Everyone is familiar with the Christmas song, The 12 Days of Christmas.  Without going into every verse of the song, the carol works forward with the first day of Christmas being a partridge in a pear tree, the second day of Christmas two turtle doves and so on.  The song is full of optimism and hope that the giver and receivers of the gifts will be thankful for life, the opportunity to share and hope for the future.

From researching the origins of the song, I came across something interesting.   One of the articles I read suggests the 12 days of Christmas is not about the 12 days prior to Christmas but in fact, the 12 days from Christmas until the beginning of Epiphany which begins on January 06.  When I thought further about this, it naturally combined with another favorite thing we do during the Holiday Season and that is to make New Year’s Resolutions.
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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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Not everyone will agree but I am sure it’s close to the truth that buying or selling a business is unlike anything else.  Here are four reasons.

First, the price to list a business for sale generally comes from a valuation.  The rules of a valuation come from the law and legal cases as well as the Internal Revenue Code and custom.  The price for most other items of value come from market comparables (for example, when valuing a house), looking up a book or some online site such as Kelly Blue Book (for cars) or results from eBay or some other online service (for any item.)  That is, there is no legal interference with the value of any of these items except a business.
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Successfully selling a business requires a lot of preparation, attention to detail and organization. Most sellers badly underestimate both what they need to do and what to do if a qualified buyer comes along. A good rule of thumb is that it takes about ten buyer inquiries to reach a potential buyer who has the qualification to buy the business. There is not a shortage of buyers; there is a shortage of buyers who have the right industry and management, a downpayment and good credit score and the most important ingredient of all, the motivation to move through the process to buy a business. So if you find the right buyer, you need to have you’re “A” game ready.

Here are 5 tips to help you prepare and be ready.

1. Assuming you know what the buyer wants.

Buying a business is a unique experience; every transaction is unique. If you meet a buyer with the right qualifications and assume you understand their needs, wants and motivations it is a bad practice as a smart buyer will not reveal their true motivations.
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If you own a house and decide it’s time to sell, you have a choice. You can choose to handle the process on your own in which case you would be a For Sale By Owner (or FSBO) or you can choose to have a real estate agent represent you. If you own a business or are a potential buyer of a business you can choose to handle the transaction on your own or you can choose to have an agent or Business Broker represent you.

If you choose to have a Business Broker represent you, it’s worthwhile understanding that some Business Brokers belong to associations and these associations have a code of ethics. The International Business Brokers Association (IBBA) is an international association that brings together business brokers from many countries. At last count, there were approximately 28 countries in the IBBA.

The IBBA has a code of ethics and this includes the following articles:

Article 1 – Broker is charged with being knowledgeable with trends affecting business opportunities.

Article 2 – Broker must protect public against fraud, misrepresentation or unethical behavior.

Article 6 – Broker represents interest of their client but it is incumbent upon the broker to deal fairly to other party or parties involved.

In addition to the IBBA, there is the American Association of Business Brokers (or ABBA) plus there are many state or regional business broker associations. A few examples include the California Association of Business Brokers (CABB), Texas Association of Business Brokers, New England Business Brokers Association and many others.
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In the initial stages of listing a business for sale, all the attention is placed on getting the business in shape so it presents as strongly as possible, sometimes doing a business valuation to arrive at the most appropriate listing price for the business and discussing the tax implications to the seller of the business. Tom West is the owner of Business Brokerage Press and he has a great saying that most sellers and buyers don’t understand until they get into the negotiations of the transaction and it is – You name the price and I’ll name the terms.

In other words, price is important but the terms of the deal are much more important. And here are some thoughts why.

If a buyer made an offer for all cash and to close the sale in 30 days and another buyer made the offer subject to getting a loan and to close the sale in 60 to 75 days and you are the seller of the business, which offer would you want to accept? If they are both offering the same price for the business it would be a no-brainer to accept the cash offer.

Using the same scenario as above, but the cash offer was 5% less than the offer from the second buyer and you are the seller, which offer would you accept? Your answer would probably be – it depends. Some sellers may be willing to accept the cash offer and close the sale. Some sellers may be willing to accept the higher offer as the price difference of 5% could be more than enough to offset waiting 60 to 75 days to close the sale. Most sellers, I would think though, would include other factors into their decision. Which buyer do they think is more qualified to buy and operate the business? Which buyer would be able to get approval from the landlord to take over the lease? Probably the most important question the seller would want to know, however, if they accepted the offer from the second buyer, is what are the chances the buyer will get their loan application approved? If the seller is not sure the buyer would be qualified, taking the cash offer at a 5% discount may be much more attractive.
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Obtaining finance to buy a business is particularly challenging. One of the advantages of buying a business in the United States that very few other countries have to assist with this process is the Small Business Administration or the SBA as it is commonly called. If you have retirement money in a 401(k) plan, this money can be used to move into a corporation and fund the purchase or down payment to buy a business. This option can be combined with an SBA loan. Both of these processes are very formal and deliberate and therefore take time, but if applying for an SBA loan is part of your business acquisition plan, consider the following 5 tips.
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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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Email, websites, online bill paying, Amazon.com, FaceBook, Twitter, WI-FI, online banking; how did we survive prior to the internet? The virtual world is all around us and guess what; it’s only going to get more immersed in our everyday life as we look to watching TV and movies on our computer and connect our appliances to computer networks at home.

How does this affect our business? There is no question that data including audio and video are exploding online and helping sell more goods and services. Hand held devices such as iPhone’s and Blackberry’s are growing in popularity, devices that track the GPS to give us driving directions are here to stay. We therefore, if we own and operate a business, need to ensure we use technology how it was designed and this is as a tool to help us be more productive.
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So you’ve made your New Year’s resolutions which included building a business plan. This includes setting your personal and business goals. You also did a budget to make sure you can afford to do what you’ve planned. You are therefore all rested and dressed up and ready to go. Bring it on you say. 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 doesn’t 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?” And that’s the point of a Productivity Plan.
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Buying or selling a business is a complex matter. There is no question about it. The complexities start from the moment a buyer and seller start interacting but there is natural conflict in place. For a start, the buyer doesn’t have any history of the operation of the business and so has to rely entirely on the representations of the seller. Conversely, the seller has lived and breathed the business, knows its upsides and downs including its strengths and weaknesses. My Golden Rule when assisting with a business transaction is for each party to put their feet in the shoes of the other party. In other words, the seller should see things from the buyer’s perspective and the buyer should see things from the seller’s perspective.

A key way this would help a business transition from a seller to a buyer would be if the seller used a Management Plan. What you may ask is a Management Plan? From my perspective, a Management Plan is where all the critical areas of a business are summarized so if the owner of the business wins the lottery and never wants to work another day in their life in the business and not come to work tomorrow, the business will survive and grow.
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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 be 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 unintended 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 standard 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. It includes all written, spoke and electronic communications.
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