Posts Tagged: Selling a business

8 Ways to Know if You Have a Job or Own a Business

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The ultimate test of your business can be found in a simple question: would someone want to buy your company?

Whether you want to sell next year or a decade from now, you must be building an asset someone would buy – otherwise, you have a job, not a business.

Here are eightways to ensure you are building a company, not just doing a job:

  1. A job requires that you show up atwork to make money, whereas a company generates revenue whether you are there or not.
  2. If your company is so reliant on a single customer that they can dictate how you deliver your product or service, your company is more like a job than a valuable business.
  3. A job is a place where your personal reputation impacts your results, whereas a company is a place where the brand is more important than the personality of the founder(s).
  4. A job requires you to use your personal experience and expertise to get a result, whereas a company is a place where a process – not a person – consistently produces a desirable result.
  5. In a job, you get fired for taking too much vacation, whereas if you own a company, the more vacation you can take without impacting your company’s performance, the more valuable your business will be.
  6. In a job, the harder you work, the more money you earn. In a company, the smarter you work, the more money you earn.
  7. In a job, you solve the problems. If you own a company, your employees solve the problems.
  8. If the majority of your customers know your mobile phone number, it’s likely you have a job, not a company.

If you’re not sure whether you have a job or own a business, it’s time to get your Sellability Score. Whether you want to sell now or in a decade, the Sellability Score assessment allows you to see your business as a buyer would see it, and to identify how you perform on each of the eight key drivers of sellability. The questionnaire takes about 13 minutes to complete, and after you’re finished you’ll get a customized 27-page report outlining how you performed and where you could improve the value and sellabilityof your company. Get your score now!

 

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Why Fire Trucks Always Back In

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Have you ever noticed that fire trucks always back into the fire hall?

Why don’t they just pull into their parking spot snout-forward like the rest of us?

Backing in at the end of a shift saves them time when they have to get to a fire. They back in to be ready; whether the call comes in 5 minutes or 5 days, they are prepared to pull out as quickly as possible.

Like the firemen, you, as a business owner, need to be ready when you get the call from someone who wants to buy your business. And these days, owners are getting that call more often. According to the latest Sellability Tracker report, the proportion of business owners who received an offer to buy their company in the quarter ending March 31, 2014 was up considerably from Q4 2013. Roughly 12% of business owners using The Sellability Score last quarter had recently received an offer to buy their business.

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The proportion of owners getting an offer is an important statistic because it measures one half of the equation of a business sale. For a transaction to take place, there must be both a willing seller and a willing buyer.

Companies are becoming more acquisitive because they have access to more cash than they know what to do with. Interest rates are next to nothing, and after the liquidity crisis of 2008, companies have been socking away profits on their balance sheet for a rainy day.

This increase in acquisitiveness among buyers has important implications for you as a business owner. Chief among them is that you need to have a sellable asset when opportunity strikes.

Statistically speaking, the two most common reasons you are likely to sell your business are:

  1. A health scare;
  2. An unsolicited offer to buy your business.

As unsolicited offers increase, so too does the need for you to be ready if an opportunity comes your way. Unlike when the owner is in control of when he/she decides to list a property, the hallmark of an unsolicited offer is the fact that the owner doesn’t’ know when it is going happen; which means you need to operate your business as if an offer were always around the corner.

Companies that are sloppily put together with shoddy bookkeeping or too much customer concentration, or that are run by a Hub & Spoke manager, will end up being passed over for turnkey operations.

The time is now for you to get your company ready to showcase when opportunity comes knocking.

Curious to see what your business is worth and how you might improve its value to both strategic and financial acquirers?  Complete the Sellability Score questionnaire today and we’ll send you a 27-page custom report complete with your score on the eight key drivers of Sellability. Take the test now: 

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Foreseeing the Future

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Use VR to Help Form an Exit Plan for Your Business

The owner/chef of a lucrative and well established restaurant was diagnosed with a terminal illness and suddenly was unable to work.  The business was highly dependent on the owner. While his bereaved wife struggled to run the business and hire a replacement chef, food quality, service, profitability and the reputation of the restaurant plummeted and never recovered. When the lease came up for renewal a year later, she shut the business down and walked away with nothing.

At the age of 66, the owner of a profitable construction company seeking to retire sold the business to his son, who was also an employee. His son had minimal savings so was only able to make a small down payment, and the price was discounted significantly. He also lacked the exceptional people and leadership skills of his father. The son began clashing with a key, more senior executive, who subsequently left the company to start a competitor, taking several other employees with him. At the age of 70, the father began working full time again, seeking to salvage the business, as he was dependent on the sale proceeds for a comfortable retirement.

The two entrepreneurs above had something in common with more than 85% of small business owners – they never developed an exit plan.

