Posts Categorized: Seller Articles

What Makes a Deal Close?

For every reason that a pending sale of a business collapses, there is a positive reason why the sale closed successfully.  What does it take for the sale of a business to close successfully?  Certainly there are reasons that a sale might not close that are beyond anyone’s control.  A fire, for example, the death of a principal, or a natural disaster such as a hurricane or tornado.  There might be an environmental problem that the seller was unaware of when he or she decided to sell.  Aside from these unplanned catastrophic events, deals abort because of the people involved.  Here are a few examples of how a sale closes successfully.

The Buyer and Seller Are in Agreement From the Beginning

In too many cases, the buyer and seller really weren’t in agreement, or didn’t understand the terms of the sale.  If an offer to purchase is too vague, or has too many loose ends, the sale can unravel somewhere along the line.  However, if prior to the offer to purchase the loose ends are taken care of and the agreement specifically spells out the details of the sale, it has a much better chance to close.  This means that a lot of answers and information are supplied prior to the offer and that many of the buyer’s questions are answered before the offer is made.  The seller may also have some questions about the buyer’s financial qualifications or his or her ability to operate the business.  Again, these concerns should be addressed prior to the offer or, at least, if they are part of it, both sides should understand exactly what needs to be done and when.  The key ingredient of the offer to purchase is that both sides completely understand the terms and are comfortable with them.  Too many sales fall apart because of a misunderstanding on one side or the other.

The Buyer and Seller Don’t Lose Their Patience

Both sides need to understand that the closing process takes time.  There is a myriad of details that must take place for the sale to close successfully, or to close at all.  If the parties are using outside advisors, they should make sure that they are deal-oriented.  In other words, unless the deal is illegal or unethical, the parties should insist that the deal works.  The buyer and seller should understand that the outside advisors work for them and that most decisions concerning the sale are business related and should be decided by the buyer and seller themselves.  The buyer and seller should also insist that the outside advisors keep to the scheduled closing date, unless they, not the outside advisors, delay the timing.  Prior to engaging the outside advisors, the buyer and seller should make sure that their advisors can work within the schedule.  However, the buyer and seller have to also understand that nothing can be done overnight and the closing process does take some time.

No One Likes Surprises

The seller has to be up front about his or her business.  Nothing is perfect and buyers understand this.  The minuses should be revealed at the outset because sooner or later they will be exposed.  For example, the seller should consult with his or her accountant about any tax implications prior to going to market.  The same is true for the buyer.  If financing is an issue it should be mentioned at the beginning.  If all of the concerns and problems are dealt with initially, the closing will be just a technicality.

The Buyer and Seller Must Both Feel Like They Got a Good Deal

If they do, the closing should be a simple matter.  If the chemistry works, and everyone understands and accepts the terms of the agreement, and feels that the sale is a win-win, the closing is a mere formality.

Copyright: Business Brokerage Press, Inc.

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Turn to the Professionals for Best Results

There is a direct relationship between the asking price and the amount of cash on the table at the time of the sale.  Buyers and sellers alike should keep one fact in mind.  Most businesses involve some level of seller financing.  It is customary for both buyers and sellers to have concerns regarding this kind of financing; after all, sellers don’t want to take their businesses back from the buyer.  Buyers want to generate enough money to help the business thrive and make a living.  One proven way to ensure the successful sale of a business is to turn to the experts.

Screen out Window Shoppers

The simple and very established fact is that when you choose to work with the professionals, it can streamline the entire sales process.  Business owners are typically very busy people.  That means they don’t have time to waste with window shoppers.  They also don’t want to divulge confidential information to parties that don’t possess the means to actually follow through with a successful sale. 

Business brokers and M&A advisors know that most prospective buyers are just dreamers or will ultimately fail to qualify.  When you work with the professionals, it means that you have a shield to protect you and your valuable time.  Experienced brokers have a range of techniques that screen out unqualified candidates and match you with buyers who are the best fit. 

Maintain Confidentiality 

Anyone who has ever sold a business, or even contemplated selling a business, knows all too well that confidentiality is of the utmost importance.  Sellers need to know that the information they reveal will not spill out all over the web.  Brokers are experts maintaining confidentiality and impressing upon prospective buyers the tremendous importance of honoring the agreements they sign. 

