Selling Your Business

Many business owners today fail to have a succession plan in place.  When it is time to enjoy the fruits of your labor, most business owners decide to put their business up for sale.

Here are a few things to consider before selling your business:

1. Have Independently Verified Books and Records Ready for Review

Buyers want proof of the sales and profits that the business has made in the past. And they will trust the information more, and critique it less, if the information is independently verified. This will also increase the number of potential buyers.

2. Price It Right

 

A business owner's natural tendency is to overprice their business. It happens all the time. While the price might look good to the owner, interested buyers won't express interest. They don't want to spend time negotiating down to a price that is more reasonable so overpriced businesses will sit on the market a long time and, perhaps, not even sell.

Due to this, it's best to involve others when setting a business's sale price. The term "others" could include additional executives from within the company, it could involve the company's trusted accounting firm or it could seek the expertise of business brokers who know how to value a business. Should an owner seek any outside professional service to value the company, there will be a cost. Most likely, the cost will be more than made-up for with a quick sale at the right price.

3. List Furniture, Fixtures, and Equipment

Buyers will want a complete list of equipment and will inspect it to ensure that everything is in good working order. Take the time to do these inspections prior to selling a business. Polish things up, have maintenance and repairs complete prior to putting a business on the market. This will give a prospective buyer less leverage for negotiating when the time comes.

4. Obtain a Professional Third Party Valuation

No one wants to spend unnecessary money when they are preparing to sell a business. But the facts on investing in the services of a business broker to independently value a business cannot lie. According to a recent study, companies that utilize a third party valuation when selling a business have an 80% chance of selling at a higher price. Those that do not choose to use a valuation not only miss out on a higher sale price, they reduce their risk of selling at all. The same study concluded that organizations that don't use a business valuation or mergers and acquisition services only stand a 17% chance of a sale.

5. Offer an Attractive Lease

Buyers will want a quality lease on the business's space. Whether the existing lease is assigned or a new lease is drafted, make this an attractive aspect of the deal.

6. Great Appearance 

Nice looking businesses sell first! Buyers deduct large amounts from their offering price for businesses that are in less-than- top shape. Keep the premises neat, clean and in good repair. And if it's not, clean things up before going to market.

7. Sign a Covenant Not to Compete with the Buyer 

A legitimate concern for buyers is the possibility that the previous owner may become a competitor of theirs after the business sells. Offering to sign a non-compete that includes an appropriate limit on the proximity and timeframe of such competition is appreciated buy buyers and is also considered a reasonable within business negotiations.

8. Have a Good Reason to Sell

Cautious buyers will want to know why the business is being sold; primarily because they want assurance that there is nothing wrong with it. Rather than hope such a topic won't come-up, address it first and have a good answer ready. Even if the reason notes some business troubles, the buyers will appreciate up-front honesty and can proceed in discussions knowing their dealing with an honest owner.

9. No Surprises!

Give interested buyers ALL the facts up front. Most negatives can be overcome if known by all parties from the beginning.  

Lessons to be learned-The Petraeus Affair

The unfolding scandal involving General David Petraeus is not confined to the upper echelons of the U.S. military -- it also has been a recurrent drama in the corporate world, felling top dogs at dozens of companies from Hewlett Packard to Lockheed. Yet while the sexual proclivities of top executives pose a risk to corporate value, rather than to national security, such scandals have common themes -- and similar lessons, experts say.

Aside from ordering chastity belts for corporate chief executives and generals, what can be done to reduce the chance that an indiscretion will damage an organization? Here are five lessons of the Petraeus affair, along with five measures that companies can put in place to avert similar scandals or mitigate the damage that existing indiscretions might be doing now.

Power corrupts; Absolute power corrupts absolutely. This statement is no less true today than it was when first muttered by Lord John Emerich Acton in the 1800s. Understanding this basic tenet of human nature is why the U.S. government is set up with three distinct branches, each of which provides a check on the others. It's also why corporations are supposed to have powerful and independent boards of directors who can actively oversee top managers, says Paul Hodgson, chief research analyst at GMI Ratings, a corporate governance research firm.

