#SellingYourBusiness

[sacramentobusinessbrokers]

https://www.sacramentobusinessbrokers.com/post/business-brokers-what-are-they-and-how-can-they-help-you-sell-a-business

[metrobusinessadvisors]

Speaking from experience: the necessary factors to sell a business

By Dave Driscoll

For more than 12 years, I have been in the business of helping owners sell their business and move on to their life beyond business.™ As a business broker, I have been fortunate to have many owners place their trust in my experience and skills as a seasoned business owner and I have been privy to learn about many types of businesses inside and out. I’m proud to say that my company, Metro Business Advisors, has sold the majority of the companies we were engaged to represent.

As a long-time contributor to Small Business Monthly I have decided to take a break from writing monthly articles and will instead be contributing periodically, while still continuing to actively sell businesses.

My objective in writing articles has always been to educate owners about what it takes to develop a business for sale, including the emotional preparation that is so crucial. Along the way, I’ve also presented the buyer’s perspective and defined the steps necessary to increase business value so owners can sell their life’s work for maximum value to support their retirement or other ventures.

So, what sells a business?

The seller must balance their wants against what the buyer needs from the purchase.

But what does that really mean?

To successfully sell a business, the seller must realistically consider what the buyer needs to be successful if they acquire the business. The seller must put themself in the buyer’s shoes and remember what would be important if they were the buyer.

As a buyer, would you want to buy a business that…

Is owner-dependent?

Has incomplete financials that don’t tell the true story of the business?

Is part of an industry with an uncertain or unstable future?

Has a seller with unrealistic expectations regarding the sale price or terms?

I approach this from the negative to demonstrate that there is no mystery in the sale/purchase of a business. What is good for the seller is good for the buyer. If a seller is looking for a fool with a big bag of money, they will be very disappointed and their business will NOT sell.

Although I could write many articles (and have!) on each of these four points, let’s focus on a few ways to position a business for the highest probability of being sold.

Owner-dependence. If the business cannot operate without the owner’s daily attention, the company knowledge is “in the owner’s head,” and/or all the customer relationships are managed by the seller, the business really has no sustainable value to a buyer. In the unlikely event a buyer were to entertain buying an owner-dependent business, the seller would need to stay for an extended time to provide training and ensure the business successfully transitions to the new owner. The seller would also need to be comfortable having a portion of the sale proceeds withheld until the transition is complete to demonstrate the seller’s continued commitment to the business’ success.

What can you do?

Train and empower a competent team to be capable of running the business without you.

Establish a second-in-command and decentralize decision making.

Make yourself obsolete – aside from big picture vision and strategizing.

Complete, accurate financials. Buyers need to understand how the business operates, including the sales, cost of sales, gross operating profit, and operating expenses. If your business financials do not clearly and accurately show the buyer these details, how will they determine whether the cash flow will satisfy their goals that are motivating them to buy a business? Incoherent financials will NOT sell a business.

What can you do?

Document all discretionary spending that goes through the business.

Review your P&L and balance sheet monthly or quarterly to identify trends, opportunities, or problems.

Utilize an accounting service to help keep financials current while conforming to generally accepted accounting principles.

Business/industry stability and value. Would you buy into your industry in its current state? I spent 30 years as owner of an envelope manufacturing company. With the development of the ubiquitous internet, the use of envelopes plummeted, creating excess capacity, deteriorating margins, and causing widespread industry consolidation.

If your industry is outdated, shaky, or uncertain, look for a merger partner or consider liquidation. Hanging on to your company with the attitude that you can just work harder and overcome a dying industry will eventually cost you everything.

What can you do?

Either be an acquirer or an acquiree if your industry is faltering.

Always look for tangent or novel markets for your product or service.

Make the necessary investments to keep your company current in technology and innovation.

