Some Key Factors in Pricing a Business

The following questions are useful to understand a business and thereby price that business more prudently:

• What's for sale? What's not for sale? Does it include real estate? Are some of the machines leased instead of owned?
• What assets are not earning money? Perhaps these assets should be sold off.
• What is proprietary? Consider trademarks, copyrights, patents, software, etc?
• What is the competitive advantage? Does the business have a certain niche, superior marketing, desirable location?
• What is the barrier of entry? Is it capital, low labor, tight relationships?
• What about employment agreements/non-competes? Has the seller failed to secure these agreements from key employees?
• How does one grow the business? Maybe it can't be grown.
• How much working capital does one need to run the business?
• What is the depth of management and how dependent is the business on the owner/manager?
• How is the financial reporting undertaken and recorded, and how does management adjust the business accordingly?

These are important questions for sellers and their advisors to consider when setting the price of a business for sale. A qualified business broker is an indispensable took to help answer these questions and determine a most probable selling price for the business in its marketplace.

What's Behind the Numbers

Have you had a recent decline in sales and/or profit in your business? It's so important to know what the full story is behind the numbers. An economic slump, a dying industry, and new competition can all play a role in decreased sales. Sometimes, there may also be a postiive story behind the scenes.

Maybe you've been really burned out and hired additional employees to help carry the load. Perhaps the street was torn up for a period of time. A bit of investiation might uncover a legitimate reason for a decline in sales and/or profits. This would be important information in regards to selling the business and also an area that a professional broker can help uncover.

courtesy of Business Brokerage Press

Check out Fox Small Business Center's article on alternative lending options for entrepreneurs

There is much talk these days about the rise in alternative lending sources since the credit crunch really started to squeeze small businesses in late 2008... here is a great explanation of four of those alternatives...

Four Alternative Lending Options for Entrepreneurs

www.smallbusiness.foxbusiness.com
Published August 14, 2012

When the credit crunch began in late 2008, traditional banks tightened the spigots on funding for small businesses. When the big banks said no, small banks and non-bank lenders increasingly said yes. While big banks reject loan applications almost nine out of ten times, and smaller banks approved less than half of small business funding requests, alternative lenders filled the void.

According to Biz2Credit Small Business Lending Index (figures for the July 2012), big banks (institutions with more than $10 billion in assets) approved 11.3% of small business loan requests, while smaller banks gave the green light to 47.4%. Meanwhile, non-bank lenders picked up the slack. Credit unions approved 54.6% of requests, while alternative lenders, such as Cash Advance Network (CAN) and accounts receivable financers, okayed 61.4% of requests for funding from small companies.

So who are the alternative lenders? They are comprised of non-banks, such as credit unions, CDFIs, micro lenders and accounts receivable financers.

To read a full explanation of each alternative lender... click here to read the full article.

Costco's Small Business Article on Closing the Deal hits it out of the ballpark!

The following is an excerpt from a recent article in the August 2012 publication of The Costco Connection. This article on selling a business, in our estimation, hits a home run... with bases loaded!

Closing the deal

Eight essential steps for selling your business

By Harvey Meyer
The Costco Connection
August 2012; p22-23

When Tom Schraminski was selling his small healthcare firm, he joshed that he required "intensive psychotherapy" to cope with the aftershocks. Such was the roller coaster of emotions he confronted during and after what is often a life-changing event.

It can be very traumatic," says the Costco member, who now is a vice president for American HealthCare Capital, a Marina del Rey, California-based national mergers and acquisitions firm. It's not unusual for small business owners to encounter emotional swings when putting their "baby" up for sale. After all, many have poured their heart, soul, sweat, tears and identity into their enterprises.

Many small proprietors are skilled at operating their companies, but they're ill prepared for all that happens when it comes time to sell.

To read more of Costco's very insightful article and the eight steps for selling your business... click here. As seasoned brokers, we can tell you they are right on the money.

Sell Now or Later?

