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What to Expect when You Buy a Business in 2025

Mon, 24 Mar 2025 14:25:48 GMT

Buying a business in 2025 presents unique opportunities and challenges shaped by technological advances, economic factors, and evolving consumer preferences. Before you buy a business, you'll need to have a general idea of what's to come. Here's what you can expect when stepping into the business acquisition arena this year.

Increased Deal Activity

The mergers and acquisitions landscape in 2025 is vibrant, with experts predicting an uptick in transactions. According to Ernst & Young-Parthenon, a 10% rise in U.S. deal volumes has been predicted for this year, highlighting both private equity and corporate mergers. This surge means increased competition among buyers, necessitating thorough due diligence and strategic decision-making to secure promising opportunities.

Greater Emphasis on Technology

In 2025, businesses heavily invested in technological transformation, including automation, artificial intelligence (AI), and advanced data analytics, stand out as prime acquisition targets. Evaluating a company's digital capabilities is critical, as acquiring technologically adept businesses positions you to achieve accelerated growth and heightened market competitiveness.

Companies leveraging sophisticated technologies often experience higher operational efficiency, reduced costs, and improved customer satisfaction. As a result, technology-driven businesses have a considerable competitive edge, making them appealing investment opportunities. Anyone looking to buy a business should prioritize comprehensive technology audits to assess the integration potential of acquired technologies within their existing infrastructure. Furthermore, understanding how technology supports innovation and agility in responding to market shifts can significantly enhance acquisition value.

Valuation Complexities

Determining the accurate value of a business has become increasingly complex in 2025, largely due to fluctuations in the economy, market volatility, and rising operating costs. It's vital to engage trusted experts who can provide accurate valuations reflecting market conditions, ensuring you pay a fair price and minimize investment risks. Complex financial structures, evolving business models, and rapidly changing markets necessitate advanced valuation techniques.

Buyers must also account for intangible assets, such as intellectual property, customer relationships, and brand value, which can significantly impact valuations. Engaging valuation specialists who apply both traditional methods and innovative valuation approaches, including predictive analytics and scenario planning, will provide a more comprehensive perspective. Accurate valuations in 2025 require not only quantitative analysis but also qualitative insights into the company’s market position, competitive landscape, and future growth potential.

ESG Integration Standards

ESG (Environmental, Social, Governance) factors are significantly influencing the business acquisition landscape in 2025. Companies with robust ESG credentials not only attract wider consumer interest but also reduce regulatory risks. Therefore, performing comprehensive ESG assessments during due diligence is now essential to ensure your investment aligns with sustainability and market expectations. Businesses prioritizing ESG considerations typically enjoy enhanced brand reputation, better risk management, and stronger relationships with stakeholders.

As a result, ESG-driven companies often deliver more stable long-term returns and show greater resilience during market disruptions. Moreover, regulatory bodies globally are increasingly imposing stricter ESG-related disclosure and compliance standards, which makes thorough ESG evaluations critical to avoiding potential legal or financial penalties. Buyers in 2025 must proactively integrate ESG analyses into their acquisition processes to effectively assess risks and opportunities related to sustainability, employee wellbeing, community impact, and corporate governance practices.

Cross-Border Opportunities

Globalization has made cross-border acquisitions more attractive yet complex. Buyers exploring international markets in 2025 must carefully analyze global economic conditions, regulatory environments, and cultural dynamics. Adequate preparation for cross-border deals includes leveraging specialized advisors knowledgeable about international markets.

Strategic Portfolio Refinements

Many buyers in 2025 are strategically refining their corporate portfolios, either divesting non-core assets or acquiring companies to bridge capability gaps. This trend is especially prominent in sectors like healthcare, consumer goods, and entertainment. Expect to thoroughly analyze how potential acquisitions fit your long-term business strategy and whether they effectively complement or enhance your existing operations.

Regulatory and Economic Changes

Understanding economic conditions and regulatory environments is crucial in 2025. Anticipated pro-business policies and economic shifts may open up opportunities in industries like finance, energy, and technology. Staying informed about policy changes and economic indicators helps buyers navigate potential opportunities and threats effectively.

By clearly understanding what to expect when buying a business in 2025, you can approach acquisitions confidently and strategically, maximizing your investment potential in today's dynamic business environment. If you're looking to buy a business , speak with the team at Merger & Acquisition Specialists. We're here to help advise you as you navigate the process.

How to Prepare Your Business to Go to Market

Thu, 20 Feb 2025 13:18:04 GMT

Taking a business to market is a significant milestone in an entrepreneur's journey. It's a complex process that requires strategic planning and meticulous execution to ensure your business is ready to attract potential investors who buy local businesses. In this blog post, we will discuss key steps to prepare your business effectively for the market, enabling you to maximize its value and increase the likelihood of a successful sale.

Evaluate and Organize Financial Records

The first step in preparing your business for market readiness is to thoroughly evaluate and organize your financial records. Potential buyers will scrutinize your financial statements, so it's crucial to have accurate, up-to-date records that clearly demonstrate your business's profitability and growth potential. This includes balance sheets, income statements, and cash flow statements. Additionally, consider conducting an audit to verify financial information and present a transparent picture of the business's fiscal health.

Optimize Business Operations

Another essential aspect is optimizing your business operations to demonstrate efficiency and scalability. Streamlining processes and offering evidence of operational efficiency will position your business as a valuable acquisition for those who buy local businesses. According to Forbes, the number of businesses that sell after going on the market is only about 20% to 30%. This statistic underscores the importance of showcasing not just what your business does, but how it can grow and adapt under new ownership. Reducing unnecessary costs and improving productivity can make your business more attractive to buyers.

Enhance Market Positioning

Enhancing your business's market positioning is also vital. You should clearly identify and articulate your unique value proposition and competitive advantage. Consider conducting a market analysis to understand your positioning relative to competitors, and adjust your strategies accordingly. Craft a compelling story around your brand that resonates with those who buy local businesses. Be sure to highlight achievements, potential market opportunities, and customer loyalty metrics that demonstrate a strong brand presence.

Preparing your business for the market is a complex but manageable process that requires attention to detail and strategic planning. By organizing financial records, optimizing operations, and strengthening market positioning, you can significantly increase your appeal to those who buy local businesses . Remember, thorough preparation not only enhances the value of your business but also boosts the chances of a successful sale in a competitive market. If you're ready to sell your business, contact Merger & Acquisition Specialists today to speak with one of our experienced business brokers.

3 Questions to Ask Your Business Broker

Mon, 20 Jan 2025 10:37:29 GMT

Engaging a business broker when buying or selling a business is a strategic move that can save you time, money, and offer peace of mind. Brokers are experienced professionals who navigate the complexities of business transactions, ensuring you understand each step. However, choosing the right broker requires understanding their expertise and approaches to business sales. Here are some essential questions to ask your business broker to ensure they align with your needs.

1. What Is Your Experience and Track Record?

Start by inquiring about their experience and track record with similar businesses. Knowing how long they have been in the business and their success rate with entities like yours can provide clarity. Every industry has its nuances, and brokers with specific experience in your sector are better equipped to handle potential challenges. According to Investopedia, it takes an average of 9 months from the time a business is listed for sale until the transaction closes, so you'll want someone knowledgeable about your market's intricacies.

2. How Do You Market Businesses for Sale?

Ask about their marketing strategy for selling your business. A business broker's ability to effectively market a business can significantly impact how quickly a deal closes. Understanding how they plan to reach potential buyers and the platforms they leverage is key. A comprehensive strategy should include both digital and traditional marketing techniques to attract the right buyer efficiently.

3. How Do You Determine Business Value?

Understanding how your broker evaluates and determines the value of a business is crucial. This process, known as business valuation, sets realistic price expectations. A skilled broker should clearly explain their methodology, whether it's asset-based, earning-based, or market value approaches. This transparency ensures you're informed and confident about how your business is positioned in the market.

Asking the right questions can make all the difference in finding a business broker who understands your specific needs and goals. An experienced broker will guide you through the complexities of the sale process and work proactively to meet your expectations. Remember, it typically takes 9 months to close a transaction, so partnering with the right professional is essential.

Ready to start your business journey with confidence? Contact a trusted business broker at Merger & Acquisition Specialists today to discuss your goals and take the first step toward a successful transaction.

How We Help Find the Right Buyer for Your Business

Tue, 26 Nov 2024 14:48:21 GMT

When you're ready to sell your business, finding the right buyer can be a daunting task. The buyer you choose will not only influence the sale price but will also impact the future of your company. Therefore, it's crucial to take strategic steps in identifying the ideal buyer who aligns with your business values and goals. Here, we'll explore effective strategies to ensure you find the right buyer who can take your business to the next level.

Define Your Ideal Buyer

Firstly, defining your ideal buyer is essential. Whether it be a strategic buyer who is looking to expand into new markets, a financial buyer interested in investment returns, or an individual looking for a lifestyle change, knowing the type of buyer you're targeting can streamline your search. Consider their industrial expertise, financial capacity, and vision for the business. Clearly identifying these traits helps you refine your marketing strategies and ensures you attract potential buyers who match your expectations.

Network in Your Industry

Networking within your industry can significantly affect your ability to identify prospective buyers. Attend trade events, industry seminars, and join business networks to increase the visibility of your business for sale. According to the Business Buyer Resource Center, there are 15 prospective buyers for each business listed, capitalizing on existing relationships and connections can give you a competitive edge. In addition, leveraging professional networks increases the possibility of finding a buyer who is not only interested but also familiar with the nuances of your industry.

Engage a Business Broker

Another effective method is to engage a business broker. Brokers have the skills and resources to market your business to potential buyers while maintaining confidentiality. They can present your business in its best light, emphasizing its strengths and financial performance. Moreover, brokers often have access to a database of qualified buyers, which can significantly widen your reach, ensuring that your business gets enough exposure to attract serious interests.

Utilize Digital Platforms

Utilizing digital platforms and listing your business online can also be an efficient way to find prospective buyers. There are numerous websites designed specifically to connect business sellers with buyers. We can help you create a compelling online listing that highlights your business's unique selling points, growth potential, and market advantages that substantially increase the interest in your business. We'll be proactive in monitoring these platforms, as they are highly dynamic environments with daily new buyers entering the fray.

Organize Your Business

Ensure that your business is in its best shape before putting it on the market. A well-organized and financially stable business is more attractive to potential buyers. An M&A specialist can help you conduct a thorough review and organization of your financial records and address any operational inefficiencies that could deter buyers. This enhances the perceived value of your business and it also demonstrates to potential buyers that your business is a promising investment opportunity.

Conduct Due Diligence on Potential Buyers

Once you've attracted interest from potential buyers, conducting thorough due diligence is a crucial step. It's important to vet each prospect to ensure they have the capability and credibility to follow through with the purchase. This includes assessing their financial stability, understanding their background, and evaluating their plans for your business.

Request financial documentation, references, and any relevant business experience. Additionally, consider how well the potential buyer's vision aligns with your company's values and long-term goals. Our M&A specialists will help you take the time to perform due diligence to protect your business's legacy and minimize the risk of any potential issues arising during or after the transaction.

Finding the right buyer for your business requires a strategic approach, patience, and a good understanding of your business's strengths and market potential. By defining your ideal buyer, leveraging industry networks, engaging a business broker, utilizing digital platforms, and ensuring your business is well-prepared for sale, you increase your chances of finding a buyer who is aligned with your vision for the business. Remember, the goal is not just to sell, but to ensure your business thrives under new ownership.

