Article: Crafty Ways Restaurants Cut Costs

The Wall Street Journal - www.wsj.com
SMALL BUSINESS
OCTOBER 9, 2009

Crafty Ways Restaurants Cut Costs
By NEIL PARMAR

When it comes to dining out, Kevin Moll is the kind of frugal patron restaurant owners would love to see more of. The father of two from Denver always passes on the cream and sugar. He never pours a blob of ketchup next to his fries. Even better, after enjoying a plate of barbecued ribs, he usually prefers to wipe his saucy fingers with a cloth napkin, since the cleanup job would require at least three of the paper variety. And don't even get him started on carbonated beverages. This is a guy who prefers cola a little watered down.

With hard times still taking a bite out of restaurant profits, more Kevin Molls are turning up at their tables — not as patrons but as professional nitpickers. The 50-year-old CEO of National Restaurant Consultants is one of a burgeoning wave of efficiency experts who focus on restaurants, checking for unused half-and-half and testing the syrup level in fountain drinks. While no one tracks the number of these professionals in the restaurant field, the Labor Department says there are now some 678,000 efficiency gurus working to cut waste and maximize profits across a wide range of industries, double that from a decade ago. Moll and his food-service brethren do it by carefully pricing out a kitchen's every move — like making ranch dressing every three days instead of daily, which can shave prep time by 15 to 18 minutes. They help fine-tune recipes to economize on ingredients. (Taking olive oil out of the marinara sauce saved one chain $17,000 a year.) And they "engineer" menus to spotlight the highest-margin offerings. Forget soda; iced tea costs a restaurant as little as a nickel a glass.

The $566 billion restaurant industry is anxious to save as many shekels as it can — preferably without diners noticing a difference. Even with the uptick in some sectors of the economy, the dining-out industry is lagging, as it tends to do in bad times. According to surveys from the National Restaurant Association, 59 percent of the country's restaurant owners, on average, have reported a drop in same-store sales every month for the past year. Industry veterans like Lloyd Gordon, who has been consulting for the past 46 years, say times have never been tougher. Restaurant sales typically dropped 20 percent during past recessions, he says, but they've plunged as much as 50 percent in some parts of the country today. "A lot of restaurants are bleeding," says Dean Small of Synergy Restaurant Consultants in Laguna Niguel, Calif. "In some cases, they're hemorrhaging."

And so they turn to Moll and his ilk, whose secret sauce of savings tactics can be traced back decades. The modern-day efficiency movement, largely thought to have originated in Japanese car factories after World War II, took off on these shores after American giants like Motorola and General Electric began famously boosting profits with similar practices in the 1980s and '90s. Other industries took note—and a growing cadre of consultants followed. If you've traveled in the past few months, you've probably noticed their handiwork: disappearing mini shampoo bottles in the hotel bathroom, fewer complimentary magazines in the airline seat back. Such ideas might seem like small potatoes to some, but Moll and his team of experts have come up with enough tips and tricks to fill a 175-page bible on how to run a profitable eatery. For his clients, the often-tiny cuts add up, generating savings or revenue-boosting ideas that goose margins, on average, by 15 percent. "Operating a restaurant," reads one passage of the guide, "is a game of pennies."

Moll learned, when running his own bar and grill two decades ago, that managing an eatery is like navigating "a boat full of holes." And the trim, java-fueled consultant — running on four to five cups daily — is nothing if not a time-is-money, tight-ship kind of guy. He records any passing work inspiration ("note to self") on his cell phone, even while walking his dog. In his clutter-free office, the only papers visible are arranged in a compact stack, perfectly parallel to the edge of the desk. And while driving his pristine white Cadillac between tightly scheduled appointments, he admits that he's called the city's 311 hotline more than once to report street garbage that needs removal. Clearly, no detail is too small.

