Posts Categorized: Seller Articles

How to Get Ready to Sell Your Business

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You may have heard the advice, “the best time to prepare to sell is when you start your business.” While this statement is far from realistic for most business owners and may even sound humorous, it does contain a certain amount of wisdom. When it comes to getting the best outcomes selling your business, preparation cannot be undervalued. 

No matter where you are in the journey of running your business, we encourage you to prepare as much as you can. With that in mind, let’s take a look at some considerations and decisions that you’ll need to make when you do get ready to sell. It’s never too early to begin pondering the answers to these questions. 

If you are involved in the day-to-day running of your business, logic would dictate that you’re quite busy and don’t have time to dedicate a lot of time towards the process of selling your business. The good news is that is one area where a Business Broker or M&A Advisor will make all of the difference. 

Brokerage professionals will perform a variety of tasks from start to finish, including negotiating and interacting with prospective buyers on your behalf.  These professionals will be able to work on many things independently and, if it is your preference, they can notify you only about the most relevant details of the transaction. On the other hand, you may want to be very involved in the process of selling. If that is the case, let your brokerage professional know. 

Regardless of how involved you are with the business and the sales process, you will want to ensure that things stay as consistent as possible when you are in the sales phase. The reason for this is that buyers will want to see consistency. Any change in operations or revenue earned could turn out to be a red flag for a buyer. 

Another item that is worth thinking about ahead of time is confidentiality. Professional Business Brokers and M&A Advisors will put utmost importance on confidentiality. When confidentiality isn’t taken seriously, leaks are very common. These could quickly interfere with the sale, whether it is due to a client/staff looking elsewhere or competitors taking advantage of the situation. Your brokerage professional will advise you of the policies and precautions that work best when it comes to preventing leaks and only revealing details about your business to prospective buyers who have been carefully vetted.

If you have partners in your business, it makes sense to bring up the discussion of a future sale well in advance. This will allow you to get on the same page about your plans for how things will be handled when the time comes. In the case that the date of the sale ends up being before you expect it to be, it will be very helpful to have already addressed these issues. 

Copyright: Business Brokerage Press, Inc.

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The Importance of Employee Happiness

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Everyone knows that good employees are important for a thriving business. That’s why there has been so much emphasis on keeping employees happy. When your employees are feeling not only satisfied, but also valued, they will be more likely to keep your clients satisfied too. Your business will be more likely to thrive and grow. Of course, this works in the opposite direction as well. When your staff is frustrated and angry, their actions can drive away your customers and clients. If you are looking to sell your business for maximum revenues, it is a good idea to also maximize employee satisfaction levels.

Research from Oxford University found a link between happiness and productivity. According to their study, workers are 13% more productive when they are happy. It goes without saying that employees will be more likely to feel satisfied when they feel that their salary and benefits are fair for the work they do. If they are resentful about the compensation they are receiving for their work, this will ultimately impact their performance. 

When you think about some of the most successful companies, you realize that many of them invest substantially in supporting their employees to cultivate higher levels of employee satisfaction. For example, Google is well-known for offering a wide range of perks ranging from parental leave and paid time off to free lunches and fitness facilities. 

When it is feasible for employees to work remotely, many employers are finding that it makes sense to offer them this possibility. Not only will it help staff members to manage childcare, but also it can end lengthy and stressful commutes to work that could result in stress and anxiety. 

Research in the journal Frontiers in Psychology showed helpful interventions that are proven to increase employee happiness levels. These included training in resiliency, mindfulness, and cognitive-behavioral techniques. 

When you exhibit good leadership and act as a positive role model, your employees will likely follow suit. Employees should be acknowledged and rewarded for a job well done. In some cases, this may be a financial bonus, but in other cases it could simply be patting that employee on the back. Cultivating a positive company culture will prove to boost overall morale. This will increase success for your entire company. 

Copyright: Business Brokerage Press, Inc.

