Today’s M&A Weekly Digest features articles that discuss industries that strategics actively making acquisitions in, how business owners’ exit planning strategies need to line up with the new reality, and the difference between economic value and market value of a business when conducting a valuation.
Silence Is A Communication Tool
August 22, 2011 By Leave a Comment
When a business owner works with employees in order to grow their soft skills, one area of focus is often communication. A business owner wants an employee to ask the right questions, provide concise answers, and even diffuse an upset customer or vendor when the situation demands it. Moreover, good communication training focuses heavily on listening skills.
Still, one communication skill that is often overlooked is the use of silence.
How business owners should approach the promising M&A forecast for 2011
May 17, 2011 By Leave a Comment
Too often we hear middle-market business owners state that because M&A activity has declined, now is not a good time to enter the market. However, in reality, the opposite is true.
Although M&A activity did experience two years of declines in 2008 and 2009, it actually began to rebound in the latter half of 2010 and most analysts expect this to continue in 2011 and beyond.
Documenting Your Company: The Key To Closing A Deal
May 16, 2011 By Leave a Comment
Many of you are contemplating the sale of your company without the use of an experienced M&A advisor. If you do proceed on your own, it will be critical that you develop accurate and detailed documentation for buyers to review. If you don’t, chances are good that your sale could take far longer, and deals will fall apart repeatedly, as buyers ask you questions you are unable to answer.
In order to make the sales process go more smoothly, we highly recommend that you take the time necessary to thoroughly document your entire operation.
Generational Equity Reviews Three Common Myths of the Family Owned Business
May 3, 2011 By 2 Comments
A family owned business ”is a business in which one or more members of one or more families have a significant ownership interest and significant commitments toward the business’ overall well-being.”
In this post Generational Equity reviews, based on our experience, three common myths that we often see and hear discussed about family owned business.
Selling A Business: The Three Variables
May 3, 2011 By Leave a Comment
As a business owner, no matter how much control you have over the day to day operations of your business you cannot always control the factors that determine the outcome of the sale of your business.
What you can do, however, is thoroughly understand these factors and focus on the parts you can control.
5 Ways to Cut Technology Costs
April 28, 2011 By Leave a Comment
As businesses deal with the ups and downs of a struggling economy they are constantly faced with the challenge of cutting costs.
Traditionally, information technology has created a significant set of line items in the operating budgets of small and medium sized businesses. These technologies range from printing and copying machines to business-critical applications.
In this article, I am going to examine 5 areas of technology where rich functionality has met commodity pricing, thus offering companies unique opportunities to save and improve simultaneously.
5 Fundamental Tips for Preparing Your Exit Strategy
April 14, 2011 By Leave a Comment
You’ve heard it said: “The only sure things in life are death and taxes.”
A truthful addendum to this for the private business owner that is equally sure is that at some point you will be exiting your business.
No matter how much you love your business, there will come a time where the game will change.
Some will exit based on retirement or medical issues. Some will notice changes in the market or industry that will begin to take their toll. Some will pass the business along to a family member or a loved one. No matter the specific circumstance that will motivate the exit, the business owner must be ready when the time comes.
In the same manner that you keep your receipts when preparing to file for taxes, you must also prepare in advance for exiting your business.
In order to help you prepare, we’ve listed five fundamental steps to preparing your exit strategy:
(1) Define Post-Business Objective
The first step of exit planning is a definition of your objective. What are your plans once your business has sold? This objective will drive the exit planning process.
The owner will need to decide how much profit he or she needs to make out of the sale of the business in order to achieve an ideal outcome.
(2) Financial Planning
Once you have determined your primary objective, you are ready to begin to plan the financials for the future sale. During this portion, the owner and professional advisors will begin to look at the cash flow and profitability of the business.
The current value of the business will be assessed including all assets. Once the financials of the business have been assessed, there will be a thorough review conducted of the business, and of its value drivers. The question of what portion of the business “leverage value and reduce risk” are addressed.
As this is assessed you will be able to make a better effort to make the most of your time as you are preparing to meet your exit planning objectives.
(3) Management Transition
Whether or not you are planning to sell to a third party or to an insider will determine how you manage the transition in your exit planning process.
Is it transferred to a third party or to an insider? This will determine how to plan for their exit. Often times if an owner is planning to sell to an insider who may not come to the sale with substantial personal capital, the owner will need to plan for this in order to still receive maximum value during the transition.
(4) Contingency Plan
With every good exit plan, there needs to be a well thought out contingency plan. Risks must be assessed. Some risks include: potential litigation, large portions of revenue in the hands of a few clients, liabilities, employee risks and others.
(5) Personal Estate Planning
The final stage of an exit planning process is your personal estate planning. This is certainly not the most exciting portion of the process, but critical to a successful plan is planning where your money and assets will go if something were to happen and you were to pass away earlier than expected. SmartMoney offers helpful solutions personal estate planning.
An exit plan is critical and hiring a professional as an advisor during the process will increase the accuracy of your plan.
© 2011 Generational Equity, LLC All Rights Reserved
Generational Equity Succession Planning Advice
April 7, 2011 By Leave a Comment
Making difficult decisions is a way of life for anyone who has started and runs a business, and the toughest decision that you as a business owner will make is planning your succession.
As you approach a point in life where you are ready to leave your business, either because of retirement or a desire to seek a new challenge, it is imperative for the long-term health and stability of your company after you are gone that a strategically organized succession plan be put into place.
You might think that the answer is an easy one, especially if family members are already part of your business’ day-to-day operations. I’ll just hand the business over to my son or daughter, you may be thinking to yourself, thus eschewing any further planning.
