What Businesses are generating the most interest?

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Based upon information put out by a leading Business for Sale website, here are the businesses which are generating the most interest in the market.  If you were interested in buying a business in Orange County, you might be interested to see what other buyers have looked at.  To see more businesses for sale in Orange County, visit our website at www.empireoc.com

TOP CATEGORIES BY HITS

Top Ten Businesses for June 2014:

  1. E-Commerce
  2. Convenience Stores
  3. Restaurants
  4. Fast Food – Non Franchises
  5. Home & Garden
  6. Bars
  7. Gas/Petrol Service Stations
  8. Pizza Restaurants
  9. Websites
  10. Pizza Delivery

Top Ten M&A Businesses for June 2014:

  1. Manufacturing Businesses
  2. Distribution Businesses
  3. Car Wash & Valet
  4. Gas/Petrol Service Stations
  5. Mining Businesses
  6. Wholesale Businesses
  7. Road Haulage & Freight Services
  8. Fabrication Businesses
  9. Food & Drink Wholesalers
  10. Main Contractors

 

 

Business Valuations

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When the owners of private businesses in Orange County finally make the decision to sell their business, the first question on their mind is “what is the value of the business” when it goes to market.  Reality is that the market place will determine the actual value of the business.   It is not a perfect market and five different buyers will bring five different offers as  each buyer will assess the risk associated with future earnings differently.  The predictability of earnings going forward is critical to the valuation of the business but the certainty of the forward looking earnings is subject to risk.  The buyer will consider each of the following aspects of the business to determine the risk;

1.  Business Model

2.  Uniqueness in the market

3.  Products/Costs

4.  Competition in market and reputation of business

5.  Management in place and their strengths

6.  Gross Profit Margins

7.  Operation Strengths and Weaknesses

8.  Location

9.  Asset Strengths

10.  Customer Concentation

11.  Barriers to entry

12.  Intangible Assets

13.  Size of business.  Size does matter

14.  Financial Performance (past and projected)

 

These issues contribute to a company’s risk profile  which will impact the multiplier of pre-tax earnings  used to determine value.

Ultimately a buyer looks at valuing a business based upon “return on investment”  (ROI).  A buyer looks at the value of a business by determining a reasonable rate of return based upon the risk.  Buyers looking for a low risk  might be happy with a 5%-10% ROI.  Buyers with a higher risk tolerance might go for 30%-50% ROI because of the risk involved.  Privately held companies would generally be considered in the middle to high risk part of the scale. Expected annual returns for these acquisitions would be in the 15%-30% range.  Valuation if determined by dividing the expected rate of return by 100%.  For example, if a buyer wants a 20% return, then the multiple will be 5. (100% /20%=5).  The multiplier times the recast profits equal enterprise value for the business.   Why so some businesses have a value based on a multiple of 2 or 3 while other businesses have much higher multiples (5-6 ).  Low multiples may apply when a buyer is buying a job.  Much higher multiples apply to larger companies with much lower risk, proprietary products or processes, intangible assets no reflected on the  Balance Sheet or increasing earnings.

Empire Business Solutions offers a free Broker Opinion of  Value for owners who want to look at selling their business in Orange County.

 

Three Basic Factors of Earnings

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Two businesses for sale could report the same numeric value for “earnings” and yet be far from equal. Three factors of earnings are listed below that tell more about the earnings than just the number.

1. Quality of earnings
Quality of earnings measures whether the earnings are padded with a lot of “add backs” or one-time events, such as a sale of real estate, resulting in an earnings figure which does not accurately reflect the true earning power of the company’s operations. It is not unusual for companies to have “some” non-recurring expenses every year, whether for a new roof on the plant, a hefty lawsuit, a write-down of inventory, etc. Beware of the business appraiser that restructures the earnings without “any” allowances for extraordinary items.

2. Sustainability of earnings after the acquisition
The key question a buyer often considers is whether he or she is acquiring a company at the apex of its business cycle or if the earnings will continue to grow at the previous rate.

3. Verification of information
The concern for the buyer is whether the information is accurate, timely, and relatively unbiased. Has the company allowed for possible product returns or allowed for uncollectable receivables? Is the seller above-board, or are there skeletons in the closet?