By engaging with a business broker, they will guide you through the process of putting your business for sale . They have experience preparing business owners to sell their businesses, finding the right buyer, and transferring ownership. We recommend working with a business broker if you are thinking about selling your business. Call us at Merger & Acquisition Specialists for a free consultation!

3 Reasons to Invest Your Time in a Local Business Broker

Tue, 22 Oct 2024 12:36:30 GMT

When it comes to buying or selling a business, the complexities can often be overwhelming. Navigating the market, determining the value of a business, and finalizing a deal all come with their own set of challenges. This is where a local business broker can step in to make the process not just easier, but also more efficient and profitable.

1. Local Market Expertise

One key advantage is the broker's in-depth understanding of the market in your specific area. A local business broker offers insights that national or international brokers may overlook, ensuring you receive an accurate valuation and the best possible deals. Additionally, their network within the community may introduce you to opportunities that you wouldn’t find otherwise.

2. Diversity and Professional Understanding

According to Zippia.com, 36.2% of all brokers are women, while 63.8% are men. This diversity within the profession allows you to find a broker who aligns with your needs and preferences, making the process more comfortable and efficient. Whether you feel more at ease working with a particular gender or simply prefer a broker with specific expertise, you have the flexibility to choose. The diverse workforce brings different perspectives and strategies, resulting in a well-rounded approach to buying or selling your business.

3. Personalized Service

Another significant benefit of working with a local business broker is the level of personalized service you will receive. Unlike larger firms that may treat you as just another client, local brokers often dedicate more time and resources to ensure your satisfaction. Since they are deeply invested in their community and reputation, they have a vested interest in the success of your transaction. This customized approach not only makes the experience more pleasant but also ensures you are receiving the best service possible, compared to a more impersonal national firm.

In conclusion, investing your time in a local business broker offers numerous advantages. From local market expertise to a diverse workforce and personalized customer service, a local business broker can simplify and improve the process of buying or selling a business. Their community-focused approach can make all the difference in ensuring a successful and profitable transaction. When you need reliable experts in the local market, contact the team at Merger & Acquisition Specialists. We are ready to serve you today!

How a Business Broker Can Help First-Time Buyers and Sellers

Wed, 25 Sep 2024 13:01:10 GMT

Navigating buying or selling a business for the first time can be overwhelming due to the myriad of complexities involved. This is where a business broker can be an invaluable asset. Professional brokers specialize in managing the intricacies of business transactions, making them essential for first-time buyers and sellers seeking a smoother, more informed process.

Streamlining Transactions

One of the primary ways a professional broker assists first-time buyers and sellers is by simplifying the transaction process. From business valuation to handling legal documents, a business broker ensures that every step is managed efficiently. For first-time sellers, this means accurate pricing and effective marketing of their business, which can significantly increase the likelihood of a successful sale. Conversely, first-time buyers benefit from the broker's expertise in identifying businesses that align with their goals and financial capabilities. According to Forbes, the percentage of businesses listed for sale that will be sold is only 20% to 30%. This statistic highlights the importance of having a skilled business broker who can enhance the chances of completing a successful transaction.

Market Expertise

A professional broker provides crucial market insights and industry knowledge. They offer a detailed analysis of the current market conditions, which helps set realistic expectations regarding a business's value. For sellers, this means pricing their business competitively to attract serious buyers, while buyers receive guidance on assessing the true worth of potential purchases. Additionally, professional brokers leverage their extensive network to connect buyers with viable business opportunities and sellers with qualified buyers, streamlining the search process and expediting transactions.

Negotiation Tactics

Another significant advantage of working with a professional broker is their negotiation and transaction management expertise. Negotiating terms, drafting contracts, and managing communication between parties are complex tasks that a professional broker expertly handles. This role is especially beneficial for first-time buyers and sellers lacking experience in these areas. By ensuring that negotiations are fair and that all contractual obligations are met, a professional broker helps mitigate potential pitfalls and facilitates a smoother transaction process.

A business broker is a crucial ally for first-time buyers and sellers, providing expert guidance, market insights, and effective negotiation skills. Their support can significantly enhance the likelihood of a successful business transaction, making the experience less daunting and more manageable. If you're interested in buying or selling a business, contact our team at Merger & Acquisition Specialists today. Give us a call to find out more information about how we can assist you.

Business Brokers: Maximizing Value for Buying a Business

Thu, 25 Jul 2024 15:22:39 GMT

You've been thinking about buying an existing business rather than starting one from scratch. It's an exciting prospect, but also a bit daunting. There's a lot to consider, and you want to make sure you maximize the value and avoid any costly mistakes. Working with an experienced business broker could be the secret ingredient to finding the right business opportunity at the right price.

Define Your Goals

Before starting your search, get very clear on your goals. Do you want a lifestyle business with predictable income and reasonable hours? Or are you aiming for rapid growth and maximum profitability? Understanding the "why" will help local business brokers present you with businesses that truly align with your vision. Also, consider your budget, location preferences, and any specialized skills or interests you want to leverage. Having this foundation will streamline the process.

Search Listings and Resources

Once your goals are defined, start browsing online listings from local business brokers. Look for businesses in your geographic area and ideal industry. Often you can filter by pricing, revenue, cash flow, and other metrics to hone in on opportunities that match your budget. Many brokers also have additional resources, like market data, to help you research and analyze specific listings that catch your interest. Leverage these tools to get smart on valuation and growth potential.

Interview Brokers

As you evaluate listings, make note of the brokers who seem to have opportunities relevant to your goals. Reach out to discuss your criteria and see if you click on a personal level. A local business broker who takes time to understand your vision and financial needs will better advocate for you during negotiations. Ask about their experience with similar deals, services offered, and typical time frames. They should provide market insights and realistically assess deals, not just hype them up. Take time interviewing several brokers before deciding on representation.

Let Your Broker Guide You

Once you've chosen your local business broker, let them guide you through the process while still doing your own due diligence. Have them arrange tours, get detailed financial records, and facilitate calls with sellers. Use their expertise to assess things like customer retention opportunities, growth potential, staffing needs, etc. They can walk you through the paperwork and negotiations when you've found the one. Having an advocate in your corner helps ensure you get the best terms and strongest deal structure. Lean on their experience while listening to your own instincts.

Get Support on Financing

Securing financing is often an integral part of buying an existing business. Your local business broker may have relationships with lenders that finance deals like yours. They can help you put together a solid loan application, advise you on the optimal deal structure and terms, and tap into financing sources tailored to this niche. With a business loan under your belt, you're in a much stronger position to negotiate and close the deal from a cash flow perspective. Let your broker quarterback this piece.

Negotiate Smartly

Once you're ready to make an offer, remember that negotiation is more art than science. There are many levers to pull, including sale price, seller financing terms, equipment and inventory included, transition period, training, and lease assumptions. An experienced broker will help craft a competitive offer while still keeping your best interests top of mind. Don't get sucked into overpaying or unfavorable terms. Lean on your broker to negotiate wisely and maintain perspective.

Perform Due Diligence

After an offer is accepted, the real work begins! Now is not the time to get sloppy or complacent. Dig deep during the due diligence process to validate the financials, operations, staff, equipment, intellectual property, lease agreements, and everything else about the business. Your local business broker can recommend accountants, lawyers, and other professionals to help with this process. Leave no stone unturned, so there are no unpleasant surprises down the road. Think of due diligence as your insurance policy.

Owning an established business can enable you to skip past many startup hurdles. By partnering with the right local business broker, you can find the ideal opportunity, negotiate effectively, and secure financing. With the right support team and mindset, your chances of buying a winning business improve exponentially. If you're ready to get started, reach out to us at Merger & Acquisition Specialists for a consultation with our local business brokers .

Why a Business Broker Is Perfect for Your Acquisition

Mon, 18 Mar 2024 12:05:21 GMT

Purchasing a company or a portion of a business is an exciting process. However, it can also be full of complexities. This is especially true for people who have never purchased a business on their own before. Partnering with a business broker benefits both parties during an acquisition. If you're on the fence about working with a business broker, here are a few key reasons to consider doing so.

They Provide Critical Knowledge

Business brokerage is a booming business. According to IBISWorld, the national business broker industry is estimated to be worth about $1 billion, and there are around 4,000 companies in the field. These firms help other companies and entrepreneurs buy businesses. This gives them a high level of knowledge and expertise, making them crucial to ensuring everything runs smoothly during a sale.

They Offer More Opportunities

A professional broker already has an enormous network of people and companies they work with. Most brokers keep a database of companies and businesses for sale soon. They have critical insight into sales before the rest of the market. Many companies won’t work with individual buyers, which means that working with a business broker instantly opens the door to more opportunities for you to invest your money.

They Provide Expert Guidance

Buying a business might seem easy, but it requires careful thought and research to help minimize the risk you’re taking. For example, a company may make millions of dollars annually, which sounds lovely. However, they may also have enormous debt or hemorrhage money monthly, giving them a negative profit margin. Your personal broker will help conduct appropriate research and provide the guidance you need to make intelligent investments.

They Maintain Confidentiality

Confidentiality is essential in the business world, especially regarding acquisition. A professional broker knows this, and they won’t tell the other company personal information they don’t want them to learn. For example, you may be willing to pay top dollar for a company because you’re interested in purchasing it. However, if you tell the other business that information, you will pay a higher price. A business broker knows this, and they won’t tell the other party any information that can hurt you during negotiations.

They Offer Help During the Negotiation Process

Negotiations require tactics based on skills and strategic thinking. You don’t want to pay more than you must for a company, but you also don’t want to be out of the game because your offer was too low. Many businesses will want to put a clause or two in the business deal, such as maintaining the job positions of certain employees who have been working at the company for many years. A professional broker has experience in these situations and can often negotiate on your behalf. Having someone negotiate for you helps you land a better deal while reducing stress.

They Can Speed Up the Transaction

It can be hard to deal with the paperwork and multiple processes that go hand in hand with a business acquisition, especially when you have numerous other priorities. With the help of a business broker , you can manage your other priorities without having to worry that you're missing paperwork deadlines for your acquisition. Your broker's experience, skills, and focus can lead to a faster business transaction. You won’t have to worry about delays because you forgot something or someone didn’t sign a document properly.

They Provide Future Support

When most people think of a professional business broker, they envision someone helping them during the acquisition. However, many brokers will also continue to provide support after the purchase. They can assist you in navigating through learning about your new company. You may have to restructure your current operations to include the new business or figure out financial matters to ensure the new company stays afloat. A broker can help you with resources and support during this transition to ensure success.

As a business broker, we know how complicated and daunting an acquisition can be. Our professional team will provide you with support from the time you’re interested in purchasing a business until you’re ready to go with your new operation. We can assist in both buying and selling, ensuring we can help you find exactly what you're looking for. Contact us at Merger & Acquisition Specialists for more information about how we can help you.

ACCOMMODATIONS & FOOD SERVICES OUTPACING THE MARKET

Fri, 23 Feb 2024 16:45:09 GMT

Interesting Release of Information last fall...

10/11/23 - The Small Business Administration released their loan approval summary report for small-to-medium sized businesses as of October 3, 2023. The SBA Loan Summary Report is a good market indicator of main street, small business & middle market merger & acquisition activity. The SBA 7(a) loan is the primary loan product banks use to finance small business acquisitions. Small businesses are generally considered those doing $5mm or less in annual revenue.

