After buying and selling business offline, we are amazed at the leverage and returns that can be made buying websites. In this short clip from our workshop, Matt explains why websites can be so profitable and why their sale prices are rising – it may surprise you…
After buying and selling business offline, we are amazed at the leverage and returns that can be made buying websites. In this short clip from our workshop, Matt explains why websites can be so profitable and why their sale prices are rising – it may surprise you…
As we mentioned in our previous article When to sell your business is a frequent question we get asked as business brokers. In this article we are going to share with you some of our best business tips regarding the timing of a business sale that will help you plan your exit strategy and make sure you achieve the best outcome.
Business Tip #1 to help you consider timing: We suggest keeping an eye on the general overall market and pick when the market seems buoyant for business sales. Look at what the really big players are doing are there big business sales and deals occurring such as mergers and acquisitions being reported in the financial press? Are there lots of new IPO's (new companies being listed on the stock exchange), or are Private Equity firms making big or lots of acquisitions? We have noticed that the big business sales can give you a reasonable indicator of the market and buyer activity even if you are selling a small business as it all has a knock on effect.
Business Tip #2: Exit Strategy and Your Instincts Knowing when to sell your business can often come down to gut instinct. If you feel it is time to get out on a gut level then it is probably wise to pay attention to that gut feeling or instinct and start the process of selling your business.
Business Tip #3: Your Personal Goals In the end timing will often come back to either your life goals and/or your personal situation. If part of your goals were to retire at age 60 and you are now 59 then the time is right to start selling up and implementing your exit strategy. Sometimes your personal situation may force you to sell your business e.g. health reasons, partnership breakup etc or a competitor may come knocking wanting to buy you out for a top price – Side-note: More good reasons to make sure your business is always prepared for sale!
Business Tip #4: Define the selling parameters You will need to determine your selling requirements just the same as a buyer needs a buying a business checklist. Just like a buyer, you will need to create an organised plan as part of your exit strategy. Remember that you as a business seller will be asked to answer lots of questions by not only your buyers but your intermediaries such as business brokers as well. You need to be ready for both. You need to understand the business sale from your buyers point of view so we suggest as part of your preparation for the sale you understand the sorts of questions they will ask. If you want help with this in our How To Buy And Sell A Business e-mentoring program we have included detailed lessons on a typical buying a business checklist that you need to understand.
Business Tip #5: The year leading up to your Business Sale Don't go spending your valuable cash on new capital equipment, fixtures and buildings etc leading up to your business sale. You will rarely get it back through the sale. If you must purchase new equipment for the business and you know you are going to sell your business in the next 12 months, it is far better to lease it. We see many business owners make this simple mistake and realise it too late.
A Case Study to illustrate what we mean: A client of ours spent over $100,000 on a new piece of industrial equipment (printing and packing machine) in the year that his business was to be sold. This $100,000 piece of capital equipment went straight to his balance sheet. The buyers did not care what the actual value of the equipment was as they were only interested in paying a sale price based on a multiplier of the net profit. Whilst our client viewed the equipment as highly valuable, the buyers really didn't care whether it was worth $200,000, $100,000 or $20,000. They were only interested in the net profit of the business and their offer was simply x4 of this amount. It didn't matter what the equipment was worth. After the sale, my client realised that he had just effectively spent (and thrown away) a needless $100,000. If he had just leased the equipment the new owners would have been just as happy taking over the lease, thus my client would not have had to outlay $100,000 of his own cash.
Business Tip #5: The Final Consideration on Timing Your Business Sale… Are you willing to devote the time needed for your business sale? Many business owners do not consider the effects of the sale process on their business time-wise. A business sale does not happen within a few days or generally even a few months. Remember, this is a process that will take time and energy on your behalf. Make sure when considering the timing of your business sale that you have the time and energy to devote to the sale as it can take up considerable amounts of both depending on the deal. Following these business tips will help you in planning your exit strategy and in deciding when to sell your business. As business brokers we take our clients through each of these ideas in planning their business sale so that they are well prepared and get the timing right for their business sale, and most importantly they are realistic about the sale process.
How do you know WHEN to sell your business? – what is the best timing to ensure maximum sale price and to sell your business fast?
When to sell a business is a common question we hear as business advisors. In this article we are going to give you some guidance on business sale timing and outline some of the key issues that you should address before putting your business on the market.
Is there a best time to sell your business?
