Open Book by seller greatly improves the odds of a win-win

EasyHardWe have buyers jumping through hoops to get good businesses! So when they jump through hoops, there is an expectation that the business “seller” is ready to jump too.

The business owner has the ability to make the process super easy or extremely difficult. Generally speaking, how the owner conducts business will translate to the ease or difficulty of the transaction.

  • Are the sellers open and honest with employees, advisors, and the IRS, or do they keep their cards “close to the vest”?
  • Are the books clean, or do they have multiple versions of questionable financials?
  • Are there operations manuals or does the owner orchestrate all activity and have it all organized in their head?
  • Are the partners in agreement regarding goals and strategy or are partners sending differing messages during interviews with advisors and potential buyers?
  • Are the sellers able to meet and communicate during extended business hours or only on Sunday evening between 6:30 and 8pm (for example)?
  • Is the seller responsive to questions or do they seem put out and delay communication?

The process of buying and selling businesses is not easy, but it can be made easier if it is approached correctly. Open communication with advisors and potential buyers is critical to smooth transitions. Eliminate surprises!  Contact an Apex Business Advisor for more information on buying or selling a business.

Doug Hubler
President

Cash Is King

CashKingBusinesses large and small depend on cash. Cash is the main measuring tool of financial stability and health. Cash production is also the main element in most business valuations. Wealth Advisors will analyze cash on the balance sheets of publicly traded companies to help make investment decisions. Cash is King! Small companies also have advisors who will focus their efforts on calculating cash balances, cash used, and cash generated by the business.

It’s very important to listen to the advisors, such as CPAs because they have experience in dealing with cash crunches and how to avoid them. Cash is critical to support businesses in good times and bad. When times are good, cash is required to build inventory, buy equipment, pay suppliers, and pay employees, etc, etc. When times are bad, cash is still required to operate the machines, maintain inventory levels, and keep the doors open.

Too often, cash balances are used to pay for boats, cars, and other fun stuff that does not support business operations. Owners can get too complacent and spend versus preserve. Of course, business ownership is a terrific way to build wealth, but keeping it is very important too!

Contact an Apex Business Advisor to assist in the sale or purchase of a business.

Doug Hubler
President

Seller Preparation

money trailOver the years we’ve talked about the need to have some sale pre-planning to improve the position of the company and increase its value. There are numerous variables that need to be addressed and an owner may have to modify how they operate their business in order to reap large rewards.

Another critical aspect of selling a business is preparing for a buyer’s due diligence process. Many deals collapse when problems arise during the review of financial statements. A buyer, and probably their accountant, will spend quite a bit of time analyzing the financial statements and tax returns to validate stated income and cash flow.

Clean and clear financial statements that conform to GAAP standards and tie to tax returns are critical to the success of a deal. Having the ability to run monthly, quarterly, and annual reports give some comfort to a buyer, but they need to hold up to scrutiny too. Explaining the basics of the financial reporting to a buyer or having the company’s accountant available to answer questions is a must.

A seller needs to keep in mind that a buyer may believe the cash flow is there and can follow the trail of money, but if it isn’t reported clearly and correctly, or if there are too many inconsistencies, the buyer’s bank will most likely turn down the buyer’s loan application. Lack of preparation hurts the seller in several ways:

  • extra time and effort in explaining the money trail which leads to time not spent on the business,
  • time wasted with a buyer and waiting for bank decision,
  • perception of other buyers who think that there is something wrong with the business when it becomes available again,
  • downward pressure on price,
  • and, maximum stress on all involved!

Please consult with an Apex Business Advisor about what it takes to sell a business for maximum value in less time.

Doug Hubler
President

Social Media and Business Value

BlueGurusI had to pass this blog post from Mic Johnson along to our Apex contacts because I think the message from Blue Gurus is important for another reason… increasing business value.

