There is no denying the fact that life is much, much easier when one can find the right buyer for his or her business. Buying or selling a business can be a stressful affair, but much of that stress can be eliminated by getting the right support. The Concept of the “Right Buyer” In the recent Inc. article entitled, “How to Find the Right Buyer for Your Business and Avoid Negative Consequences,” Bob House builds his article around a relatively simple and straightforward, but powerful, concept. House’s notion is, “the right buyer is worth more than a big check.” House correctly points out that far too many sellers become fixated on exiting their business and grabbing a big pay day. In their focused interest in the sum they will receive, these sellers ignore a range of other important details. In part, sellers often miss the single greatest variable in the entire process: finding the most qualified buyer. The simple fact is that if sellers want to reduce their long-term … [Read more...]
Seller Articles
How Employees Factor into the Success of Your Business
Quality employees are essential for the long-term success and growth of any business. Many entrepreneurs learn this simple fact far too late. Regardless of what kind of business you own, a handful of key employees can either make or break you. Sadly, businesses have been destroyed by employees that don’t care, or even worse, are actually working to undermine the business that employs them. In short, the more you evaluate your employees, the better off you and your business will be. Forbes’ article “Identifying Key Employees When Buying a Business”, from Richard Parker does a fine job in encouraging entrepreneurs to think more about how their employees impact their businesses and the importance of factoring in employees when considering the purchase of a business. As Parker states, “One of the most important components when evaluating a business for sale is investigating its employees.” This statement does not only apply to buyers. Of course, with this fact in mind, sellers … [Read more...]
Obtaining a Fair Market Value When Selling Your Business
Divestopedia published a rather insightful article, “Letting the Market Bridge the Valuation Gap.” In this October 2018 article, Dave Kauppi dives in and explores how fair market value can be used as a way for business owners to “bridge the gap between the valuation they feel they deserve and that which they’re likely to receive.” This, of course, increases the chances of a deal actually taking place. Let’s turn our attention to some of the key points in Kauppi’s informative article. Understanding the Reality of Selling a Business One key point is that only a low percentage of businesses actually sell on their first attempt. The article points out that a mere 10% of businesses that are for sale are actually sold three years later; this is a simply brutal fact. Few facts, if any, help underscore the value of working with a Business Broker / M&A Advisor more than this point. Selling a business can be difficult under even the best of circumstances. The process is complex, … [Read more...]
The Myth of Fair Business Valuation When Selling a Business
In Divestopedia’s article, “The Myth of Fair Business Valuation: What Professional Valuations Don’t Tell You,” author Chak Reddy is quick to point out that the “type of buyer and method of sale are two important (yet often overlooked) value determinants when finding a starting price for your business.” Reddy brings up some excellent points. One notion in particular that every business owner should be aware of is that there is “NO fair value for illiquid assets.” He points to the fact that between January 2007 and March 2008, the historic Bear Stearns went from a value of $20 billion dollars to just $238 million. In a mere 14 months, Bear Stearns lost most of its value. Additionally, the article points to the fact that business owners often suffer enormously from “dramatic valuation compression.” In Reddy’s view, this compression is the direct result of poor planning and a failure on the part of business owners to select the right advisory teams. Reddy believes that … [Read more...]
Goodwill and Its Importance When Selling a Business
What exactly does the term “goodwill” mean when it comes to buying or selling a business? Usually, the term “goodwill” is a reference to all the effort that a seller puts into a business over the years that he or she operates that business. In a sense, goodwill is the difference between an array of intangible, but important, assets and the total purchase price of the business. It is important not to underestimate the value of goodwill as it relates to both the long-term and short-term success of any given business. According to the M&A Dictionary, an intangible asset can be thought of as asset that is carried on the balance sheet, and it may include a company’s reputation or a recognized name in the market. If a company is purchased for more than its book value, then the odds are excellent that goodwill has played a role. Goodwill most definitely contrasts and should not be confused with “going concern value.” Going concern value is usually defined as the fact that a … [Read more...]
