PITFALLS OF SMALL BUSINESS OWNERS

BY RICK J. KREBS, BUSINESS BROKER

As a professional business broker I have the opportunity to see many different businesses.  There are a few common threads of success and of failure. This article is about these common success factors or common failure factors.

BUSINESSES DIE FROM CANCER, NOT FROM A HEART ATTACK

What I mean by this is a business usually doesn’t die quickly.  It dies slowly and painfully. The business drains energy, dollars, and resources from the owners until they finally sell it or close the doors.  At the end a once-thriving business has the look and feel of a muddy swamp. You can see and feel the dread in the hearts of the employees and owner.   A business like this does not sell easily.  Buyers sniff out the problems quickly.

THREE COMMON MISTAKES SMALL BUSINESS OWNERS MAKE

  1. Marketing.  In times of economic uncertainty business owners will look to trim the marketing budget.  This is exactly OPPOSITE of what a business owner should do. Businesses that succeed are consistently marketing their product or service.  I”m not saying to waste marketing dollars.  I’m saying that in the businesses that are successful I see a consistent target marketing campaign. Day in and day out the owners continue to market to new customers.    Marketing must be consistent and independent of the business itself.   Often outsourcing the marketing function works well in a small business or in a larger business a marketing department is essential. If a business is not growing it is dying. Marketing is essential to success.
  2. Cost Control.  Businesses that succeed have trimmed the fat from their Income Statement.  At the top of the list is the lease.  Poorly negotiated leases can literally sink a business.  You have to have good lease.  I like leases that fluctuate with sales.  It is also a good idea to put a provision in a lease that reduces the lease based on vacancy rates in the building or nearby stores.  I recently saw a small store that had business tied to a large anchor that was part of the mall.  The anchor moved and all of the surrounding businesses suffered tremendously.  Some have gone out of business already. They negotiated a high lease thinking the anchor would not leave.  When the anchor left the area, it turned into a ghost town.  Smart business owners critique the Income Statement line by line and find the “fat”. They trim the “fat” and are constantly looking for ways to save money. WalMart is a perfect successful example of this. They have weekly meetings and offer prizes to the employees who find ways to save the company money.
  3. Competitive Advantage.  Successful businesses have at least one thing they do that gives them the edge over the competition.  They stand out from competitors. This one thing gives them the edge. I’ve seen this be software, technology, service, a product, a vendor, patents for manufacturing, a process, etc.  Get an edge and work to keep that edge in business.

 

About Rick Krebs, CPA - Business Valuations, Mergers & Acquisitions

Rick Krebs - Mergers and Acquisitions Professional, Business Broker, CPA. Rick brings a unique blend of sales, entrepreneurial, and financial experience to Business Sales Group. He began his career as a CPA, working in Nevada and Utah where valuable financial experience was gained. He uses those skills every day. He graduated with a Master’s of Science Degree and Bachelor’s Degree from Utah State University. As a business owner he started Liberty Mortgage, a mortgage bank licensed in 23 states nationwide. He eventually sold the successful company to an investor from California. He has been in the M&A space helping people sell their businesses since July, 2010. During his first year as a business broker with BRC, he listed and sold more businesses than the entire office combined. As a sale-side and buy-side advisor for Mergers and Acquisitions transactions Rick's advisory, accounting, and management skills are invaluable when advising sellers as they maneuver the intricate details of the deal through closing. Rick is also a CNA (Certified Negotiation Expert) which helps him negotiate the most favorable terms for clients in a transaction. ​ Rick was quoted by FORBES as an expert sales-side advisor who helps Sellers avoid the pitfalls of selling a business.

Posted on June 26, 2012, in Company News and Announcements. Bookmark the permalink. Leave a comment.

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