When I talk with business owners about selling their business, I find that often they are ready to sell, but the company is not – it is not making high enough profits to justify what the owner wants for the business.  The following are ten ways to adrenalize your profits to prepare your company for sale:

Collections

If you aren’t collecting 100% of your receivables, you are letting profits slip away. And this is the worst kind of profit-drain. You have undoubtedly incurred expenses to get each receivable, so any of those receivables that are not collected are a double whammy to your Profit and Loss: a loss in income AND an increase in expenses. One of the quickest ways to adrenalize profits is to upgrade your collections systems.

Interest

If you are paying a lot of interest on old debts or lines of credit, you should put a plan in place to lower the drain on your bottom line. Try to pay off dead debt (debt that isn’t buying you anything) as quickly as possible – but make sure that you consult your accountant on the tax ramifications before you launch into your plan.

Add-ons

This is the McDonalds tactic. Package high-margin items with more competitive low-margin items to increase the profit on each sale. This is particularly powerful in retail.

Incentives to employees

You know the little things that eat away profits – unnecessary expenses, warranty items, accidents, sick time, etc. – give your employees some incentives to get better in those areas.

Specialization

Break your operations into areas of specialization and give your key employees responsibility over certain tasks and areas of focus. You’ll be pleased with how efficiently people will work when they specialize in one area.

 Quality Control

Fixing mistakes is costly. Upgrade your quality control and you should see a reduction in mistakes. This improves your bottom line AND makes for happier customers. For tips in this area, research the Six-Sigma theory of business.

Discounts

Take advantage of early payment discounts. A 1% or 2% discount may not seem like much, but annualized over a year’s time, those discounts add up to some major savings.

Overtime

It is cheaper to hire new employees than it is to consistently pay overtime. If your overtime is more than 20% of payroll each month, you are probably understaffed.

Shop (get rid of old dusty vendors)

In many cases, businesses get used to a stable of vendors and they get to the point that they don’t even shop around. It is a good idea to occasionally shop around to see if your regular vendors are giving you the best deal.

Negotiate

You can save a lot of money by simply getting into the habit of asking the one simple question each time you purchase something: Is that the very best you can do for me? You will be surprised by how many times you can get a better price or better terms. All of which contributes to your bottom line.

– Wayne A. Simpson CPA, M&AMI is a Managing Partner at Utah Business Consultants and a Merger & Acquisition Master Intermediary with the M&A Source. Utah Business Consultants is a full-service Business Brokerage and Valuation firm.

At Utah Business Consultants, we’re here to ensure your business exit planning and sale processes go smoothly. We’ve seen a number of mistakes made by various parties while selling a business during our years in the field, and our business brokers are here to help you avoid all these while getting maximum value for your business – all without a major hassle or time constraint.

When the sale of a business breaks down or fails to close properly, there are a few different parties or root causes that might be at fault. Today, we’ll begin a two-part blog on this subject by looking at the two most common parties involved here: The seller of a business and the buyer.

Seller Factors

There are a number of mistakes a seller can make during the process that might derail a sale, many of which can be avoided simply by having brokers like ours available to help you out. Here are a few of the most common:

Buyer Factors

For more on the factors that can derail a business sale, or to learn about any of our exit planning or business valuation services, speak to the staff at Utah Business Consultants today.

For a business owner approaching retirement age, a buyout by the core management team is certainly an option.  But with any business sale, it’s important to proceed with caution.

 

Selling the business that you’ve poured your heart and soul into for many years to managers you’ve worked with side-by-side can be very rewarding.  If the sale is set up properly, it gives them a chance to own their own business. It also helps protect your legacy since these are people who believe in your vision and understand the company culture.

 

But if the sale is not structured properly, a management buyout can be extremely detrimental.  A company’s strong, positive culture can quickly turn negative with a rift between the owner and management team.

 

Consider a business owner looking ahead and planning to retire in about five years.  The owner brings his key managers together and encourages them to start thinking about buying the company.

 

But when those five years have passed, some situations may have changed.

 

What if the business is doing so well and the owner is enjoying the success so much that he or she just can’t leave as planned?  What if the economy has turned and the value of the business will no longer support the owner’s plans for retirement?  What if the owner has gone through a divorce or another life change that will have an impact on his or her decision to sell the business?

 

What will be the reaction from the management team when the owner makes it known that he or she is no longer interested in selling?  No doubt the reaction would be negative.  You’re likely to see some managers moving elsewhere, affecting operations and hurting business value.

 

Timing is not the only potential hurdle.  Confidentiality is always an issue.  A leak of the news that your business is up for sale can create issues with customers, vendors and other employees.

 

The sale price of the business can also be a difficult issue with a management buyout.  An owner, most likely, will be looking to get fair market value.  But the management team may actually expect a discount because they believe they’ve helped to build the company.

 

 

Then there’s the financing of the deal.  A business owner may find that the management team doesn’t have the cash to fund the acquisition.  Fortunately, lenders generally offer favorable terms for management buyouts.  Lending institutions understand that the managers know their business and have already proven that they have what it takes to be successful.

 

The alternatives are seller financing (more opportunity for bad feelings) or partnering with a private equity group or an angel investment group.

 

No matter the approach, a business sale to employees can be a sensitive process that requires the assistance of the right business professionals (attorneys, business intermediaries, and accountants) as well as careful timing and a reasoned approach.

 

 

– Wayne A. Simpson CPA, M&AMI is a Managing Partner at Utah Business Consultants and a Merger & Acquisition Master Intermediary with the M&A Source. Utah Business Consultants is a full-service Business Brokerage and Valuation firm.
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