The cockpit suddenly went quiet. The pilot called air traffic control to request an immediate emergency landing, but it was too late.

With no thrust and only a few hundred feet of altitude, Capt. Chesley (Sully) Sullenberger decided his only option was to ditch US Airways flight 1549 into the Hudson River.

As it turned out, he greased that landing back on Jan. 15, 2009, but there was no rulebook for landing an Airbus A320 on the Hudson River. Nor did he get to practice a few times with an empty plane to get the hang of it. He had 155 lives in his hands and one shot to get it right.

In a lot of ways, I think selling a business is a little like trying to land a passenger jet on a river:  you’ve probably never done it before, you don’t get to practice, and there’s a lot riding on the outcome.

To help give you a sense of what to expect from the process of selling your business, I asked Brad Bottoset, an eleven-year veteran of selling companies, to answer some common questions I get from readers….

Warrillow: Can you explain the role of seller financing in selling a business? How common is it? How exactly does it work in layman’s terms?

Bottoset: It is estimated that 80 to 85% of all business transactions carry seller financing.  Why?  Many potential buyers don’t have the capital or lender resources to pay cash.  Even if they do, they often want to leverage it into buying a larger business with greater cash flow.  Buyers interpret the seller’s insistence on all cash as a lack of confidence in the business, the buyer’s chance to succeed, or both.  Of course, every transaction is different, but typically a seller should expect somewhere around one year’s cash flow as the down payment.  Just like banks use formulas to determine what someone can afford as a mortgage on a home, knowledgeable business brokers use formulas too – which generally point to the Note being paid off in 5 to 7 years.

Warrillow: Isn’t the whole point of selling your business to get liquid? Why would you lend someone the money to buy your business? If you’re not getting the cash upfront, why not just hold on to the business?

Bottoset: For most sellers, getting all cash upfront is their preferred route.   However, it may not be possible.  And there are a number of positives with seller financing:

• Making the terms attractive and attainable increases the pool of qualified buyers;
• Offering terms will command a higher price (buyers paying cash often demand a discount);
• Tax consequences can be advantageous.  Instead of being taxed in the year that the sale occurs, the seller’s capital gain is taxed over the life of the Note;
• With interest rates currently at their lowest in years, sellers can get a much higher rate (6%) than they can get from any financial institution.

Warrillow: What is the typical interest rate of a seller-financed deal these days?

Bottoset: Six percent.

Warrillow: I know one of the steps in getting a business ready for sale involves dressing up the Profit & Loss statement to show as much profit as possible. Can you give me some examples of things business owners often overlook?

Bottoset: When determining the value of a business, one of the key steps is understanding what levels of discretionary, non-business expenses the current owner is expensing through the business.  There are many standard types of “add backs” such as the owner’s car expenses, personal health insurance, etc….  However, we also have seen a number of examples of creative bookkeeping, such as trips to Europe classified as a “market research” expense, owner divorces identified as “legal fees,” etc.    One common area that is often overlooked is when the business owner also owns the facility out of which the business operates. Depending on the situation, they may be charging themselves fair market value (FVM) rent, or they may not.  If they are charging the business more than FMV, a positive add back would be appropriate.  If they are charging themselves less, a negative add back must be accounted for.

Warrillow: You use “social desirability” as one of the factors that can drive up, or down, the value of a business. What do you mean by “social desirability,” and can you give some examples of either desirable or undesirable businesses? How big an impact is social desirability on the value of a business, and can you give an example?

Bottoset: I can’t say I’ve come across a lot of businesses that will generate a significant premium, but I do know of a few that have been adversely affected by a lack of social desirability.  For instance, in our portfolio, we have a national trucking company that transports live animals for medical research.  We’ve had a number of qualified buyers (both from within the transportation industry and from outside) look at the business but they have shied away because of perceived issues with animal rights organizations like PETA.

Warrillow: What other factors drive up, or down, the value of a business? Can you give a real life example?

Bottoset: The basic value drivers are management depth, proprietary product, customer diversity, etc….  Unfortunately, many clients don’t fully understand some of these principles. A few months ago, we had a manufacturing client approach us to find a buyer for his business.  He was particularly proud of two aspects of his business:  firstly, that all decisions go through his office as he is the point of contact with the clients; and secondly, in preparing the business for sale, he had whittled down the client base from 20 to two clients.  In his eyes, the new buyer was going to have 18 less headaches and personalities to deal with.  Yikes on two counts!  Unfortunately, this is a true story!

