Three Essential Tips for a Successful First Meeting with a Buyer
The first face-to-face meeting between a buyer and seller is one of those “make or break” meetings. The best way to prepare for it is to think of this meeting like a first date. The dynamics are very similar. You’ve spoken on the phone and you’ve emailed. Now there is enough interest that you both want to meet. Like a first date, the goal here is to get to know each other but, I recommend you do the following three things to ensure this meeting goes as well as possible.
Preparation
Preparation means three things. First, have a plan for the meeting. Where will you meet? When will you meet, during business hours or after hours? Who do you want to attend from your side? Do you want to have handouts or a formal presentation? Will you be serving refreshments or snacks? Do you know who the buyer is bringing to the meeting? Will you give the buyer a tour of your business? Does the business show well or do you need to do a little housekeeping before buyers visit? Does it make sense to give buyers samples of what you make or sell?
You should determine these things, not the buyer. Once you have a plan send your plan to your buyer. Buyers need to understand how your sales process works and what is expected of them during each step of the process.
Determine your Desired Outcomes Ahead of Time
The primary goal of this initial meeting is to show the buyer that everything you said about your business in the offering memorandum was accurate so they have enough confidence in you and your business to submit a purchase offer or Letter of Intent (LOI) to buy your business. However, you may also have several other goals as well. Below is a list of some typical secondary goals.
- Confirm the buyer’s financial qualifications by asking questions like how much money he had available to invest, what is the source of these funds, where is the buyer in discussions with potential lenders, what is the buyer’s credit score, etc.
- Confirm the buyer’s business experience by asking questions like, tell me about the other businesses you’ve owned, or tell me about your previous business management experience.
- Confirm the buyer’s interest in your business by asking them what they think about your business, how does it compare to other businesses they’ve looked at, does it fit what they were looking for?
- Assess the buyer’s character. It’s important that you sell your business to someone you like, respect, and admire. Chances are if you like the buyer, so will your employees and customers. Trust your gut. If something doesn’t feel right about the buyer, it probably isn’t
- Determine the buyer’s timeline. Business brokers are fond of saying “Time Kills All Deals” and it’s true. Another important goal is to determine how quickly a buyer is prepared to move and to determine if their timeline and your timeline line up.
Have an Agenda
Preparing an agenda ahead of time will help ensure that you accomplish your goals for the meeting. A sample agenda for a successful buyer meeting might look like this.
- Introductions & Welcomes – 10 minutes
- Buyer Background. Ask Buyer to describe their background, experience and why they are looking to buy a business – 10-15 minutes
- Seller Background. The seller describes how the seller got into the business and why they are exiting – 10-15 minutes
- Business Update. The seller gives the buyer a summary of how the business has performed since the offering memorandum was prepared and provides the buyer with a current year-to-date P&L statement. 10 minutes.
- Q&A. Seller to answer any questions the buyer has. 15-30 minutes
- Tour. Give the buyer a tour of the business and continue to answer questions throughout the tour. 15-30 minutes.
- Buyer Feedback. Return to your office or conference room and ask the buyer what they think. Discuss what they like and what they didn’t like. Get a list of any additional information the buyer would like from you.10-15 minutes.
- Next Steps/Action Items. Tell the buyer what your timeline is and if they are interested, the next step is for them to submit an offer or Letter of Intent. Determine if they plan to submit an LOI and if so, when they plan to do it. 10-15 minutes.
Of course, this is just a suggestion. Feel free to modify it to suit your particular situation. However, please note that the entire meeting is designed to last between 1 1/2 and 2 1/2 hours. Try to keep the meeting to around 2-3 hours, max. Sometimes, the chemistry between a buyer and seller is great and the conversation can continue for four or five hours, but I don’t recommend it. If that’s the case, I recommend scheduling a second meeting rather then let the first meeting go for more than three hours.
Asking and Answering Questions
Now that you have an agenda, the next steps if to prepare a list of questions you want to ask the buyer. Keep this with you during the meeting as a reference so you don’t forget any of your questions.
