Knowing 'Why' Can Help You Sell Your Business

The purpose of owning your own business may be as simple as providing you with a source of income as an alternative to working for someone else to earn a living. However, if you’re like many business owners, the purpose may be much greater. Whether you desire to leave a legacy, make others’ lives better or have some other reasons in mind, knowing why you own your business may have a profound influence on your ability to sell your business at the price it deserves. 

Questions Answered For You

  • What is the importance of knowing the purpose of your business?
  • Let's say that someone chooses to work for themselves, would you agree that maybe a purpose could simply be that they simply need a job? I mean that's the whole idea behind going into business for yourself, right? Isn't that a valid reason?
  • I think a good reason for maybe starting a business is perhaps to leave a legacy. Is that making sense?
  • How easy or difficult is it to sell a business?

If you don't make those good business decisions, somebody else will, like a banker, or the landlord, or whatever. You'll be forced to do things because the business isn't being operated correctly.

- Andrew Rogerson

Key Takeaways

  • Knowing why you operate your business can help you thrive and stay motivated. Having clear reasons will have an impact on the business operations amid the constant changes in the economy, in the industry, in your personal life or in the environment. As a business owner, you need to constantly review your purposes for running your company so that you could make good business decisions.
  • The drive or the “hunger” to run a company is critical to running a main street business.  While many business owners run their companies to simply have a job, to earn money to support their lifestyle and their family,  to provide a service that a community needs, or to leave a legacy in the community, it is important to note that succeeding in running a main street business depends highly on one’s drive or “hunger” to continue operating despite the economic issues or challenging times.
  • Having an accurate set of financial statements especially when you’re planning to sell your business is important. Financial statements that have been “put together” to minimize taxes are going to have a negative effect on being able to sell the business for its highest value. Inaccurate financial statements are one of the reasons 75% of businesses don’t sell. 
  • Recognizing the different stages in life allows business owners to understand their long-term motivations for running a business. As your life changes, the purpose of your business also evolves at a personal level regardless of what’s happening in the industry or the economy. 

Read Full Interview

Jeff: What is the purpose of your business? Knowing the right answer to that question is important before you sell your company. And my guest will explain why that is, so you're going to want to sit up and take notice.

From our studio in Southern California, with guest experts from across the country and around the world this is Deal Talk, brought to you by Morgan & Westfield, nationwide leader in business sales and appraisals. Now, here's your host, Jeff Allen.

Jeff: Hello, and welcome back to the web's number one content source for small business owners committed to building a business for eventual sale. Here on “Deal Talk,” it's our mission to provide information and guidance from our growing list of trusted experts that you and all small business owners can use to help you build your bottom line and improve your company's value.

Knowing the truth about why your company exists is critical before you can even think about selling your business, so says my guest Mr. Andrew Rogerson, certified business broker and owner of Rogerson Business Services in Sacramento. He is a business expert of 26 plus years, a five-time successful business owner himself, author of four books, and consultant to business owners looking to increase the value of their companies. Andrew Rogerson, welcome to “Deal Talk,” sir. It's good to have you.

Andrew: Jeff, thanks for having me. I appreciate being here today.

The business is constantly changing and you've got to make sure your business fits in with the current environment because new technologies come along and they can disrupt the business... So if you had a yellow cab company and making a bunch of money, and this thing called Uber comes along, you got to make some changes; otherwise you may find you no longer have a business.

Jeff: And as we can all detect he has that trademark Northern California accent there. Andrew, I know that you cut your teeth in the business world in your home country of Australia, and you really do have kind of an interesting story I think. And I was wondering if you could kind of share a little bit about your roots growing up, being Australian, and having kind of that business blood in that DNA in your system. 

Andrew: Jeff, thanks for asking. I've actually been in California for about 20 years. Perhaps my age shows I'm getting on in years but I haven't lost the accent. And it is what it is. But my home country was Australia, and I'm from Melbourne in Australia.

