Saturday, July 13, 2024

David Barnett’s Top Five Tips for Small Business Success

I was invited by a small business lending website to share my top five tips for small business success. I’ve discussed these in various podcasts and thought it was a great opportunity to compile them all in one place. So, without further ado, here are my five tips for achieving success in your small business: https://youtu.be/hjJUly_MLBQ


1. Know Your Gross Margin

Understanding your gross margin is crucial. It’s the foundation of your business’s financial health. I once worked with a craft manufacturer who sold products at fairs and markets. He didn’t realize he was operating in three different business models—manufacturing, distribution, and retail—each with different margin expectations. By breaking down the margins for each level, we found that he was more successful as a manufacturer and distributor than as a retailer. This analysis allowed him to focus on building wholesale accounts rather than retailing, significantly improving his profitability. Always ensure you know the margins you should be achieving and monitor them closely.

2. Reconcile Your Books Monthly

Having a robust system for monthly financial reconciliation is essential. One of my clients, who buys and installs products, struggled with margin discrepancies because they only did inventory quarterly. This delay made it hard to track their true cost of goods sold. By implementing a better inventory system, they reduced the time spent on inventory from a full day to just an hour and a half, allowing them to reconcile their books monthly. This timely tracking ensures they stay on top of their margins and make necessary adjustments quickly.

3. Understand the Difference Between Debt and Equity on Your Income Statement

Though debt and equity typically appear on the balance sheet, understanding their impact on your income statement can offer valuable insights. Think of debt as a fixed obligation—like paying an employee a wage, which you owe regardless of their productivity. Conversely, equity, such as a commission-based salesperson, is only compensated when they generate value. By leveraging this concept, you can structure your business to minimize fixed costs and maximize performance-based expenses, enhancing your financial flexibility.

4. Maximize Return with Minimal Investment

Big companies excel at leveraging other people's capital and resources. For example, instead of purchasing real estate, they often lease to utilize the landlord’s equity. A client of mine wanted to open a second automotive repair location but was concerned about the high equipment costs. I suggested they lease a nearby space and use it for estimates and customer service, while performing repairs at the original location. This approach allowed them to expand without a significant upfront investment and minimize their risk if the new location didn’t succeed. Always look for creative ways to achieve your goals with less capital.

5. Understand the Customer Journey

Knowing what drives your customers to choose your business is vital. Back in my corporate days, I encountered a small-town restaurant that didn’t accept American Express. As a result, I had to go through a cumbersome expense process, which discouraged me from returning. The restaurant owner likely focused on food quality and cleanliness, but overlooked the inconvenience caused to customers by not accepting certain payment methods. Always consider the entire customer experience, from their perspective, to remove barriers that might deter them from choosing your business.

Final Thoughts

I hope you find these tips helpful. If you enjoyed this, make sure you join my list so you’ll never miss any of my new content online: www.DavidCBarnettList.com 

Cheers!

David C Barnett


Friday, July 12, 2024

2023 HC#005 JB needs help finding a biz for sale video

 


HC#005 JB is frustrated by not being able to find a good small business to buy. If you feel the same, you’ll want to listen to this. I break down proprietary search, broker channels and what a hard-working buyer needs to know about finding deals and why it can take so much time. If it was easy, everyone would do it. This is the least-transparent market on Earth and there are gems for those who aren’t afraid to invest time and money.

2023 HC#005 JB needs help finding a biz for sale video

 


HC#005 JB is frustrated by not being able to find a good small business to buy. If you feel the same, you’ll want to listen to this. I break down proprietary search, broker channels and what a hard-working buyer needs to know about finding deals and why it can take so much time. If it was easy, everyone would do it. This is the least-transparent market on Earth and there are gems for those who aren’t afraid to invest time and money.

Wednesday, July 10, 2024

Get into Biz 101 Ep 1 Integrity

 


***New Video Alert!

If you’re going to be in business for the long term and grow, you need customers who think highly of you.

This means they’ll refer you and buy again.

