The number of businesses sold in the market has reportedly grown significantly in the last quarter. Although this may be considered a positive development, this has yet to reverse the slump experienced in the past three years. Buying a business or selling a business these times where the economic conditions are still volatile demands from all parties concerned (the buyer, the seller and the business broker) to re-think their expectations. Everyone must have a firm grip of the market trends during this current unpredictable economic environment.

With many sellers wanting to sell their businesses so they can enjoy the financial rewards of their work and sacrifices or due to their desire to move on to a new venture or challenge, and the new breed of buyers caused by the high unemployment rate (as laid-off employees are now looking to buy a business as an alternative to traditional employment), one would think that the market is more liquid with many businesses sold and bought. But such is not the case.

Seeking and getting approval for capital is tough these days. Traditional lending institutions are cautious in committing to financing small and medium business acquisitions. There are people out there who want to buy a business but their dreams are not realized because of lack of capital due to difficulties in borrowing.

Those selling a business who hope to get paid full in cash are overly optimistic. Getting paid in full at once rarely happens. Usually, buyers make a down payment and pay the remainder in installments for years. The seller should be patient, flexible and creative with the terms of the transaction.

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Every Business Needs an Exit Strategy. Do you want to Run Your Business Forever? Do you Want to Sell your business? Do you want to leave your business to your children? Do you want to sell your business to Your Employees? Do you Just want to close your doors and Move on? How do you want to exit your business? And when? Recently a good friend of mine that is a successful business owner contacted me about the prospect of selling his business in a few years. He asked me to contact him regarding what he may want to be doing now to prepare his business for sale. He has a successful growing business, he has grown his number of employees from 10 to 75 over the last 18 months. He is effective at gaining new contracts and growing revenue, but like so many businessmen, he has never attempted to sell his business.

Normally during the startup of a new business the thought of an exit strategy is not even a consideration. Then small business owners get so involved with the day-today operation of theirbusinesses that again an exit strategy is either not even thought of or possibly just put on the back burner. Taking some time to put some thought into your exit strategy can go a long way to increasing your odds of exiting your business the way you desire to.

Planning, gaining knowledge, and preparing may be the 3 most important measures you can take when considering an effective exit strategy. If your exit strategy involves an interest in trying to successfully sell your business in several years, what sort of measures or actions should a business owner take to make this successful:

1. Make sure your financials are in order. Clean understandable Income Statements and Balance Sheets will add value to your business.
2. Systematize and document your operations and procedures.

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Stock markets are dominated and whipsawed by mega-computers, lightning-fast trading and huge value swings. Small and mid-size businesses offered by business brokers offer the opportunity to achieve full disclosure, growth and prosperity…without “gaming.” Video Game Markets An announcement in October 2010 traced the May 2010 “flash crash.”

WASHINGTON—A trading firm’s use of a computer sell order triggered the May 6 [2010] market plunge, which sent the Dow Jones industrial average tumbling nearly 1,000 points in less than a half-hour…

A report by the Securities and Exchange Commission and the Commodity Futures Trading Commission determined that the so-called “flash crash” occurred when the trading firm executed a computerized selling program in an already stressed market. (DANIEL WAGNER, 2010)

Although not named in the report, the trade has been traced to my backyard, the firm Waddell & Reed in Overland Park, Kansas, a trade for $4.1 billion which, even in these markets, is a lot of money! The report goes on to say that others followed suit (“sheep in a pen” has often been used to describe this behavior) and the market collapsed.

Solutions were offered (delayed trading, etc) but we all know that the stock market is dominated by the large firms and the solutions are likely to be unsuccessful…or, like so many government solutions, make matters worse.

OPINION: Investing in these markets has more in common with a video game or a slot machine bet than in REAL VALUE INVESTING. Benjamin Graham would have a stroke Graham’s books Security Analysis (with David L. Dodd) and The Intelligent Investor influenced so many of us, notably Warren Buffet since their publication in the 1930’s.

