20 Jul Are You Emotionally Ready to Sell?

Quite often sellers don’t give much thought to whether or not they are ready to sell. But this can be a mistake. The emotional components of both buying and selling a business are quite significant and should never be overlooked. If you are overly emotional about selling, then this fact can have serious ramifications on your outcomes. Many sellers who are not emotionally ready, will inadvertently take steps that undermine their progress.

Selling a business, especially one that you have put a tremendous amount of effort into over a period of years, can be an emotional experience even for those who feel they are more stoic by nature. Before you jump in and put your business up for sale, take a moment and reflect on how the idea of no longer owning your business makes you feel.

Emotional Factor #1 – Employees

It is not uncommon for business owners to form friendships and bonds with employees, especially those who have been with them long-term. However, many business owners are either unaware or unwilling to face just how deep the attachments sometimes go.

While having such feeling towards your team members shows a great deal of loyalty, it could negatively impact your behavior during the sales process. Is it possible you might interfere with the sale because you’re worried about future outcomes for your staff members? Are you concerned about breaking up your team and no longer being able to spend time with certain individuals? It is necessary ultimately to separate your business from your personal relationships.

Emotional Factor #2 – Do You Have a Plan for the Future?

Typically, business owners spend a great deal of their time and energy being concerned with their businesses. It is a common experience that most owners share. Just as no longer being with your employees every day may create an emotional void, the same may also hold true for no longer running or owning your business.

Your business is a key focal point of your entire life. No longer having that source of focus can be unnerving. It is important to have a plan for the future so that you are not left feeling directionless or confused. What will you do after you sell your business and how does that make you feel? Before you sell, make sure that you have something new and positive to focus on with your time.

Emotional Factor #3 – Are You Sure?

Are you sure that you can really let your business go? At the end of the day many business owners discover that deep down they are just not ready to move on. Are you sure you are ready for a new future? If not, perhaps it makes sense to wait until you’re in a more secure position.

Addressing these three emotional factors is an investment in your future well-being and happiness. It is also potentially an investment in determining how smoothly the sale of your business will be and whether or not you receive top dollar.

Let's block ads! (Why?)

If you are considering running your own business, one of the first questions that might pop in your mind is: should I start a new one or buy an established business. In this article, we’ll take a closer look at the age-old dilemma of buying an existing business verses starting a new one from scratch.

1.  An Established Concept

The benefits of buying an established business are no doubt huge. At the top of the list is that an existing business will have an established concept. Starting a business from scratch means taking a big risk in the form of a new idea. Will it really work? If the business fails, why did it fail? Both of these stressful questions need not be asked when you buy. An established business, especially one that has been around for years, has already shown that the concept and all the variables that go into it do, in fact, work.

2.  Proven Cash Flow

Another massive benefit of buying an existing business is that an existing business has proven cash flow. You can look at the books and, in the process, determine just how much money is flowing in and out.  With a new business, you simply won’t be sure how much it will generate. This can make it tricky when you’re trying to figure out how to not only pay your business expenses, but your personal ones as well.

3.  The Unproven Element

No matter how good your idea and/or your location, your new business is still unproven. Despite the best of efforts, there may be an unforeseen variable that you or your consultants might have missed. However, when you opt for a proven, existing business, this variable does not apply to you.

4.  An Established Staff

A business is often only as good as the people that populate and support it. Starting up your own business means that you have to go out and find all of your own employees. This process is much more than sifting through resumes. A resume only reveals so much. A resume doesn’t reveal if a candidate will be a good fit for the business, and it certainly doesn’t factor in chemistry. As any good coach of any team sport knows, chemistry is one of the greatest factors in winning a championship.

5.  Established Relationships

A proven business also comes with an array of business relationships. Working out problems with your supply chain in the early days of your business can mean the end of that business. Many business owners have seen their businesses undone by problems with their supply chains. An existing business can point the way to reliable and consistent suppliers.  When buying an existing business, you are acquiring a proven performer. You know that the business had what it takes to provide cash flow over a given period of time. You will also have customers who know who you are, where you are and how to buy from you. Buying an existing business also means gaining access to reliable suppliers and enjoying all the benefits that come with an established brand name and location.

Contact a professional Business Broker to discuss this further. 

This entry passed through the Full-Text RSS service - if this is your content and you're reading it on someone else's site, please read the FAQ at fivefilters.org/content-only/faq.php#publishers.
Recommended article from FiveFilters.org: Most Labour MPs in the UK Are Revolting.

