Posts Categorized: Buyers

What is EBITDA and Why is it Relevant to You?

bigstock-142593530If you’ve heard the term EBITDA thrown around and not truly understood what it means, now is the time to take a closer look, as it can be used to determine the value of your business.  That stated, there are some issues that one has to keep in mind while using this revenue calculation.  Here is a closer look at the EBITDA and how best to proceed in using it.

EBITDA is an acronym for earnings before interest, taxes, depreciation and amortization.  It can be used to compare the financial strength of two different companies.  That stated, many people don’t feel that EBITDA should be given the importance that is frequently attributed to it.

Divided Opinion on EBITDA

If there is disagreement on EBITDA being able to determine the value of a business, then why is it used so often?  This calculation’s somewhat ubiquitous nature is due, in part, to the fact that EBITDA takes a very complicated subject, determining and comparing the value of businesses, and distills it down to an easy to understand and implement formula.  This formula is intended to generate a single number.

EBITDA Ignores Many Key Factors

One of the key concerns when using or considering a EBITDA number is that it is often used as something of a substitute for cash flow, which, of course, can make it dangerous.  It is vital to remember that earnings and cash earnings are not necessarily one in the same.

Adding to the potential confusion is the fact that EBITDA does not factor in interest, taxes, depreciation or amortization.  In short, a lot of vital information is ignored.

Achieving Optimal Results

In the end, you simply don’t want to place too much importance or emphasis on EBITDA when determining the strength of a business.  The calculation overlooks too many factors that could influence future growth and prosperity of a business.

Business brokers have been trained to handle valuations to determine the approximate value of a business.  Since valuations take many more factors into consideration, they also tend to be far more accurate.


Copyright: Business Brokerage Press, Inc.


Did Microsoft Overpay For LinkedIn?

Microsoft’s recent $26.2 billion acquisition of LinkedIn provides an illustrative example of a strategic acquisition – the type of sale that usually garners the most gain for the acquired company’s shareholders.

You may be wondering what a billion-dollar acquisition has to do with your business, but the very same reasons a strategic acquirer buys a $26 billion business holds true for the acquisition of a $2 million company.

The financial vs. strategic buyer

A financial buyer is buying the future stream of profits coming from your business, whereas the strategic buyer is buying your business for what it is worth in their hands. To simplify, a financial acquirer buys your business because they think they can sell more of your stuff, whereas a strategic buyer acquires your business because they think it will help them sell more of their stuff.

One might argue that Microsoft overpaid for LinkedIn given that LinkedIn only generated a few hundred million dollars in EBITDA last year, meaning the good folks in Redmond paid an astronomical multiple of LinkedIn’s earnings.

But earnings are not the only thing strategic acquirers care about when they go to make an acquisition.

Microsoft‘s acquisition of LinkedIn is a classic example of a strategic acquisition. The Redmond-based technology giant has been undergoing a major transformation from being a software company focused on operating systems to a business concentrating on cloud-based software applications. Microsoft enjoys a dominant market share in the basic tools white-collar business people use to get their job done, but other software packages have begun to nip at the heels of their dominance in many product lines.

Take Microsoft Office for example. Many businesses have started to use competitive offerings from Google and Apple. Even more companies cling to older versions of Microsoft Office software, even though Microsoft is keen to move everyone over to the cloud-based Office 365.

In purchasing LinkedIn, Microsoft saw an opportunity to suck data from LinkedIn into Microsoft’s cloud-based software applications, making them irresistible. Imagine you’re a sales person and you just landed a big meeting with a new prospect. You enter the appointment as a Microsoft Outlook event and suddenly the details of the event feature everything LinkedIn knows about your prospect.

Now you can make small talk about where they went to school, the previous jobs they have held and know the scope of their current role – all without ever leaving Outlook.

Microsoft is betting this kind of integration across its platforms will compel more people to upgrade to the latest software applications. While your company is likely smaller than LinkedIn, the same thing that makes a giant buy another giant holds true for smaller businesses. To get the highest possible price for your business, remember that companies make strategic acquisitions because they want to sell more of their stuff.

Would you like to find out how well positioned your business is to be sold?

