Tag Archives: Entrepreneur

Business Valuation Service Industry

If you are considering buying or selling a service industry business you need to start with an evaluation. This can be very complex and the use of a consultant can often give you a value that you can easily defend. The following article outlines the process, and is extracted from FBB Group Ltd: https://www.fbb.com/company-information/recentarticles/how-to-value-a-service-business.

Business Valuation Service Industry

Service businesses run the gamut, from accounting firms, to drycleaners, to janitorial services, engineering, public relations firms, and many other options. Despite their disparity, they all have one thing in common: offering a service to clients.

By their nature, service businesses don’t have much in the way of tangible assets, making EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), for larger businesses, or SDE (Seller’s Discretionary Earnings), for smaller businesses, multiples typically lower than manufacturing businesses. Generally, the smaller the service business, the lower the SDE multiple.

Valuing a service business involves many factors – a tidy, one-size-fits-all formula doesn’t exist. That being said, sellers should recognize that buyers will be particularly interested in certain characteristics for most service businesses.

Normally, valuation is based on several criteria, including: history of profitability, cash flow, overhead, intellectual property, company reputation, number of years in business, opportunities for further growth and added profits, stability of key employees/management team, and customer diversification.

Further consideration goes to whether the company can add more services. Value increases when a service business offers something unique, especially in a growing industry or market. These industries include rapidly growing service sectors, such as: internet/web-based or cloud-computing services and information technology. Relocatable, internet-based businesses with low overhead are particularly attractive due to scalability. Also, the ability for a business to be operated from anywhere increases the number of prospective purchasers – which increases the business value due to higher demand.

In addition, companies with a large recurring monthly revenue stream (for example, when a high percentage of clients are signed up for automatic bill pay each month) will command more value. Examples include alarm companies or website/email-hosting companies that have monthly auto bill pay from clients. Such a consistent revenue stream impresses both buyers and lenders alike.

Other crucial areas for valuation include intellectual property, ongoing relationships with clients, and having a good team in place – ensuring the company will retain its competitive edge, even when the seller (who typically drives new and repeat business) leaves.
Without significant capital assets, key customers and employees are critical. A strong management team adds to the value of a service business (often more so than in manufacturing) and, conversely, it can detract from value when there’s a poor or inexperienced team.
Another measure of value may include the amount of market share. Companies that provide a niche service and don’t have much, if any, competition will command higher multiples of value.

Within the industry, B2B (business-to-business) companies generally command more value than B2C (business-to-consumer). For both, however, client-base diversity commands value – more medium- or small-sized clients being preferable to a few large clients. With low customer concentration, financial risk is reduced. If one client, for instance, cancels a contract or goes out of business, the service business remains financially viable.

Although contrary to an owner’s instinct, businesses command higher value when they’re not dependent on the owner’s personal relationship with clients. If the owner generates a substantial amount of revenue versus the other employees in total, the business could be at risk after the sale. Service businesses are more valuable when customer relationships are readily transferrable: as customers of a drinking-water delivery or HVAC service business don’t usually care who the company’s owner is, for example. Also, keep in mind that seasonal businesses, due to their cyclical nature, have lower value.

Cash flow is “king,” so the primary consideration for bankers is a buyer’s ability to stay current on loans for acquisitions and working capital. Banks focus heavily on reliable cash flow for service businesses, given that there is little, to no, collateral within the service business itself.

Whether you’re in the market to buy or sell, understanding the various considerations of valuation for a service business will make the process smoother and increase the probability of a more successful transaction.

John B. Vinturella, Ph.D. has over 40 years’ experience as a management and strategic consultant, entrepreneur, and college professor. He is a principal in the business opportunity site jbv.com and its associated blog. John recently released his latest book, “8 Steps to Starting a Business,” available on Amazon.

Raising Entrepreneurial Capital

This writer, with Dr. Suzanne Erickson, is co-author of the book “Raising Entrepreneurial Capital.” The second edition of the book is currently published by Elsevier.

Raising Entrepreneurial Capital guides the reader through the stages of successfully financing a business. The book proceeds from a basic level of business knowledge, assuming that the reader understands simple financial statements, has selected a specific business, and knows how to write a business plan. It provides a broad summary of the subjects that people typically research, such as “How should your company position itself to attract private equity investment?” and “What steps can you take to improve your company’s marketability?”

Much has changed since the book was first published, and this second edition places effects of the global recession in the context of entrepreneurship, including the debt vs. equity decision, the options available to smaller businesses, and the considerations that lead to rapid growth, including venture capital, IPOs, angels, and incubators. Unlike other books of the genre, Raising Entrepreneurial Capital includes several chapters on worldwide variations in forms and availability of pre-seed capital, incubators, and the business plans they create, with case studies from Europe, Latin America, and the Pacific Rim.

