7 things to do before signing a Letter of Intent

 You may be years away from selling your business, but it’s never too early to understand what the process involves.

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—but only up to the point where you sign a letter of intent (LOI), which almost always includes a “no shop” clause requiring you to terminate discussions with other potential buyers while your newfound “fiancé” does due diligence.

After you sign the LOI, however, the balance of power in the negotiation swings heavily in favor of the buyer, who can then take their time investigating your company.  At the same time, with each passing day, you will likely become more psychologically committed to selling your business. Savvy buyers know this and can drag out diligence for months, coming up with things that justify lowering their offer price or demanding better terms.

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

Here are seven things you can do—before you even put your business up for sale, and before 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.

Have customers sign long-term, standardized contracts, including a clause stating that the obligations of the contract survive any change in company ownership.

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

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

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

During due diligence, acquirers will want to interview your managers without you in the room. They want to find out if everyone in your company is pulling in the same direction.

4. Consider getting 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.

5. Disclose the risks up front.

Every company has some risk factors. Disclose any legal or accounting hiccups before you sign the LOI.

6. Negotiate down the due diligence period.

Most acquirers will ask for a period of 60 or 90 days to complete their due diligence. You may be able to negotiate this down to 45 days—perhaps even 30 with some financial buyers.  If nothing else, you'll alert the acquirer to the fact that you're not willing to see the diligence drag out past the agreed-to close date.

7. Make it clear there are others at the table.

Explain that, while you think the acquirer's offer is the strongest and you intend to honor the “no shop” agreement, there are other interested parties at the table.

If you take all seven of these steps, you will protect the value of your business as the balance of power in the negotiations to sell your company swings from you to the buyer.

Curious to see if you have a business you could sell one day? Get your Sellability Score today http://sellabilityscore.com/en/#started

Developing a Solid Customer Base

An important Value Driver is development of a solid customer base.

When you put your self in the buyer's shoes, you will find that you will pass by companies with great management teams and excellent systems but whose cash flow is dependent on one or two customers.  Why would they want to spend millions of dollars on a business only to have those customers go elsewhere, after you have acquired the company?  At the very most, a prudent buyer will structure a buyout to protect against the loss of a key customer, probably by having much of the price of the company contingent or requiring the seller to carry a note for the bulk of the purchase price with the right to offset the note if a major account leaves. 

The goal of a business owner is to have no single account to account for more than 10% of all sales.  A large customer base helps to insulate a company from the loss of any single customer. 

Achieving this objective can be problematic when you have a few clients that are willing to pay for everything you deliver.  If this is where you have found yourself begin now to reinvest your profits into additional capacity that will make developing a broader customer base possible, and /or acquire customer diversification by buying another small company.

Joan

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

Is Now the Time To Sell Your Business?

Have you been thinking about selling your business but just can’t decide if now is the best time?  Do you find yourself repeatedly analyzing the economic situation and wishing you had a crystal ball? There are positive signs and there are negative signs….

If you’re still up in the air and can’t quite decide whether or not to hit the eject button, here are six reasons you might want to consider getting out now.

1. You’re less interested in fighting the good fight

A lot of business owners took the Great Recession in the teeth. If you’ve got your business stabilized and the prospect of possibly having to fight through another recession leaves you panic-stricken, it could be time for you to get out.

2. The worst is behind you
Let’s say you were mentally ready to consider selling a few years ago and then 2008 hit and 2009 was bad, and in 2010 and 2011 you made cuts and adjustments, so now you’re starting to see some profit and revenue growth.  With your numbers going in the right direction, now might be just the right time to make your move.

3. The tax man is coming

Governments around the world are looking for money to fund the cost of an aging population. At some point this will mean increased taxes.

4. Nobody is lucky forever
If you’re lucky enough to be in a business that actually benefits from a bad economy, congratulations... you’ve probably just had the four best years of your business life. But no cycle lasts forever and right now might be a great time to take some chips off the table.

