Economic Downturn – WETONG Blog

Buying a Business – the Basics

Willard Michlin asked:

Buying a business in today’s economic climate requires that you, the buyer, be on the ball, with regard to business basics. This economic climate, as far as businesses are concerned, is a sellers market.

With the corporate downsizing, economic downturn and other factors, there are a lot of very knowledgeable buyers out there looking for one of the very few good business to buy. This means that you, as a buyer have a lot of competition. Consequently, you need to be well prepared. Professional business buyers, report that it takes anywhere from 3 months to 3 years to find the right business. So, if anything, what can be done to speed this looking process and at the end finally get a good business?

The decision – the first step is deciding to buy a business. Once you have made this decision and you are definite and firm about the fact that you are definitely buying a business, the process has started.

The second step is to decide what kind of business. This is really really important. What are the criteria for this business you are looking to buy? Do not make a wish list or what would be nice. Make a list of what is important. For example, if your standard of living requires $100,000 income, do not compromise by looking at businesses that make only $50,000.

That is unless you consider yourself a knowledgeable business manager and marketing person who knows that any business they buy will double in income and sales. That kind of buyer can buy a business that makes no profit and probably should.

Other criteria include; is it something you can handle? What kind of work are you willing to do? If you like sales and do not like running a factory, buy a distribution company, or sales organizations, and do not buy a manufacturing firm, unless you have a partner that likes running a production line.

I have people call me to inquire about buying a body shop that have no automotive experience at all. You can buy an auto repair shop, muffler shop, brake shop or lube store, and learn the business, with no experience to start. You probably should not buy a salvage yard body shop, or scrap yard with out being raised in the business. If you are a salesman you can buy almost any business.

All manufacturing, distribution or retail sales require good personal sales skills. If you are poor at communication skills or English is a second language, consider buying a liquor store, gas station or hamburger stand, just a few of the businesses that do not require, personal selling, or do they?

About you – There are some things you need to prepare for the brokers when they start coming to you with possible businesses. You need to make sure that you have your down payment sorted out. Expected down payments are anywhere from 25% to 100% of the selling price. So make sure you know what you want to spend and then make sure you have the down payment easily available.

Then you need to get your financing options determined. You can get yourself pre-qualified for a business loan or an SBA loan if the business you are buying is required by you to show a profit on the books. SBA loans are only available to businesses that have shown a 5-year profit on their tax returns. If you are looking at businesses that are heavily unrecorded income, you must have cash or seller financing.

Being your own broker – You should determine who is going to make your offer. A broker, or yourself? If it is you then you should locate the necessary offer forms and study them carefully. Determine what must be in your offer so that you can put in an offer, the instant you find a business that meet your requirements. This is an important step, as putting in an offer tends to lock out other buyers while you look over the business. Make sure you have contingencies in your offer, which means you have lots of “get out of the deal” clause.

I would like to suggest, for the less experienced buyer to hire as a consultant the sharpest attorney or business broker you can find and pay him for his time to watch your rear end, in negotiations and in reviewing the companies you are considering buying. In real estate we call this a buyers agent, except with businesses the listing agent will not always co-operate in splitting the commission. This means you need to be willing to pay your agent an hourly fee for helping you. Let me give you a real example.

David and his father were looking for a business to buy. They were interested in a Scrap yard that I was selling. I asked their buying agent to bring them over so I could interview them and to explain this business to them. In 3 minutes it was clear that they should not even consider this business. We spent the balance of the meeting talking about the businesses they had looked at and the pros and cons of each. I gave them my honest suggestions about each from their description. They thanked me and left.

Two months later David calls and asked if he could come talk to me. He told me about an FSBO “For Sale by Owner,” who would never pay any agent a commission unless he got his price + the commission. That of course doesn’t make sense to a buyer. David told me about the deal and I gave him my honest opinion about it. David asked what my time was worth and gave me a check for an hour’s time.

