September 2023

Quick Links

VR Business Brokers, VR Mergers & Acquisitions, Buyer Alert Program,

VR Franchise Opportunity, VR Office Location

PLAN AHEAD. GETTING READY TO SELL: Increasing Value Without Increasing Profit

By JoAnn Lombardi, President of VR Business Sales/Mergers & Acquisitions

Can you increase the value of your business without increasing its profits? Ask your accountant or other financial professionals and chances are they will draw a blank. Or they will answer “no”. But the truth is that you can, and the concept of how you do it is astoundingly simple. You increase the value of your business when you take the appropriate steps to attract the appropriately qualified buyer.

To achieve the best result, smart business owners approach the selling process with the same planning and discipline that they use in the day-to-day operation of their business.

These simple steps will increase the value of your business without increasing your bottom line:

Plan ahead. Smart business owners know that their business will either transfer or close. There is no alternative. Your company is a product. It will be treated as a prize to be won or as a piece of distressed merchandise to be acquired at a bargain price. How a business is treated can often be traced back to the timeliness and appropriateness of the owner’s decision to sell.

Take stock of your business. You must step back and take a long objective look at your business. Without objectivity, your business cannot be packaged to attract the most advantageous buyer and command the highest price.

Position your company to sell. A good definition of positioning is, “it’s not what you see those counts, but how you see it”. Buyers are looking for opportunity. Often this means stepping in to correct problems so that future profits can be made. It is just as important to know what’s wrong with your company as it is to know what’s right.

Identify the right buyer. If your company could benefit from strong marketing, then you should include in your potential buyer profile significant strength in that area. If your company lacks customer service, then someone with special skills in that area would be a good candidate. Remember, not all buyers will pay the same amount for your business.

Set realistic price and terms. This doesn’t mean you should accept one cent less than your company is worth. But is does mean that unless you can confidently defend the price and terms you set, you will lose the confidence of the buyer and your sales price will suffer.

Click Here to Read the Full Article

BUSINESS CATEGORIES: Where Your Company Fits In

By Peter C. King, CEO of VR Business Sales/Mergers & Acquisitions

Knowing where your company fits into the world of business is a must if you want to understand the dynamics of selling it. The rules that govern the sale of public companies like Ford, Microsoft, or General Electric are radically different from the rules that control the sale of private companies. Successful business sales are dependent upon managed expectations for both those exiting or entering business ownership. This brief overview is designed to help you understand the rules that control the sales of the three major categories of businesses.

“Wall Street” – These are the public companies traded on stock exchanges around the world. The rules of their acquisition are taught in business schools, and their mergers and acquisitions are typically handled by investment banking firms. These companies have the objective of maximizing shareholder value. They are characterized as follows:

Earnings P/E Ratios: Measured in millions, after tax, typically more than 10 times earnings, often much higher depending on new technology or products.

Terms of Sale: Cash or equivalents (stock, warrants, etc.)

Management: Professionals, many layers.

Lower Middle and Mid-Market - These are typically substantial, privately held companies often earning profits in the millions of dollars. Comparisons to public companies for sales purposes, however, are misleading. Private companies do not actively trade their stock, which factors into the market value:

Earnings P/E Ratios: $1 million to multi-millions (various EBIT’s) 3 to 10 times earnings.

Terms of Sale: Cash, Seller Note and/or Third-Party Financing.

Management: Structured, owner involvement varies.

Small - These businesses may vary from situations where the owners play the central management and employee roles, to companies that demonstrate consistency in earnings and have solid organizational structures. In most small businesses, owner involvement in the day-to-day management is typical. Small businesses are the backbone of free enterprise economy and the marketplace for their sale is active. The greatest obstacle to the successful sale of these businesses is overcoming the seller’s perception of value and the buyer’s perception of risk:

Earnings: Generally less than $1 million (EBIT). Expressed as Discretionary Earnings (DE), which is defined as the money the business generates when the owner’s desire to reduce taxes is eliminated by reconstructing the financial statements.

Earnings P/E Ratios: 1 to 4 times DE.

Terms of Sale: Cash, down payment, may vary from 10% to 50%, Sellers Note and/or Third Party Financing.

Management: Owner a major element in the company’s operation.

VR has been supplying Valued Representation to small, lower middle, and mid-market companies since 1979. Our international organization takes pride in affording to these businesses the professional Valued Representation typically available to Wall Street companies, but impossible to secure as a family owned, founder operated or privately held enterprise.

Click Here to Read the Full Article

SBA Guidelines Change: Partial Business Purchases Now Allowed

by Jack Postregna, VP, SBA Lending Officer Credit Bench

The Small Business Administration (SBA) recently announced changes to its guidelines, which will completely change things for those interested in a partial business purchase.

Though the SBA has long been a source of funding for business acquisitions, partial business acquisitions (which occur when an individual seeks to acquire only a portion or change the ownership percentage of a business) were previously not allowed.

In addition to requiring buyers to purchase 100% ownership of the business, the SBA also required the buyer to provide cash (or similar value) at closing equaling at least 10% of the value of the business (known as an “equity injection,’ like a down payment). This all changed on May 11, 2023, opening opportunities for many more to explore partial business acquisitions with the help of a loan from the SBA.

We’re breaking down the changes below:

Full Buyout Changes:

For those who already own a business, equity injection may not be required by those buying a company in the same region with the same NAICS code of the business they currently own (meaning is has the same classification based on type of economic activity). Example, a plumbing business buying another plumbing business in the same city.