5. The coming glut

As a business owner, demographics are not on your side.  As the baby boomers start to retire in droves, we’re going to have a glut of small businesses coming on the market. That’s great if you’re buying; but if you’re a seller, you may want to avoid the flood and head for higher ground now.

6. The closing window

Since 2008, it’s been tougher for private equity companies to raise money; so many firms had their last successful round of fundraising a number of years ago. Many of these funds have a five-year window in which to invest or they have to give the money back to the people who gave it to them. Some boutique private equity firms will make investments in companies that have at least one million dollars in pre-tax profits (larger private equity firms will not go below $3 million in EBITDA); so if you’re in the seven-figure club, you could get a bidding war going for your business among private equity buyers keen to invest their money before they have to give it back.

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

Are Baby Boomers Ready to Exit Their Businesses?

Here’s an article I thought you would find interesting. The article, Are Baby Boomers Ready to Exit Their Businesses? was written by Barbara Taylor and was originally published in the New York Times on the 11^th of February of 2011.

After reading the article, I ask that you answer THE questions: Are you a baby boomer ready to exit your business with an Exit Strategy in plan?

-Joan

Are Baby Boomers Ready to Exit Their Businesses?

Many of us who offer financial services linked to retirement have been anticipating the day when the largest wealth transfer in our nation’s history officially begins.  Yet there is no shortage of articles proclaiming that people born from 1946 through 1964 are ill-prepared for retirement.
“They are afflicted with a business disease that is caused by a lack of exit planning,” said Peter Christman, founder of the Exit Planning Institute and author of “The $10 Trillion Opportunity: Designing Successful Exit Strategies for Middle Market Business Owners.” By Mr. Christman’s estimate, as many as 75 percent of all business owners are afflicted with the no-exit-plan disease.
According to a 2008 study conducted by Atlanta-based White Horse Advisors and Vistage International, 96 percent of boomer business owners agreed that having an exit strategy was important – but 87 percent did not have a written plan.

While business owners certainly aren’t the only people guilty of poor planning, boomers anticipating selling a business as they approach retirement in the coming years may be faced with a double whammy: lack of planning and a glut of supply. “This is a landmark moment in our generational development,” said Patrick Ungashick, president of White Horse Advisors, and author of “Dancing in the End Zone: The Business Owner’s Exit Planning Playbook.” According to Mr. Ungashick, 9 million of America’s 15 million business owners were born in or before 1964, resulting in one business owner turning 65 every 57 seconds – and the potential for a tsunami of businesses for sale.
Both Mr. Christman and Mr. Ungashick believe that many of these Boomers have a disproportionate share of their wealth tied up in their businesses. “If these sellers don’t start planning now, they will be sorely disappointed,” Mr. Christman predicted. Both Mr. Christman and Mr. Ungashick recommend that business owners work with tax, legal and exit planning advisers.

Mr. Ungashick encourages business owners to identify areas of transferable value in their businesses. These include management, financial controls, systems, and customer concentration. He noted that not having an exit plan can undermine what he calls legacy aspirations. “Owners have goals and values that they founded the business on,” he explained. “They don’t want to see them kicked to the curb.”
Time will tell whether retiring Baby Boomers exit their businesses with a victory dance, or a shuffle of disappointment. One cause for optimism: Boomers have a tendency to re-shape entire industries. Perhaps it will be their retirement that transforms exit planning from an obscure financial tool to a business best practice.

Note: Barbara Taylor is a New York Times blogger and co-founder of Synergy Business Services in Bentonville, Ark.  This abridged article was originally published in the New York Times on February 11, 2011.

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

10 Planning Tips for Getting Top Dollar When Selling Your Company

Our office is proud to announce our new referral partner – ExiTrak. We are working together to complete a 4-phase process that prepares your company for a strategic sale, as opposed to a merely financial one. 

