Selling Your Business in
Today’s Tough Market
by Glen Cooper
Business Broker / Business Coach
His business is bought by a young
couple who have been traveling
overseas for several years.
The whole thing is financed...
The failures of the national broker offer
interesting examples of what doesn't
work and what a business seller should
Finding the right buyer is the broker's
job. Working with a well-managed
database of prospects is how effective
First Meeting
With Your Broker
At your first interview, we business
brokers expect you to ask us what your
business is w...
4 Can I talk to the owner? Given
the average size of business brokerage
firms, this is not as hard as you might
think. A...
You would think that market data points
from pre-2008 are completely wrong.
Well, the values ARE DOWN because
profits ar...
You don’t want your employees to ride a
roller coaster of fear. You don’t want
your creditors or vendors to pull the rug...
Money Is the Least
of Your Worries!
Yes, that’s easy for ME to say about
your sale. It’s not MY money! Although
I did se...
4) Share and Support. Share your
“quick win” experiment with someone
else. Get feedback. Get support. If the
feedback i...
About Author Glen Cooper
Glen Cooper is an active Denver-based business broker, business coach
and public speaker.
In 2010...
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Selling your business in today's tough market


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Selling your business in today's tough market

  1. 1. 1 Selling Your Business in Today’s Tough Market by Glen Cooper Business Broker / Business Coach www.GlenCooperColorado.com Selling a business is complicated. You can take control of the process, however, by learning what to do. I’ve been selling businesses for over 30 years. I’ve learned many lessons. In this article, I will show you how to make it happen. I know how it SHOULD BE DONE. I know how you WANT IT DONE. I know how it REALLY GETS DONE! Understanding these three aspects of the process and bringing them into alignment is the key to making it all work. Over the years, I’ve written a lot on this subject. The first time was in the early 1980’s when I started being a business broker. Then, in the late 1990’s, I wrote for a then-new website, BizBuySell.com. Now, in 2012, I have just re-written this content to bring it all up-to-date. The subject can be broken down into five parts:  Part 1. Today’s Market  Part 2. Six Steps of Selling a Business  Part 3. Questions to Ask a Business Broker  Part 4. Surprises You Can Expect  Part 5. After the Sale The small business selling market across most of the U.S. and Canada is similar and my comments on the subject will apply to most situations in both countries. Today’s Market I am a student of historical trends and I believe today is the most interesting time in all of human history. Because of a unique alignment of causal effects, it is obviously a great time to buy or start a business. But oddly, it also happens to be a good time to sell as well. In both cases, it is time to get going. I never thought that buying and selling could both be favored at the same time, but I believe that is exactly what is true right now. Uncertainty creates opportunity. Times like these create tomorrow’s business legends. We are right in the midst of the changes that will be tomorrow’s “best thing that ever happened to us.” It is unlike any previous time because:  Generational shifts are changing the way businesses work,  A tough economy is causing a worldwide power structure re-mix, and  Scientific and technological breakthroughs are revolutionizing life as we know it. An Example A retiring business owner in the United States, (we’ll call him John) sells his business because he has a unique opportunity to move and start a whole new life that he didn’t expect.
  2. 2. 2 His business is bought by a young couple who have been traveling overseas for several years. The whole thing is financed, without a local bank or SBA guaranty, by a group of third party equity capital investors, with a strong down payment from the buyer, and with the help of seller financing that will actually save John taxes on his business sale proceeds. These buyers have found financing through one of their former employers, now involved in a venture capital fund that organizes small investors on the Internet into larger pools of investment capital to buy businesses. The young couple buying John’s business is moving to his area for economic, safety and family reasons. They know how to take John’s business to a completely different level better than John does. They will create a new, interactive, multi-lingual website for selling John’s product and service worldwide to a niche market. John’s oldest daughter is a successful executive in a biogenetics firm. She is now quite well-off and is buying mom and dad a separate home near her own. John is relieved. He will now be free of worry about workers or computers he no longer understands. Time to Get Going! All of this is what I mean by generational shifts and new opportunities fueled by technology. It’s truly a whole new business buying and selling market. Business buyers have always been younger than business sellers, but today, it makes a bigger difference. Generation Xers (and even GenY’s now!) are changing how business is done because they have new tools: new analytic tools, new communications tools and new collaborative tools. Playing computer games all those years, it turns out, had the potential of making you an excellent global resource manager. Who knew? Current economic turmoil caused a dip in the prices of some businesses. But, surprise of surprises, even that low-tech business now looks pretty good. It looks good because it reliably serves a steady, safe and friendly local community. It looks good because it offers a better return on investment than elsewhere. It looks good because it offers a great lifestyle. Banks are expected to be back in the business of small business lending someday, but in the meantime, the market is filling the vacuum in most creative ways. Private funds are coming out for the right deals. At the small business level, however, that’s mostly seller-based financing. Some of today’s “right deals” are brand new businesses founded on new technologies. But just as many are older businesses given new life with that same new technology. Targeting niche markets has never been easier. If there are as few as only 1,000 people worldwide that want something, that small number of people can be a great business market for someone who sees their unique need. Technology is also creating unique needs. Every time I travel around the U.S., I remember why people buy businesses here: if they do, they get to live here! Almost anywhere in the U.S. is a great place to buy a business. The United States is as physically, socially, politically