CEO Insights

Put Time on Your Side

When it comes to selling a business, there’s no such thing as a buyer’s market or a seller’s market.

According to Dale Mitchell, founder of The Mitchell Group, and co-founder of BusinessValuationSolutions.com, there’s only one element that will make a difference at the negotiating table – time. “Time,” he said, “is either an asset or a liability.”

Mitchell is a Certified Valuation Analyst (CVA), CPA (inactive) and experienced entrepreneur who built a multimillion dollar business from scratch in just a few short years. Today, he specializes in providing comprehensive valuations and profit enhancement groups (PEG Groups) for other small business owners.

“A motivated seller who just wants out quickly will fold first in negotiations,” Mitchell explained, adding that this makes low-ball cash offers too enticing. “The key is that a business must prepare itself to be ready to sell,” Mitchell advised.

“You should take a year to prepare your company. The goal is to minimize waste and optimize efficiencies. Quit doing some of the stuff that’s really messy and causes problems, losses and business interruptions. Take a year to craft a well-run company. Then, you are ready to sell.”

The problem, as Mitchell explained it, is that most sellers don’t think about selling until it’s too late and they need out fast.

If there’s too much debt on the books or transitional management isn’t in place, the business may no longer be sustainable,” Mitchell cautioned, adding that something as simple as company-held life insurance policies on major shareholders would often circumvent the need for surviving partners to sell prematurely.

“We’ve learned over the years that there are a lot of entrepreneurs out there who are too busy creating a company and don’t think about value,” Mitchell said. “It’s the reliability of future profits that makes the business valuable.”

Mitchell explained that business owners also get blinded by sales and profits, causing them to lose sight of other variables detrimental to the business’s actual worth. “A profitable bottom line can camouflage poorly managed departments,” Mitchell said. “Even though a company is profitable, it can hide under-managed departments that are losing a lot of money.”

By showing clients where one department may be profitable while another is not, Mitchell said “This opens their eyes as to how to value components within their company. When they see that, they are blown away.”

Many clients seek valuations every year while others seek new valuations when changes occur. Mitchell added that many factors – including divorce, death or ownership succession – can have a tremendous impact on the valuation of a business.

“The sell side is always going to believe the value is higher,” he said, adding that it’s imperative to understand the purpose of each valuation. When it comes to selling, Mitchell noted that there will always be buyers, provided you have the time. “If you have to sell this week, the buyers may not be available.”

For more information visit: www.tmgpeg.com

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