Determining Your Company’s Undocumented Value
Business appraisals are not one-dimensional. In fact, a good business appraisal is one that factors in a wide range of variables in order to achieve an accurate result. Indisputable records ranging from comparables and projections to EBITDA multiples, discount rates and a good deal more are all factored in.
While an appraiser may feel that he or she has all the information necessary, it is still possible they have overlooked key information. Business appraisers must understand the purpose of their appraisal before beginning the process. All too often appraisers are unaware of important additional factors and considerations that could enhance or even devalue a business’s worth.
There Can Be Unwritten Value
Value isn’t always “black and white.” Instead, many factors can determine value. Prospective buyers may be looking at such variables as profitability, depth of management and market share, but there may be more that determine value.
Some other factors to consider when determining value: How much market competition is there? Does the business have potential beyond its current niche? Are there a variety of vendors? Does the company have easy access to its target audience? What is the company’s competitive advantage? Is pricing in line with the demographic served? These are just some of the key questions that you’ll want to consider when evaluating a company.
There are Ways to Increase Both Valuation and Success
Successful businesses didn’t get that way by accident. A successful business is one that is customer focused and has company-wide values. Brian Tracy’s excellent book The 100 Absolutely Unbreakable Laws of Business notes that it is critical for businesses to have a company-wide focus on three key pillars: marketing, sales and revenue generation. Tracy also points out that trends can be seen as the single most vital factor and bottom-line contributor to any company’s success and, ultimately, valuation. For 2018 and beyond, projected trends include an increase in video marketing, the use of crowdfunding as a means of product validation, the increasing use of diverse payment options, increasing use of Artificial Intelligence, the influence of the gig economy, and more.
No Replacement for Understanding Trends
If a company doesn’t understand trends, then it can’t understand both the market as it stands and as it may be tomorrow. Savvy business owners understand today’s trends and strive to capitalize on the mistakes of their competitors while simultaneously learning from their competitors’ successes.
Tracy accurately states that while there are many variables in determining value, finding and retaining the best people is absolutely essential. One of the greatest assets that any company has is, in the end, its people.
Professional business brokers understand the nuances of business valuation and can help a business owner find value where they might not realize it existed.
Copyright: Business Brokerage Press, Inc.
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Read MoreNew SBA Loans on Hold During Government Shutdown
Business Buyers and Sellers and their Brokers may face an unusual stall on closing their deals due to the federal government shut down.
GABB President Dean Burnette says, “I’m in the final stages of closing a deal right now. Fortunately, our SBA Lender got an authorization number the night before the shut down so we will receive our funds.”
The Small Business Administration halted its program supporting 7(a) loans for working capital and 504 loans for commercial properties on December 22, the day the government shutdown began, The Washington Post reports. Usually, the SBA manages about 200 loans for working capital and 120 loans for commercial properties per day, amounting to roughly $200 million worth of loans every day for small and midsize businesses, according to a report on Inc. Currently, only funds for disaster-related loans remain active. The Post also reported that Linda McMahon, head of the Small Business Administration, has plans in place to expedite loans as soon as the government opens again, citing and unnamed source.
SBA Loans usually take at least four weeks to process, Burnette said. “Chances are if you are just at the stage of applying for the loan, and you’re working with a Preferred SBA Lender, you may not experience any delay.”
Susan J. Kite, vice president and SBA Business Development Officer of Renasant Bank, said an experienced Preferred Lender (PLP) does not need to go to the SBA until just prior to closing to get a loan number. Most lenders went ahead and got the loan numbers for their approved loans prior to the shutdown, so those loans will not be affected, said Kite, a GABB affiliate member. It is not unusual to take 60 to 90 days for an SBA request to be processed and closed. Depending on where your deal is on that spectrum, you may or may not be delayed, Kite said.
Claudia Wilson, Senior Vice President of SBA Lending for First Landmark Bank, said it’s “business as usual, unless you need a SBA loan number (SBA approval) to close a loan. We are accepting applications, can process them and prepare them for closing.”
Suggestions from Kite for Business Brokers during the shutdown:
- Work with an experienced PLP lender.
- Set realistic expectations with the Buyer and Seller as to when their deal would normally close and the implications if the shutdown drags on past that date.
- Let Sellers and Buyers know that they will need to keep their financial information updated, especially in regards to Seller and Buyer’s Affiliate interim business financials and Buyer personal financials.
- If a short-term loan is mandatory, work with your lender on the best alternative – since this changes the SBA loan to a debt refinance with different rules.
