“Call Me When You Have a Buyer”

Call Me When You Have a BuyerAs part of our job as business brokers, we cultivate long-term relationships with buyers and sellers. We do so with the latter because sometimes we plant the seed of possibly selling a company years and years before it may happen. With the former, it’s a question of earning trust by consistently bringing solid opportunities.

Sometimes on these calls or emails, we will get into a conversation with a seller who has tried to be his own broker in the past. And as such has (predictably) had bad experiences with looky-loos and tire kickers. “I’m only interested in serious buyers,” the seller will grimly state. “Call or email me when you get one.

If only it were that easy.

The reality is that buyers are reasonably savvy about the acquisition process. They are going to want a fair amount of information about the business upfront. Furthermore, we as brokers want to exclude tire kickers from bothering our clients, so we ensure that they have the financial ability to close a transaction of the size they pursue. We aren’t interested in finding one serious buyer, but rather half a dozen or more.

Confidential Business Review

The process begins with a Confidential Business Review (CBR) that details business operations and historical financial information. This briefing allows buyers to quickly see whether a particular business suits their needs and if their transaction goals are in line with what the seller is offering.  

Once a very simplified form of the CBR (brief description of the business, approximate revenues, net owner benefit, and asking price) has circulated among our internal buyers and the confidential marketing channels we use, we will get a number of interested parties who submit Non-Disclosure Agreements along with proof of financial fitness. For the sake of argument, let’s say that a given broker may reach out to 500 and get 50-75 interested parties for this first step.

NDA and Balance Sheets

Once we get their NDAs and balance sheets, we will then get them the CBR. From that step perhaps a dozen of the original 50-75 decide they want to go further and have a phone or in-person conversation with the seller. Of the dozen, perhaps half decide to visit the business in person and of those, perhaps three make bonafide offers.  

See the difference? At each step of the way, we have continued to qualify the buyer both in terms of financial ability and knowledge of the business. And at the end, instead of “one buyer” we may have several, and these people have come to this step with serious knowledge about the business opportunity.  

Save yourself from the tire kickers and leave the work (only a fraction of which is detailed above) to us. That leaves you free to run your business and keep it growing and profitable until you’re ready to pass it on to the buyer whose offer you ultimately accept — after a screening process that ensures it’ll be a serious offer.

Common Characteristics of Businesses That Sell Quickly

Moving QuicklyWhile every business sells for different reasons, the businesses that sell quickly here in our offices — and by quickly we mean within 24-72 hours — all have a few traits in common. These traits happen to work well in the case of selling a business, but they are always present at the heart of the most successful businesses. By keeping an eye on these fundamentals, business owners are actually ensuring that should they want to sell, they will get several full price offers, and in a very short time horizon as well.

Clean Books and Taxes

You’ve heard us discuss this in past articles: have clean books, or face the possibility of not being able to sell. But successful business owners aren’t interested in having clean books just in case they want to sell. They know that current financial statements are essentially an up-to-the-minute health snapshot of their business. By regularly perusing clean and current financials they are able to see trends and make adjustments or trim spending in underperforming divisions. Clean books and current tax payments are simply by-products of a successful business. They also happen to be essential to a business sale and are an immediate shine on any new business listing.

Stable and Up-trending Revenues

Successful business owners look at financial statements to see if they are growing revenues and profits month-to-month and year-to-year. This helps them properly forecast and hire. Buyers love to see the same. An off year with context will be explainable: we had a lot of businesses that sold in past years that either had slow growth, flat-lined, or even contracted a bit in the 2008-2010 time period because of the financial crisis. But because buyers saw stability in the numbers before and after that time period of crisis they were confident that they too could weather a storm if it came.

Consistent Cash Flow

Savvy business owners aim for consistent cash flows. This doesn’t mean that there’s no seasonality in the business, but that the seasonality is clearly pinpointed and planned for. This makes financing easier, should it be required. Again, as with clean books and taxes, consistent cash flows are the by-product of a successful business, not something that someone has to quickly put together in order to sell one.

Delegations

If business owners haven’t read books like Built to Sell or The E-Myth they have usually built their businesses around the concepts discussed in those books just by doing their homework.

