Posted on August 27, 2013 by Kim Brown — Leave a comment

How to grow and possibly exit your business with your sanity intact

Over 75% of business fail within 10 years

According to the U.S. Small Business Administration, approximately 50% of all new businesses survive five years or more and about one-third last 10 years or more. That means that only 25% of businesses last for longer than 10 years. Yikes!

Considering the high rate of failure, wouldn’t it be in every business owner’s best interest to consider an exit plan within 5 years or 10 years at most? Seriously – to beat the probability of failure doesn’t it make sense to set up a business with the sole intention of selling it before it fails?

I might sound a bit cynical here but let’s face the facts – you have a 50% chance of being around after 5 years and your probability for success diminishes the longer you own your company.

Is it possible to create a company for the sole intention of selling?

Starting and growing a business myself, I know first-hand that there’s simply not enough time to grow a business and consider an exit plan. When I first started, my plan was to build my company for 3 – 5 years and then sell it. After 8 years of work, work, work I consider myself lucky to have been successful (financially – not mentally!) yet the company was in no shape to sell. Fortunately for me, I exited through a management buyout; otherwise I fear I’d be in the loony bin right now. I loved my company, but I was so tired of running it.

The gurus all say to start with the end in mind. They highlight the importance of planning an exit before you start, yet it’s hard enough to plan a forecast for 12 months. Things change so quickly – technology helps or hinders your business. New regulations are forced upon you. Recessions hit. And of course, business owner life gets in the way – income targets need to be met, salaries have to be paid, HR issues have to be managed and the plates have to keep spinning.

It’s not about thinking with the end in mind (which could be to exit your business) – it’s more about thinking how to reach the end with a mind!

How can you grow your company, exit your business and keep your sanity?

I think there are several solutions to reduce the likelihood of business and/or personal failure, so all is not lost.

If you haven’t yet started (or are just starting) a business, make darn sure that you’re super passionate about your product/service in addition to running a company. I’m positive that many businesses fail because business owners are chasing money rather than creating an offering that they truly feel passionate about. Every business owner that I know that’s had a business over 10 years absolutely loves what they do. (I admit it, I chased the money, I had very little passion for the product/service I offered.)
If you currently own a business and are getting tired of it, it’s only going to get worse, so start thinking about an exit now! There are so many things that can be done. You can pull yourself out of the business while teaching others to run it, you can consider succession planning – setting up family member to take over or perhaps getting it ready to sell. The key here is don’t wait until you burnt-out. (I admit it – I waited until I was burnt-out and it wasn’t a pretty sight).
Don’t pretend that you’re happy. In today’s age of positive thinking we business owners give ourselves pep talks all the time. We tell ourselves we’re happy, we’re successful, and we’re the rulers of our own dominion. Additionally, we feel a pang of guilt to admit we’re unhappy with our situation. Heck – who are we to complain? We’re our own boss, we control our pay check, we can come and go as we please. It took sheer determination and tenacity to get our business going – we can’t allow ourselves to think we’re not happy about the destination we’ve created! Can we? You can only pretend for so long. Sooner or later you’re going to have to feel the truth. (I admit it – I pretended I was happy. Everything in my world was smiley faces. It wasn’t until one day when a mentor asked me what I really wanted and my response was, FREEDOM! Up until then I was kidding myself).
Learn the art of outsourcing and delegation. Most business owners, especially in the early days, think that no one can do the job they do as good as they do it. You’ll hear them saying, ‘I wish I could outsource this but it’s quicker for me to just do it myself. Furthermore, it will get done correctly.’ If you say these kinds of things, treat them as a massive warning! You cannot grow and eventually exit a business if you don’t remove yourself from the running of the business. To remove yourself from the running of the business, you must delegate or outsource. Growth is now about you working hard – it’s about you working smarter. (I admit it – no one could do anything as good as me, therefore I found it impossible to delegate. This in turn created a situation where I had to work longer hours and become more and more miserable).
Take the time to understand what is truly important in life because if you think it’s your company, you’re on the wrong track. Our culture is so geared towards making money and owning houses, boats, cars and gadgets yet none of that makes our heart sing. Yes – money is important, but once you have ‘enough’ more money doesn’t make life better. The most important thing in life is love – it’s giving love and receiving love. And I’m talking about love from humans – not the love you give your company! When you’re on your death bed you’re not going to reflect back and wish you worked harder or earned more money. Relationships with your friends, family and community around you is what really matters. Whether your business fails or succeeds I can guarantee that having loved ones with you for the journey will make all the difference in the world. (I admit it – I was married to my company. Nothing else mattered. My friends were my employees. It wasn’t until I exited that I realized how removed I was from the most important things in life).

