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A Good Exit Strategy is Worth a Fortune
By JoAnn Lombardi, President ofVR Business Sales/Mergers & Acquisitions
Selling your business can be an organized process where each step maximizes profit and your advance preparation expedites the sale, or it can be a dismal failure full of gut-wrenching interactions and tremendous amounts of your money left on the table at the close.
Fortunately, the choice is yours.
A good Exit Strategy starts with simple awareness of the process of selling and can be implemented in advance in your day-to-day activities.
Thinking of the sale of your business in health terms, consider the sale with no preparation as last-minute surgery with no anesthesia, and a properly done Exit Strategy as preventative medicine that will keep you out of the pain and cost of surgery.
Your Exit Strategy begins with the awareness that one day you will sell your business.
Reasons vary with each business owner and can be as simple as boredom with your own company that you have built, to complex issues such as health or divorce. Only you know when it is time for you to sell. However, having implemented a written Exit Strategy will assure maximum profit at the sale and great peace of mind should you be selling under less favorable circumstances such as the mental duress of a downturn in business or poor health.
Key steps to an Exit Strategy are as follows:
  • SET A TIMELINE. It is important to establish a timeline so that you can prepare in advance to maximize your sales price. It can take more than one year from the time of listing a business to actually getting it sold. And there are several things mentioned below that you will need to do in advance of “going to market”. When is the best time to sell? When you have growing revenues and peak profit performance, untapped growth potential is still evident.
  • EDUCATE YOURSELF ON BUSINESS VALUATION TRENDS. Business owners often mistakenly think their business is worth a certain value without validating those thoughts. VR Business Brokers and Certified Business Appraisers can assist you in determining a realistic value for your business, which can be extremely helpful in your retirement planning.
  • FOCUS ON KEY BUSINESS FUNDAMENTALS. Build a diversified customer base, build a strong management team, and continue to invest in technology, equipment, and the appearance of your business. All these key ingredients will add value to your business beyond the “numbers”.
Seek Advice to Grow
By Peter C. King, CEO of VR Business Sales/Mergers & Acquisitions
Every entrepreneur deserves the best advice to grow their company.
Entrepreneurs are accustomed to wrestling with big decisions -- pricing, people, strategy, financing decisions -- and then making them all by themselves. Particularly as a sole founder, you are forced to trust your judgment, often having agonizing internal debates before pulling the trigger.
Should I hire this outsider? Should I fire my head of sales? Should I respond to an unsolicited offer to buy my company? If you continue to make the biggest decisions by yourself, you are bound to make mistakes. To succeed, you need to get some outside perspective. Here are four ways to find a sparring partner and get some perspective on the most important decisions for your business:
1. Build a board of advisors
Establishing a board of advisors will help you see the big picture -- evaluating what's worth worrying over and what doesn't deserve your attention. Invite your most demanding and smartest customers, invite the most experienced business owners or executives in your community someone whose professional perspective you respect. Don't be afraid to ask them. They'll probably say yes.
 
2. Leverage your team, they are awesome
You will get some of the best perspectives from deep within your organization.
Junior employees are more likely to hear honest reviews of a company's products or service offerings from customers than you are. Your sales and marketing team will have a more fleshed-out understanding of the market and your competition than anyone else.
Set meetings once a month to pick up employees' brains or make it easy to solicit anonymous feedback on a regular company-wide basis. Not only will this help you uncover some new ideas about the business, but it will engage and excite the organization in a new way, leading to increased productivity and higher employee satisfaction. And reward those who speak up and constructively criticize your processes and practices.
Why Do We Do What We Do? - Comparative Financial Analysis Edition
byShawn Hyde, CBA, CVA, CMEA, BCA, ECA, Canyon Valuations, LLC
As Business Appraisers, we look at a lot of numbers. We examine financial statements and tax returns so we can identify historical trends, and help identify risk drivers, but I have noticed quite a few reports this last year where the appraiser omitted a comparative financial ratio analysis. I thought I’d start off this year’s newsletter with a discussion on this basic analysis.
