Selling your business? Here are the top industries for 2016...

Posted by Kevin Freeman on Wed, Mar 02, 2016 @12:00 PM

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The numbers are in!  BizBuySell.com, the internet’s largest business-for-sale marketplace, has released their Fourth Quarter 2015 Insight Report, cataloging the top industries for small business sales at the end of 2015.

And there’s some great news: BizBuySell.com reports that 2015 saw 7,222 closed business sales, just shy of 2014’s record-setting 7,494--the busiest year for business sales since they started tracking marketplace data in 2007.

The Philadelphia metro area, including Camden, NJ and Wilmington, DE was among the 15 most active market for business sales, out of the 68 BuzBuySell.com reported on, holding on to it’s place amongst the best markets to for selling your business.

So if you were going to sell your business this year, which industries are the strongest?

Service Industry

True to form, the service industry continues to make up the largest share of small business sales in 2015, making up for almost 39% of closed business sales through the end of the year.

The top 5 services sub-sectors by number of sales:

If you own a business in one of the following sub-sectors, your business was one of the most in-demand in the service industry in 2015--a trend that shows no sign of slowing down.

  • Healthcare & Dental - 342 businesses sold
  • Drycleaning & Laundry Services - 316 businesses sold
  • Other Business Services - 286 businesses sold
  • Miscellaneous Services - 258 businesses sold
  • Beauty Salons, Barber Shops - 239 businesses sold

Auto Repair, Landscaping & Lawn Care, Freight, Moving, and Delivery Services, as well as Education Services, like tutoring, also had a strong showing in the most popular service businesses of 2015.

The top 5 services sub-sectors by median sales price:

If your business is among the following industries, not only is it in the top performing sector for business sales in 2015, but businesses in these sub-sectors sold for the highest median sales prices:

  • Hotels & Other Lodging Places - $799,950 median sales price
  • Freight, Moving/Delivery - $500,000 median sales price
  • Other Travel & Transportation - $450,000 median sales price
  • Computer & Software Services - $362,500 median sales price
  • Miscellaneous Repair Services - $343,000 median sales price

Retail

The combined retail market continues to make up a whopping 49% of the businesses sold in 2015, with the Restaurants contributing 21%, and all other retail comprising 28% of all businesses sold.

Restaurants also took the top spot for in-demand businesses, with the most sold of any of the top businesses on this list--1,590 closed deals nationwide.

Retail Restaurants

Restaurants, Bars, and other eating and drinking establishments contributed a total of 2,116 closed businesses sales to 2015.

  • Restaurants - 1,590 sold, median sales price of $155,000
  • Bars/Taverns - 279 sold, median sales price of $180,000
  • Other Eating and Drinking - 247 sold, median sales price of $112,000

Other Retail

The largest sub-sector of retail, the Other Retail sub-sector comprises of everything from Florists to Marine Equipment, and everything in between.

The top 5 retail sub-sectors by number of sales:

Not surprisingly, the top five most in-demand retail sub-segments were dominated by everyday consumables businesses with wide market appeal:

  • Liquor stores - 289 businesses sold
  • Convenience stores - 282 businesses sold
  • Gasoline Service Stations - 216 businesses sold
  • Miscellaneous retail - 202 businesses sold
  • Vending Machines - 93 businesses sold

The top 5 services sub-sectors by median sales price:

In the retail sector, 2 of the most in-demand businesses also made had the highest median sales prices: Gasoline and Service Stations and Liquor Stores. The rest of the list:

  • Supermarkets - $399,000 median sales price
  • Building Materials, Hardware, & Garden - $375,000 median sales price
  • Automotive Dealers - $355,000 median sales price
  • Gasoline Service Stations - $320,000 median sales price
  • Liquor Stores $305,000 median sales price

Manufacturing

Making up 5% of the closed business sales in 2015, the Manufacturing sector made the list of Top Industries to sell a business in last year. While a smaller market (read: less businesses available for sale) than the Retail and Service sectors, the Manufacturing sector has been a strong performer for Stony Hill throughout 2015 as well.

The top sub-sectors for sales?

According to BizBuySell.com’s research, the top manufacturing sub-sectors for sales also had some of the highest median sales prices on the list.

