Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

May 8, 2017

The Top Three Mistakes Mid-Sized Business Owners Make

By Jeremy Albelda

mistake

Running a mid-sized business requires attention to many different facets, with some being more important than other ones.  “Within the course of our business, we conduct business valuations for approximately 150 to 250 companies each year across a wide spectrum of the economy,” says Achim Neumann, President, A Neumann & associates, LLC, a New Jersey based M&A advisor and business brokerage firm, “however, certain themes for why businesses are not performing have stood out in recent years.”

This article describes the top three of such issues.

1. Co-mingling of business funds with personal funds. Unfortunately, co-mingling of funds can take many different forms, from paying personal expenses straight out of the business accounts to expense reports filed and then booked under the incorrect accounts. Needless to say, that efficient financial management is not only impossible under such a scenario, but a slew of other issues, such as improper tax filings, will arise. Clearly, a separation of business accounts from personal accounts is needed. And whereas many small business owners derive many additional benefits from the business beyond the obvious paycheck, such additional financial benefits should be clearly identifiable (to the business owner) on the monthly Profit &
Loss Statements as well as for business valuation purposes if a sale is contemplated.

2. Improper investment focus and time management.  Many business owners, in particular, owners of small businesses, have to fulfill many different roles/tasks. Decisions have to be constantly made for which activities to allocate time and money. And whereas a specific ROI for each activity is not always predictable, more importance should be allocated to cash flow generating activities. “All too often we see add-backs during the valuation process for one-time investments that do not make any sense from an outsider’s points of view”.  The 80/20 rule is a good guidance: 20% of the business activities will generate 80% of the cash flow. A business should attempt to identify this 20% for cash flow.

3. Inadequate cash management. With efficient cash management being important for any business, it’s particularly important for small to mid-sized businesses, as such companies quite often do not have easy access to debt or equity financing. Thus, cash management includes primarily the focus on collecting A/R in as short a time period as possible, extend A/P payments to as long as possible, and developing a sufficient emergency fund in order to bridge unforeseen circumstances.

“All too often we are approached by companies searching for emergency funding, mostly debt’” says Neumann, “only to find out that no proper cash emergency funds were set aside during profitable periods.” As a side bar, such emergency funds might not only be needed during down times, but could also be drawn on when a large (profitable) order is received that requires pre-payment of a vendor to fulfill an order – a prerequisite to materialize a large profit later on.

In sum, if a business owner can avoid the mistakes as described above, then the business has a considerable better chance of surviving – even in bad times.

About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or info@neumannassociates.com

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Eric H., Investor

“I recently contacted A. Neumann and Associates about getting a valuation of my business done. I spoke with Marc, who explained the process in detail. After meeting with Marc in order to get a clear understanding of my business, and what I was hoping to accomplish. His patience in answering all my questions and his knowledge of the proper way to market my business gave me great confidence that this is the firm I will be using to sell my business for max value. Working with Marc at A Neumann & Associates was very easy and professional. I did not know all that was going to be involved in selling my business but they helped me through the process. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. I highly recommend this firm to anybody who wants to sell now or down the road. Marc not only knows his stuff, but actually is a real nice guy.”

Double Diamond

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Dennis Frazier

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Douglas DiCeglio

“I recently completed an acquisition using A Neumann & Associates. Tony Valentino was very helpful and accessible during the entire process. They do a thorough job vetting both parties and got us to the finish line.”

Srini Mudambi

“Claus out of Florida helped us with the sale of our business. We had never done anything like this and him and his team walked us through the process from start to finish. We had some challenges through the process and Claus continued to show up even in the difficult conversations.”

Colby Harris, Co-Owner, Del Mar Designs

“Claus Madsen thoroughly helped us with selling our company. From the 1st introductory meeting explaining to us what was possible, to providing us with resources to assist with the sale. Claus was invaluable throughout the whole sales process. Claus was with us every step of the journey and always made himself available for any questions or issues that came up along the way. If you are interested in selling your business, I encourage you to reach out to Claus and the ANA team so that they can let you know what’s achievable. These guys will make it happen!”

Ron Harris, Co-Owner and Vice President, Del Mar Designs

“A Neumann & Associates is the only business broker I would use or consult with. They have assisted with 3 business sales over the past 15 years with me. They are honest and sincere and have always performed better than my expectations. They are the only one i would use for the sales of my businesses.”

James Belanger, Business Owner

“I wanted to take a second to commend the exemplary customer service from both you [Karin Neumann] and Mr. Valentino. It’s both a rarity in the industry, and very much appreciated.”

Andrew G., Investor

“We worked with Neumann & Associates to investigate the purchase of a research company in 2010 and found Achim to be capable, forthright and realistic. His depth of experience enabled us to fully understand our options, offering creative options that might enable the acquisition. While we didn’t acquire that particular company at that time, we know exactly who to call whenever we’re looking to buy or sell a business.”

Daniel Coates, Buyer
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If you are considering selling your business, please contact us to learn more about our comprehensive service spectrum. Our experienced professionals will answer all your questions about selling a privately held business in complete confidentiality. Please fill out our contact form, or call us at 732-872-6777. We will contact you directly and will never identify ourselves to your employees.

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