It has been said that more than eighty percent of businesses FAIL to make it the next generation. Others are sold under duress because of health issues, divorce, disputes, business slow down and death. A business sold under these conditions does not typically result in the highest value.
How do you avoid these results? The answer is preparation. The quality of the preparation determines the quality of the results. What preparation involves is a combination of dynamic and subtle factors, many of which are obvious but often are overlooked.
Perhaps the most difficult decision, as a business owner, has to make is the decision to sell. Unfortunately, many owners agonize over the many variables involved in selling without ever making the decision to sell. Others will wait too long to sell and a large group feel they cannot afford to sell their only source of income.
Poor health, divorce, slumping sales, creditor demands, poor employee relations, lack of operating or expansion capital are often the symptoms of an owner who could have sold, but failed to heed "early warning signals." Indecision or lack of proper planning and preparation can prove to be very costly to the business owner, but also to the family, employees, vendors and customers.
When an owner understands where the business is today they can better envision what it could be tomorrow. Finding the right buyer starts with a review of where the business is and what the business is. Ideally, a successor will have talents and skills that compliment the current owners'. Also it is imperative that a successor appreciate, and be able to maintain, the strengths of the business previously created. As such, the owner must recognize the strengths and build upon the opportunity. Additionally, both buy and sell sides may be motivated by personal, rather than purely financial, factors.
Buyers really want a business they can make their own. That is why, as one of the first steps in preparation for sale, the owner must attempt to identify the ideal successor. Buyers want the opportunity to make the business better and, in the process, make it their business that allows them to make money.
Financial data alone will not allow buyers to recognize the full opportunity a business represents. Actually, financial statements and tax returns, for most small and private businesses, are more like mystery novels. They certainly are not operating manuals. Tax returns seldom highlight the opportunities a business represents.
Financial statements alone may not sell a business, no matter how profitable they indicate a business is or has been. The opportunity the business represents will. Do not assume the "numbers" will accurately reflect the opportunity the business represents. Remember, money may be a secondary motivation, capitalizing upon opportunities is a buyer's primary motivation.
Finding buyers is relatively easy. In fact, everyone "has a buyer". Buyers hire firms to search for companies, network actively with lawyers, accountants, bankers and others searching for the right business. The typical aggressive buyer will look at scores of companies, make several offers and still be looking for a company. What really happens is that the businesses have not been adequately prepared for sale, and are being exposed to the wrong buyers, or are positioned as less than attractive opportunities.
Finding the right buyer for a business can be time consuming and frustrating. When a business demands full time and attention, and its sale is important, professional assistance may be a wise consideration. Obtaining assistance may be a necessity if maintaining confidentiality is important.
Public perception of how, and to whom, one should sell a company comes from several sources: newspapers, movies, television and hearsay. Unfortunately, these sources provide information that is misleading, inappropriate and wrong, particularly when applied to small or mid-size companies.
These sources report about, or depict, public company events that tend to be much too grand a scale for smaller private companies. There is a significant world of difference between the two. No one person owns a public company, many shareholders do. Public company accounting focuses on maximizing profits to satisfy shareholders demands, and allow management to retain their jobs. Private company accounting focuses on minimizing profits to reduce the owner's tax bill to maximize the owner's wealth whereas the focus is on maximizing shareholder value in the public domain..
Private company owners are not concerned with hostile takeovers, junk bonds, P/E ratios, or loss of a job because the company did not show appropriate profits in recent quarters. Most observers agree that major differences in management convention and culture exist between private and public companies. Because virtually no public information is available regarding the sale process and selling prices of private companies, many business owners, and their advisors, attempt to apply public company methodology and Price/Earnings ratios to the sale process of private companies.
Financial results are surprisingly not the most important factor to drive a company's value. Therefore, knowing your customer is the driving force! The person, or firm, recognizing the highest value, will pay the highest price. To identify the best buyer or customer for a business, the owner must first understand both objective and subjective elements within the company. How does the company appear from the outside in? To whom will the problems appear as valuable and exciting opportunities?
The value of a company lies in the buyer's view of its future. Financial results reflect only the past.
- Most likely successor identification should be the first item on a list of important factors that drive a company's value. Unfortunately, this factor usually does not receive the attention required. This is understandable since few of us are able to objectively view ourselves, our business or anything else we are very close and emotionally involved with objectively. Also, business owners and most advisors, although immersed in the business climate, are not familiar with driving marketplace forces or the various types and categories of buyers operating therein.