Warrillow: Can you explain the difference between an asset sale and a share sale? Why does it matter to business owners?

Bottoset: In an asset sale, the buyer essentially acquires selected company assets, consisting of the company’s equipment, inventory and “goodwill.”  In a stock purchase, when purchasing the company’s stock, they are acquiring all of the company’s assets, including its cash and accounts receivable, and are assuming responsibility to pay off the company’s debts (i.e., accounts payable) while assuming all “off the book” liabilities (i.e., pending or future lawsuits).  Buyers typically prefer to buy the assets of a company for two reasons.  Firstly, they are able to re-depreciate the value of the fixed assets and therefore acquire a larger depreciation tax shelter.  Secondly, they are not responsible for any “off the book” liabilities (i.e., lawsuits). Most business transactions are completed as asset sales.

I’ve asked Brad Bottoset to spend an hour with the 20 people coming to my Built to Sell workshop on January 16 & 17, 2012. There are three spots available – grab one here.

(photo Eric Thayer  /  Reuters)

Built to Sell Inc. is the company behind The Sellability Score which is an on demand software (i.e. SaaS) business owners use to assess the “sellability” of their company. We’re looking to hire a Sales Executive.

The company is a new start-up founded by 4-time entrepreneur John Warrillow who is also the bestselling author of the book Built to Sell: Creating a Business That Can Thrive Without You which was recognized by both Inc. and Fortune Magazine as one of their best picks for 2011.

Built to Sell Inc. is head quartered in Toronto but the role of Sales Executive is one that can be done remotely (i.e. you can work from home) and does not require face-to-face sales calls (all prospect meetings are done via GoToMeeting web conferencing software). Therefore, the role is ideal for someone just returning to the workforce after a maternity/paternity leave who requires flexibility in when and where they work or someone who lives outside of a major metropolitan area and wants to avoid a daily commute.

If you’re interested, please complete this form

Our overall company values (attributes we look for in all employees) are as follows:

1. We live with a sunny disposition:

• we see the glass as three quarters full
• we have high energy and approach life with “batteries included”
• we see obstacles as challenges to be overcome

2. We’re  confidently Vulnerable

• we take 100% accountability for errors – we’re allergic to excuses

Specific attributes we look for in a Sales Executive:

• Self reliant and independent
• Self confident
• Ego-drive: gain satisfaction from getting others to do what you want then to do
• Goal-oriented
• Self-motivated
• Competitive with a will to win
• Moderate to high level of tech savvy
• Appreciation for and willingness to adhere to a basic sales process
• Stick-to-it-iveness: do not take no for an answer
• Do not take “no” personally
• Ambitious
• Able to show empathy
• Written and oral communications skills

If you’re interested, please complete this form

I didn’t like Basil Peters the first time I saw his name.

Basil’s book “Early Exits” had a huge display at the Books for Business store in downtown Toronto. I sheepishly asked the clerk if she had a copy of a book with a similar theme called “Built to Sell”. She looked puzzled and turned to her computer terminal to search the title.

“Sorry sir, we don’t seem to have that book”.

I left the store cursing this Basil Peters fellow.

Then, begrudgingly, I got to know Basil.

What I discovered was one of the smartest, most experienced entrepreneurs I have ever met. Starting in school, he scaled a business up to a couple of hundred employees. He sold it and took his cash and invested in some start-ups. He promptly lost a bunch of his winnings but learned a lot in the process. He went on to be involved in a hundred or so deals –as an entrepreneur, angel, investor and/or advisor.

I’ve asked Basil to come to Las Vegas and spend a half day working with the 20 entrepreneurs selected for the Creating a Sellable Service Business Workshop on January 16 &17, 2012 (there are still a couple of spots if you’re interested – you can register here).

To give you a quick peek inside Basil’s mind, here’s a recent exchange between the two of us:

What exactly do you mean by an early exit?

There isn’t a precise definition. “Early exits” refers to a strong trend in the 21^st century economy, driven by buyers who want to acquire companies in the $10 to 30 million range. With “internet acceleration,” entrepreneurs can often create values in that range just 2 or 3 years from startup. The combination of those values, and that timing, are what I think of as an early exit.

What are the telltale signs that a business (or entrepreneur) is ready for an early exit?