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“I’m Looking to Buy a Business“.  As a business broker based here in Florida  this is a statement that I hear often.  Within  the industry various statistics are stated regarding business buyers.  I have heard that 9 out of 10 of those that say they want to buy a business actually don’t buy a business.  Based on my experiences that statistic may hold true.  There are so many currently employed that during their 40- hour work week aspire to “be their own boss” by starting their own business or buying their own business.  There are many unemployed out there that also think they may want to buy or start a business.  So while there are probably as many as millions of those both currently employed or unemployed that aspire to buy a business or start  a business, there is a much much smaller subset of those that even attempt to act on those aspirations.  Of that small percent that actually act on their dreams and or  goals a small percent may contact a business broker such as myself, and a small percentage of that group may find themselves at a closing table signing documents and actually buying a business.

Many business acquisitions are done with out the assistance of a business broker.

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You are thinking about selling your business. You may have uncertainty, angst, worries, trepidation, fear, unknowns, and sleeplessness nights.  I believe you are not alone. My approach as a business broker in Florida is from a perspective of a former long term business owner.   I truly feel some of the feelings I experienced as  a business owner are very similar or the same of the business owners I work with as a business broker.  While at this stage of my professional life I am “sitting on the other side of the desk” I feel I do understand the concerns, fears, thoughts of the person on the other side of the desk.  There are many qualified experienced business brokers that are not former business owners and these quality brokers bring various valuable perspectives and experiences that benefit their clients.   My choice to pursue my “2nd career” as a business broker comes from my recognition as a business owner of the value a business broker can bring.

1. If I sell my business do I have enough to retire?
2. What will I do after I sell my business.?
3. What will happen to my employees?
4. What will I sell my business for?  Is it enough?
5. How do I handle all the “little situations” that are part of most any business prior to selling my business?

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Misconseption 1. Purchase price should at least cover what I spent on the business
Put yourself in the buyer’s shoes (I will use this phrase a lot, so get used to it). As a buyer, you’re buying a business for the income. You don’t care much how much the seller spent on it, but rather how much money it puts in the owner’s pocket. If the owner spent one dollar and the business is generating one million dollar in profit, it will be treated as a million dollar business. If the owner spent one million dollars and the business is netting one dollar, it means that the owner wasted one million dollars, regardless how beautiful it is.    

We were approached by a classic car dealer who just recently built 30,000 sq. ft. indoor showroom with body and repair shop for restoring the classics. It took him half a million to build out and another half-million to put inventory in it. Eighteen months passed by and the dealership was still losing money. The owner told me a lot about uniqueness of the business, and that nobody else in California can do the restoration work they do. Apparently there wasn’t high demand for such unique work, especially in today’s economy. Instead of generating income for its owner, this business became liability.    

We presented the owner with business valuation that included cost of inventory and modest goodwill that will be recognized by strategic buyers. Owner found another broker who promised to sell the business for $2 million – twice as much as the owner invested in it. Despite the fact that we tried to explain the impossibility of any buyer paying so much for a business that’s losing money, and would be cheaper to start from scratch, the owner decided to go with the latter broker. Unreasonable expectations superseded common sense.

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What kind of business owner do you consider yourself?  Are you a Hands on Business Owner or do you consider yourself more of a big picture operator that consistently effort yourself to avoid the minutia of the business.  I think the majority of us are a hybrid of these 2 approaches.

When running a small business, or involved with a startup business, on an almost daily basis you are faced with the question “Do I do it myself or do I hire others to do it for me?”  Most all are aware of the concept Time is Money – but like so many other business concept we all draw the line in the sand at different places.  We are not always consistent with where we draw that line, and find that that line moves as or business moves or the economic climate around our business moves.  This question can be applied from basic business task of running to the post office to mail off some stuff or calling some prospects to significant larger issues like hiring outside help to handle your marketing functions, doing my own website, or trying to do my own SEO.  

I am a business broker and I help business owners and individuals in the process of buying or selling businesses.  Selling ones business is a very significant event and very often like so many other decisions a business owner will decide to try to sell the business themselves or hire someone to help sell their business.  This decision is part of the never ending series of question a small business owner needs to answer. In my current profession as a business broker if Florida I am faced with these same similar questions on a daily basis.