Complete the “Value Builder” questionnaire today in just 13 minutes and we’ll send you a 27-page custom report complete with your score on the eight key drivers of Value Builder. Take the test now:

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Then & Now: Private Equity Pre- and Post-Recession

Private equity looks very different now than it did during the last bull market. The jury is still out on how long the current run will continue, but as the industry continues to adapt to new regulations and investors’ memory of the recession looms, several trends are coming to shape private equity as it is viewed today versus what it looked like at its prior peak.

By the numbers

As has been widely reported, private equity dry power has reached an all time high, topping $1.2 trillion in March 2015. This is compared to less than $600 billion in December 2005 and roughly $800 billion in December 2006, according to recent figures.

Even so private equity firms invested almost the same amount of capital in 2006 and in 2014. In 2014, however, the total number of deals this capital was deployed across was almost a quarter higher than the number of deals done in 2006.

The number of exits in 2014 (1,250) finally brought the industry over it’s previous record (1,219 in 2007). Total exit value recorded in 2014, however, far outshone what we saw in the last boom cycle ($456 billion versus $354 billion in 2007). Many exits still remain, leftover from the last cycle, and the average holding period for portfolio companies has lengthened from 3.4 years in 2008 to an average of 5.7 years as of year-end.

Last year also marked another year of come back for fundraising. While commingled funds generated $543 billion, $666 billion and $686 billion in 2006, 2007 and 2008, respectively, these figures fell sharply following the financial crisis. 2013 posted $528 billion in fundraising and though 2014 slipped a bit, with an additional $499 billion in their pocket, private equity has exhibited the telltale signs of a recovered asset class.

In all of this, it’s interesting to note that funds are taking longer to close. With institutional investors exercising greater caution than before, digging in on GP’s business development and deal sourcing strategies, the process of raising a fund now takes an average of 17 months.

Winds of change

Several emerging trends have come to define private equity in a post-recession, multi-year boom period. While megadeals seemed to be the flavor of choice in the years leading up to the recession, the past year or so has seen a rise in transactions involving small and mid-sized firms. While corporate merger activity is still strong, it’s been reported that sponsors focused on firms with EBITDA between $5 and $30 million are having an easier time obtaining money from institutions, and as such private equity firms across the board have been steadily moving down market.

As firms looking at smaller and smaller businesses, add-on acquisitions and other techniques to grow company value post-acquisition are coming into vogue. In fact, data shows that platform acquisitions fell 23% from 2006 to 2014 and add-on deals surged 63% in that same timeframe. Overall, it’s said that GPs have focused more on adding operational improvements in recent years rather than relying on financial engineering to drive up the value of portfolio companies.

In the core middle market, M&A shows no signs of slowing down. A recent Citizens Bank survey showed that 57 percent of companies with revenue between $100 million and $2 billion were either in the middle of an acquisition or actively seeking such a transaction.

While private equity professionals are facing increased competition from new entrants looking to beat returns of the S&P but avoid the blind pool fund model – we’ve written about family offices taking to direct investments in private companies – they’ve also seen interest in their funds from a new group of investors, high-net-worth individuals. To adjust, many have adopted structures to round up investment from these individuals in addition to their traditional LP profile – pension funds, endowments, and other large institutions. Some big firms have even opted to raise funds specifically for this growing group of individual investors.

Challenges Ahead

We don’t yet know whether 2014 is the next peak of private equity, though some are saying that the party is over. What we do know is that the industry will continue to undergo change and faces some significant challenges in years ahead between rising interest rates, slowed lending for leveraged deals, and continued scrutiny of the industry from a regulatory angle.

Still, there is money to spend, a mounting wave of businesses for sale, in an industry whose core strength is adapting to change and adjusting growth strategy accordingly. As we approach the second half of the year, what we can expect to see is a private equity industry that’s stays on its toes in hopes to see the good times continue.


The above article is provided to VR Business Brokers courtesy of Axial –

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Two Similar Companies ~ Big Difference in Value

Consider two different companies in virtually the same industry. Both companies have an EBITDA of $6 million – but, they have very different valuations. One is valued at five times EBITDA, pricing it at $30 million. The other is valued at seven times EBITDA, making it $42 million. What’s the difference?

