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Supplier Concentration And Business Value

Concentration in the acquisition world is a bad word. Businesses with high supplier concentration attract fewer buyers and this lowers the price. What’s too high? Having a supplier with 40% of your business is too high. Diversify if at all possible.

When buyers look at a company for sale, they look at risk. Supplier concentration is one of the top risk factors that are examined. Why? Because if customers push the throttle, the suppliers furnish the gas. A company cannot sell its products to customers if it cannot secure what it needs from suppliers. Any adverse change in a company’s relationships with its key suppliers, or loss of the supply of one of the company’s key products, could have an adverse effect on the business. Therefore, the nature and stability of suppliers is an important consideration in identifying a company’s risk.

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Don’t Fall For It: The 5 Mistakes Business Owners Make When Dreaming Of Selling Their Company

If there’s one thing I’ve learned in my years of working as a Certified Financial Planner™, it’s that entrepreneurs are a special breed of people. They’re motivated. They’re inspired. They’re incredibly tenacious. They’re smart. They’re optimistic. And they know how to get what they want.

 

On the flip side, many entrepreneurs are guilty of being a little pie-in-the-sky—especially when it comes to their own businesses. Unrealistic expectations of the exit process can both hinder the sale of a company and affect the morale of an entrepreneur getting ready to sell. Be wary of the mistakes below and you’ll enter the exit-planning process better informed, better equipped strategically, and more likely to enjoy your sale process.

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The Best Time To Sell A Business Could be Right Now!

By Jim Stauder The Dow Jones closed at an all-time high on Friday, September 19, 2014. And the NASDAQ and S&P were within ¼ of 1% of their all-time highs. As a result, corporations, private equity groups, and individual investors are flush with cash – trillions of dollars. Where can they go with all that cash? Interest rates are so low that fixed income investments are not attractive. Whereas it’s typical to have a stock market correction (10% tumble) about once every 1 1/2 years, it’s been almost 3 years since the last correction. With international tensions in Ukraine, Russia, Iran and the Islamic radical group ISIS setting its sights on terrorizing the US economy, how much longer can the (stock market) good times last? Where can that cash best be used to achieve adequate returns on investment? The answer – business acquisitions. The buyer demand for good businesses with good cash flow has always exceeded the supply of good businesses available for acquisi ...

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Business Goodwill vs. Personal Goodwill & How They Impact The Sale Price Of Your Business

Let’s start by defining the word “goodwill,” in the context of valuing a business.  The fair market value of any business is made up of the value of tangible assets (inventory, accounts receivable, equipment, land and buildings, etc.) and the value of intangible assets (customer lists, brand awareness, proprietary processes, etc.).  Some intangible assets are specifically identifiable and can be valued; the rest make up “goodwill.”  In most business valuations, the amount by which the fair market value of the business exceeds the value of its tangible and identifiable intangible assets is considered “goodwill.” 
 
From a purchaser’s perspective, goodwill is the premium they are willing to pay for a particular business, rather than just buying the tangible assets directly and starting the business themselves.  It represents the investment they are willing to make to buy an existing business, based upon the incremental income and cash flow it generates over starting the same business from scratch.
 
Valuing goodwill is by far the most challenging aspect of determining the fair market value of any business.  And it generally makes up the majority of the difference between what a seller is hoping to be paid, and what a buyer is prepared to pay, for any business.

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Learn From Other People's Mistakes: 8 Sure-Fire Lessons Before Selling Your Business

Selling your business is the most important transaction you will ever make. It would be a shame to spend 20 years building your business like a pro, only to exit like an amateur. By avoiding these eight common novice mistakes you’ll have a more profitable and satisfying experience.

1. Selling Because of an Unsolicited Offer To Buy

Got an offer from a competitor? Or, perhaps a Chinese company looking to buy a customer base in the U.S. These are not unusual occurrences these days. There are countless stories about a competitor coming in with a spontaneous, unexpected offer and after a little light negotiating the owner sells. Another common story is the owner tells his banker, lawyer, or accountant that he is considering selling. His well-meaning professional says, “I have another client that is interested your business. I will introduce you.” The next thing you know the business is sold. Believe me, these folks are buying your business at a big discount. If you previously were not considering this business sale, you probably have not taken some important steps to improve business value and optimize your exit. You may not have prepared for an identity and lifestyle to replace the void that will be left by the separation from your company. Wouldn't you rather be prepared and exit on your own terms….better terms.

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Planning To Sell Your Business In The Next Three Or Four Years? --> Start Working On It Now.

Written By: Tom Scharf, Partner at Walthall CPAs When getting ready to sell a house or a car, the first thing people do is clean it up and get rid of the clutter. It is not different when selling a business. The process just has to begin much sooner. Buyers look at the past three or four years of financial performance, so that is when the cleanup process should begin. Sellers need to look at what the future buyer will be looking for and organize appropriately. It is important to consider the following before deciding to sell: Are you taking out too much compensation, travel, entertainment or other related expenses? -- This may save you money on income taxes, but buyers have a difficult time differentiating between what is required for business and what is excess. A buyer may agree to pay x-times, so an additional $100,000 of expenses could cost you hundreds of thousands of dollars in sale value. With excess expenses, your bottom line or net income is lower, which makes the profitability and the amou ...

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Buying A Business? | Buyer Beware: Do You Really Want to Meet Employees Prior to Closing?

As intermediaries, we always look to protect our clients. When a buyer wants access to employees before closing, the risks to the seller are numerous and obvious (loss of confidentiality, disruption to the business, concerned employees, etc.). However, if these are the only arguments made when representing a seller, the buyer may not see the entire picture and perhaps even feel that some of their concerns are being validated. The key is to express to the buyer why it is not in their own interest to let the cat out of the bag prior to closing.

Now, there may be some exceptions, such as a key employee, manager or member of a bona fide executive management team (rare for a small business). Even in these instances, you will want to carefully consider the timing and nature of bringing others into the fold. Also, please note this advice pertains primarily to main street transactions and some at the low end of the lower middle market.

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Buying Or Selling A Business? -- Is It SBA Financeable?

There is a general misconception in the small-business acquisition marketplace that a person could easily purchase any type of business through the SBA with a low down payment and get a loan for the rest. Most people also believe that SBA loans are a major source of small business financing. But data shows that SBA-guaranteed loans make up a small portion of the value of the overall small business lending market.

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14 Karats of Knowledge for Preparing Your Business for Sale

Selling your business is no stroll in the park. You’ll need the right motivation, a ready mindset, and something attractive to sell. So, a key factor to a successful sale is preparation. The more effort you spend preparing your company for an eventual sale, and understanding the factors that make a business sellable, the more attractive your business will be to prospective buyers. Keep in mind that just because your business is making a profit, doesn't necessarily mean it's attractive.

 

Ready up with these 14 karats of knowledge to help you get a golden deal:

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Deal Momentum: A Key Factor When Selling Your Company

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.

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