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.

What is a transition plan?  A transition plan is generally a window of time of say 4 to 8 weeks that makes sure all the important and often taken for granted details of owning and operating the business successfully move from the seller to the buyer as quickly and smoothly as possible.

What should you include in the transition plan?  On my website I have a free document called a 127 point Business Transition Checklist.  It is meant to be comprehensive but not exhaustive as unique items apply to each type of business.  If you would like a copy of this document please click on the following link: http://www.rogersonbusinessservices.com/sell-or-buy-a-business-free-documents

A transition plan can overlap with an Exit Plan.  An exit plan is essentially a process for the business seller to exit the ownership of their business to manage the protection and eventual transfer of assets or stock in a proactive, tax efficient manner.  Essentially a business owner can have 5 types of assets.  These are Personal Property, Real Estate, Business Interests, Insurance Plans and Employee Benefits.

Personal property includes savings, stocks, bonds and personal effects.  Real estate includes both residential and commercial property.  Business interests include the business legal entity such as a corporation, partnership or LLC.  Insurance plans include life, health and annuities.  Employee benefits include pension, 401(k), IRA and stock options.

A quality Transition Plan is all about success.  Its ultimate goal is to ensure that the business and the owner move from actively owning the business to handing it off to its new owner.  The best analogy I like when a business transitions from the seller to the buyer is that it’s like juggling two snowflakes.  Every snowflake is unique because of temperature, the absence or inclusion of a piece of dirt, the number of water molecules, spins of electrons, hydrogen and oxygen etc.  So too is a business and its owner.  To preserve and maintain the business and protect its uniqueness it must be treated carefully and properly.  The same applies to the owner.  The owner can live without the business and the business can live without the owner as long as proper care and attention are given to each so when the next owner comes along with their uniqueness, like another snowflake, it has to make sure it can mesh with the business and both be successful.

Related articles

• Will 2012 Be the Year to Sell Your Small Business? (smallbiztrends.com)
• Sell a business with an exit plan (RogersonBusinessServices.com)

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.

A Productivity plan is an attempt to put some system into each day, week and month.  Whether you are the President of the United States or the unemployed person looking for a job, we all have exactly the same amount of time in a day.  While we may not always be able to control who we spend our day with, we can control how we spend it.  For example, do you know how much time each day you spend on email?  Do you respond to each email as it arrives?  If so, you are not being productive.  An email is a non urgent means of communication.  If it was urgent you would be using a cell or telephone.

The goal of a Productivity plan is to plan and manage your day, first, so you enjoy it and second, so you get the important tasks done while the less important tasks wait.  Closing down your email after all the messages are read and answered in the morning and then again in the afternoon allows you to be more productive…which is what a Productivity plan is all about.

As a business owner you have been taught to mainly work in months as this coincides with a financial period and allows you to close and then open a new set of financial statements with your book-keeper or financial analyst so you can review the success or shortcomings in preparation for the next month.

What other areas can you address to remain as productive as possible?  The starting point is to make a plan at the end of each day for the following day and roll it up at the end of the week.  Deciding what tasks you need to do in your business vary greatly from one person to the next as we all work from personal habits.  This is because not only are we in different businesses but also because we are in different industries and just as importantly, at different stages of a life cycle of our business.

If you want some help with what productivity tasks to accept, look at your normal work habits and decide how they can be improved, the tasks that must get done that slows down others, and even consider what you avoid doing or spend too much time procrastinating over.  This is where you can improve your productivity.

The best option is to either write your plan in a word processing document or a spreadsheet.  Making a written record and spending the time to define what needs to be done is the first step towards success.  Another important task is to make sure you allocate a priority – A for urgent, B for needs completing within a reasonable time and finally C for non urgent.

Finally, a Productivity plan is not about measuring results.  A Productivity plan is about defining AND agreeing what needs to be done with what urgency.  Measuring the results of your Productivity plan is important as it is by doing this we can see if we are moving forward and get a positive sense of accomplishment.

Check out my You Tube channel with over 35 short videos if you would like information about selling or buying a business – http://www.youtube.com/user/andrewrogersonsac

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.

