Resources for selling your business

Category Archives:Resources for selling your business

who will buy my business 2

Who Will Buy My Business?

When the time comes to say goodbye to the daily grind, you want to get as much out of the sale of your business as possible. To do this, of course, you need a buyer, but who exactly is buying businesses these days? More specifically, who’s buying your kind of business? There are three main categories of buyers—the job seeker, the investor and the strategic buyer—and each one is looking for something different. The buyer you’re looking for is going to depend a lot on the size of your business.

The Local Mom and Pop Shop

Job seekers are looking for something local, something small they can build for the primary purpose of personal income. Small means less than $250,000 in profit or EBITDA. So if you’re running a local coffee shop, you’re most likely to turn the head of this type of buyer. The job seeker buys a business primarily through a business broker, so talk to your trusted advisors to find a broker with a solid reputation.

The Enterprise

The next tier of buyers skips from small businesses to large, meaning at least 2.5million EBITDA. These are the investors, private equity firms looking for companies they can buy, grow and sell in 2-5 years for a tidy profit. These firms get their buying power from groups of investors who contribute with the expectation of a good return. If yours is the type of business investors would be interested in, an investment banker will list your business and seek out buyers for it. Again, talk to your advisors to find an investment banker you can trust.

The Competitive Enterprise

Strategic buyers are similar to investors, but their reason for buying goes beyond potential profits to include the bigger picture. For example, if your company has a niche market they’d like to get into, purchasing your organization would go a long way toward expanding their market share. Or a competitor might be interested in buying your business to neutralize the threat you pose to their profits. These strategic buyers are also looking for businesses with an EBITDA of 2.5million or more and can be found through an investment banker.

The Mid-Size Model

The tricky side of today’s market for mid-sized business owners is that their businesses are too large to attract the job seekers and too small to interest the investors and strategists. So where do you turn?

A boutique investment banker can help you find a buyer. These guys may be harder to find, but the process is the same—talk to your advisors and let them connect you with a reputable investment banker or business broker who works buying and selling mid-sized businesses. There are buyers looking to invest in established businesses that fall somewhere between large and small; a boutique investment banker will be connected to these buyers.

The bottom line is to talk to your advisors—your attorney, accountant or wealth manager. Selling your business is complicated and has huge ramifications, so skip the internet search and instead work with someone you have good reason to trust.

Building a Business

 Are You Working FOR, IN, or ON Your Business? Why Does It Matter?

This post, by OneAccord Partners Principal Craig Dickens, originally appeared on the OneAccord Partners’ blog. We’re reposting it here with permission.


Most business owners follow a somewhat reliable leadership pattern in the lifecycle of their business. They go from working For, then In, and finally On their business(es).

These stages can be broken down typically:

Working

Stage

Company Type

FOR

Start Up

Early Stage

IN

On-going growth

Lifestyle

ON

Maximize Value

Investment Grade

Successful CEOs and Entrepreneurs transition, despite occasional bumps and re-starts, through this well-worn historical path. However, far too often, many spend protracted times stuck in the first two phases.

For most, survival was the first order of business in the start-up phase, built around a passion or good idea. Then growth becomes the fuel for the next phase along with a continued validation of recurring revenues – basically, customers regularly come back for more. Then lastly, after we have reached some level of comfort and longevity, value maximization will hopefully lead to transferable and, ultimately, wealth or legacy creation becoming the final crescendo of the business journey.

I say “hopefully” because the numbers do not support a 100% success rate of well-conceived, well-intentioned and fundamentally good businesses actually creating transferable value or wealth for their owners. “Can-Entrepreneurs-Exit-Profitably”

In short, you can “make it” without ever really “making it.”

Even entrepreneurs who have ”made it” and have “good” businesses often fail to make the fundamental shift to creating transferable value in their business by being able to work On their business vs. For or In their business.

Therefore, if acknowledging the problem is the first step toward changing behavior, the questions entrepreneurs need to constantly and vigilantly ask themselves are…Am I working For, In, or On my business Today? This week? This Month? This quarter? This year?

I have met many entrepreneurs who are gifted and indeed are the primary drivers of their businesses. However, the skills needed to start, grow, manage and maintain it are often not the same skills to optimize, maximize, and create lasting value and wealth by preparing it to be an “investment grade” company, either for yourself or another future acquirer.

