Andrew Rogerson's Blog, page 56

Meet Linda Bigler the business coach

Linda Bigler is a business coach that works one on one with business owners or CEO’s to help them define their goals, put a strategy in place, and hold them accountable in reaching them. I had a chance to interview her on Money 2.0.

Linda is also involved with the Metro Chamber of Commerce in Sacramento and is a member of the Arden Arcade Rotary, which has an alliance with the Children’s Receiving Home that Linda is also a board member of.

Linda talks about her business coaching background that followed her long career in high tech health care sales. She says she bought into ActionCOACH some years ago. ActionCoach is the largest business coaching franchise in the world. Linda notes that Brad Sugars founded ActionCOACH in Australia in 1993 and he now has over 1,100 coaches in 41 countries involved. She says the franchise has won a lot of entrepreneurial awards and she personally has found the ActionCOACH network resource to be one of the best resources she has ever had in her life.

Linda goes on to talk about why people hire business coaches. She says having an expert to hold you accountable is a huge piece of it. She says her expertise is in helping those clients in niche markets develop their unique selling proposition(s).

Linda talks about her Business Health Check, which is an initial client questionnaire she developed that gauges pre-clients to give her an idea on how they rate their own business. The questionnaire gauges everything from the client’s perception on their services, sales, budgeting, productivity, and more. She says when both business owners & managers and/or employees fill out the questionnaire separately, there is always greater insight on the various perceptions different team members have. Linda says she always uses the phrase “You Can’t Change What You Don’t Know”, adding that team alignment consulting is a type of coaching she does as well.

If you would like to hear my conversation with Linda Bigler, you are welcome to listen by clicking here. Linda was my second guests in this episode. The conversation begins 26 minutes into the recording.

How a buy-sell agreement can save a business

If you are a sole proprietor of your business, a single member LLC or the sole shareholder of your corporation there is one problem you do not have to worry about and that’s a buy-sell agreement for your business. The reason you don’t have to worry about a buy-sell agreement is that you have 100% control of your business and are able to make any and all decisions concerning its operation and this includes when and if you decide to sell your business.

Recently I was working with three guys who put together a very impressive IT business that was generating annual revenue of over $1.2 million. They had started their company some 5 years earlier and when they started, were not even sure if their company had a future or the direction it was going. Like all true entrepreneurs, they were able to adapt and change and as a result, attract new clients and new contracts and establish a credible brand name that is able attract more business.

Their success came from hard work. They each brought different skills and at times the growth was so fast, they had to hire help to deliver their projects, manage their company and get the job done.

One aspect they didn’t consider was what to do now they were getting older and were each deciding they would not mind going in a different direction. The problem wasn’t that the business wasn’t successful, as it was incredibly successful. The problem was that their personal lives were changing as one had moved out of Sacramento to San Francisco and so wasn’t as readily available to meet with employees, contribute to the ownership and management demands of the company plus he was getting frustrated as he was seeing new opportunities where he was working.

Another partner was living in Sacramento but he was burned out by the demands of his customers who required more than 40 hours a week of his time just to take care of their business leaving no additional time to also contribute as a shareholder, manage and operate the business.

The second partner living in Sacramento was aware of more and new business opportunities. This was frustrating to him as he saw a great business opportunity but it meant doing more work and sharing the success with his other partners but they were limited with what they could contribute.

The result of the above was that the three owners of the business were each feeling a different pressure as two of the partners wanted to sell and move onto new things in their life while the third wanted to keep things going as the success and money was what he wanted.

It was with this mixed scenario they met with me to discuss their options. The two partners that had an interest in selling didn’t want to leave their third party high and dry. However, how they were making shareholder and owner decisions wasn’t working and the solution wasn’t clear.

What is self-evident from the above is that a lot of the frustration and distraction they were currently experiencing could have been handled so much better with a buy-sell agreement in place when they first came together as partners or shareholders.

It is very easy both legally and practically for two or more unrelated parties to come together in business and create a partnership or corporation with two or more shareholders. Often one party will bring money and the other will bring expertise. The reason that brings two or more people together in business does not matter; what matters is putting an agreement in place when there is no tension in the relationship about what will happen when the business changes and the core reason that brought the parties to work together.

