Key Factors on the Acquirer’s Side

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There are several key factors on the acquirer’s side of a sale, most of which are necessary to achieve a successful closing. Just as a seller has to deal with quite a few factors, the acquirer must also. Some of the more important ones on the acquisition side are:

  • Sufficient financial resources to complete the deal as specified.
  • Depth of capable staff to run the existing business and also execute an acquisition at the same time.
  • A rational approach to the type, size and geographic location of target companies.
  • The willingness to “pay-up” for acquisitions such as 6x EBITDA and, if necessary, the willingness to pay 100% cash, whether the sale is one of assets or a stock transaction.
  • Assuming the acquisition search generates satisfactory deal flow, a willingness to stay the course for 6 to 12 months in the search process.
  • A confirmation by the board of directors of their commitment to complete a deal.
  • A “point person” in the search process, preferably the CEO, CFO or Director of Development who is reachable on a daily basis to discuss relevant matters.
  • Complete access to sales manager and others by the business intermediary to discuss suggestions of target companies.

A Few Websites Worth Visiting Daily or Weekly

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If you are an entrepreneur with your own business or have ambitions to start your a business, you might  want to visit these websites for insights and help.

Inc. – This is focused on providing trends, ideas, and best practices around developing and growing a business. Passing along  the experiences and insights of other business owners, Inc can be valuable for your firm.

Entrepreneur – Some of the best of ‘how-to’ guides and examples, Entrepreneur provides content for all stages of business growth. Whether it is creating a business plan or revamping your sales team, there are articles.

Business Insider – Business Insider is an enjoyable balance of fun and valuable articles. With dozens of pieces published daily, it has some very interesting perspectives and information for daily and business life.

Hot Business List ~ April 2013

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May 21, 2013

Below you will find the current “hot” business list courtesy of data from Businesses For Sale. We asked Businesses For Sale for a 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 Ten Businesses for April 2013:

  1. E-Commerce Businesses
  2. Health and Fitness Clubs
  3. Websites
  4. Convenience Stores
  5. Restaurants
  6. Auto Repair, Service and Parts
  7. Bars
  8. Delicatessens
  9. Marketing Businesses
  10. Fast Food Franchises

Top Ten M&A Businesses for April 2013:

  1. Tennis Clubs
  2. Manufacturing
  3. Distribution Businesses
  4. Construction Businesses
  5. Home and Garden Businesses
  6. IT
  7. Recruitment Businesses
  8. IT Manufacturing
  9. Specialist Subcontractors
  10. Fabrication Businesses

 

Questions to Ask the Buyer of a Business in Orange County

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I am currently working with two buyers with two totally different motivations for buying a business.  One buyer already owns a successful business and has the resources to purchase another in Orange County as an investment with either minimal involvement in day-to-day or hands off.  The other buyer is from another state and wants to buy an easy to run business so they can move to Orange County to be near their family.  Point being there are multiple motivations for buying a business and the buyers need to be vetted to determine motivation to take the plunge.

A serious buyer should have the answers to the following questions:

  • Why are you considering the purchase of a business at this time?
  • What is your time frame to find a suitable business?
  • Are you open-minded about different opportunities, or are you looking for a specific business?
  • Have you set aside an amount of capital that you are willing to invest?
  • Do you really want to be in business for yourself?
  • Are you currently employed or unemployed?
  • Are you the decision maker, or are there others involved?

The real key to being a serious buyer, however, is whether the individual can make that “leap of faith” so necessary to the purchase of a business. No matter how much due diligence a buyer performs, no matter how many advisors there are to advise the buyer, at some point, the buyer has to make a leap of faith to purchase the business. There are no “sure things” and there are no guarantees. If a buyer is not comfortable being in business, he or she should not even contemplate buying one.

Selling Your Businesses in Orange County in the Summer

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Summer is a difficult and interesting time for selling businesses.  As most buyers go on vacation with their families, dealflow usually shrinks and almost all communication stops until the kids go back to school. The slowdown creates a little breathing room for everyone to reevaluate their positions to see if everything from Asking Price to updated financials are all proper and in place.   After the kids go back to school, the activity will get back to normal with the fall session projected to be fairly good.

What Businesses are Selling?

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Hot Business List ~ June 2013

July 11, 2013

Below you will find the current “hot” business list courtesy of data from Businesses For Sale. We have information from  Businesses For Sale for a 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.  If you have a business for sale in Orange County or are considering selling your business for sale in Orange County,  this information might be helpful.

Top Ten Businesses for June 2013:

  1. Convenience Stores
  2. Fast Food – Non Franchises
  3. Restaurants
  4. Bars
  5. Websites
  6. Gas/Petrol Service Stations
  7. Auto Repair, Service & Parts
  8. Delicatessens
  9. Café Bars
  10. Printing & Typesetting Services

Top Ten M&A Businesses for June 2013:

  1. Sandwich Shops & Delivery Businesses
  2. Liquor Stores/Off Licences/Wine Merchants Businesses
  3. Auto Repair, Service & Parts Businesses
  4. Bakers & Confectioners
  5. Distribution Businesses
  6. Oil & Petrochemical Related Businesses
  7. E-Commerce Businesses
  8. Supermarkets
  9. Pubs
  10. Web Design/Development Businesses

First Half Results are In

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In an effort to keep you up to date on the state of the market for buying and selling a business in Orange County or the rest of the county , I am sharing information from a couple of reports which give us an interesting insight to the market.   Bizbuysell, a prominent website for listing businesses for sale, reports a significant spike in small business sales for the second straight quarter.  Forbes reports Private Companies forecast strong revenue growth.  Axial (which tracks larger enterprise value transactions)  forecasts for the balance 2013  are very optimistic.  In my opinion, this tells us the climate for selling or buying a business has improved and is moving in the right direction.

