Seven Tips for Coping with Customer Questions

Do you sometimes think your customers are clueless based on the questions they ask? If so, you are not alone.

A new survey from IT-employment agency Robert Half Technology reveals chief information officers get asked some pretty bizarre questions – and many of them clearly fall outside the realm of an IT staff's job description. Among the IT help-desk requests the surveyed CIOs got:

• Can I turn on the coffeepot with my computer?
• How do I start the Internet?
• Can you come over and plug in this cord for me?
• How do I pirate software?
• Can you recommend a good dry cleaner?

Funny – and yet not. But the range of crazy questions demonstrates how important it is to train customer-service employees to be ready for anything.
Here are seven tips for excellent customer service that any business can use:
Listen. Sometimes, customers just need to know someone at the company is interested in their problem, notes John Tschohl, co-author of Achieving Excellence Through Customer Service.
Apologize. Don't engage in fault-finding or laying blame, but do let the customer know you are sorry they had a problem, says Tschohl.
Take them seriously. Customers' questions may seem ridiculous, but they're important to that customer. Try not to laugh.
Stay calm. Customers may be irate, frustrated, or just irritating. But don't get down on their level, ever. Just staying calm can make customers feel you care and have the ability to help them.
Suggest solutions. Help-desk workers should have the power to resolve more than 95 percent of customer issues without having to pass the customer on to another person. Allow line workers to give out free coupons, accept returns, give refunds, and take other needed remedies without having to consult anyone. Then they can offer customers a range of options for resolving their problem, and get the job done, Tschohl says.
Be available. These days, smart customer service means setting up a help desk on Facebook, Twitter, or wherever else your customers hang out online.
Acknowledge your limits. If you're asked a crazy question like the one above, simply say that you're sorry their request isn't within the scope of what your company provides. You can't be everything to everyone.

Will 2012 Be the Year You Start a New Business?

When you're entering the fifth year of a grueling economic downturn, it's easy to get discouraged. But some would-be entrepreneurs aren't letting unemployment figures get them down -- they're seizing the chance to start their own business.

While the tough economy poses challenges, there are also some distinct advantages to starting a business now, including:

• Cheap real estate
• Affordable leases and cooperative landlords
• Weaker competition
• Vendors willing to offer generous terms
• Low-cost advertising options

Most importantly, there's the thrill of chucking a job you hate -- or maybe a floundering small business that's not working -- to try out a new idea.

The biggest hurdle to jumping into entrepreneurship usually isn't economic, anyway -- it's between your ears. On the new Halogen network reality-TV show Jump Shipp, author Josh Shipp (The Teen's Guide to World Domination) helps people who're stuck in a dead-end job (or relationship) to break free and pursue what they really want.

Many of the stories are about would-be entrepreneurs who're trying to get up the gumption to take the leap and start their own business. In a recent episode, graphic designer Debbie Lee longs to become a freelancer in her chosen field, but is stuck working in her family's jewelry business, now distressed by the bad economy.

With Shipp's help, she gets both a realistic assessment of her portfolio and how to get it in better shape to land gigs, and moral support for breaking the news to her parents that she wants to quit working in the family business.

In another episode, a talented graphic novelist gets a push from Josh to take the plunge and try to make a living from her art.

"Her kryptonite is lack of commitment," Shipp notes. Isn't that true of so many people who wish they were starting a business, but never seem to get around to it?

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.

How to Narrow Your Target Market

Companies that try to be all things to all customers are sure to fail. Here's a business guide on how to focus on your target market.

Huge, profitable companies like Walmart and Amazon didn't start as the all-encompassing retailers we know today. Each debuted with a very specific focus that helped them find and nurture a strong customer base. Walmart originally catered to shoppers in rural areas where there was a dearth of options for low-cost goods; Amazon famously limited itself to just books for years before expanding into selling everything from DVDs to motorcycle gear.

The process of finding a target market and narrowing your company's focus to appeal to it directly often trips up new businesses, who find it difficult to turn down business opportunities when they arise. But trying to be all things to all people is a sure way to fail in the marketplace.

