Business Transitions

Business Transitions Message

Sun, 14 Aug 2011 12:41:00 GMT

<h2 align="CENTER">Implementing the Strategic Plan</h2> Why is it that once the strategic plan is documented (written), nothing seems to happen until there is a discussion about the plan not working? Successfully implementing a strategic plan requires the frequent and intense monitoring of milestones, the systematic questioning of the plan, and the revision of the plan as necessary. The concept of business planning is familiar. Goals are perceived, action plans are formulated, and milestones are set. What also is familiar is that not much happens after the formulation of the plan. When nothing happens, frequently the error is revealed when recent history shows the planning process has been experienced as chapters, with each chapter featuring a new plan. The correct paradigm leads to implementing the written plan by initiating action, monitoring milestones, and asking, as is appropriate, �Why isn't this working the way it was planned?� Most of the time the plan will not get it completely right. No one has a perfectly clear crystal ball. When the plan is wrong, it needs revision � on the fly. Change the plan, change the milestones, but achieve the goals. If the goal cannot reasonably be achieved, change the goal to one that can be achieved. One of the most unproductive endeavors in business is to attempt to determine if the failure to reach a goal is due to an error in strategy or a failure to implement the strategy. If the milestone monitoring indicates that strategy is not capturing reality, then revise the strategy. Do not let impractical or unrealistic strategy become the basis for an excuse for failure to reach the goal. If the milestone is not reached because of conditions other than strategy, then the action plan should be revised so that the next milestone can be met. Once there is a strategic plan in place, if it is being properly implemented, there will not be a need for a new strategic plan. With best practices, the strategic plan in place will be constantly revised. The revisions should be considered with a decision-making process comparable to the development of the plan. The revisions should be written and communicated � meaning that the failures causing the changes also are documented and communicated. The milestones should be considered essential guidelines on business performance on an individual and group level. When milestones are intensely monitored, the question will continually be raised, �Why isn't this working the way it was planned?� Do not allow this to be an idyllic inquiry. Determine why, make the necessary changes, and ask the same question at the next milestone. The benefit of creating the plan is to have the perspective to ask that question, over and over, when implementing the plan. � Rick Riebesell 2011. All rights reserved.

Business Transitions Message

Mon, 01 Aug 2011 15:20:00 GMT

<h2 align="CENTER">Control of a Business with Multiple Owners</h2> The presence of other owners can greatly affect the actions of a majority-interest owner of a business. Usually an owner of a majority interest in a business ultimately will be able to control the business; however, there can be significant problems relating to having other owners holding minority interests. Majority owners often want to allow a key employee, a spouse, family member, or an investor to become a minority-interest owner. The reasoning often includes a belief that if the employee has a stake in the future of the company the employee will be more motivated to enhance the best interests of the business, a desire to reward past performance, a strategy to avoid paying interest on a loan, or a meeting of of an investor's requirement. Usually, notwithstanding the transfer of some ownership interest, the majority-interest owner intends to maintain control (including the ability to sell the business, control compensation and make all important decisions). Generally speaking, in the absence of a relevant written agreement between the owners, the laws of most states provide certain rights to a minority owner. Upon the sale or dissolution of the business, the minority owner is entitled to a proportionate share of the proceeds remaining after all debts are paid. If there is a distribution of profits, the minority owner is entitled to a share of the distribution. The minority owner may demand an accounting of the business, usually a limited right to examine the books and financial records. If the majority owner oppresses the minority owner, typically by failing to observe one or more of the aforementioned rights or engaging in fraud, the minority owner may have the right to sue for breach of fiduciary duty. The remedies for such a legal action could include receivership (where the business of the company is taken over by a court-appointed receiver) and dissolution of the business. Imagine an angry minority owner, vindictive over some real or alleged slight, initiating a legal action asking that the business immediately be controlled by a receiver and over time be liquidated. While the majority-interest owner may ultimately prevail, all owners will have lost because of the damage to the business caused by the proceeding. No matter what the business entity, certain business decisions will require a super-majority interest agreement. Some important corporate decisions will require a two-thirds or three-fourths majority, and many limited liability company decisions require unanimous member (owners) consent. A dissenting minority interest could affect the majority-interest control on these issues. In the absence of a written restriction to the contrary, a minority owner could sell the minority interest to a third party (perhaps a competitor). Where a minority owner is present, the action of the majority owner will be limited by considerations of fiduciary duty and concerns with voting requiring a super-majority for action. Certain actions of the minority-interest owner (such as selling the interest to an undesirable party) should be restricted. Where there are several owners, the majority-interest owner will be controlling only if that owner has the right to obtain minority interests from the minority-interest owners upon the occurrence of certain events. These events, where a minority-interest owner is likely to be dissident, are readily foreseeable and are those where the majority-interest owner's control could be affected. For example, a written agreement between the owners could provide that in the event of a termination of employment, the minority ownership interest of the employee must be sold back to the business. Such an agreement between the owners also can deal with foreseeable issues regarding the death or disability of the majority owner, management involvement of the owners in short-term operating decisions and in critical business decisions (funding of the business or sale or merger of the business), payments to owners based on equity, and compensation payments to employees. For both the majority and minority interest holders, issues of value and control in certain foreseeable situations should be the subject of a written owners' agreement. This agreement, depending on circumstances, is sometimes referred to as a buy-sell agreement or shareholder agreement and should be based on the written succession (strategic) plan of the business. � Rick Riebesell 2011. All rights reserved.

