The IBBA and M&A Source Market Pulse Survey Report for the fourth quarter of 2018 has a range of interesting insights. The survey’s purpose is to provide an “accurate understanding of market conditions for businesses being sold in Main Street (values $0-$2MM) and the Lower Middle Market (values $2MM-$50MM). This national survey was designed as a tool for business owners and their advisors and has the support of both the Pepperdine Private Capital Markets Projects and the Pepperdine Graziadio Business School.
One of the most striking facts to leap out of the report is the fact that a full one-third of advisors fully expect the strong market to end this year. Overall, advisors are not optimistic that the current climate will continue through 2020. In fact, advisors are encouraging sellers to consider placing their businesses on the market now, while the market is still strong. This is according to Craig Everett, PhD and Assistant Professor of Finance and Director of the Pepperdine Private Capital Markets Project.
One fact from the report that could be overlooked is that only a mere 8% of advisors expect the current climate to last for 48 months or more. Additionally, only 9% believe that the current climate will last between 24 to 48 months. Perhaps most striking of all is the fact that 60% of advisors feel that the current climate will end within the next two years.
Business owners who are considering selling should be advised that almost two-thirds of advisors now feel that there will be a significant shift in the next two years. Considering that it can take a year or more to sell a business, business owners would be wise to consider this important fact.
The report sites Neal Isaacs, Owner of VR Business Brokers of the Triangle who states, “Deals are taking longer in due diligence as buyers work hard to validate their investment and make sure that what they’re buying is worth the premium price today’s sellers are commanding.”
So, is now the time to sell? Many experts feel that it is possible to lose a sizable amount of value if one waits too long to sell. Even just a few months can make a huge difference in terms of perceived value and the ultimate sales price. Working with a proven business broker is a key way to ensure that you are selling at the right time and secure the best possible price.
Where your money is concerned, myths can do damage. A recent Divestopedia article from Tammie Miller entitled, Crazy M&A Myths You Need to Stop Believing Now, Miller explores 5 big M&A myths that can get you in trouble. Miller points out that many of these myths are believed by CEOs, but that they have zero basis in reality.
The first major myth Miller explores is the idea that the “negotiating is over once you sign the LOI.” The letter of intention is, of course, important. However, this is by no means the end of the negotiations and it is potentially dangerous to think otherwise. The negotiations are not concluded until there is a purchasing agreement in place. As Miller points out, there is a great deal that can go wrong during the due diligence process. For this reason, it is important to not see the LOI as the “end of the road.”
Another myth that Miller wants you to be aware of is that you don’t have to take a company’s debt as part of the purchase price. Many business brokers, such as Miller, recommend that buyers don’t take seller paper.
A third myth that Miller explorers is a particularly dangerous one. The idea that everyone who makes an offer has the money to follow through is, unfortunately, simply not true. Oftentimes, people will make offers without securing the money to actually buy the business. No doubt, this wastes everyone’s time. As the business owner, it can derail your progress. If you are not careful, it could actually prevent you from finding a qualified buyer.
Another myth is built around the notion that sellers don’t need a deal team in order to sell their business. Again, this is another myth that has no real foundation in reality. While it may be possible to sell your business without the assistance of an experienced M&A attorney or business broker, the odds are excellent that doing so will come at a price. According to Miller, those working with an investment banker or business broker can expect, on average, 20% more transaction value!
Additionally, there are other dangers in not having a deal team in place. A business broker can handle many of the time-consuming aspects of selling a business, so that you can keep running your business. It is not uncommon for business owners to get stretched too thin while trying to both run and sell a business and this can ultimately harm its value.
Miller’s final myth to consider is that you must sell your entire business. It is true that most buyers will want to buy 100% of a business, but a minority ownership position is still an option. There are many reasons to consider selling a minority stake, so don’t assume that selling your business is an “all or nothing” affair.
