Posts Categorized: Sellers

Creating Value Through People


Which of the following does your firm report on, monitor, and react to most frequently? Which consumes the most management time?

  • Client satisfaction
  • The strength of key client
  • Employee motivation and
  • Levels of collaboration among
  • Financial

If you are like the overwhelming majority of businesses you will focus primarily on financial results. Consequently, you are making less money than you could!

Why? Because managing a business by looking at financial results is like trying to win a game by keeping your eye firmly fixed on the scoreboard. Financial results are just that: results. They are the outcome of excellence (or the lack of  it) in the key process that produces the value that your customers and clients pay for. What you must manage are the things that produce value: energize employees who deliver outstanding quality and service to the marketplace. Does this mean that you don’t monitor financials in great detail? Of course not. Financial discipline is the bedrock of business success, but it’s not all of it, and maybe not even the greater part of it. The real key is the ability to get your people sufficiently focused so that they eagerly and willingly strive for high standards.


The strategic plans of many direct competitors, remarkably, are almost always identical. Everyone figures out correctly which client sectors are growing, which services are in rising demand, and which dimensions of competition, such as client service or innovation, clients are looking for. The strategy documents are the same because everyone is smart! Everyone knows what needs to be done.

If this is so, then what is competition really about? It is about who can best complete the work that needs to get done.  And this in turn is determined by the following set of closely related concepts:

Where these exist the discipline can be found to engage in diligent execution and thereby outperform the competition. The role of the manager is to be a net creator of enthusiasm, excitement, passion, and ambition. Alas, all too often managers are destroyers of excitement. If all they ever talk about is finances (How are your billings? What is happening to receivables?), it can deaden the spirit. That does not mean they do not need to talk about these things – they do. But they shouldn’t talk only about these things. It is the manager’s job to inspire, cajole, support, critique, praise, encourage, confront, and comfort, as individual people (and groups of people) struggle to live their work lives according to high standards.

All strategies, at some time or the other, involve a tradeoff between short-term cash and executing the strategy.  If you are going to get the benefits of a strategy, you need to be willing to make hard choices and act as if you truly believe it. You must be willing to practice what you preach, both when it is convenient and, most importantly, when it is not.

Many people do not believe that their leaders truly want them to act strategically. Whenever a choice needs to be made between strategy and short-term cash – and it always does – most people feel under significant, if not irresistible, pressure from management to go for the cash. Usually the message from the firm’s leadership is clear: strategy can wait for tomorrow (if we can get paid for competence, why strive for excellence?). Rather then leaders being a source of encouragement to execute the strategy, they are all too often the biggest obstacles to the implementation of strategy.

If you want to be known as excellent at something, you have to be reliable, consistently excellent at it. Business life is filled with daily temptations, short-term expediencies, and wonderful excuses for why we can not afford to stick to high standards today. We take in work that is off-strategy (after all, it is cash!), we defer training until some more convenient time (often never), we postpone investments until the ever-escalating profit goals are met, and the marketing principle is: we never met a dollar of revenue we didn’t like!

There is nothing inherently wrong about making these choices, but you should not fool yourself. If you are willing to sacrifice value to earn short-term cash, you will not create a market reputation for superior quality. It takes courage to believe that a reputation for excellence is worth more in the long run than incremental cash. In their vision, mission, and strategy documents, firms say that they are aiming for excellence, but that’s not how they operate.

Managers must have the courage of the convictions they espouse, maintain a long-term focus, and intervene personally whenever there are departures from the values and vision that create excellence. The problem with the implementation of strategies is the absence of certain and recognizable consequences for non compliance. If the manager does not have the courage to tackle individuals who are not behaving in accordance with the strategy, others will quickly realize that the new strategy is not something they have to do. They will quickly cease striving to comply, and the benefits of the strategy will never be attained.

