Chicago Business Broker

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

Selling A Business Is Not Like Selling A House

No Comments »

Just as it took longer to build you business than it did your house, it will take longer to transfer it to someone else.

If you think  you can simply cash out of your company, you have not prepared yourself to maximize your gains.  It’s best to figure on a 3-7 year post sale involvement.  Selling businesses is about LEVERAGE.  Buyers are looking to minimize their return on investment, which means you (the seller) needs to carry a note (ideally 50% of the sale price) in order to get top dollar.

Carrying a note, or financing the sale, requires you to act as a bank for 2-3 years.  In this capacity you must watch over your investment by reviewing financials on a monthly or quarterly basis, advising the new owners as necessary, and make sure payments are made in a timely fashion.

If all goes well, you’re paid in full in 2-3 years and can move on.  If not, you’ve been paid 60-70% of the price you sold the business for to take a 1-2 year break.  In the case of a default, you regain ownership of the business ,  take1-2 years to prop it back up and sell it again.

Fortunately, a default situation is rather rare (under 5%) but if you don’t prepare yourself for the post sale involvement, you’ll get 30-50% less for you company when selling.

K.I.S.S. Keep It Simple – Make Money

No Comments »

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 Change of Perspective…a Story for the New Year

No Comments »

The business we start is not always the business we end up with.  When we start a business, we all have a vision of what it will look like and how it will feel to run it.

When my friend Jon started his first business in 1994 it had a well thought out road map to success.  The science put into planning the revenue stream, system implementation and acquisition of staff could have been done by a Harvard MBA.

As well done as that plan was, it did not account for 9/11 or the economic aftermath that followed.  Needles to say, the company he found himself running in 2002 was like nothing he ever considered.  It was not much fun as he had dreamed.  He was bored with it and began to look as customers as a burden rather than an opportunity.  This mind set lead to diminished customer service and an eroding customer base.  Something had to change…..FAST.

He discussed his dilemma with me and I suggested that he change his perspective.  After some serious thought, he decided to look at his company as a means to an end and set a 3 year timeline to max it out and sell it.

Soon every customer was looked at as a stone in the pyramid he was building and customer service became a priority again.  This new perspective removed his emotional attachment completely from the equation and allowed him to take a detached view.  Setbacks were no longer taken personally and the company began to grow and Jon started having fun again.

In that three year period revenues grew from $465,000 to $570,000 and the cash flow went from $74,000 to $130,000.  The business was sold in the 4th year for $490,000.

Sometimes the only difference between the problem and the solution is the angle from which you’re looking at it.

Sellers Market, Buyers Market & the Law of Diminishing Returns

No Comments »

The market forces of supply and demand that we all learned in Economics 101 apply just as much to buying and selling a business as they do to buying and selling a home.  Right now there are a plethora of buyers and a limited number of profitable businesses for them to buy.  This translates to increased multiples being paid and quicker selling times for good businesses.

This is something to think about if either A) you’re running a profitable business that you will want to sell in 5 years or B) you possess the skill set to sell your profitable business now and start another one and build it up quickly.  In five years, more and more Baby Boomers will be looking to exit their businesses. As a result, supply will increase, valuations will drop and it will become a buyers market.  Therefore, it is possible, if not probable, that a business currently valued at $500,000 today could increase revenues and profits by 75% in the next five years and sell for the same or less as it would today.   This is called  the law of diminishing returns…too often learned in the “School of Hard Knocks”.

Timing is everything and right now is a pretty good time to be a seller.

Learn the Market Value of Your Business Now!

No Comments »

Buy low, sell high.  We all know that maxim as it pertains to the stock market, but how does it pertain to the most precious stock you own, your business?

When it comes to your own company, emotions can impede the ability to think objectively on the subject of cashing out.  Everyone who owns a company thinks about selling it at times.  Maybe these thoughts visit you on a bad Monday morning, or when you hear of a peer who just sold his / her business or just when lying in bed at night.  Unfortunately, these thoughts often bring up more questions than answers and as a result are dismissed.

It is a sad truth that too many owners hold on to their company too long and miss the opportunity to maximize the return on all they have invested in it.  When I talk to business owners about selling their business there are three recurring comments; “business is booming, I don’t want to sell now”, “business is really down, I can’t sell now” and “nobody would buy my business”.  On the surface these my sound like fact based answers but in reality, they are more about emotion than fact.

Fear is one of the biggest motivators for human beings. Fear that the business is worth less than they think, fear that nobody would be interested in buying the business, or fear that they’d be screwed in the transaction.  Fear of the unknown is one of the largest contributors to procrastination and inaction and the reason too many business owners miss the boat on selling their company.

Seek out the knowledge you lack to over come your fear!