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How Much? When Buying Or Selling a Business

You buy products or services and one of the first thoughts you have is – How Much? You sell products or services to customers and one of the first thing a customer wants to know is- How Much? Somebody looks at buying a business and again needs to know – How Much? And a business owner is ready to sell his business and either move on to other business interest or retire and he needs to determine – How Much.

How does a business owner determine how much his business is worth? The reality of the matter is that the marketplace, as with most business transactions, determine how much is the worth of the business. But in order to attempt to sell your business and market you business a value, or a price range needs to be determined to allow potential buyers the opportunity to see if your price goals match with the price range they are willing to pay.

When discussing the concept of valuing a business or setting a range and or target sell price of business with business owners some times the wrong criteria is initially considered by the business owner. Sometimes the “What I need to make when I sell my business” is different than “what the business is worth. Consider the example of a business owner invested $50,000 as an initial investment into his business and owes another $100,000 on some equipment he bought and is still paying off. I might ask the business owner if he has considered what he would want to sell his business for and he may say “I need to at least get $150,000 for the business because of the above reasons.” Actually the business owner is telling you what he believes he needs to get out of the business, yet this does not necessarily represent potential value to the buyer.

When business owners or entrepreneurs set prices for products and services certainly cost is a significant contributor to determining price point of that product or service. What like or similar products or services are selling for is also considered. But the successful and ongoing sales of that product or service is dependent upon how the customer values your product or service. Does your customer believe that they are getting fair value for the price of your product or service. The fact that you now lease a new expensive company car- does that enter into the pricing of your product or service. It may to you but very possibly/probably it does not to the customer.

This is a similar thought process that should go into the question of how much should I sell my business for. If a person can buy a similar business to yours and buy it for 40% less than yours why would they buy your business. The price/value needs to make sense. And if all else is similar it is reasonable to expect the potential buyer of your business to expect your business to be priced similar to other like businesses. And the fact that you invest more initially into your business or owe $x on the business, or lease an expensive new car really does not speak to value or pricing (unless liabilities are following the new buyer and may decrease the value to the new buyer)

The best scenario for selling your business is always a scenario which allows for you the business owner to plan that exit strategy. Part of that planning process is trying to determine what you believe you need to get out of the business for the sale to make sense to you (also allowing for tax consequences of such a sale.) But it is important that what you need to make when selling your business and what your business is worth when selling your business are 2 separate matters. While these are 2 separate matters that often get convoluted in the thought process of a business owner – it is very pragmatic to target a potential time to sell your business as a time when “what I need to get out of business when I sell my business” is at least equal or less than “the sell price or value of my business.” Ultimately the somewhat complex process of setting a price of a business for sale (or a product or service for sale) gets reduced to How Much are your selling your business for? and the answer being How Much are you willing to pay.

Individualism and Social Networks in Today’s Businesses

In the world of business and entrepreneurs, people have different views of how success is created, attained, and grown. The traditional individualistic view people trust is working hard will get what you want out of life and you can achieve success alone without council from others. While working hard in an individualistic view you must stand out and be seen as the best. The phrase of being able to “pick yourself up by your boot strap” is a common phrase used in term of reaching your success in the American society. In this phrase, it does not say that someone must pick you up from your bootstraps for you to succeed, which is another view that is more contemporary. In comparing both views it is either someone will pick you up or you can pick yourself up. Some entrepreneurs feel that you need social networks for success. It is believed that social networks can give you advice and contacts to get resources you wouldn’t be able to get alone. Business consultants, such as Jessica Swanson recommend you using your social networks on the internet to grow the business. For example, twitter and face book are highly recommended to attract clientele to grow your business. In my opinion, I believe that there is a need for both individualistic people and personalities with social networks attached in order for a business to grow successfully. In other words, successful business owners and entrepreneurs need counsel and resources through social network in order to get success while working hard.

I believe that working hard will enhance your success and help you achieve success. In addition to working hard there needs to be an individualistic personality within the business identity. In order to become successful in the small business and entrepreneur world, conformity is not an option. Entrepreneurs have to want to stand out. There needs to be a sense of self that wants to be the best, but there is no competitive foundation in the drive to grow the business. For example, it is not because the owner of a beauty salon only wants to go into business to beat an existing beauty salon. It is because the owner of the beauty salon wants to open up a shop and make a legacy for themselves and for their kid. Building a name for oneself in the business and creating wealth for themselves is the drive for the business. Maybe not for all, but for most there is a drive for individual success. Thus, a person must have an individualistic view or personality. Another example, it is easier for someone to work and get a check without putting much effort verses someone who wants to make their own money. Starting a business from scratch is not easy as it sounds because you have to work harder. It is rare for someone to break the conformity that people are use to. A fundamental individualistic perspective or idea needs to be present within an Entrepreneur. Thus, individualism is surfaced in characteristics of businesses in our society.

