Kievgid

If you’re searching for a business to purchase, it’s essential to understand its value so you can reach a reasonable purchase price. Remember that the buy business asking price put forth by the seller is likely much higher than what the business is really worth. That’s why it’s crucial for you to perform a detailed business valuation to discover its actual value.

A business valuation is a regular aspect of any buy business endeavour. Keep in mind that buyers value a business differently than sellers. Sellers place an excessively high price on their business because of the history they’ve had with it, their personal feelings regarding it and the difficult work they’ve put in throughout the years. But when you determine the value of a business, those factors shouldn’t be calculated, or even considered in the purchase price.

To value a business, there are five ways to determine its worth. They are liquidation value, asset valuation, income multiple, income capitalization and rules of thumb. Before you buy a business, you need to determine which method will provide you with the best business valuation.

1. Liquidation Value. This is based on the value of the company’s assets if they were forced to sell in under 12 months.

2. Asset Valuation. This method factors in all assets of a business and calculates price appropriately. It is probably the least favored business valuation method for those considering buying a small business. That’s because even though a business might have great assets, it still might not make a sufficient profit.

3. Income Multiple. The net income and other factors determine the selling price. This is the preferred method to use to value a business.

4. Income Capitalization. Historical data and various hypotheses are used to calculate future income of the business. This buy business method is typically used for large business purchases.

5. Rules of Thumb. The selling price of similar businesses is factored in to cash flow or a percentage of revenue equation. Since this calculation is too general, it’s not the best way to value a business.

Of all these business valuation methods, the Income Multiple calculation is the most beneficial to buyers because it provides an accurate amount of how much profit they can expect from the business. In buy business terms, this is known as the Owner Benefit, also referred to as Seller’s Discretionary Earnings or Adjusted Earnings.

The Owner Benefit is based on previous financial records. It is the total sum the buyer can expect to meet salary, pay any debts and promote the business. But for a true calculated amount, it’s important to ask the seller what formula was used to arrive at the Owner Benefit figure.

The optimal formula to use is: the pre-tax profit + owner’s salary + additional owner’s benefits or other perks + interest + depreciation less an allocation for future capital expenditures where appropriate. Previous history has shown us that this particular formula is best in terms of actual value of business accuracy.

When you purchase a business based on the Owner Benefit figure, you’ll likely pay somewhere between one to three times the business valuation total. Usually, the one-time multiple figure is utilized when purchasing a consulting business or professional service which is operated by the seller. The three times the Owner Benefit amount is generally what businesses should receive that have been in operation for more than three years, have a large customer base, some proprietary items, a competitive advantage, and good growth potential.

The Owner Benefit is just part of the equation when you buy a business. When you attempt to value a business, actual multiples need to be carefully considered. These encompass simple buy business basics, such as how long it has been operating, lease terms if the location is crucial to the enterprise, its competition, the employees, systems, deal terms, the volume of its current customer base, loyalty of customers, previous stability of the business, and most importantly, how well the business will switch over to new ownership.

The multiple aspect covers all tangibles that go to the core of a business. When you buy a business, it is essential to know and evaluate what the business valuation means to you. There are resources that can assist you with these buy business methods. But if you plan to buy a business, it’s critical that you learn how to read and analyze financial statements.

Once you value a business, it will help with your decision on whether to buy it and at what price. When you implement buy business strategies, you will be more confident in negotiating a deal with terms of value that meet your needs. Understanding business valuation formulas also ensures that you will not be overpaying for the business you desire.

Richard Parker is the President and founder of the Diomo Corporation - The Business Buyer Resource Center. His inspiring materials, seminars and consulting have assisted thousands of business buyers with achieving their life long dream of buying a business.

In my extensive experience with helping people from all walks of life buy businesses, I have repeatedly noticed an interesting trait in people who are selling their liquor stores. They’re almost always suffering from severe burnout!

If you check out a variety of liquor stores that are up for sale, you’ll see exactly what I’m talking about. The places are usually poorly taken care of, and there are bottles on the shelves that could have easily been laying around for years. The lighting needs to be replaced, the walls need a couple coats of new paint, and boxes of ancient stock are piled up in storage areas. I have even come across injection-molded plastic signs on the walls for brands of beer that don’t even exist anymore.

Sounds pretty bad, doesn’t it? Well, not necessarily, because all of these factors can spell opportunity just for you, an intelligent buyer.

Here are the crucial steps to turn that underperforming liquor store into a money machine!

Step one: Make sure you buy the right store!

First things first… You need to purchase a store that has a lot of untapped demographic potential. It could be an older “mom and pop” liquor store in a neighborhood that has recently been transformed by the arrival of younger, well-to-do professional consumers. It could be in a part of the city where new office complexes are planned. Whatever your choice, it must have significant growth potential.

Avoid buying a liquor store in an area that’s in decline. Occasionally such stores can be pulling in positive cash flow by selling half pints of liquor and flask-style bottles of low cost wine, but let’s be real about this point; a store in a district which is improving will always provide you with more potential for expansion and increased profitability.

Step two: Cater to a more professional type of clientele!

If you’re in an area that’s pulling in an increasing volume of professional individuals, start establishing an upscale inventory that will be of interest to these customers. Don’t wait for people to ask for more exclusive wines, get those products on your shelves in anticipation of popular demand.