Seller expectations regarding the sale terms. Simply stated, selling the business will be very difficult if the asking price does not correlate to a reasonable industry “like sale” multiple of free cash flow or the seller is not flexible on price and terms (for example, demanding all cash). Maybe impossible. Recall the fictional “fool with a big bag of money” myth dispelled earlier. Additionally, a seller should not expect to be paid for “business potential” – at best, the buyer will only question why the seller didn’t take advantage of that potential themself.

What can you do?

Base the asking price for your business on a solid market valuation, conducted by a professional.

Focus your negotiations on setting the buyer up to succeed in running a profitable business.

Realize you will need to spend time training and transitioning relationships to the buyer.

So, there you have it – the benefit of my experience simplified into practical action items to best position you for eventually leaving your business. As I am not leaving my business yet, feel free to reach out if I can be of assistance, and don’t forget our library of educational blog posts at https://metrobusinessadvisors.com/blog/. I have enjoyed offering my advice from the perspective of business owner and M&A broker to SBM readers; I wish you the best as you envision, plan, and achieve your life beyond business.™

Dave Driscoll is president of Metro Business Advisors, a mergers and acquisitions business broker, business valuation and exit/succession planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at ddriscoll@metrobusinessadvisors.com or 314-303-5600. For more information, visit www.MetroBusinessAdvisors.com.

As seen in Dave’s Small Business Monthly column

[businessvaluationuk]

Now is the perfect time to sell your Business, as there are so many good buyers around at the moment.

Now is the perfect time to sell your Business, as there are so many good buyers around at the moment. But if you’re contemplating selling your business, don’t leave it too long. Some experts believe the current positive economic climate won’t last forever, so now is a good time for you to sell.

With plenty of buyers to choose from in today's market, it's more important than ever to work with Business Valuation to attract those potential purchasers ready to enter a bidding process for your Business. With a large difference between the lowest and highest bids, working with Business Valuation to generate widespread interest in the sale of your business can mean a difference of ten’s of thousands of pounds in the final transaction value.

Contact us with confidence now free on 0800 046 1792 for free, confidential, no obligation advice on selling your business. We Guarantee to sell your business or not a penny to pay. Together we will sell your business.

                 Click here to know to more about the business

[turnerbutler]

Business Sale experts Turner Butler specialise in Business Sales. Our highly professional team with over 30 years of experience in Business Sales serves the needs of both business buyers and sellers discretely and professionally. We employ experience, knowledge and expertise to ensure you will receive the maximum value for your business.

[turnerbutler-engineering]

IA033 - Established Refrigeration Business

New Business For sale - Established Refrigeration Business

Ref. IA033 Location Northern Ireland Asking Price £195,000 Turnover £500,000

Business Profile

The current owners established the business in 2003 and have operated as a family run business with superb reputation ever since.

Key Opportunities: The business has huge potential for further development by; increasing geographical coverage, introducing a sales function and taking on more retail work.

Key Strengths: • Long Established • Good reputation • Potential to grow • Excellent Location

Click here to know more about the business

[bwaadvisors]

Considering Selling Your Business?

Selling a business can be a complex and new process for both vendors and purchasers. Many business owners may not know where or when to begin when putting their business on the market.

The reasons for selling may be diverse however simply putting up a for-sale sign is not enough in the increasingly competitive business world.

The following areas are critical when undertaking the sales process and beginning the next phase of your business cycle.

PREPARING YOUR BUSINESS FOR SALE

If selling your business is on the horizon, it may be worth considering what is needed in preparation not only for a potential sale, but to achieve the highest possible value.

Getting your house in order.

The key to being ready to sell is to have your business running at its optimal level of efficiency, effectiveness and most importantly - at its most profitable.

Essential ways to achieve your business running at its highest possible level include:

· Improve cost efficiencies - Are all costs incurred through operating necessary and at the best price? Can an alternative be sought to control and potentially reduce overall expenses?

· Evaluate internal financial processes and controls - Ensuring your business can prepare accurate and informative Financial Statements along with the ability to produce timely reporting when needed will assist with attracting prospective buyers.