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“Nothing happens in this business until somebody sells something.”  Are you a salesperson?  If you are in a small business or a startup I would be stunned if you said no.   I have  been with several companies throughout my business career, small, medium, and a large Fortune 100 company, some as an employee and some as an owner.   My role currently as a business broker is to help people with the process of buying and selling businesses.  How do you find people wanting to buy a business or sell a business – prospecting.  Whats the first thing I do when meeting this prospect – listen.  My job of working with those in the buying and selling of businesses is really really a job of listening.  I recall one of my first jobs out of college I was hired by a Fortune 100 company, and they would send all new employees off to corporate headquarters for 45 days of fairly intensive training.  Training as a salesman / woman for that company involve quite a bit of technical knowledge on their products along with sales / marketing / time management skills.  I studied the technical aspect of this product extensively.  I felt when I got in front of a prospective client I just had to let him know all I had learned about this product without really slowing down to hear what they wanted to know.  It seems a little silly to me now, but then I felt it was my job to tell them all I knew.  Today to me selling is listening to a customers needs and proposing a solution.

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No one can tell you exactly what your business is worth except for someone ready, willing and able to buy or invest in it. But, with that said, by looking at your business from the perspective of a business buyer or investor, and their alternative investments, you will be able to see how much your business is worth.

Most every business would like to know what the real value of their business is. The truth is an accurate answer can only be found out through an exhaustive process of selling your business or trying to raise funds. Traditional standard valuations do not really provide a true value for a small business, mainly due to the subjectivity involved.

With that said, you can get close. In order to get as close as possible to an accurate valuation of your business, sometimes it is best to forgo the traditional business valuation template, (which in most cases is fairly useless,) and instead put together multiple scenarios that will help you to understand the value of your business to a buyer as compared with other alternative investments or assets the buyer is considering. This exercise will have an added benefit outside of understanding of your company’s value, by also helping you to understand what you should focus on in order to make it more valuable in the years to come.

Just like you make an investment, buyers will be looking at buying your business versus alternatives. High Net worth investors will look at your business objectively as an investment or source of income. Strategic buyers will have a choice of buying your business or trying to grow organically. Or let the competition buy the company and spend the money on marketing. We will look at each buyer type, and how they will look at your business.

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The End Game
In the business world, your professional career, your job, what is your end game? Do you have a goal to “be done working by the time I turn___ years old”? What is your goal? Starting a business and selling it for a very comfortable profit- is that your goal? Climbing the corporate ladder to the top- is that your goal? Putting a good meal on the table for the family and retiring comfortably at the age of 65 is that your goal? Retiring by the age of 30, 40, 50 60,70? Is that your goal? Sometime we get mired in our professional/business life and are to busy solving todays problem and have no time to really plan for tomorrow or for the years of tomorrows we will have after “retiring”.

“I want to start a business – grow the business – make it profitable – and hopefully be able to sell it for enough money for me to retire on.”

I believe this to be a reasonable and fairly common goal among business owners and or entrepreneurs.

But I think, like a lot of complex situations, the devil is in the detail. Lets say you are enormously successful and able to financially to accomplish your goal and sell your business at the age of 30, 40, 50, 60 years old? Do you plan to then just relax, and play out your years playing golf, tennis, and waiting for the 5:00 Cocktail hour?

Is selling your business the end game, finishing point, or just a step or part of your business life? The demographics of where I live (Southwest Florida) is such that there are many many people retired (with average age of 50-80) who we live among and interact with on a regular basis. The need to stay active physically and mentally is a priority for most of them, and these are generally people than can be retired and “do nothing.” Exit planning from a business requires careful thought and potentially some soul searching as well.

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As many businesses change their owners at some point, the services of business brokers can be necessary and highly valuable both from the business buyer’s and seller’s perspective. A person who is aiming to buy a business will need to evaluate the particular establishment and an experienced business broker can offer priceless assistance in this area; conversely, a seller may find it rewarding to hire a business for sale broker to help advertise the offer and facilitate the negotiations with potential buyers.

Business For Sale Brokers
Selling a business is an extensive, tiresome and demanding process, which can consume precious time and ultimately even damage the value of your business, as you are focusing a great deal of your energy on the sale process rather than on daily business operations. This is why services of business brokers can be invaluable.

To begin with, an experienced business broker can offer you confidentiality, ensuring that only the buyers you approve will be contacted. The broker will save you valuable time, by screening potential buyers in advance and checking whether they have enough financial resources to purchase your business, and will ensure confidentiality, by asking buyers to sign confidentiality and non-disclosure agreements.

