Using Pratt’s Stats To Sell More Businesses
One obstacle to selling a business is an unrealistic asking price. GABB members can obtain access to Pratt’s Stats which can help sell more businesses by helping to price a business accurately. While Pratt’s no longer offers GABB members complimentary access, if a broker submits the details of a sale, they can obtain access to the database for a period of time at no cost.
The following is from GABB President Matt Slappey’s presentation at the July 2013 GABB meeting.
Pratt’s Stats can help you:
- Set REALISTIC owner expectations.
- Feel confident that you can support your asking price for your listings.
- Become knowledgeable about many industry values.
Brokers should use this tool in conjunction with Business Reference Guide and other sources. Pratt’s Stats allows you to validate information from each source!
What is the difference between BIZCOMPS® and Pratt’s Stats®?
BIZCOMPS® mainly covers main street businesses. As of February 2013, the median selling price of all the transactions in BIZCOMPS® was $168,000. BIZCOMPS® data includes up to 21 data fields per transaction.
Pratt’s Stats® covers both main street businesses, middle market transactions, and larger M&A transactions. As of February 2013, 60% of the deals in the Pratt’s Stats® database are businesses that sold for $1,000,000 or less, and 38% of the deals are businesses that sold for between $1,000,001 and $500,000,000. As of February 2013, the median selling price in Pratt’s Stats® was $440,000. Pratt’s Stats® data includes up to 89 data fields per transaction.
Does BIZCOMPS® overlap Pratt’s Stats®?
There is little overlap of information from BIZCOMPS® and Pratt’s Stats®, although there may be a few transactions that are in each database.
Do BIZCOMPS® and Pratt’s Stats® calculate transaction multiples the same?
No. There is one key difference between the two databases. BIZCOMPS® sales are all asset sales and the selling price does not include the cash, accounts receivable, accounts payable and inventory. Pratt’s Stats® sales can be either an asset sale or stock sale. For an asset sale, the Pratt’s Stats® selling price generally includes inventory and generally excludes cash, accounts receivable and accounts payable.
What is Pratt’s Stats?
- A Database of 19,500+ Private Company Sales
- Two Decades of Accumulated Transactions
- Additional Articles and Quarterly Reports
- Run by Business Valuation Resources, LLC and located at www.BVMarketData.com
- It’s FREE for GABB Members
- Board Members may issue a password
See a detailed primer describing how to use Pratt’s Stats Transaction Data for Private Company Valuations.
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The Truth about Powers of Attorney
By Germaine Curtin
What exactly is a power of attorney? Does it give me the same power as if I were a lawyer? Do I become an attorney? What exactly does it allow me to do?
Most people believe they understand powers of attorney, but many people are wrong.
A power of attorney is simply a signed document that gives another person (the “agent” or “attorney in fact”) the power to act for the person giving the power (“principal”). The agent’s power is limited to the power actually given in the written instrument. The power may say “Joe has the right to sell my truck for whatever amount he believes to be fair market value.” In this case, Joe can sell the truck for $500, if he believes $500 to be the fair market value. The concept is very simple, but the law around powers of attorney has grown complicated.
The first concept that one should understand is that a power of attorney, generally, only allows the agent to act IF the principal was able to act at that time. Consequently, the power of the attorney in fact ceases when the principal no longer has the capacity to act herself.
But what good does that do? Don’t I want to act for someone only if they are unable to? My mother doesn’t want to give me power of attorney if she thinks I’ll act for her when she is able to act for herself.
While the general rules for powers of attorney provide that the power terminates when the principal loses capacity, the legal system recognized the problem, and has passed laws that allow a power of attorney to act after the principal loses capacity under a document that is called a “durable” power of attorney. This document must clearly state that the power survives even if the principal loses capacity. Georgia has created a law that includes the text of a document called a “Georgia General Durable Power of Attorney.” The form includes answers to frequently asked questions. You can find easily by googling it on the Georgia’s state website or local county websites. The Georgia form is not the exclusive power of attorney form, but it is a practical way to create a document that you know is legal and covers all necessary items.
The Georgia General Durable Power of Attorney is considered a “financial” power of attorney because the twelve separate powers granted in the document relate to financial matters, such as the ability to sell real estate, resolve legal disputes, engage in monetary transactions with the principal’s bank accounts, and others. The principal can choose which powers she wants to grant to the agent by initialing next to the appropriate numbered power on the Georgia form.
Health Care Power of Attorney. In 1990, Georgia passed a law, which was amended in 2007, to allow a principal to grant durable powers for the purpose of authorizing the agent to make health care decisions for the principal when the principal is incapacitated. This is distinct from a durable power of attorney for financial purposes, which may be exercised not only when the person is incapacitated, but also when the principal has all of her capabilities intact. A health care power of attorney can be exercised ONLY when the principal can’t act on her own behalf. By signing an Advance Directive for Health Care the principal can ensure that she may be taken off life support if that’s what she desires rather than requiring the medical staff to continue to try to keep her alive, as the medical staff is otherwise required to do.
If You Think the Durable Financial Power of Attorney for Health Care Covers Everything, You Would be Wrong.
What other powers can be granted if I covered my health and my finances including all real property and personal property? What else is there? That’s a good question; the answer lies with bureaucracy.
- Taxing authorities. To deal with any state or federal taxing authority, you must submit to that tax authority a power of attorney signed by the taxpayer, and you also need to specify what type of tax (income, sale, etc.) and for what years. Each taxing authority has its own form, and you need to provide a separate power of attorney to each taxing authority you deal with.
