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.
Showing posts with label sell businesses. Show all posts
Showing posts with label sell businesses. Show all posts
Sunday, May 15, 2011
Thursday, November 25, 2010
How to use Powerful Accounting Practices to Improve a Business
The below blog provided by Jeffrey D. Bronswick of RP& Co.
Whether you are buying, selling, starting or growing a business, cash flow planning is critical to the success of any business. Businesses with proven techniques for cash flow planning are more successful and therefore more valuable than their competitors. If you are buying a business, make sure these practices exist. If you are selling, identify areas that need improvement and fix them in order to increase the value of your business in the eyes of a prospective buyer.
Planning should be done in advance and for at least one year out. The cash flow plan should be closely aligned with the strategic plan for the business. The purpose behind the plan is to:
1. Predict when, where, and how cash needs will occur
2. Predict what the best sources are for meeting additional cash needs
3. Be prepared to meet these needs when they occur (it helps to keep good relationships with bankers and other creditors)
4. Plan business profitability and growth
The starting point for avoiding a cash crisis is managing the balance sheet. Collection of accounts receivable and payments to vendors are two areas that require daily attention. A well run business will develop both short-term (weekly, monthly) cash flow projections to help manage daily cash, and long-term (annual and up to 5 years) cash flow projections to help develop the necessary capital strategy to meet business needs.
Remember, the plan should be by week or by month. NOT by year. Many businesses make this mistake. Most businesses have cycles and planned and unplanned major expenditures, so you need to see the highs and lows in the business on a weekly or monthly basis. If you plan properly, the cash needs will be very apparent on the cash flow projection in a given month. If you know in advance when the cash needs of your business are the highest, it will trigger actions on the part of the business for capital retention, cost reduction and bank borrowing availability.
How does a well-run business deal with these ups and downs? By negotiating in advance…
1. Vendor payment terms
2. Customer payment terms (and prepayments if warranted by the business)
3. Bank lines of credit
4. Long term debt
5. Equity capitalization
If the business has not prepared cash flow projections before, preparing historical cash flow statements and balance sheets will help you gain an understanding about the past cash flow performance and your potential needs in the future.
The process of planning future cash flows is very time consuming, but if it is done correctly, it will not only save you money, it could save your business.
Jeffrey D. Bronswick is President of RP&Co. - Certified Public Accountants located in Buffalo Grove, IL. Jeff works closely with his clients in helping guide their growth and financial success, assisting them with operational and financial issues, and in charting tax strategies to maximize their after tax income. Jeff received his Bachelor of Science in Accountancy (Cum Laude and with University Honors) from Northern Illinois University in 1988.
Whether you are buying, selling, starting or growing a business, cash flow planning is critical to the success of any business. Businesses with proven techniques for cash flow planning are more successful and therefore more valuable than their competitors. If you are buying a business, make sure these practices exist. If you are selling, identify areas that need improvement and fix them in order to increase the value of your business in the eyes of a prospective buyer.
Planning should be done in advance and for at least one year out. The cash flow plan should be closely aligned with the strategic plan for the business. The purpose behind the plan is to:
1. Predict when, where, and how cash needs will occur
2. Predict what the best sources are for meeting additional cash needs
3. Be prepared to meet these needs when they occur (it helps to keep good relationships with bankers and other creditors)
4. Plan business profitability and growth
The starting point for avoiding a cash crisis is managing the balance sheet. Collection of accounts receivable and payments to vendors are two areas that require daily attention. A well run business will develop both short-term (weekly, monthly) cash flow projections to help manage daily cash, and long-term (annual and up to 5 years) cash flow projections to help develop the necessary capital strategy to meet business needs.
Remember, the plan should be by week or by month. NOT by year. Many businesses make this mistake. Most businesses have cycles and planned and unplanned major expenditures, so you need to see the highs and lows in the business on a weekly or monthly basis. If you plan properly, the cash needs will be very apparent on the cash flow projection in a given month. If you know in advance when the cash needs of your business are the highest, it will trigger actions on the part of the business for capital retention, cost reduction and bank borrowing availability.
