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Third Time’s A Charm: From False Starts To Finishing Big

Scott Miller grew Miller Restoration to a $3M business specializing in cleaning up the mess caused by floods and fires. When a new business idea caught his attention, Miller decided to sell his business. After two false starts, he ended up successfully selling for 3.5 times pre-tax profit.

Miller knew telling his employees would be hard, but nothing could prepare him for what happened next.

In this episode, you’ll learn:

  • Pros/Cons of having a business named after you
  • How false starts with potential acquirers can lead to a bigger payday
  • How a capital lease can impact the value of your company
  • The best way (and worst way) to tell employees you’re selling the company

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Miller navigated offers from potential acquirers more easily because he knew what his target sale price was. Module 12 of The Value Builder System™ walks you through The Envelope Test, which is designed to help you determine your dream check.

Get started for free right now by completing Module 1.

There’s No Business Quite Like a Family Business

The simple fact is that family businesses are different. After all, a family business means working with family and all the good and bad that comes with it.

While an estimated 80% to 90% of all businesses are family owned, relatively few are properly planning for what happens when it comes time to sell. According to one study, a whopping 72% of family businesses lack a developed succession plan which is, of course, a recipe for confusion and potentially disaster. Additionally, there are many complicating factors, for example, studies indicate that 40% to 60% of owners of family businesses want the business to remain in the family, but only 40% of businesses are passed to a second generation and a mere 10% are passed down to a third generation.

Let’s turn our attention to a few of the key points that family business owners should consider when selling a business.

  1. Confidentiality should be placed at the top of your “to do” list. When it comes to selling a family business, it is vital that confidential is strictly observed.
  2. Remember that it may be necessary to lower your asking price if maintaining the jobs of family members is a key concern for you.
  3. Family members who stay on after the sale of the business must realize that they will no longer be in charge. In other words, after the sale of the business the power dynamic will be radically different, meaning that family members will now have to answer to new management, outside investors and an outside board of directors.
  4. Family members will want to appoint a single family member to speak for them in the negotiation process. A failure to appoint a family member could lead to confusion, poor decision making and ultimately the destruction of deals.
  5. When hiring a team to help you with selling your business, it is critical that your lawyer, accountant and business broker are all experienced and proven.
  6. Don’t hold meetings with potential buyers on-site.
  7. Every family member, regardless of whether they are an employee or an investor, must be in agreement regarding the sale of the company. Again, one of your primary goals is to avoid confusion.
  8. Family employees and family investors must be in agreement regarding the sale price or there could be problems.

Working with an experienced business broker is a savvy move, especially when it comes to selling a family business. Business brokers know what it takes to make deals happen. Being able to point to a business brokers’ past success will help reduce family member resistance to adopting the strategies necessary to successfully sell a business.

Copyright: Business Brokerage Press, Inc.

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How Forecasting The Future Led To A $100M Sale

Back when mobile phones had green screens with black dots on them, Andy Nulman founded Airborne Mobile. He knew the time was coming when technology would enable full-scale media content on mobile devices, so he knocked on doors and asked companies like the NHL, Maxim, and Disney for assets he could transform into mobile media.   

In one year, the company went from $2M in revenue to $20M driven by the explosion in the adoption of mobile devices. Leveraging his client list, Nulman sold 85% of Airborne Mobile for over $100M and retained 15% of the company—a position he would later expand in a strange twist of fate.

In this episode, you’ll learn:

– How to leverage brands you’re working with to position your company for an acquisition

– One way to evaluate your logo

– What a “put option” is and how it is used in the M&A process

– The danger of believing your own press

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Find out how you score on the eight factors that drive your company’s value by completing the Value Builder Questionnaire:

Get Your Value Builder Score Now

Around the Web: A Month in Summary

A recent article posted by The National Law Review entitled “Thinking of Selling? Start Early, Build Your Team” explains the importance of putting together a good team of trusted advisors well in advance of selling your business. Your team should include an attorney, accountant, investment banker, and wealth manager. This team will help you with various aspects of selling your business such as:

  • Setting a realistic valuation on the business
  • Finding potential buyers
  • Handling due diligence and information requests from buyers
  • Structuring a transaction for tax & liability protection
  • Dealing with the sale proceeds and making sure your goals are met

It is a good idea to put this team together as soon as possible if you’re thinking of selling, so everyone has time to prepare. There are so many aspects to a business sale and it is essential to have an experienced team of professionals to guide you in the process.

Click here to read the full article.

