The Importance of a Team to the Growth of Your Business

In this economy, it seems like the stars have to all align for your business to prosper. Besides the normal issues that a business owner has to deal with – employment issues, union issues, tax planning, how to acquire more business, cash flow, and the like – now that same business owner has to be mindful of impending higher taxes, health care reforms recently enacted into the law, as well as an increasing labyrinth of regulations sure to follow.

One of the best ways to survive these tough times is to build a great team both inside your business and outside your business. Obviously, most business owners strive to find the right employees to work for them and help the business to prosper. Often, it is counter-intuitive sometimes for a business owner to create a team that is outside the business looking in, especially at a time when money is tight. However, it is a good investment in your business.

Who should be part of your team? One of the great members of the team should always be a good banker. The business owner needs a banker who knows their business and its capital needs. This became even more obvious in the last year and a half with many banks failing, leaving many businesses without the capital needed to pay their normal expenses.

Many businesses having to shutter their doors. Even if their bank did not fail, many lenders refused to make further loans, or worse still, to call the existing loans.

A good bank should be working with the business owner to increase the financial strength of the company. The banker should be proactive in determining what your company’s needs have been, particularly in the last two years, to assist you in preparing for any economic downturns in the future.

This may be working with you on various cash flow projections, with various assumptions from a 20% contraction to a break even prediction. If your banker is not proactive in preparing for the future, you may want to shop for a banker who will look beyond the written loan agreements to assist you in the growth and financial stability of the business.

Another important member of the team is a good accountant. The accountant is not just important for the numbers and charts – some of which you may do in house. The most important trait of a good accountant is that he or she is a good business advisor.

The accountant should be able to review both the past results and future projections of your business to give the business owner good, solid business advice, from a more independent viewpoint. His or her advice may range from the proper use of internal controls in the business, what is the proper amount to pay for a business that you are buying, structuring business relationships from a tax perspective, to name just a few.

Every business transaction has a tax consequence and it is important for the business owner to know what the tax impact is from a transaction before the deal is signed – and preferably when the deal is being negotiated. There is nothing worse to giving your books to your accountant to do your tax returns only to find out that the deal just cost you 35 percent more because of a tax consequence that you were not aware of.

Another potential member of the team is also a good insurance broker. It is important for the business to be properly insured for all the risks that are present in the business tempered by the amount of insurance that the business can afford. A business owner needs to be aware of the potential risks his or her company is subject to, and how much potential risk is self-insured.

Being we’re in the midst of a major overhaul of the health care, it will be necessary to have an insurance broker to help tailor a health care plan for your employees that will comply with the law, and to make a determination of the cost of complying with the new law.

Last, but certainly not least, is a good attorney. The business owner needs to have a good relationship with an attorney who understands your business and will be someone that the business owner can go to, seeking advice about either the direction of the business or a particular business matter. Your business attorney can be helpful in many ways, as he or she has seen many other transactions similar to what you are proposing.

Lessons Learned From My Medical Office Business Mistakes – Part 2 of 3

The lessons you learned in part 1 of this series introduced you to many of my medical practice eroding mistakes, not so different from hundreds of other physicians starting their practice, yet going well beyond good judgment that you might relate to in some way. For physicians who are never taught, never learned, never considered the importance of knowing how to effectively manage the business of their medical practice, which is basically all physicians who graduate from medical school, even today, it’s a matter of learning it all the hard way and having to suffer along the way more than you need to.

We normally consider ourselves as being quite intelligent, as being above average in common sense and judgment, and as being intellectually selective in understanding the academic steps necessary for a medical career to succeed. If we are in that elite group of academically enlightened individuals, then, why is it that you are easily convinced that the illustrious practice of medicine can easily be successful without a knowledge of managing a small business effectively and without implementing the proven elements applicable to all successful businesses?

Now, to dig much deeper into the reasons why all of us are caught in the web of medical tradition, miss out on the true business foundations, and near the end of our practice years are forced to realize we could have done much more with our medical practice. We could have been more business oriented, been a better manager, earned a lot more money, spent more time with our family, and used our intensive medical education to accomplish a much higher degree of personal accomplishment over those years. These regrets are ever present in the older docs, but too late to make amends. Not going to happen to you………right?

Medical practice business mistakes and solutions:

1. Believing that your position in medicine will miraculously launch you over any financial barriers you face (tradition):

Talk to any successful entrepreneur in business today and they will tell you that one of the best ways to rise to the top is using a leap frog financial strategy. When you open your first office, spend as little as possible, either by renting space in a reasonable location, or sharing office space with another physician until you have discretionary income enough to move, renovate, and go solo.