A good buy-sell agreement will normally be unique to each situation and should be written by an attorney. It needs to be unique as it will depend on the number of people coming together, what they bring in time and management, probably the industry you are in and any special needs it requires and more. For example, it is common for partnerships to form in the construction, real estate and services industries. A buy-sell agreement would need to reflect the needs of those industries including how one party moves in and out. Click this link if you would like to see a Buy-Sell Agreement Sample.

A final topic to be aware of is tax. There are tax implications of assets when they come together in a partnership or corporation. There are also tax consequences when one party leaves and the partnership continues but there are different tax consequences when the partnership or corporation is liquidated. It is critical that proper tax records are kept from the time the company is formed and who makes what contribution so the tax consequences are clear later.

If you would like more information about selling a business, buying a business, buying a franchise or a related service such as valuing a business, please visit my webpage Services and choose from the drop down menu the information you would like.

If you would like a free sample Buy-Sell Agreement you are welcome to click this link.

For more immediate help, you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

What I have learned working with business buyers

Buying a business, for a variety of reasons is never easy. Last week I received a call from a SCORE counsellor because I too am a volunteer as a Resource Counsellor. SCORE is national non-profit made up of volunteers that come from retired corporate executives that assists business owners with different needs. This counsellor was assisting a lady trying to buy a business.

They had taken all the right steps. Looked at businesses for sale in her local community. Tried to find a business inside her core competency which is book-keeping. Talked to landlords and the business owners that wished to sell their business. Despite looking at four opportunities, they were unable to find a business that worked.

One of the best comments the counsellor made was his advice to the business buyer he was helping. At different times she said to him that this wasn’t the perfect business but she asked his advice as to whether he would buy it. His response to her was “go with your gut” which is important. When buying a business you have the opportunity to perform a due diligence of the business by looking at financial records, talk to the landlord and be satisfied that the representations of the seller are true and correct. If the answers aren’t making sense or “you are unable to go with your gut” then you have your answer which is to look for another opportunity.

If you are looking to buy a business, here are five suggestions to help you be successful.

Know what is important to you

Know what’s important to you. Sounds very simple and almost sounds condescending. Based on my experience, too many buyers look for a business they have little chance of buying. The following will reduce the pool of businesses a typical buyer is able to buy.

If the buyer needs finance such as an SBA loan, at a minimum the bank will want to see the amount of the buyer’s downpayment, credit score, credit history and most important of all, management experience.

Most buyers don’t want to travel more than 30 minutes to get to their business. Very few buyers are willing to take the risk to relocate to a new city, get settled and while doing all this, learn to own and operate a business.

The price of the business is important to a buyer as there is a limit to how much they can afford to buy.

Retail, wholesale, manufacturing, professional services, medical are some of the many types of industry options available but most buyers only wish to work in one or two. Narrowing down that criteria when combined with finance, location and price means there are not too many options for a buyer to choose from.

Develop a repeatable procedure

We all know that the first time we do anything is the hardest. I believe many business buyers think it won’t be too hard and so don’t develop a template they can use so they follow the same steps each time. One of the beauties of buying a franchise is that you can follow the same process and procedure each time you look at a franchise opportunity. Apply this same logic when you are trying to buy a business. Make an Excel file of the steps you take, the items important to you and put them in some sort of order so the next time you can follow those same steps or if you find a better way, update your template in case you need to use it next time.

Put your feet in the shoes of the seller

One of the first things a buyer will be asked to do if they have an interest in the business is sign a non-disclosure agreement or confidentiality agreement. The reasons are obvious in that the seller doesn’t want information that they are considering selling the business given to employees, landlord, customers, lenders, suppliers and more.

However, once a buyer makes initial contact with the seller who offers some interest to work with them and see if they can do a deal, too many buyers focus exclusively on what they want and do not hear or understand what’s important to the seller. Most sellers if they are marketing their business for sale want to sell. Very few sellers are that desperate they will concede everything to the buyer. I am currently assisting a seller with the sale of a medical practice they wish to sell. There is good buyer inquiry but one buyer keeps coming back with an interest to buy the practice but doesn’t hear the simple requests the seller is making. I expect the seller to not accept any of the buyers offers because the seller is simply not being heard.

Do you see yourself fitting in?

Each business has its own culture or way of doing things. After all, it’s made up of people. It also has the owner who has a personality, style and a way of doing things. Most business owners will want to make changes; it’s only human. As part of the buying process ask five things.