  • Have systems in place so that the business can run without you
  • Have clear job descriptions for all the key members of your team and have solid people in those positions
  • Make sure it’s clear whether a potential buyer is buying a job or buying a business.

Reasonable Price

A business is only worth what someone will pay for it, but more importantly, a business is, outside of a strategic acquisition, only worth around what a professional valuation rates it. An owner who builds a company to sell may have a number in his/her mind, and that’s certainly a point around which to build a conversation, but unless the business provides evidence to get to that number, such a number is a fantasy.  

Remember that only 20% of businesses are ever successfully sold. Here at Apex, we have a much better track record, and part of that success is getting to the right price for both buyers and sellers. Successful business owners have been setting prices for their clients for years and letting the market, not their ego, tell them what products/services are worth. The sale of the business is only the last decision in a number of previous sensible pricing decisions.

If you only have three of these characteristics in your business, we should have a conversation about what you’d like to do in the future. If you have all five, you should be having a conversation with us about why and when you should sell.  

Seller’s Remorse

Seller's RemorseGiven the thousands of transactions we’ve been part of over the years, we’ve seen it all. One thing that we see more often than some might expect is seller’s remorse. This is totally normal, and can occur in a pronounced way even before the sale closes… sometimes derailing a transaction.

In this article we’ll examine some things to consider to mitigate seller’s remorse at any phase in a transaction.

Why does it occur?

A large part of the owner’s identity, perhaps even the largest part, is the role he/she plays at work. It governs social interactions (who you are having lunches with, who you spend the majority of your day with) as well as roles in the community (an owner may, because of his/her business, sit on various boards or play a role in the Chamber of Commerce).

If an owner doesn’t have other identities (perhaps a passionate hobby or a side business), seller remorse in the guise of “What do I do now?” can hit hard.

Before the sale closes.

Part of getting to know our clients here at Apex is asking in the very first meetings what the seller would do after a sale. We are interested in knowing motivations and know that strong motivations lead to cooperative and engaged sellers.

If we start to get calls and emails from the seller asking to slow things down or asking if this is truly the right thing to do, this is sometimes due to seller remorse. One of the first things we’ll go back to is that first conversation to remind him/her of what’s next. Then we’ll remind the seller of why.

Often there’s a health situation, or burnout, or simply the desire to do something else. By discussing the why (the past and present) and what’s next (the future) we can often make sure that sellers stay on track and engaged, which is key to a successful transaction.

After the sale closes.

A broker’s job is never done. Not only do clients come back to list new businesses with us, sometimes they go on to turn buyer after having sold.

We also get phone calls from clients suffering from seller’s remorse. We listen to the regret: “Why did I sell?” or “What should I do now?”  These sellers stayed focused throughout the transaction and the remorse hit later.

Just as we do with sellers struggling before the transaction closes, we ask some key questions:

  • Have you given yourself and your family some time? People can often be restless, dying to get “back into action,” but it’s important to take some time, not just to celebrate, but to also let your mind relax. Crops grow better when they are rotated in fields, so too even the best business owners need time to enjoy a liquidity event.
  • Have you considered going back into the same industry? Sometimes people rediscover a passion once the burden is no longer on their shoulders, or they see a new opportunity in a particular segment of the industry. If non-competes aren’t a barrier, why not leverage what you know and continue to succeed in an identity you have no wish to discard? Sometimes sellers get hubristic, imagining themselves to have the Midas touch. Building and selling a company in one industry does not endow you with the ability to do it in a completely different one. Just because it was your “old” identity doesn’t mean it can’t be part of the new one.

We are always looking for a few good brokers to join our team, and a business owner with a fresh sale under his/her belt is a great candidate.
If that describes you… give us a call today.

The Value of Goodwill

The Value of GoodwillGoodwill is part of many transactions we do here at Apex. The best businesses have it in spades, and they are able to incorporate it into their valuation and their final deals. But like company culture, it is created in many different, not easily traceable ways. In this article, we will talk about some of the more obvious paths to goodwill in your business.

Reputation and Name Recognition

Many new business owners dream of the day when someone they don’t know will say, “I’ve heard of your business” when they speak to a stranger. It means that the business is a reference point in the community. It’s a barrier that competitors have to deal with and one that you control.