Great managers give their people individually and collectively the confidence that greater success, fulfillment, accomplishment, and profits are indeed attainable.  They give their people the courage to try. Change is threatening, however, and many, if not most, people operate well within their comfort zone, reluctant to abandon the old habits that brought them to their current success. If managers are often demanding, they must also be supportive.  They must manage with a positive, supportive style.

Just as management involves a delicate balance between being supportive and being demanding it also requires a style of insistent patience; it is the difference between saying Rome wasn’t built in a day and insisting that we are building Rome.  People must believe that the manager has the courage to believe in something and, more importantly, will stick with it.  There is no great condemnation of managers than to say that they’re expedient, and no greater commendation than to say that a manager truly lives and acts in accordance with what he or she preaches.


An effective manager must be:

  • Articulate and vocal about his or her personal
  • Disciplined about
  • Even-handed and even-tempered.
  • Genuine and
  • Able to read people’s characters and skill levels
  • Honorable, with high

What do the most successful managers believe?

  • First you build your people, and the rest will
  • Fun and discipline combined get the job
  • It’s important how people treat each other: monitor it and manage
  • People have to trust management and trust each
  • Success is about character, respect, integrity, trust, honesty, empowerment, confidence, loyalty, and keeping
  • You must bet on the long term and not get stampeded by short-term
  • You need to balance your focus on people, clients, and
  • You should live up to your values every
  • Your agenda as a manager is to create a great place to work, not to work at making your own star

Finally, here are the rules on which the most successful managers model their behavior:

  • Act as if not trying is the only
  • Act as if you want everyone to
  • Actively help people with their personal
  • Always do what you say you are going to
  • Do what’s right over the long term for clients and for your
  • Don’t regard yourself as separate and distinct from your
  • Facilitate, do not
  • Let people know you as a human being, not just as their
  • Show enthusiasm and drive; they are infectious and
  • Speak regularly about your vision and philosophy so that people know where you
  • Take work seriously, but do not take yourself
  • Understand what drives
  • Know all your people as


A person does not build a business. A person builds an organization that builds a business. Many managers are appointed because of their financial skills, their business development skills, or their technical excellence. However there comes a point where the central question is; Can you manage? Are you a net creator of energy, drive, and ambition in others? Can you cause others to strive to achieve high standards?

You-proofing Your Business

Making your business less dependent on you has a number of benefits: you can scale your company more quickly if you’re not acting as a bottleneck; you get more time to enjoy life outside of your business; and a business less dependent on its owner is much more valuable to an acquirer.

Pulling yourself out of the day-to-day operations of your business is easier said than done. Here are three specific strategies for getting your company to run without you.

1. Think Like LEGO
Pre-school children can make a collection of generic looking pieces come together in a complex creation by following the detailed instruction booklet that comes with every box of LEGO. Your employees need LEGO-like instructions to execute the recurring tasks in your business without your input.

Ian Schoen is the co-founder of Two Tree International, a design and manufacturing firm that brings products directly from concept to customer. The company was started in 2008 with a $50,000 loan and had grown to sales of over $4 million and a staff of 15 employees when it was sold in 2015. Schoen credits his operating manual for allowing him to sell his business for a significant premium: “We started creating standard operating procedures in the business and had a set of documents that helped us run the business. Basically we could plug anyone into any position and have them understand it.”

2. Imagine Hosting Your Own AMA
Everyone from Barrack Obama to Madonna to Bill Gates has participated in an “Ask Me Anything” (AMA) forum where participants are encouraged to ask the featured guest anything that is on their mind.

Now imagine you invited your customers to an AMA. What questions would they ask you? What zingers would your most sceptical customers pose? These are the questions you need to document your responses to in a Frequently Asked Questions document that your employees can leverage in your absence.

3. Shine the Media Spotlight on Your Team
It’s tempting to take the call from a local reporter who wants to interview you about your company, but consider inviting an employee to take the interview instead.

