HOW TO SELL A BUSINESS Lesson 1 Pricing your business

 This is the first is a series of postings on the process of selling your business. As a sole/soul proprietor your business is your life and there comes a time when its time to retire or change your life. The time, money and effort you have put into your business up to this point has been building equity for you. But the only way that you collect on that equity and have it available for the next stage in your life is to sell the business. In this series, HOW TO SELL A BUSINESS, we will introduce you to what you need to know to turn your business into the cash you need to take that next step.


The first thing you need to understand is how to go about pricing your business.

PRICING OBJECTIVES

                Objective: Get the best possible price for the business

a.       Seller: Highest possible price

b.      Buyer: Lowest possible price

BASIC STRATEGY FOR SELLERS AND BUYERS

        The best possible price is situational and contextual -- basically it is the point where the seller and buyer can agree that the price is “fair”. A “fair” price is a price that a seller is willing to sell the business for and a buyer is willing to buy the business for. What is fair in one situation may be seen as unfair in another situation.

HOW DO SELLER AND BUYER REACH AGREEMENT?

1.       The process starts with the seller who will quote an “asking price” for the business.

2.       The buyer will have already determined if this is the type of business he/she wishes to acquire will make a “offer” which may be higher or lower than the asking price.

3.       Seller and Buyer  negotiate until a deal is reached on the price; or a decision is made that no deal can be reached.

BASIC ASSUMPTIONS

The process begins with an assumption that neither the buyer nor seller is starting from a fixed position relative to the asking or offering price. The “asking price” represents a starting price that may be higher than the seller’s “minimum” price. On the other hand, the “offering price” represents the buyer’s starting price which is lower than his/her “maximum” price. One might expect for the deal to take place to take place between these extremes. The negotiations then generally begin somewhere between the asking and offering prices. An agreement is very likely to be reached as long as the price does not go below the “absolute minimum of the seller,"  nor exceed the “absolute maximum of the buyer”.

NEGOTIATIONS PRINCIPLES:

IT IS STRATEGICALLY BEST FOR THE SELLER NOT TO REVEAL ONE’S MINIMUM PRICE BEFORE THE NEGOTIATIONS BEGIN.

GETTING THE BEST PRICE IS A MATTER OF THE NEGOTIATING SKILLS OF THE PARTIES INVOLVED. 

FOR THE SELLER WHO IS UNCERTAIN ABOUT HIS/HER NEGOTIATION SKILLS MAY WANT TO ENGAGE A THIRD PARTY TO ACT AS HIS/HER AGENT IN THE NEGOTIATION.

WHAT TO LOOK FOR IN A NEGOTIATOR:

a.       Experience business broker or consultant who knows the business and industry

b.      Known to the buyer and seller, if not personally, at least by reputation  

c.       Trusted to be fair by both parties.

d.      If an attorney is used by the seller, get one who has prior experience “negotiating” sales or purchase of a business and understands the need to SATISFY both parties. You DO NOT want an attorney who is out to get the most without regard for the interests of the other party, otherwise you may loose the deal. Remember you are trying to get the "best" price and the "best" price is the FAIR price.

SELLER'S STRATEGY

1.       The initial asking price should have some rational objective basis -- Investment Value

2.       Set up an absolute firm “minimum” price below which there is no deal regardless of the circumstance. This should also be based on some rational objective basis  -- Principle of Alternatives.

3.       Seller should develop an understanding of the buyers’ point of view relative to the value of the deal. What is the buyer “really” looking for in the deal, and what is it worth to him? The buyer may be looking at the business in a totally different light than the seller and valuing the deal based on that.

 We will be discussing these points in future postings, stay tuned.

IS TRUST A QUALITY OF A LEADER OR A PRODUCT OF LEADERSHIP??

   

"Trust me!?"  

(click on graphic to enlarge)

How often have you heard this? How often have you been asked this question? How often have YOU asked the question?

Some people believe that trust is a competency, an individual talent, that people are born with. 

 
Some people may even label and categorize others as trustworthy based on their "ethnicity.

I do not see "Trust" as a competency. Trust is something that has to be earned.

Managing the trust that one has earned is the COMPETENCY.

Trust is a very fragile, delicate, asset that must be nurtured and protected. 

It is also the most valuable asset a person or organization can possess.

 
But reality and life is a matter of survival. 

  
These can test one's ability to manage the trust that others have deposited in your account. 

Sometimes you have to spend or risk some of that trust in order to survive.

 

The leader is one who is competent 

in the skills required to manage his/her 

TRUST ASSETS

ARE YOU A LEADER? 

Let me steal your profit: -- Have you ever encountered this?

 The seller and the client relationship can sometimes become really tricky, especially when you are selling a service. Here is a fun example.

Consultants and Travel Time -- Who pays?

 I am some times asked about pricing and billing for consulting services. One of the sticky points is:

Who pays for travel and travel time?"

Basically the question comes down to what have you negotiated with the client or the consultant. There are two parts to travel, a) the out of pocket expenses incurred by the consultant and b) the consultant's time consumed by traveling.

Out of Pocket Expense

Based on my experience and practice, the out of pocket for travel (transportation, food and lodging), if an over night is required, is billed to the client at some agreed upon standard rate such as federal per diem rates. If necessary these can be backed up with actual receipts justifying actual cost, or at predetermined daily rate or allowance, or some variation of both.. The federal rates are a good reference source since they take into account the cost of living in different cities and countries.