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Leases: Key Considerations That Can Make or Break a Business

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Are you selling a business that involves a lease? If so, this will be a factor that has significance to a buyer when you go to complete your deal. If your business relies heavily on its location and you don’t own property, then you’ll find the lease will be quite an important consideration for your buyer. By the same token, if you’re buying a business that involves a lease, you’ll want to carefully examine this document and consider how it might impact you and your business. Let’s take a look at some important clauses and terms you’ll want to be looking for. 

Lease Transfers 

What are the terms for transfer of the lease? This is something you’ll want to know before signing on the dotted line if you think you’ll be selling at some point in the near future. 

Lease Lengths 

How long is your lease? If your buyer can confirm that there are many more years on your lease, he or she will find that to be an advantage. 

In the case of a business owner with a new endeavor, a shorter lease may actually be an advantage. That way the owner can get out of the lease if the business is not successful. 

Competitors 

If you’re planning on a lease in a shopping center, it’s essential to get in writing that the center will not accept other tenants that do what your business does. Otherwise, you’ll be constantly faced with competing with a similar business. 

Unexpected Costs

It’s also important to look for clauses that address what happens in the case of an adverse event. For example, if the property was destroyed by a fire, who will pay in the interim? 

There are other practical considerations to consider in leases that many business owners tend to overlook. For example, how are real estate taxes covered? Will you be charged a fee to cover maintenance of the property and, if so, what is it? Is someone in particular responsible for necessary repairs and who will pay for those? 

It goes without saying that you’ll also want to check out clauses impacting rent changes. Otherwise, you may face unexpected rent increases that negatively impact your business. 

Personal Guarantees 

If you are a new business owner, a landlord may ask you to personally guarantee the rent. This would be quite a different lease from one that accepts a well-established corporation as a tenant. 

As you can see, there is much more involved in a lease than just the amount of the rent. Be sure to read your lease carefully and ask questions. A Business Broker or M&A Advisor can assist you with lease terms when you are buying a business. 

Copyright: Business Brokerage Press, Inc.

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What Should You Expect from Term Sheets?

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If you’re selling your business, at some point you’ll likely be presented with a term sheet. As the name suggests, this document will include the “terms” of the deal including the basic economic terms and conditions of a prospective acquisition. It is a list of conditions to be met if the sale successfully takes place, yet it is not legally binding.  

What is the Difference Between a Term Sheet and the LOI?

Both a term sheet and letter of intent (LOI) will include stipulations and lists for a buyer and seller to agree upon. The major difference is that the term sheet doesn’t require a signature, while the letter of intent does. In many cases, buyers are hesitant to sign before the due diligence stage. In this situation, you may find that the term sheet will precede the LOI. 

How Lengthy are Term Sheets?

There is no standard model or form to a term sheet. Therefore, it may be as short as one page, or it could even be five or more pages. But no matter how many pages it may be, it should explain what is being purchased and a stated price. In some cases, the information in a basic term sheet will lead to a formal letter of intent. 

What Components Should be Included? 

In addition to the price and terms, a term sheet can include other considerations relating to the purchase of the business. For example, it can include employment agreements or non-compete clauses. They can also include conditions to be met upon closing. Often the term sheet will detail plans for the buyer to conduct due diligence and gain additional information. You can expect to find everything from warranties and lists of what is included in the sale to exclusivity clauses within term sheets. 

One aspect of the term sheet that should not be overlooked is the method of payment. Typically, the payment sections are far more complex than just “cash at close.” Instead, they will describe a combination of elements including cash at closing, but also other forms of payments. In some situations, they will include details regarding a loan from the seller.  

The term sheet is quite beneficial as it can expedite the sales process and prevent serious misunderstandings. As a result, this non-legally binding document can initiate a smooth beginning to a successful deal. 

Copyright: Business Brokerage Press, Inc.

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Is Your Deal Really Done?

Posted by & filed under Buyer Articles, Seller Articles.

Once you get to the stage of your deal where you have a signed letter of intent, you may already be feeling a sense of relief that your deal is near finalization. But remember that the due diligence stage is typically yet to come. This stage includes everything from financial and legal investigations to a review of specific information regarding how a business is run. 

