Fernando Simo

Fernando Simo

Last week I talked about the Selling Criteria or areas that can make your listing a lot more competitive, such as good financials, proper documentation (i.e.,lease and franchise agreements), equipment lists and others.   These are areas that brokers look into to determine how viable and competitive your listing is—looking for the probability of success.

During my discussion last week, I purposely omitted two additional elements (c’mon, I don’t want to tell you all in one week!!):  Price and Seller Financing.  I omitted them, because these two elements merit a separate discussion altogether.

Let’s address Price.  In our office, we use a terminology to define listings with the correct price structure—“In the Box.”  These are listings which appear to be within an appropriate market value.  In other words, if your type-business normally sells for a multiple of 2-3 times Owners Benefit (Net Profit plus owners salary, benefits, depreciation, interest and other miscellaneous additions) and yours is within those parameters—you are “IN THE BOX.”  That,  plus good financials and documentation would make the sale of your business almost a done deal—brokers like to deal with listings that are “In the Box.”

If your listing is not getting the activity that you would like, ask your broker if your listing is priced within the market.  Chances are that it will not be.  Price, like in residential real estate, is the main driver in determining how long your business will be in the market place.

Secondly, let’s talk about financing.  In a previous blog I mentioned that, in this economic environment, getting financing from lending institutions, such as the SBA or Commercial Banks has become increasingly difficult—although there are signs of improvements in this area.  So, if buyers cannot get financing through commercial banks, they cannot buy your business.   Seller financing, as mentioned before, has replaced much of the commercial banking lending.  What this means is that the degree of financing you provide, would be an indicator of how fast you will sell your business.  Today, as a rule of thumb, sellers should be looking at financing upwards of 50% of the transaction.   Additionally,  Buyers look upon this as a gesture of confidence in the business being sold—see my blog on why it makes sense to provide seller financing for more details.

So, before you beat up your business broker for the slow response on your listing, please determine if any of the above applies.  Trust me; you’ll be happier in the long run.

 

Should you want to know more about buying or selling a business, please contact Fernando Simo at 407-361-8886, email me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or please visit my webpage at www.bizbuyorsellflorida.com .

More than ever before, the selling of your business has become extremely competitive.  As a seller, in this market, you are competing with a greater volume of similiar businesses for sale, buyer's investment choices in this very tight and limited financing environment and, most importantly, the brokers' time and involvement in your listing.

Here, I would like to focus on the latter--the brokers' time and involvement in your listing.  By the way, by "broker" I do not mean the person who got your listing.  I really mean the thousand of other brokers in the market, whose purpose is to find a buyer for your listing and, as such, generate a commission.  They and your broker SELL YOUR BUSINESS!!  Now folks, they are human.  So, they look for listings that meet a "Selling Criteria"--in other words, the listings that have a greater probability to sell.  Now, what do I mean by "Selling Criteria?"  Let me give you a few elements that will help you meet it:

a.    Commission.  Many sellers like to pay less commission than standard on their listing.  Guess what?  Some brokers look at higher commission levels.  Money speaks so they move to higher commission listings.

b.    Financials.  In our business, we can disclose a business' Profit and Loss in more than one way.  Although there are several ways in which to do it, let me focus on three:

        1.    Owner to Prove.  This means that an owners' financial figures shown on the listing will be "proven" by the owner.  Brokers and buyers normally spend very little time on this type of listing.

        2.   Profit and Loss Statements.  This means that the numbers shown on the listing are backed by prepared financial statements--Quickbooks, Accountants, CPA's.  Obviously, a preference would be audited financial statements, which, by the way, are seldom provided.

        3.  Tax Returns.  Buyers and brokers both like Tax Returns.  Why?  They are normally and understated indicator of the financial results of the business--as I mentioned in a previous blog, the understatement occurs through cheating.

c.    Proper Documentation.  Lease agreements, Franchise Agreements, etc.  This information provides the broker with greater insight on your ability to sell the business and helps buyers make a quicker decision when buying it.

d.    Equipment List.  The list represents incremental value, therefore more appealing to buyers.

 So, if you want your business to sell, BE COMPETITIVE!!!  Ensure that you meet the very minimum level of the "Selling Criteria," as defined above, and provide your broker with the tools to be competitive and successful in selling your business.

 

Should you want to know more about buying or selling a business, please contact Fernando Simo at 407-361-8886, or email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it , or please visit my website at www.bizbuyorsellflorida.com.

Wednesday, 12 October 2011 20:16

So you want to buy a business, heh!!!

So you made the decision to buy a business.  Now what??  Well, to begin with, I would recommend you get the services of a business broker to help you find the right business—it is FREE.   Just like in the real estate market, brokers get paid a commission from the seller not the buyer AND, in most cases, the broker represents the transaction—where he is not an agent of either the seller or the buyer.   Secondly, I would really give a lot of thought as to why I am buying a business.  Do you need to or do you desire to buy a business?  In today’s economy many buyers NEED to buy a business to replace a job (Note: Most of those looking to get a visa REALLY are replacing the jobs they had in their country of origin).    Buyers who desire to buy a business normally spend fruitless hours—and those of the broker-- looking for the perfect business to buy, to no avail.

