Is Now the Time To Sell Your Business?

Have you been thinking about selling your business but just can’t decide if now is the best time?  Do you find yourself repeatedly analyzing the economic situation and wishing you had a crystal ball? There are positive signs and there are negative signs….

If you’re still up in the air and can’t quite decide whether or not to hit the eject button, here are six reasons you might want to consider getting out now.

1. You’re less interested in fighting the good fight

A lot of business owners took the Great Recession in the teeth. If you’ve got your business stabilized and the prospect of possibly having to fight through another recession leaves you panic-stricken, it could be time for you to get out.

2. The worst is behind you
Let’s say you were mentally ready to consider selling a few years ago and then 2008 hit and 2009 was bad, and in 2010 and 2011 you made cuts and adjustments, so now you’re starting to see some profit and revenue growth.  With your numbers going in the right direction, now might be just the right time to make your move.

3. The tax man is coming

Governments around the world are looking for money to fund the cost of an aging population. At some point this will mean increased taxes.

4. Nobody is lucky forever
If you’re lucky enough to be in a business that actually benefits from a bad economy, congratulations... you’ve probably just had the four best years of your business life. But no cycle lasts forever and right now might be a great time to take some chips off the table.

5. The coming glut

As a business owner, demographics are not on your side.  As the baby boomers start to retire in droves, we’re going to have a glut of small businesses coming on the market. That’s great if you’re buying; but if you’re a seller, you may want to avoid the flood and head for higher ground now.

6. The closing window

Since 2008, it’s been tougher for private equity companies to raise money; so many firms had their last successful round of fundraising a number of years ago. Many of these funds have a five-year window in which to invest or they have to give the money back to the people who gave it to them. Some boutique private equity firms will make investments in companies that have at least one million dollars in pre-tax profits (larger private equity firms will not go below $3 million in EBITDA); so if you’re in the seven-figure club, you could get a bidding war going for your business among private equity buyers keen to invest their money before they have to give it back.

Sunbelt Business Brokers, Greater Bay Area | (408) 436-1900 | www.sunbeltbayarea.net

Facing the Enemies Within

For today's blog I wanted to share with you an insightful article written by Jim Rohn titled, "Facing the Enemies Within" Hope you enjoy!

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We are not born with courage, but neither are we born with fear. Maybe some of our fears are brought on by your own experiences, by what someone has told you, by what you’ve read in the papers. Some fears are valid, like walking alone in a bad part of town at two o’clock in the morning. But once you learn to avoid that situation, you won’t need to live in fear of it.

 

Fears, even the most basic ones, can totally destroy our ambitions. Fear can destroy fortunes. Fear can destroy relationships. Fear, if left unchecked, can destroy our lives. Fear is one of the many enemies lurking inside us.

 

Let me tell you about five of the other enemies we face within. The first enemy that you’ve got to destroy before it destroys you is indifference. What a tragic disease this is. “Ho-hum, let it slide. I’ll just drift along.” Here’s one problem with drifting: you can’t drift your way to the top of the mountain.

 

The second enemy we face is indecision. Indecision is the thief of opportunity and enterprise. It will steal your chances for a better future. Take a sword to this enemy.

 

The third enemy inside is doubt. Sure, there’s room for healthy skepticism. You can’t believe everything. But you also can’t let doubt take over. Many people doubt the past, doubt the future, doubt each other, doubt the government, doubt the possibilities and doubt the opportunities. Worst of all, they doubt themselves. I’m telling you, doubt will destroy your life and your chances of success. It will empty both your bank account and your heart. Doubt is an enemy. Go after it. Get rid of it.

 

The forth enemy within is worry. We’ve all got to worry some. Just don’t let it conquer you. Instead, let it alarm you. Worry can be useful. If you step off the curb in New York City and a taxi is coming, you’ve got to worry. But you can’t let worry loose like a mad dog that drives you into a small corner. Here’s what you’ve got to do with your worries: drive them into a small corner. Whatever is out to get you, you’ve got to get it. Whatever is pushing on you, you’ve got to push back.

 

The fifth interior enemy is over-caution. It is the timid approach to life. Timidity is not a virtue; it’s an illness. If you let it go, it’ll conquer you. Timid people don’t get promoted. They don’t advance and grow and become powerful in the marketplace. You’ve go to avoid over-caution.

 

Do battle with the enemy. Do battle with your fears. Build your courage to fight what’s holding you back, what’s keeping you from your goals and dreams. Be courageous in your life and in your pursuit of the things you want and the person you want to become.

 

Author—Jim Rohn

WHY USE A BUSINESS BROKER?

