It seems odd to plan to sell your business now, but that’s exactly what you should do.
With a potential recession looming, why should you sell your company now? We spoke with Tampa Busines Broker, Tim Bellon to get his thoughts.
“A few of the big reasons an owner sells their company is because they age out, lose interest, or failing health forces their hand. And, of course, all of these reasons will continue to exist despite what economic cycle we are in. Selling a business now can be a good move because as brokers, we can explain (to buyers) why sales are down or even non-existent in March and April of this year. Everyone understands it was the government-mandated shutdown that temporarily hindered performance. Similar to a hurricane or other natural disaster, buyers won’t necessarily demand a discount because they know it was an isolated event.
However, if our slowdown lasts for months, it’s going to be harder to defend an owner’s position and they will have to face the reality that their business is worth a fraction of what it was only a couple months earlier. Multiple consecutive months of lackluster performance kills company value.”
Learned from history
In 2008, the United States suffered through the housing crisis. Known as the Great Recession, it was a tough decade for small businesses. Back then there were early warning signs that trouble was coming. If sellers missed their window, they were forced to stay in their businesses another 10 years before they recaptured the business value they had pre-2008. The result was many companies were sold for pennies on the dollar, (if at all) and others were trapped in their businesses. Those lessons can be applied to the current day.
Economists are split about what happens next. Expectations are tempered that the economy will immediately bounce back due to major interruptions in supply chains and uncertainty in demand. The worst-case scenario is if we have an “L shaped” recovery as we did during the Great Recession where it took 4 years to get back to pre-recession levels. So if owners miss their window to sell now, they may have to settle in for a long time.
The good news
Our government authorized 2 trillion dollars to go back into our economy to keep it going. While much of that money is in the form of outright cash payments to taxpayers, much of it was diverted to well known SBA loan programs. What were already attractive programs for buyers, terms got even better in March when the SBA announced they will be paying the principal, interest, and fees on new loans for 6 months if issued before September 27, 2020.
With financing becoming easier for buyers, it should increase competition to buy good businesses, therefore, keeping the price high.
Bellon summarizes, “The question company owners have to ask themselves is – are they willing to work in their business another 10 years if recovery is slow”. If that answer is no, they should investigate selling their business NOW. The first step is to learn what the company is worth
About Tim Bellon:
Tim Bellon, Owner VR Business Brokers: Tim was born and raised in North Dakota, and after the culmination of a 21+ year career in the U.S. Army, he and his wife Beth retired in Apollo Beach, FL. He earned his Bachelor’s Degree in History and Political Science from Concordia College, and a Master’s of Science in Defense Analysis from the Naval Postgraduate School.
Tim joined the VR Business Sales Team in 2012 as the owner and managing broker of an office serving the greater Tampa Bay, FL. During this time, he has focused on helping business owners realize their goals through selling, buying, or growing businesses. He also assists individuals, and companies looking to expand, in the identification and acquisition of businesses.
Tim is community-oriented and is a proud member of the following organizations; International Business Brokers Association (IBBA), Business Brokers of Florida (BBF), SouthShore Chamber of Commerce, Commercial Finance Association (CFA), American Legion, Disabled American Veterans (DAV), and the Knights of Columbus. Tim can be reached via email at TBellon@VRSouthShore.com.Read More
You have finally decided that the time is right to sell your business. The market is still strong, banks are lending, and you have a compelling reason to sell. Now what? You need to get your business in shape prior to listing it for sale. Here are some pointers that can help get you ready.
- Start putting your team together. Selling a business is complex even in the best of times, and even more when you are doing so confidentially, as you don’t want your employees, customers, etc. knowing for a number of reasons. It is also time consuming – it could take a year or more to get to the closing table. For these and a number of other reasons, it is important that you seek the services of the professionals that will compose your deal team. At a minimum you will need a business broker, an accountant, and an attorney. These team members will help you with a number of things, such as, determining a realistic sales price and the net proceeds of the sale, managing prospective buyers and the overall process, putting a deal together, and taking the lead on negotiating on your behalf.
- Be prepared to discuss your reason for selling. Somewhere early in the process you need to be prepared for the prospective buyer to ask you why you are selling your business. Buyers will want to know what your motivations are for selling, what you plan on doing after you sell, and most importantly to determine if they are getting into a potential problem if they were to buy your business. Consider putting together a list of attributes that will make the business attractive to buyers. You need to be honest, but you also need to key in on the positives.
- Get your financials in order. Prospective buyers will want to see financial statements, tax returns, budgets, accounts receivable aging reports, a copy of your lease, etc. These are just a snap shot of what you will be asked to provide during the due diligence process. You also need to put together a list of the tangible and intangible assets that will transfer as part of the sale. If you don’t have accurate financial records, you need to get this taken care of with your accountant prior to listing your business for sale.
- Don’t ignore the appearance of your business. Make sure that the fixed assets and the facility interior and exterior are in good shape prior to listing your business for sale.
- Fix, replace, or get rid of broken equipment
- If you haven’t taken a physical inventory, you need to do so prior to listing. Get rid of excess and/or dead inventory.
- If the facility is looking dated and worn, consider painting, replacing floors, refreshing the outdoor appearance, etc.
- Start gathering and putting together information. Your team will need a great deal of information in order to package your business in preparation for presenting it to prospective buyers. In addition to the financials and the lease, they are going to need a great deal of information from all facets of your business. Although this may be painful, it will be well worth the effort in that it will help your team put together a detailed presentation. More importantly, much of this information will also be what a prospective buyer will be asking for during their due diligence.
