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

Q&A - How long will it take to sell my business?

From time to time, I will blog commonly asked questions and answers to help those of you who are considering selling your business. 

Q: How long will it take to sell my business?
A: The time needed for sale depends on a great many factors including the price of your business, the type of business, and your willingness to finance the buyer. In general, it takes 120-240 days or longer to find a buyer for a business. The price and the terms you are offering are important factors. The more reasonably priced and the better the terms offered, the faster the sale.

Here’s some advice –

You want to be updating your financials monthly and sending them to your intermediary. Buyers like to have a current picture of the business. Plan on 60-90 days from the time you have an accepted asset purchase agreement or stock purchase agreement to close escrow. It can take 3-6 months to get to the accepted offer stage or even 8-9 months.

I have a deal I’m working on that has over 30 Non-Disclosures signed and had four offers but we do not have a signed agreement. It has taken 9 months to get to this point.

The seller has become realistic on the price and understands now that there will be a large earn-out-due to 50% of the business being with one account.

Many variables affect the time on the market. Price it right, be available, keep the numbers current and things will happen a lot quicker.

I will gladly discuss with you how your business fits into these general guidelines. Contact us now to schedule a free consultation. Thank you!

-Joan Young

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

Have you thought of your Exit Strategy?

If you’re a business owner, you’ve most likely asked yourself this question, HOW DO I GET OUT OF THIS BUSINESS? The buzz phrase is “Exit Strategy” – and you have one—whether or not you have a plan in place. 

Your financial planner says you should have an exit strategy; your lawyer says you should have an exit strategy; your spouse says you should have an exit strategy. They may not say it in just that way. The financial planner says you need to diversity your assets; your lawyer says you need to spread your risks; and your spouse asks, “When are we going to spend more time together?”

In planning your exit strategy, you will have to look at many areas of the business and your personal life.

Estate planning Retirement plans Financial requirements Mergers / acquisitions / sale Heirs

I understand this can be overwhelming. Here is where I come into place. For a personal consultation regarding your Exit Strategy please call us at (408) 436-1900 or visit our web page where Exit Strategy Webinars are taped to educate potential sellers.

I look forward to hearing from you! 

Best of luck,
Joan Young

 Joan Young         jyoung@sunbeltbayarea.net  (408) 436-1900    www.sunbeltbayarea.net

10 Questions to Ask Before Buying a Business

 10 Questions to Ask Before Buying a Business

Many experts are predicting that a huge wave of businesses will become available over the next decade or so as baby boomers look to sell. As the economy continues its climb into a full-blown recovery, it just might be the perfect time for you to fulfill that lifelong dream of buying a business. Before you take the plunge, however, you should take the time to ask yourself a series of questions that will help make sure you're prepared for the rigors of business ownership. Certainly the team of advisers you assemble to make such a deal—such as business brokers, attorneys, and accountants—can help you in determining the value of a business and what you should pay for it. But there are additional questions you need to ask yourself, and the seller, to find out if the business you've targeted is everything it's cracked up to be. With that, here is a list of 10 questions that you should get answers to before buying the business of your dreams.

1. Is buying a business the best decision for you right now?
Perhaps the most important questions to start asking involve whether buying a business is a good fit for you, says Keith Emmer, principal at Startegix in New York City. "If you're just bored or looking to try something, what happens when you have to do the tedious tasks that every entrepreneur must do?" asks Emmer. If that's the case, you might want to consider a hobby instead.

If, on the other hand, you see real opportunity and have always tended to see the world a little differently than others in your corporate job, owning a business may be right for you. "At the same, you should ask yourself if right now is the best time to make the commitment to buy if say, you're almost vested in your retirement plan," says George Krueger, president of Bigg Success, a business education and consulting firm in Champaign, Illinois. "It's probably a small sacrifice to get the full benefit of your employer's contributions," he says. "You can use the time to get prepared to buy a business."