A recent article from The San Angelo Standard-Times entitled “Business tips: Don’t neglect due diligence when buying a business” emphasizes the important of due diligence when buying a business, which consists of looking into and understanding the important aspects and fine details of the business before closing.

The first aspect to consider is if the business is right for you and your personal circumstances. Taking over a new business will require some help from the previous owner who has knowledge of the business and the industry. You will also want to take into account how many hours are needed, if the job will involve a lot of physical work, and if your family supports you in the purchase of this type of business.

Reviewing and analyzing the seller’s numbers and documents is also a huge part of due diligence. Consider using the help of a CPA, consultant or business broker to go over the financials of the business. You will also want to look into things such as if there are any claims on the business or if the business owes back taxes. Doing your due diligence now will ensure that there are no surprises later on in the process.

Click here to read the full article.

A recent article posted by the Smart Business Network entitled “Planning an exit when a succession plan isn’t an option” explains that selling your business should be part of your exit strategy when creating a succession plan is not an option. To prepare a business for sale, the business owner should recognize the strengths of the business which would appeal to potential buyers and should also have a good understanding of the business’ financials.

Business owners may also want to work with a bank that is experienced in exit planning. The bank can assist with providing insight into how buyers will view their business and what obstacles may occur while a buyer is trying to finance the acquisition. Banks will also be able to work with the buyer in assisting them with financing.

It’s important for a business owner to work with experienced professionals who have worked with sales, acquisitions and exit strategies to help them prepare for a business sale.

Click here to read the full article.

A recent article posted by Business.com entitled “Why It’s Prime Time to Buy a Business from a Retiring Baby Boomer” gives several good reasons why it is a good idea to consider purchasing an existing business, as a flood of baby boomers will be looking to sell their businesses and retire over the next decade.

There are many benefits to purchasing an existing business:

  1. Minimal upfront costs and you not only purchase the business but also the brand, customer-base, management policies and more.
  2. Low risk because the business is already established and has a proven track record.
  3. Steady cash flow along with employees and equipment.

With the generation of baby boomers looking to sell, there will be ample opportunities available for buyers. It’s important to stay in the loop and keep an eye out on available businesses by staying connected to your professional network, brushing up on local & industry publications, looking at online marketplaces, and working with a business broker.

Click here to read the full article.

A recent article written by Live Oak Bank entitled “6 Business Acquisition Tips from SBA Loan Experts” outlines six factors that lenders review for loans financing mergers and acquisitions.

  1. Stable or Positive Trend – Not only a positive trend but stability in these trends are what lenders look at to make sure that any recent growth or improvement is sustainable. A decrease in revenue is a red flag and a negative trend should be stabilized or reversed.
  2. Business Plan – Buyers need to have a business and transition plan for the business they are acquiring so lenders can see they have a good understanding of the business and plans for improvement.
  3. Key Employees – Lenders like to see that key employees will stay on with the new owner, which helps lower the risk and make the transition easier.
  4. Seller Transition Period – Make sure you have a transition plan in place where the seller is able to help train and assist the new owner.
  5. Seller Financing – The seller financing a portion of the deal shows the lender that they are confident in the new owner and lowers the risk factors.
  6. Working Capital – M&A lenders will review the financials of the business to see what working capital is needed. The buyer should demonstrate a clear understanding of how much and what type of working capital is needed for the business transition.

Click here to read the full article.

Copyright: Business Brokerage Press, Inc.

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How To Avoid Disappointment When It’s Time To Cash Out

How do you avoid not being disappointed with the money you make from the sale of your company?

Perhaps you’ve heard that companies like yours trade using an industry rule of thumb or that companies of your size sell within a specific range, and you want to get at least what your peers have received.

While these metrics can be useful for tax planning or working out a messy divorce, they may not be the best ways to value your company.

The Only Valuation Technique That Really Matters

In reality, the only valuation technique that will ensure you are happy with your exit is for you to place your own value on your business. What’s it worth to you to keep it? What is all your sweat equity worth? Only when you’re clear on that will you ensure your satisfaction with the sale of your business.

Take Hank Goddard as an example. He started a software company called Mainspring Healthcare Solutions back in 2007. They provided a way for hospitals to keep track of their equipment and evolved into a slick application that hospital workers used to order supplies.

Goddard and his partner started the business by asking some friends and family to invest. The business grew, but there were challenges along the way: Goddard had to fire his entire management team in the early days, product issues needed to be solved and operational issues needed to be resolved.

At times, it was a grind, so when it came time to sell in 2016, Goddard reasoned that he had invested more than half of his career in Mainspring and he wanted to get paid for his life’s work. He also wanted to ensure his original investors got a decent return on their money.

