The Variables that Drive and Influence Business Valuations

If you’ve never bought or sold a business before, then the factors that drive and influence business valuations likely seem a bit murky.  In a recent Divestopedia article from Kevin Ramsier entitled, “A Closer Look at What Drives and Influences Business Valuations,” Ramsier takes a closer look at this important topic.  Business brokers and M&A advisors play a key role in helping business owners understand why their business receives the valuation that it does.  No doubt, the final assessed value is based on a wide array of variables.  But with some effort, clarity is possible. In his article, Ramsier points out that “value means different things to different buyers” and that the “perceived value depends on the circumstances, interpretation and the role that is played in a transition.”  It is important to remember that no two businesses are alike.  For that reason, what goes into a given valuation will vary, often greatly.  Looking to EBITDA Ramier points to several metrics including … [Read more...]

7 Big Questions to Ask Yourself Before Moving Forward

The first step towards successfully selling a business is finding a qualified business broker to work with.  Sellers should also ask themselves an array of important questions.  A recent article, “7 Questions to Answer Before Selling Your Business,” published by Good Men Project, has a great overview of questions sellers should answer before moving forward. Author Troy Lambert believes that at the top of the list is one very simple and powerful question, “Are you ready?”  For example, your financial reports should be ready to show. The second question is, “What’s it worth?”  Determining what a business is worth means you’ll need a professional business valuation.  A great deal can go into evaluating your business and you need an expert to help you determine that value. Third, Lambert believes that prospective sellers should ask themselves, “How’s the health of my industry?”  He emphasizes that honesty is key here for a variety of reasons.  If your industry is in a transition period, … [Read more...]

The Historic Levels of Small Businesses Being Sold Drops Slightly

The number of small business transitions continues to be strong for the first quarter of 2019.  In fact, despite a small decline, small business transitions remain at historically high levels. Looking at the Statistics According to a recent BizBuySell article entitled, “Number of Small Businesses Changing Hands Dips Slightly, But Market Remains Ripe for Buyers and Sellers,” now is still very much the time for both buying and selling a business.  It is true that the number of businesses sold in the first three months of 2019 dropped by 6.5% when compared to 2018.  Yet, it is important to keep in mind that the number of completed transactions remains very strong.  Likewise, inventory is increasing, with a 6.1% increase in listings in Q1 of 2019 when compared to the same period in 2018. While the market is indeed strong, the BizBuySell article did note that some experts feel that there are signs that the market could become more challenging moving forward.  In part, this is due to the … [Read more...]

IBBA and M&A Source Market Pulse Survey Report Predicts Major Changes

The IBBA and M&A Source Market Pulse Survey Report for the fourth quarter of 2018 has a range of interesting insights.  The survey’s purpose is to provide an “accurate understanding of market conditions for businesses being sold in Main Street (values $0-$2MM) and the Lower Middle Market (values $2MM-$50MM).  This national survey was designed as a tool for business owners and their advisors and has the support of both the Pepperdine Private Capital Markets Projects and the Pepperdine Graziadio Business School. One of the most striking facts to leap out of the report is the fact that a full one-third of advisors fully expect the strong market to end this year.  Overall, advisors are not optimistic that the current climate will continue through 2020.  In fact, advisors are encouraging sellers to consider placing their businesses on the market now, while the market is still strong.  This is according to Craig Everett, PhD and Assistant Professor of Finance and Director of the Pepperdine … [Read more...]

Thinking About Succession Planning

If you haven’t been thinking about succession planning, the bottom line is that you should be. In the February 20, 2019 Divestopia article, “All Companies Need to Look at Succession Planning,” author Brad Cherniak examines the importance of succession planning. Owning and/or operating a business can be a great deal of work, but it is imperative to take the time to develop a succession plan. Succession Planning is for Businesses of All Sizes Author Cherniak wants every business owner to realize that succession planning isn’t just for big businesses. Yet, Cherniak points out that the majority of small-to-medium sized businesses, as well as their senior managers, simply don’t focus much on succession planning at all. Many business owners see succession planning as essentially being the same as exiting a business. Cherniak is quick to point out that while the two can be linked and may, in fact, overlap, they are by no means the same thing. They should not be treated as … [Read more...]

