GETTING READY TO SELL YOUR BUSINESS?

In 2013, the Northeast Ohio Chapter of the Exit Planning Institute conducted a survey titled, “State of Owner Readiness”. The survey was designed to assess how effectively owners have planned for the inevitable exit from their businesses. It revealed many interesting facts.

76% of the respondents plan to transition within ten years, and nearly 50% within three years. That being said 83% percent of owners either have no plan or have not documented it. Two thirds are not aware of all their exit options. Those who have plans often neglect to share them with the most important people in their lives.

72% of respondents have no formal board of directors. 78% don’t have a team of advisors. Only 14% of owners have completed a “due diligence” project to de-risk the business, maximize its value, and minimize its taxes.  Many owners have not thought through the effects of who they’ll sell to, whether it will be an internal or external sale.

Since, most financial planners estimate that 85-90% of the net worth of the average business owner is tied up in the business; owners need to move to a better outcome, but it appears they’re not.

The study draws conclusions and makes the following recommendations:

-Business owners need to have an Exit Plan that is well documented and communicated to all relevant stakeholders.

-The exit strategy needs to be integrated into the business strategy and internalized as a method for   operating the business on a day-to-day basis.

-Owners need to be educated about exit planning so they can understand and evaluate all available options.

-Since, it is unlikely that there will be enough capital to absorb all the outside transitions preferred by business owners, owners need to take a serious look at inside transitions: things like ESOP’s, management buyouts, and family transitions. If not, they may be forced to substantially discount the price on an outside sale, especially if they aren’t a high performing company. They may not be able to sell at all.

The Exit Plan and the Estate Plan need to be coordinated and treated together.

The personal aspects of a post-transition life of the owner are important. Owners need to have a clear idea of what happens for them, personally, after the exit takes place. What they do next must be resolved prior to going to market.

I took this survey into consideration and realized there are many opportunities for people with my skillset; I can be helpful. If the numbers I heard are true, only one in ten owners are going through a formal exit planning process, that means many are trying to go straight to market, thinking they are ready to sell. Unfortunately, when they find out they have things that need improvement, the business brokers and investment bankers are not equipped to help them: they often only “sell businesses”. So what happens? If the business is not READY TO SELL they might be bypassed for a business that is ready to sell TODAY. Who helps the business who isn’t quite ready, but has potential? I want to.

That’s why I put the SELLABILITY SCORE ASSESSMENT tool on my website, because somebody needs to help them. Go to markwboslett.com and take the survey today, even if you are years from selling.

The tool is free of charge. If you are currently working with someone else, that’s fine. I can’t help everyone. If you have a relationship that works for you KEEP IT. I’ll forward the results without obligation and hope you get the help they need. IT’S TOO IMPORTANT FOR YOU NOT TO. This is your life work we’re talking about and you only get one shot. If I can help, I will. But, it will be your choice.

FROM STARTUP TO EXIT, YOU WANT TO OWN A HEALTHY BUSINESS – WE CAN HELP.

WHAT BUYERS WANT (PART 2)

See part 1 here.

Growth plan

Buyers are looking for growing businesses in growing segments of the market. Each small business owner has the same goal of turning their small business into a successful, highly valued enterprise. Unfortunately many of these same business owners are unable to take their seed of a business and transform it into huge tree of success. Fortunately, there are things that an owner can do in order to increase their business value and achieve top dollar when they’re ready to exit.

Step one: Focus on increasing cash flows and minimizing taxes.

Step two: Create a better customer acquisition strategy, with no more than ten percent of revenues coming from your largest customer.

Step three: Hire or train a successor to you, thereby, keeping the knowledge in the company after you Exit.

Step four: Create recurring or repetitive revenue, while growing cash flows and profit. Try to get cash before performing the service, if possible.

These things are important to a buyer.

Effective and well-documented financial controls that result in correct financial statements

A buyer will want to rely on financial controls that help them obtain financial statements that accurately report your company net profits?  How can they judge if what you tell them is true, if they can’t trust the numbers?