Business Transitions Message

Tue, 19 Jul 2011 14:56:00 GMT

<h2 align="CENTER">What CEO's Do to Deserve High Compensation</h2> Chief executive officers of businesses are among the most highly compensated in the United States economy. Why is this? How can one individual be worth many times more compensation than a typical worker in the business? One cynical answer is that CEO's have the power and influence to get their sticky fingers on the cash of the business and hang on to it until it is in their pockets. But directors who represent shareholders and elect CEO's (as well as determine their compensation) are not idiots. These directors are required by law and their own self-interest to find and properly compensate effective CEO's. Once a successful CEO is found, there is usually a good reason to compensate that CEO very well to maintain effective business performance. There is a good reason why CEO's are compensated the way that they are. Simply put, successful CEO's have a demonstrated ability to communicate a goal and then get a group of people to engage in action to accomplish the goal. Public companies are the most visible example of this ability. The board of directors sets a policy � a strategic plan � for the CEO to execute. A CEO of a public company will determine a forecast (set a goal) through discussion with the board of directors and communicate that goal to the investing public through the financial press and to the workers of the company through internal company communications. Within a year and periodically through the year, usually at the end of a designated quarter, the performance of the company will be evaluated. If the forecast and the preceding mileposts are met, then investors are reassured and continue to hold or purchase the stock. If the mileposts and forecast are not met, investors may decide to sell the stock and fewer investors will be motivated to buy the stock. For a public com pany, a CEO who can deal successfully with this process of setting and meeting a goal will provide a much higher rate of return for the shareholders of the company than will a CEO who fails to meet the forecasts. An excellent example of this is in the book, Who Says Elephants Can't Dance? In the book Louis V. Gerstner, Jr. tells the story of the turnaround at IBM while he was CEO. Gerstner had the initial perception that IBM did not need a long-term strategic vision, but needed to become a market-driven and profitable business. With the Board of Directors support, he was able to communicate these goals and cause the business to accomplish them. On Gerstner's watch, the owners received a substantial return on whatever compensation he was paid. In 1993 the return on stockholder's equity for IBM was -35.2%, in 1994 it was 14.3%, and in 2000 it had increased to 39.7%. What Gerstner did was to communicate the goals and monitor actions taken to accomplish the goals. Taking this example to the private company, a CEO who can consistently accomplish goals will be moving the business in a predetermined and desirable way. While boards of directors in the public sector are forced by shareholder reaction to terminate CEO's who fail to realize forecasts, boards in private companies (if they exist as viable entities) are often dealing with the owner as CEO. This fact explains why it is quite unusual to find unsuccessful CEO's in public companies, and not at all unusual to find unsuccessful CEO's in private companies. The value of an effective CEO in a private company can be very high. With an appropriate strategic and operational goals to accomplish, the CEO's actions can determine whether a business reaches those goals. CEO's who accomplish appropriate goals create wealth for the owners of the businesses they lead. A successful CEO deserves a high level of compensation. � Rick Riebesell 2011. All rights reserved.

