What is the value of your business? There are many ways to approach that question — based on complex formulas or just a good hard look at the balance sheet, but no answer based purely on numbers is going to be exactly right. Even factoring in that most popular of abstracts — goodwill — the true essence of an operation is not likely to be revealed.

To find the real value of a business, we must go to its very heart: the attitude, work habits, managerial style, customer/marketplace savvy, and community reputation of the person in charge. The business owner or manager is the final, and most cogent, indicator of business worth. Check out the following healthy signs, and then listen to the heartbeat of your own business and its leadership style:

Optimistic Attitude

Many business owners today are more pragmatic and take pride in being less of an “incurable optimist.” The owner of yesterday wasn’t afraid to follow the words of Willy Loman in Death of a Salesman: “A salesman has got to dream, boy. It comes with the territory.” A decline in optimism is an unfortunate trend. In a world driven by technology and scientific analysis, it’s easy to forget the importance of the right attitude. If business owners aren’t positive, how can they expect customers and employers to be? The owner who believes business is bad will probably not see it getting any better. Of course, there are always the real-life factors — banks that won’t lend, customers who stop buying, services that become obsolete. However, if these problems didn’t exist, there would be something else to keep the negative thinkers occupied.

How to project a positive attitude? Begin with the easiest. Sprucing up the place of business with fresh paint, newly-cleaned carpeting, well-stocked shelves, for example, will say a lot for the health of a company. Less visible, but highly important, is a positive outlook on the future of the business. Business owners should be prepared to spend what it takes to generate new business, and should take the time to explore new possibilities for long-range success. If the company currently has no mission statement or business plan, creating one will speak volumes abut owner’s enthusiasm for the future of the operation.

Healthy Managerial Style

In the modern workplace, where you can hardly see the business through the forest of “managers,” it’s good to get back to basics. Too often, owners get bogged down in busy work, or in “managing the managers.” They should occasionally take time off to work the floor, drive the delivery truck, sell the product. Owners who put themselves in the trenches are in touch with the business — and this first-hand understanding will be evident to anyone taking stock of the company’s worth.

An equally healthy approach to managing is preparing for contingencies. The owner’s style should include appropriate delegation of duties and a backup managerial plan in case of unforeseen calamity.

And finally, owners should project a general sense of well-being and energy. This may be easier said than done, but it’s important to note. Anyone taking stock of a business will draw a quick, and key, first impression from the very posture and tone of voice the owner presents.

Customer relations say a lot about the “heart” of a business. The business owner’s approach to handling customers sets the standard for everyone down the ladder. A healthy business avoids treating the customer like a number — or maybe worse, like a stranger. For example, successful big-time operations who deal with customers by telephone make it a point to ask for the proper pronunciation of a name, or request permission to use the customer’s first name. Added to basic courtesies is the sense that salespeople are happy to take the time necessary to answer questions and/or deal with problems.

Whether products and services are sold by phone or on the floor, employees should be well-versed experts on whatever they’re selling. Again, large outfits have established high standards to emulate; for instance, the outdoor equipment chain with salespeople who can not only fit hiking boots to a T (or a toe), but also know how to clean, weatherproof and care for the leather, vibram, or nylon of which the boots are made. Every hour spent training salespeople in the product pays huge dividends for the company’s long-term success.

Conspicuous Image

To foster the image of an on-going, healthy business concern, business owners need to keep their image prominent before the public. Advertising can build image at the same time it attracts business. Anything from a display ad within the yellow pages listings, to a monthly “home-baked” newsletter, to the offering of free seminars, can portray the business as more than just the sum of its products. An example of image-making at its best comes from the owner of a natural foods store in a metrowest Boston town. She not only produces her own monthly newsletter (with product information and coupons, plus general health articles), but she also sponsors evening lectures on subjects such as acupuncture, aromatherapy, women’s health, and children’s nutrition. What’s more, she offers free tours of her in-house cookie “factory” to local schools. The samples the kids take home are the best cost-per-inch ad value imaginable!

For the less adventurous, there are plenty of conservative ways to make ads pay. Every Saturday for years, the sports section of a Los Angeles newspaper carried a one-inch ad for the “Best Hamburger in Town.” No catchy phrases, no dazzling graphics, but the ad was there — and there — and there again. The consistency sold the restaurant’s product and its image and eventually, the eatery became a 10 plus chain.