How does a well-run business deal with these ups and downs? By negotiating in advance…
1. Vendor payment terms
2. Customer payment terms (and prepayments if warranted by the business)
3. Bank lines of credit
4. Long term debt
5. Equity capitalization
If the business has not prepared cash flow projections before, preparing historical cash flow statements and balance sheets will help you gain an understanding about the past cash flow performance and your potential needs in the future.
The process of planning future cash flows is very time consuming, but if it is done correctly, it will not only save you money, it could save your business.
Jeffrey D. Bronswick is President of RP&Co. - Certified Public Accountants located in Buffalo Grove, IL. Jeff works closely with his clients in helping guide their growth and financial success, assisting them with operational and financial issues, and in charting tax strategies to maximize their after tax income. Jeff received his Bachelor of Science in Accountancy (Cum Laude and with University Honors) from Northern Illinois University in 1988.
Tuesday, November 9, 2010
A Tale of Two Businesses by Guest Blogger Ed Cook
I recently listed two businesses of similar size with similar characteristics. Good management, good reputation and priced right. Yet one sold in less than 4 months and one is still for sale more than 9 months after listing. Can you figure out which one sold and which one did not?
Business A - Pet Care Business
$100,041(Cash Flow)
$297,000(Sales Price)
2.97(Multiple - Sales Price/Cash Flow)
$98,010(Down Payment Required)
$198,990(Seller Financing Offered)
Business B - Business Supply Company
$140,174 (Cash Flow )
$390,000( Sales Price )
2.78 (Multiple - Sales Price/Cash Flow)
$331,500 (Down Payment Required)
$58,500 (Seller Financing Offered )
There was no doubt in my mind that Business B would sell quickly. It had the numbers, the reputation and a great location. I knew that Business A would sell, but assumed that would take a bit more time. Well guess what? The answer is A. That pet care business received 4 solid offers and sold within 4 months of listing, while the business supply company remains for sale 9 months later and has yet to receive one offer. Why the difference? Seller financing.
The pet care business went to market offering terms of 33% down payment with the remainder as a seller note. This opened up a huge pool of buyers, most from outside the industry, and allowed the seller to be selective with both prospective buyers and offers.
The business supply company went to market offering terms of 85% down payment and a 15% seller note. They have yet to receive an offer. Quite simply, buyers are looking to put as little money down as possible. If they are being asked to put down $330,000 on a business listed at $390,000 they will simply move on to the next deal. They will go out and buy a bigger business where the seller is offering financing.
But seller financing offers one more thing to the buyer that is even more important than the financial consideration. When a seller is willing to finance a large portion of the transaction it shows the buyer that the business is sound and that the owner feels it will be successful for years to come. That implicit guarantee from the seller sends exactly the right signal to the would-be buyer.
The business supply company eventually offered up more seller financing but it was literally too little, too late. The buyers had moved on to other deals. Here we sit nine months later with no offers. All because the seller was not willing to offer proper financing.
When you sell your business, offer the proper terms at the proper price with the initial listing. That gives you the very best chance to sell your business.
By the way, the pet care business accepted a cash offer as the buyer sought to differentiate himself from the other offers. It’s funny that the seller that offered financing ended up with cash while the one that wanted cash will end up taking terms.
Ed Cook is a professional business intermediary with Chicagoland Sunbelt. Ed has over twenty years of broad-based experience in every aspect of running a small business giving him the skills and knowledge needed to help buyers and sellers achieve their needs. Ed has been very successful in helping his clients navigate this difficult market. If you would like to learn more about the process of buying or selling a business, Ed can be reached directly at ecook@sunbeltnetwork.com.
Business A - Pet Care Business
$100,041(Cash Flow)
$297,000(Sales Price)
2.97(Multiple - Sales Price/Cash Flow)
$98,010(Down Payment Required)
$198,990(Seller Financing Offered)
Business B - Business Supply Company
$140,174 (Cash Flow )
$390,000( Sales Price )
2.78 (Multiple - Sales Price/Cash Flow)
$331,500 (Down Payment Required)
$58,500 (Seller Financing Offered )
There was no doubt in my mind that Business B would sell quickly. It had the numbers, the reputation and a great location. I knew that Business A would sell, but assumed that would take a bit more time. Well guess what? The answer is A. That pet care business received 4 solid offers and sold within 4 months of listing, while the business supply company remains for sale 9 months later and has yet to receive one offer. Why the difference? Seller financing.
