Grab the Opportunity to Buy a Business
By JoAnn Lombardi, President ofVR Business Sales/Mergers & Acquisitions
More and more people have decided to become small business owners. Many have determined that doing so gives them greater control over their future, and have gone down the road of acquiring an existing business. A large percentage of these prospective buyers are mulling over the decision to change their career path and join the entrepreneur ranks.
Although it’s understandable that many aspiring entrepreneurs are holding off until the “perfect business” comes along; the time to buy a business is now.
There are four reasons why you need to jump on the business opportunities available at VR Business Sales instead of sitting on the sidelines.
1) Today’s Economy Means Reasonable Deals
There are more than a few sellers out there that are willing to sell their businesses at a price in this economy that is reasonable due to the indicators that are used to track business valuations. Business owners that have already initiated the process have a willingness to sell and not wait until tomorrow. Therefore the deals for would-be buyers are out there. If you are a potential buyer, you are in a better position to make a purchase on a business for sale now than later, otherwise, you could miss the window of opportunity.
2) Finance Through The Seller Instead of The Bank
For most people, having the funds to buy a business is the biggest issue. The solution to this challenge is simple – seller financing. As some of you might know, seller financing is when the seller, rather than a professional lender, assumes responsibility for a percentage of the buyer’s investment.
The owner selling the business can approach this in two ways:
A. He or she can lower the asking price.
B. Work with the buyer and provide financing or a portion of the financing to overcome a potential deal-breaker.
Many business owners will agree to offer some form of seller financing before they even meet a buyer. So why wait? You may find this hard to believe, but you may obtain better terms from a seller than from a bank. In addition, you have more leeway to negotiate the down payment that works better for you, the loan term, monthly payments, and interest rates depending on the type or amount of owner financing. Many sellers will accept a discounted balance if you pay off the loan ahead of schedule.
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The Issue of Reasonable Prices for Private Companies
By Peter C. King, CEO of VR Business Sales/Mergers & Acquisitions
Valuing private companies is more difficult than valuing public companies because most private companies do not have audited financial statements, so a buyer has to spend considerable effort to dig out accurate information on true earnings. Historically, closely held companies sell for “one-third” less than publicly held companies.
EBIT buyers, those who value sellers based on a multiple of EBIT, will not pay 5x earnings more or less for a company that is left as bare bones. The buyer will expect at least 50% or more of the purchase price to be supported by working capital and net tangible machinery and equipment. The buyer usually wants to buy a going concern particularly if he or she is paying full price. The buyer expects to be able to run the company without additional infusions for working capital or capital equipment.
In analyzing what is a reasonable price to acquire a private company, one should scrutinize the seller’s facilities list to assess its capital needs, and one should assess the adequacy of its working capital. In today’s sophisticated marketplace, professional buyers are very pragmatic in that they generally do not substantially pay-up for “hockey-stick” type projections. Also, they want to be sure that the budgeted depreciation will exceed the necessary capital expenditures and that EBIT will hold up for the ensuing years.
A lot of discussions are based on current EBIT multiples, but just like price-earnings multiples of public companies, its relevance is often tied to the growth rate. One possible scenario for determining the EBIT multiple is the following analysis:
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How Well Do You Know Your Tools?
byShawn Hyde, CBA, CVA, CMEA, BCA, ECA, Canyon Valuations, LLC
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Craftsmen have been working with tools ever since someone picked up a rock and realized it gave a considerable mechanical advantage when applied, instead of simply using one’s hand. Tools have a very important purpose, and that is to allow one to accomplish a task, usually with much-increased efficiency over attempting to complete that same task without the appropriate tools.
Years ago, I was talking with my brother-in-law, who is a highly accomplished plumber, about his tools. I don’t know how familiar any of you might be with Channellock pliers, but he was very familiar with them; to the point that he could tell me all about each individual tool simply by my mentioning the model number engraved on the side. Up until that point, I had no idea there were any differences apart from the overall length of the handles. I have often thought on that conversation, and about how my brother-in-law was really a master of his craft. It was apparent to me that he had mastered his craft, not because he had learned details about his tools, but it was because he had learned about the details of his tools that he was a master.
Think about that for a minute. Would you rather hire a plumber who knows exactly what tool works best on whichever fitting is being worked on, or a plumber that simply grabs a wrench at random and starts applying torsion? Now think about our business appraisal reports, and the tools that we use to bring those to life and to deliver them to our clients.
Most of us are using some form of software installed on a computer, however, I did run into an older appraiser some years ago who was still doing all his math by hand and his schedules were written out on green bar paper. That gentleman knew his tools, knew what he was comfortable with, and as far as I know, is still performing competent valuation work to this day.
