Getting the best price for your business
Getting the best price for your business
The perception of value
Your "circle of interest" represents the value of your business to you, and the distance between your circle, and the buyer's circle, the "Price Barrier", is the difference between your perception of the value of your business, and the buyer's perception of its value.
You might start off with a very high value on your business, but your price expectation eventually diminishes (your circle moves to the right, towards the buyer's circle), due to such factors as:
You want to retire
You are sick of this business
Changes in family or partnership circumstances
Frustration at working too hard
Difficulties raising capital to fund further growth
You are offered sufficient price which, combined with any of the above, motivates you to part with your business.
The buyer's "circle of interest" represents their accumulated wealth, and all the effort which has gone into raising it, along with their very real fears of losing with it.
Their interests will move closer to your interests (circle move to the left) when their fears of losing their money are outweighed by confidence factors to an extent where they will begin seeing positive value in your business.
The factors which might shift their perception of the value of your business closer to yours might include:
Synergies with their own business
Wanting to build on your client base
Wanting to acquire new technology
Reliable and attractive profit figures
Experienced personnel.
On the other hand, the factors which might shift the buyers perception away from yours might include:
The perception that your business requires too much of your personal involvement
Lack of systems which would enable a new owner to "slot" readily in
Unreliable profit figures
Insecurity about your suppliers or customers, or position in the marketplace.
For a sale to eventuate, your two circles of interest must eventually meet, at a point where the buyers perception of the value of your business meets your minimum requirement for compensation for all the effort you have put into building up your business.
Whether you have to move further to meet the buyer, or the buyer can be persuaded to meet you, depends upon how much evidence you can produce, to justify your position. The greatest barrier to getting the buyer interested in your business is their fear of losing their money. The best way to prove to them the value of your business, to the extent that they will pay your price, is to give them confidence in his/her ability to make a success of it.
The buyer knows very little about your business, so it is up to you to prove these things to them. The way to do this is through evidence.
Setting a realistic asking price
Setting a realistic asking price is the first, and probably most important step in the selling process.
The price should be set high enough to allow you room to negotiate, but not so high as to frighten off prospective buyers. But at all costs, you want to avoid the risk of UNDER selling your business.
For this reason, as the first part of our selling process, Lloyd's provide a free, no-obligation appraisal of your business, so that you can:
Make an informed decision as to whether selling is indeed a viable option for you at this time, and
Ensure that you can price your business to sell quickly, and for FULL VALUE
Preparing for sale
1. Make yourself redundant
The buyer's greatest fear is that you are the heart and soul of your business and that when you walk out the door, so will the business.
In many cases this is true, because you have built the business around yourself; you have all the knowledge and skills to run the business, and you have great difficulty in delegating the various functions.
What you have is not a business, but a very demanding job from which you can't resign. No wonder you want to sell it! And if it appears like this to the buyer, why would he want to pay perfectly good money to rescue you from your plight? The answer is to...
2. Systematise your business
When you have all the various functions within your business systematized and thoroughly documented, delegation is no longer such a problem. Each person should have a clearly defined role, a chain of command, and a designated set of tasks and procedures which, when carried out competently, leads to measurable and desired outcomes.
A buyer can then see himself fitting comfortably into this business.
3. Document your business
You need to have a business plan, so that you, and everybody in your team, knows exactly where you are headed and how you propose to get there.
As well as documenting your procedures, it also helps to document your relationships with other parties in your marketplace:
With suppliers. Your verbal, or "handshake agreements" look very flimsy to a potential buyer of your business. Converting these into written agreements wherever possible will make your business confidence-inspiring, and at the same time, the very process of putting them into writing will enable you to cement these relationships even further, and perhaps even improve your lines of supply.
With customers. If you can negotiate written agreements with your customers, you can make your business look that much stronger, and of course, the process of securing your outlets can often give you power to go back and re-negotiate your supply agreements.
With other parties. Document your relationships with Industry Regulators, Trade Organisations, Quality Assurance, Therapeutic Goods Administration, Environmental Protection Agencies, Health Department, and a whole host of other parties who have some power or influence over your business. Document these relationships so that a buyer can not only see where your business stands within its industry but also feel confident that its existence is not under any undue threat.
4. Document your profit performance
We are all more or less tax driven, but the trap we set for ourselves is that it then becomes difficult to prove the true profitability of your business to a buyer.
The solution is to adopt transparent, legal, tax avoidance strategies that will enable you to minimise your tax burden, whilst retaining the ability to clearly demonstrate your true profitability to a buyer through "add-backs".
