Tuesday 25 December 2012

Just keep hanging on!

Just keep hanging on, 2013 is going to be great.

"Happy holidays and our best wishes for the New Year!"

Bill


Do you have a small business question you would like answered about this article or others?
Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.

 


Tuesday 18 December 2012

Price is based on what someone else is willing to pay!


Many business owners have an inflated view of the value of their company. 

This is understandable, considering they have put so much money, time and energy into building their enterprise to where it is today.  However, they need to realize the price is based on what someone else is willing to pay for it.

So, what are the factors that drive or impact the value of your business?
First, start with what motivates Buyers to buy businesses:
·         Financial buyers are looking to maximize their return on investment.  These buyers are looking for acceptable levels of risk and return;

·         Sometimes buyers are your competitors looking to eliminate a key competitor and/or build sales volume and economies of scale;

·         Scalability is in many cases a motivator.  Buyers may have a related business in a different market or they my higher or lower in the supply chain looking to save costs or improve integration;

·         Being one’s own boss and master of their own destiny is high on the list of motivators for individual buyers;

·         As well, individual buyers may be looking to “buy a job”

·         There may be a patent or technological advancement a business may possess.  Buyers looking for these competitive advantages may be motivated to act on their desires.

Whatever the Buyers motivation are, it’s wise for Sellers to understand the impact they may have on value in their business.  By leveraging those motivations into a compelling business opportunity, Sellers are more likely positively impact their business value, increase the likelihood of a successful transaction and be happier with the final outcome.
Do you have a small business question you would like answered about this article or others?
Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.

 

Tuesday 11 December 2012

How sellers can protect from getting their business back, after they sell it


Two questions sellers ask… “How much is my business worth,” and “How can I protect myself so I don’t get the business back later?

In many ways, the latter question is more sensitive issue than the first.  An improperly structured transaction can create problems for the seller years after he has sold the business. 

Although there are no guarantees, a combination of the following recommendations will significantly reduce the likelihood that the seller will be stepping back into the business after stepping out.  Many of these suggestions, such as having an adequate training period for the new owner, having a good client base, having strong relationships with suppliers, etc. are obvious.  However, many are not. 

One of the most common mistakes sellers make is not getting enough of a down payment.  One of the best ways to ensure the successful transition of their business is to have the buyer invest a significant amount of their own capital in the transaction.  Few incentives inspire the new owner to achieve success greater than the risk of the loss of a significant amount of their own money.  In simple terms, it is a lot harder to walk away from a $150,000 down payment than $15,000.

Another way to minimize a seller’s risk is to know their buyer.  This goes beyond having some of the same interests, common friends and an affinity for the same brand of Cabernet.  It means a thorough review of the buyer’s credit, analysis of their personal finances and a complete resume illustrating, not only their accomplishments but their life experiences.  For example, if the buyer has a poor history of paying off his credit card, he likely might have problems making his monthly principal and interests payments to the seller on a timely basis.  If the buyer doesn’t have a strong financial statement, he may not be able to weather any unexpected slow periods. 

As far as life experiences go, the passion and skill sets that are required to run a day care will be significantly different than what would be needed to operate a manufacturing business. 

Finally, securing the services of a good business broker to help the seller navigate through these issues can be good preventative medicine.  A qualified facilitator will structure the transaction to ensure that potential potholes are covered. 

By incorporating these obvious and not-so obvious suggestions, business sellers will be able to significantly increase the likelihood that they won’t have to come back into their business once they have left.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 
William Sivell is a Broker at VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.

 