  • Fabricated Metal Products - 71 businesses sold, $745,000 median sales price
  • Miscellaneous - 62 businesses sold, $450,000 median sales price
  • Printing, Publishing - 55 businesses sold, $267,000 median sales price
  • Food and Kindred Products - 24 businesses sold, $362,500 median sales price
  • Electronic & Electrical Equipment - 19 businesses sold, $800,000 median sales price
  • Industrial & Commercial Machinery - 16 businesses sold, $694,800 median sales price

The Takeaway

Far and away, the leaders for 2015 were the Service and Retail industries.  According to BizBuySell.com’s Market Insights report, both industries continued to pick up steam through Q4 of 2015, actually increasing their share of closed deals through the end of the year.

Based on that data, we’d place strong bets on businesses in these industries continuing to do well through 2016.

And if your business happens to be in the Freight, Moving, and Delivery Services, Retail, Foodservice, or Healthcare sectors, you’re really in luck:

Not only are those some of the top-performing sectors for 2015, but they’re also some of Stony Hill’s specialties.  If you’re interested in speaking with one of our expert advisors, click here to get in touch.


Not ready to chat just yet?  Download our free Business Valuation Calculator to get an idea of what your business is worth…

 

Find out what your business is worth: Download the business valuation calculator



 

Buy vs. Build: Now may be the best time to sell your business

Posted by Kevin Freeman on Mon, Feb 15, 2016 @01:30 PM

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If you’re starting to wonder if it’s time to sell your business, you’re no doubt wrestling with a  big decision. Do you liquidate the business or attempt to sell it? In past years, while the economic landscape was weaker than it is today, it was difficult to sell anything--even a successful business. But all of that is changing.

The New York Times reports that there is a growing trend of entrepreneurs that prefer to buy a small business rather than starting one themselves.

Why would somebody want to buy your business?


Buying a track record.

While there are many reasons why someone would prefer to a buy a business versus building their own, most simply boil down to mitigating risk.

When buying a business, there’s likely an established customer base, brand awareness, established infrastructure – including inventory and other assets, but most importantly, there’s a track record.

For example, if your business has been around for the past 10 years, that means you made it through the recession of 2008--and that marks a strong business.

Investing their time wisely.

While all businesses require an investment of time, the time investment in an established business is a much surer bet. They already have a profitable business--their time is then spent maintaining that engine, and growing it further to maximize their investment.

Compare that to an entrepreneur starting a completely new business – long hours, little pay, and no assurance that any of it will pay off.

Securing favorable financing.

From a financing perspective, money is easier to borrow now than it has been in past years. But even still, accessing financing to purchase a business with a proven track record is far easier than securing a loan to start a business from scratch--less risk for the lender also means better rates for the entrepreneur.


Selling your business in a competitive climate

In today's competitive climate buyers are shopping around for the most attractive business. And they are going to be doing their due diligence--well.

Potential buyers will want to understand why you’re selling in the first place. Is a big box chain moving in right next door in 6 months – one that could crush the business?

They will also want to look at your past discretionary income, the businesses taxes, the reputation in the community, etc.

Consequently, completing a sale will take several months, but if you can make it easy for the buyer with good records and a little preparation, you can ensure that your business is very appealing.

IIf you’re starting to consider selling your business, it all starts with finding out what it may be valued at. Our Business Valuation Calculator can help you get an idea of what your business is worth.  You can download it here:

Find out what your business is worth: Download the business valuation calculator

If you like the number you see, then it may be time to start the conversation. Contact us today and let’s get to know one another.



 

Tags: Selling your business

Selling a Business: Recasting to EBITDA

Posted by Chad Byers on Mon, Nov 30, 2015 @10:00 AM
Are you selling a business and need help with valuation? Here are some tips for your first steps!

If you're considering selling a business, it is important for you to start by understanding the true range of value, and what impacts your every day business practices can have on that range.

The market value of a small business can vary greatly from the book or tax mitigated value because most small businesses are managed to minimize taxable income. While this benefits the current owner, it's impact on how cash flow is reported will look less appealing to a potential buyer. Below, we'll show you how to mitigate that by performing a financial recast to calculate the true earnings of the business.


Recasting Your Financials 

Recasting your financials will provide the buyers with an income amount more reflective of your actual earnings. The easiest way to understand the concept of "recasting" is to think about demonstrating the financial results of the business “as if” it was owned by the buyer (taking into account tax-motivated or other discretionary transactions that reduce corporate earnings).