· Assess your business through the eyes of a potential buyer - This can be done by running an internal diagnostic check for your business. What improvements can you make now to avoid corrective action in the future which could lower your sale price?

Can my business run without me?

An important aspect a potential buyer will consider is the ability of your business to operate without your presence or influence. It is essential your business has a management structure and stakeholder network which allows for a new owner to step in and run the business seamlessly. Consider the following steps to prepare your business for life without you.

Formalise systems and day-to-day processes - Written instructions can be put in place to ensure potential new management could step in with ease.

Diversify your customer and supplier base - Ensure your business is not reliant on a narrow customer network or supply-chain. Expanding your market share can make your business more attractive.

Take the opportunity to formalise and review employee agreements and contracts - The people within your business are important assets which could increase the perceived value of your business.

Implementing these steps ensures your business is always ready for sale when the opportunity arises.

SEEK PROFESSIONAL ACCOUNTING & LEGAL ADVICE

Potential buyers will seek to examine the previous, current and future financial performance of the business. Drilling down on the details of gross profit margins, trends and forecast cashflows are areas your trusted business advisor can assist in preparing your business for sale.

There will always be an element of uncertainty when purchasing the future cash flows of a business, however any buyer will be looking to minimise their risk exposure. Providing forecasts that are achievable and realistic, which are based on past trends and current market considerations will ensure buyer confidence in the value of your business.

Working Capital, why is it important?

Upon the sale of your business the buyer will require a level of working capital to fund the day-to-day business operations. Poorly managed working capital levels can impact the final sale proceeds you ultimately receive. Taking the time and seeking the guidance to manage cashflows and lower liabilities can reduce the expected working capital level required in your favour.

BWA Accountants + Business Advisors along with your legal advisors can provide value by offering their expertise and working together to achieve the best outcome for you.

NEGOTIATE & CLOSE THE DEAL

The negotiation process is usually associated with conflict, rather than two parties working together towards a mutually beneficial gain. Planning for the negotiation and being clear about the outcome can make the whole process less complicated, ultimately making the process straightforward for you and your buyer.

Enter into negotiations with a figure you would be prepared to accept, however always have a plan B. Price is not the only aspect of an offer. If you are not able to meet the terms and conditions associated with the highest priced offer, a lower offer with more achievable terms and conditions might be more favourable.

Don’t be afraid to walk away, deals are about compromise! If negotiations have halted it might be time for both parties to reassess what they are looking to achieve. Reflecting on what could have been accomplished may prove helpful which could lead to fresh negotiations.  

BWA has assisted with the sales of numerous businesses including sales to ASX listed companies. Please click here to find out more.

If you are considering selling your business or would like to discuss preparing your business for sale, please do not hesitate to contact our friendly team.

[transportbusinesses]

GC123-Established Cleaning Business

New Business ForSale - Established Cleaning Business

Ref. GC123 Location Ireland Asking Price €500,000 Turnover €2,940,000 Gross Profit €530,000

Business Profile

Established in 2008, this profitable cleaning company offers a service available anywhere in Ireland and can handle anything from flood and fire damage to window cleaning (including high rise buildings), carpet cleaning, office cleaning and builder’s handover cleaning. The company has a good portfolio of clients including blue chip companies.

Aside from cleaning, the company also sells janitorial supplies to the value of circa. €20K per month.

Equipment:

The company uses the latest equipment and regularly attends trade shows to keep up-to-date with advancements in equipment.

New computer software and time/salary package recently set up and running and working well.

Click here to know more about the business

[turnerbutler-retailbusinesses]

AG146-Specialist Flooring Supplier Exhibitions, Contract & Retail

Specialist Flooring Supplier Exhibitions, Contract & Retail

Ref.AG146 Location South Wales Asking Price £960,000 Turnover £1,089,000 Gross Profit £618,000

Business Profile

This well known and successful business was founded by the vendor in 1985 and was in response to noticing an opportunity to supply and fit contract floor coverings to the exhibition industry and to add value and generate secondary revenues by re-selling the previously supplied and used carpets back to commercial contract and exhibition customers, looking for savings.