The pet care business went to market offering terms of 33% down payment with the remainder as a seller note. This opened up a huge pool of buyers, most from outside the industry, and allowed the seller to be selective with both prospective buyers and offers.
The business supply company went to market offering terms of 85% down payment and a 15% seller note. They have yet to receive an offer. Quite simply, buyers are looking to put as little money down as possible. If they are being asked to put down $330,000 on a business listed at $390,000 they will simply move on to the next deal. They will go out and buy a bigger business where the seller is offering financing.
But seller financing offers one more thing to the buyer that is even more important than the financial consideration. When a seller is willing to finance a large portion of the transaction it shows the buyer that the business is sound and that the owner feels it will be successful for years to come. That implicit guarantee from the seller sends exactly the right signal to the would-be buyer.
The business supply company eventually offered up more seller financing but it was literally too little, too late. The buyers had moved on to other deals. Here we sit nine months later with no offers. All because the seller was not willing to offer proper financing.
When you sell your business, offer the proper terms at the proper price with the initial listing. That gives you the very best chance to sell your business.
By the way, the pet care business accepted a cash offer as the buyer sought to differentiate himself from the other offers. It’s funny that the seller that offered financing ended up with cash while the one that wanted cash will end up taking terms.
Ed Cook is a professional business intermediary with Chicagoland Sunbelt. Ed has over twenty years of broad-based experience in every aspect of running a small business giving him the skills and knowledge needed to help buyers and sellers achieve their needs. Ed has been very successful in helping his clients navigate this difficult market. If you would like to learn more about the process of buying or selling a business, Ed can be reached directly at ecook@sunbeltnetwork.com.
Thursday, September 30, 2010
New Small Business Law Could Make Buying or Selling a Business Easier
The financial markets have made it difficult for small businesses to get loans – but this may be changing, as the President just signed a new law aimed at making it easier. This new law could benefit those looking to buy an existing business or start a new business or franchise. The law could also benefit current business owners who have been thinking about selling their companies.
The law improves existing loan programs and includes multiple small business tax cuts. Some elements of the new bill include:
- Fee Waivers on SBA loans are now in place, but only while the money lasts. Buyers considering an SBA loan should act quickly to take advantage of fee waivers, as they will only last as long as the limited funding.
- Lending limits have been increased significantly on SBA loans. Transactions that previously may have been too large for SBA funding may now qualify. This is especially good news for sellers and buyers of companies who were previously too large to qualify for SBA financing.
- When small businesses buy new equipment, they may immediately write off the first $500,000 of that investment.
- For eligible small businesses, some long-term investments in the company will be subject to zero capital gains taxes.
- Entrepreneurs with a fresh idea will be able to deduct the first $10,000 of their start-up costs.
- Those who are self-employed will be able to deduct 100% of the cost of health insurance for themselves and their family.
SBA lenders are working to incorporate the new law into their lending practices. Sunbelt Business Brokers encourages those considering SBA financing to 1) make sure they are working with SBA preferred lenders, and 2) get a recommendation from a local business broker on banks that are friendly to small business loans. Just because a bank is “SBA preferred” does not mean they are SBA friendly. A business broker can make sure you are talking to a lender that won’t waste your time.
Saturday, September 25, 2010
Invest in Youself, Buy a Business
It’s part of the American Dream: owning your own business. While many of us dream or even casually explore the prospect of running our own business, few people take the leap. So, what takes a buyer from “I wish. . .” to “I will!”?
Buying a business is unlike any other venture you havve undertaken. You are not investing in a volatile stock market, gambling on others. You are not applying to yet another job where you work for someone else- investing in your coworkers, the economy, and your employer. Your chief investment will mean more than dollars and cents. This time, you’re investing in yourself.
Have a Plan-and Stick to It
Many first-time business owners become overwhelmed with the prospect of buying a business, simply due to the time involved. Buyers are already balancing their time between family, friends, and community involvement- all on top of 40+ hours a week at work. But a lack of time should never be the reason not to pursue your dream of owning a business. Think of how much time you spend watching TV or surfing the internet. If you committed just 1 hour of each day to your business search, you would have almost a full work week every month to dedicate solely to making your dream a reality. Once you have decided that you’ll dedicate a specific amount of time each day to your new venture, stick with it. When you invest in yourself, you are your own boss and employee. A good boss would not retain an employee who might show up for work every day. Take your search seriously, and set goals: “I will find 3 businesses that fit my criteria by March.” “I will meet with a broker in person within the month.” “I will meet with my accountant to discuss my capital resources next week.” “I will own a business by the end of December!”
