Around the Web: A Week in Summary
A recent blog post from BusinessBroker.net entitled “Ready to Sell Your Business?” discusses the steps one needs to take in order to sell their business and what the process of selling a business is like.
Before you begin the process of selling your business, it is very important to make sure you are ready to sell and move on. It can sometimes be difficult to make the decision to sell a business, something you’ve put so much time and energy into building. When selling you must be prepared to let go and see the buyer make changes.
Once you are ready to sell, a key step you can take to help ensure the process goes as smooth as possible is to find a professional business broker. Working with a business broker can help you gather all the necessary paperwork and financial information you will need to go through with a sale. The broker can also evaluate your business to determine a selling price that is fair in today’s market and market your business to qualified buyers.
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A recent blog post from CPI entitled “5 Exit Strategies Everyone in the Business Industry Should Know” reviews the different types of business exit strategies and which one might benefit you the most depending on your business and what you want to get out of it.
Some of these exit strategies include:
- Letting the business take its course
- Liquidation
- Selling to an interested buyer, management, or employees
- Acquisition
- Initial Public Offering
It is important to understand the many different types of exit strategies there are based on your industry and goals. Thorough planning, professional help, and timing are all key components of this process.
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A recent blog post from Exit Strategies Group entitled “5 Ways to Make Your Business More Sellable” offers practical tips to help make your business more appealing to buyers. These tips include:
- Cleaning up financials
- Building a team
- Diversifying your customer base
- Document, systematize, and automate
- Earnings quality
These actions can help improve marketability, sell-ability, and sale-readiness. Keep in mind that being prepared to sell is the biggest advantage. Creating a plan and getting counseled on selling your business well-beforehand can be extremely beneficial.
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Should You Sell Your Family Business?
When the complicating variable of family is added to the equation of selling a business, the situation can get rather messy. Family usually complicates everything and businesses are, of course, no exception. Ken McCracken’s recent article “Family business: to sell or not to sell?” 6 questions to help you make the right decision,” seeks to decode the complexities so often associated with family businesses.
Consider the Market
The foundation of determining whether or not now is the right time to sell must begin with market forces. Determining how much your business is worth is a key variable in any decision to sell.
The best way to determine the worth of your business is to have an outside party, such as a business broker, evaluate your business. What you believe your business to be worth and what the market dictates could be very different. You may discover that your business does not have the value that you hoped for. If this is the situation, then selling simply may not be an option.
What is Next for You?
Tied to knowing your market value is understanding what you will do next after you sell your business. For example, do you have a family member who can run the business without you? What will you and any family members who work for the business do after the sale goes through? You may discover that the sale could be very disruptive for you personally. All too often, people fail to recognize the emotional and mental stress that comes along with selling a business. Many owners begin the selling process only to discover that they are not emotionally ready to do so. While everyone wants to be unemotional in making their business decisions, this is not always the case.
Due Diligence
You will also need to deal with the issue of due diligence. Working with a business broker is an excellent way to handle the due diligence process. Business brokers usually vet prospective buyers ahead of time, which can save you a great deal of aggravation and wasted time.
McCracken believes business owners should investigate how the prospective buyer handled previous acquisitions. Specifically, McCracken believes that business owners should look to how well the prospective buyer honored previous commitments, as doing so is an indicator of how trustworthy a buyer may be.
Planning for Negotiations
Finally, McCraken believes it is essential to know who will oversee negotiations. It is key to note that many deals that could have otherwise been successful, fall apart due to poor negotiations. A business broker can be invaluable in negotiations. After all, who wouldn’t want someone with dozens, or even hundreds, of successful transactions advising them?
Selling a family business can be emotionally charged and can cause significant life changes for not just you, but for members of your family as well. Often, family businesses were built up over a lifetime or even over generations, which can make the decision to sell quite emotionally charged.
Around the Web: A Week in Summary
A recent article from Smart Business Network entitled “Dealmaking is the best way to transform your business” provides insight as to why you should keep an eye on the market and keep an open mind about dealmaking.
There is more to dealmaking than just buying and selling businesses. A business can purchase scale, acquire new technologies, diversify into new markets and implement long-term strategies to build a more valuable business. If you aren’t doing these things, your competitors probably are.
The goal is to position yourself to be competitive in your market and a leader in your industry. It’s up to you to identify the right move for your company and develop a strategy to put yourself in this higher position. Dealmaking remains a top way to transform your business, whether it’s big or small.
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A recent article from Smart Business Dealmakers entitled “Be Ready To Answer The Tough Questions When You Sell Your Business” discusses the challenges that sellers often face when it comes time to sell their company.
UHY Corporate Finance Director Jeremy Falendysz stresses the importance of educating and preparing yourself about the business sale process years in advance of when you intend to sell. He also shares these common seller challenges:
- Are you psychologically ready to sell?
- Are you prepared to hear harsh criticism?
- Are you prepared to answer difficult questions?
A prepared seller will be able to face these challenges and make the business sale process easier on all parties involved.
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A recent blog post from Transworld Business Advisors entitled “Closing the Deal: Understanding What to Expect” reviews 8 key components of the closing after a deal is agreed upon. The road to close has many stops along the way. Some of these include due diligence meetings, opening bank accounts, applying for a lease assignment, and preparing government tax forms.
At the closing, the buyer and seller will review and sign several important documents. Some of these include the sale agreement, loan documents, and forms for transfers of intellectual property.