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Over the years, I’ve heard a million horror stories from business owners about their experiences with some of the “fly by night” business brokers out there.  It’s always the same names and it always makes me wonder, “How did you get hooked up with these people?  Why did you hire them?”  I mean, I’ve seen some of their work and it’s TERRIBLE!

So, of course I feel bad for the business owner and I begin to question my ability to market my business brokerage services.  If only I had been there first.  If only these folks knew to call me or one of the other good credible brokers out there rather than the yahoo they ended up using.  Yes, you heard me right; there are a lot of good credible business brokers out there.  The problem is, there are a lot of bad, unqualified brokers out there as well.  I’m in the business so it’s easy for me to tell the difference.  But how can you, as the business owner, tell the difference?

Well, that’s a tough question to answer but I’ve been giving it some from thought and I’ve decided that the most important factors that separate the good business brokers from the bad are:

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Be a Smart Business Seller

Congratulations!  You have built your small business into a very successful enterprise over the years, and now it’s time to sell it and enjoy the fruits of your labor.  Perhaps you are dreaming of retiring next to a mountain stream with a fishing pole in your hand, or you may have other business ventures in your blood that you plan to finance with the proceeds from the sale of your current venture.  No matter what the reason, you can’t move forward until a buyer is found and a check is burning a hole in your pocket.  You probably sought out professional help when it came time to start your business – using the knowledge of your attorney, accountant, banker, and so on – so why not engage the services of a professional to help on the other end of the transaction?

The Business Broker

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I routinely read articles offering advice to potential business buyers on things to consider when embarking on the process of purchasing a business – as kind of a do-it-yourself guideline.  But I’m amazed at the lack of advice given to these buyers to use experienced professionals where applicable in the process instead of ‘going it alone’. 

A question that I often ask potential buyers is: Would you buy a house without proper professional involvement and representation?  If not, then why would you buy something as potentially risky as another person’s business without proper professional assistance?

Buying a business is a simple process if you just want a write a check and be done with it.  However, what’s complicated about the process is whether to write the check and, if so, what amount should the check be written for and under what terms.   It is wise to recognize that making these decisions requires more skill and experience than any one individual typically possesses.

Okay, so what experience or skill is needed to make a wise buying decision about a business and where can you obtain this assistance?

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It is not everyday that one goes about selling a business, nor everyday that one buys a business for sale.  Therefore, experience in the field is generally limited, both with the buyer as well as the seller. The process is also complicated by a phenomenal amount of issues, complex steps and paperwork. Even a seemingly small point,(if overlooked) could become a gnawing wound and prevent you from sealing the deal smoothly.

A survey indicates that about 99% of North American companies are planning a strategic alliance or takeover in the following two years.  The first two months of the year 2009 has already seen M&A deals worth 1.21 billion of US dollars begin announced.  This spells immense opportunity for both buyers and sellers. However, jumping onto the bandwagon without clarifying certain facts can land you into serious trouble.

Below are a few tips that help seal the deal of your M&A transaction without regrets

• Legal investigation – In order to seal the deal smoothly, both parties need to ensure that they have the legal aspects of the transaction under control. The ‘red flag’ areas must be clearly marked out. Seek through and professional advice right from the beginning of the M&A deal. The ownership deed, licensing terms, patent portfolio, etc must be examined professionally as well as personally.
• Personal investigation – All buyers know the critical importance of due diligence and the need to undertake a personal investigation of all the aspects of the business before they seal the deal. However, this does not mean that sellers can simply sit back. Keep in mind that in the business world the ultimate onus lies with the person who signs on the dotted line.

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If a business broker or M & A Intermediary is doing his or her job correctly, both sides win.  The seller is comfortable with the business opportunity or acquisition presented and the value placed on his company meets or exceeds expectations.  The buyer is confident that his best interest is at heart and the business he is buying will lead to profitability both fiscally and emotionally.  The broker’s job is to make this happen; at no point during the merger and acquisition should either party get cold feet and doubt the opportunity.

This is almost impossible to execute in the real world.  I have heard many business brokers in CT say that they tell their sellers, “I know you will wake up from a deep sleep the night before you close on your business, in a panic about selling your business, I want you to know this is normal and unavoidable.” 

