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.
Hot Business List ~ June 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:
- Convenience Stores
- Fast Food – Non Franchises
- Gas/Petrol Service Stations
- Auto Repair, Service & Parts
- Café Bars
- Printing & Typesetting Services
Top Ten M&A Businesses for June 2013:
- Sandwich Shops & Delivery Businesses
- Liquor Stores/Off Licences/Wine Merchants Businesses
- Auto Repair, Service & Parts Businesses
- Bakers & Confectioners
- Distribution Businesses
- Oil & Petrochemical Related Businesses
- E-Commerce Businesses
- Web Design/Development Businesses
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.
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.
An existing business is a known entity. It has an established and historical track record. It has a customer or client base, established vendors, and suppliers. It has a physical location and has furniture, fixtures, and equipment all in place. The term “turnkey operation” is overused, but an existing business is just that, plus everything else. New franchises may offer a so-called turnkey business, but it ends there. Start-ups are starting from scratch.
2. Business Relationships.
In addition to the existing relationships with customers or clients, vendors, and suppliers, most businesses also have experienced employees who are a valuable asset. Buyers may already have established relationships with banks, insurance companies, printers, advertisers, professional advisors, etc., but if not, the existing owner does have these relationships, and they can readily be transferred.
3. Not “A Pig in a Poke”.
Starting a new business is just that: “a pig in a poke.” No matter how much research, time, and money are invested, there is still a big risk in starting a business from scratch. The existing business has a financial track record and established policies and procedures. A prospective buyer can see the financial history of the business — when sales are the highest and lowest, what the real expenses of the business are, how much money an owner can make, etc. Also, in almost all cases, a seller is more than willing to stay to teach and work with the new owner — sometimes free of charge.
4. Price and Terms.
The seller has everything in place. The business is in operation and a price is established. Opening a new business from scratch can be the proverbial “money pit.” When purchasing an established business, the buyer knows exactly what he or she is getting for his money. In most cases, the seller is also willing to take a reasonable down payment and then finance the balance of the purchase price.
5. The “Unwritten” Guarantee.
By financing the purchase price, the seller is saying that he or she is confident that the business will be able to pay its bills, support the new owner, plus make any required payments to the seller.
Sell my business? Many business owners like you are asking: “When is the right time to sell my business?” To Empire Business Solutions, a M&A Business Broker in Orange County, California, the answer often relies on three factors, which I will explain below. However the correct question should be: “When is a good time to take some money off the table?” These days, with all the private equity (PEG) activity and options, business owners should look at not just the ultimate exit, but whether a partial exit makes sense.
Today it is possible to sell a portion of the company to take advantage of favorable market conditions and diversify your net worth, yet continue to run your company. So let’s consider whether now is a good time to seek liquidity—either partial or full liquidity.
The three considerations for evaluating the timing of an exit are:
- Is the overall market for selling companies favorable?
- Is the company’s recent performance strong enough to attract a favorable price?
- Am I emotionally prepared and motivated to either exit my company or willing to bring a partner on board to help me take the business to the next level?
It is not likely that you will experience the perfect storm where all three of these considerations are good simultaneously. Rarely do all the stars line up. Those who wait for that perfect moment typically wait too long to exit; they are forced to continue in the business longer than they desire or to accept a sub-optimal price.
But the answer to all three questions needs to be acceptable, or the timing might not be right.
In 2012, the answer to the first question is that the market for selling most private companies is getting more favorable. The prices being paid today are not quite as aggressive as they were at the peak in 2007 and early 2008. But they are close, and as good as we can expect to see in this new era of limited leverage for the foreseeable future.
Today U.S. corporations have more cash on hand than any time in history. They are anxious to put it to work, and acquisitions are the most expedient way for many of them to do so. Additionally, private equity firms have an unprecedented level of cash (often called “Dry Powder”) to acquire businesses. There are over 5000 firms that have to invest in private businesses to justify their existence. A private equity firm cannot survive unless it invests all of its capital because its investors will ask for their money back—with a return—in either 8 or 10 years from the commencement of the fund. Today there is a significant pent up demand among both the strategic (corporate) buyers and financial (private equity) buyers.
Moreover, when selling a business, the concern should not be: How much do I get? Rather, it should be: How much do I keep? And that is a function of the tax code. Late last year Congress extended the Bush tax cuts. That means capital gains rates will remain at 15% until the end of 2012 and hopefully longer. Our current budget deficit is unsustainable, and tax rates will go up after 2012 and probably never be this low again in our lifetime.
So that leads us to the next question: How is your company performing? A surprising number of my clients did well in 2012. If you are in that boat, 2013 should be a superb time from a market standpoint. The field will get very crowded next year. But some businesses did not fare as last year. If you are in that boat, look at 2013 as a time to maximize your bottom line so you can cash out in the coming years.
The final question is whether you are mentally, emotionally and financially ready to exit. Let’s just summarize some key considerations.
First of all, give up the notion that you can sell your business and invest all the proceeds in Treasury securities with no risk and maintain the same income. A low risk diversified portfolio of liquid securities will never yield the same return as a private company. You may think your company is low risk because you are in control. But from a pure finance perspective, it is not.
If you are not financially or emotionally ready to fully cash out today, you should consider selling part of your business to a private equity firm now, continuing to own a meaningful percentage and operating the business. Then you can set aside enough cash to take care of most or all of your family’s financial needs and sleep a little better the next time we have a financial or political crisis. It is not a question of if, but when. And you can have access to the expertise of professional investors who are trained in how to build business value. Out of over 5000 funds, surely there is one or two which you could get along with. Perhaps not. But to take your company to the next level, having some outside counsel usually helps. Then in 3, 4 or 5 years you can exit fully—have your second bite at the apple—and provide a nice return to your investors and yourself (and not have all your eggs in one basket in the meantime.)
If you are the type that does not think you could function with a partner in the mix, and you know you want to retire in the next few years, you should target the end of 2013 as the time to be safely out of the business and hope the tax rates have not increased. And since it generally takes up to 12 months to complete a sale transaction, you need to get busy looking for the right team. To get the best deal, you need to have an advisor who will pro-actively approach every logical buyer out there and make sure you have several parties to negotiate with. A competitive process is the only way to assure a successful outcome.
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