In the recasting process, an analyst will start from the beginning with the tax reported sales and expenses because any prospective buyer will want to be sure that the revenue and adjusted earnings that are stated ultimately tie-back to the tax returns. Then the analyst, with the help of the business owner, their CFO and/or accountant, will identify any discretionary expenses that are exclusively for the benefit of the business owner.

There are many legitimate tax-deductible expenses that are not necessary in order for the business to operate successfully.

The most popular expenses, which would need to be recast, or “added-back” to calculate EBITDA (Earnings Before Interest Taxes Depreciation & Amorization) are:

  1. Owner Salaries and Bonuses – normalize to one owner (if multiple) at FMV Salary

  2. Rent of Facilities – is rent above or below Fair Market Value? – Normalize to FMV

  3. One Time Professional Fees – non-recurring one-time related expenses

  4. Other Income and Expenses – typically the dumping ground for expenses that cannot be coded elsewhere

  5. Health Insurance Benefits, Life Insurance, Key-Man Insurance & Disability Policies for the Owner

  6. Automobiles – are they needed for the business and/or do they cost FMV for what someone would actually need? (do you need a Ferrari or would a Taurus do?)

  7. Consulting Fees – consulting fees paid to family, friends and/or advisors that would not be needed by a buyer

  8. Discretionary Expenses – any discretionary travel, lodging, and entertainment expenses that are not directly related to business profits

  9. Outside Investments – any funding provided by the business in support of outside, external ventures or property for which financial benefits flow to the owner

 


Basically, any expense that benefits the owner but is not needed for another owner to operate the company, should be added to EBITDA.

In addition to these Profit and Loss line items, there are also some Balance Sheet line items that may need to be adjusted in order to compare the business to industry standards. When adjusting the balance sheet consider items such as account receivables, inventory which is old/unsellable, shareholder assets/liabilities due, real estate not included in sale, and prepaid expenses.

As the seller it is important to have ample documentation to legitimize any add-backs because buyers will only accept adjustments that are credible and defensible. It should be expected that buyers and their advisors will do their due diligence and they will often request verification of journal entries so it is important to keep good records. There is a fine and very subjective line between legitimate and questionable recast adjustments and it is important not to include or present adjustments in a way that will negatively affect your credibility.

Ultimately, it is best to hire an experienced merger and acquisition advisor to advise you on the financial recasting process because this process can make a company substantially more compelling to buyers and as a result bring more value to the seller.

Interested in speaking to a StonyHill rep about taking the first steps for selling your business? Click HERE.

Ready to put EBITDA to work for you? Download our business valuation calculator to estimate your business's value:

Find out what your business is worth: Download the business valuation calculator

About the author: Chad Byers is Managing Partner to a Symmetrical Investments and business partner to StonyHill Business Brokers. Symmetrical Advisory provides intermediation solutions to family and entrepreneur-owned middle market businesses. For more information, visit their website at http://www.symmetricalinvestments.com/ 

Tags: selling

Exit Planning

Posted by Kevin Freeman on Tue, Aug 25, 2015 @12:33 PM

“Failing to plan is planning to fail”

Every business owner, regardless of size, should have an exit strategy for his or her company. Failing to have a sound, up to date exit plan could cost an owner hundreds of thousands or millions of dollars in sale price.

A key piece to an exit planning involves putting together the right team of advisors. That team should include an M&A (Mergers and Acquisitions) Intermediary, a Business Attorney, a CPA and a Financial Advisor. This team will work together to consider legal, tax and financial matters when considering the sale or merger of a company.

A strategic exit plan begins with valuation. Every CEO should have a firm understanding of what their company is worth in an acquisition.

A valuation measures many facets like cash flow, profit, revenue and both tangible and non-tangible assets like goodwill amongst others. Factors like economies of scale and synergistic qualities with other firms of equal or greater size are also considered.   