But in our 20+ years of working with family-owned businesses, we have learned that simply handing down the business as if it were an heirloom is rarely the best course of action.
The most important reason why a family handoff should not be assumed as the automatic course of action is this stark reality: the ability run your business, or any business for that matter, often skips a generation. Obviously this is not true in every case, but we have seen it enough to know that it occurs more often than not.
There are myriad reasons why this “generation skipping” occurs. Perhaps you came from nothing and built your business on the back of your own fear and hunger to provide a better life for your kids. You very well may have succeeded, so much so that your kids do not have the same fear and hunger that drove your success. Additionally, kids can sometimes take their positions in the company for granted and thus do not need to work as hard to achieve the same level of success and attention as an outsider.
It can be a difficult reality to come to grips with, especially if you always assumed that you were building your business to hand it off, but the empirical and anecdotal evidence clearly shows that the children of successful business owners usually are not ready to take over and grow – or even maintain – their parents’ business.
Rather than thinking about the business itself as a gift or heirloom to be passed down to future generations, consider it in terms of value.
If you pass down your business to a son or daughter who is not ready for the responsibility, it could set them up to fail. Not only could their business career be forever stunted, but the value of the business will be depleted.
On the other hand, if you sell your business then you are “cashing out” at a high point and creating family wealth that can be shared with the family independent of the business’ future success or failure. This way, if your kids have other interests or need more time to learn how to lead and operate a company, they are not risking the future of the business (and its value to the value) in the process.
As one successful serial entrepreneur put it: “My kids are better off with me giving them money than being given a business into which they have not been integrated.”
The key component in making this decision is removing ego.
We know that many business owners want to hand the baton over to a family member and keep family leadership of the company going into perpetuity. The ongoing family-led success of the business becomes a part of your legacy, and there is intrinsic value in that. But you must ask yourself:
- Is it the right decision?
- Is the family member really the best person to take over the business?
- Are they even ready?
- Am I irresponsibly gambling family wealth and the future of the business on someone who has not proven they are ready to run the show?
These questions must be answered candidly and without bias. Most often, the answers point in a direction outside of the family-handoff succession plan. And in terms of legacy, passing on the business to a unfit family member can have the exact opposite effect than intended. If they run the business into the ground, that part of your legacy goes with it.
In many aspects of business, separating family from the office is important. Few if any family-owned business have fulfilled their potential and achieved great long-term success without lines delineating business/office life from family life. The creation of a sound succession plan is an area where this is absolutely necessary to do.
A good succession plan should always be geared towards getting the business into the hands of the most qualified person possible. If the most qualified person happens to be a family member – when ego and pride and love are stripped from the equation – then so be it. More than likely though, this won’t be the case, and you are often better off selling to maximize the long-term value of the business to your family.
© 2011 Generational Equity, LLC All Rights Reserved
References vs Revenue – Clearly Define the Lines and Be Proactive
April 5, 2011 By Leave a Comment
One of the biggest mistakes companies old and new make is not clearly defining the lines between references versus revenue.
References are clients to whom you sell goods or for whom you perform a service whose value to your business goes beyond the amount collected on an invoice. These clients, because of their stature or keen understanding of what you sell, can serve to help convince future prospective clients to sign on with you as well.
Of course revenue ultimately drives profit, and businesses can never take their eye off the revenue ball, but there are a couple of compelling reasons why attaining solid client references is gaining increasing importance.
- Many products and services these days are intangible and thus harder for potential customers to understand.
- Innovative products and services further leave questions in consumers’ minds.
This combination of intangible and innovative can lead to potential clients needing “a little extra” to be pulled over onto your side of the fence. References can often provide this little extra because:
- References provide customers who come later in your product cycle with a proof point that your product or service is good.
- References help customers understand innovative products and services by showing real world examples.
References are able to do this in three basic forms:
- Simple reference – “Company XYZ is a customer…”
- Testimonials – a compelling, illustrative quote from customer
- Case Study – in-depth details of a customer’s experience with your good or service; this is often the hardest to get but also the most convincing.
So how can you as a business owner be proactive in clearly defining the lines between references and revenue to put the power of references to work for your company? Here are four key steps:
1) Instill a reference vs. revenue mentality in your sales force.
If a customer asks for a discount, do you give it to them? The first trade off is that they have to become a reference. In this sense you are still getting full value from the customer and they have an enticement to a) be an early adopter and b) become a proof point for you down the road.
2) Clearly define what you are willing to do for free or give away in building references.
Assign a budget to your reference building strategy as they relate to your overall business. Break it down based on the three types of references listed above. Understand that work done for no charge, if it results in a powerful reference, is bringing value back to the company that will grow revenues down the line.
3) Define a point in your product life cycle when you wind down reference initiatives and just go for revenue.
Again, the eye can never be taken off of the revenue ball. Generating references is done with the specific intent of using them as a foundation for future revenue growth. At some point you will receive diminishing returns from each new reference. Once you attain compelling and varied references, it’s time to earn the value from those references and focus on revenue.
4) Be prepared to walk from customers who won’t be a reference and want to hammer margins down to nothing
This is very important. We all know that some customers are easy to work with and some are simply a pain in the neck. The painful customers are only worth it if a) you are able charge them a premium or b) they will be a solid reference. If you are making the same or less revenue off of the difficult customers who suck up more of your time and energy, and these customers are unwilling to be references, what value do they have to your company? Not much. Walk.
© 2011 Generational Equity, LLC All Rights Reserved