When responding to a buyer’s questions, try to only answer the question asked. It’s best to keep your answers factual and not share long war stories or go off on tangents about things the buyer didn’t ask about. For example, if a buyer asks what are your Average Days Receivable is, just answer the question. Don’t tell a story about the one customer who refuses to pay within 30 days, and often stretches you out to 190 days, so you told him he now needs to pay in full when he places an order.
Building a Positive Relationship
It goes without saying that you should do everything possible to keep the meeting polite and respectful and to avoid any discussion about politics or religion, which often can be hot points.
Nothing builds a more positive relationship than truth, so make sure that all of your answers are truthful, accurate, and complete. While you are trying to sell your business, you don’t want to come across as a salesperson. Let y our business sell itself. The best way to do that is to as real and as honest as possible.
For example, if a buyer asks who your competitors are be truthful. Every business has some level of competition. So don’t pretend that your company has no competition. This will simply make the buyer skeptical and make him wonder what else you may be fibbing about.
One last word of advice. Be sure to do your homework on the buyer ahead of time by asking the buyer to send you a copy of the buyer’s resume before your meeting. That way, you can do a Google search on the buyer and the companies he’s owned or worked for so you can assess during your meeting how truthful the buyer is being with you.
If you follow this advice, you will greatly increase the odds that your first meeting with a buyer will accomplish all of your objectives.
Read More
Seller Financing: Why It Makes Sense
If you are thinking of selling your business, one of the important issues to think about is whether or not to provide seller financing. Seller financing is an essential component in the sale of most small to medium-sized businesses for several reasons. First, many potential buyers don’t have the necessary cash to bridge the gap between your asking price and the amount of money they can borrow from a bank. Second, even if they do, buyers are often hesitant to invest every dollar they have into a business that to them is a new and untried venture. Third, most buyers (and their lenders) feel the best way to ensure a smooth and successful transition from one owner to the next, is for the seller to have some “skin in the game” after the deal closes. That way you, as the seller, will have a financial incentive to help the new owner should he or she run into any hiccups during the transition period after the sale closes. On the flip side, if you insist on an “all-cash deal”, many buyers will interpret that as a sign that you are not confident that the buyer or the business will continue to be successful.
In fact, that is often the reason sellers insist on an all-cash deal and are reluctant to provide any type of seller financing. They are afraid the buyer will not be successful and they will never get paid the amount they financed. While that is certainly possible, you should also consider the significant benefits that providing seller financing can provide. Statistics show that sellers are much more likely to receive a full price offer if they provide seller financing. On average, a seller who demands an all-cash deal will only get offers of 70-80% of the asking price. Why is this? It’s because a demand for an all-cash deal signals to buyers that you don’t have confidence in them or the business, to that makes the investment feel risky. As a result, they discount the price to account for that risk. So, for example, if your business is listed at $500,000, not providing seller financing could end up costing you $100,000 to $150,000 in lost sale proceeds. That is a “guaranteed” loss. On the other hand, if you provide $100,000 in seller financing in the form of a seller note that is repaid over 2-years, you may receive some or all of that money over time. So if you consider the discounted selling price as a guaranteed loss, then any money received through seller financing is money you wouldn’t have had before.
Even with this compelling reason to provide seller financing, you might still be hesitant. If that’s the case, it’s important to note that seller financing has advantages in addition to simply increasing the proceeds you receive. These include:
- Providing seller financing greatly increases the chance that your business will sell.
- The interest you receive on a seller-note is in addition to the selling price. For example, a $100,000 seller note at eight percent paid over three years, provides you with an extra $12,000 in interest payments.
- With interest rates at their lowest level in years, you can get a much higher interest rate from a buyer than you can by putting the money in a CD or bank account.
- The taxes due on the principal amount of the note are deferred until you receive the principal payment. That means that it is taxed in future years when your tax bracket is likely to be lower than it is the year you sell your business. This can save you a lot of money in taxes.
- Financing the sale helps ensure the future success of your business, which your buyer and employees will greatly appreciate.
- Providing seller financing allows you to play a passive or inactive role in your business until the note is repaid.
Obviously, there are no guarantees that the buyer will be successful in operating the business. However, it is important to keep in mind that, in most transactions, buyers have a lot more at risk than you do. They have likely invested all of their liquid capital, provided a second lien on their home, and personally guaranteed the bank loan. As a result, they are highly invented to do whatever is necessary to ensure that the business succeeds. Although this investment doesn’t ensure the business will be a success, it means your buyer will work very hard to make it so.