Getting your business ready to sell takes a great deal of time, especially if you don’t have your books and records in order. It isn’t unusual for sellers to take several months or more to fully prepare their business for sale. If you aren’t as ready as you would like to be, don’t let this get you down and keep you from getting started. This way of thinking is very neatly personified in a circa 1562 adage of John Trusler, a compiler of proverbs, who is noted to have stated “no time like the present, a thousand unforeseen circumstances may interrupt you at a future time”.
About Us: VR Business Brokers is one of the world’s largest and most experienced brokerage firms specializing in helping people with the sale and purchase of businesses. We go the extra mile every day to assist all parties during the complex business sales process. We know that each and every business is unique, and that’s why we go through a meticulous process to find and unlock the true value of each business. More information is available at www.BusinessBrokersofTampaBay.com.Read More
While attending one of my first International Business Brokers Association (IBBA) conferences, I had the good fortune of taking a class that was being presented by a business brokerage legend, Mr. Len Krick. I can’t remember the exact course, but I do remember a bit of wisdom that Len passed on to the members of the class, and that was we needed to prepare our Sellers to answer a number of basic questions that all Buyers will ask in one way or another. Here are some of those questions.
- Why are you selling your business?
- You need to be able to provide an honest reason for why you are selling.
- You also need to plan for what you will do once the business has sold and you have fulfilled all of your post sale commitments.
- How much money does it make?
- The top line, annual sales figure is important, but an even more important figure is the Seller’s Discretionary Earnings (SDE).
- Another way to think of this is that a buyer is paying for the past financial performance of the business, but buys for the future performance.
- The Buyer must be able to support their family, retire principle and interest on debt, and get a decent return on their down payment from the SDE generated by the business.
- What is the upside potential for a new owner? Is there potential to scale/grow the business?
- Tell the Buyer of the things you would have done differently if you would have had the time, money, energy, etc.
- Where in the heck did you get that price?
- You need to be able to defend the price of your business, as Buyers have a lot of information at their disposal and can quickly weed through overpriced listings.
- Keep in mind that the SDE must support a Buyer’s family, retire principle and interest on debt, and provide a return on their down payment. If the business is overpriced, it will not do these three things and most prospective Buyers will avoid your opportunity.
- Would you consider serving as the bank and holding a Seller’s Note?
- If a buyer cannot find a bank to provide financing, the chances of selling will be much greater if you will hold a seller’s note.
- Sellers will generally receive 10% or more for their business after you have accounted for the interest.
- By taking a portion of the sales price via installment payments, the Seller may enjoy a tax advantage versus receiving all of the proceeds in one lump sum.
- Seller financing shows the Buyer that the Seller has confidence in the business and believes that the business can make the payments.
- Do the assets go home with the Seller every night? Is the Seller the Business?
- The better a company can function day-to-day without the owner, the more sellable it will be.
- Take the time to establish and document procedures, job descriptions, create an employee handbook, etc.
- Are there trained employees who may stay with the business?
- We never guarantee that employees will stay with a business, but if you can show a buyer that you have a core of key employees who have longevity with the company, this will go a long way in making them feel more comfortable with their decision to buy your business.
- Do what you can to make it difficult for your employees to leave your business.
- What is the condition of the lease?
- Contrary to what many business owners believe, having a lease with less than three years remaining will make your business harder to sell.
- Landlords/leases are one of the top reasons that deals fall apart.
- Does the business have any vendor/supplier or customer concentration issues?
- If any one vendor/supplier and/or customer accounts for more than 10% of the business’ volume, you can expect a prospective Buyer to identify this as a “big deal”.
- At the end of the day, it all comes down to risk, and you need to do everything in your power to avoid such concentrations, as the loss of one of these vendors or customers could severely impact the business.
The better prepared you are to answer these, and other similar questions that Buyers may ask, the more likely it is that you will be able to sell your business. If you would be interested in speaking with one of our intermediaries regarding the sale of your business, please give us a call at 813-260-3127.
About Us: VR Business Brokers is the world’s largest and most experienced brokerage firm specializing in the sale of purchase of businesses. We go the extra mile every day to ensure that all parties are satisfied during the complex business sales process. We know that each and every business is unique, and that’s why we go through a meticulous process to find and unlock the true value of each business. More information is available at www.VRSouthShore.com.Read More
Planning is Key to Success
It is human nature to put off what we could do today to another day – we are all guilty of this from time to time. In the case of business owners, there are a number of reasons why they choose to procrastinate. In many cases we can overcome this lack of action in our day-to-day lives, but when it comes to selling a business, nothing can be further from the truth. At VR Business Sales we always advocate that business owners take a proactive approach in planning for the inevitable exit from their business. Business owners who plan are more likely to sell their business, and at a higher price.
In keeping with this theme of business owners planning for the exit from their business, we put together this short, and nowhere near complete, list of indicators that may lead you to believe that the time is right to consider the exit from your business.
- There are has been an event in your family, circle of friends, etc., and you have decided that it might be time to get on to the next stage of your life.
- There are relationship issues within the business and/or family that make the operation of the business draining.
- You are ready for a change and to do something different with your life.
- Your children are not interested and/or capable of taking over the business.
- You are tired, burned out, etc., and your desire to compete and get the most out of the business, employees, etc. is waning.
- You want to leave on your own terms and when you are at the top of your game.
- You find yourself doing the things that you don’t enjoy – you are working in your business instead of on your business.
- You have been approached by a potential buyer and you have no idea of what your business is worth, or how you would go about selling it.
Don’t make the mistake of holding on to your business too long and put off planning for the eventual and inevitable exit from your business. If you found yourself nodding your head to some of the indicators, it might be time to start the process.Read More