Ultimately, Miller lays out an exceptional case for the importance of working with business brokers when selling or buying a business. Business brokers can help you avoid myths. In the end, they know the lay of the land.
I’m the head of marketing for a regional mortgage company, recently hired to lead marketing strategy for the entire brokerage. Ironically, despite having eight plus months under my belt, I have yet to dig myself out enough to even think about a cohesive marketing plan, let alone take steps to organize the drafting of one.
Although it’s true that we have a small department relative to the number of employees we support, I know that my time is not best spent putting out fires and doing the marketing work. Especially with the pundits predicting an economic adjustment within the next few years, taking all of that on myself will likely catch up with me.
So here’s my question: Given the limited resources I have at my disposal, how do I get ahead of my department’s workload and develop a plan to extricate myself from the day to day execution of the marketing work of my company?
Sincerely, The Amazing Mrs. Mazel the Marketer
Dear Mrs. Mazel,
Your plight is, of course, not uncommon. Most of us learned in elementary school that proper planning prevents poor performance and, applied to business, that means a business plan which sets the tone for strategic and marketing activities is vital for any business that one day wants to grow up into a company. That said, a surprising number of “companies” do not have any formal planning process in place, but instead rely on top line growth to hide flaws in bottom line numbers caused by operational inefficiency.
Two problems are actually at play here. One, you don’t have a strategy to make sure your marketing efforts are aligned with the company’s goals and two, you don’t have a way to measure the effectiveness of your measures or the efficiency of your department. If you’re working on something that an employee can be paid to do at lower rate than you earn, then your department is working inefficiently. Your company compensates you as a Marketing Director for a good reason- your ability to lead the department and leverage the talent of your direct reports is a more highly valued role than someone who specializes in graphic art, social media or digital advertising. Thus, if you’re not leading your department through proper strategic planning and execution, leveraging the resources you have as opposed to doing the work yourself, you are not doing what your company really needs and you are right to be concerned about any future softness in the mortgage market.
But, back to your initial question of how to find the time to do what you know needs to be done.
- Learn to push back and say “no.”
- Let them fail
- Work longer hours and more efficiently
Push Back/Say No
From the description of your issues, it seems clear that you receive a steady stream of requests for your products. Do you have a specific menu of options you provide your employees, or is there a lot of custom work? If you’re reinventing the wheel with each request it’s a huge time suck, as opposed to working off of established templates that can be more easily streamlined and taught to others. If people are demanding complicated solutions that you aren’t sure are the right way to go anyway, don’t be afraid to have a discussion- after all, you’re the marketing pro, not them. And if the idea is a good one and you’re just busy, establish a deadline that’s achievable without hobbling your workflow. When time permits, establish a formal menu of services that is easily replicable and train your people to handle those requests.
Let Them Fail
Don’t be a “helicopter boss.” If you’ve trained your people correctly and they possess good work ethic, then trust them to do their jobs. They may not always do things exactly as you would, and will occasionally make mistakes, but that’s a justified trade off for a more streamlined process. Plus, those mistakes serve as teachable moments and your team will be better for having had the experience of failure. Being freed of the burden of micromanagement allows you to focus on higher level activities.
Work Longer Hours and More Efficiently
These are two separate strategies, but putting in the hours when needed really has no substitute if you want to continue to move up the ladder. Certainly there are plenty of C-Suite executives that got there through who they know, where they’re from, and what school they went to, but most of us have to do things the hard way, which means hard work, smart work or efficient work… choose any two.
There is no magical formula for success, Mrs. Mazel, and no one at your company is likely to mentor you through these challenges. This is all on you, so step up, lean in, roll up your sleeves, and provide results that will wow. You may just end up saving that company when the market correction fully rears its head, paving the way for a C-Suite office yourself.Read More
Although customers purchase essentially the same products or services from a particular business, these customers all have different personalities and want to be made to feel unique, valued and appreciated. As such, the talented salesperson is a chameleon of sorts, able to adapt their approach to the personality of their client or prospect.