The due diligence process can be quite comprehensive and it often reveals some surprises. Because it is important for sellers to know what to prepare and for buyers to know what to look for, let’s examine some of the categories that are reviewed during this process.

Trademarks and Copyrights

Will assets like trademarks, patents and copyrights be transferred?  This is a point that has certainly interfered with some deals being successful. Due to the fact that trademarks, patents, and copyrights are often essential parts of a business, they cannot be overlooked. 

Products and Industry 

Due diligence will likely include analysis of product lines and the respective percentage of sales that they make up. If the business in question is a manufacturing business, then all aspects of the process will be examined. For example, buyers will be looking for age and value of the equipment, information about suppliers, etc. 

Financial Statements

It goes without saying that financial statements should be poured over during due diligence. Current statements and incoming sales should be carefully reviewed.  Review of financial information will also include balance sheets. Is there bad debt? Is there work in progress? These kinds of issues will be evaluated. 

Customer Lists

If you are selling a business, you should be prepared to share lists of major customers. Buyers may also want to compare your market share to that of your competitors. 

Key Employees

Buyers should be looking for information on key personnel, as well as data on any potential employee turnover. If you are selling a business, it’s important to try to fix any staffing problems that might interfere with a buyer’s ability to properly run the business. 

A key goal of the due diligence process is to find potential problems, such as liabilities and contractual issues. But on the upside, due diligence also includes investigation into assets and benefits. The end result should be that the selling price of the business is justified and both parties walk away satisfied. As stated above, it is very common for problems and issues to pop up during due diligence, so it’s important to stay proactive and be open to negotiation until the deal is finalized.

Copyright: Business Brokerage Press, Inc.

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Questions to Ask When Negotiating a Deal

Posted by & filed under Buyer Articles, Seller Articles.

Almost every sale of a business involves a high degree of negotiation between buyers and sellers. In this article, we share some of the questions you can ask yourself to prepare for this part of the process. After all, optimal outcomes are typically only achieved through proper negotiation strategies. Keep in mind that one of the key strengths possessed by Business Brokers and M&A Advisors is expertise and skills in negotiating deals. 

Can Both Parties Split the Difference?

If the buyer and seller can’t agree on a number, one negotiating tactic is to have them split the difference. This is a tactic that is simple to understand, and it shows both parties that the other is willing to be flexible. This reveals a good degree of goodwill and can serve to not only keep both parties talking, but also lower any pre-existing tensions. When both parties are still at the table, there is still hope that a deal can be reached. This tactic serves to continue the discussions and can often be highly beneficial.

Can the Buyer and Seller Better Understand One Another?

When it comes to good negotiations, one of the goals is for both parties to seek to understand one another. Sometimes a buyer or seller’s needs don’t even involve the numbers on paper. Instead, they may be seeking to adjust terms to make them more conducive to their overall goals. If you can keep an open mind and seek to better understand what the other party is ultimately looking for, it can go a long way in making the deal happen.

Can You Bring in a Professional?

There is an old saying that says “Never negotiate your own deal.” One of the benefits of bringing in a brokerage professional is that this third party won’t have the same level of emotional investment. This means that he or she can keep a neutral perspective and be more apt to see things from both sides. Sometimes a new perspective can work wonders. Further, a brokerage professional will understand the myriad of complex factors that must be successfully resolved before the deal is finalized. A Business Broker or M&A Advisor will have tips and techniques that can only be gained from years of first hand exposure to making deals happen. 

Copyright: Business Brokerage Press, Inc.

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How Can You Tell If a Potential Buyer is Really Serious?

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When you’re trying to sell your business, the last thing you want is to waste time dealing with buyers who aren’t qualified and are unlikely to actually make a purchase. After all, you will not want to reveal details about your business to someone who may be looking to take advantage of the situation. Let’s take a closer look at how you can weed out legitimate buyers from those who are just kicking the can down the road.

Legitimate buyers will ask the right questions. They will have a keen interest in your industry and are seeking to gain more information. They will also be likely to ask intelligent probing questions about your customer base and the strengths and weaknesses of your business.

