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Tag: Business Sale Considerations

2019 Conditions for Selling a Business
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2019 Conditions for Selling a Business

Nov 8, 2019 by The Montana Group 0 Comments , , ,

2019 Conditions for Selling a Business

There are a number of cyclical factors that affect the optimum time to sell a business. Of course, is the business doing well? Are the revenue and sales trends upward? Does the future look bright? Other factors include the motivation and industry focus of buyers, as well as, their funding rates and availability.

Currently (2019), the private equity buyers are numerous, well funded with unused cash, and a hungry appetite left over from the slow years of the recent recession. This coupled with historically low interest rates and an easing of commercial borrowing make the demand side of the transaction very favorable to a seller. IF the potential seller’s business is preforming well then now is a great time to sell. Performing well means are the business’ earnings growing from increasing sales, are the continued growth opportunities likely and evident, and are the product or service margins not contracting. When these factors are inline the seller’s representative is in a position to sell the business on the present and also on the near term future rather than on a historical earning formula which includes recessionary years that would reduce the sale price.

An accomplished business brokerage consultant like The Montana Group (www.montanagroup.com) will know of the best method for selling the business. Occasionally, the most advantageous buyer is a company within the selling company’s focus. This is known as a strategic buyer as there are strategic reasons to be buying the business. While this seems a logical place to negotiate, these buyers are often not aware of the current rates for purchasing a business and thus their offers are deficient.  The other type of buyer is the financial buyer who is interested in buying a good business with a definable upside and can be purchased at a price that is consistent with the cash flow multiples currently paid for such companies. The Montana Group does not charge a retainer so it’s success-based only fee is motivating.

When Selecting the Advisor to Sell your Business?
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When Selecting the Advisor to Sell your Business?

Aug 21, 2019 by The Montana Group 0 Comments , ,

The spectrum of business intermediary is vast. There are those who are members of nationwide networks who can blast a company’s information throughout the country and abroad. There are those who believe the ideal method when locating the potential buyers should be a selection based on their acquisition history, their current acquisition interest, their ability to fund the transaction, and their overall success with their previously acquired businesses. This tier tends to include those that focus on businesses with a value greater than the aforementioned nationwide network model and is the focus of The Montana Group. (www.montanagroup.com) 

The relevant questions to help someone determine the most qualified and best fit for a business owner are based on the intermediary’s experience and how a company will be marketed. A review of completed transactions to determine the size range, geographic and industry focus of their completed transactions, an understanding of services offered and fee structure, the duration of their listing agreement and ability to cancel, the makeup and depth of their buyers, and the level of their involvement throughout the sale process will help in the selection. Also, who specifically will be working on the transaction and their experience and qualifications?

The optimal situation would be to obtain a full and fair proposal that assures the remaining employees that their future with the company continues to remain bright. Generally, those employees that are very good will be critical to the business going forward and will be treated very well by the new owner.  Often the buyer will want the seller top remain for a period of 1-5 years with a minority ownership but this is determined by the seller’s preference. The intermediary should further define the potential acquirer based on this preference as most buyers have a preference.

Often the company owner has a few potential buyers within their industry who have made it clear that they have an interest in acquiring that business. It is rarely a situation that does not require a business broker consultant, as the buyer will realize that due to the representation there must also be other interested suitors outside their industry who are difficult to predict and therefore an opportunity to purchase the business below market should not exist. The fee paid to the consultant should be return in multiples if the selected intermediary is successful.

“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.

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Is the business ready to sell?

Jul 13, 2019 by The Montana Group 0 Comments , , ,

Practically every business goes through cycles that are caused by competitive pressure, the economy, or other external reasons. So when the time is right to sell it’s best to start the process before a downturn reappears.

  • Have the sales increased yearly for a few years? Upward trends in revenue are very important as they reflect an increasing demand for the company’s product.
  • Have the operating margins remained constant or even improved over these past few years? If not, make sure to explain in such a way that the potential buyers are not as concerned with this indicator that often points to increased competition.
  • Do these increases above have a likelihood of continuing in the near future? A buyer wants to avoid buying a business at its peak.
  • Is there a concentration of business in a couple of customers? If that is the case it would be advisable to add other customers to the total revenue, which will dilute the concentration. If it is not, a buyer will appreciate this spread of business.
  • Buyers prefer to purchase the business assets as this provides an income tax benefit in the future and also this significantly reduces the issue of unknown liabilities surfacing after the sale. If the company has elected “S” or “LLC” then selling the assets rather than the corporate stock can be provided to the buyer without significant tax detriment to the seller.
  • If the real estate is not company owned make sure to have a lease that is or can be extended to continue the new owner in the location.
  • Are there any significant capital expenditures that soon need addressing? If so, determine the cost and the financial benefits of the purchase and reflect this in the financial projections.
  • Are there any unnecessary costs that can be eliminated or reduced? If so, a business is value on the cash flow that it generates so seriously consider making these changes or least add them to the financial projections.
  • What are the growth opportunities? This could include industry expansion, weakness of competition, or simply improved business practices. A buyer will want this desirable option.
  • Is there existing management that can continue the business on its current path of growth? If so, this expands the potential buyer list, which should increase the price offered.

“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.

What makes The Montana Group the best option for selling a business?
Business Broker Newsletter, Business Brokerage Consultant, Selling a Business

What factors make NOW the time to sell?

Feb 9, 2019 by The Montana Group 0 Comments , ,
What factors make NOW the time to sell?

In an effort to explain why now (2019) is a great time to sell here is a basic understanding of the financial buyers, also known as private equity groups, their funding, and their motivation.

Private equity groups (PEG) are numerous and represent another asset class investment option, which is owning private operating established businesses. Their sources of funds include endowments, pension funds, wealthy investors, corporate funds, and their own funds. This asset class provides a semi-liquid investment that has frequently outperformed many other options such a publicly traded securities, public and corporate debt, and real estate. There is, of course, risk when investing in operating businesses and consequently the acquisition price is relative to this risk.

Private equity groups raise their money by obtaining commitments to invest when an acceptable acquisition is identified. These commitment sources often pay an annual fee to cover PEG’s overhead, a transaction fee to the PEG at the time of each acquisition, and a percentage of the ultimate resale profit once their equity investment receives a preferential return. So, the annual overhead fee paid focuses the equity sources to encourage their private equity group to actually invest their committed capital, in order to recover these fees plus have an opportunity to receive an attractive investment return. However, during the recent recession there were fewer acceptable businesses available as selling a business when its financial trends are down is not prudent and also potential buyers were understandably cautious from the economic conditions. So, overhead fees were paid by their capital commitment sources, yet investments were scarce and their overall investment returns were often less than expected.

Now that private corporate earnings are trending upward, a focus on selling a business is certainly more prudent. Particularly so, when well-funded buyers are numerous, the interest rates for acquisition debt is historically very low, and the recent economic improvement makes the business’ future appear brighter. In conclusion, “If your business is performing well financially, has upward increases in revenue and cash flow, and is making at least $2 million in pretax this is a great time to consider selling” says consultant Emmett Barnes, President of The Montana Group (www.montanagroup.com).