HOW DO I BUILD A VALUABLE BUSINESS
HOW DO I BUILD A VALUABLE BUSINESS
There are a many factors to consider when building value. In this article I want to address the following:
- What are motivations for selling and buying?
- What can my business do without me?
- What should I be doing while I am going through the process?
- When is it the right time?
- What do I do when I think it is time to sell?
What are motivations for selling and buying?
To build value it is important to understand why selling and buying occurs. This understanding can be the difference between receiving top dollar for your financial and “sweat” investment, selling in a position of need, or worst of all, getting nothing. For example, by positioning yourself to appeal to more types of buyers you can be more selective in your suitor and auction your company to a higher bidder rather take the only offer that comes to the table.
The top reasons to sell:
-Lack of operating capital
- Need for growth capital
- Elimination of personal guarantees
- Age
- Health
- Boredom/burnout
- Liquidity/cash out
- Perceived incongruence between risk and reward
- Market opportunity
The primary reason people buy a business is for return on investment. The justification for a return will include:
- Remove a barrier to entry
- Eliminate competition
- Strategic fit
- Geography
- Customers
- Employees
- Tangible and/or intangible assets
What can my business do without me?
Imagine going to buy a used car, and the existing owner wants to sell it to you for top dollar. There is a catch, you can only have it without the engine and the seats. In this scenario, it is likely you are going to look for a different vehicle. It is not that you cannot put a new engine and/or seats in the car, but why buy that car in the first place? If your business success is primarily dependent on 1 or 2 people, and you are one of them, you are going to have a very hard time selling your business, if you can sell it at all. It is common to find a business that has not invested in finding, developing, and nurturing the best talent. As when buying a used car, you want to know that you are buying a reliable car that will run long after you take over the keys and title.
What should I be doing while I am going through the process?
For those of you who have children, have you had one of those moments where you took your eye off the baby, and he or she disappears? You felt fortunate nothing terrible happened. Well, watch your baby. Whether you have a strong business or one that is on life support, I recommend that you continue to run your business as if your life depends on it. On average, it takes 12 to 18 months to sell a business. Worse, sometimes they do not sell at all. Your competition, customer, and employee needs do not change or go away because you decided that you want to sell. The last thing you want is to lose a major customer or key employee while going through this process. In addition, some of the things you are going to be evaluated on include: how strong your growth potential is, customer and employee retention, strength of employees, and operating effectiveness. While they do look at the past, buyers will give more attention to today and will pay more when the trajectory is upward.
Most of us have gone house hunting and would agree that you are willing to pay more for a house that you think is going to appreciate more in value than others, has all the extras, is on a great lot, nice paint job, no clutter, good lighting, happy atmosphere, and great landscaping. Invest in your business like never before. I would invest in people development, brightening the atmosphere, team building, paint job, and signage. Hopefully you have been doing these things all along. If you haven’t, you are going to be pleasantly surprised by the results you have been missing.
When is the time right?
Sell when the market is ready. Waiting until you are ready can be a big mistake. The idea is to sell high and be careful that you are not overpaying to keep working. I attended a seminar offered by SmithBarney Citigroup, and they presented a very interesting analysis about paying for the privilege of working. The Geneva Capital Strategies group did an analysis of historical transactions and showed where owners were actually losing money by keeping their businesses. They actually would have been better off reinvesting the net after-tax proceeds from their sale into other investments and not working at all.
It is typically not a good idea for you to sell your business when it is down, or if you think that prospects are not good. Buyers see the same things you do and rarely buy what the seller thinks he is selling. Even if they don’t agree, buyers are usually going to try to take advantage in terms of price. It is always best to sell when business is good (e.g. market share and sales are growing, margins are expanding, and business climate is strong).
What do I do when I think it is time?
Do not try to go this alone. I can tell you from first-hand experience that people who hired the wrong type of advisors or none at all cost themselves 20% or more in sale price. There are reasons why people make a living in this arena. For example, structuring your deal incorrectly can cost you 20-50% of the cash in your pocket. In addition, it is very important to get assistance to bring multiple qualified buyers to the table and to have someone very experienced at negotiating the sale of a business. There have been cases where sellers have been able to more than double their price by bringing in competitive parties and having a seasoned negotiator working on their behalf. Just because you have good negotiation skills does not make you qualified to sell your business.
The following are some of the different advisors you should consider when selling:
Business Valuation Experts – Independent of any business intermediary, hire a valuation expert to determine what your business is worth. Contrary to common opinion, there are no rules of thumb that can be used to determine worth. Every business is different, and you need to know what you are worth before you get into the emotions of the process.
