The Entrepreneurs Advocate

Archive for the ‘Exiting Business’ Category

As the in-house AVA and leader of the Central Florida Office for Bankers Advocate, business owners often ask me how to predict the right time to sell. I know from recent conversations, that many owners feel they missed their chance to exit a few years ago when the market was ripe for transactions. Now the question revolves around when the market will return.

Let me suggest that, as an entrepreneur, you have the opportunity to develop a more reliable approach to timing your exit, then attempting to predict the cyclical nature of the mergers and acquisitions market. There are simple steps you can take to gain control of your own timing, whenever that may be. These steps require a focus on what you, and only you, can control.

The first step is to know what your exit will look like when you arrive, regardless of when that might be. For instance, you should know at any given moment how much after tax “cash” you will need from the sale of your business to meet your goals. Do not just pick an arbitrary number out of a hat because it sounds good. Get specific and know why you have that number as your target.

This step is relatively simple if you hire a certified financial planner to help you update or create your personal financial plan (you can contact us for a referral to a trusted advisor in this area if you do not already have one). Be sure that your plan takes into account the lifestyle needs you are seeking, a reasonable rate of return you can expect from the investment of your after tax proceeds, and any required adjustments for taxes and inflation.

Now that you know your target amount of cash, you need to know your current business value. This is definitely a situation where you get what you pay for. While you could arrive at an estimate at no charge by contacting a business broker, or using an industry multiple for your own calculation, you will actually be doing yourself a disservice. More then knowing the value your business could fetch currently, you want to know why your business holds its current value, and the areas you need to improve to increase that value.

A third party valuation is certainly a worthwhile investment at this time. Think of your valuation, not simply as a number, but more importantly, as an analysis of your Strengths, Weaknesses, Opportunities, and Threats (SWOT Analysis). If you invest in a certified appraisal, you will gain the business intelligence you need to close the gap between your current value and target value.

Share your valuation with your trusted advisors including your financial advisor, CPA, attorney, and chosen transaction advisor. Enlist their help to interpret, identify, prioritize, and make a recommended task list that can help you build value and overcome weaknesses as efficiently as possible. It should be clear to these advisors from your financial plan and complete valuation report, what your objectives are, and the areas you need to address. Having this information available before you meet with your advisors keeps you in control and will save you a considerable amount of time and expense getting their help.

Finally, implement your task list. Be honest about what you can do for yourself while maintaining your business operations, and what you may need to hire out. If you schedule your tasks in a manageable way, hold your advisors accountable, and ask them to do the same for you, you will be well on your way to achieving your objective – timing your business exit on your terms.

At the completion of each tax year, have your valuation updated, which should only require a minimal investment. When you cross your threshold value you identified in step one, the timing is right for you. However, do not be surprised if you are still not ready to exit. The improvements you make that build value in the eyes of your future acquirer; fulfill the same needs you have to be a satisfied owner of your business as well.

“The B2B CFO people do good work. Here is an article from one of their consultants, Frank Gnisci.” Chris

Although every business wants to grow, some types of growth are certainly better than others. Consider the following 2 options:

1: Grow Sales by 20%, and net income increases 50%.        OR

2: Grow Sales by 50% (a lot more work and risk than Option 1), and net income only increases 20%.

The best way to grow is when net income growth out-paces sales revenue growth. For every additional unit of sales, we want to generate more profit, not less. How can we accomplish this?

Jim Collins, the author of Good to Great, found that the more an organization sticks to its core competency, the more opportunities the company had for the good kind of growth – the growth where net income increases faster than sales!

What is your core competency? It’s what you do well and, when you do it, you’ve proven that it can make money. If you are a trade contractor, then it is your trade. If you are an attorney, then it is the law. If you are a widget manufacturer, then – I think you get the point.

I have experienced many occasions when, in its desire to grow, a company strays from its core competency and involves itself in a business and industry it doesn’t know very well. Sadly, these new ventures begin to drain time and resources (and most importantly, CASH!) from the main business. In essence, the core competency of the firm subsidizes a less successful venture.

