During an economic slow down most businesses take time out to think about their cash flow and their spending budgets, or so they should.

I know from talking to other businesses that things are tough out there right now, and you only have to look down your own high street to see the all revealing closing down sales and empty shops of businesses, including some large retail chains, to know that things are very difficult.

However, this is not a time to hold back on your advertising though and for one of my businesses we, as a board of directors, have recently decided to up our advertising spend. In this case the business concerned is in the care-sector and we chose to up our marketing budget to 7% of our turnover, so that as turnover begins to increase so will the amount we spend on marketing and advertising and so on.

I know that newspapers and magazines are having a tough time too right now because businesses are not spending the same on advertising as they did 12-18 months ago, when in fact the opposite should be true! At a time when competition is high and customers are being selective about where they spend their money, you need to keep you business in the “Eye” of your customer and even more so when things are tough.

I noticed that when I looked at search terms on this subject there are some top searches not least some looking to see what other businesses spend, for example: “how much does mcdonalds spend on advertising”; “how much money do advertisers spend on advertising”; “how much do companies spend on advertising”; “how much bose spends on advertising”; “how much do business spend on advertising a year”; “how much sears spends on advertising”, were some of the top ones. What I don’t know is whether people are actioning after doing their research. If you were the one looking at how much McDonalds spends and you happen to be in a similar trade, then you should consider spending a similar amount as they do in order to keep up.

It would be easy for you to do some of your own research on what amounts other businesses are spending on advertising or companies within certain sectors, to give you an idea of what you should be spending too. I would suggest that the amount you spend be no less than 5% of turnover and possibly up to around 20%. However, one thing you need to take into consideration is your “gross profit margin” you make.

If in your industry your gross margin is let’s say 20% – there would be no point in spending 20% on advertising, as this would take up your whole gross profit and you might as well close up shop now. However, if your gross profit margin was say 60-70%, which is what the margins are like in the food trade, then you might wish to consider spending up to these levels of advertising, as you have a large amount of gross profit margin to play with.

In the example of the care business sector mentioned above, the gross margin in this particular business is 32%, so 7% of turnover will leave us with a net of 25% gross profit to go towards the other business overheads and profit for the shareholders.

For those that are not quite sure about what “Gross profit margin” is – it is the percentage you make on your sales over an above what it costs you to make those sales. So for example, if you sell televisions and you sell one for let’s say £500 and it cost you £350 to buy the television, then you gross profit in this instance is £150 or 30% (£150 divided by £500).

Have you ever considered buying a business or are you in the process of buying a business? Or perhaps you are considering or have thought about setting up your own business from scratch.

If your answer to any of these questions is yes, then you will probably recognise how difficult and daunting this process might be. This article is therefore directed to help you with that decision process.

So the first question you need to answer is:

Do I set up a new business from scratch or do I buy an existing business?

There are pros and cons for both and you will need to weigh these up when deciding upon which route to embark upon. If for example, you have invented the next best product that does not presently exist on the market, then clearly, if you consider this to be a product that does indeed have a market, then setting up from scratch is the route to take, subject to patenting the idea and then doing some initial market research.

However, if you are not the inventor of the next TV or telephone etc. then you need to weigh up whether it will be easier for you to buy a business or start one in a field that you already know. To help you consider the answer to this question it is important to consider the following advantages and disadvantages:

Advantages and disadvantages of buying an existing business:

Advantages

- Some of the groundwork will already have been done in getting the business up and running.

- It might be easier for you to get finance as the business will have a proven track record.

- A market for the product or service will have already been demonstrated.

- There are established customers, a reliable income, a reputation to capitalise and build on, and a useful network of contacts.

- A business plan and marketing method should already be in place.

- Existing employees should have experience you can draw on.

- Many of the problems will have been discovered and solved already.

Disadvantages

- The present owner may have close relationships with the existing customers and therefore when they sell and leave you need to ask the question, will the customers leave as well? This is one of the important question you must ask, when you do your initial checks on a business for sale.

- You often need to invest a large amount up front, and will also have to budget for professional fees for solicitors, surveyors, accountants etc.

- If the business has been neglected you may need to invest quite a bit more on top of the purchase price to give it the best chance of success.

- You will need to honour or renegotiate any outstanding contracts the previous owner leaves in place.

- You also need to consider why the current owner is selling up. Normally if they are selling for genuine retirement reasons or ill health this is okay, but always check the reasons for the sale of their business!

- Think about the feelings of current staff – it’s possible they may not be happy with a new boss, or the business might have been run badly and staff morale may be low.

Having listed a number of advantages and disadvantages attached to buying an existing business, I would you to consider the following further points:

If you buy an existing business you know for a fact that a market exists for the product or service that it sells…

You might be saying, however, that the new business I had intended to set up from scratch has an existing market because there are other companies already selling the product or service.

That might be true, however, you must recognise that it takes time and money to gain market share and when you start from scratch you are starting from zero. Whereas, if you buy an already established business, you are buying both customers and an income stream so most of the hard work has been done for you. That is not to say however, that the business you are buying is in a shrinking market or in a market that is badly affected by a recession.

So you need to consider the economic cycle you are in when you buy a business, because you might not want to buy a company that sells televisions and other luxuries in the middle of a recession, for example.

When you buy a business most of the hard work has been done for you…

There is no doubt that the hardest part of any business is the early days and getting it set up, getting your first clients and getting your initial cash flow. Setting up from scratch requires you to find premises; employing staff; setting up computer systems; deciding on the marketing; getting to be known in the market place; finding suppliers; getting accounts with suppliers; etc. all of which takes time and can in some cases mean a steep learning curve.

