How do you price your business for sale?

A lot of business owners have no idea what their business is worth. As a former business broker, I ran into the gamut of people that were ignorant of their business value.

The answer, of course, is that a business is worth what a willing and able buyer will pay a willing and able seller.

However, there are some objective factors to consider. If you are a small business (under $1 million in sales per year) the typical way to consider pricing is using Sellers Discretionary Earnings (SDE). SDE is defined as your net profit PLUS your salary. The value is between 1 to 3 times SDE.

Why the variation? If you have an established business with a large number of buyers that use your services or products regularly, you have a fairly stable business. If you have a company that has a limited number of customers, and your product is based on ever changing technology...you could be obsolete in a month.

Larger businesses, up to $30,000,000 in annual sales, use a different method. They look at Earning before interest, taxes, depreciation and amortization, or EBITDA. In those cases, the selling price is typically three to five times EBITDA.

There is also the issue of owner expertise. If you have a unique skill set or knowledge base that takes years to acquire, your business is limited to buyers that have your same knowledge and skills. You can train a key employee to learn your skills, and have them be included in the purchase. The downside, of course, is that if they acquire the skills, and they are entrepreneurial, they might decide to open their own business, or take the skills that you paid to teach them, and go to a competitor.

These are options for selling your business if it is profitable. What if your company is NOT profitable?

If you have assets, you can do an asset sale. You can sell the assets for pennies on the dollar. If you are purchasing assets, you can purchase the assets in an equity purchase, for pennies on the dollar, and do a firesale of the assets that you don't want, and keep the ones that you do want. It was done in the 80's for corporations and acquired a bad reputation, but it is a perfectly valid manner of increasing your wealth.

If your company has business assets, can you "partner" with another company that is having financial difficulty, to save your business, and theirs?

Example: If you collect your customers name and phone numbers, and have a good relationship with them, can you send a mailer to them offering bundled discounts on your business, as well as the services of another business? Can you sell your mailing list to another company? Can you do a Point of sale referral to other businesses so that every purchase includes a coupon to another company? Can you sell these services to another company to increase your volume and/or keep your company afloat? (It must be a compatible business.)

If your company has unused assets, can they be sold for cash, trade, or services to cut your expenses and raise revenue? (Do you own an empty warehouse that you are not using, or need in the near future?) Can you sell it, or lease it to another business?

Don't trust their books! As a business broker, I discovered that some sellers were lying cheats. They had one set of books for the IRS, one set of books for themselves, and another set of books for their partners. Obviously, I would not trust a thing that these people said. If you are selling a business, you should have accurate and honest records. It is too great of a liability for you to fudge the books. I always told my sellers that I don't care WHAT they actually made, the only books that we would use would be the ones that they shared with the IRS.

If you are thinking of selling your business in the near future, proper record keeping and honest accounting are a pre-requisite, and your accounting system must be easily accessible to potential buyers (after they have signed a non-disclosure agreement).

In summary; if you are wanting to sell, you must show profits, or be prepared to take a huge loss. The more open and transparent your accounting system, the more money you will receive, and the more transferable your business, the easier it will be to sell.

Selling your business

Selling your business By Reed Sawyer If you are trying to sell your business, the first question to ask is; "Why?" If you have a profitable business, you are not selling it because it is not making money, so you must be selling it for another reason. Why?

If your time is so limited that you feel that you are going crazy, let me offer a different alternative. Hire an employee that can take care of some of the things that you do, so that you can spend some quality time doing something else.

I used to own a dry cleaner. I worked half days (from 7am until 7pm). I hired a part time employee to run the store for a few hours each day, and found that the extra time gave me a lot of stress relief. Can you train your employees so that you can take off early one or two days a week?

The second question is always; Is it profitable?

Profit is having more money than expenses. One of the ways to increase profits is by cutting expenses. If you have a 20% profit margin; (For every dollar that you bring in, you keep 20 cents, after all expenses), then for every dollar that you save, you have achieved the same effect as increasing revenue five fold. Since your selling price is based upon a multiple of your profit (or your gross revenues) a $1 savings in expenses could be worth up to $100 in sales price. Is that enough incentive to be a cost cutter?

