How to gain and keep customers, and other advice from a Selling Expert
For business brokers or other solo professionals, the most valuable resource is your time.
Outsource, outsource, outsource, was the recommendation of Christopher Lemley, the director of the Georgia State University Professional Selling and Sales Leadership Program, who spoke on Tuesday, Jan. 26, to the Georgia Association of Business Brokers.
Gaining and keeping customers was the topic of Lemley’s presention, which also covered the tension between sales and marketing and social media. Lemley opened by citing Peter Drucker, founder of modern marketing: “There is only one valid definition of business purpose – to create a customer. Companies are not in business to make things … but to make customers.”
Things tend to be relatively easy to sell, Lemley said. “Services are a bit more difficult to sell, as most of you know.”
The reason services are more difficult to sell is that “we are all in competition with each other, but at a high enough level, in firms we have all worked with one another and have somewhat the same background” he said As such it is hard for potential customers to see what differentiates one service firm from another.”
So how can you market commoditized services and get customers to stay with you over time? You must overcome four things: intangibility, perishability, inseparability, and variability.
Intangible items are harder to evaluate. The minute a service is created, it is consumed, meaning the producer cannot warehouse it.
“In your business, if you don’t fill your capacity today, the opportunity to make that money is gone,” Lemley said. “You can never recapture that capacity.” A movie theatre can never recoup the revenue lost from showing a film to a half empty theatre.
Inseparability means “the customer sees us making the service, the customer is part of us making a service.” A factory can “hide all the nastiness,” but in the service industry, the customer sees “every little twist and turn.”
Invariability means that customers experience the service in differing ways depending upon their circumstances. Lemley figured he enjoyed his favorite Italian restaurant more on nights when the traffic getting there wasn’t as bad.
Lemley presented a sample worksheet (See: Gaining and Keeping Customers) on how to calculate the lifetime value of a customer, including revenues, cost and referrals. Showing his academic credentials, Lemley also demonstrated Porter’s Arrow, a graphic developed by Michael Porter of the Harvard Business School. The arrow, also displayed in the Gaining and Keeping Customers PDF, covers five dimensions of competition, including inbound logistics, operations, outbound logistics, marketing and sales, and service. Although marketing and sales are listed in the same group, and SHOULD be friends, Lemley argues that, “They ain’t, They ain’t.”
Why? Lemley says the reason is as old as the story of Cain and Abel. When two people are “doing the same thing, with discrete resources, they will always get in a fight. They are competing to get resources to get their job.”
It’s basic economics. Marketing and sales are competing for scarce resources in many, if not most, business organizations.
The key to avoiding conflict is to recognize their differing strengths, which Lemley went on to discuss in relation to the roles of producer, entrepreneur, administrator and integrator. It’s important to know when a company is considering a move, and not just to get a call when the RFP comes in.
Marketing and sales are the strategic tools firms and individuals use to strive to create a sufficient number of transactions so the firm has the potential to survive and prosper in the short- and long-term, Lemley said.
In a coordinated marketing plan, tools such as social media help “soften the market” so that when “the sales troops come through, they know who you are and will be receptive to a call from you.”
Social media is a key, cost-effective way to market, Lemley said. He cited a company that spent millions on advertising, and gave $100,000 to a social media project. The social media turned it into one of the internet’s most popular business-to-business sites.
“Any business that doesn’t have a social media presence is already five years behind,” said Lemley. Some of the best in social media have a PR background.
Companies should develop a sales force targeted at what business needs, not with what the sales force wants. For example, most universities have been scheduling classes when it’s convenient for faculty members to teach. However in the next few months, GSU will be unveiling an innovative, new project based upon a robust analysis of data, aimed at scheduling classes when students want to take specific courses.
Lemley worked through undergraduate school writing advertising copy at a radio station. Tiring of the “tyranny of the empty page,” he picked up an MBA. Lemley is a 28-year veteran in the marketing field where he has served in senior management positions for two of the largest international advertising agency networks. He is also the former managing director of the Professional MBA program at the J. Mack Robinson College of Business at GSU.