and economically safe as anywhere else on earth! It’s also mostly a 4-season climate and an environment of great beauty, offering many different lifestyle choices. Other places in the world may be shaky, but things still work here. Our economic infrastructure is known to be one of the best in the world. Who wouldn’t want what we have? Six Steps of Selling a Business Selling a business can be broken down into six steps: 1) Form Your Team – Business Broker, CPA, Lawyer, Wealth Advisor 2) Price It Right – Don’t Forget that Terms are Everything 3) Prepare a Package – Do Your Homework First 4) Target Prospects – Tell Only the Right Types of Prospects 5) Negotiate Professionally – Use Your Team! 6) Wrap It Up Quickly – Get to the Closing on Time Let’s look at an example. It’s an old favorite of mine because it illustrates all the points and the seller gave us permission to use this story. The first decade of the 21st century is receding into history now, of course. But among the most extraordinary things I have learned is that this 2001 story and the many problems that one seller encountered back then continue to repeat themselves endlessly – over and over again! The technology of how it’s done marches ahead. The basic human stuff remains the same. Inc, a well-known small business magazine, featured an exposé (Nov. 2001) about a national broker's dealings with business owner Cal Brown and his prolonged effort to sell his business, a fencing materials manufacturing and installation company. The long saga of failed expectations eventually ended in 2003 with a successful sale (through my firm, of course), but only after Cal fired the national broker, consulted with his advisors, then hired me to value, list, market and sell his business. What happened is as interesting as it is instructive.
  3. 3. 3 The failures of the national broker offer interesting examples of what doesn't work and what a business seller should not do. And, by the way, the same national broker is still out there doing exactly the same thing, despite lawsuits and a lot of bad publicity. The marketing strategies, techniques and activities of any high-quality business brokerage firm provide instructive lessons of 'how it's done.' When Cal decided to sell his $2 million fence-building business, he did what many business owners have done. He responded to a general marketing offer from a national business brokerage and appraisal firm to appraise his business. After they completed their valuation, he met with a sales representative of the national firm and listed his business with them. The national company placed a high price on the business, documented by a 28-page report. They promised a national advertising campaign. They promised that their large national staff would produce solid results. He believed them because their presentation seemed polished and professional. Like nearly all sellers, Cal had never sold a business before. He liked the idea of hiring a national broker to make up for his own inexperience. Most of all, he liked the price they said he could achieve! Cal has since learned that he missed a few steps. If you talk to him today, he will gladly tell you some lessons he's learned. Form Your Team It all starts with teamwork. Cal needed to form his team of professionals, and then listen to them. But, like many business sellers, he didn't take this critical first step. "I am used to making my own independent decisions," says Cal. "I consult with my wife, of course, but I have never had to assemble a team of outside professionals. For most decisions, I wouldn't. In this case, I should have." Your team can include a business broker, lawyer, accountant and any other personal business advisor you rely upon. This team provides checks and balances to help you keep the process on track. Your team members may have to be from your area’s largest city, but rarely need to be farther away than that. Every urban area in the U.S. has many such good advisors. Technology will eventually make it practical and affordable to assemble advisors from around the world that you know you can trust. But today, forming your team is most likely a local activity. You want to be able to talk face-to-face with each of them. Price It Right The first team task is to value the business. Pricing your business, however, may be more difficult than you expect. Your accountant and attorney may not have valuation expertise. None of your team members will want to appear too pessimistic about the price of your business. This is a time for active listening. If your team agrees upon the price and terms, that's great. If they don't, look for suggestions from the team on ways to resolve the issue. "It is a mistake to accept a quick price estimate and not check it out with other sources," says Cal. "Frankly, I was thinking of getting rich quick. "I have learned, sadly, that it is a common technique of national brokers to price a business very high, take a large cash retainer, and then effectively disappear. It's still hard for me to believe that this happened to me. "When I finally consulted with Glen’s firm, and then compared what they said about my business value to what others were telling me, I discovered a wide agreement at a lower price range. It was a real learning experience for me. "I didn't want to hear it, but it was a realistic price and terms combination that finally helped to get my business sold. The biggest disservice that a broker can do is to vastly overprice your business." Prepare a Package Buyer prospects expect a great deal of information. This means you should develop a sales presentation package to summarize your business story and supporting data. This is the broker's job, but you may choose to have it reviewed by your other advisors before it is given to any potential buyers. Prospects expect you to present a thorough explanation of your business and the markets it serves, as well as historic and current financial statements. "The valuation report prepared for me by the national broker had no value." says Cal. "The professional sales package assembled by Glen was superb. It laid out the story of my business. It showed how the numbers worked. It pointed the buyer in the right direction." A sales presentation package, sometimes called an "offering summary," an “offering memorandum,” a "prospectus," or “confidential business review,” is ideally prepared by the broker and reviewed by you, the seller. It is critical for both of you to have a mutual understanding of the facts and issues. Creating the package prepares each of you for the required sales effort. Target Prospects "The national broker provided the names of only four prospects," says Cal. "When I called to follow-up, I couldn't reach one, and the other three weren't remotely interested in my business. “They were not real prospects for my business. They should have been screened out."