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Business Owners Breaking Down The NDA
The first document produced and executed for an M&A transaction is typically a non-disclosure agreement (NDA), sometimes known as a confidentiality agreement (CA). The NDA is designed to enforce confidentiality among buyers, define terms of engagement, limit what can be disclosed to third parties, and dictate other terms to which counterparties must agree.
NDAs are legal documents designed to protect confidential information from being disclosed to a third party or being negatively used against the party disclosing the information — often a private business. Even if a business is not currently for sale, it is still important for any business owner or CEO considering the sale of their business to have a basic understanding of NDAs, their key elements, and how and when to use them to protect themselves and their business.
Pro Tip: When it comes to structuring and writing an NDA, you should always seek the advice of professional counsel.
One-Way vs. Mutual NDAs
NDAs can typically be structured in two formats: a one-way NDA or a mutual NDA. In a one-way NDA, also known as a unilateral NDA, the receiving party of the confidential information is bound to protect such information. For example, if you have been approached by a private equity group, you could require them to sign a one-way NDA; doing so would protect any confidential information you disclose to the private equity group, but you would not be bound if the private equity group disclosed confidential information to you. A one-way NDA protects your information, but not the information of the other party.
By contrast, if a competitor approaches you at a trade show, they may require that you sign a mutual NDA. In this case, any confidential information that you disclose, and any confidential information that the competitor discloses, is protected by the NDA.
Define Confidential Information
What constitutes confidential information? The answer is different in many cases. A proper NDA should clearly define what is considered confidential information and what is not. Usually, an NDA stipulates that any information relating to products, services, markets, customers, research, software, developments, inventions, designs, drawings, financials, and other items is to be kept confidential. Exclusions to confidential information may include information already in possession of the receiving party or information that is in the public domain and can be proven to be public.
Pro Tip: Never sign an NDA that does not specifically indicate confidential information — you don’t want the courts to interpret the definition for you.
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40+ Year Flower Shop for Sale in East of Raleigh, NC
This full-service flower shop has served the surrounding communities for decades and has an excellent reputation and brand recognition. They provide floral designs and arrangements, plants, gift baskets, and much more. This beautiful Floral and Gift Shop was established 40 years ago. The current owner has owned the business for the entire 40+ years. They sell fresh flowers, custom floral arrangements, plants, gift items, unique furniture pieces, cards, balloons, etc. The business enjoys an excellent reputation, and it provides its customers with a quality product that is competitively priced. They have a fabulous online presence and serve many corporate events, funerals, special events, walk-ins, and weddings.
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VR Office in Boca Raton, FL Sold a Beautiful Beachfront Mediterranean Restaurant
This was a beautiful beachfront Mediterranean restaurant located directly across from Ft. Lauderdale Beach. Open for breakfast, lunch, and dinner offering a varied menu including multiple vegan dishes. It was partnered with several delivery apps and also had a beer & wine license. It also operated as a ghost kitchen for several businesses.
High-traffic area with gorgeous views of the beach and ocean. Had been a restaurant at this location for 12 years. Completed kitchen with grill, fryer, hood, and grease trap. This was a rare opportunity that didn't last!
Congratulations to Greg Fuchs for your successful closing.
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Thinking of selling your business or looking for an established
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The Economy Today - Globally
There are many listed companies that are potentially vulnerable to takeovers around the world right now. Volatility is the order of the day. Management has struggled to adapt to the current economic climate, and while the pandemic, war in Ukraine, inflation, etc. have created fierce headwinds, sometimes a top-heavy management style is not appropriate. There are also price corrections in Tech and FinTech stocks where the froth is coming off because cash returns have not kept pace with investor expectations and valuations traded in the market are not based on practical business assumptions that have not withstood the test of time. Global equity markets have performed well in recent months, with many reaching new highs. This is due to a combination of strong economic growth, low-interest rates, and corporate earnings that have exceeded expectations.
The S&P 500, a benchmark index for U.S. stocks, has risen more than 20% over the past year, while the FTSE 100, the leading index for publicly traded companies in the U.K., is up more than 10%. Other major stock markets around the world have also performed well: The Nikkei 225 in Japan, the DAX in Germany, and the CAC 40 in France have all made strong gains.
There are a number of factors behind this trend. First, economic growth has been strong in many countries, particularly in the U.S. and China. This has boosted corporate profits and pushed up share prices.
Second, interest rates have remained low in many parts of the world, making it easier for companies to borrow money and invest in growth. This, too, has supported stock prices as investors seek higher yields than fixed-income investments. However, this driver is coming to a halt.
There is general optimism among investors as many countries continue to recover from the pandemic and companies adjust to new ways of working.
Finally, in the SME and mid-market, thousands of companies are constantly looking for successors due to age reasons - a great market for our business brokers and a great opportunity to use our network strength.
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VR is The Only Remaining Founding Firm of The International Business Brokers Association ("IBBA").
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Have You Ever Considered Selling Businesses?
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