Tag Archives: exit strategy

Sell or Buy Business with goal of Hybrid Retirement

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Owning a business can be a very rewarding experience.  Many will buy an existing business or start a new business with the thought of building the business to the point that it is a successful viable entity that they can sell and live comfortably on the proceeds.  There currently are millions of small business owners in various stages of planning the exit of their business.

I want to sell my business so I can retire comfortably.  There are also millions of aspiring entrepreneurs that are considering buying or starting a business with the goal of building it and growing it to the point they can sell it and retire comfortably. It seems so often when discussing what one does it is described as working or retired.( In today’s economy unemployed, looking for work is another status).

I beleive there is a  status between working and retired, and I refer to it as Hybrid Retirement. I certainly don’t see myself as any retirement expert or financial planner, but I have been thru the process of selling my business that I had for 20 years  and have developed my own views on retirement that possibly one going thru the daily work day does not have the time to consider.

My current profession is as a business broker in Florida. Within my community I am surrounded by retired people, and also after the sale of my business I did take “some time off”.  As a business broker I speak to many business owners considering the sale of their business. One of their top considerations is “If I sold would I have enough to retire?” .

 Why not aspire to Hybrid Retire?

I personally think the majority of those currently working full days either employed or as small business owners look forward to the day they can retire, stop working, and spend the rest of their days fishing, golfing, or hobbies. Of course your age at the time of cashing in can greatly affect your decision process. If you are 75 years old, maybe you say enough is enough and just head to the golf course.  But if you are fortunate to be successful and exit in your 40’s, 50’s or maybe even your 60’s your perspective, and needs could be greatly different.

The thought process for someone thinking of selling a business goes something like this:

I think I need to sell my business, walk away with $500,000 and that will be enough for me to retire.  But what if you had someone that would buy your business and allow you to walk away with $400,000?  Maybe this is a good time to entertain such an offer and consider Hybrid retirement.

Hybrid Retirement

Photo (c) yahoo.com

If you believe you need $50,000 per year to live off of, and the sale of your business may give you $35,000 to live off of, should you walk away or consider.?  Many small business owners get overburdened with the responsibility of owning a business, and really want to sell those responsibilities away to others.   Maybe making the $25,000 monthly payroll or covering the $100,000 per month fixed overhead cost month after month just gets to be too much.

Perhaps you can consider upon the sale of your business,  you can find another business to buy, possibly one that you have aspired to do for years, or possibly work for someone, under terms conditions that fit your lifestyle.  But this second business you don’t need to make that high monthly expense, and now you are supplementing the proceeds you have from your sale, and what you need to draw from the business is a lesser amount.  “Needing” to make $15,000 per year instead of $50,000 can be somewhat liberating!

Why Hybrid Retirement?

  • Do you really know that you can “do nothing” after working for 20, 30, 40 + years
  • You have someone looking to buy your business near the price you think you need.  maybe consider the offer and plan to supplement the difference with a second career, part time job etc.
  • This is an opportunity to build a profession around your lifestyle, whereas before you may have had to try to build a lifestyle around your business.
  • Are you really prepared to try to live off a “fixed income”- supplement that with something you aspire to do.

I think currently due to economic condition there are many small business owners delaying the exit / sale of their business because the recent performance of their company may not allow them to achieve the “walk away” money they believe they need to retire comfortably on.  There also are eager entrepreneurs ready to start a new venture with hopes of one day selling and retiring off the proceeds.  Maybe planning for both of the above scenarios can best be addressed by allowing yourself to consider Hybrid retirement.

Most Important Step to Starting,Running, Buying, or Selling a Business

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You are looking to Start a Business.  You are Running a Business.  You are Buying a Business.  You are Selling a Business.  What is the most important step in any one of these ventures, And no the answer is not having unlimited deep pockets. To start, run, sell,or buy a business you need to understand that business.  You need to understand not only the operational side of your business, you need to understand the financial side of your business.

