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Exploring the Offering Memorandum

Posted by & filed under Build Business Value, Building Business Value, Business Owner, Business Valuation, Exit Planning, Seller Articles, Seller FAQ, Selling a Business, Valuation, Value Builder System™.

Are you a business owner who is interested in selling?  If so, there are some strategies you should undoubtedly use.  At the top of the list is the all-important offering memorandum.  The offering memorandum, often referred to as a selling memorandum, is a straightforward but highly effective way to help you obtain the highest possible selling price.

Shaping the Executive Summary

The offering memorandum must be factual.  However, at the same time, this memorandum allows for a bit of business promotion and selling, which can be included in the executive summary portion of the document.  After all, potential buyers will want to know more about your business and why buying it would be a savvy decision. 

In short, the executive summary section of the offering memorandum goes over the highlights of your company.  It should include an outline of several key factors.  Everything from an outline of the ownership and management structure, description of the business and financial highlights to a general review of your company’s products and/or services should all be covered.  Additional points to include would be variables, such as information about your market, and the reason that the business is for sale.

Your executive summary, simply stated, is extremely important.  A coherent and compelling executive summary will motivate prospective buyers to learn more.  In short, you want the executive summary of your offering memorandum to shine.  It should capture the attention and the imagination of anyone that reads it.

Other Essential Elements to Include

Some elements are absolutely a must to have in your offering memorandum.  An overview of your company and its history as well as its markets and products are all good places to begin your offering memorandum.  Other key elements ranging from distribution, customers or clients and the competition should also be included. 

Factors such as management, financials and growth strategies should not be overlooked, as many prospective investors may flip to those sections first.  Finally, be sure to include any competitive advantages you may have as well as a well-written conclusion and exhibits.  The more polished and professional your offering memorandum, the better off you’ll be.

An easy way to improve the overall quality of your offering memorandum is to work with a seasoned business broker.  A professional business broker knows what information should be included in your offering memorandum.  He or she will also know what not to include.  Remember that your offering memorandum may be the first point of contact between you and many prospective buyers.  You’ll only get one chance to make a first impression.

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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.

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Finding Your Subscription Model

Posted by & filed under Build Business Value, Building Business Value, Business Owner, Exit Planning, Seller Articles, Seller FAQ, Selling a Business, Valuation, Value Builder System™.

John MacInnes ran Print Audit, a printer and photocopier management software, for 20 years.

In 2012, the company suffered a rude awakening when its biggest client – who made up more than two thirds of their revenue – dropped their monthly spend by 90%.

MacInnes had to pivot… quickly. He evolved Print Audit to a subscription-based model, focusing on a diverse client base with 80% of expenses ear marked for customer retention. That one move helped MacInnes sell Print Audit for a healthy multiple in 2019.

In this episode, you’ll learn:

  • The importance of customer diversification
  • Why a subscription revenue with just $1 of profit will keep your company running infinitely
  • MacInnes’s 80-20 rule for maintaining revenue
  • How Print Audit’s strategic value attracted a buyer
  • What it was like to deliver checks to McInnes’ initial investors after he’d sold the company

Listen Now

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

Shaping Your Plans for a Successful Future

Posted by & filed under Build Business Value, Building Business Value, Business Owner, Business Valuation, Exit Planning, Valuation, Value Builder System™.

Shaping Your Plans for a Successful Future

When we talk about planning for the future, we often talk creating a plan. The idea of creating something as big as a plan for the future can imply a ton of from-scratch work (as is often the case), which can cause you to want to put that ton of work off to another day. As a successful (and likely busy) owner, you may not think you have time to create a plan. However, there’s good news, because when it comes to planning for a successful future, it’s more a matter of shaping than creating.

Shaping a Plan vs. Creating a Plan

You understand how much work creation requires. You created your business, its processes, and most of the aspects that make the business successful. As you age and approach the next stage in your business life, you may not want to put that kind of work into a plan for the future. How, then, can you avoid the feeling of helplessness that can come from knowing you have something big to do and either no drive or guide to pursue it?