The last thing to consider is that there are lots of different ways to structure any seller-financing you provide. Talk with Sport Club Advisors about the different solutions we have to that can minimize your risk and, in many cases, mean the difference between a successful transaction and one that fails.
Because of the benefits to the buyer, the buyer’s lender, the business, and the seller, approximately 80% of the deals closed last year included some type of seller financing. So, if you are serious about selling your business, consider the pros and cons of offering seller financing and talk with Sports Club Advisors about the best way to structure that financing to ensure your deal closes and you minimize your risk.
Negotiating the Price Gap Between Buyers and Sellers
Sellers generally desire all-cash transactions; however, oftentimes partial seller financing is necessary in typical middle market company transactions. Furthermore, sellers who demand all-cash deals typically receive a lower purchase price than they would have if the deal were structured differently.
Although buyers may be able to pay all-cash at closing, they often want to structure a deal where the seller has left some portion of the price on the table, either in the form of a note or an earnout. Deferring some of the owner’s remuneration from the transaction will provide leverage in the event that the owner has misrepresented the business. An earnout is a mechanism to provide payment based on future performance. Acquirers like to suggest that, if the business is as it is represented, there should be no problem with this type of payout. The owner’s retort is that he or she knows the business is sound under his or her management but does not know whether the buyer will be as successful in operating the business.
Moreover, the owner has taken the business risk while owning the business; why would he or she continue to be at risk with someone else at the helm? Nevertheless, there are circumstances in which an earnout can be quite useful in recognizing full value and consummating a transaction. For example, suppose that a company had spent three years and vast sums developing a new product and had just launched the product at the time of a sale. A certain value could be arrived at for the current business, and an earnout could be structured to compensate the owner for the effort and expense of developing the new product if and when the sales of the new product materialize. Under this scenario, everyone wins.
The terms of the deal are extremely important to both parties involved in the transaction. Many times the buyers and sellers, and their advisors, are in agreement with all the terms of the transaction, except for the price. Although the variance on price may seem to be a “deal killer,” the price gap can often be resolved so that both parties can move forward to complete the transaction.
Listed below are some suggestions on how to bridge the price gap:
- If the real estate was originally included in the deal, the seller may choose to rent the premise to the acquirer rather than sell it outright. This will decrease the price of the transaction by the value of the real estate. The buyer might also choose to pay higher rent in order to decrease the “goodwill” portion of the sale. The seller may choose to retain the title to certain machinery and equipment and lease it back to the buyer.
- The purchaser can acquire less than 100% of the company initially and have the option to buy the remaining interest in the future. For example, a buyer could purchase 70% of the seller’s stock with an option to acquire an additional 10% a year for three years based on a predetermined formula. The seller will enjoy 30% of the profits plus a multiple of the earnings at the end of the period. The buyer will be able to complete the transaction in a two-step process, making the purchase easier to accomplish. The seller may also have a “put” which will force the buyer to purchase the remaining 30% at some future date.
- A subsidiary can be created for the fastest growing portion of the business being acquired. The buyer and seller can then share 50/50 in the part of the business that was “spun-off” until the original transaction is paid off.
- A royalty can be structured based on revenue, gross margins, EBIT, or EBITDA. This is usually easier to structure than an earnout.
- Certain assets, such as automobiles or non-business-related real estate, can be carved out of the sale to reduce the actual purchase price.
Although the above suggestions will not solve all of the pricing gap problems, they may lead the participants in the necessary direction to resolve them. The ability to structure successful transactions that satisfy both buyer and seller requires an immense amount of time, skill, experience, and most of all – imagination.
The post Negotiating the Price Gap Between Buyers and Sellers appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
Getting Back to Business After the COVID-19 Pandemic
Historians have long known the historical relevance and impact of epidemics and pandemics. Despite our various technological advances and the complexity of our society, disease can instantly change the course of history. Not having a robust global system for dealing with disease and pandemics comes with a hefty price tag. In the case of the COVID-19 economic crisis, the price tag will no doubt be in the trillions.