"Power is an aphrodisiac," he says. "Part of the problem is that the power that's given to the president or CEO gives them the impression that rules that apply to other people do not apply to them. Reduce that power and you reduce those problems."

The key here is oversight. Every company needs to have an active, independent chairman of the board who is in no way beholden to the CEO. That chairman needs to be empowered to gather information about what's going on in the organization from sources other than the CEO. And he or she needs to be both able and willing to issue warnings when problems are minor and punishment -- including termination (with the approval of the rest of the board) -- when they become significant.

It's lonely at the top. Top leaders often become isolated from the rest of their organizations, sitting in expansive offices, surrounded by other corporate executives who are either too like-minded or too fearful to provide a dissenting opinion. "Leaders don't have enough confidantes who are willing to say to them, 'What the heck are you thinking?' " Says organizational culture expert David Gebler, author of "The 3 Power Values: How Commitment, Integrity and Transparency Clear the Roadblocks to Performance."

Corporations can and should set up a system where leaders hear "devil's advocate" opinions, whether that's from members of the board or members of the staff, Gebler adds. If necessary, they should designate a member of the staff to prepare and present a dissenting view just to get the conversation going. "Whether it's Elliot Spitzer or David Petraeus, if they had somebody saying 'what are you thinking?', I think they would have been better able to fight the temptation."

Risk takers take risks. One reason why many corporate leaders in high-profile positions seem to take chances with their personal lives is because the creative problem-solvers who land in top positions tend to be risk takers by nature. Taking risks can lead to great success, but the more successful risks an individual takes the more likely he or she is to fail to recognize risk as risk, says Beverly Flaxington, a career advisor and author of "Understanding Other People: 5 Secrets to Human Behavior."

Wise organizations couple creative problem-solvers with practical mentors or confidantes, who can point out flaws in a leader's thinking before it's too late.

Delay magnifies problems. A leader must be the role model for all employees, Gebler says. When he or she doesn't live by the rules, it creates a trickle-down effect that spreads impropriety throughout an organization. Moreover, employees may see a lack of personal integrity on the part of the CEO as something that eventually affects them, reducing their loyalty to the company. "People begin to wonder, if a leader can treat loved ones like that, how will he or she treat us?" he says. "Without trust, a leader has no authority."

When board members discover a problem, they must act quickly and decisively, adds Hodgson. "You need to have a strong board and clear rules that are consistently enforced," he says.

Humility protects. If power corrupts, a little humility can help protect an organization, Flaxington says. Some companies require executives to occasionally leave their top-level jobs and spend a day or two on the front lines -- answering phones, waiting on customers, working the factory line. These programs not only help the executive see what the average worker confronts each day, but also can provide a better perspective on his or her role in the company. And it can foster better communication between rank-and-file employees and the executive suite.

Should business owners want to create jobs?

In an Inc. Magazine article on the hot-button topic of job-creation, by veteran entrepreneur and contributing editor Norm Brodsky, Brodsky's position is that, while he and all good business owners are happy when they can give people jobs, creating new jobs isn't -- and shouldn't be -- a goal. I'm a long-time fan of Brodsky and his down-to-earth advice, and an admirer of his tremendous business accomplishments. But I don't fully agree with his argument, or at least the way he frames it.

In his piece, Brodsky focuses on job-creation as it relates to overhead and productivity. He says "no one operates a company with the goal of maximizing labor costs," and of course in that regard he is right. We business owners naturally want -- and are generally obliged -- to generate the highest possible return on every dollar we spend. That means getting the most we can out of our real estate, machinery and people. Certainly no one has "increase rent" as a business goal, and Brodsky is saying the same thing in his labor cost argument. He is looking at the expense angle (the very conservative approach with which I almost always agree), rather than the investment view of hiring.

