MIND YOUR BUSINESS Couples in business together need to define roles, set limits

Ilana DeBare

Q: My husband and I are planning to go into business together. We have young children and are worried about how to handle issues of work encroaching on home life. Any tips for people going into business with their spouse or significant other?

Spouse with a startup

A:I bet every husband-and-wife business team reading this column would talk your ear off -- that is, if they could find a few minutes when they're not courting customers, balancing the books, ordering office supplies, negotiating a bank loan, driving a carpool or cleaning the cat box.

There's more to say about this than can fit into one column. But here are a few basic pointers:

-- Define your work roles. Your business will grind to a halt if you try to make every single decision together.

Perhaps one of you is the marketing maven and the other is the chief financial officer. Or one is the Big Boss and the other is more of a part-time assistant.

Big decisions, such as whether to lease space or stay in a home office, should probably be made together. But for daily operational questions, define your areas of expertise and don't second-guess each other.

-- Set work/home boundaries. That might mean turning off the ringer on your business phone after 6 p.m. or making Sundays an inviolable family day. The specific boundaries you choose are less important than the fact that you have boundaries.

"We have always had a rule of not talking business in bed," said Sarah Edwards, co-author with her husband, Paul, of "The Best Home Businesses for the 21st Century." "That's not conducive to sleeping or to romance."

-- Expect disagreements. "If you are going to work with your spouse, you're going to have a lot more arguments," said Kathy Marshack, a psychologist in Portland, Ore., and author of "Entrepreneurial Couples: Making It Work at Work and at Home."

"You have more opportunities for conflict if you spend more time with a person," Marshack said. "Little things are going to pop up every day that you only saw once a week or once a month before. You're going to be inundated by things you love (about your spouse), but also things you don't like."

-- Think twice before putting all your financial eggs in one basket. You both may be tempted to quit your jobs to start this new venture. But you'll sleep easier if one of you keeps his or her day job until you know whether this business can support you.

-- Find emotional support outside your immediate family. Starting a new business can be really scary. And there may be times when it's best to share your fears with a friend rather than with your spouse/business partner.

"People don't realize how much their fears can affect each other," Edwards said. "It's contagious. If you go on and on about your fears, you can pull the other person into that. It's always best if you can avoid getting into fear at the same moment."

We've just scratched the surface here. Readers: Are you part of an entrepreneurial couple? Do you have stories or tips worth sharing from your own experience?

E-mail me at mindyourbiz@sfchronicle.com and we'll include some of your advice in an upcoming column.

Q:I'm considering purchasing a tutoring business from an acquaintance. The seller tutors 25 hours per week, which turns out to be more than full time when you consider report-writing, consultation time, etc. She charges about $80 per hour. How can I figure out what this business is worth? It has no assets and is mostly the tutor's excellent reputation, connections and client list.

Befuddled buyer

A:There are rules of thumb for estimating the value of small businesses in certain common industries. For instance, gas stations typically sell for 2 1/2 to three times their available cash flow and motels typically sell for 2 1/2 to three times their room revenue.

But those formulas need to be adapted to the specifics of a particular business, including its risk factors, location, etc.

And the kind of business you're considering -- a sole proprietorship that is heavily dependent on the reputation and connections of the owner -- doesn't lend itself to a standard formula.

Let's assume this tutoring business generates gross revenue of $100,000 per year and profit of about $80,000.

I spoke with three different business brokers and received three very different off-the-cuff estimates of the value of this enterprise:

-- Julie Gordon White of Blue Key Business Brokerage in Point Richmond suggested a formula of two times the "owner benefits," meaning profits and other perks such as health coverage.

"Most small businesses with (earnings of) $100,000 or less are sold for about two times owner benefits," White said. In your case, that would come to about $160,000.

-- Rich Greenblatt of Allen Business Investments in San Ramon suggested a much lower figure, about $80,000 to $90,000.

"I think you'd be hard pressed to get two times earnings," Greenblatt said. "The negatives are that this business is really tied to one person, which diminishes its value. I could see listing it for $125,000, allowing for some negotiation, and maybe ending up at $90,000."

-- Mark Corrallo of Sunbelt Business Advisors in Redwood City suggested an even lower value of $25,000 to $50,000.

"The equity in the business is the owner, and she can't guarantee that a single client will remain once she departs," Corrallo said. "This is like when I used to have a solo law firm making very good money. I went to sell my business and I didn't have anything to sell."

So what can you conclude from such widely varying estimates? Business valuation is an art, not a science. And a lot of the value depends on the specific situation, such as (in this case) what the owner will do to ensure that clients stick around after she sells.

Consider hiring a business broker on a flat-fee basis to look at the financials and provide a valuation. (An appraiser or an accountant with valuation experience could do the same thing.) Meanwhile, check business-sale Web sites such as BizBen.com or BizBuySell to see if any comparable tutoring businesses are listed and priced.

If you move ahead with this purchase, look into an "earn-out" arrangement where you would make a fixed down payment, followed by variable payments that depend on how the business fares. That could help protect you if clients end up jumping ship due to the ownership change.

Want more information on business valuation? You can find helpful articles at www.bizben.com/articles and www.bizbuysell.com/buyguide.htm. For an overview of the purchase process, see "The Complete Guide to Buying a Business," a Nolo Press book by Fred Steingold.

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