Business Fundamentals – Commit to the Process

Commit to the Business Fundamentals

The late great Vince Lombardi said football will always be a game of blocking and tackling. Sure you have these new spread offenses in college and the pistol formation in the pros. You have hybrid linebackers and strong safeties who can cover and play in the box. But the fundamentals are still blocking and tackling.

In basketball it is defense and rebounding. Yes you have the triangle offense and the pick and roll. But what did you see in the finals between the San Antonio Spurs and Miami Heat. Coach Greg Popovich wanted his Spurs to play defense, rebound, and then push the ball up court. Eric Spoelstra told his team to do the same thing. Play defense, rebound, and then push the ball.

In your home based business it’s the same thing. You must work on your business fundamentals. No matter what your business, niche, product, or service you have core principles that must be worked on everyday. Professionals work on their business fundamentals everyday.

During the off-season athletes work with their own trainers and attend mini camps. Every year they work on the fundamentals before the season begins. During the season they never get away from the fundamentals.

Business Fundamentals and Your Home Based Business

If you are an affiliate marketer, network marketer, internet marketer, or own an online business. You probably have a game plan from your company, sponsor, or mentor. We don’t suffer from lack of information and you can find out if they have a proven successful plan.

Business fundamentals deal with marketing and sales. You must drive traffic to your business and website. You must generate leads and convert them into sales. That is the basics. You must work on your income producing activities everyday. This is where people fail. They get the fancy letterhead, beautiful business cards, and shiny websites. Then they forget all about the marketing and sales.

Real estate agents, insurance agents, inspectors, loan officers, and independent contractors have proven methods of operations from their brokers. Proven models of success but yet people don’t commit to the process. People want the wealth without the work. Are you committed to the process? Are you committed to going through the grind until you succeed? Can You persist until something happens?

Nothing happens until a lead is generated and that lead is turned into a sale. This is why we work on the business fundamentals.

4.5 Business Fundamentals to Follow

1. Get a Successful Plan of Action – Find a success business model and follow it. Get clear on your outcome. Surround yourself with successful people. Commit to the process. Proven success models work and you see it everyday in business. Just look at franchises, network marketing companies, and championship teams.

Come up with a daily method of operation and commit to the process. I don’t know how long it will take for you to make money. In real estate my average escrow is 51 days. That’s 51 days before I get a check. For my online business I make sales everyday and the money is available in 48 hours. Find out your sales cycle.

2. Marketing and Sales - This is an income producing activity that needs to happen everyday. Your success plan of action should give you step by step instructions on how to generate leads and build lists. Every business online or offline needs to generate leads and build lists. In both my real estate business and online business I use direct mail, a viral blogging system, and social media to drive traffic. I capture these leads, build my lists, and grow my business.

I create content everyday and market that content. In fact you are reading this content now. Then I re-purpose this content. This is my daily method of operation. What is yours?

3. Personal Development – You need to read for at least 30 minutes per day and listen to audio. You have to outgrow you. Leaders are readers and the must successful people read every day. Also get in some training or education every week. There is education available to grow your business. You should learn and take action on that education every week.

4, Follow Up and Follow Through – Following the business fundamentals will get you leads and you need to follow-up and follow through. Don’t let all of your marketing go to waste. People want to do business with you and you must perform. Tell the truth, don’t promise what you can’t deliver, and do what you say.

4.5 Commit to the Process - This has been the theme of this whole article. Business is a process and short cuts will kill your dreams. Instant gratification is an enemy that will close you down. There is a process to cooking a cake and if you skip steps the cake is ruined. Work on your business fundamentals everyday and commit to the process of success.

How Much to Pay For a Business

The methodology outlined below is a simplified approach and as purchasing a business is a very significant step and every individual’s circumstances are different, I strongly recommend that you speak with a professional advisor familiar with your personal situation and needs before entering into any binding contract.


  1. There is no right or wrong amount – There is only what you are prepared to pay and what the seller is prepared to accept – nothing else is relevant.
  2. How much to pay is based on what CASH you can realistically expect to generate from the business in future years – (There are many valuation methods available from complicated mathematical formulas to a simple percentage of sales. These methods make a good cross-check to the method suggested below).