Do you see yourself fitting in with the way the business currently runs?How many things will you change?How quickly do those changes need to be made?Where do you want the company to be in the future?Most important of all, does the business you are buying have the ability to get where you want it to be?Time kills deals

The most important lesson I have learned from business buyers is that those organized and focus on the above four points have a much higher chance of success. A successful buyer knows what they want, have a clear and defined process including advisors to guide and provide specific areas of expertise be they accounting, tax or legal services, understand they will not get everything they want from the seller and also understand that if they want to get a deal done, time will work against them. It does not mean they rush and make fast decisions. It means being clear and quickly working through their processes so they can move forward in a timely and professional way. This approach brings goodwill to the transaction and allows the buyer to obtain a better deal.

One last tip. If you find you are continually looking for new business opportunities because you can’t find the ‘perfect business to buy’ then you are right. There is no such thing as the perfect business to buy. Each business comes with risks, rewards and opportunities. If you find that you keep looking and are unable to buy then take a break and decide if business ownership is really right for you. About 2% of the US population are small business owners. That means about 98% aren’t. Not everyone is destined to own and operate their own business.

If you would like more information about buying a business please visit my webpage Buy a business or buy a copy of my book Successfully buy your business.

For more immediate help with buying a business you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

How to get maximum price when selling a business

Every business owner wants to get the maximum price when selling a business. Additionally, the steps to sell a business are many and complicated but when a business owner decides they want to sell, the starting point is a business valuation.

Part of the purpose of the valuation is to normalize the performance of the business over the last three or four years so potential buyers can see trends and decide this is a business of interest to them. My personal process is also to approach third party lenders who typically approve SBA loans to get their take that this is a business they would have an interest in approving an SBA loan.

To put the valuation together the necessary documents are the tax returns for the last 3 or 4 years, a current profit and loss statement and current Balance Sheet.

I recently asked a CPA and a Certified Appraiser why tax returns were the main documents used to determine the value of a business. The two reasons I was given are that tax returns are documents the business owner submits to the IRS; which is a Federal government agency. As a result, by law a third party lender can request a copy of the document from the IRS as long as they have the permission of the business owner. This therefore provides the lender with some protection that the document they are using to assess the performance of the business is true and correct. The second reason for using the tax returns is that the business owner signs it. Right above where it is signed, there is a clause that comes with an acknowledgment that starts with “Under penalties of perjury…” It is therefore expected the signor or business owner is aware of the accuracy of the tax return as they have no legal defense that they didn’t realize the tax return was not accurate.

The fact that tax returns are the basis of a business valuation is real important to the seller. At the end of the day, the purpose of the tax return is to report the annual sales and expenses to the IRS and obviously pay as little tax as possible. When a business owner wants to sell their business, their goal is the exact opposite, that is, get the highest valuation possible and therefore the highest price from selling their business.

With this in mind, a qualified business appraiser as part of their valuation process will normalize the performance of the business by recasting the financial statements.

Recasting simply means obtaining the SDE or Sellers Discretionary Earnings of the business by adjusting certain items to reflect reality. These items include:

Owner salaries including payments to family members.Any nonrecurring expenses.Interest payments.Depreciation expenses.Rent expense.Owner discretionary expenses including owner bonuses and pensions.Any known increases in fixed expenses.

The recasting process arrives at a much better representation of the business and actually helps the buyer if they choose to get third party finance.

It is also proper to recast the balance sheet. The balance sheet shown on a tax return is generally not even close to accurate. For example, a balance sheet on a tax return shows the depreciation value of fixtures, furniture and equipment as well as buildings if the seller owns the building. Another figure that is generally way wrong is inventory as few owners have the time or inclination to get it accurate.

If you are thinking of selling your business and it’s in the next few years, start making an Excel file spreadsheet with any one off expenses you may incur as these are legitimate add backs that need to be taken into account when valuing or selling your business.

Privately held businesses have a unique position in the business world. The only time a business owner really has any interest to know the true value of their business is when they plan to sell. Otherwise, nobody needs to know and there are too many other things to do with your time when you own a business.

Are you thinking about selling your business? Would you like to know the value of your business? If you would like more information please visit my website Business valuation.

For more immediate help you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

When the job market’s rough, work for yourself

Some people are just naturally more productive on their own. Especially in a turbulent job market, it’s possible to use your free time to earn money and build your personal brand without relying on a corporation to sign your regular paychecks.

