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Tag: Selling a Business

Thinking of Selling Your Business?
Business Brokerage Consultant, Uncategorized

Before Selling Your Business 

Apr 5, 2016 by The Montana Group 0 Comments , ,

Top 10 Considerations Before Selling Your Business

  • Are your company’s recent sales and earnings trends desirable? The ultimate purchase price is significantly increased if the sales and the earnings have been growing over the past several years.
  • If your business lost its two largest customers what percentage of its overall revenue would be lost? If there is a concentration of business with a single or a few customers and they have other options it would be advantageous to dilute this before selling your business.
  • If you, the owner, are involved in the business is there an interest in continuing in that capacity or even a reduced capacity after the normal 1-2 year post closing transition? Are there qualified management candidates within your company to take over once you, the owner, retire post-sale? If not, such a suggestion outside the company may be of importance.
  • If there is significant value in the company’s real estate it may be advantageous to distribute it to the stockholders before selling the company and have the company lease it back at market rates.
  • Understand that the purchase price takes into consideration that there will be no interest bearing debt to be assumed by the buyer.
  • What is the corporate structure and which would be preferred, selling the assets or selling the corporate stock?
  • Is the ownership willing to have their broker discuss the company with the company’s competitors? Often this is an easier sale and for more money but also there are additional risks (e.g. industry talk, customer information, product or service pricing) not found when selling within the unrelated private equity market. If a quiet sale is the goal then discussions with a competitor are usually not recommended.
  • Make sure the broker that you select is paid only when the sale is complete and with a fee structure calculated to incentivize an increased sale price. Only success is rewarded. Determine who within the brokerage company will actually be working on the marketing and the negotiations of your company. Associates are not senior partners.
  • Understand that for the time to complete a sale a reasonable target would be about 6 months. Is this a good time within your business’ seasonality or its industry cycle?
  • Is there someone within your company who can confidentially assemble the required financial data without disrupting the company’s business and without exposing the process within the company?
“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.
Thinking of Selling Your Business?
Business Brokerage Consultant, Uncategorized

Common Components to Montana Group’s prior transactions

Jan 4, 2016 by The Montana Group 0 Comments , , ,

In the twenty-four business sales that The Montana Group (www.montanagroup.com) consulted each were unique in their own way, but most share common components. The ultimate buyers share many of the same acquisition interests so it’s fairly predictable when we list a business that it will be sold but when and to whom is the unknown.

These businesses were in the manufacturing, distribution, and service sectors and were located throughout the US with a concentration in the southern part of the country. They also fall within the size range, of $2 million minimum in pretax profits. These businesses all have good growth trends that exhibit an increase in sales accompanied by a commensurate increase in pretax profits. There is also an opportunity to increase the business revenue in the future either from internal growth from an increase in market share, an expansion in geographic territory, or through a strategic acquisition. The existing management, either the prior owner or newly elevated existing management, is involved with the business after the sale and at times receives ownership for their future successes. These businesses have a niche that makes them desirable. These niches were a desirable geographic territory, a product with little competition, a large market share of a small market, a specialized service that is difficult to duplicate, or simply a nimble company filling a need with a quality product.

The owners were in a position in life that selling their business allowed them to retire at the sale or gradually retire over a few years and the sale allowed them to make liquid their largest and most significant asset. By working with The Montana Group these companies were paired with the appropriate buyer who met the owners’ various objectives. Our clients appreciate the risk that we take when we are willing to work on the sale of their business and only get paid when the business is sold. This tells them that we are confident in an outcome that meets their objectives.

 

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.