We see quite a few businesses that want to sell, and we can sell, but the value of the business may have been improved if the company had committed to some marketing efforts.  Many business owners struggle with where to put their marketing dollars and miss the freebie opportunities that are available and easy to use.

Having a website, writing blogs consistently, and having a presence on LinkedIn are all solid methods to improve visibility, credibility, and building a nice brand. Although building a website will have some cost, it doesn’t have to break the bank. Ask Jason or Mic at Blue Gurus for some ideas.

Imagine presenting your business to prospective buyers and each one asking about your website, or why you don’t have a website. They probably did a Google search for you and your business prior to the meeting. The worst answer is that you have no internet presence, and no social media presence. The buyer may find that as an opportunity for growth, but you won’t get paid for their great idea and effort!

After reading the Blue Gurus blog, ask an Apex Business Advisor about how to improve your business value.

Doug Hubler
President

Estate Planning Disaster

Death and TaxThe following is a true-life horror story played out by recently deceased actor, Philip Seymour Hoffman. If you are a business owner, know a business owner, have some money in a bank account, and/or dislike paying taxes, please read on.

Melissa Montgomery-Fitzsimmons recently wrote in the Wall Street Journal about actor Seymour Hoffman’s lack of proper estate planning. The article is a fantastic look at some basic estate planning considerations. One of the main considerations is to decide whether it’s you or the IRS who has control over your estate.

Read through the article and the backup details from an interview with Mr. Hoffman’s accountant – he probably did not clearly understand the impact of his decisions.

You don’t have to have the wealth of a Hollywood star to feel the adverse effects of poor planning. (Well, it is really your heirs that will feel the effects.) We can’t help but apply this to our entrepreneur friends who make the same mistake from time to time.

Many business owners have a huge asset (their business) that needs to be considered in the event of their passing. Without some pre-planning, the business that is part of an estate may have to be sold or liquidated to pay taxes.

Talk to an Apex Business Advisor to connect you with a tax professional to assist in your planning.

Doug Hubler
President

Selling Your Business without an Intermediary: A Cautionary Tale

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Recently, when a buyer handed us his financial statement along with his completed nondisclosure agreement, we realized that he was severely undercapitalized.   Even if we considered the backing promised by his father-in-law he would hardly be eligible to acquire a business bigger than a lemonade stand.

Surprisingly the same buyer described extensive conversations he’d had with a business owner who was seeking a buyer for his $1 million business via a blind online ad.  The business owner spent a significant amount of time discussing the prospect of selling his business to this supremely unqualified buyer.  Time wasted.

Worse still, in relating his story the buyer supplied adequate details about the target business for us to identify the business for sale.  Not only had the seller wasted his time talking to an unqualified buyer, but he had inadvertently granted this buyer the privilege of broadcasting his intention to sell the business.  Potential jeopardy.

What is your time worth?  How important is a confidential process to you? Apex Business Advisors applies a rigorous process in marketing, vetting buyers, and maintaining confidentiality throughout the transaction.  Having sold hundreds of businesses over some 16 years we know how to achieve the seller’s objectives; efficiently and with reduced risk.

Contact us if you would like additional information about buying or selling a business.

Paul Temme
Senior Advisor

Market Timing: The Big Picture

stock_market_up_downEconomic cycles can affect the opportune time to buy or sell a business.  In the last three decades the US has suffered economic downturns in the last 2-3 years of the decade, with recovery stretching into the early part of the next decade.

Small businesses have weathered these downturns with varying degrees of success.  Perhaps more importantly, the downturns have affected the availability of capital and buyers’ ability to secure financing for acquisitions.

We all know that the recession of 2008 was a doozy, and that capital markets have been slow to recover.  Many businesses have recovered at a snail’s pace, and bank lending is still reticent.  That said, things are improving; capital is available at historically low interest rates, so we are seeing transactions happen.