Two months again passed and David called and said, “I need to see you today.” He proceeded to tell me about a Car Wash Soap manufacturing company that was suppose to be making $500,000 profit per year. The asking price was $2 Million. David wanted several things from me. He wanted my opinion of the business, he wanted me to help get the price down to a more reasonable amount and he wanted me to verify the income. It took me 30 hours of reviewing the books and talking to the seller to determine that the business was making only $350,000 per year including what was not on the books. The books were made complicated, intentionally so that no one could understand what was going on.

I related my findings and told David he had to do his own negotiations but I would coach him every step of the way. David paid my fee and I didn’t hear from David for one year. When he called, I asked what happened to the car wash soap business. He filled me in on the story.

He bought the business for more than I suggested because he saw where he could improve the business instantly. The profit turned out not to be $500,000 as the seller guaranteed, but exactly $350,000 as I had determined. David took over sales and marketing and within 1 year had the company profit up to the $500,000 he was promised.

David now had found a related business that had been listed with an agent who did not understand the business he was marketing and could not sell it. David was now talking to the seller directly. The seller wanted $550,000. David wanted me to negotiate, on a consulting fee bases with the seller to get the price down.

I instructed David that I would appraise the business, and convince the seller that my appraisal was accurate, but David had to do the negotiations. The seller would never talk to me about the inside details if he was negotiating with me directly. This time I spent 5 hours with the seller, not the books, to determine the business was worth $350,000. The seller would not take the price, but felt I had done an excellent appraisal. I suggested to David to wait 60 days and open discussions again. I also told him the seller would eventually take the $350,000.

I again didn’t hear from David, this time for 6 months. When David called I asked for his report on what happened. The seller called him after one month and sold the business to him for my appraised amount, just as predicted. What did David want this time? Two guys wanted to buy the business and David wanted me to justify a price of $500,000? I did my updated analysis and got paid. I will not find out what happened until David calls me with my next assignment.

Get the word out – Now that you have got all of your preliminary work done you are ready to go looking for businesses. You are ready to look for businesses for sale. Go on to the Internet and look at sites that have businesses for sale. Look in the classified section of your county newspapers and look at what is for sale. Contact business brokers and tell them what you are looking for in detail. Call on broker listings and FSBO (For Sale by Owners.) When you find something interesting you move through the steps with a broker, accountant or attorney or without a broker, accountant or attorney.

Find out what financial records they have. This will eliminate 75% of the businesses. The records are false because of cash sales and/or cash payroll. A lot of auto repair shops pay their mechanics a base salary on the books and the balance in cash. This is crazy and illegal. They have cash sales, which are illegal, and not reported and then they give this money to the employees illegally. Have fun figuring out the profit on these businesses. Some businesses do not want to give you any financials. They do not even want to lie to you about the numbers; they just do not give them to you. You need financials even to just see what the operating expenses are.

Cash income — The problem with cash income, besides being illegal is it is unconfirmed. Jack bought a body shop doing $60,000 sales on the books. The seller showed Jack records that proved to Jack, an experienced body shop owner that the business was really doing $125,00 month in sales. After escrow closed Jack was given the production records for the last 5 years by the general manager that stayed with the company. The business was doing $60,000. Exactly what was on the books! There was no cash. The seller reported every dime. I **** to say it but if someone were willing to lie to the government and their business broker, why would they tell you the truth?

Find out what the seller wants – the next key step is to ensure that you find out exactly what the seller wants. You have already stated what you wanted when you got the word out. Now, you need to make sure you understand what the seller wants. Make sure you get full information on this from the broker or seller. On this step, you are basically finding out what the seller wants for his or her business exactly. That includes, down payment, seller carry back terms, time he is willing to train you to run the business, and what he is including in the price. Inventory can be included or extra. Leased equipment basically has you as the buyer assuming the debt, where financing on owned equipment is paid off in escrow or the price is lowered because you are assuming the debt. With all of this information, you can begin your negotiations.