Lemley has worked with major national and international clients including Sara Lee Corporation, Twentieth Century-Fox Films, Universal Pictures, The Hoover Company, the Southern Company, Los Angeles Times, Newsday, Wrangler Jeans, Polygram Entertainment, Bertelsmann Music Group, Siemens, Federated Stores and Jack Nicklaus Development Corporation. In addition to his teaching duties, currently he consults with CEOs in turn-around and high-growth companies on many marketing areas including organization, sales, marketing communications, strategic marketing planning and the use of new media in commerce.
The Georgia Association of Business Brokers (GABB) maintains a website that lists hundreds of businesses and franchises for sale throughout Georgia in a variety of fields, including automotive, business services, child care, cleaning, construction, electronics equipment, fitness, flooring, floral, food, gas stations, landscaping, manufacturing, medical, shipping, restaurants, retail, security, signs, and businesses related to the internet.
For more information about GABB, email georgiabusinessbrokers@gmail.com or call 404-374-3990.
Read MoreNine Steps to Better Due Diligence, Closing Deals
Third in a series on Business Brokering
Buyer and seller strike a deal, but a thorough due diligence and either seal or sink that deal.
Georgia Association of Business Brokers Vice President Mike Ramatowski moderated a panel discussion at the July meeting on getting buyers and sellers through due diligence and to the closing table. Panelists were GABB Board Member Loren Marc Schmerler, CPC, APC, President and Founder of Bottom Line Management, Inc.; Kim Romaner, President of Transworld Business Advisors, who has 30 years of corporate and entrepreneurial experience in sales, marketing, operations and technology; and attorney Sarah Wheeler of Moore & Reese.
Miguel Alandete and Jon Kaye of Wells Fargo sponsored the meeting.
Hear the entire panel discussion at the GABB blog.
1. Find out if your clients REALLY want to buy or sell the business.
Have a heart-to-heart talk with your clients before putting the business up for sale, or making an offer on a business, to make sure the buyer and seller are really truly ready to do this. Cold feet will sink a deal, says Wheeler, who represents buyers, sellers or acts as a transactional attorney.
2. Make sure each side has realistic expectations.
Sellers must understand that they will be expected to sign a no-complete contract when they sell. Buyers must understand that if they need financing, they shouldn’t expect to get financing from seller with zero percent interest.
3. Clarify the terms of a Letter of Intent.
A letter of intent, a.k.a. LOI, is typically the beginning of the buying process and signifies a meeting of the mind. Both parties should understand whether the LOI is binding or not, how earnest money will be handled, etc.
4. Take the skeletons out of the closet.
If something is wrong with the business, if there is a liability, it’s a bad idea to hide that fact from a potential buyer. If it comes up in comes up in due diligence, Wheeler notes, the buyer will assume the seller was trying to hide it, and that makes it a lot harder to deal with. Schmerler said he had a sale imperiled because a prospective buyer discovered that a major client was going to discontinue business.
5. Use a GABB lender.GABB-affiliated lenders have experience with business sales, and understand the process. Other GABB affiliates are familiar with the ins and outs of deal making and will make the process smoother.
6. Get franchisors, landlords on board.
If you’re selling a business with a lease, don’t leave the landlord out of the process. Ditto with a franchisor if a franchise is involved. These and other interested parties can make or break a deal.
7. Complete the lender checklist. Lenders typically send out checklists of items they need before a sale can be completed. Sellers should read them and get that information together as soon as possible. Try to educate your client that the money drives the ship, and the closing will happen when the lender is satisfied.
8. Leave enough time for proper due diligence.
Due diligence takes time. Count on at least ten days for a main street transaction, Romaner said, longer for bigger deals.
9. Clarify expectations after the sale.
Sellers often agree to stay on during the transition, but Schmerler said usually the buyer doesn’t want the seller there after the second or third week. The buyer wants employees to view him or her as the new owner.
Hear the entire panel discussion at the GABB blog.
The July 28 panel was the third in a 3-part series of discussions designed to help GABB members improve their businesses. In May, social media expert David Camp discussed effective ways to use quality content and technology to prospect for new clients. The June panel featured three experienced brokers with differing approaches to working with buyers and sellers. Read about the panel and hear a recording at the GABB blog.