- Potential or opportunity is an obvious factor that must be on everyone's list. But what is opportunity? Opportunity is different from potential. Buyers will pay for opportunity but not for potential. Why? Opportunity is perceived as having been created by the business owner and potential is that which will be created by the acquirer. Buyers will not pay you for what they will do (potential). They will pay for what you have done (opportunity). Perception of opportunity will vary depending on the type of buyer viewing it, emphasizing the critical need to know your customer.
- Profits factor high on most observers list of important factors. Since most private companies financial statements are driven by the owners desire to minimize taxes, reported earnings are usually misleading. The numbers alone, even after recasting or normalizing, will not adequately reflect a firm's true value. The value of a company lies in a buyer's view of its future
Face the reality that both the owner and the business are constantly changing. Eventually the needs and requirements of a business will conflict with the owner's life-style needs, perspectives and abilities.
Obtaining the best results begins with a timely decision to commence the planning and preparation process. Before an owner acts, they should have a plan. To formulate the very best plan the owner needs to know what the business requires of its succession management. The owner should know what the company is worth and that the timing is right. They must identify the attributes of a likely successor, the one who will recognize the full opportunity that has been created, pay the optimum value and move the company up to the next level of profitability.
Ultimately, one of two options exists for every business owner. Either the succession of the business will be a planned event, and controlled by the owner or, it will be an unplanned occurrence brought on by outside factors. For the good of the business, the employees, customers, vendors and family, it is better decided when the owner still has a choice.
As always I welcome your comments, questions and input and please feel free to pass this Blog to any of your friend in your social network.
Thanks again and here is to staying on the far side of success!
Cheers,
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Filed under Blog, Financing, Influence & Negotiation, Language of Business, Leadership & Management by admin
I just had an opportunity to watch a great, short 1:48 video on social networking in plain English. It certainly brings back the importance and the understanding of what the power of these tools are in business.
The video to teaches us how this fast-growing tool of "social networking" can be used in today's economy and environment. The most successful businesses and entrepreneurs have succeed based on social networking - typically through face-to-face or phone-to-phone marketing and meetings. I have spoken to numerous entrepreneurs and those that I consult with on a regular basis who have said the same thing - "Social networking is for kids and I don't have the time to waste doing that stuff!"
The way I see it is you don't have the time not to do that stuff. Our economy is full of uncertainty in people perception today AND with that it brings a tremendous amount of opportunity. We are on the verge of a revolution of change just like the industrial age and the information age and social networking (ie working together as creative and innovative entrepreneurs) is the key to success in the coming decades and beyond.
Understanding the keys and uses of the current social networking tools beyond the traditional face-to-face or phone-to-phone marketing is of paramount importance to our future.
As always I welcome your comments, questions and input and please feel free to pass this Blog to any of your friend in your social network.
To watch the video click here
Thanks again and here is to staying on the far side of success!
Cheers,
Spread the Word!
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I am often asked in my various speaking programs and when working with executives, entrepreneurs and businesses, "What is the single most important factor in success?" This one is an easy answer for me as I believe that the answer permeates all areas of our lives. It is one simple word that most "left brainers" don't think about - "psychology". To put it another way it is our mindset, beliefs and meaning we place on the occurrences in our lives. We live in two separate worlds every moment of every day - our inner world and our outer world. Now bear with me for a moment before you think I am going all "woo-woo" on you. Every result, product, service, company, creation began in someone's inner world as an idea before it ever became a manifestation in the outer world. Given the fact that there are two separate worlds - which one do you think we have more control over?
Correct - the inner world! Yet many either consciously or unconsciously (mostly unconsciously) choose to give up this control. The result is that people are constantly living at effect where they believe that they have no ability to influence things and that all that has happened is someone else's fault. Now certainly there are things that are truly out of our control and yet we still have the ability to determine the meaning we will give them and how they are going to impact our life. You see the occurrence of an event is simply that an event - the event itself is neither positive nor negative until we place a meaning on it. This is the reason one child that was abused, sexually mistreated and grew up in a drug ridden violent environment becomes a murderer and another under the same conditions become Oprah Winfrey. Her first six years living in rural poverty with her grandmother, Hattie Mae Lee, who was so poor that she often wore dresses made of potato sacks, for which the local children made fun of her. From age six to 13, she lived in Milwaukee with her mother. She was molested by her cousin, her uncle, and a family friend, starting when she was nine years old. After suffering abuse, rape and molestation, she ran away and was sent to a juvenile detention home at the age of 13, only to be denied admission because all the beds were filled and at 14-years-old gave birth to a son, who died in infancy. Most people under these conditions would never expect a child to become much of anything in life let alone to have the tremendous impact that Oprah has had in our world.
