by Greg Caruso | Jul 13, 2023 | Exit Planning Business Valuation & Growing Business Value
Cutting expenses can potentially increase the value of a company, but it depends on the specific circumstances and the approach taken to reduce expenses. Here are some factors to consider:
- Impact on profitability
Reducing expenses can improve profitability, which is a key driver of a company’s value. However, if the expense cuts negatively impact revenue or customer satisfaction, the overall effect on profitability may be minimal or negative.
- Quality of expense cuts
Simply cutting expenses without considering the impact on the business can be counterproductive. Effective expense reduction requires careful analysis of each expense category, prioritizing areas that have the least impact on the business and identifying opportunities for cost savings and efficiency gains.
- Impact on employees
Expense cuts may require reducing employee compensation, benefits, or headcount. This can negatively impact employee morale, productivity, and retention, which can have long-term negative effects on the business.
- Industry and competitive context
Expense cuts should be evaluated in the context of the industry and competitive landscape. For example, if competitors are investing heavily in research and development, cutting R&D expenses may put the company at a disadvantage.
- Long-term vs. short-term impact
Expense cuts may have a short-term positive impact on profitability, but if they limit the company’s ability to invest in growth opportunities, the long-term impact on value may be negative.
Overall, cutting expenses can potentially increase the value of a company if it is done in a strategic and thoughtful manner that considers the impact on profitability, employees, industry and competitive context, and long-term growth opportunities. However, expense cuts alone are not a guarantee of increased value, and should be part of a broader strategy to drive growth and profitability.
by Greg Caruso | Apr 17, 2023 | Exit Planning Business Valuation & Growing Business Value
You may know that the quality of your employees can greatly impact the value of your business, but are you aware how your customers are affecting your profitability? It is important for businesses to identify customers who may be challenging to work with or who may cause problems that could affect the business’s reputation, profitability, or operations. Here are some signs that a customer may be difficult or problematic:
Demanding or unrealistic expectations
Customers who have unrealistic expectations or who demand special treatment or accommodations may be difficult to satisfy, and may require more time and resources than other customers.
Chronic complainers
Customers who frequently complain or criticize may be difficult to please, and may have a negative impact on other customers and employees.
Late or non-payment
Customers who consistently pay late or do not pay at all may cause cash flow problems for the business and may require extra attention and resources to resolve.
Disrespectful or abusive behavior
Customers who are disrespectful or abusive towards employees may create a toxic work environment and may harm employee morale and productivity.
High maintenance
Customers who require a lot of attention, follow-up, or support may require more time and resources than other customers, which can be challenging for businesses with limited resources.
Attracting the right customers is essential for the success and growth of any business. Here are some strategies that can help a business attract the right customers:
- Define your target audience: It’s important to have a clear understanding of who your ideal customer is, including their demographics, interests, needs, and pain points. This will help you tailor your marketing messages and strategies to better appeal to your target audience.
- Create a strong brand: A strong brand can help you differentiate your business from competitors and establish a unique identity that resonates with your target audience. This includes developing a compelling brand message, logo, color scheme, and visual identity that reflects your values and personality.
- Provide high-quality products or services: Customers are more likely to return to a business if they receive high-quality products or services that meet or exceed their expectations. This includes focusing on delivering exceptional customer service and ensuring that your products or services are reliable, user-friendly, and effective.
- Develop a targeted marketing strategy: A targeted marketing strategy can help you reach the right customers through channels that are most likely to resonate with them. This may include social media advertising, email marketing, content marketing, or search engine optimization.
- Offer value and incentives: Offering incentives, such as discounts, promotions, or loyalty programs, can help attract new customers and encourage repeat business. However, it’s important to ensure that these incentives align with your overall business goals and are sustainable over the long term.
- Monitor and adjust your strategies: Regularly monitoring your marketing and customer acquisition strategies can help you identify areas for improvement and make adjustments as needed. This may involve collecting customer feedback, analyzing data, or conducting market research to stay ahead of changing trends and preferences.
Overall, attracting the right customers requires a deep understanding of your target audience, a strong brand identity, high-quality products or services, targeted marketing strategies, value and incentives, and ongoing monitoring and adjustments to your strategies.
by Greg Caruso | Sep 29, 2022 | SBA Business Valuation and Appraisal
In 2018 the Main Street Employee Ownership Act (MSEOA) was passed. It was thought the MSEOA would allow companies to get an SBA 7(a) loan for an ESOP transition. Unfortunately, the SBA requirements to secure the 7(a) loan for an ESOP transition made it unlikely that anyone to use it. They are still using a case-by-case approval process for ESOP loans. The NCEO outlines those requirements in a recent blog post.
