Is Your Business an asset or a job?

[baileyuph]

This question is to gather information on how to make it an asset.  Someday, we all will have to quit, it would be much smarter to build an asset along with making a living.

Perhaps there are things we small business people can do to build and maintain an asset.  Ideas and success in this department?  

There are many considerations in my mind:  
    Can it be done without brick and mortar associated?  Meaning a formal location that is owned or rented/leased.  A good reputation associated, a record of success, and a favorable market are all ingredients that can enrich the idea of having something to sell.

Just selling or practically giving away equipment and inventory is not much reward for many years of dedicated craftmanship.

If building a business asset is out of the question, then that encourages a smart owner to build something going forward while in business, meaning investing.  That would make great sense either way, building a business asset or not.  

If you are an owner spill your experience, tell how the business is or becoming an asset and also how you are preparing for retirement through additional efforts, namely investing.

Of course if you are employed in the business and see that as a better asset, please voice that and make your points.

We all reach the end of the day sometime, could be a worth while discussion.

Doyle

[sofadoc]

I have a brick and mortar store, so I guess that my business is an asset..........but not a significant one.

I'm sure that the next owner of my building won't be an upholsterer. When it's time for me to hang up my stapler, I'll sell the building for what I can. And I'll probably sell the contents for a mere fraction of it's original value.

I think that for one-man shops to realize any asset benefits, they do so by keeping their overhead cost low, and investing their money elsewhere.

For my family, the upholstery business paid the bills during the child-rearing years, while my wife's income all went straight to insurance and savings. Now that the kids are grown, and all the mortgages are gone, my upholstery income is able to go toward a comfortable retirement nest egg.

But I don't think that MY "brand name" will ever be a sellable asset.

[byhammerandhand]

I've done some thinking on an exit strategy.   I talked to a couple of SCORE advisors a couple of years ago when I was considering whether or not to renew a franchise license.   Both of them met with me and said the business was not salable.  I used to listen to a guy on the radio years ago who said the same sorts of things when callers asked about buying or selling a business.   As a one-man shop, basically owning a job, the business had no value.   If I had four or more crews on the road on in the shop all day, then that would be a different matter.  But as it is, the value is me and my skills and talents, and when that walks out the door, there's not much left.  On the bright side, I did not open that Dairy Queen, because the person that took that franchise and opening in the neighborhood that was being pushed my way has long been out of business.


Right now, I'm mulling over when and how to hang up the tool box so when the day comes, it will be in the plan and not just happen.

[baileyuph]

I have an acquaintance, who operated a family business (heating and cooling) who recently retired.  He exited his business by renting the property to a younger guy and sold him his equipment.  He stayed on as a consultant for some short period of time.

From conversation, can' say it worked smoothly, the guy got behind on the rent, seller in order to get some of his rent due, ageed to take back ownership of the equipment and they started on a clean slate.  The new owner still operates out of the seller's shop, don't know if he able to keep up with the rent.

So, it hasn't been a situation where it could be said, an asset was sold.  Actually, at best, but isn't what happened, he got money for his equipment and got a renter for the shop property.

I struggled with this for a while, but told myself it would be hard to develop an asset, too small of an operation to attract big money.  The property is mine to sell. 

So, my strategy has been to make the money in the business but invest it in other business.  That is easy to see was the best decision.  About the only thing I can count as a business asset is the property which could be sold or rented. 

Business isn't or hasn't been all bad, it has thrown off investment money that is working.

Doyle

[Mojo]

During my consulting years I was called in on several business sales. Everyone was different depending on the industry the business was in. I can remember signing confidentiality agreements in order to examine books, records, product design, etc. Some sales were extremely complicated.

Assets in a business comes in many different forms. 1.) Real estate property assets 2.) Equipment assets including machines, vehicles, tools, etc. 3.) Believe it or not customer data files can be a big asset. Companies who maintain e-mail lists, phone records, survey results, product sales records, etc. These can all add up, especially when a competitor is buying the business. 4.) Then of course you have the name, which if it is a reputable name that is well known and has had alot of investment injected into it through advertising is also an asset. 5.) Staff. If the business has staff that is well educated and technically proficient people who agree to stay on board this can also be a sweetner to the overall business price. 6.) And last but not least are net revenues. There used to be a formula for valuing a business based on net revenues and if memory serves me correctly it was 4 x the net. But this may have changed by now. All the above mentioned items were then added to the net revenue figure.

In regards to our business there is very little assets available making the business hard to sell. Machines and equipment on the used market are worth much less then new. ( Remember I bought my Juki 563 complete and ready to sew for $ 400 ). Selling an upholstery business is a tough one because of the length of time an individual has to invest in becoming competent in this trade. It is not like buying a pizza/sub shop where you can get up to speed in a matter of a week or two. Some areas of this trade can require years to become proficient and good. A sub shop owner could be fully trained in a month or two. Try teaching a newbie the auto upholstery trade in that same amount of time.

Therefore this leaves the majority of you with one major asset........Real Estate. A long time friend of our families had a very prosperous retirement selling a business. It was a night club and he always sold it on a land contract. He sold that business ( real Estate ) on average 6 to 7 times a decade for close to 30 years. People with dreams and alot of money would come in and buy the business with a huge down payment, remodel the building and then open their doors. They would then go bankrupt and be out of business within a year or two. This cycle repeated itself over and over and over again for the 30 years he was alive. Each new owner improved the building but they could never make a go of it because of its location. But it never stopped people from lining up with their dreams in hand and buying it. For Ralph, it was a good retirement income. $ 100 K every year or two kept him comfortable. I currently have a close friend doing the same thing with a race track. he is on his third sale in the last 5 years. :)

Myself I am screwed. I have no real estate to sell so I am working on a game plan to make my business itself an asset and I believe I can. It will revolve around business contacts, the name, marketing programs, customer lists, records, seminars, industry contacts and of course my reputation across the lower 48 States. My sales target will be a large national competitor. I am just now getting started on this strategy and it will take 2 to 3 more years to get this business able to sell as an asset. But I have put a great deal of time and effort into this business and because of the simplicity of my products and the great margins/revenues I feel it is worth something. All the other add on's will be kickers for the buyer. :)

My best advice for all of you is to start investing money into a 401 K as part of your retirement. Unless you own your own real estate outright your going to have little asset value. You will cry when you see the prices you will bring on your machines and equipment. Just ask Dennis who has bought out many a competitor and pennies on the dollar.

This is a tough business with little future retirement rewards which is why I have such a deep respect for all of you.

Chris

[SteveA]

If you have Children that are interested in the business your asset continues through the next generation.  It's tough when your two hands are the whole business.  Gratefully I have done what I've liked to do for my entire working time and wouldn't trade that for a business I'd be able to sell. 
SA

[sofadoc]

Gratefully I have done what I've liked to do for my entire working time and wouldn't trade that for a business I'd be able to sell.

Well said. I really don't even have any aspirations of creating an asset with my business. You can't put a price on a satisfying career. As mentioned, there are other ways to insure financial security.

.......... Just ask Dennis who has bought out many a competitor and pennies on the dollar.

And some day, someone will buy MY stuff the same way.

In fact, my daughters have joked that when that day comes, they're going to log on here at this forum, and simply announce:

"Sofadoc is dead......come get this crap!!" ;D

[Rich]

All this just reinforces what I've know for a long time, my business dies with me. In fact, I'll probably be doing it until I die b/c I'll need the income and I need to have a day to day schedule to keep my sanity anyway. I'll just wind it down as I need to. No regrets.
Rich