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It is not a mistake to always be thinking of the day you implement your exit strategy and sell your business as you are in the process of growing it.  Many years before you go to sell your business, you are making decisions on new product lines, strategies, or new customers.  There are many factors you consider to make such decisions including risk, capacity, opportunity costs, etc.  One question you might ask yourself is the effect that decision will have on the value of your business some time in the future.  How will a Business Broker or M&A Intermediary value your Business for Sale?

A critical trade off with many product lines, customers, or strategies is the age old revenue vs. margin argument.  Is it better to start a product line that will increase revenue, but have a detrimental effect on your profit margin?  Is it better to take on a large customer, even though they demand a steep discount on your products?

When it comes to the value of your company, the answer is clear.  Revenue wins.  The positive effect that higher gross sales will have on the value of your business to a buyer is proportionally higher than the the detrimental effect on the value of your business which will come from a lower margin percentage.  In other words, a buyer will value a bigger revenue number more than a larger profit margin.

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Some readers will be asking; why use a broker, why pay these fees when I could do it myself?  The answer is quite simple, the business of selling a company is involved and time consuming which could easily lead you to neglect your business while trying to sell it.  Such neglect could create problems, reducing the value of the business by more than that saved in not paying fees to a professional broker.

Example benefits from using a professional broker are; the necessary knowledge to conduct a thorough sales campaign, experience and objectivity to avoid damaging conflict, and negotiation skills directly relevant to getting you the best possible deal.

So if you decide to use a broker, here are some thoughts that will help you to select and then engage successfully:

1. Before talking to any brokers have a reasonably clear idea of what you want to achieve by selling your business; your ideas on valuation, deal structure e.g.

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Number of Clients Represented – Business Brokers want to represent as many business for sale as they can. When contacting their vast network of individual buyers it is a real benefit to have a vast inventory of companies. Because on this, their approach is more of a mass mailing, mass email, post the business on a business for sale Web site, type of approach and their attention is spread over 25 or more simultaneous clients. Merger & Acquisition Advisors usually limit their number of engagements to 3 or 4 per professional at a time. Their approach is very hands on and labor intensive. Merger & Acquisition Advisors usually rely on a direct selling approach of calling the buyers and talking with the M&A department or the president. Often Merger & Acquisition Advisors will have specific industry niches and will have a customized data base of contacts. They often have had several prior contacts with the buyers and are able to penetrate the call screening that is set up to protect these individuals. A corporate buyer does not buy through a posting on a business for sale Web Site. A corporate buyer will open 2% or less of letter solicitations. A corporate buyer will read less than 1% of unsolicited and unknown emails. Corporate buyers demand personal and professional contact to get their interest.

Up-Front or Monthly Fees – Business Brokers generally will charge a minor up-front fee to begin the engagement or have a simplified valuation completed. Generally there is no monthly fee charged. Merger & Acquisition Advisors generally charge either a substantial up-front fee or a monthly fee in the $3,500 to $10,000 per month range depending on the size of the business.

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What would you do? I had been working with the Seller for two years, one buyer had gotten almost to the finish line and dropped out; others looked and said, “Not enough information,” or words to that effect, and dropped out.

But I believed in this company, believed in the profit potential, and believed that the Sellers were pursuing this transaction because they were tired and just wanted to retire.

Finally, in January 2007, a signed Offer to Purchase. But… (isn’t there always a “but”?), the Buyer was unable to close until June. Then, July.

My Seller was patient. After all, he had made a good living and acquired a healthy net worth from this business over 30 years. He had convinced me that the business would produce a healthy top line and a moderate bottom line if sold to the right Buyer. My judgment was based on long experience in the construction business and respect for the Seller. Not on the books, because the books were designed for the owners’ convenience, not to facilitate a sale. Information was sketchy.

Let’s review the impediments, the misfortunes and the mistakes. The first Buyer knew nothing about the construction business. Despite successful small business ownership, when it came to retainage, bonding and union employees, they soon determined that the business was above their heads. Probably right.

Most buyers had no money. My Sellers were unwilling to finance people who ought to have the money; but they had some interest in nurturing a good, younger buyer. This could have been the chance of a lifetime for someone, or so I thought. No one was coming forward.

Then, in December, the right Buyer showed up. We could wait until summer to close.

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