Zen and the Art of Exit Strategy

Something Lost in the Translation

Saw this upcoming SCEA event on exit strategy ..and recognized the same problem I've run into promoting my own talks on this topic -

#1 business owners don't see the need for exit strategy planning (ESP) until it's too late. It's probably a bit like the first folks being sold insurance ("you want me to pay money for what?")

Luckily, the companies that are playing in the Major Leagues - the M&A level - are usually playing with VC funds. And these are not folks who leave such things to chance.

The problem is that many of the small to mid-size businesses, aka the lower Middle Market, do not have advisors who understand the need, much less the experience to make sure that an exit strategy is developed that benefits the owner.

Left to their own devices, the owners keep plugging along, working hard to make customer / clients happy, to make sure employees are motivated, and so on. Meanwhile, time is passing by, and the clock should've started for such following examples:

• Implementing the new more tax-favorable entity structure
• Adopting the new accounting method to better reflect their cash flow
• Signing the buyout agreement to ensure a smooth transition when one of the partners unexpectedly leaves
• Bringing aboard the new marketing VP to round out the team

The list goes on..

Part of the problem is that many issues can be involved. But the simple basic reason is that "if you fail to plan, plan to fail!" While these captains of industry are at ease manning the helm of their business strategy or the latest market campaign, perhaps the problem is that exit strategy planning deals with more finances of a personal nature. And to some degree this remains perhaps the last taboo topic.

Most of us are comfortable now talking about everything and anything from health to marriage to even sex issues. But ask a person about their personal finances.. you may as well ask them strip down in public!

While doctors and lawyers work in fields where client confidentiality is a highly-guarded mainstay, maybe the problem is that having this spelled out in a similar fashion is something missing in the business advisor / financial field.

In fact, it is a specific exception - "When an attorney is not acting primarily as an attorney but, for instance, as a business advisor, member of the Board of Directors, or in another non-legal role, then the privilege generally does not apply"

So, basically, we have an unholy trilogy - perceived cost / complexity / no sense of urgency. No wonder why most small to mid-sized businesses flame out or get inherited as a sorry state of affairs!

New Article - 8 Secrets for Getting Top Dollar for Your Drycleaning Business

Recently listed two drycleaning businesses -

One located in prime North Beach / Fisherman's Wharf shopping center -

  http://www.bizben.com/listings/126211.php

Other with a motivated seller of location near new Federal Building -

  http://www.bizben.com/listings/127678.php

In my new article, "Eight Secrets to Selling Your Dry Cleaning Business for Top Dollar and Least Hassle," I cover such topics as why pricing too high can cost you more, how disclosing environmental issues like contamination and Perc surcharges protects, and confidentiality saves time. Contact me for a copy today.

Long Live the Four-Hour Work Week!

For those of you who haven't seen this book by Tim Ferriss yet -

http://fourhourworkweek.com/index.htm

..the "4 Hour Work Week" picks up where Randy Komisar and his work "The Monk and the Riddle" left off in exploring the idea that most of us put everything on hold with our "deferred life plan."

So, Tim asks the question "what if we have mini-retirements?"

   http://www.getrichslowly.org/blog/2008/06/03/how-to-take-a-mini-retirement-tips-and-tricks-from-timothy-ferriss/

If so, what would it take to support such a lifestyle?

Well, recently we listed this business that's ideal for an executive who's tired of the 9 to 5 Rat Race, working 50 to 60 hrs a week and making his company or others wealthy but having very little to show for it.

What if you could work just a couple of days a week and still earn six-figure incomes? That's nearly $ 651 / hour!

Too good to be true? Come check this out -

    http://www.bizben.com/listings/125310.php

[Post-Note: Coincidentally, I ran into Tim last week at our weekly event in the city. http://organictangosf.info/cs_SF.htm 

Being fellow tango addicts, we chatted mostly about the Bay Area dance scene. This week our non-profit project-tango.org is hosting the annual tango event -  www.sftx.info]

Win-Win

One of the most satisfying part of my work is helping BOTH the buyers & sellers meet their goals on a deal.

Buyer, Steve F - "It was really good working with you, you made the challenging task of finding the right business seem easy."

Sellers, Gary & Susan - "It has been very rewarding to work with you, as you have been extremely patient and understanding of our needs in this unstable economy.  You have also led us in a direction that has not been overwhelming during the sales process, understanding that we are continuing to operate our business. You made the whole process simple and yet took on the unpleasant task of the paperwork and preparation for us with ease and ability. Thanks again for all your hard work."

Selling Your Business Yourself

Currently in escrow for a custom glass business. The owners were originally trying to sell it themselves. http://snipurl.com/203du

We'll check in with them later and get feedback about how our services have helped them.

Often, I find that while business owners know how to sell their products & services, they find out too late that selling their business is another story.

In May I'll be hosting a seminar for business owners on how to sell the business themselves. Stay tuned for more info!

Retiring Baby Boomers

Came across this Bankrate article - "7 Tips for Retiring Entrepreneurs".. some of the main points include what I advise all the time - "follow your bliss" -

Some of the other parts are also not big startling revelations. For example, this article advises a more defensive strategy, which makes sense. As they talk about, there is less of a margin for error because youthful mistakes can no longer be fixed by time.