The best buyers will also ask logistical questions about your inventory and cash flow. It goes without saying they will want to know details about profits that are generated. Real buyers will also be concerned about wages and salaries. Their goal will be to ensure that your employees are taken care of and will be unlikely to quit. 

Another area that you can expect serious buyers to ask about is capital expenditures. They will evaluate any equipment and machines involved in the business. They will also likely inquire about inventory that is unusable due to the fact that it is outdated or problematic. After all, if they are truly planning to buy the business, they would inherit any headaches. 

A good rule of thumb is to imagine yourself in the shoes of the prospective buyer. What kinds of questions would you ask? If you find that a buyer is only asking the bare minimum of questions that only scratch the surface, odds are that they are not really interested. You can expect the legitimate buyer to ask about everything from environmental concerns to details about your competitors. 

The best way to evaluate buyers is to turn to the experts. Your Business Broker or M&A Advisor will have years of experience in talking to buyers and will have a leg up on evaluating who is worth your time and energy. 

Further, you would likely be overwhelmed with the process of handling buyer inquiries while you are still trying to effectively run and manage your business. A good brokerage professional will handle your incoming inquiries and only notify you of buyers who are suitable, qualified candidates. They will ensure that the highest standards of confidentiality are held along the way. 

Copyright: Business Brokerage Press, Inc.

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Are Your Prepared to Sell Your Business?

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Every year, across the nation, thousands of small to mid-size businesses attempt an ownership transition, and only 17 – 20% SUCCEED! Obviously, we think this is a dreadful statistic that needs improvement!  Our success ratio is much greater!

The #1 reason why business owners are not able to complete a sale of their business is due to unrealistic price expectations! Have you ever had a professional business valuation prepared for your business?  If not, now may be the time!

Many business owners are not aware of the key elements that will have the most impact on the value of their business. Here are just a few of the key elements:

  • Net profit + Owner compensation (or EBTIDA, depending on size of business)
  • Clean financial statements and records to validate the net profit and owner compensation.
  • Upward trends for revenue and profit
  • Maturity of the business – most buyers like a business that is at least 5 years old.
  • Owner involvement and staff depth – the less the business depends on the owner, usually the higher the value!
  • Depending on the type of business, too much customer concentration in one customer, or one industry, can be challenging and scary for a buyer.
  • Property/lease status
  • Business automation – embrace the 21st century!
  • Keep your equipment up to date
  • Obsolete inventory does not have value!

These are just a few things to think about!

The average time it takes to sell a business, across all industries and regardless of the size of the business, is 7 months! So, some businesses sell rather quickly, but many others take much longer to sell!  We recommend expecting a minimum of one year to sell your business!  It doesn’t happen over night.

Assemble a team – an attorney doesn’t know how to value a business, a business broker isn’t a competent legal advisor, and neither a business broker nor an attorney can properly advise on complex tax issues, unless they also happen to be a CPA! Therefore, a good team will consist of a transaction attorney and a CPA to protect you legally and financially, and a business broker to properly advise on business value and find the buyer!

Maximize Your Business Value

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Perhaps after reading the above article you recognize that you are not fully prepared to sell your business at this time, or maybe your time line for exiting is more like 3 to 5 years away, you may want to consider alternative resources to get on the right track to maximize your business value!

Our friends at Mastery Partners have developed The Maximize Business Value MasterYclass, a 12-month program designed for a select group of business owners to start working on their ultimate exit strategy.

What is MASTERYCLASS?

By joining the MasterYclass – here’s what you can expect:

  • Each month, the group will work through Mastery Partners’ Transition Readiness Assessment – a proprietary tool that will help you understand how ready your business would be if a transition were to happen tomorrow.
  • You’ll learn from experts who will teach you how to be more productive, improve your personal and business financial results, and learn about tools (like the Entrepreneurial Operating System, Story Branding, and Culture Index) that can help you take your business to the next level.
  • You’ll be working alongside other like-minded business owners in a peer group setting.
  • At the end of the program, you’ll receive an Opinion of Enterprise Value – helping you understand what your business is really worth today, and what levers can really move that needle.
  • And, you’ll get a monthly one-on-one with Mastery Partners principal Tom Bronson – who has successfully bought and sold 100 businesses – where you will laser focus on your business and how you can apply what you’re learning to get results right away.

