Why You Need a Broker Who Knows How to Market Your Business?
When selling your business, it’s important to ask how your broker plans to find the right buyer.
There are essentially two types of business buyers.
A financial buyer is usually someone looking to switch from employee to entrepreneur by “buying” a new job and lifestyle. They want to:
- Replace their income,
- Enjoy what they do, and
- Meet expenses, while supporting their family
A strategic buyer is usually another business entity looking for a company that fits their long-term goals. They want to:
- Grow their existing business,
- Get into a new area of their business, or
- Expand their marketing footprint
There are also two ways to sell a business: through listing sites (passive marketing), or through outreach programs that leverage direct mail and telemarketing (active marketing).
Some brokerages post businesses on a few sites and wait. Others – like ours – get those listings in front of as many eyes as possible, while reaching out to buyers directly.
Finding a buyer starts and stops with marketing: you’ve got to tell a story, put together the right materials, and create a customized plan – because every business is different.
For example, we once helped sell a niche manufacturing business that created screen printing and logos for train museums. By examining how their systems and processes might apply to other sectors, we effectively customized our marketing approach and attracted a buyer in the airplane industry.
Remember, to maximize potential buyers and find the right one, it’s vital that you work with a broker who knows how to market your business.Read More
There is no denying the fact that life is much, much easier when one can find the right buyer for his or her business. Buying or selling a business can be a stressful affair, but much of that stress can be eliminated by getting the right support.
The Concept of the “Right Buyer”
In the recent Inc. article entitled, “How to Find the Right Buyer for Your Business and Avoid Negative Consequences,” Bob House builds his article around a relatively simple and straightforward, but powerful, concept. House’s notion is, “the right buyer is worth more than a big check.”
House correctly points out that far too many sellers become fixated on exiting their business and grabbing a big pay day. In their focused interest in the sum they will receive, these sellers ignore a range of other important details. In part, sellers often miss the single greatest variable in the entire process: finding the most qualified buyer. The simple fact is that if sellers want to reduce their long-term stress, then there is no replacement for finding the most qualified buyer, as the wrong buyer can be “headache city!”
Plan in Advance
As House points out, it is only prudent to determine what you want out of a buyer well before you put your business up for sale. For example, if you don’t want to offer financing, then that is a decision you need to make well before you begin the process.
Additionally, House wisely places considerable interest on pre-screening potential buyers. Pre-screening is a great reason to work with an experienced and proven business broker who can assist with the process. As a business owner your time is precious. The last thing you want are a lot of window shoppers wasting your time.
Keep Your Focus on Your Business
Remember, while your business is up for sale, you still have to run your business. Quite often, business owners have difficulty running their business and navigating the complex sales process simultaneously. The end result can be disastrous, as revenue can drop and business problems can arise.
Working with a business broker means that you are dramatically reducing your potential stressors throughout the sales process. A business broker will ensure that potential buyers are pre-screened and that only serious buyers are brought to you for consideration.
Currently, the market conditions are great for sellers. If you are considering selling, now is the time to find a business broker and jump into the market!
Does your business have real, long-lasting longevity or is your business a temporary entity that will vanish the second you stop working on it? In his insightful article in The Business Journals entitled, “Are You Living for Today as a Business Owner or Building Value?” author Kent Bernhard asks a very important question of readers, “Are you a lifestyle business owner or a value accelerator?”
Many business owners have never stopped to ask this very important, yet basic, question regarding their businesses. So, let’s turn our attention to this key question that all business owners must stop and ask at some point.
As Bernhard points out the core issue here is how a given business owner defines the idea of success for him or herself. As Chuck Richards, the CEO of CoreValue Software notes, “At the end of the day, a lifestyle business is just a job.”
Richards goes on to note that this is fine for many people. But if this is the case, it is a choice that one is making. Therefore, lifestyle business owners should be aware that they are, in fact, clearly making a choice.
Business owners who are lawyers, consultants and accountants often fall into the category of those with a “business as a job.” They fail to accumulate enough assets for their business to really be more than a job. Summed up in another fashion, the business generates enough revenue to provide a comfortable lifestyle. However, it does not have the infrastructure or equity to remain profitable, or even in existence, once they walk away. As the owner and operator of the business, they are vital to its very existence. This means that the business only has value so long as the owner is working in the business on a regular basis. As a result, the owner may never really be able to exit the business.