Part of the exit strategy process should be a look within the company’s infrastructure. Things that can negatively affect the value of the company are:

  • Key Employees not having employment contracts with non-compete clauses
  • Being over-dependant on one vendor, supplier or manufacturer
  • Organizational Chart – not having proper management in place.
  • A high percentage of revenue and profit being tied up in one client
  • Books and Records – company records, including corporate by –laws, articles and other related items not being organized or up to date
  • Patents and Trademarks not being filed and up to date
  • Not having clean and organized income statements

The largest factor in valuation however is the company financials. Most buyers, unless Strategic (buying for a particular product or customer, etc), consider EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) as the determining factor of the value of the business. Having the other items in order will solidify that value; not having them considered with certainly hurt that value.

An important consideration in the value of the company, when reviewing the books, is bottom line profit. While most small to medium business owners live out of their business, it is very important in preparation for a sale to minimize discretionary personal expenses and allow for profit to drop to the bottom line. Saving a few thousand in taxes now may cost a business owner a hundred thousand in sale price later. This should be considered in the year or two leading up to marketing a business for sale.

Another key element to a successful exit plan is a having a solid succession plan in your company.  An owner or one key employee should not have all of the intellectual property or contact with clients. The business should be able to run efficiently when the owner or key employees are not available. Having a number of employees cross trained to handle several aspects is very important to perspective buyers.

With a great exit plan and the right advisors an owner can maximize the value of their company and move to their next adventure.

Tags: sell your business, Selling your business, exit, sell, selling, exit planning

Pre-­Sale Strategy – Positioning Your Company For Maximum Value

Posted by Kevin Freeman on Mon, May 18, 2015 @01:30 PM

Companies owned by professional investors usually put in place a strategic plan to build their organization and its public profile. Their intent is to maximize returns upon the eventual exit of its investors. All major business decisions to pursue acquisitions or investment in facilities, geographic or product expansion, technology, systems, personnel, etc. are influenced by the short and long term goals of ownership and the strategic plan. The management team and their advisors are familiar with the preparatory steps necessary to position the company for an eventual transaction. They each play a part in building the company’s profile so that it is appropriately positioned when it is time for an investor exit.

Other companies do not focus on exit strategies when making operating decisions. They apply their attention to day‐to-day operations and building sustainable revenues and profits. While placing efforts in this direction is not an impediment towards an eventual exit, these companies may find themselves unprepared in the event that the sale of the company becomes a nearer term objective and need to gear up unexpectedly for a sale. Why do companies have these sudden changes in plans? It can be because of a turn in the financial markets, a recent sale of another similar company at an attractive valuation, changes in the goals of ownership or for other reasons. Whatever the reason, when a sale is the right next step, many companies are unprepared. They cannot just hang a for-sale sign and start the process. A company sale is a complicated, multi-step strategic effort. Some of these steps need to be performed well in advance of any internal or public communication of the intent to sell.

One significant pre-sale step involves determining the company’s value and how to position the company’s profile to have a sale process that maximizes that value. Prospective buyers will ultimately calculate the value of a company based on a multiple of its earnings (net income, EBITDA, adjusted earnings, cash flow, etc.). That multiple will generally be determined based on similar transactions in the industry for similar companies (“comparables” or “comps”) and can span a wide range of multiples. But what is your industry and what companies in that industry have a similar business model that a buyer would associate as a comp? It may seem obvious to you but may not be as obvious to others.

A particular industry usually has a wide variety of product and service models within that industry. Valuation multiples within an industry can often span wide ranges. Companies with products or services that are considered commodities or have lower expectations for growth and profits will generally have comps at the bottom of the range of multiples. Companies that offer growth potential, a unique business model, or new technology, for example, may result in comps at the top of the range. But these lines of definition are not always clear. Your company may be similar in profile to one of these types, or you may find yourselves somewhere in the middle resembling both types of companies in different ways. That lack of clarity can be detrimental to a sale process. It allows prospective buyers to position your company where it is more advantageous for them. It is your responsibility to clear up the fog and paint a profile that is supportive of your positioning when your company hits the market for sale. It is important that as you plan your sale that you strategically build a company profile that is clear and concise and emphasizes the attributes of the higher comp companies when applicable.

Building a company profile to benefit from high comps is a strategy that requires planning, execution and time. You cannot effectively position your company for a sale if steps are not taken well in advance to maximize the most important and valuable traits of your business. These steps include updating your public footprint, promotional materials, company presentations, and most importantly, making sure that management understands and promotes the key points of the profile that you have embodied.

