Scale Up Your Service Business to Increase your Business’s Value
Increase the value of your company by training others in your area of expertise.
It can be tough to grow a service business. Clients are typically buying your expertise, and if all you have to sell is time, the size of your business will always be limited by the number of hours in your day.
One way to scale up your service business is to launch a training division to teach others what you know. That’s what Nancy Duarte did when she found herself run ragged trying to grow Duarte, a Mountain View, California-based design studio.
Duarte’s specialty was creating high-impact presentations (her firm created the slides Al Gore used in the movie The Inconvenient Truth), but the work was tough to scale. She found herself spinning various plates and hoping none of them would fall to the ground. Finally she realized she was exhausted and no longer enjoying her job. She still loved the business but hated the constant demands on her time and energy.
In an effort to pull herself out of individual projects, she sat down and documented her methodology and from there created an internal training course so her employees could learn the Duarte way of creating presentations.
Once she had taught her own staff to handle the development of the presentations, she turned her philosophy and her approach into a book that was published in 2008 under the title Slide:ology – The art and science of creating great presentations. Her most recent book, Resonate: Present visual stories that transform audiences, was published in 2010). Having created a platform with the books, Nancy launched her training division, which offers corporate on-site workshops—her facilitators go to large companies to teach the employees how to make better presentations.
Due in large part to the training division, Duarte has scaled up her service business to the point where she now employs 82 people.
As business owners, we all know we should be documenting our systems for others to follow, but somehow writing our owner’s manual always takes a backseat to serving the next customer or fighting the next fire. Maybe what we need to do is stop thinking of writing down our process as an internal chore and instead focus on launching a training division. That way, the job of documenting our system goes from a textbook-boring task to the raw material needed to launch a revenue-generating business division. If your looking for a platform to use in creating your systems, check out this book “Work the System” by Sam Carpenter. Easy read and really helps break down the basics of the process to systemizing your business.
Read MoreSmall Business For Sale Listings Reach Six Year High per BizBuySell’s 2nd Quarter 2015 Insight Report
BizBuySell recently released their Business For Sale Insight Reports for the 2nd Quarter of 2015 stating growing supply & Demand continues high transaction trend. Overall “business sales” were up 12% vs. 2nd quarter 2014. This level of performance has not been seen since 2009. Below are a few additional summary items from BizBuySell’s reports.
- Median small business asking price grew 13% in the past year, while sale price increased 12%.
- Manufacturing businesses led the recent growth spurt with a 29 percent uptick from the same period last year.
- Business listings in the restaurant (12 percent), service (11 percent) and retail (9 percent) industries also experienced year-over-year supply growth.
- The median revenue of sold businesses increased to $450,000 this quarter (the highest on record since report inception in 2007).
- The median cash flow rose slightly to 102,995 from $100,000 at the same time last year.
- California saw large increases in the number of small businesses on the market.
- San Jose (up 64 percent)
- Sacramento (up 42 percent)
- San Francisco (up 31 percent)
- San Diego (grew by 18 percent)
- Los Angeles (7 percent increase)
To help show a picture of what happened in the 2nd quarter of 2015 for California below is a chart showing the number of business’s listed and the average cash flow multiple. We also added a column using $200,000 cash flow as an example to show a California market comparison.
California Highlights | # listed | Cash Flow Multiple | Hypothetical 200kCash Flow x Multiple = Listing Price |
Contra Costa-Alameda-Solano, CA | 187 | 2.85 | $570,000 |
Sacramento–Arden-Arcade–Roseville, CA | 252 | 2.82 | $564,000 |
San Diego-Carlsbad-San Marcos, CA | 389 | 2.53 | $506,000 |
San Francisco-Oakland-Fremont, CA | 342 | 3.10 | $620,000 |
San Jose-Sunnyvale-Santa Clara, CA | 184 | 3.04 | $608,000 |
“There will always be some outliers, but this quarter’s data confirms that small business listings, transactions and financials are all continuing on a great trend,” Bob House, Group GM of BizBuySell.com and BizQuest.com said. “Nationally, the transaction volumes, key financial indicators and economic environment during the first half of 2015 point to another robust business-for-sale market in the second half of the year.”
Want to learn about selling your business and what your own personal Sellability Score is? Click here.
