The Benefits of an Advisory Council
Experts recommend considering adding an advisory council to your business. This informal board would provide strategic advice on business management related issues. An advisory council would be in place to provide advice to your business, but unlike a board of directors, they will not actually make the key decisions. Further, while a board of directors often has equity in the business, an advisory council does not. Of course, an advisory council is not right for every business. You will typically see them in businesses that are making between 3 and 25 million.
Consider Your Strengths and Weaknesses
There are many fundamental needs of a business and most entrepreneurs are good at one or two, but cannot excel in every area. The advisory council, as well as other outside experts, can be a great way to fill in the gaps in an entrepreneur’s abilities.
Beyond understanding the strengths and weaknesses of a company, it is also important for an advisory council to understand the goals of the business and create a business strategy. Understanding the lifetime goals of the entrepreneur, what they want to accomplish, and the work necessary to reach those goals, are all of vital importance.
Time Commitments Involved
In terms of the time commitment involved, experts say that the best approach is to limit the number of advisory council meetings to 12 per year, with 3 quarterly meetings onsite with each meeting lasting approximately 3 to 4 hours. Additionally, you may want to consider 1 lunch meeting per year and sporadic Zoom meetings.
Implementing Recommendations
Having an advisory council and implementing their recommendations are, of course, two different things. It is important that any plans also have reasonable time frames as well as a facilitator that can serve to motivate staff.
An advisory council can be extremely valuable in that they provide a new perspective on the business. While there is no doubt that creating and maintaining an advisory council may be a lot of work, there are ample potential benefits to consider. Additionally, the process of creating an advisory council and implementing their recommendations can dramatically increase the value and salability of your business.
Copyright: Business Brokerage Press, Inc.
The post The Benefits of an Advisory Council appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
What Are the Different Business Structures?
Over five million new businesses were started in 2022 in America alone. The first step when starting a new business is to go through the different business structures you can use. This is a crucial decision as it affects various components of your business like taxes and liability.
There are five common options when it comes to an organizational structure, so you need to learn about them all before you make a decision. A business structure is the legal representation of a company. It clearly defines who owns the company and how it distributes its profits.
Before you register your business you need to have a business structure in place. It can also be time-consuming and costly to change structures later on.
Keep reading to find out more about the different business structures out there.
Sole Proprietorship
When you think of buying a business, a sole proprietorship is most likely what you have in mind. This structure means one person owns the business and is in charge of its operations. It is a common business structure and one of the easiest to set up.
If you’re planning to work alone or do the bulk of the work, this might be the right business type for you. Just keep in mind that you’re solely responsible for all the business’s financial obligations like debt. This is why this structure works well for home-based, low-risk businesses, or retail businesses.
A sole proprietorship also allows you to test out your business idea before creating a formal company.
A Partnership
This business structure refers to two or more people owning and operating a business together. A partnership is the simplest multi-owner business structure.
Similar to a sole proprietorship, a partnership allows the owners to test their idea out and flesh it out further before they establish a more formal company.
A partnership can be classified as general or limited. A general partnership means all partners have equal roles and responsibilities when it comes to the company.
A limited partnership is a bit more complicated. In this type of partnership, some of the partners will still be general partners, but the limited partners refer to investors. Limited partners have limited control and liability when it comes to the company.
A Corporation
In the previous business structures, the companies and the owners are one. When it comes to a corporation, the company is an independent entity that exists separate from the owner.
This business structure is more complex than the previous two, and also more expensive. A corporation has to comply with a lot of rules and regulations that the previous two don’t have to worry about.
A corporation isn’t meant for a start-up business. This business structure, also known as a C corp, is geared toward established medium- or high-risk businesses. General people opt for corporations when they need to raise funds, plan to sell the company or plan to take the company public.
Corporations come in various shapes and sizes. Common corporation types include:
- Benefit corporations
- Nonprofit corporations
- Closed corporations
- Open corporations
Benefit corporations, or B corps, are a good choice for for-profit businesses that strive to make an environmental or societal impact. Nonprofit corporations are companies that don’t focus on making money and are tax-exempt due to the nature of their work.