By Ralana D Abraham, Business Broker
Sunbelt Business Advisors of Indiana

If you are considering holding off on selling your business you may want to reconsider.

Recently I have read several great articles and sat in on presentations expounding on tax implications, regulatory implications and the availability of buyers… and am convinced that now more than ever sellers need to realize what the current economic and political environment really means for them and their future… and why selling now truly is a better option.

There are several very good reasons to sell now… among them the looming tax changes for higher income tax-payers, increased regulation for small businesses making the costs of doing business higher, and the increased incentive for buyers to buy in this market.

To read the full article and learn more about the reasons to sell now... click here.

Check out the Top Ten Franchises to Buy...

Check out this great article by BlueMauMau.org outlining the top ten best franchises to buy... it also has a great link to an article with a spreadsheet showing SBA default rates for various franchises... very informative.

2012's Best 10 Franchises to Buy, Least Loan Defaults

By BMM, www.bluemaumau.org
Saturday, 2012/06/16

Knowing a franchise's bottom line and the ability to get a return on investment is the holy grail for a franchise investor. That's no easy feat. What Blue MauMau has been able to do is to find chains that franchisees are healthy enough with their earnings to at least pay back their loans more than other brands. So here are the ten best franchise brands in which franchisees have enough staying-power to pay back their lender.

If you are interested in purchasing a franchise, this is a must read.... click here to read the full article.

Top Four Factors in Closing a Deal

1. The assurance of a prompt closing - Deals that are allowed to drag are more at risk of falling through. Sellers, buyers, and the related professionals should all be motivated to keep the process moving. This does not mean glossing over issues and concerns in order to close the sale, but dealing with each step of the process in a timely manner. A professional business intermediary can be a big help in keeping the momentum of a sale moving forward.
2. How the deal is structured - This includes such things as cash, stock, contingencies, earn-outs, representations and warranties, etc.
3. Full price and/or the considerations
4. Legal and/or governmental issues - Obviously, the presence of such issues can be a hindrance to the successful closing of a deal. A business owner will want to address these issues before placing a business on the market.

Benefits of Meeting with a Business Broker in person...

Whether you are ready to list now or are considering in the next fews years, as you move forward with the sale of your business, you will want to consider all of your options. Speaking to a qualified business broker is one of the first steps you are going to want to take. You will be better prepared to move forward whether you list with the broker or not. Arming yourself with all the tools available to you is always a good idea. But, do not think a quick conversation over the phone is going to give you a full picture of the advantages that a business broker can offer to the situation.

A qualified business broker can render an initial opinion of value, and recommend courses of action to market your business. In order to do so, you will want them to have a full picture of your business. An on-site meeting can give your potential broker a better understanding of your business. You want them to see it as more than just the numbers. Your business has a flavor, and should you decide to list, the better understanding the broker has the more likely they are to concentrate on that right-fit buyer, the one most likely to see the value and succeed in your business...

Click here to read my full  article, and respond with a comment. Would love to hear what you have to say...

Ralana D. Abraham
Business Broker, Dir. of Marketing
Sunbelt Indiana

Are you sure you're ready to sell?

You may have decided it's time to sell, but before you begin the M&A process, you need to take a good, hard look at what you plan to put on the block. Just because you're ready doesn't maean buyers will be interested - particularly if this is the first time you've thought about preparing your business for sale.  Prospective buyers won't just scrutinize your business, but they'll also compare it to other opportunities in the marketplace.

Asking tough questions
With the help of your M&A advisors, go over your company with a fine-tooth comb, just as a buyer will during the due diligence stage. Evaluate everything from debt levels to personnel to customer relationships and address any issues that are likely to give potential buyers pause, such as too much business concentration in only a few customers.

To read the full article by the staff at SunbeltMergers.com click here.

Exit Planning:Prepare for an out while you're still in

Running a successful business is time consuming, leaving you little time to plan what may seem like distant succession issues. It's important, however, to outline an exit plan and make succession decisions as early as possible. Evaluating and grooming possible successors or preparing for an outside sale can take years. And it's never too early to make retirement and estate plans.

