Is there a difference between building a service-based business and a product- based business? Can you explain? There is absolutely a difference. Generally, a product-based business is capital intensive, and you have a good chance of losing a lot of money. Service businesses are easier and cheaper to get into. I recommend that most people start there because they can learn how to operate a business, take care of finances, and turn a profit all without too much risk. Every business owner makes mistakes, but the less expensive the error, the better.
Can you share a few ways to determine a good selling price for your business?
Find a business that will last. Third, look for a business that has upside and the possibility of being around for a number of years. Don’t pioneer a new concept you’re not sure will work. Chances are you are being delusional. Too many times, I jumped into a new concept for a business without researching it, only to fail miserably. Instead, find a successful concept that has been around a long time. Then, see if it would be profitable in the market area where you want to implement the concept. Make sure the business is scalable. Can your business open more units, cover a larger geographic area, add more product lines, or otherwise expand? To scale the business, you have to be able to add more locations — not all of which will be profitable — and that’s a very capital-intensive process. However, if your service or product can be sold over the internet, then the world is your customer base, and you can scale with minimal upfront investment. Always keep tidy books and records. The kiss of death is not having good books and records. When it comes time to sell and exit the business, remember that the buyer is purchasing a cash-flow stream. If you can’t show where the money came from and where it is going, you might still sell the business, but it won’t be for top dollar.
Every business in every industry has a different valuation model, some based on gross sales, some on assets, and some on net sales or other factors. However, all businesses are valued on cash flow. The goal is to get a positive cash flow with an upward trend every year. It doesn’t have to be a huge increase, but if a business shows an increase in net profit every year and is in an industry that is growing, it will attract buyers. The best way to determine what a business is worth is to first produce three years of profit and loss statements and make sure they are free of personal expenses. Then, find out what similar businesses are going for, maybe through a business valuation service. Do not ask your accountant, because they don’t work in your industry and cannot give you a good answer. You are only going to sell your business once, so you’ll want someone who helps people sell businesses every day to guide you through the process. You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? I would like to help more people get educated about how business works in its most simple form. It is the reason I write books. I especially believe learning how to operate a business is one of the most satisfying things you can do in life to take care of yourself and your family. And I want people to learn from my mistakes, since I’ve definitely made a lot of them, in hopes they don’t make the same mistakes and suffer the same grief I did many nights. Being successful in business generally comes down to believing in yourself and practicing the slogan: “If it is to be, it is up to me.” –Terry Monroe
How do you find a buyer for your business?
Finding any buyer isn’t hard, but finding the right buyer, who has the money and will pay top dollar for what you have created, is very challenging. Depending on the size of the business, you may want the help of a business broker or investment banker. I am a big proponent of using an intermediary, not just because I am one, but because I know from personal experience that finding good buyers yourself is hard. Generally, business owners are very good at what they do and not experts at selling businesses, and that’s fine. That’s why you hire professionals. It’s the same reason sports stars and celebrities hire managers, and that is to get them the most money. How do you decide if it’s better to build a business to exit, stick around for the long term and let the company bring in residual income, or go public? Having done all three, I will give you my opinion. I would build the business like I was going to keep it forever — provided the industry kept growing and the business was generating a profit, and I didn’t get tired of it. Finding a business that will pay you a residual income generally involves your depending on someone else to be the boss, which can be a problem if you like a lot of control. Going public is only good if you want liquidity. Unless you like dealing with a lot of regulations and accountants, I wouldn’t suggest it.
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