Then we arrive at the issue of customer service. If you’re looking to capture customer group of well-to-do professionals, you’ll need to be able to answer all sorts of questions about a variety of wines - which wines are popular, or which go really well with a certain kinds of food.

One method for providing this service is to employ experienced salespeople. Another way is to hire enthusiastic people and train them, or perhaps become a wine expert yourself. Your choice of strategy depends on your budget, your sales and the size of your establishment.

Step three: Make your store appear to be the part - from day one.

If your store requires renovation or tidying up before it can attract your new clients, don’t forget to budget for this - and always keep on hand a realistic amount of cash for repairs. Arrive at a reality-based figure for how much everything will cost, and make it part of your calculations as you bargain with the Seller for the most realistic purchase price. Remember, you can’t get the business from any of the upscale clientele by rolling on a fresh coat of paint on dirty old shelves. Carefully look at windows, lighting, floor surfaces, wall coverings and every other detail you can think of. Even your cash registers have to be absolutely spotless.

Step four: Expand your product offerings beyond alcoholic beverages.

Over the last decade, upscale liquor stores have begun to offer gourmet cheeses and other food products. It makes sense to expand in this way. Use your intuition, and if people are looking for a good bottle of wine, or some really great beer to have with a evening meal, why not provide a choice of cheese, olives, crackers and other interesting appetizers? Remember to check local ordinances and zoning to be sure you can sell foods at your location.

Step five: Hold in-store events to attract more of your target clients.

Hold wine tastings, cooking classes and cheese seminars in your store. If a well known author has recently published a popular book on wine or cheese, have a book signing at your store.

Events do more than sell products. They give your store the feeling of a community - and a destination.

Step six: Build an Internet presence.

Construct an eCommerce Internet Webpage Store where you suggest wine, liquors and beer. On this Webpage, be sure to build in a sign-up form where customers can subscribe to your state-of-the-art professional email newsletter, in which you send out comprehensive information on your products.

Also, in your newsletter, add in coupons for rebates on wines, beer and a variety of other products, and make an effort to be creative with discovering new ways of making it as simple as possible for your customers to recommend new subscribers to you.

Always present your Website visitors with the opportunity to order products strait from your Website store. You can offer local delivery if you have a vehicle, or low cost shipping to a wider area. Be aware, however, that you may be prevented by law from shipping alcoholic beverages to other states, and make sure to check this out before you buy your store, so you can get a realistic idea of the business’s true overall profit potential.

Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation - The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream of buying a business.

Are you trying to find a business that won’t be unfavorably affected by the current economic slump? You should be! So, allow me a moment to share an important piece of advice with you.

Buy a liquor store.

Liquor stores are incredibly recession-proof, maybe even more than any other kind of retail business. With smart management on your part, you can generate strong sales from your liquor store, even in difficult times.

People will keep on buying alcoholic beverages, even in difficult times. Liquor sales stayed solid through the economic downturn of the mid-1980s, and they’re holding firm in the current economic market. People still regularly buy wine, liquor and beer, even when times become really tough. But let me add the following thought:

Currently, people are spending carefully. The days are gone (or at the very least, they’re on hold) when most consumers would think nothing of paying $40, $50 or more for a bottle of wine to go with their evening meal, but don’t worry, that trend positions you to keep your profits strong, because:

The liquor business allows you to adjust and adapt to customer purchasing patterns. You can offer an extensive variety of exceptional lower-priced products that appeal to customers today. If you’re an imaginative merchandiser, you can stock your stores with an innovative array of lower-cost wines, beers and other alcoholic beverages, ensuring your customers get good value for their money and never feel deprived. After all, they can still enjoy the adventure of buying and drinking interesting products, while saving money too! Just keep in mind that you have to shop intelligently for these products, while not forgetting to:

Supercharge your profits with low-cost, effective marketing. You can make a $30 profit on a case of economically priced Chilean wines, vs. $10 on a single bottle of more expensive French wine - and the marketing costs are the same for either selection! With good quality low-priced marketing (through sales flyers in community newspapers, or via an email newsletter that you send out to your preferred customers), you can sell quite a bit more products in these difficult times. Your customers will value you as an individual and the superb value which you deliver. You can easily increase your perceived value even more by implementing this next strategy:

Use top notch service and advice to maximize your sales. More customers today are searching around for alcoholic beverages that are low cost, yet still great quality. (This can be summed up with the simple word, “Value.”) This spells opportunity for you, the new owner of a liquor store. You can study wine yourself, hire top notch salespeople or just order selectively from the low cost wines that you see listed in popular trade magazines. Just don’t forget to lure in customers with some creative marketing strategies, such as sending your customers classy email newsletters that include specific discounts for selected products.

There are no small retailers, only retailers with small ideas! If you’re looking for a flexible, resilient business that will bring in solid profits in the current recession, and make even more money when the current recession goes away - look no further than a liquor store!

Richard Parker is the President and founder of the prestigious Diomo Corporation - The Business Buyer Resource Center. His celebrated materials, seminars and consulting have encouraged thousands of aspiring business buyers from around the World to pursue their dream of buying a business.