How can you cut costs as a small business owner?

1) Printing costs: You need to print things, but your corporate culture should explain to your employees that they should think twice before printing, and that excessive printing cuts profits, and you are monitoring their printing. Any flagrant misuse of the printer for non-business functions will not be tolerated.
2) Vastly reduce printing costs. If you are using inkjet printers, research Continuous Ink Supply systems. For less than $100 you can get a CIS system that will allow you to reduce your color photo printing costs greatly. Instead of spending $50 for a thimbleful of ink, you can spend $8 for a large bottle. It takes a little more work, but it is definitely worth it. (I reduced my costs for large photos from about a dollar a page, to less than 2 cents.) Sometimes you have to invest to greatly reduce savings.
3) Coffee costs. It is possible to cut or eliminate coffee costs. How? By removing the coffee maker and/or having people pay for their own coffee by donating a couple of bucks a day for gourmet coffee. (Again, this is an area that is grossly abused in most companies. I don't provide coffee. If they want it, they can buy their own.
4) Smokers: Do you really want them? One of the biggest productivity wasters is having smokers wander off of their job for five minutes an hour for a smoking break. It is unhealthy, it is unproductive, and they are demonstrating that they make poor choices. If you institute a policy of no smokers, you will greatly increase your profitability. It is NOT discrimination to discriminate against smoking. Also, your health insurance costs will go down immensely.
5) Cell phone use. If your employees are on your payroll, they are NOT paid to answer their cell phones. If they answer their phones on company time, they are stealing from you. If they answer their phones while they are talking to a customer, and make that customer angry enough to leave, they are sabotaging your business. Insist that cell phone use be eliminated at work, and that a ringing cell phone is grounds for a disciplinary action, and that answering one, without express approval for medical emergencies, is grounds for termination. You aren't running a club, you are running a business.
6) Productivity: Prune your payroll regularly of the people that waste your time and money. If they don't contribute enough each and every day to double the cost of their salary, expenses, and benefits, you have to analyze if you want to pay for their services.
7) Outsource: If you have a need for specific services on a regular basis, but not a full time basis...consider outsourcing. You don't need to have a graphics department if you are a regular business, you just need to be able to hire a company that does graphics at a great price. Outsourcing will seem expensive, at first, but a close analysis will probably reveal that it is more profitable to hire the best at reasonable prices, than to have low skill people that are accountable to you. (Also, if you are working with a company, you can give them specs, and have them fill it.)
8) Come in from the monorails: When I was putting myself through school at Disney World, they had the trainers do an exercise that was so simple that it was brilliant. Come in from the monorails. This meant that our training supervisor had us look at things the same way that our guests did. We drove out to the monorails, and came in as a regular guest did. We discovered, by looking with fresh eyes, that we saw things that we didn't see each day.
Take the time to put on your fresh eyes and see things as a new customer does. Is your sign clean and spelled correctly? (You would be amazed at how many times a million dollar business has incorrect spelling on their marquee.) Is your entry area clean? Does it look professional? Can you see yourself, as a customer, being impressed? If not, why not? What can you do to improve for free or cheaply to make it look professional.

In summary, the easiest way to get a business ready to sell is by increasing profitability by decreasing expenses. It is going to be hard, but if every dollar saved increases your sales price by up to $100, it is worth it to cut costs vigorously.

Micro expressions: Your face doesn't lie.

In the recent television series, "Lie to me", Dr. Cal Lightman uses the reading of "micro expressions" to determine if a person is telling the truth, or lying.

The expression for "disgust" is: The nose is wrinkling, and the upper lip is raised.

The theory is that micro expressions are universal, and, once you learn them, you can determine the emotion that a person is feeling, at that moment. A micro expression will appear on a persons face for a fraction of a second, and, if you are watching closely, you can observe that expression and know exactly what that person is feeling at that moment.

What does this mean to you? If you become adept at reading micro expressions, you will KNOW what a person is feeling, and you can use this information to help them in a sales transaction, win a poker game, or avoid a fight.

