How Your Small Business Can Keep Costs Low

The idea that money can be tight when you’re starting a business is one that can gets a lot of attention. There is a great deal of talk about how entrepreneurs can save money, how to raise funds for a startup, and even how to redirect the earliest profits back into a startup. These are all important ideas to focus on, and often a diligent approach to funding can be the difference between a business “starting up” or failing in the first place. Continue reading

Buying Part of a Business: Is it Worth It?

Buying Part of a Business

When seeking to continue to build your financial portfolio, adding investments is one idea that many choose to pursue. One way that such investments are typically made is by buying part of a business. Buying into an existing business means that you become one of the main stakeholders, owning a portion of the business itself. While this is something that is done frequently, business owners are often unaware of the many factors that are related to making this significant financial decision. Here are a few serious considerations before buying part of a business.

The Rewards of Buying a Business

Of course, buying part of a business may sound overwhelming, but there are many factors that make it a beneficial decision.

  1. There is an established company client base. One of the benefits of owning part of an established business is that the client base is already set. A new business has to attract customers and build a group of returning clients. However, one that is already functioning will have this taken care of. This will allow the business owners to focus more on customer service, client retention, and increasing the number of clients.
  2. You have greater ease of expansion. If you happen to buy part of a business that is looking to expand, it will be much easier with a company that has already made a name for itself. Look to see if the company has a good reputation and gets good feedback from its clients. It’s also easier to get an unsecured small business loan for expansion when the company has a proven track record of sales.
  3. You can focus on business improvements. You may like challenges and, thus, purchase part of a business that requires a few changes to improve. Luckily, the company should have a plan of operation in place. Then, you can focus on how to improve it for the company’s overall success.
  4. You have access to current owners’ knowledge. One of the greatest advantages of buying part of a business is that the current owners will be very familiar with the company. They can show you what has and hasn’t worked for business operations thus far. You, equipped with this knowledge, can then come up with innovative ideas to benefit the business.

The Risks of Buying a Business

As there are many pros to buying part of an existing business, there are just as many risks of shared ownership of a company. It is best to keep these factors in mind as you make your decision.

  1. You disagree with the current owners’ practices. It would be an absolute nightmare to purchase part of a business where the owners mismanaged funds. Upon learning more about a business you may want to purchase part of, be sure to research all financial records.
  2. The company has a bad reputation. Good use of customer feedback is to learn how the company fares amongst past clients. A company with a bad reputation will likely struggle with being successful.
  3. It has high turnover. In addition to clients being indicative of a company’s progress, the employees can serve the same purpose. It is a red flag if there have been numerous employees during the business’ lifespan, especially due to multiple resignations. This would be something to keep in mind as a problem area if you decide to take on the company.
  4. There are differences between owners. If the current owners are not open to change or new ideas, you could run into difficulties. You may meet resistance trying to take the company to the next level in terms of expansion, increasing profits, or employee and client satisfaction.

Checklist Before Buying Part of Business

Before you make any large purchases or investments, you should always do your homework. The Westmoreland Checklist of Due Diligence provides a great set of guidelines as you vet out potential investment options.

First and foremost you want to make sure the company is in good standing with government, financial, and community organizations. This includes issues about all the companies operations. It means you should look at all the company’s financial information. This includes everything from permits and tax compliance to its reputation with employees and clients.

The choice to buy part of a company should only be made after carefully considering all factors, good and bad, that are involved. It can also be helpful to seek the help of a business adviser who can answer your questions and give guidance as you take this big step.

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Insolvency Practitioners’ Tips for Surviving Business Debts

Editors note: this article is a departure from our usual topics, but we’re including it here for any of our UK readers who may be small business owners.

Too much debt can be the end of a small business. While some debt can be necessary to grow your company, allowing you to hire new employees or purchase new equipment, too much debt can seriously damage your cash flow.

But if your business debt has crept up on you, you’re not alone. In the UK, insolvency is on the rise. According to The Insolvency Service,  insolvency rose in 2019 compared to 2018, demonstrating that a growing number of small businesses are falling into significant debt.

Here are some ways that you can start to dig yourself out of business debt and survive becoming insolvent.

Chase Up Late Payments

Late payments from your clients can be problematic for your cash flow. While some late payments might be unavoidable due to the kind of business you run, once you’ve submitted an invoice, you should try to ensure that your clients are being chased for payments regularly.

Catching up on your owed payments will help you raise the funds you need to get out of debt. Take a look at all of your outstanding invoices and start to contact the customers, giving them a polite nudge to pay up. For new clients, you might want to consider shortening your payment terms or adding a late-payment penalty to encourage swift payment of invoices.

Consolidate Debt

Debt consolidation is when you transfer your debts into a single business loan. Although this won’t make your debts disappear, merging them all into one loan can reduce your monthly payments and outgoings and help you better manage your money. Rather than having to make lots of separate payments, it becomes much more manageable as it all goes to a single loan provider. Once you have an easier time of repaying your debts, you can start paying it off and pull your business out of trouble.

Negotiate with Creditors

If you find yourself unable to make debt repayments, you could contact your creditors directly and see if you can renegotiate terms. Your creditors might be open to accepting smaller amounts of re-payment each month rather than risk the business defaulting on the loan.

To start the process of negotiation, send your creditors a hardship letter outlining your issues. You should explain why you cannot pay back the loan, what attempts you have made to remedy the situation and explain why your situation is unresolvable. They may be willing to let you pay your debts over a longer period of time, or even accept less money than you owe. From their perspective, they would rather get back some of their money than none of it, so they may be open to negotiation.

Cut Down on Expenses

If possible, you should look at cutting costs in your business to help your cash flow. This can be difficult, and you may have to be ruthless, but it could be essential to saving your business from going under.

Start by reviewing your budget and all your outgoings. Pick out what you can completely do without and cut it off right away. Take a look at where spending could be reduced, like switching to a cheaper supplier. Moving your business operations into a smaller, more affordable location could save thousands in rent, but it can be an expensive initial investment. Discuss your options with your accountant and only continue to pay for the essentials.

Increase Your Income

Boosting your cash flow can help with your long-term business goals outside of debt management. Promote your business to increase your earnings with low-cost promotions like a limited-time sale or offering discounts. If you have a lot of stock, those items represent money that is tied up in your business and unable to pay down debt. By selling it off in a sale, you can quickly free up cash to help ease those debts. For more long-term revenue-boosting, you could set up an affiliate marketing programme, ask for referrals, use ads and much more.

Enter a Company Voluntary Arrangement

If your business becomes insolvent, you could consider a Company Voluntary Arrangement (CVA). This is an agreement between your business and your creditors that allows you to pay off your debts over a set amount of time, but that blocks any legal action from being taken against you.

A CVA can help improve your cash flow, halt the pressure from your creditors and stop the threat of a winding-up petition. Only a licensed Insolvency Practitioner can create the arrangement and begin the proposal after gathering all the necessary information. A CVA is just one of the solutions to business insolvency. But an Insolvency Practitioner will be able to talk you through your options if your debt becomes unmanageable.

For more of our great articles, read these:

Your Monthly Budget

Five Keys For a $100 Per Month Grocery Bill

The “Buy Once Cry Once Mentality” In Budgeting

Image source: Mike Lawrence.