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)

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.

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.

Drive your first shot into the woods and most friendly golfers will give you a “Mulligan” which allows you a second chance to start out right. Lately I feel like I’ve been handed The Entrepreneur’s Mulligan.

Don’t get me wrong, my last business wasn’t a disaster, but there were things I would have changed:

• Over the years, I had painted myself into a corner by having employees on a hodgepodge of bonus plans which reflected my latest thinking on incentives at the time of hiring them. Hire enough people over a long enough period and you have a labyrinth of employee agreements to juggle.
• I had longstanding suppliers we stuck with out of inertia, not because they offered the best of what we needed.
• I had given one-time favours to some customers, only to have them taken for granted as long term elements of our relationship.

And because all of those things involved people and emotions and drama, they weren’t as easy to change as it was to write them just now. Over time, my business began to feel like how I imagine an artist feels mid-way through a painting when she realizes she selected the wrong-sized canvass: it’s too late to turn back, but it will forever be a flawed piece of work in the artist’s mind.

Starting fresh

And that’s one of the things you can look forward to after selling your business: you will get a blank sheet of paper and some time to design your next company. I think we entrepreneurs are creative souls and every artist is striving to create their masterpiece.  Can you name a song writer who wrote only one tune? How about a legendary architect who designed just one building or a photographer who took just one picture?

So why would an entrepreneur want one business as their legacy?

Scribbling on my blank sheet

I for one have started to jot down some ideas about my next business. My first few baby steps have been to:

• Develop a long terms vision and a set of values for my company which I personally find motivating and I think will resonate with people who come to work with me.
• Write an analogy for my new business which will quickly communicate the business idea to people who want to get involved.
• Quantify a 10-year goal and a basic strategy.

I’m sure I won’t get this business completely right either. And nor does the golfer who gets a second chance at their tee shot hit a hole-in-one. But that’s not the point. I’m just savouring that sense of excitement you get when someone gives you another chance to do it all over again.

So, have you taken your Mulligan?

It was my wife’s birthday yesterday. She’d kill me if I told you how old she turned but suffice it to say, it was a biggie (there is a zero on the end).

In an effort to preempt melancholy, I made my wife her favourite breakfast of all time: an egg McMuffin complete with a happy face made of HP sauce:

Kicking off a milestone birthday right

Finding English Muffins in this part of France is no easy task but I was determined to get this milestone birthday off to a good start. Which got me thinking, about milestones. Why is it that we celebrate birthdays or the start of a new year? On paper, it’s just another day, right? But milestones give us an excuse to hit the pause button and remind us of what we have accomplished, all the things we have to be grateful for and gives us permission to dream a little about the future.

So what are the milestones that you’re celebrating on your journey to building a valuable, sellable company?

If I may, here are a couple I think you should consider commemorating.

1. The day you go “all in”

Most of us start businesses while doing something else. You plan your business, maybe make a couple of sales but, as long as you have a job or a few credits left to get, you’re still on the fence. Then one day you decide to quit everything else and commit 100% to getting your business off the ground. Now that’s a day worth celebrating –  not for what you have accomplished, but for the courage it takes to jump off the fence and the adventure that lies ahead.

2. First time someone (or something) makes a sale

Making a sale as a business owner is a bitter sweet feeling. The sense of triumph is tainted by the realization that your business is dependent on you showing up. But the day that your salesperson walks into your office with a signed contract or someone hits the “buy” button on your website without you having to nudge them is a glorious moment in time.

3. A New home for your company

There is something special about moving into new space. A lot of business owners are creative souls at their core and a new environment to work in usually means you’re growing and investing in the future. Definitely a time to throw a party.

4. The million dollar mark

Hitting a million dollars in revenue is a significant achievement. Of the 27 million businesses in the United States, roughly 3%  do more than a million dollars in sales. You’re in an elite group – celebrate.

5. The first shot over the bow from an acquirer

The first time someone approaches you about buying your business is a special milestone. It’s usually an informal advance, maybe over lunch or at a trade show. I remember the first time I was approached by a big company who wanted to buy my marketing agency. The partner in charge of business development asked me to lunch and, once the plates had been cleared,  asked me if I would ever consider selling my company. I asked him what he was offering and he made a vague reference to “ten times”. I thought ten times was a very generous offer for a service business until he revealed he was referring to ten times net income after tax and that most of it would be made available on a five year earn out. While I passed on the offer, a little part of me was flattered to have been approached.

6. One million dollars of EBITDA

While you don’t need to have a million dollars of pre tax profit to sell your business, it is an important milestone to shoot for because it opens the door to a wider range of buyers. Some strategic acquirers won’t consider a business will less than a million dollars of Earnings Before Interest Taxes, Depreciation and Amortization (EBITDA). Also, financial buyers (e.g. private equity companies) have started to come “down market” and some will now consider businesses with a million dollars in EBITDA. You may not want to sell to a financial buyer, but having another offer at the table creates competition for your business.

7. First management team meeting

Cobbling together a senior team is a slow process but eventually you realize that your business is no longer all in your head and that other people have (and want) a say in things. Sitting down with your management team for the first time is a moment to savour – you’ve built a business capable of attracting senior talent and you have taken a giant step towards being sellable.

8. LOI / term sheet / Expression of Interest

Another big milestone is the first time you get a written offer to buy your business. More than empty chatter over lunch, this is a formal document where someone validates – in writing – that your life’s work has value to someone other than you. There’s still a long road ahead before closing day, but you deserve to celebrate.

9. Closing day

You need to down an entire bottle of your favourite bubbly for surviving the due diligence period which is a little bit like how I imagine a stoning to feel.

10. Your last day

In my last company, I remember the final day like it was yesterday. I had ridden my bike to work so when it was time to go, I put on my biking clothes, said my goodbyes, and road off down the street. The spring air has never felt so fresh, my bike had never felt so light. Freedom is a feeling to behold.

Out of interest, what milestones are you celebrating?