move on. With so much time, money and energy invested, you want to ensure that the fruits of your labor are duly rewarded.

Before you take the plunge, take stock of the marketplace. Is the economy too sluggish or credit too tight? Decide if this is the most opportune time to sell and if your company is ready.

Put yourself in the buyer’s seat to determine the sale ability of your business. It is important to realistically assess its value and strategically target prospective buyers who can benefit from the purchase.

Pay close attention to how the sale may affect your financial and personal situation, and what impact it will have on your employees, suppliers and family. The implications may run the gamut from legal to moral to financial. The sale is bound to take an emotional toll on you.

Look very closely at your reasons for selling, the most common of which are health, boredom, workload, business problems and money. Consider alternatives that may be better for you — franchising; developing a partnership; merging with a similar company; going public; and absentee ownership or partial retirement, two situations which would enable you to devote less time to the business. Perhaps one of these is the solution.

If after careful soul-searching and analysis, the motives for selling your company appear to be genuine, then carefully develop a comprehensive selling plan. It should include the evaluation, preparation, pricing, marketing and actual selling of the business; negotiations; and closing the sale. Following your plan and surrounding yourself with competent advisors can help you avoid common pitfalls and unpleasant surprises, and result in a smooth transition of ownership.

A Little Objectivity Never Hurts

Selling a business is a complex undertaking. As most of your assets may be wrapped up in the venture, you want to ensure you can sell it for what it’s worth. Consider using a professional consultant to eliminate some of the worry and provide expertise you do not possess.

A professional can bring to bear the objectivity often missing in your own analysis firm. Investment bankers, merger and acquisition firms and business brokers can provide the needed services; business brokers generally deal with businesses worth $1 million or less. It is wise to get references for intermediaries and to select someone who is familiar with small businesses overall, and particularly with firms similar to your own.

Identifying a buyer is only part of the reason for securing a consultant. If you have gone through the process of selling a home, you know that a professional consultant will help you identify and negotiate with a potential buyer and posture the business for sale — cleaning up law suits, updating financials, ensuring that records reflect the true nature of the company, and maintaining key personnel through the negotiation period and longer. It is far more difficult to sell a business than to buy one.

Also, the importance of using attorneys cannot be understated. They are able to handle issues which, if ignored, can nullify the transaction. Professional legal counsel is critical to completing the deal at a fair price with reasonable conditions and terms and a minimum amount of business risk.

As well, if you are going to sell your business and then continue to run it, never negotiate on your own because at the end of the day, the buyer will be your boss.

It is also a good idea to engage the services of an accountant to provide tax advice and address the tax repercussions of the sale.

Consultants not only help identify prospective buyers and orchestrate the transaction, but they can serve as intermediaries protecting your confidentiality, and help arrange financing. These services, however, do not come cheaply. Be prepared to pay a fixed fee, hourly rate, out-of-pocket expenses, a percentage of the sales price, or some combination.

Marketing 101 Stands its Ground

The four P’s of marketing — product, price, promotion and packaging — make sense even when you are selling a business. But before concentrating on these areas, take into account two other P’s: be prepared to invest time in selling your business, and remember that patience will become one of your greatest virtues. Realistically, the process will take anywhere from six months to two-and-a-half years, so don’t be lured into thinking that a deal will materialize overnight. The negotiations themselves may take as long as six months.

Also make sure your expectations and objectives are realistic or you are bound to encounter frustration.

Key Selling Factors

Similar to anything else on the market, the product has to be attractive to potential buyers. And in the case of a business, the less risk attached to it, the more a buyer is apt to be interested.

Timing is everything. Follow a suggestion based on the law of supply and demand — buy when everyone else is selling and sell when everyone else is buying. The less strategic times to sell — when the business is doing poorly; is involved in a lawsuit; is expecting an increase in revenue or profits, making postponement more advantageous; and when the economy is in a recession or the particular industry is experiencing a downturn. A sound economic decision to sell is if you can net seven or eight times your annual compensation.

Always negotiate from a position of strength, which is much easier to do if your company is prosperous. The best time to sell is when you don’t have to.

Designing an informal rating scale for key selling factors will give you an idea of how well your business may fare in the marketplace.

