Owners must make bold decisions

In tough times business owners must be pro-active to reverse any downward trends and they must initiate a plan immediately!

They cannot be complacent and just hope for the best.  They must consider bold or even painful moves such as drastically cutting expenses and staff, adding new product lines or services, hiring a marketing consultant or even acquiring another company.  But sitting back and not taking immediate action is not an option!

We all know of the tough economic times the world has faced, and more specifically Southwestern Ontario.  Image the struggles business owners face, seeing top-line sales shrink, and watching bottom-line profit almost vanish. They are responsible for the well-being of the families that work for them.

And while they share in similar challenges, the way they are able to survive and flourish are often times very similar.  Business owners who are doing well are…

1.    Finding new revenue streams.  They didn’t change their strengths, they found new customers and clients, and they are growing they’re customer base. 

2.    Marketing and advertising.  Perhaps more critically important during tough times than boom times.  They see this as an opportunity to get a step ahead of the competition.

3.    Staying diversified.  Businesses are finding ways to broaden the scope of suppliers, distributors, and customers. They are turning over new rocks.

4.    Rewarding their key employees.  Making a business less about the owner and more about the key employees ensures a highly motivated and successful team.

5.    Planning.  Not only for the next month, but the next year and the next 5 years.  They are a couple of moves ahead of the competition.

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 sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.

My business is a Gold Mine!

The statement “with a little sales and marketing, a new owner could make a fortune with my business” has been heard over and over by prospective buyers.

The question of course is: “Mr. Business Owner, why haven’t you made that effort?”

Buyers are not willing to pay the business owner for their future efforts and investment necessary to grow the business.  Business owners must take these steps themselves, which not only will increase their revenues and profits in the short term, but will greatly improve the value of their business. 

Every business owner wants to know, “What is my business worth?”

The short answer is, “Your business is only worth what someone is willing to pay you and what you’re willing to accept.”

The long answer is a little more complicated.  Start by establishing the business’ true profitability.  Buyers typically are comfortable with this method because, at the end of the day, although they are buying a company, what they really are buying is its cash flow.

With an understanding of a business’ actual cash flow, different multipliers can be applied to determine a fair market range of value for the business.  Multipliers vary depending upon the type of business, market share, customer base, and many many more factors.

Therefore, when an owner is considering selling they should turn to a good business broker for assistance.   By allowing a skilled business broker to do their job, owners will get help evaluating their business’ value and be able to concentrate on their job – making their business as profitable as possible.

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 sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.

So, where is that Pot of Gold?

That Pot of Gold will only be there for businesses that have been structured to sell – easy to read financials, profitable bottom-line, key employees in place, growing market, quality products and services – a whole host of issues. 

Business owners who are too aggressive on minimizing taxes and fail to show profits might be very disappointed in the value of their business when it comes time to sell. 

Business owners need to understand what buyers are looking for and need to put plans in place to get there.

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 sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.

Sell your business faster

Offering seller financing can attract more buyers and a better price

When business owners decide to sell their business, they should consider financing the purchase — that is, offering “seller financing” — rather than selling the business outright.

Consider the experiences of two business owners whose companies had annual cash flows of approximately $250,000 and were priced in the $750,000 range. The first business was a distributor whose owners were asking for a $250,000 down payment and the balance over the next eight years. The second was a light manufacturing business whose owner wanted all cash upfront. The first business was able to draw out a number of qualified buyers, received a few offers and, ultimately, sold in a matter of months. The second hasn’t received any serious expressions of interest.

When a seller insists on all cash upfront, buyers see this as a lack of confidence in the business, the buyer’s chance to succeed, or both.

The primary reason that a seller shies away from offering terms is out of fear that the buyer will be unsuccessful. A seller who feels this way needs to consider the positives associated with seller financing. Many prospective buyers don’t have the necessary capital or lender resources to pay cash; seller financing opens the door to a bigger pool of buyers and creates a greater likelihood of attracting a buyer who will be able to sustain the company’s success.

What’s more, a seller offering terms will command a higher price. Buyers paying cash will typically demand a discount. Another benefit is the interest earned on a seller-financed deal is over and above the actual selling price. The distributor who sold his business for $750,000 with a $250,000 down payment carrying for eight years at 6% will net almost $900,000 during the term of the deal.

Plus, with current interest rates as low as they are, sellers can get a much higher interest rate from a buyer than they would receive from a financial institution.

Obviously, there are no guarantees the buyer will be successful in operating the business—which can put the seller at risk of a buyer default however there are a number of things a seller can do to protect themselves.

One of the key protections for a seller is requiring the buyer to invest a significant amount of their personal capital in the down payment. Nothing inspires a new owner to succeed like the risk of a significant loss of their own money. It is a lot harder to walk away from a $250,000 down payment than a $25,000 down payment.

Another often overlooked protection is knowing the buyer. This means more than having some of the same interests or common friends. A seller should thoroughly review the buyer’s credit history, personal financial situation and business accomplishments. Other suggested protections include having an adequate training period for the new owner, having a good client base and having strong relationships with supplier, which can all help in securing the Seller’s note.

Finally, secure the services of an experienced business broker to help you navigate through these issues. A qualified facilitator can structure the transaction to ensure that potential potholes are covered.

Selling a business at a price that would make an owner happy is often a careful balance between the risks of seller financing and the financial reward it brings. Sellers may feel they got less from the sale then they wanted, while buyers may feel they paid too much. Understanding the impact seller financing can play on price along with ways to protect against the potential pitfalls will help ensure a satisfying outcome.  

Due to the long hours, effort and risks associated with starting a business, and then creating a thriving business, owners deserve to maximize their results when selling it. Offering seller financing can help achieve this objective.

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 sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.