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The Small Business Balance Sheet

My cell phone rang and I answered, “Hello this is Dan, how can I help you”? “Dan, this is Wanda”. Wanda has a nice Childcare Center that she was considering selling and I had been working with her over the past weeks in evaluating the financials of the business to determine what price to position it in the marketplace. “I’ve decided to hold off on selling my business. After my husband and I discussed it, I think we will not get enough for the business to satisfy our needs and so it is probably better that I continue to run the business and try to get my numbers up to improve the potential selling price of the business,” she said.

I provide my clients with information they need to know about their business and the “state of the market” during current economic times. They decide if they are willing to sell and at what price, I do not make that final decision. But the historical financial data of the business is a significant factor in determining the value of any business. The current balance sheet is a financial document to review. It gives you a “snapshot in time” and affords you a window in the health of a small business. The simple formula Current Assets - Current Liabilities = Cash Flow affords you insight into how well a business is managing the Cash Flow and whether they appear to be paying their bills in a timely manner. In addition, Short Term and Long Term Liability are key factors. More often I see that business owners who wish to sell are influenced by the amount of short and long term debt to derive the value of their business (of course they want to pay all of the debt off and have some additional cash left wouldn’t anyone?).

In Wanda’s case (which is typical), if she sold her business for what she felt like it was worth she may not break even and that is why her decision is to “hold off a little while”. In today’s economy, this view is becoming more prevalent. Small businesses are experiencing declining revenues and declining profits. Hopefully, they are paying attention to payroll costs and other factors to keep them in line with revenues and profits. If not then debt begins to accumulate due to restricted cash flow. But even under the best of circumstances many small businesses today are realizing additional debt just to keep themselves afloat.

Sometimes (not always), small business owners decide to sell due to their debt load. When they contact a Professional Business Broker they really want someone to solve their debt problem by selling the business for more than the debt they owe. In Wanda’s case, she has a wonderful little business and it is still profitable (even during these tough economic times), but two things may have tripped her up a little bit. First, about a year ago she decided to buy the commercial property her childcare operates out of and perhaps paid a premium for it shortly before the decline in property values (all commercial property will be subject to an appraisal for bank financing and hers was appraised). In addition, shortly after the purchase of the property the center experienced a broken water pipe over one weekend which caused her to lose children as she was forced to close the center for almost two weeks for repairs to be completed. While we can make a case for lost revenues and higher than normal labor cost (after all, she did not want to lose teachers so she had to keep paying them or lose her staff), it creates a distraction for prospective buyers. So I agreed with Wanda and we will review her situation at the end of the year.

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Armored Car business - established in 1995 with good customer base for prospective buyer to build upon. Contact Dan Lemanski dan@lemansinc.com.

Tough Economy but now is the time to sell or buy a business!

I've been in the business brokerage business for the past 15 years. How I got into the business was in 1994 I sold a commercial graphics business that I owned. That deal hooked me and I've been helping sellers and buyers ever since. I wish I could say all my transactions were "win/win" projects. Unfortunately, that has not been the case for all of my projects (although I can confidently say the successful deals far outweigh unsuccessful deals). Can I predict which transaction would be successful and which would not? No, for just as soon as I would make a judgment call one way or the other I would be surprised at the success or lack thereof.
I cannot guarantee success for anyone but I can provide insight into the small business and its objective merits (which is not always about how profitable or unprofitable the business is), but I cannot discern all the subjective aspects of selling or buying a small business as it relates to the individual seller or buyer. I can share my fifteen years of experience. So if you have a question or are looking for tips to value a business and either sell one or buy one give me a post and I'll be glad to help in any way I can.
Dan
PS visit my website at www.lemansinc.com