Blog

The Variety of Variables Involved in Selling Your Business

Selling a business is more than a big decision, as it is also quite complex.  Finding the right buyer for a business is at the heart of the matter.  In the recent Forbes article, “Ready to Sell Your Business? Follow These 3 Tips to Find the Best Buyer,” author Serenity Gibbons outlines that selling a business is a multifaceted process with a lot of moving parts.

A central variable for those looking to sell a business is to have a coherent and well thought out exit strategy in place.  She points out that at the top of your to-do list should be selling your business the right way, and that means having a great exit strategy in place.  In fact, many experts feel that you should have an exit strategy in place even when you first open your business.

Another key variable to keep in mind is that, according to Gibbons, only an estimated 20% to 30% of businesses on the market actually find buyers.  This important fact means that business owners, who usually have a large percentage of their wealth tied up in their businesses, are vulnerable if they can’t sell.  It is vital for business owners to make their businesses as attractive as possible to buyers for when the time comes to sell.

This article points to author Michael Lefkowitz’s book “Where’s the Exit.”  This book outlines what business owners need to do to get their business ready for their exit.  Updating your books, ensuring that a good team is in place and ready to go and taking steps to “polish the appeal of your brand” are some of the important topics covered. 

Gibbons notes that “not every buyer with cash in hand is the right buyer for your company.”  Mentioned are three key variables that must be addressed when looking to find the right buyer: consider your successor, explore your broker options and find a pre-qualified buyer.

In the end, working with a business broker is the fastest and easiest way to check off all three boxes.  An experienced professional knows the importance of working exclusively with serious, pre-qualified buyers.  Since a good business broker only works with serious buyers, that means business brokers can greatly expedite the process of selling your business. 

In her article, Gibbons supports the fact that working with a business broker is a smart move.  Those looking to get their business sold and reduce an array of potential headaches along the way, will find that there is no replacement for a good business broker.

Copyright: Business Brokerage Press, Inc.

FreedomTumZ/BigStock.com

How To Place A Value On Your Sales Team

Mark Deutschmann started Village Real Estate in 1996 and grew his residential real estate brokerage to 350 agents and $30 million in revenue – then, he heard some disturbing news. One of his agents and five former colleagues had been secretly planning to launch their own agency to compete with Deutschmann.

Rather than steeling for a fight, Deutschmann suggested the six agents simply buy Village Real Estate instead. So they did – and only for a few weeks later for $9.75 million.

In this episode, you’ll learn:

  • How to value a sales agency
  • How to get an extra 21% for your company (Deutschmann’s original offer was only $8 million, but he received $9.75 million)
  • The perfect time to sell your company (hint: it’s when someone is ready to buy it)
  • The surprising benefit to your marriage of cashing out

Listen Now

______________________________________

If you’re interested in improving the value of your business, take our questionnaire or contact Colonial Business Brokerage today at 443-982-7332.

A Closer Look at 3 Major Factors to Consider When You Buy a Business

 

The simple but undeniable fact is buying a business is one of the single greatest financial decisions a person can make.  Buying a business can lead to great financial success or great financial failure.  This fact helps to underscore why it is so important to work with an experienced broker who can help guide you through the often labyrinthian process of buying a business.

In a July 2019 article from Smallbusiness.co.uk, author Kyle Carins explores three key factors that everyone should consider before they buy a business.  The first factor covered in Carins’ article, “3 Things to Consider When Buying a Business,” is appeal vs. viability. 

Appeal Vs. Viability

Not surprising, the most important variable for most prospective owners is that the business is indeed viable.  Not being able to differentiate between an appealing business and one that is viable can lead to financial disaster. 

As Carins points out, “Do you want to make money or do you want to fulfill a dream?”  Sometimes those two variables can intersect, but not always and not often.  In the end, it is vital to know whether a given business is, in fact, potentially lucrative. 

However, as Carins points out, it is also important that you choose a business that you will enjoy.  Nothing can be more spirit crushing than running a business that you truly hate, even if it is lucrative.  Selecting the right business for you is something of a balancing act that must take in a variety of often competing variables.

Considering Hidden Costs

The second factor that Carins looks at is the issue of “hidden costs.”  One of the key reasons that it is so important to work with a business broker is that a business broker understands these kinds of factors that you might otherwise overlook.  Due diligence is amazingly important.  For those who have never bought a business before, working with a business broker offers substantial protection against making a potentially serious mistake.