I am a business broker in South Carolina and work with businesses in both South Carolina and Florida and I help people buy and sell businesses. (and current and former business owner)   I recall a very busy week of helping an out of town business buyer visit several different businesses.  Our intent of visiting these multiple businesses was an effort to understand the businesses. To buy a business you have to understand the business.  A small business owner truly needs to understand the financial health of their business.

Running Your Business Successfully

Many, Many Many small business owners DO NOT understand the financial side of their business.  Do you feel as an entrepreneur you need to understand the difference between a debit and credit or if you buy something if it should be a capital purchase or an operating expense.  So many small business owners and entrepreneurs run their business using their gut as their guide, they can feel if their business is going good or bad.

Other small business owners look at their checkbook- if there is money in that things are ok. On the other side you may have a very successful business, you buy several new trucks and new equipment with cash every year, you have very little money in the checkbook and “feel” you have an unsuccessful business. You could be very wrong.   And yes it is also very easy to hire a CPA and or accountant and send all the monthly records to them, count on them to sort thru them and have them generate a report for you to maybe glance at and file away.

Your CPA or accountant is a great place to start the learning process. The more you know, the more effective they can be to you.   Your  Balance sheet and your Income statement tell your companies story.  You may feel your company is healthy, or improving, or getting better, or getting worse- your balances sheet or Income statement (Profit/Loss Statement) will tell you in a factual manner.

You need money for your business- you go to a banker or financial institution to get money, do you think they will listen to you tell them about your business and loan you money based on that.  they will use your company financials to make that business decision.  A few years ago banks I had worked with strongly considered your balances sheet to make loan decision.  Now-a- days both Balance Sheets and income Statement both are a strong part of that evaluation.  Why is that?.  Understanding the “whys” about your business is important to your business.

In the preceding scenario a business may have a strong balance sheet due to significant assets like real estate owned or equipment owned by the company.  But in current economic conditions the companies Income statement show  that the business sales are down 25% and and shows losses for the last year- lending may not occur.  The banks may not be all that excited about the fact that you own real estate thru your company.

The business buyer I was working with flew in town for 3 days for him and I to visit businesses.  Most of the small business owners we visited had good businesses.  Without divulging any confidential information, they all showed cash flow in excess of $200,000 per year.  They (the respective business owners)  all said they didn’t really understand the financial side of the business, but “here our our records for your review”. (after confidentiality agreements were signed) They could speak for hours about their customers, employees, procedures and ideas.  Questions regarding financial information were usually answered with  1 or 2  brief sentences.

Buying A Business – The Right Way

The buyer I was working with was a very educated buyer, a President of a publicly held $40 Million company , and 30+ years of experience.  He had looked thru maybe 30 businesses to narrow down visits to less than a handful.  He and I both knew that to buy a business, he had to understand the business. We spent hours discussing the financials of the businesses.

You as an entrepreneur that is starting a business or running a business may someday want to sell your business.  Understanding the true financial condition of your business is the 1st step to improving the financial condition of your business.

Buying a business is a very effective way to expand your customer base and Revenues. knowing how to read and understand the financial statements of others could be the difference of a business acquisition that is a success or a failure.

And when an educated buyer approaches you about buying your business, you provide the business buyer your Balance Sheet, your Income Statement, and your explanation and understanding of the true financial condition of your business may be the difference in someone buying your business at a good price or passing your business over to pursue other businesses to buy.

Business for Sale-Who, How Many, How Much?

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I am a business broker based in Florida, and  also a member of an Association called  the Business Brokers of Florida.  The Business Broker of Florida  Association (BBF) is the largest state business broker association in the country and the second largest association of business brokers in the world.   The activity within this association does provide the business owner and or entrepreneur some insight into actual activities related to businesses buying and selling.

