Did You Really Intend To Work Your Business All Your Life? Or, Putting It Another Way ….. How Do I Position My Business For Sale?

I LOVE MY BUSINESS: If you’re an entrepreneur, you know the joy of having creating something – your business – and made it successful.  You put in the long-hours – worried about your “baby” (your business) days/nights and even weekends during challenging times.  And, you watched it overcome these challenges and prosper.  It has been much like having another child — your business (child) — and you love it because it is part of you as much as your son or daughter.

Yes there were rewards – the sense of accomplishment – the pleasure of surrounding yourself with the managers and line staff you found, trained and together built the successful business.  And there were financial rewards, too.

While that was nice, maybe it isn’t as important now after years in business as it was when you first decided to go into business for yourself.  Today there are days when you are just plain “tired”.  And other days you wish you could spend more time with the children and grandchildren and not have to come in every day.

Now you’re in your late 40’s, maybe early 50’s and you and your spouse may have started to think about “what comes next”?    You say to yourself, “its nice to be involved with the business 24/7 but it sure would be nice to be able to start taking some serious time off”….

THEN SOMETHING HAPPENS:  Maybe it’s a health issue?  Or you find yourself and/or your spouse no longer enjoying your working the hours you “have to work” ?  It could be there’s been a real tough economic time when even working 9-10 hours/day 5-6 days/week isn’t enough – and you’re getting tired?  Or finally you hear about another company similar to your own who sold for the big bucks.

You again begin to think:  “Do I really want to do this for the rest of my life?”

YOU DECIDE YOU WANT TO START LOOKING AT WHAT OPTIONS ARE REALLY OPEN TO YOU.

If you elect to consider selling your business – now or at some point in the near/mid term future, you need to adjust the organization so that it allows a potential acquirer to take control and be successful using your systems/procedure and management/line personnel.
Creating the internal systems/procedures and making sure that there is competent senior level management in place and capable of taking over for the new owner. SPIA helps  clients maximize the value of their business by adding profitable revenue, lower costs and the kind of financials that will attract a prudent acquirer.

NOW THAT I KNOW WHAT OPTIONS THERE ARE, WHAT DO I DO NEXT?

Often the best choice is to sit down with a highly qualified certified management consulting firm such as SPIA and discuss each option, look at how each option might effect the owner and his stockholders, and the time required to achieve a likely positive result.

Usually an APPRAISAL is needed.  Companies like SPIA evaluate client companies and identify its value in current terms.  In too many cases, the value of a closely held company is often less than the owner/stocholder expects.   Why?  Because a closely held corporation makes sure it limits profits and pays its stockholders so as to minimize tax liability.

While there are as many as many as 15 different formulas for determining the current value of a company, often it comes down to a multiplier.  The multiplier is based on the profit producing capability of the company, the quality of the management team, the ability of the company to operate on its own, its capitalization, financial health,

Consider the following examples:

SAMPLE VALAUATION FORMULA – multiplier   Value

Example 1 $5 million       No Sr Mgt       Net 3%   $150k  Assets $150k    $150k+150k= $300k         3          =          $900k

Example 2 $5 million       Solid Sr Mgt       Net 5% $250k  Assets $150k    $250+150k= $400k        6     =     $2.4 million

Example 3 $5 million     Marginal Sr     Net 4%    $200k Assets $150k    $200+150k= $350k        4.5  =     $1.57 million

Example 4 $10 million   Solid Sr Mgt    Net 6%    $600k Assets $500k    $3mm+500k+$3.5mill     7    =    $24.50 million

Example 5 $10 million    No Sr. Mgt     Net 3%    $300k Assets $300k    $1.2mm+300=$1.5mm        4    =    $ 6.00 million

What is the difference between example 1 and example 3 – the revenue stream is the same.  The difference is the management team and the ability of the company to produce net pretax profits.  That raises the value of the “multiplier” thus raising the value of the company to a potential acquirer.

WITH A APPRISAL IN YOUR HAND you should be able to determine whether or not you have the option of selling your business for the amount you want/need.  Often that’s not possible because the company lacks the internal structure, operational systems or management resources that it needs to maximize its value to a potential acquirer.

If that’s the case ,you may find yourself selling the company for pennies on the dollar – something that someone who created a business, built it with his/her love, time and energy might not want to see happen.

IF SELLING YOUR BUSINESS ISN’T AN OPTION, you may wish to look at other options:

• · Multi-generational transition – if you have a son/daughter or another member of the family who is competent and has people and solid management skills, you may have an asset that can help at this critical time.  Often this option does not exist.  Being a member of your family does not necessarily mean that they have the gift of energy, entrepreneurial & people skills needed to successfully assume a leadership role in your business.
• · Stay-the-Course – stick with your business acknowledging that change is the only way you have any chance of improving your quality of life.  You need to ask yourself, what strategic, tactical, managerial, operational, technology changes are necessary to make change a successful process?

Close-Down-The-Business – there are occasions where a company with heavy capital assets (technology, production equipment, real estate, etc. can liquidate, close down and achieve the desired quality of life enhancements targeted here.  If these assets don’t exist, it is rare that closing down a business will end up a position business decision.