Some of the ingredients of a good Communication plan include the brand of the business.  The brand, with no more than a graphic or a word defines the company.  Think of ‘Google’ and its colors.  I expect you would have trouble remembering what letter of the alphabet belongs to each color but there is no mistaking what the word ‘Google’ means.  Similarly, the word ‘Coke’.  As soon as you read the word ‘Coke’ the color red comes to mind.  So one of the first things to consider in your Communication plan is the brand and how you want it perceived by the market.

Many business owners choose to hire a graphic artist, brand or image consultant.  They look at things such as the business name, colors, logos, graphics and other items so that there is a consistent look and feel.  Large corporations spend a lot of money getting this right as it quickly represents the company.  Consider BP, Subway, Macy’s, United Airlines, FedEx, HP, AT&T and Edward Jones to name a few.

A good way to build a Communication plan is around objectives.  For example, it could include excellent customer service, customer retention or loyalty, how to touch each customer be it through a monthly newsletter, email or telephone call.  It obviously includes bringing the employees of the business together so they understand any objectives and understand their role of that communication.

Another suggestion includes identifying what tools you will use to communicate to your customers.  For example, it can be your website and blog as well as newspaper advertising, magazine ads, posters and even things such as report covers.  There is no shortage of ideas.

It’s also important to establish a timetable especially where it includes goals and objectives.  The current work environment is overwhelming and requires prioritization; especially if it involves employees or hiring outside help.

Finally, the Communication plan should include measurable results.  You can collect these results on a daily, weekly or monthly basis.  It is then important to review the results on a monthly basis and then communicate back to your employees or team so they know what they are doing is effective, or it is not effective, what needs to change to achieve the right results.  A final annual report then needs to be provided so it’s archived but available to review each year.

If you would like some free documents to help you sell, buy or operate your business, click the following link:  http://www.rogersonbusinessservices.com/sell-or-buy-a-business-free-documents

You can then get access to 25 free documents including templates to create a business plan, cash flow projection, break even analysis, competitive analysis, bank loan request forms and more.

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.

Another emotional risk which is part of an entrepreneur’s journey is handling the ups and downs which inevitably lead to burn out.  Every entrepreneur hopes there are more ups than downs and that the ups are greater and longer than the downs.  This means not only emotionally handling these situations but more importantly, building and using different tools and resources so they are available when needed.

A further emotional risk is having the self-confidence and self-belief that you have the skills, tenacity, and acumen to handle most if not all situations as they arise.  It is a given that the capitalist system goes up and unfortunately and inevitably goes down.  Each phase of the economic cycle requires using a different set of tools and approaches.  Similarly, each individual business has its ups and downs.  Generally they follow the economy but this is not always the case.  Many new businesses emerge and come to life in a recession.  A new entrepreneur sees a need or identifies a trend and takes the idea to the market.  The market embraces the idea and so the business moves forward and grows.  If the idea is strong enough, it attracts others who also embrace the idea and so competition pushes and refines the idea; another emotion an entrepreneur needs to handle.

So being an entrepreneur comes with different emotional risks.  There are many more than the ones I have identified above.  However, to help an entrepreneur understand and manage the emotional risks, it’s my suggestion that the first main action the entrepreneur puts together is a life plan.  What is a life plan?

A life plan is a very broad and simple document that answers some basic questions.  They will vary with the individual and their situation.  Part of the reason for writing your life plan is so you can share it with the important people in your life and also as a place for you to come back to on an annual basis or as needed to remind you why you decided to become an entrepreneur, including your motivations.

From my perspective, this is critical.  We often decide to do something major in life at a certain point for reasons that make sense at that time.  However, our lives are constantly evolving and changing due to many external pressures, almost all of them outside our control.  To therefore have a document to look back at and jog your memory why you decided to become an entrepreneur can also help you decide in the future if your objectives have been met and it’s therefore time to try something else in your life.

Alternatively, it can be sustaining and invigorating to remind you why you decided to become an entrepreneur and allow you to refocus on that.

Just to repeat an earlier point, it’s important to share your life plan with those who are close to you.  Don’t share it too broadly as it may become a document others judge or hold you accountable.  It’s not a document of accountability, it’s a place to keep your thoughts so you can be comfortable with the decisions you are making.

Some of the thoughts to keep in your life plan can include what’s personally important to you and what you hope being an entrepreneur will allow you to do.  If it’s to support your family and allow you to also contribute to local society, include those thoughts.  If values are important to you, what values will you bring to being an entrepreneur?  What are your priorities and how do you intend to manage those priorities when they come in conflict with other priorities?  What should happen with the business if something happens to you?