Business owners often find themselves unsure as to whether or not they should use a business broker for the sale of their business. As an experienced professional in this industry, I genuinely believe that using a business broker is vital in the sale of a business. A business broker acts on your behalf and can successfully guide and execute the sale of your business. Consider these 6 reasons:

1. Confidentiality - Business Brokers specialize in confidentiality. Every business sold is a confidential transaction. It is particularly important remain anonymous if you do not wish your employees, banks or clients to find out prematurely that you are planning to sell. Employees may become worried about the security of their employment, and clients may become concerned about quality and service. Using a broker ensures confidentiality.

2. A Broker has Experience - A business broker has the experience to handle the sale of your business in an efficient and professional manner. They know the procedures, the forms required and the proper methodology to protect you during the sale process. An experienced business broker who has spent a number of years developing an understanding of the current market and acquisition process can be invaluable in helping you sell your business.

3. A Broker knows how to Market your Business - A Business Profile and/or a Confidential Business Review are tools that a broker uses when promoting the sale of your business. A Business Profile is a single page marketing piece, while a Confidential Business Review is much more detailed and is about 10+ pages long.

 4. A Broker already has many Potential Buyers - Your broker and the other brokers in the brokerage will have thousands of qualified and experienced buyers in queue which means your broker will be able to find those interested in purchasing a business like yours.

5. A Broker lets you Maintain a “Business as Usual” Mindset - Nationwide it typically takes six to seven months to sell a business, but it can take up to a year. You will want to get the best price possible for your company, and that means your business has to continue to function as usual. Maintaining the status quo helps make sure that employees feel secure and don’t contemplate leaving, and that clients know service and quality will be maintained. If a business is for sale, it is especially important to make sure that everything continues in the same efficient manner.

6. A Broker will Co-Broke – A broker will cooperate (Co-Broker) with other brokers in the market. This means you are being seeing by many eyes and the most exposure you can get will expedite the sale. The exclusive broker will share their commission with the cooperating broker.

For additional information, contact Sunbelt of the Greater Bay Area. Or give us a call at 408-436-1900.
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The Five Things Employees Really Want

I haven't managed to catch all the episodes of Undercover Boss this season, but there was one I did see -- Popeyes Louisiana Kitchen.

I almost didn't want to watch, because if they were going to show me that secretly the restaurants had rats or the food was made from something gross, I didn't want to know. But I had to check it out.
Thankfully, the food seems to be just fine. The problems found by their undercover executive -- chief talent officer Lynne Zappone -- had to do with how employees were treated.
This episode shows exactly what Popeyes's employees really want. Here's a hint, it's not a raise:

1. A pleasant work environment. Zappone worked one store where the manager was yelling at the other workers -- including her -- in front of the customers. That's just not cool.

2. Recognition. The janitor at one store impressed Zappone with his strong loyalty to the company. He even buys his own less-toxic cleaning products to use. "I consider this my store," he tells her. He also sadly informs her that Popeyes has no employee-of-the-month award, like most fast-food chains do.

3. Perks. Zappone was shocked when a coworker asked if he could catch a ride with her for lunch -- to Taco Bell, where the food is cheaper than at Popeyes. He needed to go there because the employee discount on Popeyes food had been discontinued. A company picnic had also faded away over the years.

4. Help when they need it. Many of Popeyes's workers were displaced and saw their families scattered after Hurricane Katrina. One 20-year employee was fired when she couldn't return to work fast enough, despite being an invaluable trainer. The janitor had lost everything in the hurricane and lived at his church for two years while he got back on his feet. Zappone realized Popeyes could have done more to reach out to displaced workers and help them stay with the company after the disaster.

5. Mentoring. One line worker who had formerly been homeless was trying to attend a hospitality college despite lacking a car, while one manager hoped to become a regional trainer. In the show conclusion, Zappone helped both with scholarships and coaching to move their own professional goals forward.
The show highlighted a basic fact so many employers don't get: Your employees are people -- people with problems, yes, but they also have a history and dreams. If you treat them as such, they will be more productive and better representatives of your brand.

The Escrow Advantage

In dealing with business sales, often times the seller or the buyer will ask about the use of an escrow company. The seller may say 'Why can't the buyer just pay me cash or give me a cashier’s check'?

Escrow does a number of things during the business sale transaction that are designed to protect both the buyer and the seller. First, it is important for the seller to know that the buyer's earnest money deposit or good faith deposit actually has some cash behind it. Escrow will deposit the buyer's check and hold these funds in an escrow account until such time as the transaction closes or is cancelled by the buyer and seller.

On occasion, the buyer will discover during the due diligence period that the income of the business was overstated by the seller. The buyer may decide that the business will not generate sufficient cash flow for his/her needs and may choose to cancel the transaction. If the buyer has given the seller a cashier's check or cash as a deposit, there may be substantial difficulty in getting the deposit back. However, it is generally a simple process to have the deposit funds returned by Escrow.

