What are you going to do to avoid Labour Day Remorse? - David C Barnett

A few years ago my kids asked me to take them to the beach.  For some people, this would be a real journey that would require planning, time off, travel, etc.  Not me.  I live 30 minutes from some of the nicest beaches on the east coast of North America. 

The Northumberland Strait has the warmest water north of Virginia and beautiful sandy beaches.  I had not gone in over 10 years.

That was the day I decided to end my Labour Day Remorse. Watch the video here: https://youtu.be/Qj6upz44Ngk

What is Labour Day Remorse?

Well, it’s kind of like buyer’s remorse, when you spend a lot of money and then wish you hadn’t.  This is different though.  It’s about time.  When you reach the long weekend in September and you realize that you were so busy working that you didn’t get to enjoy any summer activities.

I was having too much Labour Day Remorse as I focussed so hard on building my business and earning money.  I had forgotten the purpose of business… to provide for you...  both in money and lifestyle.

I’m not saying  that you need to lose focus on your business to play.  I’m saying you need to use the same planning and discipline that you apply to business to make sure you enjoy life.

What I did was this: I wrote out a personal goal to go to the beach 5 times that summer using the Napoleon Hill formula from Think and Grow Rich.

At the bottom of the page I drew 5 big boxes and I posted it on my bedroom wall near my bed.  I read the goal every night and every morning and each time I went to the beach I filled in a little square like a 6 year old working towards a promised gift if they got all their chores done for a month.

Do you know what happened?  I went to the beach 5 times that summer.  Actually, it was more.

What I found was that there was all kinds of time to go.  Saturdays, Sundays, after work on weekdays.  Having the goal simply put the idea at the top of my mind and I executed on the desire.

What are you going to do this year?  I’m challenging myself to two amazing adventures that you can learn about in the video. https://youtu.be/Qj6upz44Ngk  I’m curious how you’ll make sure this summer is one to remember.

If you own a business or you wish to one day, get a FREE copy of my business value-building cheat sheet.  Post it in your work area and ask yourself my 15 critical questions daily to keep yourself on track.  Get your copy here:  https://gum.co/15Questions/FREE

Please remember to like and share this article, it’s the only way the people who run the internet have of knowing if the content is any good or not. The more you share, the more likely someone who needs this information will be able to find it.

If you would like to hear from me weekly though, you can sign yourself up at www.DavidCBarnett.com

Do you live in Halifax?  I’ve got two workshops coming up at the end of June. http://davidbarnett.eventbrite.ca

Thanks and I’ll see you next time. 

How do we manage ‘disorganized liabilities’ like gift certificates when transferring a business? - David C Barnett

I was once brought in to consult on a business purchase deal that had gone bad.  The deal had been put together by a real estate agent and the agreement didn’t address a lot of the ‘business’ issues relating to the motel/restaurant being sold.

In fact, there was nothing in the agreement about outstanding liabilities. 

In the month leading up to the sale of the business, the seller held a promotion and sold $100 gift certificates for $80.  When the deal was done, the buyer soon learned about all the gift cards that were circulating.

What was the man to do? Risk upsetting all these customers by refusing to accept the gift certificates?

His only remedy was a costly legal one.  He sued the seller and the realtor who ended up losing his license over the fiasco.

But what is the correct way to deal with this kind of thing?  Easy, by making the seller responsible for outstanding liabilities and creating a system of accountability which assures the buyer they won’t get ripped off.

Here’s an example: Buy the motel/restaurant with some portion financed by the seller.  The monthly payments can be made via cheque –or- by passing along collected gift certificates.  To the seller they’re as good as cash because he already collected the cash without having to deliver the service.  If some certificates are never redeemed, the seller gets to keep that cash.

The only thing we have to do in this system is ensure that the new owner is issuing distinctively different gift certificates from those of the seller so they can be easily identified.

Watch the video here: https://youtu.be/hWm4ZQxWlEw to learn what one very sophisticated seller negotiated when this issue came up in his business transfer.

Don’t leave the details of such a complex transaction up to amateurs! If you’re going to buy or sell a business, give me a call at (506) 381-8416 and let me help you make sure your deal works out properly.

Please remember to like and share this article, it’s the only way the people who run the internet have of knowing if the content is any good or not. The more you share, the more likely someone who needs this information will be able to find it.

If you would like to hear from me weekly though, you can sign yourself up at www.DavidCBarnett.com 

Thanks and I’ll see you next time.

