Business Counsel Associates

Archive for the ‘Financial’

Should You Use Cash or Accural Basis Accounting When Valuing a Business?

August 29, 2012 By: azjogger Category: Financial, Management, Operations

By David Annis

When determining the value of a business, it is important to know on what  basis the income statement was prepared to ensure that you come up with an  accurate appraisal. Many small businesses use cash basis accounting, where sales  are recognized when the money for those sales is received and expenses are  recognized when they are paid. Others use accrual basis accounting, where  revenue is recognized when services are performed and expenses are recognized  when the expense becomes an obligation (not when the expense is paid). Accrual  basis accounting gives a more accurate picture of the financial performance of a  company because it is not affected by a late payment from a customer or to  suppliers.

Distortions caused by cash basis tend to be balanced 

When valuing a well  established, relatively stable business, the distortions caused by cash basis  accounting tend to be balanced so the net effect is zero. In December, the  company you are valuing may do work that will not be paid for until January, but  in January there were revenues recognized from the previous December that would  approximately equal those unpaid bills. Similarly on the expense side, you might  not pay the current year’s phone bill until January of next year, but you  probably paid last year’s December phone bill this year, which would offset  that.

However, there are situations in which using cash basis accounting  significantly impacts the valuation. If there are significant changes in working  capital over the course of the course of a year the profit figures can differ  significantly based on the accounting method that you choose to use. If profit  figures are significantly different between accounting methods, you should  perform the valuation based on the accrual basis.

Cash and accural basis examples

Here’s an extreme, hypothetical example of how different a cash and accrual  basis accounting can be. Joe decides to open a widget factory on January 1. He  pays all expenses as incurred, in cash. For the first three months, he incurs  expenses of $250,000 but makes no sales, in the second quarter he begins making  sales. Each quarter, expenses grow by 40% and he can makes sales of 125% of the  quarter’s expenses. On an accrual basis the company would show a profit of over  $250,000 and on a cash basis a loss of $658,800 as shown in the table below:

Expenses By Quarter:

  1. 250,000
  2. 350,000
  3. 490,000
  4. 686,000

Total: 1,776,000

Sales By Quarter

  1. 0
  2. 465,500
  3. 651,700
  4. 912,380

Total: 2,029,580

Collections by Quarter:

  1. 0
  2. 0
  3. 465,500
  4. 651,700

Total 1,117,200

Cash basis profits: -658,800 (Collections – Expenses)

Accrual Basis profit: 253,580 (Sales – Expenses)

Any time that there are significant changes in current assets from the  beginning to the end of the year you should either use accrual basis income  statements when performing a valuation or use an online calculator that will  make adjustments to offset changes in the balance sheet automatically.

David Annis is one of the founders of Valuations, LLC whose websites  include: Guide To  Selling A Business provides information and tools to allow you to sell your  business with or without a broker and  EzValuation.com Free Business valuations with optional paid  downloadable reports. The Pro version includes both PDF and Microsoft Word  formats and will make adjustments to cash method financial statements.

Article Source: http://EzineArticles.com/?expert=David_Annis

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Ending Job Cost Frustration

August 29, 2012 By: azjogger Category: Financial, Operations

By Monica Muir

Are you frustrated with job costing in QuickBooks? Trust me, when I say you  are not alone – I think there’s a big club! Construction contractors,  landscapers, government contractors, architects, engineers, are just a few who  need to be able to track the costs and revenue for jobs/projects.

Users don’t understand how to job cost in Quickbook 

I find in many cases, frustration is because users don’t really understand  how to job cost in QuickBooks – but they think they do. Most try to job cost in  the Chart of Accounts, but then find the chart gets very cumbersome. And when  they go to run some of the job cost reports in QuickBooks they wonder where the  data is (predominantly costs)!

Items are the KEY to good job costing.

Some of the most important job cost  reports are based on the Items list, NOT the Chart of Accounts. I tell my  clients the detail belongs in the Items list, not the Chart of Accounts. So it’s  critical that Items be setup and used as intended. While you have to use Items  on estimates and invoices, Items are usually ignored when it comes to entering  the expense. And, unless you have inventory, I find that the Items are set up  incorrectly to be used for expenses.

