Saturday, February 11, 2012

Inventing the new SWAP OPTION-How to REVIVE local small businesses in a recession and start an entrepreneur boom! Triple win win win

When the economy got weak and entered into a recession, small businesses lose Value in their businesses as sales declines and profits turns into losses, cash flow turns negative and businesses close down quickly as they could not obtain further financing from banks or private lenders.

So in desperation, most small businesses try to quickly sell their business for some Perceived Value, marketing their current losses as temporary and hyping their goodwill and other intangible highlights such as product superiority, location advantage or other competitive advantages.

In most cases, they failed to sell their business for the price they want or for any value( who would want to buy a cash flow loss business?) and were forced to shut down their businesses, usually defaulting on their store or office lease, which force them to turn over the property  back to the landlord.

And usually the empty space location  stays on the market for six months or longer, sometimes over a year, depending if renovations or new construction is necessary, new business opening & marketing time lag etc etc.  All these waiting and time loss during the turnover creates substantial loss not just for all parties involved but on the local economy based on the gdp multiplier effect.

So whats is the solution?

The New Business Swap Option Exchange, established over the web could remedy this situation so that the lag time is close to zero on the turnover and spur an local entrepreneur boom!

The purpose of this exchange will eradicate turnover time between the old owner to the new owner, all construction or renovation time, minimize any  legal structuring time lag, so that the transition is smooth with zero lag and effect to the economy.

Not only that, it creates a win win situation for new budding entrepreneurs to try new businesses on the cheap and give the old owners a chance to sell their business at a price they wanted.  And the landlord doesn’t suffer any loss of rent as transition is smooth and immediate.

So whats the magic?

And whats this swap option?

Lets use an example for best clarification.

An Italian restaurant owner owns a restaurant for years; having spent 300K on renovations, have a 5 yr remaining lease of 10K per mth.  It used to make a profit of 100K per yr and the business is valued at 200K ( two time income)  if sold.

A recession hits.  It now has losses of 20K a yr.  But the owner feels that the recession is short lived and once over, his business will be making 100K per yr again.
However, he has to feed his family and could not sustain the losses each mth. No banks or lenders would lend him any money.

So he has 2 options. Insist on  selling it quickly for the 200K valuation for his business when economy turns good  OR for any value anyone would pay NOW  since it has losses.

The most important value of the restaurant  is the 300K infrastructure(like the kitchen and equipment, air ventilation etc) he already invested for the restaurant yrs ago.  So for someone taking over the restaurant, that 300K represents good value to start a restaurant if he can buy it  for less than 300K.

 Or he could close down the business quickly to avoid further losses and hopefully the landlord will forgive him on the remainder of his lease(some would, most has a clause that says landlord needs to be warned some mths ahead of time).

In the most likely scenario, he will shut down the business because no one wants to buy a business of proven losses at a price tag of 200K or any price tag

With the Swap Option exchange over the web, the scenario greatly improved.

Here is how it works:

The owner list his business for sale at 200K on the web with An Option.
Anyone interested will contact him and propose a deal, along that Option.

As an eg, The option is an agreement that basically says the new buyer will pay  20K (10% or any %))  for half the business now(or any %),
puts up all the operating capital for ALL monthly expenses and potential business losses for 6 mths forward(or any time frame),
 runs the business for 6mths or longer(or any time frame)with the first 180K of net profits after all costs going to the seller to fulfill his 200K price tag. 

After getting the first 180K profit, the seller could remain partners or transfer full ownership to the buyer. 

The buyer has the Option to terminate the relationship after 6 mths, especially if business remains at losses.  Or renew the Option for another 6 mths. OR buy out the sellers 50% if all things goes profitable. OR keep renewing the Option till seller gets his 180Kin profit to fulfill his price tag.

This Option is a Triple win win win  situation for all parties.
The landlord obviously wins since he doesn’t care who pays the rent, with the lease currently still in sellers agreement. So the new buyer will probably sublease from the seller with landlords consent. The landlord suffers no loss in time or rent roll and doesn’t have to worry about finding new tenant.

The Seller wins since he is now not forced to close down his business but instead earns a immediate 20K (10% or any X percentage of his business valuation of 200K)
 and has an opportunity to wait and see if he gets his remaining 90% or 180K price tag over time.
He takes no risk since the buyer will take over the sublease going forward for 6 mths and absorb all losses, if any, going fwd. The seller  could even structure himself as a partner in the new profitable business going forward after getting his full price tag. What a bonanza! Compared this to just shutting down with his tail between his legs.

The buyer also wins big, especially if he could not afford the 200K price tag.
The buyer wins because with just 20 K, he took over a business and  he saves time on looking for space, saving some 300K on new renovations, and legal lag time and costs.  With just 20K, plus rental and operating capital for 6 mths, he gets to try his business idea on the cheap since he gets to terminate the agreement after 6 mths if it fails.  Once he terminates, the lease reverts back to the old owner and he walks away clean and fast, only with the operating losses if any.

This exchange could be set up easily on the web, partnered with business-for-sale site like,
 with high number of bidders and sellers. And it should be organized in different industries since this OPTION favors businesses in the same industry to save on the construction/renovation startup cost focus.

How many times have we seen businesses squandering away their startup cost in renovation and construction once an unrelated industry business took over a space.

When done right, this New business Option saves time, eliminates lag and opportunity cost in a bad economy and promotes entrepreneurship  on the cheap and could help spur an entrepreneur boom!

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On TImeline of Idu

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Simplicity Wins in Education - the single most powerful Word to teach success and good morals?!

The single Superhero Skill one could ever have... Even Superman cant beat this

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LifeSkills for Success- only for the privileged?!
The Problem on Affiliation - The Hereditary, Impossible Hurdle to a Perfect Moral Society?

On Future of Work, Perfect Team Chemistry, & “the Enabler”  to solve ALL Problems
Ending the era of Failures- why good ideas fail....the Perfect Team at a single click of a button- the non Star Trek approach
Ending the era of Failures- why good ideas fail....the Perfect Team at a single click of a button- PART 2

Future of Work = Aligning one's Passion and Life Purpose with Work
Future of Work = Aligning one's Passion and Life Purpose with Work - Part 2

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Finally, The Enabler to solve all social problems

On Charity and Non Profit Leadership-

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Matching Passion to Charity - Part 4- Finally, web platforms that combo "Passion, Cause, Skills" to solve all problems

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Non Profit Leadership - Ambitious the Unambitious PART B

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This is the article to end the word ”homelessness”?!!

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Solving the Animal Shelter Problem-Part 2-Super Scrabily Scooby !

Solving the Animal Shelter Problem-Part 3. Single Best Idea- Cafe all Sanctuaries into Magical Kingdoms!

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Driving 20 Miles Per hr Speed Limit (not 30!!)in Suburbs to Save Lives!??!

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On Economy-

How to REVIVE the local small business economy in a recession and start a entrepreneur boom!The Triple win win win approach! The -new business SWAP OPTION-strategy

On Healthcare and Optimal Physical Performance-

Knowing the Yin and Yang of your food is more than just watching kung fu Panda -it could save your life?

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On Happiness and Purpose-

IDU  "6 Steps to Happiness"  QUICK SUMMARY   - 5 seconds to instant bliss…..but even 5 seconds is too long for  a superhero!

Idu "6 steps to happiness" ==part 1

idu "6 steps to happiness" ==part 2

idu 爱嘟! HAPPY秘笈 - 幸福 秘诀 part 1

idu 爱嘟! HAPPY秘笈 - 幸福 秘诀 part 2

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