What do Business Brokers and Business Sellers mean by 'Standard Multipliers?' -Viewer Question - David C Barnett

Hello everyone, David again with another viewer question.  

This time I’m asked, ‘what are these standard multipliers that business brokers and sellers talk about when pricing a business?’  

Watch my video answer to this question here: https://youtu.be/ACyjxnhzpDk

Well here’s the idea: if you multiply the earnings of a business by a number, you get a value.  If you use the right magic number you find out the value of the business. 

My preferred method of doing this kind of thing is called the Direct Market Data Method.  When doing this you need to normalize the financial statements using a proper set of rules.  Then you research the subject company and find what others have paid for similar sized businesses in the same industry using databases created by valuation professionals.  You then multiply the cash flow by the factor you discover in your research and find what’s called an Enterprise Value.

You then need to adjust this value based on operating capital that forms part of the transaction.

As you can see, this is not a simple thing for amateurs.  If the wrong data is researched you get a bad result, if the wrong normalizations are done, you get a bad result, etc.

Let me give you some examples.  A small mom and pop restaurant might be valued at 1.1 times SDE (Seller’s Discretionary Earnings) while a septic pumping business with the same amount of cash flow could go for 3.6 times SDE.  A larger restaurant with 100 employees may go for 2.8 times SDE. 

As you can see, if you try to apply a ‘standard multiplier’ to these businesses, you either end up over or under valuing them.  The reason the multipliers change by industry and enterprise size is because of the differing degree of risk.  What I love about this method is we actually get to apply the opinion of past buyers as to the degree of risk they saw in their transactions.

In one crazy case I was asked to review a business valuation which had been prepared by an accountant.  The guy had taken net income, multiplied it by 4 because he thought this was the right ‘standard multiplier’ and used the result as the value of the goodwill.  Then he calculated the net operating capital and added this.  Then he estimated the value of the fixed assets and added that too. 

The result was a million dollar valuation on a business that put $100,000/year into its owner’s pocket including his salary.  This would be the type of value we might see on the stock market for a publicly traded company and it obviously didn’t make any sense.

So, when you hear someone defend an asking price on a business because of ‘standard multipliers’ you should be very cautious.  It may mean that you’re talking to someone who doesn’t quite know what they’re doing.  They may be trying to use jargon which they think is impressive to bully you into agreeing with what they’re trying to sell.

Anyone who is going to buy or sell a business should engage an experienced and qualified person to value the business and understand fully how the final number was arrived at.  Also, there are some simple ways to ‘test’ any figure that I share with my clients regularly.

Please remember to like and share this article, it’s the only way the people who run the internet have of knowing if the content is any good or not.  The more you share, the more likely someone who needs this information will be able to find it.

Also, I have a new FREE tool for business owners.  15 questions to ask yourself daily to help maximize the value of your business.  Download it free here:  https://gum.co/15Questions/FREE  Remember, I DO NOT automatically add people to any e-mail marketing lists without their permission.

If you would like to hear from me weekly though, you can sign yourself up at www.DavidCBarnett.com

Thanks and I’ll see you next time.

Learn the processes involved in Mark Podolsky's raw land investment system

Last year I appeared on Mark Podolsky's podcast about passive income. 

Mark teaches people how to invest in vacant land and earn huge returns.
He recently started offering a webinar and I invested the time to check it out.
It's very educational. There is a sales pitch at the end but I wouldn't share it with you unless I thought there was value in attending the webinar alone. I learned some things about processes as they are employed in this type of business.
Check it out. It's only about an hour.
https://landgeek.samcart.com/referral/IVTWebinar/740564

Are businesses with greater potential worth more money? Viewer Question - David C Barnett

Are businesses with greater potential worth more money?

Let me teach you about Blue Sky.

Hi there, it’s David once again from www.InvestLocalBook.com where I answer questions relating to local investing, buying and selling businesses and personal finance and home economics.

This week I’ve got a question from a viewer who asks, ‘What about business sellers who say that their business is worth more because of the great potential it offers?’  Watch my answer in this video: https://youtu.be/INMiJJbXrZw

This is a great question. 

First, let me state that any business you buy should offer the potential for improvement or growth.  This, in my opinion, is why you would buy a business.  You want to be able to bring your own skills to the table and make improvements. Since we know from earlier videos that businesses are valued at a multiple of earnings, if you can improve the workings of a business by $1, you increase the value of your asset by several dollars.  The exact amount depends on your industry and the size of the business.

