The boom ahead

Signs of life emerging

I’ve been saying it for a couple of months now, and lately a few other voices have joined the chorus: The time to sell/buy a small business is now or is coming very soon. Take advantage of the improving conditions by making sure your small business is in top form.

The following item appears this week in Bloomberg’s Business Week, involving an interview by Karen Klein with mergers and acquisitions specialist Bill Roman:

There are eager buyers for small and midsized companies whose owners have powered through the recession and expect to see demand rebound this year. That’s according to Bill Roman, the managing director of the Boston office of Harris Williams, which advises middle-market companies on mergers and acquisitions and focuses on sales in the $25 million-to-$1 billion range. While business sales fell dramatically in 2009, Roman says Harris Williams is seeing deals pick up in 2010. With few business assets in supply and high buyer demand, valuations for high-quality companies have held surprisingly steady, he tells Smart Answers columnist Karen E. Klein. Edited excerpts of their conversation follow.

From a Q&A:

Is there anything specific that a business owner can do to improve a company’s valuation?

A lot of what’s required is outside the entrepreneur’s control. The biggest driver of whether you’re going to be able to sell your business is your sales growth. You can try to improve that through marketing. And you can assess what your order book looks like and whether your quotations are up. An early indicator of a good valuation is your quote rate trending up, compared to prior sales periods.

Is there pent-up demand for new mergers and acquisitions?

Absolutely—both from strategic or corporate acquirers and from financial buyers. So many business owners are sitting on the sidelines because their business has softened. The corporate development people at the large corporations augment their organic growth with acquisitions, but they haven’t been able to find quality companies recently.

The above information gives you some of the why on selling your privately owned company as the economy starts to recover from the Great Recession. I offer the how in my book, How to Sell Your Privately Owned Company: A Basic Guide for Independent Business Owners – Baby Boomer’s Edition.

I’ve seen economies cycle through boom and bust periods, and chances are you have too. The time to act is in the beginning of the boom, not at the tail end as it runs out of gas. That’s why it’s important to start now.

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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Why you need to develop a successor

Leadertalk blogger Becky Robinson of Mountain State University’s* School of Leadership and Professional Development writes about the importance of developing others as part of your succession plan.

Her experience in developing a core group (or even an individual) to carry on the work you began is a good example of how to prepare your company for sale even if you’re years away from selling.

She writes: “If you are passionate about the work you do, you need to build into others and help them develop their abilities. It’s the only way to ensure that what you’ve started continues.”

The example she gives for her posting is a home-schooling cooperative, but that mind set – making sure someone is there to carry on – applies to anything you might be passionate about, especially if it’s a business you have built and nurtured over many years.

My book, How to Sell Your Privately Owned Company, makes a few salient points about having a succession plan:

Ultimately you should have a well-defined succession plan in place that you share with family members, partners and possibly key employees.

For many business owners the best plan is one in which they sell their business and agree to stay on and run it for a set number of years. This allows them to take a significant amount of cash off the table, meet the needs of their estate and protect their family and their personal retirement. By selling the business early and agreeing to stay on and work for at least another five years, they put their exit strategy in place and while they are alive, well and healthy they can make sound business decisions.

People who plan are generally more successful than those who don’t. Waiting till the last minute to sell your business is not a plan; it is an act of desperation.

Whether you have a favorite potential successor, or someone you want to mind the shop after you sell, you need to have a succession plan in place and you need to groom your successor.

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.

* Mountain State University, a not-for-profit private university in West Virginia, was formerly known as Beckley College. MSU has rapidly grown in the last two decades from a two-year college to a university that offers bachelor’s, master’s and doctoral degrees.

Is the business freeze thawing?

No doubt the current economic conditions have dampened enthusiasm for mergers and acquisitions of all sizes. Tight credit and generally slow cash flow throughout the economy have kept many would-be buyers of businesses on the sidelines.

But not everyone is waiting for the all-clear sign to jump back into the water.

Medill Reports Chicago, an extension of Northwestern University’s Medill School of Journalism, tells the story of Shirley Evans-Wofford, the owner of Lambent Risk Management Services Inc., a firm that is taking the plunge into two acquisitions worth a combined $10 million (using bank financing!):

Evans-Wofford, 61, the founder of Lambent, is excited. The impending acquisition of a brokerage firm and a third-party insurance administrator will add eight new employees to her payroll and help her boost revenues by approximately 60 percent.

Even in the midst of the recession, Evans-Wofford’s business rose 13 percent to $1.7 million in 2009. “To see it grow from its infancy state up to now is such a joy,” Evans-Wofford says.

Lambent, which began nine years ago in a small office with three clients, now has about 200 clients and operates out of a plush 6,700-square-feet office on La Salle Street in the heart of downtown Chicago.

So why does a risk-management expert, of all people, think this is a good time to go on a buying spree? What does she know about the market conditions that others don’t?

Evans-Wofford noticed that clients were spending less on insurance as they cut costs in the economic downturn.

She told Medill:

“It’s not so much that we are not getting new clients but their premiums are being reduced significantly. You have to do a double whammy by bringing more clients.”

This is where, she thinks, her acquisitions fit right into her current strategy. “There is no [other] way I can make the dollars that I want to make right now between now and five years,” she adds.

In 2009 she signed up for a Chicago program known as nextOne, which  conducts workshops and classes, some in association with the Kellogg School of Management of  Northwestern University.

Michael Johnson, director of the nextOne program, says that this is an opportune time for Lambent to make the acquisitions. “The disruption in the economy is a time that brings up opportunity. It is absolutely an excellent time for her to consider it,” he adds.

In other words, she’s buying now because she believes those two companies are good fits for her own company and they add value to her business.

These two firms were attractive to this particular buyers, and $10 million (or even half of that) is nothing to sneeze at.

And because they made themselves attractive to Evans-Wofford, those businesses will continue to thrive as part of a larger organization.

My book, How to Sell Your Privately Owned Company, spells out how to make your company attractive to the right buyer.

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.

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.

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.

Exit planning is crucial to selling

An Ohio group is presenting a series of Webinars focused on developing succession plans for small businesses. Paula Schleis of the Akron Beacon Journal reported recently about the January and February  Webinars sponsored by the Ohio Department of Development.

“We feel the lack of proper succession planning is one of the most preventable sources of job loss in our communities,” Chris Cooper told the Beacon Journal. Cooper is program coordinator fo the Ohio Employee Ownership Center in Kent. Among programs planned are on Jan. 7, Where the Business Plan, Strategic Plan, and Succession Plan Meet, presented by Jim Aussem of Cavitch, Familio & Durkin.

For details on how to sign up, visit the OEOC and select the appropriate link. (Note: The miniURL listed in the Beacon Journal was a bit balky – the link here works.)

If for some reason you can’t connect to the Webinar or simply need a reference, my book, How to Sell Your Privately Owned Company, has all the information you’ll need to establish an exit plan and a whole lot more.

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.