The buzz is that if you are a Baby Boomer and you want to sell your business in the next few years, then you are in the majority. You are not the only Baby Boomer and will possibly have your business compete against many more similar businesses in both model and industry. In order to be well-prepared, you will need a proper valuation. Establishing a baseline value of your business will help you overcome weak areas that keep you up at night. Why would a buyer want to buy your problems? Some savvy entrepreneurs will want your problems, but most will not.
Check out our short video on the different types of Valuations.
Roger Murphy, our CEO, explains the different types of valuations we provide.
Ho-hum, you may be thinking. Or, boring. Maybe even, when can I possibly fit this into my hectic week?
As an entrepreneur, you are an extremely busy individual who probably shoots from the hip more often than not. So, do you really need to take the time and effort to put a business plan in writing?
Almost every CEO and business consultant in the country would answer with a resounding, “Yes!” The importance of a business plan cannot be overemphasized; however, the plan should be carefully considered and comprehensive and objective in nature.
Many entrepreneurs are quick to write a plan if they are seeking external financing, but the reality is every company needs a plan.
Having a good business plan in place will help you stay focused and achieve the goals you have set.
The U.S. Small Business Administration notes that “a business plan should be a work in progress.” Conditions change every day. Our national economic climate is not what it was ten years ago, and your local business environment has more than likely changed in the last few years. Factor progress or decline in your specific industry into this mix as well.
Focus on what makes your company special: what niche does it serve? Think about where you want your business to be in one year, five years, ten years.
What should be included? An executive summary that states the intent and purpose of the company; a thorough description of the business (including information on marketing, human resources, policies, procedures and competition); financial data (P&L statements, balance sheet, list of equipment); and any supporting exhibits (including resumes of principals, lease agreements and other legal documents).
Time spent today creating a business plan is definitely a solid investment in your company’s future.
The biggest financial transaction in a private business owner’s life is likely the sale of his or her business. Although many transfers are predetermined, others result from unplanned events, which is why it is essential for business owners to have an exit strategy.
Operate your business as if you are going to sell it. Most owners assume they will operate the business until retirement. But their priorities or interests could eventually change-or be forced to change due to unforeseen circumstances such as illness or disability.
Timing is everything. The best time to sell your business is when you’re on top. The company is doing well and the industry is flourishing, and next year looks even better. Cyclical factors are important, for example in retail most revenue is earned in 4th quarter. Sell in 1st quarter of next year to show good revenue and the inventory is at lowest point.
Market conditions will also have a significant impact on your ability to sell a business and the value that you will ultimately receive. The supply and demand of businesses vary over time and across industries. Current and anticipated market trends and tax policies may suggest the optimal times to sell as well as availability of bank financing. An Experienced Business Intermediary will be able to advise you on the current market conditions.
Today we are offering a wish list for a typical seller of a small business. Entrepreneurs who are selling their companies, as well as those looking to purchase, generally agree on what would make the process more seamless overall.
What the seller wants:
A qualified buyer – This not only means someone with the financial resources to meet a down payment and secure financing, it also describes someone with experience owning or managing a business — perhaps with some knowledge of the industry itself. A qualified buyer more than likely has established ties to the geographical area and if married or in a domestic relationship, has the support of his partner.
An appropriate offer – A seller appreciates an offer that is solid, reasonable and timely. Sellers expect contingencies to be a part of the offer, but also anticipate these to be realistic. One of the most common contingencies is a lease transfer with equitable terms for the buyer.
A practical due diligence phase – Sellers are pleased to answer questions and share pertinent data during the due diligence phase; however, buyers should take care not to pose queries or make statements that may be perceived as an insult to the seller. Common sense should dictate how the buyer should best introduce discussions on past decisions the seller made or how the business is run on a daily basis. Buyers should prepare their due diligence requests in writing and as soon as possible after the offer has been accepted.
A smooth closing – The closing should be a time of celebration for both parties, not a time for second-guessing, bickering or hesitation. Hiring a closing attorney experienced in the business transfer process helps immensely. By the time everyone is seated at the closing table, all questions should have been answered, all pre-closing paperwork completed and the buyer and seller should be confident this is a win-win situation for everyone involved.