Exit timing is one of the things I wish I had done better in my first five or six exits.  Now having watched about 100 exits reasonably closely, I am convinced that in the very large majority of situations, entrepreneurs wait too long to start working on their exit. They end up ‘riding it over the top’ and selling for much less than they could have. Or even worse, missing the optimum time often means the company never exits.  This phenomenon has not been discussed very much and is something that I am working hard to illuminate for entrepreneurs and investors.

What are the signs that it is too early/soon to exit?

It’s actually relatively easy to tell if it’s too early. I think the best indicator is that the price isn’t high enough to satisfy the shareholders. And it’s reasonably easy to determine the price (within a reasonable range of certainty.)

A lot of business owners are planning to wait until the market for privately held businesses recovers, banks are willing to lend more aggressively, and multiples start going up again. Is it worth waiting?

In my opinion, that time is now. Interest rates are lower than they have been in our lifetime, the private equity funds are back, and the corporate acquirers are very receptive. With everything going on in Europe, I wouldn’t wait.

What if you have a really small business, maybe only $500,000 in revenue with some promising technology, should you still think about selling early?

I don’t think of it as a question of selling “early” or not. I believe it’s a matter of the best time to sell. Often the best time is well before the company is profitable or hits $1 million in revenue. Recently, Google said: “we prefer companies that are pre-revenue.” How’s that for early?

Can you explain the structure of the typical early exit? Are businesses owners walking away with a check or are they selling a part of their business to a private equity firm with hopes of taking a “second bite of the apple” in 3-5 years, or are you seeing a lot of earn-outs?

Most of the exits I see these days are all cash, or possibly cash with a portion of vendor financing. Buyers know that if they try to reduce risk with earn-out formulas or risky structures, the sellers will just go somewhere else. The problem for most buyers today is that they have too much cash. So if the transaction is fairly priced, the structures today tend to be cash, or ‘near cash.’

Once a business owner makes the decision to sell, what are some of the mistakes you see them make in approaching a transaction?

The most common mistakes I see are:

1.       CEOs trying to do it themselves, and

2.       Selecting the wrong M&A advisor (i-banker)

Do you believe in running an auction for a company, or do you try to negotiate with one strategic at a time?

I believe multiple bidders are always desirable. In some cases, that’s not possible or isn’t what the sellers want to do. But in my opinion, it’s almost always a good strategy.

What are the idiosyncrasies of selling a service business?

These days, in North America, almost every business is a service business, or has a large service component. Software as a service (SaaS), for example, is probably the hottest sector of the M&A market. Non-service businesses – in other words, manufacturing and asset businesses – are harder to sell today.

How does having money change your life?

I think it’s a little like having your first child. Everyone will tell you what it’s like, or what it was like for them. But until the reality is right there in front of you, it’s actually pretty hard to describe. For me, having money created a lot of freedom. I enjoyed it a lot and strongly recommend it to everyone.

What were the mistakes you made after your first exit that you would like to take back if you could?

That’s another easy one. I could tell a long story, but I think the most common mistake, and I certainly made it, is to go out and make two really bad investments. When I sold my first company, a couple of my friends in YPO warned me that was what most of us do. But like all good entrepreneurs, I ignored them. So I learned that lesson with an education that cost about 20 times more than my Ph.D.

Basil Peters will be leading a half-day session at my “Creating a Sellable Service Business” workshop on January 16&17, 2012 in Las Vegas. Register here.

The main character in my book owns a marketing agency. I picked a service business intentionally because, with so much of the value tied up in the owner’s relationships, service businesses are notoriously difficult to sell. The founders leave and so do the clients, making service businesses next to worthless unless you can figure out how to make the clients stay when the owner(s) want to go.

David C. Baker is one of four people in the United States that knows this better than anyone. In addition to being an author, David has made his living over the last few years selling agencies. He’s done 140 deals and along with two or three other M&A professionals, David is considered the guru of building and selling a successful agency.

I’ve been doing some research in preparation for my Creating a Sellable Service Business Workshop and I had a chance to interview David. I thought you might like to read our exchange:

John: What are the unique challenges of selling a marketing agency?

David: Mainly it’s the fact that there are no outside non-participating investors for smaller firms. I can’t think of one, actually. And that’s typically because the firm trying to find a buyer has grown up around the principal and his or her desires and hasn’t been viewed primarily as a business.

John: What attributes are buyers looking for in the agencies they are buying these days?

