Activa Business Brokers

Firms for Sale

admin — Mon, 23 Mar 2009 18:36:59 +0000

It will be a buyer’s market for businesses for several years. Baby boomer owners are starting to cash out in growing numbers, with about 750,000 looking to sell by 2009, a 15-fold increase over 2001.

Most firms will go to strangers … only 15% stay in families more than two generations. While owners may want to pass the businesses they built on to a son or daughter, children often aren’t interested or may not have the cash that owners need for their retirement nest eggs.

Start planning your exit now to get the best possible price. With a smaller Generation X, there will be fewer potential buyers, so owners may have to cut prices or hang on longer than they desire.

Expert advice is a must. Accountants, attorneys, appraisers and brokers can all help set a realistic price, find potential buyers and spot problems. Many buyers … from competitors to speculators to venture capital firms … have sophisticated experts on their side. Owners need to match that support to avoid being taken advantage of.

One option that’s growing more popular: Selling to employees. Management buyout teams or employee stock ownership plans can work if owners set them up early. Groom your best managers and train them in the intricacies of the operation so the firm will succeed without you.

The Kiplinger Washington Editors

Evaluating Your Company’s Weaknesses

admin — Mon, 17 Nov 2008 18:44:07 +0000

Every company has weaknesses; the trick is to fix them. There is a saying that the test of a good company president or CEO is what happens to the company when he or she leaves. Some companies –on paper– may look the same, but one may be much more valuable due to weaknesses in the other. Not all problems or weaknesses can be resolved or fixed, but most can be mitigated. Fixing or lessening company weaknesses can not only significantly improve the value, but also increase the chances of finding the right buyer. Here are some common weaknesses that concern some buyers, causing them to look elsewhere for an acquisition.

“The One Man Band”

Many small companies were founded by the current president, and he has made all of the major decisions. Since he ahs not developed a succession plan, there is no one in place to take over if he gets hit by the proverbial truck. He is the typical one man band; and, as a result, the company is not an attractive target for acquisition.

Declining Industry

Companies that are in a declining market have to be smart enough to recognize the situation and make changes accordingly. A real-life example of a “smart” company is one that made ties, and, realizing the decline in this apparel item, switched over to making personalized polo shirts. A company can still make ties but has to have the foresight – and ability – to move into new product areas.

Customer Concentration

This is a major concern of most buyers. It is not unusual for the one man band to focus on what made the company successful – one or two major customers. He has built the relationships over the years. These relationships are seldom transferable. Finding new customers may take time and money, but the effort is absolutely necessary should the owner eventually decide to sell.

The One Product

Many one man band run companies were based, and still are, on either the manufacture and sale of one product or the creation and development of a single service. Henry Ford made a wonderful car – the Model A – but that’s all he made. General Motors decided that many people would like something different and were willing to pay for it. Fortunately, for Ford, he caught on quickly, but almost went out of business with the thinking that one model fits everyone.

Aging Workforce/Decaying Culture

Young people are not entering the trades, leaving many jobs such as tool and die positions filled with “old hands” who will soon be retiring. Technology may be able to replace them, but that decision has to be made and implemented. No one wants a business that will have idle machines with no one trained to operate them.

There are many other areas that could be considered company weaknesses. If there is a Board of Directors or an Advisory Board, perhaps they can help the one man band create a succession plan and just as importantly – a successor. Certainly the time to act on all of this is before the decision to sell is made. Whether current ownership plans on staying the course or eventually selling the company, the good news is that resolving company weaknesses is a win-win situation.

Early Possession

admin — Sun, 16 Nov 2008 18:52:51 +0000

There are times when the buyer and seller think it would be a great idea if the buyer began operation of the business prior to the closing of the sale. Why? Here are some typical reasons:

The buyer needs the income.

The seller has really “had it.”

The time it takes to close a deal has been excessively long.

The seller is in poor health and can’t operate the business (or something similar.)

The buyer feels the business is deteriorating and wants to get in before it all goes.