You can’t control what has happened, but you can focus on what to do when the pandemic is over and life begins to slowly return to normal. In his recent article, “How to Hit the Ground Running After the Pandemic,” author Geoffrey James explores what businesses need to do to jumpstart their operations once the pandemic is in the history books.
James wants his readers to understand that the pandemic will end and that business owners need to be ready to charge back in when the pandemic is over and the economy rebounds. As James points out, if history is any indicator, the economy will eventually rebound.
Almost everything about this economic downturn is unique. Take, for example, the fact that the U.S. has just seen its largest-ever economic expansion. The gears and wheels of the economy were spinning along quite quickly before the pandemic hit. This could help restart the economy faster than in past severe economic downturns. In short, many experts feel that this particular economic downturn could be short, but of course, this is speculation. There is no way to know for sure until COVID-19 is in the rearview mirror.
James correctly asserts that businesses need to put together a plan for how they will get up and running as soon as the pandemic is over. His recommendation is to divide your plan and thinking into four distinct categories: Facilities, Personnel, Manufacturing, and Marketing.
Each of these categories has three key questions that business owners should be asking themselves so that their businesses are ready to hit the ground running when COVID-19 is over. Below are a few of the key questions James recommends asking.
- How can we create the most sanitary and disease-free workplace possible?
- Which employees will continue to work from home?
- When there’s a spike in demand, how will we ramp-up?
- What will be our “We’re Back!” marketing message?
The pandemic caught everyone except the experts off guard. Moving forward, business leaders, think tanks, and politicians alike need to work to develop and implement robust plans to minimize the damage caused by pandemics. Humanity, and business, has been “lucky” several times in recent years, as we dodged bullets ranging from Ebola to SARS.
As James points out in his article, “Failing to plan is planning to fail.” Businesses need to plan for the recovery and they need to plan for another pandemic because another one is quite possible especially if better planning and decision making are not firmly entrenched in place.
Copyright: Business Brokerage Press, Inc.
The post Getting Back to Business After the COVID-19 Pandemic appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
COVID-19 Advice for Hospitality Businesses
Clearly, some industries are taking a bigger hit from COVID-19 than others. Any industry that requires a great deal of interaction with the public, or where people gather in large groups, are obviously having very tough times. Movie theaters and restaurants, for example, have essentially gone dark. Some restaurants are easing the bloodletting a bit by providing delivery, but in the vast majority of cases, revenue pales in comparison to what it was prior to the pandemic.
While there is no doubt that the hospitality industry is suffering right now, business owners should understand that there are concrete steps they can take now to improve their odds of surviving the pandemic. In this article, we’ll explore a few of these key ideas.
One of the areas every decision maker and business owner in the hospitality industry should be thinking about right now is staff. During a recent industry roundtable discussion, John Howe, chairman of the International Association of Business Intermediaries, pointed out that staffing problems will continue long after the pandemic has paused or is over. He believes that hospitality businesses will have a tough time getting the staff they need, especially in the short run.
His key piece of advice is to work to have a line on people for key positions. This will allow you to at least get back up and running with basic operations. While it may be a while before hospitality businesses are at “full steam,” it is critical that they are able to open up in some fashion, as this will translate into much needed revenue. Hospitality businesses looking to survive the pandemic should focus on making certain that key positions have been filled. In this way, the post-pandemic relaunch can be as smooth as possible.
Founder and President of Cornerstone Business Services, Scott Bushkie, explained that there are a lot of hospitality industry people out of work right now, and this represents a real opportunity. Now, is the perfect time to potentially upgrade staff. There are plenty of experienced and proven hospitality people looking for positions. The new people you bring may come with extra benefits such as bringing their customers, suppliers, and other relationships with them. For those in the hospitality industry who may have always wanted to upgrade their team, now is perhaps the best time in history to do so.
Employees are a foundational element of your business. Improving your staff means you’ve improved your business and boosted your odds of survival. Bringing in new team members can help you prepare for the post-pandemic business environment. It also offers up the potential for you to upgrade an important element within your business.
Copyright: Business Brokerage Press, Inc.