Let’s look at it a different way, and I don't think it is semantics or nuance. To my mind, creating jobs is a legitimate and even important goal, based on the reasonable assumption that a good businessperson knows not only what is best for the business today, but also what will make it grow tomorrow. All businesses are limited by their available resources, with money and time (people) being at the top of the list. For most, growth beyond a certain point requires more of both.

An article, “Veterans' unemployment -- a national disgrace 6 keys to your employees hearts” Google pays dead employees - can you beat that?

Going back to the rent analogy, no business owner wants to increase his occupancy costs when all other things are equal. But many dream of a bigger factory, warehouse or office that will allow them to increase capacity, offer new products and services, and otherwise take them to the next level. Yes, it's a chicken-and-egg thing: It's incumbent on us to do the most we possibly can with our existing resources, yet those resources also create limitations.

As Brodsky says, we must "constantly search for ways to maximize the productivity of the people we have, rather than adding to head count." Again, he's right if you look only at today's results. But if you know (or at least believe) that adding a new sales manager, shift supervisor or driver will put your business in a different, better place, creating those jobs should be a very real goal.

Some people will say I am confusing a want with a need -- in other words, you hire people because the growth of the business requires it; "backfilling" rather than "paying it forward," if you will. But the two aren't mutually exclusive. Yes, on a day-to-day basis you should try to hire optimally, in sync with your business, and maybe for some businesses that's enough. I fully respect Mr. Brodsky's financially disciplined argument and his acumen, and his successes speak for themselves. But sometimes it's wise not to count every single bean.

For many of us, having job creation, as a goal is not altruistic, it's critical. How many small business people have said "if I only had someone to..." knowing that creating that new job would make new things happen, open new doors. I can't hire people every day, but not a day goes by that I don't want to, and I assure you it's not because I want to make less money.

Adding employees is unquestionably a double-edged sword. On one hand, it is a risk like any other investment: If the employee doesn't produce results that justify the hire, productivity is diluted, and her job (and perhaps others) may not last long. Turnover is painful and expensive. But on the other hand, making the right forward-looking hires at the right time, and accepting the initial overhead impact, can be critical to growing your business, so I submit that creating new jobs can and should be a legitimate business goal.

I could get into much broader, philosophical arguments, like the long-term value of helping to grow the consumer base by putting money in people's pockets. Hiring supports a healthy business "ecosystem" for all of us, and unemployed people don't buy what we sell. But that's a very big and very different discussion.

Finally, though you won't find it in any business book, I think that as long as your business is healthy and can meet its existing responsibilities, creating jobs is, well, good karma. It's one of the great privileges and rewards of owning a business. And even if you don't buy the "what goes around comes around" angle, you should know that the value of hiring goes beyond getting more work done. It also contributes to a positive culture and reputation, and it's good PR, all of which have very real worth.

Oh, and boy, does it feel great to give someone a job when you can?

Attitude of Great Leaders

The most common feedback I get about my management counseling, is, "I thought this was going to be garbage, but I was surprised -- it's really good!" People say that as if they have given me a great compliment. But such faint praise is actually a serious personal criticism, and one every we all need to take seriously.

Would a surgeon feel about good a patient telling them: "I assumed you didn't know what you were doing, being a surgeon and all, but you correctly removed my gall bladder, not my left leg!"

Except that the critics are right. Most of what passes for leadership advice is fluff -- platitudes, repackaged conventional wisdom and broad principles that lack any rigor.

Prove your worth

In one sentence, here's how to become a better leader and make your organization more effective: Do what the evidence says to do, and then go beyond what's known and imagine what's possible.

I'm an empiricist (in the same way some people are Republicans or Democrats). That means I make decisions based on data, not just on what others are doing, not on philosophy or intuition, and definitely not on what most people are doing. If the data says an action will get a better result, empiricists try their best to do it.

