Is It Time to Sell?

is it time to sellIn a previous article, we discussed various signs that it’s the right time to sell your company.  

What so many people see as ultimately mostly a financial transaction is possibly going to be one of the most emotional things they ever experience.  

So, even clicking through to read an article with such a title as “Is it time to sell?” means you’re contemplating it in the near future, or you want to inform yourself on future possibilities.

Whatever the reason, there are three things we want you to think about.

Clearly articulate your why

“Why do you want to sell?”  You may think this is a question only your family and friends will pose to you, but we promise that every single potential buyer will ask this question, particularly if your business is doing well.  

Often “I’m tired” or “It’s time” is plenty good enough, but that needs to be framed within a position of growth and optimism.  Buyers don’t often want something that promises a flatline future.

Whatever your why is, make sure you consider how it sounds to someone who wants to buy your business.  If you don’t like how your reason sounds, that’s a good opportunity to step back even further to get a better perspective.

Sometimes you need to look at the really big picture to appreciate the details.

Spring Clean

We’ll be honest.  We sometimes see complete disasters when it comes to financials and taxes.  Taxes haven’t been paid for years and the financials wouldn’t even have passed the smell test at Enron. Don’t wait for an imminent sale to get your business house in order.  

A potential buyer is often scared off a “fixer-upper” when it comes to a business, and the very first thing we will ask you when considering listing your business is for the last 3-5 years of financial statements and tax filings.  

Even if you don’t end up selling your business, you should want that feeling that comes with any spring cleaning…the relief that it’s done and wondering why you didn’t do it sooner.

Have a conversation

Talk with your family and trusted friends and confidantes.  Figure out what’s next for you.

We often see business owners who, after the sale, simply wander figuratively or literally, being cut off from what gave them a purpose for so many years.  

By taking that time to think about what’s next, you can go from a passive seller who is ready to move on to an active seller who is moving (or running!) towards what’s next.

That will give a potential deal momentum, and also fuel the narrative for a potential buyer that you’re looking forward to what’s next.

Of course, we welcome conversations with us as well!  With centuries (yes, literally) of experience in our office, we’ve got a broker who will suit your needs and help you through this important next phase in your business and stage in your life. Give us a call.

Is Your Business Overpriced?

business overpricedHowever a business owner makes it to that critical moment when he or she decides to sell, it’s important to realize that this is the beginning of an entirely new process.  

Whatever amazing expertise he/she may possess in running a business, selling a business is something entirely separate.

More than anything, emotion can get in the way of one of the most critical elements of this process: appropriate pricing.  

There are many points to consider when coming to an appropriate price, but today we’re going to focus on three.

What’s Fair

Are your financials in order? Are you in good standing with the IRS? Anything other than a strong “YES” to both of these questions will point you in the direction of what you need to work on.  

You can’t truly have an idea of what your business is worth unless you know what your numbers are. And if you have buyers who will be seeking SBA funding, and your business will be priced over $350,000, you’re going to need an independent valuation. 

The first thing they will ask you for is audit-worthy financials. A valuation is a good starting point for figuring out a list price for your business.

What Will Sell

For buyers who aren’t looking for a strategic acquisition, the focus is going to be on the length of time for payback of the original purchase price of the business.  

If you take the amount of the business loan and account for some measure of reasonable growth against the financial benefits the owner of your business can accrue, you should have a sense of how long it will take your buyer to get into the black.  

Looking at comps (i.e. what other businesses in your category have sold for) will also be very helpful.

Market Conditions

This is something entirely out of either the buyer or seller’s hands, as there are things like interest rates or “confidence” that can’t be controlled. But it can dictate how quickly (or slowly) a business sells.

With the centuries of experience we have at Apex, we have a good sense not only of current market conditions but about appropriate pricing strategies to adapt to those conditions.

Remember that the ultimate goal of a seller is to sell a business. Apart from not having a business that is capable of taking on a new owner, a big reason that businesses don’t sell is that they price themselves unreasonably. Next, they get unflattering questions when prospective buyers ask why the business has been listed for so long.  