So take a look at your Items list. It helps to have your list to be organized  (some do it by number, some by project phase or tasks), so that when you run a  report, like products/services can be seen together or you can see the  progression in the project.

Enter the cost of the item when you pay for it

Next, take a look to see if your Item shows a cost component. I find most  times, Items are single-sided (i.e. they show only revenue or cost), but they  should be double-sided. That way you can enter the cost of the Item when you pay  for it and revenue when you invoice for it. There’s a little check box that will  change the Item from showing only one side to showing two sides. I’ll admit the  wording isn’t always good, nor is the box really evident, but it is sooo  crucial. Once you have the cost side showing, you can select the Cost of Goods  account you want to use.

After the Item is setup, the next key is to use Items when  entering your expenses, instead of selecting your COGS account on the Expense  tab. Remember, if the Item is setup correctly, the dollar amount of the Item  will hit the correct COGS account for you. When you do bank/credit card  downloads or journal entries, there is no place to enter Items, so you want to  use the bills, checks, credit card charge forms for these costs. That also means  that if you outsource your payroll and just have journal entries to record  taxes, wages, etc., then you miss out on using Items for your labor, which is  usually a significant job cost.

There are also ways to use Items to allocate overhead to projects, but that’s  a little complex for an article.

There are several other important areas for job costing in QuickBooks, but we  will address some of those on another day. However, if you start working with  Items as intended, you will be much happier!

If you would like additional assistance on job costing, you might like our Keys to Mastering Job Costing in QuickBooks or you can contact our office  and we’ll be happy to work with you.

Muir & Associates helps businesses use their Intuit products more  efficiently and more effectively so businesses can focus on their business and  make more informed decisions. We provide sales and support services. Monica  Mitchell Muir has been helping businesses with their QuickBooks products since  1996. http://www.muirassoc.com http://muirassoc.com/blog/

Article Source: http://EzineArticles.com/?expert=Monica_Muir

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Employer Hits Manager– Employer Gets Blame

June 11, 2012 By: azjogger Category: Financial, Human Resources, Management

By Mara Thorne

It is a long established principle that employers can be held liable  for unlawful behaviour on the part of employees in the course of their  employment. So for example, if a manager discriminates unlawfully against an  individual in relation to promotion or a salary increase, the company must prove  that it has taken reasonable steps to prevent that discrimination, or the  employee will have a case against the company. This principle is called  “vicarious liability”, and can extend to failing to protect employees against  the unlawful behaviour of third parties, such as clients or  contractors.

Two recent cases have hinged upon what “in the course of employment” means.  They both dealt with acts of violence against managers.

In one case, the manager of a nursing home phoned an employee who was off  duty and asked him to come in and cover a night shift. The employee had been  drinking, and took offence at the way the manager had spoken to him. He cycled  over to the company premises and assaulted the manager.

In the second case, a manager in a factory advised an employee on the  production line that he was failing to do his job properly. The employee  attacked the manager, throwing him against a table and fracturing a vertebra in  his spine.

In both cases the employees made claims against their employers, which were  originally dismissed but went to appeal.

In the nursing home case, the Court of Appeal upheld the original decision.  It concluded that the employee was motivated by a dislike of the manager in  question, and held that the attack on the manager, coming some 20 minutes after  the phone call, was too far removed from the employee’s role to be regarded as  “in the course of employment”. The employer could not have been expected to  foresee such a reaction on the part of the employee, so it would have been wrong  to hold the company liable.

In the factory case, however, the assault took place immediately upon the  manager taking the employee to task about how he was performing his job, and was  sufficiently closely connected to the employment to be a reasonably foreseeable  response to the manager’s actions. Thus, the employer was held to be liable for  the injury to the manager’s back.

