Entrepreneur Scott Ward has been on both sides of the negotiating table, both as a business buyer and a business seller. He will discuss better ways to work with prospective business sellers, to prepare a business to sell and other insights at the Sept. 24 meeting of the Georgia Association of Business Brokers.
The GABB, the state’s largest professional organization dedicated to buying and selling Georgia businesses and franchises, will meet at the auditorium of the Georgia Association of Realtors at 6065 Barfield Road, Sandy Springs, GA, 30328, and the meeting will last from 10:30 a.m. to noon preceded by a free light breakfast networking session at 9:45 a.m. The meeting will be sponsored by Kim Eells and Susan Kite, Senior Vice Presidents of SBA Business Development at Georgia Primary Bank.
Scott is a long time multistore franchisee of Winmark Corporation, the franchisor for brands Play It Again Sports, Plato’s Closet Once Upon A Child, Music Go Round and Style Encore. After 28 years as a franchisee, Scott recently sold his last Play It Again Sports location and will speak about his strategic five year plan he executed to enhance value, create potential buyers and market to sell for a premium. Scott worked with and without brokers during this process and from a small business owner’s perspective will provide us with tips and insights as to keeping the broker’s pipeline of prospects full.
Ward earned a grass roots MBA as a successful business owner for more than 20 years with proven ability to rapidly grow and profit despite enduring three recessions. He was a dedicated leader who mentored five employees to successfully own their own franchise businesses. He is especially skilled at gaining insight into stakeholders weaknesses and strengths through communication.
As the owner-operator of Play It Again Sports franchises, now publicly traded under Winmark Corporation, Ward maintained business growth through three recessions and contributed to the eventual stability of what is now one of the oldest and largest sporting goods entities in North America. He successfully sold his business for full valuation and continued to menter the new owner. Elected to the Winmark Corporation Franchise Advisory Council, he also was chosen chairman for seven years. He teaches speech writing, evaluation and idea generation for Toastmasters.
The GABB is the state’s largest and oldest association of professionals who specialize in brokering the purchase and sale of businesses and franchises. Broker members help owners determine the asking price of their business, create marketing plans and strategies for selling their business, identify and qualify buyers, and have the knowledge, experience and skills needed to help maintain the confidential nature of the process. The professionals of GABB relentlessly pursue professional development so they can provide superior, ethical services for all customers and clients. Affiliate members include bankers, lawyers, appraisers, insurers and other professionals who work closely with brokers to help owners and buyers get to the closing table.
For more information about GABB, please contact GABB President Dean Burnette at 912-247-3209 or firstname.lastname@example.org, or GABB Executive Director Diane Loupe at email@example.com or 404-374-3990.
By Robin Gagnon, GABB Business Broker
When selling a restaurant or other business, the potential or opportunity for the future is seen as a reason that a buyer should invest. That’s because a business’s future prospects make the listing more attractive to buyers. The buyer will see the listing as a better long-term opportunity.
When it comes to pricing the business for sale, however, Business Brokers must set a price according to common lending practices and standard valuation methods. That means that “Blue Sky” or potential for the future is not something buyers are willing to pay for, nor are lenders going to loan money upon. A buyer will only pay for the past performance and a bank will only lend on past results.
Here’s why buyers will not pay for the “potential” in your business.
Lending is trickier.
Most lenders avoid any open and operating businesses built on a pro forma. This is the Latin words for “to form.” It is standard practice to develop a pro forma in a startup situation where there are no existing metrics to rely upon for sales and earnings. The commonly accepted definition of a pro forma is, “assumed or forecasted information presented in advance of the actual or formal. The objective of a pro forma business plan is to give a fair idea of the revenue, expenses and earnings in anticipation of the actual occurrence
If a business is not open, it’s easy to formulate underlying data points and put them into a business plan to forecast the pro forma earnings. The only problem with this method is that pro forma financial statements estimate how the actual statements will look if the underlying assumptions hold true.
