Looking for tips and common questions that sellers should be prepared to answer before talking to a buyer.
When you sell your business, it's common practice to provide training for the new owner. But what does new owner training involve? What are your responsibilities? And how long will you will be "on the hook" after the deal has closed? The whole idea of training the new owner may seem alien to the Seller. After all, why would someone purchase a business they aren't capable of operating? But in reality, people with relevant backgrounds, can and do, with limited training and experience regularly purchase small businesses. They probably have experience in either the industry or business management aspects, but maybe not both. Seller training gives them a crash course in their area of weakness and prepares them for the real world challenges of running the company on their own.
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Selling a company is no small feat. It can be time-consuming and stressful. It demands meticulous planning, competent advice, and a keen understanding of the dynamics of negotiation and deal-making. CEOs and companies inexperienced in the M&A process commonly make mistakes that can undermine a deal, resulting in a less favorable price—or even kill the deal outright. These are the most common mistakes. Avoid them at all costs if you want to get the most out of your deal: Having unrealistic expectations about the time and effort the deal will demand of you. Deal-making takes time and expertise. Not creating a competitive bidding process. You must make your business appealing to multiple buyers to drive up the price. Poorly-crafted or nonexistent NDAs. Confidentiality is money when it comes to deal-making. An incomplete or nonexistent online data room. Buyers need ready access to key information to review for due diligence. If they can& ...
Research shows optimism among small and medium business owners in Houston reaching an all-time high. This optimism can translate into results. Year 2018 might be the ideal time to sell your business in Houston.
Years 2018 and 2019 may be ideal times to sell your Houston business. Values have never been higher, particularly for well-run companies. We’re also beginning an upswing in economic cycles.
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. Usually the best time to obtain the highest price occurs when sales and earnings are good and trending upward. A solid earnings trend will enable a buyer to pay a higher price and still meet his return of investment criteria. A history of good performance also gives the buyer confidence in projected future earnings.
Circumstances that give a business an advantage over its competitors, strengthen its strategic position, or can be leveraged for future gain boosts business value. Why? Because it increases the probability of the continued future profitability of the business and decreases perceived risk by prospective buyers. As with all value drivers, it’s about risk. Lower risk achieves higher value. Buyers will pay a premium price for a business that has barriers to competitive entry.
One way to describe this Barrier Value Driver is to use Warren Buffet's term, "Business Moat." Buffet compares a castle's moat to the protection that a business needs to ward off encroaching competitors. The wider the moat, the more easily a company can be defended and the longer it can protect its profits. A company with a narrow moat does not offer these protections.
As an avid wine fan and wannabe aficionado, I can’t help but notice the parallels between winemaking and the principals involved in effectively building a successful transferrable business. Frank and I often visit Napa Valley touring our favorite vineyards......and marveling at the amount of care and knowledge required to grow the perfect grape. Each Grapevine Grows Differently In business, there are a few universal truths that are required for long-term stability. For starters, you must have an excellent product or service targeted to a specific market at the right price point. The infrastructure necessary to build and deliver your product must have a solid, well-structured foundation on which to build your business and the right people in the right environment. Finally, sustainable success requires flexibility in meeting constantly changing business needs.
There is little doubt that valuing a business is often complex. In part, this complexity is due to the fact that business evaluation is subjective. The simple fact is that the value of a business is often left to the mercy of the person conducting the evaluation. Adding yet another level of complexity is the fact that the person conducting the valuation has no choice but to assume that all the information provided is, in fact, correct and accurate.
In this article, we will explore the six key issues that must be considered when determining the value of a business. As you will see, determining the value of a business involves taking in several factors.
A number of factors, including record-high 2017 M&A activity and the passage of tax reform legislation, indicate that 2018 will be an excellent year for business owners to move forward with transitioning out of their businesses. If you’re a business owner who is thinking about selling or transferring your business to someone else within the next few years, the time to start preparing is now!
Increased 2017 Q3 M&A Activity
2017 is on track to set a record for the highest number of businesses changing hands since 2007, according to BizBuySell.com's Third Quarter 2017 Insight Report. And, there was an increase in M&A activity by private equity and strategic corporate buyers in Q3 of 2017 compared to Q2, according to the Q3 2017 Market Pulse Report published by the International Business Brokers Association (IBBA), M&A Source, and the Pepperdine Private Capital Market Project. The report attributes the increased activity largely to the strong demand for add-on acquisitions.
Approximately 55% of business brokers and advisors who were surveyed as part of the Q3 2017 Market Pulse Report expect the shrinking labor market will cause more business owners to expand through acquisition. In Q3, around 90% of deals in the $5MM-$50MM range were acquisition or add-on growth opportunities, compared to 60% in Q2 2017.
It would be nice to live in a world where every business-for-sale was sold at top dollar. While there is no such thing as a perfect business free from all defects, there are a number of problems that can hinder a sale that could be remedied, if given enough time. This article lists ten of the reasons which are often cited as contributing factors in an unsuccessful sale or a completed deal for less than potential value. Business intermediaries need to be up-front with their seller clients, educating them on the challenges faced, and the likely impact that one or more of these issues will have on completing a successful transaction.
1. UNREALISTIC EXPECTATIONS
a. Valuation/Listing Price
Arguably, the price a business is listed at is one of the critical elements to a successful sale. An owner’s emotional attachment to their business, coupled with an inexperienced business intermediary’s desire to obtain the listing and please the seller, can be a recipe for disaster. Overpricing a business will deter knowledgeable buyers from establishing communications. Additionally, it will be extremely difficult to defend the valuation when a business has been priced unrealistically. The typical outcome is that the listing will languish in the marketplace and recovery becomes more difficult. Once on the market for months on end at the wrong price, the process in re-pricing and re-listing creates a whole new set of challenges, the least of which is maintaining credibility.