So what reasonable steps can an employer take to avoid being held vicariously  liable for such actions on the part of their employees? Well, the starting point  is – as always – having clear policies giving examples of unacceptable  behaviour, communicating them to all employees, ensuring everybody understands  them (in the case of unlawful discrimination which is a complex subject,  evidence of training would be helpful), and taking appropriate action if those  policies are transgressed. A policy that gathers dust on the shelf and is never  enforced just won’t do. And in the above two cases, as with any hazards to  health, a documented risk assessment and control measures to eliminate or reduce  the risks will be crucial to a successful outcome for the company.

For flexible, affordable advice and assistance on this and any other  employment-related issue, contact Mara Thorne at M Thorne Consulting Limited, on [email protected]  or 01372 700139, or check out the website on http://www.mthornehr.co.uk.

Article Source: http://EzineArticles.com/?expert=Mara_Thorne


Business Continuity– Keeping Your Business Afloat in Crisis

June 07, 2012 By: azjogger Category: Financial, Management, Operations

A crisis that threatens the survival of your business can happen at any time  and without notice. Would your business survive a crisis?

Whether you run a large organization or a small family business the most  common and unexpected threats to businesses are the same. Consider a few  examples of incidents that could have a devastating impact on your business;

  • Environmental factors – a pollution incident or regulatory  compliance failure could leave your business stranded and will almost certainly  undermine customer confidence
  • Severe weather – flooding and / or wind damage following a  storm. If your business is in a remote location you may be particularly  vulnerable to disruption
  • Theft or vandalism – theft of computer equipment and  precious business records can bring your business to a complete standstill.  Similarly, theft or vandalism of operating plant or vehicles is costly and may  pose health and safety issues
  • Fire – few other situations have such potential to  completely destroy a business
  • Loss of utility – have you considered what you would do if  you suffered a loss of electrical power or if your IT or telecoms systems failed  to operate?
  • IT system failure – computer viruses, attacks by hackers or  system failures can render your systems useless and affect your employees  ability to deliver business functions
  • Disruption to fuel supplies -how long can you operate  vehicles and machinery in the event of a fuel crisis? would staff still be able  to get to their work? would your suppliers be able to deliver essential business  supplies?
  • Restricted access to premises – if you had a gas or water  leak, how would your business function if you could not access your  workplace?

There is no shortage of cases where no one really expected any of these  incidents to happen to their business. And while it may be perfectly reasonable  to expect that a serious incident will receive a prompt response from the  emergency services, what comfort can you take beyond that? What happens next and  how your business will respond to customer demands and staff expectations will  come down to you.

In today’s fast paced and competitive business climate, customer and brand  loyalty is ancient history. The ability to act quickly and get back to “business  as usual” has never been more critical. Without structured and well rehearsed  contingency arrangements your business could cease trading simply because it was  not well prepared.

Hoping for the best and planning for the worst

Hoping for the best and planning for the worst might be an age old saying  but, given the unprecedented business challenges that have developed over the  last decade, it makes perfect business sense.

Forward planning and protecting the reputation of your business, whatever its  size, is paramount. The smaller your business, the more important it is to have  contingency arrangements in place. Any incident, no matter how small, is capable  of undermining your ability to continue trading and can adversely affect your  profitability.

Customers, banks, investors, insurers and suppliers will all take your  business more seriously if you have contingency arrangements in place. Staff  will also appreciate the fact that the business is doing all it can to protect  their safety and place of work.

A contingency plan adds insurance

A Business Continuity Plan (BCP) is simply a means of ensuring that you have  contingency arrangements in place and that your business can respond promptly  and sensibly to a crisis.

Developing a Business Continuity Plan will identify all the essential  requirements that you need to put in place to keep your business running. This  includes processes and procedures aimed at minimizing business disruption and  keeping your customers and staff informed.

A key challenge in Business Continuity Planning is identifying and protecting  essential business elements. The principle aim is to understand the critical and  non-critical functions and activities that support the business. An effective  plan should consider these aspects and identify the essential needs of the  organisation.

Business continuity planning can start with a few basic steps;

  • consider every facet of your business
  • decide what is critical and determine how long individual business elements  can operate without normal support systems
  • prioritize what should drive planning decisions, eg, if an IT function  cannot be off-line for more than two hours, what secondary systems and data  would you need, where will this be located and who will have access
  • think about operational and financial cost of not having a critical function  – how much revenue would be lost by customers taking their business to another  supplier?