Freelancing might be more lucrative than you think. Industries like insurance sales, writing/ publishing, and marketing can provide enough opportunity for you to make a living outside the bounds of a traditional company. The number of people working from home is on the rise in the U.S. By 2012, more than 13 million Americans followed that approach, a nearly 41 percent increase over the past decade, CNN reported.

Here are some things to think about as you consider making the jump into freelance independence:

Work sales leads independently

Sales people can earn a living without reporting to the office every day. People with a penchant for selling products or services can connect with insurance agents to work warm leads and help agents close more sales. A company like QuoteWizard filters insurance leads so independent brokers can go after them on their own. Some brokers outsource for help doing so. But there are other sales opportunities in the freelance realm.

According to Entrepreneur.com, freelance sales consultant gigs cost anywhere from $2,000 to $10,000 to start-up, though they can earn a limitless amount, based on your talent and the area of focus.

Many small businesses, like organic goods merchants and home improvement specialists, outsource for sales professionals to expand their business. With a commission-only earnings model, you could do quite well with the right approach in a good territory.

Writers can succeed working from home

Writers, editors, and marketing copy-wonks can earn a strong living independent of a traditional newsroom, largely because the traditional newsroom has gone away. As more businesses develop original online content, there’s a rising need for independent, professional writers who can be trusted to handle a wide range tasks. Rather than writing for a single employer, however, you might shift into a role where you serve a variety of clients each week or month.

Sites like Guru.com and Elance.com provide a central source for writing assignments. Once you have an online profile on a site like this, you can bid on assignments and write at your own pace.

Wordsmiths with a niche coverage area, such as technology or healthcare, can also find opportunities in grant writing or technical writing based on the significant need in those science-related industries to convey complex issues in an understandable manner to mass online audience.

On the business side, freelance marketing project managers and other marketing-oriented contributors can earn up to $52 an hour, according to Forbes.com;10 Best Freelance Careers.

At those rates, why not fly solo? You can control your own assignments, your own workflow, and go after the assignments that really advance your career.

Sacramento Angel investing with Graeme Plant

Graeme Plant, who works in Mergers and Acquisitions, joins me on Money 2.0 to discuss Angel Investing.

Graeme says Angel investors are often retired entrepreneurs or executives, who may be interested in Angel Investing for reasons that go beyond pure monetary return. These include wanting to keep abreast of current developments in a particular business arena, mentoring another generation of entrepreneurs, and making use of their experience and networks on a less than full-time basis. He says in addition to funds, angel investors can often provide valuable management advice and important contacts.

Graeme says private companies meet angel investors in several ways, including referrals from the investors’ trusted sources and other business contacts. They also meet companies at investor conferences and symposia, and at meetings organized by groups of angels where companies pitch directly to investor in face-to-face meetings. Graeme says angel investors typically look for early investments, a solid business plan, and a good team to implement the business plan.

Graeme notes that the technology industry benefits the most from Angel Investing. He says the Kauffman Foundation is a good resource to check out if you are considering Angel Investing. He also references a few groups based in California, to include: Sacramento Angels, Sierra Angels, North Bay Angels, and Silicon Valley Angels.

Graeme and I talk a bit about the reality TV show Shark Tank, which features budding entrepreneurs looking to connect with investor monies. I note that I had a technology inventor from the show on an earlier episode of Money 2.0. Graeme also discusses the value of meeting with Angel Investors, even if they do not invest with you. He says the feedback on your business proposal and ideas can be invaluable advice.

Graeme concludes the interview by discussing the application process involved in finding an Angel Investor. He also outlines the several month process involved in connecting with investors until the point where the company actually receives monies.

If you would like to hear my conversation with Graeme Plant, you are welcome to listen by clicking here.

Negotiating a lease when buying a business

Negotiating a lease when buying a business adds to the complications and stress of getting into business. That is, it’s tough enough negotiating with the owner of the business that wants to sell to get a deal that makes sense for both seller and buyer let alone negotiate with landlord who has their own agenda to get a lease that allows the buyer to be successful.

If you are the buyer of a business and find you are negotiating your lease with the seller (who wants to get his liability completely off the lease) and a landlord that wants to get the best deal they can because they have a loan to pay or risk losing their real estate and investment, the following may assist you.

What are terms of the current lease?

A good place for a buyer to start is the current lease with its terms and conditions. It may be the current lease has expired and the owner or seller is month to month or the lease is close to expiring. If you can get a copy of the current lease it will show how the landlord thinks and the items that are important to them.