Business Consultant – Before you hire someone to market the business for sale, you should do all you can to increase value. Bringing in a consultant to look objectively at how to increase profits and strengthen your team can yield huge dividends. Depending on how the buyer is valuing your business, every $1 you increase in profit through revenue growth or cost savings may multiply by $10 in sales price.
Mergers and Acquisitions Experts/Investment Banks – They will help you at every step of the acquisition process. They will help develop your offering circular, develop a selling strategy, identify potential suitors, provide advice on pricing, packaging and positions, and most important give your business maximum exposure in a confidential way. They typically have ready and qualified buyers, access to the right people, highly qualified staff, and excellent negotiation skills.
Business Brokers – In the case of smaller deals, a business broker can help you market the sale of your business. You are not going to get the same quality as Mergers and Acquisitions or Investment Bank experts. You want someone that is going to bring you multiple buyers and negotiate effectively on your behalf. Many in this industry are not working on this full time and act very much like real estate brokers. However, the good ones can bring a lot of value, help you dramatically reduce the time it takes, and increase the value you get for your business.
Accountants and Lawyers - Obtaining good legal and accounting advice is a must. However, many people place too much trust in their accountants and lawyers to consult on value creation, finding the deals, and evaluating the deals. These are not their areas of expertise, and they are not best suited to help you in these areas. In some cases your lawyers can be helpful in negotiations, but that depends on their practice specialty.
HOW DO I BUILD A VALUABLE BUSINESS - To learn more about this author, visit Howard Shore's Website.
Like this article? Share it with your friends
If you would like to learn how to build a valuable business and get top dollar for your efforts, read further. Many business owners spend years building and working in their business with little or no thought about their value creation. One of my responsibilities at a Fortune 500 company was building one of its divisions through acquisition. While we successfully grew the division from $400 million to $600 million in revenue, I am most proud of the fact that we received almost $1 billion when selling it. This price was 38% higher than anything imagined internally or by investment banks we hired to explore alternatives. This had everything to do with how value was created.
There are a many factors to consider when building value. In this article I want to address the following:
- What are motivations for selling and buying?
- What can my business do without me?
- What should I be doing while I am going through the process?
- When is it the right time?
- What do I do when I think it is time to sell?
What are motivations for selling and buying?
To build value it is important to understand why selling and buying occurs. This understanding can be the difference between receiving top dollar for your financial and “sweat” investment, selling in a position of need, or worst of all, getting nothing. For example, by positioning yourself to appeal to more types of buyers you can be more selective in your suitor and auction your company to a higher bidder rather take the only offer that comes to the table.
The top reasons to sell:
-Lack of operating capital
- Need for growth capital
- Elimination of personal guarantees
- Age
- Health
- Boredom/burnout
- Liquidity/cash out
- Perceived incongruence between risk and reward
- Market opportunity
The primary reason people buy a business is for return on investment. The justification for a return will include:
- Remove a barrier to entry
- Eliminate competition
- Strategic fit
- Geography
- Customers
- Employees
- Tangible and/or intangible assets
What can my business do without me?
Imagine going to buy a used car, and the existing owner wants to sell it to you for top dollar. There is a catch, you can only have it without the engine and the seats. In this scenario, it is likely you are going to look for a different vehicle. It is not that you cannot put a new engine and/or seats in the car, but why buy that car in the first place? If your business success is primarily dependent on 1 or 2 people, and you are one of them, you are going to have a very hard time selling your business, if you can sell it at all. It is common to find a business that has not invested in finding, developing, and nurturing the best talent. As when buying a used car, you want to know that you are buying a reliable car that will run long after you take over the keys and title.
What should I be doing while I am going through the process?
For those of you who have children, have you had one of those moments where you took your eye off the baby, and he or she disappears? You felt fortunate nothing terrible happened. Well, watch your baby. Whether you have a strong business or one that is on life support, I recommend that you continue to run your business as if your life depends on it. On average, it takes 12 to 18 months to sell a business. Worse, sometimes they do not sell at all. Your competition, customer, and employee needs do not change or go away because you decided that you want to sell. The last thing you want is to lose a major customer or key employee while going through this process. In addition, some of the things you are going to be evaluated on include: how strong your growth potential is, customer and employee retention, strength of employees, and operating effectiveness. While they do look at the past, buyers will give more attention to today and will pay more when the trajectory is upward.