The expression for sadness is: Drooping upper eyelids, losing focus in eyes, and a slight pulling down of lip corners.

The expression for happiness is: Crows feet wrinkles, pushed up cheeks, and movement from muscle that orbits the eye.

The expression for fear is: Eyebrows raised and pulled together, raised upper eyelids, tensed lower eyelids, and lips slightly stretched horizontally, back to their ears.

The expression for surprise is: Eyebrows raised, mouth open, and eyes widened.

The expression for Anger is: Eyebrows down and together, eyes glare, and a narrowing of the lips.

The expression of contempt is: the lip corner is tightened, and raised on only one side of the face.

Do you need to know all of these micro expressions to become a good salesperson? Absolutely not, but they are another tool in your toolbelt that will help you determine a person's true feelings, because if you are trying to help solve a clients needs, one of the first things that you have to do is get beyond the facade and discover the problem.

Lying by a client is one of the first methods used to mask their hidden emotions, because they don't trust you. Once you start to ask questions, and discover their concerns the facade will come tumbling down, and, if you are truly concerned with their well being, you can help the client achieve their desired results more quickly.

This is not a "hard science", and results vary, but micro expressions are a window to the soul that most people have not learned to conceal, and it could greatly assist you in your quest to solve their problems.

Using criteria words to establish rapport

People like people...like themselves. One of the ways to establish rapport, almost instantly, with buyers is to be just like them. Since it is impossible to metamorphasize into that person physically, we can't be "just like them"...or can we?

If you use criteria words, you will sound just like the buyer, which is as close as we can get without plastic surgery.

What are criteria words? A criteria word is a unique word that the subject uses periodically, that "define" them. They might use it often, or seldom, but when they do, it is a unique word or usage of words that is part of their internal vocabulary.

For instance, a jock might use the word, "blitz" in their conversation. They are using it to describe an all out pass rush, or a promotion that goes all out. If they use that word, you can use it too, in the same context that they use it, and the buyers will have a physiological reaction. They will think, "You are just like me!" Their eyes will dilate, they will nod, their cheeks might flush...and they will accept you as an equal.

When this happens, you will have lowered the pyschological self defense barriers, for about 20 seconds. You can impart a message, or statement during this time and there will be no filtering...it will be viewed as a factual statement.

How does this help you?

While you are talking to the client, you want to be listening, intently, for their criteria words. When you hear one, memorize it. (Unfortunately, unless you are on the phone, you can't jot this down on a note.) Once you have three or four criteria words memorized, you can start making statements that will be accepted as factual.

Example: Criteria words are: Hip, crazy.
Buyer example: We went to this really hip little place in the valley that had crazy art on the wall.

You follow with: This restaurant is a hip place that has crazy good food. You will enjoy it.

Analysis: They used "hip" as an adjective for good. They used "crazy" in the same manner. By using both criteria words in the same context, you have just used THEIR words to make a positive statement, and they will believe it.

If you start small, and start building towards larger statements of fact they will "own" the statement, and it will be true. After all, if they "said it" it must be true. Right?

Caution: Practice makes perfect, and never use this technique for evil, only for good purposes, and to make a sale.

Don't be a commodity

What exactly is a commodity business? A commodity is a fungible product that can be bought or sold, and is done so at the lowest possible price.

In a perfect market (such as the stock market), a commodity is bought and sold daily, and it makes no difference who provides that commodity, they are all deemed to be equally valuable. (Think crude oil, orange juice, pork bellies, corn, etc...)

Isn't that what you want? To have your goods and services sold? Yes, but the second part of that equation is what kills you; at the lowest possible price.

How do you avoid being a commodity? One of the ways to avoid being a commodity is to be unique. Upscale romantic restaurants offer fine dining, at prices that are multiples of a basic fast food experience. Why? Because they have created a unique ambience, experience, and culture that allows diners to know that they are getting more than a hamburger and fries...they are getting an experience. When the romantic restaurant rose above being just a food purveyor, and became an entertainment/experience purveyor...they stopped being a commodity.

Vangie Berry used to say, "The best are always free. The value of their service more than pays for their fee." If you want to NOT be a commodity, one of the options is to be the best at your profession.

