How to read business figures and value a business

POSTED IN Buy And Sell Business, Buying A Business, Selling A Business

Business Advisors Matt & Liz Raad, Mal Emery

A couple of weeks ago we presented onstage at Mal Emery’s event about buying, building and selling businesses (awesome workshop by the way!) and over the course of the weekend through speaking with the many various business owners there I was reminded of the importance of business owners being able to clearly interpret their own business figures and understand how to value a business.

This is the one area of business where we constantly see business owners make big and costly mistakes because they have no idea (or maybe they are burying their head in the sand?). If you can’t interpret your businesses figures in a practical way you will really struggle long term in your business and you will make wrong business planning decisions that will hamper your business growth.

What is particularly scary to us is that we see business owners rely on their financial advisors like accountants who don’t tell them until its too late that they are losing heaps of money. When I first became a business broker this constantly surprised me as I would often come across business owners asking for me to help them sell their businesses that were clearly going backwards rapidly to the point of being bankrupt. What actually amazed me the most is that you could see in their figures (that were prepared by an accountant) that the business had been struggling and in serious trouble for several years – why didn’t the accountant start giving them some serious warnings or business advice years ago rather than wait. Often the business owner had no idea until too late and yet if they knew how to read figures in a PRACTICAL WAY they would have been fine and could have made better business planning decisions.

If you are in business or thinking of buying a business, make sure you understand how to read business figures in a practical way and especially how to see any red flags in the figures and what you can do about it. This kind of business knowledge will definitely pay-off for you on your entrepreneurial journey and it’s actually not that difficult.

Why can I say this so confidently? Because ALL the successful business owners we know (and especially those that made millions from buying and selling businesses) could read, understand and interpret business figures and value a business. I was lucky that I got to work with these guys personally and see how they did it. Most had their own unique ways but basically at the end of the day I noticed that you should be able to value a business and work out what the business is doing “on the back of an envelope” as a first sweep and 9 times out of 10 this would turn out to be a reasonably accurate business valuation.

Liz and I are quite passionate on this topic to make sure business owners are empowered in their own businesses to be able to read and understand the figures themselves. So I am looking forward to this weekend teaching our high level coaching clients exactly how to do this at our upcoming inner circle mastermind and boot-camp.  I have decided that in addition to the usual mastermind I will run a special session on reading business figures. We are also going to hotseat some of clients figures because as a group I believe we can learn a lot better doing it as a hot seat as the actual owner is sitting in the room with us to explain what has happened in the business (rather than just trying to read off the figs).

Obviously, for the majority of you reading this article you are not going to be at our boot-camp, but I urge you to make the effort understand your figures in a practical way (not some “theoretical” way) and review your figures regularly so that you can make more accurate business planning decisions which will ultimately help you be more successful in your business growth.

 

The Top 6 Business Tips For Timing Your Business Sale

POSTED IN Recommended Reading, Selling A Business

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.

Business Brokers, Why hiring the right broker can make or break the Sale

POSTED IN Buy And Sell Business, Negotiation, Selling A Business

If you are thinking about how to sell your business and have considered handling the business sale process on your own in order to ‘save’ on business brokers fees..STOP!

Now obviously I am biased but if you want to sell your business and even if you are looking to buy a business you need to have a business broker on board. For 95% of business sellers/buyers valuing a business for sale is a completely unknown business skill. Also it can be very challenging having to deal with all aspects of a business sale or purchase by yourself and a good business broker will be experienced and able to steer you through the process with ease.

Why do I need a Broker to Sell my Business?

Selling a business requires specialised business sales knowledge. It is not like selling real estate. There are many variables involved and often highly specialised skills are required to sell your business, especially in two key areas:

  1. Valuing a business for sale
  2. Actually getting the deal completed and over the line

A good business broker will have the specific experience that other standard business advisors or you the vendor just don’t have. They will often have access to currently qualified business buyers and will be able to evaluate how serious or suitable they really are. Also why it is important to sell your business with a business Broker is the project management role a Broker can take on allowing you as the vendor to continue to look after the day to day running of your business.

“How Do You Sell A Business?” Negotiation: the key to successfully completing the business sale…

As business advisors, whenever we are asked “How do you sell a business?” we always discuss the hugely important aspect of the business sale process which is the negotiation skills of the business broker.

Negotiation is a crucial factor for achieving a successful business sale and is the number one area we find most vendors handle very poorly because they are too emotionally attached to the outcome of the sale of their own business.

Our experience is that having the right negotiator or business broker can make or break the sale of your business.

Negotiation includes staying in contact with the prospective business buyer, showing tenacity in working out a good outcome for all parties, and being sensitive and approachable at all times.

