Everyone has seen the television shows and movies where the police are closing in on the antihero who quickly grabs his go-bag filled with cash, weapons and fake identifications and eludes his captures just in time. While I hope that you don’t have a go-bag like those movie characters, your business should have a "go-bag" of sorts when it comes to being prepared for an early exit.
Every CEO and business owner dreams of the unsolicited offer from a larger company that is looking to buy them out. The mentality behind this is that someone else has noticed what your business is doing and sees value in acquiring it. In today’s market this offer might be more of a negative omen rather than the dream scenario most hope for.
Dentistry is not generally thought of as a sexy industry. It’s not the new craft brewery or craft distillery that has everyone excited. It’s not the tech company that is developing new technology that makes us run out to the electronics store for new gadgets. It’s not the property development company that is revitalizing downtown Grand Rapids. Not only does dentistry lack a lot of publicity and notoriety but a lot of people avoid going to the dentist. Despite this lack of panache, the dental industry is sparking the interest of a certain segment of investors.
2014 was a banner year for the mergers and acquisitions market in West Michigan. Sellers have had time to recover from the Great Recession and buyers have capital available and the capacity to take on debt. So the question becomes what will the market do in 2015?
There a ton of articles out there that go into interest rates, LP's and other M&A lingo that means very little to the common business owner. In fact many business owners will probably skip right by this post because they don't care what is going on in the world of buying and selling businesses because they feel that does not impact their business. But every business owner should be taking a big picture view every once in awhile and the increase in competition will impact many businesses in 2015.
Everyone knows Batman is the secret identity of Bruce Wayne, an American billionaire, industrialist, and philanthropist. But what if these two fictional characters were business owners that were looking to exit there businesses. Who would be the real superhero and win the day?
Let's remove the fact that Wayne Enterprises is very likely a public company and Wayne is beholden a board of directors and growing the profits of his shareholders. For this hypothetical, let's say that Bruce Wayne (and thus Batman also) have developed some heath issues and are forced to sell their respective business entities as soon as possible. Who would get the most value for their business entity?
I was recently at a networking event and was asked an interesting question: Do I see the current M&A market as being a buyer's market or a seller's market? This is a very intriguing question because my immediate response that I gave has changed the more thought that I put into the question.
Currently the initial reaction would be that the market is great for if you are a seller. The number of businesses being listed for sale is bound to go up in the coming years so the competition you might face 5 years from now will be increased. Essentially there are a lot less fish in the sea so you are a pretty appetizing acquisition. This fact coupled with the fact that there are many folks out there that have access to funding or cash on hand to make an acquisition makes it a great time to be a seller.
It used to be a dirty little secret but has gained a lot more attention over the last decade: many professional athletes go broke after they retire. To the average person this seems impossible. These are people that make millions of dollars per year. They often retire before age 40. And before age 50 we hear about collection suits and bankruptcy. So what happens to these high profile individuals. Often its the same issue that business owners run into: a failure to plan.
Business owners have to plan to exit their business. Either by choice or by circumstance, every business owner will have to retire, sell or liquidate his or her business. Obviously one of these choices is not a very profitable way to exit your business. How do you prepare your business to not only survive your time but allow you to be comfortable after your time in your business has ended?
lot of these baby boomer businesses will fall well short of their owners' financial expectations because so many will fail to plan properly and with supply outweighing demand, not many will overpay when their is viable alternative available. In other words, the shift is going to be towards a buyers market and businesses should start making efforts now to become strategic buyers.
look at their time and put an actual rate too it. If these folks are not creating billable hours the business owner knows that the business is losing money.
It becomes tougher to see when your employees are not creating billable hours. With some employees it is incredibly difficult to quantify the revenue they generate but for others it can be looked at on a grander scale. If a manager oversees a department that generates $250,000 per month in revenue, why would you have that manager not focusing on that department? The department would likely not fall apart while the manager is handling some minor task but it’s not growing and there is no assurance that its running as efficiently as it could.
It was recently brought to my attention that a certain financial author is preaching to business owners that “slow and steady wins the race.” While there might be some truth to this it does not take into account who the business owner is and what is that business owner’s end goal. These are important factors to take into account when determining what pace is right for your Michigan business.
It should be noted that the individual delivering this message filed for bankruptcy protection and two decades later has a net worth estimated around $55 million. I am sure any business owner would like that kind of slow and steady growth.
Different Types of Business Owners
If you are a business owner that is looking to create a job for yourself, then the slow and steady approach works great. You do not take on a lot of risk. You generally control of your own destiny for years to come. The slow and steady approach is conservative and generally is sustainable for the goal you are looking to accomplish. You likely will not grow your West Michigan business into a Midwest, National or International business, but you likely will have what most consider a nice lifestyle business.
I love contracts. Some might even snicker at how excited I get at the possibility of putting a big deal together and using some creative drafting to make sure everyone is happy with the Agreement. Yes, I am a bit of a contract nerd. Contracts are a beautiful thing. The ability for you to strike a deal with another business and have assurances that they will follow through with their promises is a wonderful thing.
But there are a lot of bad contracts and agreements out there. This might sound familiar to you: A business owner signs an agreement to sell machines he manufactures to a customer for 5 years. He is required to build and sell .so many machines per month and the customer will pay him a set price for each machine. In year 3 of the deal, the cost of the business owner’s raw materials drastically increases and if he continues to build and sell the machines under the agreement, he will lose money. How do you get out of a bad business contract? This is just one scenario. There are thousands of other ways to be tied up in a bad contract.