Without reliable financial statements and financial controls, it is very hard for a buyer to know how to make a viable purchase offer; your business could be viewed as “too risky”. With all of the other choices for their investment dollar, a premium offer may never come, leaving you with a potential discounted or unsalable business.

Benchmarking

How does your business compare to your competitors? Do you know? If your company outperforms your competition, it is more likely to command a higher purchase price than another similar business.

With all the “professional” buyers out there buying up companies in the same industry, this may be very important.

As I stated earlier, buyers want HEALTHY BUSINESSES. From Startup to exit, you can be a healthy business and we can help.

WHAT BUYERS WANT?

With all the discussion about Exit Planning, or Succession Planning, and the 10 million “baby boomers” about to sell their businesses within ten years, you would have to have lived under a rock not to have heard something about it. Exit planners are in frenzy over the opportunities.

So much discussion takes place regarding the owners of these businesses and the fact that they aren’t doing enough “real” planning and if they have, they’re not documenting their plans. But, not much is being said about what the buyers of these businesses are looking for.

Now if you aren’t close to selling you may want to tune me out, BUT DON’T.

No matter where you are in the lifecycle of your company, from startup to Exit, YOU CAN BE A HEALTHY BUSINESS and we can help you.

If you’re one of these owners you need to look at your business the way a buyer would and prepare it for sale accordingly. “What do buyers want?” BUYERS WANT HEALTHY BUSINESSES.

How do you make your business healthy?

Stable, motivated management team

The most important thing I convey to clients is “the more valuable you are to your company, the less valuable it is without you”. Buyers will not pay a premium for anything that leaves with you. If your business if overly dependent on you, it’s going to be hard to sell unless you stay around and teach a potential buyer all you’ve learned in the years you’ve owned your business.  If “it’s all in your head” a buyer will have a hard time.

Buyers will pay a premium for a stable, motivated management team, which can oversee the day to day operations of the company so that a buyer can sustain the same profitability that you did, without you.

Key employees

Buyers want a compensation system in place so that the key employees will remain motivated to stay after they buy the company?  It is essential to have non-compete agreements in place with key-employees so that they can’t take the customers, trade secrets, etc.?

A true “key employee” has the following traits:

  • They have a direct and significant impact on the value of the business
  • They have skills and experience that are very difficult to replace
  • They have an important role in the strategic future of the company

The loss of a “key employee” will have a direct financial loss to the company and will make a buyer very hesitant to purchase any company.

Once the “key employees” are identified then we can design incentive plans that will motivate them to stay with the company long into the future, making any business far more valuable.

A high performing workforce

Buyers want employees’ responsibilities to be connected to revenue generation, not a seniority model with lower-level employees performing simpler tasks. Eliminate redundant jobs, combining activities and increase profit. Ask, why is this activity good for revenue? Do we want to do more of it or, perhaps, eliminate it?

Connect employee activity to company success. How does each employee’s activity contribute to the company’s success?

Give up activities, as the owner, which can be transferred to other employees, making the business more valuable by keeping skills with the company when you leave.

Of all the ways a company can improve its’ efficiency, productivity, and quality of employees to increase the value of a company, this is it.

Well documented systems and automated processes

A buyer wants well documented systems and automated processes in place so they can step in and immediately perform at a high level.

A buyer won’t pay for anything that leaves with you; they don’t want to recreate the wheel so to speak. The buyer’s number one question is “can I rely on the systems and processes that are in place so that my success is repeatable and sustainable?” If they can’t, they may not be able to continue to make the cash flow necessary to pay you the monies owed you.

A business system that is repeatable and sustainable is one understood by employees and used to achieve the desired purpose.  Some of those systems implemented include; human resources, marketing, organizational, administrative, financial, accounting, and sales systems.

You must have effective systems to add value to your company.

Due Diligence

Would you purchase a company without first learning everything you can about it? I think not. Neither will a buyer. This learning process is called “due diligence”.

During the due diligence process, a buyer and buyer’s advisors will examine all aspects of your business, including your contracts, procedures, systems, plans, agreements, leases, manuals, and financial records.

