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The Big Thing Holding Back Small Businesses

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

Small businesses stay small either by choice or because they start chasing growth in the wrong places.

When you strip away the layers, it all comes down to darts.

Imagine a dartboard with a bull’s eye and around it is a series of wider and wider circles. The bull’s eye is where the people just like you hang out. They are the people (or businesses) who feel the problem your company set out to solve. They are usually your first customers and raving fans.

The further you go outside of your bull’s eye, the less these prospects feel your exact pain.

Why do entrepreneurs go outside their bull’s eye? When you’re a self-funded start-up, you’re scrambling — just trying to bootstrap your way to a company. You don’t have a lot of money to invest in formal marketing, so you rely on word-of-mouth and referrals, which also means you’re often talking to people outside of your bull’s eye.

These prospects may experience the problem you’re trying to solve, but they are slightly different (that’s why they’re not in the bull’s eye). They like your product or service but want a little tweak to it: customization or a different version. You don’t see the harm in making a change and start to adjust your offering to accommodate the customers outside your bull’s eye.

Your new ‘slightly-outside-the-bull’s-eye’ customer tells her friends about how great you are, and how willing you are to listen to your customers, and she refers a prospect even further outside your bull’s eye who again, asks you for another tweak.

Making these changes to your original product or service to accommodate customers outside your bull’s eye seems innocent enough at the time, but eventually, it undermines your growth.

Why?

To grow a business beyond your efforts, you need to hire employees (or build technology) that can do the work. As humans, we are usually lousy at doing something for the first time but can master most things with enough repetition.

Think about teaching a toddler how to tie his shoes. The first few attempts are usually rough. It’s a new skill and their tiny hands have never had to make bunny ears before. You break it down for the child and show them how to master each step. It can take weeks, but eventually, they get it. As adults, we don’t even think about tying our shoes — we’ve mastered the skill by repetition.

The same is true for your employees. They need time to truly master the delivery or your product or service. Every time you make a tweak for a new customer outside your bull’s eye, it’s like changing the instructions on tying your shoelaces. It’s disorienting for everyone and leads to substandard products and services, which customers receive and are less than enthusiastic about.

Having unhappy customers often leads the owner to step in and “fix” the problem. While some founders can indeed create the customized product or service for their new, ‘outside-the-bull’s-eye’ customer, they are making their company reliant on them in the process.

A business reliant on its founder will stall out at a handful of employees when the founder runs out of hours in the day.

The secret to avoiding this plateau, and continuing to grow, is to be brutally disciplined in only serving customers in your bull’s eye for much longer than it feels natural. When you want to grow, the temptation is to take whatever revenue you can, but the kind of growth that comes from serving customers outside your bull’s eye can be a dead end.

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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.

 

Inside the Mind of a Private Equity Acquirer

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

If you’re looking to sell a small to mid-sized business these days, one of your bidders is likely to be a Private Equity Group (PEG). They have a ton of cash looking to buy well-run companies, but they probably won’t acquire all of your company. A PEG may buy most of your business and ask you to stay on and run it for a while as a minority shareholder.

And that’s where the problems can start for an independent-minded founder if you don’t understand what is motivating a PEG to invest in your company.

This episode gets inside the head of a Private Equity (PE) investor named John Dalton, Managing Partner at Industrial Device Investments who shares his experience as an investor. Dalton started ID Investments after a career with Black & Decker and General Electric and brings his operational savvy to the companies he buys.

In this episode, you’ll learn:

  • What PE buyers see when they’re looking at your business
  • How PE firms use leverage to maximize their returns
  • How PE buyers structure a sale
  • How to find the right PE acquirer for your company
  • How to spot a PE investment train wreck

Listen Now

Do you want to improve the value of your business?

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

Why Companies are Adopting Subscription Billing Models

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

Volvo recently announced they will make their cars available on a subscription model where consumers will pay one fixed fee per month for access to a car which includes insurance and maintenance.

Everything from toothbrushes to flowers is now available with subscription billing.

Could you offer some sort of recurring plan to your customers? Here are six reasons to consider offering your customers a subscription:

Predictability: When you have subscribers, you can plan what your business needs in the future. For example, the average flower store in America throws out more than half of its inventory each month because it’s too rotten to sell.  At H.Bloom, a subscription-based flower company that sells flowers to hotels and spas, say they throw out less than 2% of their flowers because they can perfectly predict how many flowers are needed to fulfill their orders.