Good location

Location isn’t the most important thing for every business, but no one ever says, “I wish I had a worse location.” Visibility matters.

Custom-built factory/tooling/designs

Another barrier for your competitors to surmount is designs and tooling that cannot be easily or quickly duplicated. It gives you an edge with clients who don’t just want a generic looking product and it can allow you to command a premium price.

Loyal Customers and a Mailing List

When we say mailing list, we mean both postal and email. They have come back and become valuable as our society has shifted in the way it communicates for business and personal motives. The lists are not just valuable for the people you reach, but a mailing list can tell you where your customers live (and where you don’t have any customers) so that you can think more critically about your marketing and product offering.

As for loyal customers, there’s really nothing like them. They often are just as attached to the brand as to the owner, and as long as the new owner continues the best practices the old owner put in place, they will continue to spread your name around town.

Contracts

Recurring revenue is a good thing… having a contract for it is even better. Contracts are trust personified. It shows you are someone that people feel comfortable doing business with.

Great Staff and a Supplier List

Customers will often be loyal because you have a great team who deliver a good experience. Great staff who are doing work they enjoy will often very happily stay on and work for a new owner. A good supplier list is helpful as well. Often, business owners learn the hard way and have to remove bad vendors over time. A new owner has the comfort of knowing the list is vetted.

Trademarks, Copyrights, and Trade Secrets

This could be a great web address, a smart slogan, or the special herbs and spices that make what you have something that people have to have. Very often they are just best practices that an owner insisted on until it occurs to him/her just what a differentiator they were in the marketplace. In an ever more service-based economy, intellectual property (and legally securing it) really matters.

Curious about the goodwill in your business and how it can relate to a valuation of what your company is worth?  Give us a call today so we can chat about it!

Why Do Sales Fail?

sales failIn a previous article, we discussed how long it takes to sell a business and how and why an accepted offer is only a phase in a multi-phase process.  

Many things can intervene throughout the process to prevent a sale from closing.  

In this article, we want to explore just a few of the various ways a sale can fail and what you can do to avoid them.

Seller Side

  • Failure to disclose.  Whether it’s to us as brokers or to the buyer, sometimes a seller simply fails to disclose something that has a major impact on the deal.  This can never entirely be prevented, but buyers have to follow our lead as brokers and never make assumptions: ask the questions necessary in your due diligence and keep lines of communication flowing and open.
  • Failure of motivation.  The seller may not have had a good reason to sell or was pushed into it against his/her will, and so during the due diligence process may simply slow down or quit entirely because of no requisite motivation to close the deal. Sometimes, reminding the seller why we’re here is critical to keeping the deal going.
  • Failure to investigate.  The seller may have failed to consult his legal and accounting team about tax consequences and wants to change deal points too late into the process.  This can sometimes initiate a breakup of the sale entirely due to suspicion of bad faith on the buyer’s part. Make sure that whatever side of the deal you are on, you are completely briefed on the financial and tax consequences of the transaction early in the process.

Buyer Side

  • Failure to leap.  Especially for first-time business buyers or owners, there is a critical stage that is a mirror for the seller’s decision to sell: the decision to sign on the dotted line and become a business owner.  We’ve seen it before.
  • Inability to secure financing.  While people may be creditworthy sometimes circumstances arise that prevent them from getting financing which is part of their overall offer, and without that bridge, the deal falls through.  As a seller you need to properly scrutinize the various buyers who are courting you and examine their fiscal health as part of your decision matrix.
  • Undue influence of others.  Again, for first-time business buyers or owners (or even for veterans) there will be the naysayers in their lives who tell them not to do a deal, and remarkably, sometimes they listen, contrary to everyone else’s advice.