What was interesting to me is there's a real entrepreneurial streak in our family. My grandfather wasn't an entrepreneur. We'd lived in an agricultural area of Melbourne about 12 miles east of the city of Melbourne. And my grandfather helped two of my uncles who came to me one day and said, "We'd like to borrow some money to start a trucking business." And my grandfather said to my uncles, "How much do you need?" And they went through that process. They said, "What are you planning to do?" And they said, "We'd like to start the Kenworth franchise trucking concept in Australia."

I'm talking about the 1950s where what's of interest is Australia is much the same size as the continental US in terms of geography. It's a big country. It's the largest island in the world but there weren't too many ways of moving freight around the country. And so my uncles had the idea of bringing in the Kenworth franchise but they needed some money to start. They approached my grandfather and he said, "Okay, let's do that."

One of my uncles flew to Seattle in Washington, talked to Kenworth Trucks, and the rest as they say is history. They got the franchise going in Australia and then in the mid-1970's Kenworth said to them, "Okay guys, you've done a great job. We appreciate your help. We'll take it over from here."

Now, Kenworth has a huge factory in Australia and obviously very well-established, and it's just been an interesting story for me from a family perspective to have my grandfather help my uncles get things going, and my uncles did very well from taking that risk of bringing the Kenworth franchise to Australia.


Jeff: Andrew, I appreciate your sharing that story. I think it really helps to set the framework. People know a little bit more about you and they know that you've got that skin in the game, and you're somebody who really does have a lot to say on the idea of owning a business. And not just owning a business but how to sell a company. That's what we want to get into in the ensuing programs.

We're going to do three of these additional shows here it looks like in the future we'll talk more about selling companies in that main street business category. And we're going to start this multi-part series today by talking about the purpose of your business. And you say it's very, very important to understand why you're in business, why you have the business that you do, you operate the one that you have. And it seems clear to me, it seems pretty obvious. We're in the business to make money, aren't we?

Andrew: Well, that would seem a pretty obvious answer and obviously it is. But what I find interesting that to me it's a real important question because life changes. The economy changes, an industry that you're working in changes. This constant change going through things at a business level, plus if you are the owner and operator of a business you've got personal things happening in your life. And they can affect your view of the world and owning and operating the business because if something starts getting off keel and start working for you, then it forces you to stand back and say, "Okay, the purpose of my business is to make money. Okay, that makes perfect sense."

But life's changing and maybe I no longer have that motivation, or that drive, or that enthusiasm, or maybe I have more. It's like, "Okay, things are going really well. It's time to do more with it." And so the purpose of the business stays the same in terms of making money, maybe, but maybe it's not. And so that's why I find out an important question, because most people seem to take it for granted that the purpose of the business is to make money, but it's also to support our lifestyle, it's to support our family, it's to support things that are important to us.

And if those things get interrupted by a health issue, for example, or if you're going through a divorce, then the motivation to take money it slips down because these things take their place and it forces us to step back at different points and say, "Okay, where am I at, why am I here, and what's now important to me. And maybe the purpose of the business that you first had when you came into business maybe it's changed.


Jeff: Okay. Let's say that someone chooses to work for themselves, would you agree that maybe a purpose could simply be that they simply need a job. I mean that's the whole idea behind going into business for yourself, right? Isn't that a valid reason?

Andrew: Absolutely a valid reason. One of the things I've learned through my career, I've had five small businesses but in those five businesses I had two in Australia and I've had three here in California. At different times I saw those businesses and I've tried different things. For example, I used to work for the New Zealand government. My first business was a retail travel agency. Somebody approached me to buy it so I sold it to them and said, "Okay, now what am I going to do?" And I was approached to work for the New Zealand government in Los Angeles, and that's how initially I came to America. And so I was working for a government agency.

I came to L.A., I finally enjoyed the experience, but I was pulled back to Australia because my wife's father had a business in a country town. And so I went back to Australia and ran that family business for six years. After about three or four years we got a bit restless because we enjoyed California. And so it took us time to sell the business but we sold it and we moved back to California.

