Blog

The Second Most Important Thing to Negotiate When Selling Your Business

When you get an acquisition offer for your business, it is natural to focus on the offer price, but your employment contract can be a key element of your remuneration.

I know, you don’t want to be an employee but, when you sell, you’ll likely have to sign on for a transition period or earn-out where you will officially be an employee again. The terms of this employment contract are a key element of any deal.

Just ask Eric Sit.

Sit’s company was acquired by Detection Technologies in 2013. Six months later, Detection was acquired and Sit lived to regret the employment contract he had signed.

Listen now to hear Sit’s episode and what he wishes he had thought about before his exit.

When Sit sold CyberWAVE, he was offered shares in Detection rather than cash because 70% of CyberWAVE’s revenue was coming from one customer. Sit could have lobbied for more of his proceeds to be paid up front had he had less customer concentration, something we help you eliminate during module eight of The Value Builder System™. Discovering the areas in your business that need improvement will help you maximize your price when you’re ready to sell. Get started by taking this 13-minute questionnaire.   

Work “On, Not In” Your Business

SmallBusinessD07aR04aP01ZL-Agnew4a

For the better part of 40 years, Michael Gerber has been encouraging business owners to work “on, not in” their business. In this interview of Built to Sell Radio, you’ll hear some of Gerber’s sage advice and get a summary of his new book, Beyond The E-Myth, including:

– Why every company should be built as a product to sell.

– The four stages of building a sellable company.

– How to engage “the beginner’s mind.”

– The four roles of every founder.

– The hierarchy of growth.

Listen now to hear Gerber’s episode on Built to Sell Radio. 

For the better part of 40 years, Michael Gerber has been encouraging business owners to work “on, not in” your business. That’s exactly what we do with business owners that leverage The Value Builder System™.  Each month, business owners get focused time with one of our Certified Value Builders to help you build your company as if it were a product to sell.  Get started by completing your Value Builder Questionnaire and find out how you score on the eight factors that drive your company’s value:

Get Your Value Builder Score Now

Inside the Mind of a Private Equity Investor

GraphOnly

Frank Cottle led an investor group to buy Hi-Mark Software for 10 times EBITDA.  Cottle then sold a chunk for 15 times and ultimately sold his last tranche of equity for more than 16 times EBITDA to Lufthansa.  In this interview, you’ll get deep inside the mind of a private equity buyer and learn:

– three reasons acquisition deals fall apart.

– the difference between your reputation and your brand and which one acquirers value most.

– the definition of “suicide by investor” and the dangers of getting into bed with a private equity group.

– how stock clawbacks can dilute your position to zero in the company you started.

– how a stock re-capitalization works.

– one key decision every entrepreneur must make in growing their company.

– why cross-selling as an investment thesis is flawed.

Listen now for all of Cottle’s lessons.

Selling to a Private Equity (PE) firm can be a high-risk proposition.  While a PE firm may pay cash, more often a PE deal involves you staying on and risking your equity alongside the PE firm, albeit as a diluted and potentially less powerful owner.  The key to getting a deal that works for you is to have some leverage going into a negotiation with a PE buyer and that’s what we focus on with The Value Builder System™.  We want you to enter a negotiation from a position of strength, so you end up getting the very best deal you can when you go to sell your life’s work.

The Latest Built to Sell Forbes Column

Sellability Tracker: Worldwide Trends In The Liquidity Of Privately Held Businesses: The Sellability Tracker is a quarterly study designed to track worldwide trends in the liquidity of privately held businesses.  The Value Builder System team has analyzed data from over 25,000 users of The Value Builder Score from around the world between July 1, 2012, and September 30, 2016.

Find out how you score on the eight factors that drive your company’s value by completing the Value Builder Questionnaire:

Get Your Value Builder Score Now

 

Avoiding Legal Mistakes When Selling Your Business

Thumbnail for 273044

A common mistake that many make when preparing to buy or sell a business is to overlook all the various legal issues involved.  A legal mistake can bring the entire process to a screeching halt or even worse case cost you a small fortune.  For this reason, it is important to carefully evaluate the full slate of relevant legalities.  This article will explore some of the key legal points one need to consider long before placing your business on the market.

Mistake #1 Neglecting to Have a Non-Disclosure Agreement

Having potential buyers sign a Non-Disclosure Agreement or NDA, is critically important when selling your business.  One benefit to having this agreement signed and sealed is that in the event that the deal falls through, which often happens, the buyer can’t disclose the details to other parties.  However, if you don’t have an NDA, the buyer could reveal important aspects of your discussions.  This could impact any future sales.

