Around the Web: A Week in Summary
A recent article posted on the CBB Blog entitled “Why Deals Fall Apart— Loss of Momentum” explains the hidden reasons why a deal loses momentum and eventually falls apart. A good example of this is when a seller stops returning phone calls to the buyer, as well as the business intermediary, or the seller fails to provide necessary paperwork. This is a “red flag” to experienced intermediaries and should be addressed as soon as possible before the momentum is lost.
The hidden cause of this loss of momentum is usually an emotional issue, such as the buyer or seller getting “cold feet,” the chemistry between the buyer and seller is off, or the buyer may have found an issue with the business that concerns them. This causes them to be hesitant to continue the process, and this is where the loss of momentum starts.
No matter what the cause is, the emotional issue behind the reluctant party needs to be addressed as early as possible for the deal to continue. Setting a lunch or dinner meeting with both the buyer and seller could be a good way to resolve any issues and get the sale process moving again.
A recent article from The Business Journals entitled “9 guideposts for valuing your business” summarizes nine factors that can help you value your business before you sell.
- Marketplace comparisons – Looking at the sales of comparable businesses will show you the relative price the marketplace considers a fair value.
- Multiplier applied to cash flow or earnings – Take the multiplier for your industry and apply it to your business’s cash flow or earnings. This is a key financial metric for buyers.
- Life insurance and owner agreements – If owners or partners of the business have Buy/Sell agreements between them, their life insurance policies provide the funding for these agreements and therefore are assets of the company.
- Extraordinary expenses – Take into account the expenses that would not be there once the owner of the business is gone, such as owner’s salary, owner’s perks, etc.
- Future growth potential – A business’ growth potential can be determined by its past growth performance and also changes in technology or market conditions.
- Motivation of the seller – If the seller is motivated, then the buyers have more negotiating power.
- Debt level – The value of your business will be greater if the business has little to no debt.
- Workforce – If there are expected costs involved in strengthening the workforce and management, this will lower the value of the business.
- Soft assets – Soft assets are things like patents, trademarks, and intellectual property which can be valued and included in the price.
A recent article posted by the Smart Business Network entitled “Planning an exit when a succession plan isn’t an option” explains that selling your business should be part of your exit strategy when creating a succession plan is not an option. To prepare a business for sale, the business owner should recognize the strengths of the business which would appeal to potential buyers and should also have a good understanding of the business’ financials.
Business owners may also want to work with a bank that is experienced in exit planning. The bank can assist with providing insight into how buyers will view their business and what obstacles may occur while a buyer is trying to finance the acquisition. Banks will also be able to work with the buyer in assisting them with financing.
It’s important for a business owner to work with experienced professionals who have worked with sales, acquisitions and exit strategies to help them prepare for a business sale.