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selling your business

6 Steps To Selling Your Business

Don’t ignore one of the most vital elements of your business plan, the exit strategy. Here are key business practices for selling your business.


If you’re a typical small business owner, you spend more of your time working on today’s issues than tomorrow’s potential. That may keep the doors open for now, but what about when you’re ready to retire, or no longer have the will or energy to run your business?

As mid to large businesses grow, owners typically realize they’ll need to find a way out, but most small business owners do not have an exit strategy. Rather than simply selling inventory and closing the doors, the suggestion is that small business owners can increase their wealth by capitalizing on the goodwill or customer base they’ve built up.

Here are some basic business practices that many entrepreneurs overlook, but can help keep the company buffed up and ready for the marketplace.

Key business practices for selling your business:

1. Write down the business processes

You can’t sell a business that is in your head. So, you need to write it down. Entrepreneurs don’t typically like dealing with details and the fine points, but you must document how everything works in your organization.

For example, spell out the roles of management and employees, not titles, but their actual responsibilities. Or, describe a typical customer visit. Franchise companies list these types of details; a small business owner can use the same tactics to show the value of their company to a potential buyer.

2. Set financial goals

You cannot sell a business that is not making money. And, how do you know if you’re growing if you don’t know where you started and where you’re going? Once you’ve set some target goals, measure them on a regular basis. Look at the internal processes of your business and make sure they are still working for your customers and your company alike. You may be pleasing customers, but are you making money? Know what your return on investment is, so you can explain it to those interested in buying your company.

3. Have a marketing budget and plan

Many small business owners don’t allocate money for marketing. A marketing plan, with a corresponding budget, is key to attracting and keeping customers. One rule of thumb is to spend the equivalent of one staff salary on your marketing and advertising. Think of it as your “silent” employee working 24/7. Market awareness of your brand and demonstrated customer loyalty can dramatically increase the value to potential purchasers. Marketing is the last thing you cut even if times are bad.

4. Keep track of customer information

Often, the most valuable aspect of a business to a potential buyer is your customer list, especially if your potential buyer is a competitor. Keeping track of customer contact information, including name, address, phone number and email (along with permission to contact them electronically), is a must. Being able to deliver customer profiles and buying habits to a new owner demonstrates how well your business is run and makes your customer list invaluable. If business owners don’t have customer data, they’ll be in trouble.

5. Keep employees in the loop

Your staff represents your company to customers and buyers alike. Make sure they know your goals. Communicate with your employees and ask for ideas. They can help you dress the business up for sale. If you’ve decided to sell because the business is in trouble, let them know. It is unlikely to be a surprise and few things demoralize a staff more than having to rely on water cooler rumors. Try to avoid staff salary cuts if possible. Your people are the face of your business and a salary cut may backfire. Try looking at your business processes and finding ways to save money instead.

6. Get professional advice

Identify the areas of your operation that need improvement and look for specialized help to simplify your processes. Make sure to test them before the potential buyer does. There are consulting professionals on a part-time basis who have knowledge implementing transition strategies for businesses and can help you, for a reduced fee.

So, don’t ignore one of the most vital elements of your business plan, the exit strategy. With careful planning and monitoring from day one, your last days of business can bring rich rewards.

For more information about selling your business and/or B2B CFO, visit b2bcfo.com.

5 C's of Credit

The 5 C’s of Credit: 
What Do They Mean To Your Small Business Loan?

One of the most common questions among small business owners seeking financing is: “What will the bank look for from me and my business?” While every bank has its own unique criteria, many use some variation of the five C’s of credit when making credit decisions. Broadly speaking, they are:

  • Character
  • Cash flow
  • Collateral
  • Capitalization
  • Conditions

Let’s take a look at each of these ingredients and review how they may impact your funding request. Review each category, and see how you stack up.

Character ― Your willingness to pay back your loan

What is the character of the management of the company? What is your payment history and patterns in other loans you have taken? What is management’s reputation in the industry and the community?

Bankers want to lend their money to those who have impeccable credentials and references. The way you treat your employees and customers, the way you take responsibility, your timeliness in fulfilling your obligations are all parts of the character question.

