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Jim Wang worked on his first business at night and on weekends while working a full time job in corporate America. Jim has a background in computer science, having graduated Carnegie Mellon in 2001, as well as business, with an MBA from Johns Hopkins. He was able to bring the two together to start Bargaineering, a popular personal finance blog that has been featured in the New York Times, Business Week, and Marketplace Money; over 8 years ago and has been entertaining and educating people about personal finance ever since.
Plan for the Sale helps business owners of all sizes learn how to successfully sell their business. The core course has a dozen modules each packed with lessons from how to vet your sales team to negotiating with a buyer to reviewing the purchase agreement. There is also a rich library of interviews with entrepreneurs and other experts who have done this before and share their insights, regrets, and the things they’d do differently.
MO: How did you come up with the concept for Plan For the Sale?
Jim: If you are a small business owner who wants to sell their business, try finding a comprehensive site online that will teach you all the ins and outs of the process without having a motive. You’ll find some useful information on business listing website blogs, business broker blogs, and other sources like that but they all have a motive of getting you to sign up for their services. Magazines like Entrepreneur and Inc also have good information but they’re written like a magazine, with nuggets trapped inside articles that live on their own. There’s little cohesion. There isn’t a roadmap or a table of contents.
We were looking for something that would teach you everything, soup to nuts, and couple it with resources like webinars, interviews with experts, and other media that would really enrich the learning process.
MO: What’s the difference between a financial buyer and a strategic buyer and how can their motives affect the terms of the sale?
Jim: The biggest difference between a financial buyer and a strategic buyer has to do with their motives. Rarely does a particular buyer fall into one category and not in the other. A financial buyer is one who is most interested in your business because of its cash flows. Investors are often considered financial buyers. Think about when you invest in a publicly traded company – you want the share price to increase, you want cash flow, and you aren’t concerned about whether that company will play well with the others in your portfolio.
A strategic buyer, on the other hand, looks at the acquisition from a different perspective. A strategic buyer wants to acquire your business because he or she believes that it that acquisition will result in a company that is greater than the sum of its parts. Have you ever heard of McDonald’s story of vertical integration? How they control everything from raising the cow to making it into patties? For McDonald’s, it’s an issue of consistency as much as it is about profits. But remember, McDonald’s started as a hamburger stand and over time they had to build or acquire the other businesses. They were a strategic buyer.
MO: What are some tips for creating a foolproof exit strategy?
Jim: I’ve long believed that the key to success is education. Oftentimes business owners stumble into the sale process without preparation and find themselves scrambling to learn after the fact. So many stories start with a cold phone call or email from a prospective buyer, a few discussions, and the next thing you know the buyer wants to give them an offer.
Every business owner should have an exit strategy from day one. It’s not a matter of greed; it’s a matter of practicality. No one lives forever! So educating yourself on the process of selling a business is number one.
It’s also important to operate your business as if you were going to put it on the market tomorrow. Preparing for the sale by, at a bare minimum, having compliant financial records, organized business documents and contracts, an up to date inventory of products, raw material, and intermediate goods; and well-documented business processes. So many deals collapse because of shoddy financial records that take too long to reconcile. So many deals collapse because the buyer can’t wait for you to document your business process. These simple steps can expedite a stressful process.
Finally, be realistic about the value of your business and your expectations for a sale. Selling a business is a difficult time emotionally. This is something you’ve created, spent a large portion of your energy and life, and walking away can be difficult – even if it results in a large sum of money.
MO: What the some of the most common issues or over looked aspects people face when it comes to selling their company?
Jim: It’s funny to think that this would be overlooked but it’s the financial records. When you start talking to buyers, it’s enough to show them a few tax statements that show your business’s income. At that point in the process, what you report to the IRS is good enough. As due diligence begins, buyers will want detailed financial records because they need to know about current trends, at a micro level, as well as any potential areas of risk or opportunity. When you don’t have organized financial records, it represents a risk for the buyer.
If your numbers show irregularities, the buyer will want to know more and may ask questions you can’t answer. What if these irregularities happened long ago? What if revenue dropped by 20%, temporarily, in March three years ago? Do you even remember what caused it?
Another common issue has to do with finances but it has to do with tax treatment of the sale. Oftentimes we focus too much on the headline number – the amount for which you sold your business. The reality is that structure is as important. There is a big difference between ordinary income tax rates and long term capital gains rates. I recommend that everyone talk to their accountant (get one if you don’t already have one!) so that you know how to structure your sale to reduce tax liability.
MO: Most people find the topic of personal finance either boring, intimidating or both. How do you take a dreaded topic and make it entertaining and accessible?
Jim: I think personal finance is boring because the experts have an incentive to making personal finance more complicated than it is. If personal finance were easy, why would you need to pay someone with a certification to show you how to do it? I’ve always thought of Bargaineering as a journal of my experiences with money. It’s not an advice blog. It’s not meant to guide you in a certain direction. It is simply what I see, what I think, and how I interpret personal finance issues.
MO: What’s the most exciting thing on the horizon for you personally or professionally?
Jim: Seems silly to say but it’s definitely Plan for the Sale. For years I’ve fielded emails and calls from business owners who wanted financial help, which sometimes included how to sell their business, and I wanted to build a course that would teach all that. It also gives me the opportunity, just like MO.com, to interview entrepreneurs and learn from their experiences.
We all have different experiences and I find it extremely valuable to learn from others, regardless of their individual successes, because there is always something you can take away.
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