Both/Neither Sides

  • Foreseen or Unforeseen Legislation or Natural or Unnatural Events.  We sometimes think we “know” that legislation will pass, and it doesn’t, and other times, it takes us out of the blue.Same thing with natural events like a hurricane or unnatural events like 9/11. All of these things can adversely affect any number of businesses, either physical locations themselves, parts of a supply chain, or a customer base.They can sink a business deal with no warning, and it’s something to keep in mind, not because you can prepare for it, but to be resigned to the fact that there’s nothing to be done but to accept it as one of life’s possibilities.
  • Landlords/Accountants/Attorneys.  Yes, we’ve seen landlords, accountants, and attorneys sink perfectly good deals.  This isn’t to say we don’t like them. In fact, there are all three of those types on our team here at Apex!But what it means is to make sure from the beginning that all those people – on both sides of the deal – are aligned with the goals and vision of the outgoing seller and the incoming buyer.It’s a shame to let those peripheral to a deal sink it, but it can only happen because the buyer and seller don’t take charge, keep an even keel, and work hard to resolve challenges.

The best way to keep a sale from failing is to have a broker in your corner helping you navigate the waters of what will be one of the most important transactions of your life.  Give us a call today to see if we can help you.

The Profit Needs of Your Buyer

profitPart of the process on the seller side of a transaction is deciding to sell and getting a valuation.

As buyers scrutinize the businesses they examine, there are three questions we encourage them to consider. All of them are centered, understandably, around profit.

Profit to Pay Salaries

Whatever goodwill you’ve generated over the years with your employees will not transfer to the new owner. You can’t sell it, not just because it’s not legally or practically possible, but because the odometer will reset with the new owner.

He/she will have to earn goodwill and trust, and if your employees (or yourself!) have been taking below-market salaries, the buyer will need to put together a financial plan that ensures that staffing issues will not be a problem.  

Happy employees are one of the cornerstones of any business. While money isn’t everything to your staff, passion for the work always works best side-by-side with a feeling of being properly valued.

On the other hand, let’s say a business is valued at $500,000 and the owner has been paying himself/herself over market value to run it, let’s say $200,000. 

If it could be reasonably run by a manager for half that (or if the buyer is willing to work for that amount), there’s an extra $100,000 of free cash flow which can be used for investment in the business or debt service.

Profit to Pay for Financing

Continuing on with our $500,000 example, let’s say that the bank requires the buyer to put 25% of his/her own money in the deal, which would be $125,000. Knowing that interest rates always vary, for purposes of this example, we will use a rate of 5% on the $375,000 that would need to be borrowed.

That would give us, on a ten-year term, a monthly payment of $3977.46, which we can round up to $4000 to keep the numbers simple.) In the example above, this number could be easily handled by the extra cash flow from the lower salary the owner is willing to take or delegate.

Conversely, if there’s no cash flow to support the debt service, there’s a problem – not just for the potential owner, but for the would-be financiers.  

Profit to Return an Investment

Ultimately buying a business is an investment, and a reasonable rate of return should be expected above and beyond salaries and debt service. Let’s go back to the $125,000 that our potential buyer invested in the business.

He or she could have put that money into stocks, bonds, cryptocurrency, real estate, precious metals, etc.  To keep our numbers simple and conservative, let’s offer the same rate of return, 5%, on that money.

That payout would be equal to what the debt service is, and in our example, that need would be met, with even a bit of a cherry on top.

Final Thoughts

Now, let’s be clear, not every buyer comes in with such an agenda. Some are happy, after years of corporate life, to just “buy a job” where they don’t have to answer to anyone anymore. And, that works for many people.

But running a business is transformational. If all you bring is a job mentality, you’ll never be successful. If you scrutinize the numbers and stay grounded first and dream later, you’re on the right road to business ownership: calculated risk, colored with a bit of hope, and powered by a lot of elbow grease.  

When you meet our sellers, they might tell you that at the beginning of their journey they would’ve been happy for a 5% return on their years of hard work. But they often smile when they realize it’s many times more, and it’s because they brought the right attitude and they knew their numbers.  

Regardless of your vision for business ownership, you should know yours too.

How Long Does It Really Take to Sell a Business?

how long does it takeOne of the very first questions we get from prospective sellers is “How long will this take?”  

The truth is that we’ve seen anything from 2 days to 2 months to 2 years…but the average will be 6 to 9 months.  

And that doesn’t include the “pre-listing” process – your actual decision to sell, which will include discussions with us, a professional valuation, and then prepping the documents and paperwork that buyers will want to see immediately.  

Once you’ve completed all of that, we’re looking at 6-9 months.

Why does it take so long?

Well, it’s not actually “so long.”