Eliminate Seasonality: Many businesses suffer through seasonal highs and lows. In fact, a whopping thirty percent of a typical flower store’s revenue comes on Mother’s Day and Valentine’s Day – ultimately leaving them to scramble and make a sale in November.  By contrast, H.Bloom has a steady stream of subscribers that pay each month. At Mister Car Wash – where they offer a subscription for unlimited car washes – they receive revenue from customers in November and April even though very few people in the Northeast wash their cars in rainy months.

Improved Valuation: Recurring revenue boosts the value of your business. Whereas most small companies trade on a multiple of profit, subscription-based businesses often trade on a similar multiple of revenue.

The Trojan Horse Effect: Once you subscribe to a service, you become much more likely to buy other things from the same company. That’s one reason Amazon is so keen to get you to buy subscriptions to things like Prime or Subscribe & Save. Amazon knows that once you become a subscriber, you are much more likely to buy additional products.

The Sale That Keeps On Giving: Unlike the transaction business model where you have to stimulate demand through advertising to get customers to buy, with a subscription-based model, you sell one subscription and it keeps giving month after month.

Data & Market Research: When you get a customer to subscribe, you can start to see their spending and consumption habits. This data is the ultimate in market research. It’s how Netflix knows which new shows to produce and which to kibosh.

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

 

Confidentiality Agreements: What are the Most Important Elements?

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

Every business has to be concerned about maintaining confidentiality. In fact, it is common for business owners to become somewhat obsessed with confidentiality when they are getting ready to sell their business.

It goes without saying that owners don’t want the word that they are selling to spread to the public, employees or most certainly their competitors. Yet, there is something of a tug of war between the natural desire for confidentiality and the desire to sell a business for the highest amount possible. At the end of the day, any business owner looking to sell his or her business will have to let prospective buyers “peek behind the curtain.” Let’s explore some key points that any good confidentiality agreement should cover.

At the top of your confidentiality list should be the type of negotiations. This aspect of the confidentiality agreement is, in fact, quite important as it stipulates whether the negotiations are secret or open. Importantly, this part of the confidentiality agreement will outline what information can be revealed and what cannot be revealed.

Also, consider the duration of the agreement. Your agreement must be 100% clear as to how long the agreement is in effect. If possible, your confidentiality agreement should be permanently binding.

You will undoubtedly want to outline what steps will be taken in the event that a breach does occur. Having a confidentiality agreement that spells out what steps you can, and may, take if a breach does occur will help to enhance the effectiveness of your contract. You want your prospective buyers to take the document very seriously, and this step will help make that a reality.

When it comes to “special considerations” category, this should be elements that apply to the business in question. Patents are a good example. A buyer could learn about inventions while “kicking the tires,” and you’ll want to be quite certain that any prospective buyer realizes that he or she must maintain confidentiality regarding any patent-related information.

Of course, do not forget to include any applicable state laws. If the prospective buyer is located outside of your state, then that is an issue that must be adequately addressed.

A confidentiality agreement is a legally binding agreement. And it is important that all parties involved understand this critical fact. Investing the money and time to create a professional confidentiality agreement is time and money very well spent. An experienced business broker can prove invaluable in helping you navigate not just the confidentiality process, but also the process of buying and selling in general.

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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.

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

Copyright: Business Brokerage Press, Inc.

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Transitioning Business Owners Need a Realistic Financial Plan

Posted by & filed under Business Owner, Exit Planning, Seller Articles, Seller FAQ, Selling a Business.

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from Jane Johnson of BTA on Mon, Oct 01, 2018 @ 09:01 PM 

As a business owner, no matter what you want your legacy to be after your business transition, you want to ensure that you have enough retirement income. In a recent article, we discuss why it is so important for you to:

  1. Take stock of the assets you have saved outside your business (your Net Worth),
  2. Determine how much income you’ll need post-transition, and
  3. Calculate how much money you’ll need to net from your transition (your Wealth Gap) to fund the rest of your life.

This process is crucial for owners because their businesses are usually their largest assets. In fact, it’s not unusual for some owners to have as much as 80% or 90% of their net worth tied up in this illiquid investment! And, prior to any sale or ownership transfer, you need to determine just how financially reliant you will be on the transition proceeds. Taking the time to create a financial plan as part of your overall Business Ownership Transition Plan (BOTP) will help to set you up for the retirement you deserve.

Let’s look at what you’ll need to consider as you develop your personal financial plan.

Developing a Realistic Financial Plan Is Essential for Transitioning Business Owners

When we start our planning process with transitioning owners, they are often surprised to learn that their existing financial plans are not adequate for their post-transition needs.