Calculate a “normalised” annual cash profit (before tax) the business is likely to earn next year based on its past history. This is usually done by beginning with Last Year’s annual profit and making adjustments for items

  • incurred last year but won’t be incurred next year
  • to be incurred next year but weren’t incurred last year
  • Non-cash items

Examples of items you could adjust for


  • Any wages or benefits paid to the business owner (or people related to the business owner) who will not be continuing when you own the business. This is not just wages but superannuation, medical benefits, motor vehicles, non-business (or slightly business) travel etc.
  • Interest Paid and any Other Finance Costs (that you will not be responsible for)
  • Depreciation and any other Non-Cash Items
  • Any Non-recurring expenses that occurred in the prior year (e.g. legal fees on a case which is now resolved)
  • The expected annual profit of any new (major) customers not included in the past year’s sales


  • The market wage & benefits payable to you and any partner/relation that will work in the business (the amount is what you would be paid if the business was owned by a 3rd party and not necessarily what you will actually be paid)
  • Any expenses that will be incurred in future years, which are not included in last years’ profit (e.g. the business moved premises 3 months ago into a more expensive site – decrease the profit to reflect the new rental for the next 12 months less what was paid last year)
  • Any revenue earned last year that would be considered abnormal or not likely to occur next year (e.g. a large client was lost to a competitor, a “special” job which won’t occur again)
  • If there is likely to be significant capital expenditure (new equipment) over the next 3 to 4 years then an adjustment should be made (usually the cost of the equipment divided by the estimated years it will be used in the business)

At the completion of this stage we will have a value which represents the NORMALISED CASH PROFIT. This is the amount of profit before income tax that the business is expected to earn next year if it continued to run as it has done in the past.


There have been books written on what multiple to select and why, but here’s a RULE OF THUMB which has served me well through many purchases. There are 2 ranges

  • Smaller Business (Profit less than $100,000) 2 to 3
  • Medium Business (Profit $100,000 to $500,000) 3 to 4

(This methodology is not suitable for larger businesses)


Multiply the NORMALISED PROFIT calculated in Step 1 with the MULTIPLES in Step 2.

E.g. If you had a normalised profit of $150,000, the valuation range would be $450,000 to $600,000


To narrow the range further compile a list of factors which either improve or detract from the certainty that you will earn the normalised profit amount calculated in Step 1. Each factor that improves the certainty will support paying a higher amount in the range, each factor that detracts from the certainty supports paying a lower amount in the range. Based upon the number and importance of the factors in each category will allow you to tighten the range to either the lower, middle or upper portion of the range calculated above.

Examples of factors include

1. Age of Business

A business that has existed for 20 years is likely to have more certain earnings and be more established in a market than a business that has existed for 2 years

2. Size of Business

Generally the larger the business the more likely the business would survive any negative events

3. Certainty of Revenue Stream

There are many items that might improve or detract from revenue including

  • Does the revenue naturally occur each year (e.g. an accounting firm which would usually see the same clients to do their tax returns each year) V’s carpentry business which receives most of its clients from internet or yellow pages advertising
  • Is the revenue made up of a lot of smaller clients V’s a few larger clients? Whilst larger clients may be more profitable, they have a higher risk to the business should they take their business elsewhere.

4. Working Capital Required

The larger the working capital required (Debtors + Inventory – Creditors), the less you want to pay. Compare 2 identical businesses, the first requires you hold $200,000 worth of inventory, the second has an arrangement with suppliers to ship directly to customers. At the very least, you save interest on $200,000, plus the extra staff required to receive, pack and ship the stock, do stocktakes etc.

5. Economic Factors

What is the outlook for the next 2-3 years – if the economy or industry is likely to worsen then your valuation should be more conservative.

6. Market Position/Competitors

How secure is the business – are there are a lot of competitors in the industry(many competitors drive down profit margins), are there any new competitors and how difficult is it for a new competitor to enter the market, what impact would a new competitor have on the business.

7. Industry

Is the market growing or declining?

E.g. there are 2 businesses earning identical profit, one sells mobile telephone technology, and one sells facsimile machines. The mobile phone business is likely to have the stronger growth in the future and therefore you’re likely to pay more than you would for facsimile machine business which is old technology and declining sales.

These are only a selection of the factors and there may be others which are very relevant, (perhaps specific to your deal) and these should also be taken into account.