It's an attitude that comes in handy in his work, like when Moll and his firm recently helped launch Organixx, a casual, quick-service eatery in downtown Denver. To project an eco-friendly vibe, it features not only the requisite recycled napkins but also bamboo tabletops, a hardwood floor made from recycled furniture scraps, and compostable straws and utensils. (Deliveries are often made via skateboard.) Diners have more than two dozen menu items to choose from, but many end up ordering the Asian stir-fry salad, a mix of veggies, crunchy noodles and tofu, chicken or beef, drizzled with toasted-sesame vinaigrette. The most popular salad on the menu, it's also one of the most profitable. "It doesn't happen like that by accident," says Moll.

Remember the old home-buying adage "location, location, location"? Relying on studies that track "eye flow" across menu pages in elaborate arrow-filled diagrams, Moll counsels his clients to spotlight higher-margin items in prime menu real estate. The Asian stir-fry, with ingredients that cost as little as 24 percent of the menu price, holds pride of place at the top right corner, while the grilled salmon burger (cost of ingredients, $2.78; price, $9) is intentionally buried at left center, the menu equivalent of Siberia. "The menu drives everything," says Moll—from an eatery's decor to the length of time it takes to execute a single dish. In fact, some potential recipes at Organixx have been vetoed just because they couldn't be put together by a cook standing in a single spot, with all the ingredients within arm's reach.

Indeed, the biggest cost cutting usually happens behind the swinging doors. To help keep food costs within a healthy 24 to 35 percent of overall expenses, Moll brought in an on-site drill sergeant. Mary Putman, who paces the kitchen prep area, pokes at plates to make sure bread crusts are intact and salad mounds don't lean too far to one side. When red peppers triple in price, she buys more zucchini to sub into the stir-fry and salads. If a line cook takes more than six minutes to prepare an order, she points sternly at her watch. Most important, she makes sure they're measuring every ounce of food instead of just eyeballing ingredients. Constantly nagging them to "quit heaping the scoop," Putman says a big part of her job "is pulling food off the line."

Which may leave some diners, well, a little hungrier than others. While all of Organixx's sandwiches cost $9, some are a little less generously proportioned. Eyeing the egg salad? You'll get an eight-ounce scoop. But order the rock shrimp salad and your filling weighs only five. (The reason? Moll's firm suggests that each dish cost between 22 to 30 percent of what it ends up selling for—and eggs are cheaper than shrimp.) Erwin Chang, the owner of Organixx, acknowledges "it's a very delicate decision" to change the portions, but it's not hard to see his point of view as he describes the challenges of running a restaurant in this economic climate — especially when all those organic ingredients and other green touches come at a premium.

And hey, at least he's not holding back on the water. That's a strategy Moll recommended to another of his clients, Mici Handcrafted Italian, a cheerful, contemporary joint half a mile down the road from Organixx. Eager to expand to a second location, this family-owned pasta and pizza eatery hired National Restaurant Consultants to help shave operating costs. But Mici's owners were loath to change or cut back on menu items like its famed hand-rolled meatballs, so Moll had to turn to the eatery's beverage lineup to find savings.

In addition to tweaking Mici's wine list, Moll came up with a 10-point game plan for fountain drinks. Selling some 13,000 units a year, sodas still weren't delivering any profit, according to co-owner Michael Miceli — even though they typically cost the restaurant only a dime a glass. Some of the most effective moves Moll recommended include cutting out the middleman syrup supplier and offering only one size drink instead of three. Goodbye, costly cups.

But one tip comes with a spritz of controversy: Don't automatically serve patrons water, so they're more likely to order soda, beer or wine. Helen Rosner, who blogs about the restaurant industry at MenuPages.com, calls the practice "one of the craftiest I've heard of"—and says she's seeing more eateries do it. Victor Gielisse of Culinary Institute of America, on the other hand, calls it "the socially responsible thing to do given our environment today." For his part, Miceli simply says, "We ask them what they want to drink. If they want water, we give water." It certainly hasn't hurt the bottom line; implementing this and other tips from Moll's 32-page "operations analysis" has goosed revenue by 50 percent a week. In the world of kitchen cost cutting, that's more than a few pennies.

