Starting a Business in a Recession

Some business owners and Entrepreneurs are good planners.  Some are not.  Some consider themselves “do’ers” that they are very good at doing what they do and really don’t have the time to plan for next year or the year after, or for 5-years from now.  The economic climate has done more than bringing on lower sales, lower profits and lost employment.

It is a sound business practice to have a plan or idea that extends beyond the current year.  Many sound business owners and operators had planned to sell or exit their business, and then were hit by the drop in their stock portfolio, retirement funds, drop in home value and depressed company results.  So those well laid out plans are delayed as a result of the business environment.

Is It Wise To Start A Business In A Recession?

Starting A Business In Recession

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What about the small business owner that had planned to start a business, or buy a business only to feel the need to address the question-   Can I start a new business during a recession?  What does one do?  Delay the decision until the economy turns around, or move ahead regardless of the slumping economy.  When running and or growing a business for an extended period of time ( say 10-20+ years), it is inevitable that you will need to operate that business during both good economic times and bad economic times.  How much do you allow the economic climate to be an excuse/reason/crutch or do you  try to just work harder thru it.  I personally view this economic downturn that we currently operate to be quite different than any “downturn” I have seen in my 25 years of business.

Most of what I read and discuss with others refer to our current economic environment  as  a Recession.   But is it possibly a  Depression?  A common offhanded comment defines A Recession is when your neighbor looses their job, A Depression is when you lose your job.  Respective governments have criteria used to establish Depression and or Recession.  I question the accuracy and application to our newer global economy.

I also question how much our politicians and policy makers really know what the business climate really is at the “street level”.  I actually think our economic climate we have been operating in is neither a Recession or a Depression but rather a hybrid  maybe there is a need for a new or different term to refer to our business environment.  I think the non-existent term   “DEP-RECESSION” may apply.

The Importance Of Proper Timing In Business

So what do you do with your plans to start that business or buy that business?  Do you delay or press ahead?  My thought is that it is somewhat dependent upon the business venture.  Many businesses and consumers  still need to procure certain products or services to allow their household or business to continue.  But some buying decisions can be put on hold or delayed until the economic uncertainty passes.  How much your product/service may be considered a discretionary expenditure may influence your decision to go forward or delay.

For example if you are in the paper business, businesses still need paper to run their operation or make copies.  But a business may not be compelled to buy that new copier and may decide to just “get by” with the one they have.  Most small business owners and entrepreneurs I know are more of the press ahead type and fairly aggressive with their business decisions.

Should one delay the decision to start or buy a business until the economy improves?  I’m not so sure, but what if it takes 2-5 more years to improve.- This almost  sounds like an answer to this question.

 

More than One Reason to Start or Buy a Business

How many times do you go to a cocktail party or just hang out with friends and hear things such as “I got this great idea for this new business”, or “Ive got this great idea for this new invention”, or  “If I were the boss and owned this business that I am working at, I would ______________.”   Words are said, heads nod, cocktail parties end and friends go home and nothing happens.

But for some the entrepreneur spirit rises to a greater height than just words, and they are able to turn those words into action.   What is the difference between those at the weekend cocktail party talking about it and the person that wakes up Monday morning and actually pursues it?  Very often, the inspiration to turn words into actions lie in the reasons why one want to pursue this path.  What are the reasons some turn those casual interest into action?

Buy A Business

Photo (c) bluewolf.com

As a business broker I have many discussions with individuals that want to buy a business.  The process of buying a business or starting a business both are filled with trepidation, concern, excitement and pursuing of yet to realize results.  One of my functions in working with individuals in the process of buying a business starts with a  simple question – WHY?   Why do you want to buy a business? or in some cases   Why do you want to start a business?   There is a big difference between the person that talks about buying a business or starting a business and one that actually follows through on those aspirations.  And the reason why one wants to start or buy a business can be very different as well.

The below list is certainly not complete but explores some of the reasons one takes the next step.

Why Do You want to Buy a Business or Why do you want to Start a Business?

1. Sometimes its not just about the money, someone has a passion for a field or effort and just wants to immerse self into that field.

2. Others, want to turn filthy rich. Some studies will speak to the high percentage of individuals that gained significant personal wealth through buying a business or starting a business.

3. Someone may just want to have a job to count on.  If you are the boss (of yourself), Who is going to walk into your office and fire you.  No one.  You have control of your job security.  Maybe this venture will turn into more, but at this point, “I just need steady work”.

4. There is a want to start or buy a new business because a person wants out of existing business due to “burnout”, or fatigue and wants to enter a new venture to re-invigorate and try to re-discover the energy that comes along with an entrepreneurial new start.

5. There may be a compelling wish to pursue a new venture that is genuinely making peoples lives better, and a person has a need to fulfill this want of self- fulfillment.

Real Reason For Starting Your Own Business

People who want to be entrepreneurs cite reasons such as satisfying a self-determination, wanting to set their own hours, wanting to be their own boss, and wanting to test themselves, as reasons for starting a new business. But when we get down to it, most people want to start a business to gain financial freedom. Starting or buying a business in the pursue of financial gain and to provide a comfortable existence for self, family or others is a realistic and well-proven approach.  Starting or Buying a business so one can spend more time with family is both mis-guided and unrealistic.

