Planning to Sell? How to answer THE most important question

Many business owners believe the act of selling their business is similar to passing the baton in a 400 meter relay: once you’re finished running, you get to relax.  In reality, buyers will insist that you stay on for a transition period – anywhere from six months to five years – during which time you continue to work in your business to help the buyer capitalize on the investment they’re making.

THE Question

At some point in the process of selling your business, a prospective buyer will ask you – oftentimes casually – “Why do you want to sell your business?” These eight seemingly innocuous words have derailed more deals than any others.

Buyers ask THE question to evaluate how likely and willing you are to stay on or if you already have one foot out the door.

Obviously you don’t want to lie, but there is a right and wrong way to answer THE question. Answers like “I want to slow down a bit” or “I want to travel” or “we’ve got a baby on the way and I want to spend more time at home” communicate to a potential buyer that you plan on winding down when they take over. However, what they want to hear is your intention to help them realize the potential locked inside your business.

Here are some suggested responses based on your age.

If you’re under 40, you clearly aren’t ready to “retire” so you need to communicate that you see an upside in merging your business with theirs:

“In order for us to get to the next level, we need to find a partner with more <insert sales people, distribution, geographic reach, capital or whatever the partner brings to the table>.”

If you’re between 40-55 years old, most people will understand the need to shore up your personal balance sheet:

“I’ve reached a time in my life where I want to create some liquidity from the value I’ve created so far, and at the same time I want to find a partner who can help us get to the next level.”

If you’re over 55, you can start to talk about retirement, but you want to make sure you communicate that you still have lots of energy and passion for your business.

“I’m at a stage where I need to start thinking about retirement. It’s a long way off yet, but I want to be proactive.”

Rehearse your answer to THE question so it becomes a natural response when you are inevitably asked THE question by a potential acquirer. 

Contact us now to schedule a free consultation. I will gladly go over your personal situation with you.

Thank you! 

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

How to Brainstorm a Great Business Name

Naming a business is by far the hardest task for startups when it comes to branding. It’s permanent, or at least feels that way. Somehow renaming a company seems like a much bigger deal than a logo redesign, although neither should be undertaken lightly.

Naming a company is also high stakes. A name is the primary calling card of a business, and shows up places that even a logo doesn’t. In casual conversation, for instance. It's also highly emotional. Think about people’s gut reactions to baby names. Everyone has a different association or interpretation (“That name picked its nose in third grade!”). And don’t even get me started on finding an available URL without resorting to some wacky misspelling.

When it comes to brainstorming company names, often quantity matters more than quality -- at least at the start of the process. Here are a few guidelines for generating a whole lot of quantity. Once you have at least a handful of solid contenders, you can decide on the quality.

1. Gather the right people and materials.
Get a good group in the room -- five to eight is about the right number. It’s helpful to have a mix of team members and outsiders. Invite copywriters or even just friends who are really good with language. You should have some way to display all the names being generated in real time. For example, go old school with huge pieces of paper stuck to the wall and magic markers. You will also need blank pieces of paper and pens for everyone involved.

2. Loosen up.
Start with a few word-association exercises to get everyone’s minds working and generate stimuli for the next step. Typically, we’ll choose two to three topics related to the business idea. So let’s say you’re launching a business that facilitates mobile payment. You might do one word association around the idea of “payment,” and one around the idea of “on the go.”

Everyone in the room is encouraged to shout out any words that come to mind from these concepts. So for payment you’d get answers like: bank, money, dollar, exchange, change, cash register, merchant and others. Someone should be capturing these words in a way that’s visible to everyone, and you continue until you’ve filled a large page, and then move on to the next. Ideally at the end of this exercise, you’ll have a few large sheets filled with words on the wall.

3. Start generating.
With a blank piece of paper in front of them, everyone now has to individually come up with 10 names in 10 minutes. This is an incredibly short amount of time to come up with 10 names, and that’s on purpose. It’s so people can’t get bogged down trying to come up with the perfect name, and instead just start getting names on paper. No one has time to overthink or be self-conscious. (There are no bad ideas.) If it’s helpful, they can use the words from the first exercise as inspiration.

4. Generate some more.
Next, everyone passes their sheet of paper to the person to the left, and each person has to come up with five more names in seven minutes that build upon the names in front of them. This provides each person with concrete stimuli for inspiration and allows them to expand creatively on the thinking of their neighbor.