Be Realistic about your Needs and Resources
Whether you start your business from scratch or choose to use a broker to buy an existing business or franchise, you will need to seriously consider how much capital you are willing to invest. Take a close look at your needs. You will need to look for businesses with cash flows which can accommodate your lifestyle. What can you realistically afford? I suggest calling in the professionals. Without guidance, you may find yourself doing more dreaming than acting. Look at your net worth, financing options, and available resources. How much are you willing to invest in yourself? Speak with your accountant, your business broker, and your banker early in your search.
Bring in the Professionals
Yes, as a business brokerage firm, Sunbelt has a vested interest in the matter, but using the expertise of professionals can help you navigate the minefield of buying a business. Contact your attorney, your accountant, and yes-your local business broker-and let them know you’re looking to buy a business within the year. They can advise you on the best way to go about your search, and they can also help you to avoid the costly mistake of buying the wrong business for your needs. And we do suggest enlisting the help of a business broker. They can keep you informed when new listings become available, when listing prices or terms change, and can even be hired as advocates on your behalf as you search for the right business.
Get in the right mindset
Let’s be honest. Few people become the CEO of their own company by casually surfing the net on a Sunday night. When you invest in yourself, you need to become passionate about the experience. Repeat it to yourself like a mantra: “I will become a business owner this year!” You would not invest in someone else unless you were sure they were 100% committed. Buying your own business is no exception. It will be a long and involved process. But having the right mindset can be the difference between casual exploration, and holding the keys to your own business.
Buying a business is unlike any other venture you havve undertaken. You are not investing in a volatile stock market, gambling on others. You are not applying to yet another job where you work for someone else- investing in your coworkers, the economy, and your employer. Your chief investment will mean more than dollars and cents. This time, you’re investing in yourself.
Have a Plan-and Stick to It
Many first-time business owners become overwhelmed with the prospect of buying a business, simply due to the time involved. Buyers are already balancing their time between family, friends, and community involvement- all on top of 40+ hours a week at work. But a lack of time should never be the reason not to pursue your dream of owning a business. Think of how much time you spend watching TV or surfing the internet. If you committed just 1 hour of each day to your business search, you would have almost a full work week every month to dedicate solely to making your dream a reality. Once you have decided that you’ll dedicate a specific amount of time each day to your new venture, stick with it. When you invest in yourself, you are your own boss and employee. A good boss would not retain an employee who might show up for work every day. Take your search seriously, and set goals: “I will find 3 businesses that fit my criteria by March.” “I will meet with a broker in person within the month.” “I will meet with my accountant to discuss my capital resources next week.” “I will own a business by the end of December!”
Be Realistic about your Needs and Resources
Whether you start your business from scratch or choose to use a broker to buy an existing business or franchise, you will need to seriously consider how much capital you are willing to invest. Take a close look at your needs. You will need to look for businesses with cash flows which can accommodate your lifestyle. What can you realistically afford? I suggest calling in the professionals. Without guidance, you may find yourself doing more dreaming than acting. Look at your net worth, financing options, and available resources. How much are you willing to invest in yourself? Speak with your accountant, your business broker, and your banker early in your search.
Bring in the Professionals
Yes, as a business brokerage firm, Sunbelt has a vested interest in the matter, but using the expertise of professionals can help you navigate the minefield of buying a business. Contact your attorney, your accountant, and yes-your local business broker-and let them know you’re looking to buy a business within the year. They can advise you on the best way to go about your search, and they can also help you to avoid the costly mistake of buying the wrong business for your needs. And we do suggest enlisting the help of a business broker. They can keep you informed when new listings become available, when listing prices or terms change, and can even be hired as advocates on your behalf as you search for the right business.
Get in the right mindset
Let’s be honest. Few people become the CEO of their own company by casually surfing the net on a Sunday night. When you invest in yourself, you need to become passionate about the experience. Repeat it to yourself like a mantra: “I will become a business owner this year!” You would not invest in someone else unless you were sure they were 100% committed. Buying your own business is no exception. It will be a long and involved process. But having the right mindset can be the difference between casual exploration, and holding the keys to your own business.