This is really about you and your personal leadership. How you conduct both your business and personal life gives the lender a clue about how you are likely to handle leadership as a CEO. It’s a banker’s responsibility to look at the downside of making a loan. Your character immediately comes into play if there is a business crisis, for example. As small business owners, our personal stamp on everything that affects our companies is essential. Because the bank may not know you, your credit score tells the lender how you will pay your business loan. Many times, banks do not even differentiate between us and our businesses. A poor personal credit score is enough information for a lender to outright decline a business loan. In a commercial lender’s eyes, there is no differentiation between handling personal obligations and business obligations. They are one and the same.

Cash Flow ― Your capacity to pay back your loan

What is your company’s borrowing history and track record of repayment? How much debt can your company handle? Will you be able to honor the obligation and repay the debt? There are numerous financial benchmarks, such as debt and liquidity ratios, that investors evaluate before advancing funds. Become familiar with the expected pattern in your industry. Some industries can take a higher debt load; others may operate with less liquidity. As a conservative guideline, you should have $2 of income (business and personal) for every $1 of debt.

Collateral ― How lenders get paid if the business fails

While cash flow will nearly always be the primary source of repayment of a loan, bankers look at what they call the secondary source of repayment. Collateral represents assets that the company pledges as an alternate repayment source for the loan. Most collateral is in the form of hard assets, such as real estate and office or manufacturing equipment. Alternatively, your accounts receivable and inventory can be pledged as collateral. Generally, lenders will want a 1:1 ratio, or $1 of collateral for every $1 you borrow. Bankers typically discount an asset and lend on that basis. So for every $1 of collateral, the bank will lend anywhere from 70 percent to 85 percent of the value depending on whether it is fair market value or liquidation value.

The collateral issue is a bigger challenge for service businesses, as they have fewer hard assets to pledge. Until your business is proven, you’re nearly always going to pledge collateral. If it doesn’t come from your business, the bank will look to your personal assets. This clearly has its risks; you don’t want to be in a situation in which you can lose your house because a business loan has turned sour. If you want to be borrowing from banks or other lenders, you need to think long and hard about how you’ll handle this collateral question.

Capitalization ― How much money have you put into the business?

How well-capitalized is your company? How much money have you invested in the business? Has your business grown? Have you reinvested the profits, or paid yourself a bigger salary? Investors often want to see that you have a financial commitment and that you have put yourself at risk in the company. Both your company’s financial statements and your personal credit are keys to the capital question. If the company is operating with a negative net worth, for example, will you be prepared to add more of your own money? How far will your personal resources support both you and the business as it is growing?

Conditions ― SWOT: What are the Strengths, Weaknesses, Opportunities and Threats that affect your business?

What are the current economic conditions and how is your company affected? If your business is sensitive to economic downturns, for example, the bank wants a comfort level that you’re managing productivity and expenses. What are the trends for your industry, and how does your company fit within them? Are there any economic or political hot potatoes that could negatively impact the growth of your business? (I wrote at length on SWOT analysis in my January blog.)

Keep in mind that in evaluating the five C’s of credit, investors don’t give equal weight to each area. Lenders are cautious. One weak area could offset all the other strengths you show. For example, if your industry is sensitive to economic swings, your company may have difficulty getting a loan during an economic downturn ― even if all other factors are strong. And if you’re not perceived as a person of character and integrity, there’s little likelihood you’ll receive a loan, no matter how good your financial statements may be. As you can see, lenders evaluate your company as a total package, which is often more than the sum of the parts. The biggest element, however, will always be you.

For more information about the five C’s of credit and/or B2B CFO, visit b2bcfo.com.

Business Management

Leadership Vs. Management: What’s The Difference?

Leadership and management, management and leadership; some individuals see these terms as interchangeable synonyms. However, there are several important differences.

First, let’s differentiate between a manager and a leader. Managers are to exercise executive, administrative and supervisory direction of a team, group or organization. A leader, on the other hand, is future-focused and works to influence or guide a group of individuals to achieve a common goal through inspiration rather than task completion.

So what are the key differences, and what skills and traits are necessary to succeed as a manager and as a leader? A manager generally receives his/her authority based on his/her role. A leader’s authority is innate in his/her approach. A common expression also tells us that leadership is doing the right thing, while management is doing things right.

Jerry L. Mills, founder of B2B CFO, says that every organization has three types of employees: finders, minders and grinders.

