Archive for category: Must Knows About Business Sales

In 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details, the buyer’s offer is likely to be lower to accommodate for the unknown and is very likely to be modified or withdrawn as details are disclosed during due diligence.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

Everyone 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
President

Small 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
President

Sounds 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
President

When 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
President