Posts tagged with: sell your business

To Sell Your Business Think Like a Buyer

“Attracting a buyer is like preparing for a beauty contest” – Gary Miller

Dog owners and breeders know that it takes years of discipline, training and preparation for their pure bred champion dog to stand out from the crowd and win the blue ribbon at the Westminster Kennel Club dog show. They know that the dog that ‘shows best’ will win ‘first’. They know the decision is in the judge’s hands.

To show best and win first in selling your business, it’s up to you to make your business both buyer ready and buyer attractive.

To Prepare Your Business, Think Like a Buyer

Before you enter the market place of potential buyers, preparation is essential not optional. Plan on at least 1-2 years of preparation efforts before you begin the 6-9 month transaction process. Yes, years. This preparation means all the difference in the value of your business and the price it will command in the market place.

Preparation is a choice far too few owners take seriously. Preparation makes your business stronger, more attractive and more valuable. Without preparation, you give (gift) all the leverage in a negotiation to the buyer and the buyer’s intermediary.

Preparation Steps

To think like a buyer, there are a few key steps that will make your business more attractive and appealing to potential buyers. They include:

  1. Getting a base-line valuation performed by an independent valuation firm to quantify the current market value of the business.
  2. Documenting all assets and inventory accurately. Dispose of any obsolete materials or expired inventory to get to a true accounting of what you have.
  3. Cleaning up all financial records to show current market value of assets and inventory now to avoid any issue for your buyer. If you wait until you have an interested buyer and they discover that your financial records show a higher value than market value at that late date, it will weaken your negotiating position or worse, put the deal itself at risk.
  4. Investing in an audit of your financials now, done by an independent accounting firm. This will give you time to clean up/correct any errors or concerns identified. It also establishes a pattern of good business management.
  5. Bringing all legal requirements and records up to date. Revisit all vendor and client contracts before you pursue any buyer opportunity.
  6. Implementing and document all systems and processes for operating your business. If you’ve never documented anything, you have no leverage to say what it’s worth. If the entire business is in your head, a buyer will not pay the full potential value of your business if they have to depend on you to achieve it. This step in itself adds value to the bottom line and drastically reduces business continuity risk.
  7. Deciding now who on your management team will be essential to the successful transition of the business to new ownership. Tell them your plans now and what you’ll do for them because they help you through the transaction process. Without them, your business is much less attractive to your buyer. You need them on board to champion the business when your potential buyer arrives to do their due diligence.
  8. Executing your own internal due diligence now to identify what is ready, what is not ready, where you are strong and where there are holes in what a buyer would expect to find in the due diligence process. With a timeline of years, you give yourself the luxury to methodically clean up, resolve and eliminate any potential red flag. The more complete, transparent and prepared you are, the less likely the buyer’s team are to dig for hidden problems.

Your All-Star Team of Advisors

To prepare you, your business, and your team to take your business to market, you need an all-star team of advisors, not just one or two. The most successful transactions close when you surround yourself with a cooperating, collaborating coordinated team of advisors to ensure your business is buyer ready and buyer attractive to achieve the outcome you want on your terms. In addition to your current business attorney and accountant, your core team must include at least:

  1. An exit strategist to manage the preparation of your business for you and orchestrate your transaction team; so you can stay focused on what you do best – accelerating growth and maximizing the value of your business.
  2. An attorney with significant transaction experience in the type of transaction you want to close. A divorce attorney or real estate attorney or a litigation attorney may not have the experience to give you the leverage to negotiate the best deal.
  3. Your Chief Financial Officer – even if you’ve never had a CFO on your team in the past. Even a part-time CFO will help position your business in the best light for a buyer.
  4. An investment banker with substantial transaction experience in your industry can be invaluable in negotiating the deal and moving the process to closure.
  5. A tax accountant experienced in major transactions who can evaluate and guide you to minimize the tax impact of the deal by preparing years in advance.
  6. A specialist wealth advisor to help establish your wealth preservation plan beyond the business, long before that plan will be funded by a successful sale to your buyer.

You need the entire team, not full-time, but all on board early and engaged to advise you through the preparation stage and right through the transaction to your ideal buyer.

Select the best advisors you can find, not the cheapest. The best, who deliver the most value, will pay for themselves many times over in the returns you receive.

Think like a buyer. When you and your team analyze your business through the eye of your ideal buyer, over time, you will add value and increase the leverage you can command in the deal. That’s how you attract the best buyers, “show best” and “win first”.

 

What’s So Special About Hitting The Million Dollar Mark?

If you’re wondering when is the right time to sell your business, you may want to wait until your company is generating $1 million in earnings before interest, taxes, depreciation, and amortization (EBITDA).

