Improving Your Options and Your Odds – Part Three of Three

signingIn Parts One (See Link to Part One) and Two (See Link to Part Two) of this blog series, we explored the importance to the business owner of maximizing both the quantity and quality of the buyer pool for their business.  Below is a real life example of how implementation of these concepts culminated into a successful transaction.

We recently sold a manufacturing company that catered to a very niche market.  The company had a number of very positive attributes, including a tremendous growth trend and limited competition.  However, the majority of the company’s revenue was produced by three main customers.  Most business buyers would deem this to be too risky.  If the seller had required us to identify a buyer before providing us with critical information, odds are that the one buyer would not have proceeded once the customer concentration was revealed, leaving the seller frustrated that we were unable to present him with an offer from the buyer but also unaware that his expectations were nearly impossible for us to meet.

Fortunately, the seller provided us full access to information and engaged us to take the business to market.  We wrote a “blind teaser” that did not include the name of the business or other confidential information, but provided basic high-level financial information and highlighted the business’s positive attributes, its challenges, and the seller’s preferred exit strategy.  This was distributed to a large network of potential buyers, which quickly led to further inquiries from a number of buyers who found the business to be attractive, warts and all, because it was synergistic with their other business interests.

After signing appropriate non-disclosures, interested buyers received additional information and entered into discussions with the seller.  Within a month of putting the business on the market, the seller had selected his buyer from the six parties who submitted offers.  The terms of the accepted offer were very much in line with the seller’s preferred exit strategy and expectations, and due diligence proceeded fairly seamlessly, since the challenges had been disclosed up front.  The transaction closed approximately two months after the offer had been accepted.

What’s the moral of the story?  To optimize the best price and deal terms for your business, don’t limit your options to one buyer.  Rather, provide full information on both the attributes and challenges of your business.  Then let your Apex Business Advisor market the business in a manner that will create a buyer pool of the best and most motivated buyers for your business.

Anita Lieser
Senior Advisor

Improving Your Options and Your Odds – Part Two of Three

2of3In Part One (See Link to Part One), we discussed the impact on price, terms, and expediency of having multiple buyers simultaneously interested in a business.  Dissemination of information about the business to potential buyers was mentioned as part of the process to entice the largest quantity buyers.  But this information isn’t intended to only produce the most buyers.  Its purpose is also to bring forward the best buyers.

Disclosing information up front to improve the quality of buyers and of offers

In the real estate scenario presented in Part One, one could hardly expect a home buyer to submit an offer on a house without knowledge of some key pieces of information such as location, the number of bed and bathrooms, or the seller’s price expectations.  However, we could provide countless examples of business owners who tell us that they would like to sell their business, but who want us to present them with a buyer before they provide relevant information about the business.

Lack of information significantly handicaps our ability to match the business to the buyers for whom the business would be the best fit.  Though the business website might give some indication of what the company does, it is nearly impossible to determine which buyers might find it most attractive without details about the business operations, financial history, and anticipated price.  It is extremely difficult to get a buyer to spend time and effort considering a transaction, much less making an offer on one, when they have no idea whether the business meets any of their needs and criteria and when the business owner’s motivation might be perceived as questionable.  And if forced to make an offer prior to knowing these details, the buyer’s offer is likely to be lower to accommodate for the unknown and is very likely to be modified or withdrawn as details are disclosed during due diligence.

In order for an Apex Business Advisor to bring forward the best buyers for a business, the Advisor must gain significant insight into many aspects of the business.  This allows the Advisor to present the business to potential buyers in a way that best highlights its attributes and puts its challenges into perspective.  Buyers are then able to make a much more informed decision about whether the business matches their business-buying requirements.

A buyer’s conclusion that a business is a good fit for them can positively impact the buyer’s offer price, excitement, motivation, and sense of urgency.  An informed buyer’s offer also stands a much greater probability of surviving the due diligence process, as the opportunity for the buyer to uncover “surprises” has been significantly diminished.  Now that we’ve defined the importance to the business owner of maximizing both the quantity and quality of the buyer pool and strategies for accomplishing this, in Part 3, we’ll discuss a real life example of how this resulted in a transaction that was beneficial to both the buyer and the seller.

Contact Apex Business Advisors for more information on our procedures for identifying the best buyers for your business.

Anita Lieser
Senior Advisor

Improving Your Options and Your Odds – Part One of Three

1 of 3“Hi Joanne. This is Denise. I understand that you might be interested in selling your home. I can help you with that,” said the Realtor when the homeowner answered the phone.

“Great! I am interested in selling,” Joanne replied. However, when Denise began to ask for more information, such as the price, address, square footage, and number of bedrooms, Joanne quickly cut her off. “I don’t want to put it on the market, but if you have a serious buyer, I’ll give you my address and more details about the house once you bring me an offer,” she said.

