Successfully sell your business

Have you thought of using a transition plan when selling your business?  The process to sell a business is not quick and easy.  At the moment it is taking about 8 months to sell a business, if it sells.  This means the business is available for about 6 months.  The buyer and seller then complete negotiations on the purchase price including the terms of the deal.  The next main step is to start the due diligence and if both buyer and seller are still in agreement, escrow opens and then hopefully about 3 to 4 weeks later, escrow closes and the business moves from the seller to the buyer.

Even if the business closes escrow, almost without exception the buyer wants the seller to continue in an active role in the business in some capacity for a period of time.  The buyer wants time to meet and get to know the employees, set up arrangements with suppliers, put basic items in place like bank accounts, and a myriad of other items.  At the end of the day, however, it all needs to make sense for both the seller and the buyer and the best way to do that is to build a transition plan.
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Hopefully you will make a New Year’s resolution which includes building a business plan and in it, your personal and business goals.  You will also do a budget to make sure you can afford to execute what is in your plans.  Hopefully you are rested and as they say, “all dressed up and ready to go.”  You are also saying “Bring it on.”  My question is therefore, you know WHAT you want to do but HOW are you going to do it?

Chances are you have a list of projects and tasks you want and need to do.  It probably does not include answering phones, sending and receiving emails, reading articles and newsletters, attending conferences, staying on top of compliance items that affect your industry but numerous day to day activities that lead most entrepreneurs at the end of the day to say “Where did the day go?”  That’s the point of a Productivity plan.

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The life blood of what we do as human beings and the glue that keeps us all together as a society whether at a local, regional, national or indeed international level is the ability to communicate with one another.  Many times that communication breaks down and many times this leads to negative consequences.  All entrepreneurs are familiar with a Business Plan and a Sales and Marketing Plan but not everyone has heard of a Communication plan.  So what is a Communication plan?

A Communication plan is an attempt to standardize the message that goes out from the business to its customers.  It complements and dovetails with a Business Plan and Sales and Marketing Plan.  In some instances there can be an overlap but essentially it includes all written, spoken and electronic communications.
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Owning, running, buying or selling a business is a major step for all entrepreneurs.  It comes with obvious financial risk which everyone understands and is one of the key focus and responsibilities all business owners.  It also prevents many would-be-entrepreneurs from starting their journey to own and operate their own business.  However, an element not all business owners understand or acknowledge is that the business ownership comes with many emotional risks that play just as an important role as the money itself.

Emotional risks constantly challenge all business owners.  The obvious one is success or failure.  For most entrepreneurs, once they come to terms with the financial risk, they must come to terms with the fact there is a possibility the business will fail.  The fear of failure links with the real concern about what to say to family and friends.
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Intellectual Property can sneak up on some businesses as it may start from a “good idea” that helps the business survive then gradually become an integral part of the business and later become a critical part of its existence. Interestingly, Intellectual Property also comes in many shapes and sizes. A business owner therefore needs to recognize these different shapes and sizes so if they choose to sell their business, they have the right legal protection in place that protects an intellectual property asset and therefore rightly earns the owner the amount it is worth.

So what are the different types of intellectual property? The IRS recognizes the following when they are part of a business transaction.
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If you embrace the saying “Two things in life are certain: death and taxes” and you own a business, it is a good idea to put a plan in place to protect the business. You protect the business not only when you own and operate it but just as importantly when you decide it is either time to sell so you get the best and highest price possible or if you decide to transfer it to your children or employees, it is in the best condition possible.

If the plan is to transition the business to a new owner and do it over a one to three year time period, the best way to do everything correctly is by using an Exit Plan. So what’s an Exit Plan?
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For many small business owners, the single most important document for their business is the lease. Unfortunately a lease is generally a long and fairly complicated document. Because of its complexity, many small business owners either accept what they receive or do the bare minimum. Here are some suggestions for you, in no particular order.

• If your lease is coming up for renewal and you wish to continue operating your business, you have a choice. Stay in your current location or move. If you are seriously thinking about moving, do an analysis to weigh up the costs and lost time to move. Landlords are very motivated to find new tenants so it’s definitely the right time to review your options.

• If you plan to move, consider getting a qualified Commercial Real Estate Agent that specializes in negotiating leases to help you. I am a member of the Association of Commercial Real Estate Agents or ACRE and they have experts in different market segments.

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A business that is available for sale is often handled like selling a residential property or house – except they are totally different. In some states in the United States, for a professional third party or a broker to represent the seller of the house they are required to have a real estate license. That real estate license allows that person to sell a house, a commercial property, and in some cases, provide mortgage loans and assist in the transaction of selling a business.

As I mentioned above, however, all have similarities but there are major differences. When selling a house both seller and their broker want everyone to know the house is for sale whereas with a business, the sale is kept confidential to protect the business, the employees and other parties.
Here are 5 tips to help an owner thinking of selling their business.
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There are many items you need to do when planning to sell your business. There are also things to avoid.  Here are 5 mistakes to avoid so you successfully sell your business.

1. Talking when you shouldn’t.
This may sound obvious but when you sell a business it’s more important to listen and ask questions than continually talk to try and “sell” the business. Often there is more information in hearing the type of questions being or not being asked and the follow up comments. If you are the only one talking that means there is little interest or other negative perceptions that need to be removed so the buyer is comfortable moving forward.

