Setting Up for Selling Your Business
By JoAnn Lombardi, President of VR Business Sales/Mergers & Acquisitions
How to Develop a Successful Exit Strategy
Recently, many entrepreneurs fulfilled their life-long dreams of buying a business. Others have seen their businesses grow gradually over the years. They are pursuits these business owners have enjoyed and cherished. However as a business owner, you have to remember there will be a time you will have to pass your dream along to somebody else.
Whether you’re selling the business because of burnout, retirement or the desire to move on, when the time arrives to do so, do it right and receive the optimal sales price.
Often when you contemplate, plan or pursue the opportunity to sell your business, you discover the selling process doesn’t give you the flexibility needed to make the best deal. But you don’t need to fear, feel manipulated by or go through the resale process alone.
You will be at an advantage as an owner if you start thinking about selling the business before you actually proceed. You will easily be able to identify the important elements of the resale process, and have some control over them in the future. Preparing to sell before you move forward will help you better understand the business transaction, your needs as an owner and be in a better position to develop a strategy to make it through the sale efficiently and profitably.
There are five obstacles in the sale process you will have to examine as you proceed. With each one, there are some helpful tips every VR business intermediary will recommend to you. This will assist you in understanding the process better and successfully sell your business.
1. Position Your Business for Sale.
2. Determine a Fair Listing Price.
3. Running Your Business during the Marketing Period.
4. Finding the Qualified Buyer.
5. When to Consider Selling Your Business.
Position Your Business for Sale
The day you purchase the business is the day you start positioning your business for sale. You might not think so, but thinking about building long-term value for your business is just as important as making money in the short term. You want to maintain detailed records of finances, permits, licenses, equipment and inventory through your ownership. This will be critical when you are trying to sell your business, so don’t neglect this part!
Determine a Fair Listing Price
There are many methods you can use to price your business. The most common would be a multiple of cash flow – normally, 2 to 4 times annual cash flow, depending on the type and size of the business. Another option would be the value of equipment and inventory plus one year’s cash flow; or, 3 to 12 months gross sales and book value of assets.
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How To Make More Money Selling Your Business
By Peter C. King, CEO of VR Business Sales/Mergers & Acquisitions
The sale of your business is of extreme importance. Regardless of the reason you may be selling, consulting with a professional business broker presents a better opportunity. The sale of a business consists of a presentation, finding the most suitable buyers, and ensuring you receive payment for what the company is actually worth, as opposed to having the chance of losing out on a fair price. A business broker is a huge help in instances like these, as they have the knowledge and professionalism to ensure the transaction is painless and fruitful.
Perhaps one of the most exhausting decisions to make is whether or not to sell your company. You must weigh the decision carefully, as well as determine if it’s worth selling. There are advantages to making the sale, however, you must compare it to the time, capital, and energy put into the enterprise’s growth. There is also the investment that would accompany continuing the company. However, it may be the right time for you, in terms of personal or professional needs.
You will need to have your financial statements recast, along with a business valuation. A business valuation allows you to determine the true value of your business, and allows you to receive a price worthy of your time and effort. Having one of these available will definitively increase your potential profits on a sale. A business valuation report usually involves the following elements:
- Assumptions and limiting factors; these factors may include if the enterprise needs to be sold posthaste, depreciation of the business, and the amount of time one would need to convert the assets into cash.
- Standard of value; the standard is used to determine the valuation, and may involve any type of method necessary, such as the liquidation value or fair market value.
- Economic outlook; this presents a background for the valuation. The value may change based on market forces at the time. It may include information pertaining to the GDP, exchange rates and pricing, the business financing condition, and interest rates.
- The reason the valuation is occurring.
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Exploring Seller Financing for Partial Business Acquisitions: A Win-Win Solution
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Following the Small Business Administration's (SBA) recent changes to its guidelines related to partial business acquisitions, those interested in acquiring a business or a partial ownership interest in a business will likely have some questions about seller financing, which should become more common now that these types of acquisitions can be made with the help of an SBA 7(a) loan and cash injection (down payment) requirements have been loosened.
What is seller financing?
Seller financing allows the seller to provide a loan to the buyer, which the buyer then pays back in installments, with interest. The seller note is paid back from the cash flow of the business acquired by the buyer and is often used to bridge the gap between how much financing a buyer can get from the bank and the total purchase price.