Community Involvement

To further promote the business — and its owner — as a rock-solid and permanent part of the local scene, there are opportunities just waiting to be tapped. Taking an active role in the Chamber of Commerce, trade or service associations, or sponsoring worthy local events all lead to great public relations. In addition to the more traditional public donations — providing kids’ sports team uniforms, taking out ads in yearbooks — the business can band together to join walkathons, or volunteer to man the phones for public TV or radio fundraisers. Doing “good” makes the business owner and the employees feel good about themselves.

“Feeling good” is a good point at which to conclude our journey to the heart of a business. Dollars and cents will always be important in establishing value, but it’s a kind of people-sense that will give the truest reading.

Before answering the question, it makes sense to first ask why people want to be in business for themselves. What are their motives? There have been many surveys addressing this question. The words may be different, but the idea behind them and the order in which they are listed are almost always the same.

1.Want to do their own thing; to control their own destiny, so to speak.
2.Do not want to work for anyone else.
3.Want to make better use of their skills and abilities.
4.Want to make money.

These surveys indicate that by far the biggest reason people want to be in business for themselves is to be their own boss. The first three reasons listed revolve around this theme. Some may be frustrated in their current job or position. Others may not like their current boss or employer, while still others feel that their abilities are not being used properly or sufficiently.

The important item to note is that money is reason number four. Although making money is certainly important and necessary, it is not the primary issue. Once a person decides to go into business for himself or herself, he or she has to explore the options. Starting a business is certainly one option, but it is an option fraught with risk. Buying an existing business is the method most people prefer. Purchasing a known entity reduces the risks substantially.

There are some key questions buyers want, or should want, answers to, once the decision to purchase an existing business has been made. Below are the primary ones; although a prospective buyer may not want answers to all of them, the seller should be prepared to respond to each one.

■How much is the down payment? Most buyers are limited in the amount of cash they have for a down payment on a business. After all, if cash were not an issue, they probably wouldn\’t be looking to purchase a business in the first place.
■Will the seller finance the sale of the business? It can be difficult to finance the sale of a business; therefore, if the seller isn\’t willing, he or she must find a buyer who is prepared to pay all cash. This is very difficult to do.
■Why is the seller selling? This is a very important question. Buyers want assurance that the reason is legitimate and not because of the business itself.
■Will the owner stay and train or work with a new owner? Many people buy a franchise because of the assistance offered. A seller who is willing, at no cost, to stay and to help with the transition is a big plus.
■How much income can a new owner expect? This may not be the main criterion, but it is obviously an important issue. A new owner has to be able to pay the bills – both business-wise and personally. And just as important as the income is the seller\’s ability to substantiate it with financial statements or tax returns.
■What makes the business different, unique or special? Most buyers want to take pride in the business they purchase.
■How can the business grow? New owners are full of enthusiasm and want to increase the business. Some buyers are willing to buy a business that is currently only marginal if they feel there is a real opportunity for growth.
■What doesn\’t the buyer know? Buyers, and sellers too, don\’t like surprises. They want to know the good – and the bad – out front. Buyers understand, or should understand, that there is no such thing as a perfect business.

Years ago, it could be said that prospective buyers of businesses had only four questions:

1.Where is the business?
2.How much is it?
3.How much can I make?
4.Why is it for sale?

In addition to asking basic questions, today\’s buyer wants to know much more before investing in his or her own business. Sellers have to able to answer not only the four basic questions, but also be able to address the wider range of questions outlined above.

Despite all of the questions and answers, what most buyers really want is an opportunity to achieve the Great American Dream – owning one\’s own business!

After 3 successful years of a solo endeavor, I have moved my practice to Sunbelt Austin which was actually official in January, 2010. Laurel Johnson owner and managing director of Sunbelt Austin, has graciously welcomed me back. I started with Laurel in 2003 and brought my years of business ownership and sales and acquisitions of my own businesses to the table of experience.

Laurel’s tenure and tremendous 11 years of experience coupled with 7 years of brokerage experience from yours truly, brings in excess of 17 years of savvy representing Austin and Central Texas business owners.

The market is active with BUYERS looking for solutions. Now may be a good time to visit with Sunbelt about your exit plan, even if you think it is too early to sell. Yes, it may be…but you will be wise to prepare and maximize your value when it is the right time. Don’t be late! Call me today for no cost discussion about your options!

Times in Texas are interesting. On one hand, we have displaced executives with cash looking for solutions, and on the other the news about our economy is scaring the daylights out of buyers in the main street arena. Smart buyers that have courage to chase their dream realize this spells opportunity.

