Friday, September 14, 2012

Seven Reasons to Sell Now

It seems like we’re at a fork in the road: there are some positive signs that the economy is entering the earliest stages of a long term expansion, but at the same time, if we dare read the headlines, it seems we’re destined to repeat 2008.

It’s precisely because we’re at this inflection point that we see a lot of business owners thumbing the eject button. If you’ve been thinking of selling your business, here are seven reasons to get out now:

1. You’ve lost the stomach for it

A lot of business owners took The Great Recession in the teeth. If you’ve got your business stabilized and the prospect of fighting through another recession leaves you panic-stricken, it’s time to get out.

2. The worst is behind you

Let’s say you were mentally getting ready to sell back in 2007. Then 2008 hit, and 2009 was your worst financial year in recent memory. You cut everything you could in 2010, showed a profit in 2011 and now you’re starting to see some profit and revenue growth.  With your numbers going in the right direction, now might be just the right time to get out.

3. The tax man is coming

Governments around the world are looking for money to fund the cost of an aging population.  In the U.S., the capital gains tax rate is set to go up after 2012.

4. Nobody is lucky forever

If you’re lucky enough to be in a business that actually benefits from a bad economy, congratulations. You’ve probably just had the three best years of your business life. But no cycle lasts forever and right now may be a great time to take some chips off the table.

5. The coming glut

As a business owner, demographics are not on your side. As the baby boomers start to retire, we’re going to have a glut of small businesses come on the market. That’s great if you’re buying, but if you’re a seller, you may want to get out ahead of the flood.

6. The closing window

It’s been tough for private equity companies to raise money since 2008; so many firms had their last successful round of fund raising in 2007. Many of these funds have a five-year window in which to invest; otherwise they are required to give the money back to the people who gave it to them. Some boutique private equity firms will make investments in companies that have at least one million dollars in pre-tax profits (larger private equity firms will not go below $3 million in EBITDA); so if you’re in the seven-figure club, you could get a bidding war going for your business among private equity buyers keen to invest their money before they have to give it back.

7. A good time to be liquid

The stock market has been swinging wildly lately which is why it would be nice to get liquid. With cash in the bank, you will be able to take advantage of a fire sale on the stocks of good quality companies should the market sink.

If you feel like a gambler at a blackjack table with everything riding on the outcome of one hand, it may be the right time to take a few chips off the table.


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Wondering if you have a sellable business? Contact the MAXIMA Group for a consultation. We focus on privately held companies with annual revenues of $3 million to $60 million. We also advise larger public and private companies on buy-side engagements. 

Friday, September 7, 2012

Planning to Sell? How to answer THE most important question


Many business owners believe the act of selling their business is similar to passing the baton in a 400 metre relay: once you’re finished running, you get to relax.  In reality, buyers will insist that you stay on for a transition period – anywhere from six months to five years – during which time you continue to work in your business to help the buyer capitalise on the investment they’re making.

 THE Question

At some point in the process of selling your business, a prospective buyer will ask you – usually quite casually – “Why do you want to sell your business?” These eight seemingly innocuous words have derailed more deals than any others.

Buyers ask the question to evaluate how likely and willing you are to stay on or if you already have one foot out the door.

Obviously you don’t want to lie, but there is a right and wrong way to answer the question. Answers like “I want to slow down a bit” or “I want to travel” or “we’ve got a baby on the way and I want to spend more time at home” communicate to a potential buyer that you plan on winding down when they take over. However, what they want to hear is your intention to help them realise the potential locked inside your business.

Here are some suggested responses based on your age:

If you’re under 40, you clearly aren’t ready to “retire” so you need to communicate that you see an upside in merging your business with theirs:

“In order for us to get to the next level, we need to find a partner with more <insert sales people, distribution, geographic reach, capital or whatever the partner brings to the table>.”

If you’re between 40-55 years old, most people will understand the need to shore up your personal balance sheet:

“I’ve reached a time in my life where I want to create some liquidity from the value I’ve created so far, and at the same time I want to find a partner who can help us get to the next level.”

If you’re over 55, you can start to talk about retirement, but you want to make sure you communicate that you still have lots of energy and passion for your business.

“I’m at a stage where I need to start thinking about retirement. It’s a long way off yet, but I want to be proactive.”

Rehearse your answer to the question so it becomes a natural response when you are inevitably asked by a potential buyer. 


Wednesday, September 5, 2012

Prevention is better than cure


To grow a valuable business – one you can sell – you need to set up your company so that it is no longer reliant on you.

This can be easier said than done, especially when, like a PR consultant or plumber, what you are selling is your expertise.

To scale up a knowledge-based business, you first have to figure out how to impart your knowledge to your employees, so that they can deliver the goods. However it can be difficult to condense years of school and on-the-job learning into a few weeks of employee training. The more specialised your knowledge, the harder it is to hand over work to juniors.

The key to scaling up a service business can often be found by offering the service that prevents customers from having to call you in the first place. You have to shift from selling the cure to selling the prevention.

Fixing what is broken is typically a hard task to teach; however, preventing things from breaking in the first place can be a far easier task to train others to do.

For example, it takes years for a dentist to acquire the education and experience to successfully complete a root canal, but it’s relatively easy to train a hygienist to perform a regularly scheduled cleaning.

It’s almost effortless for an estate agency manager to hire someone to clean the gutters once a month, but repairing the flooded basement caused by the clogged gutters can be quite complex.

For a master car mechanic, overhauling an engine that has seized up takes years of training, but preventing the problem by regularly changing a customer’s oil is something a high school student can be taught to do.

For an IT services company, restoring a customer’s network after a virus has invaded often takes the know-how of the boss, but preventing the virus by installing and monitoring the latest software patches is something a junior can easily be trained to do.

When you’re selling your expertise, it can be tough to hire a team to do the work for you. As ironic as it sounds, sometimes the key to getting out of doing the work is to offer a preventive service, which not only maintains your business income, but also eliminates the need for someone to call you in the first place.