Posts tagged with: buyer

When It’s Time to Cash Out – What’s Next?

It’s good advice to appoint key advisors in the sale process as soon as possible to reduce costs and get ahead of the sale. However, it is also imperative for you, the business owner, to do your part long before you bring transaction experts to the table.

Develop and discuss with all your advisors, a recap of what business you are in and your reasons for selling. It is your business and you know it better than anyone else. It’s up to you to communicate your goals for the business, your team and your objectives getting out.

a. Initiate due diligence proactively. It shows potential buyers you’re serious and committed to the sale. It also will identify area, concerns, risks that can reduce your potential sale price. For example, unpaid taxes, incomplete financials, employee contract terms.

b. Define your ultimate exit strategy, which can also uncover potential opportunities to increase or decrease the value of undocumented and unregistered intellectual property.

The bottom line is that your business needs to be prepared for the sale or other exit options at all times, which involves organizing all aspects of the business to be appealing to a buyer.

You must put yourself in your potential buyer’s shoes to take a critical look at your own business. If not, you risk not achieving your best outcome, leaving money on the table.

Taking time to understand the drivers inherent in a potential buyer’s business can help you position your business to be buyer attractive and achieve a better sale outcome.

Value of Your CRM in Exit Planning

What is CRM?

Your CRM system is about how you/your company do business with someone else/some other company. It’s about nurturing the relationship between you and the customer/prospect. It gives you a 360 view to better retain every customer. CRM is a tool to cultivate relationships between people.

Effective use of your CRM system as well as the data reports you can generate from it – both add value to your business that a buyer will pay for. Keeping your CRM system up to date and using it for all sales, marketing and support communications provides substantive, client-specific data to back up the forecasts you use in negotiating a price for your business.

  1. Choose the CRM tool that is right for your business – customize it so that it fits your company’s needs/objectives. There are many tools out there like ACT!, SageCRM, Saleslogix, MS CRM
  2. You have to use it to get the ROI from this tool like any other.
  3. Make sure that the data in the CRM software is as up to date as possible – garbage in is garbage out
  4. The relationships are key!  -Really get to know your customer so that you have a 360 degree view of their needs, likes and dislikes

Why use a CRM system and why study the tracking and measuring reports a CRM system can generate for you?

It helps automate and streamline:

  • Building your list
  • Building relationships with prospects
  • Keeping relationships with clients
  • Integrating marketing strategies, such as
    • Email campaigns
    • A-B testing
    • Newsletters/offers/incentives
    • Telephone outreach

Tracking and measuring data can be exported from a CRM system and be used in many systems to build a strong foundation for massive growth.

You Need:

  • Systems
  • Strategy
  • Processes
  • Structure

Do you want to stay a little business, Without a strong, deep foundation?

Do you want to grow a much larger, robust business, With a strong, deep foundation.

Your Business Foundation MUST Have all four:

  • Systems
  • Strategies
  • Structure
  • Processes

in order to grow into. You want to buy, train, install, and apply systems and tools that your company will not outgrow in the next 5 years.

 

Will A Buyer Pay for Past Performance or Future Projections?

future high way sign

When you want to get out, do you look at past performance or the future potential of your business? Too often, business owners erroneously assume that a buyer will want to buy the business based on past performance. Buyers go through due diligence specifically because they want to know what the business can deliver moving forward after you get out.

To add perspective, let’s compare both scenarios:

Getting Paid for the PAST

There are three core elements to selling your business:

  1. When you sell your business
  2. How you structure the transaction
  3. The business valuation itself

You deserve to be paid for what you’ve built. You stand on your past performance. But that’s not the same as preparing the business to be buyer ready so they see the full value of the business as it stands now and what the future could hold. Only when you make the business self-sustaining without your personal operational control each day, can your buyer see what the business itself can do. Unfortunately, without that preparation, in many private company transactions, there are stories of 75% of sellers leaving up to 75% of value of the business on the table.

Getting paid for the FUTURE

Informed and interested buyers do exist at all levels. They actively seek out smaller companies for a range of reasons (e.g., to increase their earnings and competitive position within their marketplace), all based on the projected ROI. As the seller, it’s up to you to demonstrate your company can deliver that ROI looking ahead, not backwards.

Unfortunately, it’s far too common for inexperienced sellers to negotiate the sale of their company based on historical performance. While that historical performance is important, it is not the driving factor on which the buyer will base his decision. Rather, buyers are all about the future earnings and potential growth of the company. Their future ROI not your past success is most important to the buyer.

As a basis for business valuation discussions with any buyer, it is essential to use realistic future cash flows and earnings of the business. For buyers, the future potential of an acquisition is far more important than its past performance.

To be a successful seller, you must recognize that buyers will not pay a premium for past financial performance. Instead, they seek to maximize the value they can gain from your business in the future. That’s what you must sell them.

Selling to the Wrong Buyer

Often, private companies will sell to professional or personal acquaintances, including employees, family members or competitors. However, these sellers fail to recognize that buyers often come from unlikely sources, locations or industries.

Acquiring buyers do exist. They actively purchase companies to sustain earnings growth. Sellers who fail to retain an advisor often forego the opportunity to engage a selection of optimal buyers.

There are still other risks in selling your business:

1.    Selling at the wrong time

Timing is everything when it comes to selling your business. Selling a business at an inopportune time is one reason too many sellers leave significant money on the table. Key factors when considering timing your exit include the economy, the market, interest rates, as well as the impact of tax and regulatory constraints.

2.    Structuring the wrong deal

Inexperienced sellers easily become fixated only on the purchase price while neglecting the importance of overall deal structure and the full range elements and outcomes. Taking the time to creatively structure the deal around all your needs and preferences as the seller will expand options to generate the maximum value you while minimizing tax liabilities.

When you plan ahead and plan early, you can ensure that no money is left on the table when you sell your business.

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