One can look at the usual checklist for the answer, such as:

  • The Market
  • Management/Employees
  • Uniqueness/Proprietary
  • Systems/Controls
  • Revenue Size
  • Profitability
  • Regional/Global Distribution
  • Capital Equipment Requirements
  • Intangibles (brand/patents/etc.)
  • Growth Rate

There is the key, at the very end of the checklist – the growth rate. This value driver is a major consideration when buyers are considering value. For example, the seven times EBITDA company has a growth rate of 50 percent, while the five times EBITDA company has a growth rate of only 12 percent. In order to arrive at the real growth story, some important questions need to be answered. For example:

  • Are the company’s projections believable?
  • Where is the growth coming from?
  • What services/products are creating the growth?
  • Where are the customers coming from to support the projected growth – and why?
  • Are there long-term contracts in place?
  • How reliable are the contracts/orders?

The difference in value usually lies somewhere in the company’s growth rate!

© Copyright 2015 Business Brokerage Press, Inc.

Photo Credit: jeltovski via morgueFile

Business Transaction Marketplace Continues to Improve

2014 ended on another high note for the business transactions market place.  The total number of business transactions in 2014 exceeded 2013 numbers by over 15%., the internet’s largest business-for-sale marketplace, reported earlier this month that fourth quarter small business transactions remained at high levels, exceeding the same period in 2013 by over 12%!


The number of closed business transactions has continued to improve each year since the recession, and has for the second straight year recorded the highest number of closed transactions reported since Bizbuysell began reporting the information in 2007.

More importantly for Sellers of small businesses, the median sales price also continues to rise, growing 14% percent in the 4th quarter of 2014 compared to the same period in 2013.  Much of this increase is directly related to the fact that revenue and cash flow for businesses sold continue to increase – resulting in higher sales prices.  The median cash flow of businesses sold also increased in the 4th quarter of 2104!

With revenue and profits increasing, sellers receiving higher multiples, and at the same time business transactions continuing to increase, all indications are that we are slowly shifting to a Seller’s market!

Is the time right for you to considering selling your business?  Curious to see how you might improve the value of your business to both strategic and financial acquirers?  Complete the Sellability Score questionnaire today and we’ll send you a 27-page custom report complete with your score on the eight key drivers of Sellability. Take the test now:

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Raising Effectiveness Using Emotional Intelligence

Identifying the Attributes that are Right for Your Business

Many business leaders have found intriguing the basic idea that success is strongly influenced by personal qualities such as perseverance, self-control and working well with others. They point to sales people who have an uncanny ability to sense what is most important to the client, customer service employees who excel in helping angry patrons calm down and be more reasonable. Conversely, they point to brilliant executives who do everything well except get along with people, and to managers who are technically brilliant but cannot handle stress.

Studies have confirmed that soft skills are critical for a vital economy. For instance, the influential report on Achieving Necessary Skills by the United States Secretary of Labor’s Commission argued that a high-performance workplace requires workers who have a solid foundation in literacy and computation. They also need personal qualities such as responsibility, self-esteem, sociability, self-management, integrity and honesty. Emotional intelligence is the basis for these competencies.

But what exactly is “emotional intelligence?” What is the link between that and organizational effectiveness? Is it possible for adults to become more socially and emotionally competent? And finally, what is the best way to help individuals achieve this?


Defining the Term and Its Importance
Emotional intelligence is the ability to accurately identify and understand one’s own emotional reactions and those of others. It includes the ability to regulate one’s emotions and to use them to make good decisions and act effectively. EI provides the bedrock for many competencies that are critical for effective performance in the workplace such as one’s effectiveness in influencing others through the ability to connect on an emotional level. To effectively influence others, we also need to be able to manage our own emotions and have empathy for others.

