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Category: Business Broker Newsletter

Owner / Representative Partnership
Business Broker Newsletter, Business Brokerage Consultant

Owner / Representative Partnership

Mar 12, 2017 by The Montana Group 0 Comments

The process of selling a business requires the mutual confidence between the owners and their representatives. It is essential that this go both ways. The owners are probably selling their most valuable asset and a similar sale will likely never happen again for them. The representative needs to feel as though their client does not begrudge the fee but understands and embraces the mutual benefits by properly incentivizing their representative.

The theme of this relation is that everything of financial benefit to the sellers should be part of the fee calculation. This obviously begins with the business’ sale price but extends well beyond. This could include additional money from a closing working capital balance sheet improvement, from personal asset that are in the business but are distributed to the seller at closing (e.g. car), or from something unique to this particular company. Also, incurring expense savings such as the assumption of interest bearing debt by the buyer is an important enrichment. Sellers must make sure their representative feels very confident that even if a financial benefit is not specifically listed in the fee schedule that the owner’s philosophical desire is to pay for what is received.

The incremental increases beyond the agreed upon purchase price is what makes it critical when selecting a representative. A representative that is very good often more than pays their transaction fee with incremental increases over and above the sale price, often in areas that would not be known by a company owner who has no experience in where to locate them. This also amplifies why an owner, rather than attempting to sell the business directly, needs a very experienced consultant who through many many closings knows where to find the extra benefits. The same can be said of the owner’s accounting and legal advisors who’s training and daily focus is not on selling businesses. In summary, the representative/consultant needs to offer a fee agreement in such a manner as to participate from the various ways to escalate the overall financial benefits to the sellers, which is the intent of a mutually beneficial relationship.

Selling a business
Business Broker Newsletter

Helpful Business Practices

Jan 13, 2017 by GrapePress 0 Comments

Of course, there are aspects of a business that make them more attractive to potential buyers. Some of these are related to their industry and some are the results of their management’s operational decisions. The Montana Group (www.montanagroup.com) will promote the positive and be prepared to discuss the negative in a manner that will ease the potential buyers’ concern.

Management: Once the owner sells the business, the issue then is who will continue the business as it has operated and even take the business to greater heights. If the owner elects to stay involved with the business for a period of a few years this allows the next operational chief to be developed from within or hired and trained from a new hire. If the owner wants to depart at closing and there is no one to take over this presents a problem which is best solved by selling to a strategic buyer, a company currently within the industry who can blend the newly acquired company’s operation into their existing company.

Customer Concentration: A potential buyer is concerned when a company has a significant percentage of their business with one or a few customers. If one or more of these customers were lost there would be a significant drop in sales, which could have the same affect on earnings. If there is a reason that these significant customers cannot move their business (e.g. product or service not offered elsewhere, long-term contract, geographic related constraints) this needs to be emphasized.

Margins: When gross margins are low it appears that the driving force is pricing pressure from competition. When these margins are high it is normally due to a the uniqueness of the product, lack of competition, or the value added component which separates the product from the usual price only factor commodity definition.

Real Estate: If the real estate used in the business is not owned by the company a lease to continue the business at the same rent as is on the financial statements is necessary.

Barrier to Entry: If it is difficult to enter the business as competition then the buyer feels comfortable going forward with the issue of retaining and growing market share.

Growth Opportunities: A purchaser is interested in where a business has been historically, which affects the valuation and where the business will be in the future, which affects their interest in making the purchase. Therefore, significant growth opportunities (either industry expansion or market share growth) of the business are crucial.

While these business characteristics are indeed desirable they are not absolutely required for the business to be sold. A successful and seasoned consultant will work within whatever parameters their client provides.

How can The Montana Group help the Business Owner?
Business Broker Newsletter, Business Brokerage Consultant, Uncategorized

How can The Montana Group help the Business Owner?

Nov 2, 2016 by The Montana Group 0 Comments , ,

As we have consulted in the sale of businesses since 1991 we have learned what is appealing and what is of concern to the potential buyers. This is why we believe we are best described as consultants who analyze a business from the perspective of the buyers and make recommendations that should ease concerns and increase enthusiasm for the acquisition of a business. Often these suggestions are not difficult to implement and have a short lag before there is apparent improvement in the company’s profit or simply eliminate some operational issues going forward that could negatively influence the buyers.

