Buying a business is a huge commitment, and before the ink dries on the contract, it’s easy to focus on the upside—the promise and possibility of a strong return on your investment as well as the retention of the existing customer base. That’s why getting off on the right foot with the existing clients or customers is job #12.

The biggest sales job you will face is in reassuring them that things will be smoother (tricky, especially when they thought it already was); that nothing will change (they wonder how that can be since a new owner always means change); or that there will be improvements (they wonder what kind—and do you really know what needs fixing?)

Customer relationship management. This is your challenge. The challenge is communication and nuance. What should you say? When and how much sharing is really needed? The way in which you handle this determines if you will have to scramble, or if you can really enjoy what was promised—a healthy stream of customers.

There are four things to be aware of that may sound simple at the offset, but pulling them off gracefully is a challenge. Doing it well will make the difference between retention or total reinvention and restart.

Communicate or die. Dramatic indeed but you were educated to be a doctor, lawyer, and accountant or fill in the blank and name yours. And you are knowledgeable, maybe even brilliant, on your subject. Once you purchase a business you need to add the title of seller, soother, educator and grand communicator, too. Your clarity, authenticity and warmth will make up for any perceived missteps in your customers eyes. There will be times when you will have to eat humble pie or crow. Plan on it. Accept it.

Customers hate change. They will compare you to your predecessor right away and might even look for ways to leave. Any mishandling will be grounds for replacing you because their allegiance was with the last owner. Let’s face it, you are auditioning. There will even be some cases where the client wasn’t happy in the first place and didn’t have the nerve to leave the previous owner, so you can be a welcome change.

It’s cheaper to keep them. It’s pricier to replace customers than it is to keep them. Wooing works as long as you don’t use vacant words and can back up what you day with something delightfully unexpected.

Transition is everything. The support staff is an extension of you—their proficiency in wooing, wowing, calming, and smoothing should not be underestimated. They can help or harm your transition process. It is a smart move to keep one or some of the key staffers to make the change less jarring. Frank conversations with them will lay the foundation of how cooperative they will be with you. You can help plant your story with them so instead of idle gossip and hearsay they will be your best brand messengers.

Keeping customers happy doesn’t require elaborate schemes or for you to change your personality unless you want to. Customers want love, attention, respect and the S.H.E method: Share, Help and Educate. It will take you far. •

CASE IN POINT:
Doctor O and Doctor N

Dr. O was a seasoned Park Avenue dermatologist with alternative healthcare leanings. He was ahead of his time, humble and had graduated from an Ivy League school. He enjoyed his own blend of East/West healing modalities. Because of this, he received accolades from Prevention Magazine and had a brisk practice concentrating on acne treatments and hair loss. Alopecia was his specialty and most of his clientele were women. He earned most of his revenue from office visit charges and his custom injections. It was more than enough for him and his wife, who was his receptionist, and they owned the office space (a condo) in the building. As he was nearing the age of 80, he decided to retire and sell his practice to Dr. N.

Dr. N was young, handsome and ambitious. He was buying a tony location and hoped to piggyback on Dr. O’s international recognition. Dr. N wanted to expand on product offerings, remodel the office, hire beautiful front desk women, write a book and add an anti-aging twist to the business. With most of Dr. O’s patients coming in for hair loss and acne treatments, he estimated that he’d probably lose upward of 50 percent of the clients within the first year. He didn’t mind since he would still be able to cover his overhead. He become acquainted with clients and kept some of Dr. O’s potions, which included his unique hair retaining injections and more.

The initial month was spent with the two doctors seeing patients together. Dr. O introduced Dr. N to patients and openly offered his blessing while praising him.

After a three-month transition, Dr. O’s presence was tapering off. New patients had been directed to Dr. N and existing clients were making up their minds whether to try him out or to go. Dr. N recognized that he needed something to entice existing patients to stay, so he offered beauty packages for hair and skin restoration. The packages involved a flat monthly fee for three months. This enabled him to guarantee his own cash flow. If patients started to balk, he was comfortable reassuring them that “they were worth” the small investment. It was a risk and he enjoyed the reward—they said yes.

As the office brightened and he started to display private label products, he began gifting samples to the existing clients, and it worked some of the time. What Dr. N lacked in warmth and age, he made up for in hiring great staffers. They were the ones who knew how to sell, compliment and coddle. Dr. N went on to be written up in many fashion magazines in New York as a skin authority to supermodels and mom’s alike. •

CASE IN POINT:
Joan, Eric and Unified Tax

Unified Tax and Planning Company was founded, owned and operated by Joan for 15 years. Joan was a feisty personality whose experience came as a bookkeeper turned Certified Tax Preparer. Although she wasn’t a CPA, it didn’t matter to her clientele. They knew she could take on the IRS if any of her clients were called in for an audit. She made a respectable living, enjoyed teaching workshops and did a lot of public speaking at every Chamber and women’s group within 25 miles of the office. Her kids were grown and she wanted to relocate, so she sold the practice to Eric.

