Timing a business sale is never an easy task, especially in today’s volatile market. Much like the value on your home, there is often no good way of telling what the future will hold. The economy has only complicated matters as business profits, cash flow and overall values have been in a state of fluctuation for some time now.
With the recession taking a firm hold on the business-for-sale marketplace over the past few years, many owners may be asking themselves when the right time to begin the sale process will come. Will the economy rebound soon? Will that boost valuations? How will it affect the number of buyers and sellers on the market?
These are all certainly things business owners should consider and we have seen a slight improvement in the market as of late. But while some might be tempted to continue waiting a few more years for better prices, there are several issues that could cause this strategy to backfire. Here are just a couple of the possible pitfalls of waiting too long to sell your business:
A Slow Recovery
While we’ve seen a few positive signs, a full economic recovery is still a long way away. Too many owners are waiting for their businesses to spring back to the profit levels they were seeing pre-2008. But a quick fix isn’t going to happen anytime soon. Business owners who are emotionally and financially ready to sell need to start the sales process now and take the necessary steps to maximize their business value. Even if sales are slow right now, many experts have tossed around the phrase “flat is the new up.” If your numbers are staying consistent, consider that a good sign that your business will be in demand on the market.
Increased Taxes
There were many business owners scrambling to sell their assets in 2010 in fear of the expiring capital gains and personal income tax rates. The government decided at the last minute to extend those taxes another two years, giving business owners more time to enjoy low rates. But don’t take these two years for granted. Eventually, most likely in 2013, the capital gains and income tax rates will increase and the hike will have a drastic effect on your business sale. For example, a capital gains increase from 15% to 20% would increase taxes $100,000 on a $2,000,000 sale. That doesn’t include any federal or state income taxes that will be increasing and taking an even larger portion of your proceeds. So unless you can afford to lose that money or find a way to increase your bottom line, selling before another tax increase would be a wise investment.
Demand Fluctuation
This may seem contrary to most beliefs, but there are certain industries that are actually more attractive right now than they may have been a few years ago. Health care, for example, is drawing a lot of interest as baby boomers, a large chunk of our society, begin to reach elderly status. Business service and repair service operations are in demand as well as we battle our way out of the recession. In business services, collection agencies and anything debt related is selling well. During an economic struggle, consumers are also looking for their equipment to last longer, resulting in additional attention for places like auto and computer repair shops. Waiting for a recovery could lower values in these types of industries.
Baby Boomers Retiring
As mentioned, the baby boomer generation is reaching retirement age. And it is these baby boomers who own a large portion of the small business industry. What this means is that once these owners decide to sell, it will drastically alter the business-for-sale market. We’ve seen some of these boomers sell in recent years but the majority have been waiting out the recession. Whether you are one of those boomers ready to retire or their eventual competition, you’ll want to sell before the majority of these businesses hit the market. It will be tough to stand out once the market becomes flooded with similar businesses.
The truth of today’s market is that no matter when you decide to exit you business, you should already be in the planning stages. But with issues like these looming, now may be the time get things moving at a brisker pace. If you’re not getting the interest or offers you’d like, you can always pull back and work on improving the business. Waiting too long, however, could leave some prime opportunities, and profits, behind.
Thursday, October 20, 2011
Sunday, May 15, 2011
First 100 Days of Business Ownership
Part of a business broker’s job is to not only help a buyer find a business, but help them manage their time once they have the keys to the front door. And what those new businesses owners quickly realize is that those first few months of business ownership are both challenging and critical.
That’s why it’s essential new owners quickly put together a solid plan for those first 100 days. It would be unrealistic to determine your success or failure based on that period of time, but if you don't plan properly, you will have a very bumpy start to life as a business owner.
There are seven critical steps to help you learn the ropes of your new business. Some will be obvious as you look through this list, but with so much on your plate as you become a business owner, it's easy to overlook the obvious.
1. Meet with your key employees. Indeed, meet with everyone on your payroll but prioritize those who are most important to the success of your business. The key reason is to put these people at ease over the ownership transition. There is a lot of anxiety at this stage and, most likely, the new owner is worried that the key employees may leave while the key employees are uncertain about their futures. In most cases, everyone wants and needs to maintain a status quo and the sooner you communicate that to the employees and develop a relationship the sooner you can put your imprint on the business.
Also, make it a point to talk to the mid- and low-level employees. They need reassurance as well, but more critically to your success, these workers may be sitting on a ton of good ideas they are anxious to share if someone just asked. Welcome their input. I'll bet you'll get many ideas.
