Please join us in celebrating Anita being with Apex Business Advisors for 5 years! Anita joined our company in January of 2007.  She was introduced to Doug Hubler by another long term broker, Jeff Crooks.  Jeff was certain that Anita would make a great addition to our team.  He was absolutely right!  Anita has proven to be a great asset to our company, and as proof has won several sales awards including our annual trip for the top producers.  This past year the award winners spent 5 days in Playa del Carmen.

When you sell a home, your realtor walks through your house, takes some pictures and lists your property on MLS.  They determine the starting list price based on features of your home and comparables in your area.  This process usually takes a few days.  Selling your business is NOTHING LIKE THIS.
 
We have to analyze your business, develop the value, set up the marketing program and start soliciting our current pool of buyers.  If we had a buyer on your business the very first day we got the listing, and we negotiated an acceptable price and terms with the buyer, it would still take 60-90 days to get to closing from that point.  It is not uncommon for a new business listing to be on the market for months.
 
We have literally had people call us on a Friday and said “can I have my business sold by Monday?”  This is no joke, and honestly, this is not a business we chose to represent.
 
If your goal in 2012 is to sell your business, we should be talking now and getting prepared!

Business buyers want to replace an income, have more control over their destiny, and increase their wealth opportunities, but may not know where to start. Searching for the right business can take months or even years using the old standard method of reviewing whatever comes on the market at the time it comes on the market. Sometimes that means making do with what is available – “compromising”.
 
Although this method actually works in many cases, a more efficient means of finding a business would mean instituting a focused search process. In a formal search, the broker is working for the buyer rather than a seller. The broker seeks out businesses based on the buyer’s experience, financial ability, location, and specific business types. The broker contacts businesses that meet the buyer’s criteria, assesses potential seller’s interest, gathers data, and assists in negotiations. Using this process, the buyer is in control and has options.
 

Often, from the seller’s point of view, they don’t want to be “For Sale”.  Keep in mind that many, many businesses sell every year that are not advertised for sale. Business owners may be willing to talk about selling if they know the buyer is serious.  There’s no better way to prove how serious a buyer is than performing a focused search.  To learn more, contact one of our brokers.

 

If you own your own business, odds are that your business is your largest asset.  Do you know what it is worth?  Really know?  If you have talked with your financial planner in the last few years, they are probably asking the same question so that they can get a true picture of when you will be able to retire.

If you haven’t done a formal valuation, you might be leaving significant money on the table.  We suggest having an independent, certified professional perform the valuation for your company.

Many times, business owners are looking to hand the business off to family or employees.  To get more specific, we had an owner that thought his business was worth $750,000.  When we walked him through a true valuation with an independent firm, the value of his business was closer to $1,000,000.  He was selling his business as part of his transition to retirement.  Imagine the smile on his face as a result of having an extra $250,000 in his pocket that he wasn’t really expecting.

As we have talked about in previous posts, this is another reason that you have to keep clean books.  The valuation process requires a review of three years of tax returns, cash flow analysis and other general questions.  If that list made you nervous, you know you need to focus on this!  Talk to your broker to get this figured out.

Some of the sellers we have worked with have the approach that “it’s all or nothing.  You WANT my business, you SHOULD want my business and I don’t NEED to negotiate.”  Yikes! 

Business peers, friends and family might be saying that their business is worth $2 million when the financial statements and other variables show it is really worth about $1 million.  The seller can get a lot of advice from people that either don’t understand the situation, don't have all the details, or have motivations that conflict with the reasonable price for the business.  A seller shouldn’t get a price locked into their brain without room for negotiation.  There is normally give and take when any deal is done and flexibility is how it happens.

Another important concept is listing age.  Some sellers think that there will be a never ending line of prospective buyers.  However, the amount of time that a business is on the market can affect buyer interest (and value!).  We know this from so many years of doing deals.  The first two to three months on the market are critical for buyer activity. 

We use a real estate market analogy.  A house that is on the market for 4 - 6 weeks usually has a dwindling number of showings because there is an unspoken concern that something is wrong with the house or that it is priced too high.  (And I don’t want to be the idiot that buys it.)  So proper pricing is critical to get buyers interested and willing to negotiate.

Bottom Line:  In order to get your business sold, the business needs to be priced reasonably, and there needs to be give and take.  Sellers need to have a good idea of what they really want from the deal and have some room to negotiate.  If you or someone you know needs an honest assessment, please talk to one of our Apex Business Advisors.

2011 is winding down and we wanted to take a moment to wish you Happy Holidays!  If you are like us, you are still scrambling for some last minute gifts and wondering how you are going to get to Costco in time to buy food for parties.  As you run around, we hope you take the time to breathe and enjoy the season.  Thank you for a great year!  We appreciate your friendship and business and look forward to another great year together in 2012.

 

 

We believe that it is important to give back to our community.  In 2012, we are partnering with the Marian Hope Center and will be supporting them through volunteering and contributions.  Their mission is “to give hope to every child through innovative programming, education supports to parents/caregivers, and outreach services to the community.”  They are growing and gaining recognition among health care, academic, and child advocacy professionals for their unique functional approach and phenomenal successes in treatment, instruction, and complete care for children and their families. 