It is important to note that leaks regarding the sale of a business can cause a range of often unexpected problems.  Key employees may get nervous about their future prospects and begin looking for a new job, competitors may begin attempting to poach employees, or customers and key suppliers may get nervous and turn to your competitors.  In short, serious buyers and sellers alike benefit from maintaining confidentiality.

Matching the right seller with the right buyer is truly an art and a science. Many factors are involved ranging from financing to psychology. When the right match is made, then it is possible to move through the process of seller financing more quickly and with fewer roadblocks or complications.  Working with a business broker or M&A advisor is the single most important step that any buyer or seller can make to help ensure that seller financing, and in fact the entire sales process, progresses as smoothly as possible.

Copyright:Business Brokerage Press, Inc.

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3 Things to Consider When You Hit “The Freedom Point”

When was the last time you calculated the percentage of your net worth tied to your company’s value?

When you started your business, its value was probably negligible. Unless you purchased or inherited your company, it wasn’t worth much when you opened your doors, but over time, the proportion of your assets tied to your business may have crept up.

Let’s imagine a hypothetical business owner named Tim, who starts his company at age 30. He has a little bit of equity in his first home and a small retirement fund. When he starts his business, it’s worthless, so it doesn’t yet factor into Tim’s net worth calculation.

By the age of 50, Tim has built up $600,000 worth of equity in his home, his retirement nest egg has grown to $400,000, and his business has blossomed and is now worth $4,000,000. Tim’s company has crept up to represent 80% of his net worth.

Tim knows the first rule of investing is to diversify, which he is careful to do with his retirement account. Still, he has failed to achieve overall diversity given the success of his business.

What’s more, he may have unknowingly passed something called “The Freedom Point,” which is when the net proceeds (i.e., after taxes and expenses) of selling his business would garner enough money for him to live comfortably for the rest of his life. Your lifestyle determines your Freedom Point, but when you pass it, it’s worth considering the risk you’re taking.

If this pandemic has taught us anything, it is that nothing is for sure, and a thriving business one day can turn into a struggling company overnight. When your business makes up most of your net worth and selling it would garner enough money to retire, there’s no financial reason to continue owning your business. You may enjoy the challenge, the social interactions, and the creative process of building a business, but keeping it may be unnecessarily risky.

When you’ve crested the Freedom Point and want to diversity—but still don’t want to retire—you have some options:

  • Sell a Minority Stake: In a minority recapitalization, you sell less than half of your shares. Often sold to a financial investor such as a private equity group, a minority recapitalization allows you to diversify your net worth while continuing to control your business.
  • Sell a Majority Stake: In a majority recapitalization, you sell more than half of your shares to an investor who will most likely ask you to continue to run your business for many years to come. You get to diversity your wealth, keep some equity in your business for when the investor sells, and continue to run your company.
  • Earn-Out: When you sell your company, you’ll likely have to agree to a transition period of sorts. One of the most popular is called an earn-out, where you agree to continue to run your company as a division of your acquirer’s business for a specified period of time. Your earn-out may be as little as a year or as long as seven, but the average is three years. Therefore, if you’re past the Freedom Point and can see yourself wanting to step down in the next three to five years, an earn-out may be worth considering.

Building a successful business is rewarding, but when your personal balance sheet gets out of whack, it may be worth considering the risk you’re shouldering and the options you have for sharing some of it.

 

How can you improve the value of your business?

Complete the “Value Builder” questionnaire today in just 13 minutes and we’ll send you a 27-page custom report assessing how well your business is positioned for selling. Take the test now:

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Successfully Navigating Seller Financing

Only a small percentage of the population is able to go through life without using some form of financing at some point.  Most people have little choice but to finance everything from their home and car purchases to their college education.  Now, with that stated, most business owners would love to receive an all-cash offer for their business.  But the reality of the situation is quite different.  The facts are that owner financing is very common, and it is sometimes the only way to put a deal together.