David: Specialized focus is always first. Second is financial performance. Third is client list that they will have access to. Gone are the days when someone buys a firm just to have a presence in some market. And very few transactions are initiated simply to add capacity instead of building it.

John: How are agencies being valued?

David: The more typical agency is being valued at 3-5 times EBITDA after normalizing principal compensation. Interactive firms are going at significantly higher multiples.

John: What proportion of the overall deal is “at risk” in some form of earn-out? (I’ve heard big agency holdcos are now paying 3 times upfront cash with up to 7 available in an earn-out; can you verify or refute?)

David: Usually one-third is paid upfront at closing; about one-third is paid in a longer-term note (not tied to any type of performance) over 3-5 years; and the remaining one-third is tied to earn-out goals.

John: What is the biggest mistake you see agency principals making when it comes to selling their firm?

David: Thinking it has value just because they’ve worked hard for many years, even though the financial performance has been meager; along with thinking that their company name has some sort of tangible value.

John: What proportion of the agency principals who sell last the full length of their earn-out? Why or why not? And do you have some survival tips?

David: The answer to that depends quite a lot on the terms of the sale. If most of the transaction value is in the earn-out, they are likely to stay. The typical scenario is that the principal DOES remain for the entire earn-out, especially since the typical earn-out has now dropped from 5 years to 2-3 years.

John: What other things do agency owners need to know about selling a service business?

David: They shouldn’t expect any money from it. I’ve participated in 140 deals, but the four of us who are active in that space for smaller marketing firms still find deals for a small percentage. The value of the firm is primarily in the cash it throws off to the owner on an ongoing basis, and not in a pot of gold at the end of the rainbow, unless all the stars align properly.

If you’d like to meet David in person, he runs a New Business Summit every January in Nashville.

I first got the idea from an entrepreneur named Greg who had moved his family to Geneva for a mid-life sabbatical.

As I started to explore the possibilities of moving to Europe, I realized that – at least among the entrepreneurs I know – it was more popular than I had at first realized. My friend and the founder of Gazelles, Verne Harnish, had moved from Virginia to Barcelona, Spain with his wife and four children.

Robert Barnard, another friend and the cofounder and CEO of DECODE, had left Toronto for London, England with his wife and young family.

I think a sabbatical abroad appeals to an entrepreneur’s sense of adventure and is often more feasible for a business owner than it would be for a big company manager who has to stay on the career ladder out of fear of being passed over for a promotion or wait years for an overseas assignment that might never come.

Inspired by our friends, my wife and I moved our young family (we have two boys age four and six) to a town called Aix-en-Provence in France, which I picked after exhaustive research: I googled “the sunniest place in France.”  The extent of our family’s understanding of the language was a rusty old twelfth grade French credit I had taken twenty years before. We recently celebrated our first year over here, so I thought I’d share a few reflections in case you’re planning a similar adventure:

1. Send them to camp

Most entrepreneurs on sabbatical plan their arrival around the beginning of the school year, but I’d recommend moving in mid-summer to give your kids a few weeks of summer camp. Most developed countries have a network of camps (in France they call them “Stage”) where working parents can drop their kids off for the day. For the type A crowd, there are “language camps” that offer kids a fun way to learn a new language.

We decided to enroll our kids in a half-day sports camp to minimize the shock they would soon experience in full-day French school.  The first few days of summer camp were full of tears, as our kids felt alone in a country where they neither spoke the language nor had any friends. But at camp they knew they were only ever a couple of hours away from seeing their parents again and they soon acclimatized.  I think getting the tears out of the way in the summer made the first few weeks of the school year much easier.

DECODE’s Robert Barnard took a different approach to integrating his kids into a new country: “We took a one-month trip to London a year before we moved. I worked and the kids did some camps and museums, etc. Then when we said we were going to do London for the year, it was not a big deal.”

2. Picking a school

Picking a school for your kids can be a tough call. Places like London, Geneva, Aix-en-Provence and Barcelona are popular among North American entrepreneurs because they have international schools that follow the Baccalaureate program, which offers a curriculum close to what North American kids are used to.  Putting your kids in an international school also creates an instant network of (mostly) English-speaking parents eager to make friends.

My wife and I opted for a different route and put our kids in a local French school so we could integrate into life here a little faster. We’re happy with our choice because it has allowed our kids to be immersed in French and enabled us to meet local French parents.