Here is a great article written by Steve Popell, the designer of the ExiTrak process, which gives a glimpse of what will be covered in more detail in our next Webinar with Steve Popell as Guest Speaker: Planningto Sell Your Company in the Foreseeable Future?  Go Strategic.  ItPays a Lot Better! October 25^th at 2:00pm PST.

Enjoy!

10 Planning Tips for Getting Top Dollar When Selling Your Company

By Steven D. Popell

Originally published in Active Garage, July 12, 2010.

            
 There are two very different reasons why effective long-range planning is critical for getting top dollar when you sell your company.  First, top-notch planning helps you to manage your company better and involve your employees at a higher and more productive level.  Second, but not as self-evident, success in this area is very impressive to prospective buyers.  Why?
Because successful long-range planning (defined as developing a plan, implementing it and achieving most or all of the long-range goals) is indicative of solid and sophisticated management – a highly valuable strategic asset for most acquiring companies.  Here are 10 elements for developing a long-range plan that increase the likelihood of success.

1.     Involve your key people.  For one thing, they will have ideas that are worth considering.  Beyond that, it is axiomatic that the best way to overcome resistance to change is to ensure that those who will be implementing the changes help to determine what those changes will be.  An effective planning group can comprise as few as three people, or as many as 17.  The important thing is that no one who can have a major impact on how the plan is implemented is left out.
2.     Make sure that there is a solid consensus around the vision for the company; i.e. what will be the company’s identity in years to come.
3.     Develop a clear and easily communicated mission statement that expresses what the company does and for whom.
4.     Conduct a SWOT analysis; i.e. identify the company’s principal Strengths, Weaknesses, Opportunities and Threats.
5.     Develop long-range goals that are challenging, achievable and in line with the company’s vision, mission and values.  These goals should be specifically designed to take advantage of strengths and opportunities, while addressing weaknesses and threats.  In addition, ensure that each member of the planning group (and the rest of the staff, as well) can relate the achievement of the company’s vision, mission and long-range goals to a high level of performance in their specific area(s) of responsibility.
6.     Identify outside factors over which you have no control and little, if any, influence.
7.     Short term objectives. Determine what you need to achieve within one year in order to give yourself a leg up in achieving your long-range goals.  But, be cautious with your scheduling.  The biggest mistake most owner-managers make is front loading implementation far too much.  If you are going to make a mistake, especially if this your first planning experience, make it on the low side of delivery.  You can always add short-term objectives later, but if you fail to achieve your objectives, it can severely damage morale.
8.     Attach task assignments, with individual responsibilities and deadlines, to each short-term objective.  Organize task assignments by quarter.
9.     Attach action items to each task assignment.
10.  Conduct follow-up sessions no less often than quarterly.  This step is, in reality, as important as all the rest, because it is all that stands between you and a dusty planning document that fails to impact the future of your company.  Make sure that you are utterly uncompromising in comparing actual performance with plan.  There is no reason to be unpleasant, but papering over poor and/or late performance helps no one.  Most long-range plans fall behind in the early stages, usually because of excessive front loading.  The critical element is that everyone agrees on the relationship between plan and actual performance, and how to get back on track and timeline with any projects that are lagging.

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

Does Your Business Have Curb Appeal?

Does Your Business Have Curb Appeal?

Let’s say you’re in the market for buying a house and you go to view one that looks appealing in the ad. How does it look on the inside? The outside? What about the location? What is your general impression?

Like your house, your business projects an image to potential buyers. When they come to see your business for the first time, your “curb appeal” can attract a buyer to your business—or cause them to walk away from it.

Do you need to improve your curb appeal? Here's a three-step plan:

1. Fix Your Leaky Faucets
Perhaps, like many other business owners, you started your business from scratch with one or two employees and now you have 20 people working for you. But do you have the appropriate HR infrastructure in place for that size of a company?  Perhaps you even take pride in your informal management style, but it can prove to be a liability when it comes time to sell.

Make sure your human resources policies are at least as stringent as those of the company you hope will buy your business. Some basics to have in place:

•    A written policy making it clear you forbid any form of harassment or discrimination;
•    A written letter of employment for each staff member;
•    A written description of your bonus system;
•    Written policies for employee expenses, travel and benefits.