Buyers should consider the following areas, as well:

1. What are you looking to invest?  One should understand that the equity used to purchase a business IS NOT the only equity required.  In many cases, a significant work in capital amount is required to begin running the operations of the business effectively—marketing, distribution, inventory, additional fixed assets, etc.
2. Where are the funds you want to invest?   Are they coming from 401K’s, SBA loans, Home Equity Lines of Credit?  There may be restrictions as to how to use some of these funds.
3. Based on your life style, how much income do you need to maintain it, after debt service and taxes?  Please keep in mind that most businesses sell at 2-3 times its owners benefit.  So that if you need $100K to maintain your life style, you are looking to buy a business in the range of $200-300K.
4. How many hours per week are you willing to work?
5. Are other family members to be working the business with you?
6. What industry am I willing to work in?
7. Where am I willing to have this business geographically?
8. Do I have the licenses required to run this business?
9. Am I willing to provide a personal guarantee on any notes provided by the seller?
10. Is my credit good enough to get a lease agreement/assignment?

An understanding of what it is that you want/require when buying a business is critical PRIOR to going through the process of buying.  Most good brokers will help you determine your viability to buy a business.   Once you know what it is that you are looking for, the broker can help you get there quickly and efficiently.

Should you want to know more about selling or buying a business, please contact me, Fernando Simo, at 407-361-8886 and/or visit my webpage at www.bizbuyorsellflorida.com

It’s the same old story.  A buyer enters into a Purchase Agreement to buy a business, normally with a provision to conduct a due diligence within a 10-15 day period and, (guess what?)  fails to do so.  As a result, the buyer goes to closing, signs all of the documents required to transfer ownership only to find out later on that what he bought is not what he expected.  As a result, the new business owner losses, in most cases, all of their liquid assets.  It is a story which I find repeating all the time. 

Obviously, a due diligence should be performed to:
a. Confirm that the business is what it appears to be.
b. Identify potential “deal killer” defects in the business being acquired.
c. Gain information that may be useful in determining the viability of the business.
d. Verifying that the transaction complies with the investment or acquisition criteria—what you were told is, indeed, the truth.

Having said that, what should I look at?  Normally, for small transactions, the minimum you should be looking at are:

a. Current Payroll Information.  Are the payroll and employees what I have been told?
b. Lease Agreement.  This is important if you are looking to get a lease assignment.
c. Financial Statements – Balance Sheet and P&L.  Do they represent what I have been told?  Are they prepared by a reputable CPA firm?
d. Tax Returns
e. Bank Accounts—a good source to determine true cash flow.

So, PLEASE, do not make the mistake of ignoring the due diligence process.  It will provide you with the peace of mind of entering into a new business with a clear vision of its future.

Should you want to know more about selling or buying a business, please contact me, Fernando Simo, at 407-361-8886 and/or visit my webpage at www.bizbuyorsellflorida.com

Let’s face it, many buyers today are hindered by their ability to buy because banks are unwilling to provide business loans as easily as just a few years ago.  It is, to say the least, difficult to get financing.  As a result, seller financing have now replaced commercial banks to cover the gap.  In this market, if sellers fail to provide financing, they may not be able to sell their business, period!  Here are some reasons why sellers should provide financing:

1. Higher Interest Earnings.  In today’s market, your bank savings may generate between 2-4% interest earnings.  Seller financing normally is above 8%.


2. Buyers Become more Confident.  A buyer who knows you are willing to finance has a greater confidence level on the purchase of the business.


3. Generates More Potential Buyers.  Your market will increase by those buyers who need financing and cannot get it through the banks.


4. The Seller will not be Subordinate to a Bank.  Normally, SBA loans required a 10% subordination to their loan—until the loan has been repaid.


5. Less and Simpler Documentation.  Documents between buyer and seller are significantly less complex than with Banking Institutions.


6. Much Faster Closing.  Only the seller and buyer are involved.


7. Higher Buyer Qualification.                                                                                                                     

8. More Seller Control.  Normally, seller financing has as collateral the business assets.  So, in case of default, you may get your business back plus all the monies you have already received.


9. Higher Sales Price.  You may be able to increase the sell price of your business by 15-20% higher than those without seller financing.

So, if you are a seller, think about it.  It may be to your benefit.

