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A Small Giant Makes A Great Exit

Tyler Tringas was adamant on establishing his SaaS business without the help of external capital.

He founded Storemapper—a business that provides small businesses with a platform to showcase the location of their products in store for curious consumers—in 2012.

By 2017, Storemapper was seeing $50,000 in monthly recurring revenue. Ready to build his next business, Tringas made moves to sell the company, including moving himself away from day-to-day business operations, learning critical questions to ask potential buyers and maintaining radical transparency to accelerate the sale.

In this episode, you’ll learn:

  • How to know when it’s time to sell
  • The importance of asynchronous communication and how to integrate it into your hiring processes
  • How Tringas used radical transparency to attract buyers and accelerate the sale process
  • The subjectivity of Seller’s Discretionary Earnings (SDE) and how it can impact your value
  • Defining strategic and financial buyers for your company

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.

How to Get Started When Selling Your Business

So you’ve decided to sell — now what?

There’s no time like the new year to list your business for sale. However, selling requires more than just posting an ad. If you are adequately prepared, the actual listing can be a quick process. But, if you have only recently decided to sell your business, it can take as long as a year before you are ready to list it.

Still, the new year is a great time to make changes and future plans, so there’s no need to panic if the second scenario sounds familiar. Instead, consider the following steps to get the ball rolling:

Seek professional assistance

Now that you’ve decided to sell, consult with a professional to determine the next steps. The type of professionals you enlist depends on the complexity of your business and the amount of time you are willing to devote to the sale.

Reputable and experienced professionals are necessary for avoiding legal and financial roadblocks during the sale. They can also help you reach a more favorable outcome. A professional sales team is typically comprised of several players, including accountants, attorneys, business brokers, appraisers, and consultants. That may seem like a long list, but depending on your needs, it may not be necessary to recruit them all.

Determining which professionals you need on your team requires a deeper understanding of how each professional fits into the selling process. This insight, as well as a clear understanding of your own business needs, will help you select the right players for your team.

Define your goals

Before you pull the trigger on exiting your business, stop and ask: “why am I selling?” It might seem like a useless question, but believe it or not the success of your sale hinges on the answer.

There are many reasons why owners decide to sell — retiring, moving, diversifying and burnout are the most common. Your answer and how you present it influences potential buyers’ view of your business. For example, if you are clearly frustrated and burned out, buyers may hesitate to put themselves in a similar situation. The answer can also determine the speed and potential profit of the sale — a lower price will likely result in a quicker sale versus waiting out for the highest bid.

There are also after-sale goals to consider. Are you concerned about what happens to your business after you leave? What do you plan to do next?

While some sellers prefer to maintain contact and stay on as an employee or consultant, others walk away without turning back. It’s up to you to decide whether or not a significant change will have a negative impact on the business and whether or not you want to alleviate this by staying on.

If you decide to offer seller financing, you could attract more buyers and receive a higher sale price. You could also profit from collecting future interest. Yet, if the business fails under the new owner, you would lose interest income and incur expenses trying to collect on the debt.

Research the Market

Research is necessary to understand the current market and secure a fair price for your business. Luckily, the current market is strong and presents sellers with an opportunity to receive top dollar for their businesses. However, it’s still necessary to evaluate the market and see where your sale fits. Compare your business with others in your industry to avoid misvaluing the sale. While undervaluing your business is an obvious disadvantage, overvaluing your business can delay and even prevent a sale.

Fluctuations in the market will provide insights about the best time to sell in your industry. A professional broker can help with this, outlining the trends and providing you with more precise timing and an accurate asking price.

Boost Value

After investing years of blood, sweat and tears in their companies, owners are often disappointed to learn that the real market value falls short of their expectations. To avoid this shock, get a realistic assessment of your business and then take the time to increase its value and make it more attractive to potential buyers.

Your business’s value is directly tied to its profitability. Boosting sales, reducing costs and eliminating inefficiencies leading up to the sale will increase profitability and attract more qualified buyers.

Value is also tied to your business’s tangible and intangible assets (goodwill). Not only is there value in you furniture, fixtures, inventory, and equipment, but also your intellectual property, branding, customer/vendor relations and reputation.

A fresh coat of paint can add value to your business, but so can a strong Internet presence. Because websites are often the first online impression you make with potential buyers, they should always look professional and up-to-date, including links to your social media pages. Consider doing a Google search of your business and check for any information that needs updating.