What makes the difference? It is the meaning we give these events in our life and the questions we ask ourselves. If we choose to focus on the negative and give negative meanings to the events, the result is an unproductive (sometimes called, negative although this places a value judgment on it) perspective and focus. As we know what we focus on grows, so if we are focused on the negative and negativity continues to grow what kind of life, business are quality of existence can you expect. Considering that all things happen for a reason and there is always a productive reason for all occurrences, if we find that productive and empowering meaning and focus on that what becomes of our life. That is the difference between the results Oprah has gotten versus someone else that has been raised under the same or similar circumstances that chose a different much more destructive path to their life.
If we want to shift things in our life, our business, our community and our world, we need to change the questions we are asking ourselves. The questions we ask ourselves are what formulate your inner world and as a result and byproduct become your outer world. Our unconscious mind will ALWAYS answer the questions posed to it, even if it is an unproductive answer. In the past, I had made some awful investment decisions and as a result I began to carry the belief that I was not a good investor and that I was meant to lose money in investments. In fact at one point I lost one-third of my total net worth. The questions I was asking myself during these times included, "Why can't I make good investments?" My unconscious mind was coming back with an answer, "Because you aren't smart enough." or something more crass than that. Needless to say had I kept my current questions, the results and impact on my life would have been disastrous. Alternatively, by shifting my focus and questions to more productive ones, such as, "What else does this mean?" or "What can I learn from this? or "What can I do differently based upon what I learned?" and "How can I share these learnings with others?" Hopefully, you can see how these questions provide a better foundation for growth personally, professionally and financially. Fast forward; to today as a result of this new focus, I have been able to more than recover from the losses previously realized.
How does this relate to you, your business and your life? If we look at what has been going on in our economy and within our businesses as well as where the focus of the media has been, we begin to see questions being asked such as, "When is this going end?" or "How bad is going to get?" or even "Who did this? From this we nurture a myopic view of our existence to a moment in time where when we view our life through these questions we come up with unproductive answers. In order for us to move from this place to success, we must bring in more expansive thinking, more expansive questions and an expansive attitude. I believe we are at a great cusp of change not too different from the industrial revolution or information age that is bringing us a tremendous amount of opportunity. Certainly, life as we know it and business as we know has changed and that is OK. We need to ask ourselves different questions more expansive questions in order to bring the innovative and creative sprit back to this country that created this great nation.
If you have had enough of the questions the press and media are asking how about you as other questions, such as, "What have learned from this?" or "How does this serve me and society?" or "How can best position myself and business to serve the greater needs of my community?" or "How do I utilize my strengths, skills and knowledge to create a new avenue for growth for those around me?"
What questions have you been asking yourself that have not been serving you? Now, what questions are you going to ask yourself from here on out that will serve you and your higher purpose - in business and personally?
Cheers and here is to your success,
Mel
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My March 3, 2009 post on tax tips seemed to have generated some interest and I was asked if I were to narrow the tips what those tips would be? So I went back and took a look at what i thought would be the most simple and yet impactful tips for small business owner and came down to these five tips I share in this updated presentation. Additionally, I talk about a new provision as a result of the Stimulus Package that will get you an additional deduction of as much as $125,000 in 2009 so make sure you want ch the full program.
I hope you enjoy it and I invite your comments and I invite you to forward this to your friends and colleagues.
Tax Tips Presentation - Updated
This presentation a multi-media presentation that will take you through a number of strategies and the details on the strategies, so grab a cup of coffee and a note pad to take some notes on how you can implement the strategies in your world. As always your comments are welcome.
Cheers,
Mel
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I was recently asked by a close friend, mentor and colleague about how Small Businesses today may be able to get the most legal advantage out of the tax law in today's economic environment. I sat down this evening and created this presentation with a number of tax fundamentals, tips and considerations for the small business owner to consider. I hope you enjoy it and I invite your comments and I invite you to forward this to your friends and colleagues.
