Avoid These Mistakes When Acquiring a Business
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1. Speculating about a seller’s motives
In most cases you will never know why or when a seller will decide to sell. You just want to be on the short list of potential buyers when they reach that point. Even if an ideal prospect told you “no interest” a year ago, he could one day change his mind. Stay in touch and be there when he does.
2. Failing to remember that buying is selling
Not every company is sold to the highest bidder. Many sellers are concerned with the nature of the “fit” and the way they perceive their employees will be treated following the sale. If you aren’t courteous, and respectful during the courtship, what will they think about tying the knot?
3. Not using experienced professional advisers
It is a good idea to use qualified advisers. Naive buyers and sellers often make mistakes; and mistakes cost far more than the expense of competent advisers. Some buyers think a failed acquisition effort is not worth paying for. Sometimes, however, you make far more money by not doing a deal. The objective is to do the right deals at the right price (and terms). Your advisers can keep you informed about what your competitor buyers are doing, both from direct experience and research. Their knowledge of the market can be invaluable in helping you close deals.
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Considerations When Buying or Selling a Business
By JoAnn Lombardi, President VR Business Brokers/Mergers & Acquisitions
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The single most important decision in making an acquisition (or completing a merger) is in determining the value or setting the price. In a traditional merger, where the acquired business’ shareholders exchange their stock for stock in the acquiring business, the negotiation of price seems simple – what is each business’ stock worth? Although this may sound simple, there are many considerations each must make in valuing the assets or stock of both businesses and/or the target business.
KEY CONSIDERATIONS
There are many considerations that should be made when estimating the value of a mid-market business. The most important are:
- Stability of historical earnings,
- Future projections,
- Verification of information,
- The actual assets included in the sale.
Stability of Historical Earnings
A potential buyer of a business will first look at the stability of historical earnings when estimating the price for a target company. Excessive add-backs or adjustments and inconsistent profit margins decrease the overall marketability of a target business.
When estimating the value of a business, usually the last full year, last 12 months (sometimes referred to trailing 12 months) or projected earnings are used. Sometimes a weighted average of the last 3 to 5 years is used. What should be remembered is that the earnings used should best represent the short-term future earnings and financial picture of the business.
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Small Business Financing Using Funds From Your
Retirement Account
By Suzy Grainger, Sales & Marketing Manager DRDA CPAs & Business Consultants
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Owning a business is the ultimate dream, and something you have been thinking about doing for a long time. However, your funding may be limited, and most business loans require collateral, good credit, and in some cases an established professional history in the industry. Fortunately, there is another option with the BORSA™ Plan which unlocks a financial structure allowing access to your 401(k)/IRA retirement accounts to start a business – without paying upfront taxes or early withdrawal penalties. The funds are not a loan. Therefore, there are no hefty interest or monthly installment payments.
The funds may be used to start a business, purchase a business, add funds to an existing business, or as a down payment on a loan to purchase.
Self-Directed 401(k) Business Financing
Using retirement money to fund a business is not a new concept, but it probably an option less known to many people. Our purpose is to introduce, teach, and administer this funding program via the BORSA™ Plan. Along with our support and guidance throughout the process, we are confident you will come to appreciate the many benefits of a self-directed 401(k) which are not found in other forms of financing.
Some of the Benefits of Utilizing the BORSA™ Plan
- Savings – The BORSA™ Plan assist you in rolling over retirement funds under the ERISA 1974 guidelines. Normally, an early distribution from a retirement plan could cost more than 50% in taxes and penalties. Using the BORSA™ program will enable an individual to invest their retirement funds into a new business or franchise without being penalized for early distribution or taxes as income.
- Self-Investment – Continue to contribute into your future retirement by reinvesting money into your own business and retirement plan.
- Business Investment – Invest in your business: the funds can be used to pay all start-up business expenses, including marketing, working capital, staff and labor, equipment vendors, training, etc. Watch your business grow without accruing debt from bank loans and interest payments.
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Analysis Shmalysis
By Shawn Hyde, Executive Director ISBA
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Some of my best article ideas come from a conversation or a question I get asked during one of my presentations. I don’t know if this one will be one of my best ones, but the genesis of this article came from a question I was asked not long ago.
“How can I tell if the appraisal report I am looking at is any good?”