The Dangers of Being Unfocused

Whatever market you're in, you've likely got a lot of competition and static standing between you and the consumer. Narrowing your focus to one specific demographic or slice of the marketplace gives potential customers a reason to notice you in the rest of the fray.

If you don't know specifically which customers you are speaking to, you are actually speaking to no one.

The big danger is that without a target market, it's like standing in a park shouting in the wind. When you have a target market, its like standing in a park and talking to a specific group of people.

That means you can't be afraid to exclude certain types of consumer from your marketing or to target your advertising at small groups. Some customers will feel left out, but those are the sacrifices necessary for a successful business.

Become an Expert in one Area

One way to hone in on a specific sector is to become an established resource in one area. Starbucks, for example, is able to charge premium prices for its coffee even though it also sells pastries, tea, and accessories, because it has positioned the company as an authority on good coffee.

If you're an expert in your field, people will pay the price tag on whatever product and service you offer

You can build up credibility by offering information for free through your company's website or blog: things like tips, industry information, or niche data that will help consumers think of you as a reliable expert in that area, she says.

Your credibility comes with giving away information. If this is the value I'm getting for free, what will I get if I pay for it?

Dig Deeper: Do the Market Research

Experts give several methods for whittling down the vast expanse of the market to find your ideal target.

Some business owners find their niche first by focusing on the areas in which they already have a strong interest, or by looking at markets that already know about you and your services. Then, look for areas of the marketplace where a gaping need exists that you can fill with your company's services.

Tweak your Marketing

As simple as it sounds, the name of your company is crucial when narrowing your market.

You may have to change your branding strategy or marketing efforts to clarify your mission. Once you find your target, you'll definitely want to alter your advertising efforts to go after the places and media you use to generate new business.

It's not just an advertisement that you do. It actually has to become part of everything you do.

Your marketing needs to highlight the specialization, which improves credibility. You've got to be perceived as the best at something.

Then, once you've identified that base, use it to improve the business through things like social media and interactive marketing to find out more about what the customers are looking for.

Tips for Business Owners on Retirement Planning

'I'll never retire' is a common refrain among ambitious entrepreneurs, but the fact is you are likely to decide to at some point. Here's a look at how to plan for that day.

Saving for retirement is tough. For one thing, there's no way to know exactly how much you'll need to save. All you can do is make your best guess based on your situation and goals.

Traditionally, financial planners and retirement calculators suggest you'll need 70 percent (or 80 percent or 100 percent) of your pre-retirement income to maintain your current lifestyle. This doesn't make much sense.

Say, for instance, you earn $80,000 a year but spend $70,000. If you based your retirement needs on your income (70 percent of $80,000 is $56,000), you'd fall short of supporting your current lifestyle. But if you earn $80,000 a year and spend only $35,000, basing your retirement goals on your income might lead you to save too much, meaning you could have used that money to enjoy life when you were younger.

68 percent Workers who report that they have saved for retirement

56 percent Workers who report that the total value of their savings and investments is less than $25,000

36 percent Workers who expect to retire after age 65

74 percent Workers who plan to work for pay in retirement

How Much Should You Save?
Instead of basing your retirement needs on your income, base them on your spending patterns. Your spending reflects your lifestyle; your income doesn't. But how much should you save?

According to the Employee Benefit Research Institute's 2010 Retirement Confidence Survey, 49 percent of retirees spend less in retirement than before (23 percent spend much less) and 37 percent spend about the same. Only13 percent spend more in retirement--and of those, 6 percent say their expenses are only "a little higher."

Sure, you will need a sizeable nest egg for retirement--especially if you plan to travel or play golf every day. But don't be snookered by the constant refrain that you need to save 70 percent of your pre-retirement income to retire well.

Retirement Calculators
There are hundreds of retirement calculators across the web, and each is a little different. No one calculator is necessarily better than any other, but these are especially handy:

• The T. Rowe Price calculator bases its results on your spending, not income.
• The Motley Fool has two useful calculators. One estimates your retirement expenses and the other lets you see if you're saving enough.
• Choose to Save's ballpark estimate tool can be used online or off. (But its numbers are based on income, not expenses.)
• FireCalc.com may seem overwhelming at first, but it'll give you an idea of how safe (or risky) your retirement plan is based on how it would have fared in every market condition since 1871.