Produce monthly profit reports. Within an open framework, you can produce monthly reports to demonstrate to your buyer your ability to monitor and manage the performance of your business. In hiding things from the taxman (not that you would do such a thing, of course!) it becomes too easy to lose sight of them yourself.
Write up your stock to full value. It is common practice to defer tax liability by undervaluing your true stock levels. By gradually bringing your closing stock figure to full value you retain more effective control, and do nice things to your Gross Profit reports along the way.
Document capital expenditure. Rather than expense capital improvements as repairs and maintenance, capitalise them. This will add value to your balance sheet and improve your demonstrable profit. If you don't fear tax, you can present a much better picture to your potential buyer, his Accountant and Bank Manager.
5. Do your housekeeping
Just as with selling any other sort of property, first impressions count. There are a number of practical steps you can take to create a good first impression to a prospective purchaser. They may seem obvious, but then again, look around, you might be surprised.
By taking these steps, you can not only increase the perception of value to your buyer, but also convert into cash and improved figures, many items which would otherwise be handed over at "no value" to the buyer on settlement:
Tidy up your stock. Sell off obsolete, or slow moving stock items. This will improve both your sales and your Gross Profit. Your buyer will be impressed that you are not holding any unsaleable stock. And it will eliminate any possible arguments over the valuation of such stock during the sale.
Tidy up your plant and equipment. Make your workplace into an efficient working environment. Add a little paint here and there to make things look well maintained. Ensure that you eliminate oil leaks. Anticipate Health Dept. requirements, and sell off and convert into cash any scrap, redundant or obsolete machinery and parts that are cluttering up the place.
Tidy up your staff. Where possible, get your staff to take up their leave and other entitlements prior to sale. Get them to wear uniforms, and make sure they wear safety gear when required.
Tidy up your premises. Have a look around with the eyes of a prospective purchaser. What would it look like to a critical new observer? The condition of your premises can say a lot about your profitability.
Tidy up your debtors. An area of great concern to a prospective purchaser is the state of your Debtors. Based on your figures, the buyer will have to do his cash flow and working capital forecasting to justify the purchase, and may be very nervous about taking on customers who look as though they take forever to pay their accounts. Now is a good time to bring them into line. You can use the improved cash flow to...
Tidy up your creditors and even take those early-settlement discounts. This will create a positive impression of the inherent strength of your business.
Tidy up your balance sheet. It would also help if you could remove from your balance sheet any items which are unrelated to the business being sold, and include, possibly through an asset revaluation reserve or similar, any assets which are not currently listed at their proper value.
Fear and uncertainty
The greatest obstacles to selling your business are fear and uncertainty, and until you can allay these in the mind of your purchaser, price does not even enter into the picture.
There are only two ways you can overcome fear and uncertainty when selling your business:
You can price your business so low that the "Bargain Factor" overcomes the buyer scepticism, or:
You can prove the value of your business through adequate documentation.
Once the evidential quality of your documentation increases, scepticism on the part of your buyer can turn to confidence. And then, in the best scenario, into enthusiasm. Once you can instill enthusiasm into your buyer, you can demand full price for your business.
We hope to give you the tools to convert your prospective buyer into a true enthusiast. The irony is that once you have your business running in a state where it is ready to sell at the best possible price, there is a very good chance that you will no longer need, or wish to sell your business.
Getting the best price for your business - To learn more about this author, visit Rudy Weber's Website.
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The main thing to keep in mind when selling a business, is the same thing you need to keep in mind with whatever you are selling - what is the buyer looking for? You get nowhere when you focus on what you want from your buyer; but you can get what you want if you focus on what your buyer might want from you. The basic conundrum is that, here you are - you have a business, and you want to improve your position by converting it to cash. On the other hand, there is a prospective buyer, they have cash, and want to improve their position by converting it into a business - hopefully yours.
The perception of value
Your "circle of interest" represents the value of your business to you, and the distance between your circle, and the buyer's circle, the "Price Barrier", is the difference between your perception of the value of your business, and the buyer's perception of its value.
You might start off with a very high value on your business, but your price expectation eventually diminishes (your circle moves to the right, towards the buyer's circle), due to such factors as:
You want to retire
You are sick of this business
Changes in family or partnership circumstances
Frustration at working too hard
Difficulties raising capital to fund further growth
You are offered sufficient price which, combined with any of the above, motivates you to part with your business.