Are you ready to sell?

The decision to sell your business is exciting, but it shouldn’t be made in haste. An impulsive urge to sell can blind owners to the fact that a beneficial sale takes time, research and preparation. It also requires guidance from the right professionals. The more time you invest in outlining your goals, making your business desirable and enlisting the right assistance, the more likely you are to experience a smooth sale process — and receive a higher price for your company.

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.

Obtaining a Fair Market Value for Your Business

Divestopedia published a rather insightful article, “Letting the Market Bridge the Valuation Gap.” In this October 2018 article, Dave Kauppi dives in and explores how fair market value can be used as a way for business owners to “bridge the gap between the valuation they feel they deserve and that which they’re likely to receive.” This, of course, increases the chances of a deal actually taking place. Let’s turn our attention to some of the key points in Kauppi’s informative article.

Understanding the Reality of Selling a Business

One key point is that only a low percentage of businesses actually sell on their first attempt. The article points out that a mere 10% of businesses that are for sale are actually sold three years later; this is a simply brutal fact. Few facts, if any, help underscore the value of working with a business broker more than this point. Selling a business can be difficult under even the best of circumstances. The process is complex, and most sellers have never actually sold a business before.

Divestopedia believes that it is critical for business owners to have realistic expectations regarding valuation. As the article points out, the market doesn’t care “how much money you need for retirement,” or how much you’ve invested.

Four Points to Consider

According to the article, it is important that business owners understand that a few business characteristics will ultimately drive the sale. There are four key factors to consider: contractually recurring revenue, durable competitive advantage, growth rate, and customer concentration.

There is a lot packed into these four points, but here are a couple of big takeaways. In terms of customer growth, if a large percentage of your business is derived from a single customer, then that is going to be seen as a problem. As Divestopedia points out, if your company is dependent and partially dependent on a single customer, then you can expect a lot of pressure for you, as the business owner, to stick around a lot longer to ensure that this key customer isn’t lost. If intellectual property, such as software, is involved, then things can get even more complex. In the end, determining value in technology-based companies can be more challenging.

In the end, working with a seasoned business broker, one that understands valuation and how best to get there, is a must. You want to receive the best possible price for your business. An experienced business broker will help you understand how to navigate the complex process of determining a price. However, and most importantly, a business broker will help you achieve a fair market value so that your business doesn’t remain unsold for years.

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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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Four Significant Issues You Need to Consider When Selling Your Business

The process of selling a business can be very complex. Whether you’ve sold a business in the past or are selling a business for the very first time, it is imperative that you work with an expert. A seasoned business broker can help you navigate through what can be some pretty rough waters. Let’s take a closer look at four issues any seller needs to keep in mind why selling a business.

Number One – Overreaching

If you are both simultaneously the founder, owner and operator of a business, then there is a good chance that you are involved in every single decision. And that can be a significant mistake. Business owners typically want to be involved in every aspect of selling their business, but handling the sale of your business while operating can lead to problems or even disaster.

The bottom line is that you can’t handle it all. You’ll need to delegate the day-to-day operation of your business to a sales manager. Additionally, you’ll want to consider bringing on an experienced business broker to assist with the sale of your business. Simultaneously, running a business and trying to sell has gone awry for even the most seasoned multitaskers.

Number Two – Money Related Issues

It is quite common that once a seller has decided on a price, he or she has trouble settling for anything less. The emotional ties that business owners have to their businesses are understandable, but they can also be irrational and serve as an impediment to a sale. A business broker is an essential intermediary that can keep deals on track and emotions at a minimum.

Number Three – Time

When you are selling a business, the last thing you want is to waste time. Working with a business broker ensures that you avoid “window shoppers” and instead only deal with real, vetted prospects who are serious about buying. Your time is precious, and most sellers are unaware of just how much time selling a business can entail.

Number Four – Don’t Forget the Stockholders

Stockholders simply must be included in the process whatever their shares may be. A business owner needs to obtain the approval of stockholders. Two of the best ways to achieve this is to get an attractive sales price and secondly, to achieve the best terms possible. Once again, a business broker serves as an invaluable ally in both regards.

Selling a business isn’t just complicated; it can also be stressful, confusing and overwhelming. This is especially true if you have never sold a business before. Business brokers “know the ropes” and they know what it takes to both get a deal on the table and then push that deal to the finish line.

