Q&A - What can I do to help sell my business?

Being pro active in the sale of your business is a must! This week’s Q&A explains what you can do to help the process.

Q: What can I do to help sell my business?

A: As Sunbelt (or broker in general) begins the process of selling your business, there are certain things you can do to help:

• Do business as usual.

• Treat the business as if it is not for sale.

• Do not let inventory levels dip below normal.

• Keep the business clean and in good repair.

• Remove equipment or furniture that is not part of the sale.

• Provide us with monthly updated financial information in a timely manner.

• Be as accommodating as possible in setting appointments to meet with  buyers.

• Let us know of any changes in the business such as hiring or firing

• Always work with us and not directly with potential buyers.

•Remember that a negotiated deal is a deal that will close. Do not become offended by what you consider to be a "low" offer.

•Counter all offers on a timely basis.

 I hope this list helps. Good luck to all that are in the process of selling. And to those of you who would like to speak to one of our brokers/advisors, do not hesitate to call. We will gladly answer any questions you may have.

Thank you,

Joan Young

Sunbelt Business Brokers, Greater Bay Area | (408) 436-1900 | www.sunbeltbayarea.net

The Five Things Employees Really Want

I haven't managed to catch all the episodes of Undercover Boss this season, but there was one I did see -- Popeyes Louisiana Kitchen.

I almost didn't want to watch, because if they were going to show me that secretly the restaurants had rats or the food was made from something gross, I didn't want to know. But I had to check it out.
Thankfully, the food seems to be just fine. The problems found by their undercover executive -- chief talent officer Lynne Zappone -- had to do with how employees were treated.
This episode shows exactly what Popeyes's employees really want. Here's a hint, it's not a raise:

1. A pleasant work environment. Zappone worked one store where the manager was yelling at the other workers -- including her -- in front of the customers. That's just not cool.

2. Recognition. The janitor at one store impressed Zappone with his strong loyalty to the company. He even buys his own less-toxic cleaning products to use. "I consider this my store," he tells her. He also sadly informs her that Popeyes has no employee-of-the-month award, like most fast-food chains do.

3. Perks. Zappone was shocked when a coworker asked if he could catch a ride with her for lunch -- to Taco Bell, where the food is cheaper than at Popeyes. He needed to go there because the employee discount on Popeyes food had been discontinued. A company picnic had also faded away over the years.

4. Help when they need it. Many of Popeyes's workers were displaced and saw their families scattered after Hurricane Katrina. One 20-year employee was fired when she couldn't return to work fast enough, despite being an invaluable trainer. The janitor had lost everything in the hurricane and lived at his church for two years while he got back on his feet. Zappone realized Popeyes could have done more to reach out to displaced workers and help them stay with the company after the disaster.

5. Mentoring. One line worker who had formerly been homeless was trying to attend a hospitality college despite lacking a car, while one manager hoped to become a regional trainer. In the show conclusion, Zappone helped both with scholarships and coaching to move their own professional goals forward.
The show highlighted a basic fact so many employers don't get: Your employees are people -- people with problems, yes, but they also have a history and dreams. If you treat them as such, they will be more productive and better representatives of your brand.

Advertising Overload: Are You Guilty?

New research on how just many marketing messages it takes to completely turn off a customer.

Mae West said that too much of a good thing can be wonderful. Obviously Ms. West was never on the receiving end of the avalanche of marketing messages consumers now receive. And now recent research from Upstream and YouGov show just how bad an impression a deluge can make.
According to the 2012 Digital Advertising Attitudes Report, a study of adults 18 and over in the U.S. and U.K., a big percentage of people would stop using a product or service if they received too much advertising for it: 27 percent of those in the U.K. and 20 percent of the U.S. respondents.
It's a "major backlash," according to the study, that badly dovetails with the finding that nearly two-thirds of online consumers in both the U.S. and U.K. already feel that they are targeted by "excessive digital advertising and promotions."
In other words, people increasingly feel stalked and when they feel stalked they want to run in the other direction. That will likely only get worse as mobile marketing to cell phones and tablets begins to gear up. Roughly two-thirds of the people surveyed said they would dislike getting ads on their mobile devices.
The problems of perceived over-targeting doesn't stop with the 20 to 25 percent that say they would stop using a product or service, as you can see in this table:

Two-thirds of consumers say at the very least they would unsubscribe from a brand's promotions if the company delivered too many of them. About 28 percent of people in the U.S. and 37 percent in the U.K. would begin to respond negatively to further marketing from the company in question. One in 10 would take to protesting on social media sites.
This is just an extension of a similar problem in social media marketing. It's not difficult to understand. How often have you become frustrated with email newsletters, promotional tweets, daily deal alerts, and the mountain of marketing messages you receive in a day?
Each company wants to deliver its unique sale pitch and value proposition and with enough frequency that they won't be forgotten. But it's the corporate equivalent of the loudmouth at the cocktail party who won't stop talking. Eventually, people try to avoid eye contact, look for others to speak with, and otherwise do their best to avoid an annoying boor.
There are steps to take. In the U.S., 55 percent of consumers didn't want more than one message a month, although those between the ages of 18 and 24 were open to contact as frequently as once a week. When asked what would make them more likely to respond, 26 percent said marketing tailored to personal interests and 21 percent said that the material would have to be contextually relevant to what they were doing. At the same time, don't depend too heavily on those insights, because consumers could also react badly if they sense whiffs of cyber stalking.
The key is to communicate in moderation—enough to stay in touch, but not so much that your brand becomes the pariah in their inbox. At parties or in business, good taste goes a long way.

Top 6 Management Mistakes Entrepreneurs Make

The business plan is the easy part. Managing and leading a team? That's where the learning curve gets very steep.

Leaders are made, not born... which makes it tough when you start a company and have little to no management experience. (I spent years working my way through a variety of management positions and still made nearly every mistake possible.)

For many entrepreneurs the “business plan” stuff is the easy part; managing employees and leading a team involves a very steep learning curve.

Instead of waiting learning from your mistakes, take the easier route and learn from a few of my biggest leadership mistakes:

Too many positives equal a negative. Say you’re discussing the reasoning behind a new project. There are tons of positives, and your employees should be excited, but for some reason they seem wary. Why? Employees instinctively look for the downside because there is always a downside—and downsides always flow downhill. Share the negatives too. Freely describe the downsides. Show you understand that every project, every initiative, and every new process involves an upside and a downside. Sharing the positives is fun; sharing potential negatives is essential. While it isn’t easy to show doubt, your employees will respect you for it.

Results come and go but feelings are forever. Make decisions based on data, but lead based on feelings and emotions. Criticize an employee in a group setting and eventually he’ll appear to get over it... but inside he never will. When you make a decision, spend more time considering how employees will think and feel than you do evaluating whether the decision makes objective sense. You can easily recover from a mistake made based on faulty data or inaccurate projections. You’ll never recover from damage to an employee’s self esteem.

The flow of ideas is easy to turn off. For example, your best employees will typically generate the best ideas. (That is one of the reason they are great employees.) When an employee has a great idea, it’s natural to give her the responsibility for putting that idea into practice. Unfortunately your best employees are also great because they are extremely productive. The last thing they may need is responsibility for yet another initiative. Pile on too much and if only out of self defense some will stop making suggestions. Give other employees a chance to shine instead; all they may need to become great is an opportunity.

No presentation ever changed the world. Formal education conditions us to assume great information comes from presentations. (Listening to lectures while watching PowerPoint slides must be the best way to learn, right?) In business there’s an inverse relationship between the length of a presentation and its value: The longer the presentation the less valuable the ideas and information. The best ideas can be captured in one or two sentences. Plus, most of the time your employees have those ideas. Listen to your employees and turn their ideas into action. The only presentations you really need are ones used to recognize your employees’ great ideas.

Data is accurate, but sometimes your employees are right. Some decisions should be based on more than analysis, logic, and reasoning. Ideas and decisions are eventually carried out by people, and every employee has a different set of skills, emotions, motivations, and agendas. Leadership decisions should certainly be driven by data, but great leadership decisions can be messy and at times counter-intuitive. If your employees don’t agree with you, ask why. Don’t simply defend your position—find out what they know and why they feel the way they do. No one knows everything, and the only way we learn is when we shut up and listen.

Tips for Negotiating an Earn-out

Less than half of entrepreneurs stick around long enough to reach their earn-out goals. Using these tips, though, might make it worth the wait.

Less than half of entrepreneurs stay for the length of their earn. A lot depends on the entrepreneur. If the earn-out looks at all doubtful, and they have an idea for another business, they’re not going to stay around for three years.

How can you negotiate the earn-out to be beneficial for you, as a seller?

1. Ask for a seat at the table when the goals are being set

Most earn-out agreements are drafted in isolation by the acquiring firm and presented to the seller as a final package. Instead, business owners should ask to be involved in setting realistic post-sale goals for the joint company.

2. Agree to goals that reward integration results

Using an earn-out tied to your company’s profits as a division of the buyer encourages the business owner to prioritize profits of his/her division over the integration of the two entities.

For example, let’s say you use Peachtree for accounting, and the buyer uses SAP. The last thing you want to do is waste time changing accounting platforms when you have an earn-out number to hit, yet having one bookkeeping software program would accelerate integration. The same trade-off is played out in decisions around the sales team, product lineup, real estate, marketing and so on. Integration trade-offs can be the enemy of short-term profit and can create serious tension between the selling entrepreneur and the buying firm.

