Preparing Your Business for Sale -Taking the Necessary Steps to Ensure Success
By JoAnn Lombardi, President ofVR Business Sales/Mergers & Acquisitions
Selling a business can be one of the most important events in a business owner's career. This high-stakes transaction has the potential to yield great rewards - both financial and emotional.
But selling a business also can be a complex and mentally draining proposition. Even the most successful and experienced business owners may find themselves unprepared and unequipped. Before you begin the process of selling your company, make sure you're ready. Being prepared can mean the difference between a smooth sale and a bumpy - not to mention costly - ride.
Preparing for the Sale
Before your business goes on the market, attend to the following checklist of items:
Normalize your financials. To present your financials in the most favorable light to potential buyers, you may want to consider switching from a cash method of accounting to an accrual method. An accrual method reports income when it's earned and expenses when they're incurred. Converting to this method can present buyers with a more appropriate financial image of your company.
Next, think about shifting from an accelerated system of reporting depreciation to one that shows depreciation spread over a longer period of time. Also, eliminate any expenses from your financial statements that could be deemed excessive by a potential buyer. These may include items from owner perks - expensive club memberships and luxury hotels - to paying premium prices to vendors because of family or other personal relationships.
Payroll also should be adjusted, particularly in cases where family businesses employ family members at salaries that are higher than industry norms. Accordingly, extensive insurance coverage for family members should be normalized into a less comprehensive, standard plan.
An accounting professional can help adjust your financial statements to ensure that they're on par with normal business practices and improve your overall financial picture. Clean, professionally audited statements also suggest to buyers that your business is professionally and ethically run.
Ensure contracts and leases are up to date. The terms and conditions of your customer and vendor contracts and equipment leases should be current. If your company assets include real estate, you might want to separate or sell the property before your business goes on the market because it has more favorable tax and liability implications for both you and your company's buyer.
If your company leases real estate from another business you own, the lease may be set at an above-market rate to maximize your real estate earnings. The cost of the lease should be normalized to show that a new owner would likely lease the property at a fair market rate.
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Improve Your Turnaround's Forecast - Executing for Long-Term Success
By Peter C. King, CEO of VR Business Sales/Mergers & Acquisitions
Most businesses implement strategies to maintain their viability within their industry. Occasionally, they need special techniques to reshape or revitalize their business. If your company is experiencing a period of decline, consider reexamining your strategies to find areas you can improve and turn the business around.
Getting to the Core
If you're a potential buyer of a troubled company, you must examine it closely for hidden values, such as untried territories or poor leadership. Then decide if these opportunities mitigate acquisition risks and potentially provide enough financial benefits.
It's essential to understand the company's core business - specifically, its profit drivers and roadblocks. Without a clear understanding of this, you may misread the company's financial statements, misjudge its financial condition, and, ultimately, devise an ineffective course of rehabilitative action.
Due Diligence Matters
While due diligence is an important part of any acquisition, it's probably the most critical stage in a turnaround deal.
Buyers should use a professional business intermediary who will take the time necessary to perform due diligence, request the supporting documentation needed, and perform personal audits that cross-check reported and actual data. At this stage, it is important that the source of the company's distress (such as maturing products or overwhelming debt) is pinpointed to determine what, if any, corrective measures can be taken. You also need to determine if the business harbors significant liabilities, such as pending legal judgments, product claims, or dissatisfied customers.
This is the time to find hidden flaws. But due diligence may also unearth potential sources of value, such as tax breaks or proprietary technologies. Benchmarking the company's performance with its industry peers' can help reveal where the opportunity lies.
Hit the Ground Running
Generally, the first post-transaction step is for new owners to determine what products drive revenue growth and which costs hinder profitability. This may be the time to divest the business of unprofitable products, services, subsidiaries, divisions or real estate. Staff cuts may further be in order. Make sure you keep key players. They may be expensive, but as long as they are pulling their weight and have good relationships, they have value when retooling.
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Disaster Assistance is Available for Your Small Business
We cannot express enough sympathy for those affected by the storms and flooding from Hurricane Ian. For those in Florida, Georgia, South and North Carolina, Virginia, and surrounding areas we have gathered a few key resources below to help you during these difficult times.
Small Business Resources:
Additional information about the SBA disaster loan program is available by calling the SBA Customer Service Center at (800) 659-2955, emailing disastercustomerservice@sba.gov, or visiting SBA's website. Individuals who are deaf or hard of hearing may call (800) 877-8339.
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What Documents Do We Ask For and Why?
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One of my hobbies, ever since I was a small child able to hold my own books, has been reading. I really enjoy getting lost in a story told by an author who can weave images and characters in my mind with nothing more than a clever arrangement of letters on the page! I am one of those who will look up from a particularly good story only to realize that I wasn’t actually experiencing those events myself, that they were just images conjured up by a talented writer.
As a business appraisers, when we write up our valuation reports, we are in fact telling a story. Generally speaking, not as exciting a story as some of my favorite authors have written, but a story nonetheless. We are explaining how we arrived at our opinion of value, what factors we considered, what information we gathered, and what our conclusions were after analyzing it all. In order to begin an analysis, we typically ask for a certain selection of information from the client. This information will help us to either identify the future operating income or the risk of achieving that income.