Some customers might want to discuss the product or service in addition to their daughter’s graduation party and how well their Aunt Ida’s strawberries are coming in this year. Other customers might strictly be interested in their purchase, inquiry, or problem and, basically, want the transaction completed as soon as possible with as little interaction as possible with a salesperson (move this person to an e-commerce channel ASAP!). Still others seemingly want to chit chat all day, only circling around to the business at hand, often abruptly, at the very end of the conversation (do NOT shift them to en e-commerce channel if you want to keep them as a customer!).
So, what if you’re not a natural salesperson and the idea of changing your interpersonal behaviors generates a rumbling feeling of loathing in your soul? To you I say, congratulations on knowing who you are, but if you want to put food on your table and a roof over your head, realize your business is not about you, it’s about your customer. If you’re the business owner, you must develop the best customer-business relationship possible if you hope to grow your business to the point of being able to hire an outside salesperson.
Record and listen to phone conversations between employees and customers to generate ideas on how to improve the communication and service processes. Listen to your own conversations and pay attention to the conversational dynamics. Partner new employees with more experienced employees to achieve the same goal.
Getting to know a particular customer does not necessarily mean that the customer will always react the same way with every employee. Everyone’s personality shifts day to day, and even though an employee might have dealt with a particular customer one way in the past does not necessarily mean that the customer’s personality will be the same during the next interaction. Someone that’s normally talkative might only want the “facts” if they’re in a rush and the ‘strictly business customer’ might be ready for more interaction than normal.
As with almost anything, practice makes perfect. Businesses spend time and money training employees on policies, procedures, new product or service updates, and a variety of other types of training. Frequently, one of the most important types of training – interacting successfully with customers – is forgotten.
In your own experience, how often do you call a business and truly feel appreciated, valued and unique? Have you ever?
Role-playing with customer personalities is important for a business’ success and growth. A business can have the best product or service but will still fall flat if they don’t recognize the importance of adapting to personality types.. Role-playing and practice in a group setting can help alleviate this problem and establish the foundation for improved customer relationships for employees who are not naturally good at reading and adjusting communication styles.
Work Those Personalities
In a competitive business environment, almost anything that can be done to get an edge on the competition is worth the effort. When employees relate to customers and customers, in turn, relate to a business and its employees, the satisfaction level rises dramatically, increasing the chances of repeat business- it’s much more cost effective than attracting new customers!Read More
Before buying any business, a seller must ask questions, lots of questions. If there is ever a time where one should not be shy, it is when buying a business. In a recent article from Entrepreneur magazine entitled, “10 Questions You Must Ask Before Buying a Business”, author Jan Porter explores 10 of the single most important questions prospective buyers should be asking before signing on the dotted line. She points out to remember that “there are no stupid questions.”
The first question highlighted in this article is “What are your biggest challenges right now?” The fact is this is one of the single most prudent questions one could ask. If you want to reduce potential surprises, then ask this question.
“What would you have done differently?” is another question that can lead to great insights. Every business owner should be an expert regarding his or her own business. It only makes sense to tap into that expertise when one has the opportunity. The answers to this question may also illuminate areas of potential growth.
How a seller arrives at his or her asking price can reveal a great deal. Having to defend and outline why a business is worth a given price is a great way to determine whether or not the asking price is fair. In other words, a seller should be able to clearly defend the financials.
Porter’s fourth question is, “If you can’t sell, what will you do instead?” The answer to this question can give you insight into just how much bargaining power you may have.
A business’ financials couldn’t be any more important and will play a key role during due diligence. The question, “How will you document the financials of the business?” is key and should be asked and answered very early in the process. A clear paper trail is essential.
Buying a business isn’t all about the business or its owner. At first glance, this may sound like a strange statement, but the simple fact is that a business has to be a good fit for its buyer. That is why, Porter’s recommended question, “What skills or qualities do I need to run this business effectively?” couldn’t be any more important. A prospective buyer must be a good fit for a business or otherwise failure could result.