The reasons one does start a business, or buys a business can vary greatly, and the list is longer than outlined above. But there are only 2 types of entrepreneurs or small businessman when it comes to buying a business or starting a business – Those that Do – And Those that Don’t.

I Want to Buy a Business… I Think

Starting a business is an exciting and potentially rewarding venture. Buying a business can also be an exciting and rewarding venture. If one wants to be an Entrepreneur or Small Business Owner what route does one take?. Is it best for you to start your own business. Is it best to buy an existing business. Or as in some cases (as in my business career) are you involved with both starting a business and then at some point buying a complimentary business or similar business(s) to add on to the business that you had started.

Buying And Selling A Business – Facts

I am in the business of helping business owners and individuals buy and sell businesses. I interact with both a lot of potential buyers and potential sellers . Understanding the key points below that outline some information regarding the future sale of your business, or if opportunity presents itself buying a business may benefit your situation:

1. ALL business owners are probable future business sellers

We all need some “exit strategy” from our business. Selling ones business for a nice gain is one of the more appealing exits from a business that exist. Prepare in advance for that fact. Also know and understand the value of what may be your largest asset- your business. Even if you are not plannining on selling your business- it makes business sense to know what the value of your largest asset actually Is. On my website www.sellabusinessflorida.com we list 1000’s of businesses for sale. On this site one could locate “like’ businesses and use this information to approximate the value of their own business. But please keep in mind all businesses are different, but this would be a starting point to ballpark valuation.

2. Not all businesses that try to sell actually sell

Homes are bought and sold all the time. Some homes take much longer to sell than others (especially here in the South Florida market). But ultimately most all homes do sell. The same is not the case for all businesses that attempt to sell. The process of selling a business can be a long process, and that process does not always end with an executed contract and or sales agreement .

Buy Or Sell A Business

Photo (c) tampabusinessbroker.com

3. Most people that say they want to buy a business don’t buy a business

Industry statistic regarding this fact vary, but the numbers may be as high as 9 out of 10 peoplethat actively pursue acquiring a business, talk to business owners about selling their business, and engage in some form of due diligence don’t buy a business. The reasons vary and go beyond the scope of this post, but money “surprisingly” is a determining factor in not having a potential business buyer buy a business.

4. If you have started your own business and are looking at ways to boost sales, buying another like business is a very viable growth business concept

Buying A Business Comes In All Shapes And Sizes

Eliminate the thought that buying a business means $100,000- $5,000,000+ deals. It can be as simple as buying an online web store for $200 that is a perfect fit and the additional traffic that it can drive to you is extremely beneficial. – Eliminate the thought that you need to have big piles of cash and the person selling their business is walking away with an all cash deal. MOST businesses sold today involve seller financing. The seller has both a vested interest in your success, and the seller is eliminating the need for you to go to a bank to finance the acquisition of the business. The seller is your bank. The seller understands their business and the likelihood of your success with their business, very often better than a banker would.

If you have started a business and need to “boost sales” and not sure how to gain additional customers or sales, buying a business that may be a competitor or a complimentary product of service can be an effective strategy. If you are thinking of starting a business, and want to “jump start” your effort buying a small business that you can build on and mold into your own is also a very viable strategy.

Thinking of buying a business? Will you be that 1 out of 10 that actually goes forward and makes that goal a reality.

3 Small Business Owner Concepts that Sound Unusual.

  1. My business runs better without me
  2. I’m selling my business after 20 years time to take it easy? No, its time to work hard
  3. When Negotiating- Those who want it less – Wins?

My focus is working with business owners and individuals with the process of buying and selling businesses.  These concepts apply both to the process of buying and selling businesses as well  running a small business.

My Business Can Run Without Me

1.  When starting your business, you are the face of your company, you may be the sole or only interface between you and your customers or clients.  Firstly this approach does limit the amount of growth your company can/may experience.  Secondly if the company is so reliant upon you, What happens to your company if you are gone?  Do your customers buy from you or your company? Are they the same thing. Are you building value in your company?  If you sell your company and you leave, what do you have to sell?  In the beginning of building your business- you are the guy/girl.

This business depends upon you, it relies upon you.  Preparing for the eventual exit of your company your efforts should be towards one of reducing that dependence on you.  So what can you say, or what do you want to be able to say- “this company cannot run without me”. Or “this company runs fine without me”.  Is preparing your business for eventual sale similar to your business plan for future long sustaining growth?  When positioning your business for sale, or just growing your business, work on making the company one that is NOT “All about Me”.

Business Owner

Slacking Off When Trying To Sell Your Business

2.  You started a business and have owned it for 20 years and now want to look to sell it in a year-  What should you do? – Run it like you will own it for the next 20 years.   This is done with certain limitations to capital expenditures, and capital improvements, but speaks more to the mindset needed during this period.  Starting a business, growing it and running it for 20 years and then selling it for significant gain is similar to running a marathon.

