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In the last Chronicles issue, I wrote about buying an existing, profitable business versus trying to build, market and shape a new business from scratch. One of the challenges, of course, is trying to find a business that:
- Is legitimate
- Is profitable
- Is interesting to you
- Has potential
- Is affordable
I even listed some sites where you can begin your search. But like many good jobs out there, many of the good ones aren't advertised. You have to know someone to find the real gems. Call it fate, call it coincidence or call it luck, but I happen to cross paths with one of these gems shortly after I wrote last month's article.
REMEMBER CYBERREBATE.COM?
A few years ago, there was a company/site called CyberRebate.com. They offered products for sale for which you could obtain rebates of up to 100%. In fact, most of the products were offered with a 100% rebate. All you had to do was:
- Buy the product at "retail" price (which was usually an amount far above what anyone would normally pay for the item)
- Submit the rebate form along with the UPC code from the product you purchased
- Wait 12 weeks for your rebate check to arrive in the mail
Over the course of a couple of years, I bought, oh, around $1000 worth of merchandise from them and would always get my money back via the rebate program. Although the program always worked for me, I always felt like I was taking a risk every time I placed an order. Looking back on it, I may have suppressed that feeling because if I really dug down deep, I might not like what I might find.
Well, after CyberRebate.com went bankrupt, that feeling became stronger and clearer. They simply had no business model. I don't know if anyone ever knew what their business model was.
- How did they make their money?
- Did they count on 10% of the customers not submitting rebate forms at over-inflated prices?
- Did they make money by collecting interest on your money until they issued your rebate?
- Did the manufacturer's pay them to distribute the merchandise?
To this day, I still don't know what their plan was -- but as I customer, I sure liked it because I got lots of free goodies.
But, alas, the bubble burst. CyberRebate went under. And who knows how many customers were left holding the bag after paying money for products, but hadn't received their rebate check yet when CyberRebate.com filed for bankruptcy. I was only out about $25, but what about the poor person who paid $1300 for a digital camera that cost $99 in stores? I was lucky in that I didn't get burned for more in the end.
A GOOD BUSINESS MODEL
If you are searching for a business to buy, you need to find one that has a solid business model, unlike CyberRebate.
- How does it make its money?
- Is it legitimate?
- Does it provide a valuable service?
- How easy will it be to explain to potential customers?
- Will customers see the value?
- Is the service priced right?
- What's its future?
- What the size of the potential market?
All of these are questions one needs to ask when seeking a company to purchase -- or even do business with, for that matter.
As I eluded to earlier, I came across a business that generated a feeling quite the opposite of the feeling I had with CyberRebate. If CyberRebate was "Yin," this company's business model is "Yang." It's got all the right answers to many of the questions listed above. Let me step you through the answers I came up with for the questions listed above.
SO LET'S BEGIN
The first question is "what's the company's business model?" All US citizens pay Federal and State taxes (or at least, they are supposed to). Every year, there are individuals and businesses who do not take all of the tax deductions and tax credits to which they are entitled. Amazingly, the Internal Revenue Service allows you to amend your tax returns three years after the fact, even using new laws that are implemented after April 15th. So, if you forgot to list the interest you paid on your mortgage two years ago, you can file an amended tax return and get that money back.
Most people aren't aware of this (I sure wasn't). The company I came across built its business model around this and now informs potential customers of that right and offers to help them get back the money to which they are legitimately entitled. The service is a win-win situation for everyone because if they can't obtain a refund for the customer, there's no fee. If they do obtain a refund for the customer, the company simply keeps half. Either way, the customer has absolutely nothing to lose, but everything to gain.
IMITATION IS THE SINCEREST FORM OF FLATTERY
Believe or not, H & R Block (one of the largest, if not largest, tax preparers in the United States) recently spent millions of dollars and marketed a form of this service themselves. They called it the "Double Check Challenge." Basically, they offered to not only prepare this year's tax returns for you, but they would also double-check your returns from last year to see if there was anything that was missed they could recapture for you. This H & R Block campaign has basically provided free advertising for this new company which now focuses exclusively on reviewing its customers tax returns for the past three years.
Anyway, this company has been around for just over a year, but has already lined up such clients as:
- Orthodox Catholic Church of America
- SBBA - Small Business Benefit Association
- Alliance for Affordable Services
- AFS - Americans for Financial Security
who provide their full endorsement of this firm's services -- another good indication of a reputable business.
It's not multi-level marketing. It's not a get-rich-quick scheme. It's a legitimate business service which:
- Informs people of their right to collect money to which they may be entitled
- Uses qualified independent CPAs (with the help of a tax attorney, if needed) to review the customer's past three tax returns
EXPANSION
This company has proven their business model and is now looking to rapidly grow their business based on their refined methodologies. Currently, they are looking for Account Executives (AEs) to promote their services. But they only want to work with people who are serious. So, this led me down the path of investigating their growth plan by acquiring AEs.
Now, I hesitated when I first saw the $3000 fee that AEs must pay, but I learned a couple of things that helped me understand why they do so.
- Eliminate the Unqualified - The fee helps eliminate the people who are just tire-kickers and aren't serious about their business. This company actually invests a lot of time and money into each Account Executive and they don't want to waste their time or money.
- Recoup the Costs - They actually pay AEs when they refer a customer to the independent tax review specialist. This way, the AE makes their money back by doing some of the work one is supposed to do anyway - find customers.
- It's Not Their Money-Maker - The $3,000 fee is not where they make their money. In fact, they return this money to their AEs as the AE brings in leads - payment above and beyond the commission they pay their AEs when a refund is processed. The company makes their money by finding refunds for their customers. Currently, they quote that for every 10 potential customers an AE contacts, between two and eight of them will agree to have their past tax returns reviewed. And of those that have their returns reviewed, 60% of them obtain a refund averaging between $6,000 and $10,000.
So, although the fee raised a red flag, the flag came down after learning more about them and speaking with the founders. In fact, if you don't find any red flags when evaluating a business, that may be a red flag in and of itself.
Anyway, the more I found out about this firm, the more I liked it. The questions listed above all passed for this company. Good business model. Amazingly solid list of talent. And quite a bright future. Who knows, may they'll be the "Yahoo" of Tax Recovery Specialists.
A GOOD EXAMPLE
So, this was sort of the preliminary thought process I go through when evaluating a company. There's a lot more one would look into, such as contacting customers, reviewing financial statements and the like, but the above is a good start. Now, this business isn't necessarily for sale, but if it were, I'd be looking at buying it myself. ;)
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