Archive for the ‘Selling’ Category

Why Sellers Sell Their Business

Sunday, May 16th, 2010

Recently, I was having a meeting with one of my networking colleagues. During our conversation, she pointed out how leery she was of businesses for sale. When I asked why, she indicated that if the seller wants to sell the business it must be because it is not doing well. I found her response interesting and immediately indicated to her that that is most often NOT TRUE.   Sellers sell for a variety of reasons, most of which are not related to poor performance, cash flow or profitability issues. Here are ten (10) other reasons:

1. Health. The seller may no longer be capable of running the business because of health restrictions.
2. Retirement. The seller wants to enjoy his/her golden years.
3. Relocation. Wants to go back to or move to a preferred location.
4. Family. Wants to be closed and/or misses family members.
5. Job. The seller’s significant other gets an opportunity somewhere else or the seller found a job which generates more cash flow than the business.
6. Profitability. The seller wants to cash-in on his investment. This may be a planned or unplanned exit strategy.
7. Business Demands. The business demands may be too much to bear-restricting the seller’s personal enjoyment and relaxation.
8. Other Business Interests. Other opportunities may be more profitable than the existing business.
9. Taxes. It may be to the seller’s benefit to sell the business for tax purposes.
10. Cash flow Requirements. The seller does not have the equity required to grow the business and cannot get financing.

So, if you are thinking about buying a business, from my perspective, it is really not that important to find out why the business is selling. What is important is to select the right kind of business for you. Once you find it, conduct the right level of due diligence to ensure that what you bought is exactly what you are going to get.

The author of this article, Fernando Simo, is a Business Broker in Orlando, Florida, where he helps individuals sell their business, buy a new business, get into a franchise system or with Mergers and Acquisitions. For more information, please visit his webpage at http://www.bizbuyorsellflorida.com, send him an email at fsimo@tworld.com or call him at 407-361-8886.

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Biggest Business Broker Myths

Sunday, September 13th, 2009

Biggest Business Broker Myths

Here are some of the myths in business brokerage that I have seen over the years.  While they are not absolutes, most profess they are fact.

1. “Foreign Visa buyers will overpay with buckets of cash.” There seems to be some notion that rich foreign buyers that need a visa have tons of cash and will overpay for a business. Let’s look at the facts: It is very hard to become rich in most foreign countries.  It’s even harder to get the money out of the countries they try to leave.  In order to become rich, even in the USA , you need to have some degree of higher intelligence. Therefore, most rich foreign buyers are SMARTER than rich USA buyers, and henceforward do not get stupid just to buy a visa and your overpriced business. I will admit I have seen visa buyers pay for small businesses to get a visa, and then basically walk away after they get a green card in a few years. But they never spend the big bucks and they usually do not overpay for the small ones. There are way too many reasonable price/value choices for all buyers.

2. “Businesses that do not cash flow are still worth a multiple/percentage of gross.” Before I get nasty-grams from my fellow valuation professionals let me explain. The point here is simple. If the investment doesn’t cash flow (i.e. pass the reality test), then you cannot use a multiple/percentage of gross income solely to value the company.   I have seen some very respected valuation experts weight this approach most heavily because their subject business is worth next to nothing through an income approach and a multiple of earnings in the market approach. Who is going to buy a business and not get a decent return? Don’t say strategic buyers!

3. “Strategic buyers pay more because they will have synergies.” I don’t think so! Here’s the thought process. If that were true then if there were only one strategic buyer in the market place, and everyone else was financial, the strategic buyer would still overpay. NOPE! They only pay more when they fear losing the deal to another buyer (there is competition). Otherwise most competitors and strategic buyers will smell the blood in the water and eat your lunch. Plus if they were smart enough to be successful enough to be acquiring companies, they probably are not dumb enough to over pay. Don’t write me letters if your strategic buyers overpaid with stock or wacky earn-outs! If I could print my own money or guarantee success, I would overpay too.

4. “There is conventional financing for businesses beyond SBA guaranteed loans.” Don’t email me and say I’m wrong, my aggressive banker friends. You are lying and your pants are on fire! It will always boil down to someone collateralizing the loan with assets. No one does non-SBA “air balls.” If I am wrong and you do write non-SBA cash flow only loans with no outside collateral, call me; we both are about to be rich.

5. “This business is 100% absentee.” Please, must I defend this statement? There are some businesses you can leave for longer periods of time. Perhaps even years, but a ship with no captain eventually runs aground.

6. “I am a part-time business broker and make lots of money.” There may be an occasional fluke year where you can make a couple of big deals here and there. But very few people can make a lot of money at business brokerage part time. If you can, call me, we are hiring.

7. “My backers will give me the money when I find the right business.” Or we have unlimited funds to buy a business or we can find the money for the right business. I call them “pretenders.” Probably why the saying “buyers are liars” has come to be. Real buyers and serious companies in the acquisition mode have no problem providing proof of financial ability to buy.

8. Assets alone can make a business more valuable. The opposite is true. For the most, part excess assets are a handicap in business sales. Examples are under performing jewelry businesses. Who wants to pay $2M for a business that earns $100K? The answer is NO ONE. We often advise businesses with under performing earnings compared to assets or businesses with excess assets to liquidate or get their balance sheets in shape in order to sell.