The total 7(a) approval count is outpacing 2022 in number of transactions. Despite rising interest rates main street activity remains steady. The average transaction size year-to-date is for $877,321.

The Accommodations & Food Services industry is outpacing the rest of the market. Of all loan approvals, 21.1% of them are in the industry. The next closest is Retail Trade at 14.4%. The Accommodations & Food Services industry operates under NAICS 72, and comprises establishments providing customers with lodging and/or preparing meals, snacks, and beverages for immediate consumption. The sector includes both accommodation and food services establishments.

Through October of 2023, 654 Accommodations & Food Services deals nationwide have been approved through SBA Financing. These 654 deals represent $561,054,800 in total transaction value. The average sized deal for this industry its $857,882 - just under the overall average.

You Want to Buy a Business. Now What?

Mon, 19 Feb 2024 13:30:42 GMT

Buying a business is a big deal. This type of investment could mean a new career and new income source for you, or it could mean disaster. According to the Business Buyer Resource Center, at any one time, there are 15 prospective buyers on the market for every business for sale. You need to go into this decision with some solid information, so let's look at a few things you should consider when buying a business.

Know the Type of Business You're Interested In

The first thing you need to determine is the type of business you're interested in buying. You'll want to narrow down your passions, interests, skills, and experience to make sure you're investing in a sustainable option that you'll get a lot of fulfillment out of. It's best to purchase a business that you already have experience with.

Search for Businesses for Sale

The next step is to find what's available. You can conduct this research with a broker. When you work with a broker, you'll have the advantage of their professional expertise on your side. If you've never purchased a business before, this expertise could prove to be extremely valuable.

Connect With a Broker

You should definitely connect with an experienced business broker before you make final decisions on a purchase. A business broker is a professional that helps individuals purchase businesses much like a real estate agent helps people buy houses. This professional can bring valuable insight into both the purchase and the legal factors of purchasing a business.

You may have enough money to buy a business , and you may know exactly what you want to buy. However, if you fail to carry out all the details of the purchase legally, you could wind up in trouble. You might also get taken advantage of if other parties involved understand this process better than you do. A business broker will level this playing field to ensure that you get a fair deal.

These are just a few things you should consider before you buy a business. If you're interested in learning more or you need assistance with this process, please contact our team of experienced brokers at Merger & Acquisition Specialists. We look forward to hearing from you!

Important Questions to Ask a Business Broker

Thu, 25 Jan 2024 17:27:52 GMT

The successful buying or selling of a business is highly dependent on the business broker you choose. Business brokers can be very helpful during this often complicated process. According to Investment Bank, the percentage of businesses listed for sale that will actually be sold is 20%. However, it's important that you choose a business broker carefully, as a poor-quality broker can have a negative impact on your business transactions. Here are a few questions you should consider asking a business broker before hiring them.

Do I Need a Business Broker?

A business broker is a professional who is trained and experienced in buying and selling businesses. In order for a business to be sold or bought, there is often a need for extensive negotiations. It's helpful to have a financial professional on your side with familiarity with best practices in this industry. For a fee, these professionals will make your buying or selling process a smooth and profitable transaction.

What Are the Benefits of This Service?

This professional can provide you with many benefits. One of the main ways they will assist you will be by increasing the revenues of the sale if you're selling a business. If you're buying a business, they can represent your best interests in this often complicated legal process. If you've never bought or sold a business before, you might feel a bit at a loss for how to navigate this whole process. The right business broker will offer essential advice from an expert perspective.

Can I Buy or Sell a Business Without a Broker?

There is no requirement that you use a broker for this process. However, it may be in your best interest to do so. There are many legal aspects to buying or selling a business. If you aren't a business broker yourself or a legal professional with experience in business transactions of this type, you might get in over your head quickly. The business broker can help to ensure that everything in your transaction is done legally.

These are just a few questions to ask a business broker before hiring them. If you're in need of a business broker , please contact Merger & Acquisition Specialists today. We are here to help you buy or sell your next business.

Strategies for Effective Negotiations in the Sale of a Business

Sat, 20 Jan 2024 18:45:00 GMT

Learn to play chess, not checkers.

One of the central components to any deal involves the art of negotiation. By definition, a negotiation is a discussion aimed at reaching an agreement. Author of The Art of War, Sun Tzu famously had much to say about negotiation. Three elements in particular stand out:

Those skilled in war subdue the enemy’s army without battle.
Know the enemy and know yourself.
Keep him under a strain and wear him out.

Negotiating the sale of a business does not have to be combative. While discussions can certainly become heated and passionate, the negotiation itself does not have to be combative. If it is, so be it. Deals still get done.

But, per Sun Tzu, the best way to win is without fighting.

Subdue Without Battle

This applies to the art of getting your price without any resistance from the buyer. This may not be full price—although that is even better. But perhaps your value was 90% of the asking price. Getting that value without resistance is an art and requires a strategic approach.

This approach starts at the very beginning: valuing the business. After thorough research, preferably by a third party and NOT the seller, a range of values will surface. These values will be based on the cashflow and revenues of the business. (Very few businesses are priced by the book value of the hard assets.) Revenue is vanity, profit is sanity—but cash is king.

Strategically speaking, it’s okay to put the business at the high-end of what the market says it is worth, especially with an upwards trending business that has hefty cash flows and great margins. It may even be acceptable to price slightly outside of the market if projections are looking good and debt service can be covered. But pricing a business way beyond norms will not attract buyers.

The point is to be strategic in one’s pricing, which starts by using the correct value components, and then comparing with industry metrics and norms. Having a value backed by hard data is critical to winning the argument. And value is always a solid argument.

With a business significantly higher than market value, negotiations between buyer and seller are often doomed, as the gap is too far to bridge. Buyers simply see the cash flow and price, then move on.

That type of deal never had a chance to begin with. Strategic negotiations can only occur with an actual negotiation. Sellers can help get buyers interested, and help themselves for future negotiations, by being data driven with their value.

Let me be very clear: This does not mean low-balling the business or setting the bar too low.

With big cash flows and nice margins, set the value on the high-end of the market—maybe even a bit too high if projections look good. But leave emotions out of it and be data driven.

Understand what elements the market uses to gauge value. This puts you in control.

Know the Enemy and Know Yourself

In the process of selling a business, the “enemy” is often the lender—not literally, of course, but certainly one of the main factors that must be overcome. Loans can be difficult to obtain and the underwriting process can be frustrating and lengthy.

The buyer is certainly an adversary in negotiations, but not the enemy. While interests may differ, the end objective of both is for the business to change ownership.

Keep the main thing the main thing. The main thing is selling the business, and selling the business requires financing .

Know thy enemy

One of the main factors sellers often overlook in valuing the business is the debt service which will be required for a buyer. This is an added expense for the buyer, so it's understandable that owners do not consider it. However, debt service is a factor in all valuations. In fact, the number one reason for buyer/seller valuation misalignment is because sellers often do not understand how financing and debt service affects valuation.

When one knows how the business will be financed, and what the debt service will likely be, then that knowledge can help strategically place the business in a comfortable range of value which can be supported, justified and argued for in future negotiations. Play chess—not checkers. Know thy enemy.

Know thyself

Full disclosure: I am not a certified business analyst, nor do I value businesses for a living. Neither am I, nor is my firm, FINRA-certified. I help people and companies, sell, merge and acquire businesses. I sell businesses. Banks do not care what I say about value because my interests lie with the seller; I am not considered an arm’s length third party.

But I operate with value on a daily basis and know what constitutes value when it comes to a business. In 99% of situations, cash flow and/or revenues drive value. Cash is king. When a seller understands this key principle of valuation, then they can accurately and strategically look at values for their business.

Additionally, they can look at ways to increase their cash flow and revenues, which will increase the value of their business. There is most certainly a strategy to valuing a business that takes into account that which matters most: cash flow, debt service and owner benefit.

Keep Them Under a Strain and Wear Them Down

Operate in good faith with any buyer prospect. Do not fudge numbers or misrepresent facts and conditions. Being transparent and answering questions honestly will go a long way in establishing good rapport, and that can play a role when it comes time for a buyer to make an offer.

But this is very much a game of wits. You’ve taken all the right steps mentioned above; now it's time to strategically play your hand of cards. Keep your cards close to your vest.

If the buyer is asking about terms but has not written an offer, do not agree to anything. Put the onus back on them. For example, if a buyer asks a seller, “Are you interested in owner financing? If so, how much?” A good response is: “It depends on the offer.”

Another common question from buyers is: “How much would you take?” Deflecting back, ask “How much will you offer?”

Or, to be coy: “What I asked for it.”

In these types of conversations, be intentionally coy and deflect back to the buyer. Answer questions with questions. You have listed the business at an asking price, you have the data to support it, you have shown your value. Now, force the buyer to put forth their price on a signed offer to purchase. Put the pressure on them. Put the strain on the buyer to think about a fair offer.

Don’t write the offer for them by answering seemingly innocent questions that end up crafting their offer terms. A signed offer is the only justification to discuss value and/or terms.

Final Thoughts

DO NOT BE AFRAID TO COUNTER! Present yourself as being flexible and open to any deal structure, even if you are not. Cast a wide net with buyers.

Don’t always play defense, but play offense by countering the buyer’s offer with terms that more closely match yours. This is a one-time event, so do not be afraid to speak your mind to potential buyers.

Be aggressive with what you want. All the buyer can say is no, and then you can work towards a compromise.

Be clear in what you mean. Mean what you say and say what you mean with buyers during the actual negotiations. Miscommunication between seller and buyer can unnecessarily spoil a deal.

Don’t be afraid to walk away. If you’ve never listened to Kenny Rogers’ “The Gambler,” then you should. Listen closely.

If you have a representative, clearly communicate your wishes to them, and then let them do their job and negotiate on your behalf.

Keep the main thing the main thing. Selling the business is the main thing. Do not get distracted by the noise. Stay focused on the signal.

Good luck!

SHEP CAMPBELL

SR. BROKER, MERGER & ACQUISITION SPECIALISTS

How to Do An Acquisition Search

Thu, 18 Jan 2024 22:56:52 GMT

I love to fish. It is one of my true joys and passions. These days, I mainly fly fish for trout. But I also crappie fish on our reservoir right up the road. There are many different types of fishing. If you don’t want to fly fish, then you can spin-cast, jig fish, drag worms, fish a bobber, crappie fish with a cane pole, bass fish, brim fish, fish with a harpoon, spear fish, use nets, use fish traps, and more.

The one thing all types of fishing have in common? You must know where to start to get started.

This is certainly the truth for an acquisition search. The hardest part about looking for a business to buy is knowing where to start, and there is not necessarily a cookie cutter template of the “right way” to do it.

There are two cliches, listed below in no order of importance, that can provide excellent guidance in this endeavor:

Use the K.I.S.S. Method: Keep It Simple, Stupid.
The journey of 1,000 miles starts with one step.

Looking for a business to buy can be as simple as going to a website such as DealStream and searching for a business for sale that fits what you are looking for. Search by industry, type, or location; there are a variety of ways to search online for a business to acquire.

This type of search is fairly easy to conduct. Go online, find a platform, and scroll through the listings. There should be contact information included on every listing. Find one of interest, obtain the contact information for that listing, then call or email your interest.