There is really very little difference between planning for business  continuity and buying an insurance policy. Firstly, decide on the fundamental  requirements before evaluating the potential contingency strategies and then  make an informed decision.

Eric Monson BSc

My aim is to assist businesses in the development of their business strategy,  providing a platform for best practice and sustainable business growth. Follow  the link if you would like to know more about business continuity planning.

Find out more at http://www.emcbs.co.uk.

Independent Contractor or Employee?

May 29, 2012 By: azjogger Category: Financial, Management, Operations

By Birgittee J. August

When figuring pay many small business owners think they can forgo messy  payroll taxes calling everyone an independent contractor. Not the case, the IRS  has criteria in determining whether someone is an employee or an independent  contractor. They are headed for big trouble with the IRS if they do not full  understand and comply. There are several key factors they use for determining  the status of workers.


Behavior Control They are an employee if subject to company  direction about when, where and how the work is to be done. What tools or  equipment is used, where to purchase supplies and what work must be done. Also,  in what order to follow in executing that work then they are an employee not an  independent contractor. Are you providing training or evaluation, then they most  certainly are an employee and need to be pay rolled as such.

Financial This area deals with a businesses right to control  economic aspect of the worker. An independent usually has an investment in the  equipment they use, though some employees do spend a significant amount of money  on tools. Jobs such as construction and are considered employees. Most  independents will incur non reimbursed expenses and having the possibility of  incurring loss is usually an indication that they are an independent.  Independent contractor is free to seek out more business opportunities in  relevant markets while an employee maintains position with the company.  Independent contractor is usually paid flat rate per job while an employee gets  hourly or salary wage.

Relationship Even though there is a contract between worker and  company stating they are an independent contractor, the IRS is not required to  follow it. They looks more at how the parties involved work with one another.  Even in the absence of employee benefits like insurance, pension, vacation pay  does not constitute independent. If the worker is expected to continue work  indefinitely rather than a specific project or period of time then usually this  is considered intent for an employer-employee relationship.

If after reviewing above criteria and still unsure if your workers are an  employee or independent contractor IRS has Form SS-8 to fill out for determining  worker status. I hope this was helpful and now you have a clear idea of the  differences between employee and independent contractor. Make sure you are in  compliance to prevent any trouble or litigation with the IRS. When in doubt employee is the safest  choice.

Brigitte August is the Director at The Art of Data they are dedicated to  offering affordable services to small businesses while promoting ethical  business practices. Are you a small business that can’t afford to keep full time  staff for your marketing and clerical needs we can help. We offer market  research, business writing and internet marketing to mention a few services.  Visit us at http://theartofdata.netii.net

Article Source: http://EzineArticles.com/?expert=Brigitte_J_August

Going Up? How Sales Negotiators Deal With Escalation

May 15, 2012 By: azjogger Category: Financial, Management, Operations

By Dr. Jim Anderson

Just when you think that you’ve got everything nailed down in a sales  negotiation, you just might run into the issue of escalating authority. Sure  you’ve reached a deal with the other side of the table, but then all of a sudden  somebody else gets involved and it turns out that they don’t like your deal.  What’s a sales negotiator to do?

What Is Escalating Authority?

The escalating authority tactic is a sneaky one – often you don’t see it  coming until it’s too late. The way that it works is actually pretty simple. You  sit down with the other side of the table and you work to hash out a deal. In  the end, you both finally come up with a deal that you believe that both of you  can live with.

Emotionally you believe that you are just about done with this sale and you  start to think about all of the other things that you need to start to work on.  That’s when you get surprised. What happens is that the other side of the table  comes back to you and says that there’s a problem.

What he says is that there are other people in his organization who have to  approve the deal that the two of you have created. He’ll tell you that somebody  is unwilling to approve the deal as it currently stands. They want more  concessions from you in order for them to sign it.

You might be saying to yourself “I’d never give in and agree to more  concessions.” Well, it turns out that a lot of us actually do give in and do end  up making more concessions – that’s why this technique is so effective.

