Take Every Offer Seriously – The First May be Best (and Last!)

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TakeEveryOfferSeriouslyWe have relationships with hundreds of potential buyers for a new business. When we get a new engagement, we communicate the particulars of the business to these potential buyers. This usually creates a buzz and some excitement around the newly listed business.

Our seller gets excited, because we have 4 or 5 serious buyers interested. We set up meetings for interviews between the buyers and seller. The mistake the seller could make in this situation would be to assume there are going to be many offers on the business. When the first offer comes along, the seller decides to hold off on that offer hoping for an auction type of atmosphere. (The offer was a solid offer, but about 85% of what he was hoping to get for his business.) In this situation, the seller decided to wait and see what other offers came in, but the first offer was the only offer. The seller decided to come back a few weeks later to the original buyer, but the buyer had already made an offer on another business.

In a different situation, we had an offer for $12M for a business, but the seller wanted $15M. He held off to see if he could get more than $12M. The seller had been ready to sell, so his lack of interest in growing the business negatively affected the value. He ended up taking $6M three years later (and financing half the deal himself!) Nobody won on this deal.

The message is that you can’t get caught up in the hype surrounding the process. You need to consider every serious offer and decide if you would be happy getting the deal done for that price. We will help you negotiate, but it would be better to get your business sold than wait too long and miss the opportunity. You might only get one serious offer!

Don’t Quit Your Job Before the Deal is Done

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DontQuitYourJobTooEarlyIt might seem like common sense, but you should not quit your current job before you are absolutely sure that your deal is complete. People get excited about starting in the new business and give their notice and order new business cards too soon.

We had a buyer give notice, but he had not yet gotten the terms done on the lease for the building where the business resided. The landlord decided on a different use for the property and was not willing to renew the lease. This caused the deal to fall through.

In another situation, someone quit their job too early and started living off his savings account. The buyer and seller thought that the deal was going to be closed in less than a month. Banks sometimes take longer to complete deals because they look closely at every detail of the offer package. In this case, the bank took a few months. This reduced the amount of money the buyer had available for his down payment and the deal fell through.

Major Milestones before a Deal is Complete:
– Negotiations are complete and the contract is agreed to by both parties
– You have liquidated any personal funds needed for the purchase (401K, Real Estate)
– Bank has committed to fund the deal
– Landlord has signed the lease
– Licenses have been obtained
(Liquor stores, Home Healthcare, Remediation Company)

Watch Your “Trusted” Bookkeeper – Embezzlement Happens

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WatchYourBookkeeperIn the last 12 months, we have seen five deals fail to close because the bookkeeper was embezzling funds from the company being sold. Through the process of preparing the business to be ready to sell, we discovered inconsistencies in the financials that led us to the problems. In one of the larger deals, the accountant kept delaying the process by not sending us the required information. It turns out he was taking millions of dollars from the company and knew that this process was going to uncover his criminal activity.

Here are some of the results when the books have been cooked:
– Your business advisors don’t have a true picture of the business
– The seller has to stop and reassess whether or not to sell
(The seller might decide not to sell when he realizes the true profit of the business)
– Potential buyers back out because of the scandal
– The valuation of the business is lower than it should have been
– Distraction to the business being sold because of legal proceedings
– Potentially damaging to the reputation of the business

Periodically, you should have an external firm conduct an audit of your books to make sure that there are no hidden problems. They include fake vendor accounts, fake client accounts, additional phone and gas cards, or payroll numbers that don’t add up. We know companies that can help you with an internal audit, just call us and we will make the introduction!

Are You Playing Cards With Your Advisor

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Are you Playing Cards with your AdvisorThe simple truth is that you have to trust your business broker if you want to get the best deal done. Sometimes it feels like we are playing cards with our buyers. They will tell us that they have $100,000 to invest in a business. They don’t mention the fact that they have an additional $250,000 in assets that they are keeping in reserve as a cushion. This comes into play when deals are presented to the seller. Let’s say that there are two deals on the table… Offer A may be the strongest, but is weakened because we did not know there was an additional $250,000 in reserve or that there is additional family income (spouse) that was not shared with us. We have seen the lower offer (Offer B) win in this situation because the seller had to choose the strongest buyer based on more than just price. The seller chose to go with the buyer that was most likely to get bank approval.

The seller wants a strong buyer for their business because they don’t want the business to fail or employees to lose their jobs because of a cash strapped buyer.

Knowing the full extent of your assets will allow us to help you make the strongest offer.

White Knight and a Bucket of Gold

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WhiteKnightFrom time to time, we see business owners with the “White Knight” mentality. This mentality assumes that a buyer is going to be happy to come in and give the owner a bunch of money, even when the financials don’t support their emotional value for their business.

People will read the Wall Street Journal’s Mergers and Acquisitions baseline. Company A buys Company B for millions of dollars. Our seller reads this and assumes that because she has a patent or process her company is probably worth millions of dollars as well.

Another owner may assume that the buyer wants the brand or market position and that it is worth so much…even though the cash flow is only $100K per year.

A buyer can only afford to pay enough for the business to support the following:
Cash flow to run the business on a daily basis
Satisfy monthly debt payments supporting the business
A salary for their family so that they can continue making a living

If the asking price is too high, the numbers just don’t work. White Knights carrying buckets of gold are rare. The odds are that you will have to value your company based on actual math. There are no shortcuts.

