Small Business: Go Big Or Go Home

What to do when WHEN IT'S TIME FOR YOUR BUSINESS TO GO BIG OR GO HOME There is something to be said for keeping everything under one roof, even ifit is a very big rof." JAY GOLTZ NYTIMES on Abt Electronics in Chicago there are over SMALL BUSINESSES ARE MOST SMALL BUSINESSES WILL ONLY 27 MILLION SURVIVE FOR A LIMITED TIME GOOD FOR THE ECONOMY 80 small businesses in the United States PERCENT 60 PERCENT 50 5 YEARS PERCENT SMALL BUSINESSES 30 7 YEARS ARE RESPONSIBLE FOR 60-80% OF AMERICA'S JOBS PERCENT WHEN TO EXPAND YOUR BUSINESS • Your competitors are expanding • You can afford it initially and over time क • Expanding enhances your original vision • You can handle giving up some of your power in the business OVER THE SPAN OF 40 YEARS: $10 million today +9 percent growth a year = $300 million in 2050. If you grow at 10 percent a year, you will be doing more than $400 million in 2050. EBITDA Earnings before interest, taxes, depreciation and amortization WHEN TO SELL YOUR BUSINESS Average company that sold in 2011 5.4 TIMES THE EBITDA The buyer is offering more than you will be worth for the next two or more years. $10 Million / year company $250 Thousand/year salary $2 Million / EBIDA bottom line When you are ready for retirement. X 5.4 = $10.8 Million EBITBA FOR SALE On a salary of 250k - to reach the same $10.8 million would take 43.2 years You do not want to invest in the growth of the business. 250k salary at top tax bracket is 40% cashing out - capital gains is only 15% You are burnt out. YOUR COMPANY HAS SO MUCH MORE VALUE TO A BIGGER COMPANY ARE YOU SITTING ON A BIG TICKET? WHEN TO CLOSE YOUR BUSINESS When debt-to-asset ratio is above 50% When money loss is increasing rather than decreasing When inventory turnover is slowing When loan renewal is rejected %24 HOW TO GET FUNDING $4$ VENTURE CAPITAL OF 2 MILLION NEWLY CREATED BUSINESSES ONLY ABOUT 600-800 WILL GET VC FUNDING • Usually novel business or technology • High-risk growth startups • Private equity • High-potential SEED FUNDING %24 SC ं • Most of the money comes from savings or mortgage loan proceeds • Used more in initial startup, rather than expanding your business • Investors are usually friends, family, owners * ANGEL INVESTING • Usually a solely interested investor • Wants convertible debt or owner equity in return • Private equity HOW DOES A DOWN ECONOMY AFFECT SMALL BUSINESS? DENIED FORECLOSURE Lekmple HOUSE FORECLOSURES = GREATER BANK LOSSES = NO BANK LOANS Making it difficult to find money to expand Can lead to layoffs HOW DOES SMALL BUSINESS AFFECT THE ECONOMY? ш 99.7 PERCENT OF EMPLOYER FIRMS • Employ half of all private sector employees. • Pay 44 percent of total U.S. private payroll. • Generated 65 percent of net new jobs over the past 17 years. • Hire 43 percent of high tech workers (scientists, engineers, computer programmers, and others). • Are 52 percent home-based and 2 percent franchises. • Made up 97.5 percent of all identified exporters and produced 31 percent of export value in FY 2008. • Produce 13 times more patents per employee than large patenting firms. Sources: http://en.wikipedia.org/wiki/Seed funding http://en.wikipedia.org/wiki/Venture capital http://en.wikipedia.org/wiki/Angel investing http://powerhomebiz.com/vol75/expand.htm http://www.getbusymedia.com/small-business-stats/ http://www.startupcfo.ca/2011/03/a-framework-for-when-to-sell- http://www.wildfiremarketinggroup.com/how will-the-economy-affect-your-business/ http://boss.blogs.nytimes.com/2010/12/22/how-a-small-business-becomes-a-big-business/ http://www.nytimes.com/2010/01/07/business/smallbusiness/07guide.html?pagewanted=allyour-business/ http://www.microsoft.com/businessten-us/resources/startups/business-opportunities/5-signs-its-time-to-close-your-business.aspx WARMAN CAP |IA L %24