But what if there are no opportunities that are appealing or meet your needs? At this point, the acquirer must conduct a targeted acquisition search. Why?

Because the business you want to buy is not for sale.

Be Focused and Keep It Simple

This is a process. Begin by identifying motivation: Why are you looking to buy a business?

Even if the buyer has inquired about a particular listing, I ask that question. It has been my experience buyers are often open-minded to opportunities, but also a bit unsure, or vague, in what they are looking for and why. Tip no. 1 on conducting a successful acquisition search is to be focused and keep it simple.

Being focused does not necessarily mean knowing what you want to buy or even knowing what industry you want to buy in. Being focused applies to understanding your motivation and need for wanting to acquire a business.

Being focused is completely understanding your why.

For example, when asked why they want to purchase a business a buyer may say, “To be my own boss.” Another common reason, “To control my own financial future.” Both are very human reasons to buy a business. Both show motivation and need.

But these answers do not help in an acquisition search. While showing true motivation, these answers lack focus. But that’s okay: The acquisition search is a process. Think of it as a crock pot cooking time rather than a microwave cooking time. It can take time to get good results. Part of that process is forming an understanding of what the buyer is looking for.

Being focused and understanding motivation and need when it comes to acquiring a business starts with understanding what the buyer’s financial needs are from the business. This will identify the goal for the business. An acquirer needs to be detailed in what they need or desire out of the acquisition.

Is it a life change in which the buyer is buying a job? Then the goal is to support yourself and your family. What does the replacement salary need to be? Can the business afford your current lifestyle? What can you realistically live on?

If this acquisition is an add-on to an existing business, then the goal is growth. Acquisitions are the fastest way to grow your business and make more money.

Is this acquisition an investment? Then the goal is return on investment (ROI), in which you don’t necessarily need to take money from the business on a monthly or yearly basis. The focus is more on return on investment over a certain period.

Being focused on one’s motivation and need helps keep the search focused in the right direction. According to the Small Business Association’s Office of Advocacy, there are 33,185,550 small businesses in the United States . Any acquisition search is bound to turn up businesses!

It is easy to get overwhelmed, distracted, sidetracked, and frustrated. But this is where the K.I.S.S. (Keep It Simple, Stupid) method is applied. The K.I.S.S. method focuses on the path of least resistance.

This is a process. Begin by identifying motivation.

The Journey Starts with One Step

Once a buyer understands their why, the next step is to start the actual search itself.

In fishing you need a body of water to catch fish. There are many bodies of water, so a fisherman must pick one and go to it.

Likewise, in any search you need a pool to search from. Where are you going to start looking? This also ties into the acquirer’s motivations, needs and goals.

Perhaps geography is not a big deal. If not, what is? What are we looking for? Where are we going to start fishing?

Find the Fishing Hole

If the buyer is acquiring a job and making a lifestyle change, then decide first if you want to relocate from your current residence. If not, then how far are you willing to drive to work? That is a big first step; many steps will spring forth from that answer.

If the buyer is an investor, what part of the country do you like? If you’re looking for an add-on business, what market do you want to expand into? Geography is a big part of any acquisition search and a good place to start. It is also the easiest place to start.

Often buyers want to search for a certain sized revenue and/or cash flow, but these are very difficult pieces of information to obtain with any degree of accuracy. Privately held companies and closely held small businesses do not have to publicly disclose financial information, number of employees, and other similar items like publicly traded companies are required to do. Consequently, revenue and cash flow numbers of small businesses are nearly impossible to find without obtaining the actual company financials.

So cast a wide net first by using geography, it’s a tangible place to start one’s search. There are relatively accurate locations and address data easily available on privately held companies. Look for the fishing hole that fits precisely what you want from a location perspective. This is a great place to begin the journey, then narrow down with those types of qualification questions once prospects identify themselves.

This is a process. Identify motivation. Identify location.

Start Fishing

When I arrive at my trout stream, I get ready to enter the water. It’s a process. I put on my waders, get my net, tie my fly, make sure my line is smooth and make sure the reel works properly. I prepare to begin fishing.

When I conduct an acquisition search for a client, I do the same thing. We prepare our line and bait. In short, we form the list first. Once we form the list, we reach out to every business owner on the list. We do so in a variety of ways, including:

three rounds of Direct Mail
Email Campaigns
Social Media Outreach
Cold Calls

It is not rocket science. To find a business for sale, one has to contact the business owner to see if they are interested in selling. There are a variety of ways to connect with people, and once the business owner has been identified, they need to be contacted. There are strategic ways to do so, and each method listed above has its own strategy.

This is a process. Identify motivation. Identify location, identify businesses, and contact owners.

Once the owner has been contacted and expressed an interest in selling, consider that a fish in the net. The next question is, do you keep it or throw it back?

Is It a Keeper?

In a very real sense, a successful acquisition search is a numbers game, like fishing. The more fish you get in the net, the higher likelihood of catching that monster fish. The same with a business search. The more business owners you talk to, the more likely you are to find that right business.

Knowing the why and keeping it simple is critical at this juncture. As one encounters interested sellers, ask the pertinent questions based on what your motivations, goals and needs are. Keep the initial analysis simple. Screen businesses based on your criteria.

For example, if you are buying yourself a job and not relocating, then your search has been local. Upon successfully getting an interested seller on the hook, then begin next level qualification (cash flow, employees, years in operation, etc.) by asking the pertinent questions. Conversations with the seller initially can be directed at a high level to obtain ballpark numbers.

If, upon further discovery, the business produces $100,000 of cash flow after debt service, but you need $150,000 to support your family, then move on. Keep it simple: That business does not fit your needs. Do not try to fit a round peg into a square hole. Throw it back and go catch another one.

This is a process. Identify motivation. Identify location. Identify businesses. Identify owners. Contact owners. Screen business. Is it a keeper?

Catch or Release?

If it’s to be, and the business is a keeper, then the search is finalized. Now the acquisition search turns into an acquisition negotiation, followed by due diligence . That’s a different game—it’s more like football than fishing.

If it’s not to be, then the search continues. Move on to the next candidate. A good acquisition search is a process that follows a plan and has a model but is still flexible enough to remain open to any possibility. The plan and model should be one which can be applied and reapplied for any acquisition search, for any type of business, for any type of buyer, anywhere in the world.

The foundation of this plan and model are best grounded in the concepts of being focused, keeping things simple, and taking action. Do this, and the odds are in your favor.

Good luck.

SHEP CAMPBELL

SR. BROKER, MERGER & ACQUISITION SPECIALISTS

Selling a Tech Company...

Tue, 16 Jan 2024 23:15:29 GMT

Selling a Tech Company: Why Valuation is Critical

Beauty is in the eye of the beholder.

The origin of that saying is debatable. Some attribute it to Shakespeare, some attribute the exact phrase to Margaret Hungerford in her 1878 novel “Molly Bawn,” and still others claim the essence of the quote dates back to the fourth century B.C. and Plato. In the end, nobody really knows.

Which makes this saying very similar to technology company valuations.

Tech startups, pre-revenue companies, negative Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) companies, and young companies just a few years old are nearly impossible to value with any degree of accuracy. Evidence for this statement rests in the many examples of inflated and outrageous valuations of technology companies over the last five years.

Consider the payments company Stripe. In March of 2021, the company was valued at $95B post-funding. The company’s secondary market valuation climbed to around $200B in January 2022. By July of 2023, the company’s valuation had plummeted by over 73% .

Instacart, a grocery order, delivery and pickup company is another prime example. Two years ago the tech company was valued at roughly $39 billion. Currently, the company is shooting for a $9.3 billion valuation—a 76% slash in value over just 24 months.

Financial technology (fintech) companies Klarna and Chime have followed similar paths. Klarna’s last valuation in June 2022 was at a whopping 85% reduction from its valuation in June 2021.

These are just a few examples of the overhyped tech valuation market which has collapsed with the onset of higher interest rates.

When selling a tech business one of the primary considerations is the valuation. Do you use EBITDA? Or revenues? Or, if valuing fintech or a payments platform, what about Gross Transaction Volume (GTV)? Or, for an e-commerce business, how about using Gross Merchandise Value (GMV)? What about Lifetime Value (LTV) of a customer? The metrics are plentiful. But what good are the metrics if the company is not profitable? How does GMV, or LTV, or GTV apply to profitability?

And therein lies one of the chief difficulties in tech valuations: forming a credible and justified valuation with metrics that make sense. Without a positive EBITDA how do you use an EBITDA multiple? You don’t. A negative times a positive will always equal a negative. So investors and analysts have found other numbers to use, such as GMV, LTV, and GTV.

Why is valuing a tech company so much different than valuing a “normal” business? It’s because a lot of tech companies are not profitable or barely profitable when they are seeking a buyer. It’s almost expected that the company is not profitable. They may have revenues, but not profitability. Refer to the negative EBITDA situation above: Tech companies find buyers even when the company is not necessarily profitable. Why? Because the money is there.

Consider this quote from Investopedia :

“Tech start-ups reliant on venture capital and wealthy tech investors have had to recalibrate growth plans as that funding has plunged, the Financial Times reported earlier this year. In addition to finding other sources of financing, many startups have begun laying off workers as they try to conserve cash.”

Tech valuations have been propped up by a flood of cash from venture capital and wealthy investors that sink millions into good ideas even if they are not profitable. This is why we are currently in a tech valuation bubble that is bursting. By the time the money looks up, it’s already raining.

If the company is profitable, then EBITDA and revenue multiples can be applied. What that multiple is depends on the sector the company operates in, as with any other business. Certain industries have higher multiples than others, and certain tech companies carry higher multiples than other tech companies. Fintech, for example, is big right now. Mobile payments are gaining traction around the world, and this demand brings higher multiples. E-commerce is also very popular; online shopping is clearly a trend not slowing down anytime soon.

Tech is sexy, so when the company is not profitable investors look to the concept and space. They look at other metrics rather than profitability to justify value. This is particular to the tech space. When other types of businesses are not profitable, there are not typically buyers lining up to take a look. Yet this is not the case with tech companies. Because, again, beauty is in the eye of the beholder.

I have a tech company client right now that is a prime example of this concept. Let’s call this company “Quantum Marketing.”

Quantum Marketing is a pre-revenue tech company focused in the influencer marketing space. They have developed an artificial intelligence-driven (AI) algorithm that automates influencer marketing campaigns, creating a self-service platform for building social media influencer marketing campaigns in real-time while more precisely reaching the client’s target audience. It is a disruptive marketing technology (martech) for influencer marketing.

But Quantum Marketing is not producing any revenue. The company is currently just the two people who created the platform, and they do not yet have the manpower to onboard new clients and provide customer service. A pilot program did prove efficacy, and there is a backlog of potential clients, but there is no patented IP. The “secret sauce” is in the programming of the algorithm and the utilization of AI. Without any revenue, tangible IP, or any patents or pending patents, how does one gauge the value of this unique martech platform?

That’s the million-dollar question.

When we listed Quantum Marketing we did so WITHOUT an asking price. We knew there was value in the technology. We knew—and had evidence—that it worked. We knew we had a backlog of potential clients. But we did not know what it's worth, and neither did the sellers.

I have found this technique to be rather unproductive in past ventures. Over the last 10 years we have taken a handful of businesses to market without an asking price, most with little success. Buyers do not like having to put up the first offer. They want to first see what the seller expects in order to bargain down the price.