An efficient transition – Most sellers, particularly those who created the business from the ground up, truly want to see the business continue to grow and prosper. Sellers want their buyers to be successful, and most will work hard to ensure the buyer is completely comfortable with all facets of the business during the training period that begins after the closing. This transition phase often involves introducing the new owner to suppliers and customers and showing the buyer everything related to running the business, from how to operate office equipment to the best way to manage employees’ schedules.
As a business broker, I have most enjoyed working with buyers and sellers who are forthright, reasonable and agreeable. Having realistic expectations on both sides and keeping a professional and positive attitude throughout the business transfer process goes a long way toward reaching a successful closing.
If I sell the business now, will I get enough money to satisfy my needs?
Will I really improve my personal financial position, or should I wait a little bit longer?
Define priorities: Do I want an all-cash deal, so that I can wash my hands and be done with the business? (This will generally result in a lower price the buyer will be willing to pay.)
Am I willing to finance part of the sales price? (This usually results in a higher price being offered by the buyer.)
Am I looking for a buyer to continue my business traditions and carry on in a similar style?
Am I looking to protect my employees and ensure they are retained by the new buyer?
Have I taken all of the steps necessary to make my business as attractive as possible to a new buyer?
What will I do after the sale? Do I want to maintain a relationship with the business (perhaps working for the new owner on a part-time basis or as a consultant)?
Have I thought about how much time I will give a new buyer for a transition and training period?
Have I done enough to ensure that the business is not dependent on me being there, so that the new owners can take over and be successful?
Am I willing to sign a non-compete agreement with the buyer?
Is this the right time to sell, and can I do it without experiencing seller’s remorse?
I have very fond memories of my first “real” job. After all, this was my initial step into the real world: no longer did I receive cash for a few hours of watching someone’s children; I now had my hands on an official paycheck – complete with my social security number, full address, and withholdings for the government!
I was attending college, so this was a part-time job at a (local) state bank a few blocks from my home. I originally answered an advertisement requesting help as a new accounts representative, but I soon found myself learning about every aspect of banking.
I did help open new accounts, but I also spent time assisting customers with their safe deposit boxes and working as a teller handling deposits, withdrawals, and other transactions.
The bank’s vice president and cashier took me under her wing and taught me a great deal about banking. It was an exciting and exhilarating time!
I learned about the FDIC and was privy to the bank’s safe, which contained the actual currency available at any given time. I was educated on why banks cannot be closed for more than three consecutive days in a row (and assumed this is why many banking holidays land on Mondays!).
I helped process personal and commercial loans and greeted customers as they entered our lobby.
Looking back, I believe the VP/Cashier hoped I would follow a career in banking. I did not take that path but think of that particular time in my life often (I really didn’t consider it a job … it was more like a fun internship!).
I’ve had a few jobs since that time, and several have involved personnel management.
My experience at the bank taught me a lot about how an employee wants to be treated. I was the lowest-ranking employee at the bank, yet was treated as the officers and board members were. I had the opportunity to learn as much as I wanted and work in various departments in the bank. I was never bored! I left with great references – and only took another job because I was considering applying for law school and wanted to have some experience working with attorneys.
Have you spoken with your employees lately? I share this experience as a reminder that a little bit of interest can go a very long way in helping workers feel valued and appreciated.
At the bank, we only had 30-minute lunch breaks. To offset that, the bank provided bread, deli meats and cheeses and frozen entrees. I am dating myself here, but my first microwave experience was at the bank! The point is, the bank asked for the sacrifice of a short lunch break but offered something in return for the favor.
Do you know what your employees really want? You might be surprised to speak with them individually. Each employee might want something completely different, but you may also find they share some common desires. And these desires might easily be within your budget and reach as an employer.
You might find an employee who really wants to learn and tackle new challenges. What a great internal resource! Teach that employee and empower him.
You may uncover an employee who enjoys working at your company but is bored stiff in his current position. Better to know this now than on the day he hands in his resignation.
You may learn that someone really wants to retire soon but has been afraid to mention this to management. In this case, knowing about an impending departure in advance can only lead to a smoother transition.
You may discover innovative ideas and uncover a willing spirit from some employees to learn and achieve more.
Take a moment this week to sit down with each member of your team for a candid – and possibly enlightening – conversation.