Eric had made wise real estate investments and had retired 10 years earlier. He had become itchy after playing lots of golf and babysitting the grandkids. He was smart, personable and genuinely excited about returning to a business. However, at his age, he had no designs on running around as much as Joan did. Instead, his plan was to audition and win clients over, keep the receptionist and office staff, keep the look of the office the same (down to the pictures on the wall) and offer more year-round services.

His transition execution was impeccable. He diligently went through all the steps mentioned previously. Joan, on the other hand, didn’t do as well. She sent out the cursory introductory letter and said nothing would change. Together, Joan and Eric isolated the 10 most valuable clients and jointly met with them. But during the meetings, it wasn’t a gracious hand off. It became clear that Joan was having a personal ego struggle.

Clients liked Eric and he was answering their questions deliberately, and educating them along the way. This was something Joan didn’t previously do. She would say, “Don’t you worry, I will take care of it. I know what I am doing, so you don’t have to.” In contrast with Eric, she seemed patronizing. Eric was the model of solid and dependable. He was comfortable talking to people and had a well-balanced, logical and intuitive sense.

Eric asked Joan to leave the firm earlier than expected. But the Unified Tax client retention was a success and still is to this day. Here’s how he easily sold his clients:

Some of the feedback his female clients gave were: He really cared; he didn’t really need the money so he wasn’t obnoxiously hungry; he focused on them; he remembered babies, grandkids and asked about them. Feedback from men included: He talked a bit more about new tax codes to show competency but not too much to bore; he shared what he did in retirement; he demonstrated his enthusiasm to own the business and serve and swerve clients away from having to overpay taxes.

Eric was a “salt of the earth” man who helped with pre-tax planning, money management, and who was respectful of time. He sent out helpful checklists in advance so the appointments would run smoothly. He allowed enough time in his meetings so he never appeared rushed. And he held Joan’s rates for at least a year. Not only did he retain most of the client base but also he continued to add to it through referrals. •

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Social media has added a new demand for employer protection from cyber activities.

 

Today, technology is growing by the nanosecond, far too quickly for employers to keep up. Long-standing privacy considerations are at near-constant tension with the advent of the Internet, social media, e-mail and other electronic communications tools.

To be competitive in today’s market, business owners must make effective use of social media. Current marketing trends almost require that businesses have an on-line presence, and volumes of encyclopedias have long since been replaced by Google searches. To protect their businesses, however, employers should set boundaries on their employees’ internet and social media activities, both inside and outside the workplace. Consider these protective methods to avoid damage to the company from employees’ electronic communications and social media activity:

Documentation. Implement effective and thorough policies on social media activity, confidentiality and electronic communications. Employees should be reminded in writing that all electronic communications created on company equipment or accounts will be monitored by the company, and that they have no privacy rights in these communications.  Have your policies reviewed by legal counsel – technology moves faster than the law ever will, and today’s courts are deeply challenged by litigants’ rapidly-developing arguments over newly-discovered electronic media.

Ownership. When an employer provides cell phones and laptops to employees and pays for the cell phone account and the wireless access, the employer owns and controls the cell phone number, e-mail inbox, internet accounts, and all social media or other electronic communications created by the employee while on working time, using company equipment, or otherwise controlled by the employer.

Included in “ownership” is the company’s brand, logo, customer information or other trade secret, confidential or proprietary property. While the employer may not prevent the employee from engaging in social media activities on his own time and while using his own equipment, the employer does have the right to pursue a claim against an employee who posts defamatory content on the internet.

Similarly, although an employer cannot safely terminate an employee who vents about a fellow employee in his social media posting, the employer can certainly terminate the employee who harasses a fellow employee in violation of the company’s anti-harassment policy, even when that harassment occurs during the employee’s off-duty conduct.

Monitoring. Employers can actively monitor their employees’ communications and internet activity, both internally and externally, as long as employees have been warned in writing that employers can and will do so in their discretion. Employers should also conduct their own internet searches using tools such as “Google Alerts” to track the information that has been published about the business and its personnel. 

Ultimately, business owners should keep in mind that you are (or should be) the owner of your company, your technological equipment, your electronic communications accounts, your employees’ working time and your reputation. With the advent of technology, we are drowning in information, but starved for knowledge. Make sure that the information publicly available about your company is not the information your employees choose to post, but instead is the knowledge you want to publish. •

CASE IN POINT:
Why Have A Systems Use Policy?

