Benefits of Acquiring Other Businesses

February 28, 2019 by Comerica Bank

If you’re looking impartially and unemotionally at the options ahead when starting your own business, you have to admit buying one already in operation is very appealing. Not only do you get experienced staff and an existing customer base, you also get established premises, a well-known brand and a network of suppliers.

Skipping the start-up stage
Within a few years of starting up, the majority of small businesses will close for various reasons. This means buying a well-established business should give you some assurance that you’re investing in a tried and tested business model that works.

Plus, when you buy a business, you don’t have to deal with start-up paperwork, such as registering for an Employer Identification Number (EIN) with the Internal Revenue Service (IRS) and meeting any state-level requirements for new businesses.
Other advantages include the following:

  • Existing businesses that survive and prosper typically perfect their operations over time, meaning you should inherit a well-oiled machine with all its processes streamlined and backed up with documentation so you can hit the ground running in a short period of time.
  • Existing staff can provide you with insight into how the business operates and how it could be improved. Staff normally find it easier to speak to a new boss and they may jump at the opportunity to start fresh with an owner.
  • Another bonus of inheriting staff is that you don’t need to recruit and train new staff. You’ll save time, money and energy that can be focused elsewhere in the business.

It’s important to identify early if there are any staff morale issues that need addressing, or if staff are resistant to new ownership and the changes this might bring. Talk to your staff and find out if they’re happy in their roles, if there’s anything that would help them do their jobs better, and what concerns they might have about a new owner coming in.

Showing staff you’re interested in them and open to discussion should help to ease any worries they may have, particularly if they have strong loyalty to the previous owner.

Inheriting systems, customers and image
A good business should come with tried and tested processes that allow daily, weekly, monthly and annual tasks to be carried out as efficiently as possible.

For example:

  • A tourism business should have a simple booking system that includes all the product options.
  • Accommodation businesses should have a housekeeping system that has the premises fresh and sparkling in time for new arrivals and allows necessary repairs or maintenance to be recorded and carried out quickly.

You’ll save time, money and energy by not having to develop these systems yourself. You’ll also be able to improve the systems if needed, with the groundwork having already been done for you.

A major advantage of buying an existing business is that you inherit its market, or customer base – particularly if you buy a franchise or well-known company. This means you don’t need to pour as many hours and dollars into marketing and advertising as you would with a new business.

You can use the business’s existing brand recognition and image to reassure customers what they like about the business won’t change. For example, if you bought a popular inner-city café that catered to office workers putting in long hours, you might use a street-front blackboard to declare, “Under new management, still open from 7am and still staffed by award-winning baristas serving organic coffee”.

Along with a recognized brand and business image, you’ll also inherit a good reputation. This is a key point to be aware of when thinking about buying an existing business. If a business has a history of poor service or selling second-rate products, it might be difficult to convince customers that things will change under your ownership.

Buying peace of mind
While buying an existing business usually involves a greater initial financial outlay than starting a small business and growing it gradually, there are some peace of mind advantages that come with it.

An existing business will likely have long-term contracts with both suppliers and customers locked in. Knowing you’re gaining established relationships, purchasing proven products and will have regular business coming in each month can provide peace of mind and allows you to focus on growth.

By inheriting the previous owner’s business plan, you’ll have a clear goal and path mapped out, giving a sense of direction and organization. This doesn’t mean the business strategy is set in stone, but it gives you a foundation to build on.

A good financial record is almost as important as good sales. If you ever need to apply for credit from new suppliers, having a strong financial track record usually means this will be granted easily. Without the backing of good results and records, you'll need to find other ways to prove your creditworthiness.

Overall, there are many advantages to buying an existing business if you can find one well-priced that interests you. It’s always important to be sure the business you’re considering fits your wants and need. It’s also critical to learn as much as possible about its financial status, history, value, strengths and weaknesses before committing to purchase.


This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice for your business.

 

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Finding the Right Franchise

February 4, 2019 by Comerica Bank

Compatibility is a key factor in any partnership and it is important that you and your business are indeed in harmony
When determining whether a franchise is suitable, you need to consider:

  • Your personal goals.
  • The operating hours.
  • If you have a passion for the types of products, services, and customers.
  • Your ability to manage staff.
  • The level of skill required to run the business.