Business Transitions Message

Tue, 05 Jul 2011 16:25:00 GMT

<h2 align="CENTER">Owning and Controlling a Business</h2> Owners know that if an owner is an indispensable part of the management of the business, the business will be less valuable to a sophisticated buyer. Owners fear that a relinquishment of management activity will mean a loss of control. By appointing the appropriate policy makers over time the owners can control policy, but not necessarily immediately affect operations which are directly controlled by executive officers. The challenge for many business owners wishing to obtain maximum value for their business is to delegate the management role without losing control. Generally, the owners of a business appoint policy makers and hire executives to manage producers and carry out the policy. In the traditional governance of the business corporation, the owners are the shareholders, the policy makers are the directors (elected by shareholders) forming the board of directors, and the policy is carried out by the executive officers (president, vice president, secretary, and treasurer elected by the board of directors). The additional element of the business is the production of the product or the provision of the service. During the formation of a business, frequently all of these elements are directly accomplished by founding owners. As the business grows, owners typically decrease their participation in the production role, but often owners have difficulty in withdrawing from executive roles. Owners becoming policy makers fear that the creation of policies in the form of a plan, even if it is in writing and well determined, will not be enough to keep the business on track or prevent costly blunders. Often, these owners as managers have operated without strategic plans, defined goals, and milestones. These owners have not seen how policy makers can control a business. Where the board of directors provides a written plan with clearly defined goals and milestones, but only annually reviews performance and makes revisions to the plan and the execution of the plan, there is a lapse of control. But where the board reviews performance monthly and effectively communicates its performance review to management, there is control. If the execution of the policy has no milestones except for a reevaluation of the policy at a later time, the control of the owner is diminished. However, if there are milestones for policy execution and requirements for policy reevaluation in short-term intervals, the owners' control is enhanced. Just as the competent manager defines projects, sets goals with appropriate milestones, monitors consistently, communicates performance reviews with producers, and revises expectations to deal with reality, the owner as a policy maker can control the executive managers and ensure the appropriate performance of the business. The owner as a policy maker must not only see to the creation and documentation of a well-determined plan, there must also be a clear and consistent communication of goals and milestones with frequent reviews and analysis of the execution of the plan, the need to revise the plan, and the need to implement changes in the way the plan is being executed. Founding owners who have delegated the production element of the business can meet the challenge of delegating the management element of the business by understanding and effectively utilizing the policy-making element of the business. Meeting this challenge will enhance the value of the business. � Rick Riebesell 2011. All rights reserved.