The post COVID-19 Advice for Hospitality Businesses appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
Questions for Helping Businesses Survive the COVID
Developing Your 90-Day Plan
Those who want to make sure their businesses survive this pandemic will want to achieve a laser-like focus. It is important to realize that the forced downtime triggered by the pandemic affords you the opportunity to work on potentially neglected aspects of your business.
Summed up another way, now is the time for dynamic and focused action. In this article, we’ll address what you can do to help your business survive this unusual time period.
Reevaluating Your Business
It’s time to step back and look at every aspect of your business, including your processes. You should be encouraged to find new ways of doing things. In short, now should be viewed as a time of opportunity to reboot your business. That way when the pandemic has subsided, and your business picks up once more, it is more efficient, more effective, and more competitive.
Scott Bushkie, Founder and President of Cornerstone Business Services, recommended that business owners create 90-day plans where they look for ways to innovate. This strategic plan should focus on what they are going to do and what they want to accomplish. It is critical that there is an actual plan that achieves tangible results and not simply a list of things that should be accomplished. Listed below are a few questions you should be pondering.
- How can I outperform the competition?
- How can I innovate?
- How can I increase my use of technology?
- How can I deliver my products and services in a different way?
- How can I reduce my operational costs?
- Have I reached out to my suppliers and creditors for assistance?
- Have I applied to applicable SBA COVID-19 focused programs?
- What do I want to accomplish in the next 90-days?
It’s Time to Reboot
The main point is that businesses should not look at this pandemic situation as some sort of “miserable and stressful vacation,” but instead as an opportunity to reboot what is not working, and look for ways to make improvements in every aspect of your business. This process begins by asking the right questions and striving to find the answers.
In answering these questions and finding ways to help boost your rates of survival, you should turn to every asset at your disposal. Why not ask your management team as well as all of your employees for ideas that could help their business? Everyone should understand that owners are looking for ways to keep their business healthy while navigating the pandemic.
Now is the time for reflection, short-term and long-term planning, and tangible actions. Business owners should also consult with a range of business professionals, including, of course, business brokers and M&A Advisors. Brokers are uniquely positioned to help business owners through this crisis.
Copyright: Business Brokerage Press, Inc.
The post Questions for Helping Businesses Survive the COVID appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
The Evolving Impact of the Coronavirus on Business Sales in the Health and Fitness Industry
The evolving impact of the coronavirus is being felt everywhere—but especially in the health and fitness industry as social distancing and shelter-in-place become the new norms. This is a time of uncertainty in our personal lives and in our businesses. The closest thing I can compare it to is the uncertainty everyone felt in October 2008 as the financial crisis was unfolding.
Then, like now, business owners are seeing the values of their business plummet as clubs close indefinitely and members cancel their memberships in droves. Smaller health clubs and fitness centers are naturally more vulnerable in an economic downturn, but everyone in the health and fitness industry is affected in one way or another. Strategic buyers, investors, sellers, business owners, and business brokers are all trying to understand how this will impact them, and what they can do to mitigate the consequences.
Reflecting on the financial crisis of 2008-2009, however, helped me identify a few things that are likely as we deal with the impact of coronavirus on the M&A market and business sales.
Like in 2008 and 2009, M&A activity will most likely contract significantly over the next 3-4 months as the volatility in the stock market will likely put the M&A market on hold. For deals in the early stages, there will be a lot of anxiety on the part of sellers and a lot of caution on the part of buyers. As a result, we expect that many buyers and sellers will press the pause button to wait and see how the situation unfolds over the next few months.
But there are a lot of indicators that when the coronavirus scare is behind us, the M&A market will rebound with gusto.
“I’m bullish on the outlook for M&A activity in the long term once the financial markets adjust to the ‘new normal’. There is an unprecedented amount of capital that needs to be deployed, interest rates are at record lows, and the federal government’s stimulus package should make borrowing even easier. At the same time, the record high valuations that we’ve seen over the last year or two are likely to decrease, which will make financing acquisitions less risky and fuel a strong increase in M&A activity.”
Richard Jackim, Managing Partner, Sports Club Advisors, Inc., and Jackim Woods & Co.