The ultimate goal of creating a life plan is so you can become at peace with your decision to become an entrepreneur.

As I’ve mentioned, our lives are constantly evolving and changing.  We adapt every day to change.  Being able to easily and readily adapt to that change will be the main ingredient to your success as an entrepreneur.  Understanding why you decided to start that journey in the first place and being able to remind yourself about this will help you make the many decisions along the way and keep you grounded.  There is also great value in keeping your life plan up to date, at least on an annual basis.  Once again, it will provide a sanctuary for your thoughts in case you have to confront a major event or changes in your life such as a serious health issue, death of a loved one, divorce, birth of a child, a major change in the economy or any other unknown situation.

Owning and operating a business is a serious matter.  However, life is about fun, making mistakes, learning, growing and moving forward.  When owning a business loses its fun and no longer seems to fit in your life plan, it should be enough to tell you that it is time to do something else.

If selling your business is an option you are considering, this link will provide a simple summary of the steps..  If you would like more information then this link will allow you to buy and download a copy of my book Successfully Sell Your Business.

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.

• Patents
• Computer Software
• Trademarks
• Recipes
• Engineering Designs
• Copyright resale
• Trade Secrets
• Architectural Designs

The bottom line is that intellectual property carries both legal and tax implications. An attorney is the expert to engage to understand and obtain the necessary legal protection. Not all attorneys have the necessary knowledge, so if this is an important component of your business, you may want help from an attorney who understands and specializes in intellectual property law.

Similarly, the tax treatment of intellectual property when a business is being bought or sold requires research to arrive at the right position and this is best provided by a CPA or similar tax professional. That is, the tax treatment for a patent may be different for a copyright which may be different for computer software etc.

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?

An Exit Plan is for the principal and family of a privately held company that puts together a comprehensive review of the business owner’s personal and business interests. With this information, the owner can then carefully move over a period of time of 12 months to 3 years from the day to day management and operation of the business to the next stage of their life.

A lot of small business owners decide to sell and move to the next phase of their life as quickly as possible. Often this means the business is not in the best condition it can be and so the sale price can be lower. In addition, personal financial planning strategies may not be maximized, tax minimization strategies may be mixed and so it goes on.

There are many components to a good Exit Plan. These include:

• Creating a summary of the main goals and putting them into a timetable.
• Creating a contingency plan in case unexpected things happen.
• Creating a multi-disciplinary team to help execute the plan
• Getting a business valuation
• Brainstorming exit plan options and arriving at the best option(s).
• Understanding the value drivers of the business for better decision making.
• Recognizing key employees
• Financial planning
• Estate planning
• Reviewing insurance needs
• Conducting annual or semi-annual reviews until the Exit Plan completes.

If you would like a one page summary of the steps in an Exit Plan, click this link

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.

• As I just said, landlords are motivated at the moment. Even if you decide not to move and your lease is up, consider negotiating not only your current price but also the terms and conditions of your lease. For example, if you want to run the business for another two or so years and then sell, negotiate with the landlord that they will assign the lease and you will no longer be liable if the buyer defaults and does not continue paying the lease.

• Similarly to the last point above, if your lease has a clause that says the seller must pay a fee to the landlord to review and approve the buyer, have this clause removed. I’ve seen instances where a seller has introduced three buyers to the landlord when trying to sell their business and each time the lease requires the seller to pay a fee of $1,000. The total cost to the seller was therefore $3,000.

• Consider having a qualified attorney that does business law review your lease. There is a cost to you but if they can save you time, money or a situation you did not know about that can be a good investment. Some attorneys may even negotiate with the landlord for you.

With the economy still soft, now is the time to negotiate with your landlord. “Make hay while the sun shines!”

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.

First, most businesses rent their facility. However, if the business includes commercial real estate it should have a separate value and not be included in the purchase price of the business. It doesn’t mean the same buyer cannot buy both, it means that a separate value should be struck for the real estate in its own right and a separate value done for the business taking into account the fair market value of renting or leasing the real estate. It is wrong logic to value the real estate, value the business and not allow for fair market rent and then add both together to arrive at one listing price for everything.