Here is how one reviewer evaluates the book:

“I have been an entrepreneur, venture investor or venture capitalist most of my 30-year professional business career and have been involved in the startup of over 40 companies, some very successful and some not so successful. After reading Raising Entrepreneurial Capital, my only regret is that I did not have access to this book of business knowledge at the beginning of my career. Most of the lessons I learned on the job (many the hard way!) trying to raise money, every way known to man, are in this book and I find it amazing how much of it is accurately covered in depth by the authors. It will be a great textbook for teaching entrepreneurial finance. I have never seen a book that covers everything one needs to know in such great depth. This book should be required reading for anyone thinking about starting up a new business. It will save a lot of wasted time and heartache for a new entrepreneur.”

— Kent L. Johnson, Chairman and Managing Director, Alexander Hutton Venture Capital, Chairman of the Advisory Board of Seattle University’s Entrepreneurship Center.

John B. Vinturella, Ph.D. has over 40 years’ experience as a management and strategic consultant, entrepreneur, and college professor. He is a principal in the business opportunity site jbv.com and its associated blog. John recently released his latest book, “8 Steps to Starting a Business,” available on Amazon.

Consulting for Case Study

Hubspot suggests that “Earning the trust of prospective customers can be a struggle. Before you can even begin to expect to earn their business, you need to demonstrate your ability to deliver on what your product or service promises. Sure, you could say that you’re great at X, or that you’re way ahead of the competition when it comes to Y. But at the end of the day, what you really need to win new business is cold, hard proof.

One of the best ways to prove your worth is through compelling case studies. When done correctly, these examples of your work can chronicle the positive impact your business has on existing or previous customers.”

It can be advantageous to use a consultant to prepare the case study. In addition to saving your time the consultant will be objective.

Kissmetrics describes why a case study can be effective:

“People enjoy reading a story. A great case study will allow someone to really get to know the customer in the case study including:

• Who is the sample customer and what do they do?

• What were the customer’s goals?

• What were the customer’s needs?

• How did you satisfy those needs and help the customer meet their goals?

A final thing you could do is simply follow up with the customer in the case study and update your case study a few months down the road to show how your products / services are continuing to have long term benefits for the customer. This would give readers the opportunity to see that your goal is not only to help with immediate needs, but also to ensure long term results.”

John B. Vinturella, Ph.D. has over 40 years’ experience as a management and strategic consultant, entrepreneur, and college professor. He is a principal in the business opportunity site jbv.com and its associated blog. John recently released his latest book, “8 Steps to Starting a Business,” available on Amazon.

Creative Ways to Become a Business Owner In 2018

A new year, a new you: it’s a time-honored tradition to treat yourself to a spruce up as one year becomes another.

But the start of the next 12 months of your life isn’t just a chance to dust off your cobwebs and hit the gym, it’s an opportunity to make a big career change by starting a new business.

Running your own business is a challenging, but supremely rewarding, experience. If it’s something you’ve been thinking of for a while — there is no time like the present to get stuck in!

Below I have listed some of the creative ways that you can become a business owner in 2018 to help give you some direction and inspiration.

Help other businesses outsource

A B2B service-based business is hugely recession-proof. Unlike product-based businesses that ebb and flow depending on consumer demand, service businesses are always in demand. Why? Because they help other businesses stay afloat.

There are plenty of things that business owners are happy to outsource and get off their chest, including:

● HR

● Accounting & Finance

● Marketing & Comms

● Administration

● Customer Service

● IT

● Maintenance.

Whether you are a good ‘all-rounder’, or have specific skills — setting up your own B2B business is a savvy move. You may even find that your skills are best suited to an advisory or coaching role — business consultants are always in high demand.

The best B2B businesses inspire confidence, show measurable results, and help busy business owners do more with their time (and money). You can also have a bit of fun with your brand and aim it at a very specific niche market or vertical.

Test case — social media manager & business owner

There are expected to be 2.62 billion social media users in 2018. That’s 35% of the world’s total population of 7.48 billion!

Given the ever growing popularity of social media it presents an opportunity for you to start a new business in 2018 as a social media manager/consultant.

Any company with ambition of surviving the age of social media will have an outlet to connect with their followers — and many companies are increasingly falling short of what’s required of them in this new social commerce age.

Spend some time researching the different platforms, or enhancing your existing knowledge of them, and then set up a business to sell your services. You can start by just working on a few smaller contracts, and build yourself up to business owner slowly. Once you have taken on more work, be smart about scaling and invest in virtual assistants and copywriters to help you service more clients.

