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.

Top Business For Sale Inquries

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Here is last months “hot” business list courtesy of data from a leading website.  These business types based on the number of “hits” on their site. This ranking is not based on the actual sale of businesses.

TOP CATEGORIES BY HITS

Top Ten Businesses for August 2014:

  1. Restaurants
  2. Bars
  3. Cafes & Diners
  4. Convenience Stores
  5. E-Commerce Businesses
  6. Marketing Businesses
  7. Fast Food – Non Franchises
  8. Card & Gift Shops
  9. Aquatic & Marine Related Businesses
  10. Advertising Businesses

Top Ten M&A Businesses for August 2014:

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

What a Buyer May Really Be Looking At

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Buyers, as part of their due diligence, usually employ accountants to check the numbers and attorneys to both look at legal issues and draft or review documents. Buyers may also bring in other professionals to look at the business’ operations. The prudent buyer is also looking behind the scenes to make sure there are not any “skeletons in the closet.” It makes sense for a seller to be just as prudent. Knowing what the prudent buyer may be checking can be a big help. A business intermediary professional is a good person to help a seller look at these issues. They are very familiar with what buyers are looking for when considering a company to purchase.

Here are some examples of things that a prudent buyer will be checking:

Finance

  • Is the business taking all of the trade discounts available or is it late in paying its bills? This could indicate poor cash management policies.
  • Checking the gross margins for the past several years might indicate a lack of control, price erosion or several other deficiencies.
  • Has the business used all of its bank credit lines? Does the bank or any creditor have the company on any kind of credit watch?
  • Does the company have monthly financial statements? Are the annual financials prepared on a timely basis?

Management

  • Is the owner constantly interrupted by telephone calls or demands that require immediate attention? This may indicate a business in crisis.
  • Has the business experienced a lot of management turnover over the past few years?
  • If there are any employees working in the business, do they take pride in what they do and in the business itself?

Manufacturing

  • What is the inventory turnover? Does the company have too many suppliers?
  • Is the business in a stagnant or dying market, and can it shift gears rapidly to make changes or enter new markets?

Marketing

  • Is the business introducing new products or services?
  • Is the business experiencing loss of market share, especially compared to the competition? Price increases may increase dollar sales, but the real measure is unit sales.

When business owners consider selling, it will pay big dividends for them to consider the areas listed above and make whatever changes are appropriate to deal with them. It makes good business sense to not only review them, but also to resolve as many of the issues outlined above as possible.

Other Factors Which Effect Buyers Value of Companies in Orange County

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Of course, buyers can evaluate all objective measures of the value of a business–EBITDA, Profit margins, and growth trends.  However there are other things which most buyers take under consideration for drivers of valuation.  Here is a list of subjective variables which can effect the way a buyer values a business.

1.  Buyers are looking for a strong management team with a vision for the growth of the business.  Unfortunately most entrepreneurs like to run mean and lean to create monetary value for themselves but this creates a management vacuum which a buyer must address.  Other questions are about the transition period and what the staffing will look like post sale.

2.   Industry Trend’s impact the value of a business and will be scrutinized by a buyer.  Questions asked by the buyer will be “Is the business growing faster or slower than the industry”, “Is the growth sustainable”, “How is the growth being driven and what is the reason for the growth”.

3.  Concentration Of Supplies and Customers.  Sellers must be able to articulate what makes them comfortable in transitioning these relationships to a new owner.

4.  Is There Room for Growth?  A buyer will need to evaluate at what rate of capacity is running at and what elements (building, equipment, people) are necessary to expand.  Also at what cost, cap ex, would be necessary.

Businesses which have answered these questions positively are in much better position to be valued at a higher multiple than those companies which have not addressed these subjective variables.

For an evaluation of your particular business, please contact us to discuss.

Business For Sale in Orange County, CA

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Empire Business Solutions, a leading Business Broker and M&A Specialist in Orange County is please to announce it has been retained to represent and bring to market this business in the specialty trades space.

Commercial Flooring Dealer

Long established full service design and commercial contract flooring dealer which services all of Southern California.  One of the main assets the company enjoys is a very experienced staff, many with over 25 yrs experience in the industry.  Company enjoys an enviable reputation for providing high quality product and service.  The company has excellent relationships with General Contractors, Hospitals and Property Management companies.   Company has access to all the major carpet mills and flooring manufactures.

Owner wants to retire and will stay on for a short time through a transition period.

