Imagine your financial advisor telling you to invest 80% of your net worth into one stock. This may sound crazy, but small business owners are doing this every day.
It is well known that investment diversification is one of the more important ways to reduce financial risk to an investment portfolio. According to Investopedia, “diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories”.
For better or worse, the majority of net worth of a successful small business owner is most likely held within their own company.
According to the FPA/CNBC Business Owner Succession Planning Survey released earlier this year, an estimated 10 million small-business owners plan to sell their businesses over the next ten years. Most of these business owners are baby boomers. According to the study almost 80% of small business owners are relying on the proceeds for retirement. The scary fact is that the average small business owner is anticipating between 60% to 100% of their retirement needs will come from the sale of their small business.Read More
A key question many business owners struggle with is…when is the right time to sell my business for its maximum value? This is often a very personal decision with several aspects to consider. There are 5 key questions to ask yourself.
Is my business growing, remaining flat or declining?
For business with sales and profitability that are growing at rates of 10% or greater, they provide an outstanding opportunity to capture a premium. The business trends over the last 3 to 5 years is a key factor prospective buyers look for and greatly influence what they are willing to pay. Businesses which have remained relatively flat do not necessarily generate the same level of interest as high growth businesses. However, they are generally good businesses for a buyer to consider if they provide market potential and represent an opportunity for a new buyer who is willing to explore new avenues to grow the business. Businesses which are trending down are often passed on by most buyers due to the risks involved unless the problems are easily identified and the path for turning things around is clear. If this is the case, you should either spend the time and energy to get things back on track or be prepared to accept less for your business.
Am I still motivated to operate my business?
I have represented many business owners who own a strong business and have developed a reliable business model, but lack the energy or motivation to continue to operate at maximum (more…)Read More
Do you want to sell your business in the shortest time, for the most money? Here are some things to consider:
Proper Preparation is Key
In a normal market with the right preparation, it takes on average 6 to 8 months to sell a business. If the work isn’t done ahead of time the business may never sell. To sell your business in the shortest time, for the most money:
It is important to have a clean set of financial statements, preferably 3 years of comparative numbers. A prospective buyer is going to rely on this information when he makes his offer, so the numbers must be verifiable. Nothing kills a deal faster than information presented that cannot be substantiated. Ask your advisor or trusted business friend to role play with you to (more…)Read More
Six Value Builders
Just twelve months ago, most owners of privately held businesses were feeling pretty upbeat. Many had enjoyed a record-breaking year in 2006, and 2007 was shaping up to be another high-water mark. One year ago (unless you were a sub-prime lender or starter-home track builder!) there was still plenty of money available to support merger and acquisition activity at valuation multiples that were at unprecedented levels.
Today, just twelve months later, many of these same successful business owners across the country are reeling from the combined effects of the expanding credit crunch and economic slowdown. Those who had “been thinking” about selling their companies and creating long-term financial security and more free time for themselves now feel trapped and unable to pursue their goals.
As a middle market investment banker and exit strategy advisor, I have observed many owners of privately held companies are now doing nothing to advance their goal of financial security and/or retirement. Instead, they have retreated to the “safety” of waiting until the next wave of M&A activity—the next valuation peak—when, presumably they will start thinking about (more…)Read More