If you’re interested in learning about your selling options, getting a professional business valuation, or getting help creating an exit strategy, please feel free to CALL Evolution Advisors at 916.993.5433 or visit our website: www.EvoBizSales.com
Read MoreExpect the Unexpected when Selling Your Business
According to the experts, a business owner should lay the groundwork for selling at about the same time as he or she first opens the door for business. Great advice, but it rarely happens. Most sales of businesses are event-driven; i.e., an event or circumstance such as partnership problems, divorce, health, or just plain burn-out pushes an owner into selling a business. The business owner now becomes a seller without considering the unexpected issues that almost always occur. Here are some questions that need answering before selling:
How much is your time worth?
Business owners have a business to run, and they are generally the mainstay of the operation. If they are too busy trying to meet with prospective buyers, answering their questions and getting necessary data to them, the business may play second fiddle. Buyers can be very demanding and ignoring them may not only kill a possible sale, but will also reduce the purchase price. Using the services of a business broker is a great time saver. In addition to all of the other duties they will handle, they will make sure that the owners meet only with qualified prospects and at a time convenient for the owner.
How involved do you need to be?
Some business owners feel that they need to know every detail of a buyer’s visit to the business. They want to be involved in this, and in every other detail of the process. This takes away from running the business. Owners must realize that prospective buyers assume that the business will continue to run successfully during the sales process and through the closing. Micromanaging the sales process takes time from the business. This is another reason to use the services of a business broker. They can handle the details of the selling process, and they will keep sellers informed every step of the way – leaving the owner with the time necessary to run the business. However, they are well aware that it is the seller’s business and that the seller makes the decisions.
Are there any other decision makers?
Sellers sometimes forget that they have a silent partner, or that they put their spouse’s name on the liquor license, or that they sold some stock to their brother-in-law in exchange for some operating capital. These part-owners might very well come out of the woodwork and create issues that can thwart a sale. A silent partner ceases to be silent and expects a much bigger slice of the pie than the seller is willing to give. The answer is for the seller to gather approvals of all the parties in writing prior to going to market.
How important is confidentiality?
This is always an important issue. Leaks can occur. The more active the selling process (which benefits the seller and greatly increases the chance of a higher price), the more likely the word will get out. Sellers should have a back-up plan in case confidentiality is breached. Business brokers are experienced in maintaining confidentiality and can be a big help in this area.
Read MoreMaking The Decision To Sell Your Business
Making the decision to Sell your business can be a traumatic and emotional event. In fact, “seller’s remorse” is one of the major reasons that deals don’t close. The business may have been in the family for generations. The owner may have built it from scratch or bought it and made it very successful. However, there are times when selling is the best course to take. Here are a few of them.
- Burnout – This is a major reason, according to industry experts, why owners consider selling their business. The long hours and 7-day workweeks can take their toll. In other cases, the business may just become boring – the challenge gone. Losing interest in one’s business usually indicates that it is time to sell.
- No one to take over – Sons and daughters can be disenchanted with the family business by the time it’s their turn to take over. Family members often wish to move on to their own lives and careers.
- Personal problems – Events such as illness, divorce, and partnership issues do occur and many times force the sale of a company. Unfortunately, one cannot predict such events, and too many times, a forced sale does not bring maximum value. Proper planning and documentation can preclude an emergency sale.
- Cashing-out – Many company owners have much of their personal net worth invested in their business. This can present a lack of liquidity. Other than borrowing against the assets of the business, an owner’s only option is to sell it. They have spent years building, and now it’s time to cash-in.
- Outside pressure – Successful businesses create competition. It may be building to the point where it is easier to join it, than to fight it. A business may be standing still, while larger companies are moving in.
- An offer from “out of the blue” – The business may not even be on the market, but someone or some other company may see an opportunity. An owner answers the telephone and the voice on the other end says, “We would like to buy your company.”
There are obviously many other reasons why businesses are sold. The paramount issue is that they should not be placed on the market if the owner or principals are not convinced it’s time. And consider an old law that says, “The time to prepare to sell is the day you start or take over the business.”
Copyright 2015 Business Brokerage Press, Inc.
Read MoreWhat Serious Buyers Look for in Buying a Business
Obviously, serious buyers want to carefully look at the financials of a company under consideration and all of the other major aspects of the company. However, there are a few other areas that the serious buyer will investigate that sellers may overlook.
