From Corporate Executive to Business Owner: What You Need To Know

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We work with a lot of buyers who are fresh off a few decades on the corporate merry-go-round. Some are weary of working for “the man” and want a taste of running their own show. Others have been right-sized and are looking to apply what they’ve learned to a new business. No matter the motivation, some former corporate executives are well suited to make the transition. (And others definitely are not!)

Ask Yourself These Questions

  • How much personal risk can you handle? Are you willing to place a significant portion of your savings on the line? Most buyers need to put down at least 20% to 25% of the purchase price.
  • How hard do you want to work? Every business is different, but it’s not unusual for new owners to put in 70- to 80-hour weeks. And you’ll probably have to do a lot of the hands-on work yourself. Even with a strong staff, you’ll need to pitch in wherever the business needs you.
  • business ownerHow decisive are you? Can you trust your gut to make fast decisions based on little information? You may not have the time for the kind of research and consensus building you had in the corporate world.
  • What kind of supervisor are you? Again, you’re on your own here. You may not have an HR staffer or fellow manager to help you out. It takes a great people manager to hire and keep strong players on the team.
  • Do you have a diverse background? Business owners often have to handle all the basic functions, from finance to HR and marketing, so it helps to have exposure to the fundamentals.
  • Are you self-motivated? It all starts at the top. Your vision, direction and optimism will drive others.

Prepare Yourself for the Process

  • Get your finances in order. Clean up your budget. Know your credit status. Take a look at your assets and understand how much you need to retire.
  • Who’s in your circle? Most successful small business owners build a network of peers to help them with input and advice when they encounter something new or difficult. You’ll also need a team of business advisors, including legal, finance, sales and marketing.
  • Talk with your family about these issues, too. How comfortable is your spouse with the investment needed to make this work and the potential change to your work/life balance?
  • Don’t let your nerves kill the deal. You should be a little nervous about closing a transaction that will change your life. But if you let your anxiety take over now, you’ll have a hard time running your new business, too.

Consider These Steps

  • Think about what kinds of businesses appeal to you and what you want to avoid. You might start with businesses in your current area of expertise. Or perhaps you want to make a radical change. Are you open to buying a franchise? Is retail on or off the table?
  • Bring your spouse along to look at business opportunities and understand the financial aspects of the deal. We’ve seen many a divorce threat at the time of closing because the spouse didn’t understand what the family was getting into until it was time to sign the papers or transfer the cash.
  • Learn about how to access your 401(k), IRA or other tax-advantaged funds to purchase a business. You can do it, but you’ll need professional help.
  • No matter what your financial situation, get a business coach as soon as possible. Even the strongest leaders need a qualified, trusted professional to bounce ideas around with.

Finally, if you think you’re up to it, get ready for a ride. Owning your own business can be both agonizing and thrilling. You may well find that it’s a satisfying alternative to the corporate life.

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

Greed Can Kill A Business Deal In An Instant

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We were recently approaching an agreement between a buyer and a seller when the deal suddenly got shaky. The buyer proposed a price that was just 5% lower than the ask. The seller was so offended, he balked and started questioning his decision to sell in the first place. Make no mistake…

Greed can kill a business deal in an instant.

In some ways, it’s understandable. If you’ve put your heart and soul into a business, you may have a hard time taking a penny less than what you feel it’s worth. In fact, we find that about half of the sellers we work with start by highly overvaluing their business. If you really want to sell, you’ll need to check your emotions at the door and set some realistic expectations.

greedSeller’s rules of thumb

  • 10 to 15% of the asking price. That’s a normal range for negotiation. Very rarely does a business sell for its full asking price or more. Talk with your broker ahead of time about your bottom line. Agree on the lowest price you’ll consider. And don’t forget it when the offers begin to arrive.
  • 2.5 to 3.5 times cash flow. While the expected multiple varies from industry to industry, 2.5 to 3.5 times cash flow is a reasonable price range for most businesses. Brokers, buyers and lenders are likely to be on the same page.And most buyers are smart about what they’re seeking. They’ll analyze your business and consider taxes and debt service, as well as their own need for income. They won’t begin to consider your business if the multiple is outside the expected norm for that sector.Your broker can share industry information to help you see what similar businesses in your market are going for. It’s like looking at comps when you sell or buy real estate. Setting a price is an art, not a science. But this art has some pretty clear boundaries.
  • Six months to a year. That’s the typical timeframe for the selling process. The cycle can be shorter if you’re well prepared and the market for your industry is strong. It will take longer if you have a lot of preparation work to do or your industry is more specialized. This is another case where you’ll want to start talking to your broker right away and begin learning about the steps necessary to prep for a sale.

Communication is key

We were at a closing a few weeks ago when a family member/partner began questioning the details of the financing. She expected a larger check, and her greed threatened the closing! The primary owner had not communicated the financial details clearly to the rest of the partners.

So be sure to inform and get agreement from your partners – and your family – at the start of the process. It’s a good idea to touch base again when you receive your closing statement a few weeks before the closing date.

You have a right to be proud of the business you’ve built and maintained. And it’s natural to expect a yield that meets your needs. These tips can help you keep your expectations reasonable while you’re working out a fair and satisfactory deal.

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!