Selling Your Business – How the Upturn Affects Your Prospects

The upturn in the economy provides a huge opportunity for business owners looking to sell.

As current chairman of the International Business Brokers Association and second as CEO of Transworld Business Brokers, the number one business broker in Florida. Lets discuss the journey and what was learned along the way.

Well, interestingly, I came to Florida from New Jersey when we were just starting a family. I came with the plan that I would buy a business and run it.

So I decided to visit as many business brokers as I could. I ran into Transworld, and they were just a little bit different than everybody else.

And they said: “Why don’t you come on board with Transworld and if you see a good deal come across your desk you’ll buy it.”

I thought that was a great idea. And once I was at Transworld, I really fell in love with the business.

As a business broker you are getting to see a lot of interesting deals go by and every business represents a different opportunity.

Being a business broker is fascinating, and I really enjoyed it. When I came on board I just loved meeting with different business owners. I am a self proclaimed serial entrepreneur. I’ve started several businesses.

The idea of just working with several businesses a year and helping them sell was very appealing to me.

Two years into my stint as a sales agent I saw the opportunity to buy Transworld. And the owner, Don Parrish, and I literally switched seats. I bought the company from him and he stayed on for almost ten years. We built the company from seven people up to over 90 right now.

Lets discuss what I am seeing in the marketplace right now.

In business brokerage, we service the space where people are looking to buy a business to make money.

And for the most part, in the past, we’ve had companies that make money and can prove it. We always laughed that the best companies to have are ones that make money and actually can prove it.

The problem with the economy now is the population of businesses that make money has shrunk dramatically. So it has been very difficult to find good businesses to sell.

This is one area that has made business tougher and we can go into the other reasons like financing the businesses, another struggle.

It’s interesting that the population of profitable businesses has decreased, which one would imagine would be the case. And then we have the demographic wave of business owners looking to retire. However, it has been mentioned that people are exiting corporate America, whether they meant to or not, and that they may represent a wave of interested buyers.

There are exiting executives and baby boomers, and all those things bode well for our industry moving forward.

There is something like $12 trillion worth of private equity going to change hands over the next five to ten years.

Then there are people who are exiting or sick and tired and who want to put their own business life into their own hands and bet on themselves. They’re tired of betting on the stock market. They’re tired of waiting for companies to pay them what they think they’re worth, and they’re willing to go out on their own. So I think that’s good for our industry.

So coming out of the recession, we are seeing an up tick yet in activity.

We are seeing more deals transact, and although perhaps the values are still lower, we are definitely seeing more interest. The phone is ringing more. We’re getting more hits on the website. We’re signing more people up to go see businesses so, yes, the activity is up.

People are buying businesses, but they’re still looking for a good bargain or a quality business, which once again is hard to find.

Selling A Business – Getting the Best Out of Your Business Broker

Working well with your business broker can make a big difference to the price you get for your business,.

Lets Lay out how to get engaged and walk through the process of how a business broker best works with a business owner

What we usually do first is we like to meet with the owners. We want to make sure that the business owners really want to sell.

So not only are we doing an analysis on the business when we first come in, but we’re going to analyze your goals and why you’re selling.

I once worked with an office products distribution business that was making several hundred thousand dollars a year. And I said, don’t your kids want this business? Eventually we met with the kids, and I convinced them they should keep the business. That obviously cost me a commission, but it was the right thing to do.

It’s a long process selling your business. It’s going to take at least nine months – maybe six months if you’re lucky – up to over a year.

People don’t get through that process if they don’t really want to sell or if someone else in the family wants to assume the business.

So the first thing we do is a comprehensive business analysis or a life analysis, understanding where you are in your life and why you want to sell.

And then once we decide that, we’re going to sit down with you and we’re going to give you an idea of what we think your business would sell for on the market.

Then we’re going to engage with you to sell the business. And then we package the business for sale and put all the paperwork together. We put together a book sometimes.

We do all the valuation techniques to show the buyer how and why we’re pricing the business, and we put the business out on the marketplace.

There’s a ten-step process that we do. Step one is the business analysis; step two is the structuring the sale; step three, we then go to market and confidentially network the sale; and then step four, we network the sale within our own industry.

