Most business owners like to think they have a pretty good idea of what their business is worth. Some will show me their asset list and tell me the business is worth the sum of the assets. Some will tell me their business is worth three times last year's cash flow. Others will tell me they really have no idea, but they need to pay off their bank debt, their inventory and a host of other bills.
So, how much is your business worth?
The truth is there is no magical formula. There are many factors to determine selling price. Tangible factors include assets, cash flow, revenue and rent. Intangible factors include economic conditions, industry and recent sales of like businesses.
It is difficult to value "goodwill." Goodwill is the difference between the market value of the business assets and the selling price. Goodwill can also be looked upon as the value of the customer loyalty, brand recognition, competitive advantage or reputation. Buyers have a difficult time assessing the impact of a sale on customer loyalty and the brand; therefore, they have a difficult time determining a price for it.
The future is uncertain. Transition is often difficult. Once the new owner takes over, the business will change. Will the new owner be more, or less, successful? Will employees, customers and suppliers like the changes, or not? And in recent times, will economic conditions be kind to the new owner, or cruel? Assessing the risk is a difficult chore for the buyer.
Value and price are correlated, but by no means perfectly. The final price is determined through the open market negotiations by buyers and you, the seller. The price is what you receive for the business, the value may have been more, or less, than the price.
How Can Price Correlate More Highly with Value?
A third-party business valuation is always a useful tool in providing an independent assessment of a businesses value to prospective buyers. A business with a third-party valuation is more likely to sell quickly and nearer to its value than a business without a valuation.
For more information on business valuations, please contact Eric at 239-405-8818 or eric@bluechipbizsolutions.com
Monday, September 28, 2009
Thursday, September 24, 2009
Business Sales – A Plea for Cooperation to Residential and Commercial Agents
June 21,2009
More and more frequently, I am running across business owners coming off of listings produced by an individual with no business brokerage experience. Several of these owners have been reluctant to re-list their business due to the inappropriate marketing of their business. Here are two (of many) common, critical mistakes made by inexperienced brokers in listing a business for sale:
1. Breach of confidentiality. A business is not a residential or commercial property. A visible listing makes customers, employees and suppliers nervous at best and “former” customers, employees and suppliers at worst. While reviewing the financial information, I have seen a lot of damage done to businesses and business owners through listings stating the business name and/or photos of the business.
2. Improper valuation of the business. I have seldom met a business owner who thought their business was worth less than it really is. Just as in valuing a residential or commercial property you need data, it is the same for businesses. If you do not know the business market, including historical multiples, comparibles, the local listings and most importantly, if you do not have the knowledge and skills to recast financials, you cannot value a business. I have seen so many businesses listed by inexperienced brokers at two or three times their market value. Buyers today are far too sophisticated. They won’t waste their time looking at businesses priced too far above the market.
Now my plea: If you are a realtor or broker with a business owner as a client and you have little experience valuing and marketing businesses, get me involved. The benefits should be obvious;
1. The means to confidentially market the business will result in continuity in business performance.
2. The proper valuation will result in more prospective buyers and realistic expectations from the business owner.
3. You won’t waste your time or your client’s time with an improper listing.
4. Your probability of selling increases dramatically; hence, the probability of earning a commission does as well.
5. Your client will be much happier with you and will enhance your reputation because you provided the best advice.
So, if you have a client with a business for sale, contact someone with business sales experience. I can be contacted at 800-599-0503 or eric@bluechipbizsolutions.com and would be glad to write a sell side commission agreement to help you and your client.
What is My Business Worth?
June 20, 2009
Business sales are effected by the same supply and demand curves impacting every free-market commodity. Presently, the supply of businesses for sale is roughly the same as any time in recent history. However, demand for businesses is still relatively low. Uncertainty in the credit markets, the economy and in business in general, have limited the number of qualified buyers. So what does this mean in terms of your business value?
1. Buyers are looking for “cheaper” deals. Smaller deals under $250,000 and $100,000 down in order to limit risk are what is selling at the moment. Businesses priced from $250,000 to $5,000,000 are moving more slowly due to the credit crunch and increased risk.
2. Buyers are looking for “better” businesses. For most buyers, they are looking for a 25% or greater ROI — after you factor in a reasonable salary for their involvement in the business. For example, if a tobacco store sells for $200,000 and the buyer expects to earn $50,000 per year for working the store themselves, a buyer would expect to earn 25% of their investment (or $50,000) in addition to their $50,000 salary. Hence, this $200,000 investment must provide $100,000 of owner benefit to sell.
3. Buyers are moving “slower” than in the past. They are taking longer to put offers in, to execute due diligence, to obtain financing, etc.. A typical business sale used to take 4 to 9 months. Today, it will likely take much longer as buyers are much more cautious and unless seller financed, financing is much more difficult to find.