Make money from your own personal brand

Imagine if you could get paid just for being yourself?! OK, it’s not as easy as that — but a stellar online brand can definitely be something to monetize and profit from. If you have a compelling story to tell, a gift or flair — start making the most of what you’ve already got. A lot of online personalities only made it because they were brave enough to put themselves out there.

Number one rule: be clear on what you want to achieve from day one. If you’re looking to build a business here, you will need to invest in your branding, drive traffic, and have plenty of ways to make money from your brand. Just creating a website won’t guarantee you’ll have a business to run — be prepared to put in months of brand development time. Just because it’s also personal, doesn’t mean it’s not professional.

How to do it with blogging

If you fancy yourself as a wordsmith then you could put your gift into practice by creating a blog and making yourself the owner of your own blogging business. Gone are the days when a blog was the journal for those with dimnaliphobia. There are now a number of ways that you can make money as a blogger:

● Guest posting – you can either sell space on your own blog, or uses guest posting as a sales strategy to sell blog tie-ins like coaching calls and digital products
● Sell advertising – sell advertising space on your blog, or monetize your content through product and service reviews

● Affiliate marketing – this is where you link out to a product being sold on another site. Each time someone follows the link and buys that product you get a commission — Amazon’s affiliate program is very easy to get set up with

● Training – you can sell your services as a blogger to those looking to become a blogger and show them how it’s done through courses, or training guides/videos.
Start investing in other businesses

When you hear “flip” you probably think of burgers….Well, while you could make some extra cash setting up a burger business, we think that you’ll find flipping websites and businesses a much more creative way of becoming a business owner in 2018.

Investing in other businesses and being part of their journey is a surefire way to quickly become a successful entrepreneur, and you don’t need bags of cash to get started.

How do you do it? It’s simple. Flipping websites is the art of buying a website and then selling it on for a profit. You can do this by visiting one of the many online marketplaces and then selecting from the vast array of websites on offer. Improving a website generally comes down to creating better, fresher content. Ecommerce stores are especially great website investments, and you may even find that you stumble on an exciting brand you want to take all the way yourself!

While it’s difficult to put a precise figure on how much you could earn from the business of website flipping, some flippers have made over $50,000 in less than two years. Suffice to say, it’s a profitable business to be in. Use your passion to find an underserved niche.

Great businesses are created when passion meets niche demand. Mine your fields of interests to find something that you’d be happy to devote lots of time to, but only if you can justify your investment with a ready and waiting marketplace. Peddling your dreams to an empty room is just depressing!

Vegans — your new customers?

Due in part to the age of millennials and now linksters, veganism has grown over 500% in the US since 2014. This makes producing vegan food not just a creative business idea for 2018, but a cash almond that you can milk to bring you a company that has the potential to explode. Vegan food sales is a market worth over $3.1bn a year. You could make 2018 the year that you take a piece of that market for a business that you own.

The key is to find a way of turning an existing non-vegan food into one that is suitable for vegans, as this way you can corner a part of the market and have a product that is totally unique. Focusing on nutrients, health, and superfoods is also a lucrative way to make the most of changing food trends. Another angle to take would be to create vegan products (makeup, fashion etc) and make the most of ethical consumerism.

For 2018, make your New Year’s resolution not to have a new you, but to be the owner of a new business.

Recommended reading: Financial Issues In Business Startup<

Victoria Greene is a freelance writer and ecommerce specialist. On her blog, VictoriaEcommerce, she shares her experience in blogging, ecommerce, and entrepreneurship. She is passionate about helping companies and individuals develop their business.

Business Planning Overview

The purpose of the business plan is to recognize and define a business opportunity, describe how that opportunity will be seized by the management team, and to demonstrate that the business is feasible and worth the effort.

The successful entrepreneur is generally more inclined, once a business idea is selected, to sharpen the concept by a detailed planning process. The result of this step is a comprehensive business plan, with its major components being the marketing “mix”, the strategic plan, operational and logistical structures, and the financial proposal. The purpose of the business plan is to recognize and define a business opportunity, describe how that opportunity will be seized by the management team, and to demonstrate that the business is feasible and worth the effort.

The business plan is the “blueprint” for the implementation process. It focuses on the four major sub-plans: marketing, strategy, operational/logistic, and financial. While the business plan often goes through some revision, it generally represents a rather advanced stage in the planning process. The primary product or service to be offered, based on the results of the market research, should be determined.

Whether the business will be a start-up, purchase of an existing business or a franchise should certainly be firm at this point. Often, a specific business location is indicated, or at least a rather specific area.

