There is the old anecdote about the immigrant who opened his own business in the United States. Like many small business owners, he had his own bookkeeping system. He kept his accounts payable in a cigar box on the left side of his cash register, his daily receipts – cash and credit card receipts – in the cash register, and his invoices and paid bills in a cigar box on the right side of his cash register. When his youngest son graduated as a CPA, he was appalled by his father's primitive bookkeeping system. “I don't know how you can run a business that way,” his son said. “How do you know what your profits are?” “Well, son,” the father replied, “when I came to this country, I had nothing but the clothes I was wearing. Today, your brother is a doctor, your sister is a lawyer, and you are an accountant. Your mother and I have a nice car, a city house and a place at the beach. We have a good business and everything is paid for. Add that all together, subtract the clothes, and there's … [Read more...]
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How Long Does It Take to Sell a Business?
Recent studies indicate that it now takes, on average, about eight to ten months to sell a small business. This figure seems to increase yearly. Why does it take so long to sell a business? Price and terms are the biggest reasons! It is very important not to overprice the business at the beginning of the sales process. A business will also sell more quickly if there is a reasonable down payment with the seller carrying the balance. Having all of the necessary information right from the beginning can also greatly reduce the time period. Finally, being prepared for the information a buyer may want to review or having the answers available for the questions a buyer may want answered is another key. Here is the basic information a prospective acquirer will want to review and a seller should have prepared to help facilitate a quicker sale: Copies of the financials for the past three years. A copy of the lease and any assignments of the lease from previous sales. A list of … [Read more...]
When to Create an Exit Strategy
There is the old saying that the time to develop an exit strategy is the day you open for business. Sounds good, but it’s not very realistic. Further, it also isn’t very optimistic. On the day you open for business, thoughts about how you get out of it aren’t pleasant, or helpful, thoughts. However, as you get the business to a place where you have a bit of extra time to plan, you will find that the things you need to do to improve your business are some of the very things you will need to work on to plan an exit strategy. You can’t predict misfortune, but you can plan for it. One never knows when an accident or illness will force one to sell. When the drive to your business becomes filled with dread, maybe it’s time to consider selling. The following ideas will improve your business, even if you’re not currently considering selling. Dealing with these areas will also supply the information a buyer will most likely be looking at when the time does come to sell. Buyers want cash … [Read more...]
Five Kinds of Buyers
Buyers are generally categorized as belonging to one of the following groups although, in reality, most buyers fit into more than one. The Individual Buyer This is typically an individual with substantial financial resources, and with the type of background or experience necessary for leading a particular operation. The individual buyer usually seeks a business that is financially healthy, indicating a sound return on the investment of both money and time. The Strategic Buyer This buyer is almost always a company with a specific goal in mind -- entry into new markets, increasing market share, gaining new technology, or eliminating some element of competition. The Synergistic Buyer The synergistic category of buyer, like the strategic type, is usually a company. Synergy means that the joining of the two companies will produce more, or be worth more, than just the sum of their parts. The Industry Buyer Sometimes known as “the buyer of last resort,” this type is … [Read more...]
Why Deals Don’t Close
Sellers Don’t have a valid reason for selling. Are testing the waters to check the market and the price. (They are similar to the buyer who is “just shopping.”) Are completely unrealistic about the price and the market for their business. Are not honest about their business or their situation. The reason they want to sell is that the business is not viable, it has environmental problems or some other serious issues that the seller has not revealed, or new competition is entering the market. Don’t disclose that there is more than one owner and they are not all in agreement. Have not checked with their outside advisors about possible financial, tax or legal implications of selling their business. Are unprepared to accept seller financing or now unwilling to accept it. Buyers Don’t have a valid reason to buy a business, or the reason is not strong enough to overcome the fear. Have unrealistic expectations regarding price, the business buying process, and/or small … [Read more...]
The Southeast is growing, a land of opportunities!
With an estimated 9,829,211 residents as of July 1, 2009, Georgia is the ninth most populated state located in the southeastern United States. Georgia is bordered on the south by Florida; on the east by the Atlantic Ocean and South Carolina; on the west by Alabama; and on the north by Tennessee and North Carolina. Now is the time to think about expanding your operations into the Savannah Area! … [Read more...]
River Street Business Opportunity
SOLD So many people contact me looking for business opportunities in Downtown Savannah hoping and dreaming of the opportunity to enjoy the majestic character of this beautiful city. People tell me stories of how they came and visited their children at SCAD and fell in love with the area. How they would love the opportunity to live here if only they could find a business and be able to earn a living here. Some tell the story of when they were stationed nearby in the military and loved the area so much they knew they would come back some day. Others have come from Atlanta or some other inland location and after loosing their jobs in the big economical shake out of recent years have nothing to hold them back. They are coming to the coast and there is no place like Savannah GA! I was pleased recently when I got a call from a local business man who has successfully operated a river street business for more than two decades. He has not only earned a living but started another successful … [Read more...]
Due Diligence 101
Due Diligence for Buying a Business 101 Written by Alexander J. Davie Buying a business is a high stakes matter. What makes the process even more nerve-wracking is that a business is different from just about any other asset one can buy. When someone purchases a piece of real estate, a car, or any other tangible product, a buyer usually knows what they are getting and can inspect the goods and has a chance to find hidden problems (or pay a specialist to find them). A business, on the other hand, is largely intangible. While some of the aspects of the business may be tangible, many are not. The business will likely have receivables, inventory (both completed products and parts), intellectual property, and goodwill and reputation. Many of these assets may not have the value that the seller claims they have and may be difficult to value. The business will also likely have liabilities like hidden debts and potential lawsuits. Discovering the true extent of … [Read more...]
Business Valuation Myths
Myth I: Valuing a private business should only be done when the business is ready tobe sold or a lender requires a valuation as part of its due diligence process. Although the business sales and lending processes generally require that valuations be completed, if these events represent the first time an owner has a valuation completed, then you can be sure critical business and estate planning issues have not been addressed. If the business is to have a life beyond that of its current owners, then effective planning for ownership transition requires a regular valuation of the business. Myth II: Businesses in my industry always sell for two times annual revenue (the revenue multiple). So why should I pay someone to value my business? The short answer is that data on selling prices indicate that revenue multiples within an industry are generally all over the lot. These rules of thumb used by business brokers, the individuals who often facilitate private business transactions, … [Read more...]
Checklist for Valuation
1. Start with the business – Value Drivers: Size, growth rate, management, niche, history – Value Detractors: Customer concentration Poor financials Outdated M&E Few assets Lack of agreements with employees, customers, suppliers Poor exit possibilities Small market Potential technology changes Product or service very price sensitive 2. Financial analysis: Market Value – comparables Multiple of Earnings – based on rate of return desired 3. Structure and terms: 100% cash at closing could reduce price 20% 4. Second opinion: Even professionals need a sounding board 5. Indications of high value: – High sustainable cash flow – Expected industry growth – Good market share – Competitive advantage – location/exclusive product line – Undervalued assets – land/equipment – Healthy working capital – Low failure rate in industry – Modern well-kept plant 6. Indications of low value: – Poor outlook for industry – foreign competition price … [Read more...]