During the typical financial planning process, an assumed value for the business is often plugged in along with various other assumptions such as weddings and college expenses, how long an owner’s spouse will work, social security income, tax rates, etc. This is dangerous if the business value is not based on real market data and the owner doesn’t know how or when they may extract the value of the business.

The most significant figure owners need to determine is the ESTIMATED NET PROCEEDS of the business transfer, after taxes and fees. Owners should work with a financial advisor who is trained to assist business owners with developing a financial plan that determines just how much net proceeds they will need from the business transfer in an ideal timeframe. This should then be compared back to the owner’s Wealth Gap and if the net proceeds are not enough, an owner will need to take steps to close the gap such as saving more money outside the business and/or increasing business value.

Most financial advisors have access to powerful planning software that can be used to determine how much is needed from the business transition. Most of these software packages use the owner’s current net worth and projected income, expenses, and savings along with some assumptions for annual rates of return, tax rates, and inflation in order to calculate the probability of achieving their retirement goals. If the business value is left out of the plan, your advisor may be able to tell you how much you need to net from your business sale. But let’s not forget about taxes and fees!

It will be very important for owners to work with their CPA in order to determine an estimated tax and fee rate that can then be used to “back into” the gross selling price needed. It sounds complicated, but it’s not that difficult to do and it will inform owners about just how much their business needs to be worth in order to achieve their financial goals post-transition.

Owners should also consider working with a knowledgeable business intermediary (broker or investment banker depending upon the size of the business) in order to determine the market value of their businesses today and what buyers are looking for. It’s not just about growing the numbers but also about improving the overall quality of their businesses. This is powerful information as owners plan for business growth.

Diversification is Always a Good Idea

It’s helpful to think of your net worth, including your business, as you would any other financial portfolio – you don’t want all your eggs in one basket! Diversification is the key to minimizing risk and generating the best possible returns. This means developing a plan to consistently save money OUTSIDE the business, including finding tax-efficient ways to save beyond the traditional retirement plan. Work with your financial advisor to set a course for regular savings and good returns with your transition timeline in mind.

Start Now

Your personal financial plan should be developed as part of your overall Business Ownership Transition Plan, and it should be reviewed and updated regularly as your lifestyle changes. Your business transition and financial advisors can help you analyze your current situation, take into account all of the nuances associated with the sale of your business, determine your financial needs for the future, and develop a comprehensive plan to achieve a successful post-transition retirement.

Start now even if you don’t plan to transition for years so you can reduce your Wealth Gap, increase the value of your business, and minimize taxes. It takes time to develop a BOTP, but it will help ensure that you achieve ALL of your goals!

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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.

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

How Do You Compare As A Business Owner?

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

Have you ever wondered how you compare as an owner with your peers?

The most recent data from The Value Builder System™ presents an interesting look into the current value of privately held businesses. In the study, How an Owner’s Age Impacts Their Attitudes Towards Exit, business owners were profiled in four generational groups, including:

  • Millennials (owner born between 1981 and 1996)
  • Generation X (owner born between 1965 and 1980)
  • Baby Boomers (owner born between 1946 and 1964)
  • Silent Generation (owner born between 1928 and 1945)

Below are some of the highlights:

Millennials running younger companies but staying in the race longer

Millennial business owners were 3 times more likely to have started their business after 2014. Of the business owners surveyed, nearly one-third (29.7%) say they don’t expect to exit their company for at least 10 years.

“Wealthy” defined differently across the generations

When asked for a definition of “wealthy,” 21% of Millennials said that $10 million makes you rich, compared to just 14.8% of all owners, who were more inclined to say that “having enough money to cover your lifestyle expenses” or being able to do “whatever, whenever you want to” was their definition of wealth.

Boomers focused on maximizing profits

When it comes to their goals for the year ahead, respondents were given a choice between growing their top line, growing their bottom line, or mastering their craft. Boomers were more likely (45.2% vs. 41.7%) to say their main goal was maximizing their bottom-line profits.

Silent Generation less likely to be owner dependent

Of the 35,000 business owners analyzed, 28.6% of the Silent Generation were more likely to say their business “would hardly suffer at all, and would survive a 3-month absence of the owner.” In comparison, only 17.9% of the other generations agreed with this. Silent generation is also twice as likely (18% vs. 9%) to be planning to exit their businesses within the next two years.