For more information on determining the value of your business, please give us a call at (913) 383-2671.

Low Cost Brokers – You Get What You Pay For

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LowCostBrokerA woman, we’ll call her “Jane”, contacted us to sell a business. We gave her our proposal to sell her business. She chose to go with a lower cost broker that is a solo operation. Since then, she has called us repeatedly to ask for advice on how to handle the buyer, how to handle financing, how to handle confidentiality, and to ask for help with negotiation. The other broker is obviously not serving her needs and has no idea that Jane is calling us for help with things that he should be able to handle.

We are to the point where we have been as helpful to Jane as we can be. She needs to hire us to go further, and she feels stuck.

Things to Ask Your Broker Before Hiring Them
What services are provided?
Are the majority of the activities done in house or is it a collection of 3rd parties?
Are they providing strong reasons, based on real numbers, for valuation?
Are they able to advertise your deal to a broad market?
Is it one person, or a group of brokers with combined experience?
How many deals have they done…two or two hundred?
How many deals have they done in the past 12 months in this interesting economic climate?

For more information on how Apex does business, please give us a call at (913) 383-2671.

Financial Help – How to Get Your Loan Put Together

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PuttingTheDealTogetherHistorically, we have always had to be involved in financing options for acquisitions. We needed to know the parties involved and what kinds of deals banks are interested in funding. Today, it is even more critical because of the banking crisis. More banks have exited the banking market, they are more critical of any opportunity they might fund and some banks have stopped funding SBA loans entirely.

One of our strengths is that we know the majority of the banks in the Midwest region that are aggressive cash-flow lenders. We know what types of deals they like. We know the kinds of deals that they don’t want. We also leverage loan brokers that have access to hundreds of banks. The end result is that you will save time by going to the right places to find your funding. That said, every deal is different and obtaining a loan to buy a business is more complicated than ever before. That is why you need someone representing you who understands the ins and outs of the lending world. We have been told often by SBA lenders that they are always happy to receive our lending packages because they are complete and accurate.

DIY with the SBA no longer works
(Doing it yourself by trying to submit paperwork to the Small Business Administration department is not going to get your deal funded.)

For more information on how Apex can find funding for you, please give us a call at (913) 383-2671.

A Little Pillow Talk Goes a Long Way – Keeping Your Spouse Informed

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PillowTalkHere is an interesting story for you to consider… especially if you are married and thinking about buying a business.

We had a buyer looking for a business for months and his wife told him she was on board with everything. He found a business that he wanted to buy and did his due diligence. He visited the business, he talked to the owner about the business, he started working with our broker to develop an offer, and he wrote an escrow check to include with the offer. The prospective buyer then told us to present to the seller.

One hour later, we get a frantic call back from the prospective buyer asking if we had presented the offer yet… because his wife is not as “on board” as he thought she was. We also find out that what the buyer put down on his financial statement as money available ended up being one third of what he thought because his wife is not willing to contribute to the purchase of the business.

The moral of the story: make sure your spouse understands the process and what it is going to take to buy a business before you get to the table to finalize the deal. This could be taking a significant portion of the savings accounts to fund the deal. The perceived risk may be higher in your spouse’s view when they realize that a “guaranteed” paycheck is no longer on the table. It might be as simple as she didn’t think you were SERIOUS. Avoid this headache by having many conversations with your spouse and keep him or her in the loop as much as necessary.

If you need help avoiding these kinds of problems, please give us a call at (913) 383-2671.

I Survived Buying a Business

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boughtmyownbuspicWe have gone through the process that we help our clients with everyday. We know this can be a long and frustrating process. A lot of things can get in the way to send you down the wrong path.

In my transaction buying Apex Business Advisors, the previous owner and I developed a framework for the deal. The hard part was getting the seller’s attorney not to re-negotiate what the seller and I had already agreed to. As the contract was being revised with all the legal mumbo jumbo, his attorney was throwing in extra conditions or changing actual deal structure. This held up the closing for almost two months.

I called the seller and told him his attorney was changing our arrangement. He asked me if the contract was as I had stated. I said yes. He signed it and faxed it back with no changes.

We see situations like this every day and help people get through it. Every one of our brokers has bought, sold, or currently owns a business.

Check Your Ego at the Door… If You Want to do the Deal

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EgoKittyThere must be give and take to make a deal happen. That might sound like common sense, but when the money is on the table and egos get in the way, deals fall apart. It is important to understand the different perspectives from either side of the negotiating table:

The seller commits to a deal and starts planning for the next business or retirement. Their emotions and direction have changed and they are counting the deal done.

Here are some common things we hear from sellers:
I have a timeframe, and this needs to close by June 1st!
This company is worth $2 million, I don’t care what the revenue shows. If he can’t make this happen, then he doesn’t have the money, he isn’t smart

The buyer has a job, family, lawyer and accountant and deals can take time.

Here are some common things we hear from buyers:
I still have a long list of due diligence items that the seller hasn’t responded to! I can’t liquidate the assets overnight.

So we say again, both the buyer and seller have to develop a level of trust so that true negotiation can occur. We facilitate the process, but egos can get in the way to the point that the deal falls through. Make sure whether you are the buyer or the seller, that you want to be the buyer or the seller.