  4. 4. 4 Finding the right buyer is the broker's job. Working with a well-managed database of prospects is how effective business brokers get the job done. Qualified, serious buyer prospects (companies and individuals) register with business brokers in geographic areas where they expect to find business acquisition opportunities. The national broker's promise that its database is larger is meaningless if those buyers aren't the right buyers for your geographic region, your industry or your size business. Cal Brown's national broker boasted of having 17,000 buyer prospects, yet identified only four. My firm then maintained a buyer database 1/10th that size, but found 43. Targeting and qualifying prospective buyers is a painstaking process. Maintaining lists and working with prospects is critical. An amazing thing to learn for a seller is that buyer prospects who are prepared and capable of actually buying a business are usually already looking. Most are already working with a broker. If someone hasn’t yet taken steps to search for a business to buy, they are probably still months or years from actually scraping together the money, courage and information needed to take that step. Curiosity and uncertainty usually require that business buyer prospects will take many early, yet very slow, steps toward that decision. For most, it’s something they’ve never done before. The learning curve is longer than anyone thinks at the beginning of their journey. Business brokers who work every day with self-identified buyer prospects know that 95% or more never move ahead to actually buy a business. Of the small number that does, it usually takes a year or so of active searching and learning about the process before they settle into a purchase decision. That’s why hiring a broker who already has buyer prospects in the pipeline makes sense. They may be ready to buy sooner rather than later. Catching a buyer at the end of their search is best. Negotiate Professionally When you finally get an interested and qualified prospect that you believe is right for your business, plan your negotiation strategy carefully, but always negotiate in good faith. Remember that your goal is to sell your business. Lay the foundation for the team effort that you and the buyer will need to get to a closing (sale completion), and then to have a successful transition in the months that follow. Cal Brown was exemplary in following this advice. “Glen’s whole team,” says Cal, "was right there at every turn - on the phone, in my email, at my home or meeting with the prospective buyers in their offices. “I needed their advice on a number of points during the long negotiation. I never had to wait to hear from them. They were always accessible and responsive." Over 13 months, we identified over 80 potential prospects for Cal's business. Of those, 43 were qualified and interested enough to receive an offering summary. Only 5, however, pursued it further. In the end, the offer accepted was from a highly skilled buyer that Cal believed would be an excellent fit for his business. Those ratios – 100% of the inquiries leading to a 50% response rate, then less than 10% who actually move forward to serious consideration , finally yielding 1% who actually buy– are typical for how the process really works. As the old saying goes, “You have to kiss a lot of frogs to find a prince.” Business brokers kiss a lot of frogs for their clients! Wrap It Up Quickly "After we received a solid offer from my preferred buyer, I also had another good prospect who wanted a showing," reports Cal. "Glen helped me decide how to proceed so I wouldn't offend either one. “Even after the offer was accepted, Glen managed to keep the business on the market, so we didn't lose other prospects or miss any new ones. But he also helped me to keep the process moving forward." Even the best buyer prospects can change their minds overnight. When someone is ready to make a commitment, my advice is to get it in writing and get a deposit. After the initial agreement is signed, close as quickly as possible. Cal's business was sold using the services of experienced local professionals on each side. He and his wife, Gale, are now retired. Questions to Ask A Business Broker In these very turbulent times, we all need to decide: do I want to continue my business, or do I want to sell? If I plan to sell within the next few years, is there anything I should do right now? Who do I call? Which business broker? Who else needs to know? Where do I begin? For most prospective business sellers, this business selling exercise is a confusing, first-time experience. It is wise to begin slowly as you form your team. Interviewing a business broker might be the best start. Business brokers don't charge by the hour, so it costs nothing to get their initial advice first. A one-hour meeting can be very productive.