Overall, the data indicates that the one common denominator among all business owners – regardless of their age – is that they are thinking about their exit, whether in two years or over the next 10. Read the white paper to learn more.

Are you thinking about your next steps?

Whether you’re planning to transition out of your business in the next year or decade, it’s recommended you do everything possible to maximize the sale by focusing on the eight key drivers of business value.

Do you want to improve the value of your business?

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

Goodwill and Its Importance to Your Business

Posted by & filed under Build Business Value, Building Business Value, Business Owner, Business Valuation, Buyer Articles, Buying a Business, Exit Planning, Seller Articles, Selling a Business.

What exactly does the term “goodwill” mean when it comes to buying or selling a business? Usually, the term “goodwill” is a reference to all the effort that a seller puts into a business over the years that he or she operates that business. In a sense, goodwill is the difference between an array of intangible, but important, assets and the total purchase price of the business. It is important not to underestimate the value of goodwill as it relates to both the long-term and short-term success of any given business.

According to the M&A Dictionary, an intangible asset can be thought of as asset that is carried on the balance sheet, and it may include a company’s reputation or a recognized name in the market. If a company is purchased for more than its book value, then the odds are excellent that goodwill has played a role.

Goodwill most definitely contrasts and should not be confused with “going concern value.” Going concern value is usually defined as the fact that a business will continue to operate in a fashion that is consistent with its original intended purpose instead of failing and closing down.

Examples of goodwill can be quite varied. Listed below are some of the more common and interesting examples:

  • A strong reputation
  • Name recognition
  • A good location
  • Proprietary designs
  • Trademarks
  • Copyrights
  • Trade secrets
  • Specialized know-how
  • Existing contracts
  • Skilled employees
  • Customized advertising materials
  • Technologically advanced equipment
  • Custom-built factory
  • Specialized tooling
  • A loyal customer base
  • Mailing list
  • Supplier list
  • Royalty agreements

In short, goodwill in the business realm isn’t exactly easy to define. The simple fact, is that goodwill can, and usually does, encompass a wide and diverse array of factors. There are, however, many other important elements to consider when evaluating and considering goodwill. For example, standards require that companies which have intangible assets, including goodwill, be valued by an outside expert on an annual basis. Essentially, a business owner simply can’t claim anything under the sun as an intangible asset.

Whether you are buying or selling a business, you should leverage the know how of seasoned experts. An experienced business broker will be able to help guide you through the buying and selling process. Understanding what is a real and valuable intangible asset or example of goodwill can be a key factor in the buying and selling process. A business broker can act as your guide in both understanding and presenting goodwill variables.

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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.

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

Copyright: Business Brokerage Press, Inc.

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How to Break Up With Your Business Partner

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

How do you place a fair valuation on your company when only one partner wants out, and the other is ready to continue? The answer – for Judith Nowlin and her partner Amanda – wasn’t a matter of calculating how far they’ve come, but rather how far they would go.

Nowlin, co-founder of iBirth™, a daily pregnancy, postpartum and baby tracker app, found herself in a complex situation when her co-founder and good friend was ready to step down from the business.

While most would be left perturbed, for Nowlin, it pushed her to evaluate the company’s potential valuation and helped lay the foundation of transforming iBirth™ toward a B2B model with a stream of recurring revenue — and ultimately finding a strategic buyer to acquire the business.

In this episode, you’ll learn:

  • How to handle a business partner who wants out – and ways you can keep them as an investor and advisor
  • The difference between a financial buyer and strategic buyer, and how to approach the latter
  • How a recurring revenue stream can transform your business
  • One easy way to determine if your B2C business can evolve into a B2B model

Listen now

Do you want to improve the value of your business?

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

 

 

 

Selling a Business in 2019: Three Important Things to Keep in Mind

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

from Inc.com, credit: Getty Images

With profitable businesses fueling the market and an election year on the horizon, 2019 could be a pivotal year.

Luckily, rising sale prices for healthy businesses have presented sellers with a good time to take the leap. In fact, 60 percent of owners are confident that they would receive a favorable sale price if they sold their business today.

With such optimism, it can be tempting for antsy owners to jump into a sale. However, it’s important to have a clear and well-thought-out exit strategy to guarantee the best sale price and a smooth sales process. While some of these strategies are evergreen, others require more insight.
To find out more, we consulted with a panel of small business experts on what they believed sellers should consider when developing their exit plans:

Take action now. While the 2019 market is promising, the sunny weather won’t last forever. The GDP is expected to slow its pace approaching 2020, which also falls on an election year — known historically to soften sales. For owners waiting for the right time to sell, it might be wise to accelerate the process and make 2019 your selling year.

