Do Business Well

1. Control the size of the establishment

Large-scale production brings certain economies with it especially in times of stability or growth, but in periods of retraction large-scale facilities can be too costly. Ensure that establishment costs are affordable for both high and low levels of activity.

2. Assess the minimum/optimum establishment size for your present activity level

Firms often work with facilities which have grown over the years as demand has developed. But are they what you really need now and for the future? Assess your ideal facilities objectively and compare them with what you have at present; you will at least have a picture of the changes you might make. Continue Reading »

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Income statement. You’ll want to produce one every month. Your business can be in big trouble for a long time and you won’t even know it without an income statement. We have fully detailed the income statement in section 2, part 6.

Inventory. This is the value of all merchandise that you carry for resale. It does not include office furniture, production equipment, or other items that aren’t being offered for sale. As mentioned above, there are some very sophisticated aspects to placing a value on that inventory. Continue Reading »

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Both buying low and selling high are possible because owners know less about the value of their business than any other item in their portfolio. The market price of a house is usually known within a range of 5 percent or so. Check the current listings and the recent sales, and you can get a good idea of how much your home is worth.

If you own stocks, bonds, rare coins, or a car, there are exchanges, experts, or blue books that will give you an accurate picture of their worth. Even less liquid items such as art, collectibles, or raw desert land are rarely sold very far below some established market price. Continue Reading »

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ASSET VALUE

For most companies the asset value should represent the lowest amount below which the owner might just as well liquidate. There are only two differences between asset value and liquidation value. In calculating asset value you don’t have the costs of liquidation and you can be more generous in appraising certain assets than you might be if you had to liquidate.

INDUSTRY STANDARD VALUE

It’s common in many industries to have a valuation method. Travel agencies are generally valued at ten times annual commission. Manufacturers’ reps, on the other hand, are generally only worth one year’s commission. Magazines use a certain number of dollars per subscriber. Manufacturers might expect to get between two and ten times annual earnings. Continue Reading »

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BOOK VALUE

Each month or quarter you should be determining the company book value. This is the net worth figure on your financial statement. It’s the difference between your total assets and total liabilities using all the rules of accounting and taxation. As you’ll see, this has very little to do with the actual worth of your company.

LIQUIDATION VALUE

You would only rarely want to sell a successful business for less than liquidation value. You might do so to provide continued employment for loyal staffers, or some types of deals might include your continued employment or the receipt of certain royalties unrelated to the sale price. You arrive at the liquidation value by adjusting each asset to take into consideration its real value, as opposed to its book value. Next, you adjust liabilities to account for any amounts that aren’t going to be realized. Finally, there’s a cost of liquidation. Let’s look at all three for some examples: Continue Reading »

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B. If one or more of your current employees is not a likely candidate for a buy-out, consider hiring your buyer. Begin an intensive search for an energetic, capable manager who could work toward ownership as part of his employment package. In this case, you could offer less pay than the individual might otherwise earn, but provide a certain percentage of ownership each year employed.

Another approach would be to find that talented individual who also has financial resources. The agreement might end up looking like a rent-to-buy. The manager would work his way toward running the entire operation over a two- or three-year period. When both parties were satisfied that the change in ownership and control could be smoothly transacted, the preset terms would be finalized. Continue Reading »

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So far I’ve talked about using savings accounts and CDs to save up stacks of cash. There are lots of other investments out there— stocks, bonds, precious metals, commodities, and many more. Most of these kinds of investments don’t really work for teenagers because they require large amounts of money to get started.

There’s one nonbank investment that works just fine for teenagers—mutual funds. They don’t require lots of money to get started, and they can make your savings grow faster than a bank account. Here’s how they work.

Let’s say you have $500 to invest in something. You could buy 100 shares of a stock trading at $5 per share, but that’s putting all your eggs in one basket. If the stock does poorly, you’ll lose some or all of your investment. Not a good idea. Continue Reading »

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The best benefits are those that favorably affect either people’sfeelings or their pocketbooks. Entrepreneurs who can express the market impact of their business in those terms usually have an advantage. For example, I read a local newspaper article about two women who had started a highly successful mail-order business selling clothing for overweight children. The children were thrilled with the product because of the difficulties—and the humiliation—they encountered shopping for clothes at traditional retail outlets. As one of the women observed, “What we’re really selling is dignity for these children.”

And so this company was. Sure, their clothing was of high quality and they delivered in a timely way. But the real reason for their success was they made children feel better. That pleased both the children and their parents. Continue Reading »

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New market leaders know the importance of building a larger than-life market presence.

The Discipline of Market Leaders talked about the value proposition—the notion that as long as a company provides the best cost, best product, or best solution, it will catch customers‘ attention. Though that idea certainly held true when only a handful of market leaders had distinguished themselves, today, offering the best cost, best product, or best solution has become par for the course. Why would customers settle for anything less than the best— whether it is in price, product, or solution—when suppliers are fighting one another to provide all of them? The fact is that unique value propositions such as Wal-Mart’s “Always the low price” are simply no longer unique (think of Target Stores, Inc.’s, or Costco Companies, Inc.’s, essentially identical claims). Likewise, McDonald’s isn’t the only place that offers a dependable hamburger experience, while Nike, Inc., isn’t the only athletic shoe positioned _as the best product. In the technology field, it is hard to find a vendor today that doesn’t claim to be a best-solutions company. Continue Reading »

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An appreciation of lifetime value (LTV) is key to the theory and practice of marketing and customer relationship management. However, while the term is often used loosely, calculation of LTV is not straightforward, so many organizations do not in fact do it. Lifetime value is defined as the total net benefit that a customer or group of customers will provide a company over their total relationship with that company. Modelling is based on estimating the income and costs associated with each customer over a period of time and then calculating the net present value in current monetary terms using a discount rate value applied over the period.

There are different degrees of sophistication in calculating LTV. Option 1 is a practical way or approximate proxy for future LTV, but the true LTV is the future value of the customer at an individual level. Continue Reading »

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