Tuesday, 25 December 2012

Just keep hanging on!

Just keep hanging on, 2013 is going to be great.

"Happy holidays and our best wishes for the New Year!"


Do you have a small business question you would like answered about this article or others?
Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.


Tuesday, 18 December 2012

Price is based on what someone else is willing to pay!

Many business owners have an inflated view of the value of their company. 

This is understandable, considering they have put so much money, time and energy into building their enterprise to where it is today.  However, they need to realize the price is based on what someone else is willing to pay for it.

So, what are the factors that drive or impact the value of your business?
First, start with what motivates Buyers to buy businesses:
·         Financial buyers are looking to maximize their return on investment.  These buyers are looking for acceptable levels of risk and return;

·         Sometimes buyers are your competitors looking to eliminate a key competitor and/or build sales volume and economies of scale;

·         Scalability is in many cases a motivator.  Buyers may have a related business in a different market or they my higher or lower in the supply chain looking to save costs or improve integration;

·         Being one’s own boss and master of their own destiny is high on the list of motivators for individual buyers;

·         As well, individual buyers may be looking to “buy a job”

·         There may be a patent or technological advancement a business may possess.  Buyers looking for these competitive advantages may be motivated to act on their desires.

Whatever the Buyers motivation are, it’s wise for Sellers to understand the impact they may have on value in their business.  By leveraging those motivations into a compelling business opportunity, Sellers are more likely positively impact their business value, increase the likelihood of a successful transaction and be happier with the final outcome.
Do you have a small business question you would like answered about this article or others?
Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.


Tuesday, 11 December 2012

How sellers can protect from getting their business back, after they sell it

Two questions sellers ask… “How much is my business worth,” and “How can I protect myself so I don’t get the business back later?

In many ways, the latter question is more sensitive issue than the first.  An improperly structured transaction can create problems for the seller years after he has sold the business. 

Although there are no guarantees, a combination of the following recommendations will significantly reduce the likelihood that the seller will be stepping back into the business after stepping out.  Many of these suggestions, such as having an adequate training period for the new owner, having a good client base, having strong relationships with suppliers, etc. are obvious.  However, many are not. 

One of the most common mistakes sellers make is not getting enough of a down payment.  One of the best ways to ensure the successful transition of their business is to have the buyer invest a significant amount of their own capital in the transaction.  Few incentives inspire the new owner to achieve success greater than the risk of the loss of a significant amount of their own money.  In simple terms, it is a lot harder to walk away from a $150,000 down payment than $15,000.

Another way to minimize a seller’s risk is to know their buyer.  This goes beyond having some of the same interests, common friends and an affinity for the same brand of Cabernet.  It means a thorough review of the buyer’s credit, analysis of their personal finances and a complete resume illustrating, not only their accomplishments but their life experiences.  For example, if the buyer has a poor history of paying off his credit card, he likely might have problems making his monthly principal and interests payments to the seller on a timely basis.  If the buyer doesn’t have a strong financial statement, he may not be able to weather any unexpected slow periods. 

As far as life experiences go, the passion and skill sets that are required to run a day care will be significantly different than what would be needed to operate a manufacturing business. 

Finally, securing the services of a good business broker to help the seller navigate through these issues can be good preventative medicine.  A qualified facilitator will structure the transaction to ensure that potential potholes are covered. 

By incorporating these obvious and not-so obvious suggestions, business sellers will be able to significantly increase the likelihood that they won’t have to come back into their business once they have left.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 
William Sivell is a Broker at VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.


