THE WEALTH WARRIOR
THE WEALTH WARRIOR
The second accounting student replied, “Well, I was walking along yesterday minding my own business when a beautiful woman rode up on this bike. She threw the bike to the ground, took off all her clothes and said, “TAKE WHAT YOU WANT!”
The first accounting student nodded approvingly, “Good choice; the clothes probably wouldn’t fit.”
Life is like that, full of choices! And with choices come decisions, some good, some bad. Selling your business is probably one of the toughest decisions you will ever have to make. It’s not a choice about “IF” you’ll ever sell, but rather a choice as to “WHEN” you’ll sell. I’ve often said that a business is a good thing, but even good things can outlast their usefulness. When you start out, you may feel like your new business is going to be your lottery ticket. In reality your new business is only as profitable and satisfying as you make it, it’s all up to you over the course of your business career, which will at some point inevitably come to an end. Nothing lasts forever, and there is a time when it’s appropriate to think about selling. There are a host of considerations to deal with when you face the prospect of cashing out. But before you ever get to those considerations, back up and put life into perspective, so that your decision-making will be based on reality. When your decision-making is based on reality, you’ll be able to do a deal that makes sense for all parties and generate the best return for your efforts, but if you insist on fantasizing about hitting the jackpot when you cash out, well, you may be sorely disappointed. Let me explain.
Your business fundamentally represents a cash flow, whether you’re trying to sell a factory or a peanut stand, your business will ultimately be valued in terms of dollars. Dollars are the measure, the currency, which we use to quantify value. How much is your business worth? To you it may be worth a ton of money, but you’re not the prospective purchaser. Your business is only worth what someone is willing to pay for it. What that someone will pay is based on perceived value, historical trends, established cash flows, replacement costs of hard assets, start-up costs saved by purchasing a going concern, among other considerations, and some nebulous thing called “goodwill”. When you decide to sell, you need to put yourself in the shoes of the purchaser to get a realistic perspective of the value of your business. It’s not about “how much it’s worth to you” but rather “how much it’s worth to them”.
No one can appreciate the effort that you put in, the years, the grief, the fortitude that it took to build your company. There is no price you can put on that, but you’ve been paid for that. If you’re still in business, it’s only because the efforts you’ve put into your business have generated an acceptable cash flow which has kept you coming back every day. You started your business, perhaps from scratch, or perhaps you built up an existing business, but you are here today with a business that generates a cash flow. Fundamentally, that’s what you’re selling, or the prospect of a cash flow. You’re not selling a legacy or piece of you, you are selling an opportunity which an enterprising purchaser may seize on to generate a cash flow for himself or herself, that will sustain them the same way it provided for your lifestyle, or maybe better!
A business is a hard thing to sell. It may be easy to value hard assets, but most businesses are more than the sum of liquidation values. The easiest businesses to sell are simple businesses. By simple businesses I don’t mean that you sell to idiots (although some days it may feel like that to you), but rather I mean a business that does not require special skills to operate, so that you are selling the goods or services provided by that business, and not the special skills of the owner. For example, let’s say you’re are a master violin maker, and you’ve built and sold fine quality violins for decades. Now it’s time to sell, your fingers are aching and you’re tired of the exacting, meticulous work that requires great physical effort. You put up a “FOR SALE” sign and wait for your cheque. Unless you find another master violin maker who has your level of skill and can maintain the quality workmanship to the standard that you set, your prospects for completing a sale are slim and none.
If on the other hand, you’ve built a business that manufactures violins assembly-line style, that requires no special skills so that anybody can put a violin together, then that business really only needs a manager to open in the morning and lock up at night. Basically, anyone can operate that type of business without any special skills. All of a sudden, the number of prospective purchasers for your business has skyrocketed. The determining factor may be to find a purchaser who loves violins, or loves the music business, or loves to work with wood products, and who would be happy with the financial return that your business has to offer. The point is your business is now an attractive prospect for a whole new group of prospective purchasers. You don’t need to search out someone with skills that compare to yours, only someone who wants to operate their own business and may have an interest in your industry!
Specialty businesses are tough to sell as going concerns, precisely for the reason I’ve outlined. It’s hard to find your clone. It’s very difficult to find a person with your unique skill set, if your business is all about you. If your business can be operated by anyone, without special training, then it’s worth a lot more as a going concern. Perhaps you’re selling a list of customers to whom you supply goods, or you’re selling a store to which customers have flocked for decades, in either case yours is a business into which anyone with an interest can fit. If on the other hand, your business requires special expertise, then you have to search out your clone, or someone with the skills to continue to operate what you’ve built. To that person, your business is worth the savings in time and start-up expenses which they would avoid if they buy your business. There is a value in that, but it’s harder to negotiate because it’s a perceived value.
You may be able to put a price on inventory, equipment, land and building, and other hard assets, but the value of your business as a going concern is in keeping those operating assets together and generating income with them. If you can’t find that individual who’ll be able to keep the business running, then your choice may be to wind down and liquidate, basically sell out to the bare walls and call it a day. There may be no cheque at the end of the day, only the satisfaction and rewards, financial among others, that came from doing something that you enjoyed and having been able to make a living doing it. There is no rule that says you have to continue doing what you’ve done because you can’t sell the operation. Remember, NOTHING LASTS FOREVER, and when you’ve come to terms with the prospect that it’s time, then turn your business into cash and CASH OUT! It may be that a liquidation sale is the fastest and best return as a mode of sale, or perhaps you have a business that may be attractive to many prospective purchasers. Either way, there is a finite amount that your business is worth depending upon many factors. It is up to you whether you cash out or hold on to a lottery ticket that may never come in.
THE WEALTH WARRIOR - To learn more about this author, visit Sid Karmazyn's Website.
