There is no doubt that a major topic of discussion (and concern) today for most of us is the economy. One of the main issues regarding a market where unemployment nears ten (10) percent (or 20% for those who include workers who no longer submit claims or are simply working on a part-time basis, or simply gave up), is whether the recession and/or the recovery is underway. Based on two continuous GDP growth quarters, most economists would indicate that the recession is over-and has been since July 2009. Of course, many would argue that recovery without job creation is nothing but number crunching. In all of that confusion, I wanted to clarify what has been happening in the Business Brokerage world (in Florida) since July 2009.

In a recent article written in the South Florida Business Journal, they indicate that “there are signs of life in the field of buying and selling businesses.” They go on to say that “fourth quarter (2009) figures for South Florida show a rebound in sales prices, prices paid as a multiple of cash flow and the number of businesses sold.” What makes this statement a lot more encouraging is that typically the fourth quarter is the lowest quarter of the year. Here are some other Transworld data which further show a positive trend:

1. Second half 2009 sales transactions increased 32% over first half of 2009.
2. Fourth quarter of 2009 was the second best fourth quarter ever!
3. 2002 is the last time where we showed growth in three consecutive quarters.
4. The Q2 to Q4 positive trend was the second biggest jump in sales at Transworld over two quarters.

Given the aforementioned, many in our business would show cautious optimism for an economic recovery filled with opportunities for those looking to buy and sell a business. Andrew Cagnetta, Transworld President, mentioned in the South Florida article that “anybody who wants to start a business or relocate a business is going to find it pretty easy to find a location and get a good deal.” So, don’t waste any time, take advantage of the turnaround and call us to help you with your business transaction.

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.

Reno marks the end of my year long Chairmanship, and while I am proud of my service in the position, I can truly say it was not what I had anticipated and or hoped for. Being asked to serve as chair seems like a lifetime ago, and in most respects it was. The economy was strong, credit was easier (has it ever been easy?), and businesses seem to sell with much more velocity with the large amount of buyers in the marketplace. I wrote previously that running the association was like playing defense in football. And that still holds true as it has been all about right sizing, budget cutting, staff shrinking and changes, and focusing on the IBBA’s “main thing”.

So obviously, times have changed, and therefore we had to adjust all of our business models. And that sums up our year at the IBBA and M&A Source: tweaking, tightening, adjusting, cutting, grass roots promoting, and plain out rolling up our sleeves and getting great things done.

Some of those great accomplishments include:

1) A successful conclusion of MASTF (M&A Source Task Force). The Source is truly the “New and Autonomous Source” through a lot of hard work by many players!

2) Our break though communication with the SBA. I truly feel that Bernie Siegel under the banner of the IBBA Government Relations Committee moved the needle on the eventual reversal of the Goodwill Cap on SBA 7A lending. Additionally we now have an open dialog with the SBA’s leadership that should last a very long time.

3) SITF’s (Strategic Initiatives Task Force) continued work and support of SEC licensing issues. We have a long way to go, but our relationship and communications with all the players is top notch!

4) Our work on expanding internationally. IBBA Canada is hopefully a model that will be replicated throughout the world in the coming years.

5) M&A Source’s and IBBA’s use of webinars and social media to educate our members. This is certainly a glimpse of the future delivery of education!

6) The workshops and information created and delivered specifically geared toward helping you our members survive and thrive in the economy!

7) Although not completely successful, our expense cutting efforts and our savings policy changes to insure the future of the IBBA is assured.
But our transformation has just begun and I promise the best is yet to come. And our new leadership is ready to implement and think outside the box to bring even more information and benefits to you our membership.

There are many other great accomplishments this year that we can all be proud of. Thank you to all the volunteers on our board, committees, and those who oversee and deliver our IBBA University education. I also want to thank our partners at SmithBucklin known to me as “Team IBBA”. You would be hard-pressed to find a more dedicated and talented group of individuals. Their dedication and positive spirit through some very trying times has been nothing short of spectacular!

Finally, thank you to my family at Transworld and the one at home (Ali my wife, Lauren and Rachel my teen daughters) who allowed me to volunteer to proudly serve our industry.

As far as riding into the sunset as I head west to Reno? No way! I am going to get geared up and look to the Far East for my future inspiration and balance!

As my term as IBBA Chairman comes to an end this Fall, I reflect back not only on the past year but also on the time spent as Vice Chair. It has been a long two years for the IBBA and its members. Our economy, industry and association is currently weathering a downturn that started sometime in late 2007. Prior to the softening and then near collapse of our economy, our profession experienced growth and prosperity, which of course translated to success for our association. However, the last two years have presented some challenges to us all.

Much like football, the growth years before 2007 were like playing offense. It was fun and exhilarating to be a part of our leadership team because we could make plays and take risks. The IBBA experienced growth in revenues, attendance and membership, which led to the launch of new programs, an expanded offering of educational courses and lavish receptions at conferences.

