Tips on Selling Your Business

Entrepreneur.com has a great article on selling a business. They offer several suggestions and a few issues to be aware of as you enter into this potentially exciting, always stressful and often frustrating time for you and your business. As I tell me students, I had a full head of hair before we began the process that finally resulted in the sale of our business (see picture on this blog site to see the humor in this joke!). We went way down the road toward a sale twice before it finally occurred on the third attempt.
Here are the main suggestions that David Worrell offers in this article:
1- “It’s never too early to start thinking about selling. ‘The day you start building a business is the day you should start designing your exit,’ says Minor, who has counseled thousands of business owners through the process.”
I tell folks that if you are planning to sell your business in five to ten years, you should consider this short-term planning when it comes to an exit. Decisions you make today can have a huge impact on the options for selling your business and the price you get for its sale years from now.
2- “A business will fetch the best price only when buyers believe they can take advantage of significant future growth potential.”
Most businesses are valued based on some multiple of current cash flow. The size of the multiple is, in part, on growth potential for the business. The more future growth that is anticipated from the business, the higher the multiple and therefore your price.
3- “(H)aving a Plan B is a vital step in the sale process….Having a strong and visible alternative makes any acquirer sit up and take notice.”
As my father, the wise entrepreneur, always reminded me, “Never sit down to negotiate unless you are willing to walk away from the table”.
4- “A strong team, clear policies and procedures, and a broad customer base are the underpinnings of value. The business should not just run without you, but be positioned to grow without you.”
Most entrepreneurs want to leave their business sometime soon after a sale. And most of those who do not think they will want to leave, end up leaving fairly soon after the sale any way.
5- “While you’ve been focused on selling the company, who’s been making sure the company stays focused on selling your product?… Many deals have been quashed when financial results from the last month or the last quarter are off target. Even if the buyer doesn’t walk away, the price is likely to take a last-minute tumble.”
Also, the majority of deals never make it to closing and as many as half that do get to closing, actually never close. Since you may end up keeping your business much longer than you anticipated, make sure it is running well.
6- “The amount of disclosure that buyers require can be mind-boggling. Putting it all together in a reasonable fashion is just one reason to consider hiring outside help. An intermediary, such as a business broker or an investment banker, can relieve you of some of the work while also keeping the buyer engaged.”
Selling your business is not a time to cut corners in costs. It is a complex process that can come back to haunt you long after any sale due to the warranties that you will have to provide. Hire good help!

You Might Be A Luddite If….

Okay, I will admit it. I am a bit of a Luddite at heart. I think I was one of the last business owners to install a fax machine back in the 1980s. That same decade saw me holding out for vinyl when everyone else was building up their CD collection. In the 1990s I held out putting in an e-mail system in our business and launching a website as long as I could. And I still use video tapes rather than TiVo.
Well, the next wave of technology is about to crash over me. It seems that IM, that annoying messaging system that my kids used as teenagers, is now fast becoming a major mode of communication in businesses across the country. Red Herring reports on the IM boom as a business communication application.
“Instant messaging may be regarded as a waste of time in many corporate offices, but new studies suggesting that it can increase productivity may open the door for widespread adoption at work. But whether it’s a drain on human resources or a boon to the bottom line, for some, instant messaging means a clear path to big profits.”
Why? Because it is fast and cheap. And now there are new applications of IM being developed just for business use by some entrepreneurial communications companies.
“While that may seem like pocket change to the likes of MSN, AOL, and Yahoo — all dominant IM portals — it’s quite a profit for smaller, IM-focused companies like Jabber, Akonix, and FaceTime. These new companies are developing customized IM programs for companies who see the benefits of real-time communication.”
This is a classic example of a niche strategy that could allow some small companies to sneak up and grab some significant market share from the communications giants if they are not paying attention or able to adapt.

A New Industry?

It is interesting to watch how eBay has been leading to new business development. There are any number of start-ups that have been using eBay’s infrastructure to create local retail operations, such as SnappyAuctions.com based here out of Nashville. These retail sites offer a place to drop off goods that customers want to sell on eBay. Snappy Auctions takes care of the rest. They deal with all of the hassle and confusion of setting things up with eBay.
Well, today I learned of another new business called NashvilleBids.com, which is trying to create a localized version of eBay here in middle Tennessee.
Their pitch:
“NashvilleBids.com is a down home idea whose time has come; a big boy auction alternative for Middle Tennessee buyers and sellers.
“For buyers, this means the seller is your neighbor, not a post office box across country or halfway around the world. For sellers, there is the added bonus of being able to accept or decline purchases from buyers residing outside Middle Tennessee.
“Unlike the big boy auction sites, the staff of NashvilleBids are local people who are just as frustrated as most of us when it comes to browsing hundreds of listings before finding one or two that are close enough that we can afford the shipping charges. ‘Try paying the shipping charges for an antique piano you won on eBay from someone in California’, says NashvilleBids founder, Tracy Layne, ‘and if you do decide to pay it, you just cross your fingers and hope the person you bought it from will actually send it. NashvilleBids.com serves the entire Middle Tennessee area, so you can avoid the hassles and costs associated with nationwide or statewide auction sites and arrange to pick up your item.'”
The next few years could be very interesting times for this new eBay inspired industry. I plan to pay attention to see what works and what is next!

