Some Businesses Can't Survive Without the Owners

Buyers for businesses like these may see very little value.

Some businesses are in greater demand than others. This means they’ll sell quicker and the Seller will receive a good price for the sale.  Other, less desirable businesses will not sell, or when they are sold will sell for less than the owner expected.  There are many factors that impact the sale and value of a business; many are obvious such as cash flows, demand for product/service line, proprietary product or technology.  Another not so obvious, but equally impactful is the role of the exiting owner.  Business owners who do not delegate need to make a strong effort to have experienced people in place before they ever try to sell their companies. 

This takes time, effort, and in most cases an investment of money to get it right.  And if you are nodding your head in agreement, these are the same reasons why buyers see additional risk with businesses with too much owner involvement.

Start by doing the following:

·         Identify up to 3 Key Objectives you have for your business in the next 3 to 5 years.

o   i.e. double sales, open in a new market, add a new product or service line etc.

·         List the 5 to 10 Strategies that will need to be implemented to achieve your Objectives.

o   i.e. add to the sales team, improve customer satisfaction surveys, new product research, etc..

·         Outline the 10 to 15 Performance Standards that will keep you focused on your Strategies.  They need to be measurable, with time lines, and you must hold yourself accountable to your performance.

o   i.e. monthly sales training, inventory turn rates, margins, etc

Now look at what you’re doing over the next 2-4 weeks.  Literally write down every task, every job, every email and phone call you make.  Record the time and purpose of the task.

When complete, compare what you have been doing and what you need to do to achieve your Key Objectives.  You’re likely to find things that align and things that do not.

Now the hard part.  Take all the tasks and responsibilities that do not align with your Key Objectives and look at the people you currently employ (or perhaps outsiders) for help. Implementing a strategy to delegate will likely be hard at the beginning.  You’ll need to continually remind yourself of your Key Objectives and why you are forcing yourself away from doing everything.  Plus, you’ll need to coach, guide and mentor those who are taking on the new responsibilities.  It will take time, effort and in most cases an investment of money to get it right.  But you will, and you’ll thank yourself in the end!

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.

 

No Stinking Plan?

Without an Exit Plan, business owners could end up with a “Value Gap”.

Most retiring business owners expect that their financial needs will be met when they sell their companies. Unfortunately, that is not always the case!

Business owners should have a business valuation performed by an independent professional and then create an “Exit Plan” to close the value gap if one exits.

A well designed Exit Plan should achieve the following objectives:

·         The price you want – If the business’s current financial picture doesn’t match the owners expectations, one or the other has to be adjusted. Unfortunately, many businesses sell for a lot less than the owner wants or needs. Positioning your business for as sale in 3-5 years will allow you the time to properly execute the plans necessary to build value.

·         A successful closing – It’s unfortunate but in the world of business transactions, many business sales do not close. The reasons for failed transactions are countless such as mistrust, miscommunication, due diligence, overzealous advisors or simply a buyer or seller dislike for one another. The best way to avoid these hazards, and many of the others standing in the way of a fast and reliable close, is to become a highly valuable acquisition opportunity for buyers.

·         Produce multiple buyers - Don’t fall into the trap of focusing all your efforts on a single potential acquirer for your business—no matter how attractive they may seem.  Attracting a variety of buyers to a business acquisition is at the heart of maximizing value. If a buyer knows he is the sole interested party, he can control negotiations. But when there are a number of interested parties, the sale process remains in the seller's control—which drives the price up.

·         Protect legacy and loyalty – It’s usually not just about the money. A buyer who is a good cultural fit, one who will protect the jobs of key employees, provide key employees career building opportunities, and have similar values are just of few things that owners consider when selling their business.  By strategically positioning your business for sale you can effectively choose the best fit, which may not be the highest offer.

The rewards are high when you plan in advance.  With an effective plan business owners will dramatically improve the likelihood of future success for the business.  Plus, planning helps protect owners from the things they don’t expect and preserves personal wealth, estate and the business before a transfer is made. Building an exit plan should begin the day you start your business, however, it’s never too late to start! 

Do you have a small business question you would like answered about this article or others?

Bill Sivell is a Business Broker 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.

 

7 Keys to Preparing Your Business For Sale

Take these steps to successfully entice prospective buyers and increase the likelihood of a successful transaction

 

As they begin a new year, many business owners are considering how to prepare their business for sale. For some, this simply means sprucing up their operations with cosmetic improvements. For others, the following steps are necessary to ensure the goal of selling one’s  business can be fulfilled.

Determine if now is the right time to sell. A business valuation involves many variables (and many of them are subjective) that often means various “experts” looking at the same company can formulate different recommendations. However, many small and medium-sized companies are sold for prices expressed as a multiple of cash flow or earnings. Each industry has a “rule of thumb” and an expected multiple that buyers will pay. If the business’s current financial picture doesn’t match your expectations, one or the other has to be adjusted.

Know your reason for selling.  This is one of the first questions a buyer will ask, so you need to be able to articulate your motivation. Your answer needs to be honest and, ideally, shouldn’t express any urgency. Buyers would expect to hear things like retirement, moving out of town or pursuing other non-related business interests. Red flags are raised if the answer seems ambiguous and unsure. This is why it’s better to sell when times are good rather than waiting to burnout when they aren’t.