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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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5 Big Questions to Consider when Financing a Business Sale

How should the purchase of a business be structured? This is a point that you’ll want to address early in the sale process. For most people, buying or selling a business is one of the most, if not the most, important business decision that they will ever make. For this reason, it is vital not to wait until the last minute to structure your deal. Let’s turn our attention to the most significant questions that you need to answer when entering the sales process.

1. What is My Lowest Price?

The first question you should ask yourself is, “What is the lowest price I’m willing to take?” If an offer is made, the last thing you want is to be sitting around trying to decide if you can take a given offer at a given price. You need to be ready to jump if the right offer is made.

2. What are the Tax Implications?

Secondly, you’ll want to seriously consider the tax consequences of any sale. Taxes are always a fact of life and you need to work with a professional, such as an accountant or business broker, to understand the tax implication of any decision you make.

3. What are the Interest Rates?

The third factor you want to consider is interest rates. If you get a buyer, what is an acceptable interest rate for a seller-financed sale?

4. Are there Additional Costs Involved?

A fourth key question to ask yourself is do you have any unsecured creditors that have not been paid off? Additionally, you’ll also want to determine whether or not the seller plans on paying for a part of the closing costs.

5. Will the Buyer Need to Assume Debt?

Finally, will the buyer need to assume any long-term or secured debt? The issue of long term and/or secured debt is no small issue. Be sure to clarify this important point well in advance. Also, keep in mind that favorable terms typically translate to a higher sales price.

Business brokers are experts at buying and selling all kinds of businesses. When it comes time to structure a deal that benefits both the buyer and the seller, business brokers can prove to be invaluable. At the end of the day, working with a business broker is one of the single biggest steps you can take to ensure that your business is sold and sold as quickly as possible.

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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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Considering All of Your Business Real Estate Options

In a recent December 2018 article in Divestopedia entitled, “Options for Business Real Estate When Selling a Company,” the topic of business real estate was explored at length.

One of the key points of the article was that understanding one’s business real estate options would ultimately help in achieving “the goals desired in a transaction.” The article is correct to point out that many, or even arguably most, business owners simply don’t know what real estate options are available to them when it comes time to sell the company.

In particular, there are two big options:

  1. Sell everything including the real estate.
  2. Hold onto the real estate for the rental income.

In the Divestopedia article, the authors correctly point out that if you, as the business owner, personally own the real estate in a separate entity, then you are good to go. You should have a “clear path to valuation.”

However, if your company owns the real estate, then things get a little more complicated. If this is the situation you’ll want to have a third-party appraisal of the real estate so that its value is clear. The article also points out that if your business is a C-Corp and your business also owns the real estate, then it’s a good idea to talk to your accountant as there will be differences in taxation.

Every situation is different. Many buyers will prefer to acquire the real estate along with the business. On the other hand, many buyers may prefer a lease, as they don’t want everything that comes along with owning real estate. Communicating with the buyer regarding his or her preference is a savvy move.

Now, as Divestopedia points out, if you do plan to retain the building, then you’ll want to be certain that a strong lease is in place. Ask any business broker about the importance of having a strong lease, and you’ll get some pretty clear-cut feedback. Namely, you always want to have a strong lease.

Issues such as who repairs what and why should all be spelled out in the lease. It should leave nothing to chance. One of the best points made in the Divestopedia article is that you will want a strong lease for another key reason. When the time comes to sell the property, you want to show you have a lease that is generating good income.

Real estate and the sale of your business are not one-dimensional topics. There are many variables that go into selling when real estate is involved. It is important to consider all of the variables and work with a business broker who can help guide you through this potentially complex topic.

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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Determining Your Company’s Undocumented Value

Business appraisals are not one-dimensional. In fact, a good business appraisal is one that factors in a wide range of variables in order to achieve an accurate result. Indisputable records ranging from comparables and projections to EBITDA multiples, discount rates and a good deal more are all factored in.

It is important to remember that while an appraiser may feel that he or she has all the information necessary, it is still possible they have overlooked key information. Business appraisers must understand the purpose of their appraisal before beginning the process. All too often appraisers are unaware of important additional factors and considerations that could enhance or even devalue a business’s worth.

There Can Be Unwritten Value

Value isn’t always “black and white.” Instead, many factors can determine value. Prospective buyers may be looking at variables, such as profitability, depth of management and market share, but there can be more that determines value.