But with our client we took the approach of simply admitting we do not know what it's worth so we should allow the market to dictate value. The market will always speak to you. The sellers agreed, so that’s what we did. In order for this to work, sellers must be realistic with expectations, and buyers have to operate in good faith.

The tactic proved effective this time. We had a deal in progress with Quantum Marketing in short order. The acquirer was a publicly traded micro-cap technology company we will call Horizon Nexus. This company was a digital marketing company with multiple verticals. Their customers were small- to medium-sized businesses, or SMBs. They prided themselves on “bridging the gap between consumers and brands” by bringing data analytics, digital marketing, and advertising solutions to small businesses.

Horizon Nexus was looking to add to their existing tech stack and services, and also wanted to keep the two principal owners in place—Quantum Marketing fit precisely with what they were looking for. This was an acquihire structure. The synergies that would be generated by Horizon Nexus integrating Quantum Marketing were projected to produce over seven figures of revenue in a short period of time.

The overall deal structure looked like this:

Asking price: $3.5mm
Cash: $500,000
Stock: $1.8mm
Seller note: $1.2mm
Employment agreement for both owners: $200,000 per year.

This was a great deal. Unfortunately it fell apart due to Horizon Nexus’ stock plummeting nearly 90%. The fall started just as due diligence began to move forward. After 45 days or so of continually falling stock prices, the Board voted to terminate the deal. We went back to work.

Since then we have yet to find a buyer, but we’ve had several talks with several prospects. There remains a steady stream of traffic on this business—people love technology companies. Not having any revenues has not scared anybody off, nor has not being profitable. But try pitching a buyer on a clothing retail company that has no revenues, nor is profitable. Time that conversation and let me know how long it lasts.

Despite the traffic we’ve generated, we have not been close to getting a deal. Each of these prospective buyers is a long, long way from the Horizon deal valuation, with most not even putting an offer on the table. One buyer said pre-revenue tech companies are worth nothing. Literally, $0.

So, what makes a company worth $0 to one buyer and $3.5mm to another? Simply put, the buyer. Beauty is in the eye of the beholder. Horizon Nexus saw a great deal of value with projected tremendous growth by integrating Quantum Marketing into their operations.

Conclusion

Before selling a technology company, consider the valuation being used. Is this company profitable? If so, great; this is less of an issue. Is the company not profitable? If so, great, because tech companies will still sell EVEN IF THEY ARE NOT PROFITABLE, but only if the valuation makes sense. Astronomically inflated valuations are not gaining traction like they were in the days of near 0% interest rates and cheap money.

Consider the buyer, too. The buyer will determine whether the valuation is in-line or inflated. A synergistic industry buyer, whether they buy the tech or not, can provide valuable insight into what the market is saying about valuation.

And remember…

Beauty is in the eye of the beholder.

SHEP CAMPBELL

SR. BROKER, MERGER & ACQUISITION SPECIALISTS.

Skydiving Into Retirement

Tue, 12 Dec 2023 18:13:02 GMT

I have been skydiving twice. Both times in Lompoc, CA. The Pacific Ocean spread out to the west, and a valley floor of colorful flowers below. I jumped out of an airplane at 18,000 feet and it was exhilarating. I loved it. Tom Petty’s Free Falling was the background music on the video DVD I ordered for $30. It was awesome.

For those that enjoy thrills, skydiving is a must. For those seeking to sell their business and retire, I do not recommend the skydiving method of retirement. What do I mean?

Well, when I jumped out of the airplane I yelled, “Geronimo!!” It seemed appropriate. For business owners ready to sell their business without doing any Exit Planning, its the same thing as skydiving. By listing your business with the intent to retire, but with no planning on the front end, you are yelling, ‘Geronimo!!’ as you jump out of the airplane.

The main difference is I had a parachute. You will not. Consider the chart below:

A staggering 90% of business owners have no formal retirement planning prior to listing their business. This is even more staggering when one considers that retirement is the number one reason by a long shot for selling - across the value spectrum. Over a survey of 296 closed transactions ranging from <$500k to $50mm, retirement was the number one reason for selling regardless of the deal size. Anywhere from 39% to 68% of sellers list Retirement as why they want to sell. Yet, despite the ever growing numbers of retirees, business owners across the board favor the Geronimo method of exit planning and neglect preparing for this momentous, life changing event.

The primary risk with the Geronimo method is the value of the business is not enough to meet the seller’s needs to complete their retirement package. On average, 70% - 90% of a small business owner’s net worth is tied up with the business. It is an integral part of the overall retirement package. The seller must get a certain amount for the sale of the business, or, the seller is unable to retire thus unwilling to sell.

As a business owner meeting with your team of professionals to plan will ensure you not only secure your financial future, but maximize the value of your business. I tell owners to go visit with a broker 2-3 years out from selling. A good firm will form a relationship with you knowing you could be a potential future client.

A great firm will give you tips on how to increase the value of your business in the next 2-3 years to get what you need. The firm that goes the extra step on the front end, is the firm you would be wise to hire when the time is right to sell the business. Also, plan with your financial advisor. Know where you are now, and what you need to retire. Have a road map on how you plan to achieve those goals. Your financial advisor is the expert in that category.

Preparing on the front end by have a strategic exit plan will protect your financial legacy. You will secure your financial future, maximize your business’ value, and be able to skydive into retirement with a parachute.

Otherwise, you are just screaming “Geronimo!”. Good luck.

Shep Campbell

C: (870) 450-3734

Merger & Acquisition Specialists

6 Qualities to Look For in a Reputable Business Broker

Thu, 16 Nov 2023 18:12:48 GMT

Professional business brokers are the people you call when you're trying to buy or sell a small business. According to IBISWorld, today the business broker industry in the U.S. is worth around $1 billion, with nearly 4,000 companies working in this field. They'll work with you to ensure the acquisition goes smoothly and fulfill any licensing or permit requirements. To make sure you get the right person on your side, here are some qualities to look for in a reputable business broker.

1. Communication

A broker should stay in regular communication with you throughout the process. After all, buying or selling a business is a major responsibility, and you need to be in the know throughout the entire process. There's a lot of documentation and information to gather and review on both ends. This person should be readily available to answer any questions you have and return your correspondence promptly. After all, when it comes to buying a company, you may not be the only one interested in a purchase and have to act quickly against the competition.

2. Availability

Business brokers may be working with several clients at the same time. However, there's no excuse for them to not communicate with you properly. Make sure you get a broker who’s available and has enough time to handle all your needs in a timely fashion. You should ask your broker how many cases they handle at the same time and get an idea of how they juggle different clients.

3. Expertise

As mentioned, the professional responsibilities of a broker have many layers. They need to understand all the legal requirements that come with selling or buying a business. They should understand the type of permits that are needed and how long it’ll take to acquire them. Businesses also need regular inspections so that the person who's buying it knows what they're inheriting. All of these things should be second nature to a professional broker. You can test their expertise by asking them questions as well as asking for referrals. Hearing what other clients say about their broker expertise can give you peace of mind that you're picking the right person for you.

4. Transparency

You want trustworthy and transparent business brokers. With so much paperwork, legality, and fees going on with this type of process, you don't want somebody dishonest. When it comes to the financials, they should break everything down to you in layman’s terms so you’re never confused. You should understand everything that they're charging you for with their services as well as what you have to pay for when it comes to the building acquisition.

5. Resourcefulness

There's a lot of work that goes into business brokerage. Some business acquisitions will be harder than others. When it comes to researching permits or anything else that goes into making sure the deal is as legal as possible, the professional should use all of their resources to get the job done. After all, some information may not always be readily available, so they should be able to know what networks to tap into.

6. Experience

Ideally, you should find a brokerage team that has an extensive amount of experience handling this type of work. Whether you're trying to unload your small business or acquire a new one, you don't want there to be any mishaps or delays caused by working with an inexperienced professional. Ask them how long they've been doing this type of work. You can also check their experience level with reviews as well as check the Better Business Bureau website. The more experience they have, the faster they can handle issues that may arise or prevent them from occurring.

Buying or selling a business can be a lot of work and a lot of stress. That's why you must have the right professionals on your side. Experienced business brokers know the ins and outs of what goes into buying or selling a business. As long as you have the right broker team, the process should go as smoothly and efficiently as possible, so you can either unload your business or have a new one in your portfolio as soon as possible. Take the first step in getting an experienced, transparent professional on your side by giving Merger & Acquisition Specialists a call today.

State of the Market - September 2023

Fri, 10 Nov 2023 21:22:40 GMT

While one cannot predict the future, there are two trends occurring right now that would seem to be very important for the next five years in regard to business sales and M&A. These two trends deal specifically with supply and demand - a basic economic concept which most certainly plays into business sales and M&A.

The first trend is a movement out of corporate America. These are first time buyers looking to buy themselves a job. A recent survey of 700 buyers showed nearly half were first time buyers looking to buy themselves a job “to be more in control of their future”. These buyers are looking to replace an income, and oftentimes industry is less important than cash flow.

These buyers also usually have big retirement accounts, many of which can be tapped into via plans, such as the BORSA Plan, which enable buyers to access these funds without any penalties or taxes whatsoever. They have cash and cash equivalencies to purchase a business.

A second trend has to do with Private Equity groups. PEGS and PIGS are typically high net worth buying groups which acquire due to synergistic and strategic reasons. They have liquidity, lending connections, and do not seek to run the daily operations. Private equity deals have moved down the food chain to incorporate more and more Main Street and Lower Middle Market sized transactions. I consider Main Street deals to be those valued from $0 - $2mm. Lower Middle Market deals are those valued from $2mm - $50mm. One can subdivide each segment.

These smaller deals have become easier for PE firms to finance. There are more of them available to pursue. And with the adoption of an “add-on” strategy, PE will look at deals nearly any size. By add-on, we mean a business that would synergistically add-on to an existing bigger business and add value overall. PE groups love add-ons to their existing platforms. Usually these groups desire existing management to be in place; or for the seller to stay on and continue to run the business.

Perhaps this increased PE activity in the $5mm - $50mm range is part of the reason Median Multiples in this range have gone up

So if the buyers are there, then what are they buying. What can you do now to position yourself to capitalize on this movement?

I think you need to focus on 3 specific industries. Broadly speaking these would be: 1. VMS (Vitamins, Minerals & Supplements); 2. Manufacturing (including certain Fabrication); and 3. Construction/Construction-related. Now, E-Commerce is without a doubt one of the hottest and most profitable industries. I intentionally left that off because it is captured by VMS. E-com is profitable, but competitive and needs a solid, proven product to garner the highest valuations.

Within VMS you bring in that E-Commerce component. What is interesting about this industry is you typically encounter one of two types of companies. Either they manufacture the product, and sell to distributors, white label, etc. Or, they sell the product, which is usually done heavily via the company’s E-Commerce platform. Amazon has captured over 70% of ALL supplement sales online. E-Commerce sales represent 15% of the total Supplement Industry - indicating a lot of growth potential for online sales in this area. The unique company does both - manufacture their own product. They are out there, but hard to find it seems. We have one currently listed on the West Coast.

The good thing is, whether the business manufactures or just sells E-Com, the valuation multiples are very favorable, and these companies are very popular. There are certainly many, many type companies within DFW. In fact, Texas has the 2nd or 3rd most Supplement companies in the United States.

