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8 Tips on How to Prepare Your Business for Sale

Posted: 25 Sep 2019 04:34 PM PDT

By Laura Babcock

Selling a business is complicated. You've put years of hard work into building up a company that is a significant part of your life. Maybe you also sunk a lot of cash into the business to help get it started and then again through all the rocky moments along the way.

Between your sweat equity and capital investment, you have an expectation of what your business is worth. So you want to sell. Cash out. Retire to Arizona or Florida. Never mind what your business tax returns show. You know what your business is worth. You deserve it! You've earned it!

Selling a business is also tricky because it can get emotional. This is your baby. Something you may have started from scratch and built into a thriving business. You're proud of your accomplishments, and you should be. You expect compensation for what you've created.

But what happens when no one wants to buy your baby? You think, "No one sees my vision, understands my passion," or you think they want an easy way into business ownership.

Have reasonable expectations

According to BizBuySell.com, only one in five of their business listings get sold. That either means there aren't many people looking to buy a business, or there are a lot of sellers with unreasonable expectations (in other words, overpriced businesses for sale). I'll put my money on the latter option.

Take Gerald for instance (all names have been changed). Gerald owned a paint store in a smallish town in southern Minnesota. He and his wife Evie owned and managed the store for thirty-plus years. Gerald had one key employee and would sometimes hire part-timers to fill in during busier times. The paint store had several customers who were regular clients, mostly painting contractors, who had done business with Gerald for years. Business was good. Life was good. Gerald and his wife owned the building that housed the paint store, they had put two sons through college, they vacationed in Florida, and they paid very little income tax.

But then Gerald and Evie had some serious health scares and decided it was time to sell the business. Neither of their sons wanted to take over so they contacted a business broker. They were excited. Gerald and Evie started looking into the cost of homes in Florida. They were sure the business was worth more than what a vacation home cost. Woo-hoo!

Then the broker asked to see inventory records and agreements with the paint supplier. He asked to see the deed on the building, financial statements for the last three years, and . . . ba-boom: tax returns.

Gerald asked if this was all necessary. Couldn't they base a sales price off their annual revenue? Sales were good. Anyone could come in here, own the business, and make a decent living. Why did it have to be so complicated?

Now, in Gerald's defense, he knew he wasn't the best recordkeeper, so he used an outside bookkeeper. Problem was, Gerald never took the time to understand what she was keeping track of. The records were confusing, and as the broker found out, incomplete. As for taxes, Gerald's tax preparer had for years suggested ways to minimize their tax liability by taking certain deductions. It was all legal, but it didn't make the business look profitable.

The broker explained that no one wants to buy a business that can't prove their profitability or at least the potential for profitability. And a bank won't approve a loan on a business that can't provide facts about the health of the business.

It's all about minimizing risk. You have to look at the facts and be realistic in your expectations of what you will get out of the sale.

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Early planning pays off

Depending on your situation, you may want to start planning several years in advance, particularly if your financial statements are shaky. And don't expect the offers to come pouring in once you list. While the median length of time a business is on the market is six months, be prepared to have your business listed for 12 months. And once an offer is accepted, plan on two to three months to close.

So if you're thinking of selling, here are some tips to maximize your chances of a speedy sale:

1. Price it right. Use a professional business appraiser or broker if you're having trouble pricing your business. Make sure your expectations are realistic and based on information you can prove.

2. Time it right. Sell your business when it looks the best. If you just snagged a big contract or received some great press coverage, that's a good time to list.

3. Get your financials in order. You will need to provide three years of financial statements including tax returns. Also, make sure there is adequate cash flow that will continue after the business is sold. It's also a good idea to ensure any current financing the business carries has reasonable terms.

4. Diversify. Make sure your customer base is diversified instead of just a few main clients. Likewise, make sure your revenue isn't coming from just one or two salespeople. Both scenarios could signal additional risk to a buyer.

5. Plan for how the business will be managed after the sale. Are you a critical figure in managing your business? Unless you're a one-person operation and the buyer has that same expertise, make sure there are key people in place who know how to carry on without you.

6. Keep your employees in mind. If you have employees, make sure all policies and procedures are in writing. You want to make sure that not only the business continues smoothly, but that the employee's expectations are kept. If the new owner wants to change things, fine. But at least the new owner will know what the employee expectations are if everything is in writing.

7. Document. Make sure all customer and vendor agreements, partnerships, contracts, and any other important negotiations or arrangements are in writing.