Looking at the results from one calculator isn't very useful. But by comparing numbers from several, you'll get an idea of how much to save for the retirement you want. If you're lucky, you may even have enough to spend your mornings on the golf course.

Remember, as a business owner you own an asset, be sure to include the sale price of your business into your net worth and retirement plan. Have an exit strategy in place, and be sure to get a “Broker’s Opinion of Value” to ensure you have a grasp on the true value of your business when you are looking to retire and ready to sell.

How Do I Build A Valuable Company?

My entrepreneurial journey has seen me start and exit a number of companies. I want to share three of my best tips for building a valuable – sellable – company.

Tip No. 1: Make it all about a number of clients, not one client

It's common for a business to be dominated by one or two important customers. It happens pretty naturally. You do a good job for one customer, and they buy again. You keep satisfying them, and they stop looking for other suppliers and start to bring more and more of their orders to you in hopes you can handle the increase in business while maintaining your amazing service.

Given their importance, you're probably also servicing this giant customer personally, which makes them even more profitable because you do not need to hire sales or service staff to support the account. This, of course, makes both the account and your business very profitable—which makes it harder to walk away. It's a cash cow.

Pretty soon, you have a codependency that can undermine the value of your company—and make it virtually impossible to sell. For example, an acquaintance of mine owns a business that supplies a product to the home improvement chain Lowe's. In some months, Lowe's makes up more than half of his revenue, which is why, when the U.S. housing market crashed and Lowe's slashed the size of its orders and slowed down its payment cycle, my friend's business teetered on the brink of insolvency.

Desperate for cash, my friend tried to sell his company to both strategic and private-equity investors, all of whom offered him pennies on the dollar (when compared to the value of similar businesses) because of his reliance on just one customer.

To build a valuable company—one you can sell if you choose—you need to winnow down your reliance on any one buyer. My suggestion is to strive to ensure no one customer represents more than 15 percent of your revenue.

Tip No. 2: Increase your customer base

We survive the early years of our business by listening to our customers and responding to their requests. The problem is, when all you're doing is reacting to customers, you end up offering way too many things—customizing too much—because everyone wants a slight twist on your offering.

If you offer an ever-expanding list of things, your staff will never get really good at making or selling anything. The broader your product or service line, the more your business will be reliant on you—the person with the most knowledge in your field—rather than your employees. If the business is too reliant on you personally, it will be hard to sell.

To pull yourself out of this quagmire, you have to sell less stuff to more people. That may seem like counterintuitive advice, but some of the fastest-growing, most valuable companies in the world do it.

Take Apple for example. Apple is really good at selling a few core products (iMac, MacBook, iPhone, iPod, and iPad) that offer the same basic user interface. As a result, the company can train its Apple Store employees on one basic operating system and a few core products.

By contrast, walk into a Best Buy, with thousands of technology products running hundreds of different operating systems. If you're actually able to find someone to help you, you'll be lucky if they can read the specifications on the back of the box, let alone actually know anything about the product.

Focusing on selling less stuff to more people will allow your business to scale up beyond you, which in turn will allow you to grow through the ceiling that holds back many owner-dependent businesses. Ultimately, you'll have a company you can sell.

Tip No. 3: People want to work with you because you are the BEST at what you do.

Quick—how do you explain your business in a social situation? Do you define yourself by your industry? For example, "I own a printing company." Or do you describe what makes your business unique? For example, "We've developed a process for printing annual reports that reduces the turnaround time to three days."

The problem with describing yourself as a part of an industry is that most industries are commoditized. You're sentencing yourself to a life of low margins and groveling for work. When there is nothing unique about your business, the customer has no choice but to rely on price as the only decision-making criterion.

And before you claim "customer service" as what makes you unique, remember that people don't buy wishy-washy claims as a point of differentiation. After all, service is in the eye of the beholder, and until your prospect makes the decision to become a customer, intangible claims about how well you treat your customers ("offering great customer service since 1977," "specializing in great customer service") will not sway them.

