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Four Tips When You’re Ready To Sell Your Business
For a number of small business owners who may be ready to sell their companies, the past few years have been a time to cut unnecessary expenses, make ends meet and to patiently wait for the market to rebound. There simply was no use in trying to sell the business when company revenues and profits were down. Low purchase-price valuations only made matters worse.
But 2010 saw a slight improvement in the business-for-sale market and many experts expect that 2011 will be a turning point for the industry. Financing options are improving for buyers and banks are putting a new focus on lending.
So, if you’re thinking of selling your business this year, here are four tips to maximize your profit.
Plan Ahead
Like they do for any big purchase, business buyers will do their research before signing on the dotted line. That means it’s important for sellers to be ready to demonstrate their business is worth the asking price. Make sure your financial records are in order. Keep a minimum of three years of documents, including tax returns and expense records. These are essential to establish buyer trust in the economic history of the business. Also, be sure to resolve any outstanding business issues. These can include short-term lease agreements, over-reliance on one or a few key customers and any outstanding legal issues.
Don’t forget the physical elements of the business as well. Take care of any building improvements such as painting the storefront, cleaning up the distribution facility or re-decorating the interior. The physical appearance is often the first impression a buyer gets, so make sure it’s a positive one.
Understand the Market
To set your asking price accurately, you need to know where your business stands in the market compared to other businesses for sale. Overestimating your value can lead to a long and difficult sale process, while underestimating will leave money on the table. Expect an improved selling environment in 2011, but don’t make the mistake of asking for pre-recessionary prices.
To determine the right price, find out what similar businesses have sold for or listed for recently. Websites like BizBuySell.com and BizQuest.com allow you to search for similar listings based on factors such as industry, size and location. You can also purchase a valuation report to see detailed information on recent local sales.
Take a look at your own financials as well. If your business’ revenue and cash flow have declined, take that into consideration. Buyers will. Don’t be fooled into thinking they’ll pay you based on business results prior to the downturn. The goal is to set a price that will attract the greatest number of serious buyers and enable you to close a deal at the highest possible price.
Get the Word Out
One way to get a leg up on the competition and ensure the best possible outcome is to hire an accomplished business broker. Check broker references carefully and see if you can find additional references they don’t provide themselves.
If you choose to sell on your own then market aggressively. Put together a full marketing plan, including but not limited to getting your listings posted online, in the local newspapers and appropriate trade publications, and networking through friends and family.
Be Prepared To Offer Financing
In today’s market, seller financing is essential. While lending from local and national banks will continue to loosen based on the economic stimulus and the Small Business Jobs Act of 2010, banks are still almost universally requiring that seller financing is part of any deal they fund.
That means you’ll be required to take a minimum of 20 percent of the sale price in the form of a buyer note that the buyer will pay back over time, with interest. This also means that you’ll have an investment in the business even after the sale. The buyer and lender will expect you to participate in a successful transition with the new owner and to help get them off to a strong start
An article by MIKE HANDELSMAN
Mike Handelsman is Group General Manager of BizBuySell.com–located in San Francisco–andBizQuest.com, two business-for-sale marketplaces. Both sites feature business valuation tools that draw from the largest databases of sales comparables for recently sold small businesses, and two of the industry’s leading franchise directories.
The Top 10 Business Plan Mistakes
It’s been nearly seven years since Tim Berry posted Top 10 Business Plan Mistakes on this site. Looking back and reading the post again today, I think the list holds up very well. Here is the revised version for 2012, incorporating what he wrote back then that still holds true.
1. Misunderstanding the purpose: It’s the planning that matters, not just the document. You engage in planning your businessbecause planning becomes management. Planning is a process of setting goals and establishing specific measures of progress, then tracking your progress and following up with course corrections. The plan itself is just the first step; it is reviewed and revised often. Don’t even printit unless you absolutely have to. Leave it on a digital network instead.
2. Doing it in one big push; do it in pieces and steps. The plan is a set of connected modules, like blocks. Start anywhere and get going. Do the part that interests you most, or the part that provides the most immediate benefit. That might be strategy, concepts, target markets, business offerings, projections, mantra, vision, whatever. . . just get going.
3. Finishing your plan. If your plan is done, then your business is done. That most recent version is just a snapshot of what the plan was then. It should always be alive and changing to reflect changing assumptions.
4. Hiding your plan from your team. It’s a management tool. Use common sense about what you share with everybody on your team, keeping some information, such as individual salaries, confidential. But do share the goals and measurements, using the planning to build team spirit and peer collaboration. That doesn’t mean sharing the plan with outsiders, except when you have to, such as when you’re seeking capital.