8. Look good. Just like selling a home, make sure your business has good curb appeal. Declutter, repair, clean, repaint, freshen up, etc. First impressions are huge. If your normal work mode is a desk stacked high with piles of paper, or worse, you operate within a personal tornado of chaos—clean up your act. Otherwise, a buyer will think that other areas of your business are just as chaotic and they may run the other way.

So you're probably wondering, whatever happened to Gerald? Well, there weren't multiple buyers beating down his door. Actually, there was only one. It came from Gerald's long-time employee, Steve, at the paint store.

Gerald was thrilled and even offered to finance the transaction. He and Evie could wait on purchasing their Florida vacation home, and besides, there were tax advantages with spreading the payment out over several years. Then Steve looked at the financials. Steve felt Gerald's asking price was too steep, and things fell apart from there.

Gerald still owns the paint store and Steve still works there. Their relationship is strained, and now Gerald's health is deteriorating. No one is sure what will happen to the store. It's an unfortunate situation that could have been prevented with adequate foresight and planning.

If you're looking to someday sell your business (every business owner should have a succession plan, but that's an article for another day), start planning now. It's not too early. With strategic preparation, when you're ready to sell you just might get the price you're asking for.

RELATED: Selling a Business? Consider These Valuable Lessons From Baseball Great Yogi Berra

About the Author

Post by: Laura Babcock

Laura Babcock has been involved in entrepreneurship most of her life, starting at age 6 when she began selling Kleenex tissues to neighbors—a penny apiece. Over the years other endeavors followed but nothing extremely successful, if you're judging success through a fiscal lens. If passion ensured financial triumph, Laura would be on a beach in Bali sipping piña coladas. But, alas, Laura learned that understanding marketing and financial management are key to a small business's success. So, when her last business closed after a seven-year run, she decided to go back to school and complete a bachelor's degree in Marketing Communications. For the last seven years, Laura has also worked for a nonprofit organization dedicated to helping entrepreneurs. Currently, Laura is a marketing consultant and fledgling copywriter.

Company: GetBetterContent
Website: www.getbettercontent.com
Connect with me on LinkedIn.

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Can Too Much Cybersecurity Be Bad for Your Small Business?

Posted: 25 Sep 2019 04:28 PM PDT

By Samuel Bocetta

If you run a small business, security is probably near the top of your priority list—and if it's not, it should be. Businesses are the most common targets for cyberattacks, and the consequences of having data stolen can be huge ever since the passage, implementation, and consequences of the GDPR (General Data Protection Regulation) in Europe.

Sometimes, though, your focus on cybersecurity can have detrimental effects on the rest of your business. This is due to two factors:

  1. While it's good to have dedicated ICT (Information Communications Technology) staff who are charged with looking after your cybersecurity, in a small business this staff (or “the IT guy,” if you run a very small business) can quickly become overburdened.
  2. Sometimes there can be such a thing as too much security. That shouldn't make you take your security any less seriously, of course; cybersecurity for small businesses is important. But it should stand as a reminder that you need to identify what threats your business actually faces, and prioritize defending against them.

Let's take a look at these two issues in more detail and then consider some solutions.

Everything is ICT

To understand how ICT staff can easily become overworked, consider the following question: how much of your business doesn't rely on ICT?

While we would always recommend having a dedicated IT consultant on your staff, whether they are contracted or employed directly, you should guard against the temptation to give them everything that has to do with computers. Doing that assigns them the responsibility for securing essentially everything the rest of your team does. Document security is an example of this. If you allow your staff to delegate this to a dedicated IT worker, they will quickly end up overseeing all the important information your business holds.

The situation is even worse where IT staff are charged with innovating new solutions as well as securing existing systems. Recently released research by Vanson Bourne for LastPass found that among their security objectives for the coming year, more than 50% of the 700 IT professionals who responded to the survey cited securing data (75%), securing new technologies as they’re adopted (68%), reducing risk (66%), and upgrading identify access management (65%).

That's a huge workload, and so it comes as no surprise that burnout is a common cause of staff loss for IT professionals.

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Security vs. agility

A second issue is that is that it is possible to have too much cybersecurity. Or rather, to have an inflated sense of the risks your business faces, and to enforce security policies that are too rigid.

This is an unfashionable—and perhaps dangerous—thing to say. But if you run a small business, there is a very real danger that adding new security protocols every month will stifle the innovation and agility that makes your business competitive.

This is particularly true when a business expands rapidly. If you find yourself adding new systems, databases, and staff every month, there can be a tendency to add new security measures just as fast.