Stephan Spencer founded Netconcepts in 1995 and grew it into a multinational Search Engine Optimization (SEO) agency before selling it to Covario in 2010. His first attempt to sell his business in the late 1990s failed because potential acquirers viewed Netconcepts to be too dependent on Spencer himself: “My personal name and my company name were too intermingled. If I didn’t go with the business, nobody was going to buy it.”

Spencer set out to reduce his company’s reliance on him personally and one of his strategies was to position his employees as SEO experts: “I encouraged key staff, various executives and top consultants within the company to speak and write articles, and I introduced them to the editors I knew.”

It can be tempting to run your company as your own personal fiefdom but the sooner you get it running without you, the faster it can scale into something irresistible to an acquirer.


Would you like to find out how well positioned your business is to be sold?

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Sellability Score

Don’t Operate Without a Report Card: Get an Estimate of Value

Imagine your kids going to school, kindergarten through high school, without ever receiving a report card.  As a parent, how would you know when they needed additional help, if they were ready for a new challenge, or what they needed to prep for college or alternative training?

Without a report card, it would be hard to make well-informed decisions.  Your kids would go to school and put in the time every day, and you’d have no idea if they were doing D or A-level work.

Unfortunately, this is exactly how many business owners run their companies.  Most entrepreneurs get into business with an end goal in mind — build the company, make a good income, and then sell it to set themselves up for a comfortable retirement.

But they wait to get a grade until that final, ultimate sale.

Instead of guessing or relying on gut feelings about what your company is worth, I recommend getting regular estimates of value (EOVs) from an M&A advisor.  An EOV is an educated, expert opinion of what your business would sell for in today’s marketplace.

Compare an EOV to pricing a home on the real estate market.  You get an opinion from a trusted real estate agent who knows your market, does the research, and understands the tangibles and intangibles that will make a difference in your home’s price and salability.  Creating an EOV is a little more complex, because so many different variables go into valuing a business, but it’s a similar idea.

On the other hand, your bank, your insurer, and your local municipality all want a certified appraisal.  Your real estate agent’s opinion doesn’t meet their official legal needs.  That’s a bit like getting a certified valuation for your business—the main difference is that a certified business valuation is likely going to cost anywhere from $5,000 to $30,000.

Business owners only need certified valuations in select situations, often involving some kind of legal dispute.  The rest of the time, an estimate of value is an affordable, easy way to get benchmarking information on your business.

I tell business owners to get an EOV every two to three years, for as long as they’re in business.  It’s a way to understand if you’re on track to meet your goals.

There are several other reasons to get an EOV beyond benchmarking: 

Maximize value: Make sure your business is ready to meet your retirement and legacy goals.  If you know where you stand and work with a specialist every couple of years, you’ll be better able to focus on the value indicators that matter most to potential buyers.

Protect your family’s interests: An EOV provides the necessary information to keep your life insurance, succession plan or buy-sell agreements updated with a current business value.

Buy a business: If you’re looking at acquiring a business, you can commission an EOV as an independent, third-party opinion of fair market value.

Monitor the market: Even if your sales and profit numbers remain static, I can guarantee you your value won’t be the same three years from now as it is today.  The market fluctuates, and you can’t plan properly without knowing where you stand.

An EOV is the best of both worlds, combining cost-effective technology with an expert human opinion from someone who will review your business’s special circumstances, analyze the market trends, review privately held business comps, and connect you with real-life industry-insider experience.

Article provided courtesy of Axial Market-


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Keys to a Successful Closing

Shake-handsThe closing is the formal transfer of a business. It usually also represents the successful culmination of many months of hard work, extensive negotiations, lots of give and take, and ultimately a satisfactory meeting of the minds.  The document governing the closing is the Purchase and Sale Agreement.  It generally covers the following:

• A description of the transaction – Is it a stock or asset sale?

• Terms of the agreement – This covers the price and terms and how it is to be paid.  It should also include the status of any management that will remain with the business.

