Houston Update - Is It The Right Time To Sell A Privately-Held Company?

There are many factors that determine best timing for selling a small business -- the financial condition of the company, valuation, growth cycle, profit history, and the current market.

Value is dynamic and proper timing makes a big difference in the prices paid for business acquisitions. External factors such as the economy, the mergers-and-acquisitions marketplace, industry trends, competition, stock market volatility, investor confidence, interest rates, and geopolitical considerations are cycles of constant change that impact value.

Internal conditions within a company also change. Often in combination with external factors, sometimes independent of those factors. Changes do, and will, occur and they always tend to impact business value -- sometimes eroding value and sometimes increasing value.

So how should you start thinking objectively about the best time to sell?

A good visual of right-timing would be to imagine the life of your business plotted as a bell curve with the peak being the top of the growth cycle. The top is when you have reached the flat plane of growth...a sustaining mode. Buyers pay the best prices when they can't see the top, when the curve is still climbing upward. Once the top is visibly breached, buyers may pass on the opportunity or may pay prices based on a downward trend and higher risk factor. If you wait until your revenues are already sliding over to the downside of the bell curve, you have waited too long. Your business has already started to retire before you have. Buyers are not too interested in declining businesses. To get the best deal you have to sell on the way up -- not at the top or the downside -- and when the market and prices are good.

Markets change and fortunes change from year to year. The current status of the small business market place in Houston is hot. Buyers in every category are plentiful, our economic position is one of the top in the U.S., business policies are in place for continued prosperity and growth, interest rates are at historic lows, and capital is available for business acquisitions.

Fueling the market are the different categories of buyers looking to put their money to work. For example, a variety of people in the Individual Buyer Category are:

• early baby-boomer corporate retirees
• corporate refugees who have suffered a downsize
• foreign buyers seeing U.S. businesses as investment opportunities while the dollar is still valued lower against their own currency
• 30-something-up-and-comers aggressively buying and building

Strategic Buyers, both public and privately-held companies, are actively acquiring smaller firms as part of their strategy for growth and innovation and Investment Buyers, such as private equity groups, are seeking add-on acquisitions for their investment portfolios.

Every buyer category, individuals, strategic, and the investment buyers, are actively looking for opportunities to take part in Houston's prosperous future outlook. Each may vary in their acquisition criteria regarding the industry sectors and revenue ranges they are targeting, but we have seen one major common trend occurring. More and more private equity firms and corporations are looking for smaller businesses. These strategic and investment buyers, in increasing numbers, are considering businesses with lower minimum cash flow and total revenue generation as acquisition candidates than they were just one year ago.

We expect this trend to accelerate, especially in Houston, for ten specific reasons:

1. While the national credit crunch may have impacted the larger transactions, the smaller transactions are still very active because all buyer categories for privately-held, small enterprises are looking to put their money to work.
2. Houston banks have been minimally affected by the credit crises. First because of the area's relatively strong economy and second, because many banks have been spared major damage from the sub prime mortgage market because most of the banks focus on servicing small businesses (Houston Chronicle Dec 2007).
3. According to Fortune 500 2008 list of annual rankings of America's largest corporations, Houston is called home by the second largest number of Fortune 500 companies, second only to New York City. Houston has been steadily adding to its collection of Fortune 500's for the past several years, while New York's number has declined. Houston stands well ahead at the #2 spot with Dallas, Chicago, and Atlanta lagging considerably behind.
4. Houston is the best U.S. City for earning a living (Forbes, 08-18-08) and is recognized for its dynamic business environment, low unemployment and high wages relative to income. "And it's not likely to change anytime soon," says Forbes. Houston's pro-growth, no nonsense politics are major factors driving developers and other capitalistic-minded investors to Houston. Business experts and economists say it's a matter of simple economics — low taxes, affordable land and an expanding labor force.
5. Houston is one of America's top ten recession proof cities, according to Forbes' article, America's Recession-Proof Cities, released April 29, 2008.
6. Texas’ business climate is ranked best in the nation for the fourth consecutive time according to a survey conducted by Development Counsellors International (DCI). The survey measures CEO’s perception of a state’s business climate based on several economic variables. Business leaders throughout the world recognize the Lone Star State as a place where their business can grow and thrive thanks to its reasonable regulations, low taxes, fair legal environment, educated workforce and an unparalleled quality of life.
7. Overall, the Texas economy continues to grow at nearly three times the national average. CNBC recently named Texas America’s Top State for Business and overall best economy. Texas was also recently recognized by CEO magazine as the Best State to do Business for the third year in a row.
8. Last year, more than half of all new jobs created in the United States were created in Texas, with Houston leading the way.
9. Houston's future outlook is predicted to flourish. The city is uniquely situated and ready to capitalize on the longstanding megatrends that are transforming the global economy (Newsweek June 2008, "Houston, We Have No Problems").
10. Houston is headed toward becoming not only the leading city of Texas and the South, but also a player on the global scene: it is emerging as one of the world’s great cities. (Joel Kotkin, an internationally-recognized authority on global, economic, political and social trends, in his April 2008 article, Lone Star Rising).

Most importantly, buyers exceed sellers and we have a robust exit market for now. The time will come when the flood of baby-boomer business owners ready to sell will outweigh the ready buyers, and acquisition appetites and prices will fall. It will shift to a buyer's market rather than the seller's market that exits today.

The time is right when the external and internal conditions are right...when the market, the buyers, and values are good and financing terms are favorable. It's that simple. If you turn down a great market, when buyers are willing to pay a great price, or if you wait too long, the market cycle or your business' internal conditions will likely have changed. The Market is ready and it is never wrong. And, like time, it waits for no one.

A Road Map Is Key To Buying A Business

Buying a business takes time and planning. Just as it would be sensible to pre-map a road trip through unfamiliar territory, it would be practical for a first-time buyer to develop a plan to navigate the path to business ownership. Charting the route is key to buying a business and becoming your own boss.

If you try to look at every business opportunity out there, you would be spinning your wheels and getting nowhere. You need to establish your own weeding-out process in order to streamline the course towards business ownership, rather than taking a circuitous route with too many detours.

Here are six (6) milestones to achieve before embarking on your trip to the business-for-sale marketplace.

1) Begin with a self-assessment: Critique the reasons why you want to buy a business. Summarize the types of work activities you enjoy and what type of lifestyle you want to pursue. For example,

• Do you want to be an Absentee Owner or run the business yourself? Do you intend to operate the business with a manager? This may be important to you if you have a limited amount of time available to personally operate the business. Not all businesses lend themselves to absentee-ownership conditions.


• Do you want to manage a staff or prefer non-labor intensive? Do you consider yourself a people person? Some people shun or fear taking management responsibilities. Are you comfortable with, and enjoy, supervising and motivating others?


• How important is perceived status of the business? Is it important that you own a business that has a name, product, service or asset base which will project a certain image? Or, would you be happy with an unpretentious business as long as it was profitable and met all of your other requirements?


• Do you require time freedom or have issues about the kinds of hours involved in the business you choose? Is it important that you own a business which allows you to come and go as you please? Or, would you be satisfied with a business that required fixed hours?


• Will your family be involved? Is it important that you own a business where you can employ other family members? Are you wanting to create a certain number of jobs for your family members or close friends? Do your family members really have the needed skills and qualifications to help you succeed with the business? Are they willing to make the same sacrifices you are making


• Does it matter if the business has travel requirements?


• Do you want a business in which you would need some or a substantial amount of training? Are you willing to learn new skills, new business buzz words, new techniques and procedures? Or, do you prefer a business be one in which you are already quite knowledgeable and experienced?


• Is it important that your business not require your personal involvement on weekends? If so, does the business have dependable employees capable of handling weekend operations without your supervision?