Recent transaction numbers prove VMS to be popular as well. In Q2 2023 Consumer Goods/Retail - the class VMS would fall under - was the 3rd most numerous deal closed in the <$500k, $500k - $1mm, $1mm - $2mm, and the $2mm - $5mm ranges. In the Middle Market range of $5mm - $50mm it was the second most numerous transaction. These figures indicate the popularity of this space, and VMS is the leader of this space.

The Construction industry was the single most popular industry in the $550k - $2mm, and the $5mm - $50mm range. Construction was overwhelmingly the most popular acquisition in the Middle Market $5mm - $50mm range. Manufacturing was the most popular in the $2mm - $5mm range.

According to the IBBA, in 2022 Construction and Manufacturing composed nearly 40% of all acquisitions in the Middle Market. On Main Street in 2022, nearly 1/3rd of all deals involved either Consumer Goods, Construction or Manufacturing. These are the industries to focus on. The buyers will be there, and recent history shows these are the top 3 industries.

My personal experience corresponds precisely with those figures. I currently have a Rebar Fabrication company on the market for sale which we had under contract before we even listed it. We have a VMS E-Commerce company which has attracted hundreds of buyers. I also currently have 4-5 construction-construction related listings which are drawing great numbers of inquiries.

To conclude, focus on these three industries if you are looking to acquire a business in an industry that is currently in demand, and based on historical trends will continue to remain in high demand.

VMS (E-commerce & manufacturing)
Construction
Manufacturing & Fabrication: Steel fabrication, etc.

Each of those three areas can certainly be subdivided into smaller categories. For instance, VMS can be further divided into Manufacturers, E-Commerce, Brick & Mortar. There are supplies, distributors, private labelers, etc.

The same could be said of Construction. Is it new construction? Remodeling? Commercial or residential, or both? There are General Contractors and Sub-contractors. With Manufacturing there are a plethora of possibilities. In addition, Fabrication is very close to Manufacturing, though slightly different with its own set of companies and valuation metrics.

The point is these three industries are both active in business sales and M&A - and also desirable by buyers of all types. Thus whatever the vertical within one of these industries may be, there is a high probability and likelihood of find plenty of profitable opportunities, and plenty of ready, willing & able buyers.

Shep Campbell

C: (870) 450-3734

Merger & Acquisition Specialists

Do You Need a Broker To Sell Your Business?

Wed, 25 Oct 2023 20:22:07 GMT

Or should we say, “Why you do need a broker to sell your business.”

I spent my first life coaching American football at various colleges around the country. When I got out of coaching, I jumped into the world of Business Brokerage and Mergers & Acquisitions (M&A). In one of my first conversations with a potential seller, she asked about my background. I told her I used to coach college football. She looked at me and said, “Well, you just jumped from one pack of wolves to another pack of wolves, didn’t you?”

Business Brokers may not have the best reputations . I get it. I do not think it is a deserved stigma, but I get it. So, when I sit down to visit with potential sellers, and they ask, “Why should I pay you to sell my business?” My answer is always the same.

You shouldn’t…if you can sell it yourself.

It has been my experience with both packs of wolves I have lived with that honesty, transparency, and direct answers will offset any preconceived notions a person may have. If you are a business owner, perhaps you’ve encountered a forked-tongued devil of a business broker and you walked away unimpressed and suspicious of their motives. Which is why, if we ever meet and you ask me why you should pay me to sell your business, my answer will be:

You shouldn’t…if you can sell it yourself.

But isn’t this an article about why you DO need a business broker? Yes, and therein lies the rub. Most owners I work with have never sold a business before. How do you know how to do something if you’ve never done it before? The only way to know is to do. Do you want to risk your greatest asset on an endeavor you’ve never tried before? After 10 years in this field and working with over 100 deals, it is quite clear that many business owners do not know how to go about selling their business.

And that’s just fine because you built your business to provide a living for you and your family, provide a service to your community, and provide for your employees and their families. You run your business, that’s what you do. You’re good at it. Running your business is a full-time job.

Selling your business is also a full-time job. You probably don’t do your own taxes. You probably do not handle your own retirement accounts. You likely did not sell your house on your own or buy one without the help of a realtor. Most people have professionals who handle those tasks for them. These are trusted professionals and advisors that specialize in one area or field. You trust them to do what is right on your behalf and to look out for your best interests. So, when it comes to selling your most valuable asset (your business), why would you try to handle that task yourself?

Selling a business is the single most unique endeavor I have ever encountered. It is unlike buying or selling anything else out there. You can talk folks into buying a pair of shoes, or buying a car, or signing up for a newsletter, but you can’t talk anybody into spending hundreds of thousands of dollars and going into debt.

Take a look at the questions below and answer them for yourself.

Do you know how to value a business?
Do you know how to evaluate your business financials for cash flow?
Do you know how to market a business without people knowing it’s for sale?
Do you know the difference between a conventional loan and an SBA loan ?
Do you know the difference between an SBA 7(a) loan and an SBA 504 loan—and when the two can be combined?
Do you know how to go about finding buyers for your business?
What information does a buyer really need in the initial conversations?
Do you show a potential buyer your tax returns in the first meeting? What about the second meeting? Or the third?
Have you ever negotiated with anyone over price and terms?
How do you handle a buyer that wants more and more and more information, but will not write an offer?
How do you get a buyer to write an offer without showing them your financial information?
Do you know how to screen and qualify buyers with three questions?
Do you know who the bank represents when they have a deal brought to them?
What is the difference between a Main Street Buyer and a Private Equity Buyer ?

I could ask about 20 more. But put those questions on the shelf for a second. We’ll circle back to them.

Let me give you a true-life story of a former client of mine. We helped them sell their concrete manufacturing company. The sellers were a husband-and-wife team. Prior to coming to us, they had approached a potential buyer themselves. This buyer was a competitor of theirs—a bigger concrete company in the same area of the state.

To the sellers, it seemed like an easy thing to do: call up the owner of the company, who they knew, tell him they were trying to sell and see if he wants to acquire them. Why wouldn’t he? They didn’t need a broker; they had their buyer. Pretty straightforward. Simple and clean.

And very naive.

The sellers spent four months providing every kind of detailed report the buyer asked for: tax returns, profit and loss statements, accounts receivable reports, accounts payable reports, employee information, cubic yards of concrete poured, and on and on. I call it the constant drip of the buyer. The sellers were poked, prodded, and probed for four months with no offer on the table, and no guarantee they would even get an offer. They opened their books and business to a competitor—showing that competitor everything about their operations.

The competitor/buyer showed them nothing. He made no promise of an offer or an amount. He did not show them his financials (for all the sellers knew this company could have been heading towards bankruptcy). The buyer put forth no effort—only demands and supposed needs to write the offer.

The sellers put forth tremendous effort—all in the hopes of getting a good offer. Finally, the day came when the buyer put forth an offer. It was such a lowball offer the sellers did not even counter; the deal was over and the last four months were wasted. Their business’ operations had been compromised and turned over to a competitor, and they had nothing to show for it.

By the time the sellers came to me they were frustrated, suspicious, angry, and bitter about the process of selling their business. They did not trust me, my firm, or anybody for that matter. They were jaded. And rightfully so. The sad thing is the situation could have been avoided.

These folks sent their financials to their CPA to do the taxes. They sent their money to their financial advisor to invest in their retirement. They had used realtors to buy and sell houses in the past. But they did not follow this model with their single greatest asset—their business. They thought they could handle selling their own business themselves.

I do not want to paint a false picture that nobody can ever sell their own business. It happens. But it has been my experience that it is a rare occurrence when a seller successfully markets and sells their own business, unless it’s to an employee or a family member. But it does happen, hence my response when people ask me why they should pay me to sell their business:

You shouldn’t…if you can sell it yourself.

We listed the concrete business January 28th. We pushed it out on the market in the first week of February. Another broker in our office had a close friend who, ironically enough, mentioned he was looking for a concrete company to acquire to go along with their construction business. We set a Buyer-Seller meeting for the middle of February—a mere two weeks after listing it—and by March 26th we had a full-price, agreed-upon offer to purchase and began due diligence .

In addition, we visited with several other buyers in our screening process. We accomplished in fewer than 60 days what the sellers had tried for over 120 days to accomplish. AND our offer was $200,000 MORE than the competitor’s offer.

Closing took several months for several different reasons. The deal finally closed in December. Even though we had an agreed upon offer in less than 60 days, it took approximately 9 months to complete financing and secure the funds.

We kept the deal together by working with both sides to obtain needed information, liaise with the lender, schedule appraisals and inspections, obtain updated financial numbers and more. It’s a full-time job to find the right buyer, and then another full-time job to get the deal closed.

Now let’s revisit our questions above. If you do not know the answer to these questions, then you are like the owners of that concrete company. Most people do not know the answers to those questions. Those are vital questions about selling a business. Going into this endeavor blind, without ever having done it before, by yourself, is a dangerous gamble to take. Attorneys, CPAs, real estate agents—all of these are professionals who provide you specific services. Too many of them say they sell businesses, but they never have, or they’ve sold a few over 20 years, etc. Be careful.

Me - I am not an attorney. I am not an accountant. I am a certified real estate agent, but I do not sell real estate unless it’s attached to a business. I am not FINRA certified. I am not a stockbroker. I am not many things.

I am a business broker. I am an M&A advisor. I work main street, small business, and M&A deals. I confidentially help people sell and buy businesses as my full-time job. I have been around for ten years—which seems to be like 100 years in business brokerage. I have several years in this profession and have sold businesses in nearly every industry there is. I have worked with sale prices ranging from $50,000 to $25,000,000.

And that’s why you need a broker to help you sell your business. This is a one-time event. There are no redos. Once the papers are signed and the funds exchanged, the deal is final. Get somebody to help you that is experienced and has done it many times before.

You will save time, money, and effort. You will be able to continue to run your business and live your life. Let the broker handle the process from A-to-Z; the headaches of dealing with lawyers, buyers, and bankers. The skills of negotiating deals and structuring terms. That’s what you pay us for. And, if the firm is doing things right, the broker does not get paid until you get paid.

SHEP CAMPBELL

SR. BROKER, MERGER & ACQUISITION SPECIALISTS

How Hard Is It to Sell A Business?

Mon, 16 Oct 2023 20:05:02 GMT

How Hard is it to Sell a Business?

A random search online about percentages of small businesses which sell will produce a variety of responses.

According to surveys approximately 30 to 40% of businesses listed for sale actually ever sell. --- Investmentbank.com

But only one out of every 5.5 businesses in the Main Street market – a little less than 20% – actually sells. --- World Wide Business Brokers

EPI estimates that some 4.5 million firms representing more than $10 trillion in business value will transition over the next decade or so, but Snider believes only about 20 percent to 30 percent of businesses that go to market end up selling. --- Forbes

The common opinion seems to place the likelihood of you selling your business in the 20% - 30% range. However, if you look at the chart below - the closings as recorded on BizBuySell as a percentage of total listings on BizBuySell - the percentage is FAR less at 6%.

These figures can be deceiving if taken out of context. The "listings" include all businesses listed by real estate agents, for-sell-by-owners, CPAs, etc etc.

The closing percentage averages a dismal 6.24% over more than 700,000 listings, covering the last 20 quarterly reports as posted on BizBuySell.

The closings are only those recorded by brokers through BizBuySell - so there may be several more than indicated. It is understood this chart may not reflect the reality of closings.