Second, bring together a team of advisers or at least have them identified in case they are needed. The team should include an accountant and attorney while there is room for a personal financial planner.
Third, the most important components to a buyer are cash flow and potential. If the business doesn’t have a cash flow, the buyer may as well start the business from scratch and do things their way. The exception would be where the assets of the business are already in place such as for a restaurant, manufacturing site or other asset dependent business.

Fourth, an extension of the above point is to make sure that whatever price is asked, it has been properly valued. Most businesses being sold by the business owner are overpriced. A business owner becomes attached to the business and what it took to get it where it is. They therefore think it’s worth more than it is. The best approach is to have the business or its assets valued by a professional independent third party. There are different professional appraisers for different types of valuation. For example, there are different appraisers that specialize in valuing a business as opposed to valuing hard assets such as machinery and equipment versus someone who appraises intellectual property or commercial real estate.

Fifth and finally, make sure it’s clear who the buyer is and any down payment they are bringing. If the buyer says they are buying the business and have an investor, the first thing to do is ask to meet the investor. As a matter of course, it should be the investor making the inquiry as they have the money and will therefore make any final decision. Be careful how much you share until its clear the buyer has the potential to buy the business; not just dream about it.

Selling a business comes with complications. It is rarely a simple and straight forward process. One of the most important things to do is for the seller to put themselves in the shoes of the buyer. Being able to do this will greatly improve the chances of success in selling the business.

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.

3. Poor communication and not listening.
A motivated buyer who is serious about buying your business will ask a series of questions. Often it can be the same question but asked a different way. They are looking to hear a consistent answer and therefore develop confidence in buying the business. For example, an important question could be how many hours do you, as the owner, work in the business? The same question a different way, how many hours each day do you work and is that Monday through Friday or do you work on the weekend? Or another approach, does your spouse work in the business and if so, how many hours do they work and are these hours when you work?

4. Giving worldly advice on subjects or matters not relevant to the transaction.
Politics, sport, religion and how best to run a business are not conversation topics to have with people you want to sell or buy something from. Respect the sole reason that is bringing you together with the buyer. Absolutely keep it friendly and honest.

5. Failing to get expert advice or assistance when it is required.
If you do your own tax returns, file your own legal papers, do your own financial planning, do your own negotiations, are a sales and marketing guru and have plenty of time to waste by people who don’t mind wasting your time; then selling your business without expert help may be a good option…until something goes wrong.

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

Are you worried about the cost? Get it right and it won’t be a cost but an investment.

2. Determine your goals and objectives before moving forward.
Be patient with yourself; Be patient with those around you.
How long did it take you to get here and now you are here – what’s the rush? Taking action before you determine your goals and objectives can waste time, waste money, lets things that can’t be undone and/or cause unintended damage. Once you determine your goals and objectives – take action.

3. What are the tax consequences of selling the business?
Are these tax consequences manageable or not?
Talk to a tax agent to understand the implications and what strategies can be used to minimize taxes.

4. How much income do you need to maintain your lifestyle?
Talk to a personal financial planner to make sure you can achieve your goals. If you can, what are you waiting for?

5. Does the fear of spending the rest of your days playing with your grand kids keep you awake at night?
Talk to a psychologist or business coach to plan your future. Get that degree you always said you wanted to get, learn to fly or scuba dive or be a mentor or join a board or become an advisor or coach a new business owner or master public speaking or leap…then look.

6. What would happen to the business owner if there was a medical or worse, fatal incident?
Talk to an insurance specialist and put coverage in place that protects the business owner and any immediate family that need to be taken care of.

7. Are legal matters up to date and decided?
Talk to an attorney to make sure all legal matters are fully understood and addressed. Family trusts, wills, powers of attorney etc require refreshing… just in case.

8. Is there a natural heir to the business or is selling the business or finding a new owner required?
Talk to a Business Broker to explore the above.

Is there a natural owner to take over and run the business?

If the business has more than one owner, what should be discussed and implemented with any ownership changes?

Can this be done to minimize disruption?

If not, what’s the end game and is professional help needed?

What is the date to complete all the changes?

How much is the business worth?

9. Establish a deadline and take action
Now there is a clear plan it’s time for action.
Create an advisory team to execute the plan and hold your team accountable; especially yourself.
Consider a leader to execute the plan – yes – delegate
Conduct exit planning meetings to review schedules, assigned tasks and new information and ideas.

The success of an exit strategy for a business owner starts with the business owner. If the above are discussed, executed and aligned, the rest will take care of itself.