A Listing Agreement is More than Just a Piece of Paper

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In order to sell one’s business using the services of a business broker, a listing agreement is almost always required.

For the owner of the business, signing the agreement legally authorizes the sale of the business. This simple act of signing represents the end of ownership. For some business owners, it means heading into uncharted territory after the business is sold. For many it also signifies the end of a dream. The business owner may have started the business from scratch and/or taken it to the next level. A little of the business owner may always be in that business. The business, in many cases, has been like a part of the family.

For buyers, the signed listing agreement is the beginning of a dream, an opportunity for independence and the start of business ownership. The buyer looks at the business as the next phase in his or her life. Pride of ownership builds.

So, that simple piece of paper – the listing agreement – is the bridge for both the seller and the buyer. The business broker looks at that piece of paper through the eyes of both the buyer and the seller, working to help both parties progress through the business transaction process into the new phase of their lives.

What is the Value of Your Business? It All Depends.

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The initial response to the question in the title really should be: “Why do you want to know the value of your business?” This response is not intended to be flippant, but is a question that really needs to be answered.

  • Does an owner need to know for estate purposes?
  • Does the bank want to know for lending purposes?
  • Is the owner entertaining bringing in a partner or partners?
  • Is the owner thinking of selling?
  • Is a divorce or partnership dispute occurring?
  • Is a valuation needed for a buy-sell agreement?

There are many other reasons why knowing the value of the business may be important.

Valuing a business can be dependent on why there is a need for it, since there are almost as many different definitions of valuation as there are reasons to obtain one. For example, in a divorce or partnership breakup, each side has a vested interest in the value of the business. If the husband is the owner, he wants as low a value as possible, while his spouse wants the highest value. Likewise, if a business partner is selling half of his business to the other partner, the departing partner would want as high a value as possible.

In the case of a business loan, a lender values the business based on what he could sell the business for in order to recapture the amount of the loan. This may be just the amount of the hard assets, namely fixtures and equipment, receivables, real estate or other similar assets.

In most cases, with the possible exception of the loan value, the applicable value definition would be Fair Market Value, normally defined as: “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.” This definition is used by most courts.

It is interesting that in the most common definition of value, it starts off with, “The price…” Most business owners, when using the term value, really mean price. They basically want to know, “How much can I get for it if I decide to sell?” Of course, if there are legal issues, a valuation is also likely needed. In most cases, however, what the owner is looking for is a price. Unfortunately, until the business sells, there really isn’t a price.

The International Business Brokers Association (IBBA) defines price as; “The total of all consideration passed at any time between the buyer and the seller for an ownership interest in a business enterprise and may include, but is not limited to, all remuneration for tangible and intangible assets such as furniture, equipment, supplies, inventory, working capital, non-competition agreements, employment, and/or consultation agreements, licenses, customer lists, franchise fees, assumed liabilities, stock options or stock redemptions, real estate, leases, royalties, earn-outs, and future considerations.”

In short, value is something that may have to be defended, and something on which not everyone may agree. Price is very simple – it is what something sold for. It may have been negotiated; it may be the seller’s or buyer’s perception of value and the point at which their perceptions coincided (at least enough for a closing to take place) or a court may have decided.

The moral here is for a business owner to be careful what he or she asks for. Do you need a valuation, or do you just want to know what someone thinks your business will sell for?

Business brokers can be a big help in establishing value or price.

Empire Receives Award as Business Broker Orange County

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Empire Business Solutions, a leading Business Broker in Orange County,  is please to announce that the firm has named as the recipient of the “Best Solutions Provider-USA.

Empire Business Solutions, a leading Business Broker and M&A Company in Orange County, California is please to announce that Acquisitions International, Inc has awarded Empire Business Solutions its 2014 “Best Solutions Provider of the Year-USA.”

Acquisitions International magazine recognizes and honors the leading dealmakers in our awards supplement, in which we combine votes alongside in-house research data and industry expertise to finalize the shortlists and the overall winners. AI’s awards are given solely on merit and not handed out like confetti.”

Empire Business Solutions is a leading Business Broker and M&A Specialist in Orange County since 2005.