Click here to know more about the business

[sacramentobusinessbrokers]

https://www.sacramentobusinessbrokers.com/post/the-process-of-working-with-a-business-broker-to-sell-your-business

[metrobusinessadvisors]

Your Business Shouldn’t be a Fixer Upper

By Dave Driscoll

Most of us have gotten pulled into (at least) one of the home improvement/DIY-type reality shows in which a house is transformed from an outdated eyesore into a stunning, welcoming home that meets the family’s needs. As soon as you begin watching the episode, you become invested and can’t walk away until you see the finished product. It doesn’t hurt that some dramatic problem is usually discovered that must be solved creatively. Maybe these shows are popular because deep down, we like to believe that old things can be renewed, rejuvenated and given new life. Many of us also like the challenge of solving a problem effectively and efficiently.

Based on these shows and the widespread trend of flipping houses, a business owner might start to believe that it’s no big deal if weeds and little trees are sprouting from the parking lot pavement or the building shows signs of wear and neglect.

BUT, do not fall into the trap of thinking a prospective buyer will see your business as a fixer upper with “great bones.”

Buyers are looking for profit, not a project!

If walking into your office is like going back to 1960, with metal desks, old filing cabinets, and a tile floor with junk everywhere, a prospective buyer will want to run screaming “back to the future!”

Buyers are savvy enough to know that physical appearance is related to the overall health of the business. Dimly lit spaces, outdated equipment (whether still being used or broken down), or disorganized inventory and work-in-process are red flags of deeper problems. In these conditions, updated financial controls and records are highly unlikely. Things are probably done the way we’ve always done them instead of embracing technology and efficiency. And employees have likely learned to be apathetic and just put in their time with minimal effort.

Quite simply, if you don’t demonstrate care for your facility, employees, and customers on a daily basis, your business value suffers.  

A potential buyer’s first impression is hard to change. Would a stranger walking into your business think "this place has big problems?” Maybe a buyer would consider a couple affordable updates, but health and safety issues, high employee turnover, sub-standard productivity, and increased costs for insurance, overtime, and materials are damaging to profitability and will not be overlooked.  

Like your house, your business immediately projects an image to potential buyers. The “curb appeal” can attract a buyer to your business—or cause them to walk (or run) away without further investigation.

Take some time to work on your business rather than just working in your business.

These three steps will improve your curb appeal and business value: 1. Fix your “leaky faucets”

Buyers expect a productive environment that focuses on employee safety and moral. Owners who are focused on working "in" their business may not see how the plant, equipment, and policies have disintegrated over the years. Think like a buyer and address both the physical and intangible aspects that lower confidence in the business’ ability to thrive.

Clean up the exterior of the facility.

Clean up and clean out old or unused equipment and inventory.

Improve lighting; open up floor space; provide space for collaboration.

Look for telltale signs of bigger problems – for example, if doors won’t close, is there a problem with the foundation?

 Maximize product, labor, and information flow.

Maintain clear, accurate financial records, including seller’s discretionary income.

Educate your employees regarding expectations and maintaining a clean, safe environment.

Hold everyone accountable for maintaining the system.

2. Assemble a company manual

Assemble written HR Policies and the Employee Handbook.

Document step-by-step procedures, from taking an order or first encounter to final delivery of the product or service.

When you buy a house, you feel more confident if the owner provides instruction manuals and servicing reports for appliances and systems. Similarly, a potential buyer considering your company wants to know that your business information is in order. 

Documentation promotes consistency, repeatability and accountability, reassuring the buyer that they can maintain customer satisfaction, as well as profitability. Clearly communicated rules and expectations enhance employee relations.

This type of corporate hygiene can lead to a higher price for your company, while also lowering the chance of the deal falling apart during due diligence. 