• Representations and Warranties – These are usually negotiated after the Letter of Intent is agreed upon.  Both buyer and seller want protection from any misrepresentations.  The warranties provide assurances that everything is as represented.

•  Conditions and Covenants – These include non-competes and agreements to do or not to do certain things.

There are four key steps that must be undertaken before the sale of a business can close:

1. The seller must show satisfactory evidence that he or she has the legal right to act on behalf of the selling company and the legal authority to sell the business.

2. The buyer’s representatives must have completed the due diligence process, and claims and representations made by the seller must have been substantiated.

3. The necessary financing must have been secured, and the proper paperwork and appropriate liens must be in place so funds can be released.

4. All representations and warranties must be in place, with remedies made available to the buyer in case of seller’s breech.

There are two major elements of the closing that take place simultaneously:

• Corporate Closing: The actual transfer of the corporate stock or assets based on the provisions of the Purchase and Sale Agreement.  Stockholder approvals are in, litigation and environmental issues satisfied, representations and warranties signed, leases transferred, employee and board member resignations, etc. completed, and necessary covenants and conditions performed.  In other words, all of the paperwork outlined in the Purchase and Sale Agreement has been completed.

• Financial Closing: The paperwork and legal documentation necessary to provide funding has been executed. Once all of the conditions of funding have been met, titles and assets are transferred to the purchaser, and the funds delivered to the seller.

It is best if a pre-closing is held a week or so prior to the actual closing.  Documents can be reviewed and agreed upon, loose ends tied up, and any open matters closed.  By doing a pre-closing, the actual closing becomes a mere formality, rather than requiring more negotiation and discussion.

The closing is not a time to cut costs – or corners.  Since mistakes can be very expensive, both sides require expert advice.  Hopefully, both sides are in complete agreement and any disagreements were resolved at the pre-closing meeting.  A closing should be a time for celebration!


Copyright: Business Brokerage Press, Inc.

The Confidentiality Myth

File With Confidential DocumentsWhen it comes time to sell the company, a seller’s prime concern is one of confidentiality. Owners are afraid that “if the word gets out” they will lose employees, customers and suppliers. Not to downplay confidentiality, but these incidents seldom happen if the process is properly managed. There is always the chance that a “leak” will occur, but when handled correctly, serious damage is unlikely. Nevertheless, a seller should still be very careful about maintaining confidentiality since avoiding problems is always better than dealing with them. Here are some suggestions:

  • Understand that there is a “Catch 22” involved. The seller wants the highest price and the best deal, and this usually means contacting numerous potential buyers. Obviously, the more prospective buyers that are contacted, the greater the opportunity for a breach of confidentiality to occur. Business intermediaries understand that buyers have to be contacted, but they also realize the importance of confidentiality and have the procedures in place to reduce the risk of a breach. Another alternative is to work with just a few buyers. This, however, does reduce the chances of obtaining the best price.
  • Another way to avoid this breach is to try to keep a short timetable between going to market and a closing. The shorter the timetable, the less the chance for the word to get out. One way to keep a short timetable is to gather all of the information necessary for the buyer’s due diligence ahead of time. Create a place where all of this material can be consolidated. This can be as simple as a set of secured file drawers. Such documentation as: customer and vendor contracts, leases and real estate records, financial statements and supporting schedules (assets, receivables, payables), conditions of employment agreements, organization charts and pay schedules, summary of benefit programs, patents, etc. should be gathered. It is not unusual for due diligence examinations to look back 3 to 5 years, so there could be a lot of records.
  • The above means that the seller has to get organized. Selling one’s business is fraught with paperwork. Set up some three-ring binders so all of the relevant paperwork and resulting documentation has a place. These binders should be kept in a secure location.
  • The seller’s employees should be conditioned to having strange people (potential buyers) walk through the facility. One way to avoid suspicion is to arrange to have unrelated people, for example – customers, suppliers, advisors – tour the company facilities prior to placing the business on the market.
  • If sellers have not prepared their employees for strangers walking through the facilities as suggested above, awkward situations can develop. A valued employee may question why tours are being conducted. The seller is then placed in the position of explaining what is happening or covering the question with a “smokescreen.” A seller could reply by saying that the strangers are possible investors in the company. If asked directly if the business is for sale, the seller could respond by saying that if General Electric wants to pay a bundle for it – anything is for sale. Once in the selling process, it is also important to minimize traffic by only allowing serious, qualified prospects to tour the operation.
  • Keep in mind that confidentiality leaks can emanate from many sources. For example, an errant email ends up on someone else’s email. A fax gets sent to the wrong fax machine or UPS or FedEx deliveries go to the wrong people. Establish methods ahead of time on how to communicate with potential buyers or an intermediary.
  • The key to handling confidentiality is for the seller to retain a third party intermediary. They will insist that all potential buyers sign a confidentiality agreement. They will also be able to advise the seller on how to handle the “company tours” and can insure that only qualified buyers are shown the facilities.
  • The “myth” is that confidentiality issues can make or break a deal, or cause serious damage to the seller’s business. The reality is that breaches seldom occur when an intermediary is involved, and if they do occur and are handled properly, there is little damage to the business or a potential transaction.