Be smart. Price your business appropriately to give you the best chance to walk away happy when the transaction is done.

Keeping the Best Employees in a Sale

Selling a business is fraught with all sorts of challenges. One of the most important ones is how to deal with employees. If handled thoughtfully, they can make the transition almost effortless. If handled poorly, you could end up with a deal that doesn’t close.

Do you tell them or not?

Keeping a sale confidential is critical for both seller and buyer. If the seller discloses that the business is for sale, employees might start looking elsewhere because they (understandably) fear change and worry that a buyer will eliminate their positions.

Customers may look for a new supplier because they think you’re going out of business, and vendors may change payment plans to COD! These are just a few of the obstacles when disclosing that your business is for sale. Trust us, we’ve seen it all. People love to gossip and tend to imagine only the worst!

Keep Best EmployeesBuyers expect that a seller will operate their business in a normal fashion until closing which can be difficult if the seller is constantly putting out the fires due to the rumor mill.

Additionally, there are legal limits to what can be disclosed to others before and after closing.

All that said, there can be exceptions to the rule of keeping a sale quiet from your staff.

If you’re ready to retire and your employees know that you’re seeking a buyer, there are ways to handle a transition to accomplish the goals of both the buyer and the seller.

Since you’ve already disclosed that you’re looking for a buyer, your staff can assist in ensuring a transition process is in place. It shows them that you’re being transparent with them and that you want to share what’s happening.

You don’t have to give a play-by-play, but try to make yourself available to them to answer anything you can.

If you can ensure that the buyer is going to keep the employees, that will be even better. It will go a long way to quelling fears they might have about having to start looking for work elsewhere.

It might also be worthwhile to have the staff write out a vision about their position and where they see themselves in the company in the coming years. The buyer will appreciate such documents. It will also give them time to think about the best way to work with these employees.

Share the wealth

Consider a transition bonus. In order to give the buyer confidence that the staff will stay in place, you can give the employees a bonus for staying on for a given period of time, say 6 months or a year.  

Some business owners have even given key employees a percentage of the sale proceeds. This serves as a thank you for their years of dedication and assistance with the transition.

Continue on as normal

Regardless of your approach, it’s important as closing day approaches to continue to run your business as you normally would. Things change and deals can fall apart, so don’t be left in a lurch!

Be Realistic About Your Cash Flow Adjustments

Apex Business Advisors Selling A BusinessOne of the most important steps in getting a business ready for sale is preparing for a valuation.

An important step in this process is making sure that the proper Cash Flow adjustments, or “add-backs,” have been made to your annual Net Profit.

While we see lots of questionable cash flow adjustments. This article will focus on three we see very often: Owner Compensation, One-Time Expenses, and Legal Fees.

Cash Flow Adjustments

Owner Compensation

There are three abuses we frequently see here:

Owner pays him/herself nothing.

Sometimes this is done simply to avoid paying additional taxes. However, any buyer is going to want to account for owner compensation and will wonder why a business couldn’t pay the owner a salary. A buyer will need to account for a salary and unless the seller is 100% absentee, $0 isn’t going to work.

Owner has a relative in the business who either takes no salary or an unreasonable one.  

If it’s the former, it may be because he/she is trying to keep the business afloat. That additional salary will harm the company’s profitability. If it’s the latter, it’s simply an inefficient method of taking/distributing additional income.

Remember that buyers are going to want to continue the business after you’re out of the picture. They will probably not get a spouse to work for free nor will they necessarily want to pay a child or relative above market rates. Correct this before a sale.

Owner uses the business as a slush fund…just one or two steps short of (or far beyond) tax fraud.  

Alas, this is very common. While new business owners may decide to go wild and “expense everything,” the sign of a mature business is one in which benefits exclusive to the owner are modest.

Season tickets for a sports team that your sales staff use with clients? Reasonable.  A private box for your family that none of your staff have access to? Unreasonable.

Excessive personal expenses could give a potential buyer pause in making an offer and could negatively impact your value.