Without an exit plan, a business could quickly be severely damaged by a sudden crisis, such an illness, death, divorce, partnership dispute or rapid change in market or competitive environment. Or a business may deteriorate gradually as the owner burns out and neglects the business, or transfers it to a weak leader. Either way, the result is the same – greatly diminished business value. With tens of millions of baby boomers approaching retirement age, and controlling trillions of dollars of private company wealth, the issue is becoming acute.

By contrast, private equity groups and venture capital firms, perhaps the world’s most sophisticated owners and financiers of businesses, rarely fund or purchase a business without first having a formal exit plan in place. At VR Business Sales, we can help you create an exit plan so that you will be prepared for when you’re ready to step down as a business owner.

Understanding the Basics

So what is an exit plan? It’s actually a series of continually evolving and interrelated plans that will help you address at least the following critical questions:

  • What are your preferred options and timing for exiting the business? For example, sale to outsider, sale or gift to family or employees, merger with competitor, buyout by a partner, etc.
  • What family members are involved in the business and what are their objectives?
  • What are your financial objectives and retirement plans?
  • What is the value of your business now?
    • What key actions are necessary to increase business value and position it for sale at the optimum after tax amount needed to achieve your financial objectives?
    • What actions are necessary to manage estate, trust and tax issues you will face through retirement and beyond?
  • What actions, programs and agreements are necessary to ensure continuity of the business in the event of departure, death, or incapacitation of any of the owners or key executives? Examples include training programs, system development, buy/sell agreements, key man insurance, and non-compete agreements.
  • Who will replace you or other owners upon departure? Are any current executives and/or family members capable of doing so, and if so, what additional skills, training, licensing, etc. are needed? If not, what is the strategy for recruiting and developing a replacement?
  • What changes in the business and your role are needed now to preserve your quality of life and your passion for the business?

Developing a comprehensive exit plan is a demanding task that generally takes 3-6 months to complete and as long as 2 to 4 years to implement, depending on the complexity of the business. It will address a wide variety of intricate strategic, operational, financial, tax, human resource and legal issues. While a primary focus is meeting the owner’s objectives, it should ideally reflect the desires and concerns of all important stakeholders, including a spouse, children, business partners, other shareholders and employees, and in some cases customers, suppliers and the community. Input should be gathered from key advisors, including your CPA, wealth planner, estate planner, business consultant, insurance broker, appraisers and mergers and acquisitions advisor.

An exit plan is decidedly not a fancy written report that sits on a shelf gathering dust. To have any meaning, it must be regularly updated to reflect changes in your life, family, health, goals, finances, and the business. It must be action oriented and offer prescriptions that are implemented, not ivory tower theories. An ideal plan will take a long term view and continually assess actual progress of implementation against the plan timetable and take any necessary corrective action needed to keep on track with the plan.

If an exit plan sounds like a lot of work, it is. But having one can be the difference between your business shuttering when you depart and leaving a legacy that endures for generations. Contact  VR Business Sales today to learn how to put an exit plan together for your business.

What Buyers Look For In A Business Opportunity

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You have built a great business with love and care. It has grown larger than you’d ever imagined, and generates a nice profit that has allowed you and your family to live comfortably. Now you’re ready to sell. You assume there’s a buyer out there who will pay you a fair price and then nurture the company with the same attention you have. What’s more, selling the business is a major part of your retirement plan.

Needless to say, buyers look at businesses differently than sellers. So to achieve the outcome you want, it’s important to think like buyers and understand how they evaluate a business.

What Buyers Look For

There are many types of buyers: strategic and financial, individuals, companies, and private equity funds. Despite differences, all buyers consider how much they’ll invest to acquire a business, the amount of risk they’ll bear and the potential return on their investment. To evaluate an opportunity, buyers focus on three major areas:

1. Cost and terms.

What will it take to acquire the business? How much cash and how much debt? What are the deal’s terms and conditions?

2. Continuity

Will the business continue to operate similarly after the sale? Much of the risk of buying a company relates to continuity. For example:

•             The current owner has personal relationships with customers, distributors or vendors that the new owners may have to struggle to maintain,

•             The owner has special expertise that is undocumented and difficult to learn,

•             Key personnel aren’t committed to staying, or

•             Outside competition looms.

Sellers armed with solid responses to these types of continuity concerns are more likely to get their desired price. Even if you don’t want to sell your business for a few years, take steps now to ensure it can run smoothly without your personal involvement. That independence could be worth millions when you sell.

3. Growth

Are there unexploited opportunities? You may have focused your sales efforts in one geographic region, but there may be many opportunities to take the product national or international. A buyer that believes it can increase revenues substantially will pay more for the business than one that believes the current owners have already maximized opportunities.

What sellers should do?

It may seem counter intuitive, but the things you may be most proud of can work against getting the best price for your company. Not many entrepreneurs like to boast that their company could run just fine without them or that there are plenty of opportunities they’ve failed to exploit. Yet these may be the very factors buyers seek, along with lower cash requirements. Please call us for help in understanding how to best present your company for sale.