Sticking to your competency requires a great deal of discipline, but it is the best way to grow your company. By sticking to your core, you will find the most profitability and enduring growth opportunities!

“I enjoy Doreen’s work and writings. Here is an article from her. CC”

For firms to compete today, they must change to meet the demands of the business environment. In fact, change can be used to create a competitive strategy for your organization. Now picture Sheila the CEO of an organization that is concerned about changing her organization to reflect a competitive strategy in the organization. The strategy centered approach to change might reflect some of the following:

• Introducing a new produce or service
• Entering new markets
• Use of new forms of marketing
• Initiation of Internet sales to direct selling
• Forming alliances or joint ventures with other organizations
• Modifying relationships with suppliers

To be successful, changes in competitive strategy will require a consistent change in people, work roles, organizational structure, and technology. Internal changes in the organizational approach to improve human capability will require organizational learning, and an alignment of the strengths and values within the organization. By aligning the strengths and values within the organization, it will improve the overall success of the competitive strategy and meet with the long-term goals of the organization.

A common mistake is to implement a new program without first diagnosing the problems that are confronting the organization. Management programs and structural changes often fail to solve organizational problems and sometimes will make them worse. The benefits that can be obtained from change made in one area can cause problems for another. Before initiating major changes within an organization, senior management should be clear about the problem and the objectives of the program. The organizational diagnosis can be made by senior management, an outside consultant, or task force. It is often more successful when an outside consultant is involved because it offers an unbias decision to the diagnosis. Outside consultants trained in organizational development will bring more success to the project.

Doreen M. McGunagle, Ph.D. is a corporate organizational speaker and has a doctorate in Organization and Management with a specialization in International Business.  As CEO of Global Strategic Management Solutions, a consulting firm that specializes in assisting organizations grow and improve their performance, and brings 25 years experience working with Fortune 1000 companies.  Dr. McGunagle is the author of The Chinese Auto Industry: Taming the Dragon.   To find out more information about Dr. McGunagle corporate speaking engagements and consulting availability, please visit www.globalstrategicmgmt.com or call 561.208.1071.

Deciding whether to sell your family business is a once in a life time event. Should you sell the whole or part of the company to outsiders? Are the 2^nd or 3^rd generation family member’s good options? Are the family members up to the task? For instance, the subsequent failure rate of generations two and three is very high (70 and 88%, respectively).

 

The decision to sell a family business is among the most difficult and important decisions of your career.  After a lifetime of hard work, owners wrestle with a range of emotions and questions. Question #1- Is my retirement fully funded?

 

While considering the decision to sell their business, many owners are currently “kicking themselves” for missing the giddy prices of 3 years ago. However, deal multiples are again rising and private equity and middle market companies have the “dry powder” and want to do deals.

 

Two mistakes business owners make is that they think they know who the “best” buyer is for their business and that they only negotiate with that one entity.  In making these mistakes, entrepreneurs negotiate on their own and inevitably take their eye off the day-to-day business affairs. In the vast majority of cases however, this strategy is doomed to failure.  Their belief is usually based on prior conversations or non-solicited expressions of interests. 

 

In the great majority of our transactions involving this type of “early” interest, managing a competitive marketing program has resulted in a sale to a different buyer with a better deal than the initial party.  Without competition for your business, buyers will rarely serve up their best proposal and, as a result, the seller’s negotiating leverage is minimized.  An Exit Strategy professional also enables business owners to stay focused on running the daily operations of the business during the sale process.  “Last Minute Surprises” lead to reduced value. It is critical that the owner concentrates on the daily business operations.

 

Despite this tough business environment, Exit Strategies need implemented and executed for millions of business owners. How will their decisions impact their family and their personal well-being?  What will become of long-time employees, customers, suppliers, and other important stakeholders?  While the answers to these questions are sometimes conflicting and confusing, one thing is certain:  when evaluating whether to sell their family business, entrepreneurs need to develop a proactive and systematic Exit Strategy.  In doing so, they will receive maximum, post tax dollars for a lifetime of hard work.   

