Tag Archives: sell my company

Writing a Bullseye Business Offer

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Selling a business is an extremely personal experience for the business owner. After pouring themselves into the company day after day, month after month, year after year, they’re finally ready to pass the torch.

For the seller, choosing the right buyer and entering into a contract is much more than just a numbers game. When it comes to purchasing a business, it’s important for the interested party to respect the owner’s journey and speak to their sense of volition, wisdom, and purpose.

Volition: Starting up and operating a business requires a strong sense of autonomy and the thought of giving it up in that capacity can be scary. Consider how you can encourage the owner’s volition when you write up your offer. One way you can approach this is through monetary compensation. Monetary compensation can help secure the owner’s financial future and keep their options open so they are able to embrace new adventures.

Wisdom: Acknowledge the owner’s hard-fought wisdom by offering to keep them on in some capacity after the sale of the business. For example, you can write a consultant role in your offer that allows the owner to stay involved in the business and utilize their wisdom and experience.

Purpose: The overarching challenge for a business owner in the process of selling their business is maintaining their sense of purpose. You can honor the owner and acknowledge this challenge by appealing to their purpose. Keeping them on as a consultant or offering an earnout provision are two effective ways to do this.

Do you want help writing up an offer that addresses more than just the bottom line? We can help you speak to the seller and write a powerful, all-encompassing offer. Reach out to us at 612.331.8392 or by email at info@oibmn.com.

What Disruptors Can Teach

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WHAT DISRUPTORS CAN TEACH

Disruption: it’s usually a script in which an innovative upstart overthrows an established firm. While it’s nothing new — fossil fuels disrupted the whale oil industry a few centuries ago — it’s now happening at lightning speed. Technology is partly responsible: As computer processing power grows exponentially, the realm of what’s possible broadens. Technology might be indirectly responsible in other ways, such as improving communication and making information available to the disrupting forces.

Offense Vs. Defense

Arguably, it may come down to offense vs. defense mentalities. The 800-pound gorillas of business are operating on a defense model: They’ve got lots to risk, so they can’t escape their vested interest in the status quo. Disruptors are on the offense: They’re smaller and nimbler, so it’s easier for them to change tracks.

In a recent article on ChiefExecutive.net, editor emeritus J. P. Donlon considers the dynamics of disruption, and observes that the key to success for incumbent companies is their willingness to disrupt themselves. Digging into existing models and strategies didn’t work for Blockbuster — disruptors like Netflix were rewriting the playbook.

It’s also worthwhile to examine the example of counter-intuitive disruptors: those who disrupt by returning to tradition. An over-simple illustration: Watchmaking was once the domain of a skilled echelon of craftspeople. Technology turned watch-making into a mass production factory endeavor, and eventually, companies like Shinola took the process full circle, hand assembling expensive timepieces in Detroit.

Have the Courage to Disrupt Yourself

Instead of trying to protect your traditional way of doing things, ask whether you can serve the customer better by disrupting yourself, and seizing the offense instead of playing defense. One of the great powers of social media is the window it offers on the customer experience. By actively surveying customers’ perspectives, you can understand their needs and what they perceive as shortcomings in the existing model.

Author Donlan invites you to ask yourself these questions:

  1. When was the last time you rolled-out a new product?
  2. When was the last time your business embraced change and did something innovative?
  3. Does your organization focus more on process than success?
  4. Are your management and executive ranks void of youth?
  5. When was the last time you entered a new market?
  6. Are any of your executives thought leaders?
  7. When was the last time you sought out a strategic partner to exploit a market opportunity?
  8. Do you settle for just managing your employees or do you inspire them to become innovators?
  9. Has your business embraced social media?
  10. When was the last time your executive team brought in some new blood by recruiting a major player star?

We hope you enjoyed this article. Learn more about our team of experienced business brokers! 

Selling a Business: Overcoming Obstacles

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Selling a Business: Overcoming Obstacles

Selling your business: whether planned or unexpected, it’s a big deal. It’s no surprise owners face a variety of practical and emotional obstacles when they entertain the prospect. These obstacles vary widely for personal reasons.