Copyright: Business Brokerage Press, Inc.

What Do Investors Look for in a CEO?

Recently, we asked nearly 100 investment professionals to tell us more about what makes a successful CEO and partner.

Q: What functional background do you most prefer in a new CEO?

  • Operations (49%)
  • Sales (32%)
  • Finance (9%)
  • Marketing (5%)
  • Product (5%)

Many CEOs who have never worked with private equity worry that investors will look to take over the business without any consultation from the business owner or management team, but this anecdotal data seems to suggest otherwise. These investors actually are looking for a partner — someone who can bring their operations experience to the table to improve customer experience and company culture.

Q: Do you prefer to partner with CEOs who are also founders?

  • Yes (49%)
  • Doesn’t matter (43%)
  • No (8%)

Perhaps some investors may prefer to work with founders as they deem them more motivated to see their company succeed, no matter the work involved. Or perhaps they find founders more connected to the mission of their company and therefore more edifying to learn from. Other investors don’t see a difference between founders and non-founders — the 43% of respondents who answered “doesn’t matter” likely see wide variations in personality, motivation level, and leadership style among founder and non-founder CEOs.

Q: When investing in family-run businesses, does working with a CEO who is part of the family make things harder?

  • Yes (60%)
  • Doesn’t matter (35%)
  • Less difficult (5%)

We’ve written before about some common issues faced by some family businesses, and investors have probably run into them before as well. However, just because it can be a bit trickier to work with a family-run business doesn’t mean investors aren’t for the challenge.

Q: What are the most common points of friction when partnering with CEOs?

  • Unrealistic valuation expectations (56%)
  • Cultural misalignment (16%)
  • Lack of strong management team (13%)
  • Deal fatigue (9%)
  • Transition planning (3%)

Misalignment of valuation expectations is a frequent deal snag. If you’re a CEO, check out our 5 minute DCF valuation calculator before you meet with potential advisors or investors.

Q: What are the most important qualities a CEO can possess?

  1. Industry-specific experience
  2. Prior CEO experience
  3. PE-backed experience
  4. International experience
  5. A college education

Investors don’t care much about formal education — it’s on-the-job experience they’re after, particularly experience as chief executive (even better if it’s at a company owned by PE).



Would you like to find out how well positioned your business is to be sold?

Complete the “Value Builder” questionnaire today in just 13 minutes and we’ll send you a 27-page custom report complete with your score on the eight key drivers of Value Builder. Take the test now:

Sellability Score

The hidden goal of the smartest business owners

What are your business goals for the year? If you’re like most owners, you have a profit goal you want to hit. You may also have a top line revenue number that’s important to you. While those goals are important, there is another objective that may have an even bigger payoff: building a sellable business.