Consultant's Time

Depending upon whether you are a sole proprietor (self employed) consultant or are hiring one, the time engaged in travel is a cost of doing business and should be reflected in the pricing formula used by the consultant to compute his/her a daily or hourly rate. The travel time is overhead, in my view, and therefore is part of cost to be recovered from the hourly rate and hours actually worked for the client. As long as both parties agree to the rate for actual work/service done for the client, it is really no concern to the client how that rate was determined. On the other hand, the consult should be aware of what his/her costs are and how much (how many billable hours) time and at what rate he/she must sell to breakeven per period.

The travel time is a shared expense rather than as a paid vacation. The consultant should not travel unless a.) he is assured that there is paying assignment at the other end; and/or b.) she is willing to consider and accept the risk that the travel is a marketing (overhead) expense to the consulting practice rather a paid junket.


Consulting Firm and Travel

If you are hiring an established consulting firm, or work for one, there should be established policies in place for dealing with these contingencies. These policies should be discussed prior to the sale/purchase of the consulting services and be incorporated into the consulting contract. The responsibilities of each party should be clearly set out in the contract before work begins.


Mission Creep

Beware of mission creep. Mission creep is when the client expects a little more effort without paying for it; or when the consultant wants to extend the billable time because he/she low balled the project.


Over-billing or Underpaying for Travel

A final observation, to charge a client for the travel may seem like a great idea for the consultant. However, it is really only a very short term benefit. If the client is at all dissatisfied with the work and then sees two days of "travel" time padding the invoice -- it may be the last time you hear from the client or any of his/her contacts.

The client who requires the consultant to travel from point A to point B in the client's interest, but refuses to pay for the time that the consultant must take away for "meaningful" work is cheating the consultant of billable hours that might be more productively spend on the project or for another client.

Travel while under contract


One area of mission creep and under/over billing takes place is paying the consultant's travel time, while under contract.

Sometimes the consultant is asked to travel to an event at the request of the client, or if you are the client, you want the consultant to accompany or represent you at an event. If this case, the consultant should be paid for his/her time on route and return from the event. If the travel was unanticipated when the contract was negotiated and signed, the consultant may have under bid the assignment and an amendment to the scope of work and the time should be negotiated.

For example, if a consultant is asked to attend a conference or workshop for the client, and then is expected to prepare a report or conduct a local training session for the client and their staff based on the conference/workshop, the time the consultant spends in transit is part of the cost that client should be expected to pay.

In this case, the consultant's activity is part of a larger mission, research or training the trainer. The client gains because they are paying for only one person (an expert) to attend the event. As a result the client obtains an expert's evaluation of the data/event, or prepared the consultant  to train the staff locally. The client gains by saving registration, travel, and down time expenses that the client would have incur by sending staff to the event.

BASIC PRINCIPLE

1. If the consultant is required to travel before a contract is negotiated and signed with a client, then the consultant's time is his/her responsibility.

2. If the travel is required after the contract has been signed and the travel is required by the client, then the consultant's time in transit should be billable to the client. 


3. As far as reimbursement for out of pocket expenses, pre-contract expenses should be negotiated or assumed by the consultant while out of pocket expenses incurred while under contract should be billable (reimbursed) by the client.


  

Personal success is linked to your choices

To be human is to have freewill!
Or at least that is how I see it.

To have freewill means that we have choices. The problem with choices is that we have to make them. We have to take responsibility for them.

Many people would prefer not to take responsibility for their choices, rather they will let others make their choices for them. Then they can blame the other for making a "bad" choice. Maybe the problem is that they are unwilling, or unable, to share responsibility or to understand what their responsibility is. But then whose responsibility is it?

As a sole/soul proprietor you are responsible. If you want to own your business, if you want to own your life, you have to take responsibility for the choices you make in your business and in your life. There is no insurance policy that you can buy to protect you if your decisions is not the right one.

There is no guarantee that the choices you have to make are going to be the best choices. The choices we have, are the options, alternatives, that life offers us at this moment in time and in this place. However, there is one choice that we always have, regardless of the time or place. That is the choice of not choosing.

But then, if we avoid the Choices we have, who do we blame? Who do I blame for not buying Google when it went public? There is really no answer to this question except "I take responsibility for my actions -- even if it means taking a lose".

To place blame is to surrender your freedom to others. And that is a choice, a bad choice.

Only when you take responsibility can you move forward. Only by taking responsibility for your choice, do you open up the opportunity to make a new choice.

And by learning from the past failure can you move on to success.

WHAT IS YOUR CHOICE?

Where the jobs are

There are many different reasons to set up a business or a career where one does. To be close to suppliers, raw materials, customers, transportation, etc. are some of the most common reasons. In the complex world of international commerce, these choices are even more critical. The commitment to locate is not a short term decision, despite the internet. Cost advantages in one sphere may be suddenly over turned by an environmental, technological, economic, social or political change in another.

Careers are the same way. Different skill sets are need for different industries as we all know. Steel workers concentrated around the big steel plants in the Mid-west and Great Lakes, oil workers around Texas and the Gulf of Mexico, actors in California and New York. Part of any sole/soul proprietor's business and/or career planning should include a realistic appraisal of the occupational distribution the area where you plan to settle. One place to turn for useful information is the U S Department of Labor's Mapping out a career: An analysis of geographic concentration of occupations

In a nutshell:

What you do for a living and where you live have a lot to do with each other. Explore the connection between occupation and location

Are You a Social Entrepreneur?

Entrepreneurship is not just a "capitalist" idea for making money. It is the dream of creating value where an opportunity is perceived. Social entrepreneurs see opportunities in the problems our society faces. They see the challenge and are willing to assume the risks of finding solutions to these problems. What are the Key Traits that go into making a successful social Entrepreneur?

This Harvard Business Review 2009 interview with John Elkington, Founder and Chief Entrepreneur, SustainAbility presents some ideas about what makes a good social entrepreneur.