Why Your Business Won’t Sell and How to Fix It

sell

If you’re trying to sell your business, I’m going to give you the absolute best advice I can right here.  I’ve been engaged to help a potential buyer several times—only to have the deal fall apart before it got started.  This is written from the perspective of buyers on what caused problems in order of importance.

#1 Accounting.  I once “coached” someone who couldn’t pay me to do due diligence on buying a business.  When he was done digging through bank records, he said, “I think she’s losing a couple thousand bucks a month and I’m not sure she even knows it.”  “Thanks for saving me from making a really bad decision.”  Now, this is a bit of an extreme example.  Still a true story.  I’ve seen multiple situations when all the seller has is a poorly-prepared income tax return and disastrous books or…no books.  This is the major leagues.  If you can’t push a button and hand me these items below, I’m going to have difficulty taking you seriously:

-> Balance Sheet that’s clean as a whistle.  Not one with Accounts Receivable that has balances over 90 days past due.  You won’t see that customer money so please write it off.  Inventory adjusted to cost and obsolete inventory written off.  Cash reconciled to the bank statement.  Loans from banks and other creditors tied out to the penny.  Tighten the balance sheet up and most everything else will “fall out.”

-> Income Statement with predictable and explainable trends.  Generally, a clean Balance Sheet will lead to a clean Income Statement.  However, an issue that will give a buyer pause is bouncing expenses.  Why were utilities $10K this year and $5K last year?  Likely, it was sloppiness.  Any personal expenses being paid through the business?  Junior’s car payment?  Disney Vacation for the whole family?  Hey, I’m not the IRS (and won’t turn you in), but if you’re selling let’s find that stuff, put a circle around it, and cut it out going forward.  You’re only hurting yourself since a smart buyer wants to maximize…

-> Cash Flow (statement).  Smart buyers want to see good cash flow—ideally growing or a belief that they can grow cash flows with different decisions.  In my experience, few businesses or even CPAs prepare the Cash Flow Statement.  Ironically, it’s the most important financial statement, and not preparing it is usually driven by the pain it takes to create it, not its lack of importance.  The good news is a CPA can crank out a Cash Flow statement if he or she has a good Balance Sheet and Income Statement.

BTW, having a CPA provide you annual financial statements may not be enough to get your deal done.  Even some CPAs are a little confused by this.  If the financial statement was done in December and I’m buying today, what good is a six-month-old financial statement?  Think about it from the buyer’s perspective.  You need to be able to hand someone clean financials dated as of TODAY.

#2 Expectations. Real life exchange: Seller: “I think it’s worth 1X revenues.” Buyer (or Me): “Can I see the data you used to come up with that?” Seller: “I think it’s worth 1X revenues.” If the seller goes into negotiations like this, it’s doomed.  Nobody cares about that beach house you want or the huge debt hanging over you or that you’re living beyond your means.  Sorry, it’s true.  Those things don’t determine the value of your business.  After-tax cash flows and the value of comparable companies do.  So, swallow your pride and get realistic about what a credentialed business appraiser (like me) tells you (see CVAABVASA).  Business appraisers are in their best role if you immediately help them establish…

#3 Trust.  I recommend everyone—EVERYONE—with a stake in the deal get around a table immediately if a sale is even being considered.  Think about it.  If you’re the seller and you call me and don’t bring your potential buyer in to meet me, is he or she going to trust me?  No!  They think I’m on your “side” immediately.  It’s better for you if I’m either an impartial advisor to both buyer and seller or working in tandem with another business appraiser for the other side—early.  Establish trust at the beginning so you don’t waste any…

#4 Time.  “Time kills deals.”  It’s a universal truth.  If the buyer and seller are ready to get a deal done, then GET THE DEAL DONE NOW!  I’m not suggesting you rush it or put anyone in a bad financial situation.  You still need to strike while the iron is hot and push hard to move through it.  If it drags on too long, someone will get cold feet and then the deal will rot quicker than a Wal-Mart banana.