Think of attorneys. There are thousands of attorneys that are scrambling to pay their bills, and then there are attorneys that have people lining up to hire them, at exorbitant fees. Why? Because, in law, second place means that you lost. They can afford to charge huge fees because their clients reasonably expect them to win. In law, winning is everything. So they can charge the fees that they want, while other attorneys are giving away their services.

What are some ways that you can "de-commoditize" your business? One technique, that has been shown to be profitable, is to offer excellent client service. One of the ways to do that is to find out EXACTLY what the client needs, by asking them open ended and closed ended questions to probe and discover needs that the client might not have realized. I have included a link to a video that explains this in detail. http://www.youtube.com/watch?v=HX-ePkaFTOg

Years ago, at the height of the mortgage refinance boom, I was working for a lender in Colorado. I complained to my boss that we had too much competition. He rebuked me and stated, "If you give the client service that is better than anyone else, you have no competition".

How do you do that? By asking a series of open ended, and closed ended questions to discover exactly what the client needs, and giving them a unique solution. When you do that, they will refuse to go to anyone else.

In summary, if you want to avoid being a commodity, be special, be unique, and give such great service that the client will refuse to go anywhere else.

Performance

Dr. Pete Lorins stated that Performance = Motivation X Ability X Opportunity.
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Here is a link to his article. In it he describes the best ways to maximize performance. http://brainstormcapital.blogspot.com/2011/05/performance-motivation-x-ability-x.html

It is not just enough to have ability. The world is full of failed geniuses. It is not just enough to have motivation. There are millions of people that are starving right now, but have no idea how to take their motivation and make millions from it.

The biggest challenge is the opportunity.

Let's define opportunity. Opportunity is having a great idea, and the capacity to transform that idea into reality. It is the second part of that equation that stops most people.

What would happen if you could take your motivation, ability, and opportunity and combine them in a manner to make your baby idea grow into a profitable business? You would have success.

Brainstorm Capital Group is dedicated to helping entrepreneurs, and potential entrepreneurs turn dreams into reality.

How do we do that?

A business needs several things to get started and succeed.

It needs Capital. Without capital, no business has the money to begin operations, let alone create the product necessary to sell. Fortunately, in this internet age, it is possible to sell products/services with little money by making use of the available resources and maximizing their effect. (This takes expertise).

It needs Expertise. I used to work for a business process outsource provider that had the knowledge and skill sets to take other people's ideas, maximize them, and create a new business model. It benefited all parties, because it used expertise to take a raw idea and monetize it. Expertise is needed to start a business, structure it, create products, and market them. Most individuals do not have this expertise, which is where an operation like Brainstorm Capital Group is needed.

It needs a venture. If you have a vague idea, but no firm grasp on how you will produce the product/service, or market it, you have a dream, not a venture.

Brainstorm Capital Group is the bridge builder to put the inventor, investor, and the expertise together to create a new business, or help an existing business thrive.

If you are interested, listen in to one of our new telinars/teleconferences coming soon. Please contact Dr. Pete Lorins at (407) 272-0873 for more information.

Bin-:Laden's death

A lot of good people are conflicted with the news of Osama Bin-Laden's death. They rejoice that no more innocent people will be killed, but they do not rejoice at the death of anyone.

Each of us has a social contract with the rest of the world.

1) Do unto others as you would have them do unto you.
2) Protect women and children.
3) Don't lie, cheat, or steal.
4) Love others with no conditions.
5) Make the world a better place.

There are sick people that delight in inflicting pain on others. They are outside the standard deviation of normal behavior, and are called deviants. Some of these sick and twisted people do not like to think of themselves as cancers, so they attempt to justify their deviant behavior. Osama Bin-Laden not only despised civilization, he also despised his own people, and would kill anyone that didn't agree with him completely, or show "proper" respect to him. (He would kill Muslims with equal vigor as Christians and apostates.)

By killing innocent women and children, and recruiting others to kill innocents, he removed himself from the social contract and became, in effect, a pirate; a terrorist, and a cancer. There is no possibility of rehabilitation, remorse, or contrition. He had to go.