Put yourself in the shoes of the buyer. Begin the due diligence process as quickly as possible so you can remove all barriers to sale prior to the buyer entering your premises. That is why it is extremely important that you and your advisory team clean up all contracts, agreements, stock ledger books, corporate records, leases, or lawsuits before you enter the marketplace.

 Continue Reading Part 2

 

HEALTHY BUSINESSES – FROM START UP TO EXIT

I was reviewing my notes, preparing for my talk on the Business Valuation section of the National Business Institute’s   “Helping your client Buy or Sell a Small-to-Medium Sized Business”, June 4th at the Doubletree in Independence. I picked up the brochure promoting the event and was struck by all the differing sections that go into the sale of any one business.mark-boslett

I went on to my next task, signing up to become a speaker at the COSE Small Business Convention, in October. I have wanted to speak on “Exit Planning” for the past couple of years, but events have gotten away from me (too many other competing tasks). I was filling out the online application and got down to the part where I needed to pick a title for my talk and the light went on. I thought about “all the various sections – ONE BUSINESS” Why don’t I do that with the different things I do? Why have I been thinking of them as separate components?  Aren’t they just parts of one “lifecycle” of any healthy business?

I am certified to do Business Valuations and have been since 2003. I have done many, in several industries, in several states.

I am certified to buy and sell companies and have functioned in that capacity with many clients, even buying my own firm.

I am qualified to do business consulting and have done so in industry and public accounting for over 30 years. I help companies increase sales and decrease costs. I help them make their systems efficient and add value to their businesses.

I even help business owners get ready to Exit their businesses – Exit Planning.  Contrary to their thoughts, they all will exit sometime in the future, whether they’re ready or not.

No matter where you are in the business cycle “From startup to Exit” you want to be a HEALTHY BUSINESS, and I can help you get there. Better yet, I want to help you THAT IS MY PASSION. It has been all along.

Why not view it as one part of the business lifecycle of any HEALTHY business?  No matter where you are in the cycle – from start up to exit- you want to be a HEALTHY BUSINESS.  I can provide “one stop” shopping and quarterback the entire process.

If you want to sell your business for its’ maximum value you need to do certain things, that a buyer will pay you a premium for, and you can’t wait until you’re ready to sell to do them. If you think of your business like a house, you shouldn’t   fix your house up to sell; you should fix it up to live in it (well I do). Business is the same. You want to make as much money TODAY, NOT HAVE YOUR BUYER MAKE IT AFTER YOU SELL.

I have decided to focus my blog on writing about the things that companies should do to be healthy TODAY, so when they are ready to sell they can get maximum value. I intend to publish my blog into a book. I know people who can help me.

If you’re a startup, we’ll talk about doing correct things from the beginning, developing no bad habits. I am amazed at how many business owners cannot read a financial statement. They have no idea how much money they made until well after the year is over.

If you’re in the middle stages, we’ll be talking about forming management teams and adding value to your business. What is value to a potential buyer? What do they want? How do you give it to them?

If you’re ready to Exit, we’ll talk about preparing for an eventual sale, making sure you know the value of your business, knowing who you want to sell to, and whether you’ll have enough money to retire.

If you’re at the sale stage, we’ll see if your business is even ready for sale, correcting the problems before a potential buyer gets involved.

I have a 40 question test on my website – SELLABILITY SCORE. It’s free, so take it and see how you do.

I bought the domain name “healthybusinesses. co”   and eventually will populate it with a resource library that ANY SMALL BUSINESS CAN USE TO GET HEALTHY. Things like:

  • Downloadable content
  • A network of referral partners
  • Seminars
  • Webinars
  • My blog and the book I referred to above
  • White papers
  • Tutorials
  • Videos
  • Perhaps even classes – in partnership

I will keep you posted when I am ready to launch it.

That way no matter where you are in the cycle YOU CAN BE A HEALTHY BUSINESS! I’d be honored to help you get there.

WHAT HAPPENS WHEN YOU ARE READY TO SELL, BUT YOUR BUSINESS ISN’T (PART THREE)?

In the prior two articles, we have talked about making your business valuable without the owner, you, and how to keep your key employees long after the sale takes place.

Three Part Article: Sell Your Business – Part 1 | Sell Your Business – Part 2

Now we want to talk about what happens when you are ready to sell and you haven’t done the proper “due diligence”.

