Business Brokerage Blog

This is a blog discussing the many intricacies associated with selling/buying a business.
Category >> Business Valuation

How to get more Value for your Business

Posted by: Fernando Simo

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Unfortunately, sellers often ignore one very simple truth: The value of their business increases in direct proportion to the buyers’ decrease in risk.   I think this is a very important element of valuation and, as such, should be very well understood by those looking to sell or currently selling their businesses.   So, the less risk the more value you may be able to get for your business buyers will compete with price to get at your business. So, let us discuss some of the things that will make your business more valuable and less of a risk to buyers:

1.                  Increasing Sales. This is an indication that the business continues to grow, and as such is able to increase greater profitability in the future. A business that has “topped out” may be considered risky and less valuable.
2.                  Increasing Profits. 
3.                  Accurate Financial Statements. The due diligence process is key to most buyers and understanding the financials of the company they intend on buying is highly important. The less cumbersome it is to understand the company’s financials, the less risky it becomes to the buyer and more value it creates.
4.                  Accurate Tax Returns. Cheating on your taxes may give you an immediate tax benefit, but it will hurt you in terms of getting the right value for your business in the long term. 
5.                  Simple Financial Recasts. When recasting financials, are you going beyond the obvious in add-backs, such as owner’s salary, depreciation, amortization, personal insurance? Since recasts help determine “Owner’s Benefit,” which in turn is use as a multiple to determine value, buyers find less risk in a simple recast.
6.                  SBA Financing. Does this business qualify for an SBA loan? If it does, there is further confirmation to the buyer that the business has a solid backbone and the ability to pay back debt service on the loan and a provision for the buyer’s life style and earning requirements. 
7.                  Seller Financing. If the seller is willing to provide financing, the buyer trusts in the business ability to generate sufficient cash to pay back the debt and meet his personal financial requirements.
8.                  Solid Management in place. The less dependent a business is on the owner the better.
 
Obviously, a business which provides for the aforementioned will get significantly more value and price than those who do not. So, start now. Make sure that your business prepares for and builds on its value by managing your business and applying these practices, accordingly.
 
Should you want to know more about buying or selling a business in Central Florida, please contact Fernando Simo at 407-361-8886, email me at fsimo@tworld.com or please click here for more information

Buying a Business?--Why Sellers Sell their Business.

Posted by: Fernando Simo

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Recently, I was having a meeting with one of my network colleagues. During our conversation, she pointed out how leery she was of businesses for sale. When I asked why, she indicated that if the seller wants to sell the business is because it is not doing well. I found her response interesting and immediately indicated to her that sellers sell for a variety of reasons, most of which are not related to poor performance, cash flow or profitability issues. Here are ten (10) other reasons:
 
1.                  Health. The seller may no longer be capable of running the business because of health restrictions.
2.                  Retirement. The seller wants to enjoy his/her golden years.
3.                  Relocation. Wants to go back to or move to a preferred location.
4.                  Family. Wants to be closed and/or misses family members. 
5.                  Job. The seller’s significant other gets an opportunity somewhere else or the seller found a job which generates more cash flow than the business.
6.                  Profitability. The seller wants to cash-in on his investment. This may be a planned or unplanned exit strategy.
7.                  Business Demands. The business demands may be too much to bear—restricting the seller’s personal enjoyment and relaxation.
8.                  Other Business Interests. Other opportunities may be more profitable than the existing business.
9.                  Taxes. It may be to the seller’s benefit to sell the business for tax purposes.
10.              Cash flow Requirements. The seller does not have the equity required to grow the business and cannot get financing.
 
So, if you are thinking about buying a business, from my perspective, it is really not that important to find out why the business is selling. What is important is to select the right kind of business for you. Once you find it, conduct the right level of due diligence to ensure that what you bought is exactly what you are going to get.
 
Should you want to know more about buying or selling a business in Central Florida, please contact Fernando Simo at 407-361-8886, email me at fsimo@tworld.com or please click here for more information

Buying a Business using 401K Funds

Posted by: Fernando Simo

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How would you like to buy a business using 401K funds--without any tax penalties? The purchase would leverage the government's taxable share of your 401K--therefore lowering your risk--and be effectively tax free on its operating profits. Should you want to know more, please contact me at 407-361-8886 or email me at fsimo@tworld.com. Also, please click here for more information on buying and selling a business in Orlando or Central Florida.


Selling or Buying a Business?--Is there an Economic Upturn?

Posted by: Fernando Simo

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There is no doubt that a major topic of discussion (and concern) today for most of us is the economy.   One of the main issues regarding a market where unemployment nears ten (10) percent (or 20% for those who include workers who no longer submit claims or are simply working on a part-time basis, or simply gave up), is whether the recession and/or the recovery is underway. Based on two continuous GDP growth quarters, most economists would indicate that the recession is over—and has been since July 2009. Of course, many would argue that recovery without job creation is nothing but number crunching. In all of that confusion, I wanted to clarify what has been happening in the Business Brokerage world (in Florida) since July 2009. 