• Are you a morning or night person? Do you like to retire early in the evening and wake up early in the morning? How important is it to you that the demands of the business not disrupt your present life style?

2) Draft a personal financial statement - Outline your assets and liabilities. Take an inventory of your financial resources. You should identify the actual availability of all financial resources in the following categories:

• Actual liquid funds (cash) available for a down payment.


• Actual liquid funds (cash) on reserve for transition expenses, start up costs, working capital, business charges, learning curve.


• Current sources of income that are expected to continue into the future


• Anticipated funds to be received in the future


• Unencumbered assets available as collateral, notes receivable which could be factored, real estate


• Other sources of financing including business partners, relatives, friends


• Retirement funds such as 401K and pension funds that qualify for tax free benefits

3) Establish monetary expectations - Determine your minimum income requirements and your goal for future earnings. Your financial criteria will help narrow the field of businesses that can meet your expectations. Here are a few points to consider:

• Do you need a fixed amount of earnings every month from the business?


• Do you need to pull money out immediately or can you wait six months or a year before making any withdrawals?


• How much importance do you place on high growth or expansion? Do you want a business that has full potential to grow and continue expanding into the future? Or, would you be satisfied to maintain a business at its current level of operation?

4) Update your resume - Accurately highlight your skills, work experience and extent of business knowledge. It can be extremely useful in enabling a business broker to suggest acquisition candidates that may be suitable to your background. Sellers and lenders want buyers with qualifications that will help insure the continued success of the business. You're actually selling yourself to the current owner, the lender and the professionals that represent them.

5) Define the parameters of your search - what industries, geographic area and transaction size will you consider. Past work experience, education, hobbies, interests, talents, and skills are a good source of inspiration for the types of businesses you might enjoy and in which you may have some knowledge. Once you understand your financial capacity for a down payment, you will have a better understanding of the transaction size you should consider. Business Brokers can explain the possible price ranges that would work for you.

6) Assemble a team of advisors - Let your professional advisors, such as your attorney, accountant, and financial planner, know you are looking for a business. Contact a business broker / intermediary who represents businesses within your targeted market.

Making a business acquisition is a team effort, and your business broker is the quarterback. If you are interested in buying an existing business, representing yourself as serious, qualified, and motivated is sure to drive your effort to successful business ownership......the whole reason for the trip!

Do You Need An Attorney When Buying A Business?

Many buyers do not know if or when an attorney may be needed in the process of buying a business. That question always comes up when chatting with people beginning the process of searching for a business to buy.

As a rule, it is recommended that buyers should consult their attorney for the review of any legal documents. Some of the types of documents involved in closing a business purchase that may be candidates for attorney review are:

• Covenant not to compete
• Employment contract(s) (for existing employees or the current owner)
• Review of the escrow instruction
• Review of promissory note
• Review of new or assumed lease
• Review of any agreement produced by the other party
• Checking for any pending lawsuits against the business, or any other liability problems

Attorney's can draw up non-compete agreement for the seller to sign, as well as employment contracts for key employees who are critical to the operation of the business. You don’t want the seller or manager setting up shop down the street while you are getting your new business up to speed. It is wise to interview key employees to make sure there is a good fit.

Your legal counsel can make or break the deal. Therefore, if you choose to engage an attorney to assist you in the purchase process, it is important that they be deal friendly and transaction experienced. You must articulate your objectives and seriousness in getting the transaction completed. And that, unless something completely unanticipated is discovered, the attorney's job is to pull the documents together to get the deal done.

In many instances, the sale of a business fails to close because the attorney for one side makes too many demands of the other side. Certainly, you want your attorney to protect your interests, but not to the point where the demands are so strenuous that the other party walks away from the deal. Attorneys are not known to be negotiators. That is the business broker's job.

Business brokers can refer you to legal professionals if you don't already have one that is experienced in legal issues related to business transfer transactions.

If there is no one monitoring the details and leading the progress of the transaction, the ball can be dropped somewhere along the way. The broker's role at this point in a business transfer transaction is to act as the intermediary. The business broker--having been through the process many times, much more often than any of the attorneys or other advisors involved--knows the pitfalls. They keep the deal on track and act as the captain that keeps the team working together towards the common goal.......the successful consummation of the sale. As long as all advisors involved are operating on the same wave length as their respective clients -- the buyer and the seller -- the odds are good that the process will be timely and smooth.

Houston Business Acquisition Market Will Remain Brisk

The current status of the small business marketplace in Houston is dynamic. Buyers in every category are plentiful, our economic position is one of the top in the nation, business policies are in place for continued prosperity and growth, interest rates are at historic lows, and capital is available for business acquisitions.

Fueling the Houston market are the different categories of buyers: Individuals, Strategic Buyers, and Investment Buyers. For example, a variety of people in the Individual Buyer Category are:

• early baby-boomer corporate retirees
• corporate refugees who have suffered a downsize
• foreign buyers seeing U.S. businesses as investment opportunities while the dollar is still valued lower against their own currency
• 30-something-up-and-comers aggressively buying and building

Strategic and Investment Buyers are also actively looking for opportunities to take part in Houston's prosperous future outlook. Increasingly, corporate America, both public and privately-held companies, are acquiring smaller firms as part of their strategy for growth and innovation. Private equity groups, too, are actively seeking add-on acquisitions in Houston for their investment portfolios.

Each of these buyer categories vary in their acquisition criteria regarding the sectors they are targeting and the revenue ranges they require. However, we have seen one major common trend occurring in both of these buyer categories. More and more private equity firms and corporations are looking for smaller businesses. These strategic and investment buyers, in increasing numbers, are considering smaller businesses with lower minimum cash flow and total revenue generation as acquisition candidates than they were just one year ago.

We expect this trend to accelerate, especially in Houston, for several reasons. But here are a few specific reasons:

• While the national credit crunch may have impacted the larger transactions, the smaller transactions are still very active because all buyer categories for privately-held, small enterprises are looking to put their money to work.


• Houston banks have been minimally affected by the credit crises. First because of the area's relatively strong economy and second, because many banks have been spared major damage from the subprime mortgage market because most of the banks focus on servicing small businesses (Houston Chronicle Dec 2007)


• Houston is called home by the second largest number of the Fortune 500 companies in the nation, second only to New York City. Houston has been steadily adding to its collection of Fortune 500's for the past several years, while New York's number has declined. Houston stands well ahead at the #2 spot with Dallas, Chicago, and Atlanta lagging considerably behind.


• Houston's pro-growth, no nonsense politics are major factors driving developers and other capitalistic-minded investors to Houston. Business experts and economists say it's a matter of simple economics — low taxes, affordable land and an expanding labor force.


• Houston is one of America's top recession-proof cities (Forbes, America's Recession-Proof Cities, April 2008).


• Houston's future outlook is predicted to flourish. The city is uniquely situated and ready to capitalize on the longstanding megatrends that are transforming the global economy (Newsweek June 2008, "Houston, We Have No Problems").


• Houston’s is headed toward becoming not only the leading city of Texas and the South, but also a player on the global scene: it is emerging as one of the world’s great cities. (Joel Kotkin, an internationally-recognized authority on global, economic, political and social trends, in his April 2008 article, Lone Star Rising).


• Most importantly, the number of buyers looking for acquisitions far exceed the number of sellers.

Houston, Keep Your Seatbelts Buckled As Our Economy Takes Off

Despite a sluggish economy in the U.S., Houston is still displaying its buccaneering spirit. While the oil boom is a large part of the Bayou City's good fortune, it is not the only gusher pouring out prosperity. A diversified business base is the fuel that powers Houston's shining-star status.

