Business consulting often focuses on the most tangible challenges: cash flow, supply chain, work flow, job descriptions, salaries and bonuses.

In my work with companies and corporate teams, I often take an “inside out” approach. “Inside out” focuses on that which is not so easily seen and often can be a far more powerful inhibitor of successful operations. We see four (among many) factors that, once identified can create a pathway for improving personal performance of employees and managers.

The so-called negative employee. We all know and recognize this person and it’s easy to demonize them. We have found numerous examples that may seem to you to be “counter intuitive.”

The negativity you see often hides a strong desire to positively impact a team through naming what’s wrong. We call this employee the “truth teller” and he or she is easy to dismiss because what they are saying is not well said or is said with so much emotion we feel uncomfortable listening. As in ancient times this messenger of necessary information can be a victim of “kill the messenger.”

Solution: Find a leader who isn’t afraid to listen carefully to all the complaints this employee brings. Honor each one and create a leadership meeting where the complaints or criticisms are seen in a non-emotional objective light, and then decide what’s valid.

The orphan. Within every organization there are insiders and outsiders. Like the school yards of our youth we all want to be part of the in crowd. The “orphan” will linger on the outskirts if not seen for their unique contributions, their work ethic, perhaps their shyness and their reluctance to speak up.

Solution: Empower this employee through intentionally welcoming their input, inviting them to small group gatherings, asking for their help with a project not necessarily in their domain. Offer a little training or coaching where they need it. Seeing it, naming it, acting on it will change the complexion of your team.

The narcissist. This person creates more attention for themselves than is warranted and causes anxiety among team members. They may look good but their self referencing all successes of the team undermines loyalty, goodwill and focus.

Solution: A good muscular interview exploring their needs, their true contributions, their own exploration of their effect on the team—can open the way to coaching that focuses on building a realtime relationship with leadership. Remember: the narcissist wants to be seen, wants to be important. Give them a pathway where they can, in a healthy way, achieve that.

The addict. Addiction is not only about alcohol and drugs. It is a personality style as well. The addict can’t stop themselves from smoking/eating/drinking/working/gossiping, etc.

Solution: This employee needs help but it must be artfully offered. Intervention should be by design using leadership that is itself insightful, kind and proactively oriented. Acknowledge their contributions, probe (a little) around whether they self diagnose their own situation, offer outside the office help (if appropriate) and make a coach available to them. If successful this somewhat driven employee will become even more valuable to your organization as they gain some (inner) control over their demons.

Hidden factors, mostly psychological in nature, can when addressed, fuel real growth in team performance. Work to identify them and then to turn them into positives for your company. •

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Knowing that you want to sell is easy. You decide that. Knowing when to sell, well now that’s a bit tougher. Will the market go up, or down? Is your business packaged properly for sale? Can you demonstrate real value and cash flow?
This all brings us back to the core question, is now the time to sell?

What You Need To Know Before You Sell Your Business

Today’s business buyers are much more sophisticated. There is a lot of information out there (internet, books, magazines) that can be good or bad advice on how to buy a business. What is important to understand is that buyers are looking for stable, quality businesses that can demonstrate the success of the business will continue. Buyers put the most weight on “cash flow.” This is also known as Seller’s Discretionary Earnings (SDE) or adjusted net income. It is crucial that cash flow is calculated correctly and that the process of how cash flow was determined can be supported by documentation. Most sellers focus on the multiple, which is important. However, I pose the question, “A multiple of what?” If the historical cash flow is not calculated correctly, then the value may be under estimated. Buyers need to feel 100% comfortable with the historical cash flow figures or trends since this is what will determine what is available to cover debt service, salary and expansion or growth.

The multiple of cash flow used is a function of many things. There are more than 15 characteristics that affect the multiple. Some of these increase the multiple and some of them can decrease the multiple. It is the multiple that takes the good, the bad and the ugly into consideration. Some of the factors that affect the multiple are consistent historical cash flow, type of industry, years in business, the condition of the facility and the furniture, fixtures and equipment (FF&E), key employees in place, terms of the lease, the type of financing available plus many other factors. An experienced Certified Business Broker can discuss this further and assist in establishing the correct cash flow and multiple for your business.