What’s so special about the million dollar mark?

Hitting the million dollar mark is a tipping point at which the number of buyers interested in acquiring your business goes up dramatically. The more interested buyers you have, the better multiple of earnings you will command.

Since businesses are often valued on a multiple of earnings, getting to a million in profits means you’re not only getting a higher multiple but also applying your multiple to a higher number.

For example, according to research at www.SellabilityScore.com, a company with $200,000 in EBITDA might be lucky to fetch three times EBITDA, or $600,000. A company with a million dollars in EBITDA would likely command at least five times that figure, or $5 million. So the company with $1 million in EBITDA is five times bigger than the $200,000 company, but almost 10 times more valuable.

There are a number of reasons that offer multiples go up with company size, including:

  1. Frictional Costs

It costs about the same in legal and banking fees to buy a company for $600,000 as it does to buy a company for $5 million. In large deals, these “frictional costs” become a rounding error. In contrast, they amount to a punitive tax on smaller deals.

  1. The 5-20 Rule

I first learned about the 5-20 rule from Todd Taskey, M&A Advisor at Potomac Business Capital in the Washington, D.C. area. He discovered that, in many of the deals he does, the acquiring company is between 5 and 20 times the size of the target company. I’ve since noticed the 5-20 rule in many situations and I believe that your natural acquirer will more than likely indeed be between 5 and 20 times the size of your business.

If an acquiring business is less than 5 times your size, it is a ‘bet-the-company’ decision for that acquirer: If the acquisition fails, it will likely kill the acquiring company.

Likewise, if the acquirer is more than 20 times the size of your business, the acquirer will not enjoy a meaningful lift to its revenue by buying you. Most big, mature companies aspire for minimum top-line revenue growth of 10 to 20 percent. If they can get 5 percent in organic growth, they will try to achieve another 5 percent through acquisition, which means they need to look for a company with enough clout to move the needle.

  1. Private Equity

Private Equity Groups (PEGs) make up a large chunk of the acquirers in the mid market. The value of your company will move up considerably if you’re able to get a few PEGs interested in buying your business. But most PEGs are looking for companies with at least $1 million in EBITDA. The million-dollar cut-off is somewhat arbitrary, but very common. As with homebuyers who narrow their house search to houses that fit within a price range, or colleges that look for a minimum SAT score, if you don’t fit the minimum criteria, you may not be considered.

So When Is The Right Time To Sell Your Business?

If you’re close to a million dollars in EBITDA and getting antsy to sell, you may want to hold off until your profits eclipse the million-dollar threshold, because the universe of buyers—and the multiple those buyers are willing to offer—jumps nicely once you reach seven figures.

 

Do You Want To Make The Most Money Possible When You Sell Your Business?

“Do You Want To Make The Most Money Possible
When You Sell Your Business?”

Do You?

If you’re like most business owners, your answer to the question above is a resounding “YES!”  If so, then pay close attention to this message so you don’t make

The 5 Deadly Mistakes That MOST Business Owners Make When Planning Their Exit Strategy!

These easily avoidable oversights can (and WILL) wipe out as much as half of your potential net worth! But, early adjustments will help you maximize your profit when you exit your business.

That’s why I developed my 4 Step Exit Strategy Framework System™ which I’ve now turned into this home-study program Selling Your Business for Maximum Profits.

Tomorrow, Tuesday, May 27, is the product launch for Selling Your Business for Maximum Profits. Watch for an early morning email with the website link AND your promocode to take $1,000 off the regular price.

These easily avoidable oversights can (and WILL) wipe out as much as half of your potential net worth! But, early adjustments will help you maximize your profit when you exit your business.

It’s never too early or too late to plan your exit

PS This discount promocode will expire on May 31. You must act now to secure your copy of Selling Your Business for Maximum Profits at this special price.

 

It’s Up To You How You Sell Your Business, Or Divest From It

Did anyone ever tell you you were going to have sell your business, or plan for the end of your business to be able to cash out? In an article entitled, How Will You Leave Your Small Business The Last Time?, in Forbes  this week, author Jim Blasingame started with the statement:

“Every small business founder gets to decide when they will start their small business. But when and how they leave the business is much less in their control.”

Biggest Payday

There is plenty of support and advice available to help you start and grow your business, from advisors, coaches, consultants, training, courses, books, and videos. But until now, there’s been a dearth of readily available free information that you can access anonymously, about how to sell your business. As more owners figure out that the biggest payday of your life only comes when you sell your business, the subject is starting to percolate up into strategic decisions owners are making along the way.