And here is where most entrepreneurs get tripped up.

The summary chart below offers a few characteristics that may perhaps resonate with many Entrepreneurs and CEOs looking to transition from working For or In your business to working On your business. (Click chart to enlarge.)

Chart_Working On In or For Business

So why does it matter?

I think I can express why it might matter in a very tangible way many entrepreneurs can relate to.

If you drive a company owned, company insured, company gassed up and maintained vehicle that is fully funded by your company, you will need approximately $300k +/- in realized after tax profit from the sale of your company (at today’s interest rates) to be able to afford that same car when you retire.

Let’s get even more granular for a minute…If a latte-a-day (at $3.00 each) is a habit you enjoy on the way to the office,  you will need $36,500 in retirement or after tax sales proceeds to keep this lifestyle habit alive (at 3% interest).

Post-Closing after tax Lifestyle amounts

Car                       $300k

Latte a day         $ 36.5k

$336,500 is needed to not touch your retirement nest egg for a car and a latte!

The point is the lifestyle company you are currently working in is providing current benefits, tax savings, and hopefully, real retirement savings. However, what I find way too often, is that many entrepreneurs are hoping for and counting on an exit event or the sale of their company to fund a decent portion of their retirement or, at the very least, they are hoping to keep the lifestyle they have been accustomed to in retirement through the sale of their company.

The Mental Shift?

While working IN your business, you are able to enjoy many tax and lifestyle advantaged benefits of your business. However, as you look forward to the future, understanding, knowing, and working ON the value drivers of your business is the only way to transition to the American dream of being able to cash in on the promise every business owner desires – to be able to retire and receive the ultimate benefit from their life’s work and legacy—a sound and comfortable retirement or passing on a profitable business to the next generation.

Build Value In Your Business

Building Value From A High Level

A growing business is a valuable business. Buyers want to see consistency in the upward direction when considering whether or not to purchase a business.

Your management team should be actively focusing and aligning your resources at a high level to create the right conditions for your business to succeed and grow. The key word here is “high level.” The daily grind can keep us from looking at the big picture and it will pay off in the long run if you step back and examine your high level plans. Take the time to consider the following aspects of your business with your team of advisors:

Vision

Having a broader vision than the immediate future will help you make the right decisions now to have the company you want—valued where you want—tomorrow. Do you know your business’ vision statement? Do your managers and employees? If not, delve into what you want your company to become. Find your vision, make it clear and drill it into the fiber of every corner of your business. Make sure everybody in your company, from your newest intern to your CEO, is aligned with this vision.

Focus

Listen to your customers. Are you delivering what they want? Are you focusing on the right products and services? Tools like SurveyMonkey make it easy and affordable to ask your customers directly about their experience and find out what they would like to see change. Happy customers are devoted customers. They’re also evangelists for your brand who can help grow your business, but only if you’re listening closely enough to take action and deliver what they really want.

Investment

Your company’s culture, your people and your innovation are central to making your business strong enough to grow with viability. A business with great people is a valuable business. Great people want a workplace they enjoy. Are your people happy? Are they innovative? Both of these questions will likely tie back to your company culture. Fight the urge to assume and take the time to find out what your employees think. Just like with your customers, listen and take action accordingly. Good culture, people and innovation will carve out a solid path for your business into the future.


Speak with an expert about transitioning your business.

John O'DoreEd Kirk


 

common pitfalls

Factors Affecting the Value of Your Business

The following is an excerpt from Demystifying the Process of Selling Your Business by OneAccord Capital President Scott Smith. To get your free copy of the ebook, click here.


Factors affecting value

Your adjusted EBITDA is the starting point for pricing your business for sale, and other factors can and will determine what a buyer is actually willing to pay for your company. The consistency of your earnings will be a big one. If your track record is full of fluctuations up and down, your business will be valued for less than if it had a steady, stable upward trend. Other factors will include your historical growth, the quality of your management and the market.

Pitfalls

There are two hugely significant factors that will gut the value right out of your business.

  1. Significant customer concentration issues

If all your work is done for one customer, you’re in trouble. Let’s say you manufacture parts exclusively for Boeing. This means the livelihood of your business is entirely dependent on one customer. If Boeing ever gets into trouble, so do you. (Fortunately, in today’s market Boeing is booming. But what goes up will come down…eventually.)