A common way to cut costs and save money is to join an existing medical practice with a formal cost sharing agreement on paper. Those physicians who start out as an HMO employee and later decide to go into private practice rarely save enough money to carry them into and through the first 6 months in a new practice. Face it! We have felt money deprivation for so many years by then that the first natural urge when you finally are earning some money is to spend it for “soul” satisfaction.

One of the reasons for holding off on buying a new car or house or signing a long term lease agreement for your office, at least for the first 3 years is related to your practice future. Presently, about 10 to 12% of doctors move their practice each year according to an AMA survey. They must have a good reason to do that. Right?

The two most common reasons for any physician to move their medical practice elsewhere are financial and financial. The first is a direct result of practice competition where a physician is unable to draw a sufficient flow of patients to financially sustain his or her practice business. The second is a little more subtle, goes unrecognized long before the crisis happens, and occurs at a time when sensibly it shouldn’t be happening. It’s a time when the chaos of your own unorganized and reactive management of your practice business reaches a point (usually 5 to 10 years into your practice) where your business instability can no longer be depended on for growth or financial independence of your practice. You should understand the underlying cause, but most physicians never see it.

You’ll notice that each of these financial disasters are those which could easily be resolved by knowing how to effectively run your practice business using business strategies that are employed in all successful businesses. You don’t have to move your practice…..just your mindset.

Often, this is also a time when you look back to the time when you were deciding where to start your medical practice. Where do I want to live for the next 30 or so years? Am I obligated to go back to my own home town because of family ties? Is it the climate that makes the most difference to you? Shall I go to a big city with lots of patients available?

If you are business literate, no matter what the emotional influences are, there are critical business related demographics that make a world of difference to your success or failure. For example, if you were an ObGyn physician looking for a place to practice, you should know the basic statistical data concerning your probability for practice success before you decide on the town or city or state. When you divide the number of OBG physicians practicing in the city into the population of the area and discover that the ratio is more than one ObGyn physician per 10,000 population you’ll probably not succeed there without a vicious struggle for patients.

Finding the ratio to be 1/20,000 population or more, would indicate you most likely will be able to start a practice there, build it rather fast, and hold a strong position for your practice business in the area.
Successful physicians are those who have checked their competition, visited the area where they want to start practice, matched the amenities to their family needs, researched the available consultants they will rely on, know the hospital facilities in detail, and have an exact mental picture of where they want to be 20 or 30 years in the future with their practice.

Medical students would be significantly far ahead to begin selecting an area to practice in long before they finish medical school. Most students are so busy learning they see no reason to do a little forward thinking, at least those who haven’t already made arrangements to join another physician already in practice, or selected a non-patient related field like research. Young doctors often just move into an area they like and hope for the best–a mistake they often regret.

Preparation for medical practice involves much more than medical knowledge! A fantastic physician in a lousy practice, or practice area, will result in disappointment carefully rationalized to the point of, “It’s good enough.” Is it?

2. Believing that your medical practice business will be successful enough simply by using your own mental accumulation of business experiences you’ve read and heard about:

Businesses fail when the business owner fails in one or more of the three requirements for having employees: Leadership, Management, Supervision.

If you insist on having employees, it shackles you with responsibility. There are things you simply have to do almost continuously to keep them from stealing you blind, force them to work to your specifications, and reward those who do—firing those who don’t.

The employer and employee relationship is inherently adversarial. Your personal agenda for the business interferes directly with their agenda. When you impose your agenda, you disrupt theirs.

Facts and reality about your business:

• They do not own your business. You do.

• Your business is your career and life and your life is your business.

• Employee agendas are saturated with unavoidable resentment that arises from disparities in wealth and power (that’s you).

• Employees are not your friends.

• Employees are not your family.

• You are not there to make your employees happy. They forget you are there to pay them for work, and to generate profits.

• Every single employee, irrespective of how much you pay them, how well you treat them, or how valuable to the practice they are, will leave your business sometime and will need to be replaced. It’s necessary at least twice a day to whack yourself beside the head to remind yourself about the true reality of running a business, that is, if you care anything about having a highly greased profitable business machine that you control. If you are considered to be a pain in the ass, that’s perfect.

When someone asks you what kind of employee you want, tell them a “profitable employee.” The only credible reason to have an employee is for profit. Don’t pile up a group of employees around you for irrational reasons. Business requires an ROI from each employee. Your job as CEO and owner is to maximum company income and business value.