Firstly, the age old question: Is there a best time to sell a business? Here are the two best business ideas to answering this:
Business Sale Idea #1: Sell your business when the business is booming or after a good year ie there is clearly good business growth
Business Sale Idea #2: DON'T sell your business when the business is on the down or after a bad year
Seems obvious and often easier said than done, but if you want to maximise the sale price, these two best business ideas work every time! We see so many business owners try and sell after a bad year – they leave it too late and they can pay a big price for leaving it too late.
Here's why showing buyers your business is on the up with good figures and good business growth is so important:
- It impresses them!
- It shows the business is successful = gives them more confidence to go ahead with the deal
- It makes it much easier for business buyers to get funding
- It gives them less to bargain with you in the final negotiations – good figures are hard to argue with!
Also something that you may not have considered is that it is better for a business buyer to come into a business showing good business growth ie on an upswing, because profits will be high and they will have more chance of doing well and surviving in their most vital first year of taking over your business.
Getting the actual timing right…
As business advisors, here's our best advice if you are thinking of selling your business:
Don't leave it too late!
As we say repeatedly in our seminars – don't just rock on up to the market and expect to sell your business for top price! It just won't happen in the current market.
You will need to plan and prepare. Start planning now and getting everything in order. If you have been following what Liz and I say and teach, you will know that it is far better to ALWAYS have your business in a sale ready state so no excuses here!
Our experience is that it is ideal if you have 12 months (or more) to prepare fully for the sale of your business. However, you can rapidly get a business ready for a top sale price in 12 weeks -and of course we have a program that helps you do exactly that! Just check out our excellent 12 Week Turn-Around Program at http://The12WeekTurnaround.com which gets your business ready for sale within 12 weeks so you can sell your business for top dollar and sell it fast!
Are you interested in learning about the simplest and easiest no-brainer way of getting maximum sale price when you come to sell your business? –This is a superb business exit strategy that most business sellers dont use or refuse to use and in doing so, do themselves out of hundreds of thousands of dollars and most importantly makes the sale much easier and quicker?
As a seller using vendor finance is an incredibly powerful way to get the maximum sale price for your business, to get that big sales multiple. We have been involved in deals where the simple offer of vendor finance made all the difference between the business sale going through or not going through.
With the challenging bank finance situation these days you the seller will often be in a far better position to finance the business. In this day and age the easiest and most effective way to sell a business quickly is to offer vendor finance and its not as difficult as you think!
What is Business Vendor Finance?
Vendor finance is simply where you the seller (vendor) help finance the buyer into your business, usually by allowing them to pay a lesser amount than the agreed sale price of the business on settlement and then pay off the remainder over a period of time.
I believe it is becoming more and more important for sellers to consider vendor finance and we are now seeing a lot more business deals in Australia that involve some form of vendor finance. Especially in the current environment where the banks have tightened up considerably on small business finance which means that it is increasingly important for vendors to consider vendor finance.
Lets take a look at why this simple strategy is so powerful when it comes to selling your business…
- Widens pool of potential buyers
- Shows you have got confidence in the business
- Easier for them to buy
- Your competition does not offer it (ie other sellers)
- It is far more simple than you think
The biggest advantage of offering vendor finance is that you are making your business more affordable to more business buyers ie you are vastly broadening the net of potential business buyers.
To illustrate what we mean lets take a look at this simple exercise we run at our workshops. We will ask a room full of business buyers and business owners the question:
"Who has $1 Million or more to buy a business?" Very few hands will go up.
- When we ask: "has anyone got a $100,000 to buy a business?" A couple of hands go up
- "Has anyone got $50,000 to spend on a business?" A few more hands go up
- "Has anyone got $20,000 to buy a business?" Now more hands are starting to go up
- "Who's got $10,000 to buy a business?" Now many more hands up in the air
- "Could someone put $5000 towards buying businesses?" As you can imagine we now have a room full of people with their hands up in the air.
The point of this simple exercise is to show you that as less money is needed to get into a business, there's a lot more buyers suddenly coming in to the market. This is exactly what we are doing with vendor finance -widening the pool of available buyers to vastly increase your chances of selling the business for more money.
Vendor Finance solves the major hurdle when it comes time to sell your business!
Vendor Finance overcomes the main challenge that all your buyers will face -the banks actually lending them the money to buy your business. Keep in mind that there are not a lot of individuals running around with $500,000 ready cash in their hands.