 In a recent article written in the South Florida Business Journal, they indicate that “there are signs of life in the field of buying and selling businesses.” They go on to say that “fourth quarter (2009) figures for South Florida show a rebound in sales prices, prices paid as a multiple of cash flow and the number of businesses sold.” What makes this statement a lot more encouraging is that typically the fourth quarter is the lowest quarter of the year. Here are some other Transworld data which further show a positive trend:
 
1.                  Second half 2009 sales transactions increased 32% over first half of 2009.
2.                  Fourth quarter of 2009 was the second best fourth quarter ever!
3.                  2002 is the last time where we showed growth in three consecutive quarters.
4.                  The Q2 to Q4 positive trend was the second biggest jump in sales at Transworld over two quarters.
 
Given the aforementioned, many in our business would show cautious optimism for an economic recovery filled with opportunities for those looking to buy and sell a business. Andrew Cagnetta, Transworld President, mentioned in the South Florida article that “anybody who wants to start a business or relocate a business is going to find it pretty easy to find a location and get a good deal.” So, don’t waste any time, take advantage of the turnaround and call us to help you with your business transaction.
 
Should you want to know more about buying or selling a business in Central Florida, please contact Fernando Simo at 407-361-8886, email me at fsimo@tworld.com or please visit my webpage at www.bizbuyorsellflorida.com.

Selling your Business??--Get it Pre-Qualified!!

Posted by: Fernando Simo

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As I mentioned in one of my previous blogs, the Small Business Administration (SBA) has relaxed some of their policies in regards to lending.   I said before that they “became a lot more flexible by making changes to the acquisition policies impacting purchases which included Intangible Assets. These changes give “Preferred Lender Providers” (PLP) more flexibility to provide business loans WITHOUT going through the SBA for final approval. In addition to providing PLPs with greater flexibility, the changes give buyers more leeway in what regards the minimum amount of equity they must invest for the project.” So, how does this benefit sellers and buyers?
Well, sellers whose businesses: (1) have good financial records (normally three (3) years worth of tax returns) ; (2) generate enough cash flow to cover the repayment of the SBA loan AND  the buyer’s life style and; (3) are selling their business for at least $300K, may get lenders to Pre-Qualify their listing for an SBA loan. Note: I used the $300K, because most lenders like to provide loans in excess of $250K coupled with equity investments of between 15-25%--which may include seller’s financing. Sellers benefit because when a business is Pre-Qualified, it increases its market potential—more buyers are now able to afford the purchase of the business.  Additionally, sellers normally get 100% of the sales value at closing.   I recently sold a business within two days after it got pre-qualified.
Now keep in mind that the pre-qualification applies to the business NOT to the buyer!!! Buyers must qualify on their own merits to get the SBA loan to purchase the business. This normally means having good credit, some level of expertise in the business being bought, submission of personal financials (net worth) and the ability to personally guarantee the loan. The buyers benefit because they do not have to sell the merits of the business to the lending organization—the business has been pre-qualified.
So, if you are a seller, ask your business broker to look into pre-qualifying your business for an SBA loan. It may help you in more than one way.
Should you want to know more about buying or selling a business in Orlando or Central Florida , please contact Fernando Simo at 407-361-8886, email me at fsimo@tworld.com or please visit my webpage at www.bizbuyorsellflorida.com .

Buying a Business??—What I recommend foreign buyers to do.

Posted by: Fernando Simo

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Many foreign nationals come to Central Florida to purchase a business in order to get visas into the US on a somewhat permanent basis—so long as the business is viable the visa holder may stay, if not, they may have to get back to their country of origin.  The two most common types of visas are the L1 and E2 visas. 
The L1 visa is normally available to foreign business owners who wish to acquire a business in the U.S. and assign a person-- on an inter-company transfer—to manage the business. The person managing the U.S. business gets the L1 visa. The good news is that normally the L1 visa can be converted into a green card within two to three years. 
 The E2 category of US visas is normally given to foreign nationals who have bought a company in the US and wish to manage it. To qualify, you must be a national of a country that maintains a treaty with the United States. Additionally, the foreign national needs to make a “substantial and non-marginal investment of no less than $100,000.” However, size and nature of the business may also be determining factors. I have sold and heard of many businesses being sold for E2 reasons which do not reach the $100K plateau.
Please understand that the above are generalizations and that you need to know more. However, now that I mentioned the types of visas, let me make some recommendations to foreign buyers. 
1.                  Get proper legal (immigration) advice.
2.                  Get an ethical and reputable Business Broker to broker the transaction.
3.                  Get good financial advice from accountants or CPA’s. By the way, normally one of the requirements for the visa is a five (5) year business plan.
4.                  Buy a business which has solid financial records. Audited Financial statements and tax returns are normally good when dealing with US immigration. 
5.                  Please do not buy “cheap,” buy good. It is better to pay more for a business that has long term potential than not. Remember, after a couple of years you will have to renew your visa and the financial results of your company may determine whether or not you stay in the country.
6.                  Perform a very detailed Due Diligence on this business. Your visa depends on it!! The due diligence will help you determine the viability of the business and verify that what you bought is what you are going to get.
7.                  Do not spend it all on the business acquisition; you may need more to run the business.
8.                  Understand your life style expense requirements and buy a business which supports it.
9.                  Buy a business with a very simple Business Model—they normally succeed.
10.              Talk to other foreign nationals with E2/L1 visas. Understand their successes and struggles.
Buying a business can be stressful enough without combining it with a transition to a different country. Please follow these recommendations and your stress would certainly diminish significantly.
Should you want to know more about buying or selling a business in Central Florida, please contact Fernando Simo at 407-361-8886, email me at fsimo@tworld.com or please Click here for more info.