But you’ll never have this if you lack this one crucial element… Integrity.

I’ll show you how to maintain it in this week’s video:  https://youtu.be/hR-y5ceSjB0 


Cheers


See you over on YouTube

David C Barnett


Monday, July 8, 2024

Live From small time crook to big league Wall St. Fraud! Author Gary Weiss

 


From small time crook to big league Wall St. Fraud!

New Livestream guest-> Investigative Journalist and Author Gary Weiss

I’m happy to have Gary join me on a live broadcast.

Gary is the author of RETAIL GANGSTER: The Insane, Real-Life Story of Crazy Eddie.

Tune in and as we’ll be discussing the evolution of this small business person from a typical local small business owner to a big time Wall St. fraud artist.

This is a ‘must see event’ for anyone interested in business and crime!

You want to learn about Crazy Eddy’s frauds especially if you’ll be doing due-diligence on a business you might purchase.

Be sure to join live so that you can ask questions, replay will be available.

Set yourself a reminder on YouTube here: https://youtube.com/live/8-C5y26Hi6g 

We’ll be going live Monday July 8 2024 at 1 PM Atlantic Time & 12 Noon Eastern Time

See you there!

David C Barnett

Saturday, July 6, 2024

How to Buy a Cash-Heavy Business with Unreported Income

 Today’s question comes from Jolson, who is negotiating to buy a cash-heavy business like a laundromat or dry cleaner where the seller doesn’t report all the income. Jolson wants to know how to make an adequate presentation to the bank to get a loan for this business, given the incomplete financial records. https://www.youtube.com/watch?v=8pVgc2u07pU


The Unreported Income Dilemma

First off, Jolson, you’re facing a common issue in cash-heavy businesses. Owners sometimes pocket part of the revenue without declaring it, aiming to reduce their tax liabilities. This practice, while not recommended, does happen. The challenge for buyers like you is that the financial statements don't accurately reflect the business’s true income, making it difficult to secure traditional bank financing.

Why the Bank Won’t Help

You’re correct in assuming that banks rely heavily on accurate financial statements to assess the viability of a loan. When the reported income is incomplete, the business appears less profitable and riskier, making it "unbankable." In this scenario, presenting these financials to the bank is not an option because the bank will likely reject the loan application.

Vendor Financing: The Solution

While traditional financing may be off the table, you can still make a deal to buy the business. The key is vendor financing. Here’s how it works:

  1. Negotiation: Explain to the seller that their practice of underreporting income makes it impossible for you to secure a bank loan. This is a critical realization for the seller to understand that all potential buyers will face the same hurdle.

  2. Vendor Take-Back (VTB) Financing: Propose a deal where the seller finances a significant portion of the purchase price. This means the seller loans you the money to buy the business, and you pay them back over time.

  3. Sales Warranties and Protections: To protect yourself, structure the deal with sales warranties. This ensures that if the seller’s claims about the unreported income are false, you have recourse. For example, you could adjust the purchase price if the actual income doesn’t match the seller’s assertions.

Practical Example

I’ve helped clients in similar situations. For instance, a client purchased a pizzeria where the owner was pocketing cash receipts. We used vendor take-back financing combined with sales warranties to protect the buyer. This approach provided confidence in the transaction and safeguarded the buyer’s interests without needing to rely on court actions.

Running the Business Legally

Once you own the business, I highly recommend operating it transparently and legally. Declaring all income not only ensures compliance with tax laws but also provides accurate financial records that can be invaluable if you decide to sell the business in the future.

Final Thoughts

Jolson, buying a cash-heavy business with unreported income is challenging but not impossible. Vendor financing offers a viable solution, allowing you to negotiate a fair deal while protecting your investment. For a deeper dive into buying businesses and structuring deals, consider taking my online course, Business Buyer Advantage. It’s a comprehensive guide that has helped hundreds of people and offers a 30-day money-back guarantee.

If you have further questions or need personalized advice, feel free to book a session with me. 