When choosing a franchise, it’s important to consult your professional advisers - your accountant, lawyer and bank manager - at the earliest opportunity. Their specialized knowledge and guidance will be invaluable as you consider many elements during the process.
Your accountant will help you evaluate the true profitability of the existing business and prepare your profit and loss, as well as cash flow forecasts. They will also help you work out a fair price to pay for the business. Your lawyer will help you understand all the legal documents – the disclosure document, the franchise agreement, the sale contract, etc. A banker will advise what finance is available and appropriate.
Systematic evaluation is necessary to establish which franchise is most suitable for you. The following steps may help you assess whether a particular franchise will meet your requirements.

Step one: What type of franchise do you want?
Determine the business that suits you best by considering your skills and their applicability to the franchise that appeals to you. Analyzing your personality can also be helpful in deciding what type of franchise would make most sense. Ask yourself the following questions:

  • Are you prepared to sell? A franchise gives you a business but it doesn’t necessarily give you customers.
  • Are you and your family prepared for the sacrifice? Remember that running a business takes lots of time, effort and dedication.
  • Will you be able to deal with the stress that comes with running a business?
  • Do you want to be your own boss or are you happy to follow someone else’s blueprint? Consider how you will feel about the restrictions imposed by a franchise arrangement.

Also worth considering is whether you like working indoors or outdoors, how you will feel about recruiting and training staff, and any areas where you lack business skills, such as finance or marketing. Will the franchise you are considering offer any support with honing these skills?
Some good sources of information are:

  • Your local Chamber of Commerce, which may be able to put you in touch with franchisees (people who have purchased franchise businesses) whose experience you can benefit from.
  • Websites such as Franchise Direct® that have listings of franchises you can search by state.
  • The ‘Businesses for Sale’ section of the newspaper.

Step two: What sort of franchise can you afford?
The cost of buying into a franchise may vary from less than $5,000 to more than $1 million. Entry costs and ongoing fees and royalties may vary widely. If you are borrowing, don’t obtain more than your business can repay.

  • When investigating the cost of a franchise, you will need to take both initial and ongoing costs into account.
  • Be clear on the working capital you will need.
  • You normally pay a percentage of sales (royalties) to the franchisor. In addition, you may have to purchase stock, marketing materials and training from the franchisor, so check what they will charge you.

Finally, always bear in mind that a franchise making money in one location may not necessarily be so successful in another area.

Step three: Getting more information
Look closely into the way franchising actually works and question the franchisor thoroughly.
Key questions to consider:

  • How long did the business run and how successful was it before it began to franchise?
  • How strong is the franchisor’s financial position?
  • How many franchises have been opened? How many have closed or changed hands and why?
  • How successful are existing franchisees?
  • What levels of training and support does the franchisor provide?

Get a full list of franchisees who are already operating the business and talk to as many of them as you can.
You should also independently investigate the market conditions and potential for your proposed franchise.
Your enquiries should include:

  • Current and projected market share.
  • Whether it’s a growth industry.
  • Key market trends.
  • Local, national and international competition.
  • Market threats and opportunities.

Step four: Company research and reference checks
In addition to the information you receive from the franchisor, your lawyer may wish to undertake checks and enquiries to ensure the business performs as it’s been represented to you. Those checks should include:

  • Company records, including details of directors and shareholders.
  • Whether any complaints have been made to the Federal Trade Commission.
  • Whether any legal actions are pending against the company or its franchisees.

Next steps

  • Evaluate all the legal, financial and operation aspects of any franchise you are considering, and your suitability for it.
  • Get professional advice on any profit forecasts and other figures you are given by a franchisor.
  • Develop a thorough business plan that you can show your bank. Make sure you understand and can explain all the forecasts and figures.

 

This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice for your business.

This article is provided for informational purposes only. While the information contained within has been compiled from source[s] which are believed to be reliable and accurate, Comerica Bank does not guarantee its accuracy. Consequently, it should not be considered a comprehensive statement on any matter nor be relied upon as such.  


