Apex Blog

This month Apex Business Advisors is publishing our Core Values for you to review. We felt it is important to communicate our principles that guide us in our business as well as personal lives. We welcome your feedback.

We Live by the Golden Rule
We focus on fair treatment in all our business dealings and pursue a win-win for sellers and buyers. Our team will be open and honest with their clients or customers while maintaining confidentiality and fiduciary responsibilities. We expect our clients and customers to deal honestly and ethically as well.

We Believe in Entrepreneurs
Apex Advisors are all entrepreneurs who have bought and sold their own businesses.  We know what our customers and clients are feeling, and we know how important it is to move to your next phase of business and personal life. We will work with your other advisors and can recommend professionals (attorneys, accountants, bankers) to complete your transaction.

We’ll tell you the Truth
We live in the real world and are here to give you proper advice, not sugarcoat things to make them sound good. We all benefit by setting honest and straightforward expectations regarding the sale and purchase of a business. We have been involved in hundreds of transactions and have experienced the successes to know what it takes to get a deal done. There is no one formula or one way to do it, so remaining flexible and being creative is important.

We Believe Success is not Accidental
Entrepreneurs understand that to operate a successful business means overcoming obstacles and reaching for a goal. Transactions take time, and involve many people with differing time schedules, motivations, emotions, and experiences. We don’t give up because of an issue or a challenge.

We Win as a Team
At Apex, we work as a team to get transactions completed and to meet our win-win goal. We share ideas to make sure our clients, our brokers, and Apex are successful. One person cannot, and will not, work for their own good at the disadvantage of the others. Getting deals done for our clients is our goal, but not at the cost of undermining our ethics.

 

Recent Transactions Completed:
Carpet Cleaning Franchise – Kansas City, MO
Residential and Commercial Cleaning Company – Overland Park, KS

We look forward to assisting in your business sale or acquisition plans.  Call and talk to an Apex Business Advisor today!

Doug Hubler
President

This month one of my Senior Advisors, Anita Lieser, describes a recent transaction that went remarkably well. It is a good time to reflect on the transaction and to educate each other, and our buyers and sellers on the characteristics of a deal that got completed without the typical headaches. Too many times we focus on the problems because that’s where most of the stress comes from. There are many deals that go well every year. Here’s her story…

Anatomy of a Successful Transaction…What Went Right?
As a business broker by trade, it is a constant challenge to anticipate and overcome obstacles that may threaten the completion of a transaction.  Just when my fellow brokers and I think we have seen every reason for a deal to fall apart, yet another will rear its ugly head.  However, I was recently involved with a transaction that seemed to defy Murphy’s Law.  When both buyer and seller walked away from the closing table thrilled, I began contemplating what could be learned from this successful transaction that could minimize future obstacles.  Instead of asking “What went wrong?” I was faced with an opportunity to analyze “What went right?”  

Consider these facts:  After casually trying to sell this simple service business himself, the owner signed an Apex Engagement Agreement on June 11, 2010.  After the owner and I spent about a week and a half finalizing the marketing materials, the business was ready to go to market and the brokers in my office began fielding inquiries from buyers.  On July 1, the seller and I met with two different buyers.  On July 2, the seller accepted a full price offer from one of these buyers.  Bank and franchisor approval were both received by the first week of August, and on Friday, Sept. 3, 2010, the transaction successfully made it to the closing table.

So, what were the key elements that contributed to the success of this transaction?

1. The seller’s business model and meticulous bookkeeping made the business attractive to numerous buyers and to the lender.   The seller had spent many years building a business with an attractive cash flow.  He had hired and trained technicians to complete the direct labor, putting himself in more of a managerial role.  He had implemented good record keeping procedures so that financial records were clean, organized, easy to understand, and tied to tax returns.  These factors were also important to the lender, and, when coupled with the strength of the buyer, led the first bank approached to offer very favorable terms without any requirement for the seller to carry a portion of the note.