GABB member Leigh Milton, senior vice president of CenterState Bank, said brokers should “treat this shutdown like you still have a hard closing date. Moving towards the goal of getting all the docs ready to close always seems to preserve momentum. Be ready to go when this turns around.”
- prepare the buyer and seller to get updates sent dated within the last 60-90 days if possible to give yourself some cushion.
- While you can close with an SBA loan number issued prior to the shutdown, if there are any changes or corrections to the authorization, you will probably have to wait until the shutdown ends to get these changes approved and close. PLP changes made under the guidance of the “loan matrix” are allowed.
- Don’t forget to finalize items like life insurance during the delay as these items can hold up closings and but having them in place takes them off the checklist. Work your checklist and it should pay off when things finally get back to “normal”!
Wilson said a “bridge” or “interim” loan may be made available by PLP lenders only but it is up to the lender’s discretion. “I think this would be permitted under limited circumstances since the loan would be made at the lender’s risk of not receiving the SBA guaranty. The lender would have 90 days from approval of the interim loan to obtain a SBA loan number,” Wilson said.
“Although the Government shutdown is certainly not ideal, for those of us who have been in SBA lending for a while, we have weathered this storm before,” said David K. Brindley, Vice President, Business Development Officer of SBA Lending at Community Bank. “So my advice to lenders, Brokers, Buyers and Sellers is to stay calm, don’t panic, hang in there and keep moving forward with business as usual.”
Considering All of Your Business Real Estate Options
Most business owners don’t know what real estate options are available to them when it comes time to sell the company.
Understanding the value of the real estate and the tax liabilities associated with it is important, according to a December 2018 article in Divestopedia describing options for business real estate when selling a company. Understanding one’s business real estate options will ultimately help in achieving “the goals desired in a transaction.”
There are two main options:
- Sell everything including the real estate.
- Hold onto the real estate for the rental income.
If you, as the business owner, personally own the real estate in a separate entity, then you are good to go, according to Divestopedia. You should have a “clear path to valuation.”
However, if your company owns the real estate, then things get a little more complicated. In this situation, you should have a third-party appraisal of the real estate so that its value is clear. If your business is a C-Corp and your business also owns the real estate, then it’s a good idea to talk to your accountant as there will be differences in taxation.
Every situation is different. Many buyers will prefer to acquire the real estate along with the business. On the other hand, many buyers may prefer a lease, as they don’t want everything that comes along with owning real estate. Communicating with the buyer regarding his or her preference is a savvy move.
If you do plan to retain the building, then you’ll want to be certain that a strong lease is in place. Ask any business broker about the importance of having a strong lease, and you’ll get some pretty clear-cut feedback. Namely, you always want to have a strong lease.
Issues such as who repairs what and why should all be spelled out in the lease. It should leave nothing to chance. One of the best points made by the Divestopedia article is that you will want a strong lease for another key reason. When the time comes to sell the property, you want to show you have a lease that is generating good income.
Real estate and the sale of your business are not one-dimensional topics. There are many variables that go into selling when real estate is involved. It is important to consider all of the variables and work with a business broker who can help guide you through this potentially complex topic.
Copyright: Business Brokerage Press, Inc.
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Four Significant Issues You Need to Consider When Selling Your Business
The process of selling a business can be very complex. Whether you’ve sold a business in the past or are selling a business for the very first time, it is imperative that you work with an expert. A seasoned business broker can help you navigate through what can be some pretty rough waters. Let’s take a closer look at four issues any seller needs to keep in mind why selling a business.
Number One – Overreaching
If you are both simultaneously the founder, owner and operator of a business, then there is a good chance that you are involved in every single decision. But that can be a significant mistake if a business owner wants to be involved in every aspect of selling their business. Trying to sell your business while operating can lead to problems or even disaster.
The bottom line is that you can’t handle it all. You’ll need to delegate the day-to-day operation of your business to a sales manager. Additionally, you’ll want to consider bringing on an experienced business broker to assist with the sale of your business. Simultaneously running a business and trying to sell has gone awry for even the most seasoned multitaskers.
Number Two – Money Related Issues
Once a seller has decided on a price, he or she usually has trouble settling for anything less. The emotional ties that business owners have to their businesses are understandable, but they can also be irrational and serve as an impediment to a sale. A business broker is an essential intermediary who can keep deals on track and emotions at a minimum.
Number Three – Time
When you are selling a business, the last thing you want is to waste time. Working with a business broker ensures that you avoid “window shoppers” and instead only deal with real, vetted prospects who are serious about buying. Your time is precious, and most business owners are unaware of just how much time selling a business can entail.
