Around the Web: A Week in Summary
A recent article from Certified Business Brokers entitled “Why You Should Consider Buying from a Retiring Entrepreneur” discusses eight tips for considering taking over an existing business. Buying the next start-up is exciting, but buying a decades-old well-run business is a sound investment that often requires much less effort.
For the best purchase experience you should do your research, connect with industry insiders, do your due diligence, get to know the industry, find ways to add value, find ways to work with the owner, be patient during the closing, and create a 100-day plan. Knowing exactly what you’re getting into, the state of the business and if the industry is the best fit for your skillset is imperative for long term success. Once you’ve solidified your decision to purchase a particular business, you want to ensure that it continues to grow by making a plan, learning what you can from the previous owner and exploring potential changes you can make to improve the business.
A recent article from Divestopedia entitled “Advanced Planning is Needed to Position a Business for Optimum Sale Value” explains why it is the business owner’s responsibility to prepare their business for a sale prior to listing it. Selling a business ‘as is’ without taking the proper steps to make it sale-ready can seem appealing because of the shorter amount of time it takes, however this can lower the value of the business.
A recent blog post from Allan Taylor Mergers & Acquisitions entitled “Is My Business Too Small for a Business Broker?” explores how business brokers view the size of a business and why it matters to them.
A business broker views the size of a business based on two things: sales and earnings. Based on their level of annual sales, a business is placed into one of four categories: Main Street, lower middle market, middle market and upper middle market. A business broker uses these categories to determine which ‘sandbox’ they’re playing in. The earnings of a business can refer to EBITDA, EBIT, SDE or SDCF and the most appropriate metric for your business is determined by the potential buyer. The earnings metrics allow a business broker to get a sense of what your business may be worth to others. Whether your business is too small or not will be dependent upon the business broker. Their income depends on a success fee or commission they make on the sale, which is determined by the value of the business. Therefore, what is too small to one broker, may be just right to another.