If you own a fitness boutique or a health club and are thinking about selling, what does all this mean to you? First and foremost, it’s important to remember that while the next few months may be painful, and it may take you six months to a year to build your business back up to its 2019 levels, but the fundamental value of your business is likely still intact. If you were waiting for the market to peak before you sold you missed the window. But that doesn’t mean your business is unsaleable or that it has no value. The value is still there because buyers buy companies for the future cash flow that business will generate. That means buyers take a long-term perspective. If your business is fundamentally sound, it is very likely that its value will rebound once the economy and our lives return to the new normal.
Many of the business owners I’ve spoken to in the last few weeks believe that the current market conditions will scare away buyers. That is true in the short run, but savvy financial and strategic buyers recognize the short-term nature of this crisis and see this as a good opportunity to buy a good business at a lower multiple of EBITDA than last year.
If you’re thinking of selling your health club or fitness center it’s important to work with someone who understands the dynamics and changing motivations of sellers and buyers to advise you during these uncertain times. Below are our recommendations for business owners to take over the next 2-3 months if you are thinking about selling in the next few years.
- Focus on Exit Planning (talk with us about our formal process that can use this time to help you and your business get prepared for sale)
- Get a valuation of your business (so you understand how much your business is worth)
- Understand what you can do to improve the value of your business and make it more attractive to potential buyers
- Talk to your financial advisor to understand how much you need to retire
- Work with an M&A advisor or business broker to begin putting together a data room and formal marketing materials so you can hit the ground running when the market recovers.
Our team is comprised of experienced investment bankers and M&A professionals who literally wrote the book on exit planning. We helped over three dozen companies between 2008 and 2010 help get ready for sale and then sold them for top dollar when the market recovered. We will provide you with a value-focused, hands-on approach to help you develop a strategic exit plan that allows you to exit your business on your terms and for its highest possible value.
If you are interested in selling in the next three years and would like to talk to a licensed business broker and M&A professional about how this crisis affects your options, please feel free to contact Rich Jackim for a FREE, confidential conversation at rjackim@sportsclubadvisors.net or at (224) 513-5142.
Read More
It’s Time to Exit. Are you Ready?
Thinking about whether or not you are ready to exit is an important question. It’s something that every business owner will have to address at some point. Importantly, you don’t want to wait until the 11th hour to prepare to sell your business. There are far too many pieces in this particular puzzle to wait until the last minute. You’ll want to begin the process sooner by asking yourself some key questions.
Determining Value
First, you’ll need to determine the actual value of your business. It is a harsh truth, but what you think your business is worth and what the market feels that it is worth may be two very different things.
This point serves to underscore the importance of working with a business broker or M&A advisor early in the process. An experienced broker knows how to go about determining a price that will generate interest and seem fair. Remember that at the end of the day, it will be the marketplace that determines the value of your business, but working with a seasoned professional is an excellent way to match your offering price with what the market will ultimately bear.
Going Within
Secondly, you’ll want to consider whether or not you truly want to sell. It is not uncommon for business owners to begin the process of selling their business only to realize a few hard facts. Wanting to sell and the time being right to sell are often two different things.
Upon placing your business on the market for sale, you may learn that you’re not emotionally or financially ready. If this happens to you, consider it a learning experience that will serve you well down the line.
Get Your Ducks in a Row
If you have done a financial assessment, a little soul searching and have begun working with a business broker or M&A advisor to determine that now is a good time to sell your business, then there are several steps you’ll need to take. You can be sure that any serious prospective buyer will want a good deal of information regarding your company.
At the top of the list of items potential buyers will want to see are three years of profit and loss statements as well as federal income tax returns for the business. Other important documents ranging from lease and lease related documents, lists of loans against the business and a copy of a franchise agreement, when applicable, are all additional documents that you will need to provide. You should also have a list of fixtures and equipment, copies of equipment leases, lists of fixtures and equipment, and an approximate amount of inventory on hand. A failure to not have this information organized and ready to present at a moment’s notice could be a costly mistake.
Working with professionals, such as accountants, lawyers, and brokers, is a savvy move. Owning and operating a business can be a complex process, and the same holds true for selling a business. Investing the time to seek out experienced and professional advice is the first step in selling your business.
