The Business Owner's Final Challenge
Ed is a business and equipment appraiser, certified exit planning advisor and certified value builder. For the past 30 years, Ed has served small and medium-sized businesses from within the business brokerage industry. Ed’s passion is helping business owners create, preserve and transfer value. This podcast shares top tips, tricks, and best practices to help business owners navigate the process of selling their company.
[01:52] Intro to the Podcast—an easy way to get information about selling your business.
[03:52] Statistics to think about.
[04:42] How to extract equity tied up in a business.
[05:11] Why it’s so important to get the business sale right.
[05:53] Using the sale of your business to fund retirement
[07:25] For the first time, the best option for family businesses is NOT being passed down.
[09:48] Why businesses fail to sell.
[12:12] Ed shares his experience helping small business owners
understand the value of their business.
[12:25] Elements of a sale
[00:12:39.23] Company Specific Risk
[13:36] Financial Performance
[15:49] Growth Potential
[17:02] Cash Flow
[18:11] Recurring revenue
[19:05] Competitive Analysis
[19:36] Customer Satisfaction
[20:35] Over-reliance on a single individual
[22:11] Podcast Structure Moving Forward
Learn More From This Podcast
Helping Business Owners Prepare to Sell
There is an unfortunate statistic in the business community—75% of people who sell their companies ultimately regret selling. If you work your entire professional life to build a company up and then sell it—it’s crucial that you sell under the right circumstances and feel good about the transaction. Selling a business requires a great deal of planning. This podcast series will give you the tools you need to sell your business the way you want for the outcome you most desire.
Business Ownership Today
Today, a lot of business owners are baby boomers. There are roughly 76.4 million baby boomers and 12 million of them own small businesses. That means that 42% of U.S. businesses are owned by baby boomers. The facts of life mean that everyone will have to leave their business at some point, which means that roughly 8 million of those businesses will go up for sale in the near future. Historically, families would keep businesses going by passing the business down from one generation to the next. 2019 will be the first time that business owners don’t feel like passing their business on to their children is a good option. Many parents believe that their children aren’t capable of operating their businesses as effectively as they did and for many, they simply don’t want to bankroll their children’s lives. For some, it’s not a family dynamic, but rather a fear that their industry is becoming obsolete. That means that many business owners are or will be actively seeking a third party to buy their business.
What Happens to All of These Businesses?
For the businesses currently on the market, different fates await. About 1.6 million businesses will sell while another 1.1 million will simply close their doors. These numbers are rough and some are educated projections, but they give you a general idea of how the numbers shake out.
- 26% or 5.3 million won’t sell because of a value gap.
- 20% won’t sell due to unreasonable demands from either buyer or seller.
- 12% won’t sell because of the economic uncertainty of the business or industry.
- 11% won’t sell due to insufficient cash flow.
- 11% won’t sell because of financing problems.
- 10% won’t sell because of a perception that there is no market for the business.
- 10% won’t sell simply from unpredictable events.
If you look at this holistically you begin to see the picture more clearly. 40% are value related challenges, the other 40% are emotional related challenges and 20% are other reasons beyond the control like a lack of market demand.
A Successful Sale Could Mean a Successful Retirement
78% of business owners expect to fund between 60% and 100% of their retirement through the sale of their business and the average retirement is 20 years. Take a minute to really let that sink in and be a good motivator for getting your business in shape for a successful sale.
Things to Think About
Every business owner will leave their business at some point. Whether it’s voluntary or involuntary. 80-90% of the business owners net worth is likely tied up in the business—to extract that equity the business owner will have to create an event that causes the business to go from tangible AND intangible assets into cash.
It’s crucial for business owners to understand how to recast financial statements in a way that reflects an investment that is appealing to buyers.
Areas to Focus on When Evaluating Company Specific Risk
For people interested in selling their business now or in the future, it’s important for them to understand what increases and decreases the value. Below are the main elements a business will have figured out in order to demand a successful sale.
Financial Performance: It’s important that you have a good idea about how a potential buyer is going to view your business. They will want to be able to understand how your company performs relative to the industry and its peer group. Financial integrity is critical for buyers. Buyers looking at businesses have a very good understanding of what the finances should look like.
Growth Potential: Every business owner believes that their business has great potential. Most buyers are more concerned about potential risks. Finding and facilitating growth is important for buyers.
Customer concentration: You’ll want to know how a buyer is going to look at your business. Everything from the sale, customers, employees. They want to know: How dependent is your company on certain aspects of the business. A key employee that you rely on is great for your business but might look like a risk to the buyer.
Cash Flow: Understanding and relaying how cash flows through your business is crucial. Your buyer needs to understand how quickly products and services can be converted to revenue and from revenue through to the income statement. If for instance, you have a slow collection of receivables, that is a risk to the buyer who will require more equity to fund the working capital.
Recurring Revenue: Understanding the different channels for recurring revenue is another important aspect for business owners to think bout. Recurring revenue amplifies value. There are ways to come up with a recurring revenue model that will then be attractive to a buyer.
Competitive Analysis: Understanding how you stack up against competitors is an important analysis for you to undertake when you think about selling your business. You need to make sure you understand how you are differentiated from your competitors
Customer Satisfaction. Buyers are going to want to know how likely customers are going to continue buying from your business. To analyze this, buyers will want to know the quality of customers, the attrition rate of customers and they will want enough information to make an educated guess about the likelihood that customers will continue to buy from a business.
Involvement: Individual involvement that has become reliant can pose a really big challenge for people looking to sell their business. When you are wrapped up in your business this closely, it can be hard to sell—but it’s not impossible. It’s important to understand how to extract the businesses reliance on a single person.
This podcast will give you the opportunity to start building resale value into your business now so that you don’t end up as an unfortunate statistic. The aim of this podcast is to educate and inspire business owners to take actionable steps in articulating the value of their business.
Every Monday will be an educational deep dive. Understand the specifics of each different aspect of creating value in your business.
Every Wednesday we will do a What’s it Worth Wednesday, in which we will take a single business, dissect it and begin to understand how businesses create and keep value and how you can too.
This Podcast will distill years of experience helping people sell their businesses and reformat it in a way that is accessible and easy to implement. The goal is to help business owners build the value they need into their business now, so that when that time does come, they will have put the effort in that they need for a successful sale.
It’s going to be a great journey.