2. Meet with key customers. A business doesn't survive without customers. That's true for the storefront bakery and the parts manufacturer for a steel producer. Prioritize your most valuable customers. Who are the largest and most profitable clients? Who buys the most widgets? Ask what you can do better to retain their trust. Also, ask your employees if there have been key customer losses in recent months. Meet with those customers and ask what you can do to earn their trust again.
Don't forget the smaller customers. With proper care and nurturing, they can become your biggest spenders--and your biggest advocates. Consider appointing a go-getter employee with a new task: customer service rep for small and mid-sized accounts. Perhaps add an incentive for that employee if he or she brings in more business from those existing customers.
3. Meet with key suppliers. New ownership can be a blessing or a curse for suppliers. A blessing, of course, if there were payment issues with past ownership. A curse, perhaps, if they were paid on time with the old owner. They want to make sure that will continue. In either case, you need to spell out your plans to your suppliers on how will manage the business. These are your partners. Listen to them. Consult with them. They can help you succeed--or fail.
Of course, there could be big issues that need to be addressed. Perhaps one key supplier doesn't understand the concept of a deadline, or the products you have been receiving are of dubious quality. Manage these issues, and, if necessary, be prepared to make a change before you meet with problem suppliers.
4. Get on top of the accounting. Organize, organize, organize. Know who you are paying and why. Know how much you are spending and why. Who's paying you on time and who's not? These are all concerns you need to examine routinely. You need to identify problems but more important, you need to understand the process of how your records are kept.
You may want to change how the books are done if you're not satisfied with the process. If you have a knack for numbers, consider bringing the basic accounting in house. If you don't, use your network to find a trusted accountant. Typically, a new owner can save dollars through a simple financial review. Multiple small savings can really add up and drop immediate dollars to the bottom line.
5. Get hands-on experience with the business. If you're running a small business, this is probably the first thing you will do simply because cash flow dictates you do much of the work. But if the business is larger than a storefront, you want to get hands-on experience in all aspects of the business. This won't make you an expert in marketing or customer service, for example, but it will give you a better understanding of the processes involved. Also, if you detect a problem in marketing, for example, you will have better understanding of what you should be asking to fix that problem.
Also, having your employees seeing you on the job accomplishes two critical functions: First, it can be a morale booster to see the boss in the trenches. Second, it puts employees on alert that you're paying attention to what they are doing. That can reduce laziness and theft.
6. Create an issues list. This is an ongoing task. As you work your way around the business--talking to your employees, customers, suppliers and understanding how each department works--you'll start to encounter issues that need to be addressed. Rank these by importance. For example, if you know you have a key manager who's a little too friendly with a competing business you'll want to put that high on your list. Does a key supplier deliver certain perishable items--cheese, fish or meat--too late in the day?
As you rank your issues, you can develop an action plan. That will help with the final step.
7. Refine your business plan. Now it's time to take everything you have learned and determine how to optimize your opportunities. What needs the most attention? Where can your unique skills be most useful to growth? What aspects of the business can I trust to certain employees?
I strongly recommend you don't refine your business plan until you carefully and critically look at the business you just bought. Don't rush into changes on Day 1; waiting 100 days will lead to wiser decisions.
Your patience will pay off in the long run.
That’s why it’s essential new owners quickly put together a solid plan for those first 100 days. It would be unrealistic to determine your success or failure based on that period of time, but if you don't plan properly, you will have a very bumpy start to life as a business owner.
There are seven critical steps to help you learn the ropes of your new business. Some will be obvious as you look through this list, but with so much on your plate as you become a business owner, it's easy to overlook the obvious.
1. Meet with your key employees. Indeed, meet with everyone on your payroll but prioritize those who are most important to the success of your business. The key reason is to put these people at ease over the ownership transition. There is a lot of anxiety at this stage and, most likely, the new owner is worried that the key employees may leave while the key employees are uncertain about their futures. In most cases, everyone wants and needs to maintain a status quo and the sooner you communicate that to the employees and develop a relationship the sooner you can put your imprint on the business.
Also, make it a point to talk to the mid- and low-level employees. They need reassurance as well, but more critically to your success, these workers may be sitting on a ton of good ideas they are anxious to share if someone just asked. Welcome their input. I'll bet you'll get many ideas.
2. Meet with key customers. A business doesn't survive without customers. That's true for the storefront bakery and the parts manufacturer for a steel producer. Prioritize your most valuable customers. Who are the largest and most profitable clients? Who buys the most widgets? Ask what you can do better to retain their trust. Also, ask your employees if there have been key customer losses in recent months. Meet with those customers and ask what you can do to earn their trust again.