Contact me if you’re buying or selling a business so we can talk about your challenges and put you in the best position to succeed.  Thanks, Josh

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Can I Help You? Hi, I’m Josh Horn, CPA/ABV, CVA of Horn Valuation. I help with business valuations in friendly or unfriendly situations. I also help owners build valuable companies. My clients are business owners and attorneys. If you’d like more information, check out my website hornvaluation.com, email me at josh@horncpa.com, or call me at 217-649-8794.

Josh Horn CPA

I’m a licensed Certified Public Accountant (CPA) and double-credentialed in business valuation (CVA & ABV). I’ve been a tax and business consultant in a top 100 CPA firm and a controller in a large international company. I’ve also valued and been the primary advisor to multi-million dollar and small companies in various industries.

“If you’re not working on business value, who is?” Josh Horn, CPA, Certified Valuation Analyst and Accredited in Business Valuation  

Employees or Unicorns?

unicorns

I hope you’ll watch this very short video…

“Hi, Josh Horn, CPA here of Build a Valuable Business, where we help owners build growing and sustainable businesses by driving up your business value.  Here’s a job ad I see often:  Full-time/part-time employee needed to answer phone, provide bookkeeping, collections, accounts receivable posting, accounts payable processing, analysis, and human resource functions.  Whoa!

I understand small businesses are under a lot of pressure.  Cash is tight.  Employees are expensive.  I get it.  However, I see this is usually a function of one or more other causes:

You Don’t want to Give up Control.  You want it all in house so you can feel in control even if you may not do it well in house.  To grow your company, you must give up control and be willing to accept…

Mistakes.  This is tough for perfectionists and business owner/managers.  I’ve been there as a CPA who had nobody to rely on at times and I’ve seen my clients struggle with this too.  Nobody does it as well as you…or so you convince yourself.  Relax and take a deep breath.  Very few mistakes are fatal.  Let your employees make mistakes so they can learn.  Also, how well do people drive when they send text messages?  So, why are we asking our people to get all the details right when they’re on the phone?  Sometimes, the real reason for all the mistakes is…

Not enough Automation.  Many of the data entry duties could be streamlined or even eliminated with some careful thought.  Recognize you may be very well-served by…

A separate set of eyes.  It’s always been fascinating to me how several people can view the same problem entirely differently.  Get someone from the outside to look at your employee and business challenges.  Find a CPA (like me) who will give you some free front-end time to assess your processes.  I think you’ll be amazed at what you come up with.

Parting call to action:  Build specialized employees and outsource what you’re not good at.  Then, you’ll spend time growing instead of looking for unicorns.”

See you again soon,

Josh

Let me know what you think about this.  Send me a message here.

Why Do I Do This?

Josh Horn, CPA/ABV, CVA created Build a Valuable Business for serious private business owners who consciously seek to build valuable businesses.  It is not for those who want to pursue old ideas or do things the way they’ve always been done.  It is not traditional accounting services.  It is not seasonal.  It is not cookie-cutter.  There’s a big gap between CFO and value-building resources available to private and publicly-traded businesses.  My aim is to fill that gap for the private business owner who doesn’t have a CFO on staff.  My passionate pursuit is to give private businesses access to a strategic CFO and the tools to build a business that grows to become a world-class asset with international impact.  Here, we focus on increasing your business value as the primary goal.  The achievement of that goal is realized when your business is always “sale-ready”, doesn’t require constant attention, and your owner hours are dropping while your business cash is rising.  My clients want a business that gives them options, a good quality of life, and plenty of time with their families.  Who is helping you build your valuable business?

Josh Horn

Josh is a licensed Certified Public Accountant (CPA) and double-credentialed in business valuation (CVA & ABV).  He’s been a tax and business consultant in a top 100 CPA firm and a controller in a large international company.  He’s also valued and been the primary advisor to multi-million dollar and small companies in various industries.

“To everything your business can be with a little help–for you, your family, and your employees.  I wish you all the success and happiness you can imagine.”  Josh Horn, CPA

Sign up for this blog here and connect with me on LinkedIn and Facebook.

Accountants Created a Monster for You with the Monthly Closing

monster

I’m sure it wasn’t intentional.  We just wanted to help, and we don’t like to speak up.  So, let’s just do this once a month.  Ah, us accountants sometimes can’t see the forest of business success for the trees of our checklist.  Mission accomplished for the next 30 days!  I think we accidentally created the Frankenstein monster.