As Network World puts it, "Every new policy should be balanced against the opportunity cost and competitive cost of that policy, but after a while it becomes about security for security’s sake, the reasons long forgotten, the compromises adding up to less flexible operating practices until security is slowing everything down."

This might sound like an excuse to become casual when it comes to information security, but it is not. Rather, it points to the importance of reassessing your business priorities at each stage of the journey.

The solution

The solution to these issues is to distribute responsibility for information security across as many staff as possible. In practice, this means providing rigorous training about the most common cyberattacks that affect small businesses and how to spot and avoid them. Will Ellis, Director of Research at of Privacy Australia, offers this insight: "Security should be a company-wide philosophy ingrained into every employee's frontal lobe. It's much too large a job to dump in the lap of one IT consultant or even a team."

A good example of this is phishing, which is still the most common form of cyberattack. If you fall victim to such an attack, the natural response is to try and patch this vulnerability at a tech level. You might ask your ICT staff to lock the computers of other staff members so that they cannot open suspicious-looking attachments in emails.

In practice, though, that's not a solution to the problem. It will quickly annoy and frustrate your staff, and ultimately limit their ability to adapt and innovate. Instead, all staff should be taught what a phishing scam looks like, how to avoid it, and the very real consequences such attacks can have on your business.

Creating a culture of cybersecurity is easier said than done, but in some ways small businesses have an advantage over larger operations. Staff can quickly share information and ask each other for advice when they see something suspicious.

Reprioritize

In short, it's easy for your (understandable) focus on security to quickly dominate all the other business priorities you have, either through giving your IT staff too much work and responsibility, or by imposing overly strict security protocols on your entire team. The solution is to reprioritize. Cybersecurity should be at the center of everything you do, but you should also realize that, precisely because of this, it is not a topic that can be dealt with separately from the rest of the business.

Instead of delegating security in its entirety to your ICT team, therefore, you should take care that every business decision is taken with an eye to its security implications. Rather than writing “security” at the top of your priorities list, include it in every other item on that list.

RELATED: What Does Your Business Stand to Lose in a Cyber Attack?

About the Author

Post by: Samuel Bocetta

Samuel Bocetta is a freelance journalist specializing in U.S. diplomacy and national security, with emphases on technology trends in cyberwarfare, cyberdefense, and cryptography.

Company: Samuel Bocetta Writing
Connect with me on Twitter and LinkedIn.

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3 Simple Ways Your Website Can Help You Earn Consumer Trust

Posted: 25 Sep 2019 04:20 PM PDT

Trust is something that's required in order for a brand to generate a loyal following. It's also something that has to be genuinely cultivated. In other words, trust can't be purchased or faked. And in a world where online interactions often characterize brand-consumer relationships, a company's website is one of its greatest resources.

Establishing trust online

Trust has and always will be an integral part of any relationship. Whether it's a romantic partnership, a platonic friendship, or an interaction between a brand and a customer, some element of trust must exist in order for that relationship to continue. But it's safe to say that, within the context of business, brand trust has become more important than ever before.

Today's customers have more options to choose from than they did even 10 or 15 years ago. Whether a customer is buying a pair of socks or a new car, there are dozens of brands to choose from. Customers will naturally flock to the ones that have their trust and respect.

"It's a global, 24/7 world that maximizes the offer of competition. But it can also be a confusing state of product and/or service credibility. Without trust, marketers are in fractured pursuit of customer engagement and customer loyalty," branding strategist Jaid Hulsbosch explains.

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There are plenty of platforms built for fostering trust. You can use social media, third-party marketplaces (like Amazon), PPC advertising, review sites, Google, etc. But as useful as these platforms are, they all have one glaring weakness: someone else controls them. If Facebook suddenly goes under, you no longer have your followers. If Google enacts a change to its algorithm, you could quickly plummet in the search rankings. If a review website decides they don't want to include your company anymore, it's perfectly acceptable for them to delist you. What you need is a trust-building mechanism that you control.

In the online world, there's only one asset or platform that you have 100% control over: your website. Nobody can tell you what to post, how to structure your content, or what rules to follow. You call the shots. This makes it the perfect platform for establishing and cultivating trust.

Every page on your website matters, but the homepage is the stickiest and most visible. It's recommended that you use it as your primary trust-building URL. Here are some ways to do just that:

1. Use a clean layout

Stop with the superfluous design elements that clutter up and bog down your homepage. If you're trying to do everything on your homepage all at once, you're doing too much. It'll only confuse and overwhelm people.