The Top Legal Mistakes to Avoid During a Sale of a Business
The business sale process can be a complex time consuming process, which is part of the reason why it makes sense to have expert help in the form of an experience Business Broker / M&A Advisor. Legal mistakes can be very costly mistakes. A legal mistake can also bring the entire sale process to a sudden halt. Let’s take a closer look at what you can do to avoid these kinds of issues when selling a business. Major Mistake 1 – You Skipped the Non-Disclosure Agreement Nothing quite invites trouble like skipping the non-disclosure agreement. If a deal falls through, then you have the NDA backing you up. This document ensures that the prospective buyer doesn’t tell the world that your business is up for sale and avoid them sharing important, confidential information. Never assume that a deal is going through until it is actually 100% complete. Buying or selling a business is an unpredictable, complex process with lots of moving parts. There is plenty of room for things to go … [Read more...]
What Makes the Sale of a Business Fall Through?
There are a myriad of reasons why the sale of a business doesn’t close successfully; these multiple causes can, however, be broken down into four categories: those caused by the seller, those caused by the buyer, those that just happen (“acts of fate”), and those caused by third parties. The following examines the part each of these components can play in contributing to the wrecked deal: The Seller 1. In some instances, the seller doesn’t have a valid reason for entering into the sale process. Without a strong reason for selling, he or she has neither the willingness to negotiate nor the flexibility to see the sale to a conclusion. Without such a commitment, the desire to sell is not powerful enough to overcome the many complexities necessary to finalize the sales process. 2. Some sellers are merely testing the waters. As detailed above, they are NOT at that “hungry” stage that provides the push toward a successful transaction. These sellers merely want to see if anyone … [Read more...]
Are You Asking a Reasonable Price for Your Privately Held Company?
Placing a price on a privately-held company is usually more complex than placing a value, or a price, on a publicly-held company. There are many reasons for this fact, but one of the top reasons is that privately-held companies don’t have audited financial statements. Why are Audited Financial Statements Lacking in Privately-Held Companies? Preparing an audited financial statement is expensive and, as a result, many privately-held companies that have not gone public simply forego the expense. Most privately-held companies are also not accountable to bankers, investors or partners so there is no need to incur this cost. Compared to a privately-held company, a publicly held company can often seem like an “open book.” Buyers are left with the proposition of having to dig out a lot more information from a privately-held company in order to assess whether or not a valuation or price is accurate. What Can You Do to Overcome this Factor? You, as the seller, can help … [Read more...]
When is the Right Time to Sell Your Business?
Like many things in life, timing can be everything when it comes to selling your business. Every day more and more baby-boomers are now reaching retirement age. The marketplace is already showing signs of increasing inventory with the increasing amount of businesses coming to market as more and more business owners are looking to sell to retire. According to a 2016 survey of Business Brokers, 54% plan to exit in the next ten years. We may be on the verge of a massive wave of businesses hitting the market. Getting out in front of that wave could be in your best interests. Now very well may be the time to sell. Are You Suffering from Burnout? If you’ve been running your business for many years, it is quite possible that you are suffering from burnout. This issue is remarkably common with business owners and it is also very dangerous. Owners suffering from burnout don’t invest as much of themselves and their creative energy into their businesses, and that has a range of … [Read more...]
Fairness Opinions When Selling a Business
Since one often hears the term “fair value” or “fair market value,” it would be easy to assume that “fairness opinion” means the same thing. A fairness opinion may be based to some degree on fair market value, but there the similarities end. Assume that you are president of a family business and the other members are not active in the business, but are stockholders; or you are president of a privately held company that has several investors/stockholders. The decision is made to sell the company; and you as president are charged with that responsibility. A buyer is found; the deal is set; it is ready to close — and, then, one of the minority stockholders comes out of the woodwork and claims the price is too low. Or, worse, the deal closes, then the minority stockholder decides to sue the president, which is you, claiming the selling price was too low. A fairness opinion may avoid this or protect you, the president, from any litigation. A fairness opinion is a letter, usually only two … [Read more...]