He was approached by Accruent, a company in the same industry, who made Goddard and his partners an offer of one times revenue. Accruent had recently acquired one of Goddard’s competitors for a similar value, so presumably thought this was a fair offer.

Goddard brushed it off as completely unworkable. Goddard had decided he wanted five times revenue for his business. Even for a growing software company, five times revenue was a stretch, but Goddard stuck to his guns. That’s what it was worth to him to sell.

A year after they first approached Goddard, Accruent came back with an offer of two times revenue and, again, Goddard demurred.

Mainspring had developed a new application that was quickly gaining traction and he knew how hard it was to sell to the hospitals he already counted as customers.

He told Accruent his number was five times revenue in cash.

Eventually Goddard got his number.

Being clear on what your number is before going into a negotiation to sell your business can be helpful when emotions start to take over. Rather than rely on industry benchmarks, the best way to ensure you’re not disappointed with the sale of your business is to decide up front what it’s worth to you.

Difficult Issues Often Attached to Valuing a Business

There is little doubt that valuing a business is often a very complex process.  In part, this complexity is due to the fact that business evaluation is somewhat subjective. The simple fact is that the value of a business is often left to the mercy of the person conducting the evaluation.  Adding yet another level of complexity is the fact that the person conducting the valuation has no choice but to assume that all the information provided is, in fact, correct and accurate.

In this article, we will explore six key issues that must be considered when determining the value of a business.  As you will see, determining the value of a business involves taking in several factors.

Factor #1 – Intangible Assets

Intangible assets can make determining the value of a business quite tricky. Intellectual property ranging from patents to trademarks and copyrights can impact the value of a business. These intangible assets are notoriously difficult to value.

Factor #2 – Product Diversity

One of the truisms of valuing a business is that businesses with only one product or service are at much greater risk than a business that has multiple products or services. Product or service diversity will play a role in most valuations.

Factor #3 – ESOP Ownership

A company that is owned by its employees can present evaluators with a real challenge. Whether partially or completely owned by employees, this situation can restrict marketability and in turn impact value.

Factor #4 – Critical Supply Sources

If a business is particularly vulnerable to supply disruptions, for example, using a single supplier in order to achieve a low-cost competitive advance, then expect the evaluator to take notice. The reason is that a supply disruption could mean that a business’ competitive edge is subject to change and thus vulnerable. When supply is at risk then there could be a disruption of delivery and evaluators will notice this factor.

Factor #5 – Customer Concentration

If a company has just one or two key customers, which is often the situation with many small businesses, this can be seen as a serious problem.

Factor #6 – Company or Industry Life Cycle

A business, who by its very nature, may be reaching the end of an industry life cycle, for example, typewriter repair, will also face challenges during the evaluation process. A business that is facing obsolescence usually has bleak prospects.

There are other issues that can also impact the valuation of a company. Some factors can include out of date inventory, as well as reliance on short contracts and factors such as third-party or franchise approvals being necessary for selling a company. The list of factors that can negatively impact the value of a company is indeed long. Working with a business broker is one way to address these potential problems before placing a business up for sale.

Find out the value of your business and see how you score on the Eight Factors that Drive Your Company’s Value by completing the Value Builder Questionnaire here:

Get Your Value Builder Score Now

 

Copyright: Business Brokerage Press, Inc.

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What Do Buyers Want in a Company?

Selling your business doesn’t have to feel like online dating, but for many sellers this is exactly what it can feel like. Many sellers are left wondering, “What exactly do buyers want to see in order to buy my company?” Working with a business broker is an excellent way to take some of the mystery out of this often elusive equation. In general, there are three areas that buyers should give particular attention to in order to make their businesses more attractive to sellers.

Area #1 – The Quality of Earnings

The bottom line, no pun intended, is that many accountants and intermediaries can be rather aggressive when it comes to adding back one-time or non-recurring expenses. Obviously, this can cause headaches for sellers. Here are a few examples of non-recurring expenses: a building undergoing foundation repairs, expenses related to meeting new government guidelines or legal fees involving a lawsuit or actually paying for a major lawsuit.

Buyers will want to emphasize that a non-recurring expense is just that, a one-time expense that will not recur, and are not in fact, a drain on the actual, real earnings of a company. The simple fact is that virtually every business has some level of non-recurring expenses each and every year; this is just the nature of business. However, by adding back these one-time expenses, an accountant or business appraiser can greatly complicate a deal as he or she is not allowing for extraordinary expenses that occur almost every year. Add-backs can work to inflate the earnings and lead to a failure to reflect the real earning power of the business.