This presentation a multi-media presentation that will take you through a number of strategies and the details on the strategies, so grab a cup of coffee and a note pad to take some notes on how you can implement the strategies in your world. As always your comments are welcome.
Cheers,
Mel
Spread the Word!
Filed under Blog, Language of Business by admin
Today the media is constantly bombarding us with all the uncertainty that the media, government and other folks are choosing to focus on. At times like this it is especially important to understand that our mind is like a garden and just like a garden if we neglect it, weeds will grow and the garden will bear little, if any fruit. The reality is, all of your success in your life is dependent upon the 3 pound mass between your ears. Everything that exists in your outer world had to exist previously in our inner world. In other words, your thoughts, ideas, ideals, values, philosophies and focus precede your results AND therefore what you feed into your garden or your 3 pound mass becomes of extreme importance.
If you are seeding and fertilizing it with uncertainty, anxiety, turmoil and the demonic representations of the media, what do you think will continue to happen in your outer world? We end up creating our own self fulfilling prophecy. Now I am not saying that there aren't intervening causes at play including corruption and deceit, but I am saying that we have the control to place the meanings to what is transpiring in every moment of every day for ourselves. The meaning we give it all will manifest in our own lives and how we interact with the challenges we may be facing. there are always two sides of the coin, light and dark or yin and yang. In other words there are certainly opportunities to grow, be successful and have an impact in your world today just as there were yesterday and two-years ago. Albeit the opportunities may be different now than then - nonetheless they still exist.
Albert Einstein said, "In the midst of difficulty lies opportunity" - Isn't it time we look for and focus the opportunities that exist? The opportunities to change the way we see the world, the way interact with each other, and the way we do business? Once we begin to find the little success and focus on the opportunities, more possibilities begin to reveal themselves to us. Funny thing is that these possibilities always existed we just were not open or receptive to them because of where our focus was placed. Lets shift our focus and shift your world beginning now.
What opportunities do you see today? And where is your focus on a daily basis? I would love to hear your thoughts…
Mel
Watch for my next post related to the importance of the questions you are asking yourself.
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A Historical Perspective From a Good Friend
My good friend & mentor Alex Mandossian posted and interesting historical perspective of entrepreneurship and the shift from entrepreneurial independence which created this great country (1755-1945) to entrepreneurial dependence which brought us much of the corruption and scandals we see today (1945-2010) to entrepreneurial interdependence which will takes us out where we are at today and bring us forward as entrepreneurs working together in strategic alliances to find a better way and to define the new era of growth, opportunity and success. When you think of these transitions it is similar to the growth of a child in the early years they are very dependent on their caregivers, yet as they move into their teen years they are fighting for their independence until they grow a bit older in age where they realize the importance of family, relationships, and interpersonal interaction with each to realize fulfillment in life.
The following is my response to his post for your review.
In gratitude,
Mel
www.melabraham.com
Alex – You are right on!! This is a great perspective and what I have been speaking about for a while now. Our economy is stagnated partly because our psychology and minds have stagnated. Only through as you say, “imagination” and creativity and innovation will we find our path out of the dilemma we are in. It starts with our own thinking though - we must shift our mindset and how we view where we are, how we believe we got here and where we are going. We need to go back to the roots that created this great country of ours and those roots are the ones you spoke about - What made those historical icons so great was not simply what they accomplish but also what they stood for and represented in the country’s eyes. They are what i call, “possibility thinkers” - they always asked themselves two other question “Why not?” instead of just, “Why?” and they continually asked themselves, “How?”
The power of those simple questions positioned them psychologically to find the path of a compelling, fruitful future. Our change and our future begins in our “inner world”, that 3 pound mass between our ears. If we reflect on the principles and ideals of the icons you talked about and “interdependent entrepreneurship” as you so aptly bring to the surface while shifting our psychology and focus not only will we emerge from our current state we will emerge with a whole new world of possibility.
And we owe that to our children - since it is my belief that they don’t inherit the world from us, we have borrowed from them and we have the responsibility to give it back in better shape than we got it.
I have touched on some of this in my blog post at http://www.BusinessSuccessSensei.com.
With grateful admiration,
Mel
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