Chicago Business Broker

It Is Never To Soon To Start Thinking About Selling Your Business

The Essence of Strategy – You Can’t Sell Luck

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Strategy starts with a vision, a vision of your company in the future.  Picture your company 5 years from now and describe it in great detail, how many employees, what do they do, what are your revenues, how many clients make up those revenues, from where does your company operate, what is the culture of your organization and what are your day to day tasks.  Include as much as possible.

This vision becomes your destination.  In order to get to that destination you must follow a road.  The road you must follow is made up of milestones which are reached through accomplishing tasks.  Tasks are the essence of strategy and the DNA of all success stories.  Each task must lead to a goal and each goal to a milestone, therefore the tasks must be well defined, measurable and realistic.  Constant measuring of your tasks will determine if they are realistic and if they’re not you must re-adjust the formula.  Tasks that are not repeatable or sustainable make for a poor strategy.

The vision is your beacon, every decision you make must be looked at through the prism of your vision and evaluated in terms its consistency with reaching it.  Your job as the owner is to convey the vision to your employees and make it part of your company’s culture.

When you start with a vision and follow a well defined and measured strategy you end up with a very detailed road map of of the path taken to your success.   This road map is what buyers pay big money for.  Business are purchased because the buyer does not want to carve out the paths on his own so the more well defined the map is that you have, the more valuable and desirable your company becomes.

Success is achieved through strategy or luck.  Only one is transferable.

Buy Low, Sell High – Your Company is the Best Stock in Your Portfolio

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When I began investing in the stock market, I was great at picking the stocks that would shoot up 25%, 50% , 100% but invariably held on to these too long and watched them come right back down.  I can still name them today, Tempur Pedic, Jones Soda, Lucent and Under Amour; just to name a few.  It wasn’t until I learned to develop an exit strategy for each stock I purchased that I began seeing some serious growth in my portfolio.

Business owners start their companies and run them every day never giving serious thought to when they should cash out.  This is a serious mistake.  As we’ve all learned from the past five years, things change and there are many factors that are outside of our control.  Key employees leave, economic trends fluctuate, and competition can come out of nowhere.  Just like with stocks, each small business has an optimal time to sell it.

Procrastinating when it comes to thinking about selling your company can cost you dearly.  Educating themselves on the selling of their business should be included in the top priorities of each business owner.  It should rank up there with increasing revenues, reducing costs and managing cash flow.

The worst plan is no plan at all.

Business Valuation Myth – I only have to do it when I sell.

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Myth: Valuing a private business should only be done when the business is ready to be sold or a lender requires a valuation as part of its due diligence process.
Although the business sales and lending processes generally require that valuations be completed, if these events represent the first time an owner has a valuation completed, then you can be sure critical business and estate planning issues have not been addressed. If the business is to have a life beyond that of its current owners, then effective planning for ownership transition requires a regular valuation of the business.

Ownership transition may include gifting some percentage of ownership shares to family members during the owner’s life, thus reducing any tax on the owner’s estate at death. If a firm has several owners, a buy-sell agreement with accompanying life insurance should be in place so that if an owner dies, the remaining owners have sufficient funds to purchase the deceased owner’s interest at an agreed upon value. The buy-out value under these agreements should be updated regularly to reflect the firm’s financial progress over time and the valuation approach used should be one of several acceptable to the IRS.

***By Dr. Stanley J. Feldman, Chairman, Axiom Valuation Solutions and Associate Professor of Finance, Bentley College

K.I.S.S. Keep It Simple – Make Money

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Sometimes the simplest concepts make the best businesses.  In my time working as a business broker I am constantly astonished at the plethora of unique business models and ways to make money.

If you would have approached me three years ago and asked me my opinion on a dog walking business or an e-bay reselling business I would have chuckled and dismissed both concepts.  Well, let me tell you, I may have chuckled, but these business owners are laughing…laughing all the way to the bank!

The bottom line in business is profit and the number one factor to selling a business is the transferability of said profit.  Therefore the simpler the business model the easier it is to transfer the cash flow to someone else and the more people want to buy it.

With the dog walking model, you typically get paid in advance in the form of a package (60 walks for $300) and then hire independent contractors to walk the dogs that get paid after they perform the service.  This serves two huge purposes, it provides awesome cash flow and makes your largest expense a variable one – almost a guarantee against an operating loss.

The E-Bay business model is primarily a consignment one and can be operated from home until a steady revenue stream warrants otherwise.  This means no cost of goods sold and basically a risk free business model.  The largest investment that has to be made is the time listing the items.

Both of these businesses are such that customers tend to be a little hard to find, but are largely referral based and extremely loyal.  So the customer list becomes a very tangible asset and easily transferable.

So if your considering starting a business or already running one, the simpler you keep it’s operation the easier it will be to sell it.  Keep it simple – make money.

A Financial Genius

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“Dad” inquired Junior, “what is a financial genius?”

“A financial genius, my boy,” replied the father thoughtfully, “is a man who can pay his family’s Christmas bills in January.”

***A Merry Christmas To All***