Here is the link to the website explaining more about this amazing opportunity. (By the way, if you decide register for this class, Tom has provided a special discount code for my referrals! Use ‘2022’ at checkout for a 22% discount!) 

Look, I know you can figure this out on your own. You are smart. Look at what you have built so far. But you don’t have to. Put that energy into innovating your company or spending time with your family. This program and its accountability process will put you on the straight and narrow path to transitioning on your terms.

It doesn’t matter if your transition is going to be in 2 years or 15 years, business owners should always be thinking about and planning for their ultimate desired exit strategy. Having a great exit strategy eliminates stress and provides clarity for your future.

I’d like to invite you to join me on a free informational webinar on January 11th at 11a CST to learn more about the MasterYclass, and see if it’s a fit for you and your business. I hope you’ll consider making the investment in yourself and your business by joining the inaugural Maximize Business Value MasterYclass. You can register for the free webinar HERE – I promise you’ll be glad you did!

The Downside of Being a “One-Stop Shop”

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Before Jeff Bezos & Co. blew up traditional distribution channels, there was some value in being the local guy or gal. Being the local product retailer was a good business and being a regional distributor of a popular line could make you a mint.

Those days are almost over.

In a world where anything is available at the click of a mouse, the fact that you’re local means very little. To build a valuable company, you need to go beyond your physical location as a point of differentiation and cultivate a new value proposition. We refer to this process as improving your “Monopoly Control.” The name is inspired by Warren Buffett, who likes to invest in companies with a wide “competitive moat” — essentially a defendable point of differentiation.

While being a local provider may have gotten you into business, it’s not going to be enough to get you out for a decent multiple. To build a valuable company someone may want to buy one day, you need a fresh sales angle.

Take a look at the journey of Mehul Sheth, who went from a middleman to the owner of an eight-figure business. Sheth started VMS Aircraft in 1995 as a distributor of airline parts. He offered a “one-stop shop” for airlines and their maintenance crews to find parts and accessories.

VMS was the local distributor and survived on gross margins of 22–23%. It was a subsistence living, and Sheth was determined to build a more valuable company. He decided to evolve his value proposition from just being the local warehouse for distributing other people’s stuff to a sophisticated provider of advanced materials. Sheth chose to focus on the materials that airlines need to be stored and handled meticulously. If the safety of your metal tube flying 300 people 40,000 feet in the air is determined by the quality of a seam of metal, you want that steel to be handled carefully. You also want the sealant that joins the sheet of metal kept at a temperature that maximizes its adhesiveness. You may also want your rivets stored with the same care a surgeon uses to put away her scalpel after performing life-saving surgery.

Sheth invested in a clean room that minimized dust at his facility. He bought dry ice containers so certain materials could be stored in a cold environment, maximizing their effectiveness. He also repackaged materials into smaller containers so that an airline that only needed a small amount of a particular material didn’t need to buy an entire tub.

Sheth’s evolution from simple reseller to value-added provider fueled his gross margins to 60–70%. Along the way, Sheth attracted a French company that wanted to enter the U.S. market. Rather than set up shop to compete with Sheth, they realized VMS had created a unique offering with a layer of value-added services that would be difficult to imitate. They decided to acquire VMS for 7.4 times EBITDA.

If you find yourself clinging to the “one-stop shop” sales message, consider evolving to something that truly differentiates you in a world where Amazon (and its various e-tailing competitors) will ship you just about anything, anywhere, overnight.

 

How can you improve the value of your business?

Complete the “Value Builder” questionnaire today in just 13 minutes and we’ll send you a 27-page custom report assessing how well your business is positioned for selling. Take the test now:

Sellability Score