Closed corporations are privately held companies that don’t have many shareholders and that have limited liability protection. Open corporations allow the public to trade sticks,
S Corporation
While this might seem like it should fall under the corporation section, S corporations are business structures that stand alone. They have the liability protection of a corporation, but they have added tax benefits, making S corps a great option for smaller businesses.
These businesses need to meet specific IRS criteria in order to classify as an S corporation. S corps can’t have more than 100 shareholders and these shareholders need to be citizens of the United States.
An S corp allows shareholders to sell their shares without tax consequences. There also isn’t a disruption in the business if a shareholder leaves the corporation.
Limited Liability Company
A limited liability company combines some aspects of a partnership with those of a corporation. To create a limited liability company you need to file paperwork with the secretary of state for the state you plan to open your business in.
This structure is well suited to medium- or high-risk businesses where you would want to protect your personal assets. This means if the company doesn’t succeed and goes bankrupt, your personal assets will be protected. So you might lose the money you initially invested in the business, but you won’t be held responsible for the debt the company owes.
This business structure also has some tax benefits. Instead of paying corporate taxes, the income and expenses go to the owners’ personal tax returns. So the owner will pay income tax on the profits.
Different Business Structures Explained
Buying a business can be a complicated procedure. You need to understand the different business structures before you even spend a dime. Each type of business ownership has its own pros and cons, so you need to do your research to ensure you pick one that suits your needs.
If you’re ready to take the next step in becoming a business owner, contact us. We’re happy to answer any questions you might have about pricing and valuation issues, exit strategies, business financing, or any other subjects related to the purchase or sale of a business.
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Common Mistakes to Avoid When You Value a Business
US business sales are on the rise. According to the latest statistics, over 10,000 businesses are sold each year. Is your business gearing up to join this exclusive club?
If so, you are probably in the midst of learning how to value a business. Company valuation is always difficult, but it can feel downright impossible when it’s your first time.
Luckily, there are a few tried-and-true methods that can help you out. We created this guide to help you understand different valuation methods and the mistakes to avoid when choosing them.
Do you need help determining the value of your company? Then this article is for you. Keep reading to learn the top mistakes new business owners make when calculating business value.
Not Choosing the Right Valuation Method
There are a handful of different valuation methods suitable for various types of businesses. The valuation method you should choose depends on your goals.
For example, do you want to use the most common or reliable valuation method? Do you want to put your company in the best light or be as truthful and accurate as possible?
Other factors to consider when evaluating the right valuation method for your business include:
- The type of company you own
- The size of your company
- The state of your industry
Regarding company type, there are generally two: asset-light and IP or asset-heavy businesses. These business types would benefit from different valuation methods. More on this in a moment.
Company size doesn’t determine which method to use. Instead, it determines how many valuation methods may be right for your company. Larger companies can benefit from more method types than smaller ones.
Is your industry in decline? If so, you may want to use asset-based or comparable valuation methods over profit-based ones. And companies in poor or healthy industries should stray to the conservative side of things.
Additionally, you may want to consider the type of method potential buyers may prefer. For example, some buyers may want to know the value of your business assets. Others may only care about potential profits.
Considering Sales and Profits Alone
Sales-and-profits-based valuation is also known as the discounted cash flow method. It is the most accurate way to value a business. However, it may not be right for all companies.
Situations requiring other valuation methods include if your business is losing profits but has a lot of valuable assets. Conversely, sales and profits-based valuations are better for cash-rich companies with fewer assets.
To use this method, you must calculate your company’s pre-tax earnings. This is known as the Seller’s Discretionary Cash Flow (SDCF). SCDF considers profits before taking out operational costs, salaries, interest, etc.
Once you determine this figure, you can add in the multiplier. Most businesses are valued at one to three times SCDF. The multiplier you should use depends on owner risk, company size, and more.
Not Determining the Value of Assets
Discounted cash flow valuations may be the most accurate method, but the most common method is assets-based valuation.
Asset-based valuation may not work for software or service companies and businesses in other asset-poor sectors. The types of companies this valuation method is ideal for are those with significant hard or soft assets.