Once the economy turned, we switched gears and began to play defense. While many of our own businesses struggled, we faced similar challenges with the IBBA. Being Chairman during these changing times has not been an easy task. We had to right size our programs to protect our investments and minimize losses, but in the end I feel we made prudent and tough decisions to preserve our association while serving our membership.

As I have relayed to many of my entrepreneurial clients, these challenging times shape our leaders and eventually strengthen our business foundations. As Mark Thorsby, IBBA President, regularly reminds me, we must make sure that “the main thing is the main thing.” To that end, we have all changed the way we do business in order to survive, and we have done the same at the IBBA. Across the industry, we’ve preserved the best in our models and nurtured the basics that support our core businesses. And I think the best leaders and business brokers will survive and thrive as we take the ball back and transition back to offense.

Luckily, I think our days of playing defense are just about over. As in football, there is a transition from defense to offense handled by the special teams. Dear membership, we have a great special teams unit coming on the field. Edwin Lee as our new chairman in 2010 is symbolically perfect for this situation. He is our first Chair from outside the United States (Edwin lives in China), as well as our youngest to hold the position to date. Just like on special teams, you need brash, fast and “outside the box” thinking on special teams to be successful. Edwin’s youth and international influence will bring fresh perspectives and approaches to delivering our members’ value.

Beyond the symbolism, Edwin is very talented, and a great guy, to have as our leader. Don’t think his approach and understanding of our industry will be completely foreign. He is a University of Southern California graduate (BS and Masters) and is also a CPA and CFA – he knows our domestic industry. Believe me when I say that no one is better prepared to be our Chairman and special teams leader. I look forward to assisting him on my last year on the Board.

Whether we are playing defense, offense or bringing in the special teams, we must all realize that in the end, we are on the same team. Your involvement with the IBBA is more important now than ever. To be successful in this game (industry), we must ban together to put our playbook in order and share the keys to winning. I urge everyone to share our resources, influence our policy makers and be a part of winning team as we shift our focus in this rebuilding economy. Let’s all get ready to play offense again!

Andy can be reached at ac@tworld.com.

Fort Lauderdale, FL – September 15, 2009 – Transworld Business Brokers’ annual sales contest ends in a charitable push that raised over $60,000 and clocked 500 community service hours.    Frank Feiler, VP of Transworld (www.tworld.com) remarked “ending the sales contest with a push for charitable giving was an easy decision as Transworld has stood for giving back to the community for years”.

Each participant in the contest was awarded points for charitable donations of time, services, or goods.   The contest lasted 8 weeks and the charitable donation bonus points were a last week surprise.     The participants responded and the list of charities that were supported was long and varied.

Joe Strickland’s work at Kairos Prison Ministry (www.kairosprisonministry.org) was awarded a special prize by CEO Andrew Cagnetta.     Cagnetta stated “Joe lives his passion to help others through monetary donations and volunteering many hours to help reshape lives.”    Joe remarked that he believes in “giving back as we are so fortunate in our lives.   People make mistakes and I like to help those in need.”

Below is a list of charities that the team at Transworld supported.

About Transworld Business Brokers

Transworld Business Brokers is the premier business brokerage firm in Florida. Established in 1979, the company is headquartered in Fort Lauderdale, FL. with offices in North Palm Beach, Miami, Boca Raton, Orlando, Ocala, Tampa, and Jacksonville. The company specializes in a wide range of industries including healthcare, manufacturing, distribution, service, technology, and retail businesses. Currently, the company boasts a staff of 90 agents and more than 1500 business listings, making it one of the largest brokerage firms in the country. For more information, visit the web site at www.tworld.com.

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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

The good folks at the Financial Accounting Standards Board are considering changes to the mark to market rules.  If approved, this could radically change how values are calculated for balance sheets.

It wouldn’t be FASB’s first move.  In April they allowed banks to get mushy with how they show the value of their loans.  I guess they thought there was little need to show true value especially after the recession has nuked the collateral.  After all, why would a bank’s management really want all that nasty pressure to write down or write off loans?  If the shareholders or regulators don’t know the values then it really doesn’t matter.  Or does it?

Now FASB is proposing to expand this fuzziness to anyone who has assets.  Especially if those assets are worth a lot less than a few years ago.  If approved it would take the balance sheet bingo into the mainstream of corporate America.  Both big and small.  The result would be stronger balance sheets for many companies.  But there would probably be fewer believers of those balance sheets.

The following links show a full text of the proposed changes (http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176156436374) and a news release explaining the rationale behind issuing the exposure draft (http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB%2FFASBContent_C%2FNewsPage&cid=1176156434356).

Here is a story on the change for the banks: http://www.cnbc.com/id/30009862

Howard Schulman
Transworld Business Brokers, LLC
Business Sales, Mergers, Acquisitions & Financings
754 224 3137 — Direct Line
954 449 7899 — Fax
howard@tworld.com