Many clients have found it extremely helpful, and you can read their reviews on the site.

Thanks for your question, Jolson, and good luck with your business purchase! Don’t forget to subscribe to my email list at www.DavidCBarnettList.com 

Cheers 


Friday, July 5, 2024

2023 HC#004 Tim Fixes Broken SMBs Video

 


HC#004 Tim is great with systems. He’s already grown some SMBs tremendously and wants to do more. So, what makes sense for him? Buy them? Be a consultant? OR- Can he trade his skills for a small equity stake in a whole bunch of SMBs? This time, we get into sales strategy for selling this kind of service and if it really makes sense to offer to work for shares.

Wednesday, July 3, 2024

Managing Deal Flow

 


***New Video Alert!

A client wants to know how to let one small business seller know that he has to wait while he pursues another deal which may be better.

Is this wise?

How do you do it?

The client is missing this one critical factor in his thoughts on managing multiple opportunities.

I’ll walk you through it in this week’s video:  https://youtu.be/oudlAM502F0 


Cheers


See you over on YouTube

David C Barnett


Saturday, June 29, 2024

Does Business Debt Increase Volatility?

 Today, I have an interesting question from Eugene: “Doesn’t having business debt make a business more volatile?” Let’s dive in. https://youtu.be/YH8WzjkDU-A


The Common Misconception

Eugene's assumption is understandable but not entirely accurate. Having debt in a business does not inherently make it more volatile. However, the key issue is how that debt interacts with the business’s cash flow and overall stability.

The Role of Debt in a Stable Business

Debt can be a useful tool for a business with steady and predictable cash flow. Here’s why:

  1. Boosts Return on Equity: Debt can amplify the returns for equity investors. If you demand a high return on your investment, using debt can enhance those returns. For example, borrowing at an interest rate of 5-6% can be significantly cheaper compared to the return you might expect on your equity investment.

  2. Fixed Payments: With debt, the business commits to regular payments. If the business has a steady cash flow, it can manage these payments without issues, making the use of debt advantageous for growth and expansion.

Volatile Businesses and Debt

While debt doesn't make a business volatile, volatile businesses should generally avoid debt. Here’s why:

  1. Unpredictable Cash Flow: Volatile businesses often experience fluctuations in revenue due to factors like seasonality, market conditions, or economic shifts. This unpredictability can make it challenging to meet regular debt obligations.

  2. Risk of Default: If a volatile business cannot meet its debt payments during a downturn, it risks defaulting on the loan, which can lead to severe financial consequences, including bankruptcy.


Equity vs. Debt

In volatile or high-risk industries, such as IT startups, businesses often seek equity financing rather than debt. Equity investors share in the risk and don’t require fixed payments, making this a more flexible option for businesses with uncertain futures.

Government Guaranteed Loans

One scenario where startups might acquire debt is through government guarantees. These programs enable new businesses to borrow based on projections, despite lacking a proven track record. While this can provide initial capital, it also increases the risk if the business cannot generate the projected cash flow.

Conclusion

So, Eugene, the answer to your question is nuanced. Debt doesn’t inherently increase a business's volatility, but volatile businesses should be cautious about taking on debt. For businesses with steady cash flows, debt can be a strategic tool to enhance returns on equity. However, businesses with unpredictable cash flows are better off avoiding debt to prevent financial strain.

For more insights on managing and financing small businesses, make sure to sign up for my email list at www.DavidCBarnettList.com . Subscribers get early access to my videos and special offers on courses and workshops.


Friday, June 28, 2024

2023 HC#003 Examining a Cash Roofing Biz Video

 


HC#003 You like cash? I like cash! Who doesn’t? Well, when the seller of a business promises an ‘little extra’ because of undeclared revenues, it doesn’t necessarily all fall to the bottom line. I show the caller how we can see if the extra revenue makes sense and detect whether it may be likely that some of the expenses may be paid with the cash. So, it’s not as lucrative as you may be led to believe.

