Run your business like you'll own it forever..and remember it's always for sale..

Run your business like you’ll own it forever..and remember it’s always for sale..

Sounds like a contradiction right? Well it isn’t.

You never know when the opportunity to sell will present itself. The best course of action is to run your small business like a a buyer will determine how much they are willing to pay you for your business tomorrow. Run it well, do the right things and have all your books and records in excellent condition.

But…… then why run it like you’ll own it forever?

Because you can’t out guess what a particular buyer will value. The best you can do is, as always, do what’s best for your business.

Your decisions and actions as a business owner will determine what your business is worth, tomorrow or 5 years from now.

List of Common Problems We See in Small Businesses

Below is a list compiled from talking to and evaluating hundreds of small businesses. Small business opportunities to improve are often very easy and inexpensive, it just takes a little attention to detail and a commitment to improvement. Here is my list:

1. Detailed written procedures for critical or repetitive tasks. Most small business owners struggle with “finding good employees” the problem is usually not that the employees are not “good” it’s that new employees learn differently and written instructions can get new employees productive faster and less likely to get frustrated and give up.

2. No system to follow up on sales opportunities. It’s incredible how often we see this. Customer calls, asks a few questions then says “I’ll call back”, business doesn’t even ask for a phone number much less check back with the customer.

3. Poor accounting makes the financial statements essentially useless for operating the business. The lack of accurate financials makes budgeting very difficult and consequently we often ask the question “How’s the business doing?” The answer, “Seems pretty good, I guess my accountant will tell me in March.” Not good.

4. The small business owner really has no idea how his pricing is compared to competitors. They don’t do any “research”. Their only feedback is when their customers tell them “Your price is too high!” Duh, most customers will tell them that even if it’s the lowest price they received!

5. Failure to seek expert advice until they have a problem. You know the saying, an ounce of prevention……. Often small business owners do not want to pay an attorney, CPA, financial planner because they think the issue won’t be a problem….but when it is a problem… it costs them 10 times as much as it would have if they had done a little up front work.

SBA Loans have new underwriting policy

A few days ago the SBA came out with a new lending policy to be used when buying a business. Business brokers are very excited about this change since it will facilitate more financing for small business purchases. About 15 months ago the SBA made a draconian change in their underwriting that eliminated business acquisition financing for goodwill in excess of $250,000. This 2008 policy change effectively dried up SBA lending for buying a business sales. Small business financing is a unique problem since the loans are usually not large enough for lenders to make much profit.

SBA loans are a very important part of the small business financing options. The newly released SBA business loan policy allows up to $500,000 in goodwill financing or if the buyer puts up at least 25% in equity the goodwill limit is uncapped.

This policy change is important because the goodwill value in the transaction is an indication of a highly profitable business.

SBA loans are back and business buyers and sellers will be more able transfer business ownership to retain jobs and help their communities grow.

Confidentiality in the Business Sales Process.. why it’s important to buyers, sellers and business brokers…

One of the most misunderstood aspects of selling or buying a business is the confidentiality issue.
Why do owners who are selling a business want to maintain confidentiality? Why is everyone so paranoid?

Here’s a short list:

  • If employees find out the business is for sale they often assume the worst even though it’s not true 99% of the time. For some reason most employees assume that if the business is being sold they will lose their jobs. That uncertainty between the time the employees hear the business might be selling and when it does sell leads employees to try to protect themselves by looking for another job. The irony is that business buyers are worried that the employees will quit, while employees worry a new owner will fire them. If the first any employee hears about the business being sold happens after the sale the new owner can say to them “I bought the business and I want you to stay with the business, you have a job .” Confidentiality helps the buyer and seller.
  • If competitors hear about a business being sold they will talk to customers and spread rumors and try to scare customers into leaving the company. Comments to customers like “XYZ Co is for sale, they aren’t able to fill your orders” can sometimes, even though not true, disrupt the business prospects. The buyer wants those customers after the business purchase so protecting confidentiality helps the buyer and seller.
  • Vendors – Supplier’s get antsy if one of their customers is being sold because they have a fear of not getting paid or losing the volume. So vendors sometimes will put a business on c.o.d. terms if it fears a sale will jeopardize the credit it has extended the business. Again, if buyer can tell vendor after the sale. “I’ve bought the business and I look forward to continuing to use you as our primary supplier” the vendor at least knows they still have a customer. Confidentiality is good for business buyer and business seller.

The above are just 3 examples of why maintaining confidentiality when buying or selling a business is important. Your business broker will have confidentiality agreements that outline in detail the specific terms that bind the parties to confidentiality. Read it, understand it and respect it because if you buy the business you’ll be glad to did.

If you find this article helpful you may want to look at Part 1.

Tax Law Changes effecting Biz Sales

The new benefits offered by congress allow small businesses to reduce their tax bill which makes the business sale more appealing for the sellers.

S Corporation Built-In Gains Tax Relief. For tax years beginning in 2009 and 2010, ARRA shortens, from ten to seven years, the amount of time that an S corporation that has converted from a C corporation must hold on to its assets to avoid taxes on any built-in gains at the time of the conversion.

Is buying a business right for you?

We often get to speak to people who are undecided about looking for a new job or, usually as a plan B, buying a business to replace the income they’ve lost when they left their previous employer. It is rare when these people have thought through the process of buying a business with clear lens. Here are 5 Dos and 5 Don’ts when considering purchasing a business:

DOs

  1. Understand your current financial situation and resources thoroughly.
  2. Be prepared to move through the process at a good pace but without skipping steps. For instance, don’t plan a 2 week vacation in the middle of the process.
  3. Understand that being in business has risks, few of which are as risky as having a job, but risks none the less. You will not buy a quality business without some risk.
  4. Be prepared to spend money for good advice from people who are experts (not your buddy at the country club who once bought a margarita machine to rent).
  5. Look at businesses that need skills you have, not just businesses that “seem like they’d be fun to own”. Your skills will determine the biz future, match your skills with the right business.

DON’Ts

  1. Don’t assume everyone is out to cheat you. You can find reputable people to deal with.
  2. Don’t let your emotions run wild. This is a arduous process that rewards discipline and a stick to it attitude.
  3. Don’t fail to listen, you night actually learn something.
  4. Don’t be afraid to admit what you don’t know.
  5. Don’t assume the seller is your adversary. Experience has proven that the buyers who get the best price and terms on a deal are the buyers who treated sellers with respect and courtesy. You can say no in a good way or a bad way, choose the good way.