USAIGC Club Owners Business Briefs

Written by Paul Spadaro unless otherwise noted.
These news briefs are a Sharing of information, thoughts, ideas and suggestions concerning the world of business and finance. Consider this our Sunday morning get together in a small SoHo Cafe enjoying an Espresso and a "fruita de bosco" discussing business with friends. I am not a degreed financial or legal professional. I was a Gymnastic Club Owner and operate and still own businesses that have the highest business mortality rate in the most challenging of cities. I learned more from a business that failed then those that are extremely successful. The Gymnastic Club I owned was the most difficult business to run because it was close to my heart and the person who taught me much was my accountant.

Small Business Administration-
Eastablished in 1953. The SBA provides financial, technical, and management assistance to people who want to start, grow and run a business.
MarketingProfs - 
One of the best marketing sites on the Internet. It is an aggreagator of everyone else's marketing stuff, it generates new content from its network of marketing professors and professionals. Find: marketing articles, blogs, case studies, events and online seminars. Most of the info is accessible with no fee. Premium Membership $49.00 per year.
WSJ Enterpreneur - 
Provides comprehensive set of online resources for businsses. Great articles and business-plan tools.
Center for Business Planning - 
Provides free business planning guidelines, which include articles and templates on things such as: cash-flow statement, mission statement and financial ratios. You can find checklists, segmenting your market, pricing and strategic marketing. 
Kaufman Foundation  eVenturing - 
Devoted to growing a business. Finance & Accounting, HR, Sales & Marketing, Products, Ervices, Operations, and the enterpreneur. Sponsors a monthly newsletter. 
Mind Tools - 
100 essential life, career and management skills - free. It also offers self-development courses and e-classes taught by experts (not free)
Service Corps of Retired Executives - Counselors to America's to America's Small Business
Answer Questions, give advice and share their wisdom and experience. Has a 24/7 counseling service and has offices nation-wide. 

USAIGC/IAIGC Business Brief 

Personal Finance: Retirement Using Your Business?

You must prepare for Retirement. Savings in some type of Retirement Fund is paramount. It's a concept business owners have a difficult time planning for. Many believe that they will sell their business and live off the proceeds. This as I stated in a previous Business Brief (below) can be a huge assumption. Many businesses simply cannot be sold and others end up being sold for far less than expected because of unrealistic expectations of business worth.

Business Owners take a lot of risk in their professional lives because much of their net worth is tied up in one asset (65-85%), their business. Therefore you as business owners must use your saved money to work for you. Invest conservatively and diversify, assets that are liquid, have low volatility and generate income and are generally an entrepreneur's best bet. Corporate bonds that can be sold quickly or are held to maturity and mutual funds that are invested in equities and pay dividends are "safe bets". Avoid bonds because when interest rates rise the bonds lose value.

Owners who own their building should hold the real estate in a separate company from the business for rent-related purposes and to limit liability. Owning your building gives you the added bonus of No landlord and the possibility of a dream tenant, YOU! Owning your building gives you options when you are are close to retirement:
(1) sell the business & building 
(2) sell the business and keep the building allowing you to collect rent/income from a new occupant.

If selling your business is part of your retirement plan, it is essential that you start tracking its value long before you plan to sell. Hire professionals to calculate the current value of your company, then determine how much money you will need to live the lifestyle you want. More importantly think about whether you will be able to increase the value of your business enough to match your retirement numbers. Pay attention to what the industry doing? What direction is it going in?

Do you know what your business is worth?
I have a saying, your business is only worth what the buyer is willing to pay and if you do not own the building you are behind the eight-ball because it is the landlord who controls the space your business is in and your future. Owning your building gives you options: (1) sell the building for market value, remember not everyone wants to open a Gymnastic Club, (2) sell the business and not the building and collect rent as the landlord, (3) sell the business and the building as a package. Your decision will be based on your own personal finances and your plans for the future. How do you determine what your business is worth? By getting a valuation of your Business by Professionals. There are three basic approaches:

  1. Asset Approach: typically used in distressed situations for sale of defunct businesses. Your company's value is calculated by adding up its tangible and intangible assets. This is not the position you want to be in.
  2. Income Method: is a buyer relying on the present value of the businesses expected cash flow. This method is normally used for high-growth sectors like technology not the gymnastic club business.
  3. Market Approach: the most common way to value a healthy business is an valuation based on a multiple of the company's past earnings, usually the last 12 months of (EBITDA) earnings before interest, taxes, depreciation and amortization. IF this amount equaled $1 million dollars and you choose a multiple of 5, you have a valuation of $5 million.
    Picking a Multiple: multiples can vary widely. Experts' tend to compare "comps", or the multiple of earnings at which comparable businesses have been selling to choose a multiple that is realistic for your business.

Your potential buyer will figure heavily in the size of the multiple. Is the buyer from the gymnastics world or someone from outside the gymnastic world? Is it a person who has vision and sees an upside in your location (not the business)?

Example: a commercial building in SoHo was worth $50-75 million, two floors 2500 square feet each equaling 5000 square feet of space with no air rights'. A sneaker Company bought the building for 151 million dollars! They wanted a presence in SoHo. So, I go back to my opening remarks: "your business is worth what the buyer is willing to pay" but you need to think about the future no matter what your age is.

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Paul Spadaro - USAIGC President
450 North End Avenue - Suite 20F
New York, NY 10282
fax: 212.227.9793

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