Keep in mind it’s not your responsibility to provide Jane with a job, nor is it your responsibility to pay her enough to support herself or her family, or out of work husband who can’t find a job. It’s Jane’s responsibility to make herself such a valuable employee you can’t run your business without her. It’s her job, if not satisfied, to find a better paying job.

Job duties and responsibilities must be clearly communicated, repeated often, and taught. That’s your management job. Office managers don’t have the future view you have for the direction and goals you have for your business, nor what you envision as needed for what each employee must do to help you complete your mission. If you told your office manager all those details, do you think the manager would remember them all, or even be capable enough to take your place in this process?

Make an extreme effort to:

1. Replace any employee who doesn’t pull their load daily.
2. Avoid hiring older experienced people who will constantly be doing things they have learned—not what you want done.
3. Avoid being too friendly with employees because they will automatically manipulate you as a result.
4. Avoid automatic bonuses and rewards for certain jobs, holidays, birthdays, because they will then always expect them in the future.
5. Reward those who go well beyond what is expected of them, but only do it as a surprise to them.
6. Hire employees slowly—and fire them fast.

Studies have shown that the average firing occurs about 6 to 18 months after the business owner knew that the employee was consistently performing poorly, was routinely non-compliant, and was poisoning the rest of the staff.

Business Valuation – Why the Asking Price of a Business Can Differ From the Actual Purchase Price

The other day I came across a social media site and noticed an old post. Someone was asking a question about how to value a business. Ten people were good enough to answer. I was not surprised when all 10 replied with completely different methods on how to value a business. You have to assume that people taking the time to answer the question were reasonably confident that they knew the correct answer. It made me wonder where they actually got the information from and how much confusion this subject creates with almost everyone including accountants and business brokers. I can hear you asking how to go about establishing the asking price of a business.

This is the method a Business Broker will use to determine the asking price of a business.

The method below is used by business brokers to determine an asking price for a small business; it is based on the adjusted net profit using the most recent profit and loss statements. The business broker will look at all the business expenses to see what they can add back to profit. This is referred to as add backs or recasting. The adjustment is made by adding back to the net profit all the non essential or discretionary expenses not necessary to run the business to show a more accurate net cash flow for the owner.

The business may also have unaccountable business expenses. A good example may be the rental expenses, if the business owner also owns the freehold and is only selling the leasehold you would need to ensure that the rental expenses are correct and adjust the profit if necessary, in this case it would be adjusted down.

Once this number is determined, the next step a business broker will take is to multiply the adjusted net profit, usually by 2.5 times, and they have an answer.

Let me give you an example of business broker method.

Business A; Established 12 years, trades 9-5 Mon-Fri with consistent sales, strong industry growth, selection of quality suppliers, and abundant customers etc.

Business B; Established 2 years, operates 7 days a week, sales are inconsistent, cut throat industry with aggressive competition, and it only has one customer.

Both businesses A and B show $100,000 adjusted profit after the owner operator wage is taken out. The business broker will then use the same multiple on both businesses i.e. 2.5 x $100,000 = $250,000. This will include stock, the written down value of the plant and equipment and the goodwill.

As you can plainly see this method does not make a great deal of sense.

As a business buyer or business seller it is important for you to never assume that the asking price of the business is anywhere close to the correct value even when it is set by so called professionals. You can be talking hundreds of thousands of dollars either way. Scary!

There is a better way. Have a look at this business valuation example available via the link in the resource box below and see why accountants are popping their cardigan buttons!

For more information regarding risk factors and analysis when Buying or Selling a Small Business, a recommended resource for expert, user-friendly, step by step Business Buying and/or Selling information and Small Business Appraisal Software Tool, go to Business Valuation Example

The Bizbuy Kit and Bizsale Kit are low cost and cover a myriad of tips, techniques and strategies – a vital resource. Plus, there is a comprehensive Small Business Appraisal Software Tool enabling the buyer or seller to expertly appraise a business multiple times.

The authors of the popular eBooks ‘How To Buy A Business’ and ‘How to Sell Your Own Business’ are experts in their fields of Business Buying, Selling and Business Valuation. With decades of experience buying and selling businesses of all sizes, they have seen many mistakes made by both buyers and owners. They have combined all their years of knowledge to deliver a low cost alternative for DIY buyers and sellers, stepping through the process thoroughly in order to avoid common mistakes and significant expense.