When leaders become empiricists, they are guided by all available evidence, letting that data tell them the right thing to do. When they reach the edge of the cliff of what is known, they jump off, creating visions or futures of what can be. The result is great companies, like Agilent Technologies, Intuit, or Edwards Life Sciences-- all companies that have impressed me with their focus on empirical decision-making.

What often surprises people in "empirical leadership" sessions is that there is an emerging new way to lead. It doesn't require believing anything other than empirical data. It gets better results than what's dominated the field for the last century. Employees love it, shareholders enjoy the benefits and the methods delight customers.

Ignorance isn't bliss

The problem is, we don't do it. Here's what typically happens instead:

We hire people based on the number of years of industry experience they have, and then wonder why our company is just like our competitors. We tell people to be inspired by the company vision, when they had no role in setting it and will never be asked their opinion about how to make it better. We ask employees to do as they are told and to feel empowered while doing as we tell them -- and wonder why they think executives aren't very smart.

We ignore learning styles when we put people in jobs, and then try to figure out why people are always scrambling to catch up. We focus people on bringing their weaknesses up to the company standards instead of building on our strengths, and wonder why our company isn't best in class.

We learn what our competitors are doing (called "best practices") and do the same, and scratch our heads about why we aren't leading our fields. We work sitting down rather than moving around, and complain about the 3 p.m. energy drain. We discourage power naps.

We praise employees who respond to email in minutes, almost guaranteeing that people aren't thinking about the long term. We tell people to add more responsibilities without giving them someone to offload some of what they're doing, and wonder why they aren't thrilled with their increase in responsibilities.

Company vending machines are filled with products that make employees obese and slow thinking. We have corporate retreats where the executives lecture from Power Points, rather than engage in discussions.

We issue orders (like "fly coach"), while executives fly first-class and hope no one notices. We reward our top performers with a raise that is barely above the average, and can't figure out why we have a motivation problem.

We hire for skills, not values, and then wonder why we don't have good teams. We make decisions about what companies to acquire based on strategic or operational synergies, ignoring culture, and then wonder why the two groups don't integrate.

We tell people how they're doing in the same conversation that we ask them how they'd like to develop, and can't figure out why they aren't more passionate about their personal growth.

We hire consultants to tell senior management what most employees already know. We elevate decisions to the highest possible level, and wonder why we have organizational cultures where people don't think for themselves.

We tell people it's safe to fail and fire those who don't hit their numbers when they try something new. We turn culture and values over to the human resources department rather than the CEO owning the effort, and can't figure out why no one takes the effort seriously.

Where the evidence leads

Now here's what we shoud do if we implemented what the evidence says to do:

We'd turn control of the company over to the values that the employees share. This would mean starting with the employees we already have, and discovering what principles, for them, "without which, life wouldn't be worth living."

We'd seek places in the market where our values and strengths would give us the ability to earn high margins and win the loyalty of great customers.

We'd find intersections among what we're uniquely good at doing, our values and those needs for which people are willing to pay a premium.

We'd hire only people with both the skills for the jobs and the values that match the employees we already have. CEOs would own "organizational culture" in the same way most own EBITA (earnings before interest, taxes and amortization).

We'd make decisions based primarily on cultural alignment, not just on opportunities for integration through cost cutting. Companies would run experiments, in which the goal was actionable insights, and we'd turn that learning into the next decisions we make. Decisions would be made at the lowest possible level, and closest to the customer.

We'd build loops of communication from the customer to the people making decisions, so that each decision becomes more informed, faster and brings us closer to maximizing our potential as a company.

If leaders were empiricists, this description would be normal. So why isn't it? Two reasons. First, what passes for "leadership training" often amounts to personal philosophy, platitudes and motivational speeches, rather than practices grounded in evidence Second, the change needs to start at the top. Most of the CEOs I know are empirical leaders, and their companies are almost always considered best in class.

Empirical leadership should extend to our personal lives, as well.