I don’t know how we got to this point and it doesn’t matter now.  I suspect that in the old days of green bar paper, producing a financial statement was such an excruciatingly painful experience, we decided once a month was enough.  Can any business in this international, always on, 24/7 world afford to wait sometimes 2 weeks or more to look backwards on what already happened a month ago?  I don’t think so.

Real-time information is so critical, so essential to our business survival, that anything less than a daily “soft” closing of your books can leave your business coming up short time and time again.  If you’re still not convinced your accounting data is anything more than a necessary evil to keep the IRS and your bank happy, consider these issues…

You can’t manage CASH without a good real-time accounting systemCash is oxygen for your business.  Without it, your business dies.  Is cash moving up or down?  Do you know?  A downward trend only means 3 poor options—borrow money (if you can get it), put your own personal capital in (if you have it), or ask investors for capital (diluting your share of your business).  Understanding cash is the key to understanding multiple other areas of your business.  It’s the gateway to making ground level decisions.  Once you have a handle on cash, you can…

Monitor a handful of simple, straightforward METRICS for daily decision-making.  I believe in the KISS principle whenever possible.  Keep it simple and set up a dashboard that feeds you a daily list of 5 to 10 (max) data points you can use for business decisions.  Every business will have different “key indicators” that drive success in their industry.  (If you’re struggling with determining these, please contact me).  Maybe you want to see daily sales figures.  Maybe you want to see how well you are collecting cash from customers.  Maybe you want to see how fast your inventory is turning.  Maybe you want to see how many “net” customer accounts you are opening.  Maybe you want to see what kind of cash and profit margins certain products are contributing to your bottom line.  This is great stuff, but still short of where you want to be.  The ultimate place you want to go is…

FORECASTING where your business is going.  Can you predict where you will be in the upcoming months or even years?  That’s where I want you to be.  It’s next to impossible to make big decisions like plant expansions, hiring or staff cuts, equipment purchases, and acquiring other companies if you can’t see a long way down the road.  You’ll either be making some wild and risky guesses or you’ll be so shackled with fear that you won’t do anything.  Unfortunately, I see too many businesses living in one of these 2 worlds with their big decisions—maverick or paralyzed.  This is a preventable problem after you start forecasting.  Here’s my call to action…

Make it your goal to get your accounting system automated and “real-time” as soon as possible.  You have a lot of cost-effective options available to you so there’s no excuse.  And, please…please, don’t let your accountant talk you out of getting a real-time accounting system.  They’re likely imposing their pain on you.  Heck, it may put them out of a job if all they are providing is the numbers and no advice!  That may be the real reason they are shying away from it.  Will you have a little short-term pain in the switch?  You bet.  However, there’s a good chance someone nearby can help you steer through that short rough patch and make your company stronger than ever.  If not, call me.  Start today and let’s slay the monster together.

See you again soon,

Josh

Let me know what you think about this.  Send me a message here.

Why Do I Do This?

Josh Horn, CPA/ABV, CVA created Build a Valuable Business for serious private business owners who consciously seek to build valuable businesses.  It is not for those who want to pursue old ideas or do things the way they’ve always been done.  It is not traditional accounting services.  It is not seasonal.  It is not cookie-cutter.  There’s a big gap between CFO and value-building resources available to private and publicly-traded businesses.  My aim is to fill that gap for the private business owner who doesn’t have a CFO on staff.  My passionate pursuit is to give private businesses access to a strategic CFO and the tools to build a business that grows to become a world-class asset with international impact.  Here, we focus on increasing your business value as the primary goal.  The achievement of that goal is realized when your business is always “sale-ready”, doesn’t require constant attention, and your owner hours are dropping while your business cash is rising.  My clients want a business that gives them options, a good quality of life, and plenty of time with their families.  Who is helping you build your valuable business?

Josh Horn

 

 

 

Josh is a licensed Certified Public Accountant (CPA) and double-credentialed in business valuation (CVA & ABV).  He’s been a tax and business consultant in a top 100 CPA firm and a controller in a large international company.  He’s also valued and been the primary advisor to multi-million dollar and small companies in various industries.