Sellers have to be ready and willing to entertain the idea that they may, ultimately, be called upon to handle some aspect of financing if they want to sell their business.  It surprises many to learn that if a seller is not willing to finance the sale, then buyers begin to worry and may even see this as something of a “red flag.”  The reason for this is that many buyers feel that if a business is a solid investment, then the business will be profitable and repaying the seller should be no problem. 

Buyers may worry that if a seller isn’t willing to help with financing there could be a “hidden” problem with the business.  It might occur to them that sellers are “jumping from a sinking ship.”  It is important that sellers keep this important aspect of buyer psychology in mind when addressing whether or not they are willing to finance.

Buyer psychology plays a major role in another aspect of seller financing and that comes in the form of collateral.  Sellers may want to have some form of outside collateral to secure the loan on their business.  While this may seem perfectly understandable to the seller, buyers can have something of a nervous response to this issue as well.  As much as buyers worry that a seller’s refusal to provide financing is a red flag, the same holds true for sellers who seek collateral.  Once again, the concern is that if the business was healthy and thriving there should be no need for collateral.  The buyer is left wondering, “What is going on here?  How worried should I be?  Why do they need collateral if this business is so great?” 

Typically, buyers are “maxed out” when buying a main street business.  They are allocating most of their available funds to the down payment on the business.  That means they will be unlikely to “push all their chips in” and gamble everything by also putting up the home, retirement funds or other collateral in the process.  Sellers need to see the situation from the buyer’s perspective and remember that a collateral requirement could mean that if the business fails, the buyer could be left with nothing.

Navigating the complex interaction between buyers and sellers is no easy feat.  It requires a careful balancing of several different skills, ranging from understanding finance to psychology.  Working with an experienced business broker can help buyers and sellers connect and find workable agreements so deals can get made.

Copyright: Business Brokerage Press, Inc.

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The post Successfully Navigating Seller Financing appeared first on Deal Studio – Automate, accelerate and elevate your deal making.

 

How can you improve the value of your business?

Complete the “Value Builder” questionnaire today in just 13 minutes and we’ll send you a 27-page custom report assessing how well your business is positioned for selling. Take the test now:

Sellability Score

Driving Business Value: A Marketplace Perspective for Owners

In last month’s newsletter we promoted an upcoming webinar regarding the factors that can determine the value of a business enterprise. The webinar was conducted on September 16 and you can view it below. Please be patient – the first 2 minutes are a little muffled, but at the 2-minute mark a re-introduction is made and then it is OK from there.

 

How can you improve the value of your business?

Complete the “Value Builder” questionnaire today in just 13 minutes and we’ll send you a 27-page custom report assessing how well your business is positioned for selling. Take the test now:

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3 Things Wealthy Business Owners Do Differently

Much is made of analyzing the personality traits of successful entrepreneurs.

Some appear outgoing. Others are introverts. Some lean right, others left. Some are flashy. Others are monk-like with their money.

Their diversity can lead one to the conclusion that there are no common personality traits among successful founders.

Rather than trying to understand who they are, let’s look at what they do.

We’ve had the opportunity to help many businesses improve their value, with some going on to exit their business for seven, eight, or even nine figures. As such, we have a unique vantage point from which to observe the owners who achieve the most financial success. This point of view has allowed us to observe three things the most successful owners do differently:

1. They read business books.

Our most successful customers are voracious consumers of business content. When a new business book hits the bestseller list, most have either read it or summarized its central point.

It’s not just the printed word. Many get information through audiobooks, webinars, or podcasts, others via YouTube.

The actual medium is less important to these successful founders. What’s consistent is their continuous learning pattern and the desire to leverage other people’s smart ideas and put them to work in their own company.

2. They join masterminds.

In the absence of having a board of directors or a boss, successful founders often use a peer board to hold themselves accountable and gain an outside perspective when they’re stuck.

Initially popularized by Napoleon Hill in his class book, Think & Grow Rich, a mastermind gathers a small group of peers to act as one another’s board. Often led by a chair, these groups become lifelines for owners as they navigate big decisions in their businesses and personal lives.

3. They ask questions.

The character trait that makes successful entrepreneurs inclined to read business books and join peer groups is their natural curiosity. They have an unquenchable thirst for knowledge. No matter how successful, they never get full.