Regarding your public footprint and promotional materials, your website is the most available public information for any buyer researching your company. Can you imagine how hard it would be to position your company in a sale process only to have contradictory information on your website or in your customer brochures? They need to be clear and supportive of your profile positioning. In addition, all of your other social media outlets need to be supportive of the profile.

Other areas that need to be conformed to the profile you are promoting include industry publications, analyst reports, press releases, and your company board, business and customer sales presentations. During sale diligence a prospective buyer will request various types of information including these presentations. They all must conform to the positioning to support the valuation multiple you are looking to achieve.

Last, management needs to talk-the-talk. The sale process starts with several layers of management presentations. The success of these presentations can be a decisive factor in whether a potential buyer is interested in moving to the next step of the process. The company profile that is presented at these presentations must be clear and convincing. Management must also be able to effectively answer probing questions regarding the profile positioning. As additional management members are brought into the process, they also must be able to clearly support the positioning.

During the sale planning process, a company may decide to solicit input and advice from outside advisors such as investment bankers. Bankers will have intimate knowledge of your industry and all of the public and private companies that may be potential comps. They can provide guidance to help you build a strategy to maximize value based on their knowledge of the comps. When going outside the company and bringing a banker into the fold, you need to be selective with who you speak with. You should only have these communications with advisors that you trust.

Building your company profile and getting your comps right can be the difference between hitting a home run and striking out in a sale process. Appropriate planning and execution are essential.

If your company is struggling with the time, resources or expertise to address some of your more significant and worrisome financial challenges, contact SBell Consulting LLC. We can help you attack and conquer those challenges. Steven Bell, Managing Director 215-882-2671 steve@sbellweb.com WWW.SBELLWEB.COM

(For more white papers visit www.sbellweb.com/resources.html)

Tags: Selling your business, pre-sale strategies, selling

Exit – Should you sell your business? How? And then what?

Posted by Kevin Freeman on Mon, May 04, 2015 @03:04 PM

Should you sell your business? Patrick M. Foley is the Vice President of Robert W. Baird & Co. and has provided us with an excellent article to help you to start planning the sale of your business. Please see the article and link below to learn more.

"In studying and experiencing the business transaction market I’ve found that one theme keeps coming to the fore: too few owners plan their exit well, and the result is often less money, and more aggravation.  The attached article “Exit – Should you sell your business? How? And then what?” is meant to provide an overview of the issues an owner should consider when contemplating a sale.  In particular, I believe it is critical to put together a strong team of advisors well in advance of an actual sale, and the article talks about how to do that.  I hope you find it informative.  Best of luck with your business… whatever direction it takes!"

Click here to go directly to the article to learn more http://goo.gl/ocpiJx

Patrick M. Foley, Vice President

Robert W. Baird & Co.

http://bairdfinancialadvisor.com/thefoleygroup/

Tags: sell your business, Selling your business, sell, selling, exit planning

Exiting your business is inevitable

Posted by Paul Visokey on Thu, Apr 23, 2015 @05:38 PM

Less than 25% of small businesses ever sell. Engaging an exit planning advisor can be the difference between liquidating and maximizing the after-tax return from the many years a business owner has invested in building and running the business.

“I never worry about action, but only inaction.” Winston Churchill.

Every business owner should have an exit strategy. The process of developing the exit strategy and implementing the exit plan should never be postponed until it is urgent. In most cases the best strategy takes years to implement. And in some cases there are legal constraints on implementing the best strategies in the short term.

If you don’t know where you are going, any road will take you there.” George Harrison – Any Road

If a business owner wants to consider all options available, maximize the value of the business and make the exit process smooth, they should involve an exit planning advisor. Similar to engaging any trusted advisor, accountant, attorney or financial advisor, it is not a single meeting event. It is a continuing relationship that builds trust. The exit planning advisor becomes a valuable member of the team.

“In preparing for battle I have always found that plans are useless, but planning is indispensible.” Dwight D. Eisenhower.

The planning process itself in invaluable. An exit planning advisor will start with a business valuation. This work will allow business owners to gauge the difference between what the business is worth, versus what they will need to retire or will need to invest in another business venture. Once a business owner knows the value of the business they will need a plan to increase the value over time. This plan becomes a roadmap with a timeline to measure progress and with various exit ramps.

