| Recently I received a phone call from an advisor on the other side of a transaction (someone who will probably read this). The point of the call was that he was very impressed with my client, especially given how he had pre-judged my client based on email exchanges.In the age of Twitter, LinkedIn, Facebook, email and text messages it still comes down to personal relationships to make something happen. It’s hard to build a relationship on a computer or via a smart phone.It doesn’t matter if it’s a buy-sell transaction, a customer-vendor relationship or a banker relationship, good things happen faster when people get together and build rapport.
I preach this to my clients and always remind them of what past client Jim Bernard said to me a dozen years ago (after selling and buying a business), “I would never buy from or sell to someone I didn’t like.” The bottom line is people like to do business with people they like.
[And when it comes to relationships between a man and a woman] “A man who correctly guesses a woman’s age my be smart, but he’s not very bright. |
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If cash is king they the queen is relationships and like in chess the queen is the most powerful piece in the game. It’s a relationship game and don’t forget it; nobody buys from or sells to someone they don’t like.
Take time to nurture your relationship with the seller. The process is a lot like dating. Most people don’t marry the first person they date. They have dates with some people they find out they like, some they find out they don’t like and some they love. The same is true when looking at businesses. You have to look at a lot of companies to find a good match.
Spending two hours in a first meeting with a seller and only talking about “the business” for 20 minutes is great. Rapport is being built around common interests, family, sports or business philosophy. The worst thing a buyer can do is try to dig deep into the companies financial situation or their trade secrets in the first 15 minutes.
Take your time, build a relationship and see if you can make something happen.
Cash, and cash flow, are king. I tell would be business buyers that the worst thing they can do is not have positive cash flow while searching because then they’ll be dipping into their investment pool and decreasing the size of their potential acquisition.
The same is true post-acquistion. Cash it the most precious commodity a business has. What too many buyers don’t realize (they may know it, they just don’t think about it) is that growth sucks cash. You pay your people this week, your rent thing month and your customers may pay you in 60 days. If you’re growing it means you are paying more people, buying more supplies and having more money tied up in accounts receivable (for 60 days). That is working capital (i.e. cash).
Pay attention to your capital, your cash flow and your cash needs. It will save you a lot of angst if you do so.
| A recent transaction has the parties confused over some of the language in the Purchase and Sale Agreement (not unusual). It reminds us that when someone doesn’t understand something the first reaction is usually, “No.”
Many years ago an attorney told me to make sure my clients always understood the language in a contract. He said that it didn’t matter that the attorneys understood it because any ambiguity will come back on the parties involved not the attorneys.
Let’s carry that wise advice to our day-to-day business and our lives in general. When there’s ambiguity or lack of understanding we are going to lean towards not doing anything. Whether it’s buying a car, some software or an appliance, if we’re not sure how it works or what the features are we won’t buy it.
In business we have to make sure that we, and our salespeople, realize that making things clear and easy to understand for our prospects and clients increases the chances of doing (more) business together. It’s when we start talking technical jargon that we confuse people and they lose interest.
“Truth isn’t always beauty but the hunger for it is.” Nadine Gordime |
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I used the following visual a few times during talks last week and it went over well. My point is that business owners must know what their company’s value is, how to drive that value higher and have an exit strategy to increase the chances of getting that value out when it’s time to leave (sell).
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Exit Strategy |
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The owner whose business is in the upper left quadrant (+) is well positioned. They have an exit strategy, know their company’s current value, know where they want that value to be and have reached their destination.
Those in the upper right or lower left quadrants (~) are okay or neutral. They either have the value where they want it but have no plan or have a plan but haven’t achieved the value they want. In either case, they are on the right track.
It’s the owners in the lower right quadrant who need to work. Their value isn’t what it should be and they have no plan. They must work on driving their company to the upper left quadrant. If they don’t, they risk falling behind the pack and when the expected tsunami of business sales hits they could be forced to sell for much less than they hoped for.
“Progress is not created by contented people.” Frank Tyger
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The February 1, 2012 Wall Street Journal had a front page story about how many small businesses, including a lot of start-ups, can’t fund their business because their traditional source of collateral has disappeared. That source is home equity that they used for either a personal home equity loan or for business loan collateral.
The housing market collapse has far reaching tentacles. According to this article one of every three small business owners have tapped into their home equity for a loan. This list includes the founders of Wal-Mart and Samuel Adams Brewing. I know that almost every business acquisition loan I’ve seen has used home equity as secondary collateral.
SBA guaranteed bank loans can be the answer for some ongoing business but it’s tough to justify a loan to a new business. Start-up businesses are risky. That’s why most start-ups are financed by personal funds, friends, family, angel investors and (eventually for some) venture capital.
Maybe this is the reason the SBA is now looking at some programs to finance start-ups. Without home equity the job creation from small businesses is not as robust as it could be. It may be that many businesses will have working and growth capital problems until real estate market rebounds.
“‘As a matter of fact’ is an expression that precedes many an expression that isn’t.” Author Laurence J. Peter
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