You may be surprised not to see the stereotypical attributes of successful entrepreneurs. Many founders are also action oriented, competitive, tenacious, etc., but all those common personality traits are who they are. Our interest is what they do.

Actions are the measure of a person. Take a look at what a founder does to stay sharp, and you’ll see a consistent pattern among the most successful entrepreneurs you know.

 

How can you improve the value of your business?

Complete the “Value Builder” questionnaire today in just 13 minutes and we’ll send you a 27-page custom report assessing how well your business is positioned for selling. Take the test now:

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Raising Your Business Like a Child

Why did you decide to become an entrepreneur?

If you’re like most owners, you aspire to have the freedom that comes from owning your own business:

  • The freedom to decide how you spend your time
  • The freedom to choose whom to work with and to avoid people who drain your energy
  • The freedom to make as much money as you deserve

This desire for freedom often leads owners to aspire for a bigger business, which they think will give them what they want. Unfortunately, most owners who strive for more revenue or profit as their primary goal often have:

  • Less time because it’s spent managing an ever-expanding set of offerings.
  • Less freedom because complexity inevitably leads to conflict.
  • Less money because any available cash is reinvested in growth.

So, in many ways, growing a larger business gets you further from your ultimate goal of freedom.

Instead of thinking of your business as something to push harder and faster, there’s an alternative that may get you closer to what you want. Think of your business as a child, and your role is to guide her into becoming an independent, thriving adult.

If your goal is to create a business that can thrive without you, you will start to make different decisions. That demanding customer who wants your attention on their project no longer looks so attractive. That exciting new product that’s going to require you to sell no longer looks worth it.

By focusing on the role of parent rather than business driver, the demands on your time lessen as your employees pick up more of the load. You may also find your business selling more as you build a team of salespeople rather than relying only on yourself to drive the top line. The ultimate irony is that your business may end up being more valuable than a larger peer where the owner is still mostly responsible for sales.

Acquirers want businesses that will survive the loss of their owner. In many cases, they will pay a premium for companies where the owner is in the background. Consider the case of Damian James, who sold his network of mobile podiatry clinics generating $11 million in revenue for $13.2 million. He credits much of the sale to the fact that he was no longer running the businesses day to day and had reduced his time commitment to just one or two days per week.

David Hauser started Grasshopper, an Internet-based phone system he built to $30 million in annual revenue before he sold it to Citrix for $165 million in cash and $8.6 million in stock. Hauser was down to working just one day per week at the time of the sale of his company.

Growing revenue and profits will be valuable to an acquirer, but if you make them your only goal, you may find yourself with less of what you want. Treat your business like a child who needs guidance to become a thriving adult, and revenue, profits, and ultimate value will come as a by-product.

 

How can you improve the value of your business?

Complete the “Value Builder” questionnaire today in just 13 minutes and we’ll send you a 27-page custom report assessing how well your business is positioned for selling. Take the test now:

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Driving Business Value: A Marketplace Perspective for Owners

Please join us on September 16 at 11:30 am for a free webinar that is structured for business owners looking to grow their wealth by maximizing the value of their business.

Larry Lane of VR Business Brokers, Tom Bronson of Mastery Partners, and Dan Vermeire of Corporate Finance Associates will conduct the webinar which is structured for business owners looking to grow their wealth by maximizing the value of their business.

In today’s business environment, it is important to include long term value drivers in your business strategy, especially if you hope to eventually sell the business. Understanding what buyers look for can help guide your strategic initiatives.

Our panel of experts, who’ve closed hundreds of acquisitions as buyers and sellers, will engage in an interactive conversation to help business owners understand the current M&A environment.  They’ll also provide insights into how to structure and build your business to attract the right buyers at the right time at the right price.

Date: Wednesday, September 16, 2020

Time: 11:30 AM – 12:30 PM

Location: Zoom Meeting

To get more event information and register, click HERE

3 Ways to Get Your Life Back

How’s your workload these days?

If the pandemic has forced you back into the weeds of your business, you’re not alone. Many owners are again doing tasks they haven’t done in years because they have had to lay off front-line staff or their employees have fallen ill or are caring for someone in need.