I need to provide a little background on the conversation that engendered the question above. We were discussing the various different business appraisal certifications that exist in the market, the training programs associated with each, and also the results of the several different valuation software packages that are in use today. The point was made that every single appraisal is an expression of the appraiser’s opinion and that different appraisers can come up with different values, even using identical data, and each value conclusion can be correct even while they are different. (This last point may be the topic of another article someday.)
In the middle of the conversation, one of the participants asked the question above. I gave a fairly short, and I think very accurate answer then, but I want to expand on my answer here.
I believe there are some very obvious indicators anyone can look at in order to decide if a particular appraisal report is sufficient for their needs. Some of these are listed below:
1. “Garbage in, garbage out”
This is a very well-known adage, that basically says, if one inputs worthless data into a system, the result provided is equally worthless. For a business appraisal, one needs to consider the quality of the data used in the report and see how dependent the appraiser was on that data. For example, I have appraised businesses where I did not trust the information provided in the tax returns or financial statements. The section where I described the efforts I put into reconciling the business’ results with what was reported tends to be more robust in those types of assignments. One of my favorite assignments was where I was handed a check book register and was told to value the business based on that data. A good report can be developed from this type of data, but it takes more analysis from the appraiser.
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Leaving Money on the Virtual Table
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COVID-19 has been a clear catalyst for the food delivery industry. Widespread government-mandated restaurant closures and consumer quarantining has driven unprecedented demand for grocery and food delivery services. The accelerated adoption of online ordering and delivery by restaurants has given rise to new business models, catching the attention of investors looking to take part in this unprecedented growth.
What Goes Up, Must Come Down
The restaurant industry has spent much of the past decade focused on expansion, with some of the biggest fast-food companies opening locations on what seems like every street corner. Growth among the top 500 dining chains has outpaced U.S. population growth since 2003, leading to a situation of oversupply. There are currently more seats in restaurants than diners nationwide.
Much of this early expansion was originally financed with cheap debt, as companies took advantage of near historic low interest rates. Restaurants started to feel the pain in 2019 as those rates began to change, along with shifting consumer tastes, delivery options, rising wages, and increased competition. Now, fast forward to 2020 where restaurant traffic nearly disappeared overnight (down between 40% and 80% across the industry), and you’re looking at a significant retraction in the growth that traditional dine-in restaurants have experienced over the last 10+ years.
Convenience is Key
Consumers have grown accustomed to having meals brought to their workplace or home with a simple phone call or a few mobile swipes. Even before the outbreak, the online food-delivery market was on the rise, projected to reach $61 billion by 2025, growing at a CAGR of 14.6%. The online food-delivery market consists of two different delivery service models: restaurant-to-consumer delivery (traditional) and platform-to-consumer delivery (aggregators).
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Facial Spa Aesthetics Services| Brentwood, CA
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This business offers Facials /Aesthetics services with a great reputation. It is located in a highly desirable and rapidly growing area with excellent demographics for this type of business.
The Owner/Esthetician provides the medical services and business have an excellent reputation.
Buyer will need to be a licensed medical doctor. The current owner is supported by one part time staff. They offer a variety lines of retail products related to their practice. The existing facility can be expanded by upgrading the existing storage space to office space.
For more information contact: Ran Kim.
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VR in Apollo Beach, FL Successfully Sold a Breakfast/Lunch Restaurant for $190,000.
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Highly rated family owned Breakfast & Lunch Café with home cooking and great atmosphere certain to please the local clientele. Founded in 1998, this restaurant had top reviews on Yelp, Trip Advisor, and other sites as the quality food and fantastic service had been a local favorite for over twenty years. The interior was recently remodeled and looks fantastic. The Cafe was located in an very high-traffic Publix shopping center right on the endcap of the center with tons of parking. Had both inside and outside seating. Runs on a new Clover P.O.S. system.
- Outstanding reputation for excellence and outstanding reviews.
- Low cost Lease rate is fixed until January 2023! Plus 5 year option.
- Very clean restaurant, newly remodeled interior.
- Short hours for ease of operation (Mon-Sat, 7-2).
- Upside potential for new ownership to expand menu, expand hours, add delivery and catering.
Congratulations to Tim Bellonfor your successful closing.
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Thinking of selling your business or looking for an established
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Have You Ever Considered Selling Businesses?
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As a loyal subscriber of Today’s Business Owner electronic magazine, we invite you to click on this link follow us on LinkedIn.
Now you can be updated daily on business sales, valuation techniques, mergers and acquisitions, career opportunities with VR, and much more.
Be the first to find out about new businesses for sale, and what has just sold.
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