SBA Studies Say Franchises More Likely to Fail than Small Businesses

SBA Studies Say Franchises More Likely to Fail than Small Businesses

Posted Fri, 2009/08/28 - 00:06 by Mr. Blue MauMau

WASHINGTON - Separate studies by Professor Timothy Bates and now two studies by the Small Business Administration report that franchises fail more than independent small businesses.

Over the years, studies have emerged with opposing views when comparing “success rates” of franchising to independent business ownership. Franchise experts are familiar with the reports from the U.S. Commerce Department and those authored by Bates (1996). There are numerous private studies as well delving into franchise ‘success’ and franchise regulation, such as those cited and discussed in “Beguiling Heresy: Regulating the Franchise Relationship," co-written by Paul Steinberg and Gerald Lescatre.

However, two lesser known studies undertaken by the Small Business Administration have received little to no attention. In September of 2002, the U.S. Small Business Administration’s Office of Inspector General’s Inspection and Evaluation Division published a report comparing the failure rate of the SBA’s non-franchise loans to the SBA’s franchise loans. Titled “SBA’s Experience With Defaulted Franchise Loans," the SBA queried:

“If franchise-based businesses are indeed “safer”, then Section 7(a) and Section 504 loans to franchisees – hereafter called franchise loans – should perform better than non-franchise loans in terms of SBA having to purchase defaulted guaranteed loans. In other words, franchise loans should have significantly lower purchase rates than those of non-franchise loans.” (pg 1)

The SBA’s findings?

“Despite the popular view that franchisees are much more successful than non-franchisees, SBA’s experience with defaulted loans does not support this.”(pg. iii)

The SBA also found:

“There is also potentially more exposure per loan on franchise loans. In FY 2000, the average (mean) franchise loan origination was 40% larger than that of the average non-franchise loan. In FY 1991, the comparable figure was only 1%.” (pg iii)

Equally interesting was the following point:

“Moreover, a previously mentioned SBA-funded study [Shane’s 1997 study] found that a franchisor must reach a minimum efficient scale to lower its (as opposed to a franchisee’s) costs. Given this necessity plus the need to collect franchisee-paid fees, franchisors have an incentive to encourage as many prospective entrepreneurs as possible to become franchisees and find financing. Moreover, there is always a risk of some franchisors’ overly optimistic financial projections enabling under qualified prospective franchisees to obtain – and default on – SBA guaranteed loans.” (pg. 1&2)

Prior to publishing, the OIG’s Office of Inspection and Evaluation forwarded this report to the SBA’s Office of Financial Assistance (OFA) for review. In James Rivera’s, the Associate Administrator for the OFA, response to this request for review he stated “A member of my staff conducted a similar study and analysis of the SBA loan data base for the same period under inspection and came to the same conclusion supported by your finding related to the relative success of franchise verses non-franchise loans.” While a copy of this specific OFA’s report is not currently available, the aforementioned letter appears as Appendix C to the attached report.

Although not looking into franchisee success rates as the other studies did, Prof. Scott Shane and Foo conducted research (1997) that shone a light on the high mortality of franchisors, revealing that 1,292 franchise brands studied between 1979 and 1996, only 15% of the franchisors lived to be 17 years old, a rate comparable to independent start-up failures.

Editor’s note: This article was written by Blue MauMau member Oldsword, a former franchise owner-operator. This article has been edited and the facts verified by this journal’s editor.

Selling When Business Valuations Are Low

Selling When Business Valuations Are Low

By DIANA RANSOM

Investors weren't the only losers when the stock market crashed last September. Business owners also watched their company valuations plummet.

Timothy Butler, the president and chief executive of Tego, an RFID chip maker in Waltham, Mass., saw his firm's value fall quickly with the market's downturn. Moreover, the recession spooked venture investors. Before the crash, Butler had expected to land investment funds in the range of $1.5 million to $2 million. Instead, he says his firm wound up with just a third of that amount in its coffers.

"It was a very difficult time," Butler says. "We reduced salaries temporarily. We had to cut certain projects and renegotiate the timing and paying of creditors. And we had to rewrite our business plan to recognize current realities."