Being back in the middle of things is neither healthy for you nor your business long term. Personally, it’s a recipe for burnout, and professionally, your business will be less valuable with you doing all the work.

Now is an excellent opportunity to retool your company so that it can start running without you again. These three steps should help:

Step 1: Sell less stuff to more people.

Most companies become too dependent on their owner because they offer too many products and services. With such a full breadth of offerings, it’s hard to find and train employees that can deliver. The secret is to pick something that makes you unique and focus on finding more customers, not more things to sell.

Take Gabriela Isturiz as an example. She cofounded Bellefield Systems, a company offering a timekeeping application for lawyers. Over the next seven years, Bellefield grew to 45 employees. Although many businesses bill by the hour, Isturiz focused exclusively on timekeeping for lawyers, which is one of the reasons she was able to integrate with 32 practice management platforms used by lawyers—a big reason Bellefield’s product was so sticky. It worked out well for Isturiz as she was growing 50% a year with EBITDA margins of more than 25% when she sold her company in 2019.

Step 2: Systemize it.

Next, focus on creating systems and procedures for employees to follow. For example, Nashville-based Bryan Clayton built Peachtree, a landscaping business. Most lawn care companies are mom-and-pop operations, but Clayton built Peachtree up to 150 employees before he sold it to LUSA for a seven-figure windfall.

What made Peachtree so unique? Clayton focused on documenting his processes. For example, one of his customers was a McDonald’s franchisee who owned 40 locations. He was frustrated by how many people discarded cigarette butts in his drive-through, so Clayton offered to clear the debris from the lanes as part of his lawn care process. He then trained his employees on the drive-through clean-up process he had created so it was followed across all 40 of the customer’s locations.

Step 3: Outsource it.

Next, consider outsourcing what you’re not very good at. For example, David Lekach started Dream Water, a natural sleep aid bottled in a five-ounce shot similar to the famous 5-Hour Energy Drink.

Lekach built Dream Water to almost $10 million in annual revenue before selling it to Harvest One, a cannabis company, for $34.5 million in cash and Harvest One stock. Lekach saw his role as “selling Dream Water, not making it.” That meant he outsourced the manufacturing, packaging, and distribution of Dream Water to a co-packer, ensuring Lekach and his team could focus on selling Dream Water.

It’s natural for a leader to step in during a crisis, but that’s not sustainable for the long term. Pull yourself out of the doing, and you’ll build a valuable company for the long term that’s a lot less stressful to run along the way.

 

How can you improve the value of your business?

Complete the “Value Builder” questionnaire today in just 13 minutes and we’ll send you a 27-page custom report assessing how well your business is positioned for selling. Take the test now:

Sellability Score

2nd Quarter Business Transactions Activity Report

The following information has been provided by BizBuySell.com –the largest business for sale marketplace online, receiving over a million visitors a month.  Each quarter, BizBuySell analyzes business transaction data from its website and provides summary information to the business broker community.  The BizBuySell Insight report focuses on the data available for 70 of the major US markets.

Here are a few highlights of the most recent report, pertaining to transaction and business for sale listings in the Dallas/Fort Worth Metro area, which includes a total of twelve counties.

  • 62 Business transactions reported in 2Q 2020 – a 22.5% decline in the number of transactions reported in 1Q 2020, and a 46% decline from 2Q 2019.
  • However, the financial data for the 2Q 2020 transactions showed a marked increase over 1Q 2020 – the median sales price for businesses sold in 2Q 2020 increased by 14% over 1Q, as well as the same 14% increase in price over 2Q 2019
  • Additionally, the average pricing multiple realized in 2Q 2020 was the highest multiple noted in a given quarter since 1Q 2017!
  • The median revenue reported for transactions in Q2 2020 was the highest average number reported in the last 4 years, as was the median cash flow for those same transactions.
  • When comparing this data for the same time period for all VR Business Broker offices across the country, we see a similar trend. Fewer transactions, but statistically stronger businesses being sold during the 2Q 2020.

Is your business in its prime position to be sold, or is there still Value to Build?

Complete the “Value Builder” questionnaire today in just 13 minutes and we’ll send you a FREE 27-page custom report assessing how well your business is positioned for selling. Take the test now:

Sellability Score