However, when dealing with privately held companies it is very difficult to get figures on business acquisitions, and multiples used. Typically the best gauge is a service like BizBuySell; or, analyzing SBA loan reports on small business financing deals.

These numbers by BizBuySell, combined with a variety of random searches, will produce a very general snap shot. The picture is still not great for business owners looking to sell. The range indicates that 6% - 30% of businesses listed for sell actually close.

The process is difficult. Make sure you get somebody to help that has been around and done several deals. The odds are stacked against you as it is. Even the playing field - hire a professional!

#smallbusinesssales #businessbroker #businessbrokerage #mergersandacquisitions

What is in a Down Payment?

Mon, 16 Oct 2023 19:39:04 GMT

Down Payment to Buy a Business: How Financing Impacts the Amount of the Down Payment

One of the first questions buyers need to consider is:

Have you thought about how much cash you are willing to write a check for to use as a down payment on a business?

It might surprise you how many times that question catches people off guard. As a buyer, that needs to be one of the first things you think about. The odds of acquiring a business with $0 cash down are less than 1%. A guy once told me he went to meet with the owner of a day care center to talk about acquiring the center. He showed up to the meeting with a brown paper sack containing $5,000 cash. He left the meeting with a day care center. That’s a true story, and that’s the closest I have ever heard of anybody buying a business for $0 cash down. How much cash for a down payment a buyer needs, however, is a nuanced question.

How Tangible Assets Impact Valuation When Buying a Business

Buying a business is a unique process. Buying a house, when you get down to it, is much like buying a car. The value of the acquisition is the value of the hard asset involved. A hard asset is also called a tangible asset.

These physical asset types have an intrinsic value associated with them. The intrinsic value of these assets is oftentimes established by a market of supply and demand. What will it sell for on the open market? Equipment is a hard asset and can vary widely as to how valuable it is. A CNC machine holds significant value. Restaurant equipment is pennies on the dollar if you’re lucky. Both of those, though, are hard assets. In most situations, the value of these assets is determined using a Fair Market Value approach. The IRS defines Fair Market Value as “the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.”

Why does this matter when talking about the amount of a down payment? Because the down payment amount is all about the type of loan used to finance the deal . Oftentimes, the type of loan being offered is determined by the value of the company’s tangible/hard assets. The hard assets can be considered collateral for a business loan. A buyer’s cash down payment depends on the value of the business’ hard assets. A bank will only loan on a certain amount of that value. The value of those hard assets is how much money the bank thinks it can get to liquidate the business’ assets should things go south. The buyer’s cash and/or personal collateral make up the difference. This is the meaning of collateral. The bank is going to minimize their risk as much as possible, and a buyer’s cash down payment helps achieve that goal.

How Do Banks Determine Tangible and Intangible Assets to Use as Collateral?

Banks are hard asset lenders. Put another way, they will loan money only on hard assets. But those hard assets must have intrinsic, re-sale value. Real estate, machinery, heavy equipment, some types of inventories have value as collateral for a loan from a bank. However, banks will not loan money on other types of hard assets. Tables, chairs, cell phones, computers, certain fixtures – will not be considered collateral for a bank. Additionally, the bank will only loan on a percentage of the value assessed – not the full value. There will most likely be a gap in the amount of hard assets financed, and the total agreed upon asking price . The gap is often covered by the buyer’s collateral and buyer’s cash. Buyers can expect to put at least 20% - 30% cash down on a conventional business loan.

Financing Options and Their Impact on Down Payment Requirements

The value of a business is often based on intangible value. Hard assets – not counting real estate which carries its own market value – are rarely ever used in valuing a business. A business that owns its real estate has two components of value: the real estate value, and the business value. The business value includes the equipment and assets. The asking price of a business is often based on a multiple of cash flow (SDE or EBITDA), or a percentage of revenue. Any real estate being sold along with the business carries its own market value and is added to the business value. Real estate is very helpful in financing.

The business value based on a numbers approach – a multiple of cash flow or percentage of revenue – is difficult to back by anything tangible, especially when the fair market value of a business’s equipment is minimal. This would not qualify for a conventional loan. Without a conventional loan, what are other options, and what are the down payment requirements for buyers?

Here is a perfect example. We sold a solar panel installation company in 2021. The company leased a small office, thus owned no real estate. There was minimal equipment and inventory. The company sold for $825,000. Below are the vitals of the solar company.

Last Full Year Revenue = $1,680,000

Last Full Year Net Income = $275,500

Last Full Year Discretionary Earnings = $341,000

Those are all healthy numbers. The final asking price ended up being 2.4 x SDE. This is a very reasonable multiple. The deal was fair for both sides.

The hard assets that transferred with the business carried an agreed upon fair market value of $43,925. Inventory at seller cost amounted to $8,000. Total hard assets of this business equaled $51,925. The value of this business was certainly not in the hard assets. Price Allocation looked like this:

FFE = 43,925

Non-Compete = 1,000

Inventory = 8,000

Other – “Goodwill” = 772,075

Total Value = 825,000

The average buyer looks to spend the least amount of cash out-of-pocket as possible to purchase a business. Consider the $825,000 solar company scenario above. Even if a lender extended a conventional loan on this deal, the buyer would be looking at a cash down payment of at least $205,000 – 20% or more of the asking price.

SBA Loans to Acquire a Business: Reducing Risk and Down Payment Requirements

A more common scenario in my experience involves SBA loans . SBA loans come with a government guarantee. The Small Business Administration guarantees a large percentage of the loan for the lender. In other words, the bank’s risk is very low. An SBA loan also secures up to 90% of the goodwill value of a business transaction. This is the purpose of SBA loans. They do not depend on hard assets. Consequently, most small business loans are SBA loans.

Once again, consider the solar company. There were no hard assets worth collateralizing. The goodwill value was essentially the asking price. No conventional loan would cover this business. However, the SBA 7(a) loan program is designed specifically for these types of loans. For most 7(a) loan programs, SBA guarantees up to 85 percent of loans . With these types of loans, the buyer is required to come up with at least 10% of the asking price as a cash down payment. For this deal, the buyer came up with $82,500 cash as a down payment. This is significantly less than $205,000.

Bridging the Gap: Using Seller Financing to Reduce Down Payment Amount

According to the BizBuySell Insight Report , there were over 2,300 transactions in Q2 of 2023. Out of all buyers surveyed, 43% are/were seeking SBA loans, nearly half. Seventy percent were seeking some sort of owner financing – while only 22% of surveyed sellers voluntarily offered owner financing. Most deals end up consisting of both – an SBA loan with a seller note in a second position. An SBA loan can alleviate some of the seller note concerns by minimizing the amount the seller has to finance, while at the same time also minimizing the amount of cash a buyer must use.

Assume a scenario where the seller carries 10%. At closing, the seller walks away with 90% of the cash up front. That 90% is made up of the 10% cash down from the buyer plus 80% financed by the bank and guaranteed by your tax dollars. The buyer obtains the business with as little cash out of pocket as possible (10%), and the lender gets a guaranty by the federal government. The seller walks with a big lump sum at closing. Everybody wins.

Thus, 10% is what buyers should expect as a down payment on any business deal. The exact amount depends on the final asking price, but if a buyer looks at this from a percentage-based perspective, then the figure can easily be adjusted. Ten percent is an easy number to calculate, too. This gives the buyer a quick and easy method to calculate a down payment amount based on a very typical small business loan structure. Simply take 10% of whatever is the asking price and assume that number as a cash down payment amount.

There are many creative ways to negotiate a deal and reduce the amount of cash required for a down payment for buying a business. Consider working with a business broker to help negotiate the best deal. Visit the BizBuySell Broker Directory to locate a business broker that just right for your entrepreneurial goals.

The Top 5 Questions Buyers Ask When Buying a Business

Fri, 29 Sep 2023 19:22:50 GMT

Buying and selling businesses is a process that can be compared to snowflakes. How is that, you might ask? Because no two deals are ever the same. The nature of this process depends on people – and no two people are the same, and people are unpredictable. In fact, that is the best word to use when describing the endeavor of buying and selling a business. Unpredictable.

Yet, despite the unpredictable nature of the process, one thing can be counted on as a guaranty of every deal – and that is the buyer will have questions. Get ready for questions. Lots of questions. Questions, questions, and more questions. It’s natural and to be expected, and part of a buyer conducting their proper due diligence . However, there are times and places where certain questions are appropriate, and other questions should be tagged as contingencies for due diligence. The stage of the deal can have an impact on the questions that matter most to buyers.

When business brokers meet with a buyer prospect, there are a variety of questions asked.

Why do you need to buy a business?
How involved of an owner are you going to be?
How much are you willing to write a check for as a cash down payment?
How far from your home are you willing to drive?
Are you looking to relocate if the business is out of town or out of state?

These initial questions get to the heart of what a buyer is looking for. There are common questions and issues each buyer has upon initially reviewing a business. In the confidential marketing material business brokers and sellers aim to address those questions as best as possible while still maintaining the confidentiality of the business. Here are the top five questions buyers ask when buying a business.

1. Is the Seller Flexible?

In other words, is the seller set on their asking price ? Buyers are looking for deals. Or, at least probing to see how cheap they can get the business. Some business brokers represent businesses to buyers with a blind recast. This one-page document shows the last three years of financial information, so a buyer knows the financial figures. Often buyers look at the asking price before this document. Buyers want to know how much room they have to negotiate the price down.

2. Is Management in Place?

When a buyer asks this question, it can be a hint they seek to be an absentee owner. Absentee owners are not necessarily absent from the business, but they manage from afar. They are not involved in the daily operations of the business. A buyer asking about management often needs somebody there to run the business daily. If there is not a general manager, is there an employee that could be? While the employees are important , too, buyers initially want to know the structure of the business. This information should be weaved into marketing materials when listing a business. It’s important to answer as many buyer questions as possible in the information provided – while at the same time maintaining confidentiality .

If there is management in place, and the buyer does not want management in place, then that is a conversation to have with the seller at the appropriate time. That management salary is now carried to the bottom line and can used as leverage for a better asking price.

3. Where is the Business Located?

This question is one of those that should not be answered without an NDA . It is a natural question to ask. The buyer cannot be blamed for asking. However, if the business is being marketed confidentially, sometimes revealing the location can give away the business’ identity, thus compromising confidentiality. Most business listings market businesses with vague geographic descriptions. For example; “This West Coast based vitamin & supplement company manufactures and ships its own products.”

A blind listing does not give away much location information, but buyers can ascertain general location and geographic information. Providing a vague enough description without violating confidentiality. Buyers want to know the location, which they will eventually learn precisely where it is. But initially, be careful about revealing too much geographic information if confidentiality is important. Get an NDA in place with a buyer before you reveal the name and address of the business.

4. Will the Seller Finance any of the Deal?

Seller financing is a topic in and of itself. Some sellers like it. Some don’t. Sometimes it’s required by a lender. Sometimes it’s not. Sometimes the lender does not want a seller note involved in the deal. But just about every buyer I have ever met asks this question. My response to buyers is the same as the conversation I have with sellers before we list the business.

Seller’s price, Buyer’s terms.

Buyer’s price, Seller’s terms.