So that's an example of what I'm talking about where I bought my initial travel agency back in 1987 and had it for a couple of years. And then I ran it as if it was always for sale, and somebody came along and made me an offer I couldn't refuse. And so it's like, "Okay, the offer was too good. Let me sell the business." And that's what I did, and it gave us opportunities to do other things.

The magic number is about 55 years of age. Once you start hitting 55, your view of the world changes... At 55, most people have been married and had kids, and the kids have left the house. And so you're at an age where the motivations or your reason for having a business was to feed the family and put them through school. And now, maybe the kids have gone and the hunger to run the business to look after the family, it's starting to fall away.

Jeff: Let's talk about a little bit, you touched on it a short time ago. You talked about family business and owning a family business, and it seems to me that a lot of business owners start that way. And that's the way that they always kind of want to think about their company. They've got their name on the door, or their name is up on the building or on the product that they produce. That could also be I think a good reason for maybe starting a business is perhaps to leave a legacy. Is that making sense?

Andrew: Absolutely. And that's one of the interesting things again, is that one of the purposes of that business was to meet the needs of the owner to put a footprint in the community, be known in the community as a business person, provide a service the community wanted. And after a period of time when the business gets established the owner says to himself, "Wow, this is really good. The community enjoys what I'm doing. I'm able to feed my family and sustain a lifestyle from it. And I've got children. I wonder if they'd like to take over the business at a point in time because I want to retire and enjoy the fruits of my labor, and that's part of my point.”

The purpose of the business is changing. Initially it was to get the first generation going, and the first generation's doing well and being successful. And then the first generation says, "Okay. I wonder if the children are looking to take over."

And so the second generation is approached. Sometimes, they will, sometimes they won't. And then it could go into a third and fourth generation. And that's when the real fun starts because one of the things I've learned is that the first generation starts, the second generation maintains it, and then the third generation blows it up.

And obviously I'm being simplistic with that, but again, part of my point when you have a business, you have to be constantly reviewing what's the purpose because things change, and you've got to be aware of that change and make good business decisions. Because if you don't make those good business decisions, somebody else will, like a banker, or the landlord, or whatever. You'll be forced to do things because the business isn't being operated correctly.


Jeff: It seems to me as a business owner myself it sometimes is important to kind of draw the line between both business and your personal life, and deciding what's really most important here. Am I personally connected to this or is it more important that now that I have this business up and going and I have these employees, I need to take care of that I need to be more focused on that and on them as part of the vitality of my company.

Andrew: And that's absolutely true, and again, that's part of my point that as your life changes, you get married or if you start your business and you get married, and then you have children, and then you have grandchildren, life's always changing. And so the purpose of the business evolves at a personal level with those changes, notwithstanding what's happening in the industry you're in or how the economy's moving, or we have these dumb things every four years called an election and those elections tend to bring a bunch of changes.

And so this constant change, it means the business is constantly changing and you've got to make sure your business fits in with the current environment because new technologies come along and they can disrupt the business. And that's really the purpose of technology, is to disrupt the business. So if you had a yellow cab company and making a bunch of money, and this thing called Uber comes along you got to make some changes otherwise you may find you no longer have a business.


Jeff: Boy, isn't that for sure. And it's a great example using Uber by the way to illustrate your point. My name is Jeff Allen. That gentleman right there is Andrew Rogerson. He is a business consultant in Sacramento, California and this guy has done it all. And we're talking about the purpose of your business and it's important to understand why you are in business before you can even lift a finger to pick up that phone to call someone like Andrew or somebody else in the business of helping companies sell.

And we're going to continue this conversation. It's the first of a multi-part series on selling your main street business. And we've kind of already talked a little bit about what that is. We'll refresh that when we come back in our conversation with Andrew Rogerson. 

