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Press
John featured in the Sept 09 Society for Advancement of Consulting press release
Listen to my interview on CEO Spotlight on 97.3 KIRO radio
View my segment on KING 5 TV with client Keith Jackson
Press Release: When Business Buyers Really Aren't Buyers
Press Release: 10 Reasons Why Your Business Isn't Worth What You Think It Is
Press Release: 10 Reasons to Buy (and Own) a Business
Click on the links below to read the articles
London Calling - Tips from Europe on Selling a Business
The Seven Deadly Sins of Business Buying
Owner adds value to the sales staff
Tips on how to sell your business for what you thought (hoped for)
What Is the Owner’s Value to the Business?
Business buying & selling doesn't have to be like a Rube Goldberg contraption
Your Business is Part of your Financial Plan
What is a Business Buyer Advocate®
Change and a Business's Resiliency
What is a Business Buyer Advocate®?
As I prepared for a "Getting the Deal Done Breakfast Conference and Networking Event" at the Bellevue Club with Berntson Porter & Company, Frontier Bank and Peterson Russell Kelly I thought it worthwhile to explain, “What is a Business Buyer Advocate?” My business is primarily working with business buyers (individuals and companies) and helping owners properly prepare their business for eventual sale.
For over a dozen years I have been saying that, in simple terms, I help my business buyer clients locate, analyze and structure deals on small and mid-size companies. Here are some insights into this.
Locating an acquisition target
Working with business buyers I follow a proven and structured plan. Some of the key elements of our plan are:
- Qualify the buyer. I believe a qualified buyer has the skills needed to run a company in the size range he or she targets, the money to do a deal in that size range and has a good personality.
- Define acquisition criteria. Being able to succinctly describe what one wants is much better than, "I'll know it when I see it."
- Implement a proactive search plan.
- Be prepared, build a relationship with sellers and know when to say no.
- Consistently keep in touch with all the business brokers who list businesses in the size range the buyer is targeting. As an aside, numerous brokers have told me that my clients go to "The top of the list" because they know these buyers are serious and qualified.
Working with business brokers is a key element. The rest of this section and the following section are the value proposition and philosophy we at "Partner" On-Call Network use as we work with business brokers.
Everyone knows it takes two to Tango. And when the dancers are the best-of-the-best, it’s wonderful to see. Some of us cannot Tango, but the Business Buyer Advocates at “Partner” On-Call Network and the top business brokers nationwide cooperate for the common good of their clients. And it’s wonderful to behold our done deals! Here’s the rest of the story.
Misinformed people see rivalry where none exists between Business Buyer Advocates and business brokers. Naïve people debate the relative importance of Business Buyer Advocates and business brokers. In reality, it takes two to Tango. Street-smart Business Buyer Advocates and business brokers (and the other professionals on the advisory teams of the seller and buyer) share the credit when, while working on the same buy/sell transaction, they facilitate a win-win done deal.
So, why does the misconception arise?
It is true: Business Buyer Advocates and business brokers, respectively, represent the “other side” of buy/sell transactions. But to achieve success for their clients depends upon how well they cooperatively strive for a win-win done deal. Ill-informed people think it is common for advisors and business brokers to “sell their client down the river” to achieve a done deal. The reality is any advisor or dealmaker will go out of business if s/he shortchanges the client, sometimes under an onslaught of criticism and lawsuits.
Differences: Business Buyer Advocates & Business Brokers
Business Buyer Advocates and business brokers share a common goal: Achieving a done deal. How they go about it differentiates a Business Buyer Advocate from a business broker.
- The business broker’s mission is to get the seller the highest price on the most lucrative terms.
- The Business Buyer Advocate’s mission is to get the buyer the best value on the most lucrative terms. The Business Buyer Advocate levels the playing field so the seller does not have all the advantages.
- The goal of “Partner” On-Call Network and its Business Buyer Advocates nationwide is to facilitate the safe, profitable transfer of businesses, as quickly as possible—so every party to the transaction gets a win-win deal.
- We do NOT compete with business brokers. “Partner” On-Call Network trains its “Partners” to serve as a Business Buyer Advocate.
- We don’t divert buyers away from brokers. We do advise buyers to include by-owner sellers in their search, so our clients have access to all the companies for sale.