Instead of describing your business in terms of the industry you're in, accompanied by some vague description of your service, describe in concrete terms what makes your business different. For example, under Tony Hsieh, Zappos became a successful company (Amazon acquired it in 2009) not because it's a retailer of shoes but because it offers a two-way free-shipping policy.

One-way free shipping is standard for a lot of e-tailers, but Zappos offers to ship your shoes free and then if you don't like them not only refund your money but also pay to pick them up. "Great customer service" is a wishy-washy claim. "Free returns" makes Zappos special and is a big part of what sets it apart. A shoe retailer is a boring commoditized business with low margins and very little hope of being acquired. A company that allows people to return shoes if they don't like them, all from the comfort of their own home, is unique and a big part of the formula that allowed Zappos to scale up into a sellable business.

Stop describing the industry you're in and start describing what makes you irresistible.

Re-Build to Sell

It's sad to say but many small business owners who come to me wanting to sell are in a crisis. They haven't kept up with the times and have outdated equipment and pricing that is below industry standards, and are up to their eyeballs in debt. One thing to keep in mind is that when you do something to enhance your service, it will have an impact on the eventual sale of your business.

Here are a few things to consider when getting your business ready to sell:

1. Equipment: If you were six months away from putting your service on the market than I would not recommend purchasing new equipment or upgrading your software. You will not make back your investment in that period of time. The buyer may also prefer a particular brand of equipment or may buy only your accounts. You would then have to sell your equipment on the used market, which usually brings only pennies on the dollar. If you are two to three years from selling and have old equipment, then by all means buy newer equipment. This enables you to keep up with your competition by offering the same or more enhanced services.

2. Rate increases: Annual rate increases are recommended. One of the most important formulas I use in evaluating a business is determining profitability, which comes down to rate structure. I recently sold a medical service for more than 14 times its monthly billing and the reason it sold for that multiple was the way the services were priced. It was very profitable, averaging $365 per client. The service had only 140 accounts but billed more than $50,000 per month, producing a net profit margin of more than 38 percent. Do not increase your rates just before selling your business to boost your monthly billing. A potential buyer will want to see a reasonable conversion history for the rate increase. I would also recommend switching to a 28-day billing structure. This will give you an additional one month's billing per year, which should increase cash flow along with your annual revenue.

3. Automate: One way to cut down on your biggest expense, labor, is to automate some of the message taking and delivering functions. By delivering messages via email, fax, voice mail, pager, or cell phone, it will free up the time it takes the operator to deliver the messages in person. Some services offer an automated attendant feature, giving the caller a choice of where the call should be directed with instructions that if they have an emergency, the caller should press zero for an agent.

4. Cut the fat: Get your business lean and mean. Cut out all frivolous expenses and cut the dead wood clients. If you have clients who are non-payers or who do not produce a profit for your company, get rid of them.

5. Financial record keeping: Buyers are interested in businesses with a good profit margin of at least 20 percent, advanced equipment with updated software, solid management in place, and a history of growth. One of the first items buyers ask for after reviewing your listing information is a current financial statement, along with at least one previous year's statement. This shows the prospective buyer how your business has grown financially in the past and its likely future growth trend.

6. Clean your financial history: Make sure that you have clear titles to your equipment and other assets, and that all your federal and state taxes are paid, along with being current on your payroll tax deposits. Buyers will do lien searches on you and your business, so if you have any skeletons in your closets, clean them up before placing your business on the market.

Of course location, cleanliness of the operation, and a reliable, well trained staff, all have something to do with how salable your telephone answering service will be, but the above points are critical to getting your business ready to sell.

How to find the best buyer for your business.

It takes more than setting the right price to acquire the ideal match for buying your business.

You want a big payoff by selling your business. But you don’t want just any buyer for the business, you want the most qualified buyer. Easily, you could end up getting multiple offers from buyers that aren’t offering the most money. Matching the right buyer with the right business is a painstaking process and the transfer of business ownership is time consuming. However, the more prepared you are the more successful the outcome is likely to be.