Best Course to Improvement
To be effective, you need to begin with the realization that emotional learning differs from the cognitive and technical kind in some important ways. Emotional capacities like self-confidence and empathy differ from cognitive abilities because they draw on different brain areas. Purely cognitive abilities are based in the neo-cortex. But with social and emotional competencies, additional brain areas are involved, mainly the circuitry that runs from the emotional centers to the prefrontal lobes. Effective learning for emotional competence has to retune these circuits.
Unfortunately, these particular neural circuits are especially difficult to modify. Emotional incompetence often results from habits learned early in life. These automatic habits are set in place as a normal part of living as experience shapes the brain. As people acquire their habitual repertoire of though, feeling and action, the neural connections that support these are strengthened, becoming dominant pathways for nerve impulses. When these habits have been so heavily learned, the underlying neural circuitry becomes the brain’s default option at any moment – what a person does automatically and spontaneously often with little awareness.

Because the neural circuits that need to be modified extend deep into the nonverbal parts of the brain, the learning ultimately must be experimental. Learning to control one’s temper, for instance, is like learning to ride a bicycle. It is only by getting on a bike and riding it, falling over and trying again repeatedly that one ultimately maters the skill – practice, in short.

Elements to Developing
Because emotional learning differs from cognitive learning in a number of ways, training and development efforts need to incorporate a number of elements such as:

There needs to be much more opportunity for practice than what one normally sees in the typical work-based program. Not only does there need to be many opportunities in the training but you need to be able to practice with new ways of thinking and acting in other settings such as on the job, at home and with friends over a course of several months.

Ongoing Encouragement
Even with practice during the training phase, old neural pathways can reestablish themselves quickly unless learners are repeatedly encouraged and reinforced to use the new skills on the job. You need to provide periodic reinforcers and reminders to help participants maintain the fragile new patterns of behavior that they have so recently learned.

Management Backing
A learner’s supervisors play an essential role in providing the support necessary for a successful change. Reinforcement by one’s supervisor can be especially powerful in helping new emotional competencies to take root.

Special Training Required
Because the competencies involved in social and emotional learning are so central to our personal identities, special care and sensitivity is required in the way that training is presented. The personal nature of what is involved in this kind of learning also makes it critical that there be a trusting and supportive relationship between the learners and trainers.

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What is the Value of Your Business? It All Depends.

The initial response to the question in the title really should be: “Why do you want to know the value of your business?” This response is not intended to be flippant, but is a question that really needs to be answered.

  • Does an owner need to know for estate purposes?
  • Does the bank want to know for lending purposes?
  • Is the owner entertaining bringing in a partner or partners?
  • Is the owner thinking of selling?
  • Is a divorce or partnership dispute occurring?
  • Is a valuation needed for a buy-sell agreement?

There are many other reasons why knowing the value of the business may be important.

Valuing a business can be dependent on why there is a need for it, since there are almost as many different definitions of valuation as there are reasons to obtain one. For example, in a divorce or partnership breakup, each side has a vested interest in the value of the business. If the husband is the owner, he wants as low a value as possible, while his spouse wants the highest value. Likewise, if a business partner is selling half of his business to the other partner, the departing partner would want as high a value as possible.

In the case of a business loan, a lender values the business based on what he could sell the business for in order to recapture the amount of the loan. This may be just the amount of the hard assets, namely fixtures and equipment, receivables, real estate or other similar assets.

In most cases, with the possible exception of the loan value, the applicable value definition would be Fair Market Value, normally defined as: “The price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.” This definition is used by most courts.

It is interesting that in the most common definition of value, it starts off with, “The price…” Most business owners, when using the term value, really mean price. They basically want to know, “How much can I get for it if I decide to sell?” Of course, if there are legal issues, a valuation is also likely needed. In most cases, however, what the owner is looking for is a price. Unfortunately, until the business sells, there really isn’t a price.

The International Business Brokers Association (IBBA) defines price as; “The total of all consideration passed at any time between the buyer and the seller for an ownership interest in a business enterprise and may include, but is not limited to, all remuneration for tangible and intangible assets such as furniture, equipment, supplies, inventory, working capital, non-competition agreements, employment, and/or consultation agreements, licenses, customer lists, franchise fees, assumed liabilities, stock options or stock redemptions, real estate, leases, royalties, earn-outs, and future considerations.”

