Mark Corke & The Top Guy

I have the best attorney in the country; a really top rate guy.
But then don't we all? Nobody wants to believe that he is using second rate professional help; attorney, accountant, dentist or business broker. We would not be able to live with ourselves if we did not send our parents to the best oncologists to fight their cancer. And half the readers of this column will run a mile to hear a "professional" saying "I'm no gynaecologist, but I'll take a look"!

Shine from the Top Shelf

We delight in having the best suppliers, and we show off our best gadgets. Skype was carried for free into homes and offices around the world by the very people who had just signed up, and then immediately called 10,000 of their closest friends to tell them how cheaply they were calling from half way round the World with the top voice over IP software.

Eighteen years ago I was involved in selling the first cellular phones in South Africa. It was an amazing gadget which weighed in at 3,5kg, was the size of a small briefcase, and usable only in select areas of Johannesburg, Cape Town and Durban. I had one installed in my Citi Golf! And at a cost of R15,000, it was more valuable than my R12,000 car. One day, one of my customers called John Berks on his morning show, from the phone that I had sold him the day before. He spent more time telling an amazed Berksie that he was calling from the latest and greatest techno gadget. Only he and I knew that even my Citi Golf was worth more than his clapped out old Audi from which he was calling.

So with so much value being placed on the best, why would we believe for even a second that anybody wanting to buy a business, and presented with three or four similar offerings, will not want to buy the best that he can afford? So let's plan to give them what the buyers want. Not today, I know. Of course you don't want to sell today, or even in the next month, or this year. But at some time in the future, you will want to sell your business.

Four people called me today. People I have never spoken to before. They all have one thing in common: They all want to sell their businesses. One of them wants to sell his before the end of the month! He won't.

I have been banging this old drum for some years now. Prepare Your Business for Sale! Prepare now, and make your life better from now until the time you sell. Why better? Well because you will sell for a higher price, and you will be able to sell when you want to or have to. The amount of work involved is so small in relation to the benefit that will be gained, that you will simply shake your head in disbelief when you have done it.

When you eventually sell your business, you need to be the number 1 choice amongst all the other businesses which are for sale in your industry.
Everybody else will quit well before they come anywhere close to being number 1. You must not be one of the "everybody else". You must stick to your guns, prepare properly, stay prepared, so that when you decide to sell, or have it decided for you, you will have the best crack at a tough market place.

When the day arrives for you to sell, you don't want to rely on: "Oh well, there's nothing better, so we'll take this one". Your buyer is going to choose the best factory, butchery, hairdresser or candle stick maker, and you have it in your power today, to give that buyer enough information for him to decide that yours is the best business available.

The business owners who ignore this call are in the majority, but their businesses will not be in demand because they will not be scarce. Today scarcity represents value. Take a look at the Star on a Monday night, and you'll see what I mean. Take a look at a web site that promises 800 businesses for sale, and you'll see what I mean.

Selling a business would be easy if only the buyer thought the way the seller does. Here's your opportunity, while you're in control, to provide the information in a manner which will help your purchaser to think like you do…. Because you are the top guy.

I am running a new seminar series in Johannesburg, Cape Town and Durban in June and July. Please join me to learn how to Prepare your Business For Sale and Present Your Business For Transfer.

I hope to meet up with you there.

Cheers
Mark Corke

Customer Mix & Value

Businesses change hands every month. Sometimes the price paid is good, and other times the seller is left wondering how he's going to make ends meet in the aftermath. The value of a business should not be determined at the time of the sale, but rather in the months and even years leading up to the event. If a business sale were planned in advance as an end in itself, the value of the sale would be much higher than the resulting pittance of an ill prepared affair. Let's see how we can improve our chances of successfully selling our businesses, shall we?

Spread 'em wide - sell with pride

The seller sat in front of me and proudly displayed his list of customers: "Just look at the business Sasol gives us each month", he proudly intoned. "These guys need our product, and they pay within seven days of statement", he went on. "Sure we have another 100 odd customers, but these guys average about 40% of our turnover every month".

