“Exit strategies may allow you to get out before the bottom falls out of your industry. Well-planned exits allow you to get a better price for your business.” From: Selling Your Business by Russ Robb, published by Adams Media Corporation Whether you plan to sell out in one year, five years, or never, you need an exit strategy. As the term suggests, an exit strategy is a plan for leaving your business, and every business should have one, if not two. The first is useful as a guide to a smooth exit from your business. The second is for emergencies that could come about due to poor health or partnership problems. You may never plan to sell, but you never know! The first step in creating an exit plan is to develop what is basically an exit policy and procedure manual. It may end up being only on a few sheets of paper, but it should outline your thoughts on how to exit the business when the time comes. There are some important questions to wrestle with in creating a basic plan and … [Read more...]
The Devil May Be in the Details
When the sale of a business falls apart, everyone involved in the transaction is disappointed – usually. Sometimes the reasons are insurmountable, and other times they are minuscule – even personal. Some intermediaries report a closure rate of 80 percent; others say it is even lower. Still other intermediaries claim to close 80 percent or higher. When asked how, this last group responded that they require a three-year exclusive engagement period to sell the company. The theory is that the longer an intermediary has to work on selling the company, the better the chance they will sell it. No one can argue with this theory. However, most sellers would find this unacceptable. In many cases, prior to placing anything in a written document, the parties have to agree on price and some basic terms. However, once these important issues are agreed upon, the devil may be in the details. For example, the Reps and Warranties may kill the deal. Other areas such as employment contracts, non-compete … [Read more...]
Family Businesses
A recent study revealed that only about 28 percent of family businesses have developed a succession plan. Here are a few tips for family-owned businesses to ponder when considering selling the business: You may have to consider a lower price if maintaining jobs for family members is important. Make sure that your legal and accounting representatives have “deal” experience. Too many times, the outside advisers have been with the business since the beginning and just are not “deal” savvy. Keep in mind that family members who stay with the buyer(s) will most likely have to answer to new management, an outside board of directors and/or outside investors. All family members involved either as employees and/or investors in the business must be in agreement regarding the sale of the company. They must also be in agreement about price and terms of the sale. Confidentiality in the sale of a family business is a must. Meetings should be held off-site and selling documentation kept off-site, if … [Read more...]
Two Similar Companies ~ Big Difference in Value
Consider two different companies in virtually the same industry. Both companies have an EBITDA of $6 million – but, they have very different valuations. One is valued at five times EBITDA, pricing it at $30 million. The other is valued at seven times EBITDA, making it $42 million. What's the difference? One can look at the usual checklist for the answer, such as: The Market Management/Employees Uniqueness/Proprietary Systems/Controls Revenue Size Profitability Regional/Global Distribution Capital Equipment Requirements Intangibles (brand/patents/etc.) Growth Rate There is the key, at the very end of the checklist – the growth rate. This value driver is a major consideration when buyers are considering value. For example, the seven times EBITDA company has a growth rate of 50 percent, while the five times EBITDA company has a growth rate of only 12 percent. In order to arrive at the real growth story, some important questions need to be answered. For example: Are the company's … [Read more...]
Metal Manufacturing Solutions
Asking Price: $875,000 Business Description: This twenty year old consulting firm contracts with manufacturers to go into their customers’ facilities to oversee and help manage how their products are performing. The role of the Consultants is to solve problems and make manufacturing more efficient. Consultants are independent contractors with specific manufacturing expertise. They perform services that otherwise would be done by full time employees, keeping the full time employee count down. The concept has proven to be financially and performance efficient. Operational Strengths: The Business serves a niche – required expertise without adding to the permanent employee roster. Their Consultants have a long history of successful assignments. Customers have continuing needs and are loyal. Facility: The Business can operate from anywhere, office or home office. Reason for Sale: The two active Owners will retire after a transition period. Opportunity: One of the active … [Read more...]
Food Brokerage
Asking Price: $1.2 Million Business Description: The Business brokers well-known brand name Snacks, Candy, beverages such as Soft Drinks, Gatorade and Energy Drinks, Water, and other items with a long shelf life. They have vendors that offer the best prices and customers that will buy in trailer load quantities; some sales are smaller quantities. Trailer loads will sell for $20,000 to over $100,000. A somewhat typical transaction: Customer orders a trailer load, Business purchases and has it shipped. Customer pays within 48 hours, in many cases before the product is received. Business pays the vendor quickly – everyone is satisfied. Operational Strengths: The Business has a long history of locating what is needed at competitive prices. Customers and vendors are loyal. Facility: The Business has a small office; a part time Administrative person assists the Owner. The Business could operate from a home office. Reason for Sale: The Owner has been in the food related business … [Read more...]
Furniture Gallery
Asking Price: $60,000 Real Estate: $245,000 Business Description: The Gallery displays distinguished and uncommon furniture, accent pieces, prints and accessories allowing their customers to create spaces that reflect their individual character. It has a highly recognized name in the Greater Cincinnati & Dayton area. Products are upscale and affordable – value is paramount. For over twenty years the business has furnished over 40 Homearama homes – they understand trends and traditional styles. They also participate in the Cincinnati Home and Garden Show. Awards from magazines such as “Design” and “Cincinnati” are a testament to what they have and how they treat customers. Facilities: The building is in good shape with old world flair. It is owned by the Owners of the Business. A sale is preferred, a lease will be considered. It’s in the perfect location, an area known for stores that are everything the big box retailers are not – offering unique high … [Read more...]
What Are Buyers Looking for in a Company?
It has often been said that valuing companies is an art, not a science. When a buyer considers the purchase of a company, three main things are almost always considered when arriving at an offering price. Quality of the Earnings Some accountants and intermediaries are very aggressive when adding back, for example, what might be considered one-time or non-recurring expenses. A non-recurring expense could be: meeting some new governmental guidelines, paying for a major lawsuit, or adding a new roof on the factory. The argument is made that a non-recurring expense is a one-time drain on the “real” earnings of the company. Unfortunately, a non-recurring expense is almost an oxymoron. Almost every business has a non-recurring expense every year. By adding back these one-time expenses, the accountant or business appraiser is not allowing for the extraordinary expense (or expenses) that come up almost every year. These add-backs can inflate the earnings, resulting in a failure to reflect … [Read more...]
A Reasonable Price for Private Companies
Putting a price on privately-held companies is more complicated than placing a value or price on a publicly-held one. For one thing, many privately-held businesses do not have audited financial statements; these statements are very expensive and not required. Public companies also have to reveal a lot more about their financial issues and other information than the privately-held ones. This makes digging out information for a privately-held company difficult for a prospective purchaser. So, a seller should gather as much information as possible, and have their accountant put the numbers in a usable format if they are not already. Another expert has said that when the seller of a privately-held company decides to sell, there are four estimates of price or value: A value placed on the company by an outside appraiser or expert. This can be either formal or informal. The seller's “wish price.” This is the price the seller would really like to receive – best case scenario. The … [Read more...]
Selling Your Business
2/15t'2015 Selling Your Business- IBBA Selling Your Business When selling your business, you don't want just any buyer, you want the best buyer. With the market we're now experiencing, many sellers are getting multiple offers, but the buyers they choose aren't always the ones offering the most money. Would you consider a lower price for a buyer that fits the company's culture? Would you consider an offer that's a million dollars lower if it meant the difference between years of seller financing and cash at close? It's common for deal structures to include a variety of options which must be carefully considered and evaluated, long before you get to the negotiating table. You may not realize it, but you're positioning and negotiating from day one of a sale. Be sure your priorities are well thought out or … [Read more...]