So, analyzing the reasons above for early possession, does the end justify the means? The answer is a resounding NO. Sellers (who often are as enthusiastic about early possession as the buyer) should remember that the sale hasn’t closed yet and the buyer may still have second thoughts. Early possession can create a real obstacle to a closing, whether it’s real estate, a business, or almost any other commodity. It makes good business sense to let the early possession “idea” remain just that: an idea and nothing more.

Why Do Deals Fall Apart?

admin — Sun, 16 Nov 2008 18:52:36 +0000

Why Do Deals Fall Apart?

In many cases, the buyer and seller reach a tentative agreement on the sale of the business, only to have it fall apart. There are reasons this happens, and, once understood, many of the worst deal-smashers can be avoided. Understanding is the key word. Both the buyer and the seller must develop an awareness of what the sale involves–and such an awareness should include facing potential problems before they swell into floodwaters and “sink” the sale.What keeps a sale from closing successfully? In a survey of business brokers across the United States, similar reasons were cited so often that a pattern of causality began to emerge. The following is a compilation of situations and factors affecting the sale of a business.

The Seller Fails To Reveal Problems
When a seller is not up-front about problems of the business, this does not mean the problems will go away. They are bound to turn up later, usually sometime after a tentative agreement has been reached. The buyer then gets cold feet–hardly anyone in this situation likes surprises–and the deal promptly falls apart. Even though this may seem a tall order, sellers must be as open about the minuses of their business as they are about the pluses. Again and again, business brokers surveyed said: “We can handle most problems . . . if we know about them at the start of the selling process”.

The Buyer Has Second Thoughts About the Price
In some cases, the buyer agrees on a price, only to discover that the business will not, in his or her opinion, support that price. Whether this “discovery” is based on gut reaction or a second look at the figures, it impacts seriously on the transaction at hand. The deal is in serious jeopardy when the seller wants more than the buyer feels the business is worth. It is of prime importance that the business be fairly priced. Once that price has been established, the documentation must support the seller’s claims so that buyers can see the “real” facts for themselves.

Both the Buyer and the Seller Grow Impatient
During the course of the selling process, it’s easy–in the case of both parties–for impatience to set in. Buyers continue to want increasing varieties and volumes of information, and sellers grow weary of it all. Both sides need to understand that the closing process takes time. However, it shouldn’t take so much time that the deal is endangered. It is important that both parties, if they are using outside professionals, should use only those knowledgeable in the business closing process. Most are not. A business broker is aware of most of the competent outside professionals in a given business area, and these should be given strong consideration in putting together the “team.” Seller and buyer may be inclined to use an attorney or accountant with whom they are familiar, but these people may not have the experience to bring the sale to a successful conclusion.

The Buyer and the Seller Are Not (Never Were) in Agreement
How does this situation happen? Unfortunately, there are business sale transactions wherein the buyer and the seller realize belatedly that they have not been in agreement all along–they just thought they were. Cases of communications failure are often fatal to the successful closing. A professional business broker is skilled in making sure that both sides know exactly what the deal entails, and can reduce the chance that such misunderstandings will occur.

The Seller Doesn’t Really Want To Sell
In all too many instances, the seller does not really want to sell the business. The idea had sounded so good at the outset, but now that things have come down to the wire, the fire to sell has all but gone out. Selling a business has many emotional ramifications; a business often represents the seller’s life work. Therefore, it is key that prospective sellers make a firm decision to sell prior to going to market with the business. If there are doubts, these should quelled or resolved. Some sellers enter the marketplace just to test the waters; to see if they could get their “price,” should they ever get really serious. This type of seller is the bane of business brokers and buyers alike. Business brokers generally can tell when they encounter the casual (as opposed to serious) category of seller. However, an inexperienced buyer may not recognize the difference until it’s too late. Most business brokers will agree that a willing seller is a good seller.

Or…the Buyer Doesn’t Really Want To Buy
What’s true for the mixed-emotion seller can be turned right around and applied to the buyer as well. Buyers can enter the sale process full of excitement and optimism, and then begin to drag their feet as they draw closer to the “altar.” This is especially true today, with many displaced corporate executives entering the market. Buying and owning a business is still the American dream–and for many it becomes a profitable reality. However, the entrepreneurial reality also includes risk, a lot of hard work, and long intense hours. Sometimes this is too much reality for a prospective buyer to handle.