GABB meetings begin with guest and member introductions. After introductions, we have a presentation by either a panel or a speaker and then some time for questions. After the presentation we’ll have a few items of association business and then adjourn the meeting at around noon.
There is no cost to attend and there are two parking decks available with free parking adjacent to the facility. For more information about the GABB, contact GABB President Greg DeFoor at gdefoor@defoorservices.com
Read MoreFour Questions about Business Valuation & SBA Funding
By Kim Eells, Vice President, The Brand Bank & Susan Kite, Vice President, Signature Bank of Georgia
1. When is a Business Valuation Required?
- If the purchase price of the business less the appraised value of real estate/equipment is over $250,000 or your deal is not an arms-length transaction or if the bank requires for comfort; cost is generally $2,500 – $3,000 and takes about 2 weeks.
2. What happens when the appraised value differs from Sales Price?
- An SBA loan cannot finance an amount higher than the business valuation plus appraised value of real estate/equipment. The Sales price could be negotiated and lowered. Or if Buyer wants to pay the higher amount, it is a lender call but any amount above the valuation must be justified by Buyer. It cannot be part of the loan or counted as buyer equity.
3. Will your Seller need to sign a Standby Agreement?
- There are varying degrees of standby: Full (no payments), Partial (interest allowed) and Springing (payments are allowed unless bank instructs Seller to cease taking them – usually when there is a default). The Seller note must be on Full Standby if it is being counted toward Buyer equity. In this case, the payments can usually begin after 2 years- unless the Full Standby is being counted as part of a 25% equity requirement when the value of goodwill and intangibles is over $500,000.
4. How are financing Partner Buy-outs different?
- These transactions are still considered a change of ownership, but are viewed as less risky than a full change of ownership. Professional Business Valuations are required, regardless of sale price or loan size.
CALL US IF YOU NEED A KNOWLEDGEABLE AND EXPERIENCED SBA LENDER THAT WILL WORK HARD TO GET YOUR DEAL CLOSED!
Susan Kite, Vice President, Signature Bank of Georgia, Business Acquisition Loan Specialist, , 770-595-9734
Kim Eells, Vice President, The Brand Bank , Business Acquisition Loan Specialist, 770-853-5625
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Questions Business Owners Ask & Answers I Give Them
Questions Business Owners Ask & Answers I Give Them
Veteran business broker Loren Marc Schmerler, a member of the board of the Georgia Association of Business Brokers and president of Bottom Line Management, Inc., offers his advice for answering common questions asked by business owners.
- How much is my business worth?
The correct answer is the price a Buyer offers you that you are willing to accept. It makes no difference whether you are making money or losing money. It makes no difference whether sales are increasing, declining, or flat. It makes no difference how much blood, sweat, and tears you have put into your business. It makes no difference how much money you have invested in the business. It makes no difference how much money you owe to the bank or to yourself. It makes no difference what a business valuation or appraisal says. It makes no difference what your hard assets are. It makes no difference what your customer list or client list contains. It makes no difference what your patents or service marks cost you. It makes no difference whether you are a Franchiser, Franchisee, Licensor, Licensee, Distributor, or Independent Contractor. The bottom line is that what you finally accept is what your business is worth.
- How long will it take to sell my business?
The correct answer is no one knows for sure. But I tell my clients that the average time is seven months from listing to closing. For companies that sell for $1 million or more, the average is nine to twelve months. But I also explain that the quickest I ever sold a business was one week, and the longest it ever took me to sell a business was six years. Additionally, I explain that price and terms sell a business. The lower the price, the more affordable the business will be. The lower the down payment, the more people will be able to consider it. The greater the amount of owner financing, the easier the business will be to sell.
- Is there anything I can do to make my business more desirable?
The answer is yes. The most important thing you can do is to put your ego aside and not make the business dependent upon you. Ideally, the goodwill of the business should be at the lowest level that interfaces with customers or clients. This means that you want to hire and keep employees who make your customers happy with high quality work and excellent customer service.
- Is there anything I should not due during the listing period?