An insurance agency allowed its new agent, Cindy, to use her personal laptop computer and iPhone to conduct her business activities. The agency was thrilled to avoid the cost of a new computer, and was more than happy to reimburse Cindy for her business calls made on her personal cell phone.

Unfortunately, Cindy didn’t perform to the level the agency expected of her. Her sales results were substandard, and she seemed to be wasting an inordinate amount of time on personal matters in the workplace. Her supervisor reviewed her Internet activity while at work and discovered that she was spending several hours each day surfing the Internet on shopping sites, Facebook, and other personal search activities. Much to the agency’s surprise, they also discovered that Cindy was downloading customer lists and files and sending them to her home e-mail address. She was planning to move her business to a competitor agency.

The agency terminated Cindy and sued her for unfair competition activities. The court refused the agency’s demand to recover its customer list, because the agency had previously permitted Cindy to download it to her personal cell phone without restriction. The court also refused to consider the agency’s computer search results in its action against Cindy, because the agency permitted her to use her own laptop for business and personal use. The agency had failed to implement a “systems use” policy notifying Cindy in advance that her computer could be monitored at any time without prior notice. •

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Here are key factors for selling a business.

Buyers are more educated than ever these days, and they are not taking risks. The current marketplace is such that there is a healthy pool of buyers with impressive backgrounds and liquid funds looking to purchase quality businesses. Buyers are coming out of corporate America and looking to purchase businesses by using their savings or retirement funds through various programs as a source of down payment. Younger Baby Boomers (mid 40’s – 50’s) are also looking to fulfill their dream of owning and operating their own business prior to reaching retirement age. The key is in understanding what motivates buyers in today’s market in order to successfully sell your business.

Determining The Multiple For Your Business

Buyers purchase “cash flow” when they purchase a business. Cash flow, also know as discretionary earnings, is the net income plus certain acceptable owner benefits or “perks.” Businesses with cash flow and “transferable value” are in demand in this economic environment. Buyers are willing to pay a multiple of cash flow which is determined by the type of industry, years in business, key employees being in place,  condition of the equipment and facility, lease terms and the type of finance available. There are many other factors that go into determining this multiple and therefore the value of a business. An experienced Certified Business Broker can assist you in determining the cash flow, multiple and ultimately the correct value of the business.

If the business does not have traceable, verifiable cash flow, then it needs to be sold as a Sale of Assets in Place, which yields a lower value. Although the buyer pool for these businesses is less, there is still a demand for these assets in place by individuals willing to take a risk to turn the business around. The value is ultimately determine by the market place so it is important to highlight the benefits.

Packaging Your Business For Sale

A second key item to selling a business is in packaging it correctly. Buyers need and demand information. They need to know everything about the business to see if it will meet their needs as they are typically putting down a significant portion of their life savings at risk. It is important to package the business so that the features and benefits are outlined clearly. It is also important to clearly outline the cash flow of the business and all the add-backs. The bottom line is the bottom line, so it is important to explain how the cash flow was derived. Buyers will typically not move forward unless they are comfortable with this analysis. In addition, if a buyer does not feel comfortable with a business’s transferable value which includes policy and procedures, whether or not key employees are in place, if the business has growth opportunities and a sturdy marketing plan, if the assets and systems needed to move forward are in place and in good condition, etc., then the buyer will most likely not be willing to take the risk and the business will not sell.

How Buyers Can Finance The Purchase

The last key element is how a buyer finances a business purchase. The choices are limited. Typically there are three methods:

All Cash
This is not common. If a buyer is willing to pay all cash, then the buyer will expect a discount in the purchase price since price is a function of terms.’

SBA Finance
There is a big misconception on how financing with a Small Business Administration loan works. First, these loans are among the highest risk loans for a bank that typically funds the loans using a SBA guarantee. In today’s economic environment, these loans are extremely difficult to obtain. The banks will only consider what is on the selling company’s tax returns. The tax returns must show consistent year-after-year gross revenue and profitability in order to assure the bank that the cash flow is there to cover the debt service. The bank and SBA will also require that the buyer have direct industry experience, good credit, ample reserves and, in most situations, additional collateral to secure the loan.

In some cases, the bank and SBA may require that the seller carry a portion of the purchase price in second position, sometimes with no payments for 3-5 years. This depends on the verifiable cash flow available to cover the debt service. These loans are typically leveraged with 10-25% down, and therefore the payments can be high for the buyer. For some transactions, this may be a viable option, but as you can see, it can be challenging to meet some of the requirements.