2. Will your spouse support you?
Owning a business will affect your relationship with your spouse, in one way or another, says Krueger, since both of you will need to make the emotional and time investments that come from riding the entrepreneurial roller coaster. "So your spouse has to be prepared mentally and emotionally as well," he says. "If not, you may find that your biggest challenge comes from home rather than your business." You need the physical capacity to work long days, especially in the early days.

3. Who runs the business when the owners go on vacation?
One interesting question to get an answer to involves asking when was the last time the sellers went on vacation, how long were they gone, and what kinds of problems happened when they were away, says Kent Boehm, a business coach in Alberta, Canada. That helps determine how tied the business owner is to the day-to-day operation of the business. "The more often the owner goes on vacation the better quality of life they have," says Boehm. "The problems that occur while on vacation are sometimes an indicator of how much babysitting the owner has to do."

4. Do the numbers add up?
This one seems obvious, but a lot of new entrepreneurs don't really think about what exactly their return should be, says Krueger. "If you plan to be an absentee-owner, will the business provide a reasonable return on your investment, given the risk?" he says. "On the other hand, if you will be an active owner, will it provide the return on your investment and compensate you adequately for the time you're investing?" Kruger also suggests subjecting the projections you're using to what he calls "stress testing," such as finding out what might happen to cash flow if sales are below your expectations or costs run above your projections? "Bankers often see if you'll be able to pay them back if profits are off by 25 percent," he says. "You should run similar scenarios."

5. Are there any other skeletons to worry about?
You'll also need to do your homework when it comes to finding out everything beyond the numbers that might affect your new business, says Chantay Bridges, a senior real estate specialist with Clear Choice Realty & Associates in Los Angeles. He suggests finding out answers to the following questions.

Are there any easements, exclusive rights, or right of ways that impact the business?

Has the business ever been a crime scene or has it been vandalized?

Has the seller run into any trouble with the state, government, or IRS?

What is the business zoned for? Is the area hazardous?

6. What do the customers have to say?
A step that many business buyers fail to take is talking to current customers in the business, and not necessarily the ones that the seller handpicks for you. "Unless you know who buys from you and why they buy from you, you will be flying blind," says John Torrens, a veteran entrepreneur who also teaches entrepreneurship at Syracuse University. "This is good to know before you engage in a letter of intent and is especially important during due diligence. What you find out can help you if you take over the controls."

7. How does the business make its phone ring?
Obviously, any business needs to have a growing customer base to be successful. So it might be worth asking the seller about what kinds of things they have done to market their business and to generate inquires from new prospects, says Boehm, at least so that you know what you might need to do more of once you take over. "Ask them if they know which marketing efforts create the most leads," he says. "What you want to try and find out is what marketing they are doing, if any, and how effective it is."

8. Why is the seller really getting out?
The seller knows his or her business better than you do, says Krueger. That's why you should make the time to ask him or her about why they are selling. The rub, however, is that you'll usually hear reasons like "retirement," "health reasons," or "other opportunities." Your challenge, Krueger says, is to find the real reason. "You may never find out, but you should certainly try," he says. "Build a relationship with the seller and be thorough in your due diligence."

9. Will the seller keep some skin in the game?
Working with a bank or lender is an important step in buying your new business. But, with credit tight these days, it's not uncommon for sellers to step up and finance at least part of the sale, even though they would all prefer an all-cash deal. If you can get your seller to put their money on the line, it may serve as a signal of the seller's confidence in the future of the business, says Krueger. "Remember that they know more about their business than you do," he says. "If they're not willing to let any money ride on the business, should you?"

10. What is your exit strategy?
This is an important question to ask even as you make the decision about whether to buy a business or not, says Alex Corrigan, who heads up the M&A practice at Delap, a 78-year-old accounting firm in Portland, Oregon. "This should be considered right from the start because," Corrigan asks, "what if you have to sell the business or get out sooner than you thought?" Along the same lines, he suggests that you should also have a buy-sell agreement in place if you happen to have any partners involved in the business.