Second Opinions

The third factor examined in Carins article is “Getting a second opinion.”  For Carins, getting a second opinion is actually linked to due diligence.  He feels that additional opinions regarding a given business should go beyond working with professionals and should also include talking to friends and family who know you well.  Additional opinions can help one see angles that might otherwise be missed. 

Again, buying a business is complicated and will take up a good deal of one’s time and mental energy.  Your friends and relatives, understand your personality and your wants and desires.  Their input can be particularly beneficial.

Finding an experienced business broker can help you do more than simply establish whether or not a given business is a “good deal.”  Brokers with years of proven experience can also help you determine whether or not a specific business is a good fit for you and your lifestyle.

__________________________________

Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, value your business, or are personally interested in owning or building value in your own company or franchise, Colonial Business Brokerage offers the professional services that successfully bring buyers and sellers together.

Copyright: Business Brokerage Press, Inc.

Yacobchuk/BigStock.com

How Re-Modeling A Swimming Pool Business Led To A 7-Figure Exit

Tommy Berretz co-founded Texas Aquatic Enterprise (TAE) in 2005 to maintain commercial swimming pools for condominium groups, apartment buildings and schools.

The business grew to more than 200 employees on the back of Berretz’s sales skills. That’s when he hired an accountant to value TAE. Berretz waited patiently as the accountant ran the numbers but was ultimately disappointed by the result.

The account had chosen to value Berretz’s business based on his assets alone reasoning that without Berretz himself, TAE was worthless.

At first he was disappointed and a little angry. Then Berretz set about re-modeling TAE to be less dependent on him which ultimately culminated in a seven-figure exit.

In this episode, you’ll learn:

  • The secret to hiring sales people for replacing you as a rain maker
  • The number one hire Berretz made (it may not be who you think)
  • Why you should never sign a “standard agreement”
  • Why Berretz ultimately sold to his second highest bidder

Listen Now

________________________________

If you’re interested in improving the value of your business, take our questionnaire or contact Colonial Business Brokerage today at 443-982-7332.

How To You-Proof Your Business

In 2007, David Heimlich started a recreational sports league for adults, Nation Leagues, with nothing more than a $60 loan from his father.

After 11 years, he fell ill and needed to sell – but his hard work over the years amounted to a business of no value. Why? Heimlich ran every aspect of the business (from marketing, registration, and even refereeing the games). Without him, Nation Leagues was worthless.

Heimlich had one choice: transform the business into one that could thrive without him. Find out how he did it.

In this episode, you’ll learn:

  • Why lessons from the sale of a local sports league can apply to businesses of any size
  • How Heimlich made Nation Leagues less dependent on him
  • The role pricing played on Nation League’s growth
  • Why a failed sale turned into incredible growth

Listen Now

_________________________________________

If you’re interested in improving the value of your business, take our questionnaire or contact Colonial Business Brokerage today at 443-982-7332.

90 Days That Will Define Your Business Forever

You’ve done the hard work of winning a new customer, but it’s what you do in the next 90 days that determines if it’ll stick around.

The first 90 days of any new relationship are critical:

– A president has about three months to inspire the electorate and gain the political capital he needs to govern.

– A young team prospect has but a few months to impress his coach before being sent down to the minors.

–  new CEO has 90 days to learn her job before the rank and file start expecting tangible leadership.

The On-boarding Window:  The First 90 Days

For a young company, the first 90 days of a customer relationship are equally important.  Research into the subscription business model shows that getting a customer to effectively start using your product in the first 90 days leads to an increase in lifetime value of up to 300 percent for some companies.

Take a look at marketing software provider Constant Contact, which used to struggle with the first 90 days of a new customer relationship. In the old days, Constant Contact took a “who, what, when” approach to on-boarding new customers. Who stood for who a customer wanted to send an email campaign to; what stood for what the customer wanted to send; and when described the timing of the campaign. After users signed up for its service, Constant Contact would ask customers to upload their email database (the who in the three-step on-boarding process). This required the new user to upload a customer list–which is the trickiest part of the on-boarding experience. It required the customer to leave Constant Contact’s site and struggle with how to export a contact list–often from a jury-rigged database kept in Excel or Outlook. The process was awkward, and many new customers stopped using Constant Contact because they hit a barrier before they had a chance to fall in love with the Constant Contact software.