Before seeking a buyer there are some important questions that sellers should ask themselves. First off, can your business be sold? Several elements of a business make it an attractive buy. It has a solid history of profitability, for instance; a competitive advantage; a large and loyal customer base or long-term contracts with clients; and, growth opportunities. Other considerations are brand loyalty, intellectual property rights, licenses, or issued patents.

For both seller and buyer the bottom line is what’s your business worth? This is evident in the valuation. You of course want maximum value for your business but setting an asking price too high could raise a red flag, scaring away potential buyers. But if you price it too low, you’ll lose out.

According to the International Business Brokers Association, a company’s value is determined by a compilation of factors such as sales, earnings, performance, market outlook, personnel, net book value, and the fair market replacement value of equivalent operating assets. Value is also influenced by intangible assets such as a company’s brand image, industry reputation, and good will.


To get a fair and reasonable price for your business, you need good negotiating power working on your behalf. Consider hiring an intermediary, which depending on the size of the deal could be a broker (usually $10 million or less), mergers and acquisitions professional (more than $15 million), or an investment banker (a large or public company). The intermediary’s job is to determine the appropriate value for your business and to find the perfect buyer to purchase it at the asking price.

Finding the right buyer is the key to a smooth transaction; it also will contribute to the continued success and growth of the business. Even if you work with an intermediary, it still behooves you to understand the process. Here are a few guidelines to help you navigate through the murky waters.

1. Who Are Your Potential Buyers?

Anyone could be a prospect. A buyer can come from your employees, customers, suppliers or competitors. People buy businesses for different reasons, and this will affect how you pitch your business to them. But generally buyers are divided into two groups: strategic and financial buyers. Strategic buyers will look at how well your business fits into their own company’s long range plans. Financial buyers are more interested in your company’s profitability and stability. They could be companies or individuals with money to invest. Some will want a solid, well-managed company that requires little oversight while others may specialize in turnaround situations and will look to buy a business that they can tweak to turn a profit.

2. Where Can You Reach Potential Buyers?

If your business is well known then word that it’s for sale may be enough. But more than likely you will need to cast a wider net. You could put out feelers to people you know or use such outlets as trade publications or newspaper advertising. There are websites such as BizBuySell.com and BizQuest.com. But a broker, M&A advisor or investment banker has access to deal flow and can sift out and approach potential buyers confidentially. You don’t want to risk loosing valuable clients, vendors or employees because of negative connotations that might come from putting your business on the block for sale.

3. Why Should You Qualify Potential Buyers?

Documents like confidentially agreements and financial background information are standard documents for prospective buyers. A broker or investment banker can pre-screen buyers to make sure they are financially qualified to purchase the business. This includes reviewing ownership, available funds to invest, sources of financing, and any judgments or bankruptcies filed. You also want someone who has the business knowledge, management experience and complementary skills to take the company to the next level.

Find out the primary reason for that individual’s or company’s interest in buying your business. If the buyer is another company, make sure there will be a synergistic fit. If it is a private equity group, look at their past experience in acquisitions

4. How to Look Good for Potential Buyers?

Selling a house is not the same as selling a business. But just as sellers stage a home to make it more appealing you need to get your business in good shape before you approach potential buyers. Your books should be in order for inquiring eyes to review. Have in hand before you go to market both current and three years’ of profit and loss statements, balance sheets, and full tax returns. In addition to listing assets and financial information, include projections for future earnings. Create a selling memorandum which starts with an executive summary that tells potential buyers the key elements of your business; provides a list of your products or services and an overview of the industry; and, explains why you are selling the business, which should have a positive spin on it. In addition, you want to get the physical business cleaned up and ready to show. It’s not just about the numbers; first impressions count. Make sure the business had good curb appeal. This includes disposing of unproductive assets or unsalable items (e.g., a broke down truck sitting in the warehouse).

5. What to Expect Out of The Deal?

There are some basic decisions you must make like will you offer seller financing; will you sell the entire business entity or just assets; will you keep any assets; will the buyer likely retain or replace staff; will you maintain a minority stake of the ownership; will you be expected to put in a year of transition time after the business is sold. Don’t make the mistake of waiting until after the deal is done to remove assets that are your personal property. Unless specified, “When a buyer walks in the facility, he wants to own everything he sees.

