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.

 

Top Businesses for Sale

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Here is a list compiled by a leading businesses for sale website.

Top Ten Businesses for December 2013:

  1.  E-Commerce
  2. Convenience Stores
  3. Restaurants
  4. Fast Food – Non Franchises
  5. Websites
  6.  Bars
  7.  Auto Repair, Service & Parts
  8. Services
  9. Liquor Stores/Off Licences/Wine Merchants
  10. Gas/Petrol Service Stations

Top Ten M&A Businesses for December 2013:

  1. Distribution Businesses
  2. Wholesale Businesses
  3. Mining Businesses
  4. Auto Repair, Service & Parts
  5. Manufacturing Businesses
  6. Car Wash & Valet                         
  7. Food & Drink Distributors
  8. Food & Drink Wholesalers
  9. Transport Services
  10. Road Haulage & Freight Services

Business For Sale in Orange County Increased in 2013

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As a leading Broker and M&A Specialist in Orange County, it is important for our clients to have a clear picture of the current market conditions.   Several reports coming out in January indicate the number of transactions in 2013 grew significantly in Orange County led by exceptional growth in the restaurant and retail sectors.  The good growth increase in businesses for sale and closed transactions can be attributed to several factors, including the improved economy, excellent supply and demand fundamentals and continued improvement in the financials of the businesses for sale.

Business Sales Activities

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Recent reports from the leading business-for-sale websites indicate significant increases in sales transactions.  These seem to be primarily in Main Street businesses as other reports from M&A portals are telling us the deals are very slow.  Two very different scenarios seem to indicate the lower market is moving but Private Equity is stalled.  My personal experience in closing deals validates the activity at the Main Street level.  Also another indication of this activity is the number of sellers now considering selling whereas previously they were sitting on the sidelines waiting for their business to return to normal valuations.  If you are interested in selling your business, please contact me for a free Broker Opinion of Value (BOV).

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.â€

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.