Buying or Selling a Business: The External View

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There is the oft-told story about Ray Kroc, the founder of McDonalds. Before he approached the McDonald brothers at their California hamburger restaurant, he spent quite a few days sitting in his car watching the business. Only when he was convinced that the business and the concept worked, did he make an offer that the brothers could not refuse. The rest, as they say, is history.

The point, however, for both buyer and seller, is that it is important for both to sit across the proverbial street and watch the business. Buyers will get a lot of important information. For example, the buyer will learn about the customer base. How many customers does the business serve? How often? When are customers served? What is the make-up of the customer base? What are the busy days and times?

The owner, as well, can sometimes gain new insights on his or her business by taking a look at the business from the perspective of a potential seller, by taking an “across the street look.”

Both owners and potential buyers can learn about the customer service, etc., by having a family member or close friend patronize the business.

Interestingly, these methods are now being used by business owners, franchisors and others. When used by these people, they are called mystery shoppers. They are increasingly being used by franchisors to check their franchisees on customer service and other operations of the business. Potential sellers might also want to have this service performed prior to putting their business up for sale.

 

What Would Your Business Sell For?

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There is the old anecdote about the immigrant who opened his own business in the United States. Like many small business owners, he had his own bookkeeping system. He kept his accounts payable in a cigar box on the left side of his cash register, his daily receipts – cash and credit card receipts – in the cash register, and his invoices and paid bills in a cigar box on the right side of his cash register.

When his youngest son graduated as a CPA, he was appalled by his father’s primitive bookkeeping system. “I don’t know how you can run a business that way,” his son said. “How do you know what your profits are?”

“Well, son,” the father replied, “when I came to this country, I had nothing but the clothes I was wearing. Today, your brother is a doctor, your sister is a lawyer, and you are an accountant. Your mother and I have a nice car, a city house and a place at the beach. We have a good business and everything is paid for. Add that all together, subtract the clothes, and there’s your profit.”

A commonly accepted method to price a small business is to use Seller’s Discretionary Earnings (SDE). The International Business Brokers Association (IBBA) defines SDE as follows:

Discretionary Earnings – The earnings of a business enterprise prior to the following items:

  • income taxes

  • nonrecurring income and expenses

  • non-operating income and expenses

  • depreciation and amortization

  • interest expense or income

  • owner’s total compensation for one owner/operator, after adjusting the total compensation of all other owners to market value

Here are some terms as defined by the IBBA:

  • Owner’s salary – The salary or wages paid to the owner, including related payroll tax burden.

  • Owner’s total compensation – Total of owner’s salary and perquisites.

  • Perquisites – Expenses incurred at the discretion of the owner which are unnecessary to the continued operation of the business.

Developing a Multiplier

Once the SDE has been calculated, a multiplier has to be developed. The following (just as a guideline) should be rated from 0 to 5 with 5 being the highest. For example, if the business is a highly desirable business in the current market, “desirability” would be rated a 4 or 5. If the business is in an industry that is quickly declining or nearly obsolete, “industry” would be given a 0 or 1 rating.

Age: Number of years the seller has owned and operated the business.

  • Terms: Is the seller willing to offer terms?  For example, will the seller accept 40 percent as a down payment with the seller carrying back 60 percent at terms the business can afford while still providing a living for the buyer?
  • Competition: Consider the local market.
  • Risk: Is the business itself risky?
  • Growth trend of the business: Is it up or down?
  • Location/Facilities
  • Desirability: How popular is the business in the current market?
  • Industry: Is the industry itself declining or growing?
  • Type of business: Is the business type easily duplicated?

The average business sells for about 1.8 to 2.5. Obviously, if the SDE is solid and the multiple is above average, the price will be higher. Keep in mind that the price outlined includes all of the assets including fixtures and equipment, goodwill, etc. It does not include real estate or saleable inventory. The price determined above assumes that the business will be delivered to the buyer free and clear of any debt.

Veteran Wisdom

When all else fails, the words of a veteran business broker will work.

Asking Price is what the seller wants.

Selling Price is what the seller gets.

Fair Market Value is the highest price the buyer is willing to pay and the lowest price the seller is willing to accept.

Sellers should keep in mind that the actual price of a small business is about 80 percent of the seller’s asking price.

 

Burnout: One of the Top Reasons for Selling a Business

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Burnout is one of the main reasons mentioned by owners selling his or her business. Potential buyers may have trouble accepting this as a valid reason for sale. However, burnout is a valid reason for selling one’s business.

A business owner can experience burnout even with a business that’s successful and growing. Many independent business owners feel they’ve worked hard, made their money, and now is a good time to cash out and move on, before burnout endangers the health of the business.

The following warning signs should remind a business owner that cashing out beats burning out:

You are overwhelmed on a daily basis.

When a business owner is a one-man show, even small tasks and minor decisions can seem bigger than Mount Everest. These owners have been shouldering the burden alone for too long, and the isolation has taken its toll.

You sense a failure of imagination.

Burnt-out owners are so close to their work that they lose perspective. Prioritizing becomes a major daily challenge, and problem solving sometimes goes no further than the application of business Band-Aids that cost money in the long run rather than increasing profits.

The fun is gone.

Although owning a business is hard work, it should also provide a good measure of enjoyment. When the work day begins with dread or boredom, the owner probably needs a change of scenery and a new challenge.

You are simply worn out.

Being “just too tired” is a complaint heard just as often from the owner of the successful business as from the business that’s struggling to survive. In fact, a business that is growing will create increased demands of time and energy.

No matter what the status of the operation, the sheer work of keeping a business going day after day, year after year, is enough to encourage a business owner to make a change. This kind of schedule is not for everyone; in fact, statistics show that it’s hardly for anyone on a long-term basis.