***New Video Alert!
Can someone take advantage of the SBA program to buy a business in the US without even going there?
I’ll tell you when foreigners can and cannot use SBA loans and how someone might reasonably be able to buy a business in the US.
With or without money.
Learn more by watching this week’s video: https://youtu.be/tRGW56_DYAI
Cheers
See you over on YouTube
David C Barnett
When purchasing a small business, especially one with appealing earnings, it’s crucial to examine more than just the income statement. This lesson came to light during a recent consulting session with new Chinese entrepreneurs seeking to buy a retail store.
The Initial Red Flag
The prospective buyers were excited about the store's earnings, but my request for a complete set of financial statements—beyond the provided income statements—raised concerns. The current owner, who had been in place for a year and a half, hesitated to provide his own balance sheets. This lack of transparency set off alarm bells.
The Management Fee Mystery
Among the expenses, the income statement listed a management fee of $21,000. The owner claimed this fee, along with a salary, reduced the business’s taxable profit to zero—a common and legal tax strategy. However, the balance sheet revealed the fee had never been paid out; it was still owed, indicating the company lacked the cash due to principal debt payments.
The Critical Role of Balance Sheets
This scenario underscores the importance of reviewing the balance sheet, which provides a snapshot of the business’s financial health on a specific date. Unlike the income statement, the balance sheet can expose hidden liabilities, such as unpaid management fees or debt obligations, which can severely impact cash flow.
Manipulating Financial Statements
Owners can also manipulate inventory counts to adjust the cost of goods sold (COGS) and affect reported profits. By inflating or deflating inventory levels, they can paint a misleading financial picture. This tactic, known as "painting the tape," can make a business appear more profitable than it is.
Conclusion
When evaluating a business, always request comprehensive financial statements, including balance sheets and cash flow statements. These documents provide a complete and accurate story of the business’s financial state, helping you avoid hidden "balance sheet landmines" that could jeopardize your investment.
By being diligent and thorough in your financial review, you can make a more informed decision and safeguard your investment against unforeseen financial pitfalls.
Click here to download a balance sheet checklist we’ve prepared for you this week.
Cheers
David C Barnett- don’t forget to subscribe to the email list if you haven’t already https://www.DavidCBarnettList.com
***New Video Alert!
We all know that getting a divorce is likely bad for your business.
But what about if your partner goes through a divorce?
What kinds of strategies can you employ to protect yourself and the business in such a case?
When should you be contemplating this?
Learn more by watching this week’s video: https://youtu.be/dpY8w8-SAU8
Cheers
See you over on YouTube
David C Barnett
Now, onto the House Chronicles. This morning, I signed all the final documents at the bank for my military surplus home purchase. And guess what? The bank's appraisal came in at $104,000, while I'm only paying $83,000 for the house. Watch the video here:
That's a tidy $21,000 in equity right off the bat. And with the neighborhood stabilization thanks to new purchases, the value is likely to climb even higher. It just goes to show the power of patience and perseverance in real estate.
But onto the main topic for today: setting payment expectations with customers. It's a crucial aspect of running any business, yet many struggle with it. Take, for example, a company I've been advising that primarily serves contractors. For years, they've been sending out invoices with vague payment terms like "due upon receipt," leading to an average wait time of 40 days for their money.
Since I've been working with them, we've revamped their invoicing strategy. Now, their invoices clearly state a due date within 30 days, with a 2% penalty thereafter. This sets a firm expectation in the customer's mind about when payment is expected. But that's not all—you can also incentivize early payment. Offering discounts for prompt payment or encouraging credit card payments can speed up your cash flow.
For businesses dealing with large corporations, consider accepting electronic fund transfers (EFTs). Not only does this streamline the payment process, but it also eliminates delays associated with checks.
Another tactic is to set a payment policy. Whether it's a minimum threshold for checks or a strict "no accounts under $X" rule, establishing clear guidelines can help manage expectations and reduce outstanding receivables.
By implementing these strategies, you can shorten your days sales outstanding (DSO) and improve your cash flow. And if you want to dive deeper into cash flow management, check out my book "Credit Card Advantage," which is packed with tips on leveraging credit cards to optimize your finances.
Be sure to never miss any of my new content by joining my email list at https://www.DavidCBarnettList.com
Download my FREE checklist for setting up payment and credit terms for your small business. Click Here!
Cheers!
David C Barnett
***New Video Alert!
This week we discuss gift cards.
What are they?
How should they be recorded?
What other questions to ask?
How do people get ripped off when buying a business that sells gift cards?
Learn more by watching this week’s video: https://youtu.be/DQXomD8aqCA
Cheers
See you over on YouTube
David C Barnett
Does your small business need big B2B marketing?
New Livestream guest- Sarah Noel-Block
I’m happy to have Sarah join me on a live broadcast.
She’s the genius behind Tiny Marketing. A content-marketing company that helps B2B businesses build authority and generate opportunities with the least amount of hassle and work possible.
Tune in and as we’ll be discussing marketing strategies for companies with marketing teams of 0-2 people.