Pricing Your Business For Activity

Pricing a business is part science and part art. It is no secret that sellers aim high and typically overprice their business. What sellers underestimate is when a buyer is looking at multiple businesses for sale and he or she sees that the multiple is out of the normal range, the buyer will then assume the seller is unrealistic and will most likely pass. This means you may have lost an excellent, qualified buyer that would have been interested if the business was priced correctly. Pricing your business should be taken seriously and be treated in a professional manner that can be supported, otherwise everyone’s time is wasted.

It pays to be realistic. Many sellers assume that the amount of money they need to retire or need for their next venture is somehow related to what their business is worth. That is wishful thinking and obviously not how the value of a business is determined. Studies show that there is usually a 10–15% difference between what a seller wants and what the market will bear. A Certified Business Broker has considerably expertise when it comes time to calculate a reasonable asking price for a business. They know that it is essential that they come up with a price that is fair. As a result, a Certified Business Broker will take many diverse issues into consideration.

Being Prepared Pays Dividends Down The Road

The time spent at the beginning of the process of selling a business can pay big dividends down the road. It is important to prepare your business for sale. What does that mean? Don’t be reactive—get your house in order before you put the business up for sale! Spend time to review your overall business. Review your processes, your policies and procedures, company financial statements/tax returns, inventory, accounts receivables and payables, review the condition of your equipment, the condition of your facility, review your lease agreement, your employee records and compensation, etc. Think of what you would want to see if you were purchasing a business and act accordingly. The more you can address upfront the better position you will be in when a buyer is at the table. One common statement I hear from business sellers is how they underestimated the time needed and overall what was involved with the sale of their business. On average, it can take 6–12 months to sell a business. Selling a business is a group effort that will involve you, key executives, and your financial and legal advisors all working in a coordinated manner with your Business Broker. Beginning with the gathering of information, through the transaction closing, you need input about all aspects of the sale. Being prepared up front will help this process go smother and more efficient for everyone involved.

In conclusion, selling a business is a time consuming and complex process. It involves knowledge and expertise in a wide range of fields and topics. It is important to understand the dynamics and the many factors that are involved in the sale or purchase of a business. No two businesses or deals are alike. Working with an experienced Certified Business Broker will help in dramatically increasing the probability of selling your business. An experienced Certified Business Broker will assist the business owner in the proper “confidential” way to prepare the business for sale. In addition, a Certified Business Broker will prepare a financial analysis and opinion of value, professionally package the business, put a professional confidential marketing plan in place to reach a wide audience, negotiate and structure a fair deal for all involved, prepare and manage the due diligence process, prepare certain contracts, handle the transfer or creation of a new lease, assist in financing the transaction and manage the entire process from beginning to end to assure confidentiality and so that the seller can focus on successfully running their business. •

CASE IN POINT:

The Importance Of A Lease Agreement And Timing

A husband and wife owned and operated a highly successful 27-year-old garment manufacturing and wholesale distribution business. The couple discussed several times the possibility of retiring and selling the business since the business was doing well. As the saying goes, time is your enemy. Unfortunately, the couple had personal problems and eventually filed for divorce. In addition, shortly after filing for divorce, the wife was diagnosed with cancer. The business owners were fortunate that they had strong, long terms employees who stepped up and ran the business effectively. The husband checked out and left the wife and employees to run the company. The wife was now dealing with running the business, going through a divorce and cancer treatment. The company was stable for the next couple of years. The ex-husband became difficult and uncooperative with the divorce. The ex-wife wanted to sell the business and went to court to receive a court order for the sale of the business. The courts agreed that this was in the best interest of both parties and ordered the business be sold through my firm.

After several meetings, we moved forward to represent the parties in the sale of the business. As we normally do in the course of our work, we analyzed the lease agreement that was in place. I mentioned to the owners that the lease agreement is going to be an important factor in this transaction. Since this was a divorce situation, the owners would not agree to seller finance. I informed the sellers that since the company tax returns were strong, I felt comfortable that the business would qualify for SBA finance once we had a strong buyer in place. I pointed out that since a SBA loan is typically done on a ten year term and that their facility was crucial to the success of the business, the SBA lender would require the total term, including options for the lease agreement be no less than ten years. The sellers were adamant that I not speak with the landlord until we had a buyer and that there should be no issues with the lease. I explained to them that this was risky and that we should contact the landlord to make sure we would not have any issues. They were insistent and we moved forward.

