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Selling Your Business? Learn to Think Like a Buyer
By JoAnn Lombardi, President VR Business Brokers/Mergers & Acquisitions
You’ve built a great business with love and care. It has grown larger than you’d ever imagined. It generates a nice profit. As a result, this has allowed you and your family to live comfortably.
Now, you’re ready to sell. You assume there’s a buyer out there. You want someone to pay you a fair price and nurture the company with the same attention you have. Most importantly, selling the business is a major part of your retirement plan.
Needless to say, buyers look at businesses differently than sellers. So to achieve the outcome you want, it’s important to think like buyers and understand how they evaluate a business.
Knowing What Buyers Want
There are many types of buyers: strategic and financial, individuals, companies and private equity funds. Despite differences, all buyers consider how much they’ll invest to acquire a business, the amount of risk they’ll bear and the potential return on their investment.
To evaluate an opportunity, buyers focus on three major areas:
1. Cost and terms. What will it take to acquire the business? How much cash and how much debt? What are the deal’s terms and conditions? There’s one standout issue: the amount of cash required to make the deal. By decreasing the cash requirement and increasing the acceptable debt portion, a seller can make its company more attractive — and perhaps even increase its selling price.
The biggest factor directly affecting a deal’s attractiveness is the asset base. Simply put, the more the buyer can borrow against (or for post-transaction capital), the less cash it needs upfront. As collateral, banks usually accept land, buildings, equipment, inventory and accounts receivable. Many entrepreneurs have purchased the land their business resides on and leased it to the company. An often unanticipated side effect is this structure reduces the company’s asset base. As a result, this decreases the amount of debt leverage the seller can obtain. 
Earnout Agreements Can Bridge Valuation Gaps
By Peter C. King, CEOVR Business Brokers/Mergers & Acquisitions
Acquisition talks are proceeding smoothly. Then the subject of price comes up. The buyer thinks the seller’s asking price is based on overly optimistic financial projections. The seller believes the buyer’s valuation of his company is far too low. Is the deal dead? Not necessarily.
An earnout agreement can help resolve the dispute when a buyer and seller disagree about the seller’s business prospects. They are especially useful when dealing with the unknown — when the target is young and unproven, or it is emerging from a difficult financial situation. In short, earnouts offer a way for the parties to bridge expectation gaps.
Understand the Benefits
In an earnout, a buyer makes a partial, upfront payment to the seller. With the payment comes a promise to pay the rest of an agreed-on amount if the target meets certain pre-established goals. Meeting these goals generally results in a higher price for the seller. However, falling short of the goals may result in a lower price.
A well-designed earnout carries advantages for both parties. For instance, the buyer can initiate a transaction with a relatively modest amount of cash. It also can avoid the risk of paying too much for a company unable to deliver on overly optimistic financial projections. Finally, an earnout can help make the transaction more valuable by significantly motivating the seller to achieve its promised results.
Meanwhile, the seller can use an earnout to help negotiate a better asking price. An earnout can be particularly helpful when the seller believes that the company’s future results are likely to be much better than its current ones. 
Five Questions to Ask Before Seeking an SBA Loan During the COVID-19 Pandemic?
By Christopher Hackney - Vice President, SBA Lending Officer and
?Jack Postregna - Vice President, SBA Lending Division at First Home Bank
We will skip the “new normal” opening line with the understanding that COVID-19 has impacted our lives in many ways. This article addresses some of the changes in the lending environment due to the COVID-19 pandemic, specifically business acquisition financing. The state mandated business closures, because of the COVID-19 pandemic, adversely affected many once-stable or growing businesses. These businesses will most likely recover; however, the length of this recovery period is unknown which causes banks to be apprehensive. This does not mean that business acquisition financing is a thing of the past, there are indeed many credit-worthy buyers and businesses in the marketplace. As a business broker it is imperative you understand the questions to ask of your buyer and seller to assess the merit of the transaction in the COVID-19 lending era before sending it to a lending partner. The more information you can obtain prior to sharing the request with the lender the faster that lender will be able to make an informed decision on providing financing. The following sections will provide five simple questions to ask of your buyer and seller for you and your lending partner to quickly assess a business acquisition opportunity in the COVID-19 lending era. 
Q1: Did the seller obtain a PPP or EIDL loan?
