2 Ways to Cash Out of Your Business

3 Types of Potential Buyers

6 Categories of Questions Buyers Will Ask …That You Must Be Prepared to Answer

Rich Biz Brokers So you may want to sell your business someday. That’s something small business owners think about, but seldom plan for. The facts … 70% of closely held businesses ultimately just shut their doors when the owner(s) choose not to continue working or otherwise are unable to do so. You’ve built a valuable asset through hard work, ingenuity and diligence. Don’t squander it … sell it!

That said, let’s talk through two ways to cash out of your business plus how to groom your company for maximum curb appeal and peak sale value to potential buyers.

2 Ways to Cash Out of Your Business

As a business owner, there are two ways to cash out:

Sell your stock (units if an LLC), or
Sell the company’s assets

Sale of your stock: This is the most straightforward transaction for you, the seller. However, buyers may balk because of real or potential liabilities, e.g. future lawsuits, environmental claims or other obligations incurred by the business.

Sale of your company’s assets: Asset buyers acquire your company’s physical equipment, facilities and customers along with intangibles such as trademarks, patents and goodwill. Real or potential liabilities that are or may be incurred by your business are not passed on as responsibilities of the asset buyer.

3 Types of Potential Buyers

Strategic Buyers are typically companies that currently operate in your industry and understand your business. Their interests are usually to gain market share and increase sales by eliminating you as a competitor. Alternatively, strategic buyers also may be seeking to enter your market and/or diversify their products or services.
Employees are often potential buyers and a popular, preferred option for business owners. A trusted, seasoned and capable management team with entrepreneurial aspirations can be an excellent candidate to carry on the business. Note: Enlisting the aid of a proven business advisory will help structure a successful sale to employees.
Private equity buyers, for purposes of this article, include private individual buyers/investors and funds that directly purchase closely held companies.

6 Categories of Questions Buyers Will Ask

Potential buyers may have past success in buying a closely held business or rely on the proven professional capabilities of a seasoned business broker. In either case, consideration for your business as an acquisition target primarily will be based on your answer to questions regarding six major drivers of business value.

Company Organization
Books and Records
Systems
Policies and Procedures
Personnel and Clientele
Marketing and Sales

Let’s take a look at each of these six major drivers of business value and the types of questions buyers will ask … and for which you must be able to provide valid answers. What the buyer seeks is evidence that your business operates with smoothness, accuracy, clarity, efficiency, quality and positive results.

1) Company Organization: Guiding Principle … The more valuable you are to your company, the less valuable your company is to you. A telling question for you to ask yourself, “Would my business survive for 90 days without me?” If not, develop and execute a plan to ensure your business will successfully prevail without you at the helm.

Buyer Questions: What is the leadership structure of the company? How would you describe the culture and personality of your staff? Are there clear lines of communication among workers to each other and management?

Your Answers: ?

Note: A general rule of thumb is that no more than 10% of your business revenue should be dependent on any one person. Likewise, success in operations should not be based on one individual’s talents.

2) Books and Records:

Buyer Questions: Are your financial records complete, accurate and up-to-date? Are personnel records fully documented and compliant with federal, state and local employment requirements? Are licensing, continuing education or other legal issues compliant with industry, professional and legal constraints?

Your Answers: ?

Note: The lack of strong financial management and accurate documentation will usually cost you much more in the selling price than the cost of creating them and keeping them current. Buyers want to see the promise (strong likelihood) of sustainable earnings and growth following the purchase.

3) Systems- Repeatable, Efficient Processes … Do They:

Improve top-line performance?
Meet customer expectations?
Develop consistent results?
Engage employees with guidance, direction and expected results?
Reduce costs and improve profits?

Your Answers: ?

Note: The lack of state-of-the-art systems indicates that you have not implemented all of the management tools necessary to run you business efficiently and profitably.

4) Policies and Procedures … Are They Written, Up-to-Date and Available to Staff:

Human Resources?
Operations?
Marketing?
Sales?
Communications?

Your Answers: ?

Note: The presence of up-to-date, compliant policies and procedures offers confidence to a buyer that appropriate personnel, supervisory and safety issues are proactively addressed.

5) Personnel and Clientele … Is There Written Documentation to Support:

Staffing procedures – acquisition through termination?
Personnel development, training, career path development?
Management nurturing, motivating and enhancing employee engagement?
Supervision and evaluation by management to recognize strengths and improve performance?

Your Answers: ?

Note: The buyer will be concerned about “flight risks” of key employees. A solid record of how employees are on-boarded, groomed for advancement and managed to motivate employee engagement will offer comfort to a buyer that there is likely to be continuity in staffing.

6) Marketing and Sales … Does Marketing Support Sales Goals With:

Stated marketing strategy?
Written marketing plans for current and ensuing 2 years?
Specific target outcomes for marketing campaigns?
Evaluation of marketing efforts vs. sales results?

Your Answers: ?

Note: Marketing support is essential to drive superior sales performance. A red flag is raised if sales people are expected to perform as marketers as well as sales/relationship managers.

One Final Thought

Once an interested potential buyer is comfortable with your answers to the above questions, there is another critical consideration that is likely to surface. That question is best phrased as, “What changes could I make to enhance revenue, streamline operations and improve the company’s bottom-line?”

It may not be voiced to you, so anticipate it as a key decision point in the buyer’s mind to proceed with an offer or not. Up until this point, you’ve put your best foot forward to emphasize the value proposition of the sale. Initiating a discussion of how the business asset may be further enhanced by creative “tweaking” may propel the sale across the finish line.

Takeaways

We’ve covered a lot of ground and you may be left with the feeling that all of this is somewhat overwhelming. Not to worry … that’s a typical reaction which mellows out when you know that there is help available.

That’s where we come in … to help you decide on the best exit-strategy via sale or succession planning. You and your business are unique. There are no one-size-fits-all solutions. Together, we will work with you and deliver action-oriented business advice to maximize your company’s value and promote its sale through our local and national network of qualified buyers.

We will help! Just give us a call or drop an email. We’ll respond promptly!

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