It is very important to maintain confidentiality to prevent employees, vendors, competitors, lenders, landlords and customers learning of a sale. Potential purchasers will often request more information than they should be entitled to see without proper qualification. Our firm is critical to maintaining a seller's confidentiality. For example, we ensure complete buyer qualification (as well as a thorough review of the seller's business) to ensure that introductions are only made when both parties are capable of executing a deal. This includes various forms of confidentiality agreements, blind profiles, and generic business advertising. We also protect you by providing information in stages, as necessary, with more sensitive matters only shared well into the process. By utilizing professionals like our firm, it is ensured that no party has to immediately release their respective identity, and throughout the process we establish a communication layer outside of the company and facilitate buyer access to company information. It is impossible for a business owner to maintain such a level of confidentiality if selling without an intermediary.
Absolutely NOT! Until the sales transaction has closed, only seller and buyer (and their respective advisors) should know about the plan. Sharing information about a sale with employees, even with only a select few, will generate job security concerns and potential resignations. Since a sale is never guaranteed until the legal and financial close, telling employees may cause them unnecessary stress and put your business in jeopardy. Human resources are part of the "good-will" portion of the purchase price and new owners will likely want to keep all or almost all, existing staff on-board.
TERMS: Several factors come into play and can affect the sales price. One of the most critical is the 'terms' or the amount of down payment and the amount financed. Over eighty percent of all businesses sold are sold with 25% or less down, 50% bank financing, and sometime “subordinate debt financing” and the owner financing the balance. Asking for one-half down will reduce the price by approximately twenty percent. Asking for cash will reduce the price to about forty to sixty percent of the amount attainable with twenty five percent down. In a nutshell, high percentage down payments cause buyers to substantially discount offers. PRESENTATION: A second critical factor is the quality of the information provided to a prospective buyer. The value of the assets and cash flow generated by the business must be provable and verifiable. National M & A Group will be able to assist the business owner in arriving at these values. MULTIPLE OFFERS: The third most important factor that affects the sales price of a business is whether there is competition among prospective buyers for the business. Competition creates higher selling prices, as we all know from basic economic principles. A buyer who knows he has other buyers competing for the business will be motivated to offer the price being asked to ensure he does not lose the business to another buyer's better offer.
Even taking hard assets and book value into account, most middle market companies are still (mostly) valued on the basis of a multiple of cash flow. Investors (and their respective CAs) will usually average historical cash flow and forecast it into the future. Thus, the business valuation is influenced by "future potential" or recurrence of cash flow, however, only if there is a definable "trend line". If there are substantial growth opportunities that can be documented, a buyer will often pay an above Fair Market Value asking price. Generally, however, investors are reluctant to "overpay" on "potential" that has yet to be realized in the future or is merely based on "projections." However, some buyers will pay for the “opportunity “ to add their skill set to the business and increase the business value in their eyes. Paying at the upper end of the range of realistic values, typically requires the seller to be actively involved in the company for a longer period of time, or to structure a deal by way of royalty payments, earn outs, balloon payments or even as a percentage of gross revenue.
"Losing money", or a loss on the tax return, can have many causes, such as unusual high interest expenses, large depreciations, an unusually high owner's salary, or different reasons. Many of these factors are "normalized" in the recasting process, and can very well lead to a substantial value for the company. Additionally, there might be causes such as a particular non-profitable product line, an unfavorable rent, too large overhead costs - all factors that would be eliminated, in the case of a sale to a similar or synergistic company, and thus, could make the acquisition for a buyer very attractive. As a general rule, "financial investors" will not acquire a business with losses as they are seeking return on investment. However, a "strategic acquirer" (i.e. someone from within the industry or with a complimentary business) will view synergies to convert an unprofitable into a profitable investment.
The advertising or marketing of each business will depend upon the size and type of business. National M & A Group utilizes a confidential marketing methodology, which includes private business for sale networks, public networks, our network of affiliates, our own internal list of qualified buyers and other effective marketing methods. We do not use local newspapers because it is often more difficult to protect confidentiality when a business is advertised locally. There is virtually no possibility for a motivated investor to miss a business that we are engaged to sell.
Yes, in fact there are more buyers than sellers, particularly for solid businesses. We have developed outstanding relationships with buyers. They respect us for our professional presentations, analytical approach in preparing businesses, and our very confidential approach. Consequently, many buyers, investors, private equity firms and independents contact us first when searching for new acquisitions.
We have successfully completed assignments to find partial investors, sometimes in order to provide equity funding (as opposed to debt funding from the bank), sometimes for owners wanting to "take some money off the table", while still being active in the future.
Usually, there is a two to three months preparation time involved and a two months closing period. The time for the period in between, the marketing period and determination of the "right" buyer, depends on the macro economic environment, the industry, the specific asking price and terms, and various other factors. Overall, we transfer businesses within an average time period of twelve months. We will be happy to discuss the individual steps of the transfer in a meeting with you.
This depends very much on the sophistication of the business and the qualifications of the buyer. Generally, the more familiar a buyer is with the industry or company, the shorter the time period a seller is expected to be available. Buyers typically expect a minimum of one to two months for the seller of a mid-sized business to be available, and for this to be included as part of the purchase price.
The following are a few key questions you need to be able to answer if you are considering selling on your own. How do you reach qualified buyers, including possibly competitors? How do you evaluate your business objectively and arrive at the best price and terms? How do you prepare and provide the information for a prospective buyer? How do you maintain confidentiality with customers, competitors, employees and suppliers? How do you screen and pre-qualify buyers? How do you effectively sell your business while managing your business? The International Business Brokers Association (IBBA in the US) refers to a survey done by R. Jackim, according to which 80% of an entrepreneur's net worth is typically tied up in a privately owned business, however, 75% of owners have no idea how they will exit from their business. Worse yet, 50% of 7 million business owners are wrong about the value of their business. Let our firm help you in the most daunting task in your business life by obtaining maximum value within a reasonable time period.
Most importantly, the business needs to be offered at a realistic price and with reasonable terms. In the valuation preparation, a business owner needs to provide as much information as possible so a professional valuation, marketing package, including a business profile, can be prepared on your company. The quality of the business profile will greatly enhance the salability of a business. A package prepared by National M & A Group will contain the financial, operational and historical information about the business. Informed buyers make better offers. Most importantly, a business owner needs to continue running the business in a normal manner, keep the business clean and organized (on paper and in person), so potential buyers will like what they see, and to liquidate or set aside obsolete inventory and unneeded equipment before the business is placed on the market. It is also important to notify our professionals of any material changes in your business and to forward quarterly financial statements as soon as they are completed. This will keep the business's marketing package current and attractive to buyers.
We are a boutique firm and we are selective of the clients we take on. We will only take on a business that we believe we can actually sell. We are not limited to specific businesses but can handle transactions in all fields. However, typically the businesses we work with have gross revenues/sales in excess of $1,000,000, positive cash flow, and filed tax returns accounting for all revenues and expenses for the past three years. We do not work with clients who have a significant (i.e. more than 25%) undocumented revenue stream that is not reflected on the business's tax return.
A retainer to cover the cost of the independent Business Valuation, Business Profile, Market Research and other out of pocket costs can range from $4,500 to $20,000. The amount would depend on the size and requirements of each individual company. Our firm urges sellers to have a valuation performed by one of our certified valuators before selling in order to arrive at a Fair Market Value asking price. Buyers do not consider sellers serious if such an appraisal has not been completed. Our success fee depends on the size of the transaction and is negotiated before a business owner engages our firm. This is an all-encompassing fee, as we do not charge any ongoing marketing or administration fees.
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