Wednesday, February 3, 2010
The Importance of Working 'ON' your Business
Do You Really Want to Grow Your Business? Make Time to Work ‘On’ It, Not Just ‘In’ It.
What Owners Tend to Do
As a business owner, what did you have at the top of your to do list today? If you are like most owners, you probably had numerous details to handle, most or all of which fit into the category of ‘urgent.’ But what made those items high priority? By and large, the majority of our daily tasks do not add lasting profit or real value to the business. Typically, we get caught up in small items that seem pressing but do not qualify as genuinely important. We take care of things because they are easy and we can quickly check them off our list, because they are more enjoyable to do, or because they seem time sensitive (but are not necessarily important). At those moments, we are not working on the business, we are working in it.
Working in the business is necessary much of the time, but as an owner you must carve out time to work on it if you are seeking to drive significant growth, profit and value. If you never spend time focusing on where the business is going and how you will get there, you will not maximize the results. You are just treading water.
How you can drive growth
How do you refocus your energies and carve out the time necessary to work on the business more strategically? One very powerful solution is to join a peer advisory group. A peer advisory is a collection of ten or so non-competing owners who get together on a regular basis, along with a professional facilitator, to discuss business issues or opportunities. Their sole mission is to help each other succeed. Owners who commit to this process rank it as one of the best business decisions they ever made.
By their very nature, peer groups create an opportunity to work ‘on’ the business. Your peers can be more objective about your business, and as such, they see your blind spots. They point out when you are focused on your goals and when you are wasting your time. They help to overcome the isolation of being at the top, serve as a sounding board for new ideas, offer practical solutions to business problems from people who have lived them, and create the accountability needed to thrive. Since these groups include other owners like you, they have no vested interest in any one idea. You hear what you really need to hear, not what someone wants you to know because of their own self-interest. What makes peer groups work is the fact that the combined experience of a team of business owners tackling problems is far superior to that of any one individual.
Owning a business is a challenge. For those owners who are truly committed to working on their business and growing their companies, peer groups can be a powerful tool.
What Owners Tend to Do
As a business owner, what did you have at the top of your to do list today? If you are like most owners, you probably had numerous details to handle, most or all of which fit into the category of ‘urgent.’ But what made those items high priority? By and large, the majority of our daily tasks do not add lasting profit or real value to the business. Typically, we get caught up in small items that seem pressing but do not qualify as genuinely important. We take care of things because they are easy and we can quickly check them off our list, because they are more enjoyable to do, or because they seem time sensitive (but are not necessarily important). At those moments, we are not working on the business, we are working in it.
Working in the business is necessary much of the time, but as an owner you must carve out time to work on it if you are seeking to drive significant growth, profit and value. If you never spend time focusing on where the business is going and how you will get there, you will not maximize the results. You are just treading water.
How you can drive growth
How do you refocus your energies and carve out the time necessary to work on the business more strategically? One very powerful solution is to join a peer advisory group. A peer advisory is a collection of ten or so non-competing owners who get together on a regular basis, along with a professional facilitator, to discuss business issues or opportunities. Their sole mission is to help each other succeed. Owners who commit to this process rank it as one of the best business decisions they ever made.
By their very nature, peer groups create an opportunity to work ‘on’ the business. Your peers can be more objective about your business, and as such, they see your blind spots. They point out when you are focused on your goals and when you are wasting your time. They help to overcome the isolation of being at the top, serve as a sounding board for new ideas, offer practical solutions to business problems from people who have lived them, and create the accountability needed to thrive. Since these groups include other owners like you, they have no vested interest in any one idea. You hear what you really need to hear, not what someone wants you to know because of their own self-interest. What makes peer groups work is the fact that the combined experience of a team of business owners tackling problems is far superior to that of any one individual.
Owning a business is a challenge. For those owners who are truly committed to working on their business and growing their companies, peer groups can be a powerful tool.
Thursday, January 28, 2010
Build your Business with the End in Mind
Most business owners do a very good job of planning and executing their business strategies. Few, however, think about what to do when they can no longer continue to manage the business.