Don't forget the smaller customers. With proper care and nurturing, they can become your biggest spenders--and your biggest advocates. Consider appointing a go-getter employee with a new task: customer service rep for small and mid-sized accounts. Perhaps add an incentive for that employee if he or she brings in more business from those existing customers.
3. Meet with key suppliers. New ownership can be a blessing or a curse for suppliers. A blessing, of course, if there were payment issues with past ownership. A curse, perhaps, if they were paid on time with the old owner. They want to make sure that will continue. In either case, you need to spell out your plans to your suppliers on how will manage the business. These are your partners. Listen to them. Consult with them. They can help you succeed--or fail.
Of course, there could be big issues that need to be addressed. Perhaps one key supplier doesn't understand the concept of a deadline, or the products you have been receiving are of dubious quality. Manage these issues, and, if necessary, be prepared to make a change before you meet with problem suppliers.
4. Get on top of the accounting. Organize, organize, organize. Know who you are paying and why. Know how much you are spending and why. Who's paying you on time and who's not? These are all concerns you need to examine routinely. You need to identify problems but more important, you need to understand the process of how your records are kept.
You may want to change how the books are done if you're not satisfied with the process. If you have a knack for numbers, consider bringing the basic accounting in house. If you don't, use your network to find a trusted accountant. Typically, a new owner can save dollars through a simple financial review. Multiple small savings can really add up and drop immediate dollars to the bottom line.
5. Get hands-on experience with the business. If you're running a small business, this is probably the first thing you will do simply because cash flow dictates you do much of the work. But if the business is larger than a storefront, you want to get hands-on experience in all aspects of the business. This won't make you an expert in marketing or customer service, for example, but it will give you a better understanding of the processes involved. Also, if you detect a problem in marketing, for example, you will have better understanding of what you should be asking to fix that problem.
Also, having your employees seeing you on the job accomplishes two critical functions: First, it can be a morale booster to see the boss in the trenches. Second, it puts employees on alert that you're paying attention to what they are doing. That can reduce laziness and theft.
6. Create an issues list. This is an ongoing task. As you work your way around the business--talking to your employees, customers, suppliers and understanding how each department works--you'll start to encounter issues that need to be addressed. Rank these by importance. For example, if you know you have a key manager who's a little too friendly with a competing business you'll want to put that high on your list. Does a key supplier deliver certain perishable items--cheese, fish or meat--too late in the day?
As you rank your issues, you can develop an action plan. That will help with the final step.
7. Refine your business plan. Now it's time to take everything you have learned and determine how to optimize your opportunities. What needs the most attention? Where can your unique skills be most useful to growth? What aspects of the business can I trust to certain employees?
I strongly recommend you don't refine your business plan until you carefully and critically look at the business you just bought. Don't rush into changes on Day 1; waiting 100 days will lead to wiser decisions.
Your patience will pay off in the long run.
Monday, March 14, 2011
Setting Goals and Budgeting to Meet Them
Setting Goals and Budgeting to Meet Them – By Jeffrey D. Bronswick, CPA, MBA
It’s already February. Do you have your 2011 goals and budgets set yet? Many companies do but others have found that the day to day activities of running and working in their businesses have gotten in their way. It’s not too late. So whether you haven’t done this already or you need to do some fine tuning, here are a few tips that will keep you on the right path.
What you should take away from this blog is:
1. Set goals
2. Have a budget
3. Hold your employees accountable
4. Be profit-driven!
What you need to do to get there:
Accounting information and controls
Without good information, you cannot make good decisions. Make sure your accounting is accurate, timely and enables you to drill down for details when necessary. You will have a better understanding of the financials side of your business so you have less surprises and more control. Also, you need good financial controls and processes in order to minimize mistakes, avoid being taken advantage of, and to maximize profits.
Sales
Sales goals should be consistent with the type of sales in your overall marketing/business strategy. The goals should be specific: be able to identify who, what, when, where and how. Hold your sales staff accountable. Don’t let them tell you how much they can sell. You need to tell them. You/management sets pricing and terms. Any price concessions must require your/management approval. Monitor sales people frequently. And, of course, reward those that meet or exceed the goals you set.
Gross margins
Negotiate costs and terms with vendors. Set goals for operational efficiencies. Reward those in charge of costs for lowering costs while maintaining/increasing quality of your product or service.
Selling, general and administrative expenses
What does the company really need to drive a successful business? Hold your employees accountable for the performance of the business, control of costs and productivity. Set goals for them and train/mentor them.