“If you really look closely, most overnight successes took a long time.” Steve Jobs.

The business value is what a willing buyer will pay after performing due diligence and deciding to proceed. To increase the value an owner needs sufficient time and the perspective to look at the business with a buyer’s objectivity. An exit planning advisor has this objectivity and knowledge. The exit planning advisor can prepare a business owner for the time consuming, complex, emotional process required for a successful transition.

“The wise man bridges the gap by laying out the path by means of which he can get from where he is to where he wants to go.” John Pierpont Morgan

Most business owners have the majority of their net worth in their business. Without utilizing the experience of an exit planning advisor, it is very risky to simply hope that the exiting process will be successful. The exit planning advisor will work with the business owner over the planning horizon to help identify areas where the value is being negatively impacted and suggest ways to make improvements that reduces the risk a buyer would perceive.

“Price is what you pay. Value is what you get.”  Warren Buffet

In addition, the exit planning advisor will work with the owner’s other trusted advisors on legal and tax issues to make the eventual exit most rewarding and satisfactory.

Tags: business planning, wealth management, entrepreneurial opportunity, business valuations, trusted advisor, exit planning

7 Questions to Ask Before You Buy A Business

Posted by Kevin Freeman on Mon, Feb 02, 2015 @12:41 PM

You’re seriously considering buying a business.
It’s an exciting and sometimes stressful time. You’re ready to tackle your next challenge head-on and this new business may just be the biggest yet. But, before you get the process going, you need to ask yourself some pretty tough questions to make sure you’re really ready.

In order to help you better prepare for the purchase, answer the seven questions below. With a little insider knowledge and homework on your part, you’ll be on your way to a less stressful, more profitable and rewarding transaction.

 

1. Am I ready to be an entrepreneur?

This is the question most buyers ask themselves first and foremost. The answer to that question can be found by answering a few questions first:

• Am I tired of working for someone else?
• Shouldn’t I work for myself rather than make someone else rich?
• Do I want the freedom to make my own decisions and control my own destiny?

If you answered yes to these questions above, you are ready to take the next step towards owning your business.

 

2. Do I have the necessary funds for the down payment?

In order to purchase any business you will need a down payment. A down payment can range from $25,000 to $1,000,000 depending on the price of the business. A good rule of thumb is to figure on having at least 25% of the purchase price for a down payment. If only seller financing is available, 35% may be more realistic. Either way, it will be necessary to have funds ready and available when you make an offer to purchase a business.

 

3. Do I have 3 years of tax returns to use for financing?

Banks and private/seller financing will always require your personal financial documents to be examined before determining your ability to borrow funds for your business purchase. It is very important that you keep a file containing your tax returns, including all schedules, readily available upon request. Your tax returns will be the key tool when assessing your ability to borrow.

 

4. Have I checked my credit score?

Just like your tax returns, a bank or private financing source will want to check your credit to make sure you have the necessary credit history to repay the loan in a timely fashion. If your credit score is below 650 from any of the three (3) major credit bureaus, you might try to raise your score prior to applying for a business loan. Your credit score can be checked by going to www.experian.com.

 

5. Do I have a financial statement prepared for the broker?

A financial statement is a great tool to use when beginning the purchase process. It will be the one form that can be sent to your business broker, your banker, and to the seller when making an offer to purchase. Sellers like to consider things like net worth and liquidity when deciding which offer to accept.

 

6. Am I prepared to sign a buyer’s confidentiality agreement?

A confidentiality agreement or non-disclosure agreement is necessary to begin the search for a business to purchase. All prospective buyers will be required to sign one of these forms stating that they will not disclose any of the confidential or proprietary information that they receive. This confidentiality is paramount in the search process. However, the sharing of information with advisors such as accountants and lawyers is an acceptable practice and does not breach the confidentiality agreement.

 

7. Do I have an advisory team to assist with the transaction including a CPA, attorney, and financial planner?

Virtually every buyer is represented by a business broker to assist in the search for a business, an accountant to assist in the due diligence process, and an attorney to draw up and review the legal documents. Many buyers have business relationships with these types of professionals, but many times the advisors are not transaction-based. In the event that your accountant or attorney is not transaction-based, Stony Hill Business Brokers can refer several professionals from which you can choose.