I like to ask for the last five years of tax returns and financial statements. Yes, I ask for both sets of documents for the same time periods. I ask for both sets because often there is information on the tax returns that is not included in the more detailed balance sheets and income statements. I request the financials be provided to me on an accrual basis if possible because I want to know what the business's accounts receivable and payables would be as well as any bad debts they may have had. I will be analyzing historical results in order to help me predict the future. For startup businesses and those with a very brief history of operations, this analysis becomes much more abbreviated, but it is still important as it drives part of the risk analysis.
If the owner has family members on the payroll, that are actually attending school out of state, I want to see those W-2 forms so I can know the magnitude of that potential adjustment. Family members on the payroll who are actually not part of the operation are one of the adjustments that is easy to make and support if we have the documentation to do so.
I generally don’t see detailed lists of equipment owned on the financial statements, so I tend to ask for a copy of their most recent depreciation schedule. That way I have a good collection of data, in case I need to place more weight on a method under the asset approach.
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Seven Ways Family Offices are Different from Other Buyers of Lower Middle Market Companies
Like most other institutional investors in recent years, family offices have shifted a significant share of their assets from the public markets to private equity, real estate, and other nontraditional assets.
Unlike pension funds and endowments, however, affluent families have not been content to invest through private equity funds. They are at least as likely now to invest directly in middle-market companies.
A 2021 survey by Citi Private Capital Group found that nearly half of family offices have more than 25% of their overall portfolios in direct private investments. The Family Office Exchange (FOX) found that the overall share of assets devoted to direct private equity investments by family offices increased by 50% from 2014 to 2018.
Family offices have an advantage in direct investing that other institutions often don’t: the business experience of the family itself. Most often, their wealth stems from building the sort of middle-market companies their family offices are now buying into. That gives them insights, connections, and experience that boost the return of deals.
Here are seven ways that family offices are different from other investors in middle market companies:
1. They have a longer time horizon
While a typical private equity fund is looking to exit its investments within seven years, family offices can hold companies much longer. They generally invest with money that isn’t needed to pay any near-term expenses.
“Our family has been phenomenally successful since the patriarch took over the business 50 years ago, and now they are thinking about the next generation and making sure their wealth grows with their expanding family,” says Michael Barnes, vice president of Walnut Ridge, the investment office for the Kanfer family, which owns Gojo, the maker of Purell. “We have much more flexibility than traditional private equity firms because we’ve got no artificial timelines that drive a need for liquidity.”
The long-term perspective also creates an incentive to hold investments so their value can compound without triggering capital gain taxes, Barnes adds.
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Wholesale Distributor Business for Sale in Upper Midwest
VR Business Brokers, Mergers & Acquisitions are pleased to offer an Upper Midwest Wholesale Distributor Business. The Company’s established 65-year history in the Upper Midwest region has allowed them to build strong relationships with its customers and vendors alike.
Business Highlights:
- Industry: Food, grocery related products distribution and supply chain has been fast growing industry.
- History: Established for more than 65 years and trusted by their long-term customers and suppliers.
- Industrial distribution building: Purpose built industrial building as a warehouse and wholesale distribution center. Equipped with multiple walk-in cooler and freezer units and there is room to grow its capacity.
- Location: Backs up to railroad for future development or to use as value-add distribution center. Opportunity to expand to upper Midwest region.
- Labor and Suppliers: Efficient and effective labor force with years of experience and many suppliers in place for risk mitigation.
- Customers: No customer concentration issue with more than 650 customer accounts.
- Integration: Great opportunity for vertical or horizontal integration for strategic buyers.
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VR Office in St. Louis, MO Sold an IT Staffing Agency for $930,000
VR Business Brokers of St. Louis successfully represented a local seller and an out-of-state buyer with the acquisition of an IT Staffing Agency. The winning buyer was among three competitive bids and was seeking to strategically expand their talent fulfillment services in the Midwest. The seller has owned and operated the business since 2011 and maintained strong performance year-over-year, including during the recent COVID pandemic.
The IT industry continues to expand and the need for quality talent and job placement services is in more demand than ever. The buyer was extremely pleased with their acquisition and the seller received a great offer and peace of mind for themselves and their employees. Both parties shared that their experience with VR was absolutely wonderful, professional, and instrumental in the quick 45-day acquisition."
Congratulations to Jeff Kalil for your successful closing.
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Thinking of selling your business or looking for an established
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New Buyer Mandate for Technology-Based Companies
Buyer seeks technology-based companies active in trade and manufacturing of industrial products and services in Europe and the US in well-defined product and market niches.
Ideal purchase price in the region of euro 10-50 million per acquisition. Revenue: between euro 10 million to euro 75 million per acquisition with strong management and own products (i.e. not contract manufacturing).
The key customer segments could include manufacturers and suppliers within telecom, automation, commercial vehicles, military, digital signage, and renewable energy, as well as electrical contractors and construction companies.
Only profitable companies (EBITDA margin above 10%) or able short term to reach that level; no turn-around or distressed situations.
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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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