29 Jan Around the Web: A Week in Summary
A recent blog post from Allan Taylor & Co. entitled “7 of the Worst Times to Sell Your Business” provides examples of bad times to look at selling a business and insight into finding the right time to sell.
Consider the following factors when contemplating a sale:
- Watch Your Numbers – Numbers can look undesirable to a buyer for a variety of reasons, and your financial statements are your business’ foundation. There are few excuses for bad financials. If your numbers don’t look good, start working to improve them well in advance of a sale.
- Industry Decline – Most buyers want a business in an industry that has staying power or is on the upswing. Buyers want to make sure they’re investing in an industry that will be around long-term and has potential for growth. They don’t want to buy a business if they know, for example, the biggest player in the industry has just shut down multiple locations.
- Wanting an Out – A lot of owners sell when they’ve reached a point of overload or burnout. While it’s okay to get tired of running your own business and wanting to move on, consider the amount of work that it can take to sell. The selling process alone can often take about a year. Proper exit planning can take several years.
- Losing Key People – Few things hurt a business more than one of your top managers leaving. One of the things buyers will look for is a strong layer of upper management.
- Business is Too Small to Support a Sale – There needs to be enough cash flow from your business to pay the new owner with enough cash left over to reinvest in the business and service debt.
- Banks Aren’t Lending – It is always harder to sell a business when the economic environment is bad. If the economy is in a recession or banks simply aren’t lending to anyone for whatever reason, business sales will suffer. You want to sell when the money is flowing.
- During A Personal Crisis – While sometimes unavoidable, you want to consider what will happen if you try to sell during a personal crisis such as divorce, illness, etc. The process can be hard to focus on, it will be harder to keep your emotions out of important decisions, or your personal situation may have already hurt the business. If you feel a personal crisis is looming in the distance, it is best to start the sales process as soon as you can.
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A recent blog post from Certified Business Brokers entitled “Buying a Business – Make Your Acquisition a Good Investment” discusses the comprehensive due diligence process a buyer should go through when considering purchasing a business. Some of the most important intel you can have is the future profit potential of a business and how much you can impact that future.
Some key considerations to think about while buying a business include: what the business can be capable of under new management, skills the current owning might be lacking that you can provide, additional marketing that could be pursued, and will the demand for the product or service grow.
It is also important to thoroughly review the pricing model of the business, physical assets, intellectual property, employees and benefits, taxes, etc.
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A recent blog post from Exit Strategies Group entitled “Secrets to Business Valuation – a Lesson from Curly” discusses the three main factors that help determine how much a business will sell for. We often see similar companies of the same size sell for vastly different amounts. What this usually boils down to is cash flow, growth and risk.
Cash Flow – What matters most to investors is future cash flow. Owners look at using free cash flow to either pay themselves, pay debt, or reinvest in the business. When comparing two similar businesses with the same revenue, one company might operate more efficiently and generate a higher cash flow which will make that company more desirable.
Growth – The more cash flow is expected to grow, the more investors will have at their disposal which brings up the value of a business. If a company is expected to grow at a faster rate than another, it will be favored by investors.
Risk – Investors decide how much risk to put into a company based on how certain they are that the company will either grow or perform the way it has. The more certain they are, the more they’ll pay.