Most buyers will need to borrow money to purchase your business, and many in the current market will not get a loan off the bank. Does this make them a bad candidate for owning or buying your business? Generally No. Are you willing to let this large pool of potential buyers for your business slip by? -The answer should be NO!
Also, keep in mind that when you have more buyers you have more options especially when it comes to negotiating the sale price of your business. Its just simple supply and demand: more business buyers to chose from means you can generally ask for a better price as you have more buyers competing to own your business.
There are many ways to offer vendor finance to a potential buyer of your business. We wouldn't necessarily advertise that vendor finance is available (it depends on the deal/situation), -sometimes it is better to keep it up your sleeve as a negotiation tactic, BUT make sure you are prepared and know your options. Have a plan in place which includes the amount of vendor finance and potential terms and the sort of person you can offer it to.
In our opinion this is a superb business exit strategy that all business sellers should consider. We cant emphasis the value of offering some vendor finance enough.
So when it comes time to sell your business make sure you are prepared and factor in some provision for vendor finance -it will help your business sale be much more successful, and not only more profitable but also quicker and easier!
Ever dream of the really big sale price for your business? In this article we will share with you a simple yet powerful strategy to achieve this. It also happens to be a fantastic way to grow your business rapidly.
By the end of this article you will have your eyes opened to new business ideas that many high level entrepreneurs use to make big money with business.
In essence this strategy is a very quick way to massively add value to a business and for this reason it can be a great way to get top price for your business when you come to sell your business.
A lot of small businesses seem to think that the best way to grow their business and ultimately get the big sale price is by franchising.
However, in our opinion this is a much better (and simpler) way that most small business owners dont consider or use. This is a favourite strategy of all the savvy successful entrepreneurs we know because it is so effective.
So lets continue and see what it is all about…
Growth By Acquisitions
Roll-ups, merger and acquisitions, bolt-ons, growth by acquisitions? You may have heard these terms before and thought it all sounds a bit corporate and too big end of town for a small business owner, BUT it's actually quite simple.
Quite simply it is just buying up a like business and adding to your existing business. This is a business growth strategy you start implementing well before you sell up. You literally "Bolt" another business onto your own with a view to selling out the combined entity for a much bigger sale price than if you had sold just your single business.
In general you look at buying a business smaller than yours and the idea is to add to the two companies together, enjoy the benefits of costs saving synergies across the combined companies and increasing the net profit. This means you can show a buyer that you've got something bigger now and the other important reason this works so effectively is that (in general) as net profits become higher, sales multiples of businesses can increase significantly.
So Why is this business growth so powerfully effective?
By rapidly and very aggressively growing your business through acquisitions you massively leverage your businesses value quickly and simply.
Consider that if you can purchase a business on a low multiplier and then bolt it to your existing business making it much bigger and better business, you can then sell on a higher multiplier and you have suddenly created a lot of money through the power of massive leverage.
Case Study #1: A good reason to consider this profitable business idea…
One of the buyers of a business I was involved with recently was a private equity firm. It was quite interesting that the smallest business that this PE firm would look at had to have a net profit of at least $2 Million. My vendors business netted around $1.45 Million. They were quite keen to buy my vendors business, but only of he could find another business in his industry that he could acquire to "bolt-on" to his company so that the net profit could be built up to $2 Million. Until he did this "bolt-on" or acquisition they were not interested in proceeding with the sale. And if he did do it they were prepared to pay him a higher multiplier for the business.
Can You Do This With Online Businesses?
In our workshops we teach this as an ideal strategy to apply to buying websites -building your own online empire!
Basically if you are in a niche, go out and find other websites that are also in your niche and buy them up. You can rapidly have a nice portfolio of related sites that all dominate your niche.
This can be highly effective because it can be so cheap and easy to buy websites (Make sure you come along to one of our workshops to learn all about how to do this exciting web buying strategy! 🙂
In this article we wanted to open your mind to new business ideas for greatly increasing the sale price of your business when it comes time to sell your business, and to get you thinking about it as an option to implement in your business. Dont just think of it as something that the big companies do, you can do this at any level.
You don't have to be a business magnate to start doing this, although you can rapidly become one as you get more proficient growing your business through acquisitions!
As a business broker am I doing something wrong with my vendors?
The best business advice ever we can give you when it comes time to sell your business to an interested buyer…
Only answer what is asked of you. Truly, its that simple!
