The Biz blog» Dan Munter

HOW TO SELL YOUR BUSINESS WHEN YOU ARE THE KEY TO YOUR BUSINESS

Dan Munter — Thu, 11 Aug 2011 17:24:03 +0000

In a perfect world, when owners decide to sell their business, a buyer will come forward and write a check for the full asking price. In the real world, this rarely happens. There are so many reasons why this rarely occurs. In this blog, I want to focus on one of the most important issues.

One of the biggest risks for a buyer is whether the business will survive without the seller’s presence, knowledge and relationships. I want to give you some actual examples of businesses I have both recently sold and am in the process of selling.

I have a client who wants to sell his insurance business. He has done a wonderful job creating and running his one man business. However, when selling his business he has a big problem. The only asset that he is selling is the relationships he has with his clients. You would think that very few buyers would be willing to take that risk. However, after listing the business for less than 2 months, I have already had over 300 inquiries. The challenge has been to bridge the gap between the business opportunities and the inherent risks of this type of transaction.

The key to selling the business is the Earn-Out structure. An Earn-Out is a contractual provision stating that the seller of a business is to obtain additional future compensation based on the business achieving certain future goals. In the insurance example, the buyer would pay 50% up front to the seller of the agreed offering price. After the 1^st year, he would pay an additional 25% based on how much business is generated from his book of business during that year. After the 2^nd year, he would pay the final 25% based on the business generated from his book of business for that year.

This arrangement gives the seller a vested interest in making sure that his clients stay with the new owner. It also takes away some of the risk to the buyer. If some of the clients do not transfer over, then the buyer will end up paying less for the business.

I recently sold 2 businesses where the buyers saw a great opportunity to make money but were buying businesses that they did not have any experience in. Once again, we structured the sales with an Earn-Out. This time the purpose was to make sure that the seller had a stake in the business while training the buyer. The seller realized that the better he trained the buyer, the more upside he had in the final price. The buyer liked the arrangement for that reason and also because it he could retain some of his capital and use for other purposes. The Earn-Out in both of these cases was structured with equity. The buyers bought 80% of their respective businesses with a contract to buy the remaining 20% over a 2 year period. The final result was a win for the buyer and a win for the seller.

Please feel free to contact Dan Munter at dmunter@bizex.net if you would like to discuss this further.

What Is a Typical Restaurant Business Worth? As written for ehow.com… What Is a Typical Restaurant Business...

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BUYING A BUSINESS WITHOUT THE EMOTION

Dan Munter — Tue, 30 Mar 2010 18:43:55 +0000

Buying a business has many similarities to buying a stock. They both require appraising the value of a company to make sure that you buy at a price which will give you the ability to grow your investment and earn an income (dividend).
A careful analysis will use many of the same tools for appraisal. Both buyers will look at the multiple of earnings (P/E ratio), the multiple of revenues (p/s ratio). They will also look at macro trends within the industry of the business/stock and within the general economy. They will both look at what is the barrier of entry into the business.
There are many other similar yardsticks that are used to give the buyer a reason to buy or not buy. However, the one obstacle that will distort any analysis that either the small business buyer or stock buyer does is our emotions. Fear and greed always rule the day. I recently read something which I really liked. It is from www.prohostbiotech.com/news_details.php?news_id=564 . “In the stock market, negative speculators have the advantage of possessing a superior weapon called fear, which positive analysts do not really have. Under some circumstances, by definition, negative becomes the synonym of fear. When people fall to fear, they cannot wait for rational explanations of negative speculation. They believe they have no time to lose in resorting to common sense.”
I have seen this same fear cause a person not to buy a business which would have been ideal for him. The fear of failure is a very strong emotion for most people. It can work to our advantage by keeping us cautious when a situation seems too good to be true. But it also can keep us from taking action when a situation is really a good opportunity. If you a serious buyer, then you must also analyze your fears as objectively as you analyze the multiple of earnings and revenues. Otherwise, you will never be a buyer, only a looker.

I am a business broker with BizEx. I can be reached at http://www.bizex.net/business-broker/dan-munter or 310-882-2200 ext.121

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Thinking of selling your Maid Service Franchise? What you need to know.

Dan Munter — Wed, 03 Mar 2010 19:33:50 +0000

There are 14 franchise enterprises that focus primarily in the residential market. According to a recent report from information company FRANdata, the franchises of residential cleaning companies are growing at annual rate of 10% .
There are two main Rules of Thumb for valuing these businesses.
• 40% to 45% of annual sales plus inventory.
• 1.5 times DE (Discretionary Earnings).
Other selling points would be the exclusivity of the territory assigned to the franchise. How long the franchise has been established for. How long any competing franchises have been established in the same territory. And if there is any open territories in surrounding areas.
If you would like to learn more, please contact me at dmunter@bizex.net.

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