By the way, if you want to get the most out of your “Deal Talk” listening experience you can always visit us at morganandwestfield.com not only to listen to this podcast and others in our ongoing series of shows here, but also too you can get the full transcript so that you can come back, you can read if you want if you can't listen to the audio, or maybe your headset's broken. You don't want to wake the family up or whatever the case may be, you can always check out the transcripts. They're available, too, at Morgan & Westfield under the Podcast tab, and morganandwestfield.com is the site, morganandwestfield.com. Continuing our conversation with Andrew Rogerson here on “Deal Talk” when we resume right after this.

If you'd like to share your knowledge and expertise on any subject related to selling businesses or helping business owners improve the value of their companies, we'd like to talk with you about joining us as a guest on the future edition of Deal Talk. Interested? Contact our host Jeff Allen directly. Just send a brief email with "I'd like to be a guest" in the subject line. In a brief message include your name, title, area of specialty, and contact information, and send it to jeff@morganandwestfield.com, that's jeff@morganandwestfield.com. 
Selling your business may be the most important business transaction you'll ever undertake so don't go it alone. Work with an organization that has made it their business to sell businesses and that's all they do. Morgan & Westfield at 888-693-7834. At Morgan & Westfield we know that selling your company is not something you should take lightly. It can be a stressful, difficult, even emotional process. That's why it's important to work with a team whose one and only specialty is selling businesses throughout the United States. And Morgan & Westfield will help you every step of the way. From helping you plan your exit strategy, to preparing a comprehensive appraisal, and locating the right buyers. Without the right team behind you, you could be leaving money on the table. So don't leave your most important business transaction to chance. Call Morgan & Westfield for a free consultation at 888-693-7834, 888-693-7834, or visit morganandwestfield.com.

Jeff: If you have any questions about any of the topics you've heard us discuss on Deal Talk all you have to do is ask us. After all this show is committed to bringing you answers and finding solutions. Simply call our Ask Deal Talk info line 24 hours a day, seven days a week at 888-693-7834 extension 350. Follow the instructions to leave your question and we'll reach out to one of our guest experts so we can feature your question and their response on a future edition of “Deal Talk.” Ask Deal Talk at 888-693-7834 extension 350. 

I'm Jeff Allen with Andrew Rogerson, Rogerson Business Services in Sacramento. We're talking about the importance of knowing the purpose of business and why you do what you do, and why it's important to know that purpose before you sell it. So, I ask you, what say you Andrew Rogerson, why is it important? We're having this discussion today in this multi-part series about understanding the purpose of your business before you actually do in fact enter that process of selling your company.

Andrew: Why it's important is because you really have to have a reality check on where you are at the point of selling to sell the business. It's not a quick process. If you own a piece of real estate, if you own a house for example, in the normal market you should be able to contact a residential real estate agent, make an inquiry about selling the house, and have the thing done in about two to three months in a reasonable market. The markets for selling a small business is much slower, and here's a little bit of a frightening figure. Only about 25% of businesses that go into the market actually sell. And so if you do the reverse number that means 75% of businesses don't sell. And that's really important to be aware of those numbers, because if you are at a stage of thinking, "Okay, I've really taken this as far as I can and it's time for me to exit and go do something else," you got to be aware of the downside.

Be aware that if that's something you may think of doing, you want to try and time it which is very hard to do, but you want to try and take your business to market when the chances of it being sold are at their greatest as oppose to taking the business to the market and find out there's no interest in buying your business and those plans you had of selling the business and using that money to retire or whatever you choose to do, that may be something that just isn't going to happen.

Only about 25% of businesses that go into the market actually sell. And so if you do the reverse number that means 75% of businesses don't sell.

Jeff: And you have to be prepared to perhaps stick around a little longer than you really want to in order to make sure that you'll have a buyer, or two, or three, or maybe at some point and hopefully would be a blessing to have them lined up looking to purchase your company at a time that is right for the market place and for you ideally. And so, Andrew, I appreciate you bringing that up and really it is kind of a startling figure, only 25% of those businesses sell. So really, I think preparation here is key into how that mindset that maybe you won't be able to sell the business with the timing that you had in mind. 