Many firms turned to equity financing during the downturn to make up for their cash shortage. That solution can help keep a business afloat, but each time this type of funding is raised, a company must be appraised, says Jeffery Sohl, the director of the University of New Hampshire's Center for Venture Research. If owners revaluate their companies when values are lower, they may have to hand over more ownership in the company because the same amount of money buys more when values sink, he says.

In an effort to shore up his firm's valuation, Butler decided to forgo traditional equity financing. Instead, he issued convertible debt, which is seen as less risky than regular equity investments. The strategy has paid off. Since February, Butler has managed to raise $1 million in debt financing.

Butler was able to avoid a lower valuation, but many other business owners — especially those who are older and angling for retirement — haven't been so lucky. In the second quarter, the median sale price for completed business sales dropped 20% to $160,000, from $200,000 the year before, according to BizBuySell.com, a web site that tracks business sales. "There's no question that it's a challenging environment," says Anthony J. Citrolo, a principal at New York Business Brokerage, a business brokerage firm in Melville, N.Y. "If the last three or four quarters haven't been great, some owners [looking to sell now] will have to accept about 12% to 15% less than what they would have gotten a year ago," he says.

Still, low valuations aren't impossible to overcome, says Citrolo. In fact, they might even benefit some business owners, he says. Here are three ways to sell your business when values are low:

Keep it in the family
For business owners who want to keep their companies in the family, now may be an ideal time to hand over the reins, says Matt Painter, a tax partner at LBMC, an accounting firm in Brentwood, Tenn. The total amount any one person is allowed to give away as a gift, tax free, over his or her lifetime is $1 million. So at this point, business owners can effectively give away a larger percentage of their businesses because valuations are lower, Painter says.

Let's say a business that was worth $2 million a year ago was broken down into 10,000 shares worth $200 each. Let's also say that business lost 20% of its value after the downturn, sinking the firm's shares to $160 each. So instead of being restricted to giving away 5,000 shares (to stay within the $1 million exclusion), the owner can now give away a larger percentage of her business (6,250 shares) to her children. The move could also mean a windfall in the recovery. "Depressed values are [likely] going to bounce back," Painter says.

Transition to employees
At a time when buyers are scarce, another option for owners is to sell the firm to its employees. Of course, buying a business on the spot is likely a stretch for cash-strapped workers. In addition, taxes, which are payable by employees, kick in on stock transfers to employees, says Matt Vandenack, an attorney who counsels small-business customers for the Principal Financial Group in Des Moines, Iowa. Still, as valuations are lower, so are taxes, he says. As a result, employees may be more willing to purchase the company via stock transfers today, Vandenack says. "It's an opportunity to get into the business for cheap," he says. "If you sell them a portion of the business today, that percentage of the business will presumably increase. And even if the company's value goes up before [employees] finish buying it, they've at least gotten a discount on a portion of the business."

Sell with earning potential
Getting anyone to pay for a business in full is a tough proposition these days. And although seller financing — transactions in which sellers agree to hand over the business in return for installment payments — has picked up steam, it doesn't encourage business owners with low-valued businesses to sell. Instead, many owners are increasingly turning to transactions known as "earn outs" in which business owners agree to sell their lower valued firms today in exchange for a cut of the company's future profits, Citrolo says. Here's how it works: Sellers and buyers agree on future earnings targets. If buyers meet these targets, sellers receive some agreed upon percentage over and above the target value, Citrolo says. However, if the buyer doesn't meet his target, the seller still receives payment. "In effect, the buyer is hedging his bet," he says.

Entrepreneur's Journal: Building a business that Buffett would buy

Entrepreneur's Journal: Building a business that Buffett would buy
Posted Jun 14th 2009 12:00PM by Tom Taulli

While in an airport bookstore recently, this title caught me eye: How to Build a Business Warren Buffett Would Buy: The R.C. Willey Story.

How could I resist? I bought a copy and read the whole thing on my flight (OK, the book is only 192 pages).