5. Confusing cash with profits. There’s a huge difference between the two. Waiting for customers to pay can cripple your financial situation without affecting your profits. Loading your inventory absorbs money without changing profits. Profits are an accounting concept; cash is money in the bank. You don’t pay your bills with profits.
6. Diluting your priorities. A plan that stresses three or four priorities is a plan with focus and power. People can understand three or four main points. A plan that lists 20 priorities doesn’t really have any.
7. Overvaluing the business idea. What gives an idea value isn’t the idea itself but the business that’s built on it. It takes employees showing up every morning, phone calls being answered, products being built, ordered and shipped, services being rendered, and customers paying their bills to make an idea a business. Either write a business plan that shows you building a business around that great idea, or forget it. An idea alone does not a great business make.
8. Fudging the details in the first 12 months. By details, I mean your financials, milestones, responsibilities and deadlines. Cash flow is most important, but you also need lots of details when it comes to assigning tasks to people, setting dates, and specifying what’s supposed to happen and who’s supposed to make it happen. These details really matter. A business plan is wasted without them.
9. Sweating the details for the later years. This is about planning, not accounting. As important as monthly details are in the beginning, they become a waste of time later on. How can you project monthly cash flow three years from now when your sales forecast is so uncertain? Sure, you can plan in five, 10 or even 20-year horizons in the major conceptual text, but you can’t plan in monthly detail past the first year. Nobody expects it, and nobody believes it.
10. Making absurd forecasts. Nobody believes absurdly high “hockey stick” sales projections. And forecasting unusually high profitability usually means you don’t have a realistic understanding of expenses.
What’s an Entrepreneur? The Best Answer Ever from Eric Schurenberg
As an entrepreneur, you surely have an elevator pitch, the pithy 15-second synopsis of what your company does and why, and you can all but repeat it in your sleep. But until recently, I’d never seen a good elevator pitch for entrepreneurship itself—that is, what you do that all entrepreneurs do?
Now I’ve seen it, and it comes from Harvard Business School, of all places. It was conceived 37 years ago by HBS professor Howard Stevenson. I came across it in the book Breakthrough Entrepreneurship (which I highly recommend) by entrepreneur and teacher Jon Burgstone and writer Bill Murphy, Jr. Of Stevenson’s definition, Burgstone says, “people often need to say it out loud 50 or 100 times before they really understand what it means.” Here it is:
Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled.
I talked to Stevenson about his classic definition this weekend. Back in 1983, he told me, people tended to define entrepreneurship almost as a personality disorder, a kind of risk addiction. “But that didn’t fit the entrepreneurs I knew,” he said. “I never met an entrepreneur who got up in the morning saying ‘Where’s the most risk in today’s economy, and how can I get some? Most entrepreneurs I know are looking to lay risk off—on investors, partners, lenders, and anyone else.” As for personality, he said, “The entrepreneurs I know are all different types. They’re as likely to be wallflowers as to be the wild man of Borneo.”
By focusing on entrepreneurship as a process, his definition opened the term to all kinds of people. Plus, it matched the one demographic fact HBS researchers already knew about entrepreneurs—they were more likely to start out poor than rich. “They see an opportunity and don’t feel constrained from pursuing it because they lack resources,” says Stevenson. “They’re used to making do without resources.”
The perception of opportunity in the absence of resources helps explain much of what differentiates entrepreneurial leadership from that of corporate administrators: the emphasis on team rather than hierarchy, fast decisions rather than deliberation, and equity rather than cash compensation.
What would you expect, asks Stevenson: When you don’t have the cash to boss people around, like in a corporation, you have to create a more horizontal organization. “You hire people who want what you have and not what you don’t have,” Stevenson says. In other words, entrepreneurs offer their team members a larger share of a vision for a future payoff, rather than a smaller share of the meager resources at hand. Opportunity is the only real resource you have.
Or, as Burgstone puts it:
Every time you want to make any important decision, there are two possible courses of action. You can look at the array of choices that present themselves, pick the best available option and try to make it fit. Or, you can do what the true entrepreneur does: Figure out the best conceivable option and then make it available.
And that, folks, is what makes entrepreneurship so friggin’ hard. And so friggin’ necessary.
An article by Eric Schurenberg.
Eric Schurenberg is the editor of Inc.com. Before joining Inc, Eric was the editor-in-chief of CBS MoneyWatch.com and BNET.com and managing editor of Money Magazine. As a writer, he is a winner of a Loeb Award and a National Magazine Award. He is a regular commentator on Nightly Business Report on PBS