Newsweek published an article this weekend titled, Houston, We Have No Problems, that every advocate of Houston would want to read. It addresses the varying aspects of what makes our city so hot, and it wasn't talking about our summer heat.

Houston's cash registers are ringing with big ticket items, construction crews are fully employed, and upscale restaurants are cooking. We are experiencing an unsinkable residential real estate market, Class A office space is virtually full, and a variety of construction projects are underway to keep up with demand. The article also purports that pessimists here are as rare as Birkenstock sandals and Obama '08 stickers in ExxonMobil's parking garage.

The article informs its readers that The Texas Medical Center is Houston's biggest employer, not the oil industry, clarifying that Houston isn't just about oil. However, not mentioned in the article were other powerful facts about the Medical Center that predicts its future impact. It is the largest medical center in the world and will be the seventh largest downtown district in the country when current construction projects are completed. There are more buildings going up in the medical center than in the rest of Houston combined. Considering that Houston is leading the rest of the country in construction, one could assume that the pulse of the city's medical industry won't be slowing anytime soon and will largely contribute to the city's future global positioning.

Referring to the 1981 oil bust, the editorial reminds us that back then the oil and gas industry was domestic and blue-collar, but today it is international and white-collar.

Remember John Travolta's "Urban Cowboy" in 1980 during the last oil boom? The movie was a classic portrayal of Houston at that time as being a redneck, oilwell-ravaged town. Well, "We're not that kind of city anymore," Travolta might have said in a quasi "Michael" movie production referring to our modern Houston rather than to his atypical angel stereotype.

Instead of cowboy, think suburban geek, the Newsweek column asserts. Houston has 70,000 engineers and architects, a concentration 60 percent higher than is typical for the United States. Houston's role in energy is not as the roughneck city this time around. It's role is "as the technical, trading and administrative center of the worldwide industry," says Joel Kotkin, an internationally-recognized authority on global, economic, political and social trends, in his book, The City: A Global History.

There's more, oil isn't the only energy game in town. We've drilled down even further within one industry. Houston also leads the future of alternative energy. So, referring to 1981? That was then, this is now. What a difference 27 years makes!

The article also touts Houston's port as one of its strengths, the second busiest port in America with rising exports. Houston's Gulf Coast has long powered the growth in southeast Texas and has seen its trade activity more than double since 2003. Houston's upward movement as a major player in international commerce, continued influx of business relocations, increasing worldwide trade, the benefits and advantages associated with Houston's Foreign Trade Zone, and the city's ongoing investment in the expansion of port terminal facilities paved the path for continued acceleration as a global leader in international commerce. As with manufacturing, Houston's international commerce and transportation sectors are trucking along in the speed zone and won't be braking anytime soon.

"More important than gold and diamonds are people. This critical resource, more than anything, accounts for Houston’s headlong drive toward becoming not only the leading city of Texas and the South, but also a player on the global scene: it is emerging as one of the world’s great cities." says Joel Kotkin, in another publication, Lone Star Rising.

Since it will take people to make this prediction happen, no problem, Houston is ready to forge forward. We have all the right stuff. Kiplinger's July 2008 issue puts Houston as the #1 place to live, work, and play in America. Kevin Stolarick, research director at the Martin Prosperity Institute, a think tank that studies economic prosperity, highlighted cities for Kiplinger that didn't just have strong past performance, but also had all the ingredients for future success. And, one key to a bright future, the Kiplinger article emphasizes, is a healthy shot of people in the creative class. People in creative fields -- scientists, engineers, architects, educators, writers, artists and entertainers -- are catalysts of vitality and livability in a city.

To further bolster the city's launch into its promising, anticipated future that lies ahead, the younger generation is coming to help pilot the passage. Houston is the #1 city in the U.S. for recent college grads, according to Forbes. Not only do we already have the right people, we are filling the roster with more of the right stuff to take over the reigns.

To tie up the message, Newsweek's article bespeaks Houston's characteristics as uniquely situated to capitalize on the longstanding megatrends that are transforming the global economy. Its Medical, Energy, and Trade Sectors are shining stars and herald the city's importance in the global arena.

This makes acquiring a business in Houston a good investment for the future.

Time is the Killer of Most Deals

Keeping the Process Moving and Keeping the Deal on Track helps Seal the Pact.

Many factors can bog down the sale of a business. In fact, more than purchase price or structure, time is the most likely reason that a business sale may fail.

Time can breed frustration and fatigue. As a potential sale drags on, the owner is left in an uncomfortable state of flux. The buyer may also become frustrated as fees mount. The deal can reach the point when one party declares…“It just wasn’t meant to be.”

National figures indicate that the average business sells in nine to 12 months from start to close. Once a letter of intent (LOI) has been signed, the final due diligence and closing process usually takes 30 to 90 days.

So how do you keep the sales process moving forward?

Attentive Intermediaries.

Your business broker / intermediary should be able to give you the time, attention, energy and resources necessary to focus on your deal. Be sure to ask your business broker or intermediary about his or her organization’s work on closing details. You want to be sure that you are working with someone who can cover minute details, looking weeks and months ahead in the sale process.
Obtaining appraisals, ordering environmental investigations, transferring licenses, title work and many other details need to be handled properly and in a timely fashion to be able to close a transaction. For the best possible results, you want to work with someone who knows the proper sequence of events so there aren’t any unnecessary delays. There’s a lot to coordinate and missing just one detail can cause a delay in closing the deal.

Transition Specialists.

From your business broker / intermediary to your attorney and accountant, you want to consider hiring specialists in business transitions. Inexperienced advisors tend to be overly conservative to protect their liability. Which can drag out the negotiation process and may cause frustration for the parties involved. If you are serious about selling your business, you really don't have the time or money to pay to educate your advisors on the mergers & acquisitions process.

Comprehensive Overviews.

Your advisor should spend the time packaging the business up front. A comprehensive business review can be developed that answers 80 to 90 percent of the standard questions a potential buyer will have. This helps both the buyer and the lender make decisions more quickly. It will also save you time because your intermediary won’t be requesting pieces of information as new buyer questions arise.

Seller Preparation.

Be prepared to move forward emotionally and financially. A seller will sometimes thwart the sale because they haven’t seriously considered their future plans or their financial expectations are out of line. A professional advisor should be honest in what he or she believes the market can bear and should not let you go to market with an unreasonable asking price.

Buyer Screening.

Finally, your intermediary should screen all buyers to ensure they are serious about the potential acquisition and have the financial means to move forward with a transaction. You don’t want to waste time with buyers who simply can’t afford a purchase. Selling a business can certainly be an emotional ride. It’s a time to work with deal makers and specialists who will help to minimize the stress and help everyone move forward toward the timely completion of the business sale.

The International Business Brokers Association® is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of a business brokerage and mergers and acquisitions. IBBA® has 1,950 members worldwide, with corporate headquarters in Chicago, Illinois.

What is the First Step Towards Selling Your Business?

"I have a medium sized company which I have owned for about 20 years. We specialize in the manufacture and distribution of chemical products and have built a good business. However, my children aren't involved or interested in the business so I am considering selling it. The problem is that I have no idea how to begin the process."

Since most business owners only sell a company once in their lifetime, it is quite understandable when an owner makes such an inquiry. While the thought of selling their company may seem overwhelming to many business owners, if thought in terms of baby steps, it is really quite simple.

What is the initial question that comes to mind when you think about selling your business? One might guess that you wonder how much someone would pay for it.

Well, your first thought is the very first baby step you should take towards the ultimate goal of selling your business. Get a valuation to get an objective price range that you could expect to receive in the marketplace. It's that simple.