The key is to re-frame creating as shaping.

This isn’t merely a semantic trick. You likely have a general idea for what you want your future to look like, even if you don’t have a formal plan. For example, you may have an idea for when you want to be out of your business. You might have a preference for who will take over once you exit. You might have desires for what you will do with all the money you’ll have from successfully selling or transferring your business. The ideas are there. They simply don’t have any shape.

How can you give these nebulous but high-potential ideas shape? It all starts by collecting data and setting strategy.

Collecting Data and Setting Strategy: Step 1 in Shaping a Plan

Planning cannot truly begin unless you know what you want and need. For example, can you confidently say exactly how much money you’d need to one day exit your business with financial security? Do you know what it would take for your family to continue living their current lifestyles if you chose to never exit your business or, worse, were forced from your business (by death, incapacitation, or otherwise)? These are big, introspective questions that have real, often negative consequences if left unanswered. How can you approach them and still successfully run your business?

A good way to begin shaping your plans is to collect data and set a strategy. To do this, you should start by establishing a few objectives.

Establishing Objectives

Though there are many facets to a successful plan, there are three overarching objectives that you should establish. Without knowing these three objectives, it’s nearly impossible to shape a successful plan for the future.

  1. The Foundational Goal – Financial Security: Absolutely no plan for the future can ever be considered successful unless it achieves financial security for you and your family members. Your financial security goal is unique, so avoid temptations to compare what would make you financially secure with what makes others financially secure. You should determine what it takes to achieve financial security first and foremost.
  2. Universal Goals – When, for How Much, and to Whom: Given all the work you’ve put into building your business, you’ll likely want a say in when you eventually leave or transfer your business, how much you get for your business, and to whom you leave your business. Once you begin to think about these wants, you may find that you want solutions to the questions these wants create, such as “How can I get the money I need?” and “Why do I want to transfer my business to this person?” Determining universal goals takes your nebulous ideas and shapes them into actionable goals.
  3. Values-Based Goals – Keeping Principles Intact: A common stumbling block for owners is uncovering their values-based goals. These goals are basically living principles. For example, you might want your company to remain in your community after you sell or transfer it. For many owners, this desire can be so strong that they’ll gladly take less than top dollar (but still achieve financial security) to see it through. Unfortunately, many owners don’t realize how important their values are until the moment it’s time to exit, at which point, it’s often too late to do anything about it without throwing the entire plan into chaos. Though this part of data collection is equal parts art and science, it’s important for you to uncover and address your values-based goals early.

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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.

From Billion Dollar Startup To Bankruptcy And Back Again

Posted by & filed under Build Business Value, Building Business Value, Business Owner, Business Valuation, Exit Planning, Seller Articles, Seller FAQ, Selling a Business, Valuation, Value Builder System™.

Back in 1996, Sunny Vanderbeck started Data Return, a business that provided website hosting to big e-commerce companies. They grew 40% every quarter leading to an Initial Public Offering (IPO) in 1999 and an eventual market capitalization of $3 billion.

Then the internet bubble burst.

Customers started failing and Data Return’s growth flat lined. Despite the effect the market crash had on Data Return’s business, computer giant Compaq still saw a lot of value in the company and readied an acquisition offer of around $1 billion.

Closing day with Compaq came and went without a signed purchase agreement. Three days later, Compaq announced they had merged with HP. Compaq’s acquisition of Data Room was dead.

Data Room was burning cash and Vanderbeck figured they had six months to get a deal done before they could face mortal danger.

Find out what Vanderbeck did next to fall from running a $3 billion company to owning some shares in a bankrupt business – to ultimately ending his lengthy stint by selling Data Return to Terremark Worldwide for $70 million in cash and $15 million in Terremark stock.