Tuesday 4 December 2012

Why You Need An Entrance Strategy


Equally important to an Exit Strategy for retirement is an ‘Entrance Strategy’ to buy existing businesses.
While a popular trend today is for business owners to plan their exit, few prospective business buyers take the time to map out a plan to find an existing business that meets their needs
A fundamental trait of an exit strategy is that it is a planned event, meaning, it’s conceived before it becomes desirable or necessary. The same can be said for buyers who are thinking about buying an existing business. I call this an ‘Entrance Strategy’ as it designed to help focus on the steps needed to buy an ideal business. 
As a starting point, buyers need to take an honest inventory of their skills, knowledge and interests. They need to truthfully catalogue skills and talents that can be incorporated into a business. And they should be able to articulate their personal interests. For example, does the buyer enjoy interacting with the public or is he more content behind a desk? Is she comfortable with managing people and making decisions?  What technical skills or talents does he have that can be incorporated into a business?
At this point, buyers shouldn’t be too concerned if they’re unable to identify exactly what type of business they’re looking for. The more focused and realistic they are in their personal review, the more attentive they can be in identifying attractive business opportunities and eliminating businesses they’re not interested in.
Get a solid understanding of your financial situation.  Buyers need to know how much money they are prepared to invest and how much they expect to make. Typically, these two amounts are directly related to one another. Cash in the bank is the easiest benchmark, however, many times a buyer will liquidate securities, borrow from family, re-mortgage property, or leverage credit lines in their other businesses in order to make an agreed-upon down payment.
Along with the variety of resources available to the buyer are the varying timelines and liquidity factors associated with them. Knowing your financial position will save you time and energy during the purchase negotiations and help ensure a successful transfer. 
Start searching for available businesses that match your profile.  Scheduling an appointment with a business broker with a wide selection of businesses in their portfolio and searching online will give buyers a good sense of what is available. Buyers should start by eliminating those businesses they have no interest in. By narrowing the field of choice they can focus their energy on a smaller pool of opportunities.
Buyers will be required to sign non-disclosure and confidentiality agreements as they dive deeper into their investigation. These agreements ensure the buyer keeps his inquiry discreet and prevents the sellers’ employees, competition or suppliers from finding out.
Move the investigation to the next level.   Reviewing and analysing financial data, disclosure statements, and cash flows is important, but seeing is believing. Meeting and asking questions with a business owner will help clarify uncertainty, provide perspective and form a relationship.
The relationship of the buyer and seller is critical to the success of the business transfer. For buyers, it will mitigate the uncertainty and risk associated with buying a business and help in the transition period. For sellers, particularly in the case where there is vendor financing, being comfortable with the buyer’s ability to continue the operations of the business will lessen any concerns associated with financing.
Make an offer. This step is often the hardest for many buyers.  A letter of intention is often used by buyers and sellers to outline the general agreement. They are typically non-binding, but form the foundation of a formal binding agreement that will follow. This step is critical to continue to move the discussions forward, as the power of a signed offer is a clear demonstration of seriousness from a buyer.
A well-written offer to purchase will contain all the language necessary to successfully transfer a business, while offering a number of contingencies that will give the buyer (and the seller) the required safeguards.
Do your due diligence.  Once an offer has been accepted, the due diligence stage allows the buyer’s advisors to inspect financial records, legal documents, properties, assets, and affairs.  There is no point in beginning this until the buyer and seller reach an agreement on price, down payment and terms.
Beware that few outside advisors will advise a buyer to buy a business, and they shouldn’t be expected to. If pressed for an answer, they’ll often give the safest one: “No”.  In fact, rarely have I met an accountant who thought his client didn’t pay too much for a business. Conversely, I’ve seldom met an accountant who didn’t feel their client sold their business for enough!
Formalize the business transfer.  The last step involves the buyer’s lawyer drafting the necessary binding purchase and sale agreement to ensure a smooth transition. Things such as promissory notes, bills of sales, non-competition clauses, employment contracts and contacting governmental taxing agencies, enable the ownership of the business to change hands properly.
With plenty of businesses to choose from in today’s market, it is more important than ever for buyers to make sure their efforts remain focused on choosing the right business for them.  Having a step-by-step plan for executing a successful transfer will help you stay on track, allow you to dedicate the time and energy necessary, and get you a successful business that is ideal for you. 
Bill Sivell is a salesperson with VR Windsor Inc., which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. He blogs about selling businesses at Maxbizvalue.blogspot.ca.

Wednesday 28 November 2012

Keeping up with Technology


Not all businesses need to have cutting edge technology, but a company can’t fall too far behind.

Buyers will be concerned if they must make a large investment in the latest technology to get the company to a competitive level.  A business owner should do the necessary research and purchase the technology to keep the company on par in its industry or be prepared to accept a lesser value for the business.

Do you have a small business question you would like answered about this article or others?
Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.

Tuesday 20 November 2012

2 Questions Buyers and Sellers Should Ask

At the tip of a buyers tongue are 2 popular questions, however they often go overlooked with sellers.

