Keep this between us

One question that’s generally on the mind of every owner thinking of selling a business is the matter of confidentiality.

The matter of confidentiality is something that should NOT be taken lightly –especially on an in-house basis – when it comes to people you interact with on a regular basis.

World War II poster

At this level, you need to keep mum on your decision to sell until the deal is closed.

During World War II there was a saying that “loose lips sink ships.”

When selling a company, loose lips may very possibly torpedo your ability to get the most money for your company, because it can have an adverse effect on your operations, on your sales, and on your profitability.

Think about the various people you have relationships with, and how they’d react if they knew your business was for sale.

These folks are:

• Your employees.

• Your suppliers and vendors.

• Your customers.

• And, your competitors.

Your workforce will start wondering about job security, which could affect how they deal with customers.

Vendors can also get nervous. They may alter their terms and start demanding cash on delivery.

Customers can lose confidence and go elsewhere.

And what do you suppose your competitors will do if they find out that your company’s for sale?

Until the deal is closed, there are only three people who need to know about your decision to sell.

No. 1 is your attorney.

No. 2 is your outside accountant.

No. 3 is your broker or merger & acquisition intermediary.

When dealing with anyone else, remember the old adage:

“Loose lips sink ships.”

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.

How to determine a business’ worth

As you think about selling, one of the questions that probably comes to mind is:

“How much can I get for my company … what’s it worth?”

In reality, you must be ready to sell for a price that the market is prepared to pay … because the market sets the price.

Book value, which is the amount of assets on a balance sheet, is not a true reflection of a company’s worth.

Selling value IS based on recent results, growth opportunities,

and overall company quality.

Some other value drivers are:

• historical profits

• good books and records that are defendable

• reputation

• location

• employee tenure.

Here’s why good books and records are important…

Most businesses are sold based on what’s called a multiple of earnings.

Earnings are really profits.

In smaller companies, earnings are sometimes called Discretionary Cash Flow… or the letters D-C-F.

D-C-F is the TOTAL of economic benefits to owners before taxes.

Discretionary earnings are calculated by taking the Net Profit on a financial statement, then adding back the dollar value of certain items.

Some of them include adjusted Officers’ Salaries, Interest, Depreciation and Amortization.

Others are nonrecurring expenses, plus ownership perks.

These are items that are NOT absolutely essential for the operation of the business.

They’re expenses that a new owner may or may not be faced with.

So, when trying to determine what you can get for your company, keep in mind that it’s probably worth some multiple of earnings or a multiple of owner’s Discretionary Cash Flow.

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.

Took the words right out of my book

Julie Northcutt’s story bears repeating, if only because it sounds really familiar. Actually, it’s a terrific story.

Northcutt had a $2.5 million home health-care business, Chicagoland Caregivers, when she sold it in 2007 to a national company in the industry. But she wasn’t ready to sit back and sip margaritas on the beach.

For Northcutt, selling Chicagoland Caregivers presented her with new business opportunities, as she told Don Sadler at D&B Small Business Solutions:

“I’d had the idea for my other business, CareGiverList.com, for a few years and knew there was a huge need for this,” she says. “And I knew I needed to either expand my first business or sell it in order to continue competing effectively, since lots of new companies were coming into the industry.”

Northcutt’s primary advice for owners thinking about selling: “You’d better figure out what you want to do next. It might sound good to be able to sit on the beach all day, but people who are entrepreneurs usually can’t do that.”

Don’t be surprised if the following passages look familiar:

Eric R. Voth, a serial entrepreneur who has sold five independent companies and the author of How to Sell Your Privately Owned Company, says owners can use today’s challenging economic times to their advantage by putting greater emphasis on operating leaner and meaner. “Trim expenses and increase sales with an eye toward better profitability. This will allow you to achieve maximum value, which translates into a higher asking price when you put your company into play.”

Most experts and owners who have sold businesses agree that it’s really never too early to begin planning for the eventual sale of your business. “Every small businessperson should continually consider how to position his or her business for sale,” says Vicki Donlan, a consultant and business broker. “Too often, small business owners get excited about new ways to grow and invest in new directions that don’t lend themselves to the potential for a sale.”

“Place your business in a position to sell well before you actually need to sell,” adds Chuck Morton, co-chair of the Business Transactions Practice Group of Venable LLP, a law firm. “This effort should include having your corporate records in order and knowing what the drivers of value are for your business in the marketplace.”

Beyond the financials, (Tony Calvacca, a principal of New York Business Brokerage) says factors like the outward appearance of your operations and the morale and enthusiasm of your employees also go a long way toward making your company more marketable. “Poor appearance and inattentive workers are negative factors frequently overlooked by sellers that often jeopardize deals.”

I have an entire chapter devoted to that topic. See for yourself. How to Sell Your Privately Owned Company.

Here’s another topic I touch on in my book that bears repeating here:

All the experts agree that it’s important to have a professional business valuation performed by an independent third party before you set a price for your company. “Owners almost always have an inflated value of their business because of the time, energy, and heart they put into it,” says (Matt Slappey, a business transfer specialist with Murphy Business & Financial Corp.). “A valuation will consider similar business transactions and the return on investment your company may provide.”

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.

New Year, new optimism

As the New Year gets under way, growing numbers of small-business owners feel a cautious sense of optimism.

Chicago Tribune Minding Your Business columnist Ann Meyer cites evidence both scientific and unscientific in a recent column.

Many privately owned companies came into being or continued to succeed and grow in spite of the crippling economic conditions that hogged headlines in 2008 and 2009.

Meyer writes:

Despite the severity of the recent recession, “There still were hundreds of thousands of businesses started. And we would expect that to increase” as the economy improves, said [Dane] Stangler, senior research analyst at the Kauffman Foundation.

Some already see signs of improvement. About 15 percent of Illinois businesses surveyed in September and October said they plan to reduce their work force or lay off workers in the next six months, compared to two-thirds that said they had cut back during the previous 12 months, according to the Management Association of Illinois.

A new study of Census data commissioned by the Kauffman Foundation indicates firms that are less than 5 years old created about two-thirds of all new jobs in 2007. On average, these young firms created about four jobs per year.

As a result, the Kauffman Foundation is advocating policy changes to encourage startups, such as cutting payroll taxes, welcoming immigrants who intend to start businesses here, easing lending standards and reforming Sarbanes-Oxley regulation, which discourages small companies from going public.

And while the thrust of her column focuses on newer companies, a lot of these issues also apply to established small-business owners who want to expand or sell – which is where my book, How to Sell Your Privately Owned Company, comes into the picture.

It’s hard to avoid getting so caught up in day-to-day survival of our small businesses that we don’t pay attention to what’s going on in the world surrounding us. But as the old saw goes, knowledge is power. More to the point, applied knowledge is power.

Take time out each day to read up a little on your business, the business environment in your community and the economy at large. And I hope you’ll find this blog a reliable source of information that matters to you, especially if you’re thinking about selling your business.

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.