 

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New Product Development

January 30, 2019 by Comerica Bank

Turning an idea into a product or service is oftentimes more difficult than coming up with the initial thought. In addition to having the right product idea in the first place, there are three essential ingredients for successful new product development:

  • Relevant skills. For example, if you’re developing a new food product, creating it is only the starting point. Other issues include sourcing ingredients, the mass production process, quality control, packaging, costing and pricing, and customer trials.
  • Sufficient resources: If you can only afford a half-hearted attempt, don’t even begin. If you commit too many resources, the rest of your business may suffer.
  • Commitment: The success of the project will depend on your personal commitment. Although teamwork is important, in a smaller business it’s often the owner or manager who must drive the project.

Reducing the risks

Try to identify the major issues early on so you can decide if the overall risk is worth the potential reward. Ask yourself the following questions:

  • Will you get a satisfactory return on your investment? Establish the likely volume of sales, and the marketing and sales cost of achieving each sale.
  • Is your target market growing or shrinking?
  • Are there any foreseeable changes in your market that could affect the success of your product, such as new safety legislation?
  • Are there any competing products already in the market? Can you offer something different and unique?

Work out how to reduce each risk to an acceptable level. For example, can your new design be patented or protected in some other way?

Ask potential customers, suppliers, and members of the development team for feedback on the idea or a prototype. Raw feedback at this stage can save time and money.

Signs of non-starters

While a good product idea doesn’t promise success, a bad product idea is guaranteed to fail.

Here are some fatal flaws:

  • You can’t sell at the price or volume necessary to make a profit.
  • Your product can easily be copied. Competitors could launch similar services at lower prices, with fewer start-up costs.
  • You lack market power. For example, a new piece of software may be the best in the market, but it could be doomed to fail if you lack an effective distribution chain.

Know what you’re doing

Start by defining a basic specification for your new product or service.

  • Make sure you have a compelling reason for customers to switch over to your product.
  • Next, plan the design of your product. Use in-house or external designers and get them to sign confidentiality agreements if necessary.
  • If you need any approvals or certification (such as for electrical products), book the product tests. Ask if the approvals body can also test your prototype to identify any problems early on.

Efficient manufacturing

If you intend to manufacture your product, cultivate these plans and develop the design of your new product simultaneously.

  • Design new products so that the number of components is minimized.
  • Try to reduce the complexity of assembly to save time and reduce labor costs.
  • Use standard parts that are inexpensive and easy to source. See if you can work with parts you already use in other products.

Finally, ask yourself if it would be cheaper or better to outsource the manufacturing process.

Selling price issues

Decide on the likely selling price for your product and the anticipated sales volume to find out if the product will be viable. Based on this information, work out what your maximum unit cost of production should be. Many new products aim to provide the same quality as an existing product, but at a lower price and with better profit margins. Other products rely on superior design or technology to win market share and can be priced at a premium.

Project management

Create a team with all the skills needed to make the project a success and choose a team leader. Every new product needs a product champion to point the team in the right direction.

  • Give the team leader the authority to run the project (within an agreed budget and timetable) with the responsibility of reporting progress to you at agreed milestones.
  • Make sure all the team members agree on the main objectives, which should be based on the basic project specifications.
  • Be prepared for negativity and keep the team motivated. Anyone with a negative attitude will influence the rest of the team.
  • Celebrate achieved milestones as an effective way of maintaining morale.

Make it clear that there may be failures along the way. Remind the team that if making the new product was easy, someone would have done it already.

Managing tasks and objectives

Set SMART (Specific, Measurable, Agreed, Realistic and Time-bound) objectives to control progress. This enables the team leader to identify problem areas that can be focused on.

Create a flowchart showing the order in which tasks must be completed. A visual of the whole process can make things more apparent to everyone.

Nothing is perfect, so as the project proceeds you’ll typically need to adjust the specifications and planning assumptions.

Cost control

Keep asking yourself if the project will meet its commercial objectives. To do so, it’ll have to standby the pricing levels you’ve assessed as commercially viable. Without planning and monitoring, costs can spiral out of control.

Next steps

  • Calculate costs, do market research and assess the resources you require.
  • Select the right team and appoint a leader.
  • Involve the team in the new product development to gain their buy-in.
  • Allocate work on each development section and set progress milestones.