This June, Congress introduced H.R. 8254. The Appropriations Committee report states:
Employee Ownership.–The Committee recognizes that employee-owned businesses are uniquely structured and provide wide-ranging benefits for businesses, workers, and the local economy. The Committee notes that the Main Street Employee Ownership Act, which Congress enacted in section 862 of Public Law 115-232, requires SBA to make structural changes in SBA lending programs to ease the challenges faced by employee-owned businesses in accessing financing. This legislation also requires SBA to use Small Business Development Centers (SBDCs) to establish an employee-owned business promotion program to provide assistance on structure, business succession, and planning. SBA is directed to fully implement these requirements. The Committee further directs SBA to work with the Departments of Agriculture, Labor, and Commerce to provide education and outreach to businesses, employees and financial institutions about employee-ownership, including cooperatives and employee stock ownership plans; provide technical assistance to assist employees’ efforts to become businesses; and assist in accessing capital sources.
https://www.congress.gov/congressional-report/117th-congress/house-report/393
If this bill gets passed, it may create a great opportunity for businesses to sell to their employees.
by Greg Caruso | Mar 10, 2022 | SBA Business Valuation and Appraisal
See which franchises have the most SBA 7(a) loans outstanding and their default rates. In addition see which franchises have the highest Small Business Administration Loan default rates.
While a particular business may fail for many reasons one of the benefits of a franchise is name recognition and business systems. A high default rate may indicate that the business systems are not resilient and effective. Make sure you both know the value of the business you are buying (we are business valuators providing SBA business valuations after all) and know how successful other owners are.
Click to see this article now.
by Greg Caruso | Feb 22, 2022 | SBA Business Valuation and Appraisal
A key to buying or selling a business is the ability of the buyer to obtain the money for the business acquisition. Many business purchases or business acquisitions will be financed by a Small Business Administration, SBA 7(a) loan. Here are the major steps to obtain SBA 7(a) financing for purchasing a business and several great resources if you wish to learn more.
- Pull together your financial statement. Here is a link to an SBA Financial Statement Form to use
- Gather 3 years of your personal and if you own a business, business tax returns.
- If married, talk to your spouse. In most cases they will have to co-sign the loan. If they are not willing to do this bring this up early with the bank. It may prevent you from obtaining a loan.
- You may want to get per-qualified from a bank. The banker will look at your information and help you understand the size business that is realistic for you to finance. In all cases the financials of the business will impact and may change this preliminary analysis.
- Obtain any other information requested by the bank loan officer packaging the Small Business Administration loan. There are likely to be many necessary documents.
Next, armed with some idea of the loan you are qualified to get go out and find a business to buy. This is a process. Figure it is likely to take six to nine months and will be a lot of work. Once you identify a business you want negotiate a letter of intent (LOI) with the Seller. A LOI is a preliminary outline of the business terms that your business purchase will be based on. Armed with the LOI go back to your SBA loan officer and….
- Provide the letter of intent to the SBA loan officer
- Provide three years Tax Returns for the Selling Business
- Prepare a forecast and business plan for the next three years for the business finances.
- Complete a full SBA Loan Application
- Obtain all other required documentation. Click here for an SBA 7(a) Loan Program list
Once you have made a full application with the SBA lender for the SBA small business loan there will be many other things for you to do.
- The lender will obtain an SBA Business Appraisal or SBA Business Valuation. This business appraisal confirms that you are paying within the range of Fair Market Value for the business. It means the price you are paying is within the range of a fair deal. It does not mean you are getting a great deal.
- Do your own due diligence. Hire an accountant to go through the books and records and tie cash to the banks and source documents and a check basis. Check out the condition of assets, talk to key people, talk to suppliers, etc. Make sure you are buying what you think you are buying.
- If you have a letter of intent negotiate the full Binding Purchase Agreement. Make sure you hire an attorney that is familiar with business transactions in the state you are in.
- When the day comes, go to closing……Congratulations on your new business and new SBA (7(a) business acquisition loan.
SBA 7(a) and other SBA programs provide a huge source of debt funding to increase your leverage or buying power. For most individuals buying a small business the 7(a) program is the only source of debt funding. The SBA makes loan guarantees to banks for qualifying buyers and businesses that reduces the bank risk to a level where the banks can lend. For details see – SBA, Buy an Existing Business or Franchise https://www.sba.gov/business-guide/plan-your-business/buy-existing-business-or-franchise and How to Finance an Acquisition Using an SBA Loan https://www.entrepreneur.com/article/358292
In some situations there are other forms of financing. For instance some businesses can be purchased with Asset Financing such as loans secured by Accounts Receivable or Real Estate financing. Other, extremely stable businesses like medical and dental practices may be purchased with conventional financing. For multiple possibilities see US Chamber of Commerce, How to finance a business acquisition: https://www.uschamber.com/co/run/business-financing/financing-buying-an-existing-business and CNBC, Secure financing with these 9 types of small business loans https://www.cnbc.com/select/small-business-loan-types/.
The Art of Business Valuation and Harvest Business, LLC have performed 100’s of business valuations for SBA 7(a) purposes and directly for buyers and sellers who want to know the value of the business they are buying or selling. If you have any questions please send us an email today.