Take stock
Before determining where you want to be when you're ready to retire, assess where you and your business are financially today. Prepare a detailed financial analysis of your business with the help of a valuation professional. This expert will review historical data to determine its current value.

Click here to read the full article by the staff at SunbeltMergers.com.

Negotiating the Price Gap Between Buyers and Sellers

The terms of the deal are extremely important to both parties involved in the transaction. Many times the buyers and sellers, and their advisors, are in agreement with all the terms of the transaction, except for the price. Although the variance on price may seem to be a "deal killer", the price gap can often be resolved so that both parties can move forward to complete the transaction.

Listed below are some suggestions on how to bridge the price gap.

• If the real estate was originally included in the purchase price, the seller may choose to rent the premises to the acquirer rather than sell it outright.
• The purchaser can acquire less than 100% of the company initially and have the option to buy the remaining interest in the future.
• A subsidiary can be created for the fastest growing portion of hte business being acquired.
• A royalty can be structured based on revenue, gross margins, EBIT, or EBITDA.
• Certain assets, such as automobiles or non-business-related real estate, can be carved out of the sale to reduce the actual purchase price.

Although the above suggestions will not solve all of the pricing gap problems, they may lead the participants in the necessary direction to resolve them. The ability to structure successful transactions that satisfy both buyer and seller requires an immense amount of time, skill, experience and most of all - imagination.

Creating Value in Privately Held Companies

Creating value in the privately held company makes sense whether the owner is considering selling the business, plans on continuing to operate the business, or hopes to have the company remain in the family. Building value should focus on six components:

• the industry
• the management
• products or services
• customers
• competitors
• comparative benchmarks

Click here to read the full article Courtesy of the Business Brokerage Press.

Why Your Company Needs a Physical

Complements of Business Brokerage Press

Many executives of both public and private firms get a physical check-up once a year. Many of those same executives think nothing of having their investments checked over at least once a year - probably more often. Yet, these same prudent executives never considering giving their company an annual physical, unless they are required to by company rules, ESOP regulations or some other necessary reason.

A leading CPA firm conducted a survey that revealed:

• 65% of business owners do not know what their company is worth;


• 75% of their net worth is tied up in their business; and


• 85% have no exit strategy

They are many obvious reasons why a business owner should get a valuation of his or her company every year such as partnership issues, estate planning or a divorce; buy/sell agreements; banking relationships; etc.

No matter what the reason, the importance of getting a valuation cannot be over-emphasized...

To learn more... click here to read the full article.

Do You Know Your Customers?

Courtesy of Business Brokerage Press

It’s always nice, when eating at a nice restaurant, for the owner to come up and ask how everything was. That personal contact goes a long way in keeping customers happy – and returning. It seems that customer service is now handled by making a potential customer or client wait on a telephone for what seems forever, listening to a recording saying that the call will be handled in 10 minutes. Small businesses are usually built around personal customer service. When is the last time you “worked the floor” or handled the phone, or had lunch with a good customer? Customers and clients like to do business with the owner. Even a friendly “hello” or “nice to see you again” goes a long way in customer relations and service.

The importance of knowing your customers and/or clients could actually be extended to suppliers, vendors, and others connected with your business. When is the last time you visited with your banker, accountant, or legal advisor? A friendly call to your biggest supplier(s) can go a long way in building relationships. A call to one of these people thanking them for prompt delivery can pay big dividends if and when a problem really develops.

Owning and operating your own business is not a “backroom” or “hide behind the business plan” business. It is a “front-room” business. Go out and meet the customers – and anyone else who has an interest in your business.

This subject and others are important considerations in owning a business and can affect the sale of a business in a positive or negative manner. If you are thinking of selling your business, or just want to discuss possible exit scenarios down the road, please call to speak to one of our brokers here at Sunbelt Indiana... 317-573-2100. The consultation is free with no obligation!