What is the Best Time to Sell Your Company?
The old saying that “timing is everything,” usually applies to selling one’s business. Ultimately, every business owner will have to exit their business, and the sooner one prepares to sell, the better the final results will be.
With each passing year, more and more baby boomers are reaching retirement age. In many cases, this means that they have no choice but to sell their businesses. The time is now upon us where a simply massive number of businesses will be put up for sale.
Statistics and studies back up this claim. Studies show that people born between 1946 and 1964 make up 40% of small business owners, and about 10,000 baby boomers retire every single day. 1 Business owners who get out in front of this pending avalanche stand to benefit considerably.
There are many other good reasons to sell. Many business owners find that general burnout, and especially the burnout associated with operating a business during the pandemic, is prompting them to think about selling. Burnout isn’t just unpleasant for a business owner, but it can also be dangerous for the well-being and longevity of the business itself. An owner experiencing burnout is an owner who is unlikely to make the best decisions and seize on new opportunities. The results of burnout can be staggering and range from a loss of customers to getting caught off guard by new and existing competitors. In the end, burnout can dramatically decrease the value of a business or even destroy it.
The economy is bouncing back from the pandemic, and that can mean that right now is a great time to sell. If the covid pandemic reinforced any truism, it reminded us that the world and regional and global economies can change in a heartbeat. There are many complex variables on the table.
Simply stated, we are in a period of uncertainty, and that makes predicting the future of the marketplace harder than in recent decades. These facts, combined with the current strong economy, point towards now potentially being a good time to sell your business.
Most business owners have never sold a business before, but instead, they have spent a sizable chunk of their professional careers building up their business. As a result, most business owners don’t know what it takes to successfully sell a business. Working with a proven business broker, one with years of experience, is a smart way to evaluate your current situation and determine if now is the right time to sell your business.
Copyright: Business Brokerage Press, Inc.
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Why is Employee Satisfaction So Important?
Your employees are the heart and soul of your business. Therefore, if you want a thriving business, you need to put their satisfaction at the top of your list. After all, if your employees are not happy, this level of negativity will eventually spread to your customers and clients. Before you know it, you may see your level of profits and success decrease. Any time you spend thinking about positive changes in your workplace will be well worth your time and energy.
Hiring Processes
Be sure to pay careful attention to your hiring processes and the ways that you evaluate candidates. When you hire a new employee, this is the start of a relationship that will ultimately impact your business in a wide variety of ways. It’s worth the time to make the job attractive and be as accurate as possible when it comes to your job descriptions. Make sure that anyone at your company who is involved in the interview or selection process is professional and thoroughly coached on best hiring practices.
Steps to Ensure Employee Satisfaction
Once your employees are on board, it’s a good idea to take active steps to ensure that they are positive about their jobs. Oftentimes, business owners make the mistake of assuming that their employees will naturally be dedicated to their jobs and the tasks at hand. Unfortunately, this is not always the case. Therefore, you must take steps to ensure that your staff members feel motivated.
Here are some ideas:
- Offer competitive compensation
- Offer benefits
- Show appreciation for employee contributions
- Offer rewards such as praise and bonuses
- Offer days off for holidays, birthdays, and vacations
- Be respectful of all employees
- Ask staff members for their feedback and implement changes
- Provide opportunities for career development
- Help build relationships among staff members
When your employees are not happy, their stress and negativity will undoubtedly rub off on your customers. Further, their unhappiness will be more likely to make them miss days or work, whether it’s due to illness caused by stress or just the fact that they are unmotivated. Further, satisfied employees will be more likely to be productive and stay with your business for a long time.
Copyright: Business Brokerage Press, Inc.
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Why Do Owners Need to Plan an Exit Strategy?
Did you know that nearly sixty percent of business owners have no exit strategy in place?
Akin to a ship sailing in the ocean without a destination, these businesses face an uncertain future. They will probably experience unnecessary stress and face financial risk.