The proud boast was based on the mistaken belief that turnover drives the value of businesses, even if it means discarding the risk inherent in a concentrated group of customers. Oh, sometimes you feel so good because you have this really big customer, and he pays on time, and he orders every month, and he's the guy that covers all the bills, making all the others "pure profit". Well don't sleep too comfortably because you may be only a few months from being broke. And most buyers of businesses are quick to identify that narrow spread of customers, and walk away.

Buyers walk away, not because the profit is not there, but because the narrow source of income is too risky. An ill advised statement from a salesman, or a better product appearance could turn your business from a profitable concern to a loss maker over night. You can run the exercise yourself:

Take your financial statements or management accounts; the income statement in particular. Calculate the percentage of turnover attributed to your biggest customer, and remove this percentage from your gross profit. Subtract your fixed expenses (unchanged) from the recalculated gross profit. Is your business still profitable? Will you be able to survive? If the answer is painful, but do-able, you have some value in your business, but you have a warning. If your answer points to imminent bankruptcy, you know that you have some work to do on your customer base to strengthen the value.

Your guidelines should be as follows: No single customer should provide more than 5% of your turnover (although most buyers only start to worry at about 15%), and the collective amount brought in by your top 4 customers should not exceed 30%, regardless.

Do you look to tone down these large accounts? Obviously not! What you need to understand is that as long as your smaller customers remain undeveloped, your money spinner is at risk, and is not mature as a business. Rework your marketing plan to either bring in more customers or increase the spending of your smaller customers. In other words - get more sales!

Other related issues which mature business buyers will look at are: Any personal relationships which may exist between the seller and his customers, seller - customer relationships based on verbal promises, old boys networks and church groups making up a customer base. If seller - supplier relationships are not at arms length, but based on cosy buddy-buddy relationships, chances are that you own a job, rather than a business. And when it comes time to sell, any savvy buyer will look with grave distrust on any enterprise in this position.

Perhaps you'd like to learn more about preparing your business for sale, so that when the day comes, you get top dollar for your shares. These are the next seminar dates. You can book by following the links:

• Present your Business for Sale
• Sandton - Wednesday, 18 June 2008 @ 18h30
• Durban - Tuesday, 15 July 2008 @ 18h30
• Cape Town - Tuesday, 29 July 2008 @ 18h30
  
• Present your Business for Transfer
• Sandton - Thursday, 19 June 2008 @ 18h30
• Durban - Wednesday, 16 July 2008 @ 18h30
• Cape Town - Wednesday, 30 July 2008 @ 18h30

The successful sale of a business starts with a promise to all those interested in purchasing the business: "This is what my business has been making over the last few years -. I promise it is true.
Your buyer picks up on that promise and makes a decision to buy.
So he promises to pay you - if your promise is proven. (The due dilligence).
So you prove your claim, and he pays. Simple!

Due Diligence

A Due Diligence Can Hurt

The accepted norm is that a prospective purchaser is allowed into a business to "do a due diligence" before making an offer of purchase. If he is happy, he makes the offer, based on his findings, and both buyer and seller move forward.

But what if he is not happy? Well we expect that the negotiation will be a bit tougher for the seller, and the price will be lower, if in fact the deal is closed at all. If the deal is not successfully closed, an enormous amount of information has been made available to the purchaser, all of which can then be used in competition to the seller! Tell me if the following isn't a better way of doing things:

Define "happy" up front. The buyer will be happy if the seller can prove to him that the turnover is indeed R5M, the gross profit as a result really is R2M, and after all expenses, the earnings before interest, tax, depreciation, amortization and dividends (EBITDAD) is no lower than R1M - the amount promised in the original advertisement. The seller, on the other hand will be happy when the purchaser pays him his money, and takes the business.

By placing a clause to this effect into an agreement of sale as a suspensive condition of
sale, or condition precedent, the agreement is a done deal as far as the seller is concerned, because of course, he knows that his figures are accurate. The purchaser should be satisfied in signing an agreement in which the seller has made a promise he is capable of keeping, and so should not have a problem paying a deposit.

If you can get your head around that concept, you can go a step further and actually sign an agreement of sale prior to the due diligence, in which you make the successful due diligence a suspensive condition of sale, or a "condition precedent". Stay with me on this, and I'll show you how to sell your business as painlessly as possible.