Looking for tips and common questions that sellers should be prepared to answer before talking to a buyer.
It’s no fun telling a songwriter his song is bad. Telling an author her novel won’t sell takes nerves of steel. Telling a business owner his business is overvalued is no way to make a friend, much less gain a client.
Marvin (not his real name) was flat P-O’ed at me. When I told him how a buyer would look at his business, he told me in no uncertain terms he was not going to hire me because I didn’t know the market and didn’t appreciate how hard he’d worked over the years.
After almost 30 years of buying and selling businesses, I understand that it’s common for a business owner to have an unrealistic valuation expectation. This disconnect can be exacerbated by a business broker who is not honest with the business owner. Too many business brokers will tell an owner what the owner wants to hear about his valuation in order to get the listing, hoping the owner will lower his expectation if an offer comes in.
But here’s the deal, over-priced businesses usually don’t generate quality offers. For me, I take the honest approach and tell my clients in advance what they can reasonably expect to get for their business. Sometimes there is fallout like Marvin, but most times, an owner will recognize and appreciate my honesty.
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When selling a business, time is not your friend. Time is the enemy of all deals. In fact, "time kills all deals" is an expression that can be associated with a number of different industries, but is especially relevant to business acquisitions. So, the key to a successful deal is to prepare well, come out strong and maintain momentum throughout the business sale process. The deal clock is set in motion as soon as your company hits the business-for-sale market, not later in the process when a buyer presents the first offer.
So, to generate deal momentum, a business owner should be ready for the trip to the marketplace before the train leaves the station. This means organize your documentation and vet potential roadblocks that can derail or delay the process.
Don’t let time work against you. Ready up with these tips to reach a timely closing:
No matter how the real estate is held, many owners desire to sell the real estate with the business. There's only one problem. Many buyers that will want to acquire your business will not have the capital to also acquire the real estate. Or they may feel that parking a significant investment in real estate makes a large portion of their investment capital unavailable for growing their new enterprise. The ideal scenario that creates the largest buyer pool is for the seller to offer the real estate for sale or for lease at the option of the buyer.
If you are looking for a profitable, well-run business to acquire, you are not alone. Right now, there are not enough businesses for sale to meet buyer demand, as reported by a Market Pulse Survey in early 2017 sponsored by the IBBA (International Business Brokers Association) and M&A Source. The survey was conducted with support from the Graziado School of Business at Pepperdine University.
Not only are there not enough businesses on the market to satisfy the number of buyers looking for an acquisition, there's much more capital available than there are companies to buy, as indicated in Deloitte's Perspectives Report.
As soon as a solid business goes on the market we see well-prepared ready-and-able buyers competing to put themselves in front of the Seller. Buyers must be prepared and ready for the competition and be able to move quickly.
The business sale process typically begins with an initial inquiry stage, during which owners try to get an idea of what their businesses are worth and whether selling makes sense. They are "sale curious" and have been thinking about it more than a time or two. When a business is sold, big or small, taxes are inevitable. Three reasons that selling a business in the Trump presidency might be beneficial...here's a look into Trump's proposed tax changes, and what they can mean for selling a business in the upcoming year. Three reasons that selling a business in the Trump presidency might be beneficial...here's a look into Trump's proposed tax changes, and what they can mean for selling a business in the upcoming year.
A record number of small businesses were bought and sold in America in 2016, topping 2015's totals by 8.6 percent and 2014's previous high by 4.6 percent. Will this momentum be sustained? According to Deloitte's year-end report "activity is poised to accelerate, perhaps significantly." Primary factors for the bullish outlook are stock prices at historic levels, interest rates... despite the forecast for an increase...remain near or at historic lows, an improving business environment, more qualified buyers on the market, and much improved financing options.
The following data shows a snapshot of 2016 market statistics for the Greater Houston Metro Area. A total of 66 U.S. metro areas were represented in a report by BizBuySell from data provided by Business Brokers. Most businesses are valued based on a multiple of adjusted earnings.
One of the most challenging aspects of valuing a small business is Recasting Financial Statements using cash flow adjustments, also known as “add-backs”. Larger businesses tend to have CPA-reviewed or even audited statements and adjustments may be limited to officer compensation or bonuses. However, for smaller businesses, it’s no secret that owners try to limit their tax liability by expensing personal or “non-operational” items through the business. The concern for outside parties is typically twofold: (1) will a lender accept this and (2) can it be verified? Add-back acceptance is a grey area, most likely falling under prudent lender policy. Although there is no right or wrong answer, I would ask the following questions to help determine if the addback is reasonable from a financial point of view: Is it verifiable? Add-backs such as unreported income or family wages being paid from cash cannot be verified and therefore should not be consid ...
The Future for Small Business Owners has a Brighter Outlook -- Thanks to 2016 Election Results!
Are you a business owner at that stage in your life where you are contemplating the potential sale of your company? Undoubtedly you have thought about selling a time or two and truth be told, 100% of all business owners have from time to time. It's perfectly normal to question why, when or how to sell your business. The main key to a successful sale is preparation. Keep in mind that whatever you put into the process is what you will get out of it. Understanding the selling process and being prepared are the key indicators that will establish the tone of selling your business and help you be more comfortable when you are ready. The selling process is important and requires a huge amount of commitment. Selling your business needs to be a calculated decision based on many actors. Therefore, when you are ready, recognizing "The 10 Do's of selling your Business" will position your company at the right place and help you understand the ins and outs of the process a bit better. Do... Ensure it's the ...
When looking for a business to purchase, most prospective buyers have an initial list of qualifying questions they ask an owner of a business they are interested in. In addition to this baseline information, buyers may use the first couple of meetings or calls to get a clearer understanding of the business and to assess its risks and upside aspects.