How To Maximize Return When Selling Your Business – Prepare!
A recent article from Divestopedia entitled “When is the Best Time to Sell My Business” explains that a business owner who is looking to sell should begin preparing for the sale three years before they plan to list their business on the market.
The state of the market matters when listing your business, but what you can’t control this as a business owner. What you can control, however, is the state of your financial records, whether the business has any litigation outstanding, and the overall appearance and wellbeing of the business. In order to sell your business at the highest value possible, there are certain things that need to be taken care of before listing. By giving yourself about three years (the number of years of clean, verifiable financial statements you should have) to prepare your business for sale, you are giving yourself and your business the best chance on the market.
Click here to read the full article.
Read More
How to Overcome the Overwhelming Parts of Planning When Exiting Your Business
One of the toughest things you’ll confront in your planning is focusing on the goals that matter most. You might find that the things you want to do conflict with the things you must do. For instance, you may want to use your analytical skills to increase production—something you can do at any time—during the only time that candidates for a next-level management team are available for recruiting or development. The first project is more enjoyable, but the second is more important to your future. What can you do to overcome overwhelming decisions between doing what you want and doing what you must? Consider the situation of Sybil Marino and Ronda Rowe, co-owners of a manufacturing company.
Sybil and Ronda had co-owned M&R Manufacturing for 20 years. Though they rarely spoke outside the business, they had two things in common: They were still heavily involved in the business’ critical functions—from sales and delivery to operations and internal systems—and they wanted to sell the business within five years. Neither Sybil nor Ronda had any skill or interest in training their managers to take over for them. All of the company’s success flowed directly through their final decisions, and they preferred to keep it that way. They reasoned that they could create more value through their expertise than through searching for and training others, who would never be as good.
When they told their advisor Henri this, Henri stressed that they would need a management team to take over for them if they wanted to sell the business for the money they needed. Sybil asked, “Why should we have to do that? Shouldn’t the people that we sell to be responsible for that? What if we sell to a private equity group? Don’t they just bring their own managers?” Henri explained that most private equity groups pass on most of the business presented to them, even great ones. Henri insisted that it’s a mistake to reduce the pool of potential buyers to such an uncertain group. Sybil and Ronda said that finding and training people to do what they did was too much work, and maybe not even possible. They were so used to self-made success that the idea that managers would want to build a business for someone else was a foreign concept. They quickly became overwhelmed and were tempted to give up on planning altogether.
Doing things differently than what has brought you success can be hard. In this case, Sybil and Ronda were used to doing everything themselves, and they had been doing it for 20 years apiece. How could they possibly train anyone to do what took them 40 combined years to perfect themselves, especially when they wanted to sell the business within the next five years? The idea was overwhelming, and because they thought it was impossible to tackle at once, they began to rethink their planning efforts.
Rather than giving up when confronted with a difficult challenge, we suggest using a process to overcome the overwhelming parts of planning.
Set and Evaluate Your Goals
It’s difficult to determine what will overwhelm you if you aren’t sure what you’re trying to do. Determining your goals—including how much money you’d like from your exit, when you’d like to exit, and to whom you’d like to sell—gives you a baseline for how you can act on those goals. More specifically, you can speak with advisors and other business owners who have Exit Planning experience to set realistic goals, which can minimize the likelihood of tilting at windmills.
Do What Comes Easy First
When planning a large undertaking, it’s helpful to start with what you know. This is especially true when planning a business exit. Once you’ve set and evaluated your goals, you have the freedom to address more manageable aspects of your Exit Plan. So, if you feel more comfortable working on your estate plan or personal financial plan foremost, you can start there. Then, after finishing the portions of your Exit Plan you’re most comfortable with, you can use the confidence, motivation, and momentum you’ve built up to approach bigger, more challenging tasks.
Ask for Help
This might be the most challenging aspect of planning, but it’s critical. There will be times and situations in which your expertise will not help you make a valid decision. There are aspects of Exit Planning that can be incredibly complex and may require several advisors. You can always ask your most trusted advisors for help with these challenges, and we recommend that you do. But when the most overwhelming parts of planning arise—such as finding a next-level management team, creating a Deal Team, or implementing incentive plans for key employees—you may need to enlist outside help. Don’t be afraid or ashamed to ask: Asking can save you a lot of future stress. High-quality advisors will work collaboratively, not competitively.
Planning a business exit can be overwhelming. If you’d like to discuss how to approach the hardest parts of planning your exit, please contact us today.
Content provided by:
Ed Cotney
Olympus Tax, Business and Insurance Solutions, Inc.
