Remember the Golden Rule: Not all locations or franchisers are created equal | Daily News
So, you want to start-up and develop a small business – Part 16

Remember the Golden Rule: Not all locations or franchisers are created equal

In the past 15 instalments, we have discussed the difficult part of starting-up your small business. Now comes the adventurous stuff. Although the matters discussed in the previous sections—drafting a business plan, finding the money, and so on - are necessary prerequisites to starting a successful small business and they really cannot be described as fun.

But the things you will do now should be quite enjoyable. From finding the right location to outfitting the office or workshop or small factory, you should take pleasure in the actual process of physically creating a business. Not every business needs a great location. It depends on the type of business you have, the brand you are creating, the amount of foot traffic you require, and the amount of money you have to spend. A business in which you will be going to your customers’ locations rather than vice versa certainlydoes not need a terrific location.

Wholesale businesses, warehouses, and factories also do not need great locations. Out-of-the-way locations can be a wonderful, inexpensive choice for many businesses. The first consideration then, is how important traffic will be to your business. If your business is going to be a retail store catering to the public, especially if there are going to be a lot of spur-of-the-moment drop-in customers, then a high-profile, high-traffic location is vital.

Location Checklist

You may consider the following when looking for a good location:

(a) Population - Are there enough people in the immediate area and in the broader region to support your sort of business? What has been the fate of similar businesses in the area?

(b) Traffic - If your business will depend on drive-by traffic, then you need to be located in a centre of activity or on the route to or from there. Is the location served by public transportation? Is it on a major thoroughfare?

(c) Competition - Where is the competition in relation to the store? Having too many competitors nearby can be a problem.

(d) Visibility - The location probably needs to be visible from the highway, not set back or otherwise easily missed.

(e) Signs - Good signs can make a big difference. Make sure that there are no legal or lease restrictions precluding you from erecting a noticeable sign.

(f) Facilities - What are the facilities like? Is there enough parking? Is there a bathroom for the public? For your staff? What about outdoor lighting and landscaping?

(g) Landlord - Get some references. Is the landlord responsive and easy to work with, or is he or she impossible?

(h) History - Avoid locations with bad reputations, such as those where businesses move in and out every few months, because you will have to spend a lot of time overcoming preconceived notions about the place.

Finally, whatever location you choose, be sure that it is just the right place for your business.

Negotiating the lease

Negotiating a lease is like any other negotiation. It is important to know at the outset what you want and what you can afford. If you are negotiating lease terms, understand that you are a valuable commodity to the landlord. He or she probably wants you as much as you want the space.

Accordingly, you may be in a more powerful position when negotiating a lease and can ask the landlord for concessions and changes, if required. Negotiating a good deal on your lease requires that you know the rental history of the area. What are similar spaces renting for? What is the vacancy rate in the area? If it is high, you can negotiate a good deal because the landlord really needs you.

If the space has been unoccupied for a while, you need to find out how long and why. The more you know, the better the deal you will be able to negotiate. It is also very important that when presented with a draft lease, you must go over it with your lawyer. The lease will be drafted by the landlord’s lawyer for the landlord’s benefit, soyou need your attorney to figure out what is fair and what is not so that you can negotiate.

Above all, try to cultivate a good working relationship with your landlord. That will go further toward working out problems than a dozen letters from your lawyer.

Franchise

You may feel the location will best suit for a good franchise. As we discussed earlier buying a reputable franchise can be the right ticket into the small-business world. However, no matter what type of franchise you’re buying, you need to do plenty of homework before you agree to buy. The following paragraphs describe the unique steps you need to take when evaluating a franchise.

After spending months searching for the right business to buy and finding one that fits your fancy, you may well spend few weeks negotiating an acceptable deal. Just as you’re about tostumble across what you think is the finish line, you realize you have plenty more work left to go.

Before you go through with the deal and fork over the money, you have one last chance to discover any hidden problems that exist within the business you hope to buy. Of course, all businesses have their warts, but better for you to uncover them now so that the purchase price and terms reflect those warts.

The process of thoroughly investigating your prospective business is called due diligence. During due diligence, you need to answer important questions like these: Is the business as profitable as the financial statements indicate? Will the business’s customers remain after a change in ownership? What lease, debt, or other obligations will you be assuming when you buy the business?

Due diligence typically may last 2 months, depending on the complexity of the company you’re hoping to purchase. The same experts you’re working with to put together a good deal for your small-business purchase will form your due-diligence team.

Let us go over the steps to check whether the purchase will be profitable in the long run. This is the single most important aspect.

Consult a tax advisor. Have an experienced small-business tax advisor review the company’s financial statements.

He will know what to look out for. Just be sure to agree on a budget for the cost of the advisor’s services (and, therefore, the time she will spend) upfront.

Adjust for one-time events. If necessary, factor out one-time impactful events from the profit analysis. For example, if the business got an unusually large order last year that is unlikely to be repeated, subtract the amount of that order from the profitability analysis.

Check the owner’s salary and perks. Examine the owner’s salary to see whether it’s too high or low for the industry the business is in. Owners can pump up the profitability of the company in the years before he sells by reducing or keeping the salary to a minimum or take it in a hidden form.

Consider how the building expense will change. Consider whether the rent or mortgage expense will be different after you buy the business. Any large change in that cost will clearly affect the profitability of the business.

Factor in financing expenses. Be sure to calculate what will happen to profits when you factor in the financing costs from borrowing money to buy the business. Pay attention to trends. How are the sales and the profits trending?

Get proof that all taxes are paid. Get the seller to provide proof, certifying that Government and other taxes are all paid up and there are no pending legal issues. In both cases, he is prepared to be accountable. Your lawyer can help you in this tedious and important legal task

Moving intoyour business

If you’ve made it through the searching, researching, negotiating, and closing phases, you’re now a bona fide small-business owner. Congratulations and welcome to your new business! You’ve completed a lot of challenging and important work and should feel proud of yourself.

However, remember, after your deal is closed, be sure to take care of the following few tasks as soon as possible: Write a business plan and mission statement or refine your plan if you’ve already started it. If you researched the industry and evaluated in detail the business you bought, you should be able to generate a good business plan, including an applicable mission statement, without too much hassle. An ideal time to begin work on this business plan is during the due-diligence phase.

Plan the company’s finances. Going forward, you need to have a firmhandle on the revenue, expenses, and cash flow of your business

Consider the entity/legal form of organization. Your attorney and tax advisor should be part of this decision.

Spend time understanding your customers. Get to know your best customers as soon as the ink is dry on the sales agreement. Without good customers who buy profitable products and services and who pay their bills on time, you don’t have a viable long-term business.

Get to know your employees. Employees who liked the previous owner(s) will take time to warm up to you. Some employees may fear for their jobs or worry that a change in ownership will lead to reduced job satisfaction.

The employees contain a wealth of knowledge about the business from which you can learn, and the better you listen, the more the employees will grow to respect and like you.

Walk; don’t run. Take your time to discover the culture of the business, the needs of its customers, and the idiosyncrasies of its vendors before you attempt to make major changes. Work with a good set of advisors for accounts, tax and marketing.

 

(Lionel Wijesiri is a retired company director with over 30 years’ experience in senior business management. Presently he is a freelance newspaper columnist and business writer. He could be contacted on [email protected])


 

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