Founder of Garson Claxton LLC, legal and strategic business adviser Jack Garson, was kind enough to take the time to answer a few questions about his practical and indispensable guide to starting, building, and selling a successful business for millions of dollars How to Build a Business and Sell It for Millions.
Thanks to Jack Garson for his informative answers to questions about starting a business in today's economic climate, operating a successful organization, and eventually selling it when the time is right. He not only shares tips for selling a company, but offers encouragement to anyone wanting to start an entrepreneurial venture the right way,
What was the background to writing this book How to Build A Business and Sell it for Millions?
Jack Garson: I have been working closely with a variety of businesses for 25 years. In that time, I have seen what works and what doesn’t. Too many times, entrepreneurs put a tremendous amount of effort—and money—into their businesses only to see them fail because they didn’t know key lessons to achieving success and avoiding failure. I want to help those businesspeople.
In today's troubled economy, is it a good time to start a new business?
Jack Garson: Some of the most successful businesses, like IBM, Hewlett Packard and GE, were started in time of great economic distress. You can certainly succeed even if you start in a recession. Sometimes there are even advantages. For example, you may face reduced competition because other entrepreneurs are too afraid or cash-strapped to launch their business. Also, starting in times of economic difficulty can impose good habits on businesspeople. They only spend money where they really need to and they quickly identify what is profitable and abandon what is not.
Overall, different businesses will launch better in different economic environments. For many, it won’t be a good time to start. For others, it may be ideal. You have to judge on a case by case basis. Most importantly, you have to determine if you are ready. Ask yourself a few key questions: Do you have a profitable business model? Do you have an edge that will help you fend off competition? Are you starting with enough cash to make it through the tough times to consistent profitability?
Should an entrepreneur plan to sell the business even while the new venture is still in the planning and start up stages?
Jack Garson: Absolutely. There are things that you will do and choices that you will make at the outset that will affect your ability to sell—even decades later. Are you picking the right type of structure, such as a corporation versus a limited liability company, which will avoid disastrous tax consequences when and if you do sell? Are you throwing stock or other ownership interests in your business at every person that lends a hand, making it difficult to manage and sell your business? Do you have a good agreement from the outset with your partners, so you can avoid disputes and fairly share the wealth, whether from a sale or just everyday profits?
How can an entrepreneur create a solid and workable business plan as well as a strong business model?
Jack Garson: First, read my book. In it, there is detailed guidance.
Second, commit your plan to writing and get input from knowledgeable advisors. Don’t just listen to the folks that love everything you do. Get input from people who are blunt and honest—you’ll learn more, however painful it may be to hear criticism.
Third, consider testing out your business model in a scaled down version. One client tested out his home computer repair business and learned that the demand, at the prices he needed to be profitable, just was not there yet.
Jack Garson (photo left)
How critical is developing a good marketing plan to establishing a company that will be sold eventually?
Jack Garson: Creating a business that will sell requires certain universal characteristics, such as profitability, a competitive edge, sustainability and scalability. A good marketing plan is almost as important, but the level of importance will depend on the business. If you are doing business among a crowd of competitors, as in the retail world, marketing is critical to your success and, therefore, your ability to sell your company. Aside from your products, your brand may be your most important asset.
How can a business person who has put much time and work into a new business know when it's time to sell, and then actually let go?
Jack Garson: Wow! Brilliant question and one of the toughest decisions any business owner will ever face. For some companies there will be a unique “sweet spot” when big companies with a lot of money want to enter your area of business. Here, you will be facing a dual incentive to sell. They will offer you a lot of money. They will also spend a lot of money to compete with you if you don’t sell. That kind of situation is one of the clearest signals to sell. But more often, deciding when to sell will depend on a lot of factors.
For example, have the owners reached an age when they want to do something different? Are the owners able to sell at a price that will give them financial independence? Have the owners taken the business as far as they can without dramatic changes in the leadership or finances of the company? The situation is often complex—and emotional.
And that leads nicely into the “letting go” part. First and foremost, you need to unwind yourself from your business. For those who are so enmeshed with their business that there is no “yourself” apart from the “business,” you need to start working on a new identity. As I explain in the book, you need to start pursuing your other interests, reconnect with family and figure out what the next chapter in your life should be about.
Are there effective ways to find suitable and qualified buyers for a company?
Jack Garson: First, build a great business.
Second, make your company visible—in good ways—in the years that you are growing your business. Part of your marketing plan should be the establishment of a prominent and prestigious brand.
Third, enlist a great investment banker and other advisors as part of your selling team. They will do most of the work finding the right buyers for your business.
How does an entrepreneur value a company for sale?
Jack Garson: It is not so much a question of valuing your own business, but understanding how the right buyers value your company. There is a lot of variety from industry to industry, but in many cases buyers will pay some multiple of your annual net income. Buyers often start with a special formulation of your net income called “EBITDA.” This acronym stands for earnings before interest (expenses), taxes, depreciation and amortization.
Then buyers make their own proprietary adjustments to this formula to determine how much a business is worth to them. Here is where your advisors, especially an investment banker, can provide invaluable guidance. Also, it doesn’t hurt to learn how prospective buyers value your business even years before you want to sell—so you can build a company that will be really valuable in the eyes of most buyers.
What are some of the things that can go wrong during the sale?
Jack Garson: Plenty. Some of the usual suspects include failing to hit your financial projections and what I call “taking your eye off the ball.” As I explain in the book, too many business owners let their executives get distracted by the process of selling the company. Next you thing you know, operations and sales suffer and the buyer wants to renegotiate for a lower price.
When the sale is completed, is there still more work to do?
Jack Garson: Often the buyer wants you to work for the company, at least for a transition period and sometimes a lot longer. Aside from that, you may be distributing money to people on your team who have earned part of the payday from the sale. Likewise, you may be monitoring the business after the sale to determine whether you are due any deferred payout.
In addition, depending on whether the buyer took over all of your business property or just part, you may be storing company records, closing down facilities and distributing miscellaneous assets. You may also need to attend to special tax returns and reporting information to government agencies. But you biggest post-sale job is often managing your money and your new life.
What is the one piece of advice you would give to an entrepreneur starting out today?
Jack Garson: Measure twice and cut once. That is, don’t leap in without a lot of thought and planning. Too many folks work hard and spend a lot of money on bad business ideas.
What is next for Jack Garson?
Jack Garson: Continuing to help businesses at my law firm, Garson Claxton LLC, and through my writing and speaking engagements.
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My book review of How to Build a Business and Sell It for Millions by Jack Garson.
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