The answer is that you should not slack off in any way. You need to stay focused and operate your business as if it will never sell. You need to work as hard or harder no matter how burned out you feel. Do not make any major changes during the listing period. Retain all good and excellent employees, and remove those that are not contributing as they should. Keep your inventory fresh, and eliminate any obsolete items. Keep your equipment and machinery well maintained and properly functioning.
- What is due diligence?
It is the process where the Buyer examines all your books and records, gets approved by the Landlord, gets approved (if applicable) by the Franchiser, Licenser, Distributor, bank, etc. Your books and records need to be current and “bullet proof.” Your tax returns for payroll taxes, sales tax, state income tax, federal income tax, county income tax, city income tax, and any other municipality taxes should be 100% current. Your various licenses need to be current, whether or not the buyer will have to apply for their own. You want to fully disclose everything and not leave any skeletons in the closet.
- What else do you suggest I do to impress a Buyer?
Have a job description for each employee. Put together a Policies and Procedures Manual. This will make the corporate buyer feel more comfortable about taking over the reins. Make sure all your employee reviews are current. The last thing a new owner wants to do is to sit down in a vacuum with an employee who is expecting a raise. Make sure you clean everything that is dirty. Make sure you fix anything that is broken. You do not want the Buyer to wonder what else might be a potential problem. Prepare a business plan and/or marketing plan to show the Buyer how he or she can grow the business. Put together a transition plan that shows the Buyer how you will assist them daily for a period of 28 days. The Buyer may not want you for the full transition period, but at least you are showing that you have thought it through and are willing to make yourself available.
- What happens if I agree to do some owner financing, and the Buyer misses a payment?
The way the closing attorney prepares the paperwork, if a Buyer misses a rent payment or a note payment, it is considered an event of default under the note. This will allow you to take back the business in a worst-case scenario or enter into serious discussions to protect your financial interests. While the best outcome is a Seller getting paid all their money and a Buyer being successful, you must plan for the worst and hope for the best. But I also tell my clients that they should never sell their business to a person they feel will not treat their employees, customers, clients or vendors properly. If you ever get a knot in your stomach during the negotiation, that is the time to throw in the towel and let me gently explain to the Buyer that you do not feel it is a good fit.
I hope this list of questions and answers has been helpful. I offer a free no obligation consultation at any time should you wish to discuss the sale of your business or the purchase of another business. Loren Marc Schmerler, CPC, APC, President, Bottom Line Management, Inc., 404-550-1417.
Why Buy a Franchise?
404-444-3186
- Risk minimized. A reputable franchise is a proven business method. They’ve been through the ups and downs and know what works and what doesn’t work. That keeps the new business owner from repeating the same mistakes.
- Name recognition. A well-known name can bring customers into the business and provide a competitive advantage for the franchisee.
- Training. A franchisor can provide a regimented training program to teach the franchisee about the business operation and industry even if the franchisee has no prior experience. Training is usually done at the office of the franchisor and at the local location.
- Support. A franchisor can provide managerial support, software support and problem-solving capabilities for its franchisees. This support is there during the start up phase, but also continues for the term of the franchise; usually 10 or 20 years.
- Economies of scale. Cost savings on inventory items can be passed on to the franchisee from bulk purchase orders made by the franchisor.
- Advertising. Cooperative advertising programs can provide national exposure at an affordable price.
- Financing. A franchisor will generally assist the franchisee in obtaining financing for the franchise. Lenders are more inclined to provide financing to franchises because they are less risky than businesses started from scratch. In fact, the SBA keeps a list of the “approved franchises.”
- Site selection. Most franchises will assist the franchisee in selecting a site for the new franchise location. Having the right location is all powerful and most franchises have a connection to a local real estate professional to assist in site selection.
- Vested Interest / Royalty. Most franchises charge a royalty. This fee, charged for the use of the name and the ongoing support given to the franchisee, is usually around 5% of the franchisee’s sales. In other words, for every dollar the franchisee makes, the franchisor gets a nickel. This gives the franchisor a direct interest in the success of the franchisee. The more successful the franchisee, the more successful the franchisor. In simple terms, the more money the franchisee makes; the more money the franchisor makes. Thus, the commonly heard phrase; “In business FOR yourself, but not BY yourself”.