6. When Are You Ready to Close The Deal?

The average house will sell in four months. It may take nine months to a year to sell your business.
Once a buyer presents an offer of purchase, you may accept the offer, counter, or reject it entirely. The agreement becomes a binding purchase offer and sale once all parties agree to the terms and conditions; the buyer does due diligence inspecting all aspects of the business operation; and all contingencies are removed. Sound sales strategies will bring you the optimum price for your business, says Bruce.

Protecting your company’s value during a sale

If you have ever promised your child a treat in return for good behavior, you know all about negotiating leverage.

When selling an attractive business, you also have leverage—up to the point that you sign a letter of intent (LOI), which almost always includes a “no shop” clause, forcing you to terminate discussions with other potential buyers while your new found “fiancé” does due diligence before handing over the check.

After you sign the LOI, the balance of power in the negotiation swings heavily in favor of the buyers, who can then take their time investigating your company. At this point, there is little you can do.

Yet, with each passing day, you will likely become more psychologically committed to selling your business. Savvy buyers know this and often drag out diligence for months, ultimately manufacturing things to justify lowering their offer price or demanding better terms.

With your leverage diminished and other suitors sidelined, you’re then left with the unattractive options of either accepting the inferior terms or walking away.

We recommend four things you can do prior to signing an LOI to minimize the chances of your deal dragging on for months and becoming watered down:

1. Make sure your customer contracts have “successor” clauses

Try to have customers sign long-term, standardized contracts that include a clause stating that the obligations of the contracts survive any change in ownership of your company. Have your lawyer wordsmith the details.

2. Nurture and prepare a group of 10–15 “reference-able” customers

Acquirers will want to ask your customers why they do business with you and not your competitors. Cultivate a group of customers to act as references before you sign the LOI.

3. Ensure your management team is all on the same page

During due diligence, acquirers will want to run “isolation” interviews, during which they speak with your managers without you in the room. They are trying to understand if your company is pulling in the same direction and to identify any dissension or incoherence among your ranks.

4. Make sure you have audited financials

An acquirer will have more confidence in your numbers and will perceive less risk if your books are audited by a recognized accounting firm.

Tomorrow we’ll look at the top three things you can do to ensure your deal does not become diluted or fall apart at the altar.

The Escrow Advantage

In dealing with business sales, often times the seller or the buyer will ask about the use of an escrow company. The seller may say 'Why can't the buyer just pay me cash or give me a cashier’s check'?

Escrow does a number of things during the business sale transaction that are designed to protect both the buyer and the seller. First, it is important for the seller to know that the buyer's earnest money deposit or good faith deposit actually has some cash behind it. Escrow will deposit the buyer's check and hold these funds in an escrow account until such time as the transaction closes or is cancelled by the buyer and seller.

On occasion, the buyer will discover during the due diligence period that the income of the business was overstated by the seller. The buyer may decide that the business will not generate sufficient cash flow for his/her needs and may choose to cancel the transaction. If the buyer has given the seller a cashier's check or cash as a deposit, there may be substantial difficulty in getting the deposit back. However, it is generally a simple process to have the deposit funds returned by Escrow.

It is important for the buyer to know if there are any liens against the business and if so to ensure they are paid by the seller. Escrow orders UCC searches to see that the seller doesn't have other liens or encumbrances against the assets of the business. Imagine if a buyer simply handed over a cashiers check for $200,000 only to find out six months later that there was an outstanding lien for $125,000 that had been recorded against the assets of the business. Additionally, Escrow ensures that a "Notice to Creditors of Bulk Sale" is published so that any other creditors can file any claims they may have against the business or the seller prior to the transaction closing. All of this is done to protect the buyer in the transaction.

The buyer's funds have to be deposited into escrow several days prior to the closing date. The funds may come from a lending institution, cashiers check, wire transfer. However, typically the funds are required a few days in advance. This is to protect the seller. There have been situations where buyers have paid sellers directly with cashier’s checks and then proceeded to the bank to stop payment. Since escrow requires the funds in advance, it prevents this type of situation from occurring.