So there you have it. That’s Kim’s take on growing, exiting and staying sane through your company journey! Any comments? I’d love to hear your thoughts?

Kim Brown, Co-Founder of Business Wand, helps business owners navigate their way through the start to finish process of selling a business. Her specialty is to help owners cut costs and increase profits prior to sale. To understand how you can sell your business quickly for the highest sales price, purchase the book, “How To Sell A Business: The #1 guide to maximising your company value and achieving a quick business sale”

Posted on May 28, 2013December 25, 2018 by Joanna Miller — Leave a comment

Value your business using a valuation multiple

Value Your Business – the Multiple

There are a number of ways in which to value your business. Two popular financial calculations that are used to estimate how much your business is worth are:

A valuation multiple
Discounted Cash Flow (DCF)

This article will focus on how to use a ‘valuation multiple’ and we’ll be covering DCF in a separate article later this week.

In our ‘Calculate Your Walkaway Price Pack‘ we included a worksheet that covers three popular business valuations for you to complete for your business.

First of all, let’s define what a valuation multiple is. The valuation multiple is used to multiply a business economic benefit to arrive at an estimate of business value. Revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) are just two examples of what the business economic benefit could be. The actual multiplier value depends on the type of business, the forecast for future sales and many other factors.

It really is a simple calculation and it’s based on your last full financial year set of results:

Business Value = business economic benefit x valuation multiple

Your market will most likely have an average ‘valuation multiple’ based on past acquisitions in that sector using a particular business economic benefit.

For example, it could be 2x sales or 3x EBITDA.

Perhaps a business recently sold in your industry – do you remember what their figure was? If you don’t know, you could always ask a business broker or if the acquirer was publicly listed, the information will be on their website as they have to declare the terms of the deal.

Use the industry multiplier as your starting point and then you can adjust the multiplier when applying it to your business. Bear in mind that you may have both positive and negative influences when you do that.

Positive influences on raising the multiple figure would include:

Innovate products and solutions
Strong brand and dominant market share
Low number of competitors
Strong profit
Strong customer base
Reoccurring contract revenue

Negative influences that will reduce the multiple figure include:

Strong competitors with better products and services
Declining market share
Few Customers that make up 20%+ of sales
Legal action

Hopefully your business will have positive influences and no negatives which will help that multiple. Once you’ve valued your business then its time to focus at how you can directly increase and sustain your sales and/or profits (the business economic benefit) so your business valuation increases.

So to recap, what you need to do is:

Decide on the business economic benefit to use
Use your industry’s valuation multiple (or use 2x sales or 3x EBITDA)
Adjust the multiple up/down when applying to your business
Perform the calculation!
Focus on increasing your business economic benefit

Which leads to maximising the valuation for your business.

Simples! You have now successfully valued your business. DCF is up next…

Joanna Miller helps business owners navigate their way through the start to finish process of selling a business. Her specialty is helping owners understand how to prepare and make the most of their business sale process to maximise their company’s value. To understand how you can sell your business quickly for the highest sales price, purchase her book, “How To Sell A Business: The #1 guide to maximising your company value and achieving a quick business sale”

Posted on May 23, 2013April 2, 2016 by Kim Brown — Leave a comment

How You Sell Your Business Will Determine Its Selling Price

How You Sell Your Business…

When you decide to sell your business you could make 50% more or 50% less depending on how you sell your business. When it comes to the how’s, here’s a list starting from the worst way to sell (lower value) to the best way to sell (higher value):

Liquidation
Book value
Unsolicited offer to buy from a competitor
Professional contact introduction
Private Equity Group
Strategic Buyer through a Broker
Strategic Buyers in a Bidding Process

The Liquidation value of a company is often used if a business owner dies or becomes ill. The value does not include goodwill, company earning potential or client lists. By selling your company this way, you’ll get the least value possible. On the flip side, getting Strategic Buyers in a bidding process is the ‘holy grail,’ of selling. This allows for competition and has the potential to increase value through demand.