Revenue 59-60 lists as one of the eight factors we are to consider in the valuation of a privately held business as, “The book value of the stock and the financial condition of the business.” If all we look at is the subject company’s financial data, we are only going to see the part of the picture that the subject company portrays. If we also compare the subject company’s data to industry averages, then we can really see how the Company has been performing amongst its peers. If a business’ ratios indicate that it is underperforming, then we can draw the conclusion that the subject business may have a higher operating risk. If the industry ratios are showing the subject business to be performing better than average, then we can use that to support the selection of a higher than an average market multiple and also a lower discount rate.
We have several sources which we can pull data from for the ratios. The Risk Management Association (RMA) tracks financial data received by lenders as part of their customers’ banking needs. Bizminer pulls data from a variety of public sources listed on their website and calculates the ratios we use from among those data sources. (https://support.bizminer.com/article/36-where-does-bizminer-get-its-data) There are several other sources, but I am much less familiar with them.
Anatomy of an Earnout
An earnout represents just one of many contractual provisions structuring the sale of a business. That sounds pedestrian enough at first but, because this provision states that the seller can secure additional compensation in the future if the business achieves certain financial goals once sold, there’s a lot at stake. And the significance can run even deeper.
Earnouts are often used when the prospective buyer and the would-be seller of a business have different views on its valuation at present and, more importantly, about how to factor into the price its post-acquisition potential. It’s not uncommon for sellers to expect lofty valuations; after all, many business owners have spent their lives building up the acquisition target with one eye on the exit while also hoping the sale preserves what they’ve built throughout their careers.
Disputes over valuation can kill a deal dead in its tracks. But the earnout provision can keep all parties at the table, mitigating some though not all levels of risk to executing the transaction. Before diving into the details — and the perspectives of Axial members who have used earnouts in recent transaction processes — some basics.
The key elements of an earnout are:
  1. The financial goals that must be met in order for the seller to receive additional compensation (usually stated as a share of gross sales or earnings)
  2. The timeframe in which these goals must be met and the accounting assumptions used to establish performance milestones
  3. The amount of additional compensation that will be paid if the goals are met and the named recipients of the earnout from the seller’s organization
Car Wash Chemicals Mfg. Company for Sale in St. Louis, MO
Regional leader in the manufacturing, wholesale, and retail distribution of soaps and chemicals for commercial car wash systems. This company has been serving the needs of the car wash industry for over 8 years by providing commercial-grade detergents, liquid waxes, and other chemicals specifically produced for car wash facilities. They also offer car wash equipment sales and maintenance services. Well-established in the industry as a go-to supplier, this company possesses proprietary formulas specially designed for compatibility with leading car wash system equipment to increase efficiency, reduce maintenance, and provide predictable usage and consistency.
?The chemical components are received at a local facility where they are mixed according to proprietary blends, then batched, sealed into commercial shipping drums, and distributed as wholesale or retail products across the country. This lucrative business opportunity boasts 46% gross profit margins and six-figure Owner's discretionary earnings. They are perfectly positioned for acquisition by a national agency looking for regional clients and distribution or as a growth and expansion opportunity for an entrepreneur with the knowledge and skills to take the company to the next level.
?For more information contact: Jeff Kalilat jeff@vrgatewaystl.com
VR Office in Minneapolis, MN Sold 45-Bed, 41-Unit Assisted Living Business 
 
Claddagh Senior Living is a 41-Unit Assisted Living facility that had been providing assistance with all activities of daily living and nursing care services located in the City of Caledonia, Houston County since 2018. The Owners were ready to retire from the business and pass the baton over to a synergistic buyer. After meeting with Young Bebus, they were confident in her extensive background in healthcare management and trusted that they would be able to transfer the business to a new owner while focusing on running their business, all while maintaining confidentiality. Throughout the transition, key leaders involved in day-to-day operations will remain in their roles to help with a smooth transition, continuity of their quality service, leading to their existing community staff, and continued growth of the business.
Because of the recent sale and its success, the VR office has received numerous inquiries from potential buyers who are interested in acquiring local assisted living communities. Without cost or obligation, VR Business Brokers, M&A will review the step-by-step expertise we use in determining whether the time is favorable for selling your business or not, and in complete confidence to maximize your outcomes.
Congratulations to Young Bebus for your successful closing.
Thinking of selling your business or looking for an established 
business to purchase?Contact a VR Office Near You!
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