Mistake #2 Failing to Get an Experienced Attorney

There are times to cut corners, and then there are times when cutting corners or trying to save a dollar is a big mistake.  Prepping to sell your business is one of those occasions where investing in good and proven counsel is a must.  A good attorney can give you a range of legal moves you should and should not make.

Additionally, hiring an attorney with an established experience is just what you need to create ironclad agreements.  Sellers have an array of risks that they must face when selling a business.  For example, the seller needs protection from a potential buyer hiring away key employees.  Without ironclad agreements and a tight NDA, a buyer could pass on buying the business, yet “steal” employees or weaken business in other ways.

Mistake #3 Skipping the Letter of Intent

Another legal way to protect your interests comes in the form of a letter of intent.  This letter should be one of your key tools in negotiating the deal.  Included in this letter should be a termination fee for the buyer.  This applies in the event that the buyer walks away for a reason that is not the seller’s fault.  The inclusion of this clause means that the seller is far less impacted if the deal does not go through as planned.  Further, this clause goes a long way in ensuring that only serious buyers are attracted.

Reap the Benefits of Ample Preparation

These are just a few of the many errors that sellers often make and regret later on.  It is a worthwhile investment to take the legal aspects of selling your business seriously.  If you prepare for the sale of your business, you will have a much more successful experience.  That means you should work with a proven and competent attorney and business broker before you put your business on the market.

________________________________________

Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, 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.

Call Colonial Business Brokerage today at (443) 982-7332.

________________________________________

Copyright: Business Brokerage Press, Inc.

Rido81/BigStock.com

Does your business pass the ‘hit-by-a-bus’ test?

GraphOnly

Most of our Built to Sell Radio episodes have been success stories but this week’s show is a cautionary tale of what happens when you don’t plan ahead.  It features Dan Bradbury, a young entrepreneur who was growing a successful business right up until the day he had a cycling accident and ended up in a coma.

Bradbury made a full recovery after seven months, but his business didn’t make out as well. It suffered in his absence, and instead of committing to build it back up upon his recovery, Bradbury decided to sell it, reasoning he needed to safeguard his family’s finances should anything bad happen again. After a long search, Bradbury found a buyer but the offer he received revealed his weakened negotiating position.You’ll hear Bradbury’s cautionary tale along with:

  • How to build leverage into your negotiations.
  • Why you need a BATNA (Best Alternative To A Negotiated Agreement) when exiting your business.
  • How you can you-proof your business.
  • How you can use accretive value to your advantage.

Listen to Bradbury’s episode now.

Does your business pass the ‘hit-by-a-bus’ test?

Like Bradbury, many of us will end up in the hospital at some point in our lives. If your business isn’t able to cope without you, its value will be reduced dramatically. The Value Builder System™ is a 12-step process we use to separate you from your business so that upon graduation you have a business that can chug along without you. A you-proofed business will be much more valuable—and garner more attractive deal terms—than if it is dependent on you. Complete the first step of The Value Builder System™ now by getting your Value Builder Score.

Get Your Value Builder Score Today

Avoiding Legal Mistakes When Selling Your Business

A common mistake that many make when preparing to buy or sell a business is to overlook all the various legal issues involved. A legal mistake can bring the entire process to a screeching halt or even worse case cost you a small fortune. For this reason, it is important to carefully evaluate the full slate of relevant legalities. This article will explore some of the key legal points one need to consider long before placing your business on the market.

Mistake #1 Neglecting to Have a Non-Disclosue Agreement

Having potential buyers sign a Non-Disclosure Agreement, or NDA, is critically important when selling your business. One benefit to having this agreement signed and sealed is that in the event that the deal falls through, which often happens, the buyer can’t disclose the details to other parties. However, if you don’t have an NDA, the buyer could reveal important aspects of your discussions. This could impact any future sales.

Mistake #2 Failing to Get an Experienced Attorney

There are times to cut corners, and then there are times when cutting corners or trying to save a dollar is a big mistake. Prepping to sell your business is one of those occasions where investing in good and proven counsel is a must. A good attorney can give you a range of legal moves you should and should not make.

Additionally, hiring an attorney with an established experience is just what you need to create ironclad agreements. Sellers have an array of risks that they must face when selling a business. For example, the seller needs protection from a potential buyer hiring away key employees. Without ironclad agreements and a tight NDA, a buyer could pass on buying the business, yet “steal” employees or weaken business in other ways.

Mistake #3 Skipping the Letter of Intent

Another legal way to protect your interests comes in the form of a letter of intent. This letter should be one of your key tools in negotiating the deal. Included in this letter should be a termination fee for the buyer. This applies in the event that the buyer walks away for a reason that is not the seller’s fault. Inclusion of this clause means that the seller is far less impacted if the deal does not go through as planned. Further, this clause goes a long way in ensuring that only serious buyers are attracted.