  5. 5. 5 First Meeting With Your Broker At your first interview, we business brokers expect you to ask us what your business is worth. We may offer a quick, free estimate of your potential business value if we can review the last few years of tax returns or financial statements. Not all business brokers will do this free of charge. Not all businesses can be valued so quickly, even by a pro. Sometimes it takes 15 minutes. Sometimes it takes 15 hours! If it takes more than a few minutes, I will charge. A broker who has no business appraisal background may recommend a third party appraiser. Confidentiality is important and business brokers understand this. The material you give to business brokers is treated as highly confidential. Your business broker will have many more detailed analytical questions about your business when you commit to proceed with a sales offering. Business brokers expect you to ask lots of questions about the process. How much time does it take to sell a business? What steps are involved? How does a business broker solicit potential buyers and still preserve confidentiality? A business broker is the advisor you will spend the most time with when you finally decide to sell. Your business broker must be an experienced financial analyst, a skilled business valuator, an effective planner, a savvy sales professional and a seasoned negotiator. The individual you choose will be the primary actor in your sales effort. Even in a larger firm with multiple business brokers, any given business for sale usually only commands the time investment of one individual broker. Some brokers have adopted a collaborative approach, with at least two brokers involved in each business sale, but that is the exception in the world of business brokers, not the rule. Finally, check out your business broker. All business brokers will agree to come to your business first, but you may want to reverse that order. There will be time in a second meeting for your business broker to come see your business. At the very least, meet the business broker in a space where you can get to know him or her as a person. Meet for a meal, go to the broker’s office or home, welcome the broker to yours – whatever it takes to verify that the person you are choosing for your broker is a person who will wear well with you over time. Looking at the broker’s website is very important. Looking for them on the Internet personally is a good idea. Getting referrals from your other advisors is a great idea. But, after you narrow the list to a few that seem likely, start with the one you think is the best, and see that broker first. Six Questions Suggested by Inc Magazine Many people have suggested questions to ask a business broker at the first meeting. A great list of six questions comes from Inc. magazine writer Carole Matthews: 1 What is your background and experience? Matthews quotes prominent Texas business broker Jeff Jones as pointing out that the average business broker is 55 years old, and for good reason. Experience counts! "It takes time," Jones says, "to understand the nuances of business. A competent broker needs to know about valuation, accounting, law, sales and . . . patience!" Don't be shy about asking your broker what experience they have in these areas. 2 Are you a member of a professional association? Matthews points out that business brokers should have the right connections. Business brokers have a professional association, the International Business Brokers Association (IBBA). Most serious business brokerage firms are IBBA members. 3 What services do you provide? Matthews urges sellers to carefully review the services offered by various business brokers. Two mistakes often made are equating business brokers with real estate brokers, and over-estimating capabilities of so-called "national business brokers" in comparison with local ones. Real estate and business brokers are not the same. Real estate brokers don't have systems to protect a business seller's confidentiality. They often represent buyers, which complicates a business sale. They rarely understand the nuances of a business sale, especially intangible business values. A skilled local business broker can also offer much better service than the current crop of "national brokers." Many, if not most, of today's business brokers who claim to be national are, in fact, merely producers of seminars and webinars intended to solicit high fees and retainers, with very few actual business sales. The marketing material they produce for themselves is great. The materials and services they offer specific businesses - when they offer any services at all - are shamefully bad. A seller should be able to get specific answers from a competent business broker. When in doubt, check references before agreeing to list your business.