If you would like a market analysis of your business, please do not hesitate to contact me at 800-599-0503 or eric@bluechipbizsolutions.com.
WHO SHOULD SIGN A NON-DISCLOSURE?
May 22, 2009
When buying a business, the prospective buyer almost always expects to sign a non-disclosure agreement (NDA). The reasons are fairly obvious — to protect the seller’s information from being shared with competitors, suppliers and customers and ultimately destroying the value of the business. But, did you know a prospective seller should also request a NDA from their broker? It is important for you as a seller to request a NDA from the broker to protect you for the same reasons. What is to stop the broker form sharing your information without your knowledge or permission? When working with a broker, one of the first things the broker does is request detailed documented information about your business, e.g., tax returns, lease agreements and asset lists. Before providing this information, request a NDA from the broker to protect your business.
If you have any questions about information security, please do not hesitate to contact me at 800-599-0503 or eric@bluechipbizsolutions.com.
ACQUIRE A BUSINESS WITH YOUR 401K OR IRA!
May 8, 2009
In today’s era of high unemployment and tight credit markets, many early retirees and downsized executives are choosing to utilizing their 401K or IRA as a funding source to purchase a business. Using a 401K or IRA has several advantages over traditional debt financing:
1. Reduction of principal and interest payment for the corresponding amount of dept replaced by the 401K or IRA investment.
2. Reduced debt creates opportunities for additional funding for your business.
3. Reduced debt always correlates to a higher probability of success.
4. Tax deferment of capital gains from eventual sale of business because the proceeds go back to your 401K or IRA.
If you are interested in utilizing a portion of your 401K or IRA to fund a business acquisition, I have several great companies to handle the process from start to finish. Contact me for more information. Call or email me at 800-599-0503 or eric@bluechipbizsolutions.com.
INTERESTING FACTS ON SELLING A BUSINESS
April 24, 2009
Interesting Facts:
1. One out of five businesses change hands each year.
2. Most sellers are selling a business for the first time and do not understand the sales process.
3. Getting financing is significantly more difficult on business transactions than a real estate transactions and almost always require a formal business plan.
4. Sales by business owners often receive far less than market value due to lack of understanding of business valuation techniques.
5. Only a handful of accountants and lawyers fully understand the basics of business valuation, risk analysis, exit strategies, business plans, competitive analysis, trend analysis and cash flow forecasting, yet sellers and buyers still count on them.
6. Over 50% of all deals not completed with professional assistance from a business broker result in transactional problems, dissatisfaction or default.
7. Most buyers have little appreciation for the amount of effort it takes to secure a SBA or conventional loan and are not skilled in completing a formal business plan.
8. Businesses highly favored by the the SBA and banks for loans: Assisted Living Facilities, Expansions, Child Care Centers, Dentists, Doctors, Funeral Homes, Hardware Stores, Medical/Dental/Vet Facilities, Nursing Homes, Pet Centers and Recycling Facilities.
9. Businesses not favored by the SBA and banks and almost always require some form of seller financing: Beauty Salons, Breweries, Dry Cleaners, Fishing Vessels, Poor Performing Franchises, Gas Stations without Convenience Stores, Gift Shops, Gyms, Non-Flagship Hotels/Motels and Restaurants.
10. I am here to help residential and commercial realtors who do not have experience selling a business. Everything you have learned on how to market a property is does not work in selling a business. In fact, it often makes selling a business far more difficult, if not impossible. Call or email me at 800-599-0503 or eric@bluechipbizsolutions.com.
Commercial Real Estate Market Driving Renegotiation of Unfavorable Lease Terms
April 10, 2009
“Lease renegotiations create win-win solutions benefiting tenants and landlords.”
A business owner’s need for improved cash flow to remain a solid, sustainable entity often is not aligned with the lease terms and conditions agreed upon when the market was at its peak 2 to 4 years ago. As the economy drives more businesses into red ink and the commercial leasing market continues to soften, the opportunity for business owners to renegotiate their leases well before their expiration date has never been more critical. The key to these negotiations is to create lease terms benefiting both the leaseholder and the tenant, i.e., creating a “win-win” scenario. For example, the leaseholder may benefit from:
· Extended guarantee of cash flow.
· Improved occupancy rates.
· Reduced rollover risk.
Know Who You are Dealing With
Knowing the leaseholder and how they are invested is the first step in renegotiating a lease. There a several types of leaseholders and each have distinct needs. For example, a single asset owner dependant upon monthly income to make their mortgage payments will have a totally unique approach versus an REIT wanting to create a stream of income for investors. Another example may be a leaseholder who sold the business and not the real estate. The business owner may be better off to look at purchasing the real estate under the business versus renegotiating rent.