Denise quickly realized that Joanne had created challenges that would likely mean that she would not receive the highest price and best terms for her house. These included:

1.    Limiting the quantity in the buyer pool
2.    Expecting offers prior to disclosing information

At Apex, it is not unusual for us to have a similar conversation with a business owner who communicates a desire to sell but unknowingly creates these same obstacles. Parts One and Two in this series of blogs will address these barriers. Part Three will detail a recent success story that highlights how smoothly the transaction process can and should work when the business owner and their Apex Business Advisor work in tandem towards the same goal.

Expanding the buyer pool to improve the quantity of buyers
Simultaneous interest from multiple parties is critical to obtaining the best price and terms and to moving the transaction forward at the most expedient pace. Business owners who limit brokers to one specific buyer or who only entertain the random buyer or two who approach them directly are undermining the process that would render them the highest price, as this creates no sense of urgency or concern of competition for the buyer.

A business is of the greatest value to buyers for whom it most closely aligns with their buying criteria. Taking a proactive approach by allowing your Apex Business Advisor to concurrently present basic non-confidential information to a vast number of potential buyers can create immediate traffic on the business and a sense of urgency among buyers. The buyers for whom the business is the best fit and who are most motivated will quickly rise to the occasion.

Contact your Apex Business Advisor to further discuss our processes for maximizing the quantity of potential buyers for your business.

Anita Lieser
Senior Advisor

Cash is King and the King Likes Attention

Cash IS KingEveryone knows that “Cash is King”, right? Cash is critical to a businesses’ survival. But unreported cash can be a problem for a business. There is a tendency for many business owners to hide cash, under report revenue, or exaggerate expenses in order to reduce their tax bill (illegally). Two obvious downsides to doing this, besides facing an IRS audit, are:

  • If the owner needs a loan to cover receivables, inventory, or expansion, it is likely the bank will turn down the loan application or not offer as much as the owner needs because the business will look “weaker” than it should. We have also seen banks call outstanding notes based on poor financial reports. It doesn’t matter if the customer is making all their payments, if the bank thinks there is something wrong with the business, they will ask the business to find a new bank. It happens!
  • The other major impact of under-reporting financial results is that the value of the business becomes greatly diminished. If an owner tries to sell their business with hidden cash, inflated expenses, and unreported revenue, buyers become very skeptical, and banks will only base their loan approval on the tax returns of the business the buyer is pursuing. So a potentially strong business becomes much less desirable in the marketplace, the price has to drop, and the seller may need to finance the sale!

It takes several years to clean up the books to improve the business value. That’s great if you have the time and there are no emergencies. But “things” happen and a business owner should be prepared.

If you want some great advice about how to get the most for your business, talk to one of our experienced Apex Business Advisors.

Doug Hubler

Planning for Your Next Stage

Kick in the buttThe act of “Planning” can conjure up some dread: thoughts of hard work, long meetings, limited results, and risk of missing goals. I guess that’s why so many business owners never put a plan in place for either building a business or exiting a business.

I found a great article that gets to the real importance of having a plan and how it will absolutely impact your next phase of life. And if you are in your 30’s, 40’s, or 50’s and believe you don’t need to think about it right now, kick yourself in the butt for me!

Read about planning for your next phase and call your financial advisor. If they have never asked you about the value of your business and, more importantly, how you calculated that value…find a new financial advisor.

Contact your Apex Business Advisor today for more tips on buying or selling a business.

Doug Hubler

Planning Ahead for Higher Value

RewardJustAheadSmall business thinking leads to small business value. Thinking as a big company will likely lead to an increase in value. Some simple things to implement now, long before you are even considering selling, that can tremendously impact the value and marketability of your business include:

  • Financial record keeping. Quit using the company checkbook as a guide to financial health and analysis! Implement and utilize a consistent and intuitive bookkeeping system such as QuickBooks.  Clean books are essential to calculating value.
  • Management team/delegation. While an owner who does everything and puts in a 60 or 70 hour work week may save on overhead, a buyer will recognize this as a deficiency and will reduce their offer based on their perceived personnel needs. Make a move to add necessary staff now, delegate your workload, and shift your focus to working on the business.
  • Sales staff. Same as above. If the owner is the main sales person, a buyer will perceive a huge risk of losing clients in a transition.
  • Web presence. Seriously, no website?
  • Customer concentration. If only a few customers make up a large portion of the business volume, regardless of the margins, buyers will mitigate their risk of losing key customers by simply paying less for the company.
  • Separation of personal and business expenses. Stop paying personal expenses out of the business checkbook. Treating the business as a personal slush fund significantly complicates a buyer’s verification of business profitability. And reporting $5,000 in personal expenses on your business tax return may save you $1,500 in taxes, but it just nicked business value by about $15,000 or $20,000.
  • Seller Motivation. The business owner needs to be committed to the selling process. A “throw it out there for an outrageous price and let’s see what happens” mentality results in fewer interested buyers and in a final selling price that is lower than if the business had been priced and marketed appropriately from the start. Business owners should demonstrate to buyers that they are serious about smoothly transitioning their business by setting a reasonable asking price, providing accurate information, and responding expediently to questions and requests. Buyers will respond favorably.