And None of the Above
The situations detailed above are the main reasons why deals fall apart. However, there can be problems beyond anyone’s control, such as Acts of God, and unforeseen environmental problems. However, many potential deal-breakers can be handled or dealt with prior to the marketing of the business, to help ensure that the sale will close successfully.

A Final Note
Remember these four components in working toward the success of the business sale:

1.Good chemistry between the parties involved.

2.A mutual understanding of the agreement.

3.A mutual understanding of the emotions of both buyer and seller.

4.The belief, on the part of both buyer and seller, that they are involved in a good deal

For Business Buyers and Sellers: A Guide

admin — Sun, 16 Nov 2008 17:37:05 +0000

Your best guide for buying or selling a business isn’t words on paper–it’s the competent presence of a business broker. Although business brokers generally represent the seller, the buyer also reaps the benefits of expert guidance. A business broker provides vital services for both parties and acts as the “glue” for holding together the pieces of the business sale process. Here’s how a business broker will work with both the buyer and the seller:

The Business Broker and the Buyer

Business brokers prefer to talk to people in person, and the buyer is no exception. During a preliminary meeting in the business brokerage office, the broker will typically ask the prospective buyer questions such as these:

1. Do you have the necessary funds to buy a business?

2. Is the cash readily available?

3. What is your time-frame for buying a business?

4. What are your expectations about the purchase of a business?

After this fact-finding meeting, the broker can then show the buyer businesses that are both feasible and that fit the buyer’s requirements. Further steps the broker will lead the buyer through are as follows:

Since sellers are (rightly) concerned about confidentiality, the broker will ask the prospective buyer to sign a non-disclosure or confidentiality agreement.
The broker will provide the prospective buyer with preliminary information about one or more businesses, including pertinent financial data. The broker will arrange for the buyer to see businesses of interest.
Once the buyer has indicated strong interest in a particular business, the broker can then supply additional information and schedule further on-site appointments.
When the buyer is ready, the business broker will be the best source for answering questions, addressing concerns, resolving loose ends, and offering a business broker’s unique expertise in the business sale transaction.

The Business Broker and the Seller

When it comes time to sell, one of the best decisions a business owner can make is to continue managing his or her business efficiently (and profitably), while depending on the services of a business broker to orchestrate the steps of the sale. To make the seller’s job easier and more effective, the business broker will…

Determine the right buyer for a particular business. For locating and qualifying prospective buyers, a business broker uses computerized databases to access comprehensive lists of local, national, and international buyers–all to increase the chances of selling a business at peak value.
Advise the seller on pricing. The business broker is an expert in placing a realistic price on the business and incorporating intangibles; thus reducing the danger that every seller fears–underpricing the business. At the same time, the business broker can help the seller to understand that the selling price is dictated by the marketplace–not by a well-meaning accountant or friend who may have an unrealistic idea of what the business is worth.
Prepare a marketing strategy and offer advice about essential marketing tools, such as a business description memorandum; in fact, the broker will help the seller in all key aspects of presenting the business as effectively as possible. Later, the broker can also help in the structuring of the sale transaction.
Present offers and point out both strengths and weaknesses. The business broker will be a vital advisor during most stages of the negotiation, bringing to “the table” objectivity as well as negotiation skills developed through years of experience in the buying and selling of businesses.

Keys to Improving the Value of Your Company

admin — Sun, 16 Nov 2008 16:20:04 +0000

The first key is to have your accountant take a look at your accounting procedures and make recommendations on how to improve them. He or she may also help in preparing financial projections for the coming year(s). Getting your company’s financial house in order is very important in establishing the value of your firm.

The second key is to review the reputation, image, and marketing materials of your company. Certainly, the quality of your product or service is paramount, but how your firm presents itself to customers, clients, suppliers, etc. – and the outside world – is also very important. The appearance of your facilities and customer services – beginning with how people are treated on the telephone or in the waiting/reception area – are the kind of first impressions that are critical in dealing with your customers or clients. Don’t forget about the company’s Web site; in many cases, it is the initial introduction to your company. Now may also be the time to update your marketing materials. The image of a company can help create a happy workforce, improve customer service, and impress those that you deal with – all of which can increase the value.