An escrow company acts as a neutral third party in relation to the following issues:

There are often prorations and adjustments to the purchase price, such as rent payments, personal property tax, inventory adjustment and vacation accrued to name a few.

It is always a good idea to have an objective third party hold the funds, make sure there are no additional encumbrances against the business and make sure both the buyer and seller are in agreement on closing prior to releasing funds. After all, once the funds have been disbursed, there's no going back.

A Tale of Reported vs. Actual Income – Sellers Beware

Among the genre of small business owners, there is one individual whom I met that stands out from all the rest. He was the epitome of one obsessed with a need to minimize his reported taxable income. I was amazed at the lengths he went to, to distort his sales revenue and expenses on his financial statements. You name it, he did it: pocket cash sales and never enter them on the books, bloat reported expenses by recording personal purchases such as travel, meals, magazine and newspaper subscriptions, personal auto expenses, home repairs and maintenance and so forth as business expenses. He held back credit sales in November and December and didn’t book them until January; he stuffed his postage meter in December with enough postage to last him until August but reported the total purchase as an expense in December, and on and on. Moreover, he was quite proud of this accomplishment. He told me that he met with his CPA several times a year to “brain storm” new ways to minimize his reported income. The energy he put into this practice was enormous. He was truly consumed not with just a desire, but it seemed to me, a compelling need to avoid paying income taxes.

However, the enormous difference between his advertised earnings and what appeared on his financial statements and tax returns didn’t sit well with the buyers.

In addition to the negative affect that distorted financial performance reporting has on a business’s market value, such statements also become less useful—and in many cases useless—as a business planning and control tool. This is dangerous because there comes a point in a growing business where the absence of accurate financial reporting becomes the kiss of death.

There also comes a time in most growing businesses when the need arises to borrow money to finance new operating equipment, leasehold improvements, the purchase of real estate, inventory perhaps and so forth. Without good financial statements (and accompanying tax returns) that demonstrate a history of solid earnings, the ability to borrow the needed money becomes significantly more problematic.

And finally, one always runs the risk of being audited by one or more taxing authorities. If they should discover that you have been deceptive in reporting your company’s earnings, they can make you wish you hadn’t. In fact, I asked the business owner who I have told you about here if he was at all concerned about an audit. He assured me he was not. He said he was confident that he was much too clever to get caught by an auditor. I had my doubts about that. After all, he readily spilled the beans to both prospective buyers. One of those buyers could have been an under-cover I.R.S. agent. They really do stuff like that. Now there’s something else to think about.

How Do I Get an Accurate Business Valuation?

If you're planning to sell your business, an accurate valuation will ensure that all the hard work you've put into it will be taken into account and included in the price. Business valuations are also important when seeking investment capital, taking on a partner, or selling shares.

While many business owners have an idea of what their business is worth, that idea can quickly wither in the face of challenges from the IRS or other sources. Therefore, getting an accurate business valuation is crucial.

There is more than one type of valuation. For example, there's no point in evaluating a services business based on the value of its physical assets. Other methods to consider include intangibles such as goodwill, which can be difficult to assess. And value may also vary with context and subjectivity — a business may be worth different amounts to different people, depending on their preferences and needs.

This means that if you want a meaningful valuation, you will need to discuss your business circumstances with a business valuation expert. You may find that the valuer needs to use a number of different methods and then come up with a final amount that gives weight to each figure that emerged from each method. Good interpretation and judgment will be needed to come up with a final figure that accurately reflects the value of your business.

Value factors

A number of different factors need to be taken into account to ensure that a valuation is accurate and useful. Some of these factors include:

• The nature and history of the business
• General economic outlook, including industries that affect your business
• Your business's book value, financial condition, and earning capacity
• Your business's dividend history and paying capacity
• Investor risk inherent to your industry
• The maturity of the business and its industry
• The value of the business in the absence of the current owner
• Stock sales
• Stock of comparable public corporations

A valuation expert will also review and analyze recent financial history, financial projections, buy-sell agreements, executive compensation, organizational charts, quality of employees, management depth, major customers and competitors, and the viability of the business without the current ownership.