- We don’t disrupt deals. We do ask reasonable questions, so our clients can make informed decisions.
- We don’t under-value a business. We do base our valuation on reality.
Analyzing and understanding a target
First, I have a process I like to follow. Let me cover that and give three key areas in analyzing a company for an acquisition. (This is abbreviated; books have been written on this subject.)
I encourage my business buyer clients to follow a course of action that includes:
- Building a relationship with the seller (and the business broker if there is one involved)
- Asking some broad-brush but pointed questions about the business to uncover any red-flags
- Review three to five years of financial statements and tax returns (both must be reviewed as recently we found dramatic differences between the two and it helped kill the deal)
- Discuss value ranges and make an offer with full understanding by the seller that we expect due diligence to confirm what we have been told, not surprise us with red-flags or worse that should have been disclosed early
The above works well. It opens the doors that need to be opened without disrupting the business or wasting time on a deal that won't happen for basic reasons. What I also found over the last 15 years is that:
- Buyers need to have a team including a business banker, lawyer, accountant and, depending the deal, other specialty advisors like an HR person if there appear to be employee issues, etc.
- It's important to have the right questions to ask and know the answers to get. This reduces the risk of analysis-paralysis. Many years ago one of my client's got the nickname of, "Columbo" as there was always, "One more question." It drove the seller nuts.
- I have to balance myself on a fence with clients. Sometimes I am telling them what they want to ask is not appropriate at the time (to see a customer list before an offer is accepted) or that they really don't need to know what the receptionist does every minute of every day. Other times I have to encourage clients to ask more questions. Sometimes their reasons are buyer fever, "Let's get this done, I want it" and sometimes it's, "I don't need to ask about that, I trust the seller."
Structuring a deal
As I said in my recent talk, the three key factors in getting a deal done are motivation, relationship and education. By the time we start to structure a deal we should have determined if there is adequate motivation (on both sides) and if there is a solid relationship. Part of the educational process is what is the value of the business. When both sides understand, we're almost there.
What I mean by "understand" is that sellers can't think that because they read in the Wall Street Journal that a $400,000,000 business in their industry sold for 11 times EBITDA that their small business will also sell for 11 times. On the flip side, the buyer who thinks they will buy a highly profitable business based on the book value of the tangible assets is not going to do a deal.
It then comes down to the components also known as price, terms and conditions. There is a relationship between price and terms. In a study of done deals, it was published that the seller who finances some of the deal gets about a 30% higher price. A seller who finances 70% gets almost 50% more (than an all cash price).
In 2009, given all the conditions in the economy and banking, seller financing is more accepted than before. In fact, one advisor told me he recommended a client finance the whole deal so they wouldn't be in second position behind the bank (that was financing a small part of the downpayment).
Conditions, like creative financing options, vary from deal to deal. There could be a need for employment agreements, environmental checks, work in progress issues, vendor acceptance of the buyer, transition support, consulting agreements and more. My best advice is if there are any conditions that seem to stand out, deal with them when negotiating price and terms. If they are routine (like should the transition time be 60, 90 or 120 days) get the deal hammered out and then deal with them.
Conclusion
A Business Buyer Advocate is especially important in 2009 as there is a horde of [supposed] business buyers on the street. Many aren't focused, knowledgeable on the process or qualified. As one owner recently stated to us, “You have a qualified buyer? Most of the buyers that contact me aren’t qualified to buy a car! But they lost their jobs so they think they should buy a business!”
Sellers are impressed when we describe how we work with buyers and that our clients pay us some money up front, meaning they are serious and there is a much smaller chance we will waste the seller's time.
Category: Valuation & Business Improvement
The beginning of the year is always a time when we reflect and plan. For business owners, this generally means taking the time to look back and see what worked, what didn’t and why. It means looking at the upcoming year to project sales figures, profits, growth targets, new customers and more.
Sales and profit growth doesn’t just happen. It comes from paying attention to all the clues around us and acting on them. There a only a handful of ways to grow. Some of the more advanced techniques include going public, licensing your product or technology and franchising your business model. We won’t cover these here. What I will discuss is improving upon your “organic” growth and growing by acquisition.