The buyer's "circle of interest" represents their accumulated wealth, and all the effort which has gone into raising it, along with their very real fears of losing with it.
Their interests will move closer to your interests (circle move to the left) when their fears of losing their money are outweighed by confidence factors to an extent where they will begin seeing positive value in your business.
The factors which might shift their perception of the value of your business closer to yours might include:
Synergies with their own business
Wanting to build on your client base
Wanting to acquire new technology
Reliable and attractive profit figures
Experienced personnel.
On the other hand, the factors which might shift the buyers perception away from yours might include:
The perception that your business requires too much of your personal involvement
Lack of systems which would enable a new owner to "slot" readily in
Unreliable profit figures
Insecurity about your suppliers or customers, or position in the marketplace.
For a sale to eventuate, your two circles of interest must eventually meet, at a point where the buyers perception of the value of your business meets your minimum requirement for compensation for all the effort you have put into building up your business.
Whether you have to move further to meet the buyer, or the buyer can be persuaded to meet you, depends upon how much evidence you can produce, to justify your position. The greatest barrier to getting the buyer interested in your business is their fear of losing their money. The best way to prove to them the value of your business, to the extent that they will pay your price, is to give them confidence in his/her ability to make a success of it.
The buyer knows very little about your business, so it is up to you to prove these things to them. The way to do this is through evidence.
Setting a realistic asking price
Setting a realistic asking price is the first, and probably most important step in the selling process.
The price should be set high enough to allow you room to negotiate, but not so high as to frighten off prospective buyers. But at all costs, you want to avoid the risk of UNDER selling your business.
For this reason, as the first part of our selling process, Lloyd's provide a free, no-obligation appraisal of your business, so that you can:
Make an informed decision as to whether selling is indeed a viable option for you at this time, and
Ensure that you can price your business to sell quickly, and for FULL VALUE
Preparing for sale
1. Make yourself redundant
The buyer's greatest fear is that you are the heart and soul of your business and that when you walk out the door, so will the business.
In many cases this is true, because you have built the business around yourself; you have all the knowledge and skills to run the business, and you have great difficulty in delegating the various functions.
What you have is not a business, but a very demanding job from which you can't resign. No wonder you want to sell it! And if it appears like this to the buyer, why would he want to pay perfectly good money to rescue you from your plight? The answer is to...
2. Systematise your business
When you have all the various functions within your business systematized and thoroughly documented, delegation is no longer such a problem. Each person should have a clearly defined role, a chain of command, and a designated set of tasks and procedures which, when carried out competently, leads to measurable and desired outcomes.
A buyer can then see himself fitting comfortably into this business.
3. Document your business
You need to have a business plan, so that you, and everybody in your team, knows exactly where you are headed and how you propose to get there.
As well as documenting your procedures, it also helps to document your relationships with other parties in your marketplace:
With suppliers. Your verbal, or "handshake agreements" look very flimsy to a potential buyer of your business. Converting these into written agreements wherever possible will make your business confidence-inspiring, and at the same time, the very process of putting them into writing will enable you to cement these relationships even further, and perhaps even improve your lines of supply.
With customers. If you can negotiate written agreements with your customers, you can make your business look that much stronger, and of course, the process of securing your outlets can often give you power to go back and re-negotiate your supply agreements.
With other parties. Document your relationships with Industry Regulators, Trade Organisations, Quality Assurance, Therapeutic Goods Administration, Environmental Protection Agencies, Health Department, and a whole host of other parties who have some power or influence over your business. Document these relationships so that a buyer can not only see where your business stands within its industry but also feel confident that its existence is not under any undue threat.
4. Document your profit performance
We are all more or less tax driven, but the trap we set for ourselves is that it then becomes difficult to prove the true profitability of your business to a buyer.
The solution is to adopt transparent, legal, tax avoidance strategies that will enable you to minimise your tax burden, whilst retaining the ability to clearly demonstrate your true profitability to a buyer through "add-backs".
Produce monthly profit reports. Within an open framework, you can produce monthly reports to demonstrate to your buyer your ability to monitor and manage the performance of your business. In hiding things from the taxman (not that you would do such a thing, of course!) it becomes too easy to lose sight of them yourself.
Write up your stock to full value. It is common practice to defer tax liability by undervaluing your true stock levels. By gradually bringing your closing stock figure to full value you retain more effective control, and do nice things to your Gross Profit reports along the way.
Document capital expenditure. Rather than expense capital improvements as repairs and maintenance, capitalise them. This will add value to your balance sheet and improve your demonstrable profit. If you don't fear tax, you can present a much better picture to your potential buyer, his Accountant and Bank Manager.
