Baby boomer business owners listen up.  If you intend to sell or transition ownership in your business within three years, you should start positioning your business now to be attractive to buyers. Why so soon? Well, it can take two years or more to implement actions to improve your business’ profitability and mitigate its value reducing risks. Don’t forget to add another year to complete the sale process!

This is the time of year business owners review their strategic/business plans.  As boomer business owners get older, it is unwise to develop or revise your strategic/business plans without first thoroughly understanding your personal (including retirement), financial, business and legacy goals. These goals will provide guidance as you develop or revise the plans. Consider engaging an experienced business ownership transition planner (i.e., an Exit Planning consultant) or some other person you trust to be brutally honest with you as you develop these goals. The return on investment, including peace of mind associated with Exit Planning can be significant.

As you approach your ownership transition date you need to be aware of how your decisions will impact your company’s valuation and attractiveness to a buyer.  A few examples of these decisions are product/service pricing, investment in new product lines, business acquisitions within or outside your core business, strategic relationships, new marketing campaigns, geographic market expansion, making major equipment investments, and taking on business that significantly increases customer concentration, etc.  A more specific example might be a franchisor experimenting for the first time with operating corporate stores.  The point is, the closer you are to your ownership transition date, the less room you have for taking risks that may impact your company in a negative way. As you develop your plans, consult with an experienced merger & acquisition advisor to obtain his/her expertise on how your decisions will impact valuation and your ultimate ability to attract the best buyers.

In closing, please remember my mantra.  That is to plan, optimize, sell, then live your dreams!

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Some business owners who are starting to think about the sale of their business aren’t aware that they have a “value gap.” A value gap is the difference between a business’ fair market value today and the price a business needs to be sold for in order for a business owner to fund a pre-determined post sale lifestyle. Many business owners underestimate the magnitude of the gap. Yet determining an accurate value gap is an essential part of the exit planning process. Read More

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It can happen to you. As business owner or CEO, you get a phone call out of the blue from a reputable company that has targeted your organization as a prime acquisition or merger candidate. Intrigued, you contemplate the possibilities. It's flattering to be pursued and before you know it, you've divulged information about your company - maybe too much information. Have you made a huge mistake?... Read Full Article

One of the most contentious business deal points in the sale of a business is the negotiation of the working capital provision.  When selling a business, business owners are often surprised to hear that they have to leave a requisite amount of working capital so that the buyer can run the operations of the former company the very next day, in a seamless manner.  The following article provides a good understanding of why this is necessary and how to determine a “requisite” working capital amount.  Click here to read the article.  

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The MergerMaven blog and website are dedicated to helping over 280,000 middle-market business owners (revenue of $5 million to $200 million) prepare for, and when ready, sell their business for maximum value.

For most business owners, selling their business is a daunting task.  If you frequently read MergerMaven’s blog and visit our website, I guarantee you will come to understand how to sell a business. After all, getting your business sale or merger transaction done right is critically important not only to you and your family, but to other valued stakeholders such as your partners, loyal employees and vendors, etc.

So then, what can you expect to get out of reading MergerMaven’s Blog?  First, I want to make this an interactive process so please email me (Bill Quish) with questions or topics you would like to see addressed.  Second, this blog will bring owners insightful and timely information, tips and advice including articles from and interviews with other experts associated with exit/succession planning, selling a business, mergers and acquisitions, and raising capital.  You will benefit from the sage advice of a wide variety of experts.

Remember, it is never too early to start planning for the exit from your business. Involuntary events (e.g., death, disability, divorce, burn-out, partner issues, new stronger competitor, etc.) often force a premature exit!  Be prepared so you don’t leave money on the table.

I look forward to our interactive journey together.  Please feel free to contact me at bill@mergermaven.com.  Talk with you soon!

Bill Quish

Bill Quish is a Mergers & Acquisitions Advisor, a Certified Exit Planning Advisor (CEPA) and a Senior Managing Director at Lyons Solutions, LLC.  Bill also tweets about selling a business, mergers, acquisitions and exit planning on Twitter .