2. The seller set a reasonable asking price.  Sellers often set their asking price too high because they want to ensure they don’t leave money on the table.  In doing so, they often lose the interest of the majority of buyers, and they don’t realize that it is nearly impossible to get buyers to reconsider even if the price is later lowered.  Instead, this business owner, after consultation with the broker, understood the concept of setting the price so that competition among buyers would mitigate the need for negotiations.  This reasonable asking price created a good deal of traffic, creating a seller’s market for the business which quickly culminated in a full price offer with seller-favorable terms.

3. The seller responded promptly and succinctly to all buyer questions and due diligence requests.  This is not as simple as it sounds.  In meetings with buyers, sellers frequently struggle to provide just the right level of information.  While sellers are typically trying to be helpful, buyers can be easily overwhelmed with too much information.  Instead, this seller let the buyer set the pace and content of the conversation.  The seller listened closely to buyer questions, answered them directly, completely, and succinctly, then allowed the buyer to move on to the next question.  Once the business was under contract, the seller provided all information requested by the buyer and his lender within a few hours regardless of the burden it placed on the seller.  This display of attentiveness allowed the lender and buyer to become more comfortable with both the financial history of the business and the seller’s contractual commitment to aid in the transition of the business.

4. Expectations were understood by all parties.  Two months is an extremely aggressive timeframe in which to complete a business purchase that involves both bank financing and a franchisor, as tasks have to be completed in a very methodical and specific chronological order.  From the start, both buyer and seller agreed to a timeline of activities and due dates required to meet this timeframe.  This allowed all parties to understand the impact of a missed due date.  During the process, when a couple of due dates were not met, the timeline was reviewed and modified to ascertain whether the target close date was still intact.

5. The buyer persevered.  Because the buyer was trying to go through the due diligence process at the same time that both the lender and franchisor placed requirements on him, the process was sometimes overwhelming for him.  Brokers, lenders, and the franchisor worked together to help the buyer prioritize tasks and stay focused.  Though he carried the heaviest load in the process, the buyer requested assistance when needed and was able to stay on track.

6. The seller showed flexibility.  Though the company vehicles that were driven on a daily basis had been maintained to the satisfaction of the seller and his mechanic, it was determined during due diligence that they were not maintained to the standards of the buyer’s mechanic.  It was also discovered that an ongoing business expense would be increasing at the beginning of the next year.  The seller agreed to credit the buyer with a small portion of the purchase price (about 1%) at closing to offset these items.  I wish sellers would more often realize that the dollars spent in a situation such as this are not nearly as critical as the priceless message of cooperation and interest in his success that such actions communicate to the buyer.

Oh, remember that I said that the seller had been casually trying to sell this business on his own prior to engaging us?  How exciting that less than three months later, he walked away from the closing table with a check (net of broker commission and the buyer credit for vehicle maintenance) that was 13% higher than the price he had advertised on Craigslist.  And the buyer is now the proud owner of a business that, after debt service, will provide him with a very good living.  What a great example of what can go right!

 

Recent Transactions Completed
Daycare  – Kansas City, MO     
Carpet Cleaning Franchise – Kansas City, MO 

We look forward to assisting in your business sale or acquisition plans.  Call and talk to an Apex Business Advisor today!

Doug Hubler
President 

Your Discretion is required

Confidentiality is a critical element in the sale and purchase of a business. Over the years in our office, we have sold hundreds of businesses and, for the most part, we have been able to limit the sharing of information to only those parties involved in a transaction. However, even with our diligent efforts and legal confidentiality agreements, some people feel the need to gossip or use confidential information in an illegal or unethical manner.  Others may simply mention that a particular business is for sale in casual conversation with friends without considering or understanding the impact on the business if this information is made public.

To those who have never owned a business, it may seem that sellers and their advisors overreact when it comes to ensuring confidentiality.  Consider, however, that business owners have expended tremendous resources to start, grow, and mature their businesses.  Perhaps they have spent years gaining name recognition, developing a customer base, establishing critical supplier relationships, and hiring and training employees.  A breach of confidentiality can put these alliances in immediate jeopardy.  A loss of any of these relationships could cause the business to become less desirable.  Buyers may then lose interest in purchasing the business, leaving the seller with a devalued business and a solid court case against the source of the breach.   In the end, the breach has only negative consequences for both buyer and seller.

