The Sub-prime lending snafu is having its affect on the management industry. Especially the association management side of the street. Are you reacting on a day by day basis or are you changing the way you think about building value?

- Basic Business Premise: Make A Profit -

When I visit a new client, I'm sometimes struck as to how confused an owner is about "Profits".  It's not uncommon to be told by Harry that he is making $120,000 net on his business that is grossing $400,000.  After a few simple questions, I learn Harry is handling eight clients and is the general manager of the operation. At sale, to replace him at both jobs, it might cost $100,000. Where's the "Profit?"

In the previous edition, I asked you to stick with me as I go though the development of a basic marketing plan. Well, this is where it begins – a reality check as to the purpose of your business.

Michael Gerber* says the real purpose of building a business is to sell the business. It's that simple. Buyers are looking to buy "profits." So, let's show them profits.

Let's say you have a business that is doing just what our friend Harry is doing - $400,000 annually. The question is, "Can Harry own the business without owning two jobs?"

Let agree it's not unreasonable for Harry to expect 15% on gross business (before taxes). That would be $60,000. He has all his clients under a primary association manager and he has Mary running the day to day operation. Mary is paid $65,000 + for handling a couple of key accounts and she makes sure everything runs as smooth as possible.

That leaves $275,000 to service the client base with Harry's new business model. If you were to build that model, it would be fair to say it would have a value of somewhere between $250,000 and $300,000.

So, Step 1 is to identify a realistic goal. The goal here is to work toward a real profit and let it determine your value.

We'll work on this step next time.

*Bonus Tip: Read "The E Myth Revisited" by Michael E. Gerber. It's a must for all small business owners.

- Jim Manning - President - Walters Consulting Group -