YOU Are a Business Owner

Nobody likes to think about selling their business and for some it is like the thought of having to buy a burial plot, but the truth of the matter is that someday your business is going to be for sale and if you are a business owner you need to have an idea as to what to do when that time comes. There is a chance that the business will be sold to an insider such as a relative or family member or maybe it might be somebody outside of the family to someone who may or may not be in the industry. But regardless someday it is going to happen and the good news is that you have a choice. And that choice is to prepare for that day now so you will have more control over the situation and invariably probably get more value for your business or you can put your head in the sand and continue to be in denial and wait until that time comes and then react to the situation. (Sort of sounds like going to the dentist doesn't it? Either you get a checkup on a regular basis or you end up with a rotten tooth and have a situation that is ugly). Everyone knows that there are "rules of thumb" formulas in every industry. For example when determining the value of a business there are "rules of thumbs" as to what different businesses are worth. Motels are figured on a multiple times the gross sales, convenience stores are figured on a multiple times the net profit, service businesses are figured on a multiple of net profit plus equipment and so on. But did you know that there is a "rule of thumb" as to how long your life expectancy should be? Yes, as wild as it may sound there is a "rule of thumb" in regards to how long you should have left to live. Remember this is just a rule of thumb and not a scientific formula, but yet very interesting. The "rule of thumb" for life expectancy is as follows. Take the difference between your present age of today and 100 and multiply it times 2/3 and then add that amount back to your present age to get the "rule of thumb" of your life expectancy. For example if you are 55 years old today then 100 - 55 = 45 x 2/3 = 30 + 55 = 85. In other words if you are 55 years old today the "rule of thumb" is that you should live to be 85 years old. OK, I know I don't have any scientific data to confirm this formula, but remember it is a "rule of thumb" and what if it is pretty close to being right? The point here is that there is going to be an end and generally our bodies don't continue at the same rate and energy level that we are at today and then all of a sudden quit working like some batteries in an electronic toy or flashlight. No, we gradually begin to slow down and the light gets dimmer. Remember, I am not a pessimist, just the opposite I am a realist. sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish sayhispanish So if any of this is true then why don't we do something about it and get prepared. Maybe a little bit prepared? Over the years of my helping business owners in understanding all of the ins and outs of either selling their business or getting it prepared for the sale I have discovered one thing that has helped them to get the most value out of the business when it came time to sell. And that was that they took the time to prepare themselves and the business in a manner that was practical and understandable to what a buyer would look for and ultimately pay top dollar for. Regardless as to whether the buyer would be a family member or an outsider. I have a lot of respect for business owners who operate their businesses everyday and I know how much work it is to keep the business operating and how distracting things are on a daily basis, let alone trying to grow a business or taking the time to prepare and collect the needed information so that a proper valuation of the business can be done, because I too ran and operated 35 different businesses and as they say "I feel your pain and have walked in your shoes". But generally business owners always will put this type of work off thinking they will get to it later and later comes faster than we all think. Businesses owners are a very unique group of individuals who are generally not given the appreciation and recognition that they deserve. They are the ones who make things happen. They are constantly taking action either because they want to or they have to in order to get something done. Yet, when it comes time to get the most value for them and their families for the equity they have accumulated over the many years of hard work it is sometimes a mystery as to how to get that equity out of the business. There isn't a week that goes by that someone will ask me what their business is worth thinking that since I have sold hundreds of businesses that I should have the answer on the tip of my tongue, but in reality without the proper information I don't have a clue. But there are some general "rules of thumbs" that I am going to share with you that can give you an idea as to what a buyer may think your business may be worth and ultimately they are the ones who really matters. It is irrelevant as to what you think your business is worth, because you are not buying it, someone else is and they are going to have their buyer's hat on and you are going to have your seller's hat on. But first let me ask you a few questions that will need to be answered. 1.What do the Numbers Say? Look at the income & expense numbers for the last three (3) years. Why? Buyers are looking to purchase an income stream and want to see what the business has been doing for at least the last 3 years. Is it trending up or trending down? Buyers are looking to buy an income stream and especially one that has an upside to it. They like to find businesses that are well ran in a good industry and just need a little tweaking to make it more profitable. 2.What is the Quality of the Assets? By this we mean: What kind of condition is the building or the vehicles, the fixtures, the equipment that is being used in the daily operations of the business? Have these items been neglected and possibly antiquated or worn out? Is the business current with all of the governmental codes and requirements? If not what will it cost to get the business current. 3.We are always selling a revenue stream. So has all of the income generated by the business been ran through the books? Are there personal items that have been paid by the business that need to be identified so that the buyer can get a true picture of what the business is generating? Remember, the buyer is looking to buy a revenue stream. If you have any questions about this philosophy I would recommend that you take your seller hat off and put on a buyers hat and make a list of the items that you would be concerned about if you were buying a business to support yourself and your family. It is a good reality check. We are not trying to be personal on any of these items only realistic for both parties. These are just a few of the many questions that will need to be answered before a definite valuation can be arrived. With the above listed information you can now use a multiplier to get an idea what your business may be worth at a particular point in time. For a retail business that would include real estate you can generally estimate 4.5 to 5.5 times the net profit to get a ball park market value of the business. For a service business or a business without any real estate you can estimate 1 to 3 times the net profit plus the value of the equipment and other items used in the daily operation of the business. Please keep in mind that these are general rules of thumbs and there are always different variations of the multiplier based on the specifics of the industry and the business. But in today's economic climate it is always good to have some kind of idea as to what your assets may be worth.