Write Your Own Plan

Ever since I returned to academics, I have gotten frequent calls from people wanted someone to write their business plan. Not help writing it. They just want someone to write it for them.
Those who are looking for a bargain ask if our students would write a plan for a class project of some sort. There was a time several years ago, when we might be able to find a few students with an interest to do such a project. But not any more. Students today want to start their own ventures as soon as they can, and express no interest in doing free consulting for someone else.
A few of these callers explore my interest in consulting (which I do very little of any more no matter what the project–too much to do helping our students and alumni). When they ask how much I might charge, I give a really high figure that they’d be nuts to pay me. (No takers so far, but even I can be bought in this situation).
When I’m asked why I won’t help or prefer that my students don’t either, I offer my advice to all aspiring entrepreneurs about business plans:
1. Business plans should be the last thing you do, not the first. The common wisdom seems to go like this: “I’ve got a great idea, so I guess I better write a business plan”. Wrong.
2. Figure out how much you need to make in income and look at all of the non-financial factors that are important in your life. That becomes the standard you use to evaluate each feasible business that you identify. If it can’t meet your needs, go on to the next idea.
3. Research the market to make sure that there is really a market. Try to figure out what a customer might pay for what you want to sell. And look carefully at all of the competition to see if that market is already being nicely taken care of. And by the way, there is always competition, no matter what you try to tell me to the contrary. If the market potential is marginal, go on to your next idea.
4. Examine what it will cost to provide the service or make the product. Compare this cost to what you figured out you think you can charge in the previous step. If there is enough profit, keep going forward. Enough can be a difficult standard to nail down. But I like to see at least a 50% profit margin at this early stage. (Of you can’t calculate profit margin, take an accounting class somewhere to learn how–you need to know the “language of business”). If there is not enough margin in your idea, give it up and go on to your next one.
5. Make sure you know what you’re getting into. Lifestyle issues matter. Know the hours and the investment a business requires before jumping in. Make sure it is something that builds from your experiences in some way, and is something you can be passionate about. There will be some long days and weeks and even months, so do something that excites you and can carry you through these low points. If your hear can’t be in this deal, go on to your next idea.
6. Now it is time to write your plan, but first you need to figure out why you need a plan. A plan you write for yourself is very different from a plan you write for an investor. Know the audience of the plan. You probably will need to write a couple of different versions for different uses: one for you, one for your investors, and one for creditors. If the plan starts to break down financially or in your ability to make it happen, give it up and go on to your next idea.
As you can see, a business plan starts with you and your needs. And equally important, it provides a process that helps you learn about the business. It is a process with many exit points that you need to pay attention to so you don’t get in too far too fast.
You’ll need to intimately know all the details and nuances that are discovered. And when it comes time to use the plan to raise funding, the banker, creditor or investor will expect you to know the plan inside and out. Only the person who writes it will have that knowledge. And it would not look good for you to drag me or some group of college students along to explain everything for you.

Making a Difference

Entrepreneur.com tells of three entrepreneurs who measure success by more than their bottom line. In their commitment to make a difference in their communities they are examples of truly “good entrepreneurs”.
“The role of businesses in civic responsibility–actively working in communities for positive change–blows past charity donations and in-house recycling programs as businesses take an aggressive, hands-on approach to making change happen in their communities. Despite the tarnished image some business leaders have sustained in recent years, there are shining examples of those who work to build successful communities as well as successful businesses.”
The first was Kowalski’s Markets in Woodbury, MN.
“The Kowalskis had an opportunity to flex their civic muscle when they purchased four store locations in 2002. One of the stores was located in Minneapolis’ Camden neighborhood, a lower- to middle-class community unlike their typical upscale customer demographic. Rather than sell the property, the Kowalskis decided they had an obligation to provide a neighborhood grocery store to that community since the former tenant had failed to do so, and the civic experiment began.”
James Tufenkian uses his carpet business to make a difference in Armenia, his ancestral homeland.
“(H)e brought several Tibetan craftsmen and revived ancient Armenian carpet weaving through his business, which now employs more than 2,000 people in Armenia and nearly 10,000 in Nepal. Tufenkian also started the Tufenkian Foundation, with about 15 different programs to benefit Armenian society; Armenian Forests, a nongovernmental organization to stop deforestation; and Tufenkian Heritage Hotels, with three locations open so far, to drive tourism to Armenia.”
Michelle Rathman is the owner of a St. Charles, Illinois-based marketing/PR firm.
“Her mother abandoned her and her three sisters when Rathman was 4 years old. Rathman left her home and her abusive, alcoholic father and lived on the streets at a young age….(S)he shares her story with inner-city youths. She provides insight and advice in hopes of enabling them to make good choices.”

Franchising Fever

Small Business Trends reports on a study by the International Franchise Association (IFA) Educational Foundation and PricewaterhouseCooper, which reports that franchised businesses make up 9.5% of our economy (they provide a direct link to this study, but beware that it is a 181 page pdf file).
It is important to keep in mind that the IFA is an advocate of franchising. These figures reflect the very broadest definition of franchising, which includes distribution companies such as car dealers, bottlers, and gas stations. It is not just the small retail business, such as a bagel shop, that most think of when the term franchise is used.
Franchising is often not the happy partnership that the marketing packages franchisors send out to interested parties. Franchisees will often band together in an almost union-like manner. In fact, one of the most common seminars for franchisors done within this industry addresses the litigation issues they face with their franchisees. Broken promises, unmet expectations, and a perception of little value for the often high monthly fees paid to the franchisor lead to these legal battles.
So although franchising can be a good entry into entrepreneurship, do your homework and go in with your eyes wide open.