BUILD,
SELL, BUY – REPEAT
Creating
a business is not only a dream come true for business owners, it is also part
of their financial accumulation plan. However, competitive pressure and the
impulse to keep up with the fast changing economy makes sale of a business
almost inevitable.
SELLING A BUSINESS, THE RIGHT WAY
Gone
are the days of starting a business, growing it by generating income and cash
flow and then shutting it down. Now, you can generate as much cash flow for a certain
period, and finally, when you are ready to retire, sell the business for
capital gains.
A
considerable number of tips and guides can be read about selling a business but for me, they all sum up to three things:
1.
Increase
Profitability
“For more leverage, get out while business is
doing well.”
Whatever
the reason, selling a business is all about how much it is actually worth. The
key is to obtain a professional business valuation to explain the cost of the business
because this will bring integrity to the asking price and can serve as
benchmark for the listing price. Keep in mind that setting the price too high
will lead to a dead end and setting it too low will be a big mistake.
Present
the business in the best possible light. This means tidying up the office and
putting up a reliable, up to date system of filing and operations in place. It
is always easier to find a right buyer for a business that looks good not only
on the outside but also profit-wise.
2.
Decrease
Risk
“Create a strong and progressive business brand
by making yourself unnecessary in the equation.”
Get
started for the sale preferably two to four years ahead of time to establish a
track record. Have all the documents in order, know the numbers inside out, and
make sure product is ready to be acquired by updating records, business
history, financial statements and sales portfolio.
Transition
smoothly by minimizing liabilities and planning the sale on a business and
personal perspective. The buyer will have more confidence seeing a strategy
rather than a sale driven by desperation.
Seek
professional advice by building a right team of professionals helping you in
matters of accounting, tax, legal, transaction and mergers and acquisition. Each
can provide their own different perspectives and expertise in their respective
areas.
Confidentiality
is crucial no matter the size of the company or the type of business. Keeping
it quiet will avoid employees getting worried about their jobs, customers
becoming concerned about business stability, competitors using the information
against the business, and vendors and creditors beginning to tighten terms.
3.
Make
the right deal
“Find a
good business broker who can sell the business fast in the best possible
price.”
Finding
the right buyer to agree at the right price can be tricky and may take some
time. It usually takes six to twelve months to sell a business so take your
time and do not rush. Keep emotions in check and don’t take low offers
personally. In reality, a business is worth as much as the highest bidder is
willing to pay.
Marketing
and advertising are key to attract more potential buyers. Keep marketing
efforts targeted and options maximized.
Use
an intermediary, a business broker, and find the right one. Professional brokers
can free up your time to keep the business up and running, keep the sale private,
screen prospective buyers, and advertise and facilitate negotiations. They
already have an existing pool of investors and they certainly have the training
and experience in business sales transactions.
BUYING A BUSINESS, THE RIGHT WAY
If
you feel you are cut up to be an entrepreneur but would rather not start with a
new idea or don’t have any idea to begin with, then you are a perfect candidate
to buy an existing business instead.
Financially,
you may be looking at actual profit and loss records and a clear history of
point of sales rather than estimates. Buying a business gives you a platform to
drive a business to full gear and towards an exciting direction with your
specific expertise.
Among
the numerous guides and tips written about buying a business, there are four
major points to consider:
1.
Make
the Right Choice
“Trust yourself to make the right choices for
YOU”
Buying
a business starts with deciding what the right business is for you. Start with
a familiar industry which you understand. Match your skills and experience with
the type of business you are looking into. Lookout for:
Location - this will
affect business returns
Size – large
businesses might mean more profits but will most likely cost more and involve longer
transition time
Industry – consider
your experience, skills, training, expertise, network of contacts and knowledge
in a particular field
Lifestyle – think hard
on the kind of involvement and management and operation options you want
Once
choices are narrowed, begin the search. Start with friends and networks, ask
the business you wish you had, read magazines and newspapers, visit and
register to reputable search engines to avoid getting into bad deals.
Another
way to find the right business is to seek professional opinion from business
brokers. Business brokers have a wealth of knowledge about what’s on the market
and how much businesses are going for. They put their networking abilities and
business contacts to good use. They pre-screen businesses, help in pinpointing
your interest, negotiate and assist with the paperwork.
2.
Take
a Closer Look
“It’s all about due
diligence”
Before
you get too excited to jump in, slow down and do your homework. Review and
verify all the relevant information provided for you. A professional team made
up of banker, accountant and lawyer can give their expert opinions during due
diligence.
You
need to dig deeper. Ask the hard questions. Why is the business for sale? Can
this business stay profitable? Assess the brand’s reputation and strength. You
may ask existing customers and suppliers, check ratings, listen to social
media, read verbatim comments and conduct online search.
3.
Close
the Deal
“Buy relations, stories and
magic”
If,
after the analysis stage, the business still looks promising, start examining
the asking price. Whatever method used to determine the fair market price,
business valuation should take into account many things: inventory, furniture,
fixtures, equipment and building, copies of all contracts and legal documents,
tax returns, financial statements, sales records, complete list of liabilities,
all accounts receivable and payable, customer patterns, marketing strategies,
advertising costs, industry and market history, location and market area,
business reputation, organizational chart and employees, licenses and permits
etc.
Once
price is pinned down, you have the option to pay in full or through financing.
Either way, be prepared to acquire the necessary funding and pay portion of the
agreed price in cash.
4.
Transition
Time
“Keep business as usual”
Transition
to new ownership is a big change. To ensure a smooth transition, start the
process even before the deal is done. Talk to key employees, customers and
suppliers before taking over. Be vocal about plans and ideas for the future and
keep the stakeholders involved.
FULL CIRCLE
Creating
a business is not only a realization of a dream for business owners, it is also
part of their financial accumulation plan. However, competitive pressure and
the impulse to keep up with the fast changing economy makes sale of a business almost
inevitable. Buying, building – adding value – and then selling a business is statistically
and strategically the most likely route available today to achieve a significant
capital wealth. And this my friends, is the way the cookie crumbles.
PS: The author (Cody Cavestany) is a Marketing and
Public Relations corporate consultant to top businesses and brands from
established companies to early-stage enterprises and across many industries. She and her husband, Lester Cavestany, both pioneers of business brokering in the Philippines and both enjoy working at LINK Manila and
see the value of helping business sellers and buyers achieve win-win.
