Around the Web: A Week in Summary
A recent article from Entrepreneur.com entitled “Avoid These Financing Mistakes That Kill Business Valuations” speaks on the importance of “good debt” and trying to avoid “bad debt” when financing a business. The utilization of either of these forms of debt, which encompass several different types of financing, can either significantly help or harm a business in the transaction process, depending on what forms are used and how they are used.
The main differentiator between these good and bad sources of debt centers is whether or not the debt contributes to business growth or can provide positive cash flow in the event of a sale. Whether it’s under-utilized assets or a high-interest loan, bad debt can be an instant turn-off for a buyer come sale time.
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A recent Divestopedia article, “Ready to Sell Your Business? Prepare Yourself Emotionally First,” explains how emotional preparedness plays a huge role in the business transaction process for sellers. Giving up something that took years of hard work and dedication to build and grow is definitely not easy, so understanding how to overcome the emotional obstacles involved in parting from a business is vital.
Everything from losing control and dealing with employees to preparing for what can be a very emotional transaction day come into play toward closing time. While some steps can be taken to ease the emotional burden of the process, having a good team of advisors and confidants cannot be forgotten: these people are there for reassurance, to clear doubts, and give advice and insight on the whole transaction process.
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A recent article posted on the Axial Forum entitled “Why Your Business Shouldn’t Need You” outlines the value in building a business that can run without the owner. This may be difficult to imagine, as the owner is often the head of the entire business operation: they have a hand in almost all aspects of the business and know everything about how it functions, how it runs, and how it makes money. But when it comes to making an exit, a business’ ability to run independent of the current owner makes all of the difference.
The simple fact is that a business that is completely dependent on the owner is viewed as more risky than one that is not. It is certainly possible that previous success may not be replicated with another person in control, so taking steps to ensure independence is a crucial part of the preparation process. Important questions to help determine owner dependence include:
- Have you built out a management team?
- Are you delegating authority appropriately?
- Are your finances cleaned up?
Creating a business that is owner-independent may be difficult and may lengthen the transaction process, but in the end, will help make a business more attractive and lucrative to a prospective buyer.
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