In short, value is something that may have to be defended, and something on which not everyone may agree. Price is very simple – it is what something sold for. It may have been negotiated; it may be the seller’s or buyer’s perception of value and the point at which their perceptions coincided (at least enough for a closing to take place) or a court may have decided.

The moral here is for a business owner to be careful what he or she asks for. Do you need a valuation, or do you just want to know what someone thinks your business will sell for?

Business brokers can be a big help in establishing value or price.

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Is a Franchise Right for You?

Before you go ahead and invest in a franchise, you want to sit down and be honest with yourself. You need to think about how much money you have to invest. Just as importantly, you should assess your personal skills and abilities. Finally, you need to determine what your goals and expectations are in owning your own franchise. Our top VR Franchise Specialist has formulated the following questions to help you find those answers.

In particular, you want answers for the following:


  • How much money do you have to invest?
  • How much money can you afford to lose?
  • Are you purchasing the franchise alone or with partners?
  • Do you need financing? Where will you obtain it?
  • What’s your credit rating?
  • Do you have any savings or additional income to live on while you start your business?

Abilities and Skills

  • Does the franchise require technical experience or special training – ie. Auto repair, home and office decorating, tax preparation?
  • What are your special and specific skills that you possess?
  • What experience do you have as a business owner or manager?

Franchise Goals

    • What is your personal minimum income requirement?
    • What types of businesses are you interested in pursuing?
    • How many hours do you want to work?
    • Do you intend to operate the business yourself or hire a manager?
    • Will franchise ownership be your primary source of income or a supplement to your current income?
    • How many years can you commit to a business?
    • Would you like to own several outlets?

VR Business Brokers of McKinney represents a wide range of franchise opportunities from a variety of industries.  To see a list of all the franchise opportunities we represent, visit our Franchise Showcase  (

If you would like to receive an invitation to our next “Buying  a Franchise Seminar” simply email with “Seminar” in the subject line and we’ll make sure to invite you.

VR Helps You Understand the Buying Process

Comprehending Every Element will Lead to Successful Ownership
When you’re looking to buy a business, you should be aware of the procedures involved and the mistakes to avoid. To give you the best possible income, VR will provide you with the experience gathered from decades of facilitating successful transactions. We match qualified buyers with available businesses that are available for sale. We will support you throughout the process, starting with creating a buyer profile to determine your interests, goals and background. Each VR business intermediary provides service past the day the business sale is complete.

Deciding what Type of Business to Purchase
Based on your interests, experience and goals, you have to determine the type of business you want to purchase. VR will help you manage your expectations, and make the best possible decision in what direction to take. The majority of businesses are grouped into large industry categories such as retail, manufacturing, distribution, services and construction. Underneath these categories, there are scores of subcategories that more accurately describe what the business is and its market.

Committing Yourself Lock, Stock and Barrel
Because buying a business is a very time-consuming process, you have to be completely engaged. VR Business Sales will be able to help select the right business per your interests, goals and finances available. Since you will be investing yourself in the business as the new owner, you have to understand and be involved in the whole process from start to finish.

Understanding the Books
Part of the buying process, besides reviewing the presentation and visiting the business is examining its books. This includes everything from the balance sheet to inventory to payroll to contracts with vendors. You have to understand all the mechanics involved in the business, so you will be able to operate once you purchase the business. Also, you will want to examine the issues through a SWOT analysis – reviews the strengths, weaknesses, opportunities and threats of that business.

This is an imperative part of the process where the majority of your due diligence will take place. You don’t want to avoid performing a full evaluation on the business and find out later there’s not enough revenue coming in to justify your total investment. VR will assist you in deciding whether the business has the potential for growth and development.

Anticipate Concerns
When ownership of a business exchanges hands, it’s normal for there to be trepidation from vendors, customers and employees. In general, a business acquisition is a disruptive process because it’s a change in the status quo not only in ownership but in how the operations will be handled going forward. You have to understand the dynamics of ownership, dealing with people and knowing how to address the concerns of all involved in the business, so you won’t lose faithful customers and long-established relationships with employees and vendors.