If you are a buyer who has been working with an Apex advisor for an extended period of time, feel free to request a copy of your Non Disclosure and Confidentiality Agreement from your advisor so that you may review your obligations under the Agreement.   We are here to assist in the acquisition process, so feel free to call your Apex advisor if you have any questions.


Recent Transactions Completed
Computer Services  – Kansas City, MO   
Liquor Store – Miami County, KS
Excess Inventory Sales Company – Lee’s Summit, MO
Fence Company – Denver, CO

Managing Your Transaction 

Anyone who has a know-it-all cousin or brother or father or teenager understands that it is best to use your own common sense, life experiences, and judgment in conjunction with the suggestions of others to make the wisest decisions. These people may very well have something important to contribute. However, would you follow them down whatever path they lead you without question? Of course not.
The same is true in business. Advisors such as attorneys, accountants, and financial planners need to be managed. You pay them to offer their opinions and steer you toward a decision that they feel is appropriate for you.  And, if you inquire with multiple advisors, each will likely offer a somewhat differing opinion. The key is to ensure that your advisors understand your ultimate goals and offer suggestions that enable you to progress in that direction.  An attorney can create a plan designed to protect you from ever incurring risk. That plan, however, will likely also keep you from ever reaping reward.  Rather, it is probably more appropriate to request advice that will mitigate your risk while still allowing you to accomplish your goals. For example, if you have made a decision to buy a business, you would want your attorney to help you balance the risk/return equation.

When seeking the advice of an attorney in the purchase of a business, you should insure that the attorney has experience dealing with the acquisitions of small businesses rather than specializing in Real Estate, Traffic, or Criminal Law. There are many fantastic attorneys who have built their practices around small business. They understand well how to write and review Asset Purchase Agreements, and can offer sound advice to mitigate risk throughout the purchase process.  Apex Business Advisors can put you in touch with experienced attorneys who can guide you through the acquisition legalities.

Banking Update:
Although we are still experiencing a tough environment for SBA lending, there are banks that are currently approving transactions. Down payment requirements have edged up, and the business financials will most likely need to show steady or growing revenue trends. The government regulators seem to be looking over everyone’s shoulder, so lenders continue to be very conservative.  Proper preparation for the loan process is more critical than ever. Compiling an appropriate loan package along with a solid business plan, sound projections, and a good understanding of the business being acquired will be critical to receive funding in the current lending environment.


Recent Transactions Completed
Auto Detail Business  – Independence, MO   
Liquor Store – Lee’s Summit, MO
Orchard  – Harrisonville, MO  
Parking Lot Sweeping – Wichita, KS
Restaurant – Kansas City, MO
Bar and Grill – Overland Park, KS

Succession Planning
If you suddenly become unable to work, is your business positioned to operate without you? Accidents happen.  Have you prepared your business to continue without you? Will your spouse be required to quit his/her job to now manage your staff that needed constant oversight, or will your attorney decide it’s best to liquidate the business?
A succession plan is important for a business owner because:

1. You build a business that can continue without you.
2. Enterprise value increases.
3. Your estate is safeguarded.

Succession Planning includes much more than just filling a leadership void. Check out http://www.successionplanning101.com/index.php for more details.

Whether you are a current or future business owner, talk to your Apex Advisor about planning ahead to ensure the successful continuation and eventual transition of the business in your absence.  We will be happy to introduce financial and legal advisors to assist in structuring a proper Succession Plan.

Due Diligence:
When buying a business, it is critical to understand the financial history of your target business.  It is the buyer’s responsibility to verify that what has been represented by the seller is accurate. Most people who buy businesses don’t have a financial or accounting background and have never been involved with buying a business before. You don’t have to do it alone. Accountants who have due diligence experience can assist you with the process. Ask your Apex Business Advisor for names of professionals who can take the headache and stress out of the process.


