BUSINESS
KNOW THE TERMS According to guidelines from the U.S. Small Business Admin- istration, preparing a plan for selling a business includes a business valuation to set a monetary value before marketing to prospective buyers. The SBA advises business owners to accurately value all
property and real estate tied to the small business, includ- ing intangible assets such as brand presence, intellectual property, customer information and future revenue projections. Common valuation approaches include the income approach, which examines projected revenue and accounts for potential risks. The market approach compares a business to similar businesses that have recently sold. An assets approach subtracts total business liabilities from the total value of all assets. A sales agreement allows for the purchase of assets or stock of a corporation. An attorney should review it to ensure it is accurate and comprehensive. List all inventory in the sale along with names of the seller, buyer and business.
Determine how the business will be run prior to close and the level of access the buyer will have to the information. Note all adjustments, broker fees and any other aspects relevant to the agreement terms. Assets and liabilities should be included, as not doing so could create problems after the sale has been finalized.
CONSIDER THE WORK
Before heading into negotiations with a potential buyer, it’s important to start with a real look at the current em- ployees. Considering your team is critical among the steps needed to be taken to have something real to take to the negotiating table, says Yeghnazar. “Te team that got you here may not be the team that
will get you to the exit point,” he says. “You may need new or specialized outside help.” Most new owners want a “going concern” (an account- ing term meaning the company has the necessary resourc- es to continue operating indefinitely until it provides ev- idence to the contrary) and want all employees to stay in order to achieve business goals, says Higgins. Tere needs to be a balance of experience and zeal with the team, Yeghnazar says. “Many companies get rid of experience because it is
typically more expensive, but that’s often unwise. At the same time, growth comes from people who are hungry and have drive,” he adds. As with employees, the goal in terms of clients and ac- counts is to lessen the disruption and ensure continuity of great service “and perhaps new benefits like investments that the new owner will bring to the business,” says Hig- gins.
A major issue with small businesses like contractor companies is that many lack discipline in their route to market by providing a wide array of services to an ex- tended audience, says Yeghnazar. Having more offered services and reaching out to a wide set of markets might not always be a good thing. “Every sale is typically looked at as a good sale, and if a customer has money, they get access to the product,” he says. With a disciplined approach, your chosen channels
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to market give you more focus from the company’s per- spective, as well as better vision and clarity to who the ultimate customer is. “It is not always easy to introduce process and struc-
ture to a channel network years after having worked with them, but if you want to add value to your enterprise, it is essential,” says Yeghnazar. “When you are selling a busi- ness, you are also selling the ease to maintain and manage the network — if it is complex and hard to even under- stand, that detracts value right off the bat.” Tat also trickles down to clearly outlined pricing and discount structure, says Yeghnazar. “I would say in a small- to mid-sized business at least eight out of 10 times the pricing and discount structure is complex and convoluted,” he adds. “Tis is not good and typically means the organization is also leaving money on the table. Tis can be a hard exercise which will need to incorporate some tough conversations and pushback from clients and accounts, but it is essential to building clarity and value post-exit transaction.”
PLAN NOW FOR LATER
Business owners decide to sell a business for different rea- sons, says Yeghnazar. “Sometimes they are well planned out and prepared
for, but not always,” he says. “In fact, life happens to busi- ness owners just like everyone else. Just because you own a business does not make you immune to outside influ- ences.”
Tat being the case, having a plan for three, five or any number of years is important because it shows discipline and structure, he adds. “By being prepared, an owner at least is able to piv-
ot and respond in an informed and intentional way,” says Yeghnazar. He says as part of his merger and acquisition advisory
role, there comes a time when the “good and right thing to do is to encourage a business owner to sell now. And at other times, the good and right thing to do is to encour- age them to put on the brakes and get their house in order first before going to the market. It is never wrong to do the right thing in the long run.” A three- to five-year plan is an “aggressive but authen-
tic view of the potential growth of the business financials,” says Higgins. “Are there new customers? New services? New geographies? All of these provide new growth.” Such plans demonstrate how a business owner manag- es costs via pricing increases such as inflation, purchasing power, efficiencies and team turnover metrics, he adds. “Obviously, the less turnover, the better,” says Higgins. Te plan also provides a visual for a potential buyer to
know the competitive context of area of business, includ- ing such factors as the number of competitors, how big they are and an evaluation of strengths and weaknesses, Higgins notes. Any company that is in business is doing and has done
at least some things right, Yeghnazar points out. “People and companies do many things well and
great,” he adds. “Te key is being able to identify what your organization does great and find ways to replicate
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