A business is better off with individualistic people in order for the business to be successful. According to Michael E. Gerber, the CEO of Gerber Business Development Corporation in California, believed that in order for a business to succeed there must three types of people in the business. There must be “The Entrepreneur, The Manager, and The Technician.” Within these three personalities, the “Technician” is the person within the group who has an individualistic personality and is needed within the group for the success of the business. Gerber states that, “the technician is a resolute individualist, standing his ground, producing today’s bread to eat tonight’s dinner.” In other words, the technician is the doer and he wants everything done his way. The technician, who is individualistic, would rather start their own business than work for someone else, but the technicians cannot grow a business alone, and will need the other two personalities. These three personalities are needed for the success of a business. Thus, individualistic personalities are needed, but for only a certain degree.

Individualism needs to be shaped into the task that the company needs an individualist to do, and be able to work with other personalities as well. Sociologists David Jacobs and Benjamin Cornwell believe that relationships are shaped between individual and organizational performances. According to Jabobs article, “If tasks are finely divided, the best efforts of the able cannot have much effect on the organization even if the entire task is vital to the collectivity. Yet if tasks are indivisible, so each incumbent must handle a large fraction of a critical job, the capacity of an individual to add to organizational success in such positions will be much greater.” In other words, if businesses gave people jobs that cannot be replicated and everyone has individual tasks rather than everyone doing the same thing, there will be more collective success overall. Jacob has similar views like Gerber where there needs to be separate task for a business in order for a better overall collective. Thus, in my opinion individualism needs to be present in forms of separate task in businesses. Businesses are not all depended of individualism, but they are present.

In contrast to the presence of individualism there is a need of networks and the counsel of others for the success of the business. Business workshops advise business owners to use networks to grow the business. The larger that your network of ties that you have the more likely you can get the resources you need. According to sociologist Mark S. Granovetter, “The analysis of processes in interpersonal networks provides the most fruitful micro-macro bridge. In one way or another, it is through these networks that small-scale interaction becomes translated into large-scale patterns, and that these, in turn, feed back into small groups.” In other words, a business owner may know one person that can give them information to resources that they need or can give them a contact of someone else who can help them. Thus, getting help from others is an important addition to the success of a business. Reaching out to others that you have close relationships or just acquaintances can grow the chances of a successful business.

In my own experience as a new business owner I have learned many things within one year. Social ties are a powerful way in getting the resources one needs in growing a business. I have a successful mentor/leader that has more experience and has a large professional network. Every time my mentor knows of something that I don’t, she will tell me. If she goes to a workshop, she will invite me. I have met people in these workshops and have made relationships from participating in these workshops. If I would not meet my mentor, then I wouldn’t have gotten as much get as I have. According to Susan R. Komives, Associate Professor and Director of the College Student Personnel Graduate program at the University of Maryland, claims that “Networks are important because they provide a chance to bring a wide range of individuals.” In other words, you know a variety of people with information that you do not have. Therefore, in my own experience I feel that networks are a powerful tool to make a business stronger.
Business needs help and guidance from outside sources, if they want to increase their chances for success.

Outside sources are good to teach a business the right path that it should follow to not fail. A business cannot depend on the knowledge that only the owner knows. The owner needs to go out and seek the advice of others. Even biblically it is recommended to seek council from others. In the bible, Proverbs 15:22, states “Where there is no counsel, purposes are frustrated, but with many they are accomplished.” In other words, even in the Christian based bible it recommends people to seek counsel. If you don’t seek help and try to network, you will get frustrated. Thus, in my opinion, the bible is the ultimate manual on life. Many people all over world read the bible and take its advice. Therefore, social networking and getting advice is a key to running a successful business.

In today’s society for someone to be able to be able to open a business and be able to grow it and become successful will need an individualistic mindset or will need employees that have individualistic thought. At the same time hold the drive to be different from everyone else in society and not work a regular hourly job that pays from 9 to 5. In addition, the owner will have to seek much counsel, learn, and get the resources that he or she might need in order to continue the business and learn how to make it grow. Thus, in the system of being an entrepreneur or business owner, there will be a need of both asking for help and wanting to be different.