One of these sellers, we’ll call him Al, established a family business in the 1960’s. Over the decades, he built the business up, raised his family, and became a well-respected businessman and community member.

Throughout most of his time as a business owner, Al worked very hard, put in many hours, expanded his business, and continued to make changes in order remain competitive. As Al got older, he still worked hard, but did not adapt to the changing business climate and competition. He continued to run his business the same as had in the past. While he was doing this, his industry changed, standards changed, technology changed, customer expectations changed, and marketing methods changed. After almost 5 decades of operation, Al lost his drive to create change in his business. He also lost his ability to motivate, or even control, his changing workforce.

In his mid to late sixties, Al did not want to sell his business for the same reasons many long-time business owners are reluctant to sell:

• His business is his life. He would not know what to do if he “retired”.
• He did not have enough money to retire.

As Al continued to operate his business into his seventies, he lost customers to more aggressive and efficient competitors. His sales declined. He was unable to adequately maintain his assets which fell into disrepair. His employees focused more on their own desires rather than the interests of the business. As his business began to lose money, he was forced to invest some savings and increase debt in order to remain in business.

As a result of the declining sales and profitability, Al lost value in his business. In addition, he lost his drive and ambition. Unfortunately, over the years, Al did not diversify his wealth. His business made up almost his entire net worth. This net worth was now deteriorating.

Al recently sold his business at a market price that was well below its value 5-7 years ago. The selling price certainly reflected the economic downturn we have all experienced. It also reflected the deteriorating condition of his assets and his declining customer base, competitive edge, sales, and profitability. The selling price was enough to pay his debts and transfer costs, but did not leave him much money for his future. I was sad leaving the closing knowing that Al worked so hard for so many years and yet had so little to show for it.

Looking back is always easy. Everyone familiar with Al’s situation agrees that he should have sold years ago. Looking ahead is much more difficult. When is the right time for a business owner to sell? For every business owner, the answer is different. However, it is important for owners to seriously evaluate their current situation and start planning for their eventual exit. An owner needs to carefully examine their business operation, their personal financial status and needs, and determine a plan for their future.

Business owners need to look out the windshield, not the rear view mirror. Take proactive steps to:

• Engage professionals to assist you with business valuation, exit planning, and business brokerage
• Develop a plan to exit your business
• Diversify your wealth
• Maintain the condition of your assets
• Recognize your own limitations, capabilities, goals, and needs
• Know the real value of your business

Remember that the goal of owning a business is to give you life!

As you face your future as a business owner, be sure to take the time to plan for your future and be ready to sell when it makes the most sense. Don’t be like Al and wait until it is too late. Retain the assistance of an Exit Planning professional or business broker when it comes time for planning or selling. You have spent years building your business, be sure to engage proficient professionals to help you get the most value for all this work.

CenterPoint Business Advisors assists business owners build the value of their business, plan for an exit from their business, value their business, and broker the sale of their business. O.J. Robinson has been a business owner for over 30 years and is using his experience and expertise to assist other business owners to successfully grow and exit their businesses. 

oj@cpointadvisors.com

603-505-8980 (direct)
888-988-0999 (ext 103)

2011 and 2012 Predictions from STR (Smith Travel Research): The U.S. hotel industry is projected to end 2011 with increases in all three key performance measurements, according to the latest updated forecast from STR.

Occupancy is expected to rise 1.8% to 58.5%, while ADR would gain 4.2% to US$102.21 and RevPAR is projected to rise 6.1% to US$59.78. Supply is expected to report slight growth in 2011 with a 0.7% increase, and demand is projected to increase 2.5%.

“The stronger hotel demand fundamentals the U.S. hotel industry experienced in 2010 will result in a quicker turnaround than we had expected,” says Mark Lomanno, CEO of STR. “While this strength resulted in rapidly recovering occupancies last year, we look for rebounding room rates to lead RevPAR growth in 2011 and 2012. While it may be the second half of 2011 before we begin to see rapidly accelerating room rates, by the time we get to 2012 we now expect room rate growth to rival the boom years of 2006 and 2007.”

STR also is projecting increases in all three key performance metrics during 2012. Occupancy is expected to rise 1.7% to 59.5%, ADR would increase 6.8% to US$109.16 and RevPAR is projected to end 2012 up 8.6% to US$64.93. Supply during 2012 is expected to end the year virtually flat, with a 0.5% increase, and demand is projected to rise 2.2%.