Roughly speaking, there are two ends of the spectrum. Entrepreneurial types enter the business with notions of building a profitable company in order to sell it in the relatively near term. Passion-driven owners typically start and grow a company for long-term operation and profit. Selling the business might not be part of their plan: for example, they expect it to stay in the family. However, circumstances may change, so they should always keep the option of selling in mind.

When faced with the prospect of selling, what obstacles arise, and how can savvy owners overcome them? Here are a few which both entrepreneurial and passion-driven types should consider.

Fear of Selling at the Wrong Time

Timing is a personal matter. When a passion-driven owner says “the profits are great, why would I sell now?” an entrepreneur will say “the profits are great, so it’s the best time to sell.” Of course, either one might face family, health or financial issues which dictate an unexpected sale. So keeping your operations honed and profitable always pays, and recognize that a certain degree of uncertainty is inevitable. Just like you can never know when the perfect time has come to sell a stock or a home, you will never know the perfect time to sell a business. All you can do is keep an eye on the big picture in the context of your industry, and keep your company as lean and efficient as possible.

Fear of Under-Pricing

Most sellers react to this fear by over-pricing, which keeps a business on the market too long, which further jeopardizes its salability. It’s crucial to undertake a thoughtful valuation process before determining your asking price. Take the time and get the help you need to do this, so you’re in touch with marketplace prices and better able to defend the price you set.

Not Securing Expert Advice

Expertise at running a business doesn’t translate into expertise at selling it. While you may resist paying the brokerage fee (roughly 10 percent), a good broker typically adds at least 10-12 percent to the sales price while saving you from lots of headaches. Their services includes helping prepare the company for sale, attracting and identifying qualified buyers, showing the business, marketing and negotiation. Similarly, securing the advice of other qualified professionals such as lawyers, accountants, and financial consultants is a good and necessary investment.

Being Too Hands-Off

Hiring a broker doesn’t mean your work is done. Because you’ve got the inside knowledge of the business, long-term experience in the industry, and serious motivation to sell, you need to view the relationship as a partnership. Disengaging from the selling process will jeopardize it. Communicate with your broker that you’re willing and able to support their efforts, and find out how you can do so. Your interactions with potential buyers also plays a key role. They’ll rely on their impressions of you to inform them about whether the business has the potential they seek, and whether they can expect to manage it successfully.

The Bottom Line

Without a crystal ball, you’ll never know beyond a doubt that you’re selling at the right time and at the right price. Run your business the best way you can; keep salability in mind; stay on top of the big picture in your industry; and recognize the value of outside expertise. Ideally, your decision to sell won’t be forced by outside circumstances, but it’s smart to be prepared for anything.

Visit our website to learn more about how we can help you sell your business!

Selling a Business: The Transition Period

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If you’re not considering selling a business now, we predict that you will in the future.

Ideally, selling a business is the culmination of years of planning and intention, but sometimes it’s a frantic, last-minute activity brought about by an unexpected change in circumstances. If you’re planning or hoping to sell a business in the next three to five years, you’d be smart to start thinking about the transition process. And even if selling your business is not in your immediate plans, it can’t hurt to give the process a little thought, because we never know what the future will bring.

At first glance, it may seem there are just two stakeholders in the transaction: seller and buyer. However, there are other parties to add to that list: your employees, your clients and customers, your vendors and suppliers, and possibly your family and your community. All parties will benefit from a smooth, well-planned transition.

Transparent Planning Is Crucial

If you’ve bought or sold businesses before, you’ve encountered some of the complex issues that may accompany the process. You may even recall thinking, “who knew it was so complicated?” A good starting point for your planning might be to reflect on what went right and wrong in previous transactions, and what issues took you by surprise or proved to be trickier than you anticipated.

While different businesses will have different details to work out, here some elements to consider common to nearly all transactions.