Sunny’s story includes both the best and worst of selling companies, in this episode you’ll learn:

  • The definition of reverse due diligence and how to do it on your acquirer
  • 3 tips for ensuring you don’t end up regretting the decision to sell
  • When to listen to your advisors (and when to tune in your gut instead)
  • The definition of “fundamental reps” and how to react to an acquirer’s request for them
  • The definition of “founder’s speak” and how to spot it
  • How something known as “hero mode” can undermine your company’s value

Listen now

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

Effectively Utilizing Confidentiality Agreements

Posted by & filed under Business Owner, Buyer Articles, Buyer FAQ, Buying a Business, Seller Articles, Seller FAQ, Selling a Business, Uncategorized.

Every year countless great deals, deals that would have otherwise gone through, are undone due to a failure to properly utilize and follow confidentiality agreements.  A failure to adhere to this essential contract can lead to a myriad of problems.  These issues range from employees discovering that a business is going to be sold and quitting to key customers learning of the potential sale and taking their business elsewhere.  Needless to say, issues such as these can stand in the way of a sale successfully going through.  Maintaining confidentiality throughout the sales process is of paramount importance.

Utilizing a confidentiality agreement, often referred to as a non-disclosure agreement, is a common practice and one that you should fully embrace.  There are many and diverse benefits to working with a business broker; one of those benefits is that business brokers know how to properly use confidentiality agreements and what should be contained within them.

By using a confidentiality agreement, the seller gains protection from a prospective buyer disclosing confidential information during the sales process.  Originally, confidentiality agreements were utilized to prevent prospective buyers from letting the world at large know that a business was for sale. 

Today, these contracts have evolved and now cover an array of potential seller concerns.  A good confidentiality agreement will help to ensure that a prospective buyer doesn’t disclose proprietary information, trade secrets or key information learned about the business during the sales process.

Creating a solid confidentiality agreement is serious business and should not be rushed into.  They should include, first and foremost, what areas are to be covered by the agreement, or in other words what is, and is not confidential.  Additional areas of concern, such as how confidential information will be shared and marked, the remedy for breaches of confidentiality and the terms of the agreement, for example, how long the agreement is to remain enforced, should also be addressed. 

A key area that should not be overlooked when creating a confidentiality agreement is that the prospective buyer will not hire any key people away from the selling company.  Every business and every situation is different.  As a result, confidentiality agreements must be tailored to each business and each situation.

 When it comes to selling a business, few factors are as critical as establishing and maintaining confidentiality.  The last thing any business wants is for its confidential information to land in the hands of a key competitor.  Business brokers understand the value of maintaining confidentiality and know what steps to take to ensure that it is maintained throughout the sales process.

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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.

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Starting Vs. Growing a Business

Posted by & filed under Build Business Value, Building Business Value, Business Owner, Business Valuation, Buyer Articles, Buyer FAQ, Buying a Business, Valuation, Value Builder System™.

Most company founders are good at the first stages of entrepreneurship. But in the phases that follow, they may only be average. Just because you have a knack for starting companies, doesn’t necessarily mean that those skills translate well into growing one.

There are celebrated cases of founders who have successfully started and grown a business – Elon Musk and Bill Gates come to mind. There are, however, many more examples of entrepreneurs who perform well initially and then hold back their company as it ages. But, as a business owner, you can avoid this.

How One Founder Unlocked the True Value of His Company

Damian James grew up in Melbourne and learned a lot about the aging population in Australia. Realizing that healthcare could be a lucrative field, he discovered a sector ripe for disruption, podiatry. This is a branch of medicine devoted to the diagnosis, medical and surgical treatment of foot and ankle disorders.

At the time, most podiatrists in Melbourne worked from a retail location where the doctor owned and operated a private practice. The podiatrist would rent space, hire some staff, and charge patients per visit. At night, some enterprising doctors would also visit old age homes to offer care. Reasoning that many old people nodded off shortly after dinner, James saw an opportunity for a podiatrist to visit old age homes during the day when it was more convenient for patients.