Additionally, The Montana Group will provide its accountant to review the balance sheets and income statements for the prior three years and the current year to date financial information. We will also construct a budget for the remaining fiscal year, as well as, the next one. The potential buyers will use this to determine their valuation so it is critical that this information is provided in a format that best positions the business. The experienced consultant should more than cover their fee with this part of the presentation.

The summary narrative of the company is necessary in order to gauge the initial interest of the buyers and the buyers’ motivations should be such that their enthusiasm for the company raises their offer. A well-written narrative can enhance this.

It is important that interested buyers understand the sellers’ representative’s past successes and ability to bring competition into the process. Of course, buyers prefer not to pay any more than is necessary so they need to feel that in order to acquire the company their bid must be competitive. A consultant with many completed transactions will know how to properly enhance the ultimate transaction price but also in additional seller benefits, which can be substantial.

“Selling a business is a once-in-a-lifetime and lifestyle change that often affects multiple generations. So, use a specialist with years of experience. While this can be done by the business owner in an attempt to be frugal, our 25 years with this specific focus tells us that often the owner is reducing the sale price in multiples over the money saved from not paying a success-based consulting fee.”, says Emmett Barnes, President and Founder of The Montana Group. (www.montanagroup.com)

 

Estimated Time in Selling a Company
Business Broker Newsletter, Business Brokerage Consultant, Uncategorized

Estimated Time in Selling a Company

Jul 10, 2016 by The Montana Group 0 Comments , ,
  After executing an agreement to work with the representative firm here is the ballpark timing estimate for Selling a Company:
  • The consultant will supply a list of financial data necessary to properly present the company’s historical, current, and future expectations. While this sounds very basic it really is an opportunity increase the ultimate price of the business, so merger and acquisition experience is ultra important. There will also be a list and conversations that will allow the presentation to provide an understanding of the company’s focus, method of operation, and makeup. This information is often time consuming to assemble however, it is critical to the ability to attract the proper acquirers who should make very competitive offers. The process really does not begin until this information is provided and the time required to assemble varies from days to weeks.
  • The consultant uses the information from the prior paragraph and assembles a memorandum presenting in a clear and encouraging format, which is based on their experience in selling similar businesses. This should be completed within a week to ten days.
  • The consultant approaches potential buyers based on the authorization of the seller. This starts with an initial thumbnail summary that is intended to remain anonymous and an initial conversation to understand the reason for the interest is followed by a Confidentiality Agreement (also known as a Non-Disclosure Agreement). After answering questions and supplying additional insight to the investment opportunity the non-binding valuations are presented. This phase should take 30-45 days.
  • The consultant and stockholders decide which valuations are attractive and appear to be a likely candidate. Conference calls between these suitors, the stockholders, and the consultant are made to present the company in more detail and to learn more of the suitors. This should be completed within 2 weeks.
  • Of those suitors who remain in the process are invited to tour the facilities. The interview goes both ways. Depending on schedules and the number of dates required this could take several weeks.
  • The consultant then discusses with the potential buyers their interest in proceeding, which is a Letter of Intent. Once the stockholders review these offers and the consultant negotiates to enhance the preferred proposals then one is selected. This could take from one to several weeks.
  • The due diligence process begins which is an extremely detail assemblage of information, visits from the buyer’s representatives and lenders, and the legal document negotiation and assemblage.  This could take two+ months.

Of course, every transaction is unique so this is only an educated guess. We at The Montana Group advise that six months is a good target and we strive for as expeditious as possible.

“Selling a business is a once-in-a-lifetime and lifestyle change that often affects multiple generations. So, use a specialist with years of experience. While this can be done by the business owner in an attempt to be frugal, our 25 years of this specific focus tells us that often the owner is reducing the sale price in multiples over the money saved from not paying a consulting fee.”, says Emmett Barnes, President and Founder of The Montana Group.