Discover Your Marketing Perspectives

Do you believe that there is a right way and a wrong way to market your business? Is there a set of rules floating around somewhere that we must live by when we step into the role of marketing director for our company?

While some marketing guru’s have discovered that there are steps that are more, or less, effective than others, it’s important to evaluate your own belief system and be certain that your marketing represents YOU. But if your current marketing mindset is fearful and limiting, it's time to step into a new mindset and bring success to your door. There is a wealth of outstanding information out there for all of us, and you can combine this information with your own perspective to create an effective marketing model that resonates with you and represents your brand authentically.


Here are a few questions you can ask yourself to understand the value of what you offer, and to find the words to share your wonderful offerings with a larger audience.

• What is unique about my product or service?
• What is unique about ME and how does that enhance my product or service?
• How does it help others?
• How does it enhance the lives of my clients/customers?
• What are some of the things my clients have said about their experience with me or my company?
• Would my clients feel good about telling others about their experience?
• Is there something I can do to help those happy clients to easily spread the word of this experience?
• What can I do for my clients/customers to thank them for their business?
• Is there anything I can do to make my product of service more affordable for them on occasion?
• What are the most common words I hear others use to describe their experience of my product or service?
• How can I use those words to describe it to my future clients?
• If I don’t tell more people about my offerings what am I depriving them of?

If your marketing mindset is stopping you from growing your company, if you shudder when you hear the word, consider embracing a new mindset. Instead of marketing, use words and phrases like; sharing, spreading the word and helping others.

Enjoy growing your business; let us know how you’ve shaped a new perspective!

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.

Factors to consider when preparing to sell your business.

If you want to sell your company, there are some “rules” that you should consider in order to have a successful transaction. Selling a business requires discipline, a sound strategy and strong advisors. While these ‘rules’ won’t guarantee that your business will be sold, they are certainly some key points to think about.

1. Prepare yourself personally for the sale
Think about the challenge that is involved in selling a company. The transaction is much different than a real estate deal and it does involve patience and perseverance. Are you truly ready for the work that is involved to sell your business?

2. Prepare your business for the sale
One of the biggest issues that befuddles business owners is that they do not properly plan a clear exit strategy from their business well in advance. Talk to your accountant and lawyer, get your financial documentation in order, claim all of your “cash” sales, renovate if necessary, and so on. Also, if you can implement some strategies to improve growth or profitability do so. It is better to show actual growth to buyers instead of simply talking about the theoretical “potential” of your business.

3. Don’t wait too long to sell a business
Selling your business while it is still growing or while it still has much upside left is advisable. Too often, business owners wait a few years too long, past the point that they “should have sold” and realize that the value for their business may have declined. Timing is everything – especially in a business sale.

4. Run your business properly
Don’t lose focus when you list your business for sale. Selling a business is a time-consuming process and it is possible to focus so much attention on the process and neglect the actual business that is being sold. Work with a business broker to sell your company so that you can focus on the operations.

5. Be reasonable about the selling price
It is one thing to get as much value as you can from your business when you decide to sell it – it is quite another to be unrealistic about the selling price. Talk to your advisors to get a sense of what a fair selling price is. .If you are unhappy with the recommendations of your advisors regarding your company’s value then implement steps to improve the business so that you can ask the selling price that you really want to. Simply setting a high price on your business and “waiting” for a buyer to come and purchase it is not a sound strategy.

6. Be flexible during negotiations
Selling a business means you will need to eventually enter into a negotiation with a buyer. Be flexible during the negotiation and try to compromise on the items that aren’t “deal breakers” to you. For instance, if the selling price is an issue then perhaps you can meet in the middle, or perhaps offer some additional vendor financing to make the deal more palatable to both parties. The point is, be prepared to budge on deal points that you are willing to bend on and offer creative ways to add value to your purchaser. Give and take is a good approach to take.