 

The Million Dollar Idea

James, who had earned a bachelor’s degree in Podiatry in 1996, started Aged Foot Care. He approached old age homes with a compelling offer of removing the traditional overhead of an office.

Aged Foot Care went through a variety of growing pains over the years, including an expensive rebranding to the name Dimple. By 2015, Dimple was generating roughly $200,000 of profit on $2.5M in revenue.

Time to Grow

Despite his success, James was frustrated. The company’s growth had stalled. His management team seemed perpetually incapable of hitting its targets.

Quarter after quarter, he would set goals with his team, but they would fall short. James decided it was time to bring in outside help, so he hired a Chief Operating Officer.

To recruit the new COO, James knew he would need to give up some equity, so he commissioned a valuation for Dimple which came in at $2.5 million. He offered a salary, plus 5% of the company. James also offered another 3% of the business (up to a maximum of 20%) for every $1 million the COO would grow Dimple’s revenue past $5 million.

The new role was a success. James quickly promoted him to Chief Executive Officer and stepped back from the day-to-day operations. He decided to let the company thrive under the new CEO’s leadership.

Down to just one day a week, James limited his involvement to providing a vision and protecting the company’s core values. The CEO, on the other hand, ran the day-to-day business – pursuing James’ core strategy of contracting with aged care facilities.

The company hit $11 million in revenue by 2017.

 

The Big Bonus

Zenitas had a similar strategy of bringing healthcare to patients in homes or care centers rather than having them languish in hospital beds. The company was keen to add podiatry to its stable of services. The decision makers realized that acquiring Dimple would allow it to become an overnight market leader.

In July 2017, Zenitas announced they had acquired Dimple for $13.4 million. Under different leadership, the company had grown in value over 500% in less than three years.

Starting and growing a company require different skills which are rarely found in the same individual. This begs the question, ‘is it time to find someone else to run your business?’

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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 Hidden Benefits of Planning Your Succession Strategy

Posted by & filed under Build Business Value, Building Business Value, Business Owner, Business Valuation, Exit Planning, Seller Articles, Seller FAQ, Selling a Business, Valuation, Value Builder System™.

 

Succession planning is something that many business owners fail to think about; however, it turns out there are benefits to succession planning that might not be immediately obvious upon first glance.  In this article, we’ll explore a recent Accountancy Daily article, “Succession Planning for Business Owners,” which details the wisdom and benefits of succession planning.

Accountancy Daily polled 500 SME owners and uncovered a variety of interesting facts.  At the top of the list is that one-third of owners felt more confident about the future of their businesses when they had a coherent succession strategy. 

In what can only be deemed a surprising finding, the poll discovered that 17% of respondents noted that succession planning actually brought them closer to their families.  In short, the Accountancy Daily poll found that succession planning came with a variety of unexpected benefits.  In other words, it is about more than preparing to hand one’s business over to a new party.

Author Glen Foster makes the point that business owners frequently underestimate the level of effort and time needed to sell a business.  The fact is that selling a business is usually a layered process that can even take years to complete.  Importantly, business owners must understand that in the time it takes to sell, the market may have changed or their own financial or personal situations may have changed as well.  Additionally, selling can be an emotional and stressful process which further complicates the entire matter. 

For most business owners, selling a business represents the single greatest financial move of their lives.  As such, it is often accompanied with significant stress and anxiety.  It is essential not to underestimate the emotional and psychological side of the sales equation.  Properly planning years in advance for the sale of a business will help business owners prepare for the emotional and psychological stress that can result from both the sales process and the eventual sale itself. 

A key part of the stress of selling a business is that business owners are often left wondering “what comes next?” after selling.  Developing a succession strategy is a way to think through such issues well in advance.

