Keeping the Train on the Tracks
By JoAnn Lombardi, VR Business Brokers/Mergers & Acquisitions, President
|
|
Normally, a business owner who’s looking to sell has to keep their intentions close to the chest. You don’t want to upset your employees, your customers or the vendors; any of which could cause a major disruption in your operation and be a detractor to potential buyers. Since selling your business can be both an emotional and overwhelming process, it’s important to consult an expert, not a generalist! You need to find someone to facilitate the process to where you will be able to continue operating the business as normal while they identify a qualified buyer. A qualified buyer will want to see a thriving and well-operated business if they are to put down a substantial financial investment.
A professional business intermediary is equipped with the tools and experience to ensure that you don’t make any pivotal mistakes. Below are some areas that will help you stay on the track to a successful sale of your business.
Pricing the Business at the Fair Market Value
Although many sellers would like to see their business’ worth based on the time, effort and finances they have spent, you don’t want to start by overpricing the business. When you make that decision to sell, you have to be able to understand what buyers are looking for so that you can come to a win/win arrangement. If the price you’re looking for is higher than what the fair market value is, chances are you will have a difficult time finding a buyer who’s willing to write a check and pay a premium.
Maintaining Confidentiality
Any type of disclosure outside of the two parties involved can detonate the deal. It’s critical that all precautions are taken as to not disturb the running of the business operation. Employees can and will run if they feel they’re not working at a stable company. Therefore, make sure all correspondence stays away from the business. A professional business intermediary maintains constant contact with both you and the buyer to make sure all questions are being answered and no breaches in confidentiality are made.
|
|
Compromising and Countering: VR Shows How to Negotiate
a Business Sale
If you’ve never purchased a business before, negotiating is one of the most challenging aspects of the transaction. What can happen in many cases is that the buyer will spend more for the business than originally intended and the seller receives less than planned.
When you first consult with VR Business Brokers, we will instruct you on how the negotiation process works, what to expect from the other party and how you can be most effective. With our decades of experience and innovative tools at our disposal, we will ensure that you will be informed and well versed in how to negotiate.
The Three Ways to Deal
In business sales, there are normally three ways to negotiate the sale of a business:
- First Offer is Final – You make one offer that is your first, best and only offer, regardless of what the seller’s price and terms are.
- Splitting the Difference – This is when you and the seller split the difference between your asking price and theirs.
- This for That – An important element is determining what the seller wants nonmonetarily in the transaction such as contracts of key employees, goodwill, intellectual property, etc. Work with them to see what they’re seeking to keep, and use it in the negotiation to get closer to your asking price.
It’s not uncommon for a buyer to give a verbal offer early on, which gives the seller an idea of how negotiations in the deal will unfold. A seller usually waits for the buyer to move first before getting deeper into discussing the price.
|
|
The Risks and Opportunities of Inorganic Growth
Are add-on acquisitions the best way to create value in portfolio companies? This was among the topics discussed at a recent breakfast round table around value creation in portfolio companies. The event was co-hosted by Axial and included attendees from private equity firms, family offices, search funds, and investment banks.
Buy-and-build strategies continue to gain popularity in today’s market. Add-ons now encompass more than two-thirds of total deal count in the US middle market, accounting for $111.3 billion through 1H 2019, according to Pitchbook. Middle market add-ons accounted for $245.8 billion in 2018, the highest volume in 10 years and a year-over-year increase of 26.4 percent, Pitchbook says.
According to Bain and Company’s 2019 Global Private Equity report, “Buy-and-build can offer a clear path to value at a time when deal multiples are at record levels and GPs are under heavy pressure to find strategies that don’t rely on traditional tailwinds like falling interest rates and stable GDP growth.”
Inorganic growth has also become an important component of the playbook for many private equity firms as institutional LPs put more pressure on producing returns quickly. “The LPs we work with really value velocity and inorganic growth is one way to try to create value quickly,” said one private equity investor at the breakfast.
|
|
The Benefits of Working With A Funding Expert
“I can be patient — just tell me how long I have to wait.”