Typically, the documents needed to determine the probable price range of a company in the current market are tax returns for the most recent three to five years, a current year profit loss statement, current balance sheet, and an equipment list. Again, as you can readily see, the required items for a valuation is not complicated. Several years of financials helps paint a historical picture and current trend of the company. Upward trends are the desired scenario.

Since profits on financial statements and tax returns of privately-held businesses are usually minimized in order to reduce income taxes, the financial statements are restated in a valuation to show the true cash flow of the business.

As part of that process, a professional business broker / intermediary will ask easily-answered questions that will help determine which expenses are discretionary in nature or are not strictly necessary. There will be other expenses that may be non-business related benefits going to the owner and family members, or one-time, non-recurring or unusual expenses that would not be borne by a new owner of the business. These expenses will be part of the true discretionary cash flow that would be enjoyed by a new owner.

This valuation, or Broker's Opinion of Value, is normally provided at no cost. It should clearly outline the details that buyer prospects and their advisors would need and can understand. It should be assessed on the same premises lending institutions use for the purpose of determining if the price makes sense. If a formalized business valuation or appraisal is required, a Restricted Appraisal is one alternative, which is less complicated than a Full Appraisal, and much less costly.

Just as an athlete might get a physical to determine their preparedness for a marathon, you should also measure your Company's fitness for the marketplace. A valuation is an unbiased examination of your company's marketability and helps you pinpoint where your company is in its business cycle. It is the foundation, the meat and bones, on which a business owner can base their readiness to sell.

Other considerations in determining the business value will include competition, regional demand factors, proprietary products or processes, what type of buyer the company would attract, favorable lease terms, advantageous supplier relationships, management's desire to exit or stay with the business, concentration of customers, and many other relevant factors.

Your company's history of earnings represents its financial health and can establish the baseline for the monetary worth of the enterprise. The single most important factor for valuation is how much money the business makes. This figure should be maximized and be shown to be maintainable under new ownership in order to get the best price possible when the time is right. Buyers pay for the past, but buy for the future.

Most owners never take the necessary steps to plan their exit and end up selling because of unexpected events or crisis-driven reasons rather than on their own terms. According to members of the International Business Broker Association, 75% of business owners do not know the market value of their company. This is too large a number considering how painless a task it is to achieve.

The sooner you take the first baby step in understanding the value of your business, the more informed and comfortable you will be in planning your next step.....whether it be deciding the time is right to sell now, or making improvements for a future sale.

Ahh, that's the next stride in the baby-step approach.

Indo-American Chamber of Commerce Presents Small Business Success Series

The Indo-American Chamber of Commerce of Greater Houston (IACCGH), as part of their Small Business Success Series, will be hosting a moderated dinner event at Bombay Brasserie Restaurant in Houston, Texas, on June 24, 2008. Tara Energy, headquartered in Houston and one of the largest independent retail electricity providers in Texas, is sponsoring the event.

Frank Stabler, CEO of Certified Business Brokers (CBB), has been invited to serve as a distinguished panelist for the event to answer questions on the following topics:

• How To Sell Your Business
• How To Buy An Existing Business
• How To Finance Your Business
• and other related questions from guests and attendees

Since 1999 the IACCGH has been a powerful advocate and important resource for businesses looking to capitalize on the tremendous opportunities presented through international trade. This organization has made a significant impact on the rich, diverse and prosperous Houston economy.

For more information about this event, call IACCGH at 713-624-7131. RSVP Required.

International Business Brokers Association Convenes Its 47th Semi-Annual Conference This Month

The International Business Brokers Association (IBBA®) is having its 47th Semi-Annual Conference this month, June 1 -7, in Denver.

The IBBA®, established in 1983, is the largest international non-profit association operating exclusively for the benefit of professionals and firms engaged in the various aspects of business brokerage and mergers and acquisitions. The association represents professional, ethical and practice standards by which its members operate. This semi-annual event is seven days of professional development and top-notch education and networking. Educational and Workshop courses number close to 100 and include such topics as:

• Up-to-date legal and tax issues that impact business transfer transactions
• Analyzing and recasting financial statements
• Techniques for pricing and maximizing value of privately-held companies
• Succession planning and exit strategies
• Negotiating the M&A Process
• M&A Tax Strategies and Deal Structures
• Solutions to closing challenging transactions
• Getting deals financed

At each conference the newest products, techniques, and services are introduced at the IBBA® Trade Fair. In addition, merger and acquisition professionals and Private Equity Groups (PEGs) from around the globe gather to make deals happen during the M&A Source Middle Market Expo. Sponsors and nationally recognized keynote speakers include global economists, banking and lending professionals, private equity and other investment groups, and tax and legal experts involved in business transfers transactions.

When choosing a business brokerage firm to represent the sale of your business, it is important to ascertain the firm's participation in the IBBA®. For more information, visit the IBBA website & M&A Source website.

Why Does Houston Have the Second Most Fortune 500 Companies in the Nation?

As Bill Clinton might have said using the phrase he coined in 1992, "it's the Houston economy, stupid."

The new 2008 Fortune 500 list of annual rankings of America's largest corporations is out. Houston is called home by the second largest number of the companies on the list, second only to New York City. Houston has been steadily adding to its collection of Fortune 500's for the past several years, while New York's number has declined.

Houston had 20 Fortune 500's in 2005, 22 in 2007, and now has 25. But New York City has dropped from 45 to 43. So Houston had a net gain of +5 in one year. But that's using city data, not metro. If you count The Woodlands as part of Houston, we pick up Anadarko, for a total of 26 Fortune 500's and a net gain over NYC of +6. Houston stands well ahead at the #2 spot with Dallas (12), Chicago (12), and Atlanta (9) lagging considerably behind.

More and more businesses keep opening in our city and the big businesses keep coming as well. People keep moving here too. Our population growth is one of the top in the country and our job growth is the top. Houston is the #1 job creator in the nation. We need more employee candidates than we already have, however, since our unemployment statistic is practically nil. In fact it's at it's lowest level since 2000. Have you looked at the Sunday Houston Chronicle Employment Section lately!

Construction of new townhome communities and highrises are in progress and more are being planned. Major new office towers are on the drawing board in the different business corridors of the city. Our Class A office space is essentially fully occupied. The Texas Medical Center will soon be the 7th largest "downtown" in the country within the next few years as those current construction projects are completed. All this amid a so-called "recession" and credit crises.

The Houston economy is strong as an ox and indicators are that it will plow forward with continued strength. Sure the rest of the country may be in a crunch but we aren't -- as anyone who pays attention to their environment and not the news would note. Go to the movies on a Friday night and tell me the economy is suffering. Go to the mall on a Saturday afternoon. Go to a restaurant on a Tuesday at lunch or a Wednesday evening for dinner. There's even a wait for breakfast on a Saturday or Sunday!

Our clients who come to Houston from other areas of the country are always surprised by all the cranes and construction projects they see and how busy the restaurants are. While it seems commonplace for Houstonian's, it is not the norm in other areas.

Houston's current standing as one of the hottest cities for business in the nation is due, in large part, to its business-friendly culture, having one of the most rapidly growing populations, a fast-growing and flexible labor market, economical land and construction costs compared with other parts of the country, as well as an affordable cost of living.

Joel Kotkin, an internationally-recognized authority on global, economic, political and social trends, praises Houston as one of America's great cities of opportunity and as a candidate to become one of America's great "world cities" in his article, Lone Star Rising, in the March/April 2008 issue of The American magazine.

Houston's pro-growth, no nonsense politics are major factors driving developers and other capitalistic-minded investors to Houston. Business experts say it's a matter of simple economics — low taxes, affordable land and an expanding labor force.

