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How to Get One Million More from PwC

Can a small, 30 employee team make a successful transition to the corporate environment of one of the Big Four auditors (and stay on-board)? Find out  what happens post-sale on today’s candid episode.

Ann Bennett was founder of Applied Information Services (AIS) – a first-of-its-kind, PC-based software company that processed K-1s (internal tax forms given to investors in partnerships). AIS was not an accounting firm, giving them a competitive advantage to powerhouses like PricewaterhouseCoopers –whose K-1 department was plateauing, still operating on traditional mainframes.

PwC realized they needed to evolve and offer the flexibility and responsiveness that only AIS’ software provided – so they approached Bennett. The two parties would eventually settle on a price (only after Bennett went back to ask for one million more), but it was the price she would later pay that has her reflecting on this story 20 years later.

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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.

 

 

How To Avoid Disappointment When It’s Time To Cash Out

How do you avoid not being disappointed with the money you make from the sale of your company?

Perhaps you’ve heard that companies like yours trade using an industry rule of thumb or that companies of your size sell within a specific range, and you want to get at least what your peers have received.

While these metrics can be useful for tax planning or working out a messy divorce, they may not be the best ways to value your company.

The Only Valuation Technique That Really Matters

In reality, the only valuation technique that will ensure you are happy with your exit is for you to place your own value on your business. What’s it worth to you to keep it? What is all your sweat equity worth? Only when you’re clear on that will you ensure your satisfaction with the sale of your business.

Take Hank Goddard as an example. He started a software company called Mainspring Healthcare Solutions back in 2007. They provided a way for hospitals to keep track of their equipment and evolved into a slick application that hospital workers used to order supplies.

Goddard and his partner started the business by asking some friends and family to invest. The business grew, but there were challenges along the way: Goddard had to fire his entire management team in the early days, product issues needed to be solved and operational issues needed to be resolved.

At times, it was a grind, so when it came time to sell in 2016, Goddard reasoned that he had invested more than half of his career in Mainspring and he wanted to get paid for his life’s work. He also wanted to ensure his original investors got a decent return on their money.

He was approached by Accruent, a company in the same industry, who made Goddard and his partners an offer of one times revenue. Accruent had recently acquired one of Goddard’s competitors for a similar value, so presumably thought this was a fair offer.

Goddard brushed it off as completely unworkable. Goddard had decided he wanted five times revenue for his business. Even for a growing software company, five times revenue was a stretch, but Goddard stuck to his guns. That’s what it was worth to him to sell.

A year after they first approached Goddard, Accruent came back with an offer of two times revenue and, again, Goddard demurred.

Mainspring had developed a new application that was quickly gaining traction and he knew how hard it was to sell to the hospitals he already counted as customers.

He told Accruent his number was five times revenue in cash.

Eventually, Goddard got his number.

Being clear on what your number is before going into a negotiation to sell your business can be helpful when emotions start to take over. Rather than relying on industry benchmarks, the best way to ensure you’re not disappointed with the sale of your business is to decide up front what it’s worth to you.

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

Fortune 500 Companies Helped This Founder Exit

We know consumers have shifted their eyes from televisions to mobile devices, so how are companies raising upwards of $28 million to capitalize on this evolution?

For Mitchell Reichgut, co-founder of Value Exchange Advertising (VEA) company Jun Group, he helped create a service that has multi-national and luxury brands running to them to reach their target customers.  Jun Group is a pioneer in VEA where a marketer will offer a mobile phone user access to something cool like a game or some valuable content in exchange for watching an ad.

Jun Group raised $28 million in venture financing before ultimately being acquired by Advantage Solutions last fall.

In this interview with Reichgut, you’ll learn:

  • A refreshingly simple way to evaluate potential investors
  • The surprisingly tough question to ask interested investors
  • What to do when a partnership falls apart

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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.

New Year’s Resolutions & Selling Your Business

Most people fail to keep their New Year’s Resolutions. But where buying and selling a business is concerned, failing to keep those resolutions could mean an abundance of lost opportunity.

Todd Ganos at Forbes recently penned a thought-provoking article entitled The 8 New Year’s Resolutions for the Sale of Your Business. In this article, he compares selling a business to getting in shape in the months preceding your visit to the beach. It is necessary to do a great deal of planning and hard work if you want to be in good shape for the big “beach body reveal.”

When it comes to selling a company, Ganos believes that there are eight factors that must be taken into consideration. Listed below are those factors he feels are a must for business owners looking to get their business ready for “the beach.” These are the eight factors that Ganos believes are most essential and should be on your New Years’ Resolution list for your business:

  1. Planning
  2. Legal
  3. Leadership
  4. Sales
  5. Marketing
  6. People
  7. Operations
  8. Financial

In order to get your business ready, it is necessary to take a good long and honest look at each of these eight important categories.

Planning is at the heart of everything. He points out that owners who truly want to get their business ready for the market will want to adopt a focused month-by-month plan.

This plan means having discipline, developing a business plan and involving your team in the development of that plan. Once the plan has been developed, it should be reviewed with your leadership team each month.

New Years’ Resolutions fail because they don’t get properly integrated into peoples’ lives. And the same holds true for making changes in one’s businesses. Ganos correctly asserts that in order to get your business ready to sell, you have to make it an “all-of-the-time thing” in which you are constantly focused on success.

New Years’ Resolutions have to be about doing things differently, having a plan and then sticking to these changes permanently.

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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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The Big Thing Holding Back Small Businesses

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

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

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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

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?

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

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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.

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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?

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.