Could the Red-Hot Market for Businesses Be Cooling Down

The economy is red hot, and that fact is translating over to lots of activity in businesses being sold.  However, it is possible that this record-breaking number of sales could cool down in the near future. In a recent article in Inc. entitled, “The Hot Market for Businesses is Likely to Cool, According to This New Survey,” the idea that the market for selling business is cooling down is explored in depth.  Rather dramatically, the article’s sub header states, “Entrepreneurs who are considering selling their companies say they’re worried about the future of the economy.” The recent study conducted by Pepperdine University’s Graziadio School of Business as well as the International Business Brokers Association and the M&A Source surveyed 319 business brokers as well as mergers and acquisitions advisers.  And the results were less than rosy. A whopping 83% of survey participants believed that the strong M&A market will come to end in just two years.  Perhaps more jarring is the … [Read more...]

What Kind of Buyers are You Most Likely to Meet?

Selling a business can be an exciting and rather lucrative time.  But going through the sales process means embracing the notion that you’ll have to be very prepared for whatever might be thrown your way.  A key aspect of preparing to sell your business is to know what types of buyers you’re likely to encounter. It is only logical to anticipate the types of buyers you may be dealing with in advance.  That will allow you to plan how you might potentially work with them.  Remember that each buyer comes with his or her own unique desires and objectives. The Business Competitor Competitors buy each other all the time.  Frequently, when a business is looking to sell, the owner or owners quickly turn to their competitors.  Turning to one’s competitors when it comes time to sell makes a good deal of sense; after all, they are in the same business, understand the industry and are more likely to understand the value of what you are offering.  With these prospective buyers, a great … [Read more...]

Why is seller financing so important to the sale of my business?

Surveys have shown that a seller who asks for all cash, receives on average only 70 percent of his or her asking price, while sellers who accept terms receive on average 86 percent of their asking price. That's a difference of 16 percent! In many cases, businesses that are listed for all cash just don't sell. With reasonable terms, however, the chances of selling increase dramatically and the time period from listing to sale greatly decreases. Most sellers are unaware of how much interest they can receive by financing the sale of their business. In some cases it can greatly increase the amount received. And, again, it tells the buyer that the seller has enough confidence that the business can, indeed, pay for itself. … [Read more...]

What happens when there is a buyer for my business?

When a buyer is sufficiently interested in your business, he or she will, or should, submit an offer in writing. This offer or proposal may have one or more contingencies. Usually, the contingencies concern a detailed review of your financial records and may also include a review of your lease arrangements, franchise agreement (if there is one), or other pertinent details of the business. You may accept the terms of the offer or you may make a counter-proposal. You should understand, however, that if you do not accept the buyer's proposal, the buyer can withdraw it at any time. At first review, you may not be pleased with a particular offer; however, it is important to look at it carefully. It may be lacking in some areas, but it might also have some pluses to seriously consider. There is an old adage that says, "The first offer is generally the best one the seller will receive." This does not mean that you should accept the first, or any offer -- just that all offers should be looked … [Read more...]

What can I do to help sell my business?

A buyer will want up-to-date financial information. If you use accountants, you can work with them on making current information available. If you are using an attorney, make sure they are familiar with the business closing process and the laws of your particular state. You might also ask if their schedule will allow them to participate in the closing on very short notice. If you and the buyer want to close the sale quickly, usually within a few weeks, unless there is an alcohol or other license involved that might delay things, you don't want to wait until the attorney can make the time to prepare the documents or attend the closing. Time is of the essence in any business sale transaction. The failure to close on schedule permits the buyer to reconsider or make changes in the original proposal. … [Read more...]