Now, here is a big question: “Do you have any past, pending or potential lawsuits?” Knowing whether or not you could be buying future headaches is clearly of enormous importance.
Porter believes that other key questions include: “How well documented are the procedures of the business?” and “How much does your business depend on a key customer or vendor?” as well as “What will employees do after the sale?”
When it comes to buying a business, questions are your friend. The more questions you ask, the more information you’ll have. The author quotes an experienced business owner who noted, “The more questions you ask, the less risk there will be.”
Business brokers are experts at knowing what kinds of questions to ask and when to ask them. This will help you obtain the right information so that you can ultimately make the best possible decision.
A recent article on Businessbroker.net entitled, First Time Buyer Processes by business broker Pat Jones explores the process of buying a business in a precise step-by-step fashion. Jones notes that there are many reasons that people buy businesses including the desire to be one’s own boss. However, he is also quick to point out that buyers should refrain from buying a business that they simply don’t like. In the quest for profits, many prospective owners may opt to do this, but it could ultimately lead to failure.
Step One – Information Gathering
For Jones, there are seven steps in the business buying process. At the top of the list is to gather information on businesses so that one has an idea of what kind of businesses are appealing.
Step Two – Your Broker
The second key step is to begin working with a business broker. This point makes tremendous sense; after all, those new to the business buying process will benefit greatly from working with a guide with so much experience. Business brokers can gain access to information that prospective business owners simply cannot.
Step Three – Confidentiality and Questions
The third step in the process is to sign a confidentiality agreement so that you can learn more about a business that you find interesting. Once you have the businesses marketing package, you’ll want to have your broker schedule an appointment with the seller. It is vitally important that you prepare a list of questions on a range of topics. There is much more to buying a business than the final price tag. By asking the right questions, you’ll be able to learn more about the business and its long-term potential.
Step Four – Evaluation
In the fourth step of the business buying process, you’ll want to evaluate all the information that you have received from the seller. Once again, a business broker can be simply invaluable, thanks to years of hands-on experience, he or she will know how to evaluate a seller’s information.
Step Five – The Decision
In the fifth step, you’ll need to decide whether or not you are making an offer. If you are making an offer, you will, of course, want it to be written and include contingencies.
If your offer is accepted, then the process of due diligence begins. During due diligence, you and your business broker will look at everything from financial statements to tax returns. You will evaluate the company’s assets. Again business brokers are experts at the due diligence process.
Buying a business is an enormous commitment. Making certain that you’ve selected the right business for you is one of the most critical decisions of your life. Having as much competent and experienced help as possible is of paramount importance.
In a recent Divestopedia article entitled, “Kids Take Over the Business? 8 Things to Consider,” author Josh Patrick examines what every business owner should know about having their children take over their business. He points out that there are no modern and accurate numbers on what percentage of businesses will be taken over by the children of their owners. But clearly the number is substantial.
Patrick emphasizes as point number one that allowing a child to take over a business right after finishing his or her education could be a huge mistake. After all, how can a parent be sure that a child can handle operating the business without some proven experience under his or her belt?
Point number two is that businesses frequently create jobs for the children of owners. The flaw in this logic is pretty easy to see. This job, regardless of its responsibilities, isn’t in fact a real job. Senior decision-making roles should be earned and not handed out as a birthright. The end result of this approach could create a range of diverse problems.
The third point Patrick addresses is that pay should be competitive and fair when having children take over a business. Quite often, the pay is either far too high or far too low. This factor in and of itself is likely to lead to yet more problems.
Business growth must always be kept in mind. When having your children take over a business, it is essential that they have the ability to not just maintain the business but grow it as well. If they can’t handle the job then, as Patrick highlights, you are not doing them any favors. Perhaps it is time to sell.