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Two accounting students were crossing the campus together when one said, “Where did you get such a great bike?”
The second accounting student replied, “Well, I was walking along yesterday minding my own business when a beautiful woman rode up on this bike. She threw the bike to the ground, took off all her clothes and said, “TAKE WHAT YOU WANT!”
The first accounting student nodded approvingly, “Good choice; the clothes probably wouldn’t fit.”
Life is like that, full of choices! And with choices come decisions, some good, some bad. Selling your business is probably one of the toughest decisions you will ever have to make. It’s not a choice about “IF” you’ll ever sell, but rather a choice as to “WHEN” you’ll sell. I’ve often said that a business is a good thing, but even good things can outlast their usefulness. When you start out, you may feel like your new business is going to be your lottery ticket. In reality your new business is only as profitable and satisfying as you make it, it’s all up to you over the course of your business career, which will at some point inevitably come to an end. Nothing lasts forever, and there is a time when it’s appropriate to think about selling. There are a host of considerations to deal with when you face the prospect of cashing out. But before you ever get to those considerations, back up and put life into perspective, so that your decision-making will be based on reality. When your decision-making is based on reality, you’ll be able to do a deal that makes sense for all parties and generate the best return for your efforts, but if you insist on fantasizing about hitting the jackpot when you cash out, well, you may be sorely disappointed. Let me explain.
Your business fundamentally represents a cash flow, whether you’re trying to sell a factory or a peanut stand, your business will ultimately be valued in terms of dollars. Dollars are the measure, the currency, which we use to quantify value. How much is your business worth? To you it may be worth a ton of money, but you’re not the prospective purchaser. Your business is only worth what someone is willing to pay for it. What that someone will pay is based on perceived value, historical trends, established cash flows, replacement costs of hard assets, start-up costs saved by purchasing a going concern, among other considerations, and some nebulous thing called “goodwill”. When you decide to sell, you need to put yourself in the shoes of the purchaser to get a realistic perspective of the value of your business. It’s not about “how much it’s worth to you” but rather “how much it’s worth to them”.
No one can appreciate the effort that you put in, the years, the grief, the fortitude that it took to build your company. There is no price you can put on that, but you’ve been paid for that. If you’re still in business, it’s only because the efforts you’ve put into your business have generated an acceptable cash flow which has kept you coming back every day. You started your business, perhaps from scratch, or perhaps you built up an existing business, but you are here today with a business that generates a cash flow. Fundamentally, that’s what you’re selling, or the prospect of a cash flow. You’re not selling a legacy or piece of you, you are selling an opportunity which an enterprising purchaser may seize on to generate a cash flow for himself or herself, that will sustain them the same way it provided for your lifestyle, or maybe better!
A business is a hard thing to sell. It may be easy to value hard assets, but most businesses are more than the sum of liquidation values. The easiest businesses to sell are simple businesses. By simple businesses I don’t mean that you sell to idiots (although some days it may feel like that to you), but rather I mean a business that does not require special skills to operate, so that you are selling the goods or services provided by that business, and not the special skills of the owner. For example, let’s say you’re are a master violin maker, and you’ve built and sold fine quality violins for decades. Now it’s time to sell, your fingers are aching and you’re tired of the exacting, meticulous work that requires great physical effort. You put up a “FOR SALE” sign and wait for your cheque. Unless you find another master violin maker who has your level of skill and can maintain the quality workmanship to the standard that you set, your prospects for completing a sale are slim and none.
If on the other hand, you’ve built a business that manufactures violins assembly-line style, that requires no special skills so that anybody can put a violin together, then that business really only needs a manager to open in the morning and lock up at night. Basically, anyone can operate that type of business without any special skills. All of a sudden, the number of prospective purchasers for your business has skyrocketed. The determining factor may be to find a purchaser who loves violins, or loves the music business, or loves to work with wood products, and who would be happy with the financial return that your business has to offer. The point is your business is now an attractive prospect for a whole new group of prospective purchasers. You don’t need to search out someone with skills that compare to yours, only someone who wants to operate their own business and may have an interest in your industry!
Specialty businesses are tough to sell as going concerns, precisely for the reason I’ve outlined. It’s hard to find your clone. It’s very difficult to find a person with your unique skill set, if your business is all about you. If your business can be operated by anyone, without special training, then it’s worth a lot more as a going concern. Perhaps you’re selling a list of customers to whom you supply goods, or you’re selling a store to which customers have flocked for decades, in either case yours is a business into which anyone with an interest can fit. If on the other hand, your business requires special expertise, then you have to search out your clone, or someone with the skills to continue to operate what you’ve built. To that person, your business is worth the savings in time and start-up expenses which they would avoid if they buy your business. There is a value in that, but it’s harder to negotiate because it’s a perceived value.
You may be able to put a price on inventory, equipment, land and building, and other hard assets, but the value of your business as a going concern is in keeping those operating assets together and generating income with them. If you can’t find that individual who’ll be able to keep the business running, then your choice may be to wind down and liquidate, basically sell out to the bare walls and call it a day. There may be no cheque at the end of the day, only the satisfaction and rewards, financial among others, that came from doing something that you enjoyed and having been able to make a living doing it. There is no rule that says you have to continue doing what you’ve done because you can’t sell the operation. Remember, NOTHING LASTS FOREVER, and when you’ve come to terms with the prospect that it’s time, then turn your business into cash and CASH OUT! It may be that a liquidation sale is the fastest and best return as a mode of sale, or perhaps you have a business that may be attractive to many prospective purchasers. Either way, there is a finite amount that your business is worth depending upon many factors. It is up to you whether you cash out or hold on to a lottery ticket that may never come in.
THE WEALTH WARRIOR - To learn more about this author, visit Sid Karmazyn's Website.
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