Create the Appropriate Story
A successful lease renegotiation requires the leaseholder to obtain an appropriate assessment of risk. The story the business owner tells is critical to ensure a win-win solution. If the story is too optimistic, the leaseholder will believe it is only a temporary concern and may only offer temporary relief. If the story is too pessimistic, the leaseholder will believe the business is about to fail and they must squeeze every last dollar out of the business. Neither of these are win-win solutions. The best story is one balancing pessimism, i.e., if costs are not reduced the business will not survive, with optimism, i.e., if rent is reduced and we accomplish these other three cost cutting measures, we will return to break-even within three months. Besides the financial condition of the business, other key events with potential positive impact on negotiations include:
· Present rate and/or renewal rate is well above or below market levels.
· You have a termination clause for a fixed amount.
· The leaseholder has invoked a relocation clause.
· Downsizing or outsourcing has created unused space.
· Acquisition or new product development has created the need for more space.
· The building requires a major infrastructure improvement to meet business needs.
· The business model has changed significantly.
· Availability/access to credit has changed.
· The asset has sold or is presently being marketed for sale.
Understand Your Options
Everyone’s primary concern is cash flow, and certainly it is important; however there are many other terms and conditions to trade off in order to create a win-win outcome. A leaseholder will be most interested in trading off reduced income for:
· An extension term.
· Return of space to the leaseholder.
· Targeted rental rates, especially in REITs.
· Tax deferrals.
· Purchase options.
· Future expansion options.
· Deferred maintenance or repairs.
· Transfer of responsibility for maintenance or repairs.
· Ownership transfer options.
· Future space adjustment options.
· Security agreements.
Know the Market and Building History
Having sound, current data to back up your position is critical in a lease renegotiation. What you know about the market, and your building in particular, going into the negotiation will help you set appropriate expectations. This knowledge is highly correlated to completing a successful negotiation. Things you should know before renegotiating your lease:
· Building history including lease rates, trends and vacancy rates.
· Market history including lease rates, trends and vacancy rates.
· Building ownership and recent changes to ownership.
Market and building information is readily available from many commercial real estate data providers for a reasonable monthly subscription. I highly recommend you have this information in hand prior to any negotiation as hard data diffuses emotion and leads to reasonable expectations and outcomes for both parties.
Know Your Present Financial Capability
It is very important to understand and to be able to explain your company’s present financial situation, the revenue and cost cutting measures being undertaken, the amount of rent you can or will be able to afford at any given time, and the capability to make future renegotiated payments. The leaseholder will ask for this information to better understand tradeoffs and assess their risk. Specifically, they will want answers to the following questions:
· Is the business sustainable if a rent reduction is negotiated?
· Will the business fail if a rent reduction is not negotiated?
· Are there lower priced options in nearby buildings?
· How will cash flow be impacted if the business fails or moves?
· How quickly can the space be leased to a new tenant?
· Is there another tenant in the building looking to expand?
Approaching the Leaseholder
Knowing how to approach the leaseholder is critical to set the tone for the negotiation. Usually, the best approach is to write very positive, non-confrontational letter detailing the financial situation of the company, the strategy for recovery, what is expected from the leaseholder to contribute to the recovery, and a request to discuss potential win-win solutions. Once a suitable date and time has been established for this discussion, the best step is to guide the leaseholder through the letter, educate them on their building and local market, answer their questions, then politely ask for the terms and conditions you believe acceptable for a win-win solution. A market educated leaseholder may very well agree to terms quickly; whereas, others will need time to study their present situation as well as the marketplace. If an agreement is not reached, schedule a follow-up meeting to ensure the negotiation continues in a timely manner.
Every lease renegotiation is different. They can take many different roads, so the more prepared you are in advance, the more in control you will be. Some surprising responses could include a landlord eager to see you terminate the lease as they have an existing tenant wanting to expand or a new tenant wanting to move in, leaseholders not willing to negotiate because they are out of touch with the marketplace due to lack of interest or they are based overseas, an interest in selling the building to the tenant(s), or complete lack of interest due to the relative impact on the leaseholder’s overall portfolio. Whatever the response, the key is to remain persistent in your strategy and objectives.
Know What You are Signing
Once the leaseholder has agreed to the revised terms and conditions, be sure to carefully study the new lease agreement. It is not uncommon for the leaseholder to make alterations to the agreement not discussed such as revising payment terms, adding personal guarantees, or creating large pass through charges
Conclusion
Lease renegotiations have a high likelihood of success in a soft market given you know how to present your case. You must be willing to open your books to the leaseholder so they understand their risk and there is no substitute for knowing the history of the building and the market. It is not uncommon for leaseholders to drag direct tenant negotiations out two or three months to see how desperate the tenant becomes – a game of “lessor-lessee chicken” if you will. Therefore, you may consider using a third-party negotiating firm as it may end up saving you money in the short-term as well. I offer my services on your behalf for $1500 or one-twelfth the annual savings I negotiate, whichever is greater, guaranteed. Remember, lease renegotiations are