Top 5 Questions To Ask Before Starting Your Own Business

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No matter where you are or who you are talking to, it seems many people would like to own their own business. People feel that if they owned their own business it would be great because they could make their own hours, or never be told what to do again, or my personal favourite, they feel they could retire early.

As the owner of my own business with more than 30 years of business experience, the last decade of which has been focussed on providing coaching and business advice to small and medium sized businesses, I can tell you there are many wonderful benefits for owning your own business, but business ownership is not for everyone.

Before deciding if owning a business is the right choice for you, you’ll need to take stock of where you are in your life and what type of person you are. Here are a few questions you might want to ask yourself which will help you determine if this is the right course for you.

  1. What stage of life are you in? The income you need will depend on whether you are single or have a family to support. A new business may not provide you with the income you need for more than 6 months and sometimes longer.
  2. What business experience do you have? If you’ve had a successful career in the corporate world you have knowledge and skills that will be useful in your business. You can still succeed without any previous business experience, but be prepared to face a steep learning curve.
  3. How do you feel about risk?  Are you totally risk-averse, or can you tolerate at least a low to medium level of risk?  If you lost money or a key account would you be able to bounce back? How do you handle investment losses?
  4. How do you feel about making decisions? As a business owner you will be required to make decisions on a timely basis and sometimes with only partial information. Some of those decisions will turn out to be wrong. Can you accept responsibility for these errors and take the actions necessary to correct them?
  5. How do you feel about sales?  Sales are probably one of the most important aspects of any business, but yet I regularly meet business owners who feel they should have no responsibility for sales in their business. It will be very difficult to start your business without making cold calls, presentations and pitches.  Can you stand in front of people you don’t know and tell them why they should buy what you are selling?

In the coming weeks, I look forward to sharing some advice, tips and industry insights on issues to consider if you are thinking about starting or opening a business.

How About You?
Are you thinking about venturing into the world of business ownership?  If so, what types of questions do you have on your mind?  I look forward to hearing your stories in the comments below.

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Signing A Letter of Intent – Are You Prepared? Part 1 of 2

contractIn dealing with business owners, I find that many of them wait until the last minute before thinking about selling their business, either because they are too busy, or simply too attached. In my experience, it is never too early to understand what the process of selling your business involves.

We all understand the basic concept of negotiating leverage through our day-to-day interactions with others, and it is important to understand that when selling an attractive business, you also have leverage – but only to a point. When you sign a letter of intent (LOI), the balance of power in the negotiation shifts significantly over to the buyer’s side, who now can then take their time investigating the company and exercise their due diligence.

The longer they take, the more likely you are to become committed to selling your business. A savvy buyer knows this, and can drag out diligence for months in a bid to justify lowering their offer price or demanding better terms.

Left with little leverage and other suitors sidelined, you find yourself with an unattractive deal or the choice to walk.

If neither of these options sound attractive to you, you’ll want to prepare your business before you even decide to sell.  If you’re wondering just how you can do this, stay tuned to part 2 of this post next week for the answer!


8 Questions You’ll Be Asked When Selling Your Business

question_mark_iStock_000011860969XSmall_0With almost 40 years of business experience and the last decade providing coaching and business advice to small and medium sized businesses, what I have found is that one of the most intimidating aspects of selling your business can be facing the barrage of questions you’ll be asked by potential buyers.

Being prepared to be asked about all facets of your operations is key to selling your business, so I would like to share with you the top eight questions potential buyers want to know about your business.

1. Why do you want to sell your business?

We addressed this question in our blog post last week, and it is worth reading for a more detailed answer. Basically, 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.

Although there may be hundreds of questions potential buyers might ask, if you can answer these eight, you’ll have a good start when you’re preparing to represent your company.

How About You?
If you are preparing your business for sale what types of questions have you been asked by potential buyers?  What would you say is the number one question you have been asked by an acquirer?

I look forward to hearing your stories in the comments below.


Planning to Sell? How to Answer THE Most Important Question

question-mark-quizzes-19322071-566-848At 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?” As a business advisor to SMB owners, I have personally seen these eight seemingly innocuous words derail more deals than any others.

Why?  Although THE question might seem to have a straightforward answer it needs to be more strategic than you might think.  Buyers want to know where you are at in the selling process, what your motivation is and how likely and willing you are to stay on and 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.

Knowing that what they want to hear and how to provide them with an answer could mean the difference between selling your business and a possible derailment of the deal.

I have outlined below a few suggested responses to THE question which will allay their fears that you plan to sell your business and move on as well as solidify help them realize the potential locked inside your business.  I have outlined my tips based on your age as age does play a role in the selling of your businesses.

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 a potential buyer inevitably asks you THE question.

How About You?
I am always interested in hearing from you. Have you been asked THE question? Do you have any other suggestions for responses that you have personally tried?

I look forward to hearing your stories in the comments below.


How To Get The Most For Your Company

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A few weeks ago, TAB York Region hosted an event featuring a presentation from Ross Campbell and Stuart Morley, Managing Directors of the MBO Group Inc., entitled “How to get the most for your company – a buyers perspective”.   The presentation highlighted some of the issues that drive the valuation of a company from a buyer’s perspective.