Number Four – Don’t Forget the Stockholders
Stockholders simply must be included in the process whatever their shares may be. A business owner needs to obtain the approval of stock holders. Two of the best ways to achieve this is to get an attractive sales price and secondly, to achieve the best terms possible. Once again, a business broker serves as an invaluable ally in both regards.
Selling a business isn’t just complicated; it can also be stressful, confusing and overwhelming. This is especially true if you have never sold a business before. Business brokers “know the ropes” and they know what it takes to both get a deal on the table and then push that deal to the finish line.
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Why You Should Hire a Business Broker to Sell your Business
By Peter SiegelWhen the owner of a convenience store, bakery, restaurant, janitorial service company or other small Georgia business is ready to retire, it usually is a good idea to hire a business broker to sell business assets. Thats because the sale will be part of a package that includes goodwill also called going business value, according to Peter Siegel, MBA, the Founder & Senior Advisor at BizBen.com, a major website for the sale of California businesses.
Sure, the seller MAY be able to find a buyer and sell without professional help, but because there are so many challenging problems associated with business transfers, it usually is smart to engage a business sales intermediary to launch the campaign and then manage a transaction, Siegel advises.
Even though a hefty fee has to be paid for that service, it’s almost always better to have the intermediary do the work.
The fee can total more than ten percent of the selling price. That seems very costly for many sellers. And they often fear they’ll lose control of a deal if a third party is involved. But for at least seven reasons, most sellers should not trust themselves to handle the sale. Instead, they’re smart to sign a listing with a competent business sales expert. Those seven benefits are:
1. Larger Market of Potential Buyers: Because professional business brokers are in touch with many motivated buyers who are financially qualified, brokers will have a bigger market of potential purchasers to draw from than will most business owners.
2. Handling Unqualified Buyers: Not having to deal with people who are curious about the business, but may not be financially able to buy it, or qualified to run it. Business brokers specialize in making sure the people introduced to your company have some interest and the financial ability to follow up with that interest.
3. Confidentiality. When a seller hires a broker to sell business assets, the professional will know how to keep the intended sale a secret. It usually is important that employees and customers of a business don’t know that it is for sale. The DIY (do it yourself) seller may struggle to maintain confidentiality when responding to buyer inquiries and scheduling showings.
4. Emotional Detachment. The business sales intermediary, as a third party, is usually in a better position to negotiate a deal between a seller and the buyer, than is one of the principals in the deal. Most business owners have an emotional attachment to their business and selling the business can often be a traumatic experience. The business broker can bring an objective perspective to the process and help the seller see the business from the viewpoint of a buyer, resulting in a more realistic understanding of the financial and economic factors being considered by the buyer. Furthermore, it is critical that the business owner not “slack off;” the business must continue to thrive until the sale transaction is complete – because nothing is final until the final closing of escrow. Therefore, the seller should spend as little time as possible on selling the business and as much as possible on running the business to maximize the selling price.
5. Problem-Solving Experience. Professional business brokers know how to overcome problems in selling a Georgia business. The seller, having little experience in deal making, will be less prepared and equipped to recognize and solve deal-killing problems than someone who has been doing this for a while, and earning a living at it.
6. Access to Financing. Finding small business purchase financing has become more difficult in the past few years following the mortgage meltdown and the banking crisis. Unless a business owner knows lenders who cater to that market, such as financial institutions offering SBA loan programs, it’s likely to be very difficult to know how to help a buyer who wants to borrow some of the cash for a down payment and/or working capital. GABB includes lenders who specialize in business acquisition loans and are often able to save a transactions that won’t work unless the buyer can arrange for funding assistance.
7. Higher Selling Price. A good business broker can present the business in an appealing way in order to get a buyer to pay the price desired by the seller. Or at least, close to that price. Not knowing how to manage competitive bidding to increase offering prices, the seller won’t be able to accomplish that objective. Owners who’ve hired agents to sell business offerings often get a higher price than if they’d negotiated for themselves. The difference often is enough to cover the sales commission.
Business owners sometimes think they should take on the campaign of selling their businesses as a do-it-yourself project. But because they usually don’t have the skill, objectivity or experience of a capable business sales intermediary, they usually improve the chances of successfully closing a deal at a desirable price when they hire a professional to manage the process.
About This Contributor: Peter Siegel, MBA is the Founder & Senior Advisor (ProBuy & ProSell Programs) at BizBen.com (established 1994, 8000+ CA businesses for sale, 500 new & refreshed postings/posts daily) works with business buyers, owners/sellers, brokers, agents, investors, & advisors). Reach him direct at 866-270-6278 or 888-212-4747 to discuss strategies regarding buying, selling, (or financing a puchase of) California businesses.