Most of us have gone house hunting and would agree that you are willing to pay more for a house that you think is going to appreciate more in value than others, has all the extras, is on a great lot, nice paint job, no clutter, good lighting, happy atmosphere, and great landscaping. Invest in your business like never before. I would invest in people development, brightening the atmosphere, team building, paint job, and signage. Hopefully you have been doing these things all along. If you haven’t, you are going to be pleasantly surprised by the results you have been missing.
When is the time right?
Sell when the market is ready. Waiting until you are ready can be a big mistake. The idea is to sell high and be careful that you are not overpaying to keep working. I attended a seminar offered by SmithBarney Citigroup, and they presented a very interesting analysis about paying for the privilege of working. The Geneva Capital Strategies group did an analysis of historical transactions and showed where owners were actually losing money by keeping their businesses. They actually would have been better off reinvesting the net after-tax proceeds from their sale into other investments and not working at all.
It is typically not a good idea for you to sell your business when it is down, or if you think that prospects are not good. Buyers see the same things you do and rarely buy what the seller thinks he is selling. Even if they don’t agree, buyers are usually going to try to take advantage in terms of price. It is always best to sell when business is good (e.g. market share and sales are growing, margins are expanding, and business climate is strong).
What do I do when I think it is time?
Do not try to go this alone. I can tell you from first-hand experience that people who hired the wrong type of advisors or none at all cost themselves 20% or more in sale price. There are reasons why people make a living in this arena. For example, structuring your deal incorrectly can cost you 20-50% of the cash in your pocket. In addition, it is very important to get assistance to bring multiple qualified buyers to the table and to have someone very experienced at negotiating the sale of a business. There have been cases where sellers have been able to more than double their price by bringing in competitive parties and having a seasoned negotiator working on their behalf. Just because you have good negotiation skills does not make you qualified to sell your business.
The following are some of the different advisors you should consider when selling:
Business Valuation Experts – Independent of any business intermediary, hire a valuation expert to determine what your business is worth. Contrary to common opinion, there are no rules of thumb that can be used to determine worth. Every business is different, and you need to know what you are worth before you get into the emotions of the process.
Business Consultant – Before you hire someone to market the business for sale, you should do all you can to increase value. Bringing in a consultant to look objectively at how to increase profits and strengthen your team can yield huge dividends. Depending on how the buyer is valuing your business, every $1 you increase in profit through revenue growth or cost savings may multiply by $10 in sales price.
Mergers and Acquisitions Experts/Investment Banks – They will help you at every step of the acquisition process. They will help develop your offering circular, develop a selling strategy, identify potential suitors, provide advice on pricing, packaging and positions, and most important give your business maximum exposure in a confidential way. They typically have ready and qualified buyers, access to the right people, highly qualified staff, and excellent negotiation skills.
Business Brokers – In the case of smaller deals, a business broker can help you market the sale of your business. You are not going to get the same quality as Mergers and Acquisitions or Investment Bank experts. You want someone that is going to bring you multiple buyers and negotiate effectively on your behalf. Many in this industry are not working on this full time and act very much like real estate brokers. However, the good ones can bring a lot of value, help you dramatically reduce the time it takes, and increase the value you get for your business.
Accountants and Lawyers - Obtaining good legal and accounting advice is a must. However, many people place too much trust in their accountants and lawyers to consult on value creation, finding the deals, and evaluating the deals. These are not their areas of expertise, and they are not best suited to help you in these areas. In some cases your lawyers can be helpful in negotiations, but that depends on their practice specialty.
HOW DO I BUILD A VALUABLE BUSINESS - To learn more about this author, visit Howard Shore's Website.