“To everything your business can be with a little help–for you, your family, and your employees.  I wish you all the success and happiness you can imagine.”  Josh Horn, CPA

Sign up for this blog here and connect with me on LinkedIn and Facebook.

The Search for the Lost…Bookkeeper?

bookkeeper

I watched Raiders of the Lost Ark last week.  I really don’t watch much TV.  This movie is one of a handful that pulls me into a vortex.  It has a combination of adventure, history, Scripture, romance, and even comedy.  Spielberg at his best.  Here’s my favorite scene.

OK.  Time to get tough.  It’s not a rant if I want to help you—and I do. 

I couldn’t help thinking that a lot of private business owners and CEOs must feel like Indy searching for the Ark when it comes to finding a bookkeeping solution.  Why?  Because, despite all the talk of automation, for many businesses good bookkeeping remains elusive.  More businesses struggle with it than get it right.  I think the reason is because of deeply held (yet flawed) beliefs.  Am I crazy?  Maybe.  But take a look at these issues I’ve seen for almost 20 years and let me know if any of them look familiar.  They’re likely the core reasons why you have bookkeeping and accounting problems.

You Don’t Value Accounting at the Top

It starts at the top.  If you’re the owner or CEO, and I told you there’s a factor that is 100% correlated with success, would you do it?  Every successful business I’ve worked with put accounting at the top of their priority list.  Every single one.  Stated differently, I can’t recall a successful one that did not.  Why?  Because you can’t decide where you’re going if you don’t even know where you’re at.  Like it or not, accounting is the language of business and if you don’t understand it, you better find someone who does.  A common response might be, “well Josh, that’s fine and dandy for big businesses you’ve worked with, but I’m small.  How do I do this?”  Here’s the truth.  I’ve worked with self-employed farmers, trade contractors, office supply dealers, and professional practices with good bookkeeping.  (I had to struggle to come up with that short list).  Some of them had revenues as low as six figures.  They all had better bookkeeping than a 9 figure company I worked with.  That’s right.  It wasn’t resources.  It was mindset and commitment.  One of the owners hadn’t even finished high school but could explain cash flow better than some executives at the largest company.  Commit to making it your most important goal after management and business model.  You’ll thank me for it.

You Think Your Solution is a Magical Person 

If you think your problem is not having someone who can come in, solve all your transaction processing problems, tie everything down, and make your accounting beautiful, it’s time for a reality checkthat’s absurd.  Yet, I see evidence of this mindset day in and day out.  Companies advertising for “general accountant” positions for processing.  Companies advertising for “controller” positions to keep the accounting staff dutifully recording the transactions correctly.  They’re just kicking the can down the road.  Your real problem is…

You Haven’t Committed to Automation

If someone in accounting can’t take a vacation, you’re not automated.  If someone quits or gets sick and your accounting falls apart, you’re not automated.  If the CFO [and/or] Controller spend a great deal of time “fixing”, “processing”, or “clean-up”, you’re not automated.  (BTW, the CFO also isn’t CFO’ing and the Controller isn’t controlling).  If you can’t close your books in 5 days, you’re not automated.  And while you’re ignoring these very big problems, your competitors are running circles around you.  They’re automating and freeing up time for what you should be doing—figuring out where the heck you are going and how you’re going to get there.  Commit to automation in processing accounting transactions or consider your days numbered.  If a human hand is touching data, rethink the process.  If multiple hands are touching it, you have serious issues.  There are many cost effective solutions available today and while some require a chunk up front, the payback will start immediately and often cash flow within a year.  Remember:  after inventory (if you have any), people are always your biggest cost.

Your Legacy Software Tail is Wagging Your Company Dog

Did you purchase your “accounting” software based solely on how it will manage one part of your business?  Maybe inventory, billing, or vendor payables?  Do you have multiple patchwork, duct tape and bailing wire solutions set up to link these disjointed systems together?  Do you get data you need quickly?  Can you close your books inside of a week?  May be time for a new game plan even if you have to endure some short-term pain.  Anything less than a push-button, real-time, consolidated financial statement from your accounting system is unacceptable in 2017.  You’re selling your business and its future short otherwise.  Not to mention these types of scenarios are easy targets for fraudsters—inside and outside your business.  Take a serious look at whether it makes sense to stick with your legacy software.