I'd like to kind of get back into your questions in this first of our multi-part series, Andrew. We're talking about knowing and understanding the purpose of your company. You know, I think it's so important from my perspective, when you are going into business I think you need to have an understanding of really what is required, and that there's a lot of long hours in the beginning certainly.

And that will probably continue and particularly if you're owning or running one of those main street businesses like we talked about, one to ten million dollars in annual gross revenues because so much of the decisions that go into operation of this company are really based on what you do. It's very, very hands-on indeed. It would seem to me that you need to have an appetite for the long haul.

And that means if you've owned your business for five, ten, fifteen years to this point, and maybe the marketplace is not ready to buy your business at this point, who knows why? Maybe it's economic issues, challenging times, whatever the case might be, recession God forbid, that you need to have an appetite, you need to be hungry to operate this business. That's really important isn't it?

Andrew: It's so critical because the demands of running a main street business, because if you're the owner it's your responsibility. Each month you get your profit and loss statement and you look at that number and you decide is it worth keeping on going. And so you got to have the hunger.

One of the things I've learned from what I've been doing, the magic number is about 55 years of age. Once you start hitting 55, your view of the world changes. And it doesn't happen instantaneously all the time at 55. But at 55, most people have been married and had kids, and the kids have left the house. And so you're at an age where the motivations or your reason for having a business was to feed the family and put them through school. And now maybe the kids have gone and the hunger to run the business to look after the family, it's starting to fall away.

And so it's good to recognize these are the stages in life and start thinking about, where do I see the next five, ten years, and what steps should I put in place to maximize the asset I've been building up over the years?

One of my challenges is finding a buyer for a business with financial statements that aren't accurate. And it just makes it too hard to close the transaction, and again, contributes to one of the reasons that 75% of businesses don't sell.

Jeff: You talked to so many people, Andrew, and you've had the chance to see a lot out there in your years in business, any examples or stories that you can give that kind of illustrate what it is that we're talking about here?

Andrew: It's interesting. I've actually just closed the sale, the medical practice, I've been working with some doctors. Wonderful people and they actually had a practice for about 45 years, a pediatric practice. And they approached me four years ago to think about starting the process to sell the business and we got involved in the process. And actually about four years ago, it took them 12 months to think about things and come back to me, and then three years ago they came back and said, "Okay, 'we're ready to do this now."

And so we went to work and we tried to find some buyers. There's an example of what I'm talking about, we had this thing called ObamaCare come out and whether you like it or whether you don't like it, it is what it is, it's the law of the land. And at the moment it's really unsettled the medical community with buying and selling medical practices because doctors aren't quite sure who would want to buy a practice, what's going on because all the rules kept changing. And so there's an example where these doctors wanted to sell the practice, they'd reach retirement age but it was a real slow process of finding the buyer because the market was disrupted by a change in law.

That's an example of what I've been getting about where things change and it is what is. We eventually sold the practice after having it on the market for three years, but it wasn't sure we actually get it sold at different points there because it was just so hard to find the buyer that was willing to work through the process. And in the end the buyer we found was a major hospital system that was happy to make the acquisition. 

But I got a phone call yesterday, actually it was interesting, I hadn't thought about this but I got a phone call yesterday from a financial planner in Oregon, and the owner of the practice had passed away. But he was calling because he was the wealth adviser to the family and they wanted to know if I could sell this practice.

They had been in practice for 30 years. The doctor provided mental health services to the clients. But he became ill and he passed away. And so the financial planner was calling on behalf of the children because they wanted to know whether they could sell their father's practice and get some rewards from the trust that he put together.

Unfortunately, the answer was that if he's passed away and he was the sole practitioner in the practice there's nothing to sell, because by the time you make contact with the patients and put a new doctor in place the patients have gone elsewhere.

And so that asset, it just evaporated in value, and that's an example of what I'm saying that this is one of the reasons why 75% of businesses don't sell because something happens like that that just prevents the true value of the asset being realized by being sold because some intervening has come in place and the sale will never happen.