4600 Roseville Road, Ste 150 / 260
Sacramento, CA 95660
www.olympustax.com
(530) 913-0562
Read More
What Sellers Don’t Expect When Selling Their Business
In the proverbial “perfect world,” business owners would plan three to five years ahead to sell their companies. But, as one industry expert has suggested, business owners very seldom plan to sell; rather, selling is “event driven.” Partner disputes, divorce, burn-out, health, and new competition are examples of events that can force the sale of a business.
Sellers often find, after they have decided to sell, that the unexpected happens and they are “blindsided” and caught off-guard. Here are a few of the unexpected events that can occur.
The Substantial Time Commitment
Sellers find that the time necessary to comply with the requests of not only the intermediary but also the potential buyers can take valuable time away from the actual running of the business. The information necessary to compile the offering memorandum takes time to collect. Many sellers are unaware of the amount of their time necessary to gather all the documents and information required for the offering memorandum, nor of its importance to the selling process.
There is also the time necessary to meet and visit with prospective buyers. An intermediary will play an important role in screening prospects and separating the “prospects from the suspects.”
Handling the Confidentiality Issue
Owners of many companies are also the founders and creators of them. They can have difficulty in delegating and tend to want to make all of the decisions themselves. When it comes time to sell, they want to be involved in everything, thus, again, taking time away from running the business. Members of the management team, like the sales manager, have a lot of the information necessary not only for the memorandum but also on competitive issues, possible acquirers, etc. The owner has to allow his or her managers to be part of the selling process. This is easier said than done.
Forgetting the Others
Many mid-sized, privately held companies also have minority stockholders or family members who have an interest in the business. The managing owner may be the majority stockholder; but in today’s business world, minority stockholders have strong rights. The owner has to deal with these people, first in getting an agreement to sell, then convincing them about the price and terms. A “fairness opinion” can help resolve some of the pricing issues. Minority stockholders and family interests have to be dealt with and not overlooked or pushed to the end of the deal. When this happens, many times it is the end of the deal, literally speaking.
The Price is the Price is the Price
All sellers have a price in mind when it comes time to sell their companies. Most businesses go to market with a fairly aggressive price structure. When an offer(s) is presented, it is generally, sometimes significantly, lower than the seller anticipated. They are never prepared for this event – they are blindsided, and obviously not very happy. They turn the deal down without even looking past the price. Here is where an intermediary comes in, by helping structure the deal so it can work for both sides.
Not Having Their Own Way
Business owners are used to calling the shots. When an offer is presented, they, in some cases, think that they can call all of the shots. They have to understand that selling their company is a “give and take.” They can stand firm on the issues most important to them, but they have to give on others. Also, some owners want their attorneys to make all of the decisions, both legal and business. Unfortunately, some attorneys usurp this decision. Owners must make business decisions.
Confidentiality Leaked
There is always the small possibility that the word will leak out that the business is for sale. It may just be a rumor that gets started or it may be worse – the confidentiality is exposed. Sellers must have a contingency plan in case this happens. A simple explanation that growth capital is being considered or expansion is being explored may quell the rumor.
“Keeping Your Eye on the Ball”
With all that is involved in marketing a business for sale, the owner must still run the business – now, more than ever. Buyers will be kept up-to-date on the progress of the business, despite the fact that it is for sale.
Copyright: Business Brokerage Press, Inc.
Read More
The Importance Of Understanding Leases When Selling A Business
Leases should never be overlooked when it comes to buying or selling a business. After all, where your business is located and how long you can stay at that location plays a key role in the overall health of your business. It is easy to get lost with “larger” issues when buying or selling a business. But in terms of stability, few factors rank as high as that of a lease. Let’s explore some of the key facts you’ll want to keep in mind where leases are concerned.
Different Kinds of Leases
In general, there are three different kinds of leases: sub-lease, new lease and the assignment of the lease. These leases clearly differ from one another, and each will impact a business in different ways.
A sub-lease is a lease within a lease. If you have a sub-lease then another party holds the original lease. It is very important to remember that in this situation the seller is the landlord. In general, sub-leasing will require that permission is granted by the original landlord. With a new lease, a lease has expired and the buyer must obtain a new lease from the landlord. Buyers will want to be certain that they have a lease in place before buying a new business otherwise they may have to relocate the business if the landlord refuses to offer a new lease.
The third lease option is the assignment of a lease. Assignment of a lease is the most common type of lease when it comes to selling a business. Under the assignment of lease, the buyer is granted the use of the location where the business is currently operating. In short, the seller assigns to the buyer the rights of the lease. It is important to note that the seller does not act as the landlord in this situation.
Understand All Lease Issues to Avoid Surprises
Early on in the buying process, buyers should work to understand all aspects of a business’s lease. No one wants an unwelcomed surprise when buying a business, for example, discovering that a business must be relocated due to lease issues.
Summed up, don’t ignore the critical importance of a business’s leasing situation. Whether you are buying or selling a business, it is in your best interest to clearly understand your lease situation. Buyers want stable leases with clearly defined rules and so do sellers, as sellers can use a stable leasing agreement as a strong sales tool.