For some reason some of my vendors over the years just dont seem to get this. We know (and understand) that this can be challenging for most vendors especially when they have in front of them the perfect buyer and they are keen to sell their business to them. Through selling our own businesses we know that feeling when your business is on the line and you've got an interested business buyer, you can't help but over talk a little bit too much about your business. The danger here is twofold:-
- You will inevitably say too much and bring up objections or concerns that the business buyer may never had considered before (we see this happen all the time), and
- You will actually oversell it and turn your business buyer off
With our business mentoring this is how we actually coach our clients word for word on this critical point:
Only answer what is asked of you. Just sit back. Relax. Listen really carefully to what the business buyer asks and shut up. Only answer what they ask -other than that, shut up!
Hopefully this simple advice is easy to understand! I have noticed that some of my vendors still don't seem to get it, but my hope for you is that you DO get it! Believe me -I have seen this one make or break the sale of multi-million dollar businesses many times. (it is painful for me even thinking about it!) I will say it again, simple, but break it at your peril – as business brokers we have seen plenty of business sales tip over because of this.
One important clarification needs to be made here: we are not trying to with-hold business information. This is not what it's about. You always tell the truth. You have to answer honestly your business buyers questions because they will eventually find out the truth anyway, so dont withhold anything, especially if the buyer is experienced and a smart business buyer or operator. BUT, and the big BUT, if they don't ask it, don't volunteer! It's not important at this point. Because inevitably, you will say something wrong and potentially put doubt or put them off the business in some way or you'll give away too much negotiating information.
What I think is going on: As a vendor you will more than likely be highly emotional about the sale of your business, and emotionally attached to the outcome of the sale of your business. This can be challenging at first when it comes to knowing what to say and most importantly what NOT to say. As I said earlier Liz and I have been there ourselves. I remember when I was selling our first business, it's a bit scary (lots of emotions) and we definitely over-talked and said too much. But the way to combat this if you're in that position is: ONLY ANSWER WHAT IS ASKED OF YOU!
And if you can't remember that one, then that leads us into our next inside business tip… (again, nice and simple!)
Matt and Liz's Inside business tip: Keep asking the business buyer questions
If you need to say something, which you will more than likely do on your first meeting because you'll be nervous, (nearly every vendor does this so dont feel too bad!) just start asking the buyer questions. Just simple questions such as:
- Why they want to buy your business
- What they're going do with it, what their plans and dreams are for it
- Do they know how to run it?
- Do they know anything of it?
- How long have they been looking at buying businesses?
So to repeat: Most importantly, if you need to say something, make sure it's a question to them. This is the best way I know to avoid saying too much and it has the added important advantage of helping you qualify your business buyer and finding out what the buyer is looking for which will become more important as your business sale progresses.
If you're game, why not share your experiences with us below if you have ever experienced someone (maybe yourself or your even your business broker!) speaking too much when trying to sell your business.
Sell your business with our best business exit strategy: "Retire and Retain the Upside"…
How would you like to take some cash off the table from your business -a big large chunk, and step back from the day to day running of your business and never worry about the funding of the business (raise capital) ever again AND still share in the upside as the business is grown by some of Australia's smartest and best funded business advisors?
Sound too good to be true?
Well, it not and this is a business exit strategy we highly recommend you consider, especially if you don't need to sell your business immediately. It will ideally suit those of you who are happy to have some form of ongoing involvement and ownership of your business.
We call it our "RETIRE AND RETAIN" method of business exit strategy! How to retire from the day to day running of your business and still retain some of the profits and business improvement benefits (the upside!).
This is a business exit strategy that we highly recommend which is setting your business up for sale to a private equity group.
Who are these Private Equity firms and Why Do they have so much money to spend on acquiring businesses?
You have most likely heard of Private Equity (PE) firms in the financial press. The ones reported in the financial press are typically doing big business sales, $300 Million, $600 Million, or buying up entire airlines! Some examples of the bigger PE firms here in Australia include Investec, Champ Private Equity, Advent Private Capital, NBC Capital etc.
Private Equity firms raise capital through fund raisings. The money they raise can come from a range of investors: high net worths, industry funds, super funds, money markets etc. It is important to understand that there is a lot of cash out there (even after the Global Financial Crisis) looking for higher returns than just sitting in a bank. The objective is to get a high return on the money raised by investing into businesses. Most private equity funds specialise in certain kinds of industries and certain size businesses.
The big opportunity here is that Private Equity firms are cashed up and desperate for deals – they need to spend their millions of cash and this is great news for those of you that want to sell your business.
