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Selling Your Business? Do These 6 Things Right Now.

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By Gene Marks, Entrepreneur Leadership Network VIP

According to data from the Small Business Administration, more than half of the small business owners in the U.S. are over the age of 50. Because of this, many of us are starting to think about the future and possibly one day selling our businesses. This is why research site BizBuySell reported that the business-for-sale marketplace grew almost 5% last year, a gain of 19% since 2020 and the first half of 2023 has already “experienced strong year-over-year gains.”

There are many reasons I’m expecting to see continued growth in the number of small business owners looking to exit their companies over the next few years. Our population is aging and much of the “boomer” generation is at retirement age. Capital gains and estate tax rates — for now, at least — remain at historic lows. Stock market volatility is driving some people to seek more stable, controllable returns for their money. And a growing number of millennials have now gained enough business experience to want to venture out on their own, and buying an existing business rather than starting from scratch is an attractive option.

If some or all of these factors are making you think it could be time to sell your business, then know that this won’t occur overnight. You will need to plan and take these six actions before dipping your toes into the market.

Re-visit your buy-sell agreement

If you have other equity partners, I’m hoping you have some type of partnership or buy-sell agreement which indicates the process that will need to be followed if one or more partners exit a business — be it voluntary or not. This agreement addresses issues like valuation, insurance, taxes, transfer of shares and death or sickness of a partner. If you and your partner(s) have agreed to sell your business sometime in the future, then it’s critical to update this agreement so that everyone’s on the same page as to how the transaction will go. No buyer wants to walk into a messy divorce.

Pay for a valuation now

Humans always think that we’re more important than we really are. And business owners always think that our businesses are worth more than they really are. Before entering into the buy/sell market, it’s important to get a reality check. To do this, I recommend hiring an independent appraiser (ask your accountant or attorney or search online) and letting a professional without an agenda tell you just how much your company may be worth. Your appraiser should have a CBA (Certified Business Appraiser) or ASA (Accredited Senior Appraiser) qualification. Getting an appraisal done earlier will be a reality check and allow you to zero in on the areas of your business that need to be fixed in order to increase your company’s value. That way you can go into the market with a price for which you have confidence.

Do a document check

Take the time now to scan every important (and current) document, contract, agreement, tax return (from the past three years, at least) and written record that your company has. This includes any and all paperwork that supports your employee, real estate, insurance, intellectual property, contractor, leases, loans, supplies, sales and government obligations. Organize and save these documents online where they can be shared with permission because you will absolutely be asked to provide them. Don’t make this a last-minute fire drill.

Bring in a technology expert

Technology has become a significant factor in the sale of a business. We live in a big data world and buyers are looking to purchase information that they can use. They also want to make sure that a target’s systems are up-to-date and secure so that big investments and changes can be minimized after the sale of a business. To do this, you’ll need to bring in an outside technology firm to evaluate your network, hardware, security, software, and databases and give you an honest report on just how out-of-date you are and what investment is required to bring your system into (at least) the 19th century.

Visit Home Depot

When selling your business, you’re going to be visited by many outsiders. Perception is important and if a potential buyer drives a car over potholes in your lot, trips over cracks on your sidewalk and has to wipe away drips from a leaky ceiling that’s going to have an impact on what they think of you as an owner and the valuation that they would apply to your business. Like any homeowner looking to sell their house privately, you’ll need to spruce up your physical location to make it look attractive and up to date.

Finally, assemble your team

You are not going to successfully sell your business at the best value possible without a team effort. Now is the time to think about and assemble your advisory team to help you through this transaction. All important, in my opinion, is to have a great financial person — a certified public accountant or similar — to work alongside you as, in the end, this transaction is all about the numbers and you’ll need someone with a financial mind and good communication skills to help you drive it. You’ll also need a good attorney to review and create agreements. There may be other experts on the periphery — like a specialized tax person or an insurance advisor. I also strongly recommend using a business broker and making that broker part of your team as well. Brokers serve a vital function — they are experienced in buying and selling companies and can use that experience to move a transaction forward, despite the inevitable obstacles that will be faced.

 
Gene Marks is a CPA and owner of The Marks Group PC, a ten-person technology and financial consulting firm located near Philadelphia founded in 1994.