Recent Transactions Completed
Computer Service Business  – Olathe, KS     
Insurance Restoration – Topeka, KS 
The UPS Store  – Olathe, KS  
Gas and Convenience Store – Higginsville, MO 
 

The Great Tax Debate

It’s April and time for the most feared activity in the world for business owners – filing tax returns. More accurately, filing tax return extensions!  Of course corporate returns are due March 15th, but April 15th is more dramatic and common.
It is one of the great dilemmas of all time: Do I under-report  my earnings and exaggerate my expenses? For some, this process of NOT paying Uncle Sam is a real art. Without getting into politics or the social values of paying taxes, let’s review the other most obvious reasons to be more honest on your tax returns.

• It’s much easier to sleep at night knowing you won’t end up losing sleep as someone’s boy or girl toy in the big-house.
• Your spouse that signed the return without reviewing and understanding how much you are cheating is just as liable, so also ends up being “befriended” in Leavenworth.
• IRS judgments on your credit bureau leave a lasting impression.
• AND, if you are a business owner that cheats at tax time, you have reduced the value of your business and personal net worth 100% or 1000%. Who knows, but the impact will be huge.
• Oh yes, and forget getting that bank loan for working capital.

Very real example:   (I have many to choose from, but I will take a simple one)
Bar and Grill owner decides it’s better to pay cash to his employees to avoid his portion of taxes.  He doesn’t report all his income because he doesn’t have employee expense to write off and doesn’t want to raise suspicion. His groceries, cars, kid’s phone, and other personal items are expensed through the business.   He almost hits break-even.  No taxes owed. Job done. Cool.

Bad news.  He couldn’t keep all that unreported income, so he spent it.  The economy takes a dive and he needs a bank loan to keep going. However, his tax return shows no profit, and he shows no personal salary, so the banks say no to a loan.  The next “great idea” he has is to sell his business. After all, who wouldn’t want such a great business that has supported him and his family for 10 or 20 years?

Depressing part.  Since his tax return shows no cash flow, his business is worth the used equipment in the building; about $35,000. There is a very limited market for his used equipment so he’ll need to discount it further to sell.

Summary.  Had he reported his true cash flow of $110,000, his business would have been worth $200,000 to $250,000 in this case. A qualified buyer would be much easier to find and there would be a bank to fund the acquisition. Multiply the size of this business by 4 or 5 and you will get an idea of the impact on one’s estate with a larger business.  Plan ahead when thinking about selling. The example above can be rectified without too much pain and with a little time. Call an Apex Business Advisor to find out how!

Recent Transactions Completed
Coffee Shop  – Lenexa, KS     
Auto Sales and Service– Kansas City, MO 
Label Manufacturer – Olathe, KS  

 

Professional Valuations
Although more of an art than a science, a business valuation is a good tool to determine the market price of a business. When financing an acquisition, the SBA now requires a valuation be completed for transactions over $250,000. There are many business intermediaries that prepare valuations for their clients, and there are professional third-party valuation companies used by banks (SBA), attorneys, accountants, etc.  Apex Business Advisors recommends using third-party valuation companies to complete a valuation because they don’t have a monetary benefit in the outcome of the valuation.  It is the most honest look at the business with no influence by the business owner.  Imagine having a valuation completed by a business owner’s accountant.  Is there a chance that it would be a fair representation? Maybe.
The typical valuation will look at 3 years of financial statements or tax returns, industry information, financial trends, customer concentration, and other variables. Valuations are calculated using methods such as; multiples of net earnings, return on capital assets, direct market comparisons, liquidation value, and more.

Lessons Learned
Great companies can have their value slashed by having customer concentration issues. There is a perception of increased risk if one customer, who may be 25% of the revenue or more, becomes unsatisfied with a service or product and decides to end a relationship. Whether a business owner believes the risk is real or not is less relevant than what potential buyers and their bankers believe. If at all possible, work to reduce the concentration level of a customer to less than 15%.
The Apex Business Advisors team has over 50 years of experience dealing with business transactions. Call one of our advisors at 913-383-2671 to discuss your plans to buy or sell a business. Or visit our website, www.KCApex.com for more information.