Grow organically
Growing from within, beating the pavement to find new customers, improving your advertising to generate more foot traffic, etc. How can you grow sales and profits? You can:
- Develop new products or services for your existing customers
- Find new customers to whom you can sell your existing products
- Sell more of your current products to your existing customers
- Develop new territories (another version of find new customers)
Guess what? All of the above involve that magic nine letter “M” word, marketing! So let’s review and cover some of the basics. Marketing starts with research. Who, what, why and all that jazz. It doesn’t matter which of the four above strategies you pick, you need to figure out the details.
In simple terms, you will sell more to your current customers or generate new customers. Let’s start with your current customer base. Now is the time to rank your customers, A-B-C. Obviously you’re A customers love you, your service and everything about your business. If anyone is going to buy more, buy different things, etc. it’s them. And so on down the line.
Now this is the place where, when I’m speaking, someone in retail will let me know that all their customers walk in versus having outside accounts they can track. My answer is that it’s inexcusable to not have a database of your customers, especially your regular customers. People who like your store will want to be on your list.
Do something
If you’re in a business-to-business industry, this is where you get your salespeople to make more calls, have a sales plan, a system and regular monitoring.
I’m not going to go into detail, just that you need to take advantage of any and every opportunity to get in front of your customers. This means new product, new feature, new pricing and so on. You can use targeted advertising to pave the way or reinforce the message.
If you are in retail, selling to the consumer, look at all your marketing and advertising. (See my February 2002 column.) There are plenty of ways to “spread the word” about your business. Some cost a lot of money, some are cheap. There’s image advertising, direct response advertising, targeted offers (to your mailing list) and in-store specials.
The bottom line is do something. Take action and be consistent. This means consistent activity and having a consistent message. There are plenty of studies (and urban legends) about how many impressions it takes to move someone to action. Simply put, some people will buy right away and others will take hearing about you many times before they do something.
A friend of mine, Gary recently started a new business, Darwin’s Natural Pet Products (206-324-PETS, www.darwinspet.com). He delivers, to your home, hormone, antibiotic and grain free dog food. Gary states he can deliver it cheaper than you can buy it (the same quality) in a specialty pet store.
His early research indicates that there is only one (serious) qualifying question for potential customers. It’s, “Is your dog an animal, a pet or a member of the family?” If it’s the latter, they’re a solid prospect. If it’s the first, they will never buy from him. In the middle? They could become a customer.
His primary marketing tool is giving out samples. He figures that when people realize how much their dogs love the food they’ll want more. The second marketing strategy is a half-price first month of service. This is not much different than getting a sample at the end of the aisle in the grocery store and finding out the item is on sale (although Gary gives out a two pound sample of dog food).
My point is that doing something does not have to be spending big bucks on advertising, erecting huge signs or sending out thousands of letters (although all of these can and do work). There are many ways to reach people. Determine how to qualify people, be creative, test some strategies and record the results.
Don’t fight your competition – buy them
This is not for everyone so I’ll just cover some basics. Think about what you could do if your sales increased 50-100% but your overhead stayed the same. If all of a sudden you were in that market (Portland, Spokane, Tacoma) you’ve dreamed about. What if you had a complementary product for your customers so they could “one-stop-shop?”
When the stars are in line for you, that’s what acquiring a competitor can do. You’ll get:
- A new customer base to sell your products to
- A new geographic area
- New products that you can sell to your existing customers
- Reduce overhead as % of sales
We’re not talking about fancy terms like roll-ups and consolidations (which rarely work). We’re talking about one small business buying another. Moving operations into one facility, handling all administration from one store and having one salesperson sell a wider range for products on the same sales call.
It’s January and if you don’t think about these things now you they won’t happen this year. Now’s the time to get out the pad of paper, find some quiet time and outline what you’d like to do this year. Start simple, see what makes sense (so you still have a life), break it down into small, manageable pieces and start at it.
© Copyright John Martinka 2004. All rights reserved.
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John Martinka
"Partner" On-Call Network
11820 Northup Way
Suite E-200
Bellevue, WA 98005
Mailing Address:
PO Box 8146
Kirkland, WA 98034
Tel.425-576-1814
Fax.206-374-8262