It’s common, once you get beyond the pleasantries of making the first connection between buyer and seller, for the buyer to ask “why are you selling?” and “What are your financial results?”

They form the basis of a buyer’s logical progress from curiosity to genuine interest.  They are also two questions the Seller should be asking!

“Mr. or Mrs. Buyer why are you buying?” and “What is your financial status?”

If a buyer does not have the financial wherewithal and they cannot describe and articulate the resources of their financial position don’t spend your time talking them.

Many buyers will say they will produce their financial position at some future point in time, when they are prepared to move forward with the acquisition.  Alternatively, a common explanation is that there is some partner waiting in the wings who will finance the purchase.

While the excuses may, on some level, be valid what they often mean is the buyer does not have enough money to make the purchase.

By asking and requiring buyers to produce their financial statements and relevant information at a carefully selected point in time of their investigation will cull out the truly serious buyers .  Qualified and serious buyers are happy to produce the information needed to check them out.

Do you have a small business question you would like answered about this article or others?
Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.

 

Tuesday 13 November 2012

Don't Be Another Failed Franchise


When buying a franchise your success hinges on knowing the answers to these four critical questions
If you’re planning to buy a business, you’ve probably debated between buying an existing business or a new franchise.
Some of the advantages of buying an existing good independent business could include a proven track record of sales and profits, a well-know name and location, a strong mix of products and services, a group of knowledgeable employees and a good customer base. 
There are benefits with buying a franchise too. Buyers are able to purchase an established business plan with step by step guidelines. Plus, most franchisors offer training and operational support due to their incentive of the royalty fee that they will earn from the franchisee. Usually, the franchisee will also have access to other owners for help, ideas and moral support.
When considering a franchise, buyers routinely assume that they never fail, which couldn’t be farther from the truth—every business venture is risky. To increase your chance of being successful  When conducting your due diligence process, find out the answers to the following four questions:
What is the total cost of ownership?  Franchise buyers need to understand the immediate out of pocket expenses they will incur upon purchase, as well as any other ongoing fees.  All franchises are not created equally.  Some will structure a purchase with less start-up fees or allow you to make incremental payments; others may provide incentives for multiple territories, growth and sales volume. Along with the up-front franchise fee, you will likely have to pay the franchisor a royalty based on a percentage of your sales. You may also be required to lease equipment, purchase supplies or services directly from the franchisor.  Depending on location requirements, the additional expense to make leasehold improvements and outfit your new business with furniture and fixtures specifically required by the franchisor may fall in your lap. Finally, in some cases special advertising fees are levied against sales to pay for franchisor marketing costs. 
Understanding all the upfront and ongoing costs of ownership enables new owners to compare their forecasted return on investment with their expectations.
What is the turnover rate?  Unpleasant as it may seem, buyers need to ask the franchisor they are considering what percentage of their franchisees fail each year and how many close within the first two years. 

Do not be surprised to find some failures, even the best franchisors’ experience some bumps in the road. Learn about the frequency of franchisee failures in your industry, plus ask questions about reasons why they failed and look for common traits. For example, you may discover a number of failures are caused by poor management skills, reluctance of franchisees to follow the franchisors script, inadequate promotions and poor location choices. Most importantly compare them to your situation.
Understanding the turnover rate of franchise ownership will help paint a picture of attractiveness vs. buying an existing business in the same industry or shopping for a different franchisor.  This will go a long way to making an informed decision.
Will my territory be protected?  It’s critical to explore the level of regional protection you will have. For example, does the franchisor guarantee they will not sell other franchises in your area, and for a certain time period?
Similarly, you will want to uncover what kind of empire-building opportunities you will have. Some of the more successful franchise owners have multiple outlets in the same area and are able to utilize economies of scale. You will need to find out if you have first right of refusal for new franchises, for which market area and under what parameters.

By uncovering the opportunities or limitations to growth you will ensure there are no disappointing surprises down the road.
What happens when you want to leave?  As with purchasing any business, a buyer not only needs to have a plan going into the business, they should have an exit strategy as well. As a franchise buyer, you need to identify what kinds of restrictions you’ll will be under when you want to get out.
Will you be able to sell it to anyone or only back to the franchisor? You should also research the comparable sales prices of franchises that have recently sold.  And, you must know if there is any transfer fees associated with your re-sale. Many franchisors will charge a one-time transfer fee to buyers of existing franchises, and the fees can be extensive.