Business Transitions Message

Sat, 18 Jun 2011 18:06:00 GMT

<html> <head> <title>Business Transitions</title> </head> <body> <center> <h2>Changing From Owner-Manager to Owner Realizing Maximum Value</h2> </center> As a business owner you should recognize that you will receive more for your business interest if you are not a manager in your business. If now you are a manager, your interest is worth less. Also, you should know that if the business had to transfer now because of your illness or death, the amount your family would receive would be much less than if you were not a manager. You know an owner approves policy and allows others to execute the business operation. As an owner-manager you should delegate management activities. You know you should find a chief executive officer to run the business. You know you will not be able to run the business forever. You know you could die or become disabled and may be forced to transfer the interest at any time. You know you have competitors with younger owners with new ideas and looking to lower your profit margins. Why haven't you acted? You say you have taken this management role for the sake of the business. You created the business and this role. You have not found anyone else who can do what you do to create the success. Are you comfortable that these are valid reasons for not getting maximum value for your business interest? Could it be that you are afraid of losing control? Are you flattering yourself that there is no one else who could do what you do? You are not alone. Many founders, even though they know they could fail to realize maximum value from their business interest, continue to be owner-managers instead of owners. If you want increased value and wealth for you and your family, stop your management activity. Here is how to make that change. First, gather the resources and information you need. Assemble the information by listening to business stakeholders and those operating the business. Seek out those who have accomplished the change and find out how the change was accomplished. Do not be reluctant to ask for help and advice. Second, create a written plan with the other owners and the stakeholders of the business. State the goals clearly and establish mileposts for performance. Third, understand that change cannot occur where discipline and focus are weak. If you are not disciplined against the seduction of the irrational notion that you are the only one who can do the management work in the business and if you do not continually focus on finding one or more people to do the management tasks you are now doing in the business, the change will not occur. Fourth, Take the change in steps over a time period that allows for the complete process to come into place and be effective. Since you founded the business or the position you have, the right person with the right set of skills may be hard to find, or it may be necessary to refine job descriptions so that more than one person does those duties. Do not think that you can do it all at once, that it will be easy, or that it will be immediately successful. Citing early difficulties as failures to stop the change process is a failure of discipline � a way to go back to the fallacy that you are indispensable to the business success. Fifth, be accountable. Make a written plan with the other owners. Let the other stakeholders in the business know what are the goals and how they are to be accomplished. Allow the other stakeholders in the business to help, but understand that if the process fails, it is you who are accountable for the failure. Owners often procrastinate or derail management change based on fear that they will no longer be able to control the business. This is less likely to happen where stakeholders are aware of the process. The change from owner-manager to owner creates wealth for the owner and the owner's family. It is not easy, but neither is founding and maintaining a successful business. Generally, owners have created a successful business and are quite capable of executing this change to create increased value in the business interest. To realize maximum value from your business interest, change from being an owner-manager to being an owner. � Rick Riebesell 2011. All rights reserved. For more articles and information visit the <a href="http://www.btcllc.net">BTC web site</a>. Earlier emails of this list are posted to <a href="http://blog.btcllc.net">my blog</a>. See my <a href="http://www.linkedin.com/in/rickriebesell">LinkedIn profile</a>. You can follow <a href="http://twitter.com/btcllc">BTC on Twitter</a>. Rick Riebesell Business Transition Consulting LLC <a href="mailto:rick@btcllc.net">Email</a> <center> <a href="http://www.btcllc.net/about.html"><img src="http://www.btcllc.net/logo.jpg" width="60%" height="300" border="0"></a> </center>

Business Transitions What Can I Get For It?

Sun, 29 May 2011 20:41:00 GMT

<html> <head> <title>Business Transitions</title> </head> <body> <center> <h2>What Can I Get For It?</h2> </center> To receive maximum value from a business interest an owner must experience highest possible profits during the operation of the business and the greatest possible amount of proceeds from a transfer of the business interest. It is one thing to operate a business and accomplish the highest possible profit, and it is another to accomplish the sale of a business interest for the greatest possible amount of proceeds. When the owner focuses on the transfer of the business interest and how to receive the greatest amount of proceeds from that transfer, the first question is often: �What is it worth now?� The value of a business interest can be described through an appraisal, which is one perspective of worth or value. The information obtained from an appraisal will be relevant and interesting, but it will do little to verify the proceeds to be received from a transfer simply because there is no transfer. There are in many appraisals information about comparable transfers, replacement value of assets, and the balance-sheet accounting of the business. None of these things will tell the owner the answer to the most important practical question: �What can I get for it?� Of course, the final answer comes after the completed sale. The dilemma for the owner is that an involuntary transfer of the business interest can occur at any time. The involuntary sale could be caused by the owner's death, disability, or various unintended legal actions (bankruptcy or divorce, for example). The intelligent owner then will also ask: �In the event of an involuntary transfer, what can I get for it?� Planning for a business interest transfer involves consideration of the concepts of inside and outside sales of the business interest. An inside sale of a business interest is a sale to another owner who is already involved and knowledgeable about the relevant business. This inside buyer will not pay extra for �know-how� or �trade secrets� of the business, since the buyer is aware of them, but the buyer will pay for the benefits of the business organization and other valuable assets of the business that the buyer would have to acquire to create a new independent business. An outside sale of the business interest is to a buyer not involved in the business and not in possession of the �know-how� and �trade secrets� of the business. This buyer must purchase more to have a business that can operate. An outside sale will yield more proceeds to a seller owner than will an inside sale. Therefore, an owner seeking maximum value from sale of a business interest will have the goal of a ccomplishing an outside sale. If the outside sale cannot be accomplished (such as in the case of an involuntary transfer), an inside sale is better than no sale at all. The hedge of the inside sale can be confirmed between owners by the use of an owner's agreement which provides for the purchase or sale of the relevant business interest between owners triggered by certain events usually relating to those that cause involuntary transfers of the business interest. This agreement is commonly referred to as a �buy-sell agreement.� The agreement establishes a market with the owners constituting parties who depending upon circumstances could be buyers or sellers at certain established values. The market established by a buy-sell agreement is respected by the courts and the IRS and answers the owner's question: �In the event of an involuntary transfer, what can I get for it?� With this important question answered, the business owner can plan to maximize proceeds from the sale of the business interest to an outside party for maximum value by developing a business which is not dependent on any owner for production or management. The sale to an outside party will provide maximum proceeds for all owners. Until that sale can occur, the buy-sell agreement hedges the value of each owner's interest. Business Transition Consulting LLC enables owners to create a succession plan which can be the basis for an effective buy-sell agreement assuring an inside sale and preparation for an outside sale for maximum value. � Rick Riebesell 2010. All rights reserved. For more articles and information visit the <a href="http://www.btcllc.net">BTC web site</a>. Earlier emails of this list are posted to <a href="http://blog.btcllc.net">my blog</a>. See my <a href="http://www.linkedin.com/in/rickriebesell">LinkedIn profile</a>. You can follow <a href="http://twitter.com/btcllc">BTC on Twitter</a>. Rick Riebesell Business Transition Consulting LLC <a href="mailto:rick@btcllc.net">Email</a> <center> <a href="http://www.btcllc.net/about.html"><img src="http://www.btcllc.net/logo.jpg" width="60%" height="300" border="0"></a> </center>