Area #2 – Buyers Want to See Sustainability of Earnings

It is only understandable that any new owner will be concerned that the business in question will have sustainable earnings after the purchase. No one wants to buy a business only to see it fail due to a lack of earnings a short time later or buy a business that is at the height of its earnings or buy a business whose earnings are the result of a one-time contract. Sellers can expect that buyers will carefully examine whether or not a business will grow in the same rate, or a faster rate, than it has in the past.

Area #3 – Buyers Will Verify Information

Finally, sellers can expect that buyers will want to verify that all information provided is accurate. No buyer wants an unexpected surprise after they have purchased a business. Sellers should expect buyers to dig deep in an effort to ensure that there are no skeletons hiding in the closet. Whether its potential litigation issues or potential product returns or a range of other potential issues, you can be certain that serious buyers will carefully evaluate your business and verify all the information you’ve provided.

By stepping back and putting yourself in the shoes of a prospective buyer, you can go a long way towards helping ensure that the deal is finalized. Further, working with an experienced business broker is another way to help ensure that you anticipate what a buyer will want to see well in advance.

Copyright: Business Brokerage Press, Inc.

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How To Recover, and Thrive, After Splitting From Your Co-Founder

Four years ago Nexalogy CEO Claude Théoret was counting the employees he had to lay off. His company had burned through their $600,000 seed round of investment and he was running out of cash. An ugly split with a former co-founder had divided his team, and Théoret had to turn to his wife for a $40,000 loan.

Jump ahead to today and things are a little different for Théoret, who just agreed to be acquired by Datametrex AI Limited for $5.75 million.

In this episode of Built to Sell radio, you’ll learn:

– The hidden reason many founders can’t raise venture capital

– How to evaluate what it will be like to work for your acquirer before you agree to be purchased

– The types of issues that often derail an acquisition at the last minute

– What Théoret means when he says ‘the devil is going to get his 12%’

Listen Now

 

Find out how you score on the eight factors that drive your company’s value by completing the Value Builder Questionnaire:

Get Your Value Builder Score Now

 

One Tweak That Can (Instantly) Add Millions To The Value Of Your Business

 

If you’re trying to figure out what your business might be worth, it’s helpful to consider what
acquirers are paying for companies like yours these days. A little internet research will probably reveal that a business like yours trades for a multiple of your pre-tax profit, which is Sellers Discretionary Earnings (SDE) for a small business and Earnings Before Interest Taxes, Depreciation and Amortization (EBITDA) for a slightly larger business.

Obsessing Over Your Multiple

This multiple can transfix entrepreneurs. Many owners want to know their multiple and how
they can jack it up. After all, if your business has $500,000 in profit, and it trades for four
times profit, it’s worth $2 million; if the same business trades for eight times profit, it’s worth
$4 million.

Obviously, your multiple will have a profound impact on the haul you take from the sale of
your business, but there is another number worthy of your consideration as well: the
number your multiple is multiplying.

How Profitability Is Open To Interpretation

Most entrepreneurs think of profit as an objective measure, calculated by an accountant,
but when it comes to the sale of your business, profit is far from objective. Your profit will
go through a set of “adjustments” designed to estimate how profitable your business will
be under a new owner.

This process of adjusting—and how you defend these adjustments to an acquirer—is
where you can dramatically spike your company’s value.

Let’s take a simple example to illustrate. Imagine you run a company with $3 million in
revenue and you pay yourself a salary of $200,000 a year. Further, let’s assume you could
get a competent manager to run your business as a division of an acquirer for $100,000
per year. You could safely make the case to an acquirer that under their ownership, your
business would generate an extra $100,000 in profit. If they are paying you five times profit
for your business, that one adjustment has the potential to earn you an extra $500,000.

You should be able to make a case for several adjustments that will boost your profit and,
by extension, the value of your business. This is more art than science, and you need to be
prepared to defend your case for each adjustment. It is important that you make a good
case for how profitable your business will be in the hands of an acquirer.

Some of the most common adjustments relate to rent (common if you own the building
your company operates from and your company is paying higher-than-market rent), start–
up costs, one-off lawsuits or insurance claims and one-time professional services fees.
Your multiple is important, but the subjective art of adjusting your EBITDA is where a lot of
extra money can be made when selling your business.

Find out how you score on the eight factors that drive your company’s multiple by completing the Value Builder Questionnaire:

Get Your Value Builder Score Now