22 Apr Build It to Sell: Staging Your Business to Attain Maximum Value and Price®
How many times have you been somewhere, maybe with your wife, and there, just twenty feet away, is the 80-year old owner of a big business located in your area; someone to whom you have been sending targeted client prospecting letters for the past eight years. Since you are a “real” business broker, you are always ready to strike up a conversation and pitch yourself. So, you introduce yourself and he says “Yeah, I know who you are; I get your letters all the time.” So you say “Are you thinking of selling?” He says “Not yet.” You want to say “Well when would you be ready?” But it would be too soon to say that, and put him “on the spot,” in the setting you’re in. Well that has happened to me over and over during the last 15 years; and I got sick of it. Obviously he is going to sell; it’s just a matter of time. But how am I going to be there just at the right time, when he is ready to sell? The answer is that you need to find a way to get in front of that business owner, stay in front of him, and become so trusted that it is foregone conclusion that you will get the listing. But how?
Three years ago I figured out a good way to accomplish this. It is pretty easy to convince a business owner that they seldom sell their business too soon, but they often wait too long. As Darrel Arne, a great mentor or mine, says “They don’t want to wait until they are in the “Dismal D’s: Declining Sales, Divorce, Declining Health, Death, and Dissolution.” Because, then it will be too late to optimize the owner’s after-tax proceeds from the sale. Once you have their ear, you tell them that “It takes a while to buff the business up, so the business is ready to sell; why not start now?”
I developed a 5-step program called “Build It to Sell: Staging Your Business to Attain Maximum Value and Price®.” Attached is the tri-fold brochure, which outlines these steps. This isn’t for every business broker, but I can tell you that, with a little heavy lifting, I have been able to generate numerous very large listings and fees. The idea is to have several businesses in this program all the time and keep your pipeline full. Additionally, because you become intimately familiar with the business owner and his business, and you have prepped it properly, it is much easier get the listing and to sell the business for a top price.
The first step in this program is a very detailed assessment of the business owner and his business. My 8-page assessment list is constantly evolving, as I hear of, or think of, additional items that might be good to discuss.
I start with the business owner. Specifically, as each one of you do, I ask why he is thinking of selling and what he plans to do once he sells his business. Let’s say he plans to retire or he needs the money to invest in another business venture. The next thing I ask is “How much does your after-tax proceeds from the sale need to be to attain that goal?” If he says, “I don’t know.” I ask him “Do you have a financial advisor?” If he says “No,” I say “We need more team on our team. Here’s list of the three best financial advisors in town. Please interview them and get one onboard.”
Once he has a net dollar figure, after taxes and after our brokerage fee, I complete a reverse valuation; that is, I compute how much his business’s SDE and annual gross sales need to be to attain his target price in today’s market. Let’s say that is 12% more than he has ever attained; he is likely to say “Hey, if I could do that kind of gross and cash flow, don’t you think I would?” That’s when you step in and say “The easiest way to achieve that SDE is to increase sales and decrease costs and expenses, simultaneously. That’s what you and I are going to accomplish (with my Build It to Sell: Staging Your Business to Achieve Maximum Value and Price® program).
Some businesses can be buffed up quickly; some can’t. For example, if the owner is an integral part of the business, and he is leaving the business after a period of orderly-turnover, then a large amount of time will need to be spent recruiting and training a management team and documenting all the standard operating procedures use in the business (i.e. to get all of the procedures and company secrets out of the business owner’s head and into documentation the new owner can use after the owner is gone). Not all tasks require equal time, capital, and human resources. For example, one line item is to ensure that all the corporate records are current. What’s that take to complete? One Day, maybe?
The purpose of this article is not to review the 8-page assessment list. However, for each line item on the list, here’s what we do:
- The business owner and I decide if the task has already been completed. If so, it is off the list.
- If not, we determine the “priority” of the item? I break these into 1st, 2nd, and 3rd Obviously, we try to accomplish the 1st priority items before the others.
- We decide if the task is coincidental or sequential; that is, do we need to complete one item before another, or can both be accomplished at the same time.
- Then we decide if the task can be accomplished “in-house,” or be better delegated to an “outside consultant.” For example, should we use an expert to write all the operating and policy manuals the company needs, or assign that to someone inside the business? Or, if we determine that we need to expand the sales department, should we use an outside professional to recruit additional salesmen?
- The final task is to estimate a timeline and capital budget for each of the items on the list.
The balance of the 5 steps is the implementation of the process to maximize the results and attractiveness of the business. When the goals have been achieved, then it is “show time;” that is, we are ready to roll it out to the market. The business broker remains the quarterback of this process from inception to completion. Other than the reverse valuation (to set the financial goal), I do not get involved in actually completing any of the tasks. I delegate them to “outside consultants” or “in-house” personnel. Periodically, I touch base with everyone, I prepare a status report for the business owner, and meet with him to discuss anything that might need to be tweaked.
I know, I know, this is “business coaching,” not business brokerage. Yes, but a very specialized and focused coaching. The result is:
- A business that is easy to sell,
- an owner who is more than “on board” with you, and
- a high probability of a great brokerage fee.
I estimate that I have generated well over $800,000 in fees from this program, to date.
Because Nevada is a “licensed” state, we are not permitted to engage the business owner in a listing agreement without a specific expiration date, and we are required to have the price and terms stated in the listing agreement. So, I do not use a “listing agreement” to engage the business owner. I do this program for “free!” Well, not exactly… the business owner pays me nothing up front. I enter into a five-year consulting agreement with the business owner; the fee is $50,000. One of three things happen to the fee:
- If the owner decides not to put the business on the market within the 5 years, then the fee goes away, and “chalk it up” to an investment of my time that didn’t work out.
- If he lists with another broker (which would be crazy, because, by that time, I know everything about the business), then he owes me the $50,000 fee.
- If he lists with me, then the $50,000 is credited toward the success fee (brokerage commission).
Is this “business coaching”? I believe that it is a client incubation program; a very intense form of seller prospecting. I do not advertise this program on the web. I offer it, selectively, to business owners with whom I would like to work and who have businesses I believe I could sell. Generally these are businesses which will sell for $3 million, or more.