Time estimates in a business plan should allow for meeting all the necessary regulatory requirements and acquisition of permits to get to a “customer-ready” condition. The amount of funding required and a general approach to raising these funds should be determined. Marketing mix issues focus on how the product or service is differentiated from the competition.

A business can differentiate itself on any of what are often referred to as the “four P’s” of marketing: product characteristics, price structure, place or method of distribution, and/or promotional strategy.

Strategic issues relate broadly to the company’s mission and goals. Every venture must continually assess its strengths and weaknesses, the opportunities to be seized, and any threats to the success and plans of the business. Operational issues relate to company structure, and the scope of the business. The operational plan addresses tangible items such as location, equipment, and methods of distribution. Decisions on these issues largely determine startup costs.

The financial proposal includes an estimate of the amount of money needed to start the venture, to absorb losses during the start-up period, and to provide sufficient working capital to avoid cash shortages. It projects sales and profitability over some period into the future, generally 3 to 5 years. Where outside funding is sought, it also describes distribution of ownership of the venture and methods of debt repayment and/or buyback of partial ownership.

Where implementation of the plan requires participation of lenders and/or investors, the plan must clearly and convincingly communicate the financial proposal to the prospective stakeholders: how much you need from them, what kind of return they can expect, and how they can be paid back. Many entrepreneurs insist that their business concept is so clear in their heads that the written plan can be produced after start-up; this attitude “short-circuits” one of the major benefits of producing the plan. The discipline of writing a plan forces us to think through the steps we must take to get the business started, and, to “flesh out ideas, to look for weak spots and vulnerabilities”, according to business consultant Eric Siegel.

A well-conceived business plan can serve as a management tool to settle major policy issues, identify “keys to success”, establish goals and check-points, and consider long-term prospects. The plan must realistically assess the skills required for success of the venture, initially and over the long run, and match the skills and interests of the team to these requirements. Test the plan, and an accompanying oral presentation, on friends whose business judgment you value. Let them assume the role of a prospective investor or lender.

John B. Vinturella, Ph.D. has over 40 years’ experience as a management and strategic consultant, entrepreneur, and college professor. He is a principal in the business opportunity site www.jbv.com and its associated blog. John recently released his latest book, “8 Steps to Starting a Business”, available on Amazon.

Selecting a Venture

Craft an entry strategy. What type of business could best seize the chosen opportunity?

The basic rule is simple: “Find a market need and fill it”! The process of finding the need, and the method chosen to fill it are where the difficulties arise.

Based on our opportunity scan, does the market need a product or service that is not currently being provided? Is there a needed product or service currently being provided in a less than satisfactory way? Is some particular market being underserved due to capacity shortages or location gaps? Can we serve any of these needs with some competitive advantage?

Remember that a business idea is not a business opportunity until it is evaluated objectively and judged to be feasible. You may wish to choose two to five of the ideas that seem most promising for more detailed study. Trying to consider too many would spread your time, energy and focus too thin. At the same time, if you focus too early on only one business idea, you are more likely to become “attached” to it, and could lose your objectivity.

Testing the feasibility of your top business ideas involves time and effort to collect key information. A first pass might consist of consulting recent journal articles that evaluate the market of interest; most libraries have computer-based indexes of periodical articles, such as InfoTrac. Other useful library resources include industry trade books, directories, and other sources of industry statistics.

Data collected from industry sources and journal articles is often referred to as secondary data, in that it was collected for purposes not directly related to our specific venture. Sometimes this can be sufficient, though we may find the need to fill the gaps with primary data. Collection of primary data can be very expensive. It generally consists of conducting market surveys, in person or by telephone, of a statistically significant random sample of our prospective clientele.

Craft an entry strategy. What type of business could best seize the chosen opportunity? Would taking in partners with complementary skills enhance my chances for success? What would be the optimum location? Whom would we serve, and how? Would my chances be improved by buying a franchise or an existing business, as opposed to starting a venture “from scratch”?

A small business is the usual product of entrepreneurship. Can a person start a large business? Only 4% of businesses employ over 20 people at start-up. What kinds of businesses are the larger start-ups likely to be? My sense is that most would be food service businesses, and many of those would be franchises.

Over half of business start-ups consist of 1 or 2 employees. What kinds of businesses can you enter with only 1 or 2 employees? Most would probably be considered professional practices (medical, law, accounting) rather than commercial businesses.

Small businesses are characterized by independent management, closely-held ownership, a primarily local area of operations, and a scale that is small in comparison with competitors. Many are small by design, or are “lifestyle” businesses, where the primary objective is employment for the principals.