How you sell your business is a fundamental aspect regarding the value you ultimately achieve. While trawling through YouTube, I found an excellent video that outlines the various ways to sell a business in addition to explaining why. To get a full description on each of these methods, watch the following video created by MidMarketCaptialInc.

How You Sell Your Business Video

Posted on May 20, 2013December 25, 2018 by Joanna Miller — Leave a comment

How to find the best broker to sell your business

The best broker to sell your business

A lot of work goes into making a business successful. But nothing lasts forever, even if your business is something you love and watched grow from a tiny baby start up into a fully grown adult money making machine. There comes a time when you want to sell that business.

It may be that you want to work in another sector or want to retire. Whatever the reason you need to ensure the process runs as smoothly as possible and the most effective way of making sure this happens is by finding the right broker company.

Consider your Exit Strategy

A lot of people who run seminars or give talks on running a business will talk about having an “exit strategy.” This is when people decide when they want to leave a company and how they intend to do it. However people are only human and the odds are when you work every day on your business you may not have thought of the practical steps needed when you need to sell up with a vague “some time in the future” in your head.

The temptation then is that when you finally do decide enough is enough you may decide to go it alone. After all you’ve set it up and made money for yourself why can’t you sell it yourself?

The reason this approach is not as effective is quite simply the law of averages! If you try and sell a company on your own then it is likely you will only be able to deal with one potential buyer at a time. The danger of this is that if a deal falls through it can mean going back to square one all over again each time, adding further stress and work that you don’t need when someone else can handle it for you!

A broker can deal with a number of clients at once because…well it’s their job. Even if you are robot level efficient there’s only so many meetings you can go to. Depending on who you go with they can also assist on the marketing and finance side as well, all things that could potentially screw up a sale.

Hold A Talent Contest or Beauty Parade

All of these aspects need to be considered when comparing the various types of company broker available to you. In some respects it is like a talent contest and you are the judge- therefore it is up to you to ask the right questions!

The most important question of all is- can you give us references? They ought to be willing to give proof of any claim and be able to supply you with convincing evidence that they can do what they claim to do. Trust your instincts- if the reference seems dodgy, look elsewhere!

Another aspect is the valuation- if they offer a figure that is too high or low then it is best to avoid them. In both cases there is a danger that they have an ulterior motive so it is best to do a little detective work to see the facts behind the figures.

Also get them competing! Don’t be afraid to get ruthless – get a couple of quotes and then call them back saying what the other one offered.

(Note: In the Sell Your Business Store, we offer a beauty parade pack to help you ask the right questions to obtain the best broker, solicitor and financial people!)

The Small Print

ALWAYS READ THE SMALL PRINT!

The odds are they will have various fees that they charge for their work. Do not take what they say at face value.

Part of the problem is finding people you know are reliable, rather than hoping that the people you are contacting are real. Anyone can create an official looking website and anyone can dress up their service with fancy sounding jargon.

Business networking groups are ideal places to go for this- someone usually knows someone else and if they genuinely like the service they offer then they will tell you!

Stay in touch

Even the surest of deals can go down due to unnecessary delays. One of the most frustrating things is to find your perfect deal went wrong because someone didn’t check their email or didn’t respond quickly enough to a phone call.

If the broker is in your local area, pop into their office unannounced before you do the deal. See how they handle the day to day running of a business. Look at the way they arrange their desks, the way they talk with each other. If your business sense starts tingling the odds are something is amiss- in some respects it’s like courting and it is up to you to read the signals to see whether your potential broker is the perfect date or the perfect dud!

Checklist for choosing a broker

In short there are a few things to check over before you choose a broker-

Know your exit strategy
Set a time frame
Do your research
Is their approach appropriate for your business?
Can they offer assistance with marketing and financing?
Ask for testimonials
Ask about fees upfront
Is their valuation realistic?
Compare at least three different company brokers.
Ask around at local business networking groups.
Make sure they stay in touch with you and keep in contact during the selling process.

Another thing to remember is that there are no guarantees and no broker can promise you definite sales. But like any investment in your business doing your homework and comparing all your options will give you the best possible chance. While it may be hard waving goodbye to your grown up company you can do so knowing it’ll find a good home!

Posted on May 8, 2013December 25, 2018 by Joanna Miller — Leave a comment

How To Sell Your Business In A Downturn

“Sell your business in a downturn? Are you crazy?”

