Which business will be sold, and which will fold?
A few weeks ago I had a conversation with a business broker that broke my heart.
The broker was frustrated.
He told me about business owners who built very valuable businesses that would never be sold. He said that he’s seen thousands of people who think they know How to make money in the HVAC business, but only a select few that can make the real big money. He explained that he is able to find buyers willing to pay the right price but the terms kill the deal. He complained about all the time he spends “spinning his wheels” only for the offer to be rejected by the owner over the escrow or earn-out provisions. He said it pains him to drive by the businesses a few months later to see their doors shuttered. That’s why there are companies that offer software for insurance agencies a broker needs to grow and thrive.
The business broker sides with the prospective buyers. He said they are justifiably nervous. They are worried that they will not be able to operate the business. They realize that the company is too dependent on the business owners and key employees.
The broker explained further that he felt the buyer’s terms were not unreasonable. They only want to offset their risk. Unfortunately, the sellers do not understand the buyer’s point-of-view until they experience it. By then, it is often too late. They wasted too much time.
The broker estimated he can double, or even triple his commissions if he could solve this problem.
The question is what to do?
The business broker and I spent a lot of time considering options.
We identified the following two key problems:
(1) Business owners are under the mistaken impression that it will be easy to find a buyer willing to pay top dollar for their business AS IS. They are wrong! We decided business owners need an objective and credible way to assess the value of their business from the point of view of the prospective buyer.
(2) Business owners need to be willing to spend some time preparing their business for sale. There is no point wasting time finding buyers for a business that is not “PACKAGED” to sell. The broker estimated that if a seller would spend a few months and $10,000 preparing their business for sale with systematic operations, they would significantly increase their chances of finding their ideal deal.
Yes we know, business owners are exhausted, overworked, and overwhelmed. They already bristle at the idea of gathering financial statements and tax returns – that’s why it might be easier to get someone else to sort out your financial analysis. It will be doubly hard to convince them that they also need to write operations manuals and “package” their business for sale. To this we both agreed: TOUGH! Their business is likely the most important sale they will ever make. It is worth the time, effort, and investment.
The broker emphasized this point by telling me the story of one of his clients who was so organized he was able to quickly complete a 140 page questionnaire required by a venture capital firm interested in acquiring his business. The broker closed the deal in record time. This business owner embodied the definition of “luck” – The point where preparation meets opportunity.
If only ALL businesses were so prepared.
Let’s solve this problem together…
Our question to you is: What do you do with businesses that are so disorganized, or so dependent on their owner and key employees, that they cannot be sold for their maximum value or with acceptable terms?
ManageHub and the Alliance for Performance Excellence have created a turnkey set of tools to help prepare a business for sale at a higher price, and with better terms.
We invite you to join our initiative.
First… Who is the Alliance?
The Alliance is the outreach arm of the U.S. Baldrige Performance Excellence Program. Baldrige was created by Congress in 1987 to help businesses grow their value by pursuing excellence in product and service quality. During the last 25 years Baldrige has been adopted by the largest Fortune 500 companies. Now, the Alliance is working with ManageHub to offer non-technical and easy-to-implement Baldrige-based tools that help smaller organizations become more sustainable, scalable, and SALEABLE.