A seller note which is a loan given by the seller to the buyer (often used to bridge the gap between how much financing a buyer has and the total purchase price) can now be used as equity injection (down payment). A seller note is essentially a hold back of a portion of the business purchase price paid over time to the seller by the buyer with interest.

Seller notes can be used to satisfy equity injection requirements, and in some cases the buyer may not be required to provide any cash equity injection for the purchase of the business.

A seller note can qualify as the entire equity injection if the note is on a two-year standby (meaning that the seller will not receive payments for two years, down from a previous ten-year period requirement).

Partial standby seller notes (interest-only payments being made to the seller) require at least a quarter of the SBA-required equity injection come from a source other than the seller. This means that if using a partial standby note for a portion of equity injection the buyer will need to provide cash (or other eligible sources) for at least 25% of the equity injection required.

Partial (Less than 100% Buyouts) Changes:

If the business has a debt-to-worth ratio of less than 9:1, there will be no minimum equity injection (down payment) requirement.

Those selling a partial ownership interest in their business can remain with the business longer than a year and can be a “key employee” for an indefinite amount of time if they retain equity.

Sellers will not be required to personally guarantee the buyer’s loan unless they retain more than 20% equity.

Bottom line? These new guidelines have drastically changed how much a buyer must put “down” (if anything) to acquire a business – completely or partially – which makes the purchase requirements easier to meet with seller financing or SBA 7(a) loan financing.

Click Here to Read the Full Article

Click to Search Businesses For Sale

E-Commerce Fulfillment Center for Sale in Denver, CO

E-Commerce Fulfillment Center. Well Positioned, Profitable, and Tremendous Growth. This business warehouses goods for others that are sold online. They then pick up packages and ship orders. There are other revenue streams as well. Here are the highlights:

Stable and desirable industry.
155% YOY growth.
Very little competition.
High barriers to entry for new competitors.
Loyal customers.
Sophisticated software makes operations seamless.
Well-established, with many years of success.
Multiple revenue streams.

?For more information contact: Jeff Child at jchild@vrmilehigh.com

VR Office in Richmond, VA Sold a Health Food Store for $1,400,000

A Health Food Grocery Store located in Richmond, VA served the community for over 36 years. Offered organic and local produce, meat and poultry, bakery items, cheese, eggs, yogurts, milk, and non-dairy products. Beer and wine were offered along with prepared foods and a deli. They carried also bulk foods and health supplement sections.

Congratulations to Todd Furbee for your successful closing.

Thinking of selling your business or looking for an established

business to purchase?Contact a VR Office Near You!

Mergers and Acquisitions (M&A) Involve Complex Processes that Require Various Services to Ensure a Smooth and Successful Transition

ByGundo Kahle, CEO of CBA Cross Border Associates.

We categorize the most important M&A-related services into several key areas:

?Financial Advisory Services:

Valuation Services: Determining the fair value of the target company is crucial for negotiations and pricing decisions.

Financial Due Diligence: Analyzing the financial health, risks, and potential synergies of the target company's operations.

Transaction Financing: Assisting in securing funds for the acquisition through debt, equity, or other financing mechanisms.

Legal and Regulatory Services:

Legal Due Diligence: Assessing legal risks, contracts, intellectual property, and regulatory compliance of the target company.

Antitrust and Regulatory Compliance: Ensuring the acquisition complies with antitrust laws and other relevant regulations.

Contract Drafting and Negotiation: Preparing and negotiating acquisition agreements, including purchase agreements, non-disclosure agreements, and more.

Strategic and Operational Advisory:

Strategic Planning: Developing an integration plan that outlines how the two companies will merge their operations, systems, and cultures.

Change Management: Assisting in managing organizational and cultural changes resulting from the acquisition.

Operational Due Diligence: Assessing operational processes, technology systems, and identifying potential operational synergies.

Tax and Accounting Services:

Tax Due Diligence: Evaluating tax risks and implications of the acquisition, including potential tax benefits and liabilities.

Structuring and Optimization: Advising on the most tax-efficient deal structure for the transaction.

Human Resources and Employee Benefits:

HR Due Diligence: Assessing workforce capabilities, culture, compensation, and benefits of the target company.

Employee Integration: Developing a plan to integrate employees, manage redundancies, and retain key talent.

IT and Technology Integration:

IT Due Diligence: Assessing the target company's technology infrastructure, systems, and cybersecurity.

IT Integration Planning: Developing a strategy to integrate technology systems and ensure data security post-acquisition.

Communications and Public Relations:

Stakeholder Communication: Developing a communication plan for employees, customers, suppliers, and investors to manage expectations and minimize disruptions.

Crisis Management: Planning for potential challenges or negative reactions that may arise during the acquisition process.

Environmental and Sustainability Considerations:

Environmental Due Diligence: Assessing environmental risks and compliance issues associated with the target company's operations.

Sustainability Integration: Developing strategies to incorporate sustainability practices into the merged entity.

These services are provided by CBA’s Associates, whose key competencies can be traced in the Directory of CBA Associates: https://cba.associates/browse-profiles/. The choice of services required depends on the specific circumstances of the M&A transaction and the industry involved.

VR is The Only Remaining Founding Firm of The International Business Brokers Association ("IBBA").

Have You Ever Considered Selling Businesses?

Small businesses make up over 56% of the annual U.S. GDP and every year a large amount of them change hands. VR is the industry leader in facilitating such transactions. Click here for more information on how to join VR.