If the lease is current and has a period to run of 12 months or more, you don’t like the terms of the current lease and the landlord is unwilling to make a new lease or offer concessions to you then that’s probably the end of the opportunity to buy that business and so it’s onto the next. The only variable is to have a conversation with the seller to see if he’s willing to offer a concession to offset your objection.

Due diligence on the lease

As the buyer of the business you are able to negotiate a due diligence period to check out the representations of the seller and make sure they are accurate. While there is no official due diligence period prior to signing a lease there are items to check to make sure you uncover any potential problems.

For example, if the business is in a shopping center or strip mall, talk to the other business owners to see if they are happy and why or why not. Don’t talk to the employees, talk to the business owner or the General Manager as they will know.

Does the lease include fees for CAMs or Common Area Maintenance fees? If so, check how the fees are applied. Some clauses allow the landlord to exclude the anchor tenant from paying any fees and therefore the fees are levied proportionally on the smaller tenants and this can make it expensive. In some cases the fees are levied in proportion to the existing tenants, that is, if the shopping center has a high vacancy rate, the landlord is getting no rent or CAMs from this vacant space so they spread the actual costs amongst the existing tenants making the CAM costs per month very expensive.

Another item to check is to see if the real estate and building are for sale. If it is sold it will probably sell for a higher price which means property taxes will increase and this higher cost will flow to those that have a signed a lease.

How much leverage do you have to negotiate the lease?

Most buyers of a business where a lease is already in place do not have too much leverage. That is, they are unable to make requests of the landlord to lower the rent or no longer make certain charges as the current lease is signed and in place and the owner is probably meeting the requirements of the lease. If the lease is close to expiring or the current business is not performing well then the landlord should be willing to negotiate; especially if they have vacancies.

What’s the market doing for leases?

If the landlord is willing to negotiate, an essential strategy for the buyer is to fully understand their position. This includes knowing if the current lease space is too big, too small or just right. It also includes knowing if the location is right, what rents are being paid in the immediate area to understand that the rent being paid is competitive. Right now in this economy, a tenant should fight for small and infrequent rent increases as this will help make their business competitive.

Does the buyer need an SBA loan?

An SBA lender typically requires the lease to correspond to the length of the loan. That is, if the buyer of the business wants a 10 year SBA loan, the lender will require a 10 year lease for the buyer. It doesn’t mean the buyer has to sign a full 10 year lease. If the buyer thinks they want to move the business, the lender may be willing to allow the buyer to sign a 3 year lease with one 3 year option plus one 4 year option. This lease may not appeal to the landlord as they would prefer to keep the tenant so they may offer a better lease if the business buyer does a 5 year loan with one 5 year option.

A lease can be a long document filled with legalese. Have an attorney review the lease so they explain the different clauses and you are aware of the responsibility you are taking on when you sign the lease. Having the lease reviewed by an attorney whether it’s the current lease or a new lease.

If you would like more information about buying a business please visit my webpage Buy a business or buy a copy of my book Successfully buy your business.

For more immediate help with buying a business you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

How to increase the value of a business

It is normal for a business owner when they plan to sell their business to get a value of their business or a business valuation. Often they leave the decision to get a valuation when they plan to sell. This means the opportunity has gone to make some changes or be proactive with strategies that will increase the value of the business.

If you are thinking of selling your business and want to know some of the steps you can take to increase its value, here’s a few suggestions for you.

Where do I start to recognize the value drivers?

A good and important place to start is looking at the financial statements of the business. If the financial statements are not in good shape it’s even more important to start here as it means the owner is working from a handicap by not knowing the true current and historical performance of the business.

The next best and easiest place to start to determine the value drivers as they apply to your business in your industry is with a SWOT or Strength, Weaknesses, Opportunities and Strengths. Because adding value is all about your business, pulling out the value drivers with a SWOT analysis will give you a focus.

Determine your value drivers by comparison

Once the financial statements are in good shape, the next step is to do a comparison of your business against your peers or the same type of business in the same industry as there is a lot of relevant information in your financial statements. This is something you can do yourself but it does take time.
If you want to do it yourself and understand what’s involved, there is a website that can provide the data you need called Bizminer or www.bizminer.com.

Another suggestion is to have a conversation with your accountant to see if that’s a service they provide and they can help you identify where you need to focus and grow your business.

Is the management team a strength or weakness

A bad sign for a business is the owner not being able to be away from it. Many owners do not want to think their business can survive without them but the strength of a good business is when the business continues to operate as normal, whether or not the owner is there.