In step four, we advertise the business to all the buyers out there in the world. We have our own list. We have a website like BizBuySell. We have a lot of tools that we go out there and find buyers.

In step five, what’s important is to control the information flow in the business. You don’t want to send a complete package to every single person that wants to buy, so we control the information flow. We qualify the buyers. We get them in, make sure they’re the right buyers and then we decide how much information they need to move forward.

In step six, once we have qualified buyers, we try to create competition for your business. We then reduce the amount of the buyers we have for your business and we try to get one solid one.

Step seven is where we negotiate the price, the terms, the contracts. We help do that with you, with your lawyer, with your accountant, with your mother-in-law, whoever is important in the decision making process, we negotiate.

And then step eight, we go through the whole process of the sale; which has many, many, many steps.

We like to think of ourselves as the quarterback of the football team. We have the ball now and we’re going to take this to the goal line, which is the closing table.

We’re going to use a lot of different people. We’re going to use the accountants and bankers and lawyers. And we’re the quarterback interacting with the buyer themselves and the seller themselves, and we’re going to quarterback this deal over the goal line.

Then number nine, we’ll get it done. We’ll sell it, help get the inventory counted. We’ll help with licenses. We’ll help with administration procedures and lease assignments, all kinds of things.

And ten is even beyond the closing, sometimes there’s negotiations that have to happen. We’re there for the transition; and that can be a few months.

Selling Your Business – Preparing to Get the Best Price Possible

Taking the right preparatory steps can help you get a much higher price when selling your business.

One of the key interests of any business owner looking to sell is how much they can get for their business. Lets walk through the business valuation process and how a business owner can best prepare for it.

First off, the value of a business is based on future profits and true valuation methodology is based on future cash flows.

So how do we predict the future? We look to the past and just draw out a line. If the business made $100 or $200 or $500 last year, we’re just going to assume it makes that into perpetuity and we’re going to value the business based on that.

That used to be easy to do. However, the current challenge is that, in 2006 and 2007, it may have made great money and been on a growth pattern. But in 2008 and 2009 perhaps they barely survived or made no money.

How do we value this business? That’s been our challenge.

So what I would say to business owners is, as quickly as you can, right-size your business and make it profitable and show those profits on the books.

Make sure you have good books and records showing a buyer very succinctly how they’re going to make money into the future, that’s where buyers are going to buy.

So there’s a bunch of things that you can do to make your business more profitable and have it documented showing how the buyer is going to make money moving forward.

That’s really what buyers are looking for. And that can happen in very short order, so that’s why we think the future is good.

Sometimes it’s difficult for business owners to right-size because it may mean making hard decisions that people tend to put off. So is now the time to make those decisions?

I read something that said “Don’t waste a good crisis”. And I think that’s very appropriate.

Most businesses that are still in business now have right-sized and the good news is that everybody is going to be much more careful going forward. We’re working in a different paradigm.

I think there won’t be this exuberance or this overpaying for products and services that there once was. And I think that’s good.

Additional thoughts about how a business owner can prepare for a valuation and even for the sales process…

When you work with a broker or when you’re thinking about valuing your business, make sure that all your books and records are up to date and in good order.

You want to grow your earnings so that you are on an up tick as you go into this process. Make sure you can unwind any write-offs or the things that you did from real expenses.

And once again, remember, we’re looking at a business, the profits that a buyer would make. The seller may be saddled with debt that the buyer wouldn’t be. So we could recast the financials; that’s what a business broker is going to do.

As a business owner you want to get all the proper management and staff in place.

You want to make sure your business has the capacity to grow and make capital purchases if you have to get things ready.

And if you have old machinery or old inventory clean it up, get it out. It’s like selling a house. You want it to look sharp because a buyer is going to walk through your business and picture themselves running that business on a day-to-day basis. If it’s dirty and unorganized, buyers aren’t going to be attracted to that.

You also want to control, manage and document inventory. You want to know exactly how much inventory you have. Don’t play with inventory numbers to save taxes. You want to avoid that and/or write it off before you go into this process.

And you’re going to want to put a team together, and that includes an intermediary, a transaction attorney and your accountant. You want to get your family on board, and you want to plan this out.