Furthermore, Barton Smith, a University of Houston economist, said about two-thirds of Houston growth is from migration from other states."That only happens when the economy is doing substantially better than other places," Smith said. "Houston's economy is going to continue to outperform the national economy in a significant way, so when unemployment starts to creep up in other parts of the country, many people are going to leave Michigan and Ohio and Florida and look for jobs here."

"Cost is overwhelmingly the No. 1 driver," said Albert W. Niemi Jr., dean of the business school at Southern Methodist University. And, Lyssa Jenkens, chief economist for the Greater Dallas Chamber of Commerce, said there is a snowball effect — once a few big companies move in, others follow. "They like to be near each other because there are all kinds of services for corporate headquarters - law, accounting, engineering, and information technology services."

While Houston is leading the way in Texas for America's Fortune 500 largest corporations, the State of Texas is king of the hill!

The Lone Star State passed New York as home to the most big companies in the latest list compiled by Fortune magazine. Texas now boasts 58 headquarters, three more than New York, the previous No. 1, and California, with 52.

"While other state’s economies have contracted, Texas’ economy continues to strengthen and expand," said Gov. Perry. "Our educated workforce, reasonable regulatory environment and economic development tools give Texas the competitive edge to compete in a global economy."

FORTUNE 500 LIST

Top Ten Cities (within city limits)
New York 43
Houston 25
Dallas 12
Chicago 12
Atlanta 9
St. Louis 8
Charlotte 7
Columbus, OH 7
Minneapolis 7
Philadelphia 7

In 2007 New York vs. Houston
New York 45
Houston 22
Note: A net comparative gain of +5

Number of Fortune 500 Companies in Metro Area in Texas
Houston 26
Dallas/FW 23
San Antonio 5
Austin 2

Top Ten States for Fortune 500 Companies
Texas 58
New York 55
California 52
Illinois 33
Ohio 28
Pennsylvania 25
New Jersey 23
Michigan 22
Minnesota 19
Virginia 19

Who Are The Buyers For Privately-Held Companies

When selling a business, it is important to know who the buyers are for privately-held businesses and why they buy.

Most owners of small and medium-sized businesses don't think about exiting their business nor do they plan for that inevitable day. They enjoy their work and their lifestyle. Many of them don't even realize that their business may be an attractive acquisition target.

With about 8,000 Americans turning 60 every day, about 20% of businesses owned by boomers will be looking for buyers within the next three years. We are now in the initial stages of what is expected to be the greatest wave of business transfer activity in U.S. history. This future large-scale baby boomer exit will make for a buyer's market for businesses rather than the seller's market that exists today.

If you have been thinking about selling, this article will help you see your company as a potential acquirer might see it. Understanding who the buyers are and their respective acquisition criteria equals better preparedness when the time comes to sell. Having realistic expectations and understanding the factors that drive value in the marketplace will further bolster an owner's readiness for a successful sale. Proper valuation and presentation to the most likely buyers is crucial to achieving a sale for the best price in the shortest time frame possible.

There are three main categories of buyers of privately-held small to midsize businesses: The Individual Buyer, The Investment Buyer, and The Strategic Buyer. Each category has distinctive characteristics and motives for making an acquisition. The price each is willing to pay is directly proportional to their motive.

THE INDIVIDUAL BUYER CATEGORY

The Individual Buyer represents the largest number of prospective buyers for small to midsize privately-held businesses. Target companies typically have gross revenues between $200,000 to $3 million. Why? Enterprises with gross revenues under $200,000 do not provide sufficient net earnings and those with revenues over $3 million become difficult for individuals to obtain the level of financing required and to compete with the other categories of buyers.

Most Individual Buyers seek enterprises that have full-time employees or management in place, documented operating procedures, a diversified customer base, verifiable financial records, and net earnings at least similar to their most recent salary with an upside potential for growth. These qualifiers give Individuals confidence in the business' continuity and stability. Employees who can run daily operations is more appealing than a business that is highly reliant on the owner's presence or is dependent on the owner's personal relationships with customers.

While Individual Buyers may not always know the latest techniques for valuing businesses, they are capable of determining if the business makes enough money to earn a livable salary, pay the debt service on the new loan to purchase the business, and provide a reasonable return on their investment. These factors are the ultimate test to see if the price and terms of the deal make sense.

THE INVESTMENT BUYER CATEGORY

One of the major market shifts for privately-held companies has been the growth in the number of Private Equity Groups over the last decade, they number in the thousands. The Investment Buyer's primary goal is to acquire a company, grow it, and then cash out, usually within five years through either selling the business to a public company or taking the business public themselves. They are primarily influenced by return on investment and prefer to invest in companies with gross revenues in excess of $5 million with superior profit margins. Their targets usually have a unique business model with a sustainable and defensible market niche and position. Other traits that appeal to the Investment Buyer are strong growth opportunities, a compelling track record, a deep management team, low customer concentrations, and insulation from or a strategy to deal with import competition.

The relative sizes of acquisitions by category of buyer (compressed into their broader categories) is shown in the accompanying Table.

THE STRATEGIC BUYER CATEGORY

The Strategic Buyer is usually a public company or a larger privately-held company. Their targets are businesses that would compliment their own and that by combining the two would create a synergy of operations resulting in lower costs, new customers, and other advantages. Strategic Buyers are the most likely to pay more than other types of buyers because they gain a variety of financial benefits and quick business growth.

Synergy means that joining the two companies will produce more, or be worth more, than just the sum of their parts. Here's a simplified example: a large real estate company purchases a mortgage company. It can now use its existing customers (those who buy homes) and offer them the mortgage funds to finance their purchases. The benefits of this type of acquisition help both companies be more competitive and profitable.

Generally, Strategic Buyers target companies that have gross revenues in excess of $2-3 million, offer unique market share not readily available to their own company, such as opening in a new market not previously served or obtaining product lines and/or services not previously provided, but synergistic to their own customer base. Target companies will be especially attractive in industries where economies of scale are possible whereby the acquiring company can obtain significant post-deal expense savings, such as elimination of dual facilities, support staff, or other overhead expenses.

Fortune Small Business Puts Houston in Top 5 Places for Manufacturing

Fortune Small Business scoured the country for the 100 Best Towns To Live and Launch a Business for 2008, as published in April. They looked for towns that combine a great business environment with alluring leisure offerings. They looked at economic conditions such as local taxes rates alongside natural beauty and easy access to museums, and more.

Of the 100 Best Places to Live and Launch, the four major cities in Texas were represented: Georgetown, a suburb of Austin (No. 2), Dallas / Fort Worth (No. 9), San Antonio (No. 34), Stafford, a suburb of Houston (No. 36)

Fortune further spells out some of the benefits of the cities chosen.

7 tax-free havens

Texas was selected as one of the best tax-free havens with business-friendly policies that can save a proprietor big bucks:

Texas

No personal income tax, low business gross receipts tax. Although petroleum refining is one of Texas' primary industries, the state's economy relies on a wide variety of fields, including manufacturing, agriculture and aerospace. Exxon and Citgo are headquartered in Texas, as are Dell, Texas Instruments, Raytheon and Mary Kay. Manufacturers produce clothing, chemical products, food, automobiles, computers and more.

Recently, the governor's office identified six industries in which Texas wants to promote future growth: advanced technologies and manufacturing, aerospace and defense, biotech and life sciences, IT and computers, oil refining and chemical products, and energy, including new energy sources such as wind. The government is cultivating these sectors by connecting businesses with federal and private grants, providing state funds for research, and increasing job training programs. Georgetown benefits from its proximity to Austin, and it boasts a high quality of life, with low crime and plenty of parks, lakes and golf courses. Fort Worth and San Antonio offer big-city environments and jobs in manufacturing, financial services and biotech. Houston suburb Stafford offers a wealth of high-tech opportunities; in addition, the town has no property tax.