Most all business transactions involving the sale of private companies and information regarding this activity remains very private.  And accurate pertinent information can be difficult to attain.  What does a business similar to yours sell for?,  How long does it take to sell a business like yours, and how many businesses like yours are being sold.  One can search and view a lot of information regarding Florida business being bought and sold at Free Search on Businesses For Sale 

Businesses For Sale In Florida

Florida is experiencing the current economic downturn and is somewhat representative of the US economy.  Actually Florida may be feeling the effects of the downturn more than most of the US  as its economy seems very tied to the real estate industry.  I have always found value in trying to understand some of the numbers behind the numbers to help me to perform my role as a business broker. The following are some items of note  as it relates  to business buying and selling activity in Florida.

Certainly not all business sold do  involve a business broker, nor are all businesses sold in Florida handled thru this association, but as a rather large association it is fairly  representative of the buying and selling activities in Florida.    Web based businesses and or websites may be sold at an online auction, larger  “brick and mortar” companies may seek larger M&A firm for representation, but the activity within this association does provide some insight for the  business owner outside of Florida that may buy or sell a business.

Per the currently active listed data available thru the BBF Association-   As of today almost 4000 business are for sale of those:

1) Businesses For Sale in Florida over $10M –      5

2) Businesses for Sale in Florida Priced over $5M-   30

3) Florida Businesses for Sale Priced over $1M – 330

4) Businesses in Florida For Sale with Net Income over $100K – 1227   

Other observations:

a) Largest type of business Listed For Sale in Florida– Restaurants – 773 (this represents almost 20% of all businesses listed)  of those 223 have Net Income >$100k.

b) Home Based Business For Sale – 402 (represents about 10% of all businesses listed for sale)

c) Florida Internet related businesses for sale 43, of those: Asking Sale Price $1M+  is 8, those with net income over $100k – 20

Businesses Sold in Florida thru the Business brokers of FloridaFlorida Business For Sale

of all the business sold in the last year (6/2009-6/2010) Here are the following Averages on Florida Business Sold.

  • Average Sales/Revenues- $636k
  • Average Selling Price- $252k.
  • Average Adjusted Net Cash Flow – $114k.
  • Average number of Days to sell the business- 226 days or approx. 7 1/2.   Please note this figure does not include business that got listed for sale and did not sell. Estimating those in  the average time to sell a business may exceed a year(my guesstimate ).

If you own a business and do not plan on exiting from that business for several years, it still makes sense to understand the value of your business.  What is the asset that you have worth?  What sort of multiple of cash flow should your business sell for?

Understanding what other similar businesses are selling for does provide some basis.  but the devil can be in the detail…  Also growing your company thru acquisition can be both a viable and profitable business decision.  What may it cost to acquire a synergistic company?  A review of some reliable numbers may be a good first step in the needed due diligence.

(some info shared above compiled from Business Broker of Florida Assn website as of 7.30.2010)

Business Succession

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Last week I was asked to speak at a small business seminar on business succession as it relates to selling a business here in Florida.  Succession planning in general  is the process of preparing to hand over control of the business to others. Very often family may be part of succession planning and while most businesses do not have any plans for business succession, those that do, fall short in the planning and communication of those plans. So you are working hard on your business now, what is your plan?

  • Build up  your business to a nice size and sell your business for great financial gain?
  • Pass your business on to your kids
  • Arrange an LBO for key employees
  • Work your butt off, make enough money to pay your bills and do this til you are no longer on this earth.
  • other

Business SuccessWe are all busy running and or growing our businesses, but last week  a few business owner did consider this issue important enough to take a few hours out of their day to attend this workshop and  begin understanding the process.

Presenting at this workshop were an Attorney, a CPA, an insurance provider, and myself.  This seminar was attended by local small business owners seeking knowledge on this topic.  What I found most interesting was that the Attorney, CPA, and I spoke on many of the same issue regarding selling your business  We all spoke for about 1/2 an hour and didn’t coordinate on what we would speak on.  While we touched on the the different aspects surrounding business succession,  I found we spoke on many of the same points, but due to our professions we spoke on those point from varying perspective.