A third key is to get rid of outdated inventory – sell off any extra assets such as unused or outmoded equipment. The proceeds can be used in the business. If there are any assets that should not be included in the value of the company, such as personal vehicles or real estate, you might want to separate them from the assets of the company. This is especially important if you are considering placing the company on the market. A prospective purchaser expects everything they see to be included in the sale. If a portrait of your grandfather is your personal property, delete it from any list of company furniture, fixtures, and equipment; and if the business is for sale, remove it entirely.

Another important key is to resolve any pending items. Form example, if the company has a trademark on any of the important products, and the paperwork for registration is sitting on someone’s desk, now is the time to complete the filing. Trademarks, patents, copyrights, etc., can be very valuable, but only if they have been properly recorded and/or filed.

Contracts, agreements, leases, franchise agreements, and the like should be reviewed. If they need to be extended, take the appropriate actions. A contract with a customer has value and if it is scheduled to expire soon, why not get it renewed now? The same is true for leases. Favorable leases for a long period of time can be a valuable asset. Do your key employees have employee agreements?

The key factors outlined above not only build value, but they also increase the bottom line. If you are considering selling your company at some point, these key issues will come back many-fold in the selling price. A professional business intermediary can help with other factors that can influence the value of the business.

One other hidden benefit of building the value of your company is that you never know when the Fortune 500 Company will come “knocking at your door” with an offer that you can’t refuse. At that point, it’s probably too late to work on some of the issues mentioned above.

Valuing Your Business

admin — Fri, 07 Nov 2008 15:04:12 +0000

Most owners seek a business valuation when they’re looking to sell their business, but there can be many other reasons to learn what a business is worth:

Buy/sell transactions between business owners may require a current valuation.
A business may be seeking to purchase minority shareholder interests or setting up an Employee Stock Ownership Plan.
An owner’s divorce, retirement, or death.

And of course, an owner may just want to know a fair price if an offer came along.

How do you determine what a fair price would be? According to IRS Revenue Ruling 59-60: “The fair market value is the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.”

If that definition seems a little vague, the IRS offers more concrete factors to consider in establishing fair market value estimates:

the nature of the business and its operating history;
the industry and economic outlook;
the book value and financial condition of the company;
the company’s earnings and dividend paying capacity;
the value of the company’s intangible assets, such as goodwill;
transaction prices of other companies engaged in similar lines of business.

Valuation methods

There are several ways to determine a fair price for a company. The method chosen will depend on the reason for the valuation and the company’s own specific situation. For example, a business may be valued simply at its net asset value (assets, including cash, accounts receivable, inventory and equipment, less liabilities). Usually, this appraisal method results in the lowest valuation of the various methods.

The comparables approach is similar to buying a home. The appraiser looks at the selling price of similar businesses to arrive at a valuation. The income approach is the most complex and usually arrives at the highest value. In the discounted cash flow method, companies can be valued based on their future cash flows. This detailed analysis depends on accurate financial projections and discount rate assumptions. A simpler approach is the single period capitalization of earnings. Revenues for some previous period (such as the last three years) are multiplied by a factor that differs from industry to industry and business to business. In an industry where typical valuations are two times earnings, the value of the business might be equal to twice the average annual revenues over the previous three years.

Together with an analysis of the company’s operating history, business, industry and competitive environment, the results from one or more of these valuation methodologies are combined to form the basis of a comprehensive business valuation. Some business owners ask their accountants for help with appraising the business. Others turn to professional business appraisers, who may be more knowledgeable about buying and selling practices in their industry.

If you are negotiating to sell your business, one common device to match buyer’s and seller’s expectations is to set up an earnout schedule. With earnouts, the price of the business is contingent upon future earnings. Both the buyer and the seller must settle on the terms of the earnout, such as how profits are to be determined, dispute resolution and maximum payment.

For more information about valuing your business, you should seek the advice of your lawyer and accountant or a qualified business appraiser.

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Required Financial Disclosure Info:

AXA Advisors, LLC does not provide legal or tax advice. Please consult your tax or legal advisor regarding your individual situation.