Ted Thomas of Sun Exit Advisors offered his insights on this topic in a interview with Mark Goodman of SCORE Chicago. Ted had three suggestions to aid in the planning of the eventual transition of your business.
1. Clear, up-to-date accounting practices.
Understand where your cash is coming from and where it is going. For some businesses, the only time when the financial situation is understood is the one day a year that taxes are filed.
2. Create operating systems that are documented and repeatable.
What is the sales process? When does inventory need to be replenished? How are invoices paid in order to avoid late payment fees? Who authorizes payments if the owner is not available?
3. Identify a second in command.
Who will be in charge if something happens to the owner? This information can be known to employees and partners or can be kept private. However, pushing a spouse or child into a role that they have not been prepared for can create significant difficulty at a very difficult time.
The above are only some of the important phases in preparing for an eventual sale. Click here to see Ted's entire interview or contact Ted directly.
The question is not IF your business will be transferred but, rather, will you transfer it on your terms and realize the maximum value for a life's work.
Ted Thomas of Sun Exit Advisors offered his insights on this topic in a interview with Mark Goodman of SCORE Chicago. Ted had three suggestions to aid in the planning of the eventual transition of your business.
1. Clear, up-to-date accounting practices.
Understand where your cash is coming from and where it is going. For some businesses, the only time when the financial situation is understood is the one day a year that taxes are filed.
2. Create operating systems that are documented and repeatable.
What is the sales process? When does inventory need to be replenished? How are invoices paid in order to avoid late payment fees? Who authorizes payments if the owner is not available?
3. Identify a second in command.
Who will be in charge if something happens to the owner? This information can be known to employees and partners or can be kept private. However, pushing a spouse or child into a role that they have not been prepared for can create significant difficulty at a very difficult time.
The above are only some of the important phases in preparing for an eventual sale. Click here to see Ted's entire interview or contact Ted directly.
The question is not IF your business will be transferred but, rather, will you transfer it on your terms and realize the maximum value for a life's work.
Friday, January 15, 2010
When Is It Time to Sell
As a business broker who's been involved in hundreds of deals, I can tell you with certainty that the best time to sell your business is when it's doing well. I can also tell you that this is exactly when most business owners have the hardest time pulling the trigger on a sale. If things are going so well, they ask, why should they sell and potentially leave money on the table?
An entrepreneur's dream is to build a successful and profitable business, so to many owners it might seem illogical to walk away. Using a recent example involving a client, let me illustrate how it can pay off to sell when things are good.
This client hired our firm to determine the value of his business and market it to potential buyers. This company had all the attributes buyers are seeking--a great track record, increasing revenues and profits, long-term clients, key employees, a niche product, and very healthy margins. In fact, this business was just wrapping up a record year, and the future prospects were outstanding. At first glance, this was a model seller who had made the tough decision to sell when things were going well.
As anticipated, our firm generated multiple offers--several of them well above the value placed on the business. This was great news, and we thought the toughest part would be deciding which of the many qualified buyers the owner would choose. Wrong.
Because of all these offers, the owner began to second-guess the value of his business and became convinced that the buyers were undervaluing it. As such, we could not get a deal done, and the buyers went on to pursue other deals. Just four months later, the business started to slow. Today, it's not as valuable as it was when offers were on the table, and it will be some time before it regains its previous value.
The timing of a business sale can be a nebulous thing, especially in the current environment. Many people are surprised to hear that there are plenty of businesses performing well and generating healthy returns. There are great opportunities to successfully sell a business right now and maximize your investment. Even if sales are currently flat, don't misread that as a bad sign. Many analysts and economists like to toss around the phrase "flat is the new up." So if your business is holding its own--or if sales are slightly up or slightly down--consider it good news in this economy.
Selling a business has always been an individual decision, and timing the sale right can be tricky. It's always best for sellers to plan their exits so they can leave when they want and under the circumstances they want.
As such, it would be wise to plan an exit strategy even as you launch your business, but most people can't fathom taking that step just as they are getting started. What follows is a 10-year timeline to help you plan for the eventual sale of your business.