Family Business? Keep It Professional

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By Dave Ramsey, Ramsey Solutions

Question:  My father isn’t involved with our family-owned business anymore, but he’s still a one-third owner and insists on taking a salary. This situation has begun to cause problems for other members of the family, and I was wondering what your take is.

If I understand correctly, three owners form the board, and you three direct the management and leadership of the company. That means if your dad gets outvoted on something, he must accept it because he’s a minority owner. As an owner who is no longer actively involved in the company, he should be getting a distribution of the profits—not a salary. Specifically, one-third when the profits are distributed.

Let me give you a visual. Draw three concentric circles so that they all overlap in the center. It should look a bit like the Olympic symbol—a Venn diagram. In each circle, write “owner,” “management and leadership” and “family.” This is a standard family business diagram. Most problems in family businesses come when someone forgets which circle they’re in. You could be a member of the family but not have any ownership or be in leadership. You could be in leadership but not be part of the family or be an owner. You could also be a member of the family and be an owner but not work at the company. That would be your father.

I think you guys need to reset things in your business. It’s time for the working owners to sit down with your father and have an adult conversation. The discussion should be professional and gentle and go something like: “Dad, we all set this up in the beginning. But we’ve made some mistakes. We shouldn’t be paying a salary to people who don’t work in the business. You’ve been repaid for your venture money, and from now on, you’ll be getting a distribution of profits instead of a salary. We think this is fair and reasonable, but if you don’t agree, we can discuss buying you out of your third of the company.”

It sounds like things are already strained, but you’ve got to have a professional setup within the business. Do your best to be respectful and reasonable with your father. But you need to get this sorted out and agreed on before it causes any more hard feelings.

*Leadership and small-business expert Dave Ramsey is the CEO of Ramsey Solutions. He has authored eight national bestselling books, including “EntreLeadership,” and is a host of “The Ramsey Show” and “The EntreLeadership Podcast.”

The Best Thing About Getting Older is Becoming Clear on What Matters and What Doesn’t

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By Tom Grandy, Founder

If you have more than one child you have probably noticed something about yourself over the years.  The strictness you demanded of your first child didn’t seem as important with the second or third child.  I can still remember an overnight visit with my second daughter and her husband who were newly married and yet without children.  My oldest daughter was also visiting.  She has five young children.  As you might imagine with the three older grandchildren being boys, there was quite a bit of activity, well perhaps it was more like chaos!  As grandparents of eleven children the activity was a bit exhausting, but understandable, therefore it didn’t really bother us.  During one of the quieter moments, with the newest son-in-law made a rather interesting statement.  “When I have children, they will listen to me and will be well behaved.”  I made no comment.

The same son-in-law now has three boys of his own.  Suffice it to say, he sees things a bit differently today.

As each of us grow in age and wisdom we often look back and realize things we felt were really important at one point in our life really weren’t as important as we thought they were.

During my early years of one-on-one consulting with contractors, I can remember being at several contractor’s offices and observing the behavior of his or her employees, especially the technicians.  Although I never spoke it out loud, I can remember thinking more than once, “If this were my company, I would have this and that rule and everyone would fall in line.”  Over the years I realized that if I were the owner and had instituted those rules on Friday, I would likely have lost most of those valuable employees by Monday morning. 

The new company owner, like the new parent, quickly finds out how little they know about being a company owner or new parent.  There are lots of “How To” books on the topics but guess what? Your exact circumstances never seem to match what you are reading.

If new parents will humble themselves and seek counsel from their parents, grandparents or other older, wiser parents they can pick up a few tips on parenting that normally can only be learned after the fact.  Likewise, business owners can pick up a lot of wisdom by seeking out relationships with older business owners inside or outside of their industry.  This can be done informally on a local basis or formally through an organized Mixed Group within your specific trade. 

Pride comes before the fall.  True wisdom comes from humbling yourself and admitting you don’t have all the answers and then seeking out an abundance of counselors to gain direction.

 

Bottom line…if you are a young business owner, seek relationships with those that have been through the battles before you.  If you’re an older business owner or perhaps retired, think about mentoring younger business owners.