This may the reaction that you get from friends and family if you are planning to sell your business in the current economic climate.

It’s not as bad as it appears

Downturn, recession, depression, slump – whatever you call it, there is no doubt that the world’s major economies have been suffering a tough time over the past few years, and there are those that would suggest that you would be better to wait until the storm blows over. However, figures from the UK’s Office for National Statistics show that last year, the value of UK company acquisitions was over £20 Billion – so even if the figures are lower than previous years, there is clearly still plenty of opportunity to sell your business in a downturn.

So if you find yourself in the position of wanting or needing to sell your business now, there’s no need to listen to those who think you’re crazy. You may even find that the process is easier than it would be during times of economic growth, because there’s less competition in the marketplace. It is still perfectly possible to sell your business in a downturn, while getting a fair value for all the hard work you’ve put in to make it grow over the years.

Four Steps on how to sell your business in a downturn

To maximise the return on your investment of all that money and sweat, it’s worth bearing in mind the following steps. Several of them apply to selling your business at any time, but in a downturn they become especially important as corporate finance is limited and asset values are generally depressed:

Present your best face – Ensure that your business is as enticing a prospect as possible for a potential buyer. Of course, you always try to run a tight ship (right?) – but now is the time to take the opportunity to make it even tighter. Take a look over the company’s accounts and make sure everything’s up to date. Tidy up those ledgers, tax returns and bank account records so that any buyer can see what they are buying, and that there are no hidden surprises. Renew your leases, insurances and software licenses (and while you’re at it, why not see whether you can use the fact of the downturn to negotiate a better deal?) The better face you can present to the world, the more valuable your business will appear.
Be flexible – In a downturn, there is no getting around the fact that there are fewer buyers and, unfortunately, there is less cash available. After all, that’s pretty much the definition of a recession. This is the time to be flexible about how the deal is done. You may find that there is someone who is willing to buy your business, but would rather make the purchase by means of a loan, or by offering shares in their business, or giving you assets such as buildings or land in return for your business. This may not be your favoured option, especially if your reason for selling your business in a downturn is to release much-needed cash. However, don’t dismiss the possibility without considering it carefully, because you may find that the assets you’re offered now end up appreciating in value as the economy recovers and business confidence returns to the market.
Have a convincing business plan – Anybody buying a business in a downturn will recognise that they are taking on an element of risk, so you can calm their fears by taking a long, hard look at your own company, and developing a fresh business plan that shows how it can maximise profitability from this point forward. You probably developed a business plan when you first set up your business, so follow the same steps now to analyse your market, your competition, the prospects for future growth and ultimately, the value of your business to a buyer. Don’t forget that they will want to see a good return on their investment, so spend a little time and money on advice from your own lawyers, accountants and bank managers to make sure that your calculations represent a realistic prospect of profit for the buyer.
Finally, consider whether your business actually has some benefits in a downturn. Some businesses actually do better when times are tough, such as those dealing with asset repossessions, or discount retail. If you happen to be operating in these markets (or could expand into them), then now is your time to shine! Make sure that buyers recognise the benefits of buying your business in this downturn – you may actually be a better prospect now than in the boom years.

Whatever your motivation, just remember that if you are selling a genuinely valuable business, an economic downturn need not be a barrier. Be prepared to be patient, as things may be slower than you would like, but if you follow the steps above, you can hang on to get the best deal for your business.

Posted on April 9, 2013August 12, 2013 by Kim Brown — Leave a comment

Maximise Business Value By Increasing Profits

Increasing your profits before you sell to maximise business value.

Preparing a business to be sold is no small feat – especially when you want to do all you can to maximise business value. During the lead up to a sale, all efforts need to be focused on increasing profits and reducing waste. There are three main ways to grow a business. By fully understanding these profit growing techniques, and implementing them correctly, you’ll be able to instigate an exponential growth curve. Being able to demonstrate an upward curve should cause buyers to be clambering at your gates.

The three techniques to maximise business value through profit increases include increasing:

The amount of people buying
The average sales order value
The frequency of purchase – getting current buyers to buy more often

If you increase these three areas by only 10% you’ll effectively achieve a 33% increase in profits.

For example, let’s pretend you have 1,000 clients with an average sales value of £100 and your customers buy 3 times per year.