Reap the Benefits of Ample Preparation

These are just a few of the many errors that sellers often make and regret later on. It is a worthwhile investment to take the legal aspects of selling your business seriously. If you prepare for the sale of your business, you will have a much more successful experience. That means you should work with a proven and competent attorney and business broker before you put your business on the market.

Copyright: Business Brokerage Press, Inc.

Rido81/BigStock.com

5 Ways To Get Your Business To Run Without You

GraphOnly

Some owners focus on growing their profits, while others are obsessed with sales goals.  Have you ever considered making it your primary goal to set up your business so that it can thrive and grow without you?

A business not dependent on its owner is the ultimate asset to own.  It allows you complete control over your time so that you can choose the projects you get involved in and the vacations you take.  When it comes to getting out, a business independent of its owner is worth a lot more than an owner dependent company.

Here are five ways to set up your business so that it can succeed without you:

1. Give Them A Stake In The Outcome Jack Stack, the author of The Great Game of Business and A Stake In The Outcome wrote the book on creating an ownership culture inside your company: you are transparent about your financial results and you allow employees to participate in your financial success. This results in employees who act like owners when you’re not around.

2. Get Them To Walk In Your Shoes If you’re not quite comfortable opening up the books to your employees, consider a simple management technique where you respond to every question your staff

If you’re not quite comfortable opening up the books to your employees, consider a simple management technique where you respond to every question your staff brings you with the same answer, “If you owned the company, what would you do?” By forcing your employees to walk in your shoes, you get them thinking about their question as you would and it builds the habit of starting to think like an owner. Pretty soon, employees are able to solve their own problems.

3. Vet Your Offerings Identify the products and services which require your personal involvement in either making, delivering or selling them. Make a list of everything you sell and score each on a scale of 0 to 10 on how easy they are to teach an employee to handle. Assign a 10 to offerings that are easy to teach employees and give a lower score to anything that requires your personal attention. Commit to stopping to sell the lowest scoring product or service on your list. Repeat this exercise every quarter.

Identify the products and services which require your personal involvement in either making, delivering or selling them. Make a list of everything you sell and score each on a scale of 0 to 10 on how easy they are to teach an employee to handle. Assign a 10 to offerings that are easy to teach employees and give a lower score to anything that requires your personal attention. Commit to stopping to sell the lowest scoring product or service on your list. Repeat this exercise every quarter.

4. Create Automatic Customers Are you the company’s best salesperson? If so, you’ll need to fire yourself as your company’s rainmaker in order to get it to run without you. One way to do this is to create a recurring revenue business model where customers buy from you automatically. Consider creating a service contract with your customers that offers to fulfill one of their ongoing needs on a regular basis.

Are you the company’s best salesperson? If so, you’ll need to fire yourself as your company’s rainmaker in order to get it to run without you. One way to do this is to create a recurring revenue business model where customers buy from you automatically. Consider creating a service contract with your customers that offers to fulfill one of their ongoing needs on a regular basis.

5. Write An Instruction Manual For Your Business Finally, make sure your company comes with instructions included. Write an employee manual or what MBA-types called Standard Operating Procedures (SOPs). These are a set of rules employees can follow for repetitive tasks in your company. This will ensure employees have a rulebook they can follow when you’re not around, and, when an employee leaves, you can quickly swap them out with a replacement to take on duties of the job.

Finally, make sure your company comes with instructions included. Write an employee manual or what MBA-types called Standard Operating Procedures (SOPs). These are a set of rules employees can follow for repetitive tasks in your company. This will ensure employees have a rulebook they can follow when you’re not around, and, when an employee leaves, you can quickly swap them out with a replacement to take on duties of the job.

You-proofing your business has enormous benefits.  It will allow you to create a company and have a life. Your business will be free to scale up because it is no longer dependent on you, its bottleneck.  Best of all, it will be worth a lot more to a buyer whenever you are ready to sell.

Is Your business You-Proof?  Find out today by getting your Value Builder Score.

Get Your Value Builder Score Today

The 8:1 Flip

GraphOnly

Steve Huey bought The Learning House, a company that creates online courses on behalf of colleges, for $2.7MM in 2007 because he saw the opportunity to professionalize the sales and account management of the business.  Five years later, Huey sold the business to Weld North, a private equity company for $27.5MM earning his shareholders an 8 to 1 return.

In this episode, you’ll hear Huey’s advice on:

  • How to raise a $4MM angel round in seven days.
  • An inexpensive way to figure out what your business is worth.
  • Buying a business with little of your own money down.
  • Handling a buyer who drops their offer after signing an LOI.
  • Differentiating between an earn-out and an escrow.