  6. 6. 6 4 Can I talk to the owner? Given the average size of business brokerage firms, this is not as hard as you might think. As many as 45% of business brokers are sole practitioners. Most business brokerage "firms" have only 2 agents. As Carole points out in her article, the danger posed by unscrupulous national brokers is large enough for her to make this a major point in her advice. Your small local brokerage firm, well- connected locally and on the Internet, is all you usually need. There are a few exceptions, but not many. In the world of selling businesses, therefore, this question only concerns the larger “national” firms. These "national brokers" tend to be major cities on the U.S. east and west coasts and in Texas. We would guess that you won't be able to find the "owners" of these firms. IBBA founder Tom West is right when he gives the advice in the Inc article to "cross that firm off your list," if you can't talk to the owner. Every legitimate business brokerage firm in the country has an owner who is actively engaged in the field and who will talk directly to any potential client. It might even be best to go meet them in person! 5 How do you screen and pre-qualify buyers? The Internet has recently made the world a much smaller and more dangerous place for business sellers. The difficult part is not how to get buyer prospects to respond, but how to manage them after they do. Managing "buyer flow" to protect a seller's confidentiality requires a system. Sellers need to know whom they are dealing with. Prospects need to be screened and pre-qualified. When a buyer prospect is uncooperative, brokers need to have the procedures in place to stop the process until the proper information is obtained. Fewer than 5 in 100 business buyer inquirers who respond to your marketing effort will ever actually buy a business! That means, on average, to get one real buyer, you and your broker need to eliminate at least 95 others! This is why it takes a system. 6 How will you market my business? At your first meeting with any business broker, you can feel comfortable asking for details about how they work. The business broker you want will have printed or Internet referenced materials that explain this as well as samples of past business sales or endorsements and references. "Discovering what tools a firm has in its marketing arsenal will help you determine just how committed they are to selling," according to Matthews. Surprises You Can Expect There are at least five things you probably don’t know about selling your business that will surprise you:  The price and terms you start with won’t be what you end with.  You are the one most likely to breach your own confidentiality.  You have only a 20% chance to sell your business in the first year.  You have only a 5% chance to sell to any one buyer prospect.  Money should be the least of your worries during this process. How can I prove these statements? Well, I can’t PROVE them. You see, in private business transactions, no one has an interest in keeping records of failures, problems, surprises, worries and embarrassments. Private and public business sale records are only about successful transactions. Sales get recorded, but not businesses that fail to sell. Problems, surprises and worries that have been experienced by those before you rarely get passed along. What’s embarrassing is conveniently forgotten. The only way you can take the pain out of these and other surprises is by talking to those of us who have practiced long enough to help you avoid them, or at least minimize their impact. What you need is a professional from a firm with effective systems, experienced team members and a good track record. The team (business broker, business lawyer, CPA, financial advisor and the firms behind them) should have the combined skills to correctly estimate and defend the value of your business, to protect your confidentiality, create top quality marketing materials, screen and qualify both personal and corporate buyer prospects, and get you through speedy negotiations to a satisfactory closing and then beyond to whatever future you have planned. Neither I, nor anyone else, can make any money by gathering and publishing information about things you don’t really want to know or about costly surprises that await you. No one wants to pay for bad news. But, we business brokers are at our professional “best” when we tell you the truth, and when we collaborate with you by being transparent and accessible. So, with that in mind, here are my explanations of “5 surprises for business sellers:” The Starting Price & Terms Won't Be the Ending Price & Terms The price that your business can command on the market is actually more predictable today than ever before, but that is entirely counter-intuitive.
  7. 7. 7 You would think that market data points from pre-2008 are completely wrong. Well, the values ARE DOWN because profits are down, but the pricing multiples based upon profit for small businesses that are doing okay are pretty stable. The market is just a lot less forgiving. There is much less room for speculation. The information of what businesses sell for at all size levels is much better than it used to be, but sellers are still largely unaware – or in denial – about the realities of price and terms. The current economic turbulence is only reinforcing the principals of business valuation, however. Almost everyone is baffled by the business appraisal process because it is both science and art. Rules of thumb offered by brokers, in trade journals and online are often confusing, sometimes even wrong, and nearly always misunderstood by general readers. There are, however, several online databases now, with over 75,000 business sale transactions showing what businesses sell for. In aggregate, they show that most owner operated businesses sell from as little as 1 times annual “cash flow to the owner” to as much as 4 times cash flow. But beware! The average business in this “under-$5 million-in-gross-sales” category sells for only about 2.2 times cash flow to the owner, not including real estate and inventory for resale. That has not changed for years. Sellers don’t seek out this data, but buyer prospects do. In a brief blog or article, I cannot teach business appraisal. I have written extensively about this already, and will write more as new data comes in. The topic is also covered in the “Buying A Business” seminar I offer. I also teach an all-day course for the International Business Brokers Association, IBBA, on “Pricing the Small Business,” one of two day-long business valuation courses they offer. The most common rule of thumb used to estimate what a small business will sell for (of the kind and type we would have as a client of ours) is about three times annual owner cash flow. The businesses that I sell are often larger or “better than average” businesses, so the multiple of