MAY/JUNE 2012 VOLUME 36, NO. 3
Build This Into Your Biz ........................................... Cover
Avoid Joint and Several Guarantees! ......................... 2
Smart Money’s Transferring Wealth in 2012 ............
3
Customer Purchase Criteria and Signaling ..............
4
Emulate Apple ..........................................................................
6
How Not to Value a Business ..........................................
7
Your Life Insurance ...............................................................
8
Limit Your Personal Financial Exposure ..................
10
How to Be a Great Radio Guest ...................................
11
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STRATEGY
Build This Into Your Biz
Want to boost the value of your
business? Here are the sought-after attributes of serial business
buyers – organizations that buy
business after business in a variety
of industries. These are the attributes that make them want to buy
and pay a premium.
Growth
Establish a track record of consistent revenue and earnings growth.
A look at the valuation equation
clearly demonstrates the impact
growth has on price:
The discount rate is also referred to
as the “required rate of return.” Required rates of return for buyers of
small and mid-size private companies are in the 25% to 33% range.
So, if the growth rate is zero, earnings are $100K and the required
rate of return is 25%, the price (
value) is $400K. Use the same data
but a growth rate of 20% and the
value becomes $2 million [$100K /
(25% - 20%)].
Yes, growth is sexy. Just ask Bruce
MacRae, Managing Director of
Hastings Equity and a serial business buyer. “Without a doubt, we
want growth” is what he’ll tell you.
Branded, Proprietary Products
Do you sell a commodity product at
a price determined largely by your
competitors, or your own product
– under your own label – at a premium? If you raised prices, could your
customers easily buy elsewhere?
Do your customers ask for your
product by your own proprietary
name that you own or by its commodity name (or worse, your competitor’s proprietary product name)?
Branded means it’s not just soup;
it’s Campbell’s Soup. Customers
will ask for it and pay a bit more
because they trust they’ll get what
they expect. Proprietary means it’s
your design. Your mix. And they
have to come to you to get it.
Barriers to Entry
Can competitors easily begin offering a product similar to yours
and sell to your customers and
prospects, or would they have a
pretty hard time pulling it off? The
creator of a new FDA-approved
drug has barriers to competitors’
products…until the patent runs
out. If you own a residential lawn
service, anyone with a truck and
a mower and Weed Eater® can
knock on your customer’s door and
offer to do it for $5 less. If, however, you have a long-term lease on
the only rock quarry in the region,
you might have a pretty defensible
competitive position and, therein,