Like this article? Share it with your friends
 | |
 |
No article feedback found. |
| |
Leave Your Feedback |
 | |
| |||
|
I've created this section on my site to share some of the incredible tools that I've used to build my business. I hope you too can benefit from them and look forward to hearing your feedback on the reviews! - Visit Evan Carmichael's Website |
|||
Leanne Hoagland-SmithAre your sales where you want them to be? Will you be one of the few who achieves sales or business success or one of the many who have failed to change? Are you tired of being told you are like everyone else? Then you may find my first book on sales of interest. Be the Red Jacket in the Sea of Gray Suits, The Keys to Unlocking Sales available at Amazon or at http://www.processspecialist.com/red-jacket.htm. This book is a reflection of my no-nonsense approach to improving sales to overall business results. If you are truly committed to making sustainable changes, then I can help you secure a positive return on your investment because I focus on executable solutions not telling you the problems you already know you have. From training to corporate (group) coaching to executive one on one coaching, my approach is to assess, create awareness, build a goal driven action plan and then execute. The bottom line question is "Not do you or your employees know it, but do you or they want to do it?" Please call for a free strategy session at 219.759.5601. - Visit Leanne Hoagland-Smith's Website |
|||
Dianne CramptonDianne Crampton is an executive leadership coach, team culture consultant, author and president of TIGERS Success Series, Inc. Dianne has been helping CEO's and Executives connect their employees to their core values and goals for over 20 years using the trademarked TIGERS team culture process, which stands for trust, interdependence, genuineness, empathy, risk and success. To download a free white paper on behaviors that build strong teams and behaviors that will predictably tear them down go here. Dianne's contribution to the 2010 Pfeiffer Consulting Journal (an imprint of John Wiley and Sons Publishers) entitled TIGERS Hearted Teams is available in November 2009. Her new book TIGERS Among Us: 5 Winning Business Team Cultures And Why, Three Creeks Publishing will release in March 2010. To receive publishing discounts, subscribe to the free TigerTracks Newsletter here. - Visit Dianne Crampton's Website |
|||
David BarrDavid Barr is the President of Venture Opportunities, Inc. David has been a professional business broker/intermediary since 1980 focusing on General Business Brokerage and Mergers and Acquisitions representing client transaction value from $400,000 to $20,000,000. Mr. Barr has handled the sale of over four hundred and fifty companies. David earned a university degree from the State University of New York majoring in economics and business. David holds the Mergers and Acquisition Master Intermediary and the Certified Business Intermediary designations from the International Business Brokers Association. He is also a Senior Business Analyst and a Texas licensed Real Estate Agent. For more information about David and Venture Opportunities, visit www.bizdealmaker.com. - Visit David Barr's Website |
|||
Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
|||
Casey GollanCasey Gollan, Business Coaching & Mentoring Programs. Add $1 Million to $10 Million in the next 1 to 3 years. Since 1996 Casey has to added hundreds of millions of dollars to businesses. Watch a free video see client results Business Coaching website. - Visit Casey Gollan's Website |
|||
Kim CastleWith nearly two decades in the advertising and design business, with clients like Domino's Pizza, General Motors, Direct TV, Pedigree, Wolfgang Puck, Higher Octave Music, Hollywood Celebrity Products, Disney, and Paramount, as well as thousands of entrepreneurs around the world define, structure, communicate, and position their business for greater profits, BrandU(R) co-creators Kim Castle and W. Vito Montone discovered that entrepreneurs could experience the same power that big brands command for a fraction of the cost with the world's only process-based results-drive Integral approach to business creation. BrandU(R) is helping entrepreneurs grow with the power of extreme clarity from idea...to brand...to market(TM) and helping one million entrepreneurs become successful and whole so that they can make a difference in the world. Are you one of them? If you want to experience clarity all the way to the bank(TM), get started now at http://www.brandu.com. - Visit Kim Castle's Website |
|||
Jeff FosterWebBizIdeas.com is a Minneapolis website design company founded to help people start an internet business by providing them with website, business, and internet resources that help foster the growth of successful online businesses and develop innovative Internet business ideas. We specialize in internet consulting & internet marketing. - Visit Jeff Foster's Website |
|||
|
To learn more about the Evan Elite Author Program please contact us. | |||
 | |
|  |
Subscribe to Howard's articles
 | |
|
|  |
 | |
|
| |
 | |||||||
|
 | ||
 |
||
|
||
|
||
|
| ||
 |
| Have you written articles that would be of value to entrepreneurs? Become an expert on our site by publishing them! Expose yourself to a wide audience, drive more traffic to your website and get more sales! Click Here for details. |
|
|
 |
| Modeling the Masters: Learn the true secrets behind Walt Disney's business success factors & grow your company! Video produced by Phanta Media |
|
|
 |
"Learn straight from Evan how you can Make a Full Time Income (And More) from a Website"
Click Here To Learn More |
|
|
|
|
Get advice & tips from famous business owners, new articles by entrepreneur experts, my latest website updates, & special sneak peaks at what's to come!
|
|
|
 Risk Management Business Coaching Biography Business Emotional Intelligence Write A Bestseller |
|
 | ||
 |
Top 50 Productivity Blogs
Top Blogs To Watch In 2008 | |
 |
Top 50 Business Plans
Top Business Plan Blogs | |
| ||
 | ||||
| ||||
|
| ||||
| ||||
|
|
|
|
|
||||||||||||
|
Email us your ideas on how to make our website more valuable! Thank you Sharon from Toronto Salsa Lessons / Classes for your suggestions to make the newsletter look like the website and profile younger entrepreneurs like Jennifer Lopez and Sean Combs!
|
|
|
| ||||||||||||
| ||||||||||||
|
|
||||||||||||