Additionally, a good business has a strong management or executive team in place so if a key manager is not available, another manager is able to answer questions or provide direction to keep the business heading in the right direction.

Other signs that show the strength of the management team includes cross training. That is, are other employees able to execute when the main employee is not available? What’s the average age of the management team? An average young age can suggest inexperience, an average older age can suggest a business culture that doesn’t like change or isn’t open to new ideas. An average older age throws up the concern that they may be approaching retirement and therefore need to be replaced.

Is the customer base diverse?

If one or two customers account for more than 25% of gross sales then the business is vulnerable. The vulnerability comes from not only the negative position it could place the business with cash flow if they leave, but also allows these primary customers to push back on price increases or changes that may be necessary to the products or services you are offering. What could be even worse than these two scenarios, is that you may lose one or two of these key customers when you are close to selling the business thereby reducing its value and attraction to a buyer. Making the customer base as diverse as possible adds value to the business.

What’s the primary role of the owner?

A well balanced business has a strong executive team that comes together, makes and reviews key decisions and then gets on with it. If the owner of the business is the executive team and all decisions revolve around their decision making it puts the business at risk if the owner no longer works be it for a positive reason that they won the lottery or a negative reason they become ill.

Put simply, the greater the dependence on the owner the lower the value of the business. Equally, the more diverse the executive team the greater its value as it means the business can react quickly and positively to new opportunities.

What about the competition?

One thing I enjoy doing is watching Shark Tank now on CNBC. Kevin O’Leary loves to ask a presenter of their product if it has any patents. If they don’t he says “you have nothing to offer and the market will crush you like the cockroach you are.” A business has a higher value when they own a clearly defined product or service without becoming a commodity that others can copy which makes it more difficult to defend.

Are the customers an asset or liability?

Different business models place different emphasis on the customers. For example, Amazon is all about providing the lowest price and as positive experience as possible. Are your business relationships about the best products and/or service or the lowest price? Does your business model require many customers and finding them each time or are they advocates of your business and therefore loyal? The value of a business is reflected in the customer base and whether it’s an asset or liability.

Loyal Employees:

Just as the quality of customers are part of its value so too are the employees. Are they outsourced and therefore not rewarded for loyalty or are they direct hires where their performance is measured and managed and given incentives that directly contribute to the success of the company? Are there training programs in place to allow them to move to their next level, are they considered an asset or a liability? What is the average length of employment?

For a business buyer looking to make an acquisition, the answers to these and many more questions will make or break the final acquisition decision and the value they put on the business; especially the executive or key management that is currently in place. Critical items will include key employee contracts, non-compete agreements and the work culture and therefore the final business valuation.

What’s the role of technology?

How important or effective is technology in your business? Has your company developed a unique application, tool or technology? Does your technology provide competitive advantage?

If the answer is yes then it can be a key value driver in the performance of the business and provide a reason in its own right for a competitor to buy your business and the amount they are willing to pay.

At the end of the day, the intellectual property, human capital (the employees that move around inside your business) are critical assets and influence the value of the business. These assets should be protected through both good business strategies and legal protections.

Good business strategies include incentives and compensation plans to reward and retain high performing employees and legal protections with confidentiality clauses, non-compete agreements, Trademarks, and Copyrights.

In conclusion, if you don’t have the enthusiasm to try to grow and add value to your business, it’s a good indicator that its time you thought about selling.

If you would like more information about selling a business, buying a business, buying a franchise or a related service such as valuing a business, please visit my webpage Services and choose from the drop down menu the information you would like.

For more immediate help, you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

How to sell a business to a strategic buyer

How to sell a business to a strategic buyer. If you are thinking of selling your business you probably have a simple outlook. All I need is one buyer and if they like my business, I like them and they have the money and vision in place to buy my business, let’s do a deal. That makes perfect sense.

However, there are different types of buyers and each of them will look at buying your business through their lens or view of the world. Their view obviously comes from their own personal experiences, their financial situation and ultimately their goal if they decide to buy your business.

A business buyer that wants to buy themselves a job has a different view to a buyer that wants to buy your business that is a competitor. There is another type of buyer called a strategic buyer and their view is different to the previous two as their motivation to buy your business is to make the acquisition so it complements or provides synergies with their business and what they currently do.

