Archive for category: Must Knows About Business Sales

Every business sale is a minor miracle.  Just as the skydiver gently times his pirouettes and turns in his parachute to land precisely within the giant X of his landing zone, so too do all parties aim at completing what needs to be done from the time an LOI is signed to the date a deal is set to close. Think about all the people involved.

Buyer/Seller

The seller has been given a great deal of paperwork to complete for the buyer’s due diligence.  If he/she has been preparing well to sell a business, this may simply be a matter of looking things up and filling in blanks.  

But, if those systems aren’t in place, there’s going to be a lot to do.  The seller has to form a company and work out contracts with new employees and/or investors.  He has to line up the money, which may involve both the SBA and a bank.  Speaking of which…

Bank

Loan committees don’t meet every day.  They meet every couple weeks – sometimes more frequently, sometimes less, but at those meetings, the banker representing you needs to have a substantial amount of paperwork in order to represent you well.  And who is going to get all that paperwork done?  You, the buyer.

Attorneys

The seller and the buyer will both be working with attorneys in order to make sure deal points are handled in a thoughtful and diplomatic way so as to preserve amity and keep the process moving forward.  These meetings may be contingent on items mentioned above.  Did we mention paperwork?

This is all to say that if everyone is aiming towards a date, and then there’s suddenly a delay, it’s a lot like a sudden stop in traffic when you’re driving a car.  Your muscles tighten up and your senses are on high alert.  In the case of a closing sale delay, the question immediately posed is: Why is there a delay?  If you don’t have a good answer to this question, a deal could go away.  Why?

For the seller, the concern might be, “Hang on, this person wants to buy my business, and he/she can’t get the paperwork done?  Is this deal even real?”

For the buyer, the concern might be, “Whoa, is this person hiding something from me?  Can I trust the documentation I’ve gotten so far?”

Honesty

The best course, as always in this business, is disclosure.  Be upfront about why there is a delay, explain what you are doing to correct it, and then hit the target.  The minor miracle of hitting a business closing date?  That miracle is enclosed in a bubble of trust.  The bubble might be able to take a hit – even two – but, you know what they say about third strikes…

Here at Apex we always ask you to keep your lines of communication open with us.  Whatever is on your mind throughout the process feel free to share.  We want to cross that closing date finish line with you, so you can move on to what’s next!

Are you looking to sell your business but hesitating to sign an agreement with a business broker?

Thinking about sharing your business opportunity with multiple brokers?

If so, you may want to hear our perspective about the value of an exclusive engagement agreement.

You want your broker to work hard for you.
If you try to sell your business through multiple brokers, how much effort can you expect?

Why would a broker put great effort and investment into preparing a marketing package and expending resources on your deal when he stands a good chance of losing it to another broker?

You want to protect your confidentiality.
Asking multiple brokers to work on your sale almost guarantees a breach of information about the particulars of your business.

Because there’s no commitment on the part of the seller, the brokers may become more flexible about the information they’re willing to share. The brokers will be talking to the same set of potential buyers, and they may be more interested in satisfying the needs of the buyer rather than the seller.

You’d like to maintain the value of your business.
Having multiple brokers working on your behalf with the same buyers could signify some desperation or lack of motivation. In either case, the buyers will not perceive it positively and will most likely show a reluctance to engage.

If someone saw the same business on the web from three different advisors or received direct calls from them, they would be really curious about the circumstances and would probably approach the opportunity with much more skepticism.

You want a broker with experience.
Ask yourself why a broker may be willing to work without an exclusive agreement. Could it be inexperience, a poor record or desperation for business?

An exclusive engagement agreement protects both the buyer and the seller. It sets expectations and establishes a mutually beneficial relationship. Our agreements typically cover one year because the average time to sell a business is around nine months.

Your broker will invest a lot in helping you sell – from assisting you with positioning/marketing your business and finding potential buyers, to qualifying them, helping you negotiate the deal, and working with bankers, accountants and attorneys to get the deal to closing.

To ensure you’ve chosen the right broker before signing an exclusive agreement:

• Do your research. Look at the broker’s current listings, past activity and testimonials from happy buyers and sellers. Ask for references from accountants, lawyers and other professionals with whom they’ve worked.
• Agree on the services your broker will provide and clarify your expectations about regular progress reports – by email, phone or in-person meetings.
• Be patient. But if you’re not seeing the effort you expect, speak up early! Open and honest communication is always best.

If you haven’t met a single qualified buyer after a few months, you’ll want to regroup. Reassess the pricing, look at feedback from potential buyers and discuss adjustments with your broker. When you’ve established a trusting, clear agreement at the start, these conversations should be comfortable for both you and your broker.

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

Private equity groups (PEGs) are always looking for good businesses to buy – ones that are ready to grow. They seek businesses that are successful but need an infusion of capital, expertise, scale or marketing to reach their full potential.

Often, PEGs will purchase a large percentage of the business and ask the owner to maintain some ownership and stay involved in running the business. They’ll then seek to grow the business and possibly sell it again.

The Pros: Growth, Two Paydays, Gradual Separation

That scenario sets you up for two paydays – one at the initial sale and another after you’ve grown and the private equity group either sells the business again or buys you out at a much higher value!

That’s just one of many benefits when selling to a PEG. It may be right for you if your business is successful but stagnant – if you’re looking for help taking it to the next level.

These buyers are good at what they do; they likely have other businesses like yours. Because they typically don’t want to get into the weeds, they often want you to continue leading for a time, while they add oversight and assistance in the areas where you’re lacking.