There are 2 special factors, which you may be tempted to include but shouldn’t

1. How you will improve the Business

Perhaps you have a special skill, contacts, or insight that will generate more profit than what the business is currently earning. Surely that will allow you to pay more for the business – Yes… and No

Yes, it will increase the profit and add to the value of the business…

No, you should not pay more for the business because of it. This is the extra profit that you are generating for the business, why should you pay the current owner for it? – he hasn’t done anything. The value you add to the business, is what you should receive when you SELL the business, do not pay this to the current owner.

2. Future Opportunities for the Business

The owner has explained to you how the business has many wonderful opportunities for additional sales but he hasn’t had the time or money to pursue.

This will increase future profits so you could pay more – WRONG!

  • it hasn’t happened yet and it might not happen for many reasons, even if it does it’s never as easy as the current owner tells you (if it was, he would have found a way, and he wouldn’t be selling the business)
  • if it does happen – you will be the one who makes it happen – why should he receive anything for this


  • Don’t get into a conversation with the seller about how you arrived at the purchase price. This will spiral into you shouldn’t add back this, did you include that, and the multiple should be higher… this is not helpful. You have calculated a price that you will pay and that’s all the seller needs to know. Of course, there is likely to be a negotiation process so leave yourself some room to go up from your first offer).
  • Get an accountant to assist with the due diligence
  • When apportioning the purchase price amongst the assets, in most countries the best tax outcome will be to put the maximum value to assets in the following order
    • Inventory
    • Equipment and other depreciable items
    • Goodwill (as low as possible)
  • For the seller it is usually best in reverse and I have seen deals where the contract is left blank in this area, and each party fills in their own values later – check with your solicitor
  • Deduct any accrued employee entitlements from the purchase price (e.g. annual leave, long service leave)
  • Whilst it always preferable to have the previous owner to stay in the business for a handover period, if you are taking over their role, in practice it is usually best to let them go as soon as you are comfortable with the business

DISCLAIMER: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their circumstances. The author expressly disclaims all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything done by any such person in reliance, whether wholly or partially upon the whole or any part of the contents of this publication.

The Role of an Attorney in Business Succession Planning

If you’ve spent your life’s work building up a business, it can be hard to think about how the business could ever continue on without you. But the fact is that if you want the business to thrive even after your gone, in the way you think it should, you really need to take some time to for business succession planning.

Since business succession planning can involve both legal issues and emotional issues, an attorney who specializes in business succession planning can really help you make sure that your business is legally sound for the future and can provide third-party counseling about decisions that can be emotionally draining.

There are two important issues that a business attorney can help you with: setting up ownership and managing the impact of estate taxes.

1. Ownership: To determine how your company will be owned, you need to first decide who will manage the company. If you are unattached to the company or want a clean split, you may consider transferring management and selling the company to an outside source. Or, you may want to search for an outside individual who seems to have good managerial and business skills. If you have children who work with you or long-term employees, you may want to leave leadership and ownership to them. If you have multiple children, some of whom work in your business and some who do not, you may want to consider dividing your company into voting and nonvoting stock.

Stock options are also a good way to invest in and retain long-term employees who can assist the transition when your business experiences a change of leadership. Choosing a future management team for your business and trying to divide the worth of your business can feel overwhelming. An attorney can help you weigh your options and devise an ownership transfer to suit your needs and desires.

2. Taxes: If not carefully planned for, taxes that can arise when a business transfers hands can serve a hard and sometimes lethal blow to a business’s finances. Even if you are planning on leaving your business directly to your spouse, you still need to talk to an attorney with business succession planning. Estate taxes can still affect you if your business is worth more than a certain amount and you don’t take additional steps to lessen your tax burden.

If you are leaving your business to a child or long-term employee and you start early enough, you can gradually transfer your assets to them to avoid some of the tax strain. If you are a partner in a business, the partners may want to consider taking out life insurance policies on one another. That way the partners will be able to buy out your investment in the company upon your death and compensate your family. There are so many different taxes that can affect a business transfer and so many different succession scenarios that you really need to seek the advice of a business succession planning attorney for sound advice for your business.

When you spend your life investing in and growing a business, it can be hard to think about having to let go of your life’s work to someone else. But if you want to protect the business as best as you can, you need to plan in advance. A business succession planning attorney can make sure that you plan well.