Let me know what you think about this.  I want to hear what you have to say.

See you again soon,

Josh

“To everything your business can be with a little help–for you, your family, and your employees.  I wish you all the success and happiness you can imagine.”

Josh Horn, CPA

Sign up for this blog here and connect with me on LinkedIn and Facebook.

How Do You Stack Up in Your Industry?

stack

How do you stack up in your industry?  Do you know?  Don’t feel bad.  I’m amazed how many just like you simply don’t even bother to look.  I was one of them too.  Now it’s usually the first place I start.  Why?  This is low-hanging fruit to help you build a valuable business.  Before implementing any acquisition, business model change, or other more advanced strategy, let’s first see if you’re even performing in-line with your peers.  Often, something very obvious will stick out.  Here are just a few examples:

  • Your collections (accounts receivable) under-perform your industry. Cash flow suffers.
  • Your direct costs are above-average. Profit and cash flow suffer.
  • Your debt load is too high. Profit and cash flow suffer.
  • You’re carrying too much cash. Why would you do this?

The solutions to these problems often do not require a great deal of time or additional expense.  Instead, it lies in better operational efficiency and executing on your plan after you’ve identified the shortfalls.  Solutions to the above:

  • Pick up the phone and lay down the law on your customers. Hold your next product shipment until payment is received.
  • You’re charging too little or your direct costs are too high. Lean on your vendors.  Manage your in-house direct costs.
  • Reduce your debt. Come up with a detailed plan to reduce the debt principal and stick to it.
  • Deploy your cash on something with good return or distribute it to shareholders.

Below are 2 files that should drive this home for you.  The first is called “You Today.”  The second is “Your Target Outcome.”  Don’t use these figures for your industry as you’re unlikely to be in the same business.  Contact me here to get data for your industry.

You Today

Your Target Outcome

I call this the 3 percent plus 3 percent solution.  Three percent profit and three percent balance sheet efficiency (in this case, Account Receivable—collections).  What did this company do?

  • Increased sales $100,000 per year. A new sales initiative or advertising shouldn’t be necessary to hit this on a $5 million company.  Often, better communication, cross-selling, and utilizing staff who are already on fixed salaries will be plenty.  You should be able to add $200,000 with committed effort.
  • Better direct labor utilization for a $64,000 reduction. No, don’t just fire people!  Maybe some hourly employees would rather have the time at home?  Renegotiate your contract labor costs.  Get creative.  The point is to have a target, come up with a plan, and execute.  Your peers are getting it done so you have to as well.  (BTW, if you hit a $200,000 sales increase, this is a moot point).
  • Improved collections (accounts receivable) by only 3 percent. See above for how to do this.

What was the result?

Over $200,000 in additional Cash available.

AND

Over $700,000 in additional Value of the company. ***

Not too shabby.

How will this play out in your business?  If you’re under-performing in a similar fashion, I’m confident most 7 figure businesses can add 6 figures of Cash and Value and most 5 figure businesses can add 4 figures of Cash and Value–just by utilizing this one strategy.  But, you have to know where you stand now, come up with a plan, and execute on the plan.

I’m doing an experiment with this one.  If you need data to see how you stack up in your industry, please contact me here and I’ll send it to you for free.  It’s not cheap for me, but I want you to have the minimum tools to figure out where you stand.  This goes for owners, CEOs, CFOs, or any of their advisers-contact me and I’ll send it.  If you can’t interpret how to use the data, email or call me again and we’ll work through it.  Let’s get to work getting your business to stack up!

See you again soon,

Josh

 “To everything your business can be with a little help–for you, your family, and your employees.  I wish you all the success and happiness you can imagine.  You really can have it all.”  Josh Horn, CPA

Sign up for this blog here and connect with me on LinkedIn and Facebook.

*** (Please be advised this is not a business valuation under any standards; simply an illustration).