Business Transitions Newsletter

Sat, 14 May 2011 20:16:00 GMT

<html> <head> <title>Business Transitions</title> </head> <body> <center> <h2>Why Do It?</h2> </center> The owners of a business will have one overriding goal � even considering lifestyle and independence concerns. They are in business to make the most money they can from the business they own. Yet many owners fail to accomplish that goal because they fail to fully develop the business to receive maximum value from the business. Owners make money from a business in two ways. First, they make a profit from the operation of the business. Second, in the event of the sale of the business, they receive value (the net sale proceeds) for the business. To make the most money from a business, the owners' strategy must include the goals of highest possible profitability and receipt of maximum value as a result of any sale of the business. Many owners forget that an involuntary transfer of the business, which can occur upon an owner's death or disability, could happen at any time. Moreover, in a given time frame, more money can be derived from selling a business than operating it. A savvy business owner will derive maximum value from the business by developing the business to be attractive to buyers at the highest possible price. Selling a business for maximum value is an established wealth-building transaction. Yet, most business owners have businesses that do not attract buyers and will not sell at maximum value. What can a business owner do to attract buyers willing to pay maximum value for a business? Generally a reasonably intelligent buyer will pay a price based on the contemplated return on the buyer's investment. The value derived by the seller (the price level) will be directly related to the profitability of the business and the phase or stage of the purchased business in the normal private business cycle. The normal business cycle has three stages. The first stage is the start up, where the owner-founder produces and manages the business. The second stage is where the owner-founder becomes an owner-manager, ceases production activities for the business, and manages the business. This second stage is usually characterized by the consistent making of profit. The third stage is where the owner hires others to manage the business. A third stage business will derive a greater value to the seller than will a business in the first or second stages. If the seller is an owner-manager and integral to a business in the second stage, the seller must either remain after the sale as a highly paid employee or be replaced by a highly paid employee thereby reducing the return on the investment to buy the business. If the business is in the first stage, the problems on realizing a return on the purchase investment compound: the business is new and may not be consistently making a profit and the role of the owner-producer will probably have to be assumed by the new owner. Most business owner-founders have the strategy to get to stage two by making a profit as soon as possible and maintain that status. For a variety of reasons, many businesses stay in the second stage and the owner remains a manager of the business. To maximize value derived from a business, the business should become a third stage business (with the owner not managing the business) as quickly as possible so that the opportunity of a sale for maximum value is available. Business Transition Consulting enables second stage businesses to transition to third stage businesses. For more articles and information visit the <a href="http://www.btcllc.net">BTC web site</a>. Earlier emails of this list are posted to <a href="http://blog.btcllc.net">my blog</a>. See my <a href="http://www.linkedin.com/in/rickriebesell">LinkedIn profile</a>. You can follow <a href="http://twitter.com/btcllc">BTC on Twitter</a>. Rick Riebesell Business Transition Consulting LLC <a href="mailto:rick@btcllc.net">Email</a> <center> <a href="http://www.btcllc.net/about.html"><img src="http://www.btcllc.net/logo.jpg" width="60%" height="300" border="0"></a> </center>