As Blasingame points out in this article, how you leave your business is not as straightforward or simple as launching it was. His new survey results show no improvement in small business owners’ preparedness to plan or execute their intended exit strategy. Too many owners are resigned to the default option of exiting feet first. His last question is one you can’t afford to ignore or not answer:

“One day in the future will be the last in your business. Are you making plans for that day?”

Default Option

As an exit strategist, I see too many owners selfishly resign themselves to the default option without considering the impact on employees, customers, vendors, family or their spouse. Expecting your family, grieving spouse, and your advisors (whom your spouse does not likely know well) to clean up the business, sell it or divest of it in some way in order to generate the wealth and security you wanted to leave them, is abdicating your ownership responsibility. It’s up to you to decide how to sell your business, scale it or pass it on to successors.

Please contact us for a FREE 30-minute confidential consultation to discuss your objectives, timeline and how to plan for your last day in your business.

How Do Strategic CEOs (and Owners) Work Themselves Out of a Job?

When you want to sell your business, you want to command the highest possible value. For your business to merit the highest valuation, you must prove to the business appraiser and your prospective buyer that the value is in your business, not in you the owner. That means transforming you as an Operational President to become a Strategic CEO.

business man on the phone from P2P circle

To start and launch a successful business, it is common for the owner/founder to ‘do whatever it takes’ to make it happen. That drive and commitment to move the business forward is essential to achieve your goals and objectives.

The control to achieve your goals and projections is often concentrated in you the owner, acting as the operational president. However, this must change for you to successfully transition out of the business and be compensated for the true worth of the business. Letting go of day-to-day operations is a tall order for many owners. To become a more strategic CEO and demonstrate that the business value is in the business itself, here are some suggestions to work yourself out of any day-to-day operational role:

  1. Create systems for everything. If you have systems, be sure they are documented. Document everything you do for the business (for every hat you wear). Anything that can be systematized and is repeatable can now be assigned to someone else. Once documented it can be assigned to someone else and come off your plate.
  2. Delegate everything. When your business can operate day-in and day-out without your hands-on oversight, you have a money-making machine that will attract buyers. This one change takes time, not days or weeks, but years. Identify the three things you absolutely love to do in your business and the three things only you can do. Delegate the rest. Be vigilant.
  3. Develop a succession plan throughout the company. Succession is not just for family businesses. Target and create a succession plan for your top people in every department and at every level. Groom them for the next step up and two steps up at all times. By building depth within the business, you add value for the buyer and secure their long term employment even under new ownership.
  4. Plan for scalability. Any business that is scalable has more value. Demonstrate that you are scaling successfully, even before the sale; now your business model can command even greater value.

When you apply these four suggestions diligently, you will work yourself out of the job of Operational President. You will free up your time to be a Strategic CEO and to focus on the things you love and what only you can do to grow your business to make it both buyer ready and buyer attractive.

Our new program, Build Your Business Value, helps you enhance the value of your business with 48 value drivers in 12 areas while improving your strategic position in the market.

Sellability Score Webinar Tomorrow

FREE WEBINAR Tomorrow!
Wednesday, December 12, 2012 11:00 AM – 12:00 PM EST.


Join me tomorrow, Wednesday, Dec 12, 2012 11:00 AM – 12:00 PM EST for a live presentation from author John Warrillow. This is a private presentation to my guests.

John is the bestselling author of Built to Sell: Creating a Business That Can Thrive Without You, will lead a one-hour presentation on building a sellable business. Built to Sell was ranked by both Inc and Fortune Magazine as one of the best business books of 2011.

During this unique session, John will discuss the principles of increasing the value of your company – John will also take your questions directly.

Register now. Register here.
https://www3.gotomeeting.com/register/260767798 

Take advantage of the insights and expertise of this entrepreneur, author. Join us tomorrow morning!

Sellability Score Webinar

FREE WEBINAR
Wednesday, December 12, 2012 11:00 AM – 12:00 PM EST.

Join me on Wednesday, Dec 12, 2012 11:00 AM – 12:00 PM EST for a live presentation from John Warrillow. This is a private presentation to my guests.

John is the bestselling author of Built to Sell: Creating a Business That Can Thrive Without You, will lead a one-hour presentation on building a sellable business. Built to Sell was ranked by both Inc and Fortune Magazine as one of the best business books of 2011. During this unique session, John will discuss the principles of increasing the value of your company – John will also take your questions directly.

Register now. Register here.

https://www3.gotomeeting.com/register/260767798

Take advantage of the insights and expertise of this entrepreneur, author. Join us on the 12th.

Are You Ready to Sell Your Business?

sold

Quick, simple and cheap will shortchange you when selling a business.