A Company Policy Manual is a must for any company.  Company policies, rules and regulations need to be spelled out and signed off of by all employees.  This month’s Website Special features our 97-page Company Policy Manual.  It is conveniently provided in Microsoft Word to allow easy customization to your specific company needs.  The Company Policy Manual is normally $134.00 but this month it’s on sale for only $97.00.  Like all Grandy products it comes with a 100% satisfaction guaranteed or your money will be fully refunded…no fussing!  Order today!

When Should Sellers Proceed with Caution?

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By Business Brokerage Press Inc.

Selling your business is typically quite an involved process that takes a series of months. Sellers typically experience a variety of ups and downs during that time. This is true even in the case of the most successful deals. That’s why you will want to keep your eyes open during the process so that you will be equipped to vet your potential buyers.

This article will take a look at various aspects of the sales transaction that could be concerning and could mean that a deal is less likely to be successful. It’s a good idea to identify these types of situations so you’ll be better prepared to notice them if they were to occur. After all, the last thing you’ll want to do is waste your time and energy dealing with a prospective buyer that is not a good candidate for buying your business. 

Signs of Lack of Interest

There are countless instances when sellers have been approached by prospective buyers, but the parties controlling the purchase are never involved. If a company expresses interest in your business, but the President or CEO seems to be too busy to talk to you, it more than likely means that there is something off about the situation. If communication starts to fizzle out during the process, it very well could also mean that your buyer is not truly interested. 

Inexperienced Buyers

What if you’re dealing with an individual buyer? If an individual says that he or she is interested in buying your business, but has no experience in your industry and no history of owning businesses in the past, this can be a red flag. Even if this buyer does have serious intentions, he or she may become nervous and start to feel overwhelmed as things progress with your deal. In the early stages when you are being approached by potential buyers it is a good idea to not get too wrapped up in buyers that do not appear to be completely legitimate. 

Withholding Information 

There are situations where caution should be warranted in the later stages of a deal as well. For example, in some instances, sellers have not been allowed to see the buyer’s financial statements. Clearly, that could mean that the buyer doesn’t have the resources actually necessary to proceed. 

When you work with a business broker or M&A advisor, you will find that you have built in protection from buyers that are not the right fit. Most brokerage professionals have seen it all and tend to be able to sense when something is too good to be true, or just simply not quite right. Also, when challenges do occur, having a third party involved can go a long way in effectively getting things back on track. 

Copyright: Business Brokerage Press, Inc.

Pay off Your Line of Credit NOW!

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By Tom Grandy, Founder

A line of credit can be both a blessing and a curse.  Every business, large or small, should have a line of credit set up. Potential problems arise in two ways.  The first is when the line of credit is improperly used.  The second deals with changes in the economy that eventually ripple through the banks and then directly to you, the business owner.

The overall purpose of a line of credit is for short-term borrowing against receivables.  As an example, let’s assume a $30,000 check is expected to arrive this week which will cover payroll and a few additional overhead costs that are coming due.  The phone rings and you are informed that it is going to be another 30-45 days before that $30,000 check arrives.  That is when the line of credit kicks in.  The company goes to the line of credit and borrows $30,000.  Payroll is met and the overhead costs that need to be paid are paid.  Thirty to forty-five days later the $30,000 check arrives.  The Line of Credit is paid off and all is good.  That is how it is supposed to work.  But that is not always the case.

Lines of Credit become abused when they are used for things other than short-term borrowing against receivables.  Once a line of credit is set up it can be used any time for any reason.  Ghee, we need another $10,000 worth of inventory.  That’s a simple solution, the company utilizes its line of credit.  Now another vehicle is needed.  Sure, the owner could go to the bank or dealership, fill out papers and probably get a loan but that takes time and effort.  It is a lot easier to simply borrow the needed money from the line of credit.  The money is already approved and is readily available.  All you need to do is write a check.

As time goes by an additional $5,000 or $10,000 need pops up resulting in more borrowing from the line of credit. Before you know it the balance on the line of credit is up to $75,000!  It hasn’t been a problem however, since the company is invoiced for interest on a quarterly basis, and it’s been paid.  All goes well, until…

You may, or may not, be aware of the statement on the back of the line of credit you signed.  It plainly states (in bold letters or small print) “This Line of Credit may be called in full at any point in time.” Ouch! 