Methods of Valuation

The crudest valuation method is known as the "multiples" method, which operates by rules of thumb. For example, legal firms are commonly valued at 40 to 100 percent of their annual fees, while landscape businesses are estimated at 1.5 times their discretionary earnings, plus the value of their capital assets. However, multiples only give a rough, industry-wide ballpark figure for business value, not an exact value.

More accurate methods include the "balance sheet" approach, which basically subtracts business liabilities from assets. The "adjusted book value" method is similar, but uses current market value rather than purchase price or depreciated value.

Retail and manufacturing businesses are often assessed according to asset value, assuming those assets are significant. Service companies are often valued using the "capitalization of income" method, which places a heavy emphasis on intangible assets. It's also possible to calculate the value of a private company by making a comparison with an equivalent public company and making appropriate adjustments. Business value can also be estimated by anticipating cash flow over a three- to five-year period, and adjusting that into current dollar amounts.

How Buyers Put a Price on Your Business

If you're looking to sell your business, you probably have a number in mind. Here's why it might differ from what an acquirer is willing to pay.

A funny thing happened when I was first approached by someone who wanted to buy my printing company: I forgot everything I knew about sales.

Instead of listening to the customer and understanding his or her needs, I went into negotiations with potential buyers focused on my needs. I wanted to get a certain multiple for my business but failed to put myself in the shoes of a buyer to figure out what he or she would be willing to pay.

It was a rookie mistake on my part. Any first-year salesperson knows the first step in selling is figuring out what the customer needs. I should have asked about buyers’ goals in wanting to acquire us. In particular, I should have tried to understand what kind of return they were looking for on their investment in an acquisition.

The price buyers are willing to pay for your business depends on a lot of factors, but one of the most important is the return they expect to get and the risk associated with achieving that return.

Assuming your revenue is flat or growing modestly, the higher the return on investment the buyers are looking to achieve, the lower the multiple they will be willing to pay for your business.

At the risk of oversimplifying a complex equation, if the buyers are looking for a 22 percent return on their investment in your company, then they will derive the multiple they are willing to pay as follows:

100 ÷ 22 = 4.5 times EBITDA

Provided you’re not the next Google and you don’t have the cure for cancer, the buyers would be willing to pay around 4.5 times EBITDA to buy your business.

If, however, their expectations for a return are higher, let’s say 30 percent, they will be willing to pay less for your business:

100 ÷ 30 = 3.3 times EBITDA

So what drives up buyers’ expectations for return on investment while at the same time driving down the price they are willing to pay for your business? In a word, risk. The riskier your business looks to buyers, the higher their expectation for a return will be.

Likewise, with your own investments, you are willing to settle for a lower return when you buy relatively safe assets, like a government bond. But when you buy that risky small-cap fund, you expect a higher rate of return in exchange for putting your capital in harm’s way.

So how do you de-risk your business in the eyes of an acquirer?

• Client risk—do you rely on just one or two key clients for most of your business?
• Supplier risk—will you be in trouble if one of your suppliers goes under?
• Depth of management—what happens if a key employee disappears?
• Contracts—do you have legal agreements in place, or do you rely on handshakes?

Ask yourself these questions to judge how risky your revenue stream is. Investors want to know that things won't fall apart if something unexpected happens. Show them safety in your pattern of earnings, and you can expect a higher offer.

When you sit down with people interested in buying your business, try to find out what their expectations for return on investment are. That will tell you a lot about what their offer will look like and how risky they view your business. From there, you can do the math and anticipate their offer price and decide whether or not you want to keep talking.

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.

Buyers--They are a changing!

In the past the private equity groups (PEGs) were only made up of a few strategic buyers and mainly were financial buyers who looked for undervalued companies to go in and build and sell in a few years for a nice profit.

This has changed. If you are planning on selling, you can expect primarily strategic buyers who are hoping that your company fits into their larger investment strategy. Also count on fewer buyers knocking at your door.