New job applicants get haircuts, shine their shoes, and practice their interview skills while preparing to hopefully land a position. Those seeking to sell a home often repaint inside and out, primp the landscaping, and clean from top to bottom before hosting an open house.
And a business owner who hopes to receive a fair price for his or her company would be wise to engage in such “dressing up” activities as well. While it may go without saying, putting your best foot forward is always the best strategy to maximize the value of any sale.
The Importance of Seller Objectivity
Achieving a sale at the price you want means that you should look at your company as objectively as possible, problems and all. This prepares you to counter any buyer’s objections or degradation of your company’s value, and allows you to maximize assets and minimize (or at least be prepared to handle) flaws.
Recognize that it is easy to get an inflated sense of importance, especially when a stranger comes calling with an interest in buying your company. After all, starting and running a successful company is not an accident, nor a matter of luck. Long-term business success requires a combination of intelligence, guts, and hard work.
As a consequence, many owners assume interested buyers understand the business opportunity and profit potential of their company. They presume that an acceptable offer will be forthcoming, only to be surprised when the would-be buyer tells the owner that their baby – the company – is ugly.
Getting the highest price for your business requires a thorough understanding of the opportunities and threats facing your business. Potential buyers focus on the future of a business, not its past. Accordingly, why would any potential buyer be interested in your company? Does it offer unique products or services? Does it dominate its geographic and industry markets? Does it have capabilities and capacity that are difficult or expensive to replicate?
Buyers are most interested in those companies whose products and services are in growing markets with unrestricted pricing flexibility or obvious expense reduction possibilities. They seek under-utilized – but valuable – assets that can be exploited, especially by the potential purchaser. Similarly, any threat to the business must be identified, quantified, and strategized.
Each year, thousands of small businesses change hands. Some owners decide to retire, others need new capital to exploit market opportunities, and some businesses fail and are liquidated.
According to the BizBuySell.com Fourth Quarter 2014 Insight Report, 7,494 small businesses traded hands during 2014, the largest number of transactions since BizBuySell starting tracking sales data in 2007. While higher than previous years, there are approximately 45,000 small businessesranging from restaurants and retail stores, to service and manufacturing companiesavailable for purchase at any given time.
The motive to sell can arise for both negative and positive reasons. Sometimes, plans do not work out, and business results fall short of expectations. While in the best of circumstances, buyers – drawn by the success of a business – make unsolicited offers to purchase the business. Either circumstance can dictate the potential sale.
Unfortunately, not all owners have a choice whether to sell their companies. The failure rate of small businesses is extraordinarily high, with almost half going out of business before their fifth year, according to Statistic Brain.
Despite their initial optimism, many owners regret starting their business, no longer hoping to get the cheese but to get out of the trap. In such cases, the owners’ objectives are to achieve the highest valuation possible to reduce their losses and restore their business reputation. If a liquidation appears likely, competent legal and accounting advice is essential. Owners may also consider retaining the service of an experienced business broker to help present the company in the best possible light and negotiate favorable terms of sale.
If your business is a successful operation, you may find that potential buyers or their representatives regularly solicit the purchase of your business, perhaps accompanied by preliminary (though very attractive) estimates of market value. But before putting your company on the market or engaging in negotiations to sell the business, there are a number of questions you should resolve.
Questions to Consider Prior to Selling Your Business
Many Americans are now discovering that a comfortable retirement and adequate healthcare are beyond their means. As a consequence, we are working later in life, lowering our expectations, and going without not only luxuries, but essentials as well.
The decisions we make through our lives come with financial consequences. These choices include the careers we develop, the colleges we attend, the people we marry, the size of our family, and the lifestyles we adopt. While many of these choices may seem out of our control, it is possible to make adjustments along the way to minimize their worst financial consequences. The advantage available to everyone is time: The sooner we understand the long-term impact of our decisions and make the necessary changes, the more likely we are to reach our financial goals.
Major Lifetime Expenses
People incur common expense categories as they pass through different stages of life. However, the magnitude and timing of each vary from individual to individual. For example, one person may have $25,000 in student loan debt, while another has none. One person might get married at age 22 and have two children while another gets married at age 35 and has three children – another may not marry at all.
As a consequence, the following categories are necessarily broad, and a specific expense category may not apply to everyone. Nevertheless, a rough timeline projecting the cost of future expenses can enable you to save a portion of your income through each phase of life, helping you comfortably pay expenses when they occur, and ultimately leading to a substantial retirement fund.
1. Student Debt
According to a recent report by the Institute for College Access & Success, seven out of ten graduating college seniors in 2013 had student loans averaging $28,400. The median debt for those who earn post-graduate degrees is an additional $57,600, according to New America – one in ten graduate students owe $150,000 or more.
The cost of obtaining an undergraduate or graduate degree continues to escalate. While there are differences in everyone’s loan limits, interest rates, and repayment requirements, every borrower has to decide whether to focus on repayment as quickly as possible or make minimal payments and begin a savings program.
The taxpayers of America are unknowing victims of corporate extortion, effectively subsidizing big companies at the rate of billions of dollars each year for corporate relocations. The subsidies are often in the form of tax benefits, but may even be cash payments to companies threatening to move from their existing locationor to companies willing to move if the bribe is sufficient.
Consider moves from California and Texas alone. According to an April 2014 editorial in the Dallas Morning News, more than 250 companies have relocated from California to Texas in recent years. Corporate and Texas officials claim that the moves are motivated by Texas’ almost nonexistent regulatory environment, low wage costs, and lack of a state personal income tax. Not surprisingly, officials rarely mention what the news refers to as “a handsome dowry”, including outright cash payments, subsidization of relocation costs, and years of property tax abatements.
It is not just Texas and California where a battle for incentives occur, and the companies with their hands out include the largest, most profitable corporations in the world. Since the 1970s, there have been more than 240 mega-deals across the continental United States, each with subsidies of $75 million or more. According to the Walmart Subsidy Watch, Walmart – the largest company in America, with earnings in excess of $16.5 billion in 2014 – has benefited from more than $1.2 billion in “tax breaks, free land, infrastructure assistance, low-cost financing, and outright grants from state and local governments.”
In an era of state and local government budget shortfalls, requiring cut-backs in education and infrastructure spending, academic studies report that state and local governments offer more than $50 billion annually in incentives either trying to keep businesses or to lure them from other U.S. locations. According to University of Iowa Professors Alan Peters and Peter Fisher, after decades of policy experimentation and hundreds of scholarly studies, there is little evidence that incentives work.
Thomas Peterson of the Goldwater Institute is more blunt, saying, “They just don’t work…You have average citizens and taxpayers subsidizing wealthy corporations.” Some critics note that relocations are a zero-sum game since, according to CityLab, few new jobs are created, but are simply moved from one locale to another.