Determining the Right Time to Sell
Determining when it’s finally the right time to sell can be a tricky proposition. If you are thinking about selling your business, one of the best steps you can take is to contact a business broker. A good business broker will have years, or even decades, of proven experience under his or her belt. He or she will be able to guide you through the process of determining what you need to do in order to get your business ready to sell.
One major reason you should contact a business broker long before you think you might want to sell is that you never know when the right time to sell may arise. Market forces may change, unexpected events like a large competitor entering your area, or a range of other factors could all lead you to the conclusion that now, and not later, is the time to sell.
In a recent The Tokenist article, “When is the Best Time to Sell a Business?”, author Tim Fries covers a variety of factors in determining when is the best time to sell. At the top of Fries’ list is growth. If your company can demonstrate a consistent history of growth, that is a good thing. Or as Fries phrases it, “What never varies, however, is the fact that growth is a key component, buyers will look for.” Growth will be the shield by which you justify your price when you place your business on the market.
If your business is experiencing significant growth then you have a very strong indicator that now could be the time to sell. Fries points to a quote from Cerius Executives’, CEO, Pamela Wasley who states, “When your business has grown substantially, it might be time to consider selling it. Running a business is risky, and the bigger you get, the bigger the risks you have to face.” Again, growth is at the heart of determining whether or not you should sell.
Knowing the “lay of the land” is certainly a smart move. For example, have there been a variety of businesses similar to your own that have sold or were acquired recently? If the answer is “yes,” then that is another good indicator that there is substantial interest in your type of business.
Reviewing similar businesses to your own that have sold recently can help you determine how much buyers are paying for comparable businesses. This can help you spot potential trends. In short, you should be aware of market factors. As Fries points out, everything from relatively low taxes and low interest rates to strength in the overall economy and an upward trend of sales prices can impact the optimal times for a sale.
Now, as in this exact moment, might not be the right time for you to sell. Getting your business ready to sell takes time and preparation. Fries points out that smart sellers “look for a good time, not the perfect time” to sell a business. Working with a business broker is a great way to determine if now is the right time to sell your business and what steps you have to take in order to be prepared for when the time is right.
Should You Sell Your Family Business?
When the complicating variable of family is added to the equation of selling a business, the situation can get rather messy. Family usually complicates everything and businesses are, of course, no exception. Ken McCracken’s recent article “Family business: to sell or not to sell?” 6 questions to help you make the right decision,” seeks to decode the complexities so often associated with family businesses.
Consider the Market
The foundation of determining whether or not now is the right time to sell must begin with market forces. Determining how much your business is worth is a key variable in any decision to sell.
The best way to determine the worth of your business is to have an outside party, such as a business broker, evaluate your business. What you believe your business to be worth and what the market dictates could be very different. You may discover that your business does not have the value that you hoped for. If this is the situation, then selling simply may not be an option.
What is Next for You?
Tied to knowing your market value is understanding what you will do next after you sell your business. For example, do you have a family member who can run the business without you? What will you and any family members who work for the business do after the sale goes through? You may discover that the sale could be very disruptive for you personally. All too often, people fail to recognize the emotional and mental stress that comes along with selling a business. Many owners begin the selling process only to discover that they are not emotionally ready to do so. While everyone wants to be unemotional in making their business decisions, this is not always the case.
Due Diligence
You will also need to deal with the issue of due diligence. Working with a business broker is an excellent way to handle the due diligence process. Business brokers usually vet prospective buyers ahead of time, which can save you a great deal of aggravation and wasted time.
McCracken believes business owners should investigate how the prospective buyer handled previous acquisitions. Specifically, McCracken believes that business owners should look to how well the prospective buyer honored previous commitments, as doing so is an indicator of how trustworthy a buyer may be.
Planning for Negotiations
Finally, McCraken believes it is essential to know who will oversee negotiations. It is key to note that many deals that could have otherwise been successful, fall apart due to poor negotiations. A business broker can be invaluable in negotiations. After all, who wouldn’t want someone with dozens, or even hundreds, of successful transactions advising them?
Selling a family business can be emotionally charged and can cause significant life changes for not just you, but for members of your family as well. Often, family businesses were built up over a lifetime or even over generations, which can make the decision to sell quite emotionally charged.
