If you have read some of our recent posts, we have focused on management and strategy techniques you can implement to improve your business. The advice is designed to cater to many different businesses in different industries.
Quality specialists such as a valuation expert, transactional attorney, an experienced business CPA, and a quality intermediary will help you focus on implementing these types of techniques in the best manor for your specific business.
Each plays a different yet essential role in making sure you get the best deal possible. To summarize:
Valuation Expert: Assesses the value looking at detailed history, projections, market conditions, and relevant comparative sales to determine the likely market sales price. If done properly this can be a valuable informational piece and sometimes a valuable negotiating tool.
CPA: Assist in organizing business records to ensure consistency and transparency so buyers will be comfortable they are getting quality information. If the buyer is not comfortable the offer will be crimped. CPA’s also provide detailed tax advice on how to structure the transaction to reduce tax burden.
Transactional Attorney: Their role is to inform you of the risks of your transaction and to protect you through carefully constructed written documents to the fullest extent possible. We have all heard attorney horror stories yet a quality attorney is helpful in any deal.
Intermediary: This is the sales and marketing team. They create value by identifying the most synergistic market for your business and then proceeding to generate prospects from that market and convert them to buyers. They make the deal and keep the process moving forward.
A proper team will enhance your sales price, reduce your downside risk, lower your taxes, and allow you to stay involved in running your business so profits and moral stay high. This is the best way to obtain an increased sales price for your business.
Tuesday, October 10, 2006
Tuesday, September 26, 2006
Tie up Loose Ends
Every business has multiple legal relationships that allow the business to operate. The most important of these legal relationships are reflected in important agreements such as leases, franchise agreements, bank notes, insurance policies and so on.
Do your best to make sure that each of these agreements is current. Make sure the provisions are reasonable. Most important, for things like leases, make sure that you have adequate time remaining and that it is reasonably transferable. If your business is location dependent you may not have a business to sell without three to five years left on your lease.
In a related issue if you have any pending lawsuits against you, try to settle them. Lawsuits spell uncertainly and disruption and carry a perceived risk far greater than the actual risk. If you can settle them that risk and the reduction in your sales price is gone.
Do your best to make sure that each of these agreements is current. Make sure the provisions are reasonable. Most important, for things like leases, make sure that you have adequate time remaining and that it is reasonably transferable. If your business is location dependent you may not have a business to sell without three to five years left on your lease.
In a related issue if you have any pending lawsuits against you, try to settle them. Lawsuits spell uncertainly and disruption and carry a perceived risk far greater than the actual risk. If you can settle them that risk and the reduction in your sales price is gone.
Tuesday, September 12, 2006
Maintain Employee Moral
Anyone who thinks emotion is not a part of sales has forgotten about the last time they bought a new car. Were you “thrilled”, “upset”, “mistreated”, or what? This is emotion.
The final transaction has to make sense from an accounting standpoint in order to get financed. Yet emotion provides the drive so everyone in the process solves the problems and gets to closing.
Your people are your most important asset. If they are enthusiastic and motivated they are worth more than if they are lifeless and depressed. While we understand the importance of confidentiality we like to do plant tours when people are working. Businesses are more impressive when they are alive with people.
Your employees attitude will be felt by a buyer (whether they know it or not) and will translate into a higher or lower offer.
We are big believers in having employees work in their areas of strength. No one thinks anything of the fact that athletes spend 100% of their time in a very narrow specialty that they excel in, yet the common logic with business employees is that everyone should be cross trained. Certainly a few people need to be cross trained but encourage everyone to do the work they excel at.
Our last thought on employees is cut your staff down to fighting size. Too many employees reduce profitability and often reduce motivation. If your business has slowed down or you have installed labor saving technology, yet the staff is the same, they are all worrying about who is going to be let go. They are creating work and worrying that they will get caught. Solve the worry. If you don’t the buyer will. You can do it humanely and in all likelihood increase the value of your business.
The final transaction has to make sense from an accounting standpoint in order to get financed. Yet emotion provides the drive so everyone in the process solves the problems and gets to closing.
Your people are your most important asset. If they are enthusiastic and motivated they are worth more than if they are lifeless and depressed. While we understand the importance of confidentiality we like to do plant tours when people are working. Businesses are more impressive when they are alive with people.
Your employees attitude will be felt by a buyer (whether they know it or not) and will translate into a higher or lower offer.