The author of the book, Jeff Benedict, tracks the entrepreneurial career of Bill Child, who transformed a furniture business -- R.C. Willey -- into a retailing giant (he came on board the company in the mid 1950s when his father-in-law died).

It's certainly an inspirational story. I also think it's instructive in today's times when entrepreneurs need lots of inspiration. Keep in mind that when Child took over R.C. Willey, the company was in shambles. The debt was suffocating, customers weren't paying their bills, and it looked like the only alternative was liquidation.

Well, failure wasn't an option for Child. Rather, he focused on key business fundamentals that would eventually catch the attention of Warren Buffett, who bought the company in 1995 for a cool $175 million.

So, what are some of the lessons? As should be expected, they are old-school approaches (hey, that's made Buffett a billionaire, right?).

Let's take a look:

Debt can be a bad thing: Child spent years finding ways to pay down debt. It meant lowering costs, improving customer service, and thinking hard about making new investments.

Thus, by having a conservative balance sheet, Child was able to deal with recessions and competitive threats. He was also able to capitalize on new opportunities, such as building a large distribution center (which was key to R.C. Willey's growth).

Honesty: According to Child, "Nothing sinks a reputation faster than dishonesty. It takes years to build a reputation, but it can be destroyed in one day over one misdeed."

Especially in today's world -- with the pervasiveness of the Internet -- a bad policy can be deadly. However, by being honest, there will be trust with customers, suppliers, and partners. Such relationships are critical for any sustainable business.

Details: Retail is an incredibly tough business. As Buffett once said, "In retail, you need to be good every day." Actually, I think this applies to any business.

Now, this does not mean you need to hit a home run every day. Instead, it's about having little victories. Over time, they can really add up.

As for Child, he did hire capable people. But he was intensely engaged in the day-to-day activities. There was little he did not know about the business, even as it became a billion-dollar operation.

Value proposition: What do you offer customers that your competition does not? It's a tough question, but it's something you need to think about. If there is no good answer, then you need to make some big changes.

Says Child: "Offer customers true value on quality products. A low price on a cheap piece of furniture is not value."

Tom Taulli is the author of various books, including The Complete M&A Handbook, and the founder of BizEquity, a free online business valuation tool for small businesses. You can reach him at his personal blog.

In Recession Specials, Small Firms Revise Pricing

In Recession Specials, Small Firms Revise Pricing

Discounts and Lower-End Offerings Help Lure Cash-Strapped Customers; Vans Complement Limo Service's Town Cars

By DANA MATTIOLI

Some small businesses are overhauling their pricing strategies amid the recession and finding new growth through lower-end offerings and discounts.

Towerstream Corp., a company that delivers high-speed Internet access to businesses, last year began finding it harder to gain and keep clients for an eight-megabit-per-second offering that then cost $999 a month.

In January, the company introduced a midrange product offering five-megabits-per-second for $500 a month, a price Chief Executive Jeff Thompson says he thought would be more palatable to cash-strapped customers. Although the average ticket item's price decreased as a result, the company had a record quarter for installations and revenue increased 64% in the first quarter from a year earlier. Towerstream, based in Middletown, R.I., this week lowered the price of its $999 plan to $899.

Lone Star Limousine, a transportation company based in Palo Alto, Calif., introduced lower-priced options in response to the economy. As companies cut back on spending, Lone Star noticed less-frequent limousine use. That, coupled with executives wary of the image they were sending by traveling in flashy limousines, prompted co-owner Jen Jaciw to take a different approach.

A year and a half ago the company added a van to its fleet of limousines, town cars and high-end sport-utility vehicles. The van, which was less ostentatious, cost less to rent and allowed the company to expand its client base. Ms. Jaciw says as the economy worsened, wedding parties and companies started choosing the van over limos. In March 2009 Lone Star bought another van to keep up with demand. "We established ourselves as a high-end luxury option, but it seemed like the right thing to do so we had a more economical option to offer," she says.

To supplement corporate accounts under pressure, Ms. Jaciw sought partnerships with different kinds of clients. She reached out to hotels, wineries, wedding venues and other businesses that might want to charter the vans. The efforts are paying off. Lone Star's gross is up $20,000 over the first quarter last year and the company hopes to gross $1 million by year end.

