Free Advice

I was recently perusing a book on business selling. The first section relayed a conversation between the author and a business owner. The gist of the conversation was that the business was in horrible shape, the owner hated it, he was working excessive hours, his health and marriage were being affected and he needed to sell the company and do something else with his life.

Last time I checked, that situation was exactly what every business buyer desired! Seriously, most buyers would cringe and run if the owner said those were the reasons for the sale.

The sale of a business for any of the above reasons (much less all of them) means the owner will receive a lower price, worse terms and possibly even a price based on future profits (an earnout). Even turnaround specialists are looking for situations where they can identify why there is a problem. They are not looking for a huge mess.

There are a lot of reasons why owners will sell their company. I always tell buyers their job is to find the three-D's. Divorce, death or disability. This is the short version for anything that forces the owner to sell a good business before they're ready to sell - and with some urgency. It could be the health problems with the spouse or maybe the industry is changing and the owner can't or doesn't want to keep up with that change. In any event, the key for a seller is to sell before you have to. Sell when you can take the time to prepare the business, have it valued, assemble a team and put together a marketing plan that will maximize your chances of finding the right buyer. When forced into it you are at a disadvantage. No matter what the circumstances, know exactly why you are selling and be able to communicate it clearly to buyers. Buyers are a skeptical lot. Who can blame them? It only takes a month before they've heard just about every pitch.

For most buyers the word they hear the most in the description of a business is "potential". For example, "I've owned this company for 20 years and even though you are coming in new you will do better than me because there is so much potential. All it needs is a little marketing / planning / structure / sales effort (pick your favorite)." Don't fall into this trap. Unless you can document exactly why the business will do better without you (new product line, you've been out with health problems, etc.) be realistic.

The objective for a seller is to sell from a position of strength (buyers don't like to hear this). A position of strength means the company is profitable (after paying the owner a fair market salary or more), there are capable and dedicated employees, the customer base is diverse, there is a business plan the new owner can follow, marketing strategies are in place and there is no urgency to sell.

If the above are not in place the seller should take the time to fix those areas that need fixing. A qualified buyer has money and skills. Those skills include experience in managing systems, employees, money and operations. A buyer is willing to pay you for the right to take over an ongoing operation versus starting one from scratch and competing with you (and everyone else).

Besides individual buyers there are corporate buyers. I recently had two clients who wanted to buy competitors. The main reason was to get the employees. They may want your location, they may not. They definitely want your customers. Perhaps you sell a product line they can't get. Your business is the vehicle to grow faster than beating up the competition every day.

As a seller you may be able to get a higher price from a company than from an individual buyer. You can try to set the selling price based on the gross profit (not the net), knowing the buyer's objective is to reduce duplicated overhead and realize more to the bottom line. Corporate buyers are also an excellent outlet for a marginal business. The buyer gets your customer base, product lines and employees. He then absorbs duplicated overhead so it becomes a profitable division.

To summarize, if you want to sell don't make a spur of the moment decision. The three-P's of business selling are planning, preparation and presentation. Pay attention to the three P's and your chances of success increase dramatically. (More on the three-P's of selling in future newsletters.)

Request - If anyone would like to help support the scholarship fund for a summer baseball program for 15-18 year old boys please let me know. Your donation takes the form of an advertisement in the team program.

© Copyright John Martinka 2000. All rights reserved.