Preparing the Transition
When both you and the seller are working toward a definitive agreement, what must be put in place is the transition in handing the ownership reins over to you. Employees and vendors have to be aware and ready for the change that will be taking place. That’s why you should have a plan in place, where you will be introduced as the new owner to the employees as you understand the current procedures in place.
You want to ensure that both the employees and the vendors who have long-standing relationships with the business will embrace and accept the change.
Speak to a VR business intermediary today about what to look for when considering business opportunities.

Examining All the Factors

Knowing When to a Buy a Business

examiningHas the time come where instead of you working for a business, you want to own one? To decide if buying a business is the right decision for you, speak to a VR business intermediary that can help you answer all the pertinent questions.

With any business opportunity, there is a degree of risk and challenge involved. Ask yourself if your personality is conducive to one that thrives in an environment where you have to wear many hats. Throughout the buying process, you have to understand what is at stake for you, both financially and personally. If you’re ready, the rewards will surpass whatever gamble is involved.

What’s Your Motivation for Buying a Business?

If you’re seeking job security or are dissatisfied with your present job, then determine if the business opportunity you’re considering satisfies what you are looking for professionally and personally.

Do You Have Support from Your Family and Friends?

It’s important for you to find out if your family and friends will support you on this new and exciting endeavor or if you’ll be left out in the cold.

They may not understand your prime motivation and personal goals that may be prompting you to buy a business, especially when you’re leaving the security of your current employment. This is one of the biggest decisions you will make in your life, and they have to understand what your feelings and motivations are in doing this. Without your spouse supporting you, the transition can be very difficult. If you take the time to explain the why’s in this decision, they may warm up to it.

Financial Backing and Advice

Knowing your financial options is imperative when you’re going to be investing in a business. You have to know where you’re going to be drawing your capital from.
Do you have financial advisors that you trust and have a working relationship with? Consider carefully what their opinions might be. You don’t need to look at the books of even a single business to know what your attorney’s opinion will be. You can find out right now by asking, “I’m thinking of buying a business — what do you think?”

What Can You Invest?

You may have $50,000 or $100,000 in liquid cash; however, that doesn’t mean you will feel comfortable spending it. Analyze your risk threshold and consider how much of that cash you are willing to invest. If you run short of cash, would you be willing to put up your home as additional collateral? It’s critical that you understand exactly where you stand on the risk factor curve.

How Long Do You Want the Business?

At this point, you should spend time considering exactly what you want to do with the rest of your life. Do you want to run this particular business forever? Just because you’ve purchased your own business does not mean you’re locked into it for the rest of your life.

Many buyers will purchase a business they can afford in a different industry than they’d planned on, run it for two or three years before selling it after they’ve built-up some equity. This is one way, for you to then buy a business in the industry that you want.

  • Take time to analyze the business/industry trends.
  • Pay close attention to whether gross sales are up or down and whether cash flow has been increasing or decreasing.
  • Carefully review the expenses required to operate the business, such as: leases, rents, utilities, labor, inventory, plus other necessary costs.
  • Don’t be discouraged if a business is doing poorly. There might be other factors other than the industry or market affecting it, such as poor management.

Discover the Reasons the Business You Want is Selling

Knowing why an owner is selling the business that you want to buy is important.

Is it due to:

  • Burn-out;
  • Poor health;
  • Retirement;
  • Relocation Plans;
  • Need to upgrade;
  • Not generating enough revenue;
  • Poor management;
  • Lack of capital;
  • A partnership dispute; or
  • Has the business outgrown the owner’s abilities?

What Does Your Gut Tell You?

If you like the industry, the customers, the feel of the business and are comfortable with the idea of being there every day, you are on the right track.

Compare Yourself to the Present Owner of the Business

Is the current owner an easygoing type, a high-octane dynamo or someone just like you? Also, consider whether or not the business is run in a way that you would like to do business and how changing those operations you don’t like would affect the business.

Ask yourself if you would be as good a business operator — or better — than the current owner. Few people buy a business expecting to do things exactly the way the present owner is doing them. Most people envision additional opportunities for a business, perhaps planning to increase advertising or expand the product line.

If you’re thinking about buying a business, carefully think through each of these issues. Answer them honestly and your future path will become clearer. But keep in mind that while it can take great effort, unlike a job, the potential is unlimited.