Other small businesses have found success by identifying rising costs customers were facing and trying to alleviate the burden. Facing flat sales as consumers delayed automotive repairs, Mike Cook, owner of Mr. Transmission of Marietta, Ga., considered offering incentives. Knowing that justifying a major repair in the wake of an economic downturn was becoming harder, Mr. Cook began offering food and gasoline vouchers to customers who had transmission overhauls, which account for 90% of his business.

In December he began working with a partner to offer $500 gasoline certificates with a transmission overhaul, which generally costs between $1,800 and $5,000. In January, he extended the program so the vouchers could be used for food as well. Customers get $25 a month on a Visa cash card for 20 months, which can go toward purchases at retailers such as Costco, BP and Shell.

"I think it makes it easier for them to go ahead and make that repair because they'll get some help with other expenses," Mr. Cook says. Although he declines to disclose how much the vouchers cost him, he says the fee is nominal. Mr. Transmission has recorded a 60% increase in sales so far this year compared with the year-earlier period, and Mr. Cook says the voucher program is partly the reason.

CouponCabin.com, a Chicago-based company that provides discount codes for online shopping, has seen its Web traffic rise amid the recession, with a 300% increase in visitors to the site during the fourth quarter from a year earlier.

For the six years since CouponCabin launched it had been focused primarily on soft goods such as clothing and home goods. But in November 2008, President Scott Kluth started to notice a surge of interest in grocery coupons, after years of declining consumer activity around them in the market. On April 15, the company launched a grocery-coupon section where visitors could print coupons to use at their local supermarkets. CouponCabin nets a few cents per print from each item's manufacturer.

"As long as people have to eat, adding groceries to the site was another way for visitors to save money," Mr. Kluth says. The section has become a hit with visitors and even attracted a new demographic of older users. When the section was introduced it had 14,000 coupons printed in two weeks, with more than 100,000 prints in May. Recently, a technology glitch caused grocery coupons to be temporarily unavailable, and Mr. Kluth says the angry comments from visitors made it clear that they value the addition. He plans to expand the section.

Write to Dana Mattioli at dana.mattioli@wsj.com

Printed in The Wall Street Journal, page B5

Meridian Valuation Services

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Sunbelt IBR In the News...

Fearful business buyers
April 22, 2009
Posted by Norm


You might think people would be hankering to buy businesses, what with the frail economy tripping trap doors beneath more and more jobs.

Not so, says the managing partner of the state’s largest business brokerage.

Ed Mysogland says the Web site for Sunbelt Indiana Business Resource is getting more hits. But the actual number of serious inquiries is at similar levels to the same period last year and even the year before, when the economy was still roaring.

Why? Mysogland is left to speculate. But his informed opinion is that fear of risk is still a formidable barrier to entry. Younger people shouldering responsibility for children and carrying mortgages and student loans are particularly skeptical about taking on additional risk.

“Most people will think twice about small-business ownership,” he says. “Getting a paycheck every week doesn’t sound so bad.”

It’s not as if good deals aren’t available. Businesses are selling for less largely because their revenues and profits are down. Restaurants are still going for 25 percent to 50 percent of revenue, but the total sale prices have slipped because most restaurants are generating less revenue.

What about you? Are you considering buying a business or starting one? What do you think about conditions?

To view the original article online click HERE

Before You Buy That Small Business

Before You Buy That Small Business
Buying an existing business is often safer than starting one on your own. But watch out for these red flags.
By Cliff Ennico June 18, 2008

There's no doubt that buying an existing small business is less risky than starting one from scratch. Why? Because, unlike a startup:

•the business has equipment and inventory;
•the business already has a location, and maybe there's a few more years left on the lease;
•the business has employees, some of whom you may actually want to keep;
•the business has customers, most of whom probably will stick with you (unless this is a professional service business or practice); and
•most importantly, the business has a track record--you can look at the business' books, records and tax returns and get some sense of how much money you will make.
But there's still risk. Whenever you buy an existing business and look at its records, you're looking at the past. There's no guarantee things won't change going forward. If you're negotiating to buy a business and you think the seller is giving you a great deal, be very suspicious--there's probably something heading down the road at 90 miles an hour that will blow this business apart when it hits.