The Cons: No Pricing Premium, More Thorough Examination, Potential Cost Cutting
In our experience, private equity investors are tough negotiators. However, they will offer a fair price, rarely paying a premium. They will require more time consuming due diligence – typically 90 days. They are in no hurry; they’ll look at 500 potential deals before choosing one. So they won’t hesitate to put you through your paces.

To fund growth, these groups may require the business to do some cost cutting, layoffs, and other changes, which could make you uncomfortable. This is especially true if they own other businesses like yours and are looking for synergies.

Be Prepared

• If you think your business may be attractive to a private equity group and you’re interested in selling, do some prep work (check out our post 6 Critical Factors That Make Businesses More (or Less) Attractive to Buyers). Talk with an advisor to understand your strengths and weaknesses.
• If you attract interest early on, don’t get greedy and assume you’ve set your price too low. You may not get a second group interested.
• As you begin negotiations, make yourself available, and work on building a relationship with the potential buyers. You’re likely to be working with them for some time, so you’ll benefit by getting off to a good start.

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

Summer time is vacation time for many of us. But some business owners rarely take time off. Others go on vacation but call it a business trip and expense it to their company. As it turns out, your decisions about vacation can ruin the value of your business, making it very hard to sell for a fair price.

1.Exaggerating expenses. Are you using your business as a piggy bank? We often see business owners writing off their family trips as a business expense. That’s one way to fund a trip you can’t afford and get a tax write-off, too.

But this type of practice can get you in trouble, inflating the expenses that show up on your P&L and reducing the net income of the business, making your performance look less than ideal.

When bankers consider your business for a line of credit or a loan, they have to look at the numbers on your tax returns; they can’t consider the back-story you provide. If you’re charging personal costs to the business, your expenses will look higher and your margins will appear lower than those of your competitors. This kind of practice can even force a banker to call an existing loan. We’ve seen it happen.

Excessive personal expenses made one client’s P&L look so bad that we couldn’t advertise his business for the price we needed. Now, he’s trying to go back and amend his books to show the actual expense figures. But his accountant is concerned the changes will inspire an audit. That’s not a good place to be when you’re looking to sell.

2.Not recognizing revenue to delay taxes. Have you ever gotten a chunk of revenue toward the end of the year and been tempted to report it the next year to delay the taxes? That’s another good way to ruin the value of your business.

We had one client who moved a large payment from December to the next January. He definitely dodged some taxes for the current year. But that move threw off his financials, reducing the value of the business by $2 million. To make matters worse, he did this while a buyer was in discussions with him and the buyer had to reduce the amount he was willing to pay!

3.Concentrating on only a few customers. Having a large customer or two can give you a great short-term advantage, but it also presents a huge risk for a buyer. You may be allowing one or two customers to overly influence your business decisions.

And the loss of just one customer could ruin your value. As a rule, it’s best not to allow any one customer to represent more than 25% of your revenue.

4.Skipping vacation. Do you find it impossible to take a real vacation from your work? Would the company fall apart if you weren’t there? These are signs your business is overly dependent on you – which means you’ll have a hard time selling it. When your success is too closely tied to one individual, it’s tough for someone else to take over.

If you’re controlling most of the client relationships or your skills are the primary ones driving the business, you need to start delegating responsibility. A business whose owner never goes on vacation isn’t attractive to a potential buyer – not just because of the lifestyle factor but also because of the vulnerability.

5.Having no marketing presence: You don’t have to be a social media maven to manage your basic marketing presence. But you do need a visible, up-to-date website. Potential buyers want to be able to verify your public presence and do a little research on you. If they can’t find your website or your LinkedIn profile, they’ll wonder if you’re hiding something.

All these factors affect your ability to build trust with a potential buyer. One or any combinations of these mistakes can make a buyer question the long term viability of the business and whether the business will provide a reasonable return. Owners need to focus on both the price of the business and the marketability of the business. To get a better price, the business needs to be widely attractive. 

If these value-reducing practices look familiar, now’s the time to begin reversing them. Making some changes will boost the value of your business – and maybe even let you schedule a little R&R!

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

Are you starting to think about selling your business? Maybe you’re hoping 2016 is the year to make it happen. If so, there’s no time like now to get started on the process. Here are four things you can do to get started.

1. Spiff yourself up.
   If you’re selling a home, you think about curb appeal, right? If it doesn’t look good from the outside, you won’t attract any buyers. So you might give the front a fresh coat of paint, hang a wreath on the door and trim up the yard.You need to do the same for your business. How’s your website looking? What’s your social media presence? Does your location look nice from the street? If you don’t provide a positive first impression, you could turn a potential buyer off before he has a chance to look inside.
2. Report your revenue and expenses accurately.
   Some small business owners under report revenue or inflate expenses to improve their tax situation. Those practices may save $5,000 or $10,000 in the short run, but they could affect the business value by $90,000 to $120,000.We talked with a seller the other day who was under-reporting revenue by $150,000 to $200,000 a year and was hoping to sell for around $3 million. We’ll be surprised if the seller is able to sell at all, given the inaccuracy of the books.
3. Clean up your assets.
   Do you have equipment or other assets that don’t work or aren’t providing value to your business today?If so, sell them off before looking for a buyer. Streamlining your business will help buyers understand what’s really necessary to operate.
4. Engage an advisor.
   Advisors typically charge just 10% of the deal, and they can vastly improve what you earn on your business. We recently talked to an owner who was so concerned about the cost of an advisor that he literally gave away a business and real estate worth $350,000!He left $315,000 on the table based simply on his fear of paying too much for help. Any advisor worth his or her salt will make the terms of the deal clear from the beginning, so you can make an informed decision about whether to engage.

We often talk to sellers who think they’re ready but who are missing these important basics. When that happens, it can take several months to straighten out.

Best of luck with your spring cleaning and tax reporting!

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!