Negotiate – Ok, now you know what the seller wants and you know what you want. On this step, the objective is to get the two wants to match up and agree with each other, so that the deal can take place. What you are trying to do at this stage is decide if you are going to go ahead with the deal or if you are going to continue talking with the broker and the seller until what they want is closer to what you want. The key here is keeping the conversation going (negotiate). As long as the conversation is going, it is much more likely to result in the deal taking place. So keep the conversation going!

Almost the final action – after the negotiations and an agreement has been reached, there is one final action that is vital. Your offer is in, but you are not done yet! Due diligence is required. Here you must get documentation on the financial figures you have been given. You want to verify that what you have been told is indeed the case. Get Profit and loss statements, business tax returns and other important documents. If you have been told that a body shop has a contract with the local city to service all their vehicles, or some such story, ask for and see the contract and verify that a valid contract does indeed exist. Part of this final action is ensuring that you have the advise of a competent professional as well.

Escrow – Never buy an asset sale purchase without an escrow. We have already established that the sellers may be lying to you about any number of things, but they may have debts that they do not even know about. The escrow will do a “bulk sale notice” that gives creditors of the business a chance to file their claims, and if they do not the buyer cannot be held liable. The escrow also makes sure that the payroll taxes; sales taxes; federal and state income taxes are paid in full. The IRS has come into companies and assessed for many years of unpaid taxes. As the buyer you would get stuck with this bill, if you didn’t do an escrow.

Conclusion – Following the above steps will see you through most of the pitfalls in buying a business.

Five Great Examples of Collectible Paintings: This Art Mimics the Economic Downturn

DiscoveredArtists.com Media Relations asked:

Internet art gallery DiscoveredArtists.com reports that art continues to mimic life and, in fact, in some instances mocks life.

A growing number of paintings and fine art photos posted to the online art gallery are themed around the current economic downturn. The artworks range in temper from sympathetic, emphatic reflections on the plight of the common man, to critical commentary on corporate greed, and on the worsening economic outlook.

“We always see art that reflects the good times, but crisis, bad news and social and political controversey really seem to stir the creative juices,” said DiscoveredArtists.com’s Brian Walker.

It’s no surprise that contemporary artists who by nature are gifted with hyper-awareness and a natural desire to express opinion, are reacting to the economic crisis through their art.

Along with creating new works of art, artists are culling their portfolios for pieces that reflect the recent financial crisis, and especially art that communicates their sympathetic and empathetic themes related to the common man with concerns about credit, unemployment and corporate greed.

Walker explains that “We search for talented independent artists and invite them to sell their work in our gallery, so we’re actually a curated site.”

But Walker adds that artists have “complete freedom” to choose the art that they add to the site, so the themes and ideas reflected in recently posted artwork are a good indication of what’s on the minds of independent artists.

And clearly, based on recent postings, the current economic crisis tops the list.

Over the past few months, in sync with growing bad news about the economy, a number of artworks related to the tragedy of business failure and high unemployment, and commentaries on corporate greed and Washington politics are showing up in artists’ galleries.

Fine art photographer, Robert Hicks, recently posted No More Credit to his DiscoveredArtists.com gallery. The artist relates deeply with the plight of small town folks who are affected by financial woes. He writes, “I have been through financial failure in the 80’s when the oil business crashed and took me with it, so I have a personal connection with the images of financial distress, failed businesses, and decaying edifices that once represented someone’s hopes and dreams.

Hicks, however, continues with a positive twist to the tragic story of survival, “… I also connect with my images of those who try to find a way to survive in tough times – as represented in No More Credit – and find opportunity in the midst of the crisis – as depicted in Cash for Titles. I understand the rocky road of recovery from financial disaster.”

Both photographs are part of a series of black and white images depicting the edifices or other traces left by people on the side of the road, inviting the viewer to imagine the stories evoked by those structures or other mute signs of human presence. The photos are an invitation to the viewer to use their imagination and write their own story.