Copyright: Business Brokerage Press, Inc.
Read More
The Importance of Understanding Leases
Leases should never be overlooked when it comes to buying or selling a business. After all, where your business is located and how long you can stay at that location plays a key role in the overall health of your business. It is easy to get lost with “larger” issues when buying or selling a business. But in terms of stability, few factors rank as high as that of a lease. Let’s explore some of the key facts you’ll want to keep in mind where leases are concerned.
The Different Kinds of Leases
In general, there are three different kinds of leases: sub-lease, new lease and the assignment of the lease. These leases clearly differ from one another, and each will impact a business in different ways.
A sub-lease is a lease within a lease. If you have a sub-lease then another party holds the original lease. It is very important to remember that in this situation the seller is the landlord. In general, sub-leasing will require that permission is granted by the original landlord. With a new lease, a lease has expired and the buyer must obtain a new lease from the landlord. Buyers will want to be certain that they have a lease in place before buying a new business otherwise they may have to relocate the business if the landlord refuses to offer a new lease.
The third lease option is the assignment of lease. Assignment of lease is the most common type of lease when it comes to selling a business. Under the assignment of lease, the buyer is granted the use of the location where the business is currently operating. In short, the seller assigns to the buyer the rights of the lease. It is important to note that the seller does not act as the landlord in this situation.
Understand All Lease Issues to Avoid Surprises
Early on in the buying process, buyers should work to understand all aspects of a business’s lease. No one wants an unwelcomed surprise when buying a business, for example, discovering that a business must be relocated due to lease issues.
Summed up, don’t ignore the critical importance of a business’s leasing situation. Whether you are buying or selling a business, it is in your best interest to clearly understand your lease situation. Buyers want stable leases with clearly defined rules and so do sellers, as sellers can use a stable leasing agreement as a strong sales tool.
Five Predictions For Manufacturing in 2019
A recent article from Axial has some interesting takeaways regarding the manufacturing industry and the direction it’s heading in the near future.
On November 1, Strategex and Axial brought together a diverse group of private equity investors, family offices, lenders, and advisors in Cleveland for a manufacturing-focused event. Over lunch, the group discussed today’s most prevalent topics in manufacturing and the direction in which they see the industry heading in the short term. Here are the top five takeaways from this conversation.
1. An economic contraction is coming, but the short-term outlook is strong.
While the group unanimously agreed the next recession is a matter of “When?”, not “If?”, the consensus was that leading indicators are overwhelmingly positive and the economic expansion — now in its ninth year — is expected to continue through 2019 and potentially 2020. However, acquirers are beginning to place more value on targets which have the ability to weather a downtown. For example, targets with a healthy aftermarket business, which tend to be countercyclical, are increasingly attractive to buyers.
2. The labor supply is the dominant challenge in manufacturing today.
A near-record low unemployment rate, increasing minimum wages, more restrictive immigration policies, and an aversion to manufacturing jobs among younger cohorts are just some of the factors which have resulted in a severe shortage of qualified candidates. Furthermore, the ability to retain productive employees is becoming more difficult as fewer see manufacturing as a viable long-term career. In response, manufacturing firms are investing heavily in the employee experience, flex benefits (tuition reimbursement, gym memberships, paid parental leave, etc.), and workplace culture.
3. Industry 4.0 is on the horizon, but implementation will be slow.
Deal professionals see the advent of “Industry 4.0” as a potential solution to the labor and talent dilemma, but the timeline for implementation is unclear. One component of 4.0, the utilization of computerization and robotics, is starting to take hold, but most don’t see a complete overhaul of traditional manufacturing taking place anytime soon.
4. Increasing interest rates are both a threat and an opportunity.
Many manufacturers are experiencing growing pains such as severe backorders, over-utilized facilities and equipment, and obsolete information technology infrastructure. Recent interest rate hikes have deterred some from borrowing to finance capital expenditures and capacity building, putting their ability to sustain growth at risk.
On the other hand, many lenders have seen a spike in originations as borrowers attempt to lock in rates given the expectation they will only increase in the short term. On the private equity front, the increasing aversion to debt has led to an increased demand for growth equity investments.
5. The lack of stability is the new norm, and agility is essential for success.
Above all, markets seek stability, but current socio-economic conditions are anything but stable. Volatility is everywhere, including tariffs, regulations, trade agreements, tax policy, and fluctuations in government spending (particularly infrastructure spending). Those involved in running manufacturing businesses, however, have come to accept volatility as business as usual. Rather than deferring action in hopes of tides turning, and rather than proactively embracing change to get ahead of the curve, managers agree nimble planning and rapid execution is key to succeeding in this new reality.
Read More