For open and operating businesses, the underlying assumptions have already been put to the test. Now we have actual statements and actual performance. The underlying assumptions may be revealed as flawed or inaccurate. If a restaurant owner built a pro forma based on sales of $6000 per week and the actual performance is only $4500 in sales per week, that fact is now known and therefore, must materially adjust the pro forma.
Riskier for the Buyer
The second reason that “potential” cannot be factored into the selling price of a restaurant is that all the risk, effort and financial commitment to meet the business potential belongs to the buyer, not the seller. If the business sales don’t live up to the touted “potential,” it’s the buyer who is still going to have to pay the employees, the rent and the loan.
Potential to Improve the Business
That doesn’t mean that business owners shouldn’t work on their business’s potential. In our earlier example, there is “potential” is to increase the number of customers each day and improve the volume to the original forecasted point. That, however, may require any of the following conditions be met:
- Investment in Advertisement
- Investment in Marketing
- Change of Concept
- Improvement in Service
- Change in the ingress/egress to the business
- New Residential or Commercial Development
- Improved Signage
- And the list continues
For an open and operating business, that means the buyer must invest some level of energy, effort and/or financial resources to improve the current performance of the business. That investment and effort is on the part of the buyer, not the seller. Therefore, the “up-side” or “potential” is still unknown, can’t be quantified and thus, can’t be sold on the front end of the listing.
The next time you consider selling your restaurant or other business and offer up “potential” as a reason to buy, just remember, it cannot factor into the listing price. It is a definite selling point and makes a business more attractive, but is not part of the valuation model.
This article was adapted from the blog of Robin Gagnon, co-founder of We Sell Restaurants. Robin has completed the study and testing to attain her Certified Franchise Executive (CFE) designation offered through the International Franchise Association.Read More
Technology can help business owners get top dollar when selling their business, according to Keith Gregg, Chairman/CEO of Chalice Wealth Partners, a San Diego-based wealth tech member organization for independent wealth advisors.
Gregg, in February 8, 2019 article in Forbes, “Using Tech to Enhance and Sell a Business,” says some small business owners limit their search for a potential buyer to their professional network or rely on an appraisal service to determine what their business is worth. He writes that the right technology can help avoid these pitfalls. He explains how important it is to address three important areas before placing your business on the market.
Before looking for a buyer, Gregg recommends upgrading aging software and hardware. Upgrading systems can be particularly important for attracting younger buyers. It is common for businesses to be successful without proprietary technology or procedures, but that doesn’t mean that technology should be ignored.
Important information should be digitized, as this data will be vital for the new owner to grow the business over the long haul. Incorporating software that can track and analyze data across the business is likewise valuable. Using software, such as customer relationship management and financial management software, will showcase that your business has been modernized.
Determining the value of your business can be tricky and laborious. Gregg recommends opting for a professional business valuation, as he feels, “business valuation calculations can remove much of the guesswork from the process.”
You should expect a business valuation calculator to include everything from verified data on comparable business deals, including gross income and cash flow figures and more. There are even industry-specific calculations that can be used as well. The main point that Gregg wants to convey is that business owners should use tangible and proven data to sell their businesses. Like upgrading systems appeals to younger buyers, the same holds true for using verified data to sell.
Take Advantage of the Digital Marketplace
Gregg’s view is that perhaps the single greatest technology for business owners to leverage is that of the digital marketplace. Sites that link businesses with prospective buyers can help to streamline and expedite the sales process. Through such sites, it is possible to go deeper than a specific industry and even explore sub-sectors, thus enhancing the chances of finding the right buyer.
Technology can be used to help sell businesses in a variety of ways. An experienced and proven business broker will leverage a whole range of tools to assist business owners when selling their businesses. When you opt for a proven business broker, you can expect to receive offers from serious and vetted buyers and, in the process, save a great deal of time while maintaining confidentiality.
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Goodwill can enhance the value of your business, but what does the term mean when buying or selling a business?
Usually, the term “goodwill” is a reference to all the effort that a seller puts into a business over the years that he or she operates that business. In a sense, goodwill is the difference between an array of intangible, but important, assets and the total purchase price of the business. Don’t underestimate the value of goodwill in the long-term and short-term success of any given business.
