Apr 7, 2016

6 Common Mistakes Business Owners Make When Trying to Sell Their Companies

You want to sell your company.  You're ready to retire, or move on to the next venture.  How do you prepare your company for sale?  Six common mistakes business owners make when trying to sell their companies are: 
1. Not Knowing Your Industry's Standards - You don't want to find out after you've decided to sell that your company's working capital ratios, customer diversity, or average aging accounts receivables, are below industry standards.  Better to know your the typical ratios and discover your weaknesses in advance, so you can reverse these into neutrals or strengths.
2. Holding Your Company's Assets in Less-Effective Legal Structures - I've met many owners who've made the mistake of holding their real estate in and through their Corporation.  Others have made the mistake of owning their business in and through a C-corp when an S-corp (or visa-versa) would have served them better from either a tax-strategy standpoint, or in courting the ideal buyer upon exiting.  
3. Improper Accounting Practices (Small & Easy Fixes) - Improper accounting practices are the number-one deal-killer.  A common and sometimes minor issue is improperly accounting for certain expenses.  For example, giving customers rebates upon delivery and then mistakenly accounting for the difference between the original sales price and the actual deliver price as a bad-debt write off.  Doing so would make any novice buyer mistakenly assume the company has too much bad debt as a percentage of sales.  
4. Improper Accounting Practices (Big & Nasty Problems) -   Some accounting practices like those above are easy to fix.  Others are deal-killers for almost any buyer.  For example, it was recently discovered during due diligence that one of the businesses we had an offer on had unreported income to the I.R.S. of close to $2,000,000 per year for the past several years.  Unlike tax avoidance using the maximum deductions allowable, some owners practice tax evasion by not reporting the income they've earned.  The former if prudently applied will make you wealthy.  The latter will almost certainly cost you more than you ever thought you saved and will likely put you in jail.   
5. Unreported Off-Balance-Sheet Liabilities - Not all liabilities or potential liabilities show up on the balance sheet.  For example, as a buyer I've found during due diligence that some companies have over-billed on government contracts.  In another case a seller was liable for damages connected to a breached contract that occurred some time ago, but hadn't yet converted to formal litigation.  In this case the statute of limitations for the breach of contract is 6 years, and so the off-balance sheet risk is a liability that must be factored in until the 6 years has run its course.
6. Waiting for Mr. Right - The perfect buyer or the perfect price and terms, are like the perfect spouse: they're a myth.  One owner I know has been wanting to sell and retire for many years, but is still "married" to a price offered to him  years ago, from a prospective buyer who has long-since lost interest and recently passed away.  Since then, the business continues to deteriorate in value because the owner isn't emotionally committed.  He wants to sell but is unwilling to settle for a fair price based upon today's valuation.  When your heart is not in your business, time is your enemy.  Waiting for the perfect buyer, or waiting for a better offer when you have a fair and reasonable offer on the table, is a mistake that has cost many businesses their entire nest egg.

Sep 4, 2014

Work On the Business, More than You Work In the Business

In his book, E-Myth, author Michael Gerber warns that most entrepreneurs get caught up in working in the business, rather than working on the business. 

There’s nothing wrong with working the 40-80 hours per week – so long as you’re working on building marketing channels, hiring and developing and mentoring your team, innovating and coming up with new products or services, or seeking additional working capital to grow.  All of these activities qualify as working on your business. 

But the sad reality is that most business owners work in their businesses and become a cog in the wheel, basically creating their own self-made prison. 

Hopefully you became a business owner because you valued freedom.  If you’re the company’s top salesperson, or the only one capable of fixing this or that, then in those moments you’re no longer an entrepreneur/business owner working on the business as an independent object.  You’ve become a technician or a manager working in the business. 

As you prepare to sell your business, you’ll want to be sure that you’re building the business, working on the business, and not just in it.  Sure there will be times when you need to roll up your sleeves, set an example, and scrub the toilets.  But the systems and the people working within those systems, need to be built and developed by you. 

Feb 12, 2014

Entrepreneurs: The Greatest Force for Good in the World

 "...people throw rocks at things that shine..."  -- Taylor Swift

Entrepreneurs are the greatest force for good in the world. 

Not the well-meaning politicians. 

Not the scientists or the artists. 

Nor the educators, athletes or celebrities.
And sure as all hell not the blood-sucking lawyers.

By definition, an entrepreneur is one who identifies unmet needs in the market, and then finds a way - typically against the odds of habit, naysayers and his own empty pockets - to forge ahead anyway to fulfill those needs. 

Being an entrepreneur is therefore the most selfless and self-sacrificing voyage one could endeavour upon. 

The stigma in society is just the opposite: namely that greed drives entrepreneurs. 

Entrepreneurs are therefore the target of much ridicule and protest by the masses of mediocre, day-dreaming, lottery-playing socialists.

Thank goodness for the few establishments that still embrace the mantra and mission of the entrepreneur.  Thank goodness for the few who hold up the entrepreneur as one worth emulating and learning from, rather than targeting him for his follies and missteps. 

It's an unfortunate truth that being in the limelight of success after coming through the hard-fought, lonely, less-traveled road of the entrepreneur makes one a more attractive target for attackers and critics.

Let us celebrate the spirit and the role of the entrepreneur.