9. I’ve been in business brokerage for years and I have seen everything! I think I have seen a lot and know a quite deal about this business.  However, I learn everyday and continue to thirst for knowledge. What is also really interesting is the people who have the most experience (and the most success) are the ones who attend conferences and are still around for Saturday afternoon workshops. If you want to be the best, you need to get educated and continue to hone your craft.

10. There was a #10 but the editors won’t let me print it! Want to know what it was?  It had to do with undisclosed cash earnings.   Email me and I’ll tell you more!

Andy Cagnetta
CEO
Transworld Business Brokers
ac@tworld.com

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Deciding How to Sell Your Business. By Peter Berg

Sunday, July 26th, 2009

You’ve done all the preparations to get your business in great shape to sell. Now what? At this point, the most important choice you will make is whether to sell your business on your own or get professional help.

Selling Your Business Yourself

Selling a business is much more complex than selling a house. The value of a house is fairly easily determined. Not so for a business. Also, everyone knows your house is for sale when you put up your sign; but that’s the opposite of what you want when selling your business. If your employees, vendors, and customers know you are selling, you could lose key people and accounts, and your vendors may cut back on credit terms if they fear they may not get paid.

When selling a house, the due diligence usually entails a roof and termite inspection. With a business, however, you have to prove your income and expenses, negotiate a lease assignment, and deal with complex contracts.

If you don’t care who knows your business is for sale, you may be better off trying to sell it on your own. You can use the local classified Business Opportunity section of the paper, and look to some of the national Web sites that market businesses for sale. You may end up spending a few thousand dollars, but you could save more than that by not paying any commissions.

The problem with the do-it-yourself approach is that you will be asked to give away your confidential financial information to people who may not be qualified. Potential buyers will ask for your address so they can drop by, and they may ask your employees questions and otherwise interfere with your business operations. And just like a house that is for sale by owner, buyers are looking for bargains from business owners selling independently.

Finally, you’ll face many landmines that could blow up the deal once you agree on a price. Those include getting an asset purchase agreement with all the schedules signed, proving your numbers in a lengthy due diligence process, and assigning the real estate lease, to name a few.

Using a Broker to Sell Your Business

Most business owners hire a business broker to sell their business. You can find brokers on the Internet, through the International Business Brokers Association or by referral from your accountant, attorney, or colleagues.

The first and foremost advantage of using a broker is confidentiality. A broker will market your business generically and require prospective buyers to sign a confidentiality form and show proof that they have the necessary funds to buy your business. This helps prevent the disruption of your business while it’s for sale.

You will also get the most money for your business if you have multiple prospects. Brokers market on a variety of Web sites, in the multiple listing services in their states, in the newspaper, by direct mail and e-mail, and through their various contact networks. With a larger pool of buyers, you stand a better chance of getting your business sold sooner and for more money.

Using a broker lets you continue to do what you do best, which is run your business. Many business owners take their eye off of business profitability while they try to sell it. The drop-off in business ultimately causes a drop in the value of the business.

Finally, getting from the point of finding a potential buyer to having a check in the bank is an arduous process that is fraught with potential points of failure. You’ll need all the help you can get to ensure a successful sale. Along with your accountant and attorney, your business broker will complete your dream team of professionals, all working together to help ensure a successful sale.

Peter Berg is an agent at Transworld and Managing Director.  He is also a CBI.

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Open listings…They are extinct…and plain stink!!

Wednesday, June 17th, 2009

Open listings are passe.   Not just because I like to have an exclusive on deals, but because they plain don’t work!!

If I were to take an open listing from you here’s the drill:

Open Listings:

  • You give me an open listing.
  • I cannot take the time to package or create a deal book.
  • I might take the time to tell my staff of 85 about the deal.
  • They may have one or two people on their desk that may qualify.
  • Beyond the one day I tell everyone, the listing is off the radar and no one thinks of it.
  • Even if you tell every broker you can, it doesn’t even come close to matching with and buyers worldwide beyond the one day you may contact the brokers
  • You probably never sell and absolutely won’t sell to the best buyer at the highest price.
  • You have no control over the confidentiality, buyer qualification, or how your listing is marketed.

If you let me take an exclusive listing based on our mutual goal of being committed to the sale fo your business.  Here is the process:

Exclusive Listings:

  • You give me (Transworld) a 12 month exclusive listing.
  • I create a CONFIDENTIAL and comprehensive package for buyers.
  • The deal is available to my 85 brokers, the 1200 plus in our state association, the 2000 plus nationwide. (Not through the Realtor MLS, through the BBF business brokerage MLS)
  • We cobroke with almost all business brokers and sometimes realtors who bring a qualified buyer. So you are not missing any buyers.
  • Your confidential listing is available through our website, 2000 brokers websites, Wall Street Journal, Inc magazine, and many many more business sale websites that attract buyers worldwide!
  • Thereby creating COMPETITION for your deal and significantly increasing your chances of finding the right buyer at the highest price.
  • There is a lot of NOISE out there these days.  Your deal needs to be polished and complete to get attention these days.

So if you really want to sell a business, you have to eventually list it with someone who knows what they are doing.   If you call a few brokers, post it online yourself, you then need to get very lucky.

Bottom line.  You need a professional committed to selling your business, and they need to have assurances they are on your team.

Andy Cagnetta
ac@tworld.com

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