But, if history repeats itself yet again, we might anticipate a downturn in 2018. So from that perspective, sellers might focus on the window of opportunity between 2014-2018 as an ideal time to sell.  By the same token, buyers might be eager to take the plunge sooner rather than later.  Most businesses have recovered, bank financing is available, and we are likely to be in cycle of expansion that will proceed unimpeded till 2018.

If you would like more information about buying or selling a business, please contact us at Apex Business Advisors.

Paul Temme
Senior Advisor

Sellers are in the Drivers Seat

DriverSeatWe at Apex are very familiar with the tension between securing the highest price for a business, and not getting it sold. 2013 Survey results* indicate that one in three businesses will not sell within a year of listing.  Further, business brokers indicate that 40% of the time these businesses do not sell because sellers:

  • assign unreasonable valuations
  • make unreasonable non-price demands

What can you do to avoid this trap?

  • Get a market valuation before you intend to sell; it will help to set realistic expectations and suggest a roadmap on how to reach your financial goal.
  • Examine how your business performs relative to industry benchmarks so you can boast your excellent results, or work to improve them.

Oftentimes seller’s expectations are not far from the marketplace reality—except for some critical variables.   Let one of our Apex Advisors help you to navigate through the details of a selling strategy. The investment that you make today to plan your exit is likely to pay off when the time comes with a timely sale at an optimal price.

*A more complete discussion of the Pepperdine University research findings have been published by Forbes.

Paul Temme
Senior Advisor

Sell or Shut Down or A bird in the hand…

bird in the handIf there is ever an opportunity to sell a business, the business owner should take a serious look at the options. Every year we will have one or two business owners that refuse to accept a reasonable offer (based on their current situation), and within a few months the owner will just close the doors.

There was a clear advantage to taking tens (or hundreds) of thousands of dollars in a sale.  The owner could have paid off existing debt, had a buyer  take over the lease, kept the business alive, kept people employed, and had a little left in his/her pocket.

Instead, the business shut down with all debt still in place, employees were laid off,  and  the owner has zero money in his/her pocket. Maybe it was pride that got in the way of taking an offer, maybe the owner felt they were being taken advantage of, but whatever the case he/she refused to consider the risks and potential result.

When buyers put offers on the table, it is a serious move and should be analyzed completely. If the business is in a distressed position, it leaves little time for multiple buyers to review the business, assess the risk and hopefully submit offers.

After an offer is accepted, it could still take 30 to 60 days to complete a deal. If you are considering a sale, involve your advisors and have an open and honest discussion about all the options. We usually have a good sense of the buyer market and the attractiveness of any given business.  Contact an Apex Business Advisor if you would like to learn more about buying or selling a business.

Doug Hubler
President

Wished-For-Pricing

Business Valuation 1-15-14When selling your house, would you research the market, check neighborhood listings on the MLS, verify that your Realtor is educated on the marketplace, then analyze all of this information to determine an asking price? Or would you just list your home at the Wished-for-Price?

When selling a car, would you check want ads and online to compare your vehicle to others on the market to determine a price that makes sense? Or would you just put a For Sale sign on your car and list it on Craig’s List at a Want-to-Have price?

I’ll bet that you would put some research and effort into selling either your house or car, perhaps even seeking the advice of a professional to ensure that you are neither leaving money on the table nor pricing too high to create interest. Why, then, would you not want to do the same when pricing your business? It is probably the largest asset of your portfolio, so you do not want to make it guesswork!

I recently sold a business for about 15% more than what the seller expected because an independent appraisal determined and substantiated a higher enterprise value. Both the buyer and the bank were able to confirm the financial history and were comfortable proceeding with the transaction. This is just one of many such examples.

Too many people have the impression that an independent business appraisal is an expensive and painful process.  It is not.  The basic process requires the business owner to complete a questionnaire and supply three years’ tax returns.

Your Apex advisor will assist you to ensure that the information is accurate, complete, and presents the business in the best possible light. If you want to make sure that you receive full value for your business, see our Business Valuation page.

Doug Hubler
President