The Biz blog» selling your business

Keys to Selling Your Business

Kendric Foultz — Tue, 24 Jan 2012 23:23:51 +0000

Knowing what a business buyer wants is the key to selling your business and getting the best price for it. In this market climate, most buyers are looking for two things, a cash flowing business and a deal. Here are a few things that a business buyer is gong to want to know that will allow the buyer to asses the situation and determine if yours is the right business for them.

• Is the business currently producing an income for the owner?
• Is the business seller retiring and fully funded his or her retirement plans? • Does the sale of the business only represent a small part of the retirement portfolio?
• Is the business debt free?
• Do the financials show that the depreciation schedules are completely exhausted?

Affirmative answers to these questions tell the business buyer that the business is making enough money for their needs and you are indeed in a financial position to sell your business and sell it within the constraints of the marketplace.

Another thing that a buyer is going to want to know about is your plan for the future. Nobody wants to get to the closing table only to have the owner decide that he or she wants to keep the business. Equally, nobody wants to buy a business only to find out that you’re going to open a competing business. This is why buyers like sellers that are clearly of retirement age and means. If your business is complex or highly personal in nature, a buyer may require that you stay involved in the business for a period of time to provide a seamless transition. If you have dreams of selling your business and moving to the Caribbean, this might be achievable. You may only have to adjust your time line a bit.

Now that you know some of the keys to attracting a buyer for your business, the next step is to find the right buyer for your business. To do that you’re going to want someone to help you who understands business buyers.

Kendric Foultz is a certified business broker with decades of experience in deal making and working with business buyers and sellers. Feel free to give him a call regarding your business related issues at 310-968-2369.

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How to Sell a Restaurant in 90 Days

Shelli Margolin — Mon, 31 Oct 2011 21:46:22 +0000

How to Sell a Restaurant in 90 Days

A True Story

Restaurants are not necessarily an easy sell. However, if they are priced at their proper value and positioned to sell in the right forums, they can be sold in a timely manner to the satisfaction of both the buyer and seller. Preparing the restaurant’s books and records for sale is as important as bringing in the right buyer. The following is a true story of a restaurant that recently sold through an experienced restaurant business broker.

When the Johnston’s[1] bought their pizza deli in Los Angeles five years ago, the plan was to build a business for their children to takeover. Both Mr. & Mrs. Johnston had fulltime careers that they wanted to keep. With the help of their son, the restaurant was able to sustain a positive cash-flow for several years.

However, both of their children started pursuing college educations in an unrelated field. Thus, the Johnston’s dream of passing the business on to their children vanished. Mr. Johnston began spending more and more time running the restaurant while his son was in school. Working at a full-time career and working in the restaurant soon became extremely stressful.

The stress and loss of motivation, along with a family illness, spurred the Johnstons to sell. At the listing meeting, two pertinent questions were asked, 1) is your hood, floor drains and refrigeration exhaust in working order with valid permits and 2) what are your gross sales & net sales? These are the two most import issues regarding readiness for sale and determining price.

All the equipment and permits where in order. Thus, replacement costs were determined for the furniture, fixtures and equipment (FF&E).

Unfortunately, they didn’t have organized books and records. Plus, a fair amount of sales where in unrecorded cash. Once they reviewed the documentation they had and came up with annual totals for sales and expenditures, a legitimate profit and loss statement was created that a buyer could understand.

Because they hired staff to work the hours the family couldn’t, their net profits were negatively affected. The profit and loss statement was then adjusted to show what the restaurant would earn if the restaurant was owner-operated.

There was still the problem of the cash revenue. Some of the cash was pocketed as profit and some was used to pay employees and for inventory purchases. It was expressly explained that onus was on the seller to prove the cash sales to a buyer.

Once there was a legitimate the profit and loss statement and the FF&E replacement cost was established, an asking price was determined based upon a multiple for restaurants selling in Los Angeles.

Twenty-one days after the listing was launched, an acceptable offer was presented. The buyer was not exactly a good match, as he was looking for an investment and not a hands-on owner-operated restaurant. However, the buyer was enthusiastic and he wanted to pursue the sale. The Johnstons agreed. During the due-diligence period, the buyer wasn’t convinced of the cash sales. He made a formal request and was released from the offer.

Within two weeks another acceptable offer was presented. This time the buyers were a family, the Garcias[2], who wanted to run the restaurant as onsite owner-operators. They understood the concept of cash sales, however they needed proof. Thus, the Garcias spent more time with the Johnstons during the due-diligence period. Through an on-site visit, they gained confidence in some of the cash amounts that were stated. However, it was not enough to justify the full asking price. Together a price was negotiated with which everyone was comfortable. The deal closed within 90 days from the time the listing was launched.