Sellers are faced with the need to step up and, in many cases, offer seller financing to get the deal done, as many owners are experiencing reduced revenue in Q1 of 2009 compared to 08′. The SBA lending restrictions recently of limiting the purchase allocation of “Goodwill” to $250,000, has certainly been another obstacle that is forcing sellers consider. My how the market has changed in such a short time.

CBA’s first objective is to search for the right buyer fit for our Clients. That includes a search attitude that stays positive in obtaining for the seller, cash at closing that is an amount acceptable to both parties, yet doesn’t squeeze the buyer to take unnecessary risk. A buyer that leaves the closing table skinny on cash is a time bomb ready to explode in the face of the seller. Not good.

Buyers can use Warren Buffett’s advice:
1. Turn off the stock market
2. Don’t worry about the economy.
3. Buy a business, not a stock
4. Consider building a portfolio of businesses.

So there you have it – solid advice that has worked for Warren Buffett. If you want to buy a business, focus on the long-term, not the immediate newsworthy trends.

If you’re selling, get everything on the table, warts and all, and make the process transparent for everyone.

Determining the value of a business is a complicated and intricate process. Even valuation experts have referred to it as more of an art than a science. Valuing a business requires the determination of its future earnings potential, the risks inherent in those future earnings, an analysis of its mix of physical and intangible assets, and the general economic and industry conditions.

A business valuation is not just for a business owner preparing for a sale. In fact, there are numerous business and legal situations that require a detailed valuation. First, a detailed valuation is needed when a seller is considering a merger, sale or acquisition, or a shareholder wishes to buy-out other shareholders. Second, government or judicial authorities often require a business valuation for legal matters such as shareholder disputes, divorce proceedings, eminent domain takings, employee stock ownership plans (ESOPs), S corporation election, or breach of contract disputes. Third, taxable events, such as estate and gift planning, or charitable giving also necessitate a valuation. Finally, a detailed valuation can help identify what’s needed to increase the value of the business, attract new capital, or project potential proceeds from an initial public offering (IPO). With this many potential situations requiring a business valuation, it’s important to have an up-to-date professional estimate of the value of your business.

Sale/Acquisition
A valuation can not only assist business owners in determining the value of their business, it can also help them maximize value when considering a sale, merger, acquisition, joint venture or strategic partnership. While the value of a business estimated by a professional valuation may not perfectly match the price for which the business is sold, having a professional valuation lends validity to the selling company. When a business enters negotiations with another company, a due diligence process begins that can be lengthy and exhausting. Without well-organized documentation of a company’s historical financials and future prospects, a business owner may end up conceding more to the purchasing company than originally intended. The valuation process will also assist a company in organizing these materials.

Legal Reasons
Certain legal matters will also necessitate a business valuation. Marital or business partner disputes, the establishment and management of ESOPs, eminent domain issues, the election of S corporation status, and minority shareholder actions all require that a detailed valuation be performed by recognized professionals. In some situations, the valuation must be based on specific standards of value established by law.

Taxable Events
Taxable events, such as estate and gift planning, also require a detailed business valuation. Unforeseen events can happen at any time, and it is important for a business to be prepared in case the detailed knowledge of an owner or key employee is suddenly absent.

Financing
A valuation is also an essential tool for a company looking to raise additional capital, through a private placement or an IPO, or if the company is considering a reorganization or change in strategy. A well-presented valuation gives a business more validity when approaching outside investors in an attempt to raise capital.

As the above examples illustrate, there are many situations in which a professional business valuation is a prudent and necessary process.

Jim Pringle
Owner, CBA

In a conversation today with an owner of a nice new (2 years in operation) retail store, the value opinion that I recommended was short of the owners expectation. When I him asked how he arrived at his number, the conversation turned immediatly to his vision of the future and how the that should add a premium to his selling price.

Unfortunatly, it is not practicle for a buyer to consider paying any sort of premuim for “potential”. In order to achieve that potential, the buyer must take the risk with his own capital and his own personal energy to make it happen.

Furthermore, a business must have potential upside earnings for a buyer to even consider the acquisition. A buyer pays “now” for what the business is currently producing (revenue and earnings) and what it has produced in the past. The more history, the better. In some cases, it requires a rosy future to get a deal done, especially on a small retail operation.

Your comments?