But what if you don’t want to sell? That’s irrelevant. Here are five reasons why building a sellable business should be your most important goal, regardless of when you plan to push the eject button:

1. Sellability means freedom

One of the fundamental tenants of sellability is how well your company would perform if you were unable to work for a while. As long as your business is dependent on you personally, there’s not much to sell. Making your company less dependent on you by building a management team and creating just-add-water systems for employees to follow means you have the ability to spend time away from your business. Think of the world of possibilities that would open up if you could choose not to go into the office tomorrow….

2. Sellable businesses are more fun

Running a business would be fun if you were able to spend your days on strategic thinking and big picture ideas. Instead, most business owners spend the majority of their day on the minutia: the government forms, the employee performance reviews, bank reconciliations, customer issues, auditing expenses. The boring details of company ownership suck the enjoyment out of owning a business—and it is exactly these tasks you need to get into someone else’s job description if you’re ever going to sell.

3. Sellability is financial freedom

Each month you open your brokerage statement to see how your portfolio is doing. Not because you want to sell your portfolio, but because you want to know where you stand on the journey to financial freedom. Creating a sellable business also allows you peace of mind, knowing that you’re building something that—just like your stock portfolio—has value you could choose to make liquid one day.

4. Sellability is a gift

Imagine that your first-born graduates from college and as a gift you give him your prized 1967 Shelby Ford Mustang. Your heavily indebted child takes it on the road, but after a few miles, the engine starts smoking. The mechanic takes one look under the hood and declares that the engine needs a rebuild.

You thought you were giving your child an incredible asset, but instead it’s an expensive liability he can’t afford to keep, and nor can he sell it without feeling guilty.

You may be planning to pass your business on to your kids or let your young managers buy into your company over time. These are both admirable exit options, but if your business is too dependent on you, and it hasn’t been tuned up to run without you, you may be passing along a jalopy.

5. Nine women can’t make a baby in one month

There are some things in life that take time, no matter how much you want to rush them. Making your business sellable often requires significant changes; and a prospective buyer is going to want to see how your business has performed for the three years after you have made the changes required to make your business sellable. Therefore, if you want to sell in five years, you need to start making your business sellable now so the changes have time to gestate.

Are you curious about how sellable your company is and what you would need to tweak to sell it when you’re ready? Then it’s time to get your Value Builder Score via the questionnaire on our website. It takes about thirteen minutes and your responses are kept confidential. You can complete the questionnaire here <insert a link to where you have embedded the Value Builder Score on your site>.


Is now the time to consider selling 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:

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Are You Ready to Exit?

If you’ve gone this far, then selling your business has aroused enough curiosity that you are taking the first step. You don’t have to make a commitment at this point; you are just getting informed about what is necessary to successfully sell your business. This section should answer a lot of your questions and help you through the maze of the process itself.

Question 1
The first question almost every seller asks is: “What is my business worth?” Quite frankly, if we were selling our business, that is the first thing we would want to know. However, we’re going to put this very important issue off for a bit and cover some of the things you need to know before you get to that point. Before you ask that question, you have to be ready to sell for what the market is willing to pay. If money is the only reason you want to sell, then you’re not really ready to sell.

*Insider Tip:
It doesn’t make any difference what you think your business is worth, or what you want for it. It also doesn’t make any difference what your accountant, banker, attorney, or best friend thinks your business is worth. Only the marketplace can decide what its value is.

Question 2
The second question you have to consider is: Do you really want to sell this business? If you’re really serious and have a solid reason (or reasons) why you want to sell, it will most likely happen. You can increase your chances of selling if you can answer yes to the second question: Do you have reasonable expectations? The yes answer to these two questions means you are serious about selling.

The First Steps

Okay, let’s assume that you have decided to at least take the first few steps to actually sell your business. Before you even think about placing your business for sale, there are some things you should do first.The first thing you have to do is to gather information about the business.