3. Document your intangibles If you were buying a house, you would consider intangibles such as being in a good school district or proximity to your office. Likewise, be sure that a potential buyer is aware of the intangible assets that make your business desirable, such as:

The reason for your success - the company’s unique value proposition

Proprietary operating systems

Intellectual property

Patents, secret recipes

Client agreements or contracts

Pay attention to the details!

Although some improvements may seem merely cosmetic, perception is reality for prospective buyers. Don’t give buyers a reason to question if larger structural problems – physical or systemic - are lurking due to years of neglect. Your business should always be “move-in ready” because transitioning a business to a new owner is a significant project. Expecting a buyer to be willing to DIY for up-to-date business functionality is not realistic.

Don’t wait until you’re ready to sell your business to improve your business’ curb appeal. Not only will you avoid a huge to-do list later, you may be surprised at the increased moral and productivity that result in the meantime.

Dave Driscoll is president of Metro Business Advisors, a mergers & acquisitions, valuation and exit/succession planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or (314) 303-5600.  www.MetroBusinessAdvisors.com

As seen in Dave's St. Louis Small Business Monthly column

[businessvaluationuk]

Free Confidential Business Valuation

With interest rates remaining historically low, a stable economy and available funds there is no shortage of buyers for your business. All these positive elements have helped drive Business sales upwards during the recent months creating a strong seller’s market (for now at least), so if you are thinking of selling you should do so now.

Now is the perfect time to sell your Business, as there are so many good buyers around at the moment. But if you’re contemplating selling your business, don’t leave it too long. Some experts believe the current positive economic climate won’t last forever, so now is a good time for you to sell.

With the market so buoyant, we will be happy to meet with you and assess the saleability and value of your Business, at no cost or obligation. The meeting is, of course, confidential and will be made at a time and place convenient to you.

Contact us with confidence now free on 0800 046 1792 for free, confidential, no obligation advice on selling your business. We Guarantee to sell your business or not a penny to pay. Together we will sell your business.

                Click here to know more details  

[turnerbutler]

Luxury Interiors, Gift & Fashion Retailer business for sale with a prestigious site in UK by Turner Butler. If you want to buy this business, please contact Turner Butler.

[agriculturalbusinesses]

EV017-Specialist Water Tank Replacement for the Commercial & Residential Sector Mechanical Services and Water Treatment

Specialist Water Tank Replacement for the Commercial & Residential Sector Mechanical Services and Water Treatment

Ref.EV017 Location S E England / Relocatable Asking Price £360,000

Business Profile

This specialist business offers a list of packaged works, experienced in the replacemant of water tanks with all the associated works. Operating in this field for over 18 years the business is skilled in isolating and draining down commercial & domestic water tanks, fitting temporary tanks whilst building new water tanks for installation.

Drawing on a wealth of experience the business offer solutions to many customers primarily in central London.  Clients include Hotels, NHS, Blocks of flats and also gain a lot of referrals for facility companies.

Services include but are not limited to;

Removal and disposal of water tanks Installation of temporary water supply systems Supply and installation of one piece, two piece and sectional tanks Upgrades to address L8 water regulations Insulation works Cross flow installations Valve and pipework Chlorination

Click here to know more about the business

[metrobusinessadvisors]

The Secrets to Selling a Lifestyle Business

By Dave Driscoll

In a previous article, we differentiated the business cycle for a “lifestyle business” from the mergers & acquisitions (M&A) market. But what qualifies as a “lifestyle business?”

A lifestyle business is usually founded by an owner(s) who believes they can financially support their family and their “lifestyle” with their specific marketable skills and talents. In many cases there are no other shareholders, giving the owners more control in the operations of the business. The focus is often on achieving and sustaining the owners’ particular lifestyle.

When some people hear the phrase lifestyle business, they may think of small, part-time, or home-based businesses. However, many small lifestyle businesses have grown to be successful larger businesses due to the founder’s skill in recognizing and exploiting a niche.