A completely different temper of the times is expresssed in Politicians on Parade by American Artist, Maggie Stewart. This might be an artwork with a generally accepted point-of-view, but we certainly can connect the thought behind the painting to recent financial bailouts, and especially to the regulatory failure that lead to them. The artwork is a small, but powerful 5″ x 7″ monoprint on copper plate, and is a real departure from the usual decorative artwork that this very established artist typically creates. Clearly an inspired work of art.

Unemployment Line by South African artist Grady Zeeman reminds us that the economic crisis is worldwide, and is equally or even more severe outside the U.S. The artist comments in a description of this artwork that unemployment is at crisis level in South Africa, and that rising costs for housing and food make prospects for many South African families bleak. The large 36″ x 24″ painting is an original oil on stretched canvas, and is one of over twenty paintings that Zeeman has posted to her DiscoveredArtists.com gallery. The artist’s mission is to raise awareness of South African issues that affect the lives of her fellow countrymen.

Corproate Conscience by Canadian artist Mark Eliuk leaves nothing to the imagination. The artist makes no comment about the surrealism portrait because the title, and the painting itself speak volumes about his view of big business. The 11″ x 14″ painting is available on stretched canvas as a limited edition giclee print, signed and numbered by the artist. The series is capped at 250 and only twenty of the prints are available for purchase online.

About DiscoveredArtists.com DiscoveredArtists.com is an online art gallery where independent artists sell work directly to the general public. All purchases are backed by a 100% satisfaction guarantee, including return shipping. Purchase original and limited edition wall art, fine art photographs and art objects with a major credit card. All art is shipped directly to the Buyer from the Artist’s studio.

Online Games Find Success in a Recession

R. L. Fielding asked:

Even as the economy takes a tumble, the popularity of online games is on the rise. Online game properties continue to see positive growth as Americans turn to ad-supported games as a form of affordable escapism.

Nearly 86-million Americans visited online game sites in December 2008, a 27 percent increase over the previous year, reports comScore, Inc., a leader in measuring the digital world. While these numbers are astonishing on their own, comScore also reports that the total time spent playing online games increased by 42 percent.

This means more people are playing online games and they’re playing for much longer periods of time. In fact, a survey conducted by Slingo Inc., a thought-leader in the casual games industry, reveals that nearly half of all visitors to the Slingo.com portal play casual games seven days per week.

What does this mean for advertisers? In spite of the recession, online game sites are among the stickiest entertainment sites on the Web. By tapping into this highly engaged audience, advertisers can connect with consumers more easily than in other advertising platforms where the message is often tuned out.

Affordable, Escapist Fun

So why are online games more appealing than ever during an economic downturn? In part, it’s because many people enjoy online games as an escape from the pressures they may experience at work or in the home.

“By concentrating and focusing on the game, a person can take a ‘mental vacation’ from whatever it is at the moment that is causing stress in his or her life,” says Dr. Carl Arinoldo, a stress and relaxation psychologist, in an interview with the Long Island Exchange. “And, given the engrossing quality of these games, the concentration and focusing are quite easy to accomplish and stick with!” Despite the influx of bad economic news, online games continue to serve as digital stress busters.

In addition, as people feel the financial crunch and being to tighten their purse strings, the entertainment budget is among the first things to go. “Not only have consumers turned to outlets such as gaming to take their minds off the economy, but as they curtail their discretionary gaming-related purchases they are turning to free alternatives,” said Edward Hunter, comScore director of gaming solutions, regarding the usage of free online game sites. Since most ad-supported online games are free to play, people can have guilt-free fun in the comfort of their own homes.

Economic Bright-Spot

While the economic picture for most industries is grim leading into 2009, the outlook is bright for the online gaming industry which continues to benefit from growth in its display advertising business model. More than 8.6-billion display ads were placed on online game portals in November 2008, reports comScore, for a 29 percent increase over the previous year. Combined with the surge in the number of people visiting online gaming sites and the increased time spent playing online games, this has resulted in a 30 percent increase in the number of unique display ad exposures.

While the average person’s frequency of exposure to display ads remained constant, the number of display ads per page view dropped by 17 percent versus the previous year. This means that visitors to online game sites were exposed to approximately the same number of ads as before, but there was less ad clutter so each message had greater impact.

