10 Apr Around the Web: A Week in Summary
A recent article from Divestopedia entitled “To Sell Your Business, Start With the End in Mind” discusses the multitude of reasons why business owners may fail to successfully exit their business without the proper planning early on.
Oftentimes owners make business decisions based on what is easiest, cheapest or quickest rather than based on what would most benefit the business in the long run. If an owner were thinking ahead, or looking forward, they would more likely make decisions that would position the company to be purchased by a private equity group. PEGs are looking for companies that they can build upon as a foundation or that they can use as an acquisition to grow their business interests.
The reality of the situation is that if a private equity firm sees your company as something they will have to rebuild after it is purchased, they are going to associate that opportunity with the stress and uncertainty that comes with the rebuilding process. It’s not going to be an appealing sale for them, and therefore, believing that your company is valuable on the market simply because of its potential is not as realistic as some owners would like to believe. Likewise, many company owners underestimate the effect of company culture on the value of the business. Investors are not just looking for businesses with promising customer relationships, they’re looking for a well-established company culture that will continue after the owner departs. Building a well-structured establishment that is not only profitable but stable without the owner present and capable of growth and enduring change takes time. This is why it is crucial for any business owner to look ahead to the ‘end’ while they’re making business decisions even when it seems far off.
A recent article from Inc.com entitled “How to Spot a Business That Will Stand the Test of Time” explains the factors that make a business durable and what types of businesses possess these characteristics.
The most important factor that makes a business able to stand the test of time is its ability to provide services and products that people will always need. A durable product or service is unique, higher quality than the competition’s, scalable, doesn’t vary too much over time and requires little to no research for continued development. Some businesses that stand the test of time include:
- Health care businesses. People will always get sick, and the aging population is drastically increasing, making this industry a prime option for someone looking to buy a business.
- Repetitive service businesses. Providing a solution to a high-demand problem automatically makes your business valuable to the community. Providing the solution to a repetitive problem makes your business perpetually profitable as well. These businesses include auto repair shops, pest control, cleaning services, car washes, etc.
- Whether you choose to open up a new location or take over an already established location, franchises offer a corporate buffer of protection that independent businesses don’t have.
As the baby boomer generation continues to reach retirement age, and the number of available businesses in the market continues to increase, opportunities for entrepreneurial freedom increase. The most important things for buyers to look out for now are the factors that will make their purchase a sustainable one.
A recent article from Divestopedia entitled “Key Factors in Executing a Management Buyout” describes the pieces that have to fall into place for a management buyout deal to be successful.
Having a member of the management team buy a company from the retiring owner is a three way win: the owner gets to sell to someone they trust, the employee get to take the reins of a company they’re well acquainted with and the business ownership stays local. However, there are a few important factors to keep in mind when considering a management buyout:
- The owner has to be willing to sell their business, and sell it to the manager in question.
- The business has to be capable of getting approved for financing, as does the employee.
- Both the owner and the employee will have to participate in a gradual transition of responsibilities starting at least two years prior to the transaction.
When considering the options for entrepreneurship, one is rarely considering their options for retirement simultaneously. Still, the time for retirement or exit will present itself regardless along with more options. Choosing to sell your company to a trusted employee can be a good option, but just like any other possibility it comes with its own set of requirements. Be sure to carefully prepare for whatever route you choose to take.