Although it’s difficult to make blanket statements about which franchise models are better than others, buyers need to understand where their franchisor’s interests lay before they purchase.  The best thing you can do is thoroughly read and digest the disclosure materials and franchise agreement; probe and question the areas that are unclear; and visit and speak directly with the franchisor to be able to make an informed purchase decision. Remember, franchisors complete a thorough investigation of you before they approve you as a franchisee, it’s in your best interest to do the same with them.
Bill Sivell is a salesperson with VR Windsor Inc., which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. He blogs about selling businesses at Maxbizvalue.blogspot.ca.

Tuesday 6 November 2012

Who will survive?

Business owners have to be strong, optimistic and provide leadership in difficult times.

Many businesses are going through very tough times with no end in sight.  But as we know, as bad a situation as people may be in, it can always be worse – much worse. 

Business owners who are…

Strong:  Have a solid balance sheet and manageable debt.  They have reinvested in their business, equipment, technology and they have planned in advance to weather economic downturns.

Optimistic:  Have continued to search for new opportunities.  They realize what has worked in the past may not work in the future, but are confident they will find a way to succeed.  They are willing to bet on themselves.

Leaders:  Have strong relationships with employees and managers.  They lead by example and people are willing to trust their guidance, and vision for the future. 

Business owners also need to seek good advice and make smart decisions to keep their businesses surviving until things improve. 

Or, in some cases, they might have to consider selling their company before the situation gets even worse.

Do you have a small business question you would like answered about this article or others?
Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.

 

Tuesday 30 October 2012

The Truth About EBITDA vs. Cash Flow

EBITDA and Cash Flow are essentially the same measurement, with a couple of exceptions – usually BIG ones. 

EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) leaves in, or adds in if necessary, an expense for a General Manager to run the operation and does not recognize Discretionary Expenses as being discretionary.

This is why a “multiple” used in an EBITDA evaluation is usually higher than one used in a Cash Flow evaluation.  The reason being is with the EBITDA measurement, because there is “management in place”, the buyer is buying a “passive” investment.  Hence, the Buyer is generally prepared to pay a higher multiple (and earn a smaller return on their investment).

The following example of the same Business highlights the point:


EBITDA CASH FLOW
Net Profit $800,000 $800,000
Adjustment for GM at FMV (fair market value) -$150,000 not applicable
Adjustment for Discretionary Expenses not applicable $110,000
Adjusted Net Profit $650,000 $910,000
Multiple x4.14 x2.93
Value of Business $2,691,000 $2,666,300
 


Due to the reasons outlined earlier, an EBITDA Buyer may pay a higher “multiple” for the business, but the business has essentially the same value.

This subtle but significant difference between “multiple” in these two methods can mean a big difference if the wrong “multiple” is applied to the wrong measurement.  For example, an EBITDA multiple of 4.14 applied to a Cash Flow Adjusted Net Profit measurement of $910,000 will grossly overstate the value of the business.

Typically you will find the majority of businesses in “Main Street” transactions generally have an Adjusted Net Profit of $600,000 or less, and typically have the owner as the operator of the business reaping the benefits of the Discretionary Expenses.

Do you have a small business question you would like answered about this article or others?
Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.

 

Tuesday 23 October 2012

Barriers to entry help business value


As a business owner you probably are aware that there are many different factors that impact the value of your business.  A major impact to value is the amount of cash flow your business produces.  This makes sense considering buyers are buying business for the income they produce, so the more cash flow a business produces the higher value you would associate with that business.

But one company’s cash flow may be more valuable than another.

Why?  These factors are commonly referred to as value drivers. And they are elements that help make one business more attractive, less risky or more appealing than another. 

There are a number of value drives to consider.  For example, size of the business plays a heavy influence.   The perception that smaller companies are riskier than larger businesses drives prices down on small business and helps protect value on larger companies.

An interesting factor impacting value is best described as ‘Barriers to Entry’.   As a general statement, the easier it is to enter a particular industry, the less a purchaser will be willing to pay.  On the other hand, if there are substantial barriers to entry the less resistance you should get to a higher price.