cash flow can occasionally be more. If you are surprised by that 3 multiple, it’s probably because what you read is usually about larger companies. In that case, you’ve probably heard a figure like 5-7 times earnings, or, in public companies, P/E (Price/Earnings) ratios of twenty times earnings, or even more. Keep in mind that, in business, among many other factors, size matters! The ways that earnings are measured change too, as a business gets larger. Annual cash flow to the owner (a.k.a. Seller’s Discretionary Earnings - SDE) is used for deriving rules of thumb for most small businesses. This cash flow, or SDE, is calculated differently than EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) used for mid-market businesses that are professionally managed, but still privately owned. EBITDA is completely different, too, from “Net After-Tax Profit” used in the world of public entities. When you review public company comparisons, for example, you deal with completely different P/E (price-to-earnings) ratios. Don’t get confused. Take time to understand the terminology differences and which ones apply to your firm. If your firm is owner-operated, that usually means you’re in the small business category, regardless of sales. That tends to define the way your business is run, how you keep records, and who will want to buy what you have created. Loan availability is also different for smaller business sales. Banks don’t like to lend to inexperienced buyers buying a small business. Banks are resistant to lending to buyers that lack experience in the specific type of business they are buying and/or in the market served by that business. Corporate acquisition groups will usually make offers only for the biggest niche players, and some of these groups, too, are not experienced enough in the eyes of third party lenders. Most sellers of small businesses must “seller finance” in order to sell. The good news, however, is that seller financing can get you a better price, a more certain transaction and helps minimize tax consequences. Playing banker actually can be profitable. So, don’t be too discouraged by what you hear and read! But, do expect to be surprised. Business pricing is confusing and surprising for both sellers and buyers. Remain open minded as you ask around and talk to your team of advisors. You Are the One Most Likely to Breach Your Own Confidentiality Your biggest concern is – and should be – the potential breach of your confidentiality. When a business is for sale, you DON’T usually want the whole world to know about it. The sad truth, however, is that you will likely be the guilty one that breaches your own confidentiality. Without receiving training on how to avoid this, you will likely be the one to tell your relatives and confidants. They, in turn, with tell others. Your secret will be out. Particularly if you try to sell it yourself, confidentiality has probably been breached. The ways to mitigate this are to see professionals early-on and strategize about maintaining your confidentiality. A confidential sales effort is best.
  8. 8. 8 You don’t want your employees to ride a roller coaster of fear. You don’t want your creditors or vendors to pull the rug from under you. You don’t want competitors to use it against you. You don’t want your time wasted by curiosity seekers who think they’re potential buyers, but really aren’t. You don’t want to be approached by relatives at the family outing to ask if you’ve sold yet. All that being said, however, I can report to you that even a simple confidentiality effort usually does the job. Most brokers, lawyers and accountants are good at keeping things confidential. Today’s buyer prospects are asked to sign confidentiality agreements (a.k.a. non-disclosure agreements) as a standard practice. Only 20% Sell in Year 1 The odds of actually selling your business within the first year are only about 20%. But, the more unique your business appears to be, the less predictable that percentage is. Economic turbulence does not seem to affect this. A profitable business, serving a unique specialty market, with a great physical location, and represented by a skilled team of professionals working for the seller, can sell quickly. The same business, without a profit, in a bad location, and not represented professionally, can take years to sell, or can just fail to sell. I have been a business broker now for over 30 years. And, among my current colleagues and associates in three different states (Maine, New Hampshire and Colorado), we have well over 200 years in combined business brokerage experience. Considering the data that we know about in our markets, it would be a fair statement to say that – all combined – only 20% of businesses in those markets put up for sale by brokers and/or for- sale-by-owners will sell within the first year of the sales effort. The biggest reason is that sellers are not realistic on the price and terms. A second major reason is that they are not properly prepared when the first (and sometimes best) potential buyer shows up. Buyers are better informed and more demanding of information than ever before. Overpriced and poorly documented business-for-sale offerings drive buyers away. Hiring, then listening to and following the advice of your own professional team of business advisors will improve the odds. Only 2% to 5% of Buyer Prospects Buy Using the same sources of data – and we actually have much better data on buyer prospects – only 2% to 5% of all people who make contact with a broker or seller to buy a business will ever finish the process! These figures vary by market and by broker, but the percentage is nearly always within this range. There are, of course, stages of buyer involvement – stages where the odds improve. If the buyer prospect signs a non-disclosure agreement and offers appropriate financial disclosures, then the odds go up – but only to about 5%. After a first face-to-face meeting with the seller, the odds double again – to 10%. In subsequent contacts, the odds gradually increase until they hit a new peak at the time the business seller and buyer reach agreement in principle on price and terms – it’s now about 50%. With financing approval, it probably jumps to 80%. When the check has cleared the seller’s bank, only then is it 100%. These odds also apply to the seller’s adult child or key employee. Child and key employee familiarity with the business would seem to increase the chances they will buy, but that is offset by their familiarity with the problems, which decreases the odds they’ll buy. Both the owners’ children and key employees usually rate low on financial ability and/or the willingness to pay a market price. The more they see themselves as owners already, the less they want to pay a fair market value for the business. There is almost always – among the owners’ children and key employees – a feeling of entitlement.