  1. Your business is dependent upon its owner

A quality management team that can keep the business going without you is valuable to a potential buyer. If you’re central to the survival of your business, your business is less attractive. Then, if you do find a buyer, he or she is going to want to lock you in to helping with the transition for a long period of time. So once you’ve sold your business, you’re not actually done with the day to day.

If you have customer concentration issues and the wrong management in place, your sales plan must address these.

finding a buyer without getting screwed

Finding a Buyer Without Getting Taken Advantage Of

The following is an excerpt from Demystifying the Process of Selling Your Business by OneAccord Capital President Scott Smith. To get your free copy of the ebook, click here.


Finding a buyer…

Small businesses generally sell with the help of a business broker while larger companies enlist the help of investment bankers. For the business in the middle, it’s tricky. Mid-size businesses are generally too large to interest the “job seeker” type of buyer, but too small to interest investment bankers. Private equity firms want to buy big, not small. So the in-between business owner needs to find a boutique investment banker who can assist in finding buyers.

…without getting screwed

First of all, avoid the Internet search. Guaranteed you will find plenty of investment bankers and brokers who are looking for their next business acquisition. But if you want to avoid the snakes of the industry, ask a trusted advisor. Your attorney, accountant or wealth manager can connect you with a reputable investment banker or business broker.

Do I really need a broker or investment banker?

Yes. You really need a broker or investment banker.
The majority of people have never sold a business and aren’t prepared for the many complications that attend the sale. You’ll be dealing with escrow account hold backs for indemnification, representations and warranties, financing part of the sale, legal contracts and much more. You want someone on your side who knows what they’re doing. Find advisors to help make your plan. Then work your plan and find more advisors to help sell your business. Do not go it alone. The cost of hiring these advisors is nothing compared to the headaches—and money—they will save you.

walking away instead of selling

Common Misconceptions of Selling a Business

The following is an excerpt from Demystifying the Process of Selling Your Business by OneAccord Capital President Scott Smith. To get your free copy of the ebook, click here.


Shutting down instead of selling

Shutting down a business is expensive and complicated. You are liable to the IRS, your bank, your employees, your vendors, your customers, your landlord and anybody who has ever had an account with you. There’s also the question of how your business is set up—can money be moved around or will your tax burden be as high as humanly possible?

Walking away does not relieve the complications or the expense. It makes them worse and then they chase you, or your family. Get an advisor and plan ahead. Even if you choose to shut down, proper planning will make it far less cumbersome and difficult.

The best time to sell

Selling a business has more to do with your track record as a company than it does the time of year. Your earnings growth, revenue growth and the market are going to impact the value of your business. So sell when these are good.

It can be tempting to hang onto the business as long as possible to continue increasing the value. This could work out really well for you by bringing in a better price, but be aware that there is some risk involved. Nobody knows when a natural disaster will strike, economic downturn will hit or a new product will come to market and make your business obsolete. Remember typewriters and phone booths?

OneAccord Capital

Who’s Buying Businesses?

The following is an excerpt from Demystifying the Process of Selling Your Business by OneAccord Capital President Scott Smith. To get your free copy of the ebook, click here.


In today’s market, there are three major categories of buyers: the job seeker, the investor and the strategist.

  1. The Job Seeker
    The first division of buyers is looking for a business as a source of income. They’ll buy a local business, run it and earn their income directly from it. These businesses tend to stay small, less than $250,000 in profit or EBITDA, and are bought and sold primarily through business brokers. (Brokers are to businesses what real estate agents are to houses.)
  1. The Investor
    More commonly referred to as a financial buyer, these are often private equity firms who buy businesses as an investment for the purpose of making money. They often raise capital from investors to buy a business, spend 2-5 years making it more lucrative then sell for a profit, usually to another private equity firm.
  1. The Strategic Buyer
    Like the investor, the strategic buyer is out to buy a business to make a profit. The difference is that the value comes from more than just the profitability of the business. It also comes from the strategic benefit of adding this business to the buyer’s existing organization. For example, if your company is competition the strategic buyer may purchase your business to negate your competitive advantage. Or if the strategist wants to break into a specific corner of the market or reach a certain group of customers, they can buy a business that’s already in that market or serving those customers.

OneAccord Capital

Taxes: The Tale of Two Corps

I work with a lot of people who are looking to sell their business. And one thing I’ve noticed is that many of the owners I’m talking with aren’t aware of how the tax code has changed since they founded their company.