Wednesday, June 26, 2024

What does David Do

 


***New Video Alert!

I keep getting asked if I will help people on their project.

YES- I do that.

But, how?

This week, I reveal the matrix model I used to build out my consulting business.

It was done intentionally with a plan and it works great for many reasons.

I’ll walk you through it in this week’s video:  https://youtu.be/kVllCuVNnFw 


Cheers


See you over on YouTube

David C Barnett

 

Monday, June 24, 2024

Live Peek inside the collection industry with Blair DeMarco-Wettlaufer

 


Peek inside the collection industry.

New Livestream guest-> Blair DeMarco-Wettlaufer

I’m happy to have Blair join me on a live broadcast.

He has decades of experience in the collections industry in both the US and Canada.

Tune in and as we’ll be discussing what you need to know about collection agencies both as an entrepreneur who might need to hire one some day and as someone who might be getting calls from them!

This is a ‘must see event’ for pretty much everyone interested in business.

Be sure to join live so that you can ask questions, replay will be available.

Set yourself a reminder on YouTube here: https://youtube.com/live/dkAYwu7K-pU 

We’ll be going live Monday June 24, 2024 at 1pm Atlantic Time and 12 Noon Eastern Time

See you there!

David C Barnett


Saturday, June 22, 2024

 Hey everyone! It's David Barnett today. I have an interesting question from Sam, who wants to know what kind of online business I would start if I were to do it all over again. Watch here:https://youtu.be/mCTH7UmJfLw 



My Online Business Journey

A couple of years ago, I started my online journey with YouTube videos. Initially, these videos served as a marketing tool to attract consulting clients to my real-world business. Over time, this venture evolved into a full-fledged online business. Here’s how it happened:

  1. Books and Courses: I started writing books that people can download or purchase as physical copies. Additionally, I developed online courses, such as my Course Business Buyer Advantage: Online Training and Sell My Own Business System: Online Training (Prepare yourself for Exit or Transition) which help people learn valuable skills on their own time.

  2. New Products: Recently, I’ve been writing my new book Buying vs. Starting a Small Business.: Search or Startup? A guide to keep you from going broke in this book We will explore what it really means to be successful in your own business beyond the surface-level statistics. You will learn how businesses are valued and how to use tools like debt to acquire one or buy the stuff you need to do a startup. Most importantly, we’ll explore the real risks of small business and manage those risks by understanding how to plan for contingencies, pivots and setting limits.

Why Online Businesses Appeal

The appeal of online businesses is multifaceted. Here are a few reasons why they’re attractive:

  1. Side Hustle Potential: Many people can keep their day jobs while growing an online business on the side. This reduces the initial risk and financial strain.

  2. Scalability: Creating electronic products, such as online courses, involves a lot of upfront work. However, once the product is created, it can be sold repeatedly with minimal additional effort.

  3. Automation: Platforms like Gumroad handle e-fulfillment, managing sales, passwords, and payments, allowing you to focus on creating content rather than administrative tasks.

My Advice for Starting an Online Business

If I were to start an online business again, I’d likely follow the same path—creating electronic products that can be sold multiple times. Here are some tips based on my experience:

  1. Create Once, Sell Often: Invest time in creating high-quality products that can be sold repeatedly. This could be online courses, eBooks, or other digital products.

  2. Leverage Automation: Use platforms like Gumroad for digital products or Shopify for physical goods to manage sales and fulfillment automatically.

  3. Focus on Value: Ensure your products provide real value to your customers. This helps build a loyal customer base and encourages repeat business.

Buying an Online Business

Even in the online world, my core advice remains the same: it’s often faster and easier to buy an existing business than to start one from scratch.

Conclusion

Starting an online business can be a rewarding venture, whether you create your products or buy an existing business. Focus on creating scalable, valuable products and leveraging automation to handle administrative tasks. And remember, sometimes buying an existing online business can be a quicker, less risky path to success.

If you enjoyed this, make sure you join my list so you’ll never miss any of my new content online: www.DavidCBarnettList.com 

Cheers!