How Can You Make Escalating Authority Work For You?

We all think the same thing when we bump into a powerful new negotiating  technique: how can I make this thing work for me?  If you are going to want to  harness this powerful tool, then you’re going to have to understand why it  works.

The main driver behind this technique is that the other side of the table  already has a significant investment in making the deal happen. The escalation  to authority is based on the other side being willing to do more in order to  achieve what they think is already almost theirs.

When they encounter the escalating authority tactic, the other side believes  that they have only two choices. The first is to make a concession and allow the  deal to happen. The other is to refuse to make a concession and be willing to  sit down and start the negotiating process all over again.

How Can You Defend Against Escalating Authority?

If there’s a powerful negotiating tactic out there, then you know that  someday it’s going to be used against you. When this happens, and it will,  you’ll need to know what to do in order to counteract its powerful force.

Right off the bat, you’ve got the most powerful countermeasure available to  you: leave. Get up and walk out the door. If you do this, then all of the power  associated with the escalating authority tactic instantly vanishes.

When this tactic starts to be used against you, you need to immediately  inform the rest of your company what is going on. Your purpose for doing this is  pretty simple: you want them to get used to the idea of waiting – no deal is  going to be struck anytime soon.

One final countermeasure is to just wait. Just as you have a large investment  in making a deal happen, so too does the other side of the table. This means  that if you just put a stop to everything, they’ll soon start to feel as though  the deal that was almost theirs is starting to slip away. This may force them to  drop their request for more concessions.

What All Of This Means For You

In the end, the use of escalating authority should be viewed simply as being  yet another negotiating tactic that we all have available to us. As with all  such tactics the key is to understand when it should be used.

When you’ve gotten the other side to commit to a doing a deal, but you think  that you can still get some more concessions out of them, the escalation tactic  can be a good tool to use. However, if someone starts to use it against you,  then you’ll need to inform the rest of your company so that they will support  you as you deal with it.

Anytime other people get involved in a negotiation in which a deal has  already been reached an element of danger is introduced. The deal that seemed to  be so close, may now look farther away. Careful how you use escalating authority – just make sure that the gains that you’re looking for are worth the risk that  you’ll be introducing.

Dr. Jim Anderson http://www.blueelephantconsulting.com/

Your Source For Real World Negotiating Skills™

Dr. Jim Anderson has spent over 20 successful years negotiating sales of all  sizes. Dr. Anderson offers you his insights on how to develop your negotiating  skills so that you can approach sales negotiations with more confidence that  you’ll be able close more deals and close them faster!

Article Source: http://EzineArticles.com/6375597

Breaking the ‘Self-Made’ Myth That Destroys Business

May 07, 2012 By: azjogger Category: Financial, Management, Operations

By Yemi Akinsiwaju

You may have heard someone being described as a self-made millionaire or a  self-made success story.

Let us just start by debunking that myth straight away. There is no such  thing as a self-made millionaire or a self-made anything!!!

Every person who has succeeded in any endeavour in life has had the help,  directly or indirectly from a plethora of people. Indeed, success is the  ultimate team sport.

It is important to address this ‘self-made’ myth because it is one of the  most destructive influences affecting many small business owners. Why? Because  it forces your business to remain small, longer than it should, due to you  trying to do everything by yourself. And it could even lead to the outright  destruction of your business.

Let us explore the network of formal and informal partnerships that you need  to cultivate effectively in order for your business to thrive.

Support Team

Whether working with you directly as employees or serving as a virtual team  operating in another time-zone, five thousand miles across the globe, you need  to develop the skills to work with, harness the efforts of, and motivate a range  of people who will help you deliver the results you want.

The first step however is to recognize your need for a support team and not  try to undertake all tasks, simply because you want to save money as a small  business. Frugality is essential, only up to the point where it begins to  diminish the output and productivity of your business. At such a point,  investing in the right support team is not really an option but a critical  necessity.

Statistically, over 95 percent of registered businesses in the UK (and many  other developed economies) fail within the first five years and most of them are  one-man bands. I wonder how many of them failed simply because the business  owner suffered burn-out, trying to do everything himself and could not carry on  when the pressure became too much and he lost his vision.