Your company’s history — how long you have successfully run the business and how effectively the business has met objectives — will influence potential buyers. The more solidly you present the firm, the more appealing it will be. Don’t forget that the goodwill your company has built up also counts for some points.

People are the core of the business. You need to rate your staff’s competence, their morale, and whether or not they will remain once the venture is sold. If the business is overly reliant on you as the owner, it may be necessary to train or hire a successor or offer to stay on, at least temporarily.

Products and services are often the business. Consider quality, price, reputation, delivery, service and competitiveness. Be realistic about this evaluation, basing the rating on how prospective buyers would objectively perceive your products and services.

Undoubtedly, a potential buyer will want to know how well the enterprise has performed financially. Take into consideration the firm’s capabilities, history, potential and the objectives achieved. Above all, ensure you can substantiate the performance you claim.

Keeping orderly records and books instills confidence in a prospective buyer. It’s not worth trying to hide financial details. Very likely they will come to light and endanger your own credibility and chances of selling. Raise capital in order to get the company out from under any financial burdens. Do not attempt to sell your business in a distressed state, because it’s difficult to pull off a fast sale at a fair price.

The condition of facilities and equipment certainly influences the sale of your operation. In rating them, consider their functionality, competitiveness and ability to move the business into the future. Just as if you were selling a house, strive to make the work environment as attractive and comfortable as possible to potential buyers. This may entail repainting; cleaning windows, furniture and equipment; or even making repairs.

Existing long-term agreements with customers and vendors are also a selling point, as they instill confidence in your consistent ability to provide high quality products or services, and pay bills.

Your relationship with lenders is an important criterion in the analysis of your business. Financial strength with lenders is an indication of the security and profitability of the company.

Very similar to the considerations involved in buying a house, location, location, location is important to potential buyers. A prime location — with available parking, accessibility, well-maintained surroundings and nearby transportation — can be a strong drawing card, as well as agreeable terms for leasing space, options to buy and opportunities to expand. A prospective buyer wants to feel assured that the business is suitably situated to help ensure its continued efficient operation.

Will your business survive the decade or will its products and services be replaced by tomorrow’s iPod and next year’s environmentally correct garbage bag? If long-term growth looks more like short-term life, then you may be in trouble. On the other hand, if your industry and specific marketplace are healthy, these growth opportunities can become strong selling points.

It is necessary to rate your competitive advantage in terms of price, products and service. This may well be the time to develop a new competitive strategy.

Play off the strengths of your venture, take the weaknesses under consideration, and decide if it is worth making changes that may pay off when the business is on the market. Identical to any other commodity, a company has to be attractive to both a buyer’s pocketbook and entrepreneurial spirit.

So What’s It Really Worth?

Based on a thorough analysis of your assets, you now need to place a price tag on your enterprise. Make sure you have clarified in your mind precisely what you plan to sell. That can include assets, stock, real estate, franchises, a part of the business, and your time as measured through employment, training or consulting.

Unfortunately, establishing a fair market value for your business is not always an easy task. There is often a discrepancy between what you think the company is worth and the price at which it will actually sell.

The appraisal process can be approached in a variety of ways. Methods of evaluation run the gamut from the following informal guidelines to rigid mathematical calculations made by professional appraisers.

In determining the value of a company, focus on four aspects: the condition of the existing lease; the location of the business; the replacement value of its equipment, fixtures and furniture; and the actual numbers on the books. Often multiples of income and earnings, about three to five times, can generate a realistic selling price. You have to sell what’s really there. Sell the steak, not the sizzle. Prospective buyers want the facts – including balance sheets, and profit and loss statements.

Remember a prospective buyer is looking at your business much the same way you did when you started it. Buyers don’t want to pay so much that they only buy themselves a job. They want to be able to recover their investment and fulfill their dreams and expectations.

Undertake a self-appraisal of your assets — lease, location, physical equipment and inventory (at wholesale prices); consider the amount of receivables and the value of the business based on three to six months of business income; and finally, take a look at comparable companies. Studying similar businesses is valuable, but also get a professional appraisal of assets, especially if they are highly marketable. If not, a discounted cash flow analysis — based on a realistic projection of sales, expenses, investment needed for growth, and working capital requirements – is recommended.