Here are ten items a strategic buyer looks for as part of their decision making process whether to buy your business or not. The greater the number of items that match the list below, the stronger the value it creates for the strategic buyer and the greater will be their motivation.

1. Diversity of customers

If a business is successful but all their contracts are with a government agency or one main customer and a few smaller customers the business is at risk. The ideal scenario for a business owner is to have a cross section of customers with no one customer generating more than 5% of total revenue and there to be a large number of customers. If the concentration is too high it can threaten the viability of the business. A simple way to diversify the customer base is for the business to buy another business and gain access to their mix of customers.

2. Recurring revenue

Just like a diverse customer base is good, so too is having different forms of revenue for different types of products and services. If sales come from items such as contracts from monthly or annual maintenance, monthly or annual licensing fees, recurring retainer fees, technology licenses, etc. these are great value drivers compared to one off sales, time and materials revenue, or other non-recurring revenue streams.

3. Diversity of products or services

Just like there is risk in having a lack of diversity in having one customer generate too much annual revenue, a business that has a small portfolio of quality products or services puts the business at risk if the market changes due to a new and better solution. It also allows the customers to push for a better deal or they will move their business elsewhere.

4. Depth of management

If a business is successful its main reason is the owner and the executive management team. A great way for a business to grow and grow quickly is to acquire a successful competitor and bring the skills and energy of a smaller but successful business. A successful business with a strong management team should put the right incentives in place for the employees as well as employment contracts, non-compete agreements if possible and meaningful, and the right stock or equity incentive plans. If the business is in the process of being sold, this can be a good strategy so the right employees don’t feel their position may go away under a new owner.

5. Legally protected products and/or services

The business world is changing and changing fast. If a strategic buyer sees you have a new technology, a more advanced way of doing business, synergies or strengths are able to increase by bringing the two companies together that creates a competitive advantage it’s obviously a huge incentive to get a deal done. As the owner of your business, continue to look for innovation, advantages, new ways of doing faster, cheaper and better than your competition and this will add great value to your business. Talk to an attorney that knows intellectual property to see if it should be legally protected.

6. Buying a business as a path to growth

We complain about too much government regulation but it does create barriers to entry. It also provides a reason for a strategic buyer to buy your business as some items are in short supply. For example, a long term lease on a special location or a special permit, zoning restriction, restricted or limited number of licenses, for example, liquor or firearms or other regulatory approvals. Getting into some markets without the right government regulation permit or license can make it extremely difficult to do to business and if a company wants to grow, can make it an attractive acquisition if another business has something they want and need.

7. Strong financial statements

The depth and quality of the financial statements and the supporting reports provide a statement about the business, obviously how well its performing and probably most important of all, the attitude of the owner and how they use the data that comes from these reports. Without exception, a buyer will want one of their professionals to check the integrity of the data. If the owner has taken that step by having their financial statements reviewed or audited by a reputable CPA firm, it casts the business in an incredibly positive light, what the business stands for and at the same time, considerably lowering the buyer’s perception of risk.

In addition to having an outside CPA firm, a good attorney also helps present the business in a positive light. If the owner of a business has a strong team of outside professionals it reduces the risk and allows quicker decisions to be made which can be a great asset to the owner if they can and find they are able to quickly exit the business and receive the maximum value.

8. Acquiring a new sales pipeline

If you watch the business news it’s a constant that a larger company invariably wants to buy a smaller company. The reasons are many but one compelling reason is that the acquirer is able to buy the acquiree and in so doing, tap into both their product and sales pipeline. Smaller companies tend to be more agile as they look for and see new opportunities than the larger and slower moving larger company. The new CEO of Microsoft, Satya Nadella made that announcement in July 2014 to all its employees and includes the departure of about 18,000 employees.

9. Acquiring intellectual property

It takes work publishing white papers, writing books, speaking at industry events, writing articles, having relationships with the media and using positive PR to stay top of mind. As they say, there is only one thing worse than being talked about and that’s not being talked about. Being renowned in your industry as a voice of authority or someone worth listening to provides its own cache and allows your business to be seen in the most positive light possible; which brings more business and another reason for your business to be acquired.

10. Declining, stagnant or growing

What is the stage of the business cycle? Is it declining, stagnant or growing?