As Bernhard points out, “To build a business as an asset, you have to become a value accelerator who looks beyond whether the business’ profits are sufficient to maintain your lifestyle. It means looking at the business as an entity outside yourself.” Those who fall into the value accelerator category, focus on figuring out creating value for the business as a financial asset that can operate independently.
Making sure that your business can continue on without you means that you have to build it, and that involves having a coherent and focused plan. Plan in advance and know how you will exit your business. To ultimately create value for the business entity itself, a plan must be in place that allows for your successful exit.
Pay Attention to Seller’s Discretionary Earnings to Maximize Business Valuation!
If you are a small to medium sized business owner, when it comes to selling your business one of the most important metrics that you should be aware of is known as Seller’s Discretionary Earnings or SDE. SDE refers to the total benefits that an owner receives from owning a business. SDE is important because it is one of the metrics that is used to help establish the value of a business for sale. (in larger companies EBITDA is typically used for valuation).
One of the main ways that a business owner can jeopardize the valuation of their business is by running too many non business-related expenses through the business. While this does reduce taxable profit while the owner is operating the business, it can cause a bank to undervalue the business which could affect a buyer’s ability to finance the purchase.
In addition to a potentially lower valuation, buyers will also wonder if the business is being operated effectively and that could also lead to lower purchase offer valuations.
SDE is based upon Net Income before taxes, Depreciation, Amortization, Interest, one Owner’s Compensation and Other Additions/Deletions which reflect how much salary a Buyer can take plus Tax Capability and Business Debt Carrying Capacity; A higher SDE will normally equate to a higher value or selling price.
If you are considering selling your business in the next 1-4 years you should start thinking about your SDE now so that you can maximize the valuation when it comes time to sell your business.
If you would like to discuss SDE or the sale of your business, please contact me at firstname.lastname@example.org for a complimentary consultation.
Quality employees are essential for the long-term success and growth of any business. Many entrepreneurs learn this simple fact far too late. Regardless of what kind of business you own, a handful of key employees can either make or break you. Sadly, businesses have been destroyed by employees that don’t care, or even worse, are actually working to undermine the business that employs them. In short, the more you evaluate your employees, the better off you and your business will be.
Forbes’ article “Identifying Key Employees When Buying a Business”, from Richard Parker does a fine job in encouraging entrepreneurs to think more about how their employees impact their businesses and the importance of factoring in employees when considering the purchase of a business.
As Parker states, “One of the most important components when evaluating a business for sale is investigating its employees.” This statement does not only apply to buyers. Of course, with this fact in mind, sellers should take every step possible to build a great team long before a business is placed on the market.
There are many variables to consider when evaluating employees. It is critical, as Parker points out, to determine exactly how much of the work burden the owner of the business is shouldering. If an owner is trying to “do it all, all the time” then buyers must determine who can help shoulder some of the responsibility, as this is key for growth.
In Parker’s view, one of the first steps in the buyer’s due diligence process is to identify key employees. Parker strongly encourages buyers to determine how the business will fair if these employees were to leave or cross over to a competitor. Assessing if an employee is valuable involves more than simply evaluating an employee’s current benefit. Their future value and potential damage they could cause upon leaving are all factors that must be weighed. Parker recommends having a test period where you can evaluate employees and the business before entering into a formal agreement. While this may sound like a good idea, I strongly disagree. It is for the benefit of both the buyer and seller to share with the employees the business has been sold at the time of closing. Employees need to see the new buyer in action showing they have the same pay, benefits, and job responsibilities.
It is key to never forget that your employees help you build your business. The importance of specific employees to any given business varies widely. But sellers should understand what employees are key and why. Additionally, sellers should be able to articulate how key employees can be replaced and even have a plan for doing so. Since savvy buyers will understand the importance of key employees and evaluate them, it is essential that sellers are prepared to have their employees placed under the microscope along with the rest of their business.Read More
Finding the money to start your own small business can be a challenge. Over the decades, countless people have turned to the Small Business Administration (SBA) for help. A recent Inc. Magazine article, “Kickstart Your Business Dreams with SBA Lending,” by BizBuySell President, Bob House, explored how SBA lending can be used to the buyer’s advantage.