TripAdvisor Survey Results: Free Internet access at hotels is more common than perhaps many consumers realize. According to a survey of 1,000 U.S. hoteliers by TripAdvisor, a staggering 91% say they will offer in-room Internet access as a free amenity in 2011. Only 5% of respondents will charge for the amenity, while the remaining 4% have no plans to offer Internet access.

In the first of what the online travel review site says will be an annual survey, hoteliers say they expect average room rates will either hold steady (51%) or increase (45%) this year. Three in five U.S. hotel owners are planning interior renovations this year, and two in five will upgrade their properties’ exteriors.

Most owners appear to be embracing online consumer engagement, with 57% expecting to grow social media marketing budgets this year, and just 6% anticipate social media budget cuts. Meanwhile, virtually all owners surveyed—an astounding 99%—plan to respond to online guest reviews in 2011, with the majority saying they will respond to both positive and negative comments.

Mobile marketing is a growing trend as well. A quarter of respondents plan to launch programs for the first time to engage with travelers using mobile devices, and another 27% say they offered such programs last year and will continue to do so this year. Still, nearly half of U.S. hoteliers have no plans to offer programs to engage travelers using mobile devices in 2011.

In terms of marketing strategy, discounting continues to be the most commonly-employed tactic—61% of hoteliers plan to attract guests by putting rates on sale. Other popular tactics include offering special amenities (36%), offering bonus rewards points (29%), offering deals on nearby attractions (23%) and offering a free night’s stay with booking (16%).

O.J.’s take on this: First, let’s hope the positive predictions for 2011-2012 come true. All of these predictions and data are based on the entire US and are highly influenced by the numerous urban and suburban hotels. So what does this mean for smaller hotels and motels and those in tourist destination markets? Although the exact metrics may vary, they should still see a continued improvement over 2010 performance. Every lodging property I am working with, or heard from, reported improved business in 2010. Most of this improvement came from occupancy, not ADR, matching the national trend.

Hotel/Motel owners will face continued pressure to offer free internet, grow their social network presence, and manage Trip Advisor posts. Encouraging satisfied guests to post positive reviews on Trip Advisor remains the best management tactic. Does your hotel offer any reminder or incentive for guests to post reviews? Successful hotels have learned to take proactive steps to use Trip Advisor as a marketing tool.

O.J. Robinson of CenterPoint has provided valuation, consulting, and brokerage services to over 45 businesses in New Hampshire, Massachusetts, and Vermont. He has owned and operated businesses in New Hampshire and has the experience and expertise to assist with the sale or improvement of your business. oj@cpointadvisors.com

Did you make any New Year Resolutions? Exercise more? Eat healthier? Spend more time with the kids? How about New Year Resolutions related to your business? Will you make a commitment to improve your business in 2011? Can I offer you a challenge for 2011:

Resolve to keep accurate, timely financial records.

In my past experience working with business owners, I find that one of the biggest problems in operating a business is keeping accurate financial records. Many small business owners I have worked with do not really know how profitable their business really is. They judge profitability by their bank accounts more than their financial reports. This can lead to false assumptions, poor planning, poor performance, and decreased business value.

“It doesn’t matter that my financial records aren’t perfect, so long as I am making money”

“I have more money in my account now than I did at this time last year”

Your financial records are the key to revealing the profitability of your business and to increasing the value of your business. Profitability needs to be easily determined.

As the owner, you should be very aware of the profitability of your business. Some business owners only hire a tax accountant to just “compile” their financial data in order to complete the tax return. Instead, you should work closely with your accountant to determine true profitability as part of your tax preparation. Profitability is the basis for determining the value of your business. The more believable your financial records are, the more a buyer/bank will pay/lend for the business value.

When you go to sell your business, re-finance your business, extend your line-of-credit, revise your business plan, or make capital improvements, you will rely on your past financial records for future success.

• Monitor and control inventory
• Track margins
• Track Cost of Goods Sold (COGS)
• Eliminate personal expenses from your business records.
• Track accounts payable and accounts receivable
• Produce and review monthly profit & loss Statements
• Review your balance sheet
• Properly record all income
• Understand the differences between cash and accrual accounting methods

Need help? Hire a bookkeeper to help you set up financial procedures and systems. Take a class in Quickbooks (see SCORE information below).

I cannot stress enough how important good financial records are. They hold the key to building the value of your business.

Have a Happy, Successful 2011!!