In your case, I would make the call based on how long you expect to live abroad: if your horizon is one year or less, an international school will be less disruptive for your kids (although more expensive). If your time horizon is longer, I think the local school route will allow you to integrate faster.

Robert Barnard, who is in the UK at least in part to set up an international office for his company, has another good suggestion: “Pick the school first, then the house. Commuting with kids to school is tougher than commuting on your own to work.”

3. Wheels

When we first arrived, I had a big Citroen Berlingo (think French Magic Wagon) and regretted every minute of our ten-day rental. Trying to park that tank in a country where a Mini is a midsized car was an exercise in frustration. French roads and parking lots are designed for small cars, so my advice – especially if you’re planning to live virtually anywhere outside of North America – is to buy a car a lot smaller than what you’re used to. I opted for a Diesel Audi A3.  It goes 1,100 kilometers on one tank of fuel (in Europe fuel costs about fifty percent more than it does in North America) and fits down the cobblestone lanes of even the oldest French villages.

I also bought a 50 cc scooter and that has been a godsend. If you live in a European city, circulation can be atrocious. A scooter allows you to maneuver around most traffic jams and park on any street corner or sidewalk. Hands down, my scooter has been the best 900 Euros I’ve spent so far.

The other option is to pick a city where you can live car-free. “The advantage of living in a city like Barcelona is that we didn’t need a car,” says Gazelle’s Verne Harnish. “In fact, it was part of our strategy to jettison our ‘addiction to the automobile’ that we have in North America.” (For the record, Verne also bought a scooter, much to his wife’s chagrin!)

4. Unplug

Whether you plan to work on your sabbatical or completely unwind, be prepared to be without a reliable connection to the Internet for the first month or so of your time abroad. When we first arrived, it took about a month to get an Internet connection installed in our house. What made Internet matters worse was that there are very few Wi-Fi zones in the south of France. One of the only reliable Internet connections was at a local McDonald’s franchise, so instead of sipping Rosé in a café, I ended up loitering at the golden arches daily just to download email.

5. To ship or not to ship

Our cost of living here is about what we would be paying in Toronto, but there were a couple of one-time expenses that we’ll never get back. One was the $15,000 we spent to have the contents of our house in Toronto shipped here.

We struggled with the decision to ship our things or not. Personally, I could care less about furniture except for one precious item: our Tempur-Pedic mattress.  But there were also things like the kids’ bicycles and a few toys that we knew we would miss if we didn’t ship our stuff.

As with a lot of things, my advice would be to let the length of your stay drive your decision making. If you plan to stay for more than two years, I think shipping your stuff will make you feel more at home and will probably be less expensive when compared to buying everything – or paying the premium for a furnished house. If you’re staying for less than two years, it probably makes financial sense to rent a furnished home or make friends with the local IKEA.

One other important nuance about renting a house: in France – and I’m not sure what it is like in other parts of Europe – you can rent a house furnished or unfurnished and there is a big difference from a legal perspective. In a furnished house lease, most of the rights go to the landlord, so they can cut short your stay if they want their house back. In an unfurnished house lease, the rights go to the tenant and the landlord cannot cancel the lease prematurely, yet you have the opportunity to cancel it within 60 days of the anniversary of each year of your lease.

6. Play time zone arbitrage

“I love being in the European time zone,” says Gazelle’s Verne Harnish, “First, I’m not receiving emails from North America until mid-afternoon, so I have all this uninterrupted time during the morning and early afternoon – great for relaxing, working on interesting projects, or playing tennis. In turn, it’s so much easier communicating with India, the Middle East, China, and even Australia, being six time zones closer.  So I can be on with the East in the morning if I like, enjoy a long afternoon lunch with my Spanish friends and then hop on with the West in the afternoon and be finished by the time the children get home from school.  In essence, the epicenter of the global economy has shifted east and being in Europe puts me six time zones closer to the action – one of the main reasons I’m excited we’re staying in Europe.”

Recently I got a note from an Italian-American entrepreneur who, at age 44, is considering taking his family to live in Italy for a year. I told him that it was a “game changer,” which is the best way I can describe the decision. I think I now come at business problems with a broader perspective; but the real dividends have been on the home front, where our sabbatical has brought us closer as a family and given us some amazing memories and a larger world view than we had before we left. Bon Courage!

PS. I’m coming over to the U.S. for a couple of days in January and have decided to host a reader workshop. Details here.