Seller Finance
This has been the most common method of financing  in the last five years. The advantage with seller finance is that the seller will be able to set the requirements. Seller finance typically involves a buyer being screened both financially and work-experience wise. This kind of transaction typically begins with requiring 40-50% down and is negotiated from there. When a buyer puts 40-50% down and a seller carries 50-60%, this creates an even playing field. The buyer has “skin” in the game as well as the seller. It is crucial to set up seller finance correctly upfront and put mechanisms in place to reduce the probability of a problem down the road. Again, this is where a Certified Business Broker is key to assisting in this process as well as managing the entire transaction from beginning to end.

Selling a business is an extremely complex process, so it is important to work with a broker who understands the dynamics of selling a business in this current economic environment. No two deals are ever alike. Selling a business can be just as much of an art as a science. When you work with someone who has the experience to analyze the specific situation and develop a custom plan to price, package, market and structure a transaction, the chances of selling a business successfully increase tenfold. •

CASE IN POINT:
Long-Standing Family Business Thinks Out Of The Box

Two partners owned a 50-year-old box manufacturing business that their fathers started. The partners after many years of running the business wanted to sell. They had lost a large long-term customer and the revenue had decreased. The business still had a reputable name, long-term employees in place and a working facility. After much discussion, the partners decided to sell. Their accountant referred them to our firm. We went in and evaluated their business given their situation at no cost and gave them an opinion of value. The value took everything into consideration.

The sellers thought their business was worth more but we explained to them that the recent lower cash flow was bringing down the value. We also explained that financing would be difficult to obtain which our lender confirmed. We agreed on a starting selling price, and after discussing the benefits of seller finance and how we would structure it to secure their position, they agreed to offer seller finance subject to approving the buyer’s qualifications and credit worthiness. We created a detailed package on the business highlighting the features and benefits including the 50-year history, long-term employees in place, financial analysis, among other key factors.

We went to market and started identifying potential buyers. We learned after discussing the business with several buyers, that this would not be an easy business to sell. Most buyers agreed that the business had an excellent reputation, employees and facility but they were concerned with the drop in revenue as a result of losing a large customer. Remember, the majority of buyers purchase cash flow and they must feel comfortable with the company’s transferable value.

The sellers had no formal marketing plan in place and did not do much to generate new business. We suggested to the sellers that they immediately focus on trying to generate new customers in order to show that new business was attainable if someone put in the time and effort to go out and do so. The facility had the capacity to handle more business; someone just needed to generate it. After a short period of time, the company started obtaining a handful of new customers. The revenue began to increase and it became clear that the company could rebound.

We re-priced the business and marketed it using our wide range of company resources. It took some time and speaking to several buyers to discuss the features and benefits, but we eventually found a buyer who saw the transferable value and potential to turn this business around. We had several meetings with the buyer. Once he completed his due diligence, we opened escrow to comply with the bulk sale requirements and complete the transaction. The buyer said one of the main reasons he considered this business was the fact that the seller was willing to finance a portion of the transaction. This made him feel comfortable with the fact that the seller had confidence with the business going forward. The transaction closed and after training was completed we all went out to dinner to celebrate.

The sellers were happy, as they were now able to retire and focus on their other activities. The buyer was happy, as they saw many opportunities to expand the business and had already implemented some of them. The buyer indicated that he was glad he purchased the business, but he probably would not have gone forward unless the sellers agreed to carry the note. Everyone was happy and after several months of operating the business, the buyer has increased the revenue substantially and has indicated that he will most likely pay off the note sometime this year.

Glossary Of Terms

Bulk Sale Requirements: A law that regulates the transfer of business assets so that business owners cannot dispose of assets in order to avoid creditors. If a business owner wants to conduct a bulk sale of business assets — that is, get rid of all or most of its inventory, merchandise, or equipment — the business owner must give written notice to creditors and, in some states, publish and record a notice of the sale. This is also in place to protect the buyer.

Discretionary Earnings: This is the cash flow of the business after adding back certain, traceable, non-business related expenses to the net income.

Multiple: A multiple is derived from a number of business, industry, market, and owner preferences factors. The multiplier is used to convert a single-point business economic benefit into the business value.

Sale of Assets In Place: When a business lacks verifiable cash flow, it can be sold as a Sale of Assets in Place. The business may have value for certain assets that are already in place and ready to be used by a potential buyer. The market place and what a willing and able buyer is willing to pay typically determines the value.

Transferrable Value: The value of a business going forward. Tangible benefits such as policy and procedures, key employees that are in place, growth opportunities for the business, a marketing plan, and any other systems that are in good condition that add value to the business.

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