Here are some of the factors to consider when determining value: How much market competition is there? Does the business have potential beyond its current niche? Are there a variety of vendors? Does the company have easy access to its target audience? At the end of the day, what is the company’s competitive advantage? Is pricing in line with the demographic served? These are just some of the key questions that you’ll want to consider when evaluating a company.

There are Ways to Increase Both Valuation and Success

No doubt, successful businesses didn’t get that way by accident. A successful business is one that is customer focused and has company-wide values. Brian Tracy’s excellent book, “The 100 Absolutely Unbreakable Laws of Business,” notes that it is critical for businesses to have a company-wide focus on three key pillars: marketing, sales and, of course, revenue generation. Tracy also points out that trends can be seen as the single most vital factor and bottom-line contributor to any company’s success and, ultimately, valuation. For 2018 and beyond, projected trends include an increase in video marketing, the use of crowdfunding as a means of product validation and more.

No Replacement for Understanding Trends

If a company doesn’t understand trends, then it can’t understand both the market as it stands and as it may be tomorrow. Savvy business owners understand today’s trends and strive to capitalize on the mistakes of their competitors while simultaneously learning from their competitors’ successes.

Tracy accurately states that while there are many variables in determining value, finding and retaining the best people is absolutely essential. One of the greatest assets that any company has is, in the end, its people.

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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8 Key Drivers of Company Value

 

You hear me talk about the 8 Key Drivers of Company Value, as these are often the things that acquirers look for when considering whether or not they want to buy a company. So, I thought with the curtain drawing on 2018, that I would share some of the best episodes of Built to Sell Radio (in my opinion), where entrepreneurs share their real-life stories and highlight how the 8 drivers affected their exits.

  1. Financial Performance

In Episode 145, Julie Nirvelli’s salsa company was on the brink of bankruptcy, despite having distribution agreements with big-name retailers like Whole Foods and Kroger. Nirvelli struggled to scale because she had a negative cash flow cycle. She had to buy raw material, design packaging, market her product, and then sit around and wait for her distributor to pay her weeks later.

She sent a last-ditch email to four potential acquirers – and you won’t believe what happened next.

  1. Growth Potential

In Episode 124, Claude Theoret got almost four times revenue for his company, in part because he built a powerful financial model that demonstrated the growth potential of his business to acquirers. Find out the steps he took to build an attractive acquisition.

  1. Switzerland Structure

In Episode 130, Harpaul Sambhi had a successful exit, but one of the things that nearly derailed the process was how dependent his business was on the social media platforms that were essential to his product.  If your business is over-reliant on a single employee, customer, or promotional channel, listen now as Sambhi discusses how he overcame this obstacle.

  1. Valuation Teeter-Totter

In Episode 133, Tevya Finger mastered the Valuation Teeter-Totter. Finger’s cash flow could have been compromised, as hair salons are notoriously slow to pay invoices, but he found a way to get their cash early. Listen now to learn his secret.

  1. Recurring Revenue

In Episode 152, David Hauser bootstrapped Grasshopper into a recurring revenue juggernaut. His model was so well designed that Hauser and his business partner walked away with $165 million in cash and additional stocks from Citrix. Find out how he did it.

  1. Monopoly Control

In Episode 137, Tomas Gorny’s mission-driven approach to simplifying website hosting set him apart in the industry. Listen in to find out how you can also differentiate yourself from your competitors.

  1. Customer Satisfaction

In Episode 156, George Bandarian II focused on what he calls ‘customer delight’. By turning his customers into his biggest supporters, he was able to take his family business from a remnant of a dying industry into a huge exit. Find out how customer delight created a world-class company.

  1. Hub and Spoke

Many small businesses struggle when the founder steps away. In Episode 141, Stephanie Leshney discusses how she helped transition her family’s business, Ross Organic, after taking over the company from her father. She has some great strategies if you’re planning to exit from a family-owned enterprise.

Do you want to improve the value of your business?

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 One Number Owners Need to Stop Focusing On

The value of your business comes down to a single equation: what multiple of your profit is an acquirer willing to pay for your company?

profit × multiple = value

Most owners believe the best way to improve the value of their company is to make more profit – so, they find ways to sell more and more. As experts in their industry, it’s natural that customers want to personally engage with them, which means spending more time on the phones, on the road and face-to-face to increase sales.

With this model, a company can slightly grow, but the owner’s life becomes much more difficult: customers demand more time and service, employees begin to burn out, and soon it feels like there are not enough hours in the day. Revenue flat lines, health can suffer and relationships get strained – all from working too much. Does this feel familiar?

