You’re not alone

Barbara Taylor’s New York Times blog, Transaction, caught my eye the other day. Her career path has some similarities to mine: After selling a successful business, she is now involved in the business of buying and selling businesses.

Transaction is another forum for business owners to discuss issues concerning their businesses, including the prospects of buying or selling a privately owned business. And if initial reactions are any indicator, there are quite a few interested business owners.

It’s always interesting to see the perspective of fellow private business owners. One message in Taylor’s post especially rang true (and it should sound familiar to readers of my blog and my book):

“Even if you’re not planning to sell your business any time soon, I hope to get you thinking about how you can run your business with an eye toward what you can do to achieve maximum value if and when you do decide to sell,” Taylor says.

That, of course, is the purpose of my book, How to Sell Your Privately Owned Company, but it doesn’t hurt to have that message reaffirmed by a third party, especially one with the readership of the New York Times.

In the comments that followed, econobiker asked the following:

“Yeah, and how do small business owners work the system for profit beyond the operation/running of the business?

“Such as that ‘company owned car’ or somehow having vacations at the same time/place as an industry event or employing relatives on the payroll as consultants or personally owning real estate which the company then rents from the owner, etc, etc, etc…

“We want to know the unpublished side deals available!!!”

I offered this answer, which also was posted:

Most ownership perks are legitimate expenses used as tax minimization strategies.

Such matters are rather irrelevant when a business is offered for sale. A business owner’s benefits (salary, commissions, perks, incentives, personal loans and discretionary expenses) are identified – and published in footnotes – when “recasting” a Seller’s financial statements.

Proper recasting places a monetary value on such items. This amount is then added back into the bottom line earnings, thereby enhancing the company’s profitability and its value.

Here’s why it’s important: On a Seller’s financial statements – which are carefully scrutinized by Buyers – it is in the Seller’s best interest to show that the business is generating the highest possible level of profitability. Why? Because – as Barbara mentions – many businesses are priced using a multiple of EBITDA – Earnings (Profits) Before Interest, Taxes, Depreciation and Amortization.

Thus, higher Earnings will dictate a higher asking price for a company.

Most business Buyers understand the recasting process and how it’s used. It allows them to assess the business, its cash flow, its future earning capacity, and whether they’re able to make a reasonable rate of return if they buy the company.

Therefore, in business transaction, “unpublished side deals,” and “working the system for profit beyond the operation/running of the business” become moot issues.

 

Eric R. Voth is a serial entrepreneur, a private investor, consultant, and writer. He is author of How to Sell Your Privately Owned Company, a Basic Guide for Independent Business Owners, Baby Boomer’s Edition. Eric and his colleagues help a business Seller prepare and groom his or her company prior to offering it for sale or merger – then guide the owner through the actual process. He became involved in this field as a result of merging his own company in 1993.

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Ready, set – wait

Many business owners with fewer than 50 employees apparently haven’t seen the recent Intuit poll that predicted payroll expansion for close to half of small businesses over the next 12 months or so.

chart_job_recovery.03Instead, they cut roughly 75,000 jobs in October, according to an estimate by payroll processor  ADP.

CNN reports, “A telephone survey of 830 small business owners conducted by management consulting firm George S. May International from Oct. 28-30 found that 74% of the owners polled do not plan to increase their staff headcount in the next 90 days.”

Whether you find your business among the privately owned companies cutting back in tough times or poised to make a move as economic recovery appears to be taking effect (at least according to some economists),  remember that your company will be more attractive to potential buyers if it demonstrates the ability to effectively weather turbulent economic conditions. The last two years should be a good indicator of that. And how you respond in the next year or so could also make the difference in whether you “get out while the getting is good” or walk away with a tidy profit, having handed off your business to an energized new owner.

Eric R. Voth is a serial entrepreneur, a private investor, consultant, and writer. He is author of How to Sell Your Privately Owned Company, a Basic Guide for Independent Business Owners, Baby Boomer’s Edition. Eric and his colleagues help a business Seller prepare and groom his or her company prior to offering it for sale or merger – then guide the owner through the actual process. He became involved in this field as a result of merging his own company in 1993.

The credit trap

Small-business owners are as acutely aware as anyone of how tight credit has become. And with the bankruptcy this week of major small-business lender CIT Group (not to be confused with last year’s bailout of Citigroup), the credit crunch isn’t likely to get better any time soon.

Another report cites the use of business credit card accounts as the source of choice for quick credit. These are relatively easy to get (often based on an owner’s personal credit rating), but they usually have much higher interest rates and their convenience (just swipe and sign) also provides a serious threat as a debt trap.

But if you’re thinking of selling your privately owned business, you can actually turn this credit crunch to your advantage if you’re willing to be flexible in helping the buyer finance the transaction.

My book, How to Sell Your Privately Owned Business, devotes a section to finding creative ways to help a prospective buyer complete the purchase.

A short excerpt:

“Typically, you as the seller decide on the minimum price you want for the business. Consider taking anything over that amount in owner financing. This minimizes the risk for you. The most you can lose is the amount received that is higher than your lowest acceptable price.

“This type of sale – called an ‘installment sale’ – can be very good for both the buyer and the seller. However, be aware of the risk implications. A buyer will see buying your company as his risk and believe that it’s only fair that you see some risk too. In the buyer’s mind, if you will not take some of the risk, then perhaps your company’s future isn’t at all what you said it would be.”

Eric R. Voth is a serial entrepreneur, a private investor, consultant, and writer. He is author of How to Sell Your Privately Owned Company, a Basic Guide for Independent Business Owners, Baby Boomer’s Edition. Eric and his colleagues help a business Seller prepare and groom his or her company prior to offering it for sale or merger – then guide the owner through the actual process. He became involved in this field as a result of merging his own company in 1993.

http://money.cnn.com/2009/10/26/smallbusiness/small_business_credit_cards_loans/index.htm?postversion=2009102705

http://money.cnn.com/2009/11/03/smallbusiness/cit_bankruptcy_ripple_effects/index.htm?postversion=2009110316