What can I expect Business Brokers to do for me?

An important part of the business broker’s role is to get to know enough about your business and your industry so a selling memorandum can be created. This will also play a key role in valuing a business for sale. The descriptions and information provided in the selling memorandum are the first impression a potential business buyer gets of your business and should be designed to entice the business buyer to want to find out more.

Furthermore, the Broker can help you manage other professionals involved in the business sale such as the Accountant and Lawyer and bring them all together as a team. As the Broker is involved at the overview level of the sale, he/she will know best when to start the actions and preparation of relevant documentation.

How do I find the Right Business Broker for me?

You can examine the Business Brokers experience, qualifications and industry knowledge but ultimately, deciding factors should be that you can work with the personality the Broker displays and whether he/she shows commitment to be your guide and bring the business sale to a satisfactory outcome for you and your business buyer.

When you approach business brokers gauge the amount of enthusiasm and the type of questions he/she is asking. This will give you a feel for the level of interest and knowledge in your business ideas and therefore the sale.

The most important selection criteria for your business advisors:

In addition to the obvious “are they capable” and “are they go-getters” etc, we suggest that ultimately, the most important determining factors for your business advisors are:

  • do you like them?
  • do you trust them?
  • and are they responsive?

Because remember that you are handing over the sale of your business (your livelihood and often life’s work) to this person AND you will be working closely with them for some time, so you need to trust them completely as a business advisor.

Final Thoughts on Business Brokers…

Good business brokers are invaluable not only in valuing a business for sale and business sale negotiations, but also in helping you with your overall exit strategy and ensuring that you sell your business for more money than if you tried to do it yourself.

When to Sell Your Business?

POSTED IN Buy And Sell Business, Recommended Reading, Selling A Business

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!

Vendor Finance: The Easiest Way to Sell Your Business For Maximum Price!

POSTED IN Buy And Sell Business, Recommended Reading, Selling A Business

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!

The Ultimate Business Sale Strategy! -Rapid growth by acquisitions

POSTED IN Buy and Sell Websites, Franchising, Recommended Reading, Selling A Business

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 Conclusion:
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!

Business Broker Confesses -My Pet Peeve

POSTED IN Negotiation, Recommended Reading, Selling A Business

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:-

  1. 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
  2. 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.

Franchising – Is It The Best Way to Sell Your Business?

POSTED IN Franchising, Selling A Business

We meet many business owners who tell us they are going to franchise their business as part of their long term exit strategy. We can understand why; it sounds so exciting -you get to rapidly grow your business and you get the ultimate big payout because you get to sell your business over and over again and make lots of money.

But is Franchising really the best way to sell your business?

It is all too easy to be convinced of the merits of franchising – the dream of big money from rolling your business out across the country (or even overseas) is very compelling, BUT, it is here is where we see business owners make costly mistakes and decisions. Believe it or not it costs quite a lot of money to even start thinking about franchising! It is not as easy as you think or have been lead to believe by some “Franchise” consultant!

Franchising is a specialised process and requires the use of specialised franchise consultants and lawyers. We have seen many business owners start down the franchise track only to realise after spending much time, money and energy, that franchising is not for them or their business is not really suitable for franchising.

We want you to understand that;

Franchising is not a “walk out” strategy. It’s a way to work at a higher level on your business.

This is an important distinction ie by franchising you are not exiting your business, you will still be very much involved and attached to your business and constantly working on business improvement.

We would suggest you need to consider very carefully whether franchising is the right thing for you and your business.

Make sure you are honest with yourself, your business and your capabilities here! No delusions! Seriously -we know many business owners will still want to franchise their business even though it is totally inappropriate!

Many business people go down the expensive and time consuming route of franchising their business only to find it doesnt go to plan because they failed to understand and examine some basic fundamentals of their business.

The most fundamental rule we can give you before you even consider whether to franchise your business or not is:

“Your business must be an existing and PROFITABLE business”

This is a very obvious no-brainer (say yes!), yet we see so many business owners totally ignore this critical rule! If your business is not already profitable you will struggle with franchising. You need to show that your business model works and that it’s profitable otherwise how are your franchisees ever going to be profitable and how will you ever sell franchises unless you can show a new buyer that they will make money?

DONT PROCEED WITH FRANCHISING UNLESS the business is already profitable! Hopefully you get this one loud and clear!

In our E-learning mentoring program we cover a whole series of questions and detailed checklist of the sort of things you need to consider before you start spending any money on the franchise process. You can check out what else our business improvement e-leaning program covers at …http://www.howtobuyandsellabusiness.com/12weekturnaround