What, Who, When

Wanting to stem new customer churn, Constant Contact changed its on boarding to focus first on the what. Immediately after signing up, new users were encouraged to create their first email campaign. Suddenly customers were seeing their campaign come to life in front of their eyes. Constant Contact offered customers a library of stock images that looked more beautiful than anything a business owner had used in the past. Customers could see firsthand how professional their company was going to look.  Only after the customer had completed the what stage and earned the emotional reward of seeing its first campaign come to life, did Constant Contact switch to the who part of creating a campaign. The difference was, by this point, Constant Contact had enough relationship equity with the customer to get it over the hump of uploading its database.

This minor reordering of the on-boarding flow led to a dramatic reduction in customer churn–which is the death knell of any subscription business.

Whether you’re in a subscription business, or still using a transaction business model, how you treat a customer in the first 90 days will go a long way in determining their overall satisfaction.  To benchmark your customer satisfaction against world class brands, get your Value Builder Score now T www.colonialbb.com/vbs.

____________________________________________________

If you’re interested in improving the value of your business, take our questionnaire or contact Colonial Business Brokerage today at 443-982-7332.

Was The Inc. 500 The Reason For This Founder’s Exit?

James Roman founded iVelocity, a digital marketing agency for healthcare professionals. With a goal of getting on the Inc. 500 list, he wanted to scale quickly – and he did. Between 2013 to 2016 the company grew 10 times and increased its gross revenue by 1000%.

…But it was the stress of a big company that broke the camel’s back.

Roman wanted out and would ultimately sell iVelocity for 3 times EBIDTA. Find out why the success of his company pushed him out sooner.

In this episode, you’ll learn:

  • The unseen stressors of running a company
  • While accolades like being on the Inc. 500 list can be bittersweet
  • The rules Roman broke as part of his sale, and why he did it
  • How to use contractors as a way of ‘dating’ potential employees

Why you need to run your company like you’re not planning to sell, even as you approach the sale’s finish line

Listen Now

_____________________________________________

If you’re interested in improving the value of your business, take our questionnaire or contact Colonial Business Brokerage today at 443-982-7332.

Dealing with Inexperience Can Ruin the Deal

 

The 65-year old owner of a multi-location retail operation doing $30 million in annual sales decided to retire.  He interviewed a highly recommended intermediary and was impressed.  However, he had a nephew who had just received his MBA and who told his uncle that he could handle the sale and save him some money.  He would do it for half of what the intermediary said his fee would be – so the uncle decided to use his nephew.  Now, his nephew was a nice young man, educated at one of the top business schools, but he had never been involved in a middle market deal.  He had read a lot of case studies and was confident that he could “do the deal.”

Inexperience # 1 – The owner and the nephew agreed not to bring the CFO into the picture, nor execute a “stay” agreement.  The nephew felt he could handle the financial details.  Neither one of them realized that a potential purchaser would expect to meet with the CFO when it came to the finances of the business, and certainly would expect the CFO to be involved in the due diligence process.

Inexperience # 2 – It never occurred to the owner or his nephew that revealing just the name of the company to prospective buyers would send competitors and only mildly interested prospects to the various locations.  There was no mention of Confidentiality Agreements.  Since the owner was not in a big hurry, there were no time limits set for offers or even term sheets.  It would only be a matter of time before the word that the business was on the market would be out.

Inexperience # 3 – The owner wanted to spend some time with each prospective purchaser.  Confidentiality didn’t seem to be an issue.  There was no screening process, no interview by the nephew.

Inexperience # 4 – The nephew prepared what was supposed to be an Offering Memorandum.  He threw some financials together that had not been audited, which included a missing $500,000 that the owner took and forgot to inform his nephew about.  This obviously impacted the numbers.  There were no projections, no ratios, etc.  This lack of information would most likely result in lower offers or bids or just plain lack of buyer interest.  In addition, the mention of a pending lawsuit that could influence the sale was hidden in the Memorandum.

Inexperience # 5 – The owner and nephew both decided that their company attorney could handle the details of a sale if it ever got that far.  Unfortunately, although competent, the attorney had never been involved in a business sale transaction, especially one in the $15 million range.