Define the Outcome

While the obvious, basic outcome is “sell the business,” it’s valuable to get more specific. The smoothest, least disruptive sale is always a goal, so anticipate potential disrupters and how to mitigate them. A clearly defined end point makes communication easier, and the establishment of a timeline and guideposts easier. Other outcomes to shoot for include minimizing anxiety for both seller and buyer.

Build a Transition Team

Team size and composition will depend on the size and nature of your business, but you generally want to include both in-house personnel and outside advisors. An ideal team might include a couple of top managers, some outside advisors such as your outside counsel and accountant, and a professional business broker/advisor.

Clarify Decision-Making Strategy

At some point decision-making authority will transfer from the old to the new. During the transition period, make sure all parties have clarity about where the buck stops and when decision-making authority is formally transferred. Your business broker will have valuable input on this question.

Financial Changeover

This one’s big: it’s complex, and the stakes are high. Your business broker, accountant, and legal counsel will help make sure all elements are planned and executed responsibly. Accounts, loans, credit lines,  payables and receivables, leases, insurance, taxes, retirement plans: there are myriad financial aspects of the business operation which must be transitioned to new owners.

Establish Accountability

Decide who will be responsible for executing each responsibility, and establish a timeline. Detail the phases, the actions, and the steps to bring about a successful transition, and assign responsibilities with deadlines. Use this to inform communications with other stakeholders: keep them in the loop so they remain confident in a good outcome.

Near Term Developments

Communicate any upcoming issues the new owners need understand and be aware of, such as regulatory changes, ongoing projects, etc.

Training the New Owners

Communicate openly with the new owners about their involvement plans and establish a training plan. Whether they’ll be hands-on or hands-off, they need to know how your business operates.

Staffing Considerations

This is a stressful time for the employees you’re leaving behind, so demonstrate your support for them. The new owners may rely on the existing team or they may be motivated to make changes. While your greatest interest may be the success of the new buyer, you’ll support the new buyer best by keeping your existing employees enthused and positive about the transition.

Planning Pays Off

Working on your transition plan is essential If you plan to sell in the next few years, and it’s a great general “covering the bases” move under any circumstances. If you’ve just bought a business, take some notes now about the pain points and the successes: they’ll be sure to come in handy when the nearly inevitable day comes that you wish to sell your business.

Due Diligence Risks: Mistakes to Avoid

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When an acquisition or merger is on the horizon, the prospective buyer is compelled to pursue a detailed process of due diligence. The stakes are high: It’s a complex, high-pressure and demanding process. Firms which frequently undertake M&A (merger and acquisition) transactions generally cultivate an in-house team of specialists. Other players are advised to engage seasoned outside professionals to make sure the due diligence process is as thorough and accurate as possible.

What Is Due Diligence?

Simply put, the due diligence team seeks to answer these questions: Do we buy? How do we structure the transaction? What’s a fair price?

The areas of focus generally fall into these areas:

  • Operational assets
  • Legal matters
  • Strategic position
  • Financial data

These areas can be further broken down into a variety of categories. Experienced analysts incorporate accepted principles and proven methods to perform their duties. Considerable skill and experience are essential to evaluate businesses in today’s complex global marketplace. Well-executed, comprehensive due diligence is crucial to a successful deal.

Common Failures in Due Diligence

Both buyers and sellers should be wary of some common mistakes in the due diligence process. Consider these potential pitfalls, along with suggestions for avoiding them.

Isolated Communication

As multiple parties focus on their own area of expertise and concern, they may to silo their information and conclusions, interfering with a holistic view of the big picture. It’s important to consciously integrate the findings from diverse perspectives as the process unfolds. Good communication between members of the due diligence team, and also between selling and buying teams, helps avoid misunderstandings and tunnel vision. Teams should work according to a shared calendar, with frequent check-ins of goals and milestones.