O.J. Robinson of CenterPoint has provided valuation, consulting, and brokerage services to over 45 businesses in New Hampshire, Massachusetts, and Vermont. He has owned and operated businesses in New Hampshire and has the experience and expertise to assist with the sale or improvement of your business. oj@cpointadvisors.com

Links:

CenterPoint Business Advisors

SCORE Manchester, NH

SCORE Quickbooks class in Bedford, NH

Upper Valley SCORE

Other SCORE Chapters

By OJ Robinson

Increasingly good news and positive statistics are being reported by the lodging industry based on year to date performance in 2010.

We all know that the 2008-2009 period was devastating for our industry:

• US Occupancy:    down  14%
• ADR:   down  $9.40
• RevPAR:   down   18%
• Sales of US Hotels 2008: down  42%
• Sales of US Hotels 2009: down  42.7%
• Avg selling price/unit:   down  39.0%

2010 year-to-date, and the future forecast show a much brighter period ahead of us. HVS Hospitality is the world’s premier hotel consulting and valuation firm and produces a “Valuation Index” based on historical data and future forecasts. Here are some highlights from their October 2010 report:

2010 YTD:

• RevPAR:    up  4.3%
• Occupancy:  up  5.3%
• Value per room:   up 16.1%
• Hotel sales volume:  up 21.5%
• Hotel sales with a per unit price over $200K:  up 120%

What is most exciting about this HVS report is the future projections. After 3 straight years of significant decline, all major metrics are predicted to increase for the next five years. In 2012, the value per room is expected to surpass its previous high, and in 2013, RevPAR is expected to set a new record.

The anticipated rebound in occupancy and RevPAR will lead to hotel values that will increase up to, and then surpass the high of 2006. HVS has attributed the value of a 1987 hotel room as 1.00, and then has tracked the increase/decrease in value over the years, with projections into the future. Here is there data:

In 2009, investors shied away from the hotel sector. In 2010, dealmaking and investment has picked up dramatically. The pace of large deals has increased the most, led by REITs that have cash and can acquire hotels with no financing. For the first 6 months of 2010, hotel sales by dollar volume is up 143% over the first half of 2009. Sales by number of hotels is up 70%.

Hotel buyers are commonly looking to hold the property for a 5-10 investment period. “Flippers” are no longer active in the marketplace as it is no longer makes financial sense to buy, renovate, re-brand, and quickly sell a hotel property.

All of these data are from the whole country. What is the situation in New England? Here are my observations:

• Buyer activity has increased. I have seen more buyer inquiries lately. In my recent sale of Woodward’s Resort in Lincoln, NH, I had more qualified inquiries in the final 8 weeks of the transaction than in the previous 7 months of active marketing.
• Banks have money to lend. Interest rates remain historically low. The SBA has extended it waiver of fees.
• Flagged hotels or well-branded independent hotels remain most in demand with buyers and banks.
• The New England market is strong. Larger city locations are improving more quickly than average. The Boston market has shown a 14% increase in RevPAR in 2010 YTD, compared to 4.3% nationwide.
• The local tourist lodging business is reporting a very good summer due to near perfect weather and low area unemployment. The unemployment rate in New Hampshire just reported its 7^th month of continued decline!
• If you are considering a sale of your hotel or motel, you do not need to sit on the sidelines and wait. There are buyers and banks ready to make deals happen.

CenterPoint Business Advisors is sending you this information with the intent of helping you to realize the full value from your hospitality business. CenterPoint assists business owners to build the value of their business, to plan for an exit from their business, to value their business, and to broker the sale of their business. Please contact us if you are considering a long or short term exit from your hospitality business.

O.J. Robinson of CenterPoint has many years in the hospitality industry in New Hampshire. He is the former owner of Parker’s Motel in Lincoln and is one of the owners of the Whale’s Tale Waterpark in Lincoln. He has provided consulting, exit planning, and brokered the sale of numerous lodging properties of various sizes.   oj@cpointadvisors.com

Links:

CenterPoint Business Advisors:  www.cpointadvisors.com

HVS Hospitality Services: http://www.hvs.com/

HVS 2010 U.S. Hotel Valuation Index:   http://www.hvs.com/news/4888/hvs-presents-the-2010-us-hotel-valuation-index/

For supermarkets and convenience stores, utility costs have become a major focus in reducing expenses. After labor costs, utilities are generally the greatest expense for convenience and grocery stores. Many store owners are turning to “green” solutions not only to save the planet, but to also save money.