But does this potential mean that you should pay the seller more than what is fair given the cash flow that exists at the time of purchase?  In my opinion: no.

Let’s cover some terminology so that we can be clear about what we’re talking about.  Let’s say you decide that, based on the cash flow, a given business is worth $100,000. If you add up the value of the physical goods in the business such as tables, chairs, machinery and inventory, you might get a value of $65,000 for this example.  This is the tangible asset value or replacement value of the business.

Given the fact that there are loyal customers and a profit though, you’re willing to pay more than this asset value.  The difference between the two, in this case $35,000 is called goodwill.

Goodwill is amazing.  Of course, you want to buy a business which has goodwill; it means that it is profitable.  Now, what if the seller says something like this, ‘My business is worth another $20,000 because of the new housing development being built across the street.  The potential is there to earn more money.’

An asking price beyond what the cash flow will support is called Blue Sky.  It’s literally a payment for the promise of a brighter tomorrow.  The problem is, who is going to guarantee that the necessary sales and profits will appear to justify this additional asking price.

Furthermore, who is going to do the work to get those sales and transform them into increased net-profits?  It’s you.  Now why would you pay someone for work that you were going to do?

When you buy a business, you should only pay for what you get today.  That is the cash flow that exists currently.  If the seller was so confident that profits were about to increase, why doesn’t he keep the business, experience the new profits and then sell the business at its new higher value? 

If you want to learn the ins and outs of buying a business and avoid costly mistakes, you should take my business buying course, it’s at www.BusinessBuyerAdvantage.com or at least read my new special report, ’21 Stupid Things People do when Trying to Buy a Business’  It’s available as a .pdf and from Amazon.

---

E-mail subscribers get my new videos, content, news of live events and special offers before anyone else. I only send one short easy-to-read e-mail each week.  I'm not like the other guys.

Common Mistakes People Make When Trying to Buy a Business- Viewer Question- David C Barnett

Learn from these mistakes and save yourself hundreds of thousands of dollars.

Hi there everyone, it’s me, Dave Barnett from www.DavidCBarnett.com.  Watch the video here: https://youtu.be/mZBIFjTAsKk

I received another viewer question from Bruce.  He asks, ‘What are the common pitfalls that buyers get caught in when trying to buy a business?’

It’s a great question and one that I’ve received in various forms from dozens of readers and viewers.

I actually sat down and tried to come up with a list of the most common problems to try to address in a video or series of videos.  When I was done though, I had over 20 items.  I knew that I couldn’t cover them all in one video.

I’ll tell you a few of them here but it gave me the inspiration for a special report that is about 30 pages long that you can download here: https://gum.co/21stupidthings

It’s called 21 Stupid Things People Do When Trying to Buy a Business.

Also, it’s not free, but the price is very low.  That’s because the information is actually very valuable and I only want to share it with people who are serious about taking the right precautions when embarking on a project as complex as buying an existing business.

Here’s a quick list of some of the stupid things that buyers do which I cover in the report.

·         Failing to understand how businesses are valued

·         Failing to account for the value of their labour

·         Failing to adjust for operating capital

·         Over-committing cash flow

·         Underestimating the value of their own capital

·         Failing to get the proper help

·         Failing to get help

·         Asking the wrong people for help

·         Failing to make a reasonable projections

·         Failing to consider capital expenditures

·         Failing to do proper due diligence (there are 3 pages on this.)

·         Failing to create mechanisms to hold the sellers accountable to what they say

·         Failing to properly do research

·         Failing to understand the risks of the franchisor fails

·         Failing to understand the importance and power of a landlord

·         Failing to budget properly

·         Failing to have a reserve for cash

·         There are a few bonus ones in the report as well, making the list longer than 21

This gives you a snapshot of the everyday problems I see when helping buyers work on their deals.  Unfortunately, I get called in to help people sometimes after the deal is done and have to show them where they went wrong and how they may be able to get things back on track.  Usually, it means that the buyers have already wasted tons of money.

If you want to learn the full three-step process of how I help people buy businesses (it starts with education) then you should visit www.BusinessBuyerAdvantage.com.

Thanks and we’ll see you next time. If you found this video/article useful please like it and share it. It helps move the video up on search ranks so that other people like yourself that are looking for this kind of information can find it easily.

Thanks guys, I’ll talk to you soon.

---

E-mail subscribers get my new videos, content, news of live events and special offers before anyone else. I only send one short easy-to-read e-mail each week.  I'm not like the other guys.