The Industry – The buyer will want to take a serious look at the industry itself, the customers, the suppliers, the competition, etc. This investigation will cover the strengths, weaknesses, threats from competition, and opportunities of the potential acquisition. With the growth of the “big box” retailers, much power has shifted from the manufacturer to the retailer. A manufacturer may want to increase prices, but if Wal-Mart says no, it’s a very powerful no.
Discretionary Costs – Some sellers will reduce their expenses in discretionary areas such as advertising, public relations, research and development, thus making for a higher bottom line. However, these cuts will hurt the future bottom line, and smart buyers will take notice of this.
Obsolete Inventory – This is another area that buyers take a serious look at and that can impact the purchase price. No one wants to pay for inventory that is unusable, antiquated or unsalable.
Wages and Salaries – A company may be paying minimum wages, or offering few or low-cost benefits, a limited retirement program, etc. These cost-saving devices will make the bottom line look good, but employee turnover may create expensive problems later on. If the target company is to be absorbed by another, compensation issues could be critical.
Capital Expenditures – The serious buyer will take a very close look at machinery and equipment to make sure they are up to date and on a par with, or superior to, that of the competition. Replacing outdated equipment can modify projections and may affect an offering price.
Cash Flow – Serious buyers will take a long look at the cash flow statements and the areas that affect them. The buyer wants to know that the business will continue to generate positive cash flow after the acquisition (i.e.: after servicing the debt and after paying a reasonable salary to the owner or general manager).
Other areas that sellers overlook, but that the serious buyer does not are: internal controls/systems, financial agreements with lenders, governmental controls, anti-trust issues, legal matters and environmental concerns.
© Copyright 2015 Business Brokerage Press, Inc.
Read MoreHow Does Your Business Compare?
When considering the value of your company, there are basic value drivers. While it is difficult to place a specific value on them, one can take a look and make a “ballpark” judgment on each. How does your company look?
Value Driver | Low | Medium | High |
---|---|---|---|
Business Type | Little Demand | Some Demand | High Demand |
Business Growth | Low | Steady | High & Steady |
Market Share | Small | Steady Growth | Large & Growing |
Profits | Unsteady | Consistent | Good & Steady |
Management | Under Staffed | Okay | Above Average |
Financials | Compiled | Reviewed | Audited |
Customer Base | Not Steady | Fairly Steady | Wide & Growing |
Litigation | Some | Occasionally | None in Years |
Sales | No Growth | Some Growth | Good Growth |
Industry Trend | Okay | Some Growth | Good Growth |
The possible value drivers are almost endless, but a close look at the ones above should give you some idea of where your business stands. Don’t just compare against businesses in general, but specifically consider the competition.
As part of your overall exit strategy, what can you do to improve your company?
© Copyright 2015 Business Brokerage Press, Inc.
Photo Credit: kconnors via morgueFile
How Does Your Business Compare?
When considering the value of your company, there are basic value drivers. While it is difficult to place a specific value on them, one can take a look and make a “ballpark” judgment on each. How does your company look?
Value Driver | Low | Medium | High |
---|---|---|---|
Business Type | Little Demand | Some Demand | High Demand |
Business Growth | Low | Steady | High & Steady |
Market Share | Small | Steady Growth | Large & Growing |
Profits | Unsteady | Consistent | Good & Steady |
Management | Under Staffed | Okay | Above Average |
Financials | Compiled | Reviewed | Audited |
Customer Base | Not Steady | Fairly Steady | Wide & Growing |
Litigation | Some | Occasionally | None in Years |
Sales | No Growth | Some Growth | Good Growth |
Industry Trend | Okay | Some Growth | Good Growth |
The possible value drivers are almost endless, but a close look at the ones above should give you some idea of where your business stands. Don’t just compare against businesses in general, but specifically consider the competition.
As part of your overall exit strategy, what can you do to improve your company?
© Copyright 2015 Business Brokerage Press, Inc.
Photo Credit: kconnors via morgueFile
Read MoreThings To Consider If You Want To Keep The Family Business In The Family
A recent study revealed that only about 28 percent of family businesses have developed a succession plan. Here are a few tips for family-owned businesses to ponder when considering
selling the business:
- You may have to consider a lower price if maintaining jobs for family members is important.
- Make sure that your legal and accounting representatives have “deal” experience. Too many times, the outside advisers have been with the business since the beginning and just are not “deal” savvy.
- Keep in mind that family members who stay with the buyer(s) will most likely have to answer to new management, an outside board of directors and/or outside investors.