Since it is so easy to get caught up in the day-to-day aspects of business management, it makes sense why so many business owners let a well-thought-out exit strategy slip by the wayside.
Planning an exit strategy is not only essential for navigating your business’ future, but it also plays a crucial role in maintaining its value, protecting your legacy, and ensuring financial security.
To make things easier for you, we’ve put together a guide. Keep reading if you want to find out more.
The Benefits of Having an Exit Strategy
There are many great reasons why you should develop an exit strategy. Here is everything that you need to know.
A Blueprint for Success
An exit strategy functions as a roadmap to guide your business toward its intended destination. This is much like how architects first draw blueprints before building houses.
Successful entrepreneurs design an exit plan before they even begin to build a business. This plan cultivates a brand strategy. This strategy will factor in the end goal and drive a business towards that vision.
Just as a game of chess is more effective with a plan, so too is business ownership. By visualizing and planning your endgame early, you can align your current activities with your ultimate objectives.
This way, your every move contributes to your final goal of a successful exit.
Informs Strategic Decision Making
Having a clear exit strategy informs your strategic decision-making process. Maybe you intend to sell a business to the highest bidder. It could also be the case that you want to pass it on to a family member.
Regardless of what your intentions are, the type of exit you foresee will significantly impact the choices you make throughout your business’ lifecycle.
For instance, if your exit plan involves selling your business to a larger corporation, you might focus on building up assets and client lists. These are resources that would be attractive to potential buyers.
On the other hand, if your goal is to pass the business to a family member, you might invest more in training and mentorship.
Enhances the Value of a Business
An exit strategy is not just about planning for the end. It also boosts your business value in the present.
By demonstrating to investors, stakeholders, and potential buyers that you have a plan in place, you underscore your forward-thinking leadership and the business’s overall stability.
Such foresight can increase investor confidence and potentially enhance your business’s market value. Moreover, a clear exit plan makes your business more attractive to potential buyers.
These individuals will appreciate the reduced risk and uncertainty.
Provides a Flexible Template
An exit strategy gives a clear direction. But understand that it is not set in stone. It’s a flexible template that you can adjust as your business grows and the market changes.
By revisiting and revising your strategy over time, you ensure that it remains relevant and keeps pace with your evolving business landscape.
Why You Should Have Two Exit Strategies
Most business owners have never considered creating two exit strategies. They only think about the best-case scenario when it comes to stepping down.
Here are the two different types of exit strategies that you should develop.
Voluntary Exit Strategy
A voluntary exit strategy is the ideal scenario where the business owner chooses when and how to step down. This could be through selling the business, transferring ownership, or even taking the company public.
In these situations, the owner has control over the process and the luxury of time to ensure a successful transition. This kind of strategy is typically what most business owners envision when they think of their “exit.”
Involuntary Exit Strategy
Unfortunately, not all exits are planned. Sometimes, unforeseen circumstances can force an owner to leave their business.
Illness, family emergencies, financial challenges, or market shifts can result in an unplanned exit.
This is where an involuntary exit strategy comes into play. It ensures that if the unexpected happens, there is a plan to protect the business, its employees, and the owner’s investment.
Cultivating both a voluntary and involuntary exit strategy is a sign of a responsible business owner.
This comprehensive planning prepares a business for both anticipated and unforeseen changes.
For example, if you need to suddenly hand the reigns to a new owner, you’ll need to have a plan in place for teaching this new leader what business ownership entails.
What an Exit Strategy Should Involve
An exit strategy involves a carefully structured exit plan that outlines the process of transitioning out of a business. This plan defines how, when, and to whom the business will be sold or transferred.
It includes details such as potential buyers, valuation methods, and key milestones leading to the transition. The balance sheet is an essential financial document showing a company’s assets, liabilities, and equity.
It plays a vital role in the exit plan. It helps establish the business’s value, which is fundamental in negotiations and ensuring a profitable exit. Therefore, a well-crafted exit strategy is a key tool in business planning.
Why You Need an Exit Strategy
There are many great reasons why you should develop an exit strategy for your business.
