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Category: Uncategorized

Business Brokerage Consultant, Uncategorized

What is a Private Business Worth?

Dec 5, 2015 by The Montana Group 0 Comments , ,

What is a Private Business Worth?

There are many complex formulas in expensive business valuation software that spit out reams of data on the value of a private business. This data is certainly interesting and can be helpful in determining price expectations but this is an inexact science, at best.  While this valuation approach is necessary and helpful when there are estate issues or legal issues such as buy-sell disputes the only answer is that a business is worth what a buyer is willing to pay at the time the business is for sale.

To formulate a ballpark answer to this question the following would be helpful:

  • Who is the buyer?
  • What is the buyer’s motive?
  • What is the buyer’s experience in making acquisitions?
  • What is the buyer’s financial strength?
  • What is the buyer’s concern with their competition for this purchase?
  • The Buyer’s recent acquisition activity in this type of business.
  • Are there many similar companies available to purchase?
  • What are the future growth opportunities of the company?
  • Proprietary products?
  • Barrier to entry?
  • Management post-sale?
  • Is there competition or perceived competition on this acquisition?
  • Does the business’ representative have a large database of potential acquirers?

Of course, private businesses are not often publicizing their sale price so it’s rare that there is a comparative sale to review. Even if this information were available the question would be does this buyer want to buy another company? Is buyer more or less motivated to buy another company? How about the unsuccessful potential buyers – are they more motivated now to increase their valuation? Comparing a private business’ value to a public company in the same line of business seems a stretch as larger businesses trade at significantly higher multiple and the same can be said for publicly traded ones.

So, the answer…… “you need a good representative to properly present the company to facet of the buyer market that would likely have an interest in the company and wait and see. However, this representative should be able to provide an accurate complimentary valuation range that can be used to determine if the owner is now a seller”, per Emmett Barnes, President of The Montana Group (www.montanagroup.com).

 

Preparing a Business for Sale
Business Brokerage Consultant, Uncategorized

Preparing a Business for Sale

Nov 13, 2015 by The Montana Group 0 Comments ,

In order to prepare a business for sale it is helpful to simply consider what condition a buyer would like to find a business that was just purchased. Here are a few bullet points to consider:

  • Management after the sale has sufficient knowledge of the business and experience running it.
  • Equipment is in good operating condition and there is no significant need for additional capital expenditures.
  • There should not be a concentration of business with a single or a few customers. Obviously, a loss of one of these could materially affect the business’ profitability.
  • No outstanding legal issues or disputes.
  • No outstanding tax issues.
  • No outstanding environmental issues or potential environmental issues.
  • The buyer will not assume any interest bearing liabilities so these will reduce the cash price. Therefore, there are benefits to reducing them.
  • The buyer will not give credit for those receivables that are significantly delinquent. Therefore, a focus on collecting them is recommended.
  • Any personnel issues that need addressing should be taken care of before the sale process begins (e.g. poor job performance, failed drug test).
  • Is there a need for sale approval from a large vendor, franchisor, bonding company, or minority partner?
  • Is the business cyclical? If so, is there an option to expand the product offerings to smooth out this?
  • Have the sales and cash flow trends been flat? If so, it is helpful to provide an explanation of why and a plan of how to grow the business. The growth plan could simply be the purchase of a competitor or purchasing a business which provides product extensions or better distribution.
  • Employee and stockholder loans need to be collected or forgiven.
  • Any assets on the balance sheet that are not actually used in the business should be distributed or written off.
  • If the real estate used by the business is actually owned by the stockholders then consideration of a market value and term lease is recommended.
  • Accounts payable should be current.
  • It is normally to the advantage of the seller to have chosen the “Sub S” tax election several years before the sale.
  • Assemble for later use the company’s annual financial statements and tax returns for the last five years.
Business Brokerage Consultant, Uncategorized

Selecting a Representative to Sell a Business

Oct 26, 2015 by The Montana Group 0 Comments , , , ,

“This sale is probably the family’s most financially significant occurrence, which will likely affect several generations. So, what are the important and ultimately valuable issues to consider when selecting a consultant to focus on the sale of a business?

”, says Emmett Barnes, President of The Montana Group, Inc. (www.montanagroup.com)

Experience: How many transactions has the representative successfully closed? What is the sale price range of the bulk of these transactions? What industries or specific focus are these sold companies?

Buyers: Where does the representative locate the potential buyers? What is their existing buyer database focus and how many? Can additional buyers supplement those obvious industry buyers to provide an outside perspective on value and also create competition?

Failed Transactions: Of the transactions that were listed and did not sell what cause these outcomes?

Past Sellers: Provide a list of completed transactions and the contact information for 4-6 that are available to be contacted for a reference.

Upfront Cost: Is there a retainer? Why is it necessary to pay without knowing the outcome?

Fee Schedule: Is the fee schedule formula very motivating for the representative? There should be a much larger percentage to push the price beyond an acceptable minimum.

Listing Agreement: Is the agreement cancellable at any time without penalty? If the negative outcome is apparent then why not move on?

Referrals: Does the consultant have well-qualified and experienced specialist such as merger and acquisition attorneys to recommend that have worked closely with them in the past? Wealth managers? Accountants?

Confidentiality: Would the consultant agree to provide a list of potential buyers that need pre-approval before contacting?


Issues: What operational or financial issues of the company could hold the price down and what are their recommendations to combat these?

 

Business Owners Pre-Sale Perspective
Business Brokerage Consultant, Uncategorized

Business Owners Pre-Sale Perspective

Oct 25, 2015 by The Montana Group 0 Comments , , ,

The prudent outlook of Business Owners:

As is often the case, business owners are totally focused on the constant issues of running their business. However, if they are contemplating the sale of their company it is time well spent to contemplate their business value in the eyes of the ultimate buyer.

The cash flow that the business generates is KING as this almost single-handily determines the value. The “almost” comes from other considerations like the balance sheet, the barrier to entry, and growth opportunities, to name a few. Therefore, their cash flow needs boosting, if practical. This, of course, comes from either increased sales or reduced expenses. The business owner may determine that this would require some difficult changes in direction (e.g. termination of an employee) and prefer to allow the new owner to make those tough decisions. But understand the transactional value will rarely include savings that have not yet been reflected on the income statement.

Irreplaceable business owners selling makes a business much less valuable! It is imperative for the business owners to understand that if post-closing there is no involvement in the business the potential new owner will be focused on the appropriate candidate to take over. If the buyer is an industry buyer (strategic) there could well be someone within the buyer’s organization who can run the newly acquired company. However, if the buyer is a financial buyer this candidate is more difficult to locate. Therefore, if the seller has an interest in staying involved in running the company post-sale or if there is someone else within the organization that is either now in-charge or is capable of running the company, then the buyer will more freely move forward.

Bottom Line: “Business owners should look at their business as they would if they were the buyer”, says Emmett Barnes, President of The Montana Group (www.montanagroup.com).