The Beal Business Advisor

May 2016

Contact Number: 204-478-7266

In This Issue

Buying a Business - Financial Ratios
Selling your Business - What does an Exit Strategy Involve?
Question of the Month - Lease versus Buy?

Financial Ratios

Last month we discussed discretionary costs and perks & benefits, this month we want to discuss financial ratios.

While analyzing the balance sheet and the income statement, sales and operating ratios should be calculated in order to point out areas requiring further study. Ratios provide insight into profitability, liquidity, efficiency and leverage ability.

Profit ratios such as gross margin and EBITDA margin are the most straightforward and demonstrate the amount of income being generated from sales.

Liquidity ratios such as the current ratio and quick ratio give insight into whether or not the company is able to operate efficiently with the ability to meet their obligations and turn its products and services into cash.

Efficiency ratios such as inventory, accounts receivables, and accounts payables demonstrate how long it takes a company to sell inventory, collect receivables and pay payables.

The companies borrowing and equity ratios are less relevant as your debt structure will likely be different from the seller. You can however calculate your assumed leverage and equity ratios to see what the picture will look like for you once you have purchased the company.

Ratios are not always that intuitive on their own, you must compare them horizontally to past years and also to industry standards to get the real picture of a business's position.

The significance of each ratio, the methods for calculating them, and industry averages are available through publications such as Dun & Bradstreet and Robert Morris Associates. Look for trends in the ratios over the past 3 to 5 years.

Next month we will discuss personnel.

In the meantime, if you would like more information on buying a business, contact us at 204-478-7266x110.

What does an Exit Strategy involve?

Over the past months, we have talked a lot about succession planning & exit strategies. But exactly what does an exit strategy involve? There are two broad considerations as you plan your exit: some are transactional, and others are business focused.

Transaction issues are important. They include such things as valuation, taxes, legal issues, personal retirement funding, transaction details and, finally, financing the transaction. This is what most people think of when they think of exit strategies.

We encourage people to think much broader - and understand the full range of succession planning issues, which include focusing on the business side. While the immediate transaction-focused issues are important, the longer-term business issues are where you will really make the difference in the ultimate success of the transaction. Specific business issues include selecting a successor; training that individual, establishing clear roles & responsibilities, training, preparation, monitoring the transition and, most important, some form of dispute resolution mechanism.

In the coming months, we will examine both transactional and business issues as they relate to the succession planning process.

Next month: Tax issues - estate freezes.

If you would like more information on selling or valuing a business, contact us at 204-478-7266x110.

Current Businesses for Sale

Specialized Property Management (NEW)

Transportation Company (NEW)

Specialized Manufacturer (NEW)

Home Renovating Specialists (NEW)

Rural Restaurant

Metal Working Business

Indoor Tanning Salon

Fire & Security Business

Winnipeg Auto Body Shop

Industrial Land & Building for Sale - Suitable for Automotive - Conditionally Sold

Cleaning Services Business

Manufacturing Business

Winnipeg Electrical Contracting Business

Transport & Event Planner

BNI Manitoba Franchise

Pizza and Chicken Restaurant (Conditionally Sold)

Winnipeg Used Book Store

Seasonal Product Manufacturer/Contractor

The UPS Store - Winnipeg Location

Home Renovation Business

Profitable Resort

Winnipeg Auto Repair Shop

Farm Parts & Recycling Business

Auto Parts, Service and Recycling Business

Profitable Winnipeg Automotive Services Center

Rural Automotive Repair Shop Location

Carman Property

Franchise - Tanning Studio

Thompson Hotel and Restaurant

WOW 1 Day Painting Franchise

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To review any of these business profiles, please click here .

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We do not advertise all of our listings to the public.

If you have a specific type of business in mind,

please call 204-478-7266 x110 to inquire!

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Quick Links

Beal Consultants Website

Quote of the Month

"Life shrinks or expands in proportion to one's courage."

Anais Nin

Lease versus Buy?

All small businesses will be faced with the question of leasing versus buying, whether it is office space, equipment, or information technology, so it is important to know the benefits of each alternative in order to assess which option is best for your business.

Buying

Pros: fixed costs, ownership of asset, depreciation deductions

Cons: lack of flexibility, upfront costs, risk of obsolete or outdated asset

Leasing

Pros: greater flexibility, tax benefits, no upfront costs

Cons: lack of ownership, higher overall cost, variable costs, obligation to pay for the entire lease term

Which is better for my business?

Leasing and buying both offer advantages to companies. In order to help in your decision making some important factors to consider include:

Business growth - you should take into account long-term plans and future expansion possibilities. New and expanding businesses often experience unexpected demands.

Tax considerations - it is important to consider all related tax implications for each option.

Appreciation or obsolescence - you should take into consideration whether the asset will appreciate in value or become obsolete, often property appreciates in value whereas technology become obsolete relatively quickly.

Fixed versus variable costs - leasing leaves business owners vulnerable to variable costs, whereas purchasing assets allows fixed monthly payments.

Cash outlay - purchasing an asset often requires a down payment, and depending on the purchase price of the asset, the cost can be quite significant to a small business. Leasing frees up working capital, which allows your business greater flexibility to respond to opportunities in the market.

The answer to lease or buy an asset is not explicit, and depends on the individual needs and financial position of your business, as well as the type of asset in question. Leasing can be a good option for business owners who have limited capital or who need assets that must be upgraded every few years, while purchasing assets can be a better option for established businesses or for assets that have a long usable life. It is best to talk with an accountant, consultant or financial advisor to determine which option is best suited for your business.

Call us at 204.478.7266 x110 if you would like us to help you write a business plan.

About Us...

Beal Business Growth Consultants, Inc. helps owners of small and medium-sized businesses to buy, sell, value, and grow their businesses. We also work with individuals who are looking to buy or start a business or franchise.

Call us at (204) 478-7266 x110 to book a free, initial 30-minute consultation to explore how we can help you buy, sell, value or improve your business.

Legal

Copyright 2016 by Steven Beal, Beal Business Growth Consultants, Inc. The information herein is not complete and is intended only to provide guidelines to supplement counsel the reader receives from a qualified professional. It is distributed with the understanding that the author is not rendering legal, accounting or tax advice or opinions on specific facts or matters, and accordingly, assumes no liability in connection with its use.

Published by Beal Business Growth Consultants, Inc.