This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice for your business.

This article is provided for informational purposes only. While the information contained within has been compiled from source[s] which are believed to be reliable and accurate, Comerica Bank does not guarantee its accuracy. Consequently, it should not be considered a comprehensive statement on any matter nor be relied upon as such.

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Market Research Made Easy

January 18, 2019 by Comerica Bank

Carrying out market research is a lot easier than you think. If you don’t have the budget to commission a market research firm, invest your time instead and do it yourself.

If you’re starting a new business

If you’re new to owning a business, some basic questions might be:

  • Is market demand big enough and is it growing or declining?
  • How many competitors will we face and where are they situated?
  • Where should we locate our business?

Finding out about your target market

To find the answers to these questions, try some of the following suggestions:

  • Search sites such as the U.S. Census Bureau for quick and easy access to facts about business, including demographic information by state.
  • Explore the internet to find information on the industry you’re entering and to identify your competitors.
  • Visit libraries and read print and online magazines, trade journals and other publications. They’ll give you a picture of your industry and where it may be headed.
  • Approach your industry or professional association and the nearest Chamber of Commerce for useful data.
  • Find valuable data and information on sites such as the U.S. Small Business Administration (SBA) website and locate an SBA District Office, SCORE chapter, Small Biz Development Center or Women’s Biz Center in your area with the SBA’s local assistance tool.

Utilize some proven research techniques

Once you have a general picture of your industry area, you can drill down for more detail. Some ideas for collecting research include:

  • Using small focus groups of five to ten potential customers to assess demand and any possible improvements for your products or service.
  • Ask a sample group consumers if they sound interested in your products or services.
  • Review your competitors’ websites for evidence of successful selling, product and service range, and pricing levels.
  • Investigate any industry-standard pricing range (if relevant) for your type of products or services.

Complete this homework before you commit to starting your business. Combine the evidence to decide whether you could make enough profit to justify the risk.

If you can’t bring your products or services to market at a price the market will pay, you may need to make some modifications or source cheaper supplies.

If you’re already in business
Continue market research once you’re up and running, as it’s vital to sustaining your success. You don’t want to be left behind or miss opportunities. Research leads to more informed insights that turn into better decision making.

Create a feedback system

You can’t hope to improve your products and services unless you know what customers really think about them. Consider what kind of information you need and then design simple systems to retrieve this information.

For example, daily business dealings can enable you to capture customer details in a database that will improve your marketing. Besides contact details, find out the following:

  • Who your best customers are, so you can concentrate on them and finding more like them.
  • Where they live, so you can target specific suburbs or areas.
  • How much they spend, so you can offer them loyalty programs or discounts.
  • What they did and didn’t buy, so you can identify your core products and sell them complementary products.
  • How often they purchased, so you can offer refills or replacements at the appropriate time.

Train your staff to gather information

Explaining the importance of ongoing market research to your staff will help to gain their cooperation. Their feedback from customer contacts can become an important part of your market research.

Encourage them to ask customers questions such as:

Can you suggest ways we could improve our products or services?

What other products or services could we stock to meet your needs?

Would longer opening hours be beneficial to you?

Ask staff to keep a record of interesting snippets and feedback from customers so this information isn’t forgotten.

Hold regular meetings to discuss how the feedback could be used to improve your business. Make them aware of any business changes or improvements you do put in place and be sure to give recognition to individuals for smart ideas, or for research gathered.

Existing customers are an important source of new ideas, but unhappy customers who leave can often be the most fruitful source of business improvements. Make a point of contacting them to find out why they left and ask them what changes you need to make to win them back as a customer.

Being aware of future opportunities and threats

Another important function of market research is spotting both new opportunities and possible threats. Opportunities could be new trends in your industry such as better processes that could put you ahead of the pack.

Threats might be disruptive technology that will make one of your products or services obsolete. Or a threat could be a major new competitor heading your way.

Assign staff members to specific market research. For example, a person with strong computer skills might focus on data searching by browsing competitors’ websites or spotting international industry trends on the web.