To view the entire article click HERE

It's Location Location Location

Today I had a first in my career. I met with a potential Seller whose total gross monthly income would not cover the monthly rent charge of business. A 100% rent factor!!!!! The only logical thing for this seller to do was close the business. It was easy with hindsight to see what this potential Seller had done wrong:

---leased twice as much space as was actually needed.

---failed to analysize how beneficial this location really was for the type of business being opened and operated.

---failed to recognize the true size of the market for the services and product being offered and who the potential customers were and where were they in geographical proximity to the store.

---failed to negotiate the lease in manner that the owner's personal lease liability was limited to the first year or two of the lease or to negotiate a short primary term with a series options to extend the lease if the business is a success. Remember lease liability survives the closure of the business if closure occurs during the term of the lease.

Failing to pay a great deal of attention to lease terms and consequences is often one the major mistakes made by a new business owner.

Don't be the first tenant in a new strip center!!!!!!!!! If there are lots of vacancies in the strip center find out the reason and don't be afraid to look for another location.

Bank "bailout" funds a Trojan Horse?

This is a very interesting article especially worth noting that the bank regulators haven't yet set up a system to allow the banks to repay the funds.

Click HERE for article.

Small Acts Have Big Consequences

Owner's Cash Flow: The Keystone of an Analysis of A Business

If you get five "experts" on business valuation in a room and give them a business to "value" you will probably get 5 wildly varying opinions as to the worth of the business. Business valuation is an art not a science. The bottom line is that a business is only worth what it will bring on the market. The tricky part is determining where the "market" is at in regard to that particular business. There are indeed "flavors of the month" as the popularity of certain types of businesses ebbs and flows. Among the many factors to look at the keystone of an analysis of a business is "owners cash flow" which can be simply described as what the owner of the business is taking out of the business directly or indirectly or the total sum of all the economic benefits which are derived from the ownership of the business. Sometimes it takes a little detective work to find out what this true number may be as often tax returns are adjusted for tax minimization. Typically cash flow is determined by adding together Owner's direct compensation + owner's benefits (direct and indirect), depreciation, amortization, interest, non-recurring expenses, plus net income. The sums of these numbers will give you a good starting point in determining the economic benefit being derived from owning that particular business.

Employee Theft - Trusted Employee is an Oxymoron

Being in daily contact with a wide variety of business owners, I am hearing increasing stories of "trusted" employees ripping off their business owners. Some of the schemes have been going on for years and involve significant sums of money. The downtown in the economy has resulted in more and more owners taking a close look at their expenses and business practices. The deeper they look for ways to cut costs and examine their expenses, employee theft has often been exposed. During goods times many owners turned a blind eye to employee theft with the attitude that it was bound to happen but it just needed to stay within "acceptable limits". With declining sales and increased expenses many owners are forced to adopt a "zero tolerance" policy in order to keep their business afloat during these troubled economic times. I have heard of many instances where discovered losses have exceeded six figures--if a business owner hasn't done their own loss prevention analysis--now is the time! Hint: "trusted employee" is indeed an oxymoron.

Important Questions When Buying A Business

Looking to buy a business? If you are going to invest your time, money and effort, the most important consideration is: DO YOU LIKE THE BUSINESS? DOES IT HOLD YOUR INTEREST? DO YOU LIKE INTERACTING WITH THE CUSTOMERS? IS IT AN ENVIRONMENT WHICH YOU WOULD ENJOY SPENDING A GREAT PART OF EACH DAY? CAN YOU RELATE TO THE EMPLOYEES? DO YOU HAVE A VISION FOR GROWTH OF THE BUSINESS OR ITS RELATED INDUSTRY? In my opinion these questions trump all financial considerations as a "no" to any ONE should mean take a pass on that business.