Four Points to Consider When Buying or Selling a Business
By Arthur Klein
A seller needs to know what a person will be looking for when they’re considering buying a business — namely cash flow, cash flow, cash flow and growth. Here’s why!
First of all, the cash flow of the business should be able to provide a living wage for the time that one invests in the business. This will be dependent on the business, the industry, a buyer’s expectation and type of buyer — whether its strategic, synergistic, or Main Street.
Secondly, the cash flow of a business should be able to support a reasonable level of debt service, when the investment is leveraged. Unless it’s relatively small, it’s rare for a business to sell for all cash. The earnings of the business need to support the debt service. If not, you simply won’t be able to service the debt as the leveraged amount may be too high for the business to support. Alternatively, the cash flow may be too little, or could have no earnings at all. In this case, the highest value of the business may be no more than the market value of the assets.
Third, the cash flow of the business should be able to provide a reasonable return of invested capital, thereby reaping what you sow. Astute buyers will further understand the power of leverage, and in many cases a reasonable amount of leverage is efficient use of one’s money. The expected yield in such investment should be reflective of the risk.
Typically such yield would command a return on invested capital somewhere between 15 and 35 per cent — perhaps even 40 per cent where there is high risk And finally, the business should possess growth opportunity. As the old adage goes, “What is not growing is dying.” Anything short of buying growth opportunity is a tough sell to any reasonable and educated buyer.
Arthur Klein is a business broker with Pacific Business Brokers Inc., a Member of The Vancouver Board of Trade.
Small Business Council members learn how to target a sales strategy
By Aamir Sherif
The Vancouver Board of Trade’s Small Business Council welcomed sales trainer Shane Gibson recently, to deliver an insightful presentation entitled “Targeting your sales strategy.”
More than 120 people were in attendance to hear from Gibson, a sales performance specialist at BuildDirect, speaker, and author on social media marketing, social selling and sales performance.
Gibson began by sharingstrategies to “bulletproof” your success in sales. He said three keys to successful sales are to always keep the deal and relationship moving forward, to get rid of unproductive activities, and to maintain focus all the time.
He then pointed out what he considers to be a major misconception. Sales professionals often think that all clients are the same, and must therefore be targeted with the same strategies. Gibson said he believes this is not the case, and discussed the “ABC’s of Targeting,” including three categories of clients: absolute, beneficial and convenient.
Absolute clients deliver a higher yield, said Gibson, so they require a larger investment of time and proactive, high relationship selling. Convenient clients return a lower yield, and so they require a smaller time investment and more passive selling tactics. However, Gibson said it’s important not to mistake high-yield clients that need development for low-yield clients.
Gibson ended his presentation by emphasizing the importance of building relationships to increase sales performance, using partnerships and technology to scale sales efforts, and proactively booking key activities to maintain relationships with clients.
Want to learn more about upcoming Small Business Council events and how your company can get involved? Visit boardoftrade.com/SBC