5 modern manufacturing hubs

While domestic manufacturing has declined, Houston still draws plants thanks to competitive infrastructure costs, a favorable geographic location, and a strong labor market.

Stafford, Texas (a suburb of Houston)

For manufacturers looking to relocate or start up near Houston, Stafford offers no property tax and low sales taxes compared to neighboring communities. Current residents include Texas Instruments, whose Stafford plant builds semiconductors and microelectronics, and Ion Geophysical, a maker of seismic data equipment. But there's plenty of room for more, according to Jeff Wiley, president of the Fort Bend County Economic Development Corporation. Stafford offers miles and miles of undeveloped land - perfect for building your next warehouse.

Houston Leads the Nation in Employment Growth for Metro Areas in U.S.

According to the U.S. Bureau of Labor Statistics' April 29, 2008 release, the Houston Metropolitan Area is still leading the nation in year over year job growth.

The stats not only indicate Houston as the hottest job market, it highlights the fact that Texas' other three major metro areas are dominating the job scene as well.

Two of the four metros in the U.S. that have added the most jobs are in Texas, Houston being #1 and Dallas/Fort Worth #3.

Four of the five top metros with the highest employment growth rate statistics are in Texas, with Houston, again, being 1, Austin #2, San Antonio #3, and Dallas, #5.

More proof that Texas is doing better than most states when it comes to economic worries is that the four major Texas cities are being called "recession proof", according to Forbes.com April 29, 2008 article that lists Houston, San Antonio, Austin, and Dallas in the top ten most recession-proof cities in the nation. Among other things, Forbes looked at unemployment data and median home prices and credited affordable housing and continued falling unemployment rates.

Houston and the other Texas cities continue to outperform the national economy because we get down to business and have policies that have encouraged growth and the "hot business climate" we enjoy.

Metro Employment Growth Rankings - Bureau of Labor Statistics

Total Employment Growth (year over year)

Most
Houston +80,100
New York +65,500
Dallas/FW +58,200
Seattle +35,700

Least
Detroit -45,300
Los Angeles -35,300
Riverside -21,700
Miami -20,800

Employment Growth Rate of Metros with average employment above 750,000 (year over year)

Houston +3.2%
Austin +2.9%
San Antonio +2.3%
Seattle +2.1%
Dallas/FW +2.0%

Certified Business Brokers' M&A Group Completes the Sale of Multi-State U.S. Firm to International Strategic Acquiror

HOUSTON, TX -- May 2, 2008 -- Certified Business Brokers' M&A Group (CBB) announced the sale of a privately-held, multi-state non-destructive testing company with headquarters in Houston and regional offices in three other states in the U.S. to a multi-national strategic acquiror.

The Houston-based non-destructive testing (NDT) company, which has been providing inspection services to the energy and fabrication industries for over 30 years, engaged CBB to sell the company. Terms of the transaction were not disclosed.

The sale was made to a privately-held corporation headquartered in New Jersey that is well-known for providing complete NDT solutions to satisfy industry, academia and advanced NDT needs worldwide. The acquisition was part of the New Jersey company's continuing growth strategy to strengthen their overall position in the marketplace by expanding through niche acquisitions in the markets it serves.

Certified Business Brokers (CBB), which has sold more companies in Houston than anyone for more than three decades, represented the seller and provided professional marketing, valuation, structuring and negotiation services.

About CBB
Founded in 1974, Certified Business Brokers is the largest business brokerage firm in Texas and one of the largest in the country. The firm was a founding member of the International Business Broker Association (IBBA), the largest business broker association in the world, and a founding member of the Texas Association of Business Brokers (TABB), the precursor and model used to form the IBBA and other business broker associations across the country. Their clients are small to mid-market privately-held companies. Their services include Mergers & Acquisitions, Business Brokerage, and Business Valuations.

More information about Certified Business Brokers is available at (713) 680-1200 or www.certifiedbb.com.

Contact:
Rose Stabler, Managing Partner
CBB - Certified Business Brokers
(713) 680-1200
Email: rose@certifiedbb.com

Buying A Small Business - Does The Purchase Price Make Sense?

When considering the purchase of a business, how do you determine if the price is sound? The following formulas can help quantify that answer.

While this is not meant to be a foolproof analysis, it can help validate the purchase price based on real-life criteria. It takes into account that you:

• need a livable salary
• will have debt payments
• will need working capital at time of purchase
• will need cash for a down payment
• should expect to receive a reasonable return on your cash investment (ROI)
• will want a safety cushion to fall back on

For a simple assessment of a business opportunity, let's assume the following scenario:

• Asking Price for a janitorial company is $500K.
• The janitorial company and the buyer are both qualified for SBA financing.
• Current Federal Prime Rate is 5.25%.
• A SBA loan can be obtained at 7.25% for 10 years.
• Working Capital needed is $25K.
• Seller's Discretionary Earnings is $178K.
• Expected Return on Cash Investment (ROI) is 25%.
• The owner is paying his nephew $20K more than a regular employee could expect to earn.
• The current owner is taking a salary of $60K.

A 20% cash injection as a down payment is a typical SBA requirement, which means $100K in liquid funds is required. Based on a $425K loan ($500K purchase price - $100K down payment + $25K working capital) at the assumed terms and by using an amortization calculator, you would find that the annual loan payment would be $59,880.


Working capital consists of operating expenses such as inventory costs, rent and utility deposits, escrow fees, loan costs, and short-term liabilities. A quick estimate of working capital can be achieved by using the Current Assets less Current Liabilities garnered from the company's balance sheet.


The Table for Seller's Discretionary Earnings delineates the owner's total bottom line benefit as a result of owning the company. This is the total non-business related benefits going to the owner and family members on an annual basis. One-time, non-recurring or unusual expenses are typically things such as a new phone system, website development, outdoor signage or moving expenses. See the Table for other items that are used to arrive at SDE.

Fair market wage is an amount that the owner would pay a hired employee for a particular job. For instance, if the owner has been paying his nephew $40K for a job a new hire could do for $20K, the excess wages of $20K would be added to the benefit column in the SDE Table. As for paying yourself a salary, you can determine what you consider fair wage for what your role would be in the company -- or you can put all of the other numbers into the equation and see what is left for salary. If it adds up to your satisfaction, then so far....so good.

ROI for the purposes of this exercise is calculated by multiplying the cash investment by a reasonable interest rate that should be expected on the investment. This is a subjective percentage and a change in this number can substantially change the result of the analysis.

Investment options, such as putting your money in U.S. Treasury bonds has little risk, therefore only 4.5% interest is received. The stock market option, on the other hand, has a higher risk with a higher average ROI of 11% (source: Ibbotson Associates). Venture Capitalists investing in risky internet start-up companies might look for 45%+ ROI. None of these options, however, puts the investor in the driver's seat -- there is absolutely no control over the performance of the funds in which they invest.

Historical data indicates that a 25% ROI is reasonable for a medium to low risk small business acquisition. The greater the risk of the business, the higher the rate of return should be.

As evidenced by the 25.8 million small business owners across this country (source: US Small Business Administration), there are many people who choose to have complete control over the ultimate success and performance of the money they invest through business ownership.

Let's plug all the numbers into the Final Analysis Table to determine the soundness of the purchase price of the business opportunity at hand. The return on the cash investment was calculated by multiplying $100K (cash down payment) by 25%.


After deducting wages, debt service, and a return on your cash investment from the earnings, the business still generates $33,100 in additional funds to take vacation with the family, or increase marketing efforts for the business. You almost have enough to hire a manager to run the business for you. Now would you buy this business under these circumstances? One might suspect the answer would be, yes!