Should you want to know more about selling or buying a business, please contact me, Fernando Simo, at 407-361-8886 and/or visit my webpage at www.bizbuyorsellflorida.com

Like the majority of businesses, the recession has negatively impacted the Business Brokerage world. As the recession took hold on the economy and business revenues began to recede, so did business profits. With a reduction of over 30% in sales (turnover) for most businesses and fixed costs remaining in place (i.e., Insurance, Rent, Utilities), profits, value and cash flow suffered significantly from only a couple of years ago—most low cash flow businesses either closed doors or decided to sell. Most sellers found themselves selling at less than one third its original business value—just like in Real Estate, it became a “Buyer’s Market.” Note: Although business value can be determined in a variety of ways; i.e., multiple of sales, EBITDA, Owners Benefit, Free Cash Flow, etc.—most businesses sell at a multiple of 2-3 times Owners Benefit, where Owners Benefit closely resembles EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization.) Although one would think that buyers would greatly benefit from this recession, the recession had an impact on their ability to buy a business. With the failure of the financial markets and major banks, leveraging a business purchase became very difficult, indeed, due to the lack of financing availability. In normal economic times, one could purchase a business with 20% Equity and 80% Debt, normally based on a ten (10) year term. Although it is still possible to get this level of financing, the requirements have become a lot more stringent—requiring tax returns, financial statements, related business experience and much more. Additionally, the Small Business Administration (SBA), the financing source of most small business purchases, became a lot more stringent (and efficient) in providing loans. It recently revised their SOP (Standard Operating Procedure) 50-10 by more than 1000 pages requiring more business appraisals and third party asset valuations for loans of over $350,000. Furthermore, equity injection to buy a business can no longer come from home equity loans or any other form of personal credit. Additionally, their treatment of Goodwill has also changed by creating a Goodwill cap of 50% of the loan amount up to $250,000. As a result, sellers have taken on the financing burden. Today, sellers that want to sell their businesses quickly normally are required to finance up to 50% or more of the transaction. Although the world markets have suffered through this recession, the shrink in the dollar value has created opportunity for many foreigners to purchase business properties in the United States, while taking advantage of Visa permits. Note: Foreign investors who invest a substantial amount of capital in a US enterprise and who will develop and direct the enterprise, may apply for an E-2 Visa if their country of citizenship has the required treaty with the U.S. The holders of the E-2 Visa may reside in the United States as long as they continue to maintain their status with the enterprise. With the sterling latest surge over the dollar, many from the U.K bought (and continue to buy) businesses in the U.S., primarily looking for the E-2. Normally, these buyers go after “cash cow” businesses such as low overhead Service Businesses which required minimal capital investment in fixed assets—such as Property Management, Lawn and Pool Services, and Painting services. In summary, poor business valuations means poor sales prices which means low commissions for brokers. Likewise, buyer’s confidence in the market place and their inability to obtain financing creates less of an opportunity for a business sale, therefore, less commissions. The recession has had a very negative impact on the selling/buying of businesses and as such, Business Brokers’ have suffered accordingly. Those who survive the recession will be positioned to ripe all the benefits associated with the principle of supply and demand.  I intend on being one of them!!!!!!!

Should you want to know more about what it takes to sell your business, please call me, Fernando Simo, at 407-361-8886, or email me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Also, please visit my webpage: bizbuyorsellflorida.com.

As a Business Broker, I often discuss the intrinsic value of good financials. You would be surprised how many businesses do not maintain good records; understate the reported income in tax returns; overstate expenses and hide (do not report) most of the cash generated by the business. As a result, many sellers, when it comes time for Due Diligence, cannot effectively sell their businesses because they cannot prove what the business REALLY generates in bottom line profitability. Using taxes and/or financial records as a guideline for valuation, this means that your business will be undervalued significantly and you may have to sell it thousands of dollars below its real value. So, if you and your business have an exit strategy--don't cheat and keep good financials. It will add significantly greater value to your bottom line than the few dollars you may save on taxes. Fruit for thought... Should you want to know more about what it takes to sell your business, please call me, Fernando Simo, at 407-361-8886, or email me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Also, please visit my webpage: bizbuyorsellflorida.com.

Wednesday, 12 October 2011 20:13

What is your business worth?

Valuation certainly is one of the major concerns of sellers as they approach the decision to sell their business.  However, valuation is an art, not a science and in reality the real value of your business comes from the market or what a buyer is willing to pay.  However, generally, there are three generally accepted approaches to valuing a business.

1.    The Asset Approach. The value of the assets in your business minus the liabilities.  Using accounting terminology, one could label this as Book Value.  For the most part, this approach does not represent the true value of a business.
2.    The Market Approach.   Simply speaking this compares to the Real Estate comparables.  Like businesses in size and industry sell for similar valuations.
3.    The Income Approach.  This approach values your business as the present value of all of its future income streams—normally Free Cash Flow discounted at a weighted average cost of capital applicable to that business and or based on the level of debt/equity required.

And then, there are multiples.  Multiples of EBITDA, Owners Benefit—net income plus depreciation, interest, and the owners’ salary and fringe benefits.   And here again, multiples vary depending on many factors:  earning potential, the strength of financial records, potential growth of the company, etc.  However, for most businesses in this market, a multiple of 2-3 applied to Owners Benefit would value your business.

What if no earnings or little earning?  Well, then your business is worth its asset value (goodwill, inventories, receivables, equipment, etc.).  Sorry.

Confusing?  Yes, it is.  An art NOT  a science.

Should you want to know more about selling or buying a business, please contact me, Fernando Simo, at 407-361-8886 and/or visit my webpage at www.bizbuyorsellflorida.com

Thursday, 06 October 2011 20:49

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Fernando A. Simo, P.A.
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