Price Chopper was recently awarded the EPA Green Chill Silver Level Certification for their Warwick, NY store. Their Colonie, NY store was named “Best Green Chill Certified Store”. “Green Chill” recognizes stores that reduce refrigerant charge by 50% and refrigerant emissions by 75%.

Kroger has reduced their overall energy consumption by over 27% since 2000. Part of this was accomplished through their use of LED lighting.

But it is not only the large chains that see the economic advantage to reducing energy costs. In my work with various stores throughout Vermont, Massachusetts, and New Hampshire, I have seen many smaller store owners incorporate green technology into their businesses.

For several years, the Champlain Farms family of store have used outside cold air to keep their beverages cold. Their fresh air exchange system pulls cold air from outside rather than using compressors during much of the winter season. According to the owner, this system has already paid for itself and is now saving them money beyond their original investment.

CenterPoint Business Advisors assists business owners with understanding and growing the value of their business. We have done this for numerous grocery and convenience stores. A key method of increasing the value of your business is to make permanent expense reductions that will result in a higher profit. As energy costs continue to rise, reducing your usage becomes a long term value builder for your business.
CenterPoint is also providing consultation to Freeaire Refrigeration in Waitsfield, Vermont. This company is a leader in designing and manufacturing the controls and systems that allow the use of cold, purified, outside air to maintain a constant and reliable temperature inside commercial walk-in coolers. With the compressor system sometimes not running for months at a time, the FreeaireTM system can save you as much as 50% on your refrigeration energy costs. It’s also eligible for large rebates from your utility company that accelerate the payback period. You can learn more about how they can reduce your long term operating costs at: www.freeaire.com

I encourage you to contact Freeaire today, or one of the many other companies that offer products that can help you reduce your energy costs and increase the value of your business.
CenterPoint Business Advisors is sending you this information with the intent of helping you to better operate your retail food store business. CenterPoint assists business owners build the value of their business, plan for an exit from their business, value their business, and broker the sale of their business. Please contact us if you are considering a long or short term exit from your business.

1. This was a great opportunity! The independent operators seminar was extremely informative. The law firm of McLane Graf, Raulerson & Middleton covered the topics of group purchasing, the new health care law, and planning an exit from your business. This was followed by a group discussion, led by John Dumais, regarding issues faced by store owners. One topic that brought much participation related to choosing an electric supplier for your business. Every participant left with good ideas and a better knowledge of the issues related to health care and exit planning.

2. Why weren’t more store owners present? Sure you have a business to operate. That keeps you plenty busy. Sometimes it is necessary to work smarter, not harder. This conference provided a great opportunity to meet other store operators who share the same challenges, concerns, and problems that you do. This conference provided the perfect atmosphere to build relationships with, and learn from, other store operators.

The NH Grocers Association exists to benefit those in the grocery business. Even the members that stay at their store and do not participate benefit from the legislative work and other programs that the NHGA offers. However, the members that participate and attend the conference certainly benefit more.
As next September rolls around, I encourage grocers to make a commitment to register and attend this informative conference. It will benefit you and your business.
Do you know the value of your business? In the seminar discussion about succession planning, this was one of the main points the presenters made. Most business owners do not know the value of their business, yet this is the first step in planning an exit from your business. And every business owner should be planning for an eventual exit, unless your goal is be to be the richest person in the cemetery. CenterPoint can help you determine the value of your business and point out ways to increase that value and prepare your business for sale.

I have viewed the websites of many New Hampshire and Vermont lodging properties and have found many cool, interesting sites and some boring, difficult or outdated sites. Where does your site stand? Now that summer is over, take some time to review your own site, compare it to others, and work to improve it. Here are some items to check for:

1.  Correct Information. One NH motel has a good website design, but the e-mail address on the home page is incorrect. Another resort has a link to their menus. Clicking on “Breakfast” leads to their dinner menu. “Dinner” also leads to the dinner menu. I guess I’ll have the Prime Rib for breakfast. Check your info, rates, links, etc.

2.   Up-to –Date Information. Get rid of your 2009 ski packages or 2009 spring wedding specials. Are your rates, descriptions, packages, and special events up to date?

3.  Dead Ends. Does your site lead to dead ends? Every page should have links to additional pages. “Contact Us” and “Book Now” should be on every page. Don’t let your potential customer go to a page with no additional page links. This gives them the option to go back to the previous page (which is now old news), or leave your site. Don’t give them this choice!

4.Keywords, Search Engine Optimization, Meta-tags, Adwords. Work with website design experts to make your site more visible to people searching on the web. Hotel/Motel searches are one of the most competitive themes on Google.  Pretend you are a potential customer and search for lodging in your area. Where does your business come up in a search?