It is important for the buyer to know if there are any liens against the business and if so to ensure they are paid by the seller. Escrow orders UCC searches to see that the seller doesn't have other liens or encumbrances against the assets of the business. Imagine if a buyer simply handed over a cashiers check for $200,000 only to find out six months later that there was an outstanding lien for $125,000 that had been recorded against the assets of the business. Additionally, Escrow ensures that a "Notice to Creditors of Bulk Sale" is published so that any other creditors can file any claims they may have against the business or the seller prior to the transaction closing. All of this is done to protect the buyer in the transaction.

The buyer's funds have to be deposited into escrow several days prior to the closing date. The funds may come from a lending institution, cashiers check, wire transfer. However, typically the funds are required a few days in advance. This is to protect the seller. There have been situations where buyers have paid sellers directly with cashier’s checks and then proceeded to the bank to stop payment. Since escrow requires the funds in advance, it prevents this type of situation from occurring.

An escrow company acts as a neutral third party in relation to the following issues:

There are often prorations and adjustments to the purchase price, such as rent payments, personal property tax, inventory adjustment and vacation accrued to name a few.

It is always a good idea to have an objective third party hold the funds, make sure there are no additional encumbrances against the business and make sure both the buyer and seller are in agreement on closing prior to releasing funds. After all, once the funds have been disbursed, there's no going back.

When and why should I pay for a broker’s opinion of value?

As a business broker, our first contact with business owners is often when they decide that they want to sell their business. Sometimes this is great, but sometimes it doesn’t allow the business owner to meet their expectations.

For business owners who are not familiar with business brokers, we are often seen - not as professionals who help them navigate a long and challenging road - but as a ‘salesperson’ just looking for the listing. This makes it difficult for some business owners to understand both the value of having an opinion of value, and in appreciating that the right time to get this (for the first time) may well be years before they need/want to sell.

At Sunbelt Business Brokers, we charge our clients to prepare a Most Probable Selling Price (MPSP) Report which is a broker’s opinion of value. Once a client reviews the MPSP they have a clear understanding of the range of value of their business as well as understanding the areas that contribute to the value of the company. This will also identify areas to change or improve to have your business ready to sell.

Imagine that you have owned your business for many years. It has provided you and your family with a lifestyle that you have enjoyed, but you are getting ready to retire. Remember, from the cash flow of the business buyers have to be able to support themselves, pay their debt servicing costs and expect to get a return on their invested capital. You, on the other hand, not only want to ‘get a great price’, but also to keep as much of it as possible. If taxes eat your selling price, then the great price wasn’t so great. In many cases you need to prepare yourself and your business for this transition.

• Your Sunbelt MPSP provides an opinion of value AND reviews your operations for elements that may need to be changed prior to sale;

• Your accountant, with their knowledge of your business (and a copy of the MPSP!) may assist you with tax planning and recommend deal structures;

• Your financial advisor may assist you with tax planning and disposition options;

• Your lawyer may assist you with deal structure, sale documentation, and sometimes help create tax-efficient entities.

Shifting your company from ‘operating to run’ to ‘operating to sell’ can take one or two, or more years to prepare for as you whip that business into a condition that can maximize both the selling price and your ability to retain those proceeds. Having a Most Probable Selling Price Report done - and in turn - updated as you move closer to your proposed exit time, can be a great tool to allow you and your advisors to prepare for this significant transition. Not allowing yourself the time or avoiding an ‘expense’ can both come back to haunt you. The snapshot that a Most Probable Selling Price Report provides can be one of the best investments you will ever make.

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What if I've only been in business a short time, barely breaking even and want to sell?

We are receiving many calls from companies that have been in business for fewer than two years, and they would like help selling their companies. One of the first questions we ask is, “Is your business profitable?” The response is typically, ”We are breaking even.” or "We are getting there."

Not only is it difficult to find a buyer for a company that has a history of fewer than three years, but by not being profitable or not having at least $100,000 adjusted net makes it close to impossible. The owners of these young struggling companies typically also want to recoop their entire investment including working capital.

Think about it. If a buyer could get into a business that is making $100,000, and they are asking $265,000 versus one that is asking $265,000 and breaking even, which one would you choose?

It is too soon for that business owner to expect to be able to recuperate their investment. Our advice is to either raise more capital so that you can grow the company to a place where it is saleable or possibly bring on a partner who can do what the owner is obviously not doing well. If the owner decides to close their doors, they will still be on the hook for the property lease and any equipment leases that have been signed.

There is help out there. The Service Corp of Retired Executives (SCORE) or the Small Business Development Center (SBDC) offer free advice to business owners. They have offices in most major metro areas.

Be careful before jumping into business. It is safer to invest in an existing business with a history, customers, employees and cash flow versus starting from scratch. If there is nothing available on the market that interest you...WAIT. Be patient for the right one that will utilize your skills, interest and that will be able to help you reach your goals for your next career.