Results — The seller was placing almost his entire net worth in the hands of his nephew and an attorney who had no experience in putting transactions together.  The owner decided to call most of the shots without any advice from an experienced deal-maker.  Any one of these “inexperiences” could not only “blow” a sale, but also create the possibility of a leak.  The discovery that the company was for sale could be catastrophic, whether discovered by the competition, an employee, a major customer or a supplier .

The facts in the above story are true!

The moral of the story – Nephews are wonderful, but inexperience is fraught with danger.  When considering the sale of a major asset, it is foolhardy not to employ experienced, knowledgeable professionals.  A professional intermediary is a necessity, as is an experienced transaction attorney.

____________________________________________

Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, value your business, or are personally interested in owning or building value in your own company or franchise, Colonial Business Brokerage offers the professional services that successfully bring buyers and sellers together.

Copyright: Business Brokerage Press, Inc.

Nyul/BigStock.com

5 Lessons from Game of Thrones for Exiting Business Owners

written by Jane Johnson, Business Transition Academy

Were you – like hundreds of thousands of fans – unhappy with the finale of Game of Thrones (GOT)? According to a number of news outlets, more than 50% to 60% of viewers were dissatisfied or even outraged at the outcome. There was even a petition circulating that demanded a “re-do” which, of course, isn’t going to happen.

Running a business may seem like an episode of GOT at times, i.e. forging alliances, marching into battle, conquering your enemies… Cersei Lannister did warn in the first season, “When you play the game of thrones, you win or you die.” As you well know, the same may be said about playing the great game of business.

However, unlike GOT fans, when it comes time for your inevitable exit from your business, you have a good deal of power in planning for the outcome whether you plan to sell to a third-party or to family members or employees. “GOT gives us life, leadership and business lessons. Every character is written in such a manner that they teach us to learn from our mistakes, grow wiser, understand the world and never give up,” an Entrepreneur article argues.

So, we’ve pulled together 5 key lessons that exiting owners can learn from Game of Thrones.

1. Plan your strategy wisely

Exiting your business is anything but simple. Business owners are often so focused on the day-to-day challenges of running their businesses that they can’t see the big picture or plan for the long-term. But, this lack of planning can jeopardize the future of your company as well as your financial security. Should you sell externally or pass it along to a family member or an employee?

You will need to consider your financial needs, the needs of your business, employees, and family – it can be difficult to wrap your head around so many moving parts. But you can do it successfully with careful planning and ample time, which is why you need to educate yourself about your business transition options and devote time to the exit planning process well in advance.

2. Be prepared for the worst 

While it might not be the same level of death and destruction as in GOT, businesses face serious risks on a daily basis. Would your business be able to continue on without you should you become ill, incapacitated, or pass away? Other on-going dangers that businesses face include financial, operational, political, business interruption, failure to innovate, damage to reputation, increased competition, natural disasters, compliance (OSHA or EPA), and business obsolescence.

In the face of these risks, there are many facets of risk management that need to be addressed, including contingency planning, insurance, business continuity, health and safety, corporate governance, and finances. Having a plan in place and being able to put it into immediate action can mean the difference between staying open or closing your doors should disaster strike.

3. Take the emotion out of business leadership. 

While many fans were disappointed by the chosen king, Bran, a Vox article contends that it kind of makes sense: “Bran as king makes at least some thematic sense. One of Game of Thrones’ obsessions concerns the impossibility of just leadership, because we are all limited by our human passions, intelligence, and blind spots… Bran—who can see everything that has ever happened—kinda-sorta isn’t human anymore. The implication, then, is that a just and wise ruler is someone who is so disconnected from humanity that his dispassion becomes an asset…”

As business owners, it can be difficult to take the emotional aspects out of your business. Unfortunately, most of us don’t possess Bran Stark’s gift (or curse) of being able to see the past, present, and the future. After spending so much time and energy in your business, it can be especially challenging to re-establish your identity outside the business. But it’s partcularly necessary to remove the emotional aspects as you think about your transition. You will need to remain clear-eyed and focused on your ultimate goal, including choosing your exit strategy, planning for successors, and writing your next chapter.

