No matter where you are or who you are talking to, it seems many people would like to own their own business. People feel that if they owned their own business it would be great because they could make their own hours, or never be told what to do again, or my personal favourite, they feel they could retire early.
As the owner of my own business with more than 30 years of business experience, the last decade of which has been focussed on providing coaching and business advice to small and medium sized businesses, I can tell you there are many wonderful benefits for owning your own business, but business ownership is not for everyone.
Before deciding if owning a business is the right choice for you, you’ll need to take stock of where you are in your life and what type of person you are. Here are a few questions you might want to ask yourself which will help you determine if this is the right course for you.
- What stage of life are you in? The income you need will depend on whether you are single or have a family to support. A new business may not provide you with the income you need for more than 6 months and sometimes longer.
- What business experience do you have? If you’ve had a successful career in the corporate world you have knowledge and skills that will be useful in your business. You can still succeed without any previous business experience, but be prepared to face a steep learning curve.
- How do you feel about risk? Are you totally risk-averse, or can you tolerate at least a low to medium level of risk? If you lost money or a key account would you be able to bounce back? How do you handle investment losses?
- How do you feel about making decisions? As a business owner you will be required to make decisions on a timely basis and sometimes with only partial information. Some of those decisions will turn out to be wrong. Can you accept responsibility for these errors and take the actions necessary to correct them?
- How do you feel about sales? Sales are probably one of the most important aspects of any business, but yet I regularly meet business owners who feel they should have no responsibility for sales in their business. It will be very difficult to start your business without making cold calls, presentations and pitches. Can you stand in front of people you don’t know and tell them why they should buy what you are selling?
In the coming weeks, I look forward to sharing some advice, tips and industry insights on issues to consider if you are thinking about starting or opening a business.
How About You?
Are you thinking about venturing into the world of business ownership? If so, what types of questions do you have on your mind? I look forward to hearing your stories in the comments below.
As promised from my last post, this week I will divulge the seven things you can do to reduce the chance of your deal dragging on for months and becoming watered down – even before you decide to sell!
1. Make sure your customer contracts have “successor” clauses.
Have customers sign long-term, standardized contracts, including a clause stating that the obligations of the contract survive any change in company ownership.
2. Nurture and prepare a group of 10 to 15 “reference-able” customers.
Acquirers will want to ask your customers why they do business with you and not your competitors. Before you sign the LOI, cultivate a group of customers to act as references.
3. Ensure your management team is all on the same page.
During due diligence, acquirers will want to interview your managers without you in the room. They want to find out if everyone in your company is pulling in the same direction.
4. Consider getting audited financials.
An acquirer will have more confidence in your numbers and will perceive less risk if your books are professionally audited.
5. Disclose the risks up front.
Every company has some risk factors. Disclose any legal or accounting hiccups before you sign the LOI.
6. Negotiate down the due diligence period.
Most acquirers will ask for a period of 60 or 90 days to complete their due diligence. You may be able to negotiate this down to 45 days—perhaps even 30 with some financial buyers.
7. Make it clear there are others at the table.
Explain that, while you think the acquirer’s offer is the strongest and you intend to honour the “no shop” agreement, there are other interested parties at the table.
Of course, every LOI is different and every sell is unique, but if you can follow these seven steps, you can better protect the value of your business when there is a shift in the balance of power during negotiations.
How about you?
Have you run into a shift in power in your negotiations? What steps would have safeguarded you and your business during the sale process?
I look forward to your feedback in the comments below.
In dealing with business owners, I find that many of them wait until the last minute before thinking about selling their business, either because they are too busy, or simply too attached. In my experience, it is never too early to understand what the process of selling your business involves.
We all understand the basic concept of negotiating leverage through our day-to-day interactions with others, and it is important to understand that when selling an attractive business, you also have leverage – but only to a point. When you sign a letter of intent (LOI), the balance of power in the negotiation shifts significantly over to the buyer’s side, who now can then take their time investigating the company and exercise their due diligence.
The longer they take, the more likely you are to become committed to selling your business. A savvy buyer knows this, and can drag out diligence for months in a bid to justify lowering their offer price or demanding better terms.
Left with little leverage and other suitors sidelined, you find yourself with an unattractive deal or the choice to walk.
If neither of these options sound attractive to you, you’ll want to prepare your business before you even decide to sell. If you’re wondering just how you can do this, stay tuned to part 2 of this post next week for the answer!
With almost 40 years of business experience and the last decade providing coaching and business advice to small and medium sized businesses, what I have found is that one of the most intimidating aspects of selling your business can be facing the barrage of questions you’ll be asked by potential buyers.
Being prepared to be asked about all facets of your operations is key to selling your business, so I would like to share with you the top eight questions potential buyers want to know about your business.
1. Why do you want to sell your business?
We addressed this question in our blog post last week, and it is worth reading for a more detailed answer. Basically, it’s a slippery question because if your business truly does have a bright future—and you want the buyer to believe that’s the case—the obvious question is: “Why do you want to sell it, and why do you want to sell it now?”
2. What is your cost per new customer acquired?
The potential acquirer wants to find out if you have a predictable, economical and scalable formula for finding new customers.
3. What is your market penetration rate?
The acquirer, with an eye to future growth, is trying to understand how big the potential market is for your product or service and what part of the field remains to be harvested.
4. Who are the critical members of your team?
The acquirer wants to understand the breadth and depth of your team and determine specifically which members need to be motivated and retained post-purchase.
5. Who buys what you sell?
Strategic buyers will be searching for any possible synergies between what you sell and what they sell. The more you know about your customer demographics, the better the buyer will be able to assess the strategic fit. If your customers are other businesses, a buyer will want to know what functional role (e.g., training manager, VP of sales and marketing) buys your product or service.
6. How do you make what you sell?
This question is asked in an effort to size up the uniqueness of your formula for creating your product or service. Potential buyers want to know if you have any proprietary systems that would be hard for a competitor to replicate. For various reasons, they will also want to understand if the creation of your product or service is dependent on any one person.
7. What makes your product truly unique?
A buyer is trying to understand how big the moat is around your business and what kind of protection it offers from competitors who may decide to compete with you in the future. What have you done to safeguard yourself against the competition?
8. Can you describe your back-office setup?
Most buyers will try to understand how easily they can integrate your back office into their operation. They’ll want to know what bookkeeping and billing software you use, how customers pay, and how you pay suppliers.
Although there may be hundreds of questions potential buyers might ask, if you can answer these eight, you’ll have a good start when you’re preparing to represent your company.
How About You?
If you are preparing your business for sale what types of questions have you been asked by potential buyers? What would you say is the number one question you have been asked by an acquirer?
I look forward to hearing your stories in the comments below.