Perhaps in the internet age of “everything now” six months may seem like a long time, but it’s just simply a reality given the amount of work that needs to happen.

Firstly, your business needs to be marketed. We need to get the word out to interested buyers about what you’ve got to offer. Some buyers may be romanced by your industry, while others may be interested in your cash flow. Some want both, plus significant growth potential.

Secondly, the price really matters. This is why we work hard with our clients to make sure the business is appropriately, and attractively, priced. A valuation helps get us to the right price, but so does disabusing sellers of fantasies about “what my business is worth” that have no basis in financial reality.  

A business is worth what the market is willing to pay. A solid valuation goes a long way to identifying that number with some precision.

Closing

If taking your business to market is the “dating” phase of selling your business, closing is the “marriage.”  

You could spend 1-3 months taking meetings with serious buyers. You need to realize that selling a business is a new part-time job you’ve added to your life.  

You’ll need to be chasing down requests from your broker and potential buyers, and you’ll need to do so in a timely manner. You must do all of this while being patient and realizing that even though you may be ready to exit the business, it’s going to need you for just a bit longer to get through the transition.

Once you and a buyer have agreed on an offer to purchase, due diligence (or as someone else once put it, “trust, but verify”) begins.  

The buyer will need to examine your records and verify that the business is as advertised. He/she will also need to arrange for financing, a lease, and other variables like software licenses or other licenses required by the state or municipality.

Stay focused

We can share many stories of business transactions with you, but the “easiest” ones involve patient and focused buyers and sellers. These people know that a business transaction isn’t to be rushed through, but done thoughtfully and with professionalism.

If you prepare for a timeframe of 6-9 months, you can be pleasantly surprised if it happens faster (as it sometimes does) or more understanding if it takes a little longer (which it sometimes will).

Remember that the journey of selling a business starts with a conversation with one of the brokers on our team.  Let us know if we can help you with this next stage in your business journey.

How to Prioritize Buyers

prioritize buyersOne of the biggest values we add to any transaction is helping to coach sellers on the various buyers that may line up to buy their business.  

We want to negotiate leverage and make buyers compete for a sale. We can only do that if we convince our sellers to be patient and to not only go down one road too quickly.

Patience and prioritization are key to a successful exit.

Strategic Buyers

When prioritizing buyers, strategic buyers are definitely at the top of the list. This is in part because they can often offer higher valuations, but also because they may already possess a great deal of knowledge about your business and have great motivation.  

These can often be (but aren’t always) competitors, suppliers, or customers who have known you and your team a long time, and as such, don’t need a “getting to know you” period.

What they may need instead is an intensive due diligence process. This is because they may be looking to acquire your company as a turnkey expansion into a market and leverage back-office economies of scale.  

They will want to examine synergies and business processes in depth to make sure joining forces won’t be overly difficult or challenging. Strategic buyers may also be private equity firms who think they can manage your company better than you and plump it up for an even larger acquisition down the road.

Don’t take it personally! Just smile and take the money.

Financial Buyers

However, many of our transactions don’t involve strategic buyers at all but are entirely composed of financial buyers. Their priorities are getting a reasonable return on investment, good growth opportunities, competitive advantages, a growing market, and strong fundamentals – be it great management or reliable staff.  

They’re willing to wait for their return, but not forever. They will also often have to line up financing, unlike strategic acquirers, which can lengthen the time of a transaction.

When we as brokers prioritize buyers to our seller, we do so taking a number of factors into account, including our own sense of the various situations and actors.  

We’re looking not just to close a sale, but to make sure there’s a good match between buyer and seller so that the transaction closes well for everyone.

We believe in win/win…always.

One of the advantages of hiring an APEX broker is knowing that we won’t introduce you to a buyer who isn’t financially qualified, or a seller who doesn’t have his/her paperwork in order. Give us a call today, whether you’re a serious buyer looking to buy or a motivated seller who is serious about selling.

Are You Dealing With a Serious Buyer?

serious buyerOne of the reasons people enjoy working with us is knowing that the buyers we bring to the table are financially qualified.  We’ve done our part to make sure that we aren’t going to introduce you to people who just want to kick tires.