Business Transitions

Wed, 14 Jul 2010 21:48:00 GMT

<center> <h2>Taxes Increase When Congress Does Not Act</h2> </center> On July 14th, 2010, approximately 30 legislative days before the fall elections and less than six months before significant portions of the tax code expire, the Senate Finance Committee held the first substantive hearing on the implications of allowing the Bush tax cuts to expire. The tone of the majority of the witnesses and comments by the Chairman suggest this hearing was designed to anticipate higher rates next year. Most of the Bush tax cuts enacted in 2001 and 2003 went to middle- and low-income Americans, not the rich. So the pending tax hike is going to impact regular families in a very real and harmful way. With just 30 days of legislative session left before the elections, even a well intentioned effort to extend those tax policies may fall short. Also, the hearing demonstrated the lack of a plan for what happens beyond 2010. Even if Congress extends some or all of the 2001 and 2003 tax cuts, something more comprehensive is needed. Senators Jon Kyl (R-AZ) and Blanche Lincoln (D-AR) yesterday evening introduced an amendment to make permanent changes to the estate tax. The estate tax is not in effect in 2010 but unless action is taken will return in 2011 with a top rate of 55 percent and an exclusion of $1 million (in 2009 the exclusion was $3.5 million). We may go from a system that taxed the sale of assets at low capital gains rates or allowed the carryover of basis on inherited assets to one where the capital gains rates will raise, the exclusion be reduced, and the allowance of a carryover basis restricted. Conceivably this could be one of the largest tax consequences in United States history. The Lincoln-Kyl proposal is designed to mitigate this harm and uncertainty by making permanent a middle ground on taxing estates. Key provisions in the bill include: reducing the top estate tax rate to 35 percent; increasing the exclusion from $1 million to $3.5 million; and allowing the estates of deceased taxpayers to choose between no estate tax and limited carryover basis or the provisions included in this plan for 2010. Missing from the proposal are any revenue increases or spending cuts to offset the revenue loss of the lower rates and higher exclusion. The selective pay-go rules adopted by Congress earlier this year would have allowed Congress to extend 2009 estate tax without offsets (which was not done), but any reduction in the estate tax beyond that would have to be offset or face a 60-vote Budget Act point of order. This problem appears to be unresolved. The question now is whether there is enough time in the legislative calendar for this or any other proposal to be adopted. The most likely outcome is that no proposals will pass. The result will be significant tax increases for business owners. Please comment or post with your thoughts on the tax increases caused by Congress failing to act. � Rick Riebesell 2010. All rights reserved. For more articles and information visit the <a href="http://www.btcllc.net">BTC web site</a>. Business Transition Consulting (BTC) provides testing and observation of owner-managed businesses through a one-day observation of the business and delivery of an oral report the next morning. This business checkup is a Business Review. This service is available from BTC. Link to my latest video on <a href="http://www.youtube.com/watch?v=WQKyRkwt8E0">Axioms for Business Activity</a>. See <a href="http://www.youtube.com/watch?v=Vsgsf47HHLQ">Questions for a Business Owner</a>. Don't have time to plan? See <a href="http://www.youtube.com/watch?v=rGUhLWAxbAw">Never Had Time</a>. For information on my book see <a href="http://businesssuccessionplanningadvisor.blogspot.com"> Business Succession Planning</a>. Earlier emails of this list are posted to <a href="http://blog.btcllc.net">my blog</a>. See my <a href="http://www.linkedin.com/in/rickriebesell">LinkedIn profile</a>. You can follow <a href="http://twitter.com/btcllc">BTC on Twitter</a>. Rick Riebesell Business Transition Consulting LLC <a href="mailto:rick@btcllc.net">Email</a> <center> <a href="http://www.btcllc.net/about.html"><img src="http://www.btcllc.net/logo.jpg" width="60%" height="300" border="0"></a> </center>