Let’s begin by defining what “due diligence” is. Due diligence is the process a potential buyer, and the buyers representatives, will use to get acquainted with your company. They will examine all aspects of your business, including your contracts, procedures, systems, plans, agreements, leases, manuals, and financial records.

The buyer is looking for any item that will affect the selling price of your company and determine if she actually wants to buy it.  They are looking for reasons to decrease the price and are very good at finding them.

What happens when they discover that most of your information to train employees is in your head? What will they do when they find that you haven’t automated your major procedures, or can’t find your lease to the building you rent? Do you think that will change the price they are willing to pay?

What if your financial records are a mess and you don’t even produce a monthly financial statement? How will they be able to determine how much they should pay?

Before the due diligence process begins, you have control of the information flow. After it begins you give up much of that control.

Put yourself in the buyers shoes and prepare your company for sale. Begin the due diligence process as quickly as possible so you can get the maximum price in a sale.

WHAT HAPPENS WHEN YOU ARE READY TO SELL, BUT YOUR COMPANY ISN’T (PART TWO)?

In the last article we talked about what happens when you are ready to sell your business, but it isn’t ready to be sold. We talked the problems associated with owning a business, that when it’s sold, doesn’t provide enough monies to support your lifestyle, in retirement.

Three Part Article: Sell Your Business – Part 1 | Sell Your Business – Part 3

I mentioned what happens when the owner has too much involvement in a business that it’s not very valuable without her.

Next, let’s talk about “key employees”. What happens if you are about to sell your business, you even have a potential buyer, and one of your “key employees” decides to leave your employ and work for your competitor? Yes, this has happened.

To add insult to injury, he takes several of your best customers, and other employees, with him. That could be crippling to your company. It would certainly change the selling price, wouldn’t it? This circumstance can be avoided, with some effective planning.

Let’s start by describing what a “key employee” is. Key employees are people you can’t afford to lose. They have a direct and significant impact on the value of your business. They have skills and experience that are very difficult to replace. And they have an important role in the strategic future of your company.

How do you keep them from leaving? You “show” them that you value them. You design incentive plans that will motivate them to stay with the company long after the company is sold. In other words “you handcuff them to the business”. That way you can keep the value in your business that a potential buyer is looking for.

 

WHAT HAPPENS WHEN YOU ARE READY TO SELL, BUT YOUR COMPANY ISN’T (PART ONE)?

You have been working to create a successful business for many years, and you’ve decided that it’s time to try something new. You find a reputable investment banker who is able to sell your business and you begin to make your retirement plans; your spouse starts getting excited. Then the problems begin.

Your investment banker has your business valued, by a certified valuation analyst, to determine it’s true value and tells you that your business, your number one asset, is not worth anywhere near what you’ll need to live for the rest of your life. Unfortunately, that’s not an uncommon situation.

What do you do now that you can’t afford to sell your company?  Many owners continue on, but the passion is gone. They continue to work feverishly, trying to add value, so they can sell, but the value of the business begins a steady decline, and they either ultimately sell at a steep discount, or don’t sell at all. This scenario could have been avoided with proper planning.

One of the biggest problems encountered by people selling businesses is that the owner has too much involvement in the day-to-day operations of the business.

A recent survey conducted by “The Sellability Score” found that companies that were able to perform well without their owner for a period of three months or more are 50 percent more likely to get an offer to be acquired when compared to more owner-dependent businesses. In other words, “the more valuable the owner is to a business, the less valuable the business is without them”.

The importance of having a successful and motivated management team may be the difference between getting the highest value possible, and not selling at all.

Conduct a test and take a short vacation. Unplug the computer, turn off the cell phone, and let the management team do the jobs you’ve trained them to do.

When you get back, see how well they’ve done. Help them to do better next time. Provide the resources they need to be successful without you. It may be the most valuable thing you’ve ever done for your business.

Three Part Article: Sell Your Business – Part 2 | Sell Your Business – Part 3

DO YOU OWN A BUSINESS THAT YOU CAN SELL?