When the economy changes (ESG scoring begins taking place, housing tumbles, cost of living skyrockets, the stock market falls, etc.) it eventually ripples into the banking industry.  The net result is that money gets tight, and borrowing is difficult.  When the banks get nervous, they begin looking more closely at their customers’ accounts.  Guess which group of accounts the bank looks at first?  Bingo, you are right.  They start reviewing everyone that has a line of credit.

Now keep in mind the perfect line of credit customer is one that borrows frequently but also pays their line of credit back to zero at least once or twice a year.  That is the perfect customer.

The company we looked at earlier had allowed their line of credit to climb to $75,000 with no immediate plans to pay it back, outside of the interest payment.  That is a NOW problem.  Before long the company owner is going to get one of two phone calls.

Phone Call #1 – Hello Mr. Jones.  We have just turned your $75,000 balance on your line of credit balance into a loan with monthly payments of $1,800 per month…starting next month.  Thank you.

Phone Call #2 – Hello Mr. Jones.  Remember that $75,000 balance you owe us on your line of credit?  Well, we would like that paid in full by the 15th of next month.  Thank you.

These calls are being made now!  If you have a line of credit, make every effort to pay it off as soon as possible.  At the same time, initiate a new company policy that the line of credit will only be used for its intended purpose, which is short-term borrowing against receivables.

If the company finds itself in a position of borrowing routinely on their line of credit to pay bills, then take it as a RED FLAG that there is a root problem somewhere else within the company.  95 percent of the time that root problem ends up being improper labor pricing. 

If you are not sure your pricing is set properly then consider purchasing a copy of Grandy & Associates’  book entitled Profitable Labor Pricing for Trades Contractors.  It will literally “walk” the user through 10 simple worksheets which will produce the needed hourly rate, in each department, to be profitable.  The book is only $19.45 which includes shipping.  Order today.

Gen Zers and Millennials? I Love ‘Em!

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By Dave Ramsey - Ramsey Solutions

Question – I am the managing partner of a family business. We would like to add to our team, but I’m worried we can’t try to hold millennials and Gen Zers to the same standards as other generations without losing them. How do you feel about this?

Answer –  I’ve got a building full of Gen Zers and Millennials — and I love them. If you hire the rights ones, you’re getting people who love calluses on their hands and on their brains. They make the interview process easy too, because there are just two types from these generations: the ones who are unbelievably awesome and the ones who aren’t. But the great ones are not afraid of hard work. They’re passionate, intelligent and mission driven. I mean, they’ll charge the gates of hell with water pistols for something they believe in.

But that means you have to provide meaning in the work they do. They want to see that their work connects to something that matters. They want to be treated with dignity, not like units of production. And they have inquiring minds. Most of them want to know why you do things the way you do them. All that is perfectly okay with me and always has been.

Now, they’re the worst two generations to work for someone who’s just a boss. That’s because bosses push while leaders pull. If you’re going to pull, you have to inform, communicate and share a vision that draws people into your mission. Bosses, for the most part, have a “do it this way because I said so” attitude. That’s not going to last long with Gen Zers and millennials.

I get where you’re coming from though, Sarah. I’ve still got friends and business associates who tell me we’re going to lose everyone from these generations if we don’t cave in and give them things like “the flexibility to work from home” — which really means, “I don’t want to work much” or “I want to work all the time.” Listen, I understand not everyone who works from home falls into one of those two categories, but some of them do. There are folks who put in 80 hours a week because they can’t put their screens down and live a life. Or they work three hours a day and call it “working from home.” That’s not working from home — that’s working part-time hours for full-time pay. And that’s called stealing.

But millennials and Gen Zers? I’m a huge fan of these generations. I truly, personally like them. They are, for the most part, genuine, real people and hard workers. If you give them what you should as a leader, they’ll blow you away with their smarts and what they’re capable of achieving!

* Leadership and small-business expert Dave Ramsey is CEO of Ramsey Solutions. He has authored eight national bestselling books, including “EntreLeadership,” and is a co-host of “The Ramsey Show” and the host of “The EntreLeadership Podcast.”

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