Cut the fat and use a clean layout. The UAKC homepage is a great example. Notice how they establish trust through high-quality imagery and minimal layout/design. They also include their core values of honesty, integrity, accountability, directness, and transparency at the bottom of the page. When combined with the streamlined design, this sort of high-impact copy makes a massive statement.

2. Use authentic images

"Horribly generic and formulaic stock photos are everywhere. While there's nothing wrong with using carefully curated stock imagery in the right places, it's much better to favor website visuals that look like they were actually taken of you and your team in real situations," marketing expert Ben Jacobson writes for HubSpot.

Hire a professional photographer for a couple of hours and have your team photographed. Take some headshots, but also ask for candid shots of your people in action. These images are worth their weight in gold. When properly integrated into your homepage, they provide visitors with a behind the scenes look at what your team is really like.

Marketer Melyssa Griffin's website offers a perfect example. She uses authentic images that show people her personality and character.

3. Serve the visitor

A good homepage is never selfish. Instead of serving your own needs, it exists to selflessly add value to the visitor. (Ironically, this indirectly benefits your business, too.)

Rather than post a bunch of selfish calls-to-action and intrusive pop-up boxes and opt-in forms, consider adopting a counterintuitive approach. Provide value by offering free content with no strings attached. Show that you care by giving away information that your audience needs. When visitors see that you genuinely care, they'll be more likely to trust you. You won't have any trouble monetizing this trust in the future.

Final thoughts

Trust is fluid. It's not something you earn once and then continually benefit from for years to come. You have to rebuild trust every single time you interact with a customer. Your website's homepage is just the start. Whether it's a podcast, billboard advertisement, or chance encounter with a client when you're having lunch with your family, make sure you're continuously prioritizing trust. It's the only way to get ahead in today's crowded marketplace.

RELATED: 5 Personal Branding Hacks Every Entrepreneur Should Know

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Hope for the Best But Expect the Worst: 4 Ways to Prepare for the Coming Recession

Posted: 25 Sep 2019 06:00 AM PDT

Revised and updated Sept. 2019

With the U.S. stock market on a roller coaster ride with daily swings of hundreds of points, and several of the world economies facing economic downturns (Germany, China, U.K., and others), economists are re-evaluating the chances of a U.S. recession in 2020. The latest signs of a potentially weakening economy were strong enough to help persuade the Federal Reserve to lower interest rates for the first time in a decade, with a second reduction of a quarter point in the works.

Despite record employment, there are signs that the U.S. economy is weakening and that an economic downturn—perhaps not at the recession level—is indeed approaching.

A protracted trade war between China and the United States and a deteriorating global growth outlook has left economists apprehensive about the end to the longest expansion in American history, now entering its 11th year. The recent rise in U.S.-China trade war tensions may be ushering in the next U.S. recession, according to a majority of economists polled by Reuters. Heightened tensions in the Mideast affecting oil supplies, including the bombing of oil facilities and tankers, accelerate economic instability. Brexit without a deal is forecasted to throw the U.K into an immediate recession.

Trade tensions have pushed corporate confidence and global growth to multi-year lows, and the announcement of more tariffs has raised downside risks significantly, Morgan Stanley analysts said in a recent note. Across the country, various sectors, such as agriculture, are already approaching recession levels, with farm bankruptcies increasing due to export issues with China.

Bank of America Merrill Lynch economists said they see odds for a recession at a 1-in-3 chance in the next 12 months, and Goldman Sachs economists lowered their forecast for fourth quarter growth to 1.8%, saying fears of a recession are growing because of the trade war. An August MSNBC poll of consumers indicated that 60% believe the U.S. economy is headed for a recession in 2020.

The spread between the 3-month Treasury bill and the 10-year note has been inverted, with the 3-month bill yielding about 35 basis points more. The benchmark 10-year note yield against the 2-year yield has been falling as global interest rates decline in a flight-to-safety play and on worries about economic growth.

A recent survey conducted by Duke University concluded that a recession was looking "likely." 82% of the executives surveyed are of the opinion that a recession will happen by the end of 2020.

But how can a recession happen when our economy is experiencing record GDP increases and we have full employment, and what could trigger such a downturn?