If you’re spending too much time and effort on increasing your profit, you could find yourself diminishing the overall value of your business. The solution? Focus on driving your multiple (the other number in the equation above). Driving your multiple will ultimately help you grow your company value, improve your profit and redeem your freedom.

What Drives Your Multiple

Differentiated Market Position

Acquirers only buy what they could not easily create, so expect to be paid more if you have close to a monopoly on what you sell and/or are one of the few companies who have been licensed to provide the specific product or service in your market.

Lots of Runway

Most founders think market share is something to strive for, but in the eyes of an acquirer, it can decrease the value of your business because you’ve already sopped up most of the opportunity.

Recurring Revenue

An acquirer is going to want to know how your business will do once you leave – recurring revenue assures them that there will still be a business once the founder hits eject.

Financials

The size and profitability of your company will matter to investors and so will the quality of your bookkeeping.

The You Factor

The most valuable businesses can thrive without their owners. The inverse is also true because the most valuable businesses are masters of independence.

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 to Leverage Your Strengths in a Business Exit

When preparing for a large-scale event—such as an extended trip to a foreign country, sending the kids to college, or preparing your business for the future—the planning required can sometimes look too big and unwieldy to pursue. Planning for the future of your business might be one of the largest-scale financial events of your life, which implies that planning is paramount. How can you plan for a business exit when you have so many other things to do?

As a business owner, you likely have three skills you can leverage in your business exit.

  1. Your drive.
  2. Your ability to identify talented people to work with and for you.
  3. Your ability to implement processes that position you to achieve your goals.

Let’s look at how you can leverage these skills in your planning.

Leveraging Drive

Business owners are driven to succeed. This drive is essential for overcoming hurdles, addressing new challenges, and carving new paths toward more success. You can tap into that drive to begin planning for your business’ future similarly to how you began planning to start your business.

While it may seem like planning piles more work onto your plate, that’s not necessarily true. By diving headlong into planning with the same drive used to start and establish the business, owners often find that they end up with more time, more freedom, and more money in the end. There are three things you can do today to leverage your drive into successful planning.

  1. Write down your vision of post-exit life: Writing goals down increases the likelihood of achieving those goals. This does not mean that you need to have a fully fleshed plan for your exit. Broad strokes or ideas, such as “I want to travel” or “I want to volunteer” or even “I want to sit on a yacht doing nothing,” will establish a baseline for future planning.
  2. Write down things that are important to you: Your business’ future standing affects more than just you. It can also affect your family, employees, and community. Writing down things that are important to you can help you focus on addressing those things in your formal plans.
  3. Talk with trusted advisors: A conversation today with a trusted advisor who can help you may be the catalyst that launches your future planning. Advisors can analyze the wants and needs you have, the current state of the business, and which future actions to take to pursue your specific goals.

Leveraging Talented People

Finding talented people to work with and for you is challenging. Successful business owners have a knack for finding those people, and they are crucial to successful planning. There are two things you can do to lay the groundwork for your eventual business transition.

  1. Evaluate your management team: Your top managers may be able to help you position your business for either the ideal future you see for yourself and your company or the less desirable contingencies (death or disability, for example). Can they take the company to the next level? Can they move the business forward if you are less involved or unable to work? Are their interests aligned with yours? It takes time and careful planning to get to a point at which you can enthusiastically say “Yes” to these questions. Start today with a good, honest assessment of your top people.
  2. Start considering successors: A key component of a business plan is knowing who your successor will be and preparing yourself, the company, and maybe even your customers for a shift that is inevitable. There is simply no chance that you’ll play your current role forever. Learn the factors that are most likely to make ownership and leadership succession more successful. Work today and tomorrow to implement processes and talent that support your goals for who will take over the business when you are done, and when that will take place.

Leveraging Processes

Processes drive goal achievement. Rarely do successful businesses become successful by chance. Looking at planning as a process rather than extra work brings familiarity to these ongoing efforts. You can acquaint yourself with the steps involved in creating a successful plan for your business’ future, then use your Advisor Team to turn the process into a comprehensive Exit Plan through which your unique goals and objectives can be realized.

The strengths that helped you start your business can serve you well as you approach your future business planning. If you’d like to discuss more ways to leverage your strengths in your planning, please contact us today.

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.