 “I don’t have monthly financial statements.  I don’t have an operations manual!  Employee job descriptions… ha!  It’s all in my brain.” 

If you are trying to sell your business and any of the above statements ring true, you desperately need to seek help.  The value of your business may have just dropped dramatically, and you can’t fix this problem in a short period of time.  You need to have every bit of the financial picture of your company clearly documented and your accounting files and tax returns need to back up your data.  Even if you aren’t trying to hide anything, the buyer might think you are. The risk you are taking is that the buyer walks away or uses this opportunity to reduce their offer.

A good reason to hire Apex is that we will help you through the pre-sale planning.  The value of your business depends on this preparation.   

Example:  We had a potential seller that operated his business out of his checkbook with no monthly financials.  There was enough cash flow to justify half a million for his business.  However, nobody could touch the deal because there were no solid monthly financial records to show a bank, and prospective buyers couldn’t rely on the outdated tax returns. 

Due to health issues, the seller didn’t have the time to fix the problem and had to shut down the business. Don’t let this happen to you.  A little preparation goes a long way, and you need to start now if you haven’t already.

In our next blog post, we will be talking about the seller negotiation process, so stay tuned!

Hard-nosed, Extreme Negotiation Tactics Rarely Work Well

As a buyer, understanding what you want the deal to look like when all is said and done is important.  Be cognizant of how much flexibility you have and where you can give and take.  Hitting the seller with unrealistic and extreme demands may just hinder your relationship with the seller.  Starting your negotiating terms closer to where you want to ultimately end up may actually produce a better deal than you might expect. 

Collaborative Vs. Confrontational – Guess which method will help you most?

Typically, sellers are not desperate.  If you go into the deal in a confrontational manner, the seller is not going to share important information you need to know.  The seller may believe that the buyer is looking for a reason not to do the deal because of the way they are acting. They might be thinking, “I don’t like you and I don’t want my employees to have to work with you!”

In a recent deal, the process for buying the business was stretched out an additional sixty days.  Almost every conversation was a hard core negotiation for the buyer.  As a result, the bank kept getting changes on what the deal looked like.  It almost got to the point that the bank wanted to back out because they didn’t know what they were dealing with.  The seller backed out a couple of times and the buyer came back saying “it was just negotiation, I can do something different!”  This did not sit well with the seller.

The idea is to go in with what you really want.  You need to have an understanding of what you are trying to get out of the opportunity.  The end result needs to be a win-win for the buyer and the seller and that usually means that both parties have to give a little.

We see a few deals every year that end up being more challenging than they should have been.  The issue is usually a lack of due diligence.  Did the seller tell you everything?  Due diligence is all about discovery.  Is there something hidden in the financials?  Can the seller verify that the revenue and cash flow are accurate?  It is very important to double check these numbers so that you can make an informed decision. 

Due diligence takes place after an offer is accepted.  While a buyer is getting bank or funding approval, there is normally a period of two weeks to do the due diligence.  The buyer and seller sit down to verify the information that has already been provided.  If a seller avoids giving concrete documentation, you should see red flags. 

We had a seller not willing to provide W2 information by claiming employee privacy issues.   The seller was trying to hide the real cost of payroll.  In essence, they were hiding the fact that business was down by burying it in the financial details.

We coach our buyers to do effective due diligence.  Sometimes buyers need an accountant to help them go through the QuickBooks, Peachtree, or other accounting files to truly understand what the data means.  If there are customer contracts to review, an attorney may need to be at the table.  At the end of the day, we want our buyer to be as well informed as possible as we help them complete a deal.  Finding inaccurate information doesn’t necessarily mean a deal is bad, it may help you negotiate a better deal.

In our next blog post, we will be talking about the buyer negotiation process, so stay tuned!

Business Valuations are Critical

You need to know the value of your business and understand what variables influence value.  Considering that your business could be the largest asset you own, wouldn’t it make sense to educate yourself about business valuations?

Is there enough value in the business to retire?  Have you cooked the books too much (hiding your profits) so your business isn’t marketable? How does your company compare to industry standards? If something happens to you, do you have enough insurance to take care of partners and heirs?

The most common and accepted valuation method for the typical small business is based on a multiple of Owner’s Discretionary Earnings.  However, that’s just a starting point.

Here are a few of the many things a bank or prospective buyer may look at that could influence value:

• Are there layers of management or just the owner?
• Is the owner the only technical expert?
• Is the owner the lead salesperson with most of the relationships?
• Is there limited growth potential in the industry by region or niche?
• Is the business revenue trending downward?
• Is the business cyclical or seasonal?
• Are there significant capital expenditures for new equipment?
• Does one customer make up a large percentage of revenue?
• Do the financial statements accurately reflect business activity?

Whether you are a buyer, seller, or one of our professional contacts, call your business advisor at Apex Business Advisors to discuss business valuation details.