We spent the next month preparing the business and our package. We then put our marketing plan in place and started speaking with prospective buyers. We had numerous meetings over the next several months until we met with a charming husband and wife team that expressed enough interest for us to move forward. The husband and wife team were both looking to leave corporate America to purchase their own business. They were sophisticated and knowledgeable about the process of buying a business. We had several in person meetings and early on they asked about the lease for the facility. The owner commented that they were currently on a month to month lease and they did not want to contact the landlord until we were in escrow. The buyer expressed concerned since this was an important factor in being able to determine a price and obtain SBA finance. I told the seller that my SBA lender will need to make sure we would not have any issues with the lease and that I should contact him sooner rather than later. If the lease is going to be an issue, then the buyer will need to factor in the cost to relocate the business into the offer and the SBA lender will also need to factor this in.

Once again, the seller was insistent that we should wait until we were in escrow. The conversation continued and eventually the buyer submitted an offer that was accepted.

The buyer started their due diligence and worked with the SBA lender on providing what they needed. The question on the lease came up several times and we had no choice but to respected the owners request to wait until we open escrow. The buyer approved the books and records, we moved to an asset purchase agreement and opened escrow almost a month later. The seller then gave me the thumbs up to contact the landlord. I contacted the landlord and to my surprise, the landlord said that he was doing the owners a favor by not increasing the rent and pushing them to sign a new lease. He informed me that this would not apply to a buyer or new owner. The landlord was clear that he would want to bring the monthly rent up to market rent and that he would only consider a five year term. I explained to the landlord and the owners that this would be an issue. The buyer will now be faced with higher rent (an increase of $1,000/month) and this would decrease the cash flow and therefore decrease the value of the business. Furthermore, the SBA lender would not consider financing unless the terms of the lease (including the options) were the same as the term of the loan, 10 years.

To add insult to injury, the landlord said he was going out of the country, on a 14-day cruise and unreachable. We were now about 8 weeks into this transaction from the first time we met with this buyer. It took another 3 weeks to wait for the landlord to return, work out a 10 year lease (5 + 5 year option) and we unfortunately had to renegotiate the purchase price due to the increase in monthly rent. The buyers were extremely frustrated but in the end, we received a new lease, obtain the SBA financing and closed the transaction. The landlord asked why we did not contact him sooner and I replied the sellers were insistent that I not reach out to you until a buyer was in place because they were fearful of what you would say. His response was, “This could have gone a lot smoother if they would have just contacted me upfront.”

Of course I agreed!—M.C.

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When I meet someone who is very successful and busy making money for someone else, I ask, “Have you ever thought about running your own business?”

More often than not, I hear many of the excuses that Jeff Haden brings up in his post on Inc.com entitled, “15 Worst Excuses Not to Be an Entrepreneur.”

These are some of the classics:

• I’m too scared.
• I don’t have the right connections.
• I’m too late.
• I don’t have the money.
• I can’t take that risk.

and my personal favorite:

• It’s too hard.

Having run my own business for more than 16 years, I have had many times of it being hard. Sure, I’ve had sleepless nights, but when I look at the quality of my life, I wouldn’t trade it for the world. As Haden says, I’m living my life on my own terms. Immense joy and freedom comes from that. You should try it. •

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The Individual Buyer

Third In A Series

Most owners of small- to mid-sized businesses gravitate toward this buyer when it comes time to sell. Many of these buyers are mature (aged 40 to 60) and have been well-seasoned in the corporate marketplace. Owning a business is a dream, and one many of them can well afford. The key to approaching this kind of buyer is to find out what it is they are really looking for.

The buyer who needs to replace a job can be an excellent prospect. Although owning a business is more than a job and the risks involved can frighten them, this kind of buyer does have the “hunger”– and the need. A further advantage is that this category of buyer comes with fewer “strings” and complications than many of the other types. •

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