 

At Stony Hill, we will provide you with answers like these and a lot more to help you prepare yourself to buy a business. With our consultative approach and knowledgeable background, Stony Hill Business Brokers is the partner every entrepreneur should have. Contact us today and one of our advisors will begin the process so you can begin the journey of buying your business with confidence.

Tags: Buying a Business

Testimonial

Posted by Paul Visokey on Wed, Dec 03, 2014 @06:42 PM

I had the pleasure of working with Kevin Freeman on a deal. As a transaction advisor, I found Kevin to be very efficient, knowledgeable, and committed to serving his client’s interest in the most professional manner. This was evident when he encouraged his client to walk away from a deal when the client was ready to settle primarily out of frustration. Obviously this put Kevin’s commission at risk, but it was the right thing to do. It is always encouraging to work with another transaction advisor and to leave the experience knowing that he is representing the business brokerage industry well. I would gladly work on another deal with Kevin and would recommend business owners to trust him with the responsibility of selling their companies.

 

Spencer Tenney, CBI

Managing Partner

The Tenney Group

Visit TheTenneyGroup.com

 

Understanding What Your Business is Really Worth

Posted by Paul Visokey on Sun, Nov 09, 2014 @05:13 PM

Thought Leadership on Ownership Transition presented by Prairie Capital Advisors, Inc. 

There are several paths a business owner can take when it comes to transitioning ownership.

For example, an owner may sell to a strategic buyer, to a financial buyer or to the company’s management team. The owner may also decide that a full or partial sale is several years in the future, but is interested in exploring gift and estate tax planning strategies or buying out another owner. When contemplating any transaction, obtaining a business valuation is critical and will give the owner a competitive edge. By going through the valuation process, an owner will learn which drivers that positively and negatively impact value. Armed with a valuation, an owner can make intelligent business decisions.

Key Value Drivers

Most business owners understand that private businesses are typically priced as a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA). Companies with higher growth potential and greater free cash flow typically command higher multiples of EBITDA. Generally, multiples increase as the company’s size increases.

In addition to size, there are internal and external factors that affect value. Internal drivers include the company’s margins, management team depth and experience, customer concentration, business plans and growth strategies. External drivers include market conditions, lending conditions, industry specific factors and government regulations. A business owner typically has little to no control over the market conditions that affect value, but does have control over the internal value drivers.

The Valuation Process

It is important for business owners to understand the valuation process. The first step in process is scoping the engagement. This involves identifying the goals and objectives of the business owner, outlining the valuation process and determining the standard of value to be employed in the valuation. A few of the various standards of value are listed below, with the first three being most common:

  • Fair Market Value
  • Fair Value
  • Investment Value
  • Use Value
  • Book Value

The standard of value applied in the valuation is specific to the goals and objectives of the business owner and should be discussed at the outset of the engagement process, prior to conducting any analysis. In certain circumstances, such as selling to an ESOP or for gift and estate tax reporting, the standard of value is mandated by law. In those instances, the appropriate standard of value is fair market value, which is the price between a willing buyer and seller, with each having reasonable knowledge of all relevant facts.

Once the scope of the engagement is determined, the second step of the process is to perform initial due diligence; i.e., collecting financial data, background and history of the enterprise, budgets, customer lists, business plans and other important documents.

Step three is a continuation of the second step. During step three, the valuator has detailed discussions with the business owner and explores the inner workings of the business. This step usually includes an on‐site due diligence meeting with key personnel. After the valuator completes step three, the valuation models are constructed (step 4). In developing the valuation models, the valuator typically considers various valuation approaches deemed appropriate by the circumstances.

Step five entails reviewing preliminary schedules with the client. Depending assignment and the scope of the engagement, the preliminary schedules may or may not communicate all of the assumptions and value conclusions. This may be to protect independence, but in all cases this serves as a quality‐control measure.

Step six is when the valuator prepares the final report and deliverables for the client.

Step seven is the formal presentation to the client, which may include an oral presentation of the report and detailed explanation of the conclusions reached.

Parting Thoughts

It is never too early to start planning the transition of a business. Ideally, business owners should discuss their goals and options with their financial advisors years well in advance of any transaction because of the many complex issues that arise as a result of ownership transition. Finally, business owners should understand the key value drivers and so that they can implement a strategy to meet their long-term goals.