Another issue Patrick covers is whether or not children should own stock. If there are several children involved, then he feels it is important that all children own stock. Otherwise, some children will feel invested in the business and others will not. In turn, this issue can become a significant problem once you, as the business owner, either retire or pass away.
In his sixth point, Patrick recommends that a business should only be sold to children and not given outright. If a child is simply given a business, then that business may not have any perceived value. Additionally, if a child or children buy the business, then estate planning becomes much more straightforward.
In point seven, Patrick astutely recommends that once a parent has sold their business to their child, the parent must “let go.” At some point, you will have to retire. Regardless of the outcome, you’ll ultimately have to step back and let your children take charge.
Finally, it is important to remember that your children will change how things are done. This fact is simply unavoidable and should be embraced.
Working with an experienced business broker is a great way to ensure that selling a business to your child or children is a successful venture. The experience that a business broker can bring to this kind of business transfer is quite invaluable.
Forbes author Keith Gregg’s, February 8, 2019 article, “Using Tech to Enhance and Sell a Business,” has a range of interesting ideas that business owners should explore and embrace. Gregg looks at three big ways that business owners can use technology to help them get the most out of the sale of the business. He explains how important it is to address these three areas before placing your business on the market.
The first tip Gregg explores is to upgrade systems. Upgrading systems can be particularly important for attracting younger buyers. It is common for businesses to be successful without proprietary technology or procedures, but that doesn’t mean that technology should be ignored.
Important information should be digitized, as this data will be vital for the new owner to grow the business over the long haul. Incorporating software that can track and analyze data across the business is likewise valuable. Using software, such as customer relationship management and financial management software, will showcase that your business has been modernized.
Determining the value of your business can be tricky and laborious. Gregg recommends opting for a business valuation, as he feels, “business valuation calculations can remove much of the guesswork from the process.”
You should expect a business valuation calculator to include everything from verified data on comparable business deals, including gross income and cash flow figures and more. There are even industry-specific calculations that can be used as well. The main point that Gregg wants to convey is that business owners should use tangible and proven data to sell their businesses. Like upgrading systems appeals to younger buyers, the same holds true for using verified data to sell.
Take Advantage of the Digital Marketplace
Gregg’s view is that perhaps the single greatest technology for business owners to leverage is that of the digital marketplace. Sites that link businesses with prospective buyers can help to streamline and expedite the sales process. Through such sites, it is possible to go deeper than a specific industry and even explore sub-sectors, thus enhancing the chances of finding the right buyer.
Technology can be used to help sell businesses in a variety of ways. An experienced and proven business broker will leverage a whole range of tools to assist business owners when selling their businesses. When you opt for a proven business broker, you can expect to receive offers from serious and vetted buyers and, in the process, save a great deal of time while maintaining confidentiality.
The American Psychological Association conducts a yearly survey of Americans to determine the relative levels of stress we feel. In 2018 a record was set with 90% of respondents reporting elevated levels of stress on a daily basis. Perhaps even worse, almost half of respondents reported that their levels of stress were leading to depression, anxiety and a lack of motivation. We, as Americans, are stressed out, and that’s just the tip of the iceberg. Stress is also believed to contribute to physical health risk factors like high blood pressure and heart disease, perhaps leading to the markedly shorter and more medically assisted lifespans we have.
So, why do Americans, who have the highest standard of living in the first world and therefore the whole world, feel so besieged?
The answer to this question is, of course, different for different people, so I’m going to focus on the population that I know best – small business owners. If you’ve started, purchased, or otherwise run a small business, you probably have that entrepreneurial spring inside of you that, once freed, sent you on a trajectory of self-determination leading to where you are now. But that entrepreneurial spring is a funny dynamo… once you let it go, it can be hard to predict where it will bounce you, and before you know it you have employees, supply chains, expensive assets, the debt that comes with them, etc. And with those things, despite the joy and rewards of running a successful business, also come immense pressures and obligations.