If you or anyone you know is interested in more information on this opportunity, please contact Roy Moss at 714-374-6430

What Are the Hot Businesses for Sale

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Hot Business List ~ July 2014

Below you will find the current “hot” business list courtesy of data from leading business for sale website.     They publish a  Businesses For Sale  monthly ranking of business types based on the number of “hits” on their site. This ranking is not based on the actual sale of businesses.

TOP CATEGORIES BY IMPRESSIONS

Top Ten Businesses for July 2014:

  1. Restaurants
  2. Convenience Stores
  3. Bars
  4. E-Commerce Businesses
  5. Fast Food – Non Franchises
  6. Motels
  7. Liquor Stores/Off Licences/Wine Merchants
  8. Sandwich Shops & Delivery
  9. Fast Food Franchises
  10. Pizza Delivery Businesses

Top Ten M&A Businesses for July 2014:

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

Empire Business Solutions Awarded “Best Solutions Provider of the Year-USA”

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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, has since 2010, been selecting and recognizing excellence in various categories.  They have been celebrating excellence, innovation and performance across the business, legal, financial and investment communities.

Each award series is designed to reward those most deserving in this global and very challenging business space. They give a comprehensive analysis of the industry and a complete run through of the best of the best in terms of industry experts.

Acquisition International prides itself on the validity of its awards and its winners. They are given solely on merit and recognize leaders in their respective fields.

Methodology

According to AI, the award winners are determined through a rigorous process, which starts when we open the ballot boxes and distribute the voting forms through our partners within the industry.

They combine the votes received – alongside supporting evidence – with their own in-house research to arrive at the final winners list. This comprehensive

selection process ensures that the awards are a true representation of the market and that our winners are truly at the cutting edge of their fields.

AI understands that bigger does not necessarily mean better. Our awards are broken down first by region and then into wider categories, ensuring that every firm has an equal chance – from local to global, niche to full-service.

About Acquisitions International

 “Acquisition International is a monthly magazine brought to you by AI Global Media Ltd, a publishing house that has reinvigorated corporate finance news and reporting. As an editorially driven magazine, its topical news articles make it a highly enjoyable read, and this readability ensures that advertisers will benefit greatly from their investment.

AI works alongside leading industry analysts to ensure we publish the most up to date figures and analysis. Through our regular features our regional, sector and specialist reviews, we thoroughly research and  publish today’s corporate finance news in cooperation with the leading professionals in the industry.

AI is global which brings together all parties involved in deal making and in an increasingly global deal market we are uniquely positioned to reach the deal makers that matter. We communicate to our readers not just through the magazine but also through a number of alliances.

AI also 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 the Orange  and Los Angeles Counties since 2005.

 

What a Buyer May Really Be Looking At

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Buyers, as part of their due diligence, usually employ accountants to check the numbers and attorneys to both look at legal issues and draft or review documents. Buyers may also bring in other professionals to look at the business’ operations. The prudent buyer is also looking behind the scenes to make sure there are not any “skeletons in the closet.” It makes sense for a seller to be just as prudent. Knowing what the prudent buyer may be checking can be a big help. A business intermediary professional is a good person to help a seller look at these issues. They are very familiar with what buyers are looking for when considering a company to purchase.

Here are some examples of things that a prudent buyer will be checking:

Finance

Is the business taking all of the trade discounts available or is it late in paying its bills? This could indicate poor cash management policies.
Checking the gross margins for the past several years might indicate a lack of control, price erosion or several other deficiencies.
Has the business used all of its bank credit lines? Does the bank or any creditor have the company on any kind of credit watch?
Does the company have monthly financial statements? Are the annual financials prepared on a timely basis?
Management

Is the owner constantly interrupted by telephone calls or demands that require immediate attention? This may indicate a business in crisis.
Has the business experienced a lot of management turnover over the past few years?
If there are any employees working in the business, do they take pride in what they do and in the business itself?
Manufacturing

What is the inventory turnover? Does the company have too many suppliers?
Is the business in a stagnant or dying market, and can it shift gears rapidly to make changes or enter new markets?
Marketing

Is the business introducing new products or services?
Is the business experiencing loss of market share, especially compared to the competition? Price increases may increase dollar sales, but the real measure is unit sales.
When business owners consider selling, it will pay big dividends for them to consider the areas listed above and make whatever changes are appropriate to deal with them. It makes good business sense to not only review them, but also to resolve as many of the issues outlined above as possible.

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