In my talks with business owners and their advisors throughout 2009 and early 2010, I see one common theme - Survive. Business Owners who back in 2007 planned to fund their retirement by selling their business in 2009 were hit with multiple hurdles. “Those doing well enough to sell or want to sell are shying away,” says Mike Handelsman, general manager of BizBuySell in San Francisco. “If they sell, it’ll be based on cash flow and revenues, which are depressed now. In many cases, this is their nest egg, so they’ll put off retirement to wait out these uncertain times.”

A few bright spots are beginning to appear as 2010 comes to the half way point. Borrowing for good deals has slightly freed up and there is a great deal of  money on the sidelines (”dry powder”). Most American’s still see business ownership as the best path to creating personal wealth. What should an owner do in 2010?

Make sure your business stands out among the crowd of mediocre companies. How do you do that? One, make sure your books and records are immaculate. This is still the number one reason a business doesn’t sell or sells for a reduced price. Two, show a potential buyer that there is plenty of business in the pipeline and your have the systems and procedures in place to capture that business. Three, do any delayed maintenance before going to market. You get once chance at a good first impression, don’t blow it. Fourth, have a third party appraisal done of your business with pre-financing in place. This will allow you to move quickly on serious buyers. Don’t wait for them to arrange their own financing which might be inferior or from the wrong bank.

Plan, Plan, Plan… Whether you want to sell in six months or six years that is the key to monetizing the value you have built in your business.

In these tough economic times, it is more important than ever to plan ahead.

That is why it gives me great pleasure to invite you and your clients to a seminar on Planning Your Exit from Business Ownership. This seminar is presented by the Stetson University Family Enterprise Center in partnership with Holland & Knight, LarsonAllen and my company, Bankers Advocate.

It will be held at the Stetson University Center at Celebration, Florida on Thursday, November 5, 2009.

Whether the exit from ownership is in six months or six years, this factual and hard-hitting seven hours will provide you with the information that you or your clients need for a successful Ownership Exit and/or Transfer.

Learn from Seasoned Professionals how to:

• STRUCTURE YOUR BUSINESS for a Successful Exit
• IMPROVE THE BOTTOM LINE Profits until you Sell
• DEAL with CONFIDENTIALITY ISSUES
• RECEIVE MAXIMUM VALUE for your Business
• KNOW the Types of Buyers and their Value Drivers
• HOW to Sell or Transfer to FAMILY/KEY EMPLOYEES
• AVOID TAX & LEGAL PITFALLS in the Process

This is an opportunity to participate in a valuable interactive seminar and a great networking event.

Can you afford not to attend?

You can view the brochure and register online by clicking on the links below.

To view a detailed seminar brochure : CLICK HERE

To register for the conference on line: CLICK HERE

We hope that you will join us. Please pass this on to anyone who you think would benefit.

Sincerely,

Chris Curtin
COO, Bankers Advocate
(561) 882-1331

PS: Reply to this blog and receive a special friends of Bankers Advocate deep discount.

I was taking a prospective buyer on a client tour recently. The principal of the buyer’s group is a serial entrepreneur who has started or bought numerous companies and taken each to the next level. We were talking about sales levels and growing the business. He made the statement that he and the core group of his people at the top were the key rainmakers. His companies had the systems, procedures and people in place to service the account, but he went out and landed the “whales”. This meshes with my own philosophy.

Many times smaller businesses plateau at a less than ideal sales level or they take a slide backwards. Owners have lived on word of mouth or a few choice clients, but that is not enough in these economic times. I see owners looking to hire that magic salesman and much time and resources wasted when they inevitably fail. Who can advocate your product and services better then you? Potential clients like dealing with the final decision maker, use this to your advantage.

Many entrepreneurs say they are not comfortable selling. Their vision of sales is high pressure, going for the close. A consultative environment where they listen to their client’s needs and together come up with solid fix is a better path.