Here’s a checklist of the items you should get together:

Three years’ profit and loss statements
Federal Income tax returns for the business
List of fixtures and equipment
The lease and lease-related documents
A list of the loans against the business (amounts and payment schedule)
Copies of any equipment leases
A copy of the franchise agreement, if applicable
An approximate amount of the inventory on hand, if applicable
The names of any outside advisors

If you’re like many small business owners you’ll have to search for some of these items. After you gather all of the above items, you should spend some time updating the information and filling in the blanks. You most likely have forgotten much of this information, so it’s a good idea to really take a hard look at all of this. Have all of the above put in a neat, orderly format as if you were going to present it to a prospective purchaser. Everything starts with this information.

Make sure the financial statements of the business are current and as accurate as you can get them. If you’re halfway through the current year, make sure you have last year’s figures and tax returns, and also year-to-date figures. Make all of your financial statements presentable. It will pay in the long run to get outside professional help, if necessary, to put the statements in order. You want to present the business well “on paper”. As you will see later, pricing a small business usually is based on cash flow. This includes the profit of the business, but also, the owner’s salary and benefits, the depreciation, and other non-cash items. So don’t panic because the bottom line isn’t what you think it should be. By the time all of the appropriate figures are added to the bottom line, the cash flow may look pretty good.

Prospective buyers eventually want to review your financial figures. A Balance Sheet is not normally necessary unless the sale price of your business would be well over the $1 million figure. Buyers want to see income and expenses. They want to know if they can make the payments on the business, and still make a living. Let’s face it, if your business is not making a living wage for someone, it probably can’t be sold. You may be able to find a buyer who is willing to take the risk, or an experienced industry professional who only looks for location, etc., and feels that he or she can increase business.

*Insider Tip
The big question is not really how much your business will sell for, but how much of it can you keep. The Federal Tax Laws do determine how much money you will actually be able to put in the bank. How your business is legally formed can be important in determining your tax status when selling your business. For example: Is your business a corporation, partnership or proprietorship? If you are incorporated, is the business a C corporation or a sub-chapter S corporation? The point of all of this is that before you consider price or even selling your business, it is important that you discuss the tax implications of a sale of your business with a tax advisor. You don’t want to be in the middle of a transaction with a solid buyer and discover that the tax implications of the sale are going to net you much less than you had figured.

Timing the Sale of Your Business

In a perfect world, business owners sell their companies when banks are anxious to lend, the economy is strong, their industry is booming and the business is enjoying record profitability, with the future looking even brighter. Naturally, a perfect convergence of all these variables would enable you to maximize the value of your business allowing you to sell it at the highest price and on the best terms.

But most business owners don’t sell when market conditions are perfect. Instead, they make the decision for more personal reasons, such as retirement or to free up cash to pursue other investment opportunities. Unfortunately, many businesses are sold when the owner dies unexpectedly or is otherwise unable to run the business. These unplanned events increase the chance that the business will realize a lower selling price than it would in better circumstances.

Questions to Ask

Before you make the decision to sell, you need to ask yourself several questions. First, how motivated are you to sell? Selling a business is an arduous process that can take a year or more from the initial valuation to finding a buyer to finalizing the deal.

Second, have you adequately prepared your business to be sold? Most experts agree that owners should plan for the sale of their business at least three years in advance. You may even want to plan for an eventual sale as you’re still establishing and building your business.

But even if you have no current plans to sell, managing your company as if it will be sold is likely to result in more efficient, financially viable business.  For example, your business plan, whether a formal or informal document, should evaluate growth opportunities, market position, and business goals, and explain how progress in reaching these goals will be measure. Not only is your business plan an important tool in unlocking the current value in your company, but it also serves as initial prospectus for prospective buyers.