06 Jul Learn the Dynamics and Save the Deal

Many business owners are unfamiliar with the dynamics of selling a company, because they have never done so. There are numerous possible “deal breakers.”  Being aware of the following pitfalls and their remedies should help prevent the possibility of an aborted transaction.

Neglecting the  Running of Your Business
A major reason companies with sales under $20 million become derailed during the selling process is that the owner becomes consumed with the pending transaction and neglects the day to day operation of the business.  At some time during the selling process, which can take six to twelve months from beginning to end, the CEO/owner typically takes his or her eye off the ball.  Since the CEO/owner is the key to all aspects of the business, his lack of attention to the business invariably affects sales, costs and profits.  A potential buyer could become concerned if the business flattens out or falls off.

Solution:  For most CEOs/owners, selling their company is one of the most dramatic and important phases in the company’s history.  This is no time to be overly cost conscious.  The owner should retain, within reason, the best intermediary, transaction lawyer and other advisors to alleviate the pressure so that he or she can devote the time necessary for effectively running the business.

Placing Too High a Price on the Business
Obviously, many owners want to maximize the selling price on the company that has often been their life’s work, or in fact, the life’s work of their multi-generation family.  The problem with an irrational and indiscriminate pricing of the business is that the mergers and acquisition market is sophisticated; professional acquirers will not be fooled.

Solution:  By retaining an expert intermediary and/or appraiser, an owner should be able to arrive at a price that is justifiable and defensible. If you set too high a price, you may end up with an undesirable buyer who fails to meet the purchase price payments and/or destroys the desirable corporate culture that the seller has created.

Breaching the Confidentiality of the Impending Sale
In many situations, the selling process involves too many parties, and due to so many participants in the information loop, confidentiality is breached.  It happens, perhaps more frequently than not.  The results can change the course of the transaction and in some cases; the owner—out of frustration—calls off the deal.

Solution:  Using intermediaries in a transaction certainly helps reduce a confidentiality breach. Working with only a few buyers at a time can also help eliminate a breach.  Involving senior management can also prevent information leaks.

Not Preparing for Sale Far Enough in Advance
Most business owners decide to sell their business somewhat impulsively.  According to a survey of business sellers nationwide, the major reason for selling is boredom and burnout. Further down the list of reasons reported by survey respondents is retirement or lack of successor heirs.  With these factors in mind, unless the owner takes several years of preparation, chances are the business will not be in top condition to sell.

Solution:  Having well-prepared and well-documented financial statements for several years in advance of the company being sold is worth all the extra money, and then some.   Buying out minority stockholders, cleaning up the balance sheet, settling outstanding lawsuits and sprucing up the housekeeping are all-important.  If the business is a “one-man-band,” then building management infrastructure will give the company value and credibility.

Not Anticipating the Buyer’s Request
A buyer usually has to obtain bank financing to complete the transaction.  Therefore, he needs appraisals on the property, machinery and equipment, as well as other assets.  If the owner is selling real estate, an environmental study is necessary.  If a seller has been properly advised, he will realize that closing costs will amount to five to seven percent of the purchase price; i.e., $250,000-$350,000 for a $5 million transaction.  These costs are well worth the expense, because the seller is more apt to receive a higher price if he can provide the buyer with all the necessary information to do a deal.

Solution:  The owner should have appraisals completed before he tries to sell the business, but if the appraisals are more than two years old, they may have to be updated.

Seller Desiring To Retire After Business Is Sold
It is a natural instinct for the burnt-out owner to take his cash and run.  However, buyers are very concerned with the integration process after the sale is completed, as well as discovering whether or not the customer and vendor relationships are going to be easily transferable.

Solution:  If the owner were to become a director for one year after the company is sold, the chances are that the buyer would feel a lot more secure that the all-important integration would be smoother and the various relationships would be successfully transferable.

Negotiating Every Item
Being boss of one’s own company for the past ten to twenty years will accustom one to having his or her own way… just about all the time.  The potential buyer probably will have a similar set of expectations.

Solution:  Decide ahead of the negotiation which are the very important items and which ones are not critical.  In the ensuing negotiating process, the owner will have a better chance to “horse trade” knowing the negotiatiable and non-negotiable items.