Many sellers have grandiose notions about the selling price. As a small business owner, you must be careful not to have rigid ideas about the company’s worth. I have seen some owners assume an inflated view of their enterprises, but I have also worked with owners who have erred in the other direction by initially undervaluing them.

Today it’s all about cash flow, cash flow, cash flow because the credit market is tight. Acquisitions are becoming more strategic than financial.

In more of a textbook approach, financial records and a calculation of assets can provide a good foundation for an evaluation. The following guidelines offer the basics and do not discuss all considerations which may affect the numbers.

First, determine the adjusted tangible net worth of your business by placing a dollar value on tangible assets minus liabilities.

Second, calculate your company’s net income — the difference between earnings taken over several years and your expenses, including costs of goods and services, wages and operating costs.

Third, estimate the value of your business as an investment. In short, this number represents the return on your adjusted tangible net worth if it were invested in something else of comparable risk at prevailing interest rates.

Fourth, calculate your firm’s excess earning power. This number is net income minus earning power (which is the investment worth plus your salary as the owner).

All of these calculations — adjusted tangible net worth, net income and excess earning power — produce a net base value or the value of all of the business’ tangible assets.

The evaluation of intangible assets is a subjective and more difficult task. Intangible factors include location; technological resources and special skills; trademarks, patents and copyrights; new products and services; earnings trends within your industry; growth potential; personnel; competition in the marketplace; and customer goodwill.

Although it is hard to place a monetary value on intangibles, one suggestion is to multiply the excess earning power figure explained above by a factor of three. Add this to your net base value, and you have just placed a price tag on your business.

Now the question is whether or not a prospective buyer can afford your company, and here, effective marketing is crucial to cutting the deal.

Packaging/Promotion Prescribe Perception

As in the case of successfully selling any other product, it is crucial to define your potential market and develop a plan for targeting it. The marketing plan should encompass packaging to make your business look as appealing as possible and promotion so prospective buyers will perceive your business as you desire them to.

First, define your market. There are a variety of potential buyers in the marketplace — individuals, vendors or suppliers, employees, competitors, companies and investment firms. Qualify these buyers to determine which are most valid, and whose objectives you can best satisfy. Clearly identifying the needs of qualified buyers will enable you to emphasize the appropriate features and benefits of your business that best match these needs.

Focus on buyers who already know your business. This could lead to a higher selling price, as well as reduce the time involved in selling it.
Remember that while prospective buyers are analyzing you and your company, it is equally key for you to research their abilities, business and personal qualifications, and financial situations as well.

Once you have preliminarily qualified a buyer, provide a brief description of the business (including general financial highlights, the benefits that would accrue the buyer, and an indication of the financial requirements a buyer should expect to meet). It is important at this point to maintain confidentiality through a formal agreement. News about the impending sale of your business can stir up rumors, fragment your relationships with customers and suppliers, and destroy the morale of employees.

A more comprehensive analysis of the firm should follow if a prospective buyer turns out to be really interested and can afford to buy the business. This is your company’s packaging, and as with other packages, needs to distinguish your enterprise from the competition. Preliminary discussions often accompany the business analysis.

The analysis should include an introduction; a description of the proposed transaction; an overview of the business, including its history, products and services, facilities and equipment, operations, markets and competition; a review of the organizational structure, management and staff; a financial analysis; and growth expectations and marketing strategies.

Promotion goes hand in hand with targeting potential buyers, and is the vehicle for gaining their attention.

Advertising in the business opportunity section of a local newspaper, the Internet, or in The Wall Street Journal, or placing blind ads in the classifieds, will reach the general public. Advertising in specific trade publications can narrow down your audience. Direct mail, telemarketing (especially when an intermediary is used to maintain confidentiality), and networking are other possible channels of promotion.

In addition, an astute consultant should be able to provide names of potential buyers who have previously indicated interest in a business in your specific industry.

Structuring the Deal

Prior to an offer being made, you and the prospective buyer must establish a structure for the deal — the amount of payments, when they are paid and in what form they are made. As the owner, you can affect affordability, which is a key issue at this point.

Methods of payment may include cash; stock; notes payable, in which the seller agrees to carry back a note for part of the purchase price which is repaid, with interest, by the buyer; an earn-out situation, in which the buyer agrees to pay additional money if the company earns a certain amount of predetermined profit; and consulting and employment contracts. A non-compete clause may also be part of the deal, in which the seller agrees not to compete within some appropriate geographic limits for some reasonable period of time.