Internal and External Factors

Keeping an eye on economic cycles and how they affect the merger and acquisition market is important. The market for privately owned companies can be just cyclical as that for publicly traded companies. Economic recessions, for example, generally mean there are fewer buyers. General economic weakness can also result in a drop in your business’s profitability and a perception among buyers that your business is a risky acquisition.

Also be aware of your business’s growth cycle and plan to sell when sales growth has reached a peak. Of course, this isn’t always easy to calculate, and typically requires the help of outside advisors. Further, you are better positioned to sell if your company boasts valuable patents, brands, proprietary products or a lucrative market niche.

Businesses are typically valued on a multiple of earnings. Your business’s earnings, therefore, must be transparent and documented. Many deals are funded with bank debt, and most lenders won’t finance a transaction without stable cash flows that can be verified through an audit. Buyers also usually look for breadth of management because it reduces the company’s dependence on the departing owner and allows the buyer to learn the business from an experienced management team.

There are also a number of relatively minor things you can do to enhance the perceived value of your company and make it more attractive to purchasers. Cleaning up and organizing office, factory and warehouse space is an inexpensive enhancement. Repairing or replacing equipment may cost a bit more, but will help you attract buyers seeking a turnkey operation. Finally, consider disposing of unproductive assets or old inventory that buyers don’t want to be burdened with.

Maximizing Your Selling Price

Selling your business can be time-consuming an complex process, but you’re likely to maximize your selling price by planning the event well in advance and by engaging qualified advisors to assist you. While a deal can often be put together quickly, maximizing value means that selling your business may take time. Remember, you don’t want to feel pressured to take the first bid, or to accept terms that are less favorable.

Would you like to find out how well positioned your business is to be sold?

Complete the “Value Builder” questionnaire today in just 13 minutes and we’ll send you a 27-page custom report complete with your score on the eight key drivers of Value Builder. Take the test now:

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How Your Age Shapes Your Exit Plan

Your age has a big impact on your attitude toward your business, and your feelings about one day getting out of it.

For example, one person who runs a boutique mergers and acquisitions business refuses to take assignments from business owners over the age of 70.

He has found that septuagenarians are so personally invested that they can rarely bring themselves to sell their business – frequently calling off the sale halfway through, claiming they just wouldn’t know what to do with themselves if it closed.

While it’s always dangerous to generalize – especially based on something as touchy as age – a few patterns emerged in the research for Built to Sell: Creating a Business That Can Thrive Without You.

Owners aged 25 to 46

Twenty- and thirty-something business owners grew up in an age when job security did not exist. They watched as their parents got downsized or packaged off into early retirement, and that resulted in a somewhat jaded attitude towards the role of a business in society.

Business owners in their twenties and thirties generally see their companies as a means to an end, and most expect to sell in the next 5 to 10 years.

Similar to their employed classmates, who move to a new job every 3 to 5 years, business owners in this age group often expect to start a few companies in their lifetime.

Aged 47 to 65

Baby boomers came of age in a time when the social contract between a company and an employee was sacrosanct. An employee agreed to be loyal to the company, and, in return, the company agreed to provide a decent living and a pension for a few golden years.

Many of the business owners in this generation think of their company as more than a profit center. They see their business as part of a community and, by extension, themselves as community leaders.

To many boomers, the idea of selling their company feels like selling out their employees and their community. That’s why so many chief executive officers in their fifties and sixties are torn: they know they need to sell to fund their retirement, but they agonize over where that will leave their loyal employees.

Sixty-five plus

Older business owners grew up in a time when hobbies were impractical and discouraged. You went to work while your wife tended to the kids (today, more than half of businesses are started by women, but those were different times), you ate dinner, you watched the news and you went to bed.

With few hobbies and little other than work to define them, business owners in their late sixties, seventies and eighties feel lost without their business – that’s why so many refuse to sell or experience depression after they do.

Of course, there will always be exceptions to general rules of thumb, but frequently – more than your industry, nationality, marital status or educational background – your birth certificate defines your exit plan.

Is now the time to consider selling 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