Are You Ready To Sell Your Business?

Equally Important:

Is Your Business Ready To Be Sold?

Are you ready to sell your business? Is your business ready to be sold?
These are not the same question although the answers must be consistent.

Have you thought about the former but assumed the latter to be true?

Are you prepared to let go of your business, to get out now? Physically? Logistically? Financially? Emotionally? That’s a series of discussions right there that you must address before you can sell your company. Those are questions you will address as your team, your broker and your family ask them.

But What About The Business Itself?

What have you done to make the business buyer ready or buyer attractive?

What have you done to prepare the business not just you for this transition? You’re transitioning to your next adventure, venture or avocation. Your business will transition to new ownership in a financial or strategic sale. These transitions can be easy or very tough.

Exit transitions for you the owner can be easy when you have a detailed plan for your next adventure, avocation or indeed a new business – something to look forward to, something to plan for on your terms. Your exit transition can be tough when you ignore what comes next, leave your reinvention as a black hole that will magically fill itself in or don’t communicate with the most important people in your life about how this transition will impact them.

For the business itself, these same issues arise. Allowing the business and your team to transition smoothly and successfully to new ownership is your responsibility. Indeed, that successful smooth transfer is a key to the value a buyer will pay for. To make the business transition easy, you must prepare the business to be an attractive asset for the buyer. In the next post, we’ll list eight questions to consider to ensure an easy and profitable sale when you exit the business.

Selling For A Maximum Value

You want to sell your business for maximum value. Here are three solid guidelines to make that goal a reality.

Focus valuation discussions on the future potential of a business – not past performance

  • When you negotiate valuation with a potential buyer, it is essential to focus the discussions on the future cash flow potential of the business. A buyer will be more confident and engaged in investigating the purchase of your business when they can perform a business analysis and thoroughly understand the company’s financial performance.
  • To be effective in valuation negotiations, sellers will want to conduct rigorous industry research and analysis; develop defensible financial projections; and position both pro-forma financial and strategic benefits (including revenue and cost synergies) of the sale/acquisition/transition to a new owner.

Don’t leave money on the table by neglecting the intangible value of a business

  • At a minimum, expect a buyer to pay at least the basic value of your business.
  • Too often, sellers don’t recognize that they have the opportunity to monetized the intangible value of the business. When they try to go it alone, inexperienced sellers do not properly substantiate, support and quantify the intangible value of their business to maximize the sale price.
  • Applying proper valuation methodologies and techniques for your industry can help you maximize the value of your business that you can command. It is also important to use historical financial statements to sell the advantages of this purchase opportunity for the buyer.

Negotiate a winning deal structure

  • The structure of the transaction is just as important as negotiating the valuation.
  • To secure and preserve the maximum value of your company, it is critical to build a strong exit team that can effectively structure a winning deal and negotiate the terms and conditions of the transaction itself.

These three guidelines will translate to maximizing the value a buyer will pay for your business.

Top Dollar Strategies to Sell Your Business

Why would you ever want to sell your business? The best reason is that you’ve accomplished everything you set out to do. So when you sell, you want to be sure you’ve done everything to assure you command top dollar.

To sell your business for top dollar, be diligent applying these three strategies:

  1. Prevent Seller Neglect – Just because you’ve decided to sell, doesn’t mean you can neglect the business. You must do everything you can to increase sales, momentum, and customer loyalty right through the exit process until the transaction is done.

You must keep you eye on current and forecasted sales. Your buyer will pay more for the business with proven increasing sales and forecasted accelerated growth than for declining or stagnant sales with nothing new in the pipeline.

  1. Remove yourself from day-to-day operations of the business. You need the buyer to see that the value of the business he’s buying is in the business, not in you. To maximize the value of the business, you must demonstrate the business can be self-sustaining without your daily presence. They need to see customers, your team, your vendors engage and commit to do business with your company because of the business, not you.

To do that, train your management team to take on all your responsibilities (not cold turkey but over time). Build the infrastructure to support them to do everything you’ve always done. The more systems, structure, processes and procedures you have, the more valuable the business. You can monetize every operational task and responsibility that you delegate and transfer to your team.

  1. Reduce the personal perks and benefits you take from the business. There are many ways that small business owners can have the business pay for conveniences and luxuries. However, when it comes time to sell your business, buyers will be willing to pay well for your profits. So if you are taking money out of the business for personal expenses (legally), you are reducing profits. That’s not appealing to them.

When it’s time to sell, separate your personal and business expenses. Stop using the business to bankroll family dinners, vacations, cars, country club memberships.

Maximizing value is the key to selling your business for top dollar.

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