Selling your Business??--Consider an Exit Strategy

Posted by: Fernando Simo

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In one of my recent articles, I discussed profitability (Owners Benefit) as one of the key elements in determining a business valuation. I mentioned that if a business generate limited or no cash flow, it normally can only sell its tangible assets—receivables, inventories, furniture and fixtures and equipment.—for a nominal amount. Yes, you may get more than the book value, but I find it very rare. Unfortunately, over and over again, sellers come to me wanting to sell their business at a point of no return—where the business generates no profit or negative cash flow.

Believe me, I certainly can not be too critical of those sellers—I have been there. I know how hard it is to let go of a dream. However, that is precisely why I feel obligated to write this article. That’s why I recommend an Exit Strategy.

So what is an Exit Strategy? The dictionary describes it as “a means of escaping one’s current situation, typically unfavorable,” or a method by which business owners intend to get out of an investment, cash out or sell off. Obviously, and exit strategy should be developed prior to entering into the business transaction, but if you have not, do it now!!
The strategy may include questions such as the maximum cash to invest prior to disposition; the total acceptable amount in total retained losses—normally called Stop-Loss in the stock market— and the trigger valuation for upside and downside sale of your business, among a few. In other words, establish trigger points under which you will take some action to dispose of your business—good or bad!!
Ok you ask, so what is the purpose of an exit strategy? The purpose of an exit strategy is to allow enough time to sell your business in good and bad times, knowing, to some degree what the outcome will be. 
Should you want to know more about buying or selling a business in Central Florida, please contact Fernando Simo at 407-361-8886, email me at fsimo@tworld.com or please Click here for more info.

Selling your Business??--Can you sell something with no value??

Posted by: Fernando Simo

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 As I go on listing appointments, I caution sellers that there are two ways in which one can normally value small businesses (notice the word “normally” and “small”). One way values Tangible Assets, such as inventories, receivables, furniture, fixtures and equipment. The other uses a multiple of Owners Benefit (Operating Profit plus owner’s salaries, depreciation, amortization, interest and personal benefits charged to the business). In other words, if your business generates minimal or no Owner’s Benefit, what you are really selling are the business’ tangible assets—what we business brokers call an Asset Sale or Sale of Assets--depending on which broker you talk to.  Before I get most of my colleagues upset, let me explain that by definition an Asset Sale normally includes some level of goodwill and normally represent about 90% of our sales, the other being a Stock Sale.  So, in this blog I am using the words Asset Sale loosely.  Having said that,  ordinarily, you would not be able to sell your business for an amount greater than the market value of those assets—market value is in the “eye of the beholder.”  However, buyers normally define Market Value at 20-30% of the assets’ original value--please notice I said "buyers." 

 Now, there are cases in which sellers pay more than the value of the net tangible assets—creating Goodwill in the seller’s balance sheet equal to the amount in which the purchase price exceeds the net tangible assets of the acquired company. Goodwill, however, normally has a value—such as competitive advantage, brand, employees, customer base, etc.
In summary, if your business is not generating profits, what you have is an Asset Sale (Sale of Assets) and those assets need to have a realistic value assigned to them for buyers to want to buy. In my opinion, you cannot sell anything that does not have a value attached to it that is equal to or better than the buyer’s expectations. So, if you are selling, take a hard look at what you are REALLY selling and consult with your broker on pricing your business properly.
Should you want to know more about buying or selling a business in Central Florida, please contact Fernando Simo at 407-361-8886, email me at fsimo@tworld.com or please visit my webpage at www.bizbuyorsellflorida.com

THE RECESSION IMPACT ON THE BUSINESS BROKERAGE INDUSTRY

Posted by: Fernando Simo

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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 fsimo@tworld.com. Also, please visit my webpage: bizbuyorsellflorida.com.


The value of good Financial Records--DON'T CHEAT!!

Posted by: Fernando Simo

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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 fsimo@tworld.com. Also, please visit my webpage: bizbuyorsellflorida.com.


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