Another key aspect of succession planning is to take the steps necessary to make sure that your business is ready to be sold.  As Foster points out, you wouldn’t put a home on the market with significant problems, and the same holds true for your business.  If you want to receive the optimal price for your business, then your business should be in tip-top shape.  This means diving into your books and records and getting everything in order.  Working with an accountant or an experienced business broker can be invaluable in this process.

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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.

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How A Patent Sways The Value Of Your Business

Posted by & filed under Build Business Value, Building Business Value, Business Owner, Business Valuation, Valuation, Value Builder System™.

Think back to the last time you booked an oversees flight.

Chances are, you traveled within one of the big travel alliances: Oneworld, SkyTeam or Star Alliance. Airline partners share a common system which is why your bag shows up in the right place (most of the time) even though you may have taken a set of connected flights to get to where you were going.

Now, imagine you’re a small regional airline trying to offer passengers a breadth of destinations while not being part of one of the big three alliances. If you’re passenger who wants to fly to one place, you’re fine… but as soon as they want to connect into a different city on a competing airline, you’re left trying to stitch together a solution.

The results are predictably bad, which is why Timothy O’Neil-Dunne co-founded Air Black Box Company. The goal was to help smaller travel operators manage their back-office operations so they could compete with the major travel companies.

O’Neil-Dunne was able to patent his technology which is one of the reasons 777 Partners bought Black Box early in 2019. In this episode, you’ll learn how to:

  • Value your patents
  • Create a competitive advantage by learning the “patois” of your industry
  • Keep your equity while funding your growth
  • Spot people who are vested (and avoid those who aren’t)

Listen now

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

 

Business Owners Can’t Always Sell When They Wish

Posted by & filed under Build Business Value, Building Business Value, Business Owner, Business Valuation, Exit Planning, Seller Articles, Seller FAQ, Selling a Business, Valuation, Value Builder System™.

A recent and insightful Forbes article, “Study Shows Why Many Business Owners Can’t Sell When They Want To” penned by Mary Ellen Biery, generates some thought-provoking ideas.  The article discusses an Exit Planning Institute (EPI) study that outlined the reality that many business owners can’t control when they are able to sell.  Many business owners expect to be able to sell whenever they like.  However, the reality, as outlined by the EPI study, revealed that the truth is that for business owners, selling is often easier said than done.

In the article, Christopher Snider, President and CEO of EPI, noted that a large percentage of business owners have no exit planning in place.  This fact is made all the more striking by the revelation that most owners have up to 90% of their assets tied up in their businesses.  Snider’s view is that most business owners will have to sell within the next 10 to 15 years, and yet, are unprepared to do so.  According to the EPI only 20% to 30% of businesses that go on the market will actually sell.  Snider believes that at the heart of the problem is there are not enough good businesses available for sell.  In short, the problem is one of quality.

As of 2016, Baby Boomer business owners, who were expected to begin selling in record numbers, are waiting to sell.  As Snider stated in Biery’s Fortune article, “Baby Boomers don’t really want to leave their businesses, and they’re not going to move the business until they have to, which is probably when they are in their early 70s.”

The EPI survey of 200+ San Diego business owners found that 53% had given little or no attention to their transition plan, 88% had no written transition to transition to the next owner, and a whopping 80% had never even sought professional advice regarding their transition.  Further, a mere 58% currently had handled any form of estate planning. 

Adding to the concern was the fact that most surveyed business owners don’t know the value of their business.  Summed up another way, a large percentage of the business owners who will be selling their businesses are Baby Boomers who plan on holding onto their businesses until they are older.  They have not charted out an exit strategy or transition plan and have no tangible idea as to the true worth of their respective businesses. 

In Snider’s view, the survey indicates that many business owners are not “maximizing the transferable value of their business,” and additionally that they are not “in a position to transfer successfully so that they can harvest the wealth locked in their business.”

All business owners should be thinking about the day when they will have to sell their business.  Now is the time to begin working with a broker to formulate your strategy so as to maximize your business’s value.

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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.

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