One-Time Expenses

Some sellers like to think of R&D, Marketing, or Advertising for their business as a “one-time” expense. Maybe they tried a new campaign but it didn’t pan out.

To survive, businesses need “one-time” new products or services developed by research and development. They constantly need to be thinking about how to continue to be relevant in the marketplace.

This doesn’t mean big spends or new products or new campaigns every quarter. But it does mean that these should be a regular part of your business expenses and not something you can claim as a one-time expense.

Legal Fees

As with the example above, legal fees often have to be accounted for. Now, we aren’t referring to the big ugly case that maybe took a couple of years to get through and was with “that one event” in 30 years.

We’re talking about the fact that your business may need regular legal consultations, whether it’s launching a new product, auditing old business practices, or discussion about future ventures.

Sure, for something out of the ordinary, a “one time expense” is very much appropriate. But legal fees in general?  The longer you own a business, the more you realize it’s as regular as rent. And please, don’t let the business pay for your personal legal problems.

Did this article make you uncomfortable?  That’s okay!  Give us a shout. We’ll help talk you through positive changes you can start making today to make your business more valuable.

3 Reasons You Won’t Be Able To Sell Your Business

There are many reasons why you might not be able to sell your business, but today we want to focus on three in particular. Think of them as the ghosts of business past, present, and future.

1.The Ghost of Business Past: You have a lopsided company

Now, many businesses started with “that one client” which may have carried them through those long and lonely nights at the beginning, but for a business to truly become something other than an owned job, it needs to have a diverse client portfolio, revenue-wise.

If your business is lopsided it’s unattractive to buyers because they will naturally and obviously ask, “Well, what happens to this business if your major client goes out of business, gets acquired, or goes into crisis?”

Since you’re not in charge of your client’s business, you probably don’t know how or when any of these eventualities could occur, but more importantly, you probably don’t have an exciting answer which replaces all that revenue.

ghosts2.The Ghost of Business Present: You have no recurring revenue

While not every business will work on a subscription model, it’s definitely a trend in multiple industries to pivot to create more steady and dependable revenue streams.

While some of these pivots might be obvious, like flower companies offering a monthly subscription for both personal and corporate clients, the unexpected one that got large scale adoption was Amazon Prime: an annual recurring fee that actually led customers to buy more from the mega-giant.

If you want to learn more about this trend (and get some ideas for your business) you should read John Warrilow’s The Automatic Customer.

3.The Ghost of Business Future: The company can’t make it without you

How often are you on vacation, and how long can those vacations be?  The best answers are, “Often,” and “however long I want,” but obviously preferences are different for each business owner. The wrong answers are definitely, “Never,” and “not more than a few days.”

This indicates a strong dependence upon you – whether it’s because you are the secret sauce in the sales cycle, because you are the only manager who can keep your team on task, or because you are simply too involved in day-to-day operations to be gone for any amount of time.

This screams “owned job” to a potential buyer and if that buyer loves your industry and wants to get involved right away, that might be a great play for them, but nine times out of ten they’re going to see this situation as a giant red flag, that an owner hasn’t created systems to make the company survivable without his/her daily blood, sweat, and tears.

Remember that Scrooge was able to send away the ghosts at the end of A Christmas Carol by promising to amend his life. Take a look at your own business to see if any of these ghosts are hanging about.

And then get rid of them.

Apex is actively looking for Advisors to join our team. If you or someone you know would like to learn more, contact Doug Hubler at dhubler@kcapex.com or 913-433-2303

For True Value, Get an Independent Business Valuation

business valuationWhat’s my business worth?  

This is a question any owner might ask himself when he/she is ready to sell.  You close your eyes and think of all those long hours, sleepless nights, times you personally covered payroll (or didn’t take a paycheck), and struggle to put a number on what any of those sacrifices could possibly add up to.  

“Well, it better be big!” you think.  This is the precise moment you need an independent business valuation.