  9. 9. 9 Money Is the Least of Your Worries! Yes, that’s easy for ME to say about your sale. It’s not MY money! Although I did sell my business brokerage firm in Maine after 29 years in 2010 – and it WAS my money! So, I not only have watched several hundred others go through this process, but I actually went through it myself in May 2010 before I moved back to my home state of Colorado. But, truly, I have some advice to give you here. Our goal as your team of advisors – whether we are brokers, lawyers, accountants, financial advisors or even lenders – is to get you the best deal we can. Sometimes, it’s just a money equation. You want it. Our charge is to get it. Simple enough. On the other hand, most of our business seller clients are going to run out of time before they run out of money. This is a profound reality that you need to think about. A leading business guru – Michael Gerber of “The E-Myth” fame – argues that you need to run your business with the primary aim of giving yourself more life. My advice to you is to run your business sale process with that same primary aim. Your business may have a mission of producing a great product or offering a wonderful service, but the primary aim – the reason you started or bought it in the first place – was to give you more life. Making quality widgets and taking care of customers is a noble thing, but you need, want and deserve a better life if you’re going to go through all of this effort to own and run a business. As you sell your business, don’t lose sight of this. This is not the time to fight over pennies with a buyer, prove you’re right about something, or try to prove you can “stick it” to the government. If you are still up for those struggles, why are you selling your business? Your time is running out. This is NOT a game. This is your LIFE going by. So, what’s the surprise here? If you hire me or another firm I am associated with – and we accept the assignment – we’ll be your agent and do whatever you want that’s legal. But, not before we tell you the truth. You want a professional that will give you solid advice on price and terms before you ever enter the market. You should seek out a professional that has systems in place to preserve the confidentiality of your transaction. You need a professional advisor that thoroughly understands the market of buying and selling businesses. You deserve a professional advisor that will tell you your odds about when to hold and when to fold. Most of all, however, you need a professional – actually a whole team of professionals – who are wise enough to help you to get to the other side of your business sale, where there is, in fact, more life waiting for you. After the Sale After you go through all the steps of selling your business, and it’s finally sold, what will you do next? I have a unique suggestion. Don’t retire. Start over! Corollary: If you don’t know what you’re going to do to start over, don’t sell until you have a strategy for starting over! Since you already know something about running an enterprise, perhaps it would be best to start the next phase of your life with the intent that it will be your most successful enterprise ever. Since you are going to miss running an enterprise after you get a good night’s sleep, why not make your “retirement” an enterprise? Take all you know about running a business and apply it to the rest of your life. Ideas and an Action Plan So, how best can you apply your business knowledge to make the rest of your life better? In as few words as I can, I give you this checklist of ideas:  Make time. Prioritize your future time based upon YOUR priorities.  Lessen your stress. Pay attention to how the other mammals do it!  Budget for lots of profits – and not just the money kind.  Go for work/life balance. Do the work you love and love the life you lead. Based upon those ideas, here is my universally recommended action plan: 1) Search and Discover. Get mentally engaged in something you like. Search the areas that interest you. Discover what you haven’t had time for before. Get a hobby. Search the Internet, read the blogs, the articles, the discussions and some good books, listen to relevant audios and view the right videos. Learn all you can – in every way you can – about what you think you want to know more about. 2) Envision and Dream. Envision what you want for yourself. Dream about what could be. Decide what’s next in your life. Write down some goals and objectives – just like you did in business. Think big. Think very big! Ask yourself how your world can be made better. Adopt a cause that makes your world better. 3) Focus and Create. Focus on something. Experiment to give yourself a “quick win.” Try to create something. Find an immediate outlet for your energy today. Get physical. Do something you know you’d like to do. More importantly, choose to do something that you know you CAN do!