Let's assume you're thinking of retiring and selling your business when you turn 65. (That number could be 55 or 75, of course.) This timeline, a rough guide, will help you put the pieces in place to prepare your business for sale. If you create a plan from day one, most of your time will be spent running the day-to-day operations of your business so you won't need to scramble when you're ready. It also helps you better calibrate the best time to sell so you can get top dollar and achieve your personal goals.
An entrepreneur's dream is to build a successful and profitable business, so to many owners it might seem illogical to walk away. Using a recent example involving a client, let me illustrate how it can pay off to sell when things are good.
This client hired our firm to determine the value of his business and market it to potential buyers. This company had all the attributes buyers are seeking--a great track record, increasing revenues and profits, long-term clients, key employees, a niche product, and very healthy margins. In fact, this business was just wrapping up a record year, and the future prospects were outstanding. At first glance, this was a model seller who had made the tough decision to sell when things were going well.
As anticipated, our firm generated multiple offers--several of them well above the value placed on the business. This was great news, and we thought the toughest part would be deciding which of the many qualified buyers the owner would choose. Wrong.
Because of all these offers, the owner began to second-guess the value of his business and became convinced that the buyers were undervaluing it. As such, we could not get a deal done, and the buyers went on to pursue other deals. Just four months later, the business started to slow. Today, it's not as valuable as it was when offers were on the table, and it will be some time before it regains its previous value.
The timing of a business sale can be a nebulous thing, especially in the current environment. Many people are surprised to hear that there are plenty of businesses performing well and generating healthy returns. There are great opportunities to successfully sell a business right now and maximize your investment. Even if sales are currently flat, don't misread that as a bad sign. Many analysts and economists like to toss around the phrase "flat is the new up." So if your business is holding its own--or if sales are slightly up or slightly down--consider it good news in this economy.
Selling a business has always been an individual decision, and timing the sale right can be tricky. It's always best for sellers to plan their exits so they can leave when they want and under the circumstances they want.
As such, it would be wise to plan an exit strategy even as you launch your business, but most people can't fathom taking that step just as they are getting started. What follows is a 10-year timeline to help you plan for the eventual sale of your business.
Let's assume you're thinking of retiring and selling your business when you turn 65. (That number could be 55 or 75, of course.) This timeline, a rough guide, will help you put the pieces in place to prepare your business for sale. If you create a plan from day one, most of your time will be spent running the day-to-day operations of your business so you won't need to scramble when you're ready. It also helps you better calibrate the best time to sell so you can get top dollar and achieve your personal goals.
7 to 10 Years Before Selling
This is the education and reading stage. Learn about successful business transitions, attend seminars on how to sell a business, and talk to retirees who have sold a business. Essentially, get familiar with the notion of what you'll need to do as the process continues. Take your time; this phase can last for several years.
3 to 5 Years Before Selling
Start to assemble a team of advisors (accountant, attorney, wealth manager, insurance agent, business broker and exit planner) for the express purpose of designing a plan that will meet your needs post-sale. These advisors may be different than the people you use to help you manage your business, and they should be well-versed in business transactions, tax planning and wealth maximization. An experienced exit planning professional should be retained to quarterback this process and ensure that all the parties involved are working toward a common set of objectives and goals. The outcome of this process can range from minor tweaks to your financial record-keeping and legal structure to significant changes in your business operations to ensure that you maximize the value of your asset.
2 Years Before Selling
At this stage, you should be revisiting the exit plan every six months to a year to ensure you are on pace to achieve your goals. If so, you can begin the window dressing necessary to prepare for a sale. If not, you may have to consider a course correction, modification of your goals, a delay in your exit or any combination thereof. If things are on track, this is the time to firm up your vendor and client agreements and ensure key employees are in place and that you have a complete operations manual that documents all processes and procedures.
1 Year Before Selling
Make sure you can answer this question with clarity: Why are you selling? That will be the first question every potential buyer will ask. By now you know what your business is worth and you have prepared all other aspects for a sale. Work with your business brokerage firm to start developing the "go to market" strategy. Ensure that you have a mix of strategic and financial acquirers identified, as well as a broad-based marketing plan to attract the largest number of buyers. Finally, when everything is ready, take a step back. Just focus on managing the business so it's running smoothly and let your brokerage firm manage the life cycle of the business transaction. This will lead to a graceful and profitable exit.