How can you influence your industry’s ‘barriers’?

In many ways barriers or lack of barriers are specific to the industry you are in.  For example, the restaurant industry is widely understood as a very low barrier industry, while capital intensive industries such as manufacturing tend to have a high degree of barriers to entry. 

Regardless of your particular industry, I would suggest taking a close look at 3 factors to build a layer of protection in your market place…

Market Share:  The higher your share of the market the more likely you are able to differentiate your product or service from the competition.  Being able to stand alone protects pricing from becoming commoditized and further insulates you from new competition.

Customer Base:  Build a diverse cross-section of customers to protect business value.  If you have one customer that represents greater than 10% of your overall gross sales, you are exposing your business to risk of losing that customer and largely effecting profitability. Buyers tend to associate higher risk to businesses with one or two large customers, and pay a lower premium for those businesses.

Proprietary product: Things like patents, and licenses protect your business from competition.  They allow you to ensure profitable margins and they make your business more valuable to buyers.  In a world where buyers are using historic cash flow results to predict future profitability, proprietary products helps mitigate the risk of the competition duplicating products & services and stealing customers.

Do you have a small business question you would like answered about this article or others?
Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.

 

Tuesday 16 October 2012

Owner burnout is bad for business


Many business owners have operated their companies for too long and have lost their interest or drive.  As a result, the business can flounder and stop growing.  Not only do revenues and profits suffer, but the value of the company goes downhill. And it only gets worse in a down economy.  When a business owner hits burnout, he or she must learn how to deal with it, or take steps to sell the company

A popular story I like to share with clients and prospective clients relates to the need for business owners to plan their eventual exit from their business.  It goes like this….

Claude and Mary are a lovely local couple married for nearly 50 years, 3 grown kids, and 5 grandkids.  Claude started his small manufacturing business in 1971 in the garage of his home. By 1980, he added a couple of employees, and started to rent some industrial space in the county. He built a strong loyal customer base that carried him through 35+ of business, not-to-mention put his kids through University, and lived comfortably along the way.  By 2004, both were 65 years old, their business was rolling along just fine, sales were approaching $1.5 million and at the time their business would have a value of $750,000… a perfect nest egg for retirement.

But they never did sell and their kids had their own careers and they were not interested in taking over for Mom and Dad… just a couple of years later, following a stroke and mild heart attack, Claude and Mary are still working now into their 70’s, albeit at a slower pace.
Last year when I evaluated their business, it’s value was a mere $40K
This is the classic… Sell out before you burn out!

There are many tools available to help individuals get into business, but few that help them get out.  Exit Planning is not mysterious, time-consuming, nor just a clever way to sell you another product.

Exit Planning is ALWAYS about 3 GOALS….
  • Leaving on the date you choose.
  • Having a choice in your successor.
  • #1… Receiving the amount of MONEY you want.
Just as there is an almost infinite variety of businesses and business owners, so too are there many different Exit Strategies.   Yet all plans contain several common elements.  It usually takes 3-5 years to appropriately plan and execute an exit plan, if you haven’t started planning the exit from your business, it’s never too late to start.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 
William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.

 

 

Tuesday 9 October 2012

Exit your business step-by-step


 


It is easy to understand why some business owners do not take the time to map out an exit strategy.   Time demands and pressures of most start-up and day-to-day operations makes planning your departure seem impractical. 

The rewards are high when you plan in advance.  With an effective plan business owners will likely get more for their business and they are more likely to have a successful transfer.  Planning will help with minimizing the tax consequences and will dramatically improve the likelihood of future success for the business.  Plus, planning helps protect owners from the things they don’t expect and preserves personal wealth, estate and the business before a transfer is made.

There are a variety of exit strategies as unique and personal as the assortment of different businesses and business owners.  

A good starting point is to begin with the end in mind.

Start by painting a realistic picture of your long term income needs and retirement goals.  A business owner must be able to determine how much money the sale of the business must generate in order to retire.  Similarly, a personal snap shot of the owner’s vision for future legacy and role of the business within the family will help determine how you stage things for the next owner.

Every business owner needs to know there finish-line or departure date.  Is it age 55, 60 or 65?  Conversely, is it a dollar value of your business’ sale price?  Or, most typically, is it some combination of both?  Business owners need to set their finish-line, it needs to be written down and visible. Whether it is an age limit or income needed from the sale of the business or both, business owners who set their goals are more likely to achieving them.

