If you are seriously considering selling your company, you have no doubt considered using the services of an intermediary.  You probably have wondered what you could expect from him or her.  It works both ways.  To do their job, which is selling your company; maximizing the selling price, terms and net proceeds; plus handling the details effectively; there are some things intermediaries will expect from you.  By understanding these expectations, you will greatly improve the chances of a successful sale. Here are just a few: • Next to continuing to run the business, working with your intermediary in helping to sell the company is a close second.  It takes this kind of partnering to get the job done.  You have to return all of his or her telephone calls promptly and be available to handle any other requests.  You, other key executives, and primary advisors have to be readily available to your intermediary. • Selling a company is a group effort that will involve you, key executives, and … [Read more...]

One of the most frequently-asked questions by those looking at the independent business scene is: "How many are for sale?" Right on the heels of that question comes another: "How many actually sell?" To determine how many of these businesses are for sale at any one time, and what percentage of these get sold, it is necessary first to define terms by business category. The industry groups that account for the majority of small to mid-sized business sales are: manufacturing, wholesale trade, retail trade, business and personal services, and household/miscellaneous services. Using these categories as components, the total number of businesses that apply to our "survey" is approximately 6.3 million. Of this total, businesses that are for sale at any one time account for roughly 20 percent. There is naturally going to be a higher percentage of businesses for sale that employ four or less workers, but some independent business experts feel that fewer of these businesses--at least … [Read more...]

Use the following criteria to separate the serious buyers from window-shoppers. (Add up plus points, subtract minus points. The serious buyer will rate a 6 or above.) Minus Point Factors -4 needs outside financing (excluding home equity) -4 been looking for 6 months or more -3 no available cash -3 still working in corporate world -2 spouse not supportive of buying a business -2 uses a legal pad or clipboard and takes too many notes -2 feels leisurely about finding the "just-right" business -1 now renting (although has lived in area for some time) -1 under 25 or over 62 Plus Point Factors +3 does not have a job or has just resigned +3 understands that books and records are not the only indicators of value +2 has enough money to buy a business +2 no dependents +2 family member or close relative has been a business owner +2 willing to take the time to look without a lot of notice +1 location is not a prime consideration +1 age 25 to 62 +1 skilled worker or … [Read more...]

Family-owned businesses do have some options when it comes time to sell.  Selling the entire business may not be the best choice when there are no other family members involved.  Here are some choices to be considered: Internal Transactions Hire a CEO – This approach is a management exit strategy in which the owner retires, lives off the company’s dividends and possibly sells the company many years later. Transition ownership within the family – Keeping the business in the family is a noble endeavor, but the parent seldom liquefies his investment in the short-term, and the son or daughter may run the company into the ground. Recapitalization – By recapitalizing the company by increasing the debt to as much as 70 percent of the capitalization, the owner(s) is/are able to liquefy most of their investment now with the intent to pay down the debt and sell the company later on. Employee Stock Ownership Plan (ESOP) – Many types of companies such as construction, engineering, and … [Read more...]

It has always been the American Dream to be independent and in control of one’s own destiny. Owning your own business is the best way to meet that goal.  Many people dream about owning their own business, but when it gets right down to it, they just can’t make that leap of faith that is necessary to actually own one’s own business.  Business brokers know from their experience that out of fifteen or so people who inquire about buying a business, only one will become an owner of a business. Today’s buyer is most likely from the corporate world and well-educated, but not experienced in the business-buying process.  These buyers are very number-conscious and detail-oriented.  They require supporting documents for almost everything and will either use outside advisors or will do the verification themselves, but verify they will.  A person who is realistic and understands that he or she can’t buy a business with a profit of millions for $10 down is probably serious.  They must be able to … [Read more...]

Deals fall apart for many reasons – some reasonable, others unreasonable. For example: • The seller doesn’t have all his financials up to date. • The seller doesn’t have his legal/environmental/administrative affairs up to date. • The buyer can’t come up with the necessary financing. • The well known “surprise” surfaces causing the deal to fall apart. The list could go on and on and this subject has been covered many times. However, there are more hidden reasons that threaten to end a deal usually half to three-quarters of the way to closing. These hidden reasons silently lead to a lack of or loss of momentum. This essentially means a lack of forward progress. No one notices at first. Even the advisors who are busy doing the necessary due diligence and paperwork don’t notice the waning or missing momentum.  Even though a slow-down in momentum may not be noticeable at first, an experienced business intermediary will catch it. Let’s say a buyer can’t get through to the seller.  The … [Read more...]

Your first question may be, “Just what is Corporate Social Responsibility (CSR)?” We see CSR demonstrated in a variety of ways in areas such as: THE COMMUNITY: o Contributing to local community programs through financial support and personal involvement THE ENVIRONMENT: o Using packaging and containers that are environmentally-friendly o Recycling o Using low-emission and high mileage vehicles where possible o Seeking more efficient manufacturing processes, etc. THE MARKETPLACE: o Utilizing responsible advertising, public relations and business conduct o Exercising fair treatment of suppliers/vendors, contractors and shareholder THE WORKPLACE: o Implementing fair and equitable treatment of employees o Upholding workplace safety, equal opportunity employment and labor standards Actions such as these not only uphold today’s business standards, but they also pave the way for future generations. In years past, many of these elements were considered almost anti-business and some had … [Read more...]

Personal Goodwill has always been a fascinating subject, impacting the sale of many small to medium-sized businesses – and possibly even larger companies. How is personal goodwill developed? An individual starts a business and, during the process, builds one or more of the following: • A positive personal reputation • A personal relationship with many of the largest customers and/or suppliers • Company products, publications, etc., as the sole author, designer, or inventor The creation of personal goodwill occurs far beyond just customers and suppliers. Over the years, personal goodwill has been established through relationships with tax advisors, doctors, dentists, attorneys, and other personal service providers.  While these relationships are wonderful benefits, they are, unfortunately, non-transferable. There is an old saying:  In businesses built around personal goodwill, the goodwill goes home at night. It can be difficult to sell a business, regardless of size, where personal … [Read more...]

Mass Mutual Life Insurance Company provided the following survey results based on family-owned businesses. Although the survey was conducted several years ago, the results are still quite revealing, and still applicable. • Four out of five companies are still controlled by the founders. • 30% of family-owned companies will change leadership within the next five years. • 55% of companies fail to conduct regular valuations of the company. • 55% of CEOs who are 61 or older have not chosen a successor. • 13% of CEOs will never retire. • 90% of businesses will continue as family owned. • 85% of successor CEOs will be a family member. • 20% of family owners have not completed any estate planning. • 55% of family owners do not have a formal company valuation for estate tax estimates. • 60% of businesses do not have a written strategic plan. • 48% of companies rely on life insurance to cover estate taxes. The above survey indicates that many family businesses are not optimizing their … [Read more...]

New accounting rules may require that acquirers and acquiring companies report earnout agreements as liabilities. Joel Johnson, president of Orchard Partners Inc., in his article, “Earnouts,” published by Valuation Strategies, states: "In a given year, 2% - 3% of announced mergers and acquisition agreements involve earnouts.  These figures probably understate their prevalence.  Earnouts tend to be a characteristic of smaller deals; and in many small deals, terms are not announced.  Earnouts are rare when public companies are acquired and more common when ownership is concentrated among a few shareholders." This would mean, if implemented, that earnout agreements must have a value placed on them for accounting purposes. As Joel Johnson points out, “The higher the earnout, the greater the liability.” Why the Earnout? Johnson further states that earnouts are used for various reasons: 1. to bridge the pricing gap between the seller who places a heavy emphasis on the company's … [Read more...]