Sunday, April 26, 2009
Time may heal all wounds.......but it Kills Deals
We recently represented a seller of a service-based business in the Chicago area. This was a good business with a proven track record, and our office secured multiple offers. Negotiations resulted in a strong offer with a financially sound buyer. We commenced due diligence within forty-eight hours from deal acceptance by providing operational and financial data on the business. There were a half dozen due diligence items to clear, and the process took six weeks for the buyer to get satisfied enough to proceed with a closing. The parties were both eager to consummate the deal and it was time to turn it over to the attorneys for final closing documents. We strongly recommended that the parties utilize the services of a closing attorney, which is the business equivalent of a real estate title attorney. The presence of a closing attorney has multiple benefits, such as efficiency and lower costs, BUT by far the most significant is that these deals have a higher closing ratio.
In this case, the seller decided to forgo a closing attorney and engage an attorney who was not very familiar with business sales and closings. It took four weeks, an eternity in deal time, for the seller’s attorney to produce a woefully inadequate set of closing documents. Conversely, the buyer had a very savvy attorney who saw the opportunity to exploit this weakness by slowing down the process, requesting more operational and financial data, and raising additional deal issues. The timing was unkind, as the business was going through a short yet unexpected soft period. This caused the buyer to re-think the entire acquisition, which resulted in a renegotiation that reduced the price by more than twenty percent. A terrible outcome, but completely avoidable had a closing attorney been engaged for this transaction.
In the sale of a business, a mortgage lender is usually not involved. That should not prevent the same approach from working. A closing attorney – someone experienced in buying and selling businesses - is engaged to provide transaction documents and other services. This person does not represent either the buyer or the seller, instead this attorney’s role is to provide efficient documents intended to be “fair” to both sides and bring the transaction to a quick close.
A closing attorney does not replace the need for legal counsel for either side of the transaction. Both sides must continue to be represented by a qualified lawyer who can review the documents and represent their client’s interests. This may be counter-intuitive, but by having an independent resource to document the transaction, the time and cost required to bring the transaction to a quick close can be greatly reduced and, most importantly, secure a successful transaction.
In this case, the seller decided to forgo a closing attorney and engage an attorney who was not very familiar with business sales and closings. It took four weeks, an eternity in deal time, for the seller’s attorney to produce a woefully inadequate set of closing documents. Conversely, the buyer had a very savvy attorney who saw the opportunity to exploit this weakness by slowing down the process, requesting more operational and financial data, and raising additional deal issues. The timing was unkind, as the business was going through a short yet unexpected soft period. This caused the buyer to re-think the entire acquisition, which resulted in a renegotiation that reduced the price by more than twenty percent. A terrible outcome, but completely avoidable had a closing attorney been engaged for this transaction.
In the sale of a business, a mortgage lender is usually not involved. That should not prevent the same approach from working. A closing attorney – someone experienced in buying and selling businesses - is engaged to provide transaction documents and other services. This person does not represent either the buyer or the seller, instead this attorney’s role is to provide efficient documents intended to be “fair” to both sides and bring the transaction to a quick close.
A closing attorney does not replace the need for legal counsel for either side of the transaction. Both sides must continue to be represented by a qualified lawyer who can review the documents and represent their client’s interests. This may be counter-intuitive, but by having an independent resource to document the transaction, the time and cost required to bring the transaction to a quick close can be greatly reduced and, most importantly, secure a successful transaction.
Tuesday, April 21, 2009
Maiden Voyage
The goal of this blog is to infuse the conversation of buying and selling businesses with REAL-TIME, REAL-WORLD scenarios. In my experience, stories and illustrations are the most potent form of translating a message, and after visiting blogs covering this topic, I concluded that I could introduce unique dialogue about small business mergers and acquisitions.
I have been sweating the decision to start this blog given the inevitable time commitments. I am hopeful, however, that the cascade of material generated by our business brokerage firm will keep the blog posts flowing for many years.
My aspiration is that this format causes an interaction amongst the visitors that advances our collective deal making. I look forward to receiving your comments and thoughts.
I have been sweating the decision to start this blog given the inevitable time commitments. I am hopeful, however, that the cascade of material generated by our business brokerage firm will keep the blog posts flowing for many years.
My aspiration is that this format causes an interaction amongst the visitors that advances our collective deal making. I look forward to receiving your comments and thoughts.
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