Of course this is a simplified assessment and not all factors are considered, such as growth potential, equipment condition, and other issues that should be considered when determining risk and working capital that might be needed to keep the company viable and growing.

Houston From A Chicago Point Of View

I found this post by Chicago Addick interesting and comical as he describes the wonders of Houston from a Northerner's point of view. The writer seemed amused, amazed, appreciative, and condescending all at the same time:

Houstonians spend more time in their cars than their homes and perhaps then understandably spend more money on their car loan repayments than their mortgages! Houston sprawls for over 600 miles and is connected by a spaghetti of freeways and highways.

Two million people live in America's fourth biggest city that grew from wilderness to a booming economic centre. Only New York is home to more Fortune 500 company headquarters.

In 1901, a year after displaced Texans from coastal Galveston moved inland to Houston following a deadly hurricane, oil was discovered at the Spindletop oil field near Beaumont. Much money was then invested in the ship canals and later into the formation of the Port of Houston, now the largest in foreign imports in the US, which includes nearly all European cars sold in this country.

In 1950 Texans found air conditioning, something that if it were to disappear tomorrow, then so would Houston. With air conditioning came an impetus for companies and employees to migrate from the cold manufacturing 'Rust Belt' states such as Ohio, Michigan and Indiana to the warm south. The energy sector grew and the space industry began with NASA's space centre being established in 1961. Now known as the Lyndon B. Johnson Space Center, the huge complex situated southeast of the city is also the base for the Mission Control Center that coordinates and monitors all human spaceflight for the United States.

In 1961 to commemorate Houston's new space age the Astrodome opened, which was the first ever roofed stadium in the world. Sadly locals now call it the 'Lonely Dome' as it is rarely now used. There is talk of it being turned into a hotel as preservationists fight against calls for it to be demolished.

The Houston Astro's baseball team now play at Minute Maid Park, or the 'Juice Box' as fans call the 41,000-capacity stadium with a retractable roof which we saw wide open as we drove by on Friday evening as they entertained the Rockies. Minute Maid Park is actually wired for wi-fi, can you image how that would change blogging on the Addicks?

The countries 4th biggest city is well served by sports teams, sorry franchises. The Houston Texans are the NFL team, you may remember the Houston Oilers like I do, well they decamped to Tennessee in 1997, changing their name to the Titans. The beauty of franchises eh?

The very good Rockets are the basketball team with the amazing 7ft 6in Yao Ming and the Houston Dynamo's are the MLS soccer team and the defending champions incredibly winning the MLS Cup in both seasons since their formation. They average 18,000 playing at Robertson Stadium within the University of Houston campus.

Houston's sprawling landscape has mainly been allowed to happen because of the lack of zoning regulations. Therefore multiple districts have grown in different parts of the city, and with public transport being restricted to the odd bus (I saw one all weekend) and a light rail line that runs for 8 miles from the University of Houston to the business district Downtown, which is kind of an anomaly as there is more than one business district, SUV is king helping make Houston one of the most polluted cities in the US.

Downtown however has the largest assemblage of prominent companies and buildings including the JPMorgan Chase Tower, the 36th tallest building in the world (above). Many of the buildings are connected by an extensive network of pedestrian tunnels and skywalks, air-conditioned of course!

We didn't spend a lot of time exploring the main districts, spending the majority of the weekend in the car, do what the locals do, see? Trouble with that is that I never really got a good feel of the place because you just don't see anyone.

One area we did get a perspective on was the Galleria, part of what is called Uptown. Uptown is the centre of Houston's shopping and where most of the hotels are situated. The Galleria is Texas' largest mall and contains 375 stores. Okay before I lose your attention....

On Sunday we drove out to Old Town Spring, half an hour north of Houston, which was a step back in time to a charming old Texas town known for it's antique shops. The place was packed with people travelling into Old Town Spring to witness the annual Texas Crawfish Festival. Live music, fried food, fairground rides and rodeo was what people were here for and of course crawfish. I'm not sure if you've ever eaten crawfish but they are shrimp-like creatures boiled and seasoned but a bugger to shell, messy and not exactly filling once you've swallowed one!

There certainly were some sights to behold at the Texas Crawfish Festival, the crawfish were certainly not the only crustaceans boiling in the midday sun. As I said in the car on the way back to civilisation, I'm reasonably well-travelled but I will never cease to be startled by the way some people live their lives in parts of this vast country.

On Saturday we drove out to Montgomery, a tiny place (pop: 489) but the birthplace of the Lone Star Flag. We made a short stop for a malt shake in Huntsville and bizarrely watched a rugby match for a while before carrying on to Lake Conroe for lunch. It's a pretty lake, man made and running through the Piney Wood Forest about 60 miles from Houston. This area is a booming suburb and I'd imagine in a city known for it's grisly traffic, this part of the I45 Freeway is a busy road during the week but at least you have to pleasure to drive past the aptly named Addicks Humble (below).

Conversely the River Oaks neighbourhood is very walkable. A stroll around some of the residential streets will remind you, in case you'd forgotten, where all of that money goes after you've filled the car up. Ex-Enron chief Jeffrey Skilling was a resident of River Oaks, one of the wealthiest zip codes in the USA, but he now lives in a Minnesota prison.

River Oaks Country Club was hosting an ATP tournament the weekend we were there, and my mate blagged his way in amongst the stetsons.

There is lots of window shopping here and some of the cities best restaurants. We went to Mark's on Sunday night, and although my tuna was a bit overcooked, although a good deal tastier than a crawfish, the service and the 1920's renovated church in which the restaurant is set was fabulous.

The back of the car is not the best way to judge a city but there is no other way in this huge patchwork quilt of locales which all conspire to make this spirited oil-fired city a melange of industry, architecture, shopping and space each connected by a myriad of big, big roads.

Got Business? Houston Does -- Here's Why!

The Houston metropolitan area ranked fourth in the nation for overall population growth between 2006 and 2007, according to new census data released last month. The increase is attributed to our job market and booming economy.

We have full-occupancy in our Class A office space, and we have experienced the #1 job-growth rate in the country (U.S. Bureau of Labor Statistics) due to the opportunities available in our expanding market.

Barton Smith, a University of Houston economist, said about two-thirds of Houston growth is from migration from other states.

"That only happens when the economy is doing substantially better than other places," Smith said. "Houston's economy is going to continue to outperform the national economy in a significant way, so when unemployment starts to creep up in other parts of the country, many people are going to leave Michigan and Ohio and Florida and look for jobs here."

Many Texas cities enjoy a strong economy and low unemployment and as a result Gov. Rick Perry announced March 10 that an estimated 370,000 Texas businesses will be getting a tax cut of $90 million.

"I believe in truth-in-budgeting: when government levies a tax and collects more money than is needed, we must either stop collecting the tax, return the money or both," said Perry in a press release. "Thanks to our healthy economy and low unemployment rate last year, the state collected more money for the unemployment trust fund than we need, which is why I'm directing the state to bring that tax to a screeching halt for this year."

In 2007, Texas created more jobs than any other state in the nation, resulting in record-low unemployment. Texas economy is strong for a reason. Lower taxes and friendly policies lure business. "Houston is probably the state's biggest economic hot spot thanks to its sheer size and broad-based growth and booming energy industry," says senior economist Rakesh Shankar in his Texas economic forecast through 2008 for Moody's Economy.com.

Case in point, The Wall Street Journal recently wrote a comparative analysis piece examining the differences between the economic vitality of Texas and Ohio. In this editorial, the authors discuss the approach each state takes with regard to their economic policies and how policymaking impacts the business climate and overall economic health of a state.