These simple steps implemented long before the selling process begins can have a strong impact on business marketability and value. Which of these will you begin to implement right now?

Talk to your Apex Business Advisor for a free review of your business value and market “readiness”.

Doug Hubler

When is the Right Time to Sell?

timetosellKnowing the best time to sell can be a real challenge.

The absolute best time to sell is when you don’t have to sell. Meaning that business is booming, the market or industry is strong, you are healthy, you have a wonderful marriage,  and you still enjoy going to the office. (Sounds like rainbows and butterflies.) You and your business are successful, and you are in an absolute position of strength! The value of the business is probably at its highest point, or “Apex”.

But having all these variables at their best at the same time is fairly rare. So if things aren’t perfect, when should you consider selling?

It depends. Much like trying to time the stock market for the optimal moment to buy or sell, it doesn’t usually work too well. Instead, focus on the facts and try to leave the emotions out of your decision. You should seek advice from your trusted professionals or peers who will best understand your situation.

In general, if you aren’t at the peak of business success, it is best to start the selling process when:

  • you don’t have the capital to invest in growing the business
  • you feel your energy level to operate the business is decreasing,
  • your excitement is waning,
  • you are feeling stagnant,
  • you are not sure what else you can do for the business,
  • or if you think your skill level is falling short of the needs of the business.

However, to get the highest value for your business, it could take several years of planning and preparation. So start the process while things are going well!

Talk to an Apex  Business Advisor about your situation to determine the right time to sell  your business.

Our next Buyer Seminar will be held on March 25th. We will be discussing the Buyer Search Program. Keep an eye open for registration information.

Doug Hubler

Year-End Planning

celebrationtimeSounds boring right? If you made it this far, thank you. Keep reading.

For business owners there is a fair amount of planning that goes into finishing up the year and preparing for next year.  Year-end expense adjustments and tax planning can consume a ton of time. But I don’t want to talk about that.

We really need to take some time for celebration. I have to admit that I am not known for over-celebrating (note of sarcasm). I tend to look for the next deal, meeting, connection, or activity of interest. It can be hard for us to take the time to appreciate the successes and let people know that they are important to our businesses and our lives.

It’s been a great year for Apex and for many of our partners and clients. I first want to thank my fantastic team at Apex! There is not a better team anywhere. They work hard, in a very stressful environment to help our clients and customers be successful.

To all of our professional friends who make it possible to get deals done: the attorneys, accountants, and bankers (you know who you are), Thank You!

Of course, I want to thank our clients and customers for the trust they’ve had in us over this past year and we look forward to a fruitful 2015!

Doug Hubler

Raising the Price After an Offer

Bang HeadNumber One Way to kill any deal? Raise your price after receiving a full-price offer! (Bang head on wall now.)

Fortunately, this doesn’t happen frequently, but I’m afraid it does occur. We spend quite a bit of time establishing a business value with the seller, and then publishing the price in the marketplace. We have also spent years developing a database of ready and willing buyers, so when there is quick interest in a new business for sale, it’s not because the business is priced too low.

Emotions can take over and beat common sense out of just about anyone, and this is a perfect example of emotions taking the lead over logic. Whenever this situation occurs, the buyer interest completely dries up. Buyers can be waiting for months for the right deal to pop up, and when they find out the price just increased because they had interest, they get a little “aggravated”. The buyer (and broker) then question the seller’s motivation and wonder how difficult a transaction is going to be with the one-time-seller.

If you are a seller, remember, buying a business is a difficult and stressful process. A buyer will be looking for a good business with a seller they can trust and who will assist them in a smooth transition, improving their chance for success.

We love to assist sellers and buyers especially when they listen to their Apex Business Advisor!  We’ve done this a bazillion times!

Doug Hubler

Do Not Change Business Model While Selling

SuccessAheadWhen selling a business, it is important to keep the attributes that made the business successful in the first place intact.  It is not the time to cut marketing and sales efforts to save money or decide to semi-retire, change employee pay plans, or stop paying bills. Sometimes sellers think they are safe making these alterations after an offer has been accepted, forgetting that a closing may be months away or that a deal can collapse when revenues suddenly drop or fixed expenses change significantly.

Businesses are typically priced based upon the net owner benefit that the business provides.  Both the buyer and lending institution want to be comfortable that the historical net owner benefit can continue after transition.  As such, they will ask for current financials just prior to closing to ensure that there have been no significant changes to the net owner benefit.

Recently, when reviewing a client’s financials, we noticed that various projections were not being met. Revenues were off slightly, but expenses had dropped fairly dramatically. Well, the seller explained that he had stopped his marketing and advertising several months ago. Revenues for future orders were being represented as income, but none of the offsetting direct expenses were being shown.  The reality was that backlog had decreased substantially. This caused several interested buyers to walk away.

To ensure you get full value for your business, you should contact your Apex Business Advisor for expert advice.

Doug Hubler