When discussing seller financing for your business, the attorney spoke of the need for extreme caution when setting up seller financing, and additional care extended when family or fiends involved.  The CPA spoke to the proper records to be kept to document what you have and be able to show what you had in the way of your companies performance.  My discussion regarding seller financing  addressed the prevalence of seller financing in the marketplace and the need to be able to offer it to help make a deal happen in to days tight credit market.

What Your Business Success Relies On?

A few key points from this workshop:

  1. Most businesses do not have a succession plan.
  2. Planning is the most important first step.
  3. Seller financing can help facilitate a deal but one must do proper due diligence.
  4. Relying on your business as your only source of retirement funds is dangerous and mis guided.
  5. When doing your annual reviews of company numbers or tax preparation, use that as a good time to look at other matters as it relates to your biger picture

My suggestion is between handling your accounts receivables, accounts pay ables, other office paperwork, social networking, working with clients, and  returning phone calls/emails, take a moment to consider what your exit plan may be.  Even if you just give the subject a few moments of thought, you may find yourself ahead of most or your peers and fellow business owners.

Also, the Internet is a great source of information on business succession and other business matters, but also keep your eyes open for the various seminars, workshops, and expos that may be in your area.  They are not only a great source of knowledge, but also a great opportunity for the “other type” of social networking.

Starting a Business in a Recession

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Some business owners and Entrepreneurs are good planners.  Some are not.  Some consider themselves “do’ers” that they are very good at doing what they do and really don’t have the time to plan for next year or the year after, or for 5-years from now.  The economic climate has done more than bringing on lower sales, lower profits and lost employment.

It is a sound business practice to have a plan or idea that extends beyond the current year.  Many sound business owners and operators had planned to sell or exit their business, and then were hit by the drop in their stock portfolio, retirement funds, drop in home value and depressed company results.  So those well laid out plans are delayed as a result of the business environment.

Is It Wise To Start A Business In A Recession?

Starting A Business In Recession

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What about the small business owner that had planned to start a business, or buy a business only to feel the need to address the question-   Can I start a new business during a recession?  What does one do?  Delay the decision until the economy turns around, or move ahead regardless of the slumping economy.  When running and or growing a business for an extended period of time ( say 10-20+ years), it is inevitable that you will need to operate that business during both good economic times and bad economic times.  How much do you allow the economic climate to be an excuse/reason/crutch or do you  try to just work harder thru it.  I personally view this economic downturn that we currently operate to be quite different than any “downturn” I have seen in my 25 years of business.

Most of what I read and discuss with others refer to our current economic environment  as  a Recession.   But is it possibly a  Depression?  A common offhanded comment defines A Recession is when your neighbor looses their job, A Depression is when you lose your job.  Respective governments have criteria used to establish Depression and or Recession.  I question the accuracy and application to our newer global economy.

I also question how much our politicians and policy makers really know what the business climate really is at the “street level”.  I actually think our economic climate we have been operating in is neither a Recession or a Depression but rather a hybrid  maybe there is a need for a new or different term to refer to our business environment.  I think the non-existent term   “DEP-RECESSION” may apply.

The Importance Of Proper Timing In Business

So what do you do with your plans to start that business or buy that business?  Do you delay or press ahead?  My thought is that it is somewhat dependent upon the business venture.  Many businesses and consumers  still need to procure certain products or services to allow their household or business to continue.  But some buying decisions can be put on hold or delayed until the economic uncertainty passes.  How much your product/service may be considered a discretionary expenditure may influence your decision to go forward or delay.

For example if you are in the paper business, businesses still need paper to run their operation or make copies.  But a business may not be compelled to buy that new copier and may decide to just “get by” with the one they have.  Most small business owners and entrepreneurs I know are more of the press ahead type and fairly aggressive with their business decisions.

Should one delay the decision to start or buy a business until the economy improves?  I’m not so sure, but what if it takes 2-5 more years to improve.- This almost  sounds like an answer to this question.