5. Share and build.
Papers get passed one more time to the left. Now each person, with 15 new names in front of them, circles their five favorites and shares with the group. As everyone is sharing, names should get visibly captured and people should be encouraged to build upon these names as they’re read aloud.

At this point, you will have tons of names on the wall, and even more written down on sheets of paper. Many will be terrible, though often gems do emerge. But this doesn’t mean you’re done. It's helpful to have everyone vote for their top three favorites, and then end the meeting.

In the next few weeks, sort through every name (including those that weren't read out loud). Type your favorites on individual sheets of paper. (It can be hard to evaluate names on an Excel spreadsheet of hundreds.) Check whether the URL is available, even though this process can be excruciating.

At that point, sift through the names again. Set short deadlines -- perhaps one name per day -- for team members to generate five more names each and add them to the list.

Then make a short list. Sit with it. Remember that there’s no such thing as the “perfect” name that tells your entire story and that everyone will fall in love with on first sight, especially in the absence of a brand experience. You just need a good, solid name that is own-able, pronounce-able, spell-able, and doesn’t have any obvious negative connotations. Branding can take care of the rest.

Tips to Manage a Successful Sales Team

Want to boost your business? It's time to set your salespeople free.
As economic times become more uncertain, companies are increasingly seeking to boost their sales operations to try to capture more market share. But properly running a successful sales department requires a special touch and technique.
Great salespeople also tend to be into solving problems and driving for results. They're positive in their attitude, powerful and authoritative.
The traits that make them so great at sales also can lead to traits that present difficulties for managers. They can be impulsive, demanding and unrealistic in their expectations. They may lack attention to detail and are often disorganized.
If you are more methodical, analytical or process oriented, you may get easily frustrated running a sales department. But those who are good at running a sales department learn how to manage around these issues.
There are certain styles of management that I've often found are a good fit for sales departments. Here are four tips for managing successful sales pros.

• Avoid rulemaking. Great salespeople generally want freedom. They want autonomy. Compliance doesn't work for these people. The better you're able to remove the obstacles and set them up to produce those results, the more successful they will be -- and you will be. Don't ever tell them what they can't do, because they will simply focus their creativity on finding ways to overcome your rules.
   
• Become a coach. That means asking, not telling your high performers what to do. Ask them to put themselves in your shoes over a particular issue, and discuss a variety of possible options. Let them own the solution to whatever obstacle is at hand.
   
• Let them do what they do best. In order to motivate and lead salespeople effectively, you want to think about what's important to them and what drives them. If you have employees who are not great at details and writing proposals but they're great at selling, then let them sell. Find someone else to compensate in some way to support them on the detail.
   
• Give them pats on the back. You need to recognize them. Especially with top-performing salespeople, money isn't often the main driver. It's really about being respected. It's achieving and getting those results.

If you adapt your management style to meet their needs, and understand the behaviors needed to do it, you'll have a lot fewer headaches. And your salespeople will thrive.

How to Run Your Business Without You - Key to Increasing the Value of Your Business

Making sure your company can operate in your absence should be a basic element of business planning, but many entrepreneurs don't consider the possibility until it's too late. Planning for short-term and long-term replacements is key.

But how do you do that? Here's how to get started.

Get Your Job In Writing. It's easy to become mired in day-to-day tasks and lose track of how you're running your company. Knowing how you spend your time daily is key to ensuring your business can run without you. Ask the question, 'Who can jump in and do my whole job?' Ask yourself: What are the short-term and long-term aspects of the business you take care of? Write them down.

Prioritize. You'll find that certain responsibilities stand out among the many. Identify your priorities and start thinking about what would happen if you weren't around to do those tasks. This ensures that if you're pulled away from your job unexpectedly, the people who step in will know what to tackle first.

Create Processes. Writing out step-by-step instructions for your most important tasks will ensure those responsibilities are taken care of in your absence. Whether it's payroll or tracking sales and expenses--responsibilities that business owners tend to guard closely--making sure someone else knows how to handle those tasks is essential. For example, after Ashton's fall, he switched from manually signing every check himself to using an electronic signature.

Identify People Who Can Step In. Make a list of all your key contacts, starting with employees, vendors, clients, bankers, accountants, and lawyers, and think about who could take over each of your responsibilities

Step Back While You Can. It often takes an emergency for small business owners to realize they don't need their hands in every aspect of the business. Getting away from day-to-day chores has also allows you to spend more time on the company's long-term growth including raising money, expanding marketing efforts, and launching new services, etc.