Why?  Simple.  You’re not objective.  Yes, you can go through the cold hard numbers yourself.  You can calculate what we refer to as “Total Owner Benefit” (sometimes called SDE – “Seller’s Discretionary Earnings”) and then attach some multiple you find meaningful.  

You might even have relationships with people in your industry who have successfully exited and could give you a number.  You could do some internet research.  And after all that, you might have a value and stick it on the side of your business and say, “This is the price I want.”

A buyer could shrug his/her shoulders after finding out you were the one who came up with this number, and then proceed to due diligence the heck out of you to find out if this number is accurate.  Or you could do it the easy way: slide a professional business valuation across the table.  A reputable 3rd party valuation is not just a key component of an SBA loan, but it’s also required by many banks for financing.  

Often these valuations will contain useful information as to why a particular multiple has been used, which can include factors like growth, how many years you have been in business, how proprietary what you do is, your particular geographical territory, and what the competitive landscape looks like.  

Getting a valuation is a lot like getting peace of mind.  Of course, it’s important to remember that your business is ultimately worth whatever someone is willing to pay, but having a valuation means you have an objective opinion grounded in fact, and it’s going to be hard for a buyer to poke holes in a valuation if it’s been done by someone professional.

Need a professional business valuation done?  We can recommend some reputable firms for you.  Just ask!

What Are The Keys To Valuing Your Business?

keysCreating business value normally requires that the business owner be intentional about their business. That means there’s a business plan, business strategy, and an exit strategy. The business value has various elements, including:

Profitability – Assuming the owner wants to make money, showing a nice profit is first and foremost.

Accurate financial record keeping – This is critical to ensure that the business is operating the way you think it is. It can identify problem areas and opportunities.

Reporting income – Hiding income is a great way to go to jail and lose value.

Diverse clientele – If Walmart is your only customer, start planning your next venture.

Quality service – Having a quality business will lead to new customers through steady referrals.

Social media presence – Everyone will look for a website, Facebook, LinkedIn, Twitter, etc. Strive for more online activity.

Management structure –  The owner can’t/shouldn’t run the whole business by themselves. If the owner is delegating more to trusted staff, buyers will have more interest.

Positive growth trends, barriers to entry, no legal issues, and more…

Profitable businesses can still have poor marketability, so understanding how buyers look at businesses is really important PRIOR to trying to sell.

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

Buyer Beware: Don’t Be a Victim of Business Valuation Seminar Fraud

Beware of those people and companies who offer consulting and valuation services for huge up-front fees. We usually hear about these scams after they’ve transpired and business owners are either really mad or unaware of what they just got themselves into.

There are legitimate Mergers and Acquisition firms who typically get their business from referrals and basic marketing. Then there are companies (fortunately very few) who love to hold seminars on business valuation for the express purpose of selling a business valuation for their invited guests.

fraudalertThis is a hard-core, one-call close type event that will always snare a few very excited and unsuspecting victims. If you didn’t bite the first time, rest assured you will get a call in a couple months and they’ll try again to take advantage of you.

Their hook is getting a business owner to believe that their business is worth as much or more than the owner believes.

For the pleasure of getting a nice printed document, there will be a fee of $20,000 to over $50,000. The price of the valuation really depends on how good the salesman is and how much excitement they’re able to build in the target.

They will offer a huge “discount” to get the owner’s commitment right then. They tell their targets that they don’t usually work with such small businesses, but will make an exception because they really like the owner/business.

These activities are harmful to the business owner and waste time and money. Even worse, owners will receive exaggerated business values that will only further confuse them down the line.

It also harms the Business Advisor/Broker industry. We’re not all the same. At Apex we believe in telling the truth about business value. Of course we try to get as much for the business as possible, but the goal is to sell the business at what the market will actually accept.

With the other scam valuation companies, they have no intention of trying to sell your business. They already made their money!

Compass Business Valuation Program

Watch the video for information on Apex’s Compass Business Valuation Program:

 

Increase the Value of Your Business: Succession Planning

Watch the video below for tips on increasing the value of your business through Succession Planning: