Determine Why a Seller is Selling
By JoAnn Lombardi, President of VR Business Sales/Mergers & Acquisitions
When looking for a high-quality company to acquire, it does not take long to discover that it’s a seller’s market out there at least at that moment. For every business in your targeted industry worth owning, many more will turn out to be troubled, a poor fit or maybe both. That’s why due diligence is such an important part of the acquisition process.
Before purchasing a business, it’s important to thoroughly understand the company’s you are considering and a big part of the understanding is getting a handle on why the current owners are looking to sell their stake. Doing so may help you avoid overpaying for an acquisition or even spare you from making a very costly mistake.
Do Your Homework
Sellers may have good reasons for wanting to sell with equally good reasons for not wanting to share that information with you. Look beyond the seller’s words and search for any unstated motives, including:
Personal issues. Has the company lost key executives or employees that were vital to its past success? Can the company continue to be profitable in their absence? Try to determine why those employees left. The same reasons that motivated them to depart might be reasons for you not to buy.
Cyclical factors. Is the company in an industry whose best days are behind it? Is the company’s business vulnerable to economic cycles and has it recently passed a significant peak? The more you know about the dynamics of the company’s business and industry, the less likely you’ll be to buy into a long-term unprofitable situation.
Competitive pressures. Is significant new competition threatening the company? Are new products from competitors coming to market that will reduce market share? Is the business underinvested in technology, giving other companies an edge in meeting market demands?
Legal concerns. Does the company face litigation risks that have the potential to become more expensive than advertised? If so, investigate carefully. A bottomless pit of legal expenses could make you wish you had never heard of the business.
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Frequently Asked Questions - The Challenge of Selling Your Business
By Peter C. King, CEO of VR Business Sales/Mergers & Acquisitions
If you are considering selling the company that you worked so hard to build, you know the importance of finding an excellent business intermediary. When choosing the individual and organization that you are going to trust with such an important life-changing event, VR suggests asking these questions when looking for Valued Representation:
- Do you and your firm specialize in only selling businesses?
- Are you a full-time professional business intermediary?
- Do you recast my financials?
- Is a market value analysis completed?
- Do you prepare a comprehensive business profile?
- Are buyers required to complete a buyer profile?
- Are all qualified buyers required to sign a Nondisclosure Agreement?
Is The Process Confidential?
All VR advertising is done in a “blind” format that eliminates any detailed information or specific location so that competitors, staff, customers, and suppliers do not know it is your company for sale. Prospective buyers only receive information regarding your business AFTER they have signed a Nondisclosure Agreement and Confidentiality Agreement. They are also required to complete a Buyer Profile with information regarding their financial position and the ability to complete the transaction in a timely manner.
What Is My Business Worth?
Business value is driven by earnings – specifically Discretionary Earnings – which are the total earnings for the business after all the owner benefits are adjusted. The size of the business, industry type, and recent growth trends also affect value. VR will prepare a Market Value Report for your business and take the time to review it with you.
What About Taxes?
Your trusted VR Intermediary will work with your accountant or tax advisors to minimize your tax liability by structuring the transaction appropriately.
What About Financing?
Working with numerous companies specializing in all forms of business financing, your VR Intermediary usually has several options available to your qualified buyer. This critical step in the sales transaction is expedited since VR has required a completed Buyer Profile early in the process as part of our Valued Representation.
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How Does Technology Make Your Business Attractive to Buyers?
byTim Bellon, Owner of VR Office in South Tampa, FL
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If you think selling a business is scary, try being the buyer. It is the buyer that has the burden of trying to figure out if the seller’s sales numbers are inflated and what other answers are an exaggeration of the truth. Nobody wants to be taken advantage of.
It’s because of this, buyers enter the relationship understandably skeptical, and it’s up to the seller to quickly earn their trust and get to the closing table.
When a buyer is doing their due diligence, expect them to ask questions like:
• Can you show me year over year revenues by month?
• What is the average sale?
• How many active customers do you communicate with?
• What is your cost of goods sold?
For some sellers, those questions would be met with a blank stare because they just do not have the answers. That response does not give the buyer confidence that they are buying a solid business with predictable revenues. Uncertainty is the enemy of any business deal. If the buyer cannot have their questions answered quickly, they frequently have second thoughts and look to get out of the deal altogether. At worst, they are not willing to pay top dollar. My #1 piece of advice to sellers is to know your numbers.
Startup businesses almost always begin on a shoestring budget and rely on revenues to fund future growth. As a result, some are slow to adopt modern technology to run day-to-day operations. As these businesses mature, they should consider adding tools to not only operate at peak efficiency but make them more marketable when it comes time to sell the business?
What Technology Should You Use?
Accounting
Quickbooks or Freshbooks are two good choices to keep track of vital accounting data. With these tools, you can see a dashboard with real-time data like who owes you money and how much, sales performance, expenses, and profit and loss graphs. It will save you hundreds of hours and will be more accurate. The pricing starts at $12 per month.
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The Key Elements of The IOI (Indication of Interest)
For business owners looking to transact, it is important to have an understanding of the critical documents within an M&A process. If you’ve hired an M&A advisor, this understanding helps you collaborate with them, and responsibly oversee their work. If you’re unrepresented, a deep understanding of these documents is even more important.
Today, we dive into the Indication of Interest (IOI).
As the M&A process progresses down the funnel and the potential buyer pool narrows, many buyers will provide an indication of interest (IOI). This document expresses the buyer’s genuine interest in acquiring or investing in the target company.
The IOI is a formal document that outlines the buyer’s initial offer. It sets the stage for further negotiations. In this article, we’ll highlight the key elements of the IOI, why it is important, how it differs from a letter of intent (LOI), and how to gauge the effectiveness of a process using IOIs.
The 101 on IOIs
An IOI is the very first written offer for a company. It is typically based on limited information – the buyer likely hasn’t visited the company yet or conducted any serious due diligence.
IOIs serve three core purposes:
- Sellers use the IOI to help weed out tire-kickers and ensure that they are only dedicating time and resources to serious buyers.
- The IOI allows the seller to gauge if price expectations are aligned with interested buyers. It is usually the first time in a process where potential pricing information is exchanged.
- The IOI stress tests whether a buyer has adequate industry experience to understand the inherent risks and growth opportunities of the business.
Key Elements of the IOI
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Civil Engineering Firm for Sale in Chicago, IL
This opportunity is a civil engineering that services residential, commercial, industrial, institutional, transportation, and municipal projects. They also provide land services such as land surveying, planning, and environmental services. The business has been around for over 70 years which means business is steady due to repeat clients and referrals. The business has consistently generated revenue of around one million dollars per year. The owner is nearing retirement but will be available 2 to 3 years to help transition the business. The business has been pre-qualified by an SBA lender.
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VR Office in Greenville, SC Sold an Auto Repair Shop for $1,425,000
The auto repair shop features state-of-the-art equipment and a loyal customer base, making it a lucrative investment. Additionally, the inclusion of the real estate provides long-term stability and potential for future expansion.
The sale represented a significant opportunity for the new owners to establish themselves in a thriving market and capitalize on the growing demand for automotive services in the area.
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Thinking of selling your business or looking for an established
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Cross-border Mergers and Acquisitions
Cross-border mergers and acquisitions in mid markets refer to the acquisition of companies by other companies from different countries, where both the acquirer and the target are typically of moderate size. This type of M&A activity involves unique considerations and challenges compared to domestic M&A. Here are the main aspects to consider in cross-border M&A in mid markets that we follow at CBA:
Cultural Differences: Cultural differences can significantly impact the success of a cross-border M&A. Understanding and bridging the gaps between different work cultures, communication styles, and business practices is crucial. Cultural integration is essential to create a harmonious and productive post-acquisition environment.
Regulatory and Legal Compliance: Complying with various legal and regulatory requirements of different countries is essential. Cross-border M&A involves navigating through complex legal frameworks, tax implications, employment laws, and antitrust regulations of both the acquirer's and target's countries.
Due Diligence: Thorough due diligence is critical to assess the risks and opportunities associated with the acquisition. In cross-border transactions, the due diligence process needs to be more comprehensive to address potential issues related to foreign operations, contracts, intellectual property, and financial reporting standards.
Integration Planning: A well-structured integration plan is vital to ensure a smooth post-merger transition. Mid-market companies often have limited resources, so careful planning and effective execution are necessary to achieve synergies and operational efficiencies.
Financial Considerations: Evaluating the financial aspects of the transaction is essential, including the valuation of the target company, funding sources, foreign exchange risks, and the potential impact on the acquirer's financial statements.
Language and Communication: Effective communication is essential throughout the M&A process. Language barriers may arise in cross-border transactions, so clear communication channels and possibly the use of translators or multilingual advisors are important.
Synergy and Value Creation: Identifying and quantifying potential synergies between the acquirer and target is crucial to ensure value creation from the merger. This may involve consolidating operations, streamlining processes, and leveraging complementary strengths.
Technology and IT Systems: Integrating IT systems and technology infrastructure is a significant challenge in cross-border M&A. Compatibility issues and cybersecurity concerns should be thoroughly addressed.
Human Resources and Talent Management: The human resources aspect is crucial during and after the M&A process. Retaining key talent, harmonizing compensation and benefits, and aligning performance management practices are essential to ensure a successful integration.
Political and Economic Stability: Cross-border M&A may be influenced by geopolitical factors and economic stability in both the acquirer's and target's countries. Political changes or economic downturns can impact the deal's feasibility and success.
Post-Acquisition Monitoring: A solid post-acquisition monitoring system is essential to track the integration progress, assess performance, and make necessary adjustments to achieve the desired outcomes.
Successfully navigating these aspects can lead to a successful cross-border merger and acquisition in mid markets, creating value for both the acquirer and the target company. However, it's important to note that each transaction is unique, and careful planning and adaptation to specific circumstances are crucial for a successful outcome.
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VR is The Only Remaining Founding Firm of The International Business Brokers Association ("IBBA").
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Have You Ever Considered Selling Businesses?
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