We are big believers in having employees work in their areas of strength. No one thinks anything of the fact that athletes spend 100% of their time in a very narrow specialty that they excel in, yet the common logic with business employees is that everyone should be cross trained. Certainly a few people need to be cross trained but encourage everyone to do the work they excel at.
Our last thought on employees is cut your staff down to fighting size. Too many employees reduce profitability and often reduce motivation. If your business has slowed down or you have installed labor saving technology, yet the staff is the same, they are all worrying about who is going to be let go. They are creating work and worrying that they will get caught. Solve the worry. If you don’t the buyer will. You can do it humanely and in all likelihood increase the value of your business.
Monday, August 28, 2006
Freshen Up Your Facilities
Just like you cleaned up your house before you put it on the market you need to clean up your business. Auto shops are the absolute worst about this. That old transmission that has been sitting outside your door may work great to clean the bottom of your boots but it is not going to help you sell.
Look at the entire operation with the eyes of someone who has walked in for the first time. Is it clean and organized? Are the colors and carpets still in style? Are there coffee stains on the carpet and places where the walls have turned grey from wear?
We cannot conclusively state that anyone has ever bought a business because it was attractive and organized but many businesses got the “drive-by” and never looked at again because they were a mess.
Look at the entire operation with the eyes of someone who has walked in for the first time. Is it clean and organized? Are the colors and carpets still in style? Are there coffee stains on the carpet and places where the walls have turned grey from wear?
We cannot conclusively state that anyone has ever bought a business because it was attractive and organized but many businesses got the “drive-by” and never looked at again because they were a mess.
Sunday, August 13, 2006
Clean up Your Balance Sheet
In most circumstances price is determined from the income statement and operating results. Yet few people understand how a balance sheet can make or break a sale. The balance sheet contains the assets (think bank accounts) and liabilities (think debts). More assets than necessary usually will not increase the value of the business. For this reason we advise business owners to liquidate unnecessary equipment and inventory. They take up space, add to the clutter, and will not increase the sales price. (Yes real estate and some intellectual property will increase the price but those are exceptions.)
All businesses need to make capital investments. Some need to make substantial capital investments. You must keep making reasonable investments so you can keep running your business efficiently until it does sell. For instance, a plumbing contractor owns ten trucks and replaces two each year. This type of investment probably should continue even with a hoped for sale in the next year or two. On the other hand, the same plumbing contractor should probably not move to a new facility that is going to require $200,000 in one time fit-out charges. This investment is unlikely to be recovered in a short timeframe. Additionally, if he takes on debt to make the improvements the entire debt will have to be paid or offset against the purchase price. This will greatly reduce the seller’s proceeds from the sale.
The last area to talk about is inventory. Many business owners have not taken inventory in years. They estimate the cost of goods sold based on past history, this year’s purchases, their gut feelings or other logical or illogical method. This can cause several problems. First, if inventory is accumulating over time, you might be making more money than you think because your income has been understated which means your valuation will be low. Second, you may end up giving away inventory because many inventory adjustment clauses state that the buyers will not pay for “stale” inventory. This may be inventory over two years old, inventory that is out of season or inventory items negotiated piece by piece. Again, just like other excess assets, sell extra inventory before the buyer comes into the picture. Anything you get for it is likely to be more than a seller will pay.
All businesses need to make capital investments. Some need to make substantial capital investments. You must keep making reasonable investments so you can keep running your business efficiently until it does sell. For instance, a plumbing contractor owns ten trucks and replaces two each year. This type of investment probably should continue even with a hoped for sale in the next year or two. On the other hand, the same plumbing contractor should probably not move to a new facility that is going to require $200,000 in one time fit-out charges. This investment is unlikely to be recovered in a short timeframe. Additionally, if he takes on debt to make the improvements the entire debt will have to be paid or offset against the purchase price. This will greatly reduce the seller’s proceeds from the sale.
The last area to talk about is inventory. Many business owners have not taken inventory in years. They estimate the cost of goods sold based on past history, this year’s purchases, their gut feelings or other logical or illogical method. This can cause several problems. First, if inventory is accumulating over time, you might be making more money than you think because your income has been understated which means your valuation will be low. Second, you may end up giving away inventory because many inventory adjustment clauses state that the buyers will not pay for “stale” inventory. This may be inventory over two years old, inventory that is out of season or inventory items negotiated piece by piece. Again, just like other excess assets, sell extra inventory before the buyer comes into the picture. Anything you get for it is likely to be more than a seller will pay.
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