When a person that has removed himself from the social contract is killed, their death should not be treated with dignity, but should be a warning to those that might follow him. "This is your end, if you follow this path."

In the old days, pirates would be beheaded, and have their heads put on a pike, left at the city gates, to act as a warning to prevent further piracy.

The British, at the turn of the 20th Century in Palestine, would dip their bullets in pigs blood, and bury terrorists in pig carcasses, and ADVERTISE that fact, to act as a deterrent to potential terrorists that they would not be treated as martyrs, but would be banished from paradise forever.

Let's use every psychological weapon that we have to stop the spread of terrorism, and prevent innocent women and children from being killed by these madmen.

What are some of the ways to do that?

1) Use an aggressive education program to transmit native language information about Islam to affected countries. The truth shall set the ignorant free.
2) Use an aggressive education program to let foreign governments know that we take a stand against terrorism, and that "they are either with us...or against us."
3) Treat all terrorists with contempt, and use bullets dipped in pig fat, and bury dead terrorists in pig carcasses, and ADVERTISE that fact, to discourage other muslims from committing acts of terrorism.
4) If we are in a war with Islamofascists, treat it as a war, and suspend "racial profiling" protection in airports, bus stops, and any public gathering. If they are Muslim, they are suspects.
5) Do not give terrorists/pirates the privilege of a civil trial. Try them in a military tribunal, behead them, put their head on a pike, and place it at the city gates. It will serve as an advertisement to prevent other terrorists from becoming terrorists.

If a person chooses to violate the social contract, they lose their rights to be treated as a human being.

I wish that we didn't have to do this, but we must protect women and children from being killed.

The NFL lockout

The NFL is in a lockout with the players. The most contentious issue seems to be that the owners want to increase the number of games to 18, while the players oppose this idea.

What are the advantages, and disadvantages, to the football audience of 18 games?

Advantages: There would be two more games of football.

If this starts earlier in the year (August) then there will be Southern teams that will have an advantage with the summer heat. There is also the issue of player safety. (Yes, players have died in practice in the heat.)

If the games roll into January/February, then we will have Northern teams that will have an advantage with the cold weather. Also, there is nothing fun about watching a game played in freezing weather, snow, and mud. Unless the games are going to be played indoors, it appears that there is no discernible advantage to the fan of playing an extra two games.

Disadvantages: There would be two more games of football.

Football is a violent game, and after a lengthy season, the human body breaks down, and runs out of gas. If we had two more games, the skill players would be so beat up that injuries would limit their contributions, and we would be playing with backup players. This would not just be for the guys that touch the ball, we would also have backup players that would have to step in for the offensive and defensive linemen. In other words, everyone would be hurting and need to have lesser skilled players that could step in.

This means that we would have a lesser quality product to cheer. (Yes, there are always injuries, but why devise a system that guarantees a worse product?)

In summary:

I love football, but quality football games require quality players, and a longer season means that injuries would force teams to use more replacement players, and we would end up with a less exciting game.

Let's not do this, please.

Direct response advertising

Are you a business owner? Do you have direct response advertising? If not...why not?

What is "Direct response advertising"? It is taking action right now, in direct response to your advertisement/pitch.

When you are making your pitch, you are asking for a buying response...right then. If they want to think about it, inquire about the objections (if you are doing this in person), and close. A "think about it" translates to "no".

If you are running an advertisement, you must ask for a response right now, create urgency, or they won't buy. (Use "Free widgets for the first 10 callers", "Today only", or "While supplies last" to create a sense of urgency and get those phones ringing.)

The alternative is to place "awareness" ads. These ads create an awareness of your company that might help to build credibility, but they don't generate sales by themselves. You must use alternative sales methods to generate sales when you are using "awareness ads". (Examples of these would be having a sales staff, or retail location.)

An example of a bad advertisement strategy is to follow the "Coke Zero" approach, which shows their bumbling brand managers that can't tell the difference between Coke and Coke Zero. Not only does this not create a sense of urgency, it also leaves the impression that there is no discernible difference in taste between Coke and imitations.

Be careful on how you spend your advertising dollars. Always ask for a response...right now.