Present a deal that is structured the way you think will make the most sense to a prospective buyer while achieving your own objectives as well.

When you feel it’s time to push for an offer, remember to make it easy for the buyer to transact the deal. An official offer should contain a description of what the buyer intends to purchase; the date, expiration date and closing date of the offer; the price; the terms; the repayment schedule; down payment, if applicable; and any contingencies. A non-refundable deposit usually accompanies the offer.

It’s a Matter of Compromise

The negotiation stage can be a tricky one. When a deal is on the table, an agreement will happen somewhere in the middle but not without a lot of stress and strain. The more sellers think about their businesses, the higher a value they place on them, which is often unrealistic. Their expectations are too high. Buyers, on the other hand, who are facing a credit crunch, want to make a wise investment without overpaying. So the dilemma becomes how to bridge the gap.

The answer is compromise. Given the current economic climate, the posture of banks toward financing such transactions is tight, so you need more creative ways of financing than in the past. An earn-out or a note payable are recommended.

As you move into the negotiation process, be prepared to counter any buyer objections such as too high an asking price or an unsuitable location. Based on your previous analysis of your company’s strengths and weaknesses, you should be able to anticipate some of these objections, and make reasonable concessions, if necessary, to keep the negotiations moving.

Establish credibility, maintain integrity, persuasively play up the returns of the transaction, and reduce any perceived risk associated with buying your business. Negotiations can be a win-win situation if both parties benefit from the results.

By keeping things in perspective, you are bound to come close to meeting your expectations. At the same time, realize that if the deal doesn’t go through, other prospective buyers exist in the marketplace.

Signing on the Dotted Line

Once an acceptable offer has been made, your attorney will begin drawing up the final documents. Additional deposit money may be put up at this time. Under what is termed the “due diligence” process, the buyer now has an opportunity to review all the company’s records, books, facilities, contracts and, if the offer contained such contingencies, to talk with employees, customers, suppliers and others. At this point, you must refrain from entertaining any other offers.

Unfortunately, closing the transaction does not always run smoothly. A checklist of what needs to be done — such as transfer of banking arrangements and utilities, customer lists, a breakdown of funds to be disbursed, and clearance of outstanding liens — and who is responsible can often mitigate any problems that may arise.

When the final papers are signed, you now have time to pursue other interests or take that long-awaited, three-month vacation in Hawaii. But if you still have the entrepreneurial spirit that initially motivated you to start up a company, you may well find yourself on the other side of the table — as the prospective buyer of a business.

In summary, using a broker for the right reasons — such as sales visibility, thorough canvassing of the market, and scouting for qualified buyers — makes good sense when selling a business. However, it’s important not to abdicate your position as the principal voice during negotiations. No one is better prepared to represent your interests, particularly if you clearly understand your own needs. Be realistic in your expectations as to what the business is worth. It’s also critical not to sell under pressure. A mutually satisfactory sale requires both time and patience. Bringing in a broker from the beginning is money well spent.

A Sample Short Business Write-up

A beautifully appointed French restaurant in Fairfield County is available for sale.

The restaurant seats 70 people and is open for dinner 6 days a week. The chef and

the restaurant’s cuisine have received numerous awards. An excellent lease has 5 years to run.

The owner is sacrificing her restaurant because of illness. The owner’s cash flow has averaged more than $70,000 for the last 2 years.

Picture yourself greeting your guests and welcoming them into your own establishment.

Everything is in place, ready for you. You can expand your business to provide luncheons, and add substantially to your income.

The buyer should be able to provide at least half of the $200,000 asking price in cash.

A Sample Business Opportunity Ad

Beautiful French Dinner Restaurant for Sale

Seats 70. Profitable. Everything ready for your

touch. You can add lunch for even more volume.

Long lease makes you secure to build your business.

Priced fairly, terms available to qualified buyer. The Steps of Marketing and Selling a Business (Time in Months: Low to High) Preparation (1-12) Packaging/documentation (1-3) Prospecting, qualifying, initial visit (1-3) Negotiations to letter of intent (1-6) Due diligence (1-3) Drawing final contracts, preparation for closing, final closing (2-3) Total (6-30)