At the same time, baby boomers business owners are fueling the market with a steady supply of inventory. In fact, it’s estimated that retiring baby boomers will sell or transfer nearly $10 trillion of assets in the coming decades.

“Baby boomers are entering the marketplace at a faster rate than in the past, and pricing may start to have some downward pressure,” said Andrew Cagnetta, CEO of Transworld Business Advisors. For now, reports still indicate that small business sale prices are rising, but the impending effects of a retiring generation are important to keep in mind.

Invest in your business. Deciding to sell doesn’t mean ownership duties take a backseat. It’s critical that owners don’t fall into the “last day of school” mindset and neglect their responsibilities. In fact, once deciding to sell, it’s more important than ever for owners to invest in the business.

“Be proactive in preparing your business for sale,” said Matt Coletta, co-founder and managing partner at M&A Business Advisors. “Understand the key items that motivate a buyer in choosing your business over other businesses on the market.” Upgrading equipment, increasing marketing efforts and removing excess or obsolete inventory will not only increase the value of the business but prove to buyers that the business has not been neglected.

Prepare your financials. In addition to interest rate hikes, rising labor costs and other overhead expenses have the potential to cause declines in revenue. Small businesses across the board are struggling to compete with the salaries and benefits offered by larger corporations; in the third quarter of 2018, labor costs increased nearly one percent.

With such a large number of healthy businesses on the market, buyers are doing their due diligence and evaluating the long-term profitability of each opportunity. While revenue declines may not be significant, it’s important to have a good explanation for these variances and how they relate to fluctuations in the economy.

“Clean up your financials and have consistent reports,” said Ron Johnson, chairman of ABI Business Sales, Mergers and Acquisitions. “Have profit and loss statements and balance sheets for at least three years — five years is better.”

A strong, favorable market is motivation enough for owners to sell. Yet, it’s difficult to predict the future. With profitable businesses fueling the market and an election year on the horizon, 2019 could be a pivotal year. While these are only predictions, sellers should consider taking advantage of this high point rather than risk having to wait longer to sell. Following the advice from our experts, owners who take action now, invest in their businesses and prepare their financials can be confident they’re securing the best possible sale.

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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.

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

 

The Sale of a Business May Actually Excite Employees

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

Many sellers worry that employees might “hit the panic button” when they learn that a business is up for sale. Yet, in a recent article from mergers and acquisitions specialist Barbara Taylor entitled, “Selling Your Business? 3 Reasons Why Your Employees Will Be Thrilled,” Taylor brings up some thought-provoking points on why employees might actually be glad to hear this news. Let’s take a closer look at the three reasons that Taylor believes employees might actually be pretty excited by the prospect of a sale.

Taylor is 100% correct in her assertion that employees may indeed get nervous when they hear that a business is up for sale. She recounts her own experience selling a business in which she was concerned that her employees might “pack up their bags and leave once we (the owners) had permanently left the building.” As it turns out, this wasn’t the case, as the employees did in fact stay on after the sale.

Interestingly, Taylor points to something of a paradox. While employees may sometimes worry that a new owner will “come in and fire everyone” the opposite is usually the case. Usually, the new owner is worried that everyone will quit and tries to ensure the opposite outcome.

Here Taylor brings up an excellent point for business owners to relay to their employees. A new owner will likely mean enhanced job security, as the new owner is truly dependent on the expertise, know-how and experience that the current employees bring to the table.

A second reason that employees may be excited with the prospect of a new owner is their potential career advancement. The size of your business will, to an extent, dictate the opportunities for advancement. However, if a larger entity buys your business then it is suddenly possible for your employees to have a range of new career advancement opportunities. As Taylor points out, if your business goes from a “mom and pop operation” to a mid-sized company overnight, then your employees will suddenly have new opportunities before them.

Finally, selling a business could mean “new growth, energy and ideas.” Taylor discusses how she had worked with a 72-year-old business owner that was exhausted and simply didn’t have the energy to run the business. This business owner felt that a new owner would bring new ideas and new energy and, as a result, the option for new growth.

There is no way around it, Taylor’s article definitely provides ample food for thought. It underscores the fact that how information is presented is critical. It is not prudent to assume that your employees may panic if you sell your business. The simple fact is that if you provide them with the right information, your employees may see a wealth of opportunity in the sale of your business.

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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.

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

Copyright: Business Brokerage Press, Inc.

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