Building a business in support of a specific lifestyle is certainly a valid business strategy. My own business, Metro Business Advisors, as well as my previous business Ambassador Envelope Co., can both be classified as lifestyle businesses. Other examples include small, market-focused brokers or distributors, manufacturers’ representatives, and consulting firms. To repeat - lifestyle businesses are a valid business structure, BUT there are implications if the owner desires to sell the business. Market value and transferability can limit a successful transfer.  

Selling a lifestyle business can be dependent on the size and level of operational sophistication the business has achieved under the founders’ leadership. Where is the business on the technology/operational curve? Whether the business is behind, on, or ahead of the curve will become apparent when analyzed by a potential acquirer. The business may be constricted by technology and an obvious lack of investment. Or the company could be well ahead of the curve, reflecting the owner’s desire to keep the business competitive through continued investment. These are significant choices that must be made along the ownership journey because these factors impact whether the owner will be able to sell a lifestyle business.

A buyer will not pay top dollar for a business that needs substantial capital investment to be competitive, or if future profits are at significant risk due to owner dependence or failure to adapt to industry changes.

Advantages of a lifestyle business

The advantages of starting a lifestyle business include being able to control most aspects of the business. Additionally, due to the necessity to “boot strap” and be conservative with cash and expenses, there is usually a positive cash flow from early in the business’ growth, enabling the owner to eventually pursue personal goals with profits from the business.

Most advantages revolve around a common theme, freedom:

Time: freedom to choose when to work (or not!)

Financial: generate income sufficient to support a desired lifestyle

Fulfillment: opportunity to pursue passions, talents, and interests

Location: ability to choose where to work

Disadvantages of a lifestyle business

Funding sources are limited.

Founder’s talent is not easily replaced, creating owner-dependence.

Customer relationships are typically tied to the founder.

Difficulty recruiting top talent due to limited compensation.

Business value is difficult to transfer to a new owner.

Potentially very few assets to sell beyond a client list and goodwill.

When sold, does not provide a lump sum for retirement.

Advice for selling a lifestyle business

Ultimately, the owner must decide whether their goal is to have the business solely support their lifestyle and freedom, or to build an asset that has value transferable to a buyer/investor in the future.

To build a lifestyle business to sell, we recommend following this advice:

Start building sellable value many years before you intend to sell. Pick an age or date to help in defining your plan (realizing that may change based on circumstances beyond your control). Building value takes time, so if you want to sell next year… it’s too late. The cake is already baked. Implement value-building strategies at least five years prior to your target date.

Reduce the business’ dependence on you. Any business that needs the owner’s daily attention to succeed has no value and cannot successfully be sold. Establish a second-in-command and build a bench of competent leaders who can operate the business. Training and empowering your employees are mutually beneficial ways to eliminate owner dependence. In the meantime, the business will also benefit from the increased employee engagement and commitment.

Distinguish between the business and your identity. If you – and your clients – can’t differentiate between you and your business, it’s unhealthy on both sides. You were naturally the face of your company when you founded it, but past the startup phase, your company needs a corporate identity separate from your personality. On the personal side, this will also help you emotionally detach when you exit the business.

Share the relationships. If clients and vendors only communicate with you,at best, they will be nervous about new ownership. Knowing and trusting other employees offers the needed reassurance that service and quality will be consistent after the sale to a new owner. Make an effort to ensure that client loyalty lies with the company, not with you personally.

Create a competitive niche. Your business should be focused in terms of services/products and your target clients. Zeroing in on your company’s core strengths will be more productive than trying to be all things to all customers.

Invest in technology and training. Make sure you are at least on the curve, not behind it. Transferable value requires that the business is up to date with capital and human investment.

Document historical financials accurately. Businesses operating within a niche while sustaining a competitive advantage and demonstrating historical positive cash flow are most likely to be sold. Remember, you can’t sell value that you can’t prove.

Note, historical cash flow does not mean last year and the year before. Business value is based on performance over the past five years. To sell your lifestyle business eventually, you need to build and demonstrate value with at least five years of established rock-solid fundamentals.