Before 1958, the United States only knew two kinds of businesses: C-Corp and sole proprietor/partnership. The latter meant total liability so many business owners filed as a corporation. Few of these owners realized they could change their designation when the S-Corp was born.

The Other Corporation

The S-Corp recognized private, domestically held business with fewer shareholders. It allowed business owners to retain some protection in terms of liability but eliminated the double taxation upon the sale of their business. From what I’ve seen, countless business owners went on unaware of the change until the time came to sell. Then they faced double taxes that they could have avoided had they only known their options.

The difference between the tax burden you will bear as a C-Corp vs. an S-Corp is significant. Consider a C-Corp sold for $2.5 million. The owner pays his 35% in corporate taxes and makes $1.6 million from the sale. This puts the owner into a new personal income tax bracket, one that pays, on average, 24.3%. By the end of tax season, this owner will have paid more than $1.2 million in taxes.

This same business designated as an S-Corp would avoid the double taxation because S-Corps are recognized as a source of income for their owner and that income is directly tied to the performance of the business.

There are limitations for S-Corps and not every business is eligible. If you’re thinking of selling, talk with your tax advisor as soon as possible to determine if changing designations is a viable option. If you determine it is, the transition will take time and you’ll want it well underway as you begin preparing to transition your business.

OneAccord Capital blog post

Building Value In Your Business

If you’ve calculated your adjusted EBITDA and aren’t happy with the result, change it. The average business owner needs three years to get his business ready to sell. This is a reasonable amount of time to increase the value of your business. Make a plan to bring this number up to something you can live with.

You might have built your company with your bare hands from the ground up, but trust me, this is not a plan you want to make alone. An investment banker, broker or other advisor who buys and sells businesses for a living can help you avoid wasting time and money and help you create an effective, focused plan that will deliver results.

This plan will include four specific elements:

1. Strategy for growing revenue and earnings

Any potential buyer is going to want to see consistent growth. If your earnings fluctuate up and down over the years, that’s a red flag and you’ll have a hard time convincing a buyer to stick around. Buyers want to see consistency in the upward direction.

2. Implementing a solid management team

Your managers need to not only be able to run the business without you, they need to be able to do it well. This will start by having the right people on your team and having those people in the right roles. Now, I know your son is a great kid. However, if he knows nothing about sales and he’s leading your sales team, he’s going to be a liability. Potential buyers want to see a business they can ease into without worrying it’s going to collapse while they’re getting up to speed.

3. Dealing proactively with customer concentration issues

We discussed this issue in our last post. No one client should represent more than 20% of your business. If your company is leaning too heavily on any of your current customers, get busy bringing in new business while continuing to serve well the customers you already have.

4. Continuing to invest in your business as though you aren’t planning to sell

Look at your business through the eyes of your potential buyer. If you start cutting back on your investment into your business, your growth and your people will suffer. You don’t build strong businesses by backing off and if your business isn’t strong, don’t expect to attract buyers—or a good price.

2 ways to decrease the value of your business

2 Ways to Decrease the Value of Your Business 

Your business may be operating smoothly now, but if you’re entertaining the thought of selling you need to see it through the eyes of a potential buyer.

Two things that trip up plenty of successful businesses include customer concentration issues and the owner’s role in the business.

Customer concentration issues

This is a common problem with the potential to sink the value of your business no matter what your adjusted EBITDA is, and for good reason. Any buyer interested in your business will instantly recognize concentration issues as a great risk.

This is putting all your eggs in one basket. If the majority of your work is done for a single client, you’re gambling the future of your entire business on their performance and/or their reliance upon you. If you make widgets for Company Inc. and they go under or find a widget seller they like better, your entire operation can come crashing down.

Bringing in more business with more diverse customers relieves your dependence on any single client. So if Company Inc. goes away but only represents 20% of your business, your company survives.

The Almighty Owner

The second issue that commonly deflects potential buyers is you. Consider your role in your company carefully. If you leave, does your management team have the knowledge and experience to keep things running smoothly, or will operations grind to a halt? If your role is central to the success of your business, a potential buyer is going to have to bring in and train an entire management team. They’re going to need you to stick around during a very long, slow transition just to keep things going.

Make sure you have a good team in place, one made up of the right people in the right roles, who can run the business on their own.