Listen now to hear Huey’s advice.

Have You Built an Automatic Business?

The Learning House garnered an offer from a private equity firm of almost four times their top line revenue because they had a recurring revenue model.  Turning your transactional model into an annuity stream is what we tackle in The Automatic Customer Builder tool, our focus in Module 5 of The Value Builder System™.  Complete Module 1 by getting your Value Builder Score.

Get Your Value Builder Score Today

5 Things to Consider When Transferring Your Business to Family Members

Thumbnail for 263997

Letting go of a business isn’t a process that one should jump into lightly, and that fact holds true even when it comes to your loved ones. Let’s take a look at five of the most important factors to consider when selling or transferring a business to a family member.

#1 The All-Important Buy-Sell Agreement

One of the single most valuable tools available when it comes to selling your business is a buy-sell agreement. Simply stated, this essential document puts everything in writing. In situations such as a family owned business, people may be tempted to skip a contract, but that doesn’t mean they should.

When transferring your business, you should have an expert created document in place that outlines the following:

  • The business valuation
  • Who is to be kept on the payroll and the amount he or she will receive
  • The amount being paid
  • What level of involvement you will have in the business once the transfer has taken place

#2 The Benefits of Gifting

Consider the option of gifting. Gifting can actually work to reduce your taxes on real estate, while at the same time it can allow you to maintain some level of control over the business.

#3 Seller Financing and Transferring the Family Business

Selling your business to a family member is, of course, another option. On occasion, sellers will consider a private annuity, which allows for payments to be spread out for a considerable time period, such as to the end of your life.

#4 The Self-Canceling Installment Note

Another option is to use an installment sale. If you are a selling parent and you happen to pass away before the payments have all been made for the sale, then the remaining debt may be attached to your will. This arrangement can keep your other children from paying excess income tax on your estate.

#5 Keep the IRS Happy

The fact of the matter is that the IRS does, in fact, look more closely into sales where the business is being sold to a family member. This reason alone is a good enough reason to professionally establish a real and accurate valuation of your business.

A business broker can help you work out the particulars as to how best to proceed when navigating the process of selling or transferring your business to a relative. With the right planning and preparation, selling or transferring your business to a relative doesn’t have to be an overly difficult or cumbersome process. Work with a business broker and you’ll find that the process can be smoother than you may have expected.

Copyright: Business Brokerage Press, Inc.

Minerva Studio/BigStock.com

How to Ensure Confidentiality During your Sale

Thumbnail for 258743

Selling a business is a process that depends greatly on professionalism and confidentiality.  Selecting a business broker who understands the critical role that confidentiality plays is simply a must. Unfortunately, countless sellers have in fact dealt with a situation where a breach in confidentiality has caused a deal to fall apart.

A failure to maintain confidentiality can lead to a slew of negative reactions from a range of parties. Everyone from suppliers and vendors to creditors could react in a way that could harm your business, for example, vendors could change their terms and this could in turn negatively impact your cash flow.

A breach of confidentiality could also lead to negative reactions amongst both employees and customers. The reason is that employees may begin to worry about the security of their jobs and may also become nervous about the change in management. These fears could prompt employees to find a new job and leave you with a position that needs to be filled. Potentially more significant is the fact that the loss of key personnel could cause your buyer to have cold feet.

As if all of these factors were not enough of a concern there is also the issue of the competition. If your competition gets wind that you may be looking to sell they may take advantage of the situation and start attempting to steal your customers.

Finally, a breach in confidentiality could send potential buyers running. The headaches that are often associated with a breach in confidentiality are such that potential buyers may simply drop the deal.

The best way to protect your confidentiality is to opt for a great business broker. A business broker is an expert in promoting a business without notifying the competition, your employees, vendors or anyone else. The process is both an art and a science.

When attempting to sell on your own there are many and diverse pitfalls. Sellers are much more likely to accidentally reveal who you are; after all, a seller has to provide phone numbers, email addresses, physical addresses and other critical and identifying information. Even your home phone number could be traced back to your identity and ultimately your business.

A seasoned business broker can help you bypass these potentially damaging issues, by not just shielding your business’ identity but also by ensuring that all interested parties sign confidentiality agreements and are pre-qualified. In this way, you only reveal what is absolutely necessary. In short, it is best to work with a business broker and maintain your confidentiality at all costs.

________________________________________

Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, 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.

Call Colonial Business Brokerage today at (443) 982-7332.

________________________________________

Copyright: Business Brokerage Press, Inc.

Rawpixel.com/BigStock.com