Additionally, the model of combining video ad content with casual game content promises to leverage the true value of casual games: user engagement. People are more willing to watch video ads that run before a game starts or between game levels, as opposed to video ads that appear in front of other video content. With online games, the payoff is big enough that viewers are willing to wait and, more importantly, to watch. In fact, according to leading online video advertising network SpotXchange, in February 2008, over 90% of the InGame video advertisements they served were watched in full. This level of engagement means the effectiveness of the video ad goes through the roof.

As greater numbers of people flock to their favorite ad-supported online games for budget-friendly entertainment, more advertisers are seeking the opportunity to reach this highly engaged audience. The increased revenue from display and video ads enables the online game portals to reduce ad clutter, providing a better visitor experience and offering advertisers a greater ROI. In the end, it’s a win-win-win situation for the advertisers, the game players, and the online game portals.

About Slingo

This article is provided by Slingo.com, a leading online destination for people who love to play games, win prizes and have fun. In fact, 1 out of every 20 people in the U.S. has played Slingo online. The Slingo website offers free, original online games, downloadable games, and contests with cash prizes, as well as a social-networking community for game players. For more information, please visit http://www.slingo.com/.

Art Investment- Good or Bad!

Jeff A Hardy asked:

You are an admirer of fine arts. Do you collect handicraft, paintings or sculptures or any other artworks just to get an undefined satisfaction or as an investment too? Well, art as an investment has become popular in the recent past. However, there are supporters as well as opponents of the trend who give arguments for and against investing in art.

What’s good in Art Investment

Uncertain stock market returns, interest rates at their lowest in decades, and shaky property market has lead people to find alternative investment options- investing in art is one of them. The rise in demand and consequently in prices, is definitely a good news for people who collect art. Although there’s no certainty that prices will continue to rise, at least art will give pleasure and an emotional dividend by giving the chance to call oneself a collector. From 1875 to 2000, art has outplayed fixed income, but has been defeated by equities. However, in the past 2 years or so, in the wake of stock market losses, art has surpassed equities. Reports say that global art market avoids crash, even in times of economic downturn.

Why Art Investment is Bad

Art market is illiquid. Buying and selling art works is not so easy as the trade shares. Art market is also non-transparent and unregulated. The history of ownership and condition of a piece has to be checked before investing money. Art goes in and out of fashion and the prices may move up and down very quickly. If selling art, one has to pay many taxes. Critics argue that art can’t be considered as financial asset as it disregards traditional benchmarks of financial analysis. Price determination is at the mercy of erratic public taste that follows no financial logic. Works of art don’t generate any income though they lead to storage and associated costs. In short-term, market volatility is relatively high when compared with other classes of asset.

How to do Wise Art Investment

Art investment is risky only if the investment period is too short. Long-term investment, say for 10 years and more, gives good annual average returns. The only prerequisite is to invest in high quality art. It’s better to deal with reputable galleries or dealers and invest in something you like & won’t mind keeping it for a few years, rather than something you don’t like but just want as an investment. If you are a novice collector, gather knowledge and train your eyes by visiting art fairs, galleries and preferably, student shows. Get lots of information from Internet. If that doesn’t suffice, hire independent art advisers for selecting and managing a collection. Some of them work at private banks. Galleries too offer advisory service as a sideline to their main business. If you sell some art works, consult tax advisors about how to save on it. If a couple buys the work, its good to invest in the name of the person in the lower tax bracket. Generate income from artworks by lending them to galleries. UK-based Fine Art Management Services launched Fine Art Fund, a private equity-backed venture aimed at pension funds and university endowments. It hopes to raise $350 inn, locked in for 10 years, to invest in a portfolio of top-quality art. The fund managers are banking on those investors who have seen some of their biggest holdings go down as the value of a quality arts will never go down to zero. Fine Art Fund also plans to solve the problem of lack of dividend income in this type of investment by renting out its art. This can be taken advantage of by wealthy private investors.