The challenge often is that many business owners start their businesses based  on a specific expertise they have and generally feel that other people could not  undertake the same tasks to the same degree of competence or excellence that  they would themselves.

That may be true but in the words of John D Rockefeller, I would rather have  one percent of the efforts of a hundred people than one hundred percent of the  efforts of one person, even if that one person is me.

The key is to select the team properly and guide them to the high level of  competence you require for your specific business.

Customers / Clients

Many small business owners do not have a clear strategic understanding that a  customer is a valued partner in your success, not just someone you sell goods or  services to.

When a customer pays you a certain amount of money for your goods or  services, she is in effect investing a certain portion of her life into her  relationship with you.

Let’s look at it this way; say that a customer walks into your premises and  buys your widget for £250 (British pounds) and she actually takes home £1000  (British pounds) per month (4 weeks) from her job. In essence, one week out of  her working month which could be 40 hours or more of her life have just been  placed in your hands.

For such a level of trust, it is critical to treat your customers with a high  level of respect represented by great quality of your products / services and  excellence in customer service.

They (the customers) are part of those who help to ‘make’ you.

Mentors / Business Coaches

Humility is acknowledging the support of the myriad people who have invested  some part of their lives in you, no matter how small.

All truly successful people have had a mentor or coach at a point in their  lives that served as the bridge over which they crossed from the land called  average into the land called success.

Richard Branson, the legendary billionaire had his Freddie Laker; Susan  Boyle, the musical sensation had her voice coach, Fred O’Neil and Myles Munroe,  the global leadership statesman had his Oral Roberts.

Whom do you have as your mentor and / or business coach?

I urge you not to fall into the trap of trying to fly solo in building your  business. Develop a different mentality that cherishes and cultivates great  quality partnerships and this will leverage your business to a whole new level  of success.

Yemi Akinsiwaju is a Business Growth & Leadership Development Consultant  helping major organisations in the U.K successfully improve their business  results.

He is also an international speaker, a coach, mentor and business strategist  to SMEs and a published author of the highly acclaimed personal development  classic, Scorecard: Achieving Success and Balance in A Turbulent World.

He can be contacted via: http://www.DaySpringConsult.com

Article Source: http://EzineArticles.com/?expert=Yemi_Akinsiwaju


How Much is Your Patent Worth?

May 07, 2012 By: azjogger Category: Financial, Management, Marketing & Sales, Technology

By Brian Frank

How does industry value a patent or a patent application? The short answer is  it “depends”. It depends on several factors such as what type of industry your  invention falls into (ie: a new drug patent will be valued in a different manner  than a new software patent). However, there are some fundamental valuation  techniques that are used across all industries. The two most common are:

1. Estimated future income (also called discounted cash flow or  “DCF”)

2. Market comparables or “market comps”

Let’s start with the income approach or DCF since it’s a little more  complicated. This valuation approach tries to estimate how much income your  patent will generate over its life (usually 20 years). There are many things  which go into this calculation such as;

-market size and growth rate (how many customers are there in years  1-20?)

-market penetration (how many of these customer will by your product?)

-market penetration curve (will more customer buy your product as your brand  grows?)

-costs (how much does it cost you to produce your product?)


-net income (essentially your profit per year)

-discount rate (this accounts for risk and the time value of money)

You can essentially use the categories above to build a spreadsheet that  projects the amount of profit (net income) your invention will hopefully make  over the life of your patent. You then use the discount rate which is a  percentage such as 10% that accounts for risk and the time value of money (since  a dollar earned 20 years from now is less valuable than a dollar earned today).

You use all these numbers to calculate the estimated value of your invention in  today’s dollars. This is called the Net Present Value or NPV and investors love  to talk about NPVs.

Don’t worry! There is an easier method.

The market comparable or “market comp” method should be familiar to most of  you since that’s what is commonly used to price your house or a piece of  properly. Just like you can value a house based on how much a similar house in  the neighborhood sold for, you can do the exact same for a patent. When looking  at a house you would have to account for things like; square footage, number of  bedrooms, lot size, etc.

