Republished with permission from Built to Sell Inc.

Photo by: Footage Firm, Inc.

One of the most intimidating aspects of selling your business can be facing the barrage of questions during the various management presentations you’ll be doing for potential acquirers. Be prepared to be grilled on all facets of your operations.

Of course every meeting will be different, but here are some questions you can expect to be asked when you’re in the hot seat:

1. Why do you want to sell your business?

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.

Of course this is not an exhaustive list, but it’s a good start when you’re preparing to represent your company to your potential buyers.

Why not find out now if your business is sellable?

This free online tool is the only no-risk step you can take to determine if your business is ready to get full value. Fast-track your analysis by taking advantage of this free, no-obligation free online tool.

This Sellability Score you instantly receive is a critical component to any business owner’s complete financial plan and is something that, until now, we have only made available to existing clients.

However, we recognized that there is value in knowing in advance of working with a financial planner whether or not your largest asset is ready to be exchanged for your retirement nest egg. Our view is that you are better to learn more about your businesses sellability today and find out how your business scores on the eight key attributes so that you can ensure you obtain full value.

If your business part of your retirement plan, finding out your sellability score will be the best 10 min. you could ever spend working “on” your business.

Take the Quiz here: The Business Sellability Audit

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Republished with permission from Built to Sell Inc.

You may be years away from selling your business, but it’s never too early to understand what the process involves.

If you have ever promised your child a treat in return for good behaviour, you know all about negotiating leverage. When selling an attractive business, you also have leverage—but only up to the point where you sign a letter of intent (LOI), which almost always includes a “no shop” clause requiring you to terminate discussions with other potential buyers while your newfound “fiancé” does due diligence. 

After you sign the LOI, however, the balance of power in the negotiation swings heavily in favour of the buyer, who can then take their time investigating your company.  At the same time, with each passing day, you will likely become more psychologically committed to selling your business. Savvy buyers know this and can drag out diligence for months, coming up with things that justify lowering their offer price or demanding better terms.

With your leverage diminished and other suitors sidelined, you are then left with the unattractive options of either accepting the inferior terms or walking away.

Here are seven things you can do—before you even put your business up for sale, and before signing an LOI—to minimize the chances of your deal dragging on for months and becoming watered down:

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 audited by a recognized accounting firm.

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.  If nothing else, you’ll alert the acquirer to the fact that you’re not willing to see the diligence drag out past the agreed-to close date.

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.

If you take all seven of these steps, you will protect the value of your business as the balance of power in the negotiations to sell your company swings from you to the buyer.

Why not find out now if your business is sellable?

This free online tool is the only no-risk step you can take to determine if your business is ready to get full value.  Fast-track your analysis by taking advantage of this free, no-obligation free online tool.

This Sellability Score you instantly receive is a critical component to any business owner’s complete financial plan and is something that, until now, we have only made available to existing clients.

However, we recognized that there is value in knowing in advance of working with a financial planner whether or not your largest asset is ready to be exchanged for your retirement nest egg.  Our view is that you are better to learn more about your businesses sellability today and find out how your business scores on the eight key attributes so that you can ensure you obtain full value.

If your business part of your retirement plan, finding out your sellability score will be the best 10 min. you could ever spend working “on” your business.

Take the Quiz here: The Business Sellability Audit

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners.  The show is also available to subscribe to for free via iTunes.

By: Scott Plaskett & John Warrillow

The other day I was speaking with a successful CEO in his fifties who runs a heating and air conditioning company generating eight million dollars in revenue and over one million dollars in profit before tax.

Even though he was tired and nearing burnout, he was planning to wait another five to seven years before selling his business because he “wanted to sell at the peak of the next economic cycle.”

On the surface, his rationale seems to make sense. If you speak with mergers and acquisitions professionals, they’ll tell you that an economic cycle can impact valuations by up to “two turns,” which means that a business selling for five times earnings at the peak of an economic cycle may go for as low as three times earnings at a low point in the economy.

The problem is, when you sell your business, you have to do something with the money you receive, which usually means buying into another asset class that is being affected by the same economy.

Let’s say, for example, you had a business generating $100,000 in pre-tax profit in an industry that trades between three times earnings and five times earnings, depending on the point in the economic cycle.

Furthermore, let’s imagine you sat stealthy on the sideline until the economy reached the absolute peak and sold your business for $500,000 (five times your pre-tax profit) in October 2007. You took your $500,000 and bought into a Dow Jones index fund when it was trading above 14,000.  Eighteen months later  – after the Dow Jones had dropped to 6,547.05– you’d be left with less than half of your money.

Even though you cleverly waited till the economic peak, by March 9, 2009, you would have effectively sold your business for less than 2.5 times earnings.

The inverse is also true. Let’s say you waited “too long” and sold the same business in March 2009. And because you were at the lowest possible point in the economic cycle, you only got three times earnings: $300,000. Notice that’s 20% more than if you’d sold at the peak and bought an index fund at the top of the market.

Just like when you sell your house in a good real estate market, unless you’re downsizing, you usually buy into an equally frothy market. Which is why timing the sale of your business on external economic cycles is usually a waste of energy.

External vs. internal economic cycles

Instead, I’d recommend timing the sale of your business when internal economic factors are all pointing in the right direction: employees are happy, revenue and profits are on an upward trend, and there is still lots of market share for an acquirer to capture.

When internal economic factors are pointing up, you’ll fetch a price at the top end of what the market is paying for businesses like yours right now, which means that – for good or bad – you get to use your newfound cash and buy into the same economic market you’re selling out of.

Wondering if you have a sellable business? The Sellability Score is a quantitative tool designed to analyze how sellable your business is.  After completing the questionnaire, you will immediately receive a Sellability Score out of 100 along with instructions for interpreting your results. Take the test here: The Business Sellability Audit