Many are intended to be more “entrepreneurial ventures,” with the intention of generating substantial growth in scale of operations and profitability. Successful entrepreneurs craft such an idea into a business concept that, hopefully, fills a void in the marketplace. You should enjoy your concept and be excited enough to relay your feelings to your market.

Your concept does not need to be a major breakthrough. It could simply be an improvement to an existing product or service. The improvement could be as simple as better service and/or quality than is currently available, a faster or otherwise better method of delivery, or a technological improvement.

Solicit input from friends and other consumers of the product as currently offered. Ask questions like: Is there a need? Would YOU buy it? What price would you expect to pay for it? Is there a better way to provide it?

Check out how the competition is providing the product to the market. Determine what makes your concept different from the competition. Why would the market be better off doing business with you? What can you give the market to improve their experience with the product? Does your product or service exceed the expectations of the market?

Define the needs of your market by listening to the customers and understanding how your product might fill that need. Is there something more you could do, to make it more attractive to your market? Is your product a solution to a problem in your market? How will you handle customer service complaints? What are your guarantees to your customers?

Statistics show that 80% of company sales come from repeat orders and referrals from satisfied customers. Exceed your customers’ expectations and they will be back, and they will refer you to others.

Refining and improving your concept is an ongoing process. Maintain a high profile in your community to develop relationships that help promote the product and serve as a referral and constructive feedback network. This involvement will only produce these benefits, however, if you are sincere in your willingness to work hard for the community you live in. If you don’t the available time to offer your community, perhaps you could give your product as a gift to local charities or sponsor a local event where your community would benefit.

John B. Vinturella, Ph.D. has almost 40 years’ experience as a management and strategic consultant, entrepreneur, and college professor. He is a principal in the business opportunity site www.jbv.com and its associated blog. John recently released his latest book, “8 Steps to Starting a Business,” available on Amazon.

Innovation

Abstract: Innovation, in a business context, is generally thought of as the product or application of creativity. Peter F. Drucker suggests that innovation “is the specific instrument of entrepreneurship”.

Mr. Drucker further suggests that there are seven sources of innovative opportunity. Four of these relate to a specific industry or service sector: the unexpected; the incongruous; process needs; and structural change. The other three relate to the human and economic environment: demographics; changes in perception, mood, and meaning; and new knowledge.

Let us observe some of these factors at work in a coffee shop venture. The unexpected factor in the recent success of gourmet coffee shops is the willingness of the consumer to spend two or three times the cost of a generic cup of coffee for exotic, flavored or brand-name coffee. An incongruity is the popularity of fat-free desserts (“healthy” indulgence) to go with that coffee. The structural change in the industry is the emergence of franchises.

Environmental changes have also contributed to this phenomenon. As the “baby-boomer” generation has aged, the preferred place to meet has moved from the bar to the health club to the coffee shop.

Let us consider information about some current trends to see if we can relate them to potential opportunities in the context of Professor Drucker’s categories. For each, see if you can possibly find a niche on which to build a business:

  • The unexpected The International Association for Financial Planning is observing a rapid (to the point of unexpected) increase in calls requesting referrals for financial planners. A spokesperson for the IAFP says, “People are realizing that financial planning is not just for retirement or saving for a child’s college education; it’s for all stages of a person’s life”.
  • The incongruous Many Americans are feeling pressed for time, incongruously wishing to lead simpler, easier lives without giving up those activities that take the most time and effort. The opportunity lies in offering personal time-saving products and services that relieve these people of tasks that they find less than fulfilling, not worth the time, or unpleasant.
  • Process needs Individuals and businesses are spending unprecedented sums of money to acquire the education, training and skills necessary to remain competitive in a rapidly evolving marketplace, creating opportunities in consulting and training.
  • Structural change The health-care industry will flourish because of an aging population, myriad technological advances and people’s expectations of readily available medical care. One of the industry’s fastest growing segments is home-based health care, which is well-suited for entrepreneurs because of its ease of entry.
  • Demographics The aging population referred to possesses a combination of leisure time and discretionary funds that makes them a great market for new ventures in services relating to their comfort and recreational needs.
  • Changes in perception, mood and meaning The amount of money that citizens and businesses spend on security products and services is growing rapidly; the preferred method for many forms of purchase is increasingly becoming the Internet.
  • New knowledge In 1996, for the first time, computer sales outnumbered television sales in the United States.
  • Do any of these sources of innovative opportunity suggest an entrepreneurial niche to you?

    John B. Vinturella, Ph.D. has almost 40 years’ experience as a management and strategic consultant, entrepreneur, and college professor. He is a principal in the business
    opportunity site www.jbv.com and its associated blog. John recently released his latest book, “8 Steps to Starting a Business”, available on
    Amazon
    .