To conclude, as a rule of thumb, the basic valuation of a small business ranges from 1.7 to 2.85 times free cash flow (including owner compensation and benefits). However, that calculation is meaningless if the talent and skills that clients rely on cannot realistically be transferred to a buyer. Implement the advice above to help make your lifestyle business sellable and maximize the amount you reap to fund your life beyond business.™

Dave Driscoll is president of Metro Business Advisors, a mergers & acquisitions, valuation and exit/succession planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or (314) 303-5600.  www.MetroBusinessAdvisors.com

As seen in St. Louis Small Business Monthly

[metrobusinessadvisors]

Selling your business: Three external factors that influence timing

By Dave Driscoll

In SBM’s January issue, we detailed three internal factors that affect your timing of the sale of your business. Now let’s talk about external factors that impact when you take your business to market.

One thing you can count on is that the economy will always expand, peak, retract, and expand again. This cycle is as old as time and is a leading indicator for the mergers and acquisitions cycle. When the economy is strong, capital is available to get deals done, leading to increased deal flow, firmer multiples, and closings. But when the economy falters, capital dries up, resulting in slower deal flow and softer multiples. Business sales are generally limited to financially strong companies in a growing market segment, with a buyer who is solid financially and operationally.

An exception to this is smaller “lifestyle” businesses with sufficient cash flow to provide adequate income for the owner, satisfy the debt, and show potential for further return on investment. The SBA was created to finance this type of business (up to $5 million), so those transactions are less dependent on economic factors. These lifestyle businesses largely sit outside of the cyclical M&A market, with minimal impact from interest rates and the trajectory of the economy.

Business owners planning to sell should pay attention to the three Cs of finance —cash, credit, and capital. An owner needs to keep a pulse on these economic indicators to understand where we are in the M&A cycle.

Cash. The availability of capital drives deals flows, as well as how assertively lenders pursue loans. Think of the financial crisis of 2008-2009 - businesses and individuals hoarded their capital, and lenders were not actively looking for borrowers.

Taxes also come into play. In a low tax rate environment, buyers have more cash on their balance sheets. So, when buyers have cash, lenders are offering funding, and taxes are reasonable, buyers will be identifying opportunities to produce a return on their capital. This stimulates deal activity as buyers/investors are motivated to put their cash to work.

Credit. The Federal Reserve and current monetary policy influence the cost of credit. If interest rates are low the cost of debt is reasonable, which promotes increased buyer demand for businesses and maximizes the price they are willing to pay to acquire.

Conversely, if the Fed is increasing interest rates to manage inflationary pressures, the cost of financing increases, suppressing the buyers’ appetite and therefore, deal flow.

Confidence. Once again, reflect on the Great Recession that was in full-swing 2008-2009. To manage the financial chaos, the Federal Reserve stepped in to save critical industries. Interest rates were lowered as never seen before in an effort to stabilize and, if possible, grow the economy out of recession. Lenders were worried about their customers’ financial health, underlying cash flows, and asset values. They weren’t focused on making new loans; they were managing day-to-day and monitoring the unfolding events. The economy was dragging, and the lack of investor confidence kept the economy from growing.

Current events can shake the confidence of investors, lenders, and buyers. Geopolitical events are often unpredictable and can make the global economy seem tenuous. An unforeseen disruption can impact the health of entire industries. Economic cycles are dynamic, greatly influence market sentiment…and are beyond the control of investors and sellers. High investor/market confidence indicates a seller’s market, and premium prices are paid for businesses. Conversely, low confidence moves the cycle into a buyer’s market with discounted acquisition prices compared to value. Economic confidence always drives market behavior and provides a guideline regarding the best time to sell your business.

The key takeaway

Sellers should be aware of current and projected economic and market conditions and attempt to time their “go to market” when conditions are favorable. Gauging market timing will always depend on the health of the economy, the industry, and the seller’s specific business. And remember that it generally takes four to eight weeks for a business broker to launch your business. You can’t sell your business in a day; finding the right buyer typically takes up to 18 months.

