 It's no wonder then that one of the most important decisions a business owner
can make is often left until it is too late to make a rational and informed
decision. This is a decision to sell a business or close it while taking the
maximum profit necessary to maintain an accustomed lifestyle.
Bill Hoagland addressed this topic in the September edition of the Square
Talk series he has instituted for Main Street Lincoln. Hoagland is executive
director of Main Street and co-founder of the Jacy Group, a business consultancy
with headquarters in Denver. Square Talk is presented in the Main Street Lincoln
office from 11:30 a.m. to 1 p.m. on the last Wednesday of each month.
The decision to sell a business is fraught with all sorts of pitfalls and
requires an extended period of time to make informed choices and smooth the
process. Hoagland recommends a minimum of five years, and as many as seven, to
make the decision to exit a business. The planning is complex and should
incorporate as many experts as possible.
"The decision to exit a business is a very emotional process. The owner
should call upon certified financial planners, accountants and legal advisers to
help with the decision-making process," Hoagland said.
These professionals can help analyze the current state of the business and
recommend changes that will enhance the value of the company, as well as help
with the decision to sell or liquidate. Hoagland's experience helping companies
focuses on those with a value between $500,000 and $20 million.
One of the most important initial steps is to identify the "gap." This is the
amount of money a business owner needs after the sale to maintain a desired
lifestyle versus what the business is actually worth. If the value of the
business measured against the owner's current personal wealth is determined to
be less than what the owner needs, then the "gap" has been identified.
The next step is to use the five- to seven-year lead time to enhance the
value enough to grow revenue. This is where consultants may come into play to
recommend value drivers that will make the business worth more and help identify
potential purchasers.
Value drivers are just that -- tactics that are necessary but may have been
neglected by the business owner. They include such things as identifying
business fundamentals and doing strategic planning. Diversifying supplier
relationships and collecting customer feedback are other areas addressed by
value drivers.
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Finally, it may be necessary to change the way financial information
is collected to more accurately reflect the value of the company.
Also determine benchmarks to ensure that the company is accelerating
its financials to meet the deadline for the transfer of ownership.
While these measures may seem fundamental to running a business,
the day-to-day stress of business management may have caused them to
be neglected.
It is also a good idea to get an outsider's feedback on the
company, a fresh view of how it is being run. These are the areas
that a potential buyer will go over with a fine-toothed comb to
determine if the sale price is fair.
Finally, it will be necessary to determine the exit route from a
company, namely finding who would be available to purchase the
company. Hoagland referred to a Business Enterprise Institute list
that reduces the potential buyers to eight categories. Some of these
are selling to family members, which is the most common route;
selling to current employees; or third parties. In some cases,
business owners will find that simply closing the doors and
liquidating the company is the best course.
Hoagland also identified a list of reasons why businesses don't
sell. It is hoped that the application of the value drivers would
reduce or eliminate these.
Of course, because of the dynamic changes that happen in our
economy on a continuous basis, one important reason a business does
not sell is that the service or products are outdated. The need for
innovation is ongoing.
"Armed with the proper tools, advisers and time, you optimize
your chance for leaving your business in style," Hoagland said.
The next Square Talk seminar will be on Oct. 30 at 11:30 a.m. in
the Main Street office. The topic is "Effective Planning -- 2014 is
closer than you think". It will address turning a business owner's
vision into a strategy and then executing that strategy.
[By CURT FOX] |