Instead of signing up for an earnings goal exclusively, ask the buyer to consider also including goals that measure the performance of the integration, such as cross-selling targets, revenue in a new geographic region, number of new customers, etc.

As opposed to profits, earn-outs can be based upon the acquired owner serving their time, client retention or earning a patent, etc.

3. Sprinkle goals throughout the earn-out period

Three years is a long time to wait to get paid, yet most earn-out contracts are heavily weighted to the last year of the agreement. Both buyer and seller would be better served by negotiating smaller payments throughout the earn-out period that reward results along the way.

Try to increase your up-front payment and put less in the earn-out. If the acquirer has their “way” of structuring an earn-out and won’t budge from it, he probably isn’t the right buyer for your business, and you probably won’t see the amount that you had anticipated receiving for your business.

Remember, you have to work with the buyer for years to come. If the buyer gives off a rigidity nature, the track record of earn-outs and the natural tension between integration and maximizing short-term sales, it is unlikely any seller will last six months post-sale.

Should I Hire A Business Advisor to Sell My Business?

As a business broker, our first contact with business owners is often when they decide that they want to sell their business. Sometimes this is great, but sometimes it doesn’t allow the business owner to meet their expectations.

For business owners who are not familiar with business brokers, we are often seen - not as professionals who help them navigate a long and challenging road - but as a ‘salesperson’ just looking for the listing. This makes it difficult for some business owners to understand both the value of having an opinion of value, and in appreciating that the right time to get this (for the first time) may well be years before they need/want to sell.

At Sunbelt Business Brokers, we charge our clients to prepare a Most Probable Selling Price (MPSP) Report which is a broker’s opinion of value. Once a client reviews the MPSP they have a clear understanding of the range of value of their business as well as understanding the areas that contribute to the value of the company. This will also identify areas to change or improve to have your business ready to sell.

Imagine that you have owned your business for many years. It has provided you and your family with a lifestyle that you have enjoyed, but you are getting ready to retire. Remember, from the cash flow of the business buyers have to be able to support themselves, pay their debt servicing costs and expect to get a return on their invested capital. You, on the other hand, not only want to ‘get a great price’, but also to keep as much of it as possible. If taxes eat your selling price, then the great price wasn’t so great.

In many cases you need to prepare yourself and your business for this transition.

• Your Sunbelt MPSP provides an opinion of value AND reviews your operations for elements that may need to be changed prior to sale;

• Your accountant, with their knowledge of your business (and a copy of the MPSP!) may assist you with tax planning and recommend deal structures;

• Your financial advisor, may assist you with tax planning and disposition options;

• Your lawyer may assist you with deal structure, sale documentation, and sometimes help create tax- efficient entities.

Shifting your company from ‘operating to run’ to ‘operating to sell’ can take one or two, or more years to prepare for as you whip that business into a condition that can maximize both the selling price and your ability to retain those proceeds. Having a Most Probable Selling Price Report done - and in turn - updated as you move closer to your proposed exit time, can be a great tool to allow you and your advisors to prepare for this significant transition. Not allowing yourself the time or avoiding an ‘expense’ can both come back to haunt you. The snapshot that a Most Probable Selling Price Report provides can be one of the best investments you will ever make. Ask your local Sunbelt Business Broker About preparing your business for sale.

IN THIS ISSUE

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Business Buyer's Market?

With all of the layoffs from Wall Street and the Financial District, there are more buyers in the market looking for a business. This, coupled with the fact that some businesses are experiencing a downturn along with the market, prompts buyers to come in with an offer that is far below the listed price. Granted, some businesses are experiencing a drop in gross sales, and their original price may need to be lowered; however, there are still some local markets experiencing stability and some even growth. It is, therefore, important to not value or price businesses based solely on the current national economy.

Sellers often must face the reality of what their business is really worth, not what they would like it to be worth or even what they need to sell it for. When business brokers begin preparing businesses for market, they will typically look at the last three years tax returns, profit and loss statements, and balance sheets. They take this information and recast it, adding back items that the next owner might not run through the business since they aren't necessary to running the business such as country club fees, manager's salary, etc. Based on the recasted financials and comparative sold businesses, a multiple is arrived at for the Seller's Discretionary Earnings (SDE), i.e. 2.5 x $130,000 equals the listing price of $325,000.

The most important aspect of pricing a business is still the most recent historical financial performance and how the business is currently doing. For the businesses that are continuing to show strong financials even though their market area may have a high unemployment rate and other local economic downturn indicators, there would be no reason to decrease the purchase price of those businesses. In fact, businesses that are continuing to do well in current economic times may actually be worth more than originally thought.

Buyers should be on the look out for those businesses that are doing well in the current economy. A good case could be made for decreasing one's risk by purchasing a well-performing business instead of just rying to buy a business at the lowest price. In the long run, the buyer may see a higher return on their investment.