The owner of a business moves through many stages and a lot are influenced by the economy. When younger they have plenty of energy, enthusiasm and hunger for risk taking. As they get older these same attributes begin to decline. If the economy is strong there is incentive to work harder as there are rewards. If the owner has a clear and written growth plan that maps out the direction of the company for the next two to ten years, this document can add value to the purchase price of the business as the buyer sees and understand additional opportunities they either didn’t consider or didn’t know were available.

A written growth plan can include additional markets to target, new or additional products or services, opportunities to improve both selling and buying margins, changes to existing products or services and the opportunities they bring and more.

The bottom line is important to all business owners and any business buyer. However, when a company wants to make an acquisition they are looking for opportunities and data to support that opportunity. If you run your business as if it’s always for sale, it brings disciplines and opportunities that clearly stand out and will result in a purchase price premium; if selling is what you want to do.

Are you thinking about selling your business and move to your next challenge? Would you like to know the value of your business? If you would like more information please visit my website Business valuation.

For more immediate help you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

Is my business ready for Franchising?

Is my business ready for franchising? The statistics from the International Franchise Association are simple and compelling. Every 8 minutes in the United States a new franchise opens its doors. At the last official count there were 828,138 franchises in the United States, which provides 9,125,700 jobs supporting an annual payroll of $304.4 billion producing goods and services of $802.2 billion.

Does this therefore mean every business owner should be able to franchise their concept? If you own and operate a business, does this mean franchising is right for you?

The answer to the last two questions should be a simple ‘no.’ However, if you are looking at the criteria to help you make that decision, here are eleven factors to consider.

These questions come from looking at whether your business is ready for franchising in the eyes of a franchisee. After all, a franchisee is going to have most of the final say whether they buy your franchise and therefore how successful you will be.

1. Authentic

For a franchise to be successful or for franchise buyers willing to take a huge personal and financial risk it has to be authentic and have credibility. If your business is not quite at that point, get it there before putting it out into the market.

2. Strong franchise management and leadership

Franchise buyers are buying the concept. The concept was put together by the owner and their team and it reflects their integrity, skills, ability to communicate, and most important of all, the results they have generated. This is one of the most important aspects of the franchise and will determine its success or failure.

3. Sustainable and proven franchise model

Franchise buyers have plenty of concepts to choose from. Each potential franchise buyer moves through the buying process including attending a Discovery Day which is generally at the franchisors head office or nearby. The model or prototype the franchise buyer sees has to “Wow’ them and the “Wow’ factor sells. Do you have a model or prototype that ‘Wows’?

4. Different than other franchises

Everyone buys differences including franchise buyers. Pepsi or Coke. Ford or GM or Toyota. AAMCO or MAACO. A franchise concept must be adequately differentiated from its franchise competitors.

5. Positive market trends

Was cupcakes a fashion or positive new market entrant with positive trends? What about yogurt? What about pet care? Franchise buyers are looking for positive market trends and growth opportunities which they want to take advantage.

6. Affordable cost of capital

The franchisor requires the franchise buyer to make a capital investment in their concept. It therefore has to be affordable.

7. Return On Investment

It not only has to be affordable but it also has to provide an adequate Return On Investment to the franchise buyer.

8. Creditworthy

A franchise buyer will typically need to borrow to fund part of the purchase of the franchise and its start up. The franchisor therefore needs to provide a concept that third party lenders including the SBA will be willing to loan against.

9. Scalable

The franchise buyer wants initial training so they can get their franchise up and running and profitable as fast as possible. This therefore requires clearly documented systems and processes and these have to be kept up to date to keep the franchise concept relevant as the market and customer needs change.

10. Versatile

The franchise concept can’t be successful just in one or two local cities or markets, it must be versatile and adaptable to work in all markets.

11. Built on positive and continuous relationships

Just like owning and operating a business is not a destination, that is, you never ‘arrive’ as things are always changing and hopefully going from good to better, a successful franchisor will have relationships with key suppliers and all the franchisees so everyone is successful.

There are companies that specialize in helping a franchise build and get ready to hit the ground running. They assist with strategic planning to grow the franchise, help with the mandatory legal documentation to meet federal and state requirements, franchise operations and training documentation, marketing services to attract franchise buyers and owners, support sales and training material and more.

In a nutshell, these companies help a business that has never franchised before, companies that are currently franchising and need to improve or want to grow quickly and companies that currently sell through dealers or distributors and want to see if franchising is right for them.

Give me a call on 916 570-2674 and let me connect you with the right franchise developer that can get you where you want to be or you are welcome to send an email to Andrew Rogerson.