Jeff: Great example, and we know that depending on really the community that you live in there aren't necessarily doctors or medical practices on every corner, but again, it really depends on where you live, because in this country depending on your location you can find one probably every couple of store front, so really when you get right down to it. But it makes me think, and this is just to tease a little bit, to set up our next program. Andrew, as we get ready to close things down on this edition of “Deal Talk,” how easy is it or difficult is it to sell a business, and not just enter the process but actually at the end of the day get it sold regardless of what industry you're in?

Andrew: That's a really good question Jeff, and it's a really good question because we live in America and almost all Americans are opposed to paying taxes. And so there's an approach that, "We don't like paying taxes, so if their business is doing well what can we do to minimize our taxes," and so what tends to happen which makes my job of selling a business very, very difficult is that if the financial statements have been put together in such a way to minimize taxes, that's going to have a negative effect on being able to sell the business for its highest value.

It's going to have a negative effect on a couple of ways. It's going to affect the value of the business which is important. But if the financial statements don't reflect all the earnings of the business, and the buyer has an interest in buying the business, most buyers will go and get a loan to finance the acquisition.

The banks are only going to lend against the values that shows up on the written financial statements, and the documents we use, the tax returns, and profits and loss statements. And so it's really important to have an accurate set of financial statements especially when you're planning to sell. If you've been massaging your financial statements to lower your taxes it may be a point to stop doing that at least twelve to two months before you put the business on the market.

Financial statements reflect the true performance of the business, so you can get the maximum value, and then you're going to go through the process of finding a buyer and selling the business, so you're talking maybe a three-year process to be able to take the business to market.

And most business owners may not have thought their process through but it's a critical process. One of my challenges is finding a buyer for a business with financial statements that aren't accurate. And it just makes it too hard to close the transaction, and again, contributes to one of the reasons that 75% of businesses don't sell.


Jeff: Tight accounting, it's so important, so critical. Money changes everything and even just the dollars and cents, the numbers, what they show, if they don't add up you're going to have a tough time of it, and Andrew this is a good stopping point I think for us on this program, this first of a multi-part series that you and I are going to do, talking about selling a business, the process for those main street businesses again as we set out to define those as one to ten million dollars in annual gross revenue.

And Andrew, this has really been a treat for me. I appreciate all of your time today. If anybody would like to reach out to you and they've got questions for you based on this program, or maybe they would just like to talk to you to maybe consult with them a little bit on their particular situation, where they're going, where they're headed on the way to selling their companies, how can they reach you?

Andrew: Thanks Jeff for letting me do that. They're more than happy to give me call. My phone number here in Sacramento is 916-570-2674. I do have a website. I really enjoy writing about what I do. And so if you'd like to get some information and just go there on your spare time my website is www.rogersonbusinessservices.com. I apologize for the accent, but it is what it is, www.rogersonbusinessservices.com. And there's a bunch information, I do about four or five blogs a month on different topics that I bump into, and I'd like to make other information available in my website. So if you have time and have an interest, you're welcome to check out my website.
 

And so that asset, it just evaporated in value, and that's an example of what I'm saying that this is one of the reasons why 75% of businesses don't sell because something happens like that that just prevents the true value of the asset being realized by being sold because some intervening has come in place and the sale will never happen.

Jeff: Andrew, I really enjoyed the conversation today, the first of a few that we're going to have. I appreciate your time and thank you so much again for joining us today on Deal Talk.

Andrew: Thanks, Jeff, for your time. Thank you.


Jeff: Andrew Rogerson, certified business broker and a business consultant at Rogerson Business Services in Sacramento, California. I hope that you enjoyed the conversation, I know that I did. Won't you tell a friend about Deal Talk, about this particular program, in addition to morganandwestfield.com you can find us on iTunes, Stitcher, and Libsyn. And don't forget, morganandwestfield.com you can actually get the transcript with the program as well. 

Deal Talk has been brought to you Morgan & Westfield, a nationwide leader in business sales and appraisals. Learn more at morganandwestfield.com. My name is Jeff Allen. Thanks again for listening. We look forward to talking to you again soon.

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