2. Failing to use common sense.
Selling a business rarely happens to the first buyer that comes along. There is a need to reveal information but only after the buyer provides enough information to show they are suitable buyers. This is one of the main reasons to use a broker to sell your business. They are trained and have the emotional detachment to ask appropriate questions to know not only if the buyer is truly serious but more important, qualified to be able to buy, finance, manage and run the business.
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Selling a business comes with a huge number of variables. The following consider 9 important areas you need to work through if you want to successfully exit the business you own.

1. Do I need to create and use a team?
Putting together an exit strategy and then executing it is a team sport. Don’t try and do it on your own.
Members of your team to consider include:

Accountant or tax agent

Personal financial planner

Business Coach

Insurance expert

Attorney

Business Broker

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The following article is reprinted with the permission of Monty Walker at Walker Business Advisory Services, Wichita Falls, TX. Phone: 940-322-5086.

The Patient Protection and Affordable Care Act (the Patient Protection Act) was signed into law by President Obama on March 23, 2010. The Reconciliation Act has now passed the Senate and the House and will be signed into law by President Obama sometime during the week of March 28, 2010. Not withstanding the fact that amendments to the Act will likely occur, some minor and some significant, it is important for small business owners to understand the tax components of the Act which apply to them as it currently stands. All small businesses will be impacted with the following information hopefully of assistance to those businesses in the local Sacramento area.

For owners of small businesses and their workers, the recently enacted health reform legislation has some key provisions to pay attention to. The major ones include: tax credits; excise taxes; and penalties. But whether a business will be affected by them depends on a variety of factors, such as the number of employees the business has. This article provides an overview of the key tax provisions in the new law with the biggest impact on small business.
Tax credits to certain small employers that provide insurance. The new law provides small employers with a tax credit (i.e., a dollar-for-dollar reduction in tax) for nonelective contributions to purchase health insurance for their employees. The credit can offset an employer’s regular tax or its alternative minimum tax (AMT) liability.
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The process to sell a business is not a quick and easy matter. At the moment it is taking about 8 months to sell a business, if it sells. This means the business sits on the market for about 6 months before finally getting an offer from a buyer. Once the negotiations finish, due diligence commences and closes and escrow opens and closes we arrive at the 8 month period. And this applies if the business sells. Depending on which statistics you read, approximately 75% of businesses never sell.

As the entrepreneur looking to sell and transition out of being a business owner, it’s not a quick process. It can even drag on if the buyer wants the seller to continue in an active role in the business in some capacity. At the end of the day, however, it all needs to make sense to the entrepreneur and the best way to do that is to build a transition plan.
What should be included in the transition plan? A transition plan can overlap with an Exit Plan. An exit plan is essentially a process to exit business ownership. A transition plan is a strategy to manage the protection and eventual transfer of assets or stock in a proactive, tax efficient manner. Essentially an entrepreneur can have 5 types of assets. These are Personal Property, Real Estate, Business Interests, Insurance Plans and Employee Benefits.
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A business should be a constant ball of energy moving in different directions as the economy changes, new tools and innovations come to the market, the stress and strain from competitors and the ever changing demands of customers. This is what gets an entrepreneur out of bed every morning; the chance to do something different, learn something new, to see the rewards of hard work, to plant new ideas and watch them grow or to help someone do something they thought they may not be able to do.

If the entrepreneur loses the hunger to learn, be the vision and leader of the business, it’s time for a change. Because a business is so dynamic, it requires leadership. If this doesn’t happen it will shrivel and die. Capital, time and energy must keep moving otherwise it will fade away.

If the entrepreneur leading the business recognizes it’s good business to plan for a change of ownership and therefore handle the matter in a proactive way, the chances of success are so much greater and so are the chances of getting the highest price possible. There is a very simple reason for this. The buyer of a business looks at and includes many things in their decision making process. However, there are basically two ingredients, the cash flow the business generates and its potential to generate more cash flow in the future. If either one is missing, the buyer will require a discount on the purchase price of the business. If both are missing, it will be a business extremely difficult to sell.
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Most business owners have or understand the value in business insurance. It protects the business in case an insured event happens and rather than the business owner wasting time and losing business by addressing the problem, the insurance company takes care of things. Business insurance makes good business sense.

A good form of insurance but one only the business owner can handle is creating a Disaster Recovery Plan. It doesn’t sound very attractive and it doesn’t sound like a good use of time but let’s consider the following.
If your business was hit by a severe storm, hurricane, truck or car that was out of control, flood, tornado, lightning or hail, earthquake, disease or pests, unusually high temperatures that caused damage to the building your business is in or some other unpredictable occurrence, how would this affect your business? What about a building fire, hazardous materials incident, sabotage, a loss of key staff or power disruption? Perhaps ask the same question in a different way. If something occurred to damage the business and you were out of action for a week or so, could your business survive?
The point of all this is to put a Disaster Recovery Plan together.
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An area that a lot of businesses don’t spend a lot of time measuring but is very easy, cost effective and critical to do is the key performance areas of the business. These key performance areas or metrics can show whether the business has all the parts working together and in a healthy manner or is in need of a tune up or radical surgery. There are a number of key areas to a Performance Plan so let’s break them down.

The first area to look at is the financial statements of the business. The first and most readily used is the Profit and Loss Statement as it shows the income and expenses of the business with hopefully the income greater than the expenses. Just as important, however, is the Balance Sheet as this document shows the wealth of the business. With an up to date profit and loss statement and balance sheet, a trained business appraiser can then calculate what the owner of the business could expect to get if they decided to sell it on the market.
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