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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Client Testimonials

“ I appreciate your diligent approach to screening buyers and sellers as well as the high quality CIM that you produce.”

Andrey O, Investor

“Finally enjoying retirement after recently selling my business using the services of A Neumann & Associates. Joe Oddo provided the conduit to a successful transaction. Joe knew when to inject input and when to simply listen and allow the buyers to vent, step back and regroup. The outcome met our expectations and got us to the finish line, which included my staying with the company six months in order for the buyers to get their footing and keep our workforce in the loop. He helped at every step by providing his expert guidance & resources. Thank you!”

Emily Parker Myers, Co-Owner - Myers McRae

“I had been in touch with Karin and Gary from A Neumann & Associates regarding some opportunities and was looking forward to meeting with them. Hence, when they organized a seminar in Princeton, NJ, I was quick to sign up. The seminar was very informative as the team walked the attendees through various scenarios and referenced real life buying/selling situations they had been through. The sessions by Gary, Karin and Achim were crisp and focused and brought clarity to potential seller and buyers. I strongly recommend the team and look forward to continue working with them.”

Gaurav Tyagi

“Thank you for your Event on "How to value, Sell, and Buy A Business for Maximum Profit" and the insight into ANA’s approach on what is involved in the Business Exit for sellers. Garys Hervieiou's "Business Valuation", Achim's "Deal structure" presentation and Karin’s "Preparing the Package" are real street knowledge shared. They answered attendees questions which makes it more interesting for learning from others. Great for small businesses like us. The presentations were totally worth our time and travel for the event to Princeton, NJ from Rockville MD. Ravi Bhutani, President, CIPS”

Ravi Bhutani

“Gary, this is to thank you for an excellent job done in selling our business. We could never have done it without your professional expertise, dedication and time put in without reservation to make it happen. We will gladly and highly recommend you to anybody in our position.  It was a pleasure to work with you.”

Pat Iammatteo, Owner

“Your vetting is simply outstanding, among the best I've seen from a broker.”

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

“Used A Neumann & Associates to sale my business. could not imagine having done it with out the patience and experience Gary provided. Thanks Gary,”

Dennis Frazier

“Working with Marc and his company was a pleasure. 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. Marc handled most of the interaction and he has one of the greatest demeanors. Again, it was a pleasure working with him and his firm.”

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
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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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