As of June 30, 2020, 4. 8 million small business owners obtained a PPP loan and 2 million small business owners received an EIDL loan. There is a high probability that a business you have listed for sale or will list for sale has one of if not both debts on the balance sheet. In most PPP and EIDL promissory notes a change of ownership without the consent of the lender may result in a technical loan default, which may require the outstanding balance of the PPP loan to be repaid at closing by the seller. This subsequently reduces the net sale proceeds to the seller who anticipated having their PPP loan forgiven rather than repaying the loan balance. According to current PPP guidelines, final PPP loan forgiveness could take up to five months from the date which the Borrower applies for forgiveness. The typical business acquisition financing process takes no longer than 60 days, which means a business could be listed, financed via an SBA loan or seller financing, and closed well before the PPP loan is forgiven. Obtaining bank consent for a change of ownership for a PPP loan borrower will be unlikely given the lack of guidance lenders have received regarding this matter. Even if the lender provides consent for a change of ownership prior to PPP loan forgiveness, the SBA has not provided any guidance on whether the PPP Borrower is eligible to pursue forgiveness after the change of ownership. 
Q2: How did COVID-19 impact the business?
Value = Income/RiskMixing Apples and Pineapples
By Shawn Hyde, Executive Director ISBA
That is a very simple formula. The math can be done on any calculator, and the result is easy to understand. Unfortunately, the variables themselves are not always so easy. More on this later. Most people understand that in order to increase the value, one simply has to increase the amount of Income in the numerator or decrease the amount of Risk in the denominator. Below is a very simple example of this concept:
On the Road Again — Business Travel in the Lower Middle Market 
As you may have heard: travel is finally making a comeback.
However, given the limited guidance and precedent around this specific topic, many firms have been forced to create their own protocols and guidelines for what constitutes necessary travel. While some have concluded that only mission critical, deal-related trips are allowed for the time being (as opposed to business development and relationship building), one thing seems to be consistent: everyone is being extremely intentional with their travel decisions and are proceeding with caution as they get back on the road.
Using survey data from a recent virtual Axial conference, along with interviews from half a dozen Axial members, we’ve compiled some of the thoughts and practices that our members are deploying to safely get back on the road.
(Unofficial) Rules and Regulations
CIVC Partners, a private equity firm based in Chicago, has mandated that all business travel be approved at the partner level. “We are only traveling for what I would call ‘deal critical’ purposes,” says Nick Canderan, Director of Business Development at CIVC Partners. “Personally, I’d like to see us get through this second spike in cases before traveling for relationship building purposes.” 
This seems to be a fairly common theme throughout the industry, where folks are dipping their toe in the water before opening the travel floodgates. “Our firmwide view is deal-specific and deal-related. We aren’t really planning any marketing trips, as of yet.” agreed Phil Kain, Managing Partner at Rush Street Capital
However, there are others who have begun planning more extensive itineraries for the coming weeks and months. For example, Pierre Villere, Managing Partner at investment bank Allen-Villere Partners, and recent virtual roundtable participant has built out a fairly travel-heavy schedule for the remainder of the summer. “Over the course of the next thirty days, I have some pretty extensive business travel scheduled to many parts of the United States; some connected to transactions… and then another portion of that is what I would call a marketing trip,” he told us, quickly followed by: “Of course, I’m being careful. I wear a mask the whole time I’m travelling unless I get into a socially-distanced conference room with someone.”
Water Damage Restoration Service|Sugarland, TX
Vapor Store with two locations|Coastal, NC
Kitchen Designs|Weston, FL
Green Life| Ontario, CA
Landscaping Services|Canton, OH
Popular Sandwich Shop | Wilmington, NC
This gem is a highly profitable, successful sandwich shop with an attached bakery in beautiful New Hanover County. Own and operate this well-established business that has served breakfast, lunch and dinner in this community for over 20 years! Everything is made to order. The meats are barbecued, grilled or slow roasted in house and the bread is made right on site!
For more information contact: Robert Sweeney
VR in San Antonio, TX Successfully Sold a Bakery for $700,000.
Beautiful Latino Bakery sold in Houston with a loyal customer base & great reputation for its traditional Hispanic wheat bread, bolillo bread & cakes. Historic Growth of 28-30% from 2018-2019 with continued growth with zero marketing done. The Business was experiencing very fast growth, as their customers appreciate the great quality of their products. The business differentiates from other bakeries in town by its high quality of products, customer service experience which is derived from its beautiful clean location. The business has great reviews in Yelp, Google & Facebook. 
Congratulations to Javier Lunafor your successful closing.
For more information contact jluna@vrsanantonio.com
FASTSIGNS | Yorktown, VA
Consignment Furniture & Decor | Charlotte, NC
IT Design & Support Firm | Mohnton, PA
Tea House Shop | Garden Grove, CA
Non-Medical Home Care Services | Denver, CO
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