After all documents are signed, funds are dispersed (often wired) and the deal is officially finalized. The business is now under new ownership.
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Why You Should Focus on Proper Exit Planning
If you are like many business owners, you are primarily focusing on building your business. Yet, as we’ve covered here many times before, you should start thinking about what you’ll need to do to sell your business before you even officially launch. Many businesses can take years to sell or even fail to sell all together. For this and many other reasons, it is important to invest some time and energy into thinking about proper exit planning and strategies.
Walker Deibel’s recent Forbes article, “How Proper Exit Planning Benefits the Buyer and Seller,” Deibel discusses his interview with Exit Planning: The Definitive Guide, author John H. Brown. Brown and Deibel both agreed that, when properly handled, exit planning can help both the seller and the buyer.
Exit planning can make a business more transferable. As Deibel points out, when buyers are evaluating businesses, transferability is a key factor. A buyer must feel that he or she can walk into a business, take it over, keep it running effectively and even grow the business in the future.
A key aspect of being able to buy a business and having that business be successful is that all relationships from vendors to customers are transferable. A good management team, one that can step in and help a new owner thrive, is a must. Building that team in advance is a savvy move for any business owner looking to sell his or her business. Concerns on any of these fronts can spell doom for a seller. If a buyer doesn’t feel that they can operate a business, then they probably shouldn’t be buying it.
Great exit planning most definitely benefits the seller as well. As Deibel notes, when sellers engage in exit planning, they realize how much money they need in order to exit. In turn, this forces sellers to become very focused and goal-oriented. Sellers will take proactive steps to ensure that their business is as appealing to a potential buyer as possible.
Ultimately, proper exit planning is a win-win, one that benefits both buyer and seller. Exit planning can provide sellers with much-needed clarity while simultaneously lowering the overall risk that sellers face.
Buying or selling a business is a multifaceted, and often quite complex, process. The sooner you begin working with a professional, like a business broker, the better off you’ll be in finding the right business for you and your particular needs. For most people, buying or selling a business is the financial decision of a lifetime. Having a proven trusted partner, one that knows the lay of the land, is simply invaluable.
Copyright: Business Brokerage Press, Inc.
Around the Web: A Week in Summary
A recent blog post from Allan Taylor & Co. entitled “7 of the Worst Times to Sell Your Business” provides examples of bad times to look at selling a business and insight into finding the right time to sell.
Consider the following factors when contemplating a sale:
- Watch Your Numbers – Numbers can look undesirable to a buyer for a variety of reasons, and your financial statements are your business’ foundation. There are few excuses for bad financials. If your numbers don’t look good, start working to improve them well in advance of a sale.
- Industry Decline – Most buyers want a business in an industry that has staying power or is on the upswing. Buyers want to make sure they’re investing in an industry that will be around long-term and has potential for growth. They don’t want to buy a business if they know, for example, the biggest player in the industry has just shut down multiple locations.
- Wanting an Out – A lot of owners sell when they’ve reached a point of overload or burnout. While it’s okay to get tired of running your own business and wanting to move on, consider the amount of work that it can take to sell. The selling process alone can often take about a year. Proper exit planning can take several years.
- Losing Key People – Few things hurt a business more than one of your top managers leaving. One of the things buyers will look for is a strong layer of upper management.
- Business is Too Small to Support a Sale – There needs to be enough cash flow from your business to pay the new owner with enough cash left over to reinvest in the business and service debt.
- Banks Aren’t Lending – It is always harder to sell a business when the economic environment is bad. If the economy is in a recession or banks simply aren’t lending to anyone for whatever reason, business sales will suffer. You want to sell when the money is flowing.
- During A Personal Crisis – While sometimes unavoidable, you want to consider what will happen if you try to sell during a personal crisis such as divorce, illness, etc. The process can be hard to focus on, it will be harder to keep your emotions out of important decisions, or your personal situation may have already hurt the business. If you feel a personal crisis is looming in the distance, it is best to start the sales process as soon as you can.
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A recent blog post from Certified Business Brokers entitled “Buying a Business – Make Your Acquisition a Good Investment” discusses the comprehensive due diligence process a buyer should go through when considering purchasing a business. Some of the most important intel you can have is the future profit potential of a business and how much you can impact that future.
Some key considerations to think about while buying a business include: what the business can be capable of under new management, skills the current owning might be lacking that you can provide, additional marketing that could be pursued, and will the demand for the product or service grow.
It is also important to thoroughly review the pricing model of the business, physical assets, intellectual property, employees and benefits, taxes, etc.
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A recent blog post from Exit Strategies Group entitled “Secrets to Business Valuation – a Lesson from Curly” discusses the three main factors that help determine how much a business will sell for. We often see similar companies of the same size sell for vastly different amounts. What this usually boils down to is cash flow, growth and risk.
Cash Flow – What matters most to investors is future cash flow. Owners look at using free cash flow to either pay themselves, pay debt, or reinvest in the business. When comparing two similar businesses with the same revenue, one company might operate more efficiently and generate a higher cash flow which will make that company more desirable.
Growth – The more cash flow is expected to grow, the more investors will have at their disposal which brings up the value of a business. If a company is expected to grow at a faster rate than another, it will be favored by investors.
Risk – Investors decide how much risk to put into a company based on how certain they are that the company will either grow or perform the way it has. The more certain they are, the more they’ll pay.
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