Understanding the Equilibrium Point

Sat, 10 Apr 2010 16:35:00 GMT

<center> <h2>Understanding the Equilibrium Point</h2> </center> To do its work, the demand curve needs a supply curve. A demand curve is constructed with information from the firm�s customers or clients. It involves understanding the value equation for those who chose to purchase our products or services. We have talked about constructing a demand curve and a supply curve in previous posts. Once the demand curve is developed, how can it be used to analyze and make critical business decisions? Just as price has an inverse relationship to quantity demanded by consumers (the higher the price, the less demand), price has a direct relationship to quantity supplied (the higher the price, the more produced). We can created the supply curve and the demand curve by placing two columns on a spreadsheet, one marked quantity and the other marked price. For each price step, determine the appropriate quantity. Use the spreadsheet to create a graph from the columns with the price on the y (vertical) axis and the quantity on the x (horizontal) axis. Since the axis values are the same, the demand curve and the supply curve can be placed on the same graph. What the two curves suggest at intersection is equilibrium � a place where the demand at a certain price meets the supply at a certain price. This equilibrium suggests the point where the competitive forces of the market will push the firm�s activity. It may not be where the firm should be in the marketplace. More about that in later posts. Please comment or post with your thoughts on the equilibrium point for your market. � Rick Riebesell 2010. All rights reserved. For more articles and information visit the <a href="http://www.btcllc.net">BTC web site</a>. Business Transition Consulting (BTC) provides testing and observation of owner-managed businesses through a one-day observation of the business and delivery of an oral report the next morning. This business checkup is a Business Review. This service is available from BTC. Link to my latest video on <a href="http://www.youtube.com/watch?v=KfOZCj15Gfc">Creating the Business Plan</a>. See <a href="http://www.youtube.com/watch?v=Vsgsf47HHLQ">Questions for a Business Owner</a>. Don't have time to plan? See <a href="http://www.youtube.com/watch?v=rGUhLWAxbAw">Never Had Time</a>. For information on my book see <a href="http://businesssuccessionplanningadvisor.blogspot.com"> Business Succession Planning</a>. Earlier emails of this list are posted to <a href="http://blog.btcllc.net">my blog</a>. See my <a href="http://www.linkedin.com/in/rickriebesell">LinkedIn profile</a>. You can follow <a href="http://twitter.com/btcllc">BTC on Twitter</a>. Rick Riebesell Business Transition Consulting LLC <a href="mailto:rick@btcllc.net">Email</a> <center> <a href="http://www.btcllc.net/about.html"><img src="http://www.btcllc.net/logo.jpg" width="60%" height="300" border="0"></a> </center>

Business Transitions Message

Fri, 05 Feb 2010 14:48:00 GMT

<center> <h2>Do You Care What the Supply Curve is for Your Market?</h2> </center> In the last email we discussed how the supply and demand curves illustrate an equilibrium market price for a product. Understanding the demand curve for the market for your business can be beneficial with respect to making decisions about price, production, and understanding consumer satisfaction. Trying to understand the supply curve helps focus attention on decisions market competitors may make. Unlike the demand curve, which moves inversely to price, the supply curve moves directly with price (as price goes up, the production of the product increases). This reflects the willingness of producers to produce more products as long as the consumer is willing to buy at a price that is greater than the cost to produce. In a market place where prices is high because consumers cannot find all the product they want, competitors will be attracted to the market to increase the supply. When we attempt to construct a supply curve for a market, we are trying to understand what choice is now available to the consumer and what that choice might be in the immediate future. These are important determinations in the strategic planning for a business. Critical to this inquiry are two factors. Is the market one which is difficult to enter? Is our product different from other products, by brand identification or quality, that its utility to consumers cannot be easily duplicated? In a market with history, we will know what the equilibrium price is � that is the current price. By constructing demand and supply curves on a graph, we attempt to portray with an objective numbering scheme our perceptions and forecasts about the market. Next time we will talk more about this and putting production information into the analysis. Please comment or post with your thoughts on the supply curve for your market. � Rick Riebesell 2010. All rights reserved. For more articles and information visit the <a href="http://www.btcllc.net">BTC web site</a>. Business Transition Consulting (BTC) provides testing and observation of owner-managed businesses through a one-day observation of the business and delivery of an oral report the next morning. This business checkup is a Business Review. This service is available from BTC. Link to my latest video on <a href="http://www.youtube.com/watch?v=KfOZCj15Gfc">Creating the Business Plan</a>. See <a href="http://www.youtube.com/watch?v=Vsgsf47HHLQ">Questions for a Business Owner</a>. Don't have time to plan? See <a href="http://www.youtube.com/watch?v=rGUhLWAxbAw">Never Had Time</a>. For information on my book see <a href="http://businesssuccessionplanningadvisor.blogspot.com"> Business Succession Planning</a>. Earlier emails of this list are posted to <a href="http://blog.btcllc.net">my blog</a>. See my <a href="http://www.linkedin.com/in/rickriebesell">LinkedIn profile</a>. You can follow <a href="http://twitter.com/btcllc">BTC on Twitter</a>. Rick Riebesell Business Transition Consulting LLC <a href="mailto:rick@btcllc.net">Email</a> <center> <a href="http://www.btcllc.net/about.html"><img src="http://www.btcllc.net/logo.jpg" width="60%" height="300" border="0"></a> </center>