Up until the signing of a Letter of Intent (LOI) in a business sale or merger and acquisition transaction, the seller typically has the upper hand in negotiations.  After the signing of the LOI, control switches to the buyer some of whom will later leverage issues surfaced during due diligence to try and change the deal.  Hopefully the company will have gone through a pre-sale business and legal due diligence process to identify and mitigate risks. It is incumbent upon the seller to make sure all material issues are communicated to the buyer and addressed in the LOI prior to its signing.

Please note you can receive MergerMaven’s blogs by email. To do so, just enter your email address to the left where it says “Subscribe Via Email” and then click the "Subscribe" button. Please also visit MergerMaven’s website.

A common misconception among business owners is that the sale of a business can be easily timed to “sell at the top.”  The reality is doing so can be more difficult than timing the stock market.  The best time to maximize a business' sale price depends on a confluence of factors.  Among these are: (1) demand for your type of business is strong, (2) the merger and acquisition transaction financing market is functioning normally and (3) revenue growth and profits are strong but have at least a couple of years of remaining growth to support a buyer’s ability to pay you a higher price (business valuation).  If the business’ revenue and profits have peaked or are close to peaking, sophisticated buyers will discount this fact by reducing the price they are willing to pay.  You can also follow MergerMaven on Twitter .

For every large public company merger & acquisition, there are hundreds of small and middle-market M&A transactions taking place. While some business owners have properly prepared for these potentially life-altering mergers & acquisitions transactions, our experience indicates most have not.

Exit planning experts advise entrepreneurs to start planning for the eventual exit from their business the day they start their company. While such advice may seem premature, proper exit planning and expert transaction execution can have a huge impact on the net proceeds received from the business sale and an owner’s happiness in retirement.

The information that follows will help you avoid the pain of leaving what could be millions of dollars on the table. The eight critical mistakes to avoid are: (click here to continue) ......

Does your company do business with state or municipal governments?  If so, ballooning deficits could be harmful to your financial health.  With economic growth expected to remain weak, state and local officials will have no choice but to evaluate all their contractual obligations.  Their goal will be to save money by renegotiating existing contracts and require re-bidding of contracts on a more frequent basis.  What does this mean for business owners who are planning to sell their businesses in the near future?  If a material portion of your company’s revenues are related to state or municipal contracts, your gross profit margin probably will decline or even worse, you might lose significant business.  Lower profitability will end up reducing your company’s valuation at the worst possible time.  Business owners desiring to sell their companies in the near-term, and who have material exposure to the aforementioned contracts, should consider accelerating the timing of the sale of their business.  By doing so, the owner might be able to pass-off some of these risks to the buyer and thereby salvage a higher valuation.

Please note you can receive MergerMaven’s blogs by email.  To do so, just enter your email address to the left where it says “Subscribe Via Email” and then click the "Subscribe" button.  Please also visit MergerMaven’s website.

What do you think your business is worth?  This is the reality check question I ask business owners. When I ask owners how they determined the business valuation amount, the answer usually is "it is a multiple of my business' earnings or revenue." The reality is, two businesses with the same earnings can have widely different valuations. There are many factors responsible for the differences in business valuations. Most notable are a business' revenue size, growth rate, profit margins, and risk profile.  

Business owners often fail to factor in how risk impacts valuation.  Examples of risks are the strength and defensibility of the business model, customer and vendor concentration, ability to prosper in down times, competition, vulnerability of proprietary products to technological change, depth and strength of management, legal compliance, and other business weaknesses, etc.  Because of their subjective nature, each valuation expert and buyer will evaluate these risks differently.  The greater the risk in their minds, the higher the rate of return they will require on their investment (i.e., purchase) of a business.  Because valuation multiples are the inverse of the required rate of return (often times referred to as the discount rate), businesses with higher risks typically receive lower valuation multiples.  

Do you know how a sophisticated buyer would evaluate your business' risks?  I maintain that because most business owners are so close to their business, they probably lack the objectivity and expertise to identify and understand which risks will have the greatest impact on their business' valuation. A solution you should consider that would provide a significant return on investment is to have a professional, experienced in mergers, acquisitions and exit planning analyze your business from the perspective of a professional business buyer in order to identify these risks.  Ideally this process should take place at least eighteen months before you decide to sell your business. The sooner these risks are identified, the more time you will have to mitigate them.