Why might a bank require seller financing?
Risk Mitigation. Banks often view business acquisitions to be riskier than other loan transactions due to the change of ownership, primarily when the buyer lacks industry experience, ownership experience and/or capital for the down payment or post-closing cash. By incorporating seller financing into the terms, the bank ensures that the seller retains a vested interest in the business's success and is more likely to support the buyer during the transition period.
Advantages for the Buyer:
Access to Financing: Buyers who may struggle to secure a loan or have limited capital can benefit from seller financing, which provides an additional funding source and can help them to buy a business that otherwise might be unattainable.
Flexibility in Structuring the Deal: Seller financing allows for more flexible negotiation terms between the buyer and seller, including interest rates, repayment schedules, and other conditions.
Reassurance: With the seller still invested, a buyer can feel more assured about the business’s success going forward and confident that the due diligence information provided is accurate.
Advantages for the Seller:
Increased Marketability: By offering seller financing, the seller expands their pool of potential buyers.
Steady Income Stream: Seller financing provides the seller with a steady income stream through the interest payments on the loan, maximizing the return on their investment.
Deferred Taxes: Seller financing can be used to defer the capital gain taxes owed on the sale, meaning sellers don't have to pay taxes on the money they make from the sale until a later date.
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Business Valuation Basics
When a client asks you if you can appraise a specific business, there are always questions we ask to make sure that we can in fact accomplish that task.
“What kind of businesses is it? What type of financial statements will I have access to? What is the purpose of the assignment? When do I need to have the report done by?”
All of those a very good questions and their answers allows us to manage client expectations or decide if another appraiser might work better for that client.
Once we accept an assignment, and we have received the financial data we requested, there are a few steps that we all go through.
1. We analyze historical results
This is done via a spreadsheet, or some other tool but we are looking to see if we can identify any historical trends that might allow us to predict the future. We are also looking for potential normalization adjustments, expenses on incomes that were one-time events, expenses that are likely non-operating in nature, and anything else that be a discretionary item.
2. We analyze the operational risk of the company
This can be done via a comparative financial ratio analysis, where we check to see if the operational characteristics of the business are stronger, weaker, or about the same as the industry average. Some appraisers prefer to use a Strengths, Weaknesses, Opportunities, Threats (SWOT) analysis, or some other such comparative analysis, but we are all measuring risk, because income divided by risk equals value.
3. We predict the future
This is the step that catches certain appraisers off guard. “But I am using a weighted average of historical earnings, I’m not forecasting anything.” Actually, you are. If you are using that technique, you are still predicting the future, you are just predicting the future to look somewhat similar to historical results. If your weighted average shows a lower expected income because the business has been growing over the past five years, perhaps the future will not look exactly like operations did three years ago. Revenue Ruling 59-60 talks about how valuation is a prophecy as to the future, and we are expected to look forward, basing our choices on data that was knowable as of the effective date.
4. We select and calculate applicable methods
This is another area I see certain appraisers run into trouble with. Not every method is applicable to every assignment. If your report always includes the same twelve methods, and your value conclusion is some average of all of them, I am going to suggest that you may need to rethink your overall approach. Each method has a wide degree of flexibility to it, as each method relies on an appraiser’s judgment and experience to calculate the number. If your various indications of value are all over the board, that simply shows that you are lacking in control over your own appraisal. What assumptions are you making without even knowing about them? Each method includes a variety of assumptions based on usage and/or underlaying data, and it is an appraiser’s job to harness those and to make sure that each method is pointing in at least the same direction. Are your assumptions for one method arriving at a stock value, while others are determining the value of the Company’s assets? If one method measures a company’s equity value, yet another is looking at its invested capital, it is your job to both know that and adjust for it.
5. We conclude to a final value
Each indication of value from each method used, will provide a slightly different indication of value. That is normal and expected. Some methods ae simply more appropriate for certain types of projects than others. Some methods require significant adjustments to make them provide an accurate indication of value, and sometimes our underlying data is simply not as accurate as we would like it to be which will skew the results. In those cases, we need to exercise our judgement and explain how and why certain methods are less applicable and why we chose to either ignore, or place significantly less weight on certain of them.