Like in a marathon sometimes Small business owners “hit the wall”, are done and just want to exit/finish, sell their business and be done.  But why run hard for 22 miles and then walk the last 2 miles? Finishing strong in a race is always good.  And a small business that “finishes strong” can pay big rewards.  Would you rather buy a business that is trending up or trending down.  Also, if you “start walking” and your business doesn’t sell, what is the state of your business at the end of that walk?

Business Negotiation

3.  Could it be when negotiating- He who wants it LESS wins?   If you are looking at a potential new supplier that is hungry for your business and your present supplier is doing a good job, what is the likelihood of negotiating favorable pricing terms from the new supplier?.  A salesman calls you on the phone and wants to offer you SEO services but  you are currently page 1 on Google Search and getting 4000 hits per day but he is willing to do “what it takes” to get your business-can you negotiate a good deal?

You are looking at buying a business.  Currently you are looking at 3 similar businesses to buy.  2 of those businesses offer great seller financing.  You ask for seller financing from the 3rd, and you are willing to “walk away” if you don`t get your terms.  What is the likelihood of you accomplishing those terms.?  When establishing terms you need are you willing to walk away if you don`t get those terms?   Or put another way, my wife wants to buy a new house, she wants this specific house, so I am assigned to negotiate with the buyer.  Being that “we” really want the house, am I prepared to present conditions that are “deal breakers”.

Am I willing to walk away if I don`t get the $3,000 price reduction -No.  And to those that are married- I need not say more.  In these cases negotiating is very difficult as we are not one that “Wants it Less”.    Actually the “wanting it more” is so great that I feel I exit the world of negotiating and enter the world of hoping…

A Day at Entrepreneurs Law School

Sometimes it may be easy to recognize what a successful person looks like because of the fancy car, expensive clothes or the big house or houses.  But, what does a future Successful person look like?

Last weekend I was asked to speak at the Entrepreneur Law School at Florida Gulf Coast University .  I spoke along with an attorney to a standing room only crowd of small business owners in Southwest Florida.  These small business owners paid $100 to attend the day long event that focused on legal matters that affect the Entrepreneur.

The Legal Side Of Buying And Selling Your Business

Our hour presentation  focused on the Legal Considerations in Buying and selling a Business.  The basic premise is that there are many considerations that an Entrepreneur  who is contemplating buying or selling a business needs to consider before beginning the process .  The Entrepreneur Law School is the product of  Florida Gulf Coast University, Lugert College of business.  Essentially the day long event had attorneys speaking on subjects such as :

  • The Entrepreneur Checklist
  • Common Pitfalls of Contracts
  • Business Formation and Taxes
  • Business Entity Selection
  • Protecting Intellectual properties
  • Legal Considerations in Buying or Selling a Business

and a dozen other hour long legal issues as it relates to Entrepreneurs were presented.  While I was there to present information for the attendees related to the legal aspects of buying and selling a business, I found myself as viewing this as a learning experience for me  as well. I think I saw many future successful business owners in the crowd.

I was very impressed with the fact that the small business owner located in our area that is generally battling difficult economic conditions would pay good money and take almost 8 hours out of their Saturday to further educate themselves.  Firstly, most small business owners are working so much during the week that sometimes the weekend is the only recluse that can be found.  Secondly, money is tight, and expenses are looked at not just once but twice.  But these attendees considered the investment in educating themselves to be money well spent.

Buying/Selling A Business - Attorney

Photo (c) zc-law.com

The presentation the attorney (Attny Donna Flammang who specializes in Business Acquisition and Sales) , and I conducted was to a full room and essentially we ran out of chairs.  I found it both interesting and exciting that most attendees chose to attend our presentation over others that were conducted concurrently.  Attorney Flammang started the presentation by stating the importance to consider the selling of your business the day you start your business, or more specifically the day you choose the type of entity when starting your business.

The Importance Of using An Attorney When Buying/Selling A Business

Should you always use an attorney when starting or buying a business was discussed.  Letter of Intent, Due Diligence, and how to prepare your business for sale was also discussed by both Attorny Flammang and I.  We fielded many questions from the audience  and as can happen we ran way short on time- the hour was not sufficient.  After closing comments we were both approached by many with additional questions.  And again I found myself surprised by the energy and makeup of the attendees.  I found myself talking with a husband and wife team that has owned their own bicycle related business for 20 years and were seeking further education!

Most Entrepreneurs have a voracious appetite for gaining knowledge and learning new things.  But one may wonder- how long does that appetite for knowledge linger?  Here was a couple that have a successful business for 20 years and could be sitting at home relaxing in front of the TV, instead they are paying $200 to attend a day long event covering legal aspects of running a business- which some can find as not that exciting.  I personally find legal issue and accounting issues to be very interesting almost to the point that it makes me wonder about myself.   Many would rather not bother with either of these components of a small business.  These business owners embraced these challenging topics.

As I looked out into the audience, I felt I was looking at Successful people in the making.  I know there is no real guarantee formula to success, but the people that would spend both their time and money to gain legal knowledge to further their business in difficult times like these sounds like a good formula for success to me.