2011 Business Brokerage Market Expanding

Based on my own observations from more than two decades in the field of business brokerage and mergers and acquisitions, many small businesses that survived the economic downtown are now seeing renewed strength in their top-line revenues, and solid or growing bottom-lines. In fact, the bottom-line cash flow for a number of businesses appears to be healthier than the top-line sales.

While this doesn't mean all companies are back to pre-recession performance levels, entrepreneurs are likely to see new options for their business next year, thanks to an expected increase in bank loans and a larger pool of potential buyers.

Here are my four predictions for this year that could affect the sale of your company.

No. 1: Large Pool of Potential Buyers
There is expected to be no shortage of business buyers in 2011. That's because there are a growing number of unemployed (or soon to be) middle- to senior-level executives who are likely to decide that buying a business is a feasible alternative to looking for a job.

While potentially more capital-intensive, these buyers realize that purchasing an existing business with revenues, clients, trained employees and cash flows could allow them the best possibility to sustain their lifestyle in the ab-sence of concrete employment options. However, these individuals would be wise to keep their options open (employment search, start a business, or buy an existing business) in case the right deal doesn't materialize.

No. 2: Bank Lending on the Rise
Based on current and anticipated behavior, banks are expected to come back to the lending market for small-business acquisitions. From a business broker perspective, it's been quite some time since bankers called to source deals. The good news is that they have started calling again.

While many of these deals are smaller in size, this still bodes well for 2011. Businesses with adequate cash flow will ultimately see more overall activity in terms of bank lending this year.

No. 3: Increase in Business Valuations
Valuations are likely to increase for businesses with solid fundamentals. This may sound counter-intuitive, given current market conditions, but it's basic supply and demand. There are an inordinate number of prospective (and qualified) buyers in the marketplace chasing a small number of healthy businesses. It's not uncommon for good companies to attract a large number of buyers, which results in an auction-type atmosphere where buyers bid up prices and terms.

This dynamic will not face a major change this year. Business owners who are emotionally and financially ready to sell will be the benefactors of this lopsided market.

No. 4: Baby Boomers Will Start Selling
Back in 2007, one in every two baby boomers -- who control almost 8 million small businesses in the U.S., according to BIGresearch -- was expected to begin selling their businesses. This trend was on track until the recession hit. However, these boomers will retire soon and could revisit a sale.

When that happens, there will be a sharp increase of businesses on the market. The supply and demand dynamics will shift heavily in favor of buyers. At that point, sellers will need to be exceptional in order to secure a good price for their business.

Regardless of how 2011 plays out, one prediction will certainly hold true -- businesses that take the proper steps to prepare for a potential sale will have a much better chance of achieving a successful exit than those who don't.

Tips for Negotiating an Earn-out

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

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

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

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

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

2. Agree to goals that reward integration results

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

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

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

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

3. Sprinkle goals throughout the earn-out period

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

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

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

Should I Hire A Business Advisor to Sell My Business?

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

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

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

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

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

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

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

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

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

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

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Plan for succession and a possible sale.

Of family owned companies, 30% will experience a change of ownership due to retirement within the next five years. This is according to the Research by the University of North Carolina’s Ashville’s Family Business Forum. More than half of the family-owned businesses' CEOs nearing retirement age 61 and older haven’t chosen their successor.

More retirees are finding that their children really do not have any interest in taking over the family business. This means you will need more time than you think to prepare your company for sale to an outside party.

You may find that an employee or employees may want to buy your firm. They typically will need bank financing or a private-equity partnership, and that will entail having good financial statements to show to lenders or investors.

Of course an unexpected illness or death can disrupt even the best of plans, so plan on the unexpected. Control what you can. Have a buy/sell agreement ready which will outline the terms under which a potential successor can value and buy your business.

Make sure you have talked with your tax planner to see how estate taxes might affect you as well. They are typically based on the fair market value of the company upon the date of the owner's death. Hopefully you are seeing the importance of using financial and legal experts knowledgeable about retirement and estate planning.