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Interestingly, a full-employment economy can contribute to the likelihood of a recession. Businesses that are labor constrained cannot grow as rapidly and can encounter a "growth ceiling." Political policies such as immigration curtailment will also affect the labor supply, further reducing growth. Additionally, half of the jobs held by workers in the United States pay less than $18 per hour, and the so called "working poor" have not benefited from the economic expansion. While consumers are still buying goods, credit card delinquencies are rising as consumers use credit to buy; at the same time other consumer debt delinquencies, such as student loans, are at all-time highs, approaching 11% of the outstanding 1.5 trillion dollars in student debt.

But what if the economy in 2020 begins to weaken, as the Duke survey predicts? Extreme pessimists are usually wrong—but so are extreme optimists. A downturn, caused by the natural ebb of the economy or by a shock such as a geopolitical crisis, is always a possibility, bringing back conditions we remember all too well from the years after 2008: declining revenues and margins, excess capacity, anxious employees, and restless investors. Even if a recession doesn't come to pass, your company might have its own downturn this year, caused by a new competitor or new substitutes for your products and services.

Why not start with a resolution to do some contingency planning for the possibility of a downturn later this year? Below are four steps to take to manage your way through a potentially very challenging period:

1. Manage profitability

Most companies have a relatively narrow margin for error. A 10% decline in revenue could wipe out the entire bottom line of your company. Having a contingency plan to produce marginal, short-term profit despite a drop in revenues can make all the difference.

Consider doing the following:

  • Develop forecasts based on optimistic, realistic, and worst-case revenue scenarios.
  • Formulate contingency plans. Make sure your top managers are on board with the plans and are ready to act quickly if revenues decline.
  • Agree with your management team on early warning signals, such as a shrinking back log, a downturn in customer-market indices, or a worsening sales pipeline.
  • Be willing to adjust discretionary spending at more frequent intervals; for example, quarterly, or even on a rolling basis.
  • Be ready to keep bankers and investors appropriately informed in case of a downturn and to communicate the actions you're ready to take to limit the damage.

2. Identify and maintain your strengths—and your best customers

Identify the strengths that have enabled your success to date, and those that will be important in the future. Which capabilities and skills are most critical? What distinguishes your ability to serve customers effectively?

Identify your highest-margin customers and understand what you are doing right for them. Develop a game plan, in the event of a downturn, to protect and build on the strengths that have allowed you to be indispensable to them. In the event of a dip in business, rather than cutting costs across the board, be ready to shift resources to retain these high-margin customers.

Continue to be creative in how you can add value for your customers without increasing your costs; for example, a professional services firm adds regular briefings to client executives to monetize its intellectual capital.

3. Be ready to decide what you can stop doing

Companies that create enduring value typically excel at discontinuing what no longer adds value. Be ready to make changes in cost structure that will least damage your strengths and will hone your value proposition down to what customers really value.

Comb through your cost structure to create a contingency plan for what you would cut. Identify what's inefficient; what's nice to have but dispensable; what's there because of history, inertia, or wishful thinking; what may have worked in the past but doesn't anymore; and what isn't creating value as it used to.

Realize the challenges you would face in cutting costs. Most organizations aren't adept at taking costs out quickly as revenues decline, and margins suffer. Even your most hard-headed managers will try to protect their own people first. As your company has grown, your operations have probably become more complex. Be ready to take a knife to any complexity that isn't compliance-required or value-adding. Consider outsourcing non-strategic company functions such as human resources, accounting, and even finance.

4. Manage liquidity as hard as profitability

A downturn might force you to deal not only with negative growth but also with liquidity constraints. Trying to maintain liquidity on a smaller revenue base can be crippling.

You would need a plan to turn over every balance sheet dollar faster to contribute to working capital. You'll need plans to:

  • Maximize cash flow by narrowing the timing between sales and outlays for costs you incur in advance, such as inventories.
  • Collect from customers faster. Consider offering discounts for paying promptly or require deposits from customers.
  • Take advantage of increased supplier willingness to share risk and to provide favorable terms.
  • Monitor your receivables against your payables and reduce your Cash Conversion Cycle days (time it takes for money to come in from customers against the days when your supplier payments are due).

Be ready to shrink to survive

The list of things a CEO needs to do to plan to survive a downturn is long and can seem daunting. You would need to avoid disassembling what has made you successful while accepting the necessity of shrinking it for the near-term. Managing through the crisis may require some skills that have been rusting in your managerial tool case.

In the event of a downturn, you'll no longer be insulated by growth. Disciplined decision-making will be essential. You'll need to lead with the right proportions of cost-conscious frugality and bold innovation.

RELATED: 7 Smart Steps to Protect Your Small Business

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