Remember to budget for your research plans

Remember to budget for market research. When you’re starting a business, you’ll need to put in some extensive effort in this area. After start-up, set your budget by considering how important market research is to the continued health and growth of your business, and what resources you’ll need to get the right information.

 

This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice for your business.

This article is provided for informational purposes only. While the information contained within has been compiled from source[s] which are believed to be reliable and accurate, Comerica Bank does not guarantee its accuracy. Consequently, it should not be considered a comprehensive statement on any matter nor be relied upon as such.

 

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Using Trade Events and Conferences to Increase Your Sales

January 14, 2019 by Comerica Bank

Trade events and conferences can be highly valuable to your small business. They can help you enhance sales, meet key people, interact with potential customers and increase exposure to your business.

Create awareness, attract key decision makers and increase sales

It can be difficult to schedule meetings with key decision makers when they’re at their place of work. However, at conferences and events they:

  • Become more accessible.
  • Can be met and greeted in a social setting.
  • Will be more open to building a relationship that have potential to lead to future sales.

Entice potential customers to come to you

It’s important to be where your potential customers are headed. For this reason, trade events and conferences should be on your business’s itinerary. You’ll get vital opportunities to meet customers, suppliers, distributors and other business owners.

Successfully growing your business means increasing not only your sales, but also your network and opportunity for exposure. It’s important to enhance your reputation any way you can, and trade events and conferences are optimal opportunities to achieve that.

The positives of exhibiting

Your business will gain awareness and credibility by being visible and putting its name out there. You’ll also get valuable feedback and advice from a whole spectrum of people.

The benefits of meeting potential customers at a conference or trade event are:

  • Building an authoritative voice. If you’re able to speak at a conference you plan on attending, you’ll have the opportunity to win greater credibility.
  • Reduced costs. It’s better to save costs on traveling to visit each customer by having a large number of them come to a highly regarded conference or event.
  • The location. By getting your potential customers out of their offices or workplaces in a more social environment, you may increase your chances of selling your goods or services.

Tactics for presenting your products or services

Trade shows are a great way to gain new networks, customers and product ideas. You’re looking to get as much as you can out of exhibiting at a trade show, so try to:

  • Demonstrate your products or services. Whether you find yourself in front of a crowd of people who were close to purchasing your items or amongst people who haven’t heard about your business before, demonstrations can be an effective tool for turning observers into buyers.
  • Contact potential customers in advance. Set up appointments through your customer database or send out email invitations.
  • Advertise trade specials at the show. Special deals only available on the day will often get people across the line – just make sure you inform them beforehand to expect great deals.
  • Come up with a unique hook to build interest. Create intrigue and awareness with some intelligent marketing to get potential customers to your event.

Test new products or services

Trade shows and conferences are ideal for trialing new products and services, and to determine if there’s a demand for them. Your business will have its allocated space or time slot where you can use all your skills of persuasion and tricks of the trade to entice interested followers and buyers.

By exhibiting, you’ll also be able to introduce any new goods or services to a large group of potential customers over a relatively short period of time.

Keep a close eye on your competition

Take advantage of the fact that your competitors will also be at some of these events. Make the most of their presence by:

  • Learning what you can about how they operate.
  • Discovering any innovations they’re working on.
  • Finding out what new products or services they’re introducing to the market.

Network

Networking with other small business owners can put you in direct contact with future clients and even your competitors. Set up a simple way of collecting the names and contact details of new connections, then:

  • Call or email them soon after the event or conference.
  • Advance those relationships by arranging a meeting or offering a deal.

An example of how you could get a large number of contact details is by offering free samples at your trade show booth in exchange for business cards of interested parties.

Access key decision makers

If you’re targeting business customers, find out who really makes the decisions. Learn about their internal politics and how you’ll be able to build relationships that lead to sales – and hopefully long-term connections.

By introducing yourself to key decision makers, your chances of having a successful conference or trade event will increase.

 

This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice for your business.

This article is provided for informational purposes only. While the information contained within has been compiled from source[s] which are believed to be reliable and accurate, Comerica Bank® does not guarantee its accuracy. Consequently, it should not be considered a comprehensive statement on any matter nor be relied upon as such.

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