Finally, and perhaps most difficult, business owners need to prepare themselves for life after their business transfer.  Building a business is hard work and an emotional endeavor.  It’s common for business owners to grieve the loss of purpose and stature that running a company can bring.  For many the financial wealth and security they have created can mask what really mattered most, the fundamental desire to build, problem solve and challenge themselves.


The overall exit plan can seem like a daunting project which is why many fail to begin.  Breaking the process into smaller manageable parts establishes realistic goals and objectives.  Plus, it will keep you focused on what is really important.  

Now that you have established where you want to be, you’re ready for the next step.

Building an exit plan should begin the day you start your business, however, it’s never too late to start! 


Do you have a small business question you would like answered about this article or others?
Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.



Tuesday 2 October 2012

5 Keys to Keeping the Sale of Your Business On Track

Selling your business takes many twists and turns. Here’s how to ensure you stay the course

In every business, whether it’s manufacturing a product, providing a service or retailing to consumers, those who are successful in making sales share some fundamental characteristics.  They all have a well-planned marketing strategy featuring qualified prospects, a detailed product (or service) profile that highlights the product (or service) features, and a clear definition of the benefits of a purchase.

The same can be applied to selling a business. But when it comes to selling your company, you also have to factor in the personalities and motivations of both the buyer and seller. To ensure you sell for the best price to the right buyers in a timely fashion, employ these five additional strategies:

Ask a reasonable price. Too often, inflated prices discourage potential buyers from giving the business any serious consideration.

In my experience, sellers who inflate the asking price in an attempt to create some “wiggle” room will find that buyers don’t give these businesses a second look. If they do, they are savvy enough to tilt the discussion in their favour, and negotiate lower prices because the lack of buyer activity makes sellers more anxious to discount the price.

A good litmus test is to honestly ask yourself if you would buy your business at the price and terms you’re offering.  If the answer is no, you need to reconsider.

Focus on day-to-day operations.  Continuing to operate the business as you always have is critical throughout the selling process. 

You don’t know when a buyer will materialize, so the business’s financial performance needs to remain strong. When a buyer does come forward, it will be important to both parties that the business is moving in the right direction before and after the closing date.

Those who let their firm’s performance slide should expect buyers to view the most recent performance as the most reliable indication of present value and future success. 

Maintain confidentiality. By interviewing and requiring all prospective buyers to sign a non-disclosure agreement binding them to complete confidentiality, all parties can comfortably communicate without impacting the business.

What would happen to sales if customers feared a pending sale might result in product delays or a change to product lines or services provided? Picture the performance of staff who worry that a pending sale will result in layoffs. What if your competitors found out and leveraged that information to steal market share, staff or suppliers?

By maintaining confidentiality, sellers will protect their current operation and be better able to transition a business that can appropriately plan and communicate the transfer of leadership to customers, staff, suppliers and competitors.     

Negotiate, but don’t dominate. Business owners are used to getting their own way, but for a successful transaction all parties need to find common ground.

If you attempt to rule the negotiation, you’ll unwittingly stifle buyer motivation—a critical ingredient to overcoming the inevitable sale-process hurdles. Buyers who feel they can work with the seller are more likely to navigate the bumps in the road.

When both parties focus on the issues that are important to them rather than details that are not critical, they find themselves more satisfied with the results. They are more likely to work in concert with each other and less likely to throw in the towel at the first sign of adversity.

Keep the process moving forward. One of the easiest ways to keep the deal going is to establish timelines and meet them. 

Few things kill deals like undue delays, which frustrate the process, slow enthusiasm and allow doubt to creep into the minds of buyers. Sellers forget that buying a business is risky. When a buyer has narrowed his or her options to your business, maintaining the buyer’s interest is imperative—once it’s lost, it’s impossible to get back. This does not mean rushing through the process. What’s important is to be open about the expectations and timelines, responsive to questions and willing to make the investigation and negotiations a priority.

Selling a business is not easy. The emotional tie you have to your business can make you do irrational things. The best way to prevent that is to remain objective and avoid the potholes along the way to realize your desired result.

Do you have a small business question you would like answered about this article or others?
Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.