Not only is developing an exit strategy a great aid for those who want to enhance the value of their businesses. It can also inform the decision-making process.
Lastly, remember how important it is to develop an involuntary exit strategy along with a voluntary exit strategy.
Do you need help selling your business? If so, Fusion can help you. We are experienced business brokers who you can trust. Don’t hesitate to contact us to get started today!
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What Serious Buyers Look For
Obviously, serious buyers want to carefully look at the financials of a company under consideration and all of the other major aspects of the company. However, there are a few other areas that the serious buyer will investigate that sellers may overlook.
The Industry – The buyer will want to take a serious look at the industry itself, the customers, the suppliers, the competition, etc. This investigation will cover the strengths, weaknesses, threats from competition, and opportunities of the potential acquisition. With the growth of the “big box” retailers, much power has shifted from the manufacturer to the retailer. A manufacturer may want to increase prices, but if Wal-Mart says no, it’s a very powerful no.
Discretionary Costs – Some sellers will reduce their expenses in discretionary areas such as advertising, public relations, research and development, thus making for a higher bottom line. However, these cuts will hurt the future bottom line, and smart buyers will take notice of this.
Obsolete Inventory – This is another area that buyers take a serious look at and that can impact the purchase price. No one wants to pay for inventory that is unusable, antiquated or unsalable.
Wages and Salaries – A company may be paying minimum wages, or offering few or low-cost benefits, a limited retirement program, etc. These cost-saving devices will make the bottom line look good, but employee turnover may create expensive problems later on. If the target company is to be absorbed by another, compensation issues could be critical.
Capital Expenditures – The serious buyer will take a very close look at machinery and equipment to make sure they are up to date and on par with, or superior to, that of the competition. Replacing outdated equipment can modify projections and may affect an offering price.
Cash Flow – Serious buyers will take a long look at the cash flow statements and the areas that affect them. The buyer wants to know that the business will continue to generate positive cash flow after the acquisition (i.e.: after servicing the debt and after paying a reasonable salary to the owner or general manager).
Other areas that sellers overlook, but that the serious buyer does not are: internal controls/systems, financial agreements with lenders, governmental controls, anti-trust issues, legal matters and environmental concerns.
Copyright: Business Brokerage Press, Inc.
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The Benefits of an Advisory Council
Experts recommend considering adding an advisory council to your business. This informal board would provide strategic advice on business management related issues. An advisory council would be in place to provide advice to your business, but unlike a board of directors, they will not actually make the key decisions. Further, while a board of directors often has equity in the business, an advisory council does not. Of course, an advisory council is not right for every business. You will typically see them in businesses that are making between 3 and 25 million.
Consider Your Strengths and Weaknesses
There are many fundamental needs of a business and most entrepreneurs are good at one or two, but cannot excel in every area. The advisory council, as well as other outside experts, can be a great way to fill in the gaps in an entrepreneur’s abilities.
Beyond understanding the strengths and weaknesses of a company, it is also important for an advisory council to understand the goals of the business and create a business strategy. Understanding the lifetime goals of the entrepreneur, what they want to accomplish, and the work necessary to reach those goals, are all of vital importance.
Time Commitments Involved
In terms of the time commitment involved, experts say that the best approach is to limit the number of advisory council meetings to 12 per year, with 3 quarterly meetings onsite with each meeting lasting approximately 3 to 4 hours. Additionally, you may want to consider 1 lunch meeting per year and sporadic Zoom meetings.
Implementing Recommendations
Having an advisory council and implementing their recommendations are, of course, two different things. It is important that any plans also have reasonable time frames as well as a facilitator that can serve to motivate staff.
An advisory council can be extremely valuable in that they provide a new perspective on the business. While there is no doubt that creating and maintaining an advisory council may be a lot of work, there are ample potential benefits to consider. Additionally, the process of creating an advisory council and implementing their recommendations can dramatically increase the value and salability of your business.
Copyright: Business Brokerage Press, Inc.
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