The Finder: The entrepreneur, the visionary, the leader, the idea generator and the catalyst for future change — finders work in the future.

The Minder: The administrative, accounting and operational staff of the company — minders are historians; they work in the past.

The Grinder: The people who do the physical work of the company, grinders may be construction workers out in the field or telemarketers at a desk. Grinders work for today and are not concerned about the future or the past.

When organizations work in tandem allowing each employee to both know and execute his/her role, things run smoothly.

As a business owner, at times I’ve made the mistake of trying to be everything to everyone. I have learned to recognize in others and within myself the traits most important to posses in order to maintain a clear vision. I have also learned what traits I need as a manager to help our business succeed. These traits are cross disciplinary and can be applied whether you work in plumbing, finance or the arts.

Business Leaders Skills

Lead by example 

Pitch in wherever needed. A leader cannot be afraid to get his/her hands dirty. When your employees are in the trenches, you’re in the trenches.

Passion 

Your leader must believe in what he/she is doing as well as the work the company, organization or team is engaged in. This is not an instance where faking it until you make it will work.

Organization 

Without clear organization, your company will be chasing its own tail and wasting valuable time.

Delegate 

The leader cannot do or be everything to everyone. Successful delegation includes giving ownership of the work their assigned.

Communicate Effectively 

Employees, or grinders, need to know their work is important. Be precise, specific and concise.

Business Management Skills

Great customer service skills 

No matter the business, no matter the location, no matter the service, a manager cannot succeed without being service-minded.

Self-motivation and dependability 

Managers must be capable of doing their job without being micromanaged. They must be committed to putting their all into the job every day. Managers need to be capable of making even the most challenging of circumstances a success.

Integrity and trustworthiness 

By hiring someone that you can trust, you’ll reduce your own stress levels. The business owner will be able to place his/her focus on growing the business.

Be a team player 

Managers must be committed to their team. A manager is the liaison who has to be able to work well and communicate with both employees and executives.

Conflict resolution abilities 

Serving as liaison allows the manager to be in the know from both ends. They need to be able to see conflicts as they arise and nip them in the bud before they turn devastating.

Get more cash

Five Ways To Get More Cash From Your Business

As CEO of B2B CFO®, I regularly talk about our motto which is, “Cash. We help you get it®”. When talking about how we help our clients get more cash, I find that there is generally a misconception. Most people think that there are only two ways to get more cash: the first one being taking a traditional route of talking to banks about loans, and the second trying to get an investor to infuse more cash into your business.

I am going to present to you five ways to get more cash from your business. These five steps do not involve taking on more debt nor do they involve diluting your equity:

 
1. Try to cut back on costs

Yes, this is a pretty obvious way to get more cash into your business, but it does take a concerted effort. One of the easiest ways to cut cost is to ask your service providers to re-bid for your business. Just because they are working with you now doesn’t mean that they are the best fit for your business in terms of cost or relationship. This can be particularly true in the following areas: insurance, benefits, telephone, credit card services and office supplies. These are all examples that can be negotiated and significant cost savings realized. Saving even three or four percent of operating expenses can be the difference between breaking even and generating significant cash.

2. Sell more or charge more

This may seem obvious, but you might find there is less opposition than you may think. Look at what your competition is charging, and show where your product/service is providing better value.

3. Monitor your inventory

No matter your business, if you have inventory then you need to manage it very closely. Create a system where you can monitor your inventory down to the SKU. Find out how long it takes to use up all of your products and consider eliminating products that move slowly. If that isn’t feasible, just don’t buy as many units and keep a small number of that product on hand.

4. Improved productivity

You may be starting to see the common theme. All of these steps are fairly obvious but overlooked. Take the time to review any productivity issues in your company. Work with your employees to see where improvements can be made. Find ways to monitor your employees’ productivity, and reward those that are the most productive.

5. Collect your money

Before giving new customers credit, check out their credit history, and only work with those that you feel comfortable. Set your invoice terms to be paid as fast as possible for your industry. Most importantly, enforce the terms you have set. This is one of the most basic, yet important mistakes that businesses make. If you have any customers that are regularly late with payments then consider firing them.

Finding cash inside your own business can be easier than trying to obtain a loan.