Another obvious idea is to consider your lifestyle / health and the type of work involved.

So, maybe the main value of this article is asking the basic question of whether someone prefers freedom & passion over comfort & security. That, I agree, is a basic reason why entrepreneurs will work 80 hrs to avoid working 8 hrs for someone else!

Helping a Family Bakery to Successfully Close the Deal

Recently, a family bakery has asked me to represent them through the sale transaction.

For the past 20 years loyal customers have come in daily for the fresh bagels, breads, and pastries.

Besides walk-in traffic, this bakery also has wholesale clients, including upscale coffee shops, local businesses, and the city.

One of the most attractive aspects has to be the below market rent in a prime location. Besides a complete set of equipment and FF&E (Furniture, Fixtures & Equipment) intangible assets would have to include the "intellectual property" of sought-after recipes including those of one of the founders of Noah's Bagels.

Some sellers opt to skip the escrow process, but here's what John Mittelset, a 16 yr veteran has to say about this -

"Business opportunity sales transactions are more apt than real property transactions to wind up in litigation. When a buyer starts failing in the business he bought, the last person he blames is the person he sees in the mirror every morning. In the Buyer's eyes it's always that the Seller wasn't doing as well as he told the Buyer he was doing, or that the Seller must have hidden some material fact, or SOMETHING.

Then the Buyer goes to an attorney who convinces the Buyer that it IS indeed the Seller's fault (and/or the brokers), and once engaged by the Buyer, the attorney starts to look at all the possible procedural errors that might have cropped up, because he knows that proving fraud may be difficult. He will find fewer problems if the deal was handled through an escrow.

I have been doing business opportunity transactions for almost 16 years, and almost every business owner I talk to has heard a horror story about some friend who had sold their business and had to take the business back because the buyer wasn't doing well and either the buyer sued him or just asked for his money back or quit paying on the Seller Note. I have not personally witnessed this phenomenon except for once in my sixteen years, even though all owners have heard a similar story from a friend.

My theory is that's because of two factors: 1) business brokers deliver better qualified buyers to the party, and 2) escrow companies dot all the i's and cross all the t's, so that buyers and their attorneys have fewer things to complain about when a buyer starts failing in the business."

Ships in the Night

If you know about supertankers, you know that these huge ships that take miles to change direction.

So, 5-10 miles out the captain needs to make minor course corrections. A matter of a few degrees makes the difference between safely docking, or driving into the pier.

Well, this is what can happen to business owners.

If they don't get their financials in order - day to day the mess in the shoebox gets even more out of hand.

If they cut corners on their tax returns, little do they know that buyers care only what is reported income - not "hidden cash."

If they're structured to put more money in their pocket, it's too late to put a 10-year plan in place when they want to sell in 6 months to a year..

--

Making Money One Quarter at a Time

Several folks have asked me about coin op businesses - car washes & laundromats being prime examples. Sales of coin laundries typically range from 3.5 to 5 times SDE (Seller Discretionary Earnings - which in simple terms is basically owner's earnings before adjustments mostly related to taxes & non-recurring expenses). Meanwhile, car washes are sold around 4 times SDE.

Their simplicity and operation cash businesses “All Cash” nature with no inventory or accounts receivables make them very attractive. Because they run themselves, you don't need to quit your day job. According to Ilene Fudim, nationally recognized industry expert and contributing editor to the Laundry Center Marketwatch newsletter, "both Dun and Bradstreet and the SBA have cited it as one of the 10 top safest business investments one can make."

Some other resources include:

  Coin Laundry Association

  Int'l Carwash Association

5 Critical Elements of Selling a Restaurant

Recently, we listed a Mexican restaurant. So, I wanted to share some excerpts from an article by a fellow CABB member on his experiences in buying / selling restaurants.

Jose Bravo of VR Group down in San Diego says that based on his experience, which includes owning & operating his own chain of restaurants before becoming a business broker back in 2002, he identified some basic criteria that helps him to determine how sellable a restaurant is.

1. LOCATION is #1 - like so many other types of businesses. Jose divides this into first-, second- and third-tier. "First-tier" locations are "very busy, high traffic, booming businesses nearby, mid- to high- income population,"  while "second-tier" are "still busy but the population is low- to mid-income, and the businesses in the area are not as glamorous." He adds that he only takes listings in first and second tier locations, because it's "hard to sell a restaurant that's in a bad area no matter what the price is."
2. RENT. While first-tier locations command higher rents, the numbers still have to make sense. Jose says that rent should not exceed 10% of gross revenues.
3. CONVERSION POTENTIAL. How easily the restaurant can be converted into another concept that, instead of trying to compete with other restaurants within a certain area, it fits in or even enhances the other existing retail? I've seen this myself - that often what interests prospective buyers is the potential to put their stamp on a location.
4. CONDITION OF THE EQUIPMENT. If things are in bad shape and / or need to be replaced, price accordingly. Enough said.
5. Finally ASKING PRICE. Most restaurants sell on percentage of 30% to 40% of revenues. Jose says that he walks away from anything with less than $500,000 in revenues, unless it's an Asset Sale. He says that in that case the restaurant is basically just selling the equipment and the location at a very reduced price.

For the complete copy of this article, you can contact me directly.