- All family members involved either as employees and/or investors in the business must be in agreement regarding the sale of the company. They must also be in agreement about price and terms of the sale.
- Confidentiality in the sale of a family business is a must.
- Meetings should be held off-site and selling documentation kept off-site, if possible.
- Family owners should appoint one member who can speak for everyone. If family members have to be involved in all decision-making, delays are often created, causing many deals to fall apart.
Many experts in family-owned businesses suggest that a professional intermediary be engaged by the family to handle the sale. Intermediaries are aware of the critical time element and can help sellers locate experienced outside advisers. They can also move the sales process along as quickly as possible and assist in negotiations.
Keeping it in the Family
It’s hard to transfer a family business to a younger kin. Below are some statistics regarding family businesses.
- 30% of family businesses pass to a second generation.
- 10% of family businesses reach a third generation.
- 40% to 60% of owners want to keep firms in their family.
- 28% of family businesses have developed a succession plan.
- 80% to 95% of all businesses are family owned.
SOURCE: TED CLARK, NORTHEASTERN UNIVERSITY CENTER FOR FAMILY BUSINESS
© Copyright 2015 Business Brokerage Press, Inc.
Read MoreThe Confidentiality Agreement
When considering selling their companies, many owners become paranoid regarding the issue of confidentiality. They don’t want anyone to know the company is for sale, but at the same time, they want the highest price possible in the shortest period of time. This means, of course, that the company must be presented to quite a few prospects to accomplish this. A business cannot be sold in a vacuum.
The following are some of the questions that a seller should expect a confidentiality agreement to cover:
- What type of information can and can not be disclosed?
- Are the negotiations open or secret?
- What is the time frame for which the agreement is binding? The seller should seek a permanently binding agreement.
- What is the patent right protection in the event the buyer, for example, learns about inventions when checking out the operation?
- Which state’s laws will apply to the agreement if the other party is based in a different state? Where will disputes be heard?
- What recourse do you have if the agreement is breached?
Obviously, executing an agreement does not mean a violation can’t occur, but it does mean that all the parties understand the severity of a breach and the importance, in this case, of confidentiality.
While no one can guarantee confidentiality, professional intermediaries are experienced in dealing with this issue. They are in a position to understand the extreme importance of confidentiality in business transactions as well as the devastating results of a breach in confidentiality. A professional intermediary will require all legitimate prospects to execute a confidentiality agreement.
A confidentiality agreement is a legally binding contract, enforceable in a court of law. It establishes “common ground” between the seller, who wants the agreement to be extensive, and the buyer, who wants as few restrictions as possible. It allows the seller to share confidential information with a prospective buyer or a business broker for evaluative purposes only. This means that the buyer or broker promises not to share the information with third parties. If a confidentiality agreement is broken, the injured party can claim a breach of contract and seek damages.
© Copyright 2015 Business Brokerage Press, Inc.
Photo Credit: pippalou via morgueFile
Read MoreLiving the 80/20 principle will make your business more valuable
I am sure most of you are familiar with the 80/20 principle. 80 percent of results come form 20% of your efforts. Author Richard Koch has written a number of books on how this principle applies to life and business. In a recent seminar put on by well known marketer Perry Marshal, Richard Koch explains in this short 1m minute video how as a business owner “working hard” is typically bad for him/her and usually bad for the business.
Richard uses the phrase “getting off the hamster wheel” or more importantly as a business owner needing to make the decision to “get off the hamster wheel” and how this decision can make your business more valuable. In this 2m video Richard’s gives 3 reasons business owners should make the decision to get “out of the business.”
1- You will enjoy life more and be happier, allowing you to do things outside of the business.
2- It will increase the value of your business – by getting out of the business and thinking a different way. This is based on observations of owners that are most successful are those that have done very little in the business but set things up for the organization perform.
3- Have no value of equity– can not sell the business. To make the business sellable you have to get out of the business and be able to deliver results with out you being there.
In a previous posting we discussed this very important topic in bringing more value to your business.
Want to learn about selling your business and what your own personal Sellability Score is? Click here.
If you’re interested in learning about your selling options, getting a professional business valuation, or getting help creating an exit strategy, please feel free to CALL Evolution Advisors at 916.993.5433 or visit our website: www.EvoBizSales.com
Source: Perrymarshal.com
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