There is the old anecdote about the immigrant who opened his own business in the United States. Like many small business owners, he had his own bookkeeping system. He kept his accounts payable in a cigar box on the left side of his cash register, his daily receipts – cash and credit card receipts – in the cash register, and his invoices and paid bills in a cigar box on the right side of his cash register. When his youngest son graduated as a CPA, he was appalled by his father’s primitive bookkeeping system. “I don’t know how you can run a business that way,” his son said. “How do you know what your profits are?” “Well, son,” the father replied, “when I came to this country, I had nothing but the clothes I was wearing. Today, your brother is a doctor, your sister is a lawyer, and you are an accountant. Your mother and I have a nice car, a city house and a place at the beach. We have a good business and everything is paid for. Add that all together, subtract the clothes, and there’s … [Read more...]
Burnout: An Ever-Present Threat
Burnout is an often-used reason for an owner selling his or her business. Potential buyers may have trouble accepting this as a valid reason for sale. However, burnout is a valid reason for selling one’s business. A business owner can experience burnout even with a business that’s successful and growing. Many independent business owners feel they’ve worked hard, made their money, and now is a good time to cash out and move on, before burnout endangers the health of the business. The following warning signs should remind a business owner that cashing out beats burning out: You are overwhelmed on a daily basis. When a business owner is a one-man show, even small tasks and minor decisions can seem bigger than Mount Everest. These owners have been shouldering the burden alone for too long, and the isolation has taken its toll. You sense a failure of imagination. Burnt-out owners are so close to their work that they lose perspective. Prioritizing becomes a major daily … [Read more...]
How Long Does It Take to Sell a Business?
Recent studies indicate that it now takes, on average, about eight to ten months to sell a small business. This figure seems to increase yearly. Why does it take so long to sell a business? Price and terms are the biggest reasons! It is very important not to overprice the business at the beginning of the sales process. A business will also sell more quickly if there is a reasonable down payment with the seller carrying the balance. Having all of the necessary information right from the beginning can also greatly reduce the time period. Finally, being prepared for the information a buyer may want to review or having the answers available for the questions a buyer may want answered is another key. Here is the basic information a prospective acquirer will want to review and a seller should have prepared to help facilitate a quicker sale: Copies of the financials for the past three years. A copy of the lease and any assignments of the lease from previous sales. A list of … [Read more...]
When to Create an Exit Strategy
There is the old saying that the time to develop an exit strategy is the day you open for business. Sounds good, but it’s not very realistic. Further, it also isn’t very optimistic. On the day you open for business, thoughts about how you get out of it aren’t pleasant, or helpful, thoughts. However, as you get the business to a place where you have a bit of extra time to plan, you will find that the things you need to do to improve your business are some of the very things you will need to work on to plan an exit strategy. You can’t predict misfortune, but you can plan for it. One never knows when an accident or illness will force one to sell. When the drive to your business becomes filled with dread, maybe it’s time to consider selling. The following ideas will improve your business, even if you’re not currently considering selling. Dealing with these areas will also supply the information a buyer will most likely be looking at when the time does come to sell. Buyers want cash … [Read more...]
Five Kinds of Buyers
Buyers are generally categorized as belonging to one of the following groups although, in reality, most buyers fit into more than one. The Individual Buyer This is typically an individual with substantial financial resources, and with the type of background or experience necessary for leading a particular operation. The individual buyer usually seeks a business that is financially healthy, indicating a sound return on the investment of both money and time. The Strategic Buyer This buyer is almost always a company with a specific goal in mind -- entry into new markets, increasing market share, gaining new technology, or eliminating some element of competition. The Synergistic Buyer The synergistic category of buyer, like the strategic type, is usually a company. Synergy means that the joining of the two companies will produce more, or be worth more, than just the sum of their parts. The Industry Buyer Sometimes known as “the buyer of last resort,” this type is … [Read more...]
Why Deals Don’t Close
Sellers Don’t have a valid reason for selling. Are testing the waters to check the market and the price. (They are similar to the buyer who is “just shopping.”) Are completely unrealistic about the price and the market for their business. Are not honest about their business or their situation. The reason they want to sell is that the business is not viable, it has environmental problems or some other serious issues that the seller has not revealed, or new competition is entering the market. Don’t disclose that there is more than one owner and they are not all in agreement. Have not checked with their outside advisors about possible financial, tax or legal implications of selling their business. Are unprepared to accept seller financing or now unwilling to accept it. Buyers Don’t have a valid reason to buy a business, or the reason is not strong enough to overcome the fear. Have unrealistic expectations regarding price, the business buying process, and/or small … [Read more...]
Seller Financing: The Basics
Seller financing has always been a mainstay of business brokerage. Buyers don’t have the capital necessary to pay cash, are unable to borrow the money, or are reluctant to use all of their capital. Buyers also feel that a business should pay for itself and are wary of a seller who wants all cash or who wants the carry-back note secured by additional collateral. What sellers seem to be saying, at least as perceived by the buyer, is that they don’t have a lot of confidence in the business or in the buyer or perhaps both. However, if you look at statistics, it’s apparent that sellers usually receive a much higher purchase price if they accept terms. Studies reveal that, on average, a seller who sells for all cash receives only about 80 percent of the asking price. Sellers who are willing to accept terms receive, on average, 86 percent of the asking price. The seller who asks for all cash receives, on average, a purchase price of 36 percent of annual sales while the seller who will … [Read more...]
Do You Have an Exit Plan?
"Exit strategies may allow you to get out before the bottom falls out of your industry. Well-planned exits allow you to get a better price for your business." From: Selling Your Business by Russ Robb, published by Adams Media Corporation Whether you plan to sell out in one year, five years, or never, you need an exit strategy. As the term suggests, an exit strategy is a plan for leaving your business, and every business should have one, if not two. The first is useful as a guide to a smooth exit from your business. The second is for emergencies that could come about due to poor health or partnership problems. You may never plan to sell, but you never know! The first step in creating an exit plan is to develop what is basically an exit policy and procedure manual. It may end up being only on a few sheets of paper, but it should outline your thoughts on how to exit the business when the time comes. There are some important questions to wrestle with in creating a basic plan and … [Read more...]
Rating Today’s Business Buyers
Once the decision to sell has been made, the business owner should be aware of the variety of possible business buyers. Just as small business itself has become more sophisticated, the people interested in buying them have also become more divergent and complex. The following are some of today's most active categories of business buyers: Family Members Members of the seller's own family form a traditional category of business buyer: tried but not always "true." The notion of a family member taking over is amenable to many of the parties involved because they envision continuity, seeing that as a prime advantage. And it can be, given that the family member treats the role as something akin to a hierarchical responsibility. This can mean years of planning and diligent preparation, involving all or many members of the family in deciding who will be the "heir to the throne." If this has been done, the family member may be the best type of buyer. Too often, however, the difficulty … [Read more...]
Why Sell Your Company?
Selling one's business can be a traumatic and emotional event. In fact, "seller's remorse" is one of the major reasons that deals don't close. The business may have been in the family for generations. The owner may have built it from scratch or bought it and made it very successful. However, there are times when selling is the best course to take. Here are a few of them. Burnout - This is a major reason, according to industry experts, why owners consider selling their business. The long hours and 7-day workweeks can take their toll. In other cases, the business may just become boring - the challenge gone. Losing interest in one's business usually indicates that it is time to sell. No one to take over - Sons and daughters can be disenchanted with the family business by the time it's their turn to take over. Family members often wish to move on to their own lives and careers. Personal problems - Events such as illness, divorce, and partnership issues do occur and many times force … [Read more...]