If a restaurant is marketed to the correct audience and can prove its net income, the right buyer is out there. There is a lot that goes into selling a restaurant, much more than many other types of businesses. The above story is just one example of restaurants I’ve sold. We currently have over 3,000 buyers in our database alone. For a free consultation, please don’t hesitate to call me. Shelli Margolin-Mayer, Restaurant Broker: (310) 882-2200 ext. 128. http://www.bizex.net/business-broker/shelli-margolin I’m happy to help.

[1] The real names have been changed to protect privacy.

[2] The real names have been changed to protect privacy.

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Why isn’t my business selling?

Kendric Foultz — Fri, 21 Oct 2011 15:37:24 +0000

Almost nothing is as upsetting to a business owner than listing their business for sale and then having it sit on the market for months with no activity on it! “What is wrong, why haven’t you sold my business” you ask the business broker. The answer might be complex or very simple. The best thing to do as a business seller is to ask yourself a basic question. “Does this offering make sense? Would I buy my own business as presented?”

Put yourself in the Buyer’s shoes and price your business accordingly. First of all the asking price and terms have to make financial sense relative to the historical earnings of the business along with future positive outlook for the business and its industry. In a great many cases, it’s the asking price that is preventing the sale. Next take a look at the terms. If the business has been approved for SBA financing then terms shouldn’t be a problem. If the sale doesn’t qualify for outside financing and the seller wants more than 50% down payment then you are likely to have a problem. Ask the business broker to show how the business would cash flow for a new owner.

Goodwill will likely be the most valuable element of your business. A credible Confidential Business Review will substantiate the value to a Buyer and increase the likelihood of getting a reasonable offer. Make sure that the business broker has been able to create a Confidential Business Review of the business that paints an accurate picture of what is going on with your operation. There should not be any significant gaps that would cause a serious buyer to wonder why relevant information is not included. That is one of the best ways to turn off a good buyer. While no two businesses are exactly the same, they do share many common elements and the buyers want to compare these elements from business to business.

Finally, make sure you’re getting the word out to the right buyer. Have a complete understanding of what the business broker is doing to market your business. Sometimes an owner will know of something that would help the marketing efforts of the broker and should let the broker know right away. This might be something like a particular trade journal or industry conference. Don’t forget that this is a team effort.

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Selling a business in the media, entertainment, creative, film and TV industries? 10 Things to Consider