Recent Transactions Completed
Family Restaurant – Independence, MO - $125,000
Print and Mail Service – Kansas City, MO - $1,100,000
Child Care – Kansas City, KS - $512,000 

SBA Update

Due to the continued need to drive money into the small business sector, the federal government has approved some strong SBA programs.  See the SBA news release at http://www.sba.gov/idc/groups/public/documents/sba_homepage/news_release_09-83.pdf

An excerpt: “This Administration and Congress recognize that these key programs were successful in helping jump-start the economic recovery for America’s small businesses,” said SBA Administrator Karen Mills. “The increased guarantee and reduced fees on SBA loans helped put more than $16.5 billion in the hands of small business owners and brought more than 1,200 lenders back to SBA loan programs. The extension of these programs through February is important to continuing our path toward recovery and will mean thousands more small business owners have access to the credit they need."

Bottom line: The SBA will guarantee 90% of the approved loan and has temporarily waived the guarantee fees that are normally part of the buyer costs in the package. The fees will be waived until funds are depleted and the 90% guarantee program extension will carry through until February 28th.
This is a great time to get moving on the business transaction you’ve been thinking about.  The guarantee fees can cost a buyer thousands of dollars and have caused deals to collapse or forced a change in structure.  Don’t delay; call your Apex Business Advisor!

Negotiation Tips

Whether you are a buyer or seller of services or widgets there are a few straight forward tips to negotiating to remember.  As when dealing with your teen agers or spouse, pick your battles.  List out the most important things to you and areas you are willing to give.  Understand your ultimate goal. Try to take the emotion out of the process.  Negotiation is about give and take, so be willing to give when it is appropriate.  If you are asked to give on a point, then what can you get in return?

An article in Entrepreneur Magazine goes through 10 points of negotiation from a seller’s point of view. It still has relevant points for everyone involved.

http://www.entrepreneur.com/growyourbusiness/sellingyourbusiness/article203644.html

Be sure to keep your Apex Business Advisor in the loop and ask questions.  We can assist through the process and share the successes and failures of past negotiations.

Great News to Start 2010!

Sunbelt Business Advisors of Kansas City is now Apex Business Advisors!  Our team still consists of the same experienced advisors that you have come to know and trust.  Our location, phone number, and professional services offerings remain the same.  Other than an obvious change in our email addresses and website URL, it is business as usual at our office.  In the upcoming months, we look forward to sharing with you our vision of Apex and our goals for having an even greater impact on the entrepreneurial world.

Success Stories

We finished off 2009 with a bang!  One deal in particular reminded us how all parties in a deal are important to its success, but none more critical than the buyer and seller.  A transaction closed this month after six months of work and a near collapse a few days before closing.  During the six months of work there were initial problems with finding a bank that could loan money due to all the market upheaval, many more weeks to get an SBA approval, there were tax issues related to the sale and seller financing, there were concerns about non-disclosure and name changes, complications with using retirement funds, late night negotiations with e-mail that required triage.  In the end, the attorneys, accountants, and advisors could only lend support.  The deal came down to buyer and seller meeting face-to-face, clearing up some confusion, agreeing that they still wanted to get the deal done, and making sure others didn’t get in the way.  With that focus, the transaction closed. 
Apex advisors can share with you the critical do’s and don’ts of negotiating deals, share our experiences of deal successes and failures.  Visit with your advisor to gain some insight on buying and selling businesses.


Recent Transactions Completed
Commercial Maintenance -- Kansas City, KS - $2,950,000
Bar & Grill -- Lawrence, KS - $225,000
Bar & Grill -- Kansas City, MO - $125,000
Language Tutoring -- Overland Park, KS - Under $100,000
BBQ Restaurant -- Kansas City, MO - Under $100,000
Franchised Ice Cream -- Overland Park, KS - Under $100,000
Cabinet Shop -- Kansas City, MO - $300,000

Getting into Business by Anita Lieser, Senior Broker
Are you ready to step into the wonderful world of business ownership?
Read the entire article from 'The Thinking Bigger Guide for KC Entrepreneurs 2009/2010 Edition'