5. Google Analytics. It is important to know how people are getting to your website and where they are going on your website. Which pages are most often viewed? How long do viewers spend on each page? Where are you getting referrals from? Google analytics and other similar tools can help you understand how viewers are using your site.

6.       Appeal & Functionality. Is your site easy to navigate? Informative? Are the room descriptions and prices on the same page? Or do viewers have to bounce around the site to get this info? Can the consumer book easily online?  Your site should be as easy and informative as possible for the consumer.  Does the quality of the website reflect the quality of your business? A blurry picture that you took yourself might suggest that you also fixed the plumbing leak yourself to the same standard. Your website is a reflection of your business!

Websites should be only one part of your online presence. Social media and blogs have become essential. The following chart shows the overall online activity for various segments of the tourist industry. Keep in mind that this shows “activity”, not direct bookings or inquiries.

Wether you agree or not with the federal government spending money to create jobs, you can agree its important that if the money is going to be spent, it should be spent effectively.   Vermont Business Magazine reports that Onvia, the leader in gBusiness solutions and the creator of Recovery.org, reveals that Vermont is projected to rank second in stimulus related, private sector job creation.  North Carolina is projected to be first, with Illinois, Nevada, and West Virginia rounding out the top 5.  Vermont’s surrounding states New York, Massachusetts, and New Hampshire rank 25th, 35th, and 42nd respectively.

Being both a business owner and an advisor to owner’s of closely held companies, I understand why Vermont has done a great job at transforming money into jobs.   Vermont State Government has a living partnership with private sector businesses.  Vermont is very aggressive at actively reaching out to private business to bring money and technical assistance to help business owners grow their business and create jobs.  It actively promotes industry sectors such as food, sustainable products, and green energy technology.  It is also the largest U.S. domicile for the Captive Insurance industry.  The small size of the state, both physically, and in population, makes it easier to efficiently distribute the money where it will do the most good.  Unfortunately, in many other states a large portion of the money is consumed in the administration of the program.

To see the full article at VermontBiz.com click here.

This is an indicator of a robust and improving economy.  Falling unemployment is the key to increased consumer spending and an improving housing market.  This gives the local consumer more cash and more confidence to spend it; great news for Vermont’s small businesses!

For the full Forbes article click here.

Exit Planning Advisor

I read an article the other day indicating that only 9% of all current retirees had more than $500,000 in investments to support their retirement needs and only 34% had more than $100,000.  This is pretty grim given that a woman 65 today has a life expectancy of 84 and a man 79.  Also, rising tax rates, energy costs and medical bills can consume the majority of a retirees income.  Who knows what will happen to Social Security it but it seems that many people are counting it to be their primary source of retirement income.

I have worked with hundreds of small business owners in assisting them in preparing for and executing an exit from their business.  It is common to see that their business value can represent up to 75-80% of their entire net worth.  These business owners failed to diversify their wealth during their years of business ownership.  Many reinvested in their businesses or fueled their lifestyles with the cash flow from their businesses.

I have also experienced that very few business owners have a true understanding of the value of their business, or what drives and detracts from its value.  This is perplexing given that their business value is often the largest element of their net worth and this business value is very fragile, illiquid, and subject to wide swings during times of economic change.

My advice to small business owners include:

• Think of your business as a wealth generating engine and not just a professional activity.  Understand what creates value in your business and know how to preserve and grow its value
• Understand that value is in the eye of the beholder and what you “think” your business is worth and what a typical buyer thinks it is worth can be very different
• Have a qualified 3rd party formally value your business at least every 2-3 years and have a plan to grow it value
• Eliminate the waste in your business and use this cash to diversify your wealth.  You can do this by buying real estate (maybe your business real estate), creating an aggressive qualified retirement program, and/or personally investing income from excess cash flow
• Develop an exit strategy for your business and keep your eye on this prize.  When you sell or transfer your business this is usually the biggest payday you will ever experience.  You should have an exit strategy when you start the business and you should make this into a formal exit plan within 5-7 years of your planned exit
• You can never start too early in preparing for your exit and in maximizing your after tax cash from your exit
• Develop a personal plan for after you exit your business.  This includes both an investment plan and also a life plan that will make you (and those around you) happy and productive in retirement
• Use professional advisors to assist you in understanding, maximizing, and realizing the full value of your business.  The modest fees you will pay should give you a many-fold return upon exiting your business