1,000 x 100 x 3 = 300,000

By increasing the clients, the average sales value and the frequency of purchase by 10% each you’ll get:

1,100 x 110 x 3.3 = 399,300 (a 33% increase)

That means that you simply need to attract 10% more clients, create a way to increase the sales value by 10% and achieve a 10% increase in the frequency.

Keeping in mind that you’re working on selling the business, now is not time to roll out new products, start massive campaigns or new initiatives. It’s time to working on your business not in it. Small changes can lead to a massive increase in profits. The key is to work smart and keep it simple. Here are some quick-to-implement suggestions on how you can increase each area by 10% or more:

Increase the amount of people buying from you (to maximise business value)

If you want to increase leads quickly you can have them delivered to your inbox within hours. Create a Google pay-per-click (PPC) campaign. Creating a campaign isn’t rocket science however most businesses get it wrong and lose money. First, let me explain what it is. PPC is a way for you to buy click-throughs to your website for a very low cost (20p – 50p each) from the Internet. You create a small advert and assign keywords to it. When a user types in those keywords the advert appears on the search results page.

This is where being smart comes in. Not only do you want the user to click on the advert, but you want them to come to your website and leave their details so that you can then follow-up (and sell to them). They’re not a lead until you have the ability to contact them! The best way to get a user to leave their details is to offer something of high-perceived value that costs little or nothing to you.

Examples include, offering a free report, free sample, free video or free consultation. The best freebies offer to solve the user’s largest problem (in relation to your product or service). So, if you’re a letting agent looking for new landlords, you’d advertise a free booklet on the ‘Top 10 Tips To Maximise Rental Returns.’ If you sell a cost cutting service to businesses, you’d advertise something like, ‘Free Guide On Reducing Business Expenditure By 30%’ and so forth.

The PPC advert promotes the freebie and once the user is on the website, they must enter their contact details to get the freebie. All in all, the whole set up requires a PPC account, a landing page on a website, a form to collect the users details and some sort of freebie. Within a day you can have the whole thing set up and streaming in new leads.

This is precisely the system that I’ve used in the past and my return on investment (ROI) was around the 400% mark. Anyone that tells you that PPC is a waste of money just doesn’t know how to use it correctly.

Increase the average sales value (to ultimately maximise business value)

This is real easy. Studies show that around 40% of people will say yes to an upsell at the point of purchase. The best company to refer to regarding this principle is McDonalds. They were happily selling their burgers and then decided to ask every buyer at point of purchase, ‘Would you like fries with your order?’ And guess what happened? Over 40% said ‘yes’ and McDonalds immediately increased their profits by the millions.

What can you offer to your buyers at the point of purchase? Last week I went online to buy some new bedding. I selected a duvet, cover, bottom sheet, and some pillows. Being satisfied with my selection, I went to check out and right before purchase I was offered a beautiful bundle of fresh white towels for only £14.99. Did I buy them? Yep. And I’m sure lots of other people buy them too. When people are spending money, keep giving them reasons to spend more. You’re not adding any extra work – you’re just including another step within the sales process.

Implementing this one technique can seriously impact your bottom line and improve it.

So, what could you upsell at the point of purchase? And if 40% of your buyers said yes, what would that do to your profits?

Increase the frequency of purchase (to maximise business value)

The best way to increase a frequency of purchase is to make sure you’re in front of the consumer as much as possible. In my businesses I’ve relied heavily on automated emails and newsletters. I would send out educational content adding value to the customer in addition to reminding them to buy something from me. This type of system however is very time consuming to set up.

Knowing that a sale is on the horizon and you want to maximise business value, the quickest way to increase your frequency would be to set up a short automated email sequence reminding the customer of other products or services they might like. You can also schedule into your sales process a telesales call. The best way to do this is to call a customer a few days after purchase as a routine customer service call. While asking them about their purchase, have your caller(s) prepared to sell another item.

And if you don’t have a product or service to offer find someone that does. There’s no harm in selling someone else’s product or service so long as you get a nice cut from the deal. Brainstorm companies out there that want to sell to your database. Then go out with the intention of setting up a joint venture. This is a very quick technique that can increase profits easily. Doing joint ventures will allow you to leverage the database with no added stock or work on your end.

As I say often – work on the business rather than in it (Read the article ‘Working On Your Business Not In It’) . By simply pulling yourself out from the day to day running of things, you’ll be able to focus on top-level strategic techniques like these three that will put you in prime position for a quick business sale.