This article points to the fact that Texas has gained 36,000 manufacturing jobs since 2004, while 200,000 manufacturing jobs have left Ohio since 2000. Many of the businesses that have left Ohio are simply relocating to more business-friendly states, like Texas. In fact, Houston is the #1 manufacturing employer in the nation!

The editorial cites several reasons to explain why Texas' economy continues to grow while the economies in Ohio and some of its neighboring states are becoming more unstable. One reason is the affordable cost of living in Texas. Unlike Ohio, which has one of the highest personal income tax rates in the country, Texas has no personal income tax. Also, Texas is a right-to-work state, whereas unions still heavily control a number of industries in Ohio.

"If we are to continue to prosper, we must preserve our business-friendly climate in Texas. This means we must keep taxes low, maintain a reasonable regulatory climate, and promote and reward free enterprise," says Republican Texas State Representative Ken Paxton.

This kind of thinking has long been part of the Texas mantra. So I feel it apropos to finish this Houston's Got Business post with a June 14, 1916 quote in New York Times article, "Houston Tax Plan Brings Prosperity." The article quoted J. J. Pastoriza, then Tax and Finance Commissioner of Houston:

"Never tax anything which is produced by the industry, enterprise, or ingenuity of man, because to do so will tend to decrease the sum and increase the cost of such products. The fewer restrictions, both as to taxes and regulation, which a city places upon business or products, the faster, greater, and wealthier will that city grow. The power to tax is the power to destroy as well as the power to build up. Houston decided to use this power to construct and build a great city, rather than to retard or destroy one."

Inc. Magazine - "It's a Seller's Market for Buying Businesses."

It's all about supply and demand.

Potential buyers and sources of capital for the acquisition of profitable privately-held companies is plentiful while the supply of businesses on the market is not. This makes a profitable, established business a hot commodity and in demand. Inc. Magazine spells it out in this month's issue, "The Most Valuable Businesses in America."

During my first conversation with Darren Dahl in February, in preparation for his writing the article for Inc. Magazine, he wanted to understand what drives the value of a business and why some businesses are more desirable than others.

I first described the Houston marketplace, which enjoys one of the top economies in the nation. Location, location, location is always a value driver, and a business location is no exception. I've been writing about Houston's hot economic climate for over a year now and told Mr. Dahl that Houston is a "bulls eye" target for business acquisitions because of it. We cannot satiate the marketplace of buyers because there are not enough businesses currently for sale.

Good businesses are in short supply. The number of buyers looking to buy a business far exceeds the number of businesses available. So when a new business hits the market it will usually sell very quickly if the owner's expectations are realistic, if their financial history and data are upward trending and in good order, and is marketed properly.

We have buyers lying in wait for businesses such as these and are ready to act quickly when one comes along. They know that if they don't pull the trigger, they will miss out to someone else who will.

One of our "Serial Entrepreneurs," as described in Inc.'s article, agreed to a conference call with myself and Mr. Dahl, and pretty much described what makes him tick and what he looks for and why. Entrepreneur Gary has been working with Don Piercy, one of our staff of professional brokers, for several years and has four businesses in his collection and is currently in the process of acquiring his fifth. We thank Gary for taking time out from his very busy schedule to share his viewpoints.

In continuing the issues surrounding value, while a price tag can certainly be put on any item for sale, including a business, price doesn't mean value. Value is in the eye of the consumer. It is the perceived benefits that the business represents to the market of buyers that makes it valuable. Perceived benefit, or value, looks different depending on who's looking. And, ultimately, the price that will actually be paid will be determined depending on how MANY are looking. Which means if lookers are plentiful, demand is high. The price will reflect that demand.

I further explained that while the reasons that business owners of small privately-held enterprises sell do not vary significantly, the reasons for buying do. I described the various categories of buyers and their respective acquisition criteria and told Mr. Dahl that the price each type of buyer is willing to pay directly correlates to their motive for the acquisition. This is why it is important for business owners to know who the most likely buyer would be for their company prior to going to market.

It was then that Mr. Dahl decided to focus part of his article on the buyers rather than just the attributes of the business. Inc. Magazine's article covers the U.S. market as a whole and does not describe all buyer types. But it definitely describes the current Seller's Market that exists for profitable businesses for sale today.

In closing and of particular relevance, is that 8,000 Americans are turning 60 every day, which means about 20% of businesses owned by boomers will be on the market within the next couple of years. About 65% to 75% will be exiting within a decade, which means we will experience what is expected to be the greatest wave of business transfer activity in U.S. history. The future large-scale baby boomer exit will make for a buyer's market for businesses rather than the seller's market that exists today.

Not only is this important for those owners of small businesses who are considering their exit, it is essential to the economic vitality of our country that these firms successfully transfer to new ownership. The estimated 25.8 million small businesses in the United States have a huge impact on our economy. Outlined below are powerful statistics that speak to the importance of the continuity of these enterprises. Small businesses --

• Have generated 60 to 80 percent of net new jobs annually over the last decade
• Employ 50.6 percent of the country’s private sector workforce
• Represent 97 percent of all the exporters of goods
• Represent 99.7 percent of all employer firms
• Generate a majority of the innovations that come from United States companies

Source: U.S. Small Business Administration

Read Inc. Magazine's Full Article

Selling Your Business - Exit Strategy Seminar

Certified Business Brokers (CBB) will host a breakfast Exit Strategy Seminar on April 10, 2008 in Houston's Galleria Area. The seminar team will consist of CBB's M&A Group, Merrill Lynch Wealth Management Advisors, as well as Tax, Legal, and Accounting professionals. The seminar will cover key issues surrounding the successful sale of a privately-held company:

• Maximize your company's value.
• Who would be the most likely buyer?
• Understand the sale process.
• Plan for retirement.
• When is the right time to sell?
• Minimize post-sale taxes.

The seminar is free. Breakfast will begin at 7:00 AM and the presentation will begin at 7:30 AM and be completed by 9:00 AM. For details about location and to reserve your seat, please email rose@certifiedbb.com or call our office at 713-680-1200.

People put tremendous thought into launching a business. They should put equal planning into selling one.

Typically, business owners are so busy handling daily operations that they give little thought to what they’ll do when it’s time to retire, sell, or turn over control. Suddenly, that day arrives.

Which means these business owners are not completely prepared for the sale of their business. Making the shift too quickly or without proper planning can make a difference in the proceeds received from a sale. This affects retirement, estate taxes, sales taxes and even the business’s worth at sale time.

It is all about planning, preparation, timing and execution.

We will discuss the current Houston economy and the current business transfer marketplace. We will walk through the sequence of events involved in the entire sale process from valuation, right-timing, to what to expect after the sale.

Merrill Lynch Wealth Management Advisors will discuss retirement strategies and how to best invest your after-sale proceeds to sustain your lifestyle through your retirement years. Tax, legal, and accounting professionals will be addressing those aspects of the business sale transaction.

Buying a Business - Huddle with the Experts

Acquiring a business is a team effort and finding the right business broker (intermediary) is just the start of building your squad.

Oftentimes, buyers do not know how to go about tackling the whole process of investigating the business they like or how to evaluate the financial data. This questions represents a common real- buyer inquiry:

"I'm ready to purchase the freight company I've been looking at that's currently listed for $1.2 million. I've never bought a business before and I need someone who can help me through the various phases so I don't overpay and don't miss key legal issues that might be involved. Where can I find such a person?"

The answer is: You need more than one person.

Making a business acquisition is a team effort, and your business broker, also known as a business intermediary, is the quarterback. The broker drives the deal by acting as the buffer and go-to guy with the buyer, the seller, the attorney and the accountant. We do everything to move the deal along, including coaching and some tactical rational