When valuing a patent based on a comparable, you would  have to look at the actual deal or transaction that took place. Was the deal for  world-wide rights? How long was it for? Was it an exclusive deal or a  non-exclusive deal?

It’s extremely unlikely that you will find an exact match for your patent or  the type of deal you are trying to do but you can sometimes get close enough to  put a rough value on your patent. So where do you find these comps?  Unfortunately that’s the tricky part. There are companies that will sell them to  you for a hefty price and consultants that will charge you to do this work. If  you want to try to find some yourself, one method that I use is trying to find  deal terms from publicly available sources such as United States SEC filings.

All public companies must file financial documents with the United States  Securities and Exchange Commission or SEC. Often times these filings will  include patent purchases or patent license agreements. So if you can identify  some public companies in your invention’s area, you can access their SEC filings  and search for terms such as “patent” or “license” or “royalty”.

Another method is to do very specific google keywords searches for “company  name + license agreement” or “company name + royalty”. If you play around with  google long enough you will eventually find some agreements for patent purchases  or license deals that may be useful to you. This takes some time and practice to  master.

A third option is to look at company press releases. Often times the  companies involved in a patent license or sale agreement will post this  information as a press release. Your google search should pick those up but  sometimes it doesn’t.

As you can see there are several ways to value a patent or patent  application. It should not matter which method you choose but you should at  least use one of them. It is always good to have solid data and reasoning behind  why you think your patent or your invention is worth a certain value.

Learn how to patent an idea and view provisional patent examples to help you get started with your  patent process.

Article Source: http://EzineArticles.com/?expert=Brian_Frank

Exit Strategy for Potential Investors– Important for You and Them

February 16, 2012 By: azjogger Category: Financial, Management

By Ian W. Harvey

When it comes to raising equity, the most important aspects of any investor’s  decision to invest are: 1) How they are going to get their money out? And, 2)  What they are going to make when they exit the deal. This can often be a  complicated matter to explain and, if neglected when developing your business  plan, could end up costing you the financing you need to build your  business.

First, an exit strategy is much more than just what your company is going to  be worth at some point in the future. Understanding what your investor needs to  see is an essential element of your presentation. For example, if you investor  looks for a 2 to 3 year exit then don’t show him a 5 year exit plan.

A well-conceived exit strategy for a prospective investor will look at things  such as; who the potential suitors are for the business, what kind of  professional assistance you will require to properly market the company and  achieve the desired valuation, whether an IPO makes sense for your business,  among other factors. Showing that you’ve put considerable thought into their  exit strategy can give you an advantage when they are deciding on the next  investment for their portfolio.

Play it Consertively

When you plan an exit strategy, the issue of valuation will inevitably come  into question. While it is possible that your company with $1,000,000 in revenue  and breaking even will reach $500,000,000 in sales with 30% EBITDA by the end of  year 5, it is simply not likely. A huge “watch out” for any investor is when an  entrepreneur with a vision is wearing rose-tinted glasses. So, play it  conservative and make sure that your growth and anticipated enterprise value are  somewhere within the realm of possibility.

However, be careful… being too conservative can turn an investor off your  deal – nobody wants to see flat line projections with five years of losses  ahead! If you honestly think that is where your business is going, do yourself a  favour by shutting the doors and getting started planning your next venture –  never try to set an unrealistic performance expectation to raise capital.

Knowing that you are going to fail and taking the money anyway will kill your  reputation in the financing community and possibly even your industry.

When possible, provide a potential investor with examples of other companies  in your industry that have achieved the type of success that you are projecting.  Depending on the type of investor and stage of growth your company is in, it is  not unreasonable for an equity investor to expect a 3 to 10 times return on an  equity investment over 3 to 5 years.

Understand the Intensions of a Term Sheet From a Business Perspective

If you do manage to attract the interest of an investor who likes the exit  strategy you have presented, be sure to protect your ability to enjoy in the  success of the business down the road. While a good lawyer with extensive merger  and acquisition transaction experience is a necessary resource to protect your  interest from a legal perspective, it is important to make sure that you  understand the intentions of any term sheet or discussion you have from a  business and practical perspective.