If your business ticks their "buying a business checklist" then these cashed up Private Equity firms are going to be very keen to speak with you!
Some take home points to consider about Private Equity firms…
- Remember, that besides being well funded, PE firms often have great connections, business improvement capabilities and new business ideas to take your business way beyond what you could ever take it by yourself.
- You are selling your business or taking on investors/part owners with people who have a vested interest in making sure the continued business improvement and growth of your business is HUGELY successful.
- You will have some of Australia's smartest people/investors backing your company and driving it with highly profitable new business ideas.
Whatever industry it is you're in, there's probably Private Equity firms out there who are interested in what you have. When it comes time to sell your business we highly recommend you seek them out and find out their "buying a business checklist" and whether your business could be a candidate for them to acquire. You may be surprised at the attractive deal you can strike with them and how well selling to a private equity firm can work for you as a business exit strategy.
Leasing a business as part of your exit strategy can be a powerful alternative when it comes time to sell your business. Did you know that just like in real estate you can lease your business out to a potential business buyer? There are many reasons why this may be a great exit strategy for you as the seller of your business as opposed to offering vendor finance, and if you are looking to buy a business this is an excellent business strategy.
Why Lease a business when it's time to sell up?…
Here are some of the main reasons why you should consider leasing a business when you wish to sell your business:
- The most important reason; your business may difficult for you to get out of or sell any other way and leasing your business is the easiest way (and sometimes the only way!) to physically exit your business.
- There are instances where even if you offer vendor finance it can still be challenging to sell your business. Your best buyer may be trying to buy a business without a deposit and leasing your business to them can be a simple alternative to vendor finance.
- Business buyers may not initially have the money or typically like to buy a business with as little money down as possible and if your business has the cash-flow it is quite easy to get a business buyer over the line by negotiating to lease the business to them.
- Leasing a business can be combined with an option to buy at the end of the lease period ( just like real estate) which can be a very effective way to sell your business.
- Leasing a business is quite a profitable business idea if the vendor wishes to retain ownership of the property or real estate the business operates from
- You may want to keep the business and still enjoy some of the cash-flow from it i.e. leasing can be a great strategy for getting you out of the day to day running of your business and creating passive income from your business
The following real live case study will demonstrate what we mean about the advantages of leasing a business and where it may be used very effectively as a business exit strategy.
Leasing A Business as an exit strategy – Real live case study:
To illustrate what we mean lets take a look at a business we were involved in the sale of that ended up by being leased out to the buyer. This particular business was a sand mine that we were trying to sell right in the middle of the global financial crisis (GFC) melt down.
Selling The Business…
This was extremely challenging business to sell -how do you sell a sand mine in the middle of the GFC? It's a property with 'allegedly' three million tons of sand under the ground. Sand mines are highly valuable assets going forward into the future because sand is a diminishing and somewhat rare resource so we had plenty of interested business buyers.
BUT in the middle of GFC, it was virtually impossible to find someone to buy a business who would pay or come up with the money the vendor wanted especially with the banks clamping up so tightly on credit. This business had a very high asking price (in the multi-millions $) because of its valuable resource yet did not produce much cashflow/profit. It was generating a very low income compared to the massive asset it had sitting under the ground and this was the problem with the banks. There was no cash flow in this business to help fund any loan. It was all tied up in the assets sitting under the ground.
The Solution -Leasing A Business!
In the end the only way it could be sold was by leasing the business to the buyer. Heres how the deal was structured: The business buyer pays a minumum monthly lease to the vendor plus a small royalty based on the amount of sand that comes out of the ground from the site. On top of this, in several years time the buyer had the option of purchasing the business at the agreed price.
Both parties win here -the owner gets his most important required outcome -an exit from the day to day runnning of the business -he earns good money from the lease and sand royalties and even if the purchaser does not proceed with the option to buy, he (vendor) still owns a highly valuable asset that he can sell off.
The buyer is not locked into vendor finance and gets to make money from the sand he mines without having to pay over a huge lump sum upfront (no big upfront debt) until he is ready to exercise the option. In this case there was provsion for the option to be exercised early if agreeable to both parties.
Why Not Consider Leasing A Business as part of your Exit Strategy?
So if you are finding it hard to sell your business or just can't seem to make the deal work when it comes time to exit your business due to financing troubles or an unusual business situation, maybe consider this interesting alternative of leasing your business to a potential business buyer.