Chief Cook and Bottle Washer
Compounding the mounting pressure of being a business owner is the phenomenon that occurs when you find yourself wearing more and more hats (CEO, CFO, COO, Marketing Director, HR Director, IT Manager). But even if you could learn to be a CEO, a sales director, an accountant, a CMO, an operations/logistics specialist, an HR expert and a computer whiz, would you enjoy filling all of those roles? Are you the best person for each of those jobs? And if not, might you be doing your company a disservice by continuing to fill them on your own?
Whatever your role, your time should be spent focused on the activities you both enjoy and excel at to keep your energy at its peak and your initial reason for wanting to own your own business in tact. For most business owners, this means providing strategic direction and inspirational leadership for your company, which can be achieved either on the technical or sales side of the C-Suite. If you’re the business owner and you’re spending more time changing the tires than turning the wheel, you’re not in the right seat on your bus.
Working On Your Business, Not In Your Business
When we spend extended periods of time performing duties we don’t enjoy, we drain our energy. When we spend our time doing what we like, we replenish our energy. You might have experienced this if you’re the type of business owner who prefers social activities, like sales and networking, but is forced to work on bank statement reconciliations, payroll, hiring or contracts. Or maybe you love the technical side of running a business but loathe networking.
If you’re like most small knowledgeable and experienced business owners, it’s probable that you could close your doors tomorrow and make more money working fewer hours for one of your larger competitors. But that’s missing the point, isn’t it? The point, for most owners, is increasing quality of life for you and your family, both in this generation and possibly thereafter.
In that spirit, I challenge you to do some introspection on what you enjoy most and least about owning a business. And then, open your mind to letting someone else do the rest – whether that be an in-house employee, a firm specializing in the service you need like a CPA/bookkeeping firm or an HR company, or a fractional business consultancy who can devote a team to your company on a part time basis. Often the second two of these options is less expensive and time intensive than hiring your own employee(s), and gives you more flexibility without the additional management responsibilities.
Whatever you choose to do, stop putting so much pressure on yourself and remember why you originally pursued the dream of owning your own business. Then make a plan to get back there.Read More
If you haven’t been thinking about succession planning, the bottom line is that you should be. In the February 20, 2019 Divestopia article, “All Companies Need to Look at Succession Planning,” author Brad Cherniak examines the importance of succession planning. Owning and/or operating a business can be a great deal of work, but it is imperative to take the time to develop a succession plan.
Succession Planning is for Businesses of All Sizes
Author Cherniak wants every business owner to realize that succession planning isn’t just for big businesses. Yet, Cherniak points out that the majority of small-to-medium sized businesses, as well as their senior managers, simply don’t focus much on succession planning at all.
Many business owners see succession planning as essentially being the same as exiting a business. Cherniak is quick to point out that while the two can be linked and may, in fact, overlap, they are by no means the same thing. They should not be treated as such.
Following an Arc Pattern
Importantly, Cherniak notes, “Succession planning should also be linked to your strategic planning.” He feels that both entrepreneurs and businesses managers follow an arc pattern where their “creativity, energy and effectiveness” are all concerned. As circumstances change, entrepreneurs and business managers can become exhausted and even a liability.
The arc can also change due to a company’s changing circumstances. All of these factors point to “coordinating the arcs of business,” which includes “startup, ramp-up, growth, consolidation, renewed growth and maturity,” with whomever is running the business at the time. In this way, succession planning is not one-dimensional. Instead it should be viewed as quite a dynamic process.
Evaluating Each Company Individually
Cherniak highlights the importance of making sure that the team matches the needs of a company as well as its stages of development. Who is running a company and setting its direction? Answering these questions is important. It also is of paramount importance to make sure that the right person is in charge at the optimal time.
Companies and their circumstances can change. This change can often occur without much notice. As Cherniak points out, few small-to-medium sized businesses focus on succession planning, and this is potentially to their detriment.