Allocating Too Much Time for Selling Process
Owners are often told that it will take six to twelve months to sell a company from the very beginning to the very end.  For the up-front phase, when the seller must strategize, set a range of values, and identify potential buyers, etc., it is all right to take one’s time.  It is also acceptable for the buyer to take two or three months to close the deal after the Letter of Intent is signed by both parties.  What is not acceptable is an extended delay during which the company is “put in play” (the time between identifying buyers, visiting the business and negotiating). This phase should not take more than three months.  If it does, this means that the deal is dragging and is unlikely to close.  The pressure on the owner becomes emotionally exhausting, and he tires of the process quickly.

Solution:  Again, the seller needs to have a professional orchestrate the process to keep the potential buyers on a time schedule, and move the offers along so the momentum is not lost.  The merger and acquisition advisor or intermediary plays the role of coach, and the player (seller) either wins or loses the game depending on how well those two work together.

Copyright: Business Brokerage Press, Inc.

Pictrough/BigStock.com

This entry passed through the Full-Text RSS service - if this is your content and you're reading it on someone else's site, please read the FAQ at fivefilters.org/content-only/faq.php#publishers.
Recommended article from FiveFilters.org: Most Labour MPs in the UK Are Revolting.

22 Jun Selling: What Does An Intermediary Expect From You

If you are seriously considering selling your company, you have no doubt considered using the services of an intermediary.  You probably have wondered what you could expect from him or her.  It works both ways.  To do their job, which is selling your company; maximizing the selling price, terms and net proceeds; plus handling the details effectively; there are some things intermediaries will expect from you.  By understanding these expectations, you will greatly improve the chances of a successful sale. Here are just a few:

• Next to continuing to run the business, working with your intermediary in helping to sell the company is a close second.  It takes this kind of partnering to get the job done.  You have to return all of his or her telephone calls promptly and be available to handle any other requests.  You, other key executives, and primary advisors have to be readily available to your intermediary.

• Selling a company is a group effort that will involve you, key executives, and your financial and legal advisors all working in a coordinated manner with the intermediary.  Beginning with the gathering of information, through the transaction closing, you need input about all aspects of the sale.  Only they can provide the necessary information.

• Keep in mind that the selling process can take anywhere from six months to a year — or even a bit longer.  An intermediary needs to know what is happening — and changing — within the company, the competition, customers, etc.  The lines of communication must be kept open.

• The intermediary will need key management’s cooperation in preparation for the future visits from prospective acquirers.  They will need to know just what is required, and expected, from such visits.

• You will rightfully expect the intermediary to develop a list of possible acquirers.  You can help in several ways.  First, you could offer the names of possible candidates who might be interested in acquiring your business.  Second, supplying the intermediary with industry publications, magazines and directories will help in increasing the number of possible purchasers, and will help in educating the intermediary in the nature of your business.

• Keep your intermediary in the loop.  Hopefully, at some point, a letter of intent will be signed and the deal turned over to the lawyers for the drafting of the final documents.  Now is not the time to assume that the intermediary’s job is done.  It may just be beginning as the details of financing are completed and final deal points are resolved.  The intermediary knows the buyer, the seller, and what they really agreed on.  You may be keeping the deal from falling apart by keeping the intermediary involved in the negotiations.

• Be open to all suggestions.  You may feel that you only want one type of buyer to look at your business.  For example, you may think that only a foreign company will pay you what you want for the company.  Your intermediary may have some other prospects.  Sometimes you have to be willing to change directions.

The time to call a business intermediary professional is when you are considering the sale of your company.  He or she is a major member of your team.  Selling a company can be a long-term proposition.  Make sure you are willing to be involved in the process until the job is done.  Maintain open communications with the intermediary.  And, most of all – listen. He or she is the expert.

Copyright: Business Brokerage Press, Inc.

monkeybusinessimages/BigStock.com

Let's block ads! (Why?)

14 Jun Family-Owned Businesses Do Have Choices

Copyright: Business Brokerage Press, Inc.

mangostock/BigStock.com

Let's block ads! (Why?)

01 Jun Who Is Today’s Buyer?

Copyright: Business Brokerage Press, Inc.

SCPhotog/BigStock.com

Let's block ads! (Why?)

24 May Why Deals Fall Apart — Loss of Momentum

Let's block ads! (Why?)

Personal Goodwill has always been a fascinating subject, impacting the sale of many small to medium-sized businesses – and possibly even larger companies. How is personal goodwill developed? An individual starts a business and, during the process, builds one or more of the following:

• A positive personal reputation
• A personal relationship with many of the largest customers and/or suppliers
• Company products, publications, etc., as the sole author, designer, or inventor

The creation of personal goodwill occurs far beyond just customers and suppliers. Over the years, personal goodwill has been established through relationships with tax advisors, doctors, dentists, attorneys, and other personal service providers.  While these relationships are wonderful benefits, they are, unfortunately, non-transferable. There is an old saying:  In businesses built around personal goodwill, the goodwill goes home at night.