The article covers the basics of an SBA loan and who should try to get one. House notes that the SBA doesn’t provide loans itself, but instead facilitates lending and even micro-lending with a range of partners. The loans are backed by the government, which means that lenders are more willing to offer a loan to an entrepreneur who might not typically qualify for one. The fact is that the SBA will cover 75% of a lender’s loss if the loan goes into default.
Entrepreneurs can benefit tremendously from this program. In some cases, an SBA loan even means skipping the need for collateral. SBA loans can be used for those looking to open a business, expand their existing business or open a franchise.
House points out that getting an SBA loan has much in common with receiving other types of loans. For example, it is necessary to be “bank ready.” By “bank ready,” House means that all of your financial documentation should be organized, clear to understand and ready to go.
Next, a buyer would need to check that he or she qualifies, find a lender and fill out the necessary SBA forms. In order to be eligible for an SBA loan, it is necessary that the business is a for-profit venture and that it will do business in the United States. Once the necessary forms have been submitted, it can take between 2 to 3 months for an application to be processed and potentially approved.
The simple fact is that the SBA helps thousands of people every year. If you are looking to buy a business or expand your current business, then working with the SBA could be exactly what you need. Of course, business brokers are experts on what it takes to buy. Working with a broker stands as one of the single best ways to turn the dream of owning a business into a reality.
Building a successful business likely took you years of deliberate planning. From your initial business plan to now, you’ve built something worth protecting and worthy of pride. When many owners reach the peak of their business success, they wonder where they go from there. Whether you’re approaching, at, or getting farther away from the peak of your success, the answer is likely the same: The next step is planning for the future of your business and your ownership.
The tricky part is making time to do the planning. It may seem like you have years and years to begin planning for future success, but that isn’t always true. Though it may seem impossible to think through all the important considerations that are involved in your ultimate and inevitable separation from your business, doing so is also an opportunity to take as much control over the future as possible.
We believe that the most effective way to position yourself for future success is to begin a three-step process. Each of these steps can help you answer questions about your current ownership, how you picture the rest of your life, and how your decisions can affect people and things you care about.
Determine How Much Money You Need to Become Financially Secure
Do you know how much money you spend each year? How many different perks do you take as the owner of a successful business? How much money would you need—for yourself and anyone who relies on you—to never have to work another day in your life? These are just a few questions you should ask yourself.
If you cannot answer these questions with confidence, it’s difficult to know how much money you need to be financially secure. Financial security is important because it can give you the freedom to do exactly what you want with your future. Whether that means selling your business and retiring; transferring ownership to someone inside the business, like a child or employee; or working through your last breath, working toward financial security gives you and the people who depend on you a cushion if something unexpected were to happen, and confidence if you want or need to separate from the business.
Of course, if everything goes as planned, you can achieve financial security and all the freedoms that go along with it. So, knowing how much you need to be financially secure can be a big win-win situation.
Decide What You Must Do to Reach Your Financial Security Goal
Once you’ve figured out what you need for financial security, you should consider how you’ll get it. Ask yourself whether there’s anything you can do within the business to improve cash flow and profit. Find out whether you’re investing non-business assets in ways that will help you reach your financial security goal. Figure out how you can use the strength of your business—which is likely your largest asset—to pursue financial security.
Determine What’s Important to You
Financial security might be the most important aspect of planning for future success, but it isn’t the only thing. Many business owners focus so much on their financial goals that they forget to think about more intangible goals. For example, if you could guarantee yourself financial security by selling your company to someone who has told you that he will lay off everyone in your company, would you do it? If you wanted to transfer your ownership to a key employee who is exceptionally talented but treats his co-workers poorly, would you do it?
These intangible, or values-based, goals play an important role in your planning for future success. Business owners can easily disregard these goals and come to regret it in the later stages of their planning. Values-based goals matter, and they can affect how you pursue your overall financial goals. That’s why it’s important to consider them early in your planning process.
Making these determinations and decisions isn’t something you must do alone. If you’d like to talk about using a process to plan for your future success, please contact us today.
Olympus Tax, Business and Insurance Solutions, Inc.
4600 Roseville Road, Ste 150 / 260
Sacramento, CA 95660