Dan Halos offers securities through AXA Advisors, LLC (member FINRA, SIPC) 10500 NE 8th Street Suite 1600 Bellevue, WA 98004 and offers annuity and insurance products through an insurance brokerage affiliate, AXA Network, LLC and its subsidiaries.

Selecting A Business Broker to Sell Your Business – 12 Quick Tips

admin — Tue, 14 Oct 2008 23:55:44 +0000

1. Know up front what your expectations are in a business broker who will be selling your business. Make sure you discuss and convey those expectations to the business broker you select. Direct and open communications about expectations and other issues with your business broker is critical in selling your business.

2. Ask the business broker how they are going to advertise and get the word out about your business for sale. Make sure they allocate an adequate budget for advertising and marketing to sell your business. It takes approximately a budget of $400-$1500 in advertising and marketing costs to get successful exposure in the marketplace and reach the best qualified business buyers.

3. Have the business broker determine the valuation of your business before you sign a listing agreement. Ask them about a cash price vs. a price with terms involved. This is very important since over 70% of all small businesses never sell, usually due to the price being too high for the marketplace or unrealistic terms and conditions on selling the business. There are many ways to structure a deal—you need a business broker who can be honest with you and discuss these variances with you.

4. If the sale of your business is confidential, you need to know how the business broker is going to keep the sale of your business quiet while still marketing it. Make sure the business broker is using a professional Confidentiality Agreement form for your protection and keeps these on file at all times.

5. Make sure the business broker you select has prepared your business for marketplace—are all the financials and tax returns in good order and understandable? Do you have all documents ready for review like your lease agreement, equipment leases, and contracts with vendors, etc.? Time kills deals and if your business broker doesn’t have it together, business buyers will leave fast for another business for sale.

6. Make sure the business broker you select to sell your business is comfortable with selling your type, location, and size of business. It amazes me to see how many owners pick a business broker quickly out of the yellow pages without doing much homework on them. This is probably one of the most important decisions you will make for your business—make sure you pick the right business broker to sell your business.

7. Returning phone calls in a timely manner is critical. Make sure the business broker you select is good about getting back promptly to potential buyers. You would be surprised how many business brokers delay calling back buyers—remember the sale of your business is in “competition” with the sale of thousands of other businesses so you want to make sure your business broker is responsive in getting back to potential buyers.

8. Time kills deals. Make sure the business broker you select is responsive in getting things accomplished and moving things along. Deals tend to go south when parties aren’t moving forward on a deal at all times.

9. Constant and continuous communication with your business broker is important. Make sure you let your business broker know what your expectations are for letting you know how things are progressing (i.e., once a week updates, only call when something is going on, etc.) It’s up to you; however, it is important that sellers and business brokers have at least weekly dialogues to see how things are moving forward. Find out how many buyers have responded, and any feedback on all buyers who have expressed an interest in your business for sale.

10. Make sure you pick a business broker who spends the needed time on your business for sale. Some business brokers take on too many listings knowing that some may not sell—it’s a numbers game to them. You need someone who understands your business, what your expectations are, and who can properly get your business sold.

11. Businesses on average typically take 6 months to 2 years to sell. If your business broker does his job correctly (and utilizes the methods within this article) your business should easily sell within 6 months.

12. The listing agreement/contract should include: length of time they will be representing you (3-12 months is typical), how they are going to advertise and market your business for sale (get the details and budget), how often they should be contacting you about buyers and deal updates (at least weekly), what happens when the agreement expires (with all the buyers who have signed confidentiality agreements during this period, what happens if you find a buyer), what is the commission when the agreement expires, will they cooperate with other business brokers/agents on your listing (this opens the market to more buyers), etc. Get everything in writing so you both know what the expectations are.

Peter Siegel, MBA, is a SCORE counselor and founder of USABizMart.com and Business for Sale Financing. He is a consultant and author on buying a business, selling a business and business purchase financing, and hosts workshops on these topics as well. He has written three books and currently writes a syndicated small business blog on these topics.

Brought to you by SCORE “Counselors to America’s Small Business.”