Yours,
Jim Pringle
Owner-CBA

Add Value To Your Business

If you’re like most small business owners, you started a business because you have knowledge and skill in a particular industry, and wanted more personal freedom. Its also likely that you started without a clear vision of the business you were going to build, and continued to practice your profession with the trappings of your business assembled around you. As your business grew, your responsibilities grew in parallel so that now, in addition to your original trade, you are also responsible for human resources, sales and financial management.
E-Myth advocates off-loading these responsibilities to well-documented systems, and recommends setting the strategic goal of adding value to your business. Your business’ value is dependent on long-term profitability, and you need thoughtful strategies to be successful.

The Owner’s Two Roles

A small business owner is an investor and also the CEO. From a financial perspective, the owner is an investor who wants a positive return on invested money, time and work effort applied to the business. The CEO has a professional and fiduciary responsibility to shareholders to profitably grow the business.
While both roles want overall success, conflicting short-term interests may certainly occur. An investor may become impatient, and want more money from the business as a return on investment. This reduces the amount of capital which would be available to the CEO to build additional business infrastructure.
Its useful to recognize the two roles, to be aware that long-term objectives are the same, and to make decisions that take both perspectives into account.

Maximize Value

Maximizing the company’s value should be a central goal as it serves the needs of all involved parties, including investors, managers, employees and customers. To obtain maximal business value, an owner should objectively answer the following questions when implementing business strategies;

Optimize The Owner’s Investments

Ask yourself ‘How can I achieve the greatest return on my money, time and efforts? ‘ Answer as if you had no personal connection to the business.

Optimize Revenues

Ask yourself ‘How can I create new revenue opportunities and improve profitability of current revenue streams?’ Answering ‘more sales’ is obvious, but factor in an optimal balance of total revenue and profit so that each revenue dollar generates maximum profit.

Acquire Appropriate Debt

Borrowing money can provide you with needed capital and doesn’t dilute your ownership percentage. If you are considering raising capital by bringing in other investors, be sure to evaluate low-rate loan instruments as well.

Systemize Your Operations

Creating systems to manage your business has value beyond operational efficiency. Documented systems support a consistent customer experience, facilitate employee training, define standard operating procedures, and add inherent value to the bottom line.

Minimize Expenses

Money not spent goes directly to your cash reserves. Look for ways to save on production, distribution, advertising and customer service.

Minimize Taxes

A good accountant will do more than prepare your tax returns; she will explain the tax implications of your business strategies and decisions, reduce your tax exposure, and become an invaluable asset to your business.

Expect The Unexpected

Have necessary insurance coverage in place and set aside an emergency cash reserve so that unforeseen events don’t take the company down.
Focus on fundamentals that add real value to keep your business resilient in the face of changing economic conditions.

Completing DD is influenced by two factors, tasks and time. When the Buyer has signed off on all tasks, regardless of whether the allotted time has expired, you must ask if the Buyer is ready to open escrow. If the Buyer agrees, convert the DD Checklist into an “Acknowledgement of Due Diligence Completion” document, have the Buyer sign off that DD has been concluded and they have reviewed and accepted everything. Keep that document in the file, in case you need it.

In summary, your chances of closing more deals are directly affected by how well you manage the DD process. That process is best handled by an experienced intermediary/broker.

Burnout can come with a business that’s successful as well as one that’s failing to grow. The right time to sell is before the syndrome becomes a threat to the effective management of a business. What are the warning signs of burnout?

That isolated feeling. The burnt-out owner has been “chief cook and bottle washer” for such an extended period of time that even routine acts of decision-making and action-taking seem like Sisyphean tasks. These owners have been shouldering the burdens alone too long.

Fuzzy perspective. Burnt-out owners are so close to their work that they lose perspective. Prioritizing becomes a major daily challenge, and problem-solving sometimes goes no further than the application of business band aids that cost money in the long run rather than increase profits.

No more fun. Of course owning a business is hard work, but it should also include an element of enjoyment. The owner who drags himself or herself through every day, with a sense of dread–or boredom–should consider moving on to a fresh challenge elsewhere.

Just plain tired. Simply put, many business owners burn out from the demands placed on them to keep their companies operating day after day, year after year. The schedule is not for everyone; in fact, statistics show that it’s hardly for anyone, long-term.

The important point here is for business owners to recognize the signs and take action before burnout begins to hinder the growth–or sheer survival–of the business. Many of today’s independent business owners feel they’ve worked hard, made their money and sense that now is a good time to “cash-out” and move on.

Will you cash out? Or burnout?