Ep # 71 - Business Exit Mastery: Avoid Pitfalls & Maximize Value with David C Barnett - Part 2
Joe welcomes back business expert David C Barnett to delve into the complicated process of selling a business for retirement.
This insightful episode provides invaluable insights for business owners contemplating a sale. They emphasize the necessity of strategic planning, documentation, and the cultivation of a marketable business before starting the sales process.
Barnett's practical examples and emphasis on due diligence offer a roadmap for prospective sellers, highlighting the details that can impact the successful sale of a business.
What You’ll Learn in Today’s Episode
Preparation is Key: Business owners should be proactive in organizing financial statements, providing necessary documents, and addressing potential buyer concerns before listing their business for sale.
Business Profile Creation: To attract potential buyers, a comprehensive business profile or memorandum is essential. This document, typically 30 to 50 pages long, includes information about the business's history, financial performance, customer base, and other critical details. It is as a tool to instill confidence in buyers and encourage them to make contingent offers.
Due Diligence Matters: The due diligence phase is crucial for buyers to validate the information presented by the seller. It involves a thorough investigation, often with the help of third-party professionals, to confirm the accuracy of financial data, business operations, and other critical aspects.
Goodwill Transfer: The concept of goodwill, representing the intangible value of a business beyond its physical assets, is highlighted. Sellers should work on transferring goodwill from themselves to the business by systematizing processes, delegating tasks, and ensuring the business can operate efficiently without the owner's direct involvement.
Continuous Business Improvement: Whether or not a business owner intends to sell, focusing on continuous improvement makes the business more profitable and operationally efficient. By implementing systems, delegating responsibilities, and creating a sellable asset, owners not only increase the likelihood of a successful sale but also enhance the overall health of their business.
Ideas Worth Sharing
· "The reality is that a business can be sold when it's ready to be sold. It needs to be an attractive business that someone would want to buy, number one. And then number two, you've got to be ready."
· "Everything that you state, everything that you claim about your business is likely going to have to be verified in some way in a documented fashion."
· "Finding an appropriate buyer can be months to years. In some instances, the negotiation, the back and forth, can easily be over several weeks or longer, depending on whether things get stuck at different points."
· "Knowing that 80% of the reasons why small businesses go up for sale are out of the owner's control. This is why it makes sense to actually be prepared throughout the course of your ownership once you cross that income line."
Resources in Today’s Episode
Joe Curry
Retirement Planning Simplified
Ep # 34 – YRPS – Retirement for Business Owners with Bob Gauvreau
Ep # 50 – YRPS – Managing Taxes: Strategies for Business Owners
Ep # 64 – YRPS – Retiring Business Owners: Success Stories and Expert Tips with Nick Mombourquette
Selling Your Small Business Successfully: Unlocking Marketability and Value - with David Barnett and Joe Curry
“Knowing that 80% of the reasons why small businesses go up for sale are out of the owner's control, it makes sense to be prepared throughout the course of your ownership once you cross that income line.” - David C Barnett
Unlock the untapped potential of your small business with expert David C Barnett as he guides you through the crucial steps to transform it into a marketable asset, removing personal involvement and increasing its value for potential buyers.
David C Barnett, a seasoned business consultant, brings a wealth of experience in helping entrepreneurs navigate the process of selling their businesses. David has assisted numerous individuals in maximizing the value and marketability of their businesses. His insights into the ins and outs of preparing a business for sale and the subsequent steps involved in the selling process make him a valuable resource for small business owners looking to transition out of their ventures. David's practical approach and extensive knowledge offer invaluable guidance for those seeking to understand the complexities of selling a business.
In this episode, you will be able to:
· Master the art of selling a business process to maximize profits.
· Discover the crucial importance of preparation in selling your business.
· Craft a compelling business profile to attract potential buyers.
· Unlock the power of a confidential information memorandum for successful business selling.
· Navigate the intricate process of due diligence in selling your business.
There are understandable reasons why business owners might choose to sell. It could be retirement, a relocation requirement, or simply boredom and burnout from the daily grind. However, it’s safe to say that it’s still important to prepare for these scenarios, to avoid being left high and dry if the unexpected appears.
David Barnett, a seasoned advisor in selling businesses, suggests that you should start thinking about selling your business as soon as it becomes a marketable asset. He views this as the right time to start preparing for potential sale scenarios. In his experience, he has seen that 80% of small businesses that go up for sale due to circumstances beyond an owner’s control. As such, it is vital to keep your books up to date and ensure your business is showing a healthy profit before prospective buyers step in.
So, you want to sell your business? To make it even more attractive to buyers, an essential strategy to consider is distancing yourself from the operations and allowing the business to function independently. This could mean systematizing processes, delegating crucial authority, and creating standard operating procedures that ensure the business can thrive beyond your involvement.
With his deep dive into the business landscape under his belt, David agrees in the idea of removing the owner's involvement from business operations. He even provides a hands-on example of a business owner who successfully did just that. The owner managed to pull away from everyday tasks and let the business run on its own. The result? The business became more appealing and a more valuable sellable asset.
The resources mentioned in this episode are:
· Visit davidcbarnett.com to access the blog, latest videos, articles, and learn more about David Barnett's programs, books, and other offerings.
· Search for David Barnett small business on YouTube or your podcast app to access over 600 episodes all about buying, selling, financing, and managing small and medium-sized businesses for free.
· Find more information and access the show notes on retirementplanningsimplified.ca.
Timestamped summary of this episode:
00:00:00 - Introduction & Business Sale Process
David Barnett discusses the process of selling a business, emphasizing the need for preparation and readiness before listing a business for sale.
00:03:15 - Business Profile & Buyer Confidentiality
Creating a business profile and maintaining buyer confidentiality are essential steps in the process of selling a business. The business profile includes the business history, financial exhibits, and customer information.
00:06:15 - Due Diligence & Timeline
Due diligence is crucial in verifying the accuracy of the information provided about the business. The timeline for the sale process can vary depending on the complexity of the business, from a few weeks to several months.
00:08:48 - Validation & Seller's Documentation
Due diligence involves the validation of the seller's claims by confirming with third-party sources. It is important for sellers to maintain accurate records and provide transparent documentation to build buyer confidence.
00:12:12 - Goodwill & Business Value
The concept of goodwill and the value of the business play a significant role in determining the payment structure for the seller. A well-run, profitable business with goodwill may require the seller to provide financing, while a poorly run business may result in full payment on closing.
00:14:17 - When to Start Thinking About Selling Your Business
David discusses when to start thinking about selling your business - when it becomes a marketable asset that can pay you a fair market wage.
00:15:27 - Reasons for Selling a Small Business
The top five reasons for selling a small business are discussed, including burnout, divorce, poor health, the need to relocate, and retirement.
00:17:04 - Exit Planning and Good Business Strategy
The importance of exit planning as a good business strategy is emphasized, with a focus on preparing the business for sale to increase profitability and efficiency.
00:17:39 - Moving Goodwill from Owner to Business
David explains the importance of transferring the goodwill of the business from the owner to the business itself, allowing the business to operate independently of the owner for future saleability.
00:22:57 - Creating Processes for Business Operations
The significance of creating processes and operations guides for the business is highlighted, enabling potential buyers to understand and replicate the business's operations easily.