David C Barnett

Friday, June 21, 2024

2023 HC#002 James does a normalization in the UK Video

 


HC#002 James wants to examine a painting and wall covering contractor business in the UK… his big question? What is the SDE (or adjusted EBITDA as they call it across the pond). In this call, we take a look at the income statement and do a line by line normalization and show James what he should be asking when he next meets the seller.

Wednesday, June 19, 2024

Who Should appraise the Business for SBA

 

***New Video Alert!

An appraisal is an appraisal, right?

Well, maybe not.

It could be a smidge higher or lower depending on who does it and why.

This week, we tackle the problem of understanding the incentives and biases of the people who do valuations to support things like borrowing money.

Learn more by watching this week’s video: https://youtu.be/xmOXDpDsMNI 


Cheers


See you over on YouTube

David C Barnett


Monday, June 17, 2024

Live - The mirror image of life insurance- understanding annuities.

 


New Livestream guest- Mark Willis

I’m happy to have Mark join me on a live broadcast.

Mark has been on the show many times discussing insurance strategies for small business owners and buyers and is the sponsor of my show.

Tune in as we’ll be discussing something new- Annuities.

This is a ‘must see event’ for anyone who is entrepreneurial or wants to learn about money or investing.

I’m going to ask him about how these tools can play a role in business or in your plans for retirement or helping to retain/recruit staff and other ‘angles’ that could be interesting.

Be sure to join live so that you can ask questions, replay will be available.

Set yourself a reminder on YouTube here: https://youtube.com/live/E4RZk-WcREo 

We’ll be going live June 17, 2024 at 12 Noon Eastern Time, 1PM Atlantic Time

See you there!

David C Barnett

P.S. See all of Mark’s past appearances on this page- https://www.NewBankingSolution.com

Saturday, June 15, 2024

Franchise vs. Starting a Business: Making the Right Choice

 I received a question from Sarah and Bruce years ago, both asking if it's better to buy a franchise or start a business from scratch.


Sarah wanted to know if it's better to buy a franchise or start a business, while Bruce specifically asked about the benefits of buying an existing franchise versus starting a business from scratch. Let's dive into the discussion. Watch the full video here:



Starting from Scratch: The Risk Factor

First off, starting a business from scratch is inherently risky. Many new ventures fail within the first year due to a lack of systems, processes, and adequate financing to sustain operational losses until reaching the breakeven point. While it's not impossible to succeed with a startup, it requires careful planning, execution, and a significant amount of resilience.

Franchise: The Appealing Option

Franchises often tout a greater success rate compared to independent startups. However, this claim comes with some caveats. Not everyone can afford to buy into a franchise; it typically requires a certain level of wealth and net worth to qualify. Consequently, franchise owners may have more resources to weather the storm if things don't go as planned.


If you're leaning towards the franchise model, it's generally advisable to buy an existing franchise location rather than starting a new one. Why? Because launching a new franchise is akin to starting an independent business—you need to attract customers who are already patronizing existing establishments. Buying an existing franchise allows you to analyze its performance, including sales and profits, providing a clearer picture of what to expect.


Ultimately, whether to buy a franchise or start from scratch depends on your preferences, risk tolerance, and financial situation. Franchises offer a sense of belonging, operational guidelines, and potentially higher success rates, but they come with restrictions and ongoing fees. Conversely, starting a business from scratch offers freedom and creativity but requires a significant amount of groundwork.


If you're considering buying a franchise, opt for an existing location with a proven track record. This mitigates some of the uncertainties associated with launching a new venture.


If you’re still on the fence about the Buy vs. Startup question, check out my new book which is being released this fall. Pre-ordering is now available on Amazon. 

Buying vs. Starting a Small Business: Search or Startup. Find it in my amazon store https://www.DCBBookList.com



Cheers!

David C. Barnett


P.S. Make sure you never miss any of my new videos by joining my email list over at https://www.DavidCBarnettList.com