Net profits
A business is formed to earn profit and increase the wealth of its owners. If a company isn’t profitable, it will ultimately fail. So management should be rewarded based on bottom line results and not on sales or gross margins. If the company doesn’t make a reasonable profit then management hasn’t earned an extra reward.
ROI to investors (you /your partners/stockholders/investors)
Ask yourself, why should someone buy or invest in this business? Make your business into something that a buyer or investor would covet. If you can do that, you are on the path to either make a lot of money with your business or sell your business for a large return. You win either way. However, this is where longer range plans (beyond one year) are needed.
Jeffrey Bronswick, CPA, MBA
Jeffrey D. Bronswick is President of RP&Co. - Certified Public Accountants located in Buffalo Grove, IL. Jeff received his Bachelor of Science in Accountancy (Cum Laude and with University Honors) from Northern Illinois University in 1988 and later received his MBA. Since 1965, RP&Co has helped hundreds of businesses and organizations with their financial concerns. Whether it's analyzing a client's business performance to help improve profitability, minimizing income taxes, performing certified audits, or providing specific consulting services, they make recommendations that help their clients make better decisions and achieve their goals.
It’s already February. Do you have your 2011 goals and budgets set yet? Many companies do but others have found that the day to day activities of running and working in their businesses have gotten in their way. It’s not too late. So whether you haven’t done this already or you need to do some fine tuning, here are a few tips that will keep you on the right path.
What you should take away from this blog is:
1. Set goals
2. Have a budget
3. Hold your employees accountable
4. Be profit-driven!
What you need to do to get there:
Accounting information and controls
Without good information, you cannot make good decisions. Make sure your accounting is accurate, timely and enables you to drill down for details when necessary. You will have a better understanding of the financials side of your business so you have less surprises and more control. Also, you need good financial controls and processes in order to minimize mistakes, avoid being taken advantage of, and to maximize profits.
Sales
Sales goals should be consistent with the type of sales in your overall marketing/business strategy. The goals should be specific: be able to identify who, what, when, where and how. Hold your sales staff accountable. Don’t let them tell you how much they can sell. You need to tell them. You/management sets pricing and terms. Any price concessions must require your/management approval. Monitor sales people frequently. And, of course, reward those that meet or exceed the goals you set.
Gross margins
Negotiate costs and terms with vendors. Set goals for operational efficiencies. Reward those in charge of costs for lowering costs while maintaining/increasing quality of your product or service.
Selling, general and administrative expenses
What does the company really need to drive a successful business? Hold your employees accountable for the performance of the business, control of costs and productivity. Set goals for them and train/mentor them.
Net profits
A business is formed to earn profit and increase the wealth of its owners. If a company isn’t profitable, it will ultimately fail. So management should be rewarded based on bottom line results and not on sales or gross margins. If the company doesn’t make a reasonable profit then management hasn’t earned an extra reward.
ROI to investors (you /your partners/stockholders/investors)
Ask yourself, why should someone buy or invest in this business? Make your business into something that a buyer or investor would covet. If you can do that, you are on the path to either make a lot of money with your business or sell your business for a large return. You win either way. However, this is where longer range plans (beyond one year) are needed.
Jeffrey Bronswick, CPA, MBA
Jeffrey D. Bronswick is President of RP&Co. - Certified Public Accountants located in Buffalo Grove, IL. Jeff received his Bachelor of Science in Accountancy (Cum Laude and with University Honors) from Northern Illinois University in 1988 and later received his MBA. Since 1965, RP&Co has helped hundreds of businesses and organizations with their financial concerns. Whether it's analyzing a client's business performance to help improve profitability, minimizing income taxes, performing certified audits, or providing specific consulting services, they make recommendations that help their clients make better decisions and achieve their goals.
Sunday, January 9, 2011
Is Selling Your Business the Best 'Exit Plan'
My neighbor asked me, “Why would anyone sell a successful company?”. He could not understand why anyone would leave a business that was doing well. Of course successful companies get sold all the time.
So why do these business owners sell? The short answer is that most closely held businesses sell for human reasons, such as burn out, retirement, illness, partnership disputes, family issues or other personal reasons. Usually the business is fine but the human being running the business needs a change. To understand this better it is key to understand the other options for exiting a business.
Close the Business/Liquidation
Closing a business that is profitable never makes sense. Even if the assets are liquidated the price is likely to be pennies on the dollar versus selling the business as a going concern with employees, customers and a reputation that is intact. Not only does the business owner get the lowest value but the employees, vendors and customers are hurt by this type of exit.
Accident, Illness or Death
No one wants to exit their business this way, but many do. The loss of an owner not only creates tremendous issues for the family but also creates a leadership void in the business. Even the most competent management can struggle when a key business leader is lost to a serious accident, illness or death. No one plans for this type of exit but many end up exiting the business this way because they failed to create an alternate plan.