For example, I submitted a power of attorney to the Georgia Department of Revenue for a taxpayer to discuss what I thought were income tax issues. It turned out that the taxpayer was personally responsible for unpaid sales taxes of his company, and the matter I was dealing with was a sales tax, not an income tax, matter. I learned it was a sales tax issue by speaking with the income tax revenue agent, after I had provided my power of attorney to her. As soon as the revenue agent learned it was a sales tax issue, she transferred my call to the sales tax area. She promptly told me she couldn’t speak with me because it was a sale tax issue and my power of attorney only covered income taxes. Unfortunately, my client was out of town so I wasted several days. Now when I submit a power of attorney to any taxing authority, I make sure it covers ALL taxes for at least 10 years.
- Power of Attorney for Care of a Minor Child. Georgia also created a power of attorney form for a parent to give a grandparent or great-grandparent permission to care for their minor grandchild. I was amazed when I found that form power of attorney; I always thought that grandparents had an automatic right to care for their grandchildren. I’m sure some lawyer thought it was necessary. Other states have a similar form, but the principal can grant the power to any person, not just a grandparent or great-grandparent.
So You have been named an Attorney in Fact, What can you do now? According to most Banks: NOTHING!!
By 2006 I had been practicing laws for more than 20 years and, over the years, advised my clients to protect themselves by granting a power of attorney to another trusted person so the agent can pay bills and otherwise take care of things if the principal is hospitalized. Many estate planning attorneys will have their client sign a power of attorney to take care of things in a client’s older years.
I was named as the attorney in fact for my mother. We set up a trust for her so we could avoid probate. In 2006, just two days before she died, I discovered that she had too much cash in her name to qualify for the $20,000 small estate exemption from probate. She was getting feeble and simply forgot. Using my power of attorney, I wrote a check from her personal checking account and into her trust, to remove the money from her estate. I went to the bank, feeling lucky that I had discovered the mistake before she died. Much to my surprise, the Bank WOULD NOT RECOGNIZE my power of attorney. I tried everything to convince them, to no avail. My mother’s attorney contacted the bank and confirmed that he had drafted the power of attorney, named me as the attorney in fact, watched my mother sign it and stated that she was in sound mind at the time. The Bank STILL would not honor it.
It appears that banks have much more power than we thought. After many calls to my contacts in the banking world, it seems there is an unwritten rule that banks DO NOT RECOGNIZE a power of attorney UNLESS it is on their form AND on file at the bank. I have checked with many banks since that time and have found the policy consistent throughout the industry.
WARNING: if you are the attorney in fact under a financial power of attorney, I strongly advise you to file it with your principal’s bank and make sure the bank finds it acceptable. Otherwise, you will not be able to exercise your powers with the bank.
Germaine Curtin, JD, LLM is a business, tax and transactional attorney.
404-869-0122
518-882-9091404-869-0441 fx
curtin@gcurtinlaw.com
www.gcurtinlaw.com
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Why is seller financing so important to the sale of my business?
Surveys have shown that a seller who asks for all cash, receives on average only 70 percent of his or her asking price, while sellers who accept terms receive on average 86 percent of their asking price. That’s a difference of 16 percent! In many cases, businesses that are listed for all cash just don’t sell. With reasonable terms, however, the chances of selling increase dramatically and the time period from listing to sale greatly decreases. Most sellers are unaware of how much interest they can receive by financing the sale of their business. In some cases it can greatly increase the amount received. And, again, it tells the buyer that the seller has enough confidence that the business can, indeed, pay for itself.
Read MoreWhat happens when there is a buyer for my business?
When a buyer is sufficiently interested in your business, he or she will, or should, submit an offer in writing. This offer or proposal may have one or more contingencies. Usually, the contingencies concern a detailed review of your financial records and may also include a review of your lease arrangements, franchise agreement (if there is one), or other pertinent details of the business. You may accept the terms of the offer or you may make a counter-proposal. You should understand, however, that if you do not accept the buyer’s proposal, the buyer can withdraw it at any time. At first review, you may not be pleased with a particular offer; however, it is important to look at it carefully. It may be lacking in some areas, but it might also have some pluses to seriously consider. There is an old adage that says, “The first offer is generally the best one the seller will receive.” This does not mean that you should accept the first, or any offer — just that all offers should be looked at carefully.
Once you and the buyer are in agreement, both of you should work to satisfy and remove the contingencies in the offer. It is important that you cooperate fully in this process. You don’t want the buyer to think that you are hiding anything. The buyer may, at this point, bring in outside advisors to help them review the information. When all the conditions have been met, final papers will be drawn and signed. Once the closing has been completed, money will be distributed and the new owner will take possession of the business.
Read MoreWhat can I do to help sell my business?
A buyer will want up-to-date financial information. If you use accountants, you can work with them on making current information available. If you are using an attorney, make sure they are familiar with the business closing process and the laws of your particular state. You might also ask if their schedule will allow them to participate in the closing on very short notice. If you and the buyer want to close the sale quickly, usually within a few weeks, unless there is an alcohol or other license involved that might delay things, you don’t want to wait until the attorney can make the time to prepare the documents or attend the closing. Time is of the essence in any business sale transaction. The failure to close on schedule permits the buyer to reconsider or make changes in the original proposal.
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