Divestopedia published a rather insightful article, “Letting the Market Bridge the Valuation Gap.” In this October 2018 article, Dave Kauppi dives in and explores how fair market value can be used as a way for business owners to “bridge the gap between the valuation they feel they deserve and that which they’re likely to receive.” This, of course, increases the chances of a deal actually taking place. Let’s turn our attention to some of the key points in Kauppi’s informative article. Understanding the Reality of Selling a Business One key point is that only a low percentage of businesses actually sell on their first attempt. The article points out that a mere 10% of businesses that are for sale are actually sold three years later; this is a simply brutal fact. Few facts, if any, help underscore the value of working with a business broker more than this point. Selling a business can be difficult under even the best of circumstances. The process is complex, and most sellers have … [Read more...]
Determining Your Company’s Undocumented Value
Business appraisals are not one-dimensional. In fact, a good business appraisal is one that factors in a wide range of variables in order to achieve an accurate result. Indisputable records ranging from comparables and projections to EBITDA multiples, discount rates and a good deal more are all factored in. It is important to remember that while an appraiser may feel that he or she has all the information necessary, it is still possible they have overlooked key information. Business appraisers must understand the purpose of their appraisal before beginning the process. All too often appraisers are unaware of important additional factors and considerations that could enhance or even devalue a business’s worth. There Can Be Unwritten Value Value isn’t always “black and white.” Instead, many factors can determine value. Prospective buyers may be looking at variables, such as profitability, depth of management and market share, but there can be more that determines value. Here are … [Read more...]
Considering All of Your Business Real Estate Options
In a recent December 2018 article in Divestopedia entitled, “Options for Business Real Estate When Selling a Company,” the topic of business real estate was explored at length. One of the key points of the article was that understanding one’s business real estate options would ultimately help in achieving “the goals desired in a transaction.” The article is correct to point out that many, or even arguably most, business owners simply don’t know what real estate options are available to them when it comes time to sell the company. In particular, there are two big options: Sell everything including the real estate. Hold onto the real estate for the rental income. In the Divestopedia article, the authors correctly point out that if you, as the business owner, personally own the real estate in a separate entity, then you are good to go. You should have a “clear path to valuation.” However, if your company owns the real estate, then things get a little more complicated. If this is … [Read more...]
Four Significant Issues You Need to Consider When Selling Your Business
The process of selling a business can be very complex. Whether you’ve sold a business in the past or are selling a business for the very first time, it is imperative that you work with an expert. A seasoned business broker can help you navigate through what can be some pretty rough waters. Let’s take a closer look at four issues any seller needs to keep in mind why selling a business. Number One – Overreaching If you are both simultaneously the founder, owner and operator of a business, then there is a good chance that you are involved in every single decision. And that can be a significant mistake. Business owners typically want to be involved in every aspect of selling their business, but handling the sale of your business while operating can lead to problems or even disaster. The bottom line is that you can’t handle it all. You’ll need to delegate the day-to-day operation of your business to a sales manager. Additionally, you’ll want to consider bringing on an experienced business … [Read more...]
What Sellers Don’t Expect When Selling Their Companies
In the proverbial “perfect world,” business owners would plan three to five years ahead to sell their companies. But, as one industry expert has suggested, business owners very seldom plan to sell; rather, selling is “event driven.” Partner disputes, divorce, burn-out, health, and new competition are examples of events that can force the sale of a business. Sellers often find, after they have decided to sell, that the unexpected happens and they are “blindsided” and caught off-guard. Here are a few of the unexpected events that can occur. The Substantial Time Commitment Sellers find that the time necessary to comply with the requests of not only the intermediary, but also the potential buyers can take valuable time away from the actual running of the business. The information necessary to compile the offering memorandum takes time to collect. Many sellers are unaware of the amount of their time necessary to gather all the documents and information required for the offering … [Read more...]