By: Storm Miller, Benetrends, Inc., National Account Manager
|
|
Sound familiar? Even the most patient person can be tested from time to time. When it comes to opening a franchise, there are many different deadlines that must be met if the business is to open on time.
It’s important to keep the project moving along, which is why it’s important to make sure to first have funding in place. But what happens if you’ve planned ahead, and the bank is delaying your approval? You could lose the perfect location, you may pay more for the equipment — and of course, each day the business is closed is a day of income lost. How do you avoid delays?
Work with a Funding Expert
What are the benefits, you ask? Let’s take a look at two scenarios. Ben and Bob are both opening a new fitness franchise. They both want an SBA loan, and both have savings that can be used for the business. Time is money, and since Ben worked with a funding expert, he now has the money to launch his franchise, and he’s using his time to grow
the business. Plus, he understands that he has other options to grow and expand his franchise.
Bob decided to search for funding without help. Although he has good credit, his local bank has enough concentration of fitness concepts in their portfolio, so he is turned down — months after he began his work with them. Furthermore, the fees he paid for the processing of his application are never refunded. Bob is now without funds and without financing.
Ben enlisted the help of a funding partner. He learns that although he has savings, he would be better off financially using his retirement funds as the cash injection for his SBA loan, allowing him to hold onto his cash to continue covering his standard living expenses. Ben’s consultant walked him through the SBA process, and he was able to obtain a commitment letter from a bank in under two months. Although Ben went with a traditional SBA loan, he was presented with other funding opportunities:
401(k)/IRA Funding
A popular program known as a ROBS Plan (Rollover as Business Startups) enables entrepreneurs to use their retirement funds to purchase a franchise without owing taxes or penalties associated with taking a distribution from the retirement account. Benetrends pioneered this type of funding, known as the Rainmaker Plan®. The advantages of this program are:
|
|
Custom Builder of Outdoor Structures |$200,000 | Macon, GA
Iron Doors and Furnishings Manufacturing |$375,000 | Van Nuys, CA
|
|
This firm services a very high net worth clientele. The firm is a full service interior design practice with an architect on staff. Together with the owner who is the firm’s namesake, they will foster a smooth transition by working with the acquirer post closing, maintaining skin in the business, aiding in recruiting a star designer to succeed them, and helping to sustain the impeccable reputation and revenue stream that the Firm has built over its 25 year history. The firm manages projects of $200,000 to $1,000,000 and lasting one to two years. It achieved total sales of $2.2 million in 2018, with owner’s profit of $1.2 million, representing a 55% profit margin.
The buyer or licensee does not need an interior design background.
The business can be acquired for a fixed payment of $1 million plus an ongoing earnout payment of 20% of gross revenues. Alternatively, the business’s intangible assets (e.g. its phone that rings with new business) are licensed for a monthly fee and a percentage of gross revenue while sale may or may not occur after a 1-2 year licensing period.
For more information:
Dan Eitel,
Owner, VR Business Brokers Oak Brook, IL
|
|
This is a 23 room motel located North from the center of the downtown with close proximity to City Hall, it also near the China Lake Naval Air Weapons Station, Death Valley Tourist Center, Kerr McGee Community Center, Desert Empire Fairgrounds, and China Lake Golf Course. The motel is located between Red Rock Canyon State Park and Death Valley National Park.
The motel provides a convenient stopping point for tourists traveling to Las Vegas and San Francisco. New ownership looks forward to increasing occupancy and average room rate.
Congratulations to Javier Ruiz.on this successful transaction!
|
|
Thinking of selling your business or looking for an established
|
|
Have You Ever Considered Selling Businesses?
|
|
As a loyal subscriber of Today’s Business Owner electronic magazine, we invite you to click on this link follow us on LinkedIn.
Now you can be updated daily on business sales, valuation techniques, mergers and acquisitions, career opportunities with VR, and much more.
Be the first to find out about new businesses for sale, and what has just sold.
|
|
|
|
|
|
|