In order to sell one’s business using the services of a business broker, a listing agreement is almost always required. For the owner of the business, signing the agreement legally authorizes the sale of the business. This simple act of signing represents the end of ownership. For some business owners, it means heading into uncharted territory after the business is sold. For many it also signifies the end of a dream. The business owner may have started the business from scratch and/or taken it to the next level. A little of the business owner may always be in that business. The business, in many cases, has been like a part of the family. For buyers, the signed listing agreement is the beginning of a dream, an opportunity for independence and the start of business ownership. The buyer looks at the business as the next phase in his or her life. Pride of ownership builds. So, that simple piece of paper – the listing agreement – is the bridge for both the seller and the buyer. The … [Read more...]
What a Buyer May Really Be Looking At
Buyers, as part of their due diligence, usually employ accountants to check the numbers and attorneys to both look at legal issues and draft or review documents. Buyers may also bring in other professionals to look at the business’ operations. The prudent buyer is also looking behind the scenes to make sure there are not any “skeletons in the closet.” It makes sense for a seller to be just as prudent. Knowing what the prudent buyer may be checking can be a big help. A business intermediary professional is a good person to help a seller look at these issues. They are very familiar with what buyers are looking for when considering a company to purchase. Here are some examples of things that a prudent buyer will be checking: Finance Is the business taking all of the trade discounts available or is it late in paying its bills? This could indicate poor cash management policies. Checking the gross margins for the past several years might indicate a lack of control, price erosion or … [Read more...]
Three Basic Factors of Earnings
Two businesses for sale could report the same numeric value for “earnings” and yet be far from equal. Three factors of earnings are listed below that tell more about the earnings than just the number. 1. Quality of earnings Quality of earnings measures whether the earnings are padded with a lot of “add backs” or one-time events, such as a sale of real estate, resulting in an earnings figure which does not accurately reflect the true earning power of the company's operations. It is not unusual for companies to have “some” non-recurring expenses every year, whether for a new roof on the plant, a hefty lawsuit, a write-down of inventory, etc. Beware of the business appraiser that restructures the earnings without “any” allowances for extraordinary items. 2. Sustainability of earnings after the acquisition The key question a buyer often considers is whether he or she is acquiring a company at the apex of its business cycle or if the earnings will continue to grow at the previous rate. 3. … [Read more...]
A Listing Agreement is More than Just a Piece of Paper
In order to sell one's business using the services of a business broker, a listing agreement is almost always required. For the owner of the business, signing the agreement legally authorizes the sale of the business. This simple act of signing represents the end of ownership. For some business owners, it means heading into uncharted territory after the business is sold. For many it also signifies the end of a dream. The business owner may have started the business from scratch and/or taken it to the next level. A little of the business owner may always be in that business. The business, in many cases, has been like a part of the family. For buyers, the signed listing agreement is the beginning of a dream, an opportunity for independence and the start of business ownership. The buyer looks at the business as the next phase in his or her life. Pride of ownership builds. So, that simple piece of paper – the listing agreement – is the bridge for both the seller and the buyer. The business … [Read more...]
What is the Value of Your Business? It All Depends.
The initial response to the question in the title really should be: “Why do you want to know the value of your business?” This response is not intended to be flippant, but is a question that really needs to be answered. Does an owner need to know for estate purposes? Does the bank want to know for lending purposes? Is the owner entertaining bringing in a partner or partners? Is the owner thinking of selling? Is a divorce or partnership dispute occurring? Is a valuation needed for a buy-sell agreement? There are many other reasons why knowing the value of the business may be important. Valuing a business can be dependent on why there is a need for it, since there are almost as many different definitions of valuation as there are reasons to obtain one. For example, in a divorce or partnership breakup, each side has a vested interest in the value of the business. If the husband is the owner, he wants as low a value as possible, while his spouse wants the highest value. Likewise, … [Read more...]
A “Pig in a Poke”
Once a buyer has negotiated a deal and secured the necessary financing, he or she is ready for the due diligence phase of the sale. The serious buyer will have retained an accounting firm to verify inventory, accounts receivable and payables; and retained a law firm to deal with the legalities of the sale. What’s left for the buyer to do is to make sure that there are no “skeletons in the closet,” so he or she is not buying the proverbial “pig in a poke.” The four main areas of concern are: business' finances, management, buyer's finances, and marketing. Buyers are usually at a disadvantage as they may not know the real reason the business is for sale. This is especially true for buyers purchasing a business in an industry they are not familiar with. The seller, because of his or her experience in a specific industry, has probably developed a “sixth sense” of when the business has peaked or is “heading south.” The buyer has to perform the due diligence necessary to smoke out the real … [Read more...]
Do You Really Want to Meet Employees Prior to Closing?
Many business intermediaries, like myself, have been through this many times. Should you tell your employees you are selling the company prior to the actual closing? The following is a well written scenario by Jeff McAdam co-founder of the Bridlebrook Group. We have all been there before—you are cruising along with some great momentum, on the verge of putting a deal together, until suddenly the buyer thinks they should be allowed to meet and speak with employees prior to the closing. This can sometimes stop a deal in its tracks, but in my opinion, it never should. This article will focus on how to deal with this issue and cite a real life example to demonstrate why meeting employees ahead of time is a bad idea for both the seller and the buyer. As intermediaries, we always look to protect our clients. When a buyer wants access to employees before closing, the risks to the seller are numerous and obvious (loss of confidentiality, disruption to the business, concerned employees, … [Read more...]
Boomers and Retirement
New this survey, advisors reported that 65 percent of their new sellers and 41 percent of their buyers were baby boomers in first quarter 2014. “The older boomers are selling and the younger boomers are buying,” said Scott Bushkie, president of Cornerstone Business Services. “The boomers are affecting both sides of the transaction, helping create more activity on top of the strong interest from corporations and private equity to grow through acquisition. It’s easy to see why activity is at an all-time high for the last five years. “That said, the Main Street market remains a buyer’s market,” Bushkie continued. “It’s unlikely values will increase as long as there’s a larger number of baby boomers selling than there are buyers looking for Main Street opportunities. We’d need to see other market scenarios take precedence for valuations to change.” For Main Street, retirement was the number one reason driving sellers to market, followed by burnout. Notably, in the lower middle market, the … [Read more...]
Corrugated Box Manufacturer
Business Description:The Company (a Maquiladora) experienced progressive growth until 2012 when its operations were impeded by its controlling entity’s paper mill (see applicable separate profile) operations’ funding/cash flow challenges. The Company was providing working capital resources to support the paper mill to a finished state to supply paper not only to the Company but to other third party entities. In 2013 the Company re-built its solid customer base and continues to be successfully working through the impediment issues (notwithstanding the continuing increased demand for its products). The Company’s growth issues were incurred by strict creditor terms of its materials’ suppliers via its 2012 cash-flow support to the paper mill needs. Distribution:The Company has a strong recurring based of customers and distributes its products primarily to the Western U.S. including an expanding demand for corrugated box products. The Company has a reputation for quality … [Read more...]
Senior Care Business Opportunity
Asking Price: $39,500 Established: 2006 Location: Indianapolis area Business Description In Home Senior Service is one of the fastest growing industries in the nation. This franchise provides non-medical in home care. As a franchisee, you are provided with a comprehensive proprietary custom software package that is the best in the industry that allows you to run your business from any place in the country with an internet connection. The terriitory is protected. Excellent training and support and other benefits from a first class franchise organization. The potential for growth is unlimited. Detailed Information Competition:A competitive industry within a fast growing industry.Growth & Expansion:Enormous grwoth potential.Support & Training:Will train as needed. Also, excellent franchise support … [Read more...]