As advised in the January article, be sure your company is ready to go to market at a moment’s notice when capital is available, the cost of credit is low, and confidence is high. Run your business to be ready to sell it tomorrow. Waiting to prepare your business until external conditions are right for a sale is far too late.

Dave Driscoll is president of Metro Business Advisors, a mergers & acquisitions, valuation and exit/succession planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or (314) 303-5600.  www.MetroBusinessAdvisors.com

As seen in St. Louis Small Business Monthly

[metrobusinessadvisors]

Three internal factors when an owner asks, “When should I sell my business?”

By Dave Driscoll

Owners often base the timing of selling their business on some milestone in their life. Sometimes, owners decide to sell when they realize that taking the business to the next level will require more energy, time, and capital than they want to invest. The goal may be to sell the business when they reach a selected retirement age or when they land a sought-after large client, making the business more valuable to investors. 

But does the timing of when you sell your business really matter? One of the enduring principles in the investment/retirement planning world is you can’t time the market. I disagree with that axiom when it relates to the sale of your business. Yes, you can! 

Identifying the right time to sell can literally mean millions of dollars in your pocket.

A guiding principle we share with all business owners is “run your business as if you were going to sell it tomorrow.” Many times, interest in acquiring your business comes when you least expect it, so always be prepared.

When’s the right time to take a business to market?

The right time to consider selling your business is when two things are true:

You’ve built a business to a high level of value that can be transferred to a successor owner, which makes your business marketable. 

The mergers and acquisitions market is on the upswing toward a sellers’ market because this maximizes the cash flow multiples expected.

If these two criteria are true, sell the business. 

If they’re not, keep running your business, with a focus on being prepared to sell it tomorrow, understanding the internal and external factors that will influence your timing. This month, we’ll examine the internal factors.

Three internal factors that influence the timing of a sale

Business owners can control three internal factors:

Trained and capable workforce. Can your business be sold and continue to run successfully without you? A common weakness of privately held businesses is reliance on the owner and an underdeveloped team. If you’ve developed a strong leadership team within your organization and positioned your business to no longer be owner-dependent, you’ve likely built significant transferable value and marketability. In today’s talent-starved environment, employees are an important intangible asset. Buyers are actually acquiring businesses not only for their revenue, but also for their talented personnel.

Strong projected cash flow. Is your business positioned for strong growth? Buyers buy for return on investment (ROI). Returns come in many forms, including the increased productivity from acquiring employees as mentioned above, and the belief in growth potential. Growth is evidenced by well-founded projections based on proven historical data. If your business has reached the highest profit level possible with the capital and talent resources currently available to you, but you have a strategic plan that demonstrates how additional investments could fuel growth, then the time is right to go to market.

Sometimes owners think they need to drive the business to its peak, but a word of caution: an investor is always looking for future growth potential. Don’t make the mistake of waiting until you’ve driven your business to its highest level because that leaves no potential ROI for a buyer.

Risk. What are you risking by continuing to own your business? Analyze the value of being an owner. How much owner benefit (financial and emotional) do you derive from the business? If you were to sell your business and invest the proceeds (net of taxes), would the financial return, freedom, and personal wellbeing outweigh the benefits you currently receive as an owner? Let’s consider the continued risks involved in running your business. As a company matures and the owners get older, risk tolerance frequently decreases, and burn out sets in. If there’s no family member interested in taking over the business, the continued sacrifices of ownership can be untenable.

Selling your business is a personal choice. When to sell can be influenced by the M&A market’s likelihood to reward your years of hard work to your satisfaction. In addition to your workforce, cash flow, and risk assessment, there are many personal and professional considerations when determining the best time to sell your business and pursue your life beyond business.™ At the end of the day, control what you can, as there are so many factors in life that you can’t.

Dave Driscoll is president of Metro Business Advisors, a mergers & acquisitions, valuation and exit/succession planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or (314) 303-5600.  www.MetroBusinessAdvisors.com

As seen in Dave's monthly column in St. Louis Small Business Monthly