Whether you are planning on selling your business in the near future or 5, 10 or even 15 years into the future, you’ll need to prepare your business for sale and part of that is assessing and evaluating your business as it stands today.  As a business advisor to SMB owners, I spend a great deal of time talking about potential acquisitions and I’d like to share with you three tips to help you set the groundwork for getting the best value for your business when it comes time to sell.

  1. Start the dialogue
    Spend some time thinking about who might be interested in buying your business.  Think about local competitors, outside peers and your current management.  Once you’ve identified an interested party, open up the lines of communication.
  2. Make yourself obsolete
    Most entrepreneurs have direct involvement with their key customers and while this is great while you own the business, when you are trying to sell it, buyers will be worried about losing some or all of the customers if they were to buy your business. So create a framework for your business in which you become obsolete so that a new buyer could run your business without you at the helm.
  3. Make sure your business follows documented processes
    Part of growing your business and allowing for you to become obsolete is making sure your employees know what to do. Document all your processes so that you allow your employees to function without you and make decisions that reflect your values and best practices.  Document everything from the process of how to send emails to accounts payable.

How About You?

I am always interested in hearing your stories. Are you considering selling your business?  Have you thought about what you’ll say if a company calls asking you if your business is for sale?

I look forward to hearing your stories in the comments below.


Does Your Business Have Curb Appeal?

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Advice from an Expert Business Advisor

No matter what business you own, if you are considering buying it you’ll need to make sure it has “curb appeal”.  Like your house, your business projects an image to potential buyers. When they come to see your business for the first time, your can either attract a buyer to your business or cause them to walk away.

With almost 40 years of business experience and the last decade providing coaching and business advice to small and medium sized businesses, I would like to share with you a three-step plan to improve your curb appeal and help you prepare your business to obtain the best value in the market.

1. Fix Your Leaky Faucets

Make sure your human resources policies are at least as stringent as those of the company you hope will buy your business. Some basics to have in place:

•    A written policy making it clear you forbid any form of harassment or discrimination;
•    A written letter of employment for each staff member;
•    A written description of your bonus system;
•    Written policies for employee expenses, travel and benefits.

2. Assemble Your Binder

When a potential buyer looks at your company, he wants to see that you have your business information in order.  Documenting your office procedures, core processes, and other intellectual capital can help you attract more bidders and a higher price for your company, while also lowering the chance of the deal falling apart during diligence.

If you want to attract a buyer one day, your business needs a binder with instructions for basic functions, such as:

  • Opening up in the morning and closing down at night;
  • Forms and step-by-step instructions for routine tasks;
  • Templates for key documents;
  • Emergency numbers for service providers;
  • Billing procedures for customers.
  • How your company is positioned in the market and your marketing tools.

3. Document Your Intangibles
Intangibles for house buying might include: Is the house near a good school or daycare? What kind of neighbourhood is it?  What kind of commute are you looking at to get to work?

Your business also has intangible, often intellectual, assets that a potential buyer needs to be made aware of, such as:

  • Proprietary research you’ve conducted;
  • A formula for acquiring new customers;
  • Criteria you use to evaluate a potential new location;
  • Your unique approach to satisfying a customer.

As with selling a house, your company’s curb appeal can go a long way toward closing a deal.

How About You?
Are you a SMB owner considering selling, if so, how have you prepared your business for sale?

I look forward to hearing your stories in the comments below.


Is Now The Right Time To Sell Your Business? Advice from an SMB Expert

Whether youconsidering own a small or medium business or a consultancy company, at some point you might consider whether you should sell your business and if so, you’ll want to know what it’s worth.

I have created this blog to field questions and provide advice to SMB owners who are considering their options, next steps and exit strategies.

I’d like to kick-off our blog this week by sharing with you a list of the top reasons to consider when determining if this is the right time for you to sell your business.

1. You’re less interested in fighting the good fight

A lot of business owners took the Great Recession in the teeth. If you’ve got your business stabilized and the prospect of possibly having to fight through another recession leaves you panic-stricken, it could be time for you to get out.

2. The worst is behind you

Let’s say you were mentally ready to consider selling a few years ago and then 2008 hit, and in 2009 you made cuts and adjustments, and now you’re seeing some profit and revenue growth.  With your numbers going in the right direction, now might be just the right time to make your move.

3. The tax man is coming

Governments around the world are looking for money to fund the cost of an aging population. At some point this will mean increased taxes.

4. The coming glut

As a business owner, demographics are not on your side.  As the baby boomers start to retire in droves, we’re going to have a glut of small businesses coming on the market. That’s great if you’re buying; but if you’re a seller, you may want to avoid the flood and head for higher ground now.

In the coming weeks, we look forward to sharing some advice, tips and industry insights on issues to consider before you sell your business.

How About You?
Are you a SMB owner considering selling, if so, when do you think it is the right time to sell?
I look forward to hearing your stories in the comments below.