Yup, Zero.
This is a ‘must see event’ for anyone thinking of being in business that sells to other businesses.
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/SoXs70Tjz4s
We’ll be going live May 13, 2024 at 12 Noon Eastern and 1 PM Atlantic Tine
See you there!
David C Barnett
I’m here to share a fascinating anecdote from the world of small business transactions. Watch the full video here:
Picture this: a retail store is up for sale, with an asking price of $150,000. After negotiations, the buyer and seller settle on a price of $130,000.
Now, here's where it gets interesting. The terms of the deal stipulated that $100,000 would be paid on closing day, with the remaining $30,000 plus interest to be paid over the course of a couple of years through vendor financing.
But here's the twist: on closing day, the seller had about $55,000 in payables. So, what did the buyer do? He asked the seller to hold off on paying her suppliers and bring all the payables to the closing day.
A few hours before the appointment to finalize the deal, the buyer and seller sat down together. Armed with his credit card, the buyer proceeded to call all of the seller's suppliers and paid off the $55,000 worth of bills.
As a result, when the transaction actually occurred, the buyer only had to pay the remaining balance of about $45,000. Essentially, he had put $55,000 of the business purchase onto his credit card.
From the seller's perspective, it was an asset transaction, so she kept the cash in the bank along with the receivables and payables. The buyer's credit card maneuver had zero effect on her.
But for the buyer? Well, he shared with me that he racked up enough airline points for a business class flight to California. Talk about turning a business deal into a rewarding travel experience!
Cheers!
David C Barnett
P.S. Make sure to never miss any of my new content by signing up for my email list at https://www.DavidCBarnettList.com
***New Video Alert!
What are finance strategies?
What is profit?
Why would a small business want to maximize it?
Not all do.
This week, a deep dive into the three groups of businesses, what performance metric they’re trying to maximize and what kinds of strategies will deliver the goods.
Learn more by watching this week’s video: https://youtu.be/d9UlF3zJ9V0
Cheers
See you over on YouTube
David C Barnett
Serious Small Business Market Intelligence.
New Livestream guest-> Nunzio Presta
I’m happy to have Nunzio join me on a live broadcast.
Nunzio has leads the team at BuyAndSellABusiness.com
Tune in and as we’ll be discussing data, facts and observations from the point of view of someone who sees the smallbiz buy/sell playing field.
This is a ‘must see event’ for prospective buyers and sellers of small businesses.
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/QVE_39HJ5dw
We’ll be going live Monday May 06, 2024 at 1pm Atlantic Time and 12 Noon Eastern Time
See you there!
David C Barnett
I’m here to share a fascinating anecdote from the world of small business transactions. Watch the full video here:
While the knee-jerk reaction might be to rally behind the "buy local" mantra, there's a deeper lesson to be learned here. Business closure is an inevitable part of the entrepreneurial journey, regardless of whether the business is local or part of a franchise network.
In my Business Buyer Advantage: Online Training, I distinguish between a business and a corporation. A business encompasses various activities and revenue streams, constantly evolving to adapt to changing market conditions. Take the Hudson's Bay Company, for example, which transitioned from trading goods with First Nations peoples to operating department stores over its 400-year history.
The threats to business survival are numerous, from competition and technological advancements to government regulations and economic shifts. For instance, the closure of Timothy's Coffee downtown may be attributed to the arrival of Starbucks, highlighting the ruthless nature of competition in the market.
But here's the kicker: successful business owners understand that closure is always a possibility. They approach their ventures with a keen awareness of potential threats and the courage to make tough decisions when necessary. While it's tempting to pour more resources into a failing business, sometimes cutting losses and moving on is the wisest course of action.
However, navigating closure isn't just about business acumen; it's also about understanding the legal and financial implications. Personal guarantees on leases or loans can significantly impact one's financial security, underscoring the importance of careful negotiation and planning from the outset.
In my review of Ted Leverett's book, I learned invaluable negotiation tactics, such as negotiating the length of personal guarantees to mitigate risk. By strategically managing obligations and protecting assets, business owners can weather storms with greater resilience.
Ultimately, failure and bankruptcy are part of the entrepreneurial landscape. But by proactively managing risks, negotiating smartly, and planning for the future, business owners can mitigate the impact and emerge stronger.
So, while supporting local businesses is crucial, let's also recognize the broader lessons embedded in their closures. And if you're hungry for more insights, don't forget to check out my books, "Invest Local" and "Franchise Warnings," available on Amazon and investlocalbook.com.
Thanks for tuning in, and here's to smarter business decisions and brighter futures.
Be sure to never miss any of my new content by signing up for my email list at https://www.DavidCBarnettList.com
Cheers
David C Barnett
***New Video Alert!
Corey asks me via Twitter-
Do dividends belong in SDE?
This week, I explain why not and how you can protect yourself from this mistake.
Save this somewhere.
You might need to send it to a broker or seller one day.
Learn more by watching this week’s video: https://youtu.be/gR7Fsgp1J9Y
Cheers
See you over on YouTube
David C Barnett