In other words, the closer a buyer is to full price, the more flexible the seller needs to be as to how we get there. The further a buyer is from the seller’s price, the more demanding on the terms the seller should be. By introducing this philosophy on the front end with sellers and buyers, it opens the door to flexibility on the back end and can help get deals done. In reality, sellers should be open to any offer, whether they will accept it or not is another thing. Buyers should be willing to give on the price if they are going to ask the owner to take a risk by seller financing some of the deal.

5. Can I See the Tax Returns?

The answer to this question depends on the process being used by the seller, or the brokerage, when it comes to revealing certain information. The truth of the matter is tax returns just show you what the business paid taxes on. The true value of a business is found in between the top line and bottom line of a tax return. That is where the cash flow is. The discretionary earnings of the business must be recorded on the tax returns, or if there are no tax returns, then the profit & loss statement. This is what the one-page financial recast shows. The discretionary earnings of a business are items included in the tax returns but on various lines or in different statements, and, perhaps, labeled as something else altogether.

For example, a “Miscellaneous Expense” for $5,000 on Statement 2 of Form 1120S , Statement of Other Deductions, is an item to probe further into. What is this expense, exactly? If the owner of the business says it was a family vacation the business paid for, then provides documentation to prove it, that expense becomes a discretionary item and is part of the SDE . If that expense is for a part of the business’ operations, then it is left alone. The gist of this example is that tax returns can only confuse buyers sometimes…IF they are not familiar with what they are looking for.

So, the short answer when a buyer asks about seeing tax returns is, while business brokerages may differ in their advice to buyers, yes, you can see them, but only as a part of due diligence.

The Value of Buyer Inquiries When Buying and Selling a Business

A thorough buyer will have many, many more questions they ask over the course of a deal. A lender, too, will have multiple questions over the course of financing . While predicting what a buyer will ask is impossible, business brokers notice certain questions are common amongst buyers. Some questions can easily be answered on the spot, while others need to be addressed at certain junctures of the process.

Ultimately, a buyer is going to ask whatever questions necessary to make them feel comfortable about the deal. A seller should be open-minded and patient when working through due diligence so as to accommodate the buyer and make them feel good about the acquisition. If one has answers to the above five questions, then they are on their way to getting a deal done.

4 Reasons to Use a Business Broker to Sell Your Business

Thu, 21 Sep 2023 12:51:14 GMT

Selling a business is a complex process. It requires careful planning, negotiating, and knowing the ins and outs of how to sell a business. A business broker can help you deal with numerous issues you are bound to encounter along the way. Here are four reasons you should use a business broker to sell your business.

1. Strategic Negotiation

Only some people buy a business for the list price. According to Investopedia, it takes about nine months between when a company is listed for sale and the transaction is complete. During this time, there are plenty of negotiations. Some potential sellers may try to convince you to reach a lower price to avoid paying what your business is worth. A broker can handle the negotiations for you to make the process easier.

2. Sharing Knowledge

A professional is essential if you're preparing to sell a business for the first time. A business broker can explain the entire process to you. They'll let you know what you need to do, like hiring a professional to help you determine your company's value. Then, they'll walk you through every step, giving you helpful tips and tricks. A broker can even help you list a business.

3. Network of Buyers

Every broker knows at least one person who wants to buy a business that's already built. When you list a company by yourself, you'll have to wait for people to stumble across your listing. However, when you work with a broker, that broker will start making phone calls for you. They'll have a list of clients wanting to purchase your business. You need access to the network a professional broker has.

4. Time Savings

Owning a business can be tedious, and selling a business is even more time-consuming. A business broker can instantly help take a load off your shoulders. Some brokers are experienced in evaluating a company. They can list a business, reach out to people who want to buy a business , and determine the final price. Brokers can also help you by preparing financial documents and screening potential buyers so you save time.

Working with a broker can save you plenty of hours you would otherwise spend negotiating and talking with buyers who never wind up buying a business. You'll have access to people interested that have the capital necessary. Contact Merger & Acquisition Specialists today to learn more about how we can help you.

Cash is King

Wed, 20 Sep 2023 21:23:30 GMT

“Cash is king.” Perhaps you have heard that before. It’s a popular saying, though nobody knows who coined it or where it came from. Perhaps, like the wheel, it dates back to the ancient Sumerians. The CEO of Volvo, Pehr G. Gyllenhammar, made it popular when talking about the 1987 Stock Market Crash. That phrase, “cash is king," is also part of a larger saying:

“Revenue is vanity, profit is sanity, but cash is king."

Like the wheel, cash makes assets move. It is a basic and fundamental concept, also like the wheel. Cash makes a business move. Cash pays the bills. So, what’s this have to do with a business owner wanting to retire and exit their business ?

That business owner needs to adopt the mantra and live religiously by the principle of “cash is king.” Why? Because cash is the number one element that can add value to your business and get you the money you want and the value you deserve. That may sound a bit harsh and cold. But preparing your business to sell requires a change in mindset of how you run your business.

After all, your business provided you with a living, gave you the ability to provide for your family, provided a living and means for your employees and their families. Your business provided a service to your community, one that was and is appreciated and valued. There is value in those achievements. But how do you quantify that type of value? Some call it Goodwill . Some call it Blue Sky. You might as well call it Air. Those achievements are selling points that help sell your business - but they do not add tangible value to your business that can be quantified.

Maximize Value to Sell Your Business

In the end, buyers are not buying your memories. They are not buying what you did, all the blood, sweat, and tears. They are buying the end result of that blood, sweat and tears - but not the process. A buyer is essentially looking at how much cash does this business produce for me to:

Pay myself, and
Service debt.

Perhaps the buyer is not relying on your business to provide them a salary, in which case those two things are:

Service debt, and
Reinvest in growth.

In order for you to maximize the value of your business you have to start running your business to sell it - not to grow it necessarily, not to provide yourself a living necessarily - but to maximize its value. How do you do that? See the first line in this article. Start living by the principle of “cash is king.” Revenues are great, and make you look good and feel good - “I do over a million bucks in revenue a year.” That’s awesome. Profit ensures you keep the doors open and can pay yourself and your employees. Making more than you spend is only common sense business.

Tip #1: Run Your Business to Show Profitability

“Cash is king.” Buyers look at cash. Banks look at cash. Start running your business to show profitability. Take that cash to the bottom line, which means show it on paper. Increase margins where you can by trimming the fat. Don’t necessarily jump into an expensive marketing campaign you are not positive will increase your margins. Don’t hire an expensive consultant to help you grow. Instead of investing in those areas, invest in the value of the business by taking that amount to the bottom line.

Tip # 2: Pay Yourself

Pay yourself more THROUGH PAYROLL OF THE BUSINESS. This may be contradictory to how you have been paying yourself. One of the easiest ways to increase your cash is to pay yourself a salary run through payroll. It’s called a discretionary cash flow item and is used to help figure the cash flow of your business. There are other discretionary expenses that qualify as cash flow , but an owner salary is often the biggest and easiest way to maximize cash flow and value. It is also living by the concept of ‘Cash is king.” Call me and we can get into the details.

Tip # 3: Understand Tax Obligations

Cash is also king after the transaction is finalized and the tax man cometh to take his cash. So, you have to get with your CPA to discuss how to minimize taxes on a sale of assets. Set that long overdue meeting with your CPA and financial advisor and begin planning on how to minimize taxes and where to invest that lump sum of cash you get at closing. Minimizing taxes and having an investment plan maximizes your cash.

What we sell the business for is important - but what you get to keep after the fact is even more important. Your CPA and financial advisor can help you with this. Begin planning now with your team. Don’t have a financial advisor? Get one. They are everywhere. Do your due diligence and pick one you feel comfortable with.

Tip # 4: Estate Planning

Organize your will and estate. Plan for the sale of your business as if you were not going to be around to enjoy your cash. A will and estate plan is critical as part of protecting you, your assets, and your family. It, too, helps ensure you will maximize the value of your business for not only you, but your loved ones as well.

To wrap things up, write these 4 things down:

Cash is king.
Pay yourself a salary, or maximize your salary (through payroll).
Get with your CPA and Financial Advisor.
Get with a will & estate lawyer to write down a plan.

All of this is part of adding value to your business . Change your mindset from running your business to provide a living; to running your business to add value to your business. The first and most important part of adding value to your business is living by the concept of “cash is king.”

Revenue is vanity, profit is sanity, but cash is king.

Why Using a Business Broker Is a Great Financial Decision

Wed, 19 Jul 2023 14:55:22 GMT

Navigating through the process of buying or selling a business can be complicated. This is especially true if you're new to the world of business brokerage. To buy and sell businesses, you need an in-depth understanding of the current market and the process involved in the purchase. Working alongside a business broker offers various benefits. This article will take a look at why using a business broker is a great financial decision.

Determine the Value of the Business

One of the most important aspects of selling a business is determining how much it's worth. This can make or break a sale. Listing the business at a price that far exceeds its worth can make it impossible to find a potential buyer. Business owners that accidentally undervalue their business will wind up missing out on profit. A broker can ensure that your business is accurately valued before listing it to ensure that you get a fair price.

Utilize Their Extensive Market Knowledge

A broker will come with key market knowledge regarding various industries. Due to ever-changing markets, this information is vital to understand how to buy or sell any business. Valuations vary depending on the market. For example, tech-related businesses offer a higher return on investment compared to brick-and-mortar stores. This understanding helps a broker properly value your business, determine where to find interested buyers, and can ensure a successful business transaction.

Negotiate More Effectively

Very few people will buy a business for the price listed. Instead, they will attempt to haggle the price down. While it's important to negotiate, it's equally critical to avoid being taken advantage of. An experienced broker can handle negotiations and communication to ensure effective negotiating.

Protect Your Privacy

Information regarding your business and your customers must remain confidential to protect your privacy. Some sellers prefer that their personal information, such as identifying information, also remain confidential. It's easy for new sellers to slip up and reveal too much information amid heated negotiations. A business broker will not make that mistake. Be sure to work with a broker that has both a local and national footprint to guarantee they're able to stay calm, collected, and focused on protecting your privacy.

Streamline the Process

Selling a business requires much more than handing over the business and watching the cash be deposited into your bank account. Some regulations and guidelines must be followed. Documentation regarding the business must be made available to sellers to prove its market value. A broker will handle the majority of the administrative tasks, keep you focused, and ensure that everything happens promptly. Take the time to schedule an appointment with a local broker to learn more about what information you'll need in order to begin the process.

Develop a Wonderful Network

A broker with experience buying and selling businesses already has an established network of people that may be interested in making a deal. They may even know people in the same industry that can help you make a quick connection that can lead to a sale. This extensive network instantly gives business owners access to more sellers and buyers and can help them meet their business goals sooner. Find a broker that serves all industries to ensure you'll be working with someone who may be able to connect you with the right people.

Vet Potential Buyers

When selling a business, it's important to only work with qualified buyers. Buyers should be able to afford the business. This means that cash buyers should be able to verify that they have the money readily available to make a purchase. Other interested candidates should be able to prove that they have the credit score, experience, and capital necessary to obtain loans to purchase the business. A broker will handle this entire process for you so you can keep your focus on other important matters.

According to Investment Bank, the percentage of businesses listed for sale that will be sold is 20%. That means four out of every five businesses that are listed for sale are unable to find a suitable buyer. Working with a business broker can drastically increase those chances to maximize your chances of selling and your profits. If you have a business you're ready to put on the market, contact Merger & Acquisition Specialists today to learn more about working with a broker.