6. We write our report
The communication of our reasonings and how we approached the appraisal problem, is just as much, if not more important then the actual numbers we used. Not only are our clients going to be looking for reasons why the concluded value is lower than they expected, so may our clients’ bankers, lawyers, spouse’s appraisal experts, potential buyers, and the occasional brother-in-law. If our reports do not clearly outline how we applied basic valuation theory, we may end up spending even more unpaid time answering questions that a little forethought on our part could have handled. (I do enjoy answering certain questions by telling the questioner what page of the report answers that particular question.)
Overall, valuation is a fairly simple industry. We collect data, analyze it, draw conclusions, and then communicate our findings. Even those first few questions we ask our potential client about deadlines and appraisal purposes are gathering data so we can analyze and draw our conclusion of if we want that project or not. The basics are easy, but occasionally the details can become complicated.
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Profitable Septic Tank Company for Sale in Miami, FL
This is your chance to own a full-service septic tank repair, installation, and maintenance company. Great reputation of integrity and effective results for over 65 years of experience. Family-owned and operated in a professional and efficient manner, they cater to homeowners and businesses throughout Miami and South Florida. They also have the latest equipment and only use commercial-grade chemical treatments.
There are very few master septic contractors in the Miami area. Residential and commercial septic systems and tanks are all they deal with. Their services include real estate inspections, bacteria treatments, water jetting and pump-outs. They also provide drain-field installations and repairs.
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VR Office in San Antonio, TX Sold a Sport Bar for $1,150,000
Successful turnkey business in a dynamic town on the Texas coast. Absentee owners: the general manager on staff runs the daily operation with an excellent supporting team for quality and service. The Sports Bar Industry is booming worldwide, it projects a Compound Annual Growth Rate of 6.1% from 2022 to 2029 for the USA market. The city were this bar was located also has many tourism infrastructure projects which attract more and more visitors every year.
Congratulations to Omar Garcia for your successful closing.
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Thinking of selling your business or looking for an established
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Cross-Border M&A Transactions with CBA
Cross-border M&A transactions refer to the process of one company from one country acquiring or merging with a company from another country. These transactions involve the purchase, consolidation, or combination of businesses located in different countries. Here are some key aspects and considerations related to cross-border M&A transactions:
Motivations: Companies engage in cross-border M&A for various reasons, including expanding their market presence, gaining access to new customers, diversifying their product or service offerings, achieving cost synergies, and accessing new talent or technology. Tax considerations and regulatory advantages can also be motivating factors.
Challenges: Cross-border M&A transactions can be complex due to differences in business cultures, legal systems, regulations, and currencies. Language barriers and communication issues can also arise.
Due Diligence: Extensive due diligence is essential. This involves a thorough examination of the target company's financial health, legal compliance, intellectual property, customer contracts, and other aspects of the business. In cross-border transactions, understanding the regulatory environment and any political risks is crucial.
Regulatory Approval: Depending on the countries involved, the transaction may require approval from various regulatory authorities. Antitrust or competition regulations, national security concerns, and other factors may come into play.
Integration Planning: Post-acquisition integration is critical for success. Companies need to have a clear plan for merging operations, systems, cultures, and workforces. This can be especially challenging in cross-border deals.
Legal and Tax Implications: Understanding the legal and tax implications of a cross-border transaction is vital. Legal structures, contracts, and tax obligations can vary significantly from one country to another. Companies often consult with legal and financial experts to navigate these complexities.
Cultural Differences: Differences in business culture and management styles can affect the success of an M&A transaction. Cultural sensitivity and effective communication are key to managing these challenges.
Currency Exchange Risks: Fluctuations in exchange rates can impact the financial aspects of a cross-border deal. Companies may use various financial instruments to hedge against currency risk.
Political and Economic Stability: The stability of the countries involved in the transaction is a crucial consideration. Political instability or economic downturns can create uncertainties that affect the deal's viability.
Local Partners and Advisors: Engaging local partners or advisors who are familiar with the regulatory, cultural, and business landscape in the target country can be invaluable.
Exit Strategies: Companies should also consider their exit strategies in case the merger or acquisition does not yield the expected results.
Communication: Clear and transparent communication with employees, customers, and other stakeholders is vital throughout the process to minimize disruptions and maintain trust.
Cross-border M&A transactions can be an effective strategy for growth and expansion, but they require careful planning, thorough research, and effective execution to maximize their potential benefits and minimize risks. Legal, financial, and cultural considerations should all be considered when pursuing such transactions.
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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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