4. Your successor might not be who you think it is

“Over the course of Game of Thrones’ eight seasons, Bran Stark gradually evolved from being one of the show’s more peripheral characters to being one of its most central and significant. For a long time, many viewers might have had little interest in his long quest to travel north and become the Three-Eyed Raven.” (Vox)

Try to keep an open mind when it comes to choosing who will take your place. It could be someone you haven’t considered. You will have to be objective in assessing their capabilities, skills, and desire to become the new owner. Not everyone has the entrepreneurial spirit, talent, or is in the right life situation to run a business. It’s important to pick someone who thinks like an entrepreneur and has the experience, and confidence to run the business. Identifying the right person is a process that requires careful thought and planning.

5. Know who to trust

Like the world of Westeros, the world of exit planning and mergers and acquisitions can be a very dangerous place, especially if you are inexperienced – and you need to be careful in selecting those you trust. Selling your business, whether to an individual, a competitor, a private equity group, or someone internally, can be a potential minefield.

You will be well served to enlist the assistance of the right, trustworthy advisory team who can help guide you through the process, based on your unique circumstances. They can help you build company value, prepare you to compete in the marketplace, perform pre-deal diligence, and address potential deal killers in advance. There are myriad aspects to consider and lots of decisions will need to be made. Not having the right team in place could cost you. Working with trusted advisors who are uniquely trained in this discipline will enable you to create a comprehensive plan that will achieve your desired outcome.

Be the Master of Your Own Destiny

While you might not have been happy with the outcome of Game of Thrones, if you’re an owner who is thinking about exiting your business in the next few years, you have control over the ending of this chapter of your life. Just like in GOT, you won’t have the option of a re-do. Without a solid exit plan, you might not be happy with the outcome.

When it comes to planning for the future of your business, your family, and your retirement, there are no shortcuts to success. And just like in Game of Thrones, there are lots of dangers and pitfalls along the way. Most owners will only go through the sale of one business in their lifetime and it is usually the largest financial transaction of their life. Don’t leave the outcome to chance. Be the master of your own destiny; start planning your exit today.

_______________________________________________

Could YOU Cash Out Of Your Business?

All owners will leave their business one day. Will yours be planned or unplanned?

Download your copy of ‘Cashing Out of Your Business – Your Last Great Deal’ here.

_______________________________________________

If you’re interested in improving the value of your business, take our questionnaire or contact Colonial Business Brokerage today at 443-982-7332.

 

The Variables that Drive and Influence Business Valuations

If you’ve never bought or sold a business before, then the factors that drive and influence business valuations likely seem a bit murky.  In a recent Divestopedia article from Kevin Ramsier entitled, “A Closer Look at What Drives and Influences Business Valuations,” Ramsier takes a closer look at this important topic. 

Business brokers and M&A advisors play a key role in helping business owners understand why their business receives the valuation that it does.  No doubt, the final assessed value is based on a wide array of variables.  But with some effort, clarity is possible.

In his article, Ramsier points out that “value means different things to different buyers” and that the “perceived value depends on the circumstances, interpretation and the role that is played in a transition.”  It is important to remember that no two businesses are alike.  For that reason, what goes into a given valuation will vary, often greatly. 

Looking to EBITDA

Ramier points to several metrics including return on assets, return on equity and return on investment.  Another important valuable for companies with positive cash flow is a multiple of EBITDA, which stands for “earnings before interest, taxes, depreciation and amortization.”  EBITDA is widely used in determining value.  On the flip side of the coin, if the company in question has a negative cash flow, then the liquidation value of the business will play a large role in determining its value.

Primary Drivers to Consider

Ramsier provides a guideline of Primary Drivers of Valuation, Secondary Drivers of Valuation and Other Potential Drivers of Valuation.  In total there are 25 different variables listed, which underscores the overall potential complexity of accurately determining valuation. 

In the Primary Drivers of Valuation list, Ramsier includes everything from the size of revenue and revenue stability to historical and projected EBITDA as well as potential growth and margin percentages.  Other variables, ones that could easily be overlooked, such as the local talent pool and people training are also listed as variables that should be considered.

Support for the Business Owner

The bottom line is that determining valuation is not a one-dimensional affair, but is instead a dynamic and complex process.  One of the single best moves any business owner can make is to reach out to an experienced business broker. Since business brokers are experts in determining valuation, owners working with brokers will know what to expect when the time comes to sell.

_______________________________________

Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, value your business, or are personally interested in owning or building value in your own company or franchise, Colonial Business Brokerage offers the professional services that successfully bring buyers and sellers together.

Copyright: Business Brokerage Press, Inc.

Kuprevich/BigStock.com