Last Minute Surprises

Waiting to the 11th hour to reveal or evaluate a vital issue can be a trust-killer and a deal-breaker. A sudden wrinkle can have a domino effect, jeopardizing or negating elements which were thought to be settled. Any negative findings should be swiftly evaluated internally by the due diligence team. After crafting a course of action, the team should promptly bring the issue to light with the other party.

Neglecting Industry Nuances

Specific deals and specialized industries have their own complexities. While boiler-plate lists of due diligence documents and issues are a helpful starting point, they fail to address some issues. Existing or upcoming regulations, economic cycles, supply chain issues and more may have a big impact on value, despite not immediately meeting the eye.

Pointless Negotiations

Negotiations are time-consuming and can spark negative feelings. Make sure to dismiss unnecessary discussions–they waste time, money and resources. For example, customers and accounts receivable are a normal point of negotiation, but an early-stage start-up might not have any yet, so cross it off the list and move on.

Let an expert like Opportunities in Business help you through this process. With over 30 years of experience we’ve seen it all and can help you avoid any pitfalls along the way.

How to Value a Business

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At Opportunities in Business, we’ve been appraising small, closely-held businesses of all kinds for over 30 years. While the most obvious reason to appraise a business is when it’s changing hands in a buy/sell agreement, business appraisals are also needed for estate planning, stockholder disputes, tax disputes, and divorce settlements.

“Fair market value” of a business won’t be found in your financial statements or tax returns: It’s much more complicated than that, and ultimately depends on buyer perspective.

Business valuation is complex, subjective, and very dependent on somewhat abstract factors such as location and anticipated earnings. Here are three primary strategies we rely on, as a professional business brokerage firm. A thoughtful analysis will evaluate from all three perspectives to triangulate a realistic value for your company,

Assets-based analysis

For the most basic evaluation, calculate the value of a business’s hard assets, minus its debts. For example, a building contractor owns trucks, tools, and equipment: estimate the resale value of these hard assets and subtract business debts to reach an asset-based value. This method tends to establish a low company value because it doesn’t take into account the vital but intangible “goodwill” accrued by the company.

What is “goodwill?” According to Investopedia.com, “Goodwill is an intangible asset… The value of a company’s brand name, solid customer base, good customer relations, good employee relations and any patents or proprietary technology represent goodwill. Goodwill is considered an intangible asset because it is not a physical asset like buildings or equipment.”

Companies typically have at least some goodwill–for example, a thriving restaurant or spa–so an asset-based valuation will be too low.

Comparables

Another common valuation technique is developing metrics based on the sales price and profits of similar companies. For example, accounting firms may trade at one times gross recurring fees while home/office security businesses may typically sell for two times their earnings. To make an accurate analysis, evaluation begins by selecting a group of companies which share industry, size, and region. Industry conferences and publications are good places to get a starting point on this multiplier.

The usefulness of comparables is limited, however. The resources for comparable data do not provide enough details to ascertain whether the businesses used for comparison are really comparable.

Earnings based methods are the most common methods used for businesses which are profitable. The various methods first define the earnings of the business, and then assess risk factors to determine multiplier and capitalization rates.

Ultimately, a business is like any commodity. It is worth what a buyer will pay for it, and if they have a strategic reason to acquire it, the sky may be the limit. However, having a professional evaluation of the business value is a crucial component to engaging in a successful sale.

Want to learn more? Give us a call today at 612-331-8392!

How to Prepare Your Business to Sell

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Selling a business is a milestone most business owners will eventually encounter. Whether motivated by retirement, potential profit, or external circumstances, selling a business is a high-stakes undertaking and demands plenty of due diligence to ensure the best outcome.

Even if you’re not ready to sell, it’s smart to view your business through a buyer’s lens. Just as you’d want to keep your home in good condition in case you suddenly need to put it on the market, you benefit from a business in which loose ends are tied up and books and documents are in order.

Here are 5 steps to take to ensure that your business is ready to go on the market and attract top-value offers.

