Starting a Small Home Business

Baby Boomers – Build It With The Intention Of Selling It

July 4th, 2007 Filed under: Uncategorized — Small Home Business Author

Today, everyone talks about acquiring assets. For the past ten years, Real Estate has been the “golden child” of the asset game. When low interest rates combined with significant tax savings, Real Estate took a well deserved top position in the game. Unfortunately, the definition of an asset is too often overlooked. An asset is only an asset if it puts money into your pocket every month. In a world where interest rates could continue to climb, and Real Estate values are changing course, the number one asset contender is beginning to slip. So, some of the attention is beginning to shift to retirement accounts and small business ownership.

Retirement accounts are growing like no other time in history. It seems that the stock market has no choice but to respond by breaking new highs almost daily. Sure, there will be dips and corrections from time to time, but with all that cash flowing in each month, the trend is expected to continue in an upward trajectory. To the asset-starved public, this seems like the new Real Estate boom. No one can predict the future, but as they say, “History does tend to repeat itself.” If all of your assets are in the stock market at the time of a significant correction, or worse, a crash, what then? Years of saving and watching assets grow could be minimized if history does indeed repeat itself.

Another trend that needs watching is the approaching retirement of the Baby Boom generation. After a short stint of travel and relaxation, many boomers will become bored. The siren of owning something will call out to them, offering another challenge to be conquered. The method they will choose is small independently owned businesses. This potential asset, I feel, will become the growing rage in the next ten years.

So, when is a small business an asset? A small business is only an asset when it puts money in your pocket every month or when it serves as a form of real estate when you sell it. Why is this important? It is important, because most small businesses are never started with the intention to be sold. The usual agenda is simply making some side money. That is a fundamental flaw in the plan. There are rules to selling a business, and you need to be conscious of them before you dive in.

Rule number one:

People buy proven systems–not a business built around the owner.

Rule number two:

People will pay a multiple of earnings–not “good will” or what you think your business is worth. They want to see the income not the income potential.

Rule number three:

Whenever possible, buy the building your business is in, because doing so serves a dual purpose. First, it allows you to sell the business without any complicated leases that have to be transferred. Second, if you sell the business but retain the real estate, it allows you to have an asset after the profit from the sale of the business is long forgotten.

Selling your business is both a science and an art. If you remember these rules, this road will be much easier to navigate.