That’s a silly question, you say, “of course I do”. “I have spent a lifetime building it.”

Yes, you have spent a lifetime building it, but have you worked “on your business” and added value to it? Do you have an exit plan? Do you have any idea what your business is even worth? Even if you plan on transferring your business to a family member, you want to ensure you are giving them something of value. Is your business valuable to a potential buyer?  Whether you are planning on leaving many years from now or very soon, it’s not too early, or too late, to begin to build a valuable business.

Seventy percent of all business owners in today’s market plan to sell or transfer their companies within the next ten years, but 76% have no Exit Plan, and many others don’t know the value of their business. Are you one of them?

The value of a well thought out, written Exit Plan will:

-Protect the value you already have in your business;

-Help build future value in your business;

-Help provide the financial security needed by you and your family members;

-Determine a course of action should there be any unforeseen events – illness, accidents, death; and

-Help to prepare you and your business for the future.

I have embedded a highly effective tool on my website that you can use as a gauge to help you determine if your business is ready to sell and what items should be addressed to help you add value to it, so you can get the highest possible value from a transfer. The online tool is quick and easy to use, and it generates a personal report that highlights:

-What you should consider when thinking of a business transition;

-How salable your business actually is today;

-How likely it is for you to get a premium offer; and

-What your financial options are.

Get Free Assessment Here

After you complete the questions online, you will receive a score for your business and an explanation of what the score means. Meanwhile, I will be notified that you completed the questionnaire and I will receive a copy of the comprehensive report for your business. Once I receive the report, I will contact you so we can discuss the recommendations together, and discuss any next steps required.

HOW READY ARE YOU TO SELL YOUR BUSINESS? Explained!

1. Have you obtained a Certified Valuation stating how much your business is worth?

Before you can begin the Exit Planning Process successfully, you must know how much your business is worth. If you don’t know how much you’ll likely get from the transfer of your business, how will you know if you’ll have sufficient monies to live the lifestyle you want in retirement?

You must know the value of your business no matter who you plan to sell or transfer to.

In a third party sale you need an accurate business valuation to determine if, after the business is sold and the taxes are paid, you’ll have enough money to achieve your lifetime financial goals. If a business valuation determines that the sale of your business doesn’t provide the money necessary to meet those goals; you may not want to even begin the expensive sales process.

You need a valuation based on reality; rather than an industry rule of thumb, or what the business down the street sold for. Without an objective business valuation, how can you make an informed decision?

2. Have you performed the due diligence necessary to determine that your corporate records are in order so that a timely transfer can be made to a new owner?

Would you purchase a company without first learning everything you can about it? I think not. Neither will a buyer. This learning process is called “due diligence”.

During the due diligence process, a buyer and buyer’s advisors will examine all aspects of your business, including your contracts, procedures, systems, plans, agreements, leases, manuals, and financial records.

Put yourself in the shoes of the buyer. Begin the due diligence process as quickly as possible so you can remove all barriers to sale prior to the buyer entering your premises. Keeping the road to a successful close clear of impediments decreases the time between the buyer’s offer and the closing date. In a sale, time is not often good for a seller, so you want to decrease the time it takes to close.

That is why it is extremely important that you and your advisory team clean up all contracts, agreements, stock ledger books, corporate records, leases, or lawsuits before you enter the marketplace.

3. Do you have well documented systems and automated processes in place so that the buyer can step in and immediately perform at a high level?

A buyer won’t pay for anything that leaves with you; they don’t want to recreate the wheel so to speak. The buyer’s number one question is “can I rely on the systems and processes that are in place so that my success is repeatable and sustainable?” If they can’t, they may not be able to continue to make the cash flow necessary to pay you the monies owed you.

A business system that is repeatable and sustainable is one understood by employees and used to achieve the desired purpose.  Some of those systems implemented include; human resources, marketing, organizational, administrative, financial, accounting, and sales systems.

 

You must have effective systems to add value to your company.

4. Do you have a plan to grow your company to make it sell for the highest value possible?

Each small business owner has the same goal of turning their small business into a successful, highly valued enterprise. Unfortunately many of these same business owners are unable to take their seed of a business and transform it into huge tree of success. Fortunately, there are things that an owner can do in order to increase their business value and achieve top dollar when they’re ready to exit.