Soft assets are valuable brands or IPs. For example, a new software startup may have valuable code behind its product. This can greatly increase the company’s value even if it isn’t yet turning a profit.
Meanwhile, hard assets are physical assets that hold value. Hard assets include but are not limited to the following:
- Inventory
- Merchandise
- Equipment
- Office furniture and supplies
- Company vehicles
- Machinery
- Real estate
Another asset to consider is goodwill. Goodwill is a non-quantifiable asset that refers to your brand’s reputation in the market. High-quality customer service, strong talent, and consumer loyalty are all examples of goodwill.
Leaving Out Assets and Liabilities When Calculating SDCF
We left out one thing when explaining how to calculate SDCF: assets and liabilities. If you plan to use your business profits in your valuation method, you must also consider these factors.
The SDCF multiplier will take some assets and liabilities into account. However, many multipliers leave out certain hard assets, in particular. Some common ones are inventory, real estate, and cash-on-hand.
It is crucial to add these assets back into your SCDF equation. Additionally, if there are any liabilities your multiplier leaves out, ensure you subtract that from your total valuation as well.
Not Considering Comparables
Has there been a lot of M&A activity in your space of late? If so, using comparable companies (AKA comps) to value your business may be the method for you.
For this method to work, you have to comp your business to others that sold recently. Business sales that occurred too long ago may not account for current factors influencing your industry.
You must also consider factors like size, reputation, and intangible assets. If you don’t, you may try to compare your small business to a Fortune 500 that recently sold in your industry.
Even if you don’t want to use comparables for valuation, consider looking at comps to determine your SCDF multiple. Or you can use comps as just one aspect of your valuation strategy.
Need to Value a Business? Let Fusion Help Sell Your Business in St. Louis
Learning how to value a business is easy when you avoid these mistakes. So instead, use the valuation methods in this guide to get the most out of your sale.
Are you gearing up to sell your business in the Metro East? Fusion is a full-service business brokerage serving small and medium-sized firms. Get in touch with Fusion today to learn more about how we can help you sell your business.
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Cultivating Your Brand Strategy
Your brand is a customer’s perception about your business. It determines how they feel about the services and product that you offer. A consistent brand message over time will shape what clients and customers think about you and what you stand for. As a business owner, you need to be able to answer the following important question: why should customers care about you?
Every business owner has to think about the art of branding in order to build a stronger and more robust organization. This should incorporate the art of storytelling and the science of strategy in order to build a dynamic and memorable brand.
Relationships with Your Clients
In creating a brand, it is vital to remember that brand creation ultimately takes place in the mind of the consumer. Each individual consumer will create their own version of the brand based on his or her perception.
At the core of the entire process is building trust. The goal, both in the short-term and the long-term, is for customers to feel safe enough that they are confident in you and the products and services that you offer. Central to building that trust is demonstrating, in a clear and coherent fashion, what you are going to deliver and how you are going to deliver it.
Learning from Branding Gurus
Seth Godin wrote, “Brand is the set of expectations, memories, stories, and relationships that, taken together, account for a consumer’s decision to choose one product or service over another.” With this in mind, you must ask yourself what you are doing to successfully cultivate and promote your brand in the marketplace.
Marty Neumeier is considered by many to be the father of modern branding. Neumeier stated that branding is centered on managing relationships between a company and people over many channels.
Allie Weaver, Co-Founder and Creative Director at Allie Weaver Productions, noted that branding is, “The act of giving people a reason to care about your business and a place to belong.”
Author Bernadette Jiwa pointed out that great companies all have something in common. Great companies win by mattering. The people who build great companies know what they stand for, and then act on those beliefs in a consistent fashion. Think for a moment about two great companies, Apple and Nike, that have been highly successful in the utilization of modern branding.
Following Your Compass
Building a great brand starts with you. You must understand your vision and be able to answer the question, “Why Me?” Think about why your company exists and matters. How are you working towards keeping a consistent brand promise? In the end, your brand needs to be your compass. If you can understand why customers should choose your business, you’ll be well on your way to utilizing modern branding in a powerful and effective way.