Succession
Succession by a family member or key employee has its benefits. They know the business, its product or service, employees, customers and vendors. Succession can be operationally successful for the exiting owner if they make sure the successor is carefully selected, qualified and groomed for the position. The owner must be careful not to make an emotional choice of a relative or favorite employee but instead choose the successor with the right skills to lead the company into the future. You are not seeking an “Employee” mentality but an “Owner” mentality. If that rare person can be found in the business who can make the transition to Owner, they often do not have the cash needed to purchase the business. They are also likely to want to pay less for the business as familiarity will blind them to many of the value drivers of the company. So although succession can be operationally successful it is rarely a financial success for the outgoing owner.
Sell
Closing or liquidating the business minimizes the value to the owner. Accident, illness or death forces the issue on the owner. Succession provided a very limited pool of options with limited financial reward.
Selling on the other hand allows the business owner to decide their ideal timing, maximize the value of the business they worked so hard to build, coordinate the use of the sale proceeds for financial planning and align their personal goals with the sale of a business. Selling the business allows the business owner to create a wealth event and often significant on-going passive income without having to run their business.
Whatever they are, human reasons are always pushing and pulling on a business owner. Burn out, stress, divorce, illness, partner disputes and limited growth capital are some of the human reasons that push owners out of the business. Retirement, enjoying life, relocating, a new business opportunity and passive income are some of the reasons that pull a business owner out. Whatever the motivation, the fundamental reason a business owner chooses a sale as their ideal exit plan is control. The business owner chooses to understand the value of their business and to proactively pursue the right buyer and the right price. By selling a business you choose to exit your business by choice, not by force.
The professional team at Chicagoland Sunbelt can help you confidentially sell or buy a business in Chicago and surrounding areas. For more information check out our site at ChicagolandSunbelt.
So why do these business owners sell? The short answer is that most closely held businesses sell for human reasons, such as burn out, retirement, illness, partnership disputes, family issues or other personal reasons. Usually the business is fine but the human being running the business needs a change. To understand this better it is key to understand the other options for exiting a business.
Close the Business/Liquidation
Closing a business that is profitable never makes sense. Even if the assets are liquidated the price is likely to be pennies on the dollar versus selling the business as a going concern with employees, customers and a reputation that is intact. Not only does the business owner get the lowest value but the employees, vendors and customers are hurt by this type of exit.
Accident, Illness or Death
No one wants to exit their business this way, but many do. The loss of an owner not only creates tremendous issues for the family but also creates a leadership void in the business. Even the most competent management can struggle when a key business leader is lost to a serious accident, illness or death. No one plans for this type of exit but many end up exiting the business this way because they failed to create an alternate plan.
Succession
Succession by a family member or key employee has its benefits. They know the business, its product or service, employees, customers and vendors. Succession can be operationally successful for the exiting owner if they make sure the successor is carefully selected, qualified and groomed for the position. The owner must be careful not to make an emotional choice of a relative or favorite employee but instead choose the successor with the right skills to lead the company into the future. You are not seeking an “Employee” mentality but an “Owner” mentality. If that rare person can be found in the business who can make the transition to Owner, they often do not have the cash needed to purchase the business. They are also likely to want to pay less for the business as familiarity will blind them to many of the value drivers of the company. So although succession can be operationally successful it is rarely a financial success for the outgoing owner.
Sell
Closing or liquidating the business minimizes the value to the owner. Accident, illness or death forces the issue on the owner. Succession provided a very limited pool of options with limited financial reward.
Selling on the other hand allows the business owner to decide their ideal timing, maximize the value of the business they worked so hard to build, coordinate the use of the sale proceeds for financial planning and align their personal goals with the sale of a business. Selling the business allows the business owner to create a wealth event and often significant on-going passive income without having to run their business.
Whatever they are, human reasons are always pushing and pulling on a business owner. Burn out, stress, divorce, illness, partner disputes and limited growth capital are some of the human reasons that push owners out of the business. Retirement, enjoying life, relocating, a new business opportunity and passive income are some of the reasons that pull a business owner out. Whatever the motivation, the fundamental reason a business owner chooses a sale as their ideal exit plan is control. The business owner chooses to understand the value of their business and to proactively pursue the right buyer and the right price. By selling a business you choose to exit your business by choice, not by force.
The professional team at Chicagoland Sunbelt can help you confidentially sell or buy a business in Chicago and surrounding areas. For more information check out our site at ChicagolandSunbelt.
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