Let’s have this conversation! how many business owners do you think do not have retirement savings plan and business valuation strategies?
According to an article of CNBC published on July 2017, about 37% of small business owners do not have any retirement plan because they have challenges on cash flow and business capital; therefore, they struggle maintaining a sustainable business valuation strategy.
21 % used their previous retirement to create a business. Many of which, just withdraw their retirement paying tax penalties.
18% plan to sell their business to fund their retirement. For them, business valuation is imperative to get the best bit possible on their business.
12% do not see any need to save for retirement, but the true is that a serious illness can wipeout all their assets in no time! Same happens with people who does not want to retire, but life can make their lives turn from one day to another.
Can we all agreed that we became business owners for a better future for ourselves, our families, and to be a contribution to society in many ways? However, driving a business has many challenges to build a solid business equity an it takes great effort and years to generate it.
Some of those challenges must be with the sales cycle being season driven. Therefore; the business faces capital problems. Their income depends on seasonal peaks, while their expenses are fix year-round. Marketing becomes crucial to attract buyers to the business. The U.S. Small Business Administration recommends spending 7 to 8 percent of the gross revenue for marketing and advertising. In some cases, more it may be needed especially if the business faces high competence with national chains.
This pressure during seasonal times, pushes the business to depend highly on lines of credit and credit from banks, as well as, high dependency on suppliers to keep the ball rolling. It is very clear that seasonal businesses have high difficulty attracting large pools of permanent fund for capitalization.
Most business owners are too busy keeping up with the business demands to put a high level of financial planning, which requires a lot attention and time. Therefore, during off-peak season, the business has high risk of insolvency. Banks are not to willing to lend during off-season times.
This situation becomes a vicious cycle that traps the business owner into many financial constraints. So, what potential solutions could be utilized to have a better balance of the business?
First, make the decision to create a financial exit strategy and income sustainability strategy that help you to get by in the off-season times. Janix Assurance can help you on preparing the business exit strategy by providing several options to capitalize your business without depending on bank financing. It may sound impossible. Most business owners are not aware of the possible ways to create your own financial circle.
Second, grow and cultivate your clientele base. Any business needs customers who are loyal and buy repetitive. Having a dedicated team for customer service it may be an expense that minimize the cost of acquisition of a new clientele. A solid customer-based is an important aspect on the business valuation and future growth of the business.
Third,
1) Earnings history
Income is a major factor in the valuation of any business. Particularly, someone appraising the value of a business will look at historical trends in your income. For example, an increase in gross income over the past five years will have a positive impact on the valuation, while a downward trend in income may serve to devalue the business.
2) Location
As with real estate, business is all about location, location, location. Your company’s location is a major factor in its value. If you have an incredibly innovative idea and a fantastic business model, it may not mean much if you are in a location with little potential to grow or succeed. Conversely, if your business isn’t that successful, but you are in a prime location, this can be a major positive when it comes to valuation.
3) Concentration
When it comes to business valuation, the concept of concentration can also be viewed as diversity across a wide variety of factors in your business. For example, client concentration can be a significant factor in the valuation of a business. If your business is doing very well but only has a couple of key clients, this would have a negative impact on the value of your business since the loss of one client could potentially be ruinous for the business. On the other hand, an extremely diverse client base would be a positive factor. Similarly, product concentration and market concentration can also be major factors in valuation. If you only sell one product, or your products only appeal to a very specific market segment, that is not considered as valuable as a company that successfully sells diverse products and appeals to a diverse market.
4) Staff and Management
What kinds of employees will a buyer be inheriting if they purchase your business? A skilled staff and effective, reliable management team can have a strong impact on the value of your company.
5) Reputation
Your company’s reputation and goodwill within your community can be incredibly valuable. It can be relatively difficult to place a number value on this type of intangible asset, but it is nonetheless incredibly important. An overwhelmingly positive reputation could significantly boost the value of your company, while a negative reputation could be detrimental to your prospects for selling your business.
If you are interested in buying or selling a business, there are numerous factors which you must consider when it comes to the value of the company being bought or sold. Contact Janix and let us guide you from start to finish throughout the transaction and work to protect your best interests.
https://www.cnbc.com/2017/07/27/survey-34-percent-of-entrepreneurs-lack-retirement-savings-plan.html
Groovy article, where can I learn more ?