Step one: Focus on increasing cash flows and minimizing taxes.

Step two: Create a better customer acquisition strategy.

Step three: Hire or train a successor to you.

Step four: Create recurring or repetitive revenue.

Whether you are interested in selling your business now, in ten years or not sell it at all, it is always important to aim to increase the value of your business.

5. Do you have a business continuity (buy-sell) agreement in place that directs the activity of your business in both a living and after death transfer of your company?

Is your business able to continue if you, the owner (or co-owner), dies, becomes disabled, or otherwise are unable to work in the company, either voluntarily or involuntarily.

Who will be your successor? How will you prepare for the significant financial interruption that will occur as well as how the loss will affect both the customers and the employees?

Business continuity arrangements must cover both life and death scenarios. Your challenge is to obtain a business valuation that is consistent for both events.

6. Do you have a compensation system in place so that your key employees will remain motivated to stay after the sale? Do you have non-compete agreements in place with your key-employees so that they can’t take your customers, trade secrets, etc.?

A true “key employee” has the following traits:

They have a direct and significant impact on the value of the business

They have skills and experience that are very difficult to replace

They have an important role in the strategic future of the company

The loss of a “key employee” will have a direct financial loss to the company and will delay the “exit” of the business owner.

Once the “key employees” are identified then we can design incentive plans that will motivate them to stay with the company long into the future.

7. Do you have financial controls in place that help you obtain financial statements that accurately report your company net profits?

8. Do you have a written Exit Plan in place that holds your advisors accountable for specific activities in specific timetables?

Almost 10 million business owners will reach the age of 50 within the next ten years, and begin to contemplate retirement; perhaps you are one of them.  What have you done to prepare for that day?

What keeps you from preparing for the most important financial event of your lifetime? Is it not worth the time and effort that it will take to do it correctly?

Recent studies have concluded that most retirees live off 95 percent of their pre-retirement income. Isn’t that reason enough to create an Exit Plan that will help you to achieve your financial and lifestyle goals after you leave your business?

If you are not sure where to begin, because you don’t understand the process, you are not alone. However, this is where we can help. There is process, other business owners have used for years, that can help customize an Exit Plan specifically for you.

Leaving your business, in your time, on your terms, is not a mysterious process. It is, however, a means to help you obtain your financial and lifestyle goals:

–          You can leave when you are ready.

–          You can receive the amount you want.

–          You can choose the person who you want to follow you.

9. Do you know when you plan to sell your business and to what type of buyer?  Do you know what the tax effects will be for that sale?

 10. Do you know how much money you will need to live for the rest of your life? How much of that money will you need to obtain outside the sale of your business?

If you answered “yes” to all these questions, you may be ready to begin the process of selling your business. If you are like the vast majority of business owners: however, your answers will show you areas where you need to improve before you begin the sales process.

 

HOW READY ARE YOU TO SELL YOUR BUSINESS?

See explanation of questions here.

  1. Have you obtained a Certified Valuation stating how much your business is worth?
  2. Have you performed the due diligence to determine that your corporate records are in order so that a timely transfer can be made to a new owner?
  3. Do you have well documented systems and automated processes in place so that the buyer can step in and immediately perform at a high level?
  4. Do you have a plan to grow your company to make it sell for the highest value possible?
  5. Do you have a business continuity (buy-sell) agreement in place that directs the activity of your business in both a living and after death transfer of your company?
  6. Do you have a compensation system in place so that your key employees will remain motivated to stay after the sale? Do you have non-compete agreements in place with your key-employees so that they can’t take your customers, trade secrets, etc.?
  7. Do you have financial controls in place that help you obtain financial statements that accurately report your company net profits?
  8. Do you have a written Exit Plan in place that holds your advisors accountable for specific activities in specific timetables?
  9. Do you know when you plan to sell your business and to what type of buyer?  Do you know what the tax effects will be for that sale?
  10.  Do you know how much money you will need to live for the rest of your life? How much of that money will you need to obtain outside the sale of your business?