It can be difficult to sell a business, regardless of size, where personal goodwill plays an integral role in the business’ success. The larger the business, the less likely that one person holds the key to its profitability. In small to medium-sized businesses, personal goodwill can be a crucial ingredient.  A buyer certainly has to consider it when considering whether to buy such a business.

In the case of the sale of a medical, accounting, or legal practice, existing clients/patients may visit a new owner of the same practice; they are used to coming to that location, they have an immediate problem, or they have some other practical reason for staying with the same practice. However, if existing clients or patients don’t like the new owner, or they don’t feel that their needs were handled the way the old owner cared for them, they may look for a new provider. The new owner might be as competent as, or more competent than, his predecessor, but chemistry, or the lack of it, can supersede competency in the eyes of a customer.

Businesses centered on the goodwill of the owner can certainly be sold, but usually the buyer will want some protection in case business is lost with the departure of the seller. One simple method requires the seller to stay for a sufficient period after the sale to allow him or her to work with the new owner and slowly transfer the goodwill. No doubt, some goodwill will be lost, but that expectation should be built into the price.

Another approach uses some form of “earnout.” At the end of the year, the lost business that can be attributed to the goodwill of the seller is tallied.  A percentage is then subtracted from monies owed to the seller, or funds from the down payment are placed in escrow, and adjustments are made from that source.

In some cases, the sale of goodwill may offer some favorable tax benefits for the seller. If the seller of the business is also the owner of the personal goodwill, the sale can essentially be two taxable events. The tax courts have ruled that the business doesn’t own the goodwill, the owner of the business does. The seller thus sells the business and then also sells his or her personal goodwill. The seller’s tax professional will be able to give further advice on this matter.

Let's block ads! (Why?)

20 Apr The Three Ways to Negotiate

Copyright: Business Brokerage Press, Inc.

Let's block ads! (Why?)

Due diligence is generally considered an activity that takes place as part of the selling process. It might be wise to take a look at the business from a buyer’s perspective in performing due diligence as part of an annual review of the business.  Performing due diligence does two things: (1) It provides a valuable assessment of the business by company management, and (2) It offers the company an accurate profile of itself, just in case the decision is made to sell, or an acquirer suddenly appears at the door.

This process, when performed by a serious acquirer, is generally broken down into five basic areas:

• Marketing due diligence
• Financial due diligence
• Legal due diligence
• Environmental due diligence
• Management/Employee due diligence

Marketing Issues
It has been said that many company officers/CEOs have never taken a look at the broad picture of their industry; in other words, they know their customers, but not their industry.  For example, here are just a few questions concerning the market that due diligence will help answer:

• What is the size of the market?
• Who are the industry leaders?
• Does the product or service have a life cycle?
• Who are the customers/clients, and what is the relationship?
• What’s the downside and the upside of the product/service?  What is the risk and potential?

Financial Issues
Two important questions have to be answered before getting down to the basics of the financials: (1) Do the numbers really work? and (2) Are the seller’s claims supported by the figures?  If the answer to both is yes, the following should be carefully reviewed:

• The accounts receivables
• The accounts payable
• The inventory

Legal Issues
Are contracts and agreements current? Are products patented, if necessary?  How about copyrights and trademarks?  What is the current status of any litigation?  Are there any possible law suits on the horizon? What would an astute attorney representing a buyer want to see and would it be acceptable?

Environmental Issues
Not too long ago this area would have been a non-issue.  Not any more!   Current governmental guidelines can levy responsibility regarding environmental issues that existed prior to the current occupancy or ownership of the real estate.  Possible acquirers – and lenders – are really “gun-shy” about these types of problems.

Management/Employee Issues
What employment agreements are in force?  What family members are on the payroll? Who are the key people?  In other words, who does what, why, and how much are they paid?

Operational Issues
The company should have a clear program covering how their products are handled from raw material to “out the door.” Service companies should also have a program covering how services are delivered from initial customer contact through delivery of the services.

The question is, do you give your company a “physical” now, or do you wait until someone else does it for you – with a lot riding on the line?

tashatuvango/BigStock.com

Copyright: Business Brokerage Press, Inc.

Let's block ads! (Why?)