First…Obtain a business valuation. Hire an experienced professional entity to analyze your business and establish its value. Business brokers, investment banking firms and accounting firms offer this service. Find one with experience in your industry, and get an objective assessment of your business’s financial situation, market position, strengths, and weaknesses. Opportunities in Business has been doing valuations for over 30 years.

Second…Put your books in order. Buyers typically require at least a three-year financial track record, and it’s important that your taxes are up to date and in order.

Third…Review and organize all legal paperwork. Track down all permits, leases, incorporation papers, licensing agreements, vendor contracts, customer contracts, etc..

Fourth…Focus on sales and growth. Buyers will closely examine the growth potential of your company. As you ramp up to putting your business on the market, it’s a good strategy to grow your sales efforts and invest in growth initiatives. Don’t focus exclusively on gross revenue; most buyers will rely on net or EBITDA (earnings before interest, taxes, depreciation, and amortization). An attractive EBITDA is key to a higher price.

Fifth…Perform a SWOT analysis, defining your strengths, weaknesses, opportunities, and threats. Buyers will negotiate by targeting your weaknesses and threats: you’ve got to be prepared to defend yourself, and to counter with emphasis on strengths and opportunities. Identify and address problems now. If you have fires, put them out. If you have skeletons, rehearse how to explain them succinctly and clearly, and then move on.

If you’d like to talk to an expert about your business and what you need to do to sell it, please give us a call at 612-331-8392.

Selling a Business Via a Business Brokerage Firm: The Five Big Questions

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I’m concerned about confidentiality. Will the brokerage protect my privacy?

Experienced business brokers in reputable firms have systems in place to protect the confidentiality of clients and details about their businesses. To further protect seller interests, prospective buyers must complete binding non-disclosure and/or confidentiality agreements and provide financial statements and bank references before they are granted access to essential business information.

Isn’t a business broker just the same as a real estate broker?

It’s true that business brokerage began as simply a subset of real estate brokerage about four decades ago, but the two industries have diverged completely since then. While business brokers in Minnesota (and many other states) are licensed identically to real estate brokers, the business brokerage industry has such singular requirements and challenges that it doesn’t functionally overlap with either commercial or residential real estate brokerage. As with any specialization, expertise is the result of many years of experience focusing exclusively on the niche.

Can’t I can sell my business myself? How does a business broker add value?

Like a good accountant, lawyer or other professional, business brokers contribute value according to their experience, education, and knowledge of the requirements and best practices of their industry. Yes, you can sell your business yourself: likewise, you can also do your own taxes and represent yourself in court, but doing so successfully requires a huge investment in time and education. It also comes with potentially costly risks.

Thanks to our experience and training, we know:

  • how to value a business
  • current market conditions
  • where to find reliable data
  • the challenges and issues likely to arise
  • where to find money for business transactions
  • the crucial details and checklists to complete a transaction smoothly
  • how to comply with legal regulations

Further, we serve as a buffer between the seller and buyer, engaging both parties with effective negotiation skills based on extensive experience and industry knowledge.

But why are the fees so high? Is it worth it?

Fees are based on a percentage of the selling price and have remained constant for many years. Hiring a professional business broker has three concrete financial benefits for the seller:

  • We expose the business to many more potential buyers than an individual seller can, enabling a quicker sale at a higher price
  • We have the expertise to accurately evaluate the business and ensure the listing is priced right and attractively described
  • We handle the details of the transaction with expertise to protect both buyer and seller, preventing costly mistakes, misunderstandings or misrepresentations

My business is special — do you have experience selling businesses in my industry?

At Opportunities In Business, we’ve got over 35 years of experience and we have sold in every SIC code or industry. Browse our listings and you’ll see successful sales of businesses from wholesale manufacturing to laundromats to credit card processing to cafes. With every account, we dive deeply into the business and the industry. Our standard process involves gathering lots of information and asking essential questions to fill in any gaps. Selling the business relies on a different skill set than running the business. We’ve yet to encounter a business so unique and specialized we couldn’t adequately represent it.

Check-out some of the recent businesses we’ve sold! https://oibmn.com/listing_status/sold/