Get your books in order. Prospective buyers will want to see at least three years of financial statements, including balance sheets and income statements. You will need to be able to document your business’s true profitability by identifying nonoperational expenses (e.g. personal auto lease and medical fees). Sellers need to quantify and substantiate these items because, at the end of the day, buyers purchasing a business are really buying into its profitability.

Make sure all legal commitments are in order.  This means reviewing your permits, leases, client and vendor contracts, etc. and understanding their impact on the business.  For example, if the business location is key to its performance, a long-term lease with options at or below fair market value would be appealing to a buyer. If client contracts, particularly large key clients, are coming due for renewal, buyers would find this less appealing as the risk of a non-renewal is much greater immediately following a transfer of ownership.

Don’t be a business owner who does it all.  Some businesses can’t survive without the owners trying to do everything themselves. And they have no key employees to help manage the operations. Buyers for businesses like these may be concerned if they themselves can’t replace the skills and experience of the owner. If you are absolutely vital to the business, efforts should be made to gradually delegate key responsibilities to various staff members. A business that is excessively dependent on the current owner increases the risk in the eyes of a prospective buyer. 

Put yourself in the buyer’s shoes. When a buyer comes out to see your business for the first time, it’s important to make a good first impression. Spotless office spaces, clean machinery, orderly desks, pleasant and smiling staff and vibrant activity are ways to leave a positive impression. Buyers look for companies that show well because this can often be indicative of an orderly run business.

Integrity is important. The common thread running through all of these steps is credibility. If you want buyers to move forward, you must show respect by being open, honest and accurate about all things, both good and bad. This starts with the information that is shared to summarize your business, but is imperative with all documentation and dialogue exchanged and will be critical in due diligence through closing to ensure the transfer stays on track.

Although preparation might seem time-consuming, many owners find that taking the above steps not only improves their management practices, it can improve the desirability and value of their business as well. Plus, when a buyer makes an accepted offer, the aforementioned preparation can help the deal close quicker.

Do you have a small business question you would like answered about this article or others?

Bill Sivell is a Business Broker 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

 

Strategic Sale vs. Financial Sale

Business buyers come in many forms, but a strategic acquirer is more likely to net you the highest price.

Many small or medium sized companies are sold for prices expressed as a multiple of cash flow or earnings. Each industry has a “rule of thumb” and an expected multiple that buyers will pay. You probably have heard multiples of this sort – 2 to 2.7 times Seller’s Discretionary Earnings. Sales at prices based on these sorts of multiples are characterized as “financial sales.”

Sometimes however, a larger company buys your company for reasons other than your profits or cash flow. They want some element of your business, not for what it generates in your business, but for what it does to their business. For example, you might have a product line they can easily and profitably sell to their existing customers. You might have a technology that they can use to cut their own costs. You might have all sorts of things they can profitably deploy in their business – geographic reach, certain prestigious customers, key employees or a good brand name. These elements of your business – the ones that have unusual value to certain buyers – are characterized as “strategic assets”. And the Buyers of interest are viewed as “strategic Buyers.”

The reason strategic Buyers are willing to pay more for your strategic assets is simple to understand. If they buy you as a standalone business, they can afford to pay a certain amount based on the ROI your business generates by itself. But if they get strategic assets that ALSO help them increase their existing revenues or decrease their existing costs, then they can afford to pay more, often much more.

When a larger company buys your company, they want to pay the price associated with a “financial sale” but secretly they hope to get more value by deploying your assets strategically. The key to getting paid the strategic sale price is having multiple strategic bidders, strategic assets that cannot be easily replicated and a skilled Business Broker advising and representing you in the sale process.

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.

 

Favourite Business Quotes

On the heels of another wonderful holiday long weekend I thought it would be appropriate to share some of my favourite quotes.  The truth is these long weekends often times are more tiring than relaxing and lightening up the weekly blog seems to be the appropriate thing to do. 

Enjoy, and I would love to hear some of your favourites…

·         “The golden rule for every business man is this: Put yourself in your customer’s place”. – Orison Swett Marden

·         “The winners in life think constantly in terms of I can, I will, and I am. Losers, on the other hand, concentrate their waking thoughts on what they should have or would have done, or what they can’t do.” – Dennis Waitley

·         “A man should never neglect his family for business.” – Walt Disney

·         “When I asked my accountant if anything could get me out of this mess I am in with my business, he thought for a long time and said, ‘Yes, death would help’” – Robert Morley

·         “Nobody talks about entrepreneurship as survival, but that’s exactly what it is and what nurtures creative thinking. Running that first shop taught me business is not financial science; it’s about trading: buying and selling.” – Anita Roddick

·         “The competitor to be feared is one who never bothers about you at all, but goes on making his own business better all the time.” – Henry Ford

·         “You’ve got to say, I think that if I keep working at this and want it badly enough I can have it. It’s called perseverance.” – Lee Iacocca

·         “Yesterday’s home runs don’t win today’s games.” – Babe Ruth

And my current favourite…

“The entrepreneur always searches for change, responds to it, and exploits it as an opportunity.” – Peter F. Drucker

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.