Copyright: Business Brokerage Press, Inc.
The post Cultivating Your Brand Strategy appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
Over five million new businesses were started in 2022 in America alone. The first step when starting a new business is to go through the different business structures you can use. This is a crucial decision as it affects various components of your business like taxes and liability.
There are five common options when it comes to an organizational structure, so you need to learn about them all before you make a decision. A business structure is the legal representation of a company. It clearly defines who owns the company and how it distributes its profits.
Before you register your business you need to have a business structure in place. It can also be time-consuming and costly to change structures later on.
Keep reading to find out more about the different business structures out there.
Sole Proprietorship
When you think of buying a business, a sole proprietorship is most likely what you have in mind. This structure means one person owns the business and is in charge of its operations. It is a common business structure and one of the easiest to set up.
If you’re planning to work alone or do the bulk of the work, this might be the right business type for you. Just keep in mind that you’re solely responsible for all the business’s financial obligations like debt. This is why this structure works well for home-based, low-risk businesses, or retail businesses.
A sole proprietorship also allows you to test out your business idea before creating a formal company.
A Partnership
This business structure refers to two or more people owning and operating a business together. A partnership is the simplest multi-owner business structure.
Similar to a sole proprietorship, a partnership allows the owners to test their idea out and flesh it out further before they establish a more formal company.
A partnership can be classified as general or limited. A general partnership means all partners have equal roles and responsibilities when it comes to the company.
A limited partnership is a bit more complicated. In this type of partnership, some of the partners will still be general partners, but the limited partners refer to investors. Limited partners have limited control and liability when it comes to the company.
A Corporation
In the previous business structures, the companies and the owners are one. When it comes to a corporation, the company is an independent entity that exists separate from the owner.
This business structure is more complex than the previous two, and also more expensive. A corporation has to comply with a lot of rules and regulations that the previous two don’t have to worry about.
A corporation isn’t meant for a start-up business. This business structure, also known as a C corp, is geared toward established medium- or high-risk businesses. General people opt for corporations when they need to raise funds, plan to sell the company or plan to take the company public.
Corporations come in various shapes and sizes. Common corporation types include:
Benefit corporations
Nonprofit corporations
Closed corporations
Open corporations
Benefit corporations, or B corps, are a good choice for for-profit businesses that strive to make an environmental or societal impact. Nonprofit corporations are companies that don’t focus on making money and are tax-exempt due to the nature of their work.
Closed corporations are privately held companies that don’t have many shareholders and that have limited liability protection. Open corporations allow the public to trade sticks,
S Corporation
While this might seem like it should fall under the corporation section, S corporations are business structures that stand alone. They have the liability protection of a corporation, but they have added tax benefits, making S corps a great option for smaller businesses.
These businesses need to meet specific IRS criteria in order to classify as an S corporation. S corps can’t have more than 100 shareholders and these shareholders need to be citizens of the United States.
An S corp allows shareholders to sell their shares without tax consequences. There also isn’t a disruption in the business if a shareholder leaves the corporation.
Limited Liability Company
A limited liability company combines some aspects of a partnership with those of a corporation. To create a limited liability company you need to file paperwork with the secretary of state for the state you plan to open your business in.
This structure is well suited to medium- or high-risk businesses where you would want to protect your personal assets. This means if the company doesn’t succeed and goes bankrupt, your personal assets will be protected. So you might lose the money you initially invested in the business, but you won’t be held responsible for the debt the company owes.
This business structure also has some tax benefits. Instead of paying corporate taxes, the income and expenses go to the owners’ personal tax returns. So the owner will pay income tax on the profits.
Different Business Structures Explained
Buying a business can be a complicated procedure. You need to understand the different business structures before you even spend a dime. Each type of business ownership has its own pros and cons, so you need to do your research to ensure you pick one that suits your needs.
If you’re ready to take the next step in becoming a business owner, contact us. We’re happy to answer any questions you might have about pricing and valuation issues, exit strategies, business financing, or any other subjects related to the purchase or sale of a business.
Read More