Stuart Gross — Tue, 06 Sep 2011 20:03:52 +0000

Are you the owner of a small or medium-size
business in the creative of media industry who dreams of “getting
out” and retiring, writing a memoir, or simply getting away
from it all? Thinking about selling your business? In today’s economic
climate, selling your media or creative business can be a
complicated and daunting experience.
The skills and knowledge you acquired by running a successful
business are not necessarily the same skills you will need to sell it.
Here are 10 things to consider:
1. Am I REALLY ready to sell my business? One of the most
important questions a buyer has is, “Why are you selling?”
Selling your company is a life-changing event, with both
positive and negative effects on your financial condition.
Your mental and physical health may also be affected. You
need to know if you will have enough money, moving forward,
to live the way you choose. It is a very big decision. …And you
need to be able to answer the question for potential buyers as
well as for yourself.
2. Can I sell my business to a new owner? Is it transferable?
If I go, can someone else take my place? It’s not just your
creative skills that may need to be transferred; it is also the
relationships that mean business for your business. Can a
new buyer do what you do and maintain and attract business?
You may need to stay on board for a while to make a transition
work properly. Sometimes the choice to stay on helps you to
build the financial base you will eventually need to retire.
3. What effect will the process have on my clients, my employees,
and my daily operations? There are some real challenges
in the process of selling a business. It is important to keep
your confidential information from the public. You must make
sure that the impending sale does not create concern and
problems with your employees and your clients. Your relationship
with your landlord, if you have one, needs to be
handled with care. During the process of meeting, qualifying
and negotiating with buyers and the complexities of a sale,
you must still be able to keep your focus on the continuing
operation of running your business.
4. What is my business really worth? Valuation of a creative/
media/entertainment business is based on several key factors:
A. How much money can a buyer expect to earn after
taking over?
B. What are the barriers to entry that might stop the buyer
from starting his own similar company?
C. What is the value of your assets, equipment, inventory,
improvements etc.?
D. What are the risks and growth opportunities of
the business?
For businesses under $10 million, the multiple of earnings
method is the most common basis. The adjusted earnings of
the business is multiplied by a general index for that industry
and type of business, and then adjusted by financing issues,
growth potential, inventory, asset value, etc. A well-priced
business is critical to buyer attraction and critical for the
seller in getting the value he has built.
5. Should I use a broker? Once you decide to sell the business,
whether or not you use a business broker should be a priority
consideration. In the media related and creative businesses,
any representative you choose must have industry experience.
A great deal of knowledge, work and time goes into valuing,
promoting, marketing, qualifying buyers, negotiating, financing,
completing a transaction and effectively transferring the
operation of a business.
A broker who understands, or has been in your industry will
realize that they are seeking a truly special kind of buyer.
He should have the ability to find and attract that buyer. A
broker who is active in the industry will already be working
with active buyers and can identify potential strategic buyers
for the business.
Well marketed, priced and negotiated deals may often net
the seller more than if he pursued and arranged for the company’s
sale by himself.
6. What kind of buyer is capable of taking over this business?
Ideally, you want a buyer who is genuinely interested in this
business, one who has the skills necessary to run it, and the
financial wherewithal to make this purchase.
Because the “right buyer” at the right price will sometimes be
a one of a kind find, you must be prepared with all of the information
that a qualified buyer will demand. The good buyer
will be asking lots of questions – this is perfectly normal and
necessary. The “right buyer” will respect your confidentiality,
and will agree to sign a “Non-Disclosure Agreement.” However,
the “unqualified buyer” can become a very expensive waste
of time.
7. How do I market the business? The first thing to be done
is to compile a complete information package, which should
include the history of the business, description of the industry,
competition, clientele, marketing, opportunities/threats, products
and services, etc. It should also include at least three
years of financial information and analysis of discretionary
earnings, equipment and inventory.
The normal process for marketing a business is to post it for
sale on the plethora of listing sites on the Internet, to contact
known buyers interested in this kind of business, or to go
directly to targeted strategic buyers who may include competitors,
related businesses or aggregators in that industry.
8. How do I make a deal? These negotiations are based on a
balance between the buyer’s perceived value of the business,
(his or her potential, earnings, ROI, future value, the ability to
pay for the business or operate the business, earning a living
wage and paying off financing if any) and the seller’s perceived
value (does the purchase price replace my salary, is it
enough to give up a business I have built, is it worth more to
the buyer than it is to me?)
Negotiations require objectivity, an understanding of your own
valuation and a willingness to structure a win/win situation.
Often third parties such as business brokers can take the
emotional spin out of the deal making.
9. What about financing? A business acquisition can be done
in any combination of cash, seller financing, bank financing,
earn outs, etc. Earn outs are typical in deals where the seller
and buyer need to cooperate to make the future earnings
happen.
10. Structuring the ACTUAL SALE. How does the seller go about
with the transfer of the business assets, including inventory,
equipment, goodwill, intellectual property, brand equity, customer
data bases, etc., into a new or existing entity for the
buyer? There are many ways to accomplish the actual sale,
but for most small and medium sized businesses the process
can be done in California through an Asset Purchase Agreement.
As such, all of the assets are transferred to the buyer
in an escrow process, which is usually as manageable as the
sale of a home. If you need to sell the actual entity as in a
stock sale, you will need quite a bit more guidance.
The sale of your business, especially one that you have built and
run for a long time, is a life-changing event. The business is
usually the most valuable thing the seller owns. The purchaser
is often using his life savings or leveraging his possessions to
make this happen. This is serious business and should be given
its due care and consideration. You need to be guided by your
trusted advisors and be prepared for all of the exigencies of the
process. At best, it can be the financial realization of a life’s work.
____
Stuart Gross is a media business sales
& acquisitions expert with more than 30
years of experience in business, film and
television production, entertainment, and
media. As founder of Harmony Pictures,
Gross executed one of the industry’s
first IPOs for a television commercial
production company.
He can be contacted at sgross@bizex.net. 310 882 2200 Ext.118

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5 Essential Items to Sell Your Business Quickly

Dan Munter — Thu, 03 Jun 2010 19:34:22 +0000

As a business broker and as a former business owner, I know that the decision to sell a business is not easy. But once it is made, I know that usually the seller wants to sell it as soon as possible.
I always tell a seller to pretend that they are the buyer looking at buying their business. What would they need to see to decide to buy the business? From my experience and my logic, I have come up with a list of 5 items that really facilitate the selling process.
1) Have credible P&Ls for the past 3 years.
2) Have financial records to verify the value of the inventory and FF&E
3) Make sure that the key employees will stay employed
4) Make sure that the landlord is willing to lease for reasonable terms
5) Make sure that the key customers will continue to buy services or products.
There are of course other items that are necessary. However, if a seller can provide the 5 items mentioned above, not only will it be easier to find a buyer, but it will make the due diligence process go much quicker.
Blog by Dan Munter, a business broker with BizEx. I can be reached at 310-882-2200 ext. 121 or www.bizex.net

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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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