2. Assemble Your Binder
When you go to buy a house, it will give you confidence if the owner has the instruction manuals for the appliances, information on where they were purchased, and who to call if one of them breaks down.

Similarly, when a potential buyer looks at your company, he wants to see that you have your business information in order.  Documenting your office procedures, core processes, and other intellectual capital can help you attract more bidders and a higher price for your company, while also lowering the chance of the deal falling apart during diligence. 

If you want to attract a buyer one day, your business needs a binder with instructions for basic functions, such as:

·         Opening up in the morning and closing down at night;

·         Forms and step-by-step instructions for routine tasks;

·         Templates for key documents;

·         Emergency numbers for service providers;

·         Billing procedures for customers.

·         How your company is positioned in the market and your marketing tools.

3. Document Your Intangibles
Intangibles for house buying might include: Is the house near a good school or daycare? What kind of neighborhood is it?  What kind of commute are you looking at to get to work?

Your business also has intangible, often intellectual, assets that a potential buyer needs to be made aware of, such as:

·         Proprietary research you’ve conducted;

·         A formula for acquiring new customers;

·         Criteria you use to evaluate a potential new location;

·         Your unique approach to satisfying a customer.

As with selling a house, your company's curb appeal can go a long way toward closing a deal. 

Curious to see if you have a business you could sell one day? Get your Sellability Score now.

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

Facing the Enemies Within

For today's blog I wanted to share with you an insightful article written by Jim Rohn titled, "Facing the Enemies Within" Hope you enjoy!

...

 

We are not born with courage, but neither are we born with fear. Maybe some of our fears are brought on by your own experiences, by what someone has told you, by what you’ve read in the papers. Some fears are valid, like walking alone in a bad part of town at two o’clock in the morning. But once you learn to avoid that situation, you won’t need to live in fear of it.

 

Fears, even the most basic ones, can totally destroy our ambitions. Fear can destroy fortunes. Fear can destroy relationships. Fear, if left unchecked, can destroy our lives. Fear is one of the many enemies lurking inside us.

 

Let me tell you about five of the other enemies we face within. The first enemy that you’ve got to destroy before it destroys you is indifference. What a tragic disease this is. “Ho-hum, let it slide. I’ll just drift along.” Here’s one problem with drifting: you can’t drift your way to the top of the mountain.

 

The second enemy we face is indecision. Indecision is the thief of opportunity and enterprise. It will steal your chances for a better future. Take a sword to this enemy.

 

The third enemy inside is doubt. Sure, there’s room for healthy skepticism. You can’t believe everything. But you also can’t let doubt take over. Many people doubt the past, doubt the future, doubt each other, doubt the government, doubt the possibilities and doubt the opportunities. Worst of all, they doubt themselves. I’m telling you, doubt will destroy your life and your chances of success. It will empty both your bank account and your heart. Doubt is an enemy. Go after it. Get rid of it.

 

The forth enemy within is worry. We’ve all got to worry some. Just don’t let it conquer you. Instead, let it alarm you. Worry can be useful. If you step off the curb in New York City and a taxi is coming, you’ve got to worry. But you can’t let worry loose like a mad dog that drives you into a small corner. Here’s what you’ve got to do with your worries: drive them into a small corner. Whatever is out to get you, you’ve got to get it. Whatever is pushing on you, you’ve got to push back.

 

The fifth interior enemy is over-caution. It is the timid approach to life. Timidity is not a virtue; it’s an illness. If you let it go, it’ll conquer you. Timid people don’t get promoted. They don’t advance and grow and become powerful in the marketplace. You’ve go to avoid over-caution.

 

Do battle with the enemy. Do battle with your fears. Build your courage to fight what’s holding you back, what’s keeping you from your goals and dreams. Be courageous in your life and in your pursuit of the things you want and the person you want to become.

 

Author—Jim Rohn