5. Do your housekeeping
Just as with selling any other sort of property, first impressions count. There are a number of practical steps you can take to create a good first impression to a prospective purchaser. They may seem obvious, but then again, look around, you might be surprised.
By taking these steps, you can not only increase the perception of value to your buyer, but also convert into cash and improved figures, many items which would otherwise be handed over at "no value" to the buyer on settlement:
Tidy up your stock. Sell off obsolete, or slow moving stock items. This will improve both your sales and your Gross Profit. Your buyer will be impressed that you are not holding any unsaleable stock. And it will eliminate any possible arguments over the valuation of such stock during the sale.
Tidy up your plant and equipment. Make your workplace into an efficient working environment. Add a little paint here and there to make things look well maintained. Ensure that you eliminate oil leaks. Anticipate Health Dept. requirements, and sell off and convert into cash any scrap, redundant or obsolete machinery and parts that are cluttering up the place.
Tidy up your staff. Where possible, get your staff to take up their leave and other entitlements prior to sale. Get them to wear uniforms, and make sure they wear safety gear when required.
Tidy up your premises. Have a look around with the eyes of a prospective purchaser. What would it look like to a critical new observer? The condition of your premises can say a lot about your profitability.
Tidy up your debtors. An area of great concern to a prospective purchaser is the state of your Debtors. Based on your figures, the buyer will have to do his cash flow and working capital forecasting to justify the purchase, and may be very nervous about taking on customers who look as though they take forever to pay their accounts. Now is a good time to bring them into line. You can use the improved cash flow to...
Tidy up your creditors and even take those early-settlement discounts. This will create a positive impression of the inherent strength of your business.
Tidy up your balance sheet. It would also help if you could remove from your balance sheet any items which are unrelated to the business being sold, and include, possibly through an asset revaluation reserve or similar, any assets which are not currently listed at their proper value.
Fear and uncertainty
The greatest obstacles to selling your business are fear and uncertainty, and until you can allay these in the mind of your purchaser, price does not even enter into the picture.
There are only two ways you can overcome fear and uncertainty when selling your business:
You can price your business so low that the "Bargain Factor" overcomes the buyer scepticism, or:
You can prove the value of your business through adequate documentation.
Once the evidential quality of your documentation increases, scepticism on the part of your buyer can turn to confidence. And then, in the best scenario, into enthusiasm. Once you can instill enthusiasm into your buyer, you can demand full price for your business.
We hope to give you the tools to convert your prospective buyer into a true enthusiast. The irony is that once you have your business running in a state where it is ready to sell at the best possible price, there is a very good chance that you will no longer need, or wish to sell your business.
Getting the best price for your business - To learn more about this author, visit Rudy Weber's Website.
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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 |
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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 |
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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 |
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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 |
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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 |
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David AchesonDavid Acheson is the founder of DCJA Consultancy. DCJA Consultancy is a management consultancy business specialising in B2B sales consultancy. They offer bespoke and packaged sales consultancy including Sales Optimisation Review, Interim Sales Management, Sales & Marketing Review, 1:1 Sales & Management Staff Analysis, Management Training, Solution Sales Training, Creation of New Pay Plan, KPI's, run Customer Feedback Campaigns, assist with Recruitment, Coaching, Appraisals and set up Strategic Marketing Campaigns. David spent his early career in accountancy and then moved into sales in 1982, working in Office Equipment, IT, Advertising, Training, Outsourcing and Consultancy. He has held many Senior Positions in SMBs and Global Organisations including Head of Sales Operations & Head of Business Development. His knowledge, skills and great experience of the Sales Industry has led to David making keynote speeches and running educational sessions to key businesses through organisations including The Chamber of Commerce and Business Link. - Visit David Acheson's Website |
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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 |
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Cheryl MatthynssensCheryl is a life skills coach, licensed Chemical Dependency Counselor and a 20 year entrepreneur. Cheryl's dedication to achieving a life of balance led to her expanding her teaching from the simple managing of life's daily challenges to adding financial well being as well. A direct marketer with DrinkACT, she is gaining ground in the online community with her concepts of making sure business owners, entreprenuers and employees have well rounded life styles. She opened up a small affiliate site - The Balance Guide- to help others find resources for mental and emotional well being. Visit Cheryl's blog to see more of the diversity beyond business she has began offering online at www.thebalanceguide.blogspot.com - Visit Cheryl Matthynssens's Website |
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