Goodwill is defined by Investopedia as an intangible asset associated with the purchase of one company by another. An intangible asset can be thought of as asset that is carried on the balance sheet, and it may include a company’s reputation or a recognized name in the market, according to the M&A Dictionary. If a company is purchased for more than its book value, then the odds are excellent that goodwill has played a role.
Goodwill most definitely contrasts and should not be confused with “going concern value.” Going concern value is usually defined as the fact that a business will continue to operate in a fashion that is consistent with its original intended purpose instead of failing and closing down.
Examples of goodwill vary. Some of the more common and interesting examples:
- A strong reputation
- Name recognition
- A good location
- Proprietary designs
- Trade secrets
- Specialized know-how
- Existing contracts
- Skilled employees
- Customized advertising materials
- Technologically advanced equipment
- Custom-built factory
- Specialized tooling
- A loyal customer base
- Mailing list
- Supplier list
- Royalty agreements
In short, goodwill in the business realm isn’t easily defined. For example, standards require that an outside expert annually value companies which have intangible assets, including goodwill. A business owner simply can’t claim anything under the sun as an intangible asset.
Understanding what is a real and valuable intangible asset or example of goodwill can be a key factor in the buying and selling process. Whether you are buying or selling a business, you should leverage the know how of seasoned experts. An experienced business broker will be familiar with goodwill and how to properly evaluate the worth of it in setting a valuation for your business. A business broker guide you in both understanding and presenting goodwill variables, as well as steer you though the buying and selling process.
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By C. David Chambless, President Abraxas Business Services
Getting to the Closing Table to sell a business is a complex journey. At Abraxas, we often find that business owners let certain concerns and fears keep them from taking the first step toward a successful sale and a comfortable “next stage” of life.
Here are four common worries that we consistently encounter. As discussed below, each one could be overcome with proper planning and the right business advisor.
Business Owner: I’m too busy running the company to have time to sell it. The sales process will distract me from growing, or even maintaining, the current level of revenue. And how can I be sure that expenses are under control if I’m not paying attention every day? I’ll never get the valuation I need if I’m distracted by the sales process.
Business Broker: Business brokers know that the process of selling a business can seem overwhelming. Working with a business advisor can increase the likelihood that the transition will make it to the closing table. An experienced, knowledgeable advisor would put in place proven methodologies to manage the process so that the business owner can continue to appropriately oversee daily activities of the business.
Business Owner: I don’t understand the sales process. Who would buy my company? What are the steps I would need to take?
Business Broker: It is our job to clarify the sales process and to navigate the intricacies of a sale on behalf of the owner. We have the expertise and experience to deal with the unique challenges of each transaction. We are proactive during negotiations and manage any road blocks in a timely manner so as to not lose momentum as the deal heads to the Closing Table.
Business Owner: My business pays for many of my expenses. I’m afraid my finances are messy and won’t really reflect the value of my company.
Business Broker: Experienced brokers, such as those at Abraxas Advisors, understand that the financial expectations for one owner could be different for another owner. We help guide a business owner as he/she works with the company’s financial team and accountants to assure that the company’s profit-and-loss and cash flow statements accurately present the company’s performance and expense history. With clear and detailed information, a prospective buyer can easily value the opportunity the business offers.
Business Owner: I need to net $XX from a sale to feel good about exiting the business.
Business Broker: The market is the ultimate determinate of the sales price. Abraxas Advisors understand what the market will include in its analysis of the company’s value. We advise our clients during initial discussions as to how their particular sector is evaluated and suggest ways to potentially increase the sales price. Often, an owner knows a number of steps they would take to grow the company if they had additional capital and time. Abraxas uses this perspective to help a prospect understand potential growth opportunities should they purchase the company.
Chambless is a former GABB president and has has extensive experience in business development; finance; operations; sales; marketing; and international channel development and management. Abraxas Advisors are experienced, multi-disciplined professionals who, collectively, have had seats in every role at the Closing Table.Read More