Tuesday, 4 December 2012

Why You Need An Entrance Strategy

Equally important to an Exit Strategy for retirement is an ‘Entrance Strategy’ to buy existing businesses.
While a popular trend today is for business owners to plan their exit, few prospective business buyers take the time to map out a plan to find an existing business that meets their needs
A fundamental trait of an exit strategy is that it is a planned event, meaning, it’s conceived before it becomes desirable or necessary. The same can be said for buyers who are thinking about buying an existing business. I call this an ‘Entrance Strategy’ as it designed to help focus on the steps needed to buy an ideal business. 
As a starting point, buyers need to take an honest inventory of their skills, knowledge and interests. They need to truthfully catalogue skills and talents that can be incorporated into a business. And they should be able to articulate their personal interests. For example, does the buyer enjoy interacting with the public or is he more content behind a desk? Is she comfortable with managing people and making decisions?  What technical skills or talents does he have that can be incorporated into a business?
At this point, buyers shouldn’t be too concerned if they’re unable to identify exactly what type of business they’re looking for. The more focused and realistic they are in their personal review, the more attentive they can be in identifying attractive business opportunities and eliminating businesses they’re not interested in.
Get a solid understanding of your financial situation.  Buyers need to know how much money they are prepared to invest and how much they expect to make. Typically, these two amounts are directly related to one another. Cash in the bank is the easiest benchmark, however, many times a buyer will liquidate securities, borrow from family, re-mortgage property, or leverage credit lines in their other businesses in order to make an agreed-upon down payment.
Along with the variety of resources available to the buyer are the varying timelines and liquidity factors associated with them. Knowing your financial position will save you time and energy during the purchase negotiations and help ensure a successful transfer. 
Start searching for available businesses that match your profile.  Scheduling an appointment with a business broker with a wide selection of businesses in their portfolio and searching online will give buyers a good sense of what is available. Buyers should start by eliminating those businesses they have no interest in. By narrowing the field of choice they can focus their energy on a smaller pool of opportunities.
Buyers will be required to sign non-disclosure and confidentiality agreements as they dive deeper into their investigation. These agreements ensure the buyer keeps his inquiry discreet and prevents the sellers’ employees, competition or suppliers from finding out.
Move the investigation to the next level.   Reviewing and analysing financial data, disclosure statements, and cash flows is important, but seeing is believing. Meeting and asking questions with a business owner will help clarify uncertainty, provide perspective and form a relationship.
The relationship of the buyer and seller is critical to the success of the business transfer. For buyers, it will mitigate the uncertainty and risk associated with buying a business and help in the transition period. For sellers, particularly in the case where there is vendor financing, being comfortable with the buyer’s ability to continue the operations of the business will lessen any concerns associated with financing.
Make an offer. This step is often the hardest for many buyers.  A letter of intention is often used by buyers and sellers to outline the general agreement. They are typically non-binding, but form the foundation of a formal binding agreement that will follow. This step is critical to continue to move the discussions forward, as the power of a signed offer is a clear demonstration of seriousness from a buyer.
A well-written offer to purchase will contain all the language necessary to successfully transfer a business, while offering a number of contingencies that will give the buyer (and the seller) the required safeguards.
Do your due diligence.  Once an offer has been accepted, the due diligence stage allows the buyer’s advisors to inspect financial records, legal documents, properties, assets, and affairs.  There is no point in beginning this until the buyer and seller reach an agreement on price, down payment and terms.
Beware that few outside advisors will advise a buyer to buy a business, and they shouldn’t be expected to. If pressed for an answer, they’ll often give the safest one: “No”.  In fact, rarely have I met an accountant who thought his client didn’t pay too much for a business. Conversely, I’ve seldom met an accountant who didn’t feel their client sold their business for enough!
Formalize the business transfer.  The last step involves the buyer’s lawyer drafting the necessary binding purchase and sale agreement to ensure a smooth transition. Things such as promissory notes, bills of sales, non-competition clauses, employment contracts and contacting governmental taxing agencies, enable the ownership of the business to change hands properly.
With plenty of businesses to choose from in today’s market, it is more important than ever for buyers to make sure their efforts remain focused on choosing the right business for them.  Having a step-by-step plan for executing a successful transfer will help you stay on track, allow you to dedicate the time and energy necessary, and get you a successful business that is ideal for you. 
Bill Sivell is a salesperson with VR Windsor Inc., which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. He blogs about selling businesses at Maxbizvalue.blogspot.ca.