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.

How to Get Involved with Your Employees Work Without Micromanaging People

One of the more vexing problems most small business owners face every day is how to get involved in the work of their people without doing the work themselves or micromanaging those doing it.

You can resolve this when you think of every activity not as one step — doing — but three distinct steps: prepare to act, act, and then reflect on the outcome and what can be learned from it.

Start by expecting your people to use Prep-Do-Review themselves in their work. Not only will it make them more effective, but it will provide a way for you to become involved in their work as appropriate for the person and the situation.

This is the way it works:

Prep: Start by previewing people's plans with them and suggesting changes, if necessary. You do this by asking crucial questions. What are you going to do? Why — for what purpose? How will you do it? How can you use this to make progress on our goals and plans? Who should be involved or kept informed? How can this be used to help you learn and get better? What if your assumptions are wrong or the unexpected happens? This is how you move your group's purpose, plans, and work forward, how you coach and develop others, how you delegate more confidently, how you assure yourself that someone is well prepared and ready to act on her own.

Do: Based on what you learned in the Prep stage, you can decide whether and how to be involved in the doing of the activity. Working with a novice, you may want to perform the activity yourself while the person observes. Next, you may want to monitor periodically as the person does the activity and then give them feedback afterward. Thereafter, you probably don't need to be present at all — the Prep and Review stages are where you'll be involved.

Review: Great managers make post-action review a regular practice for themselves and their people. You can make it the focus of a one-on-one after an activity has been completed. Or it can be part of periodic meetings with each of your people or a standard procedure you go through in the updates your people provide at staff meetings. Be sure to model what you expect when you describe something you did — Here's what we learned. Next time we'll do it this way.

Remember to do a review regardless of the outcome of an action — failure or success. We are much more likely to reflect on our failures. Too often, we don't take time to learn from our accomplishments and never really understand the keys to our success and what lessons we can take forward.

Most of your managerial interactions with people will occur in the Prep and Review stages. Only with someone inexperienced or in situations of high stakes and high risk will you, or should you, be involved in the actual performance of a task.

Used this way consistently and consciously, Prep-Do-Review becomes a powerful management tool that will improve how you manage your people. By giving you ways to be involved without directly intruding as your people do their work, it will make your interactions with them richer, improve outcomes, help people learn, and make you a better delegator.

If you operate this way as a boss consistently, you'll find certain core management tasks become easier and more systematic. It will let you delegate more intelligently, based on both a person's skill and experience level and on the situation. It will help you coach people more effectively; indeed, it will help you turn many tasks into learning experiences. And it will let you use your time more effectively by helping you determine when you do and don't need to be involved.

With very experienced people, and especially with routine tasks, you needn't be involved in either Prep or Do, but as a boss you never completely let go of the Review stage. You may not review outcomes after every task, but ongoing performance review is something you'll never give up entirely.

If you think about it, Prep-Do-Review is the fundamental cycle of activities by which effective bosses manage — through a perpetual loop of prep-do-review-prep-do-review. By using it to become more mindful and deliberate in all you do, it will help you convert mundane workaday activities into management activities. It will help you make progress through the daily work. And it's the way you guide your people, produce results, and help them learn without inserting yourself unnecessarily into what they do. It's not the solution to every management challenge, but it's a powerful approach and the closest thing to a management secret that we know.

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.

Private Equity Groups - Good Liquidity for Family-Owned Businesses!

If you have a family-owned business with several family members working actively in the company, you need to explore how to keep peace in the family when it's time to exit. You may not feel that any other of the family members are capable of taking over and continuing the legacy.

Private Equity Groups, officially called PEGs, can be a great solution. There are over 2,700 PEGs in the U.S., up from just a couple hundred 20 years ago. These groups are constantly looking for good opportunities.

PEGs offer flexibility. They may purchase the entire company but also structure deals where they invest increments over time slowly acquiring ownership while family members get some money each year. They often will purchase your company as an "add-on" to enhance or complement one of their other companies.

Private Equity Groups do this for a living and have dealt with dozens of companies so you can learn a great deal through out the process. They can be short-term or long-term partners.

You may stay on and run the company for a year or more, or they may bring in their own management. All things are open for discussion with the right Private Equity Group.