  10. 10. 10 4) Share and Support. Share your “quick win” experiment with someone else. Get feedback. Get support. If the feedback is negative, seek another’s support. Reconsider if needed, but make sure that you are reaching out to others. Offer support, as well, to anyone else who is taking this type of risk to share with you. Be a part of building a community – whether it is two people or 1,000 – gracefully giving support and constructive feedback to each other. 5) Plan and Control. Build upon your initial experiment. This time, however, focus on both short-term and long-term consequences. Review those goals and objectives again. Add some strategic and tactical plans, perhaps. Although we cannot control others, we can control what we plan. Everyone is different, however. Plan the way you want to plan to establish whatever level of control over yourself that you want and need. 6) Do and Engage. Work your plans. After you have taken the needed pause to plan, start running in the direction of your plans. Go fight the good fight. Volunteer for the front lines of your own battles. In business, a great boss leads colleagues by demonstrating, “This is the way we do it here. This is the way we change it here.” Now, in your personal life, lead yourself. Choose the way you will do it and change it that is custom made for you. Where did I get such crazy ideas? Well, without elaborating, I stole them, expanded and re-ordered, mostly from Stanford neurobiologist Robert Sapolsky. In writings and talks that he has been authoring for years, he shares in various results of his experiments in mammalian stress-coping. Do What the Other Mammals Do! If you will notice, my 6 steps are really stress management steps based upon what all mammals do: As we mammals search, hunt and discover, we engage our minds and bodies. This reduces stress. Mental and physical engagement reduces stress. As we see opportunity (for a good meal or sex – these two categories are the same for all mammals!) we envision and dream. This reduces stress in anticipation of the experience ahead. Humans can also do this with other opportunities. Thinking the future can be better reduces stress. As we experiment with certain behaviors, if we achieve immediate successes, this reduces stress. Our brains are much better at predicting future outcomes than most mammals, however, so that’s why I suggest that we actually plan for these “quick wins” to reduce our stress. Predictability of results reduces stress. As we care for each other, share our space with others, and build community, this reduces stress. Feeling a part of something bigger than ourselves reduces stress. Receiving support and being touched reduces stress. Feeling safe in someone’s arms reduces stress. As we mammals plan the hunt, the campaign, the next collaborative move, we reduce our stress. A sense of control reduces stress. Finally, as we actively flee or fight (the well known “flight or fight” response), we engage all of our mind and body parts at once. In other mammals, this is automatic and turns off as quickly as it turns on. When it does NOT turn off, as it doesn’t yet in humans, it kills us. Our stress-related diseases (and there are many!), usually kill us slowly, but they really are the cause of most early human deaths. We have not yet evolved genetically to cope with the stresses of the lives we have created for ourselves. Because of our larger brains, we worry. That keeps the blood pressure and muscle tension high and gives us no relief. For we humans, the trick is to use that large brain we have to consciously search and discover, envision and dream, focus and create, share and support, plan and control, do and engage. We do this to use our minds and bodies in activities that reduce stress. We exercise our talents to make the future better and more predictable. We can consciously build relationships with others that are mutually respectful, nurturing and celebratory. We can plan and take control. Make This Next Year Your Best! As you seek to sell your business, keep up with today’s market. In some ways, it’s always in balance between supply and demand. In other ways, however, it seems to change every day! Pay attention to the basic business selling steps – build your team, price it right, prepare for the sale carefully and develop your sales package carefully. Get that team of yours – your broker, lawyer, CPA and financial advisor – to help you target your prospects, handle negotiations professionally, and get to the closing on time. Learn the questions you should be asking these folks. Ask the questions. Don’t be surprised now with the surprises I’ve already told you about above. Finally, take all those years you have accumulated – with all those lessons and understandings – and invest them now in the future to make this next year – and all of your future years – the best they can be!
  11. 11. About Author Glen Cooper Glen Cooper is an active Denver-based business broker, business coach and public speaker. In 2010, Glen sold the business brokerage and advisory firm he co- founded and ran for 29 years, and moved back to his home state of Colorado. He operates his own business brokerage and coaching firm here now. His website is www.GlenCooperColorado.com. Glen offers one-on-one coaching, seminars, webinars, workshops and keynote speeches on a wide variety of topics related to small business value drivers, predicting future business trends, creating work/life balance, self-coaching and social networking. In his keynote speeches, seminars, webinars, workshops and one-on-one coaching, Glen coaches business owners and the professional service providers who help small business owners. He revels in teaching and speaking about what he knows and continues to learn – available to, and appropriate for, any business audience – combining his instinctive humor, storytelling ability and the ”street smarts” of any salesman who has survived for thirty years on commissions! Born and raised in Colorado, he never-the-less ventured to New England and, in 1981, co-founded what became Maine’s largest business brokerage firm. He sold his company in 2010, returned to his home state, and now lives in Denver. Glen is an active member of many organizations, including the Denver chapter of the Association for Corporate Growth (ACG), the Denver chapter of the International Coach Federation (ICF), the Colorado Association of Business Intermediaries (CABI), and the World Future Society (WFS). Glen is a Certified Business Intermediary (CBI), a designation awarded by the International Business Brokers Association (IBBA). Glen is also a former Certified Business Appraiser (CBA) and a Business Valuator Accredited for Litigation (BVAL), designations of the Institute of Business Appraisers (IBA). Glen is a sought-after senior instructor and workshop presenter for the IBBA and its regional affiliates, and was named a "Fellow of the IBBA” in honor of his service to this professional association in 2009. Glen remains active as a “virtual” senior advisor of Maine Business Brokers, its strategic partner firm, New Hampshire Business Sales, as well as several other intermediary firms throughout the United States. Contact: Glen J. Cooper 303-919-2694 (Cell) GlenCooperColorado@gmail.com (email) www.GlenCooperColorado.com (website) www.Linkedin.com/in/glencooper www.Facebook.com/glen.j.cooper