For example, it is not uncommon for  investors, even if in a minority position, to insist that they have significant  influence when it comes to business decisions or raising additional capital –

Understand What Your Potential Investor is Looking For

They may also want to ensure that they get their return of capital and any  gains paid out in priority to the other shareholders (i.e. you and you other  shareholders). If you are comfortable with the idea of having an investor who is  going to be self-serving in this respect, then this may work for you.

Many  companies would not have the balance sheet strength to sustain such a cash flow  hit just to pay off an investor, sometimes leaving the remaining shareholders  trying to create additional value in a company that is stripped of its book  value and all but insolvent. In short, understand what your potential investor  is looking for and make sure that they are not in a position to strip the  company of the value you and your team has work so hard for when it is time for  their exit.


SMB Edge! was created based on the fact that there are many Small and  Medium-sized businesses (SMBs) without the resources or access to the  information owners and managers need to make well-informed decisions in the  current economy.

Please visit SMB Edge! to gain access to the information and resources your  company needs to thrive!

Article Source: http://EzineArticles.com/?expert=Ian_W_Harvey

How to Get Financing for Your Business Venture

February 16, 2012 By: azjogger Category: Financial, Management

By David Z. Reynolds

Brief overview: It does take money to make money! There are costs to be  covered by entrepreneurs seeking large amounts of $$$. Be prepared for what is a  fair cost, and what is not…

“It takes money to make money” is very pertinent when it comes to raising  millions of $$$ for a new business. There are very real costs involved in  creating that winning business you have in mind. You will soon find that the  costs of employing professionals to work on your new project takes a lot of  money – unless they are shareholders…

You also have the long list of licences,  permits and approvals that you shall usually need to acquire. It can get to feel  that you’re paying out a lot of money. But that is part of the cost of securing  your financial future – this stuff is necessary, and it costs money.

It’s also true that when it comes to raising money from investors you have  the costs of getting your business a top quality business plan, cashflow  forecasts, and some basic modelling of the business to show that it’s robust and  ‘bullet-proof’ in changeable conditions.

There are also a few financing  consultants who can guide you through the application process with an investor.  If they are experienced and capable, they should know what the investor needs to  feel safe investing in you and your project.

Business Plan is key to face-to-face meet

Without a good business plan you’re not going to get to face-to-face with the  investor to make your pitch. Many would-be business developers then find that  approaching an investment source costs money too. A broker should only charge  for success – a commission at settlement of your financing.

Be wary, and check everything. Since the Global Financial Crisis a huge  amount of capital has been destroyed – severely limiting the ability of banks  and other financial institutions to fund investment. Be just as wary of the  ‘famous names’ as you are of those you’ve never heard of…

The company you  approach may have been an active investor in the past, but check on how much  they are currently investing…

However, an investor may also want to be paid for you lodging an application.  This is valid – because they need to know who you are and whether you’re  ‘credit-worthy’.

Investor due diligence costs you money – and it can be quite a lot of money.  If the investor doesn’t live in your country, they shall want to have their  people travelling to make on-site inspections, face-to-face interviews with  everyone associated with the project. They have to. It’s unavoidable.

If you’ve  been working with good people, who can deliver, then they shall be working 12-16  hours a day on the due diligence, and avoiding partying and girls. The other  sort you don’t want to be involved with…

Overall budget for the application process to be about 0.5% of what you’re  seeking. So if you’re applying for US $50,000,000, that would involve costs of  about US$250,000 in the whole process, application and investor due  diligence.

David Z. Reynolds is a senior Financing Consultant who’s been working for  investors analysing investment opportunities for 12 years. He has undertaken due  diligence for many investors on many continents. He is the senior partner in GPC  Business Plans who can be found at http//gpcbusinessplans.com GPC provides free information for entrepreneurs that assist in guiding them  into developing their business and through the funding application process with  investors.

Article Source: http://EzineArticles.com/?expert=David_Z_Reynolds

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