Business Transitions Message

Thu, 28 Jan 2010 01:22:00 GMT

<center> <h2>Do You Care What the Demand Curve is for Your Market?</h2> </center> Economic theory tells us that supply and demand create an equilibrium market price for a certain product. There is a benefit for an owner-manager of a business to understand the demand curve for the market for that business. Understanding the demand curve can help with price decisions, production decisions, and documenting consumer decisions (enabling effective response to changes in consumer interests). When we try to construct a demand curve for a market, by necessity we are defining a market and then seeking to understand the value equation of the consumer. These are very worthwhile and rewarding things to do. We are trying to determine at what price the consumer will buy more or less of our product or services. To do this we must obtain from the consumer information about the effect of price on a decision to buy. Generally we know the higher the price, the less likely the purchase of additional units. If we obtain the consumer information by survey, we may find various responses from consumers which may be listed in spreadsheet columns. The sample responses can be used to derive information about the amount consumers would purchase at certain prices. Usually these responses become columns of information on a spreadsheet (price and quantity) which then can be used to create a graph (price on the y axis and quantity on the x axis). In a market which is highly competitive and the products very similar, the demand curve will tend to be flat (parallel to the x axis) because price will be a determinative factor and production will be increased until the cost of the last unit produced equals the revenue produced by that unit. On the other hand where a unit is very differentiated from other units by quality or design, the demand for a particular unit will be much less affected by price and the demand curve will tend to be vertical (parallel to the y axis of the graph). In a market where products of different companies are differentiated, price will be increased until production is at the point where the cost of the last unit produced equals the revenue produced by that unit. The slope of the demand curve generally will indicate whether we sell many units at a lower price (high competition), fewer units at a higher price (differentiated products), or something in between. Once you have developed a demand curve for the market, there are a number of different ways to use this information and the graphical portrayal of the information to analyze and make critical business decisions. More about that next time. Please comment or post with your thoughts on the demand curve for your market. � Rick Riebesell 2010. All rights reserved. For more articles and information visit the <a href="http://www.btcllc.net">BTC web site</a>. Business Transition Consulting (BTC) provides testing and observation of owner-managed businesses through a one-day observation of the business and delivery of an oral report the next morning. This business checkup is a Business Review. This service is available from BTC. Link to my video on <a href="http://www.youtube.com/watch?v=KfOZCj15Gfc">Creating the Business Plan</a>. See <a href="http://www.youtube.com/watch?v=Vsgsf47HHLQ">Questions for a Business Owner</a>. Don't have time to plan? See <a href="http://www.youtube.com/watch?v=rGUhLWAxbAw">Never Had Time</a>. For information on my book see <a href="http://businesssuccessionplanningadvisor.blogspot.com"> Business Succession Planning</a>. Earlier emails of this list are posted to <a href="http://blog.btcllc.net">my blog</a>. See my <a href="http://www.linkedin.com/in/rickriebesell">LinkedIn profile</a>. You can follow <a href="http://twitter.com/btcllc">BTC on Twitter</a>. Rick Riebesell Business Transition Consulting LLC <a href="mailto:rick@btcllc.net">Email</a> <center> <a href="http://www.btcllc.net/about.html"><img src="http://www.btcllc.net/logo.jpg" width="60%" height="300" border="0"></a> </center>