But being financially qualified is only part of a successful transaction.  Buyers also need to be mentally serious about buying your company, and there are some clear indicators you should keep in mind when meeting prospective buyers.

Interest

Serious buyers will have at least some level of interest in your industry.  They will seek not just to understand the industry as a whole but will look at the specifics of your business, be it your existing customers or prospective ones.  

They’ll also be interested in a SWOT analysis, particularly in O – Opportunities and T – Threats quadrants – to help them contextualize whether what they bring to the table can help accelerate where the company is already going.  Serious buyers will go beyond the basic financial questions and get to the why of your business.

Discretionary Spending

Discretionary costs refer to spending on things like advertising, research and development, and public relations.  Mature businesses may be on cruise control and have scaled back or even eliminated some of these costs, but serious buyers will be concerned to not see some level of spending in all of these categories.  

In today’s marketplace especially, clients and customers aren’t to be taken for granted, and these discretionary costs are seen by serious buyers as ways to stay ahead of the curve and not be complacent.  R&D, in particular, can help firms not just wait for the next innovation, but create it themselves.

Staff and Wages

A serious buyer will want to speak to your senior staff, if possible, to find out how invested they are in staying with the firm if you leave.  Most times the need for confidentiality won’t allow for those conversations, but what a serious buyer will be looking for in those cases are:

Wages – are they at a market rate and what expectation do your staff have that they will grow?
What about benefits?
What is morale like in general?
What is the culture that drives that morale?
If people are there due to the social capital you’ve earned with them, and you leave, does that mean they will too?

Inventory

This last point only applies to companies that have inventory, but it’s important to make sure that you have a realistic and detailed inventory.  Serious buyers will target old and unusable/unsellable items and ask for them to be removed from the value of the business.

This gives you an opportunity to do some preventative maintenance and get rid of that stuff yourself before it’s time for a sale.  It will only give more confidence to buyers that they’re dealing with a business that has something as basic as inventory handled.

We know what serious buyers look like and can save you the time from having to try to identify them yourself while running your company.  Give us a call to see if we can help you with your exit strategy.

Is It Time to Sell?

is it time to sellIn a previous article, we discussed various signs that it’s the right time to sell your company.  

What so many people see as ultimately mostly a financial transaction is possibly going to be one of the most emotional things they ever experience.  

So, even clicking through to read an article with such a title as “Is it time to sell?” means you’re contemplating it in the near future, or you want to inform yourself on future possibilities.

Whatever the reason, there are three things we want you to think about.

Clearly articulate your why

“Why do you want to sell?”  You may think this is a question only your family and friends will pose to you, but we promise that every single potential buyer will ask this question, particularly if your business is doing well.  

Often “I’m tired” or “It’s time” is plenty good enough, but that needs to be framed within a position of growth and optimism.  Buyers don’t often want something that promises a flatline future.

Whatever your why is, make sure you consider how it sounds to someone who wants to buy your business.  If you don’t like how your reason sounds, that’s a good opportunity to step back even further to get a better perspective.

Sometimes you need to look at the really big picture to appreciate the details.

Spring Clean

We’ll be honest.  We sometimes see complete disasters when it comes to financials and taxes.  Taxes haven’t been paid for years and the financials wouldn’t even have passed the smell test at Enron. Don’t wait for an imminent sale to get your business house in order.  

A potential buyer is often scared off a “fixer-upper” when it comes to a business, and the very first thing we will ask you when considering listing your business is for the last 3-5 years of financial statements and tax filings.  

Even if you don’t end up selling your business, you should want that feeling that comes with any spring cleaning…the relief that it’s done and wondering why you didn’t do it sooner.

Have a conversation

Talk with your family and trusted friends and confidantes.  Figure out what’s next for you.

We often see business owners who, after the sale, simply wander figuratively or literally, being cut off from what gave them a purpose for so many years.  

By taking that time to think about what’s next, you can go from a passive seller who is ready to move on to an active seller who is moving (or running!) towards what’s next.

That will give a potential deal momentum, and also fuel the narrative for a potential buyer that you’re looking forward to what’s next.

Of course, we welcome conversations with us as well!  With centuries (yes, literally) of experience in our office, we’ve got a broker who will suit your needs and help you through this important next phase in your business and stage in your life. Give us a call.