The Importance of Understanding Leases
Leases should never be overlooked when it comes to buying or selling a business. After all, where your business is located and how long you can stay at that location plays a key role in the overall health of your business. It is easy to get lost with “larger” issues when buying or selling a business. But in terms of stability, few factors rank as high as that of a lease. Let’s explore some of the key facts you’ll want to keep in mind where leases are concerned. The Different Kinds of Leases In general, there are three different kinds of leases: sub-lease, new lease and the assignment of the lease. These leases clearly differ from one another, and each will impact a business in different ways. A sub-lease is a lease within a lease. If you have a sub-lease then another party holds the original lease. It is very important to remember that in this situation the seller is the landlord. In general, sub-leasing will require that permission is granted by the original landlord. With a … [Read more...]
Day One is the Day to Prepare Your Exit
Pepperjam CTO, Greg Shepard recently published “Planning Your Exit Should Begin When You Launch” in Entrepreneur magazine. In this article, Shepard puts forward a variety of thought-provoking ideas including that entrepreneurs should be thinking about partnering early on with those they believe will ultimately want to buy their business. Thinking Ahead Much of Shepard's thinking centers around the fact that a large percentage of startups end in acquisitions. In particular, he notes that in 2017, “mergers and acquisitions accounted for 93 percent of the 809 ventures capital-backed exits, yielding a total of $45.6 billion in disclosed exit value.” Not too surprising, he also points out that according to a recent Silicon Valley Bank survey, over 50% of all startups are “hoping for an acquisition.” For this reason, Shepard points out that entrepreneurs should be thinking about who may potentially acquire them from day one. In particular, startups will want to build their companies in … [Read more...]
What Makes the Sale of a Business Fall Through?
There are a myriad of reasons why the sale of a business doesn't close successfully; these multiple causes can, however, be broken down into four categories: those caused by the seller, those caused by the buyer, those that just happen (“acts of fate”), and those caused by third parties. The following examines the part each of these components can play in contributing to the wrecked deal: The Seller 1. In some instances, the seller doesn't have a valid reason for entering into the sale process. Without a strong reason for selling, he or she has neither the willingness to negotiate nor the flexibility to see the sale to a conclusion. Without such a commitment, the desire to sell is not powerful enough to overcome the many complexities necessary to finalize the sales process. 2. Some sellers are merely testing the waters. As detailed above, they are not at that “hungry” stage that provides the push toward a successful transaction. These sellers merely want to see if anyone wants to … [Read more...]
When It’s Time to Sell, Put Your Strengths First
Putting your strengths first will help you sell your business. While this may seem obvious, a surprising number of business owners will either improperly index the strengths of their business or fail to emphasize those strengths adequately. In this article, we will examine five key business strengths that you should focus on when it comes time to sell. Understand Your Buyer You know your business, but you don't necessarily know what buyer is best for it in the long run. If you've never sold a business before (and most business owners haven't), then you may not know how to best position and present your business for sale. A business broker is immensely valuable in this regard. These professionals are very good at determining which prospective buyers are serious and which ones are not. Additionally, a business broker will use their own databases of prospective and vetted buyers and try to match your business up with the prospective buyers that are most likely to be a good fit. When … [Read more...]
Evaluating Your Company’s Weaknesses
The time you spend evaluating your company's weaknesses is, as it turns out, one of the single best investments you can hope to make. No one should understand your company better than you. But to fully understand your company, it is essential that you invest the time to understand your company's various strengths and weakness. Your company, from the beginning, has been an investment. It's an investment in your time, your mental energy and, of course, your financial resources. The time and effort you expend to locate, understand and then fix your businesses' weaknesses is time very well spent. Addressing and remedying your businesses' weakness will not only pay dividends in the here and now, but will also help get your business ready to sell. Let's turn our attention to some of the key areas of weakness that can cause some buyers to look elsewhere. An Industry in Decline A declining market can serve as a major red flag for buyers. You as a businessowner must be savvy enough to … [Read more...]