Other areas of setting up a new business that you might require is funding and sorting out banks and finance; accountants and other financial advisers; setting up systems and processes within the business; business insurance; telephone systems; etc. whereas most of these will have already been sorted out by the present owner of the business you are considering to buy (not always correctly mind you!)

When you buy an existing business, most of the hard work has already been done for you and whilst you will probably want to appoint your own accountants and financial advisers, most of the other points will have been addressed by the previous owners. Once you have your feet under the table, as it were, you will very likely want to change the way the business is run, especially on the marketing front, however, it is probably much easier to change an existing set up than to start from scratch, because the existing business will already have clients, but more importantly have cash flow.

This existing client base is something that you can go to work on and to build upon and it is important to recognise the value of a client database. Most businesses forget to market to their existing client base so this will probably be your easiest route to growth, by marketing to the businesses existing clients. It costs much more to gain new customers than to sell to an existing one! Which is point missed by most business owners.

If you are swaying towards buying an existing business then it would be better to look to one where the marketing is being done very well right now. This way you are buying “Potential” in the business and can make “Easy” profits and faster gains, let me explain:

When I mention the word marketing – I mean this in the widest possible sense of the word. So for example, does the business make full use of its existing customer base for other products or services that it sells or could sell? Are the premises of the business presentable and the employees welcoming and well dressed? What forms of advertising is the business using and are these being optimised?

There are many more questions of this type you could ask, which are all linked to the marketing of a business. There are some businesses that trade and survive despite themselves and the way in which they are run. You must have been to buy something from a company in the past and received a shoddy customer service! Did you ask the question; how on earth does this business survive?

The truth is that if this is a business you are considering to buy, they are surviving, they sometimes do and these types of businesses come on the market for sale all of the time. So I commend you to buying this type of business and with a little bit of tweaking here and there you will likely turn a loss or a small profit into a good profit in no time. What’s more you should be able to pick up a company like this for a cheap price because of the low profits and of how it is run. A more profitable business is worth more and will be easier to sell again in the future.

My final consideration in this article is in terms of assets at a discount…

If you were to set up a business from scratch, it is likely that you will need to purchase the assets to run the company, at full retail price! For example, all businesses will have computers, telephone systems, office desks and chairs, together with the specific assets needed to run the type of business you might be looking to set up. However, when you purchase an already existing company you will get the assets thrown in for “FREE” because the business cannot be run without them. Admittedly, some of these assets might need to be replaced, but on the whole they work and will come within the value of the business you are buying.

Morgan Stanley and JP Morgan Chase have agreed to buy back more than $7bn of securities and pay fines to settle allegations that they misled investors.

The deals were with the New York Attorney General and other regulators.

The Wall Street banks were accused of marketing debt products, called auction-rate securities, as much safer than they were.

Other financial firms are also being investigated for misstating the risk of these investments.

Under the deal with New York Attorney General Andrew Cuomo, Morgan Stanley will buy back about $4.5bn worth of auction-rate securities at face value by 11 December.

JP Morgan Chase has agreed to redeem about $3bn of auction-rate debt it sold to customers, which include retail customers, charities and small-to-medium sized businesses by 12 November.

Its settlement also covers debt sold by Bear Stearns, which it bought earlier this year.

Neither bank admitted or denied wrongdoing.

‘Latest victories’

US authorities are investigating how auction-rate securities were marketed throughout the industry before the $330bn market collapsed in February as trouble in the credit markets due to the US sub-prime crisis spooked investors.

Last week, the New York Attorney and the Securities and Exchange Commission (SEC) reached settlements with Citigroup and Swiss banking giant UBS that required the pair to repurchase in total $26bn of the securities.

“Today’s multi-billion dollar agreements are the latest victories for investors seeking relief from the collapse of the auction rate securities market, which has left a stranglehold on billions of dollars,” said Mr Cuomo.

“The fundamental goal has been to return money into the hands of investors, and that’s what these deals do.”

Repercussions

JP Morgan Chase and Morgan Stanley will also reimburse customers who have sold their auction-rate debt at a loss.

JP Morgan Chase will pay a $25m penalty to New York State and the investor protection group the North American Securities Administrators Association, while Morgan Stanley will pay a fine of $35m.

Separately, New Hampshire securities regulators have sued UBS for misleading the state’s student-loan agency about auction-rate debt and so resulting in less money available to offer students loans.

Student-loan agencies and municipalities were frequent users of auction-rate securities because they were seen as highly liquid investments, almost equivalent to cash but offering a higher return because their rates were reset at weekly or monthly auctions.

News reported by The BBC

Capitalise on your greatest asset – “Your existing customers!”

Marketing to gain new customers is possibly 5-10 times more expensive than marketing to your exisiting customers. Your existing customers already know you and have crossed the “Trust barrier” and purchased from you.

Customer service

It is crucial that your customer service is excellent and the product or service that you sell is a good one so that when a customer buys from you, they will want to come back. So if this is the case and you have happy customers, then why would you not market to them and ask them for more business?

Advertising and brochure production or cold calling is very expensive and you will be lucky to get over 1-2% response for your efforts! So if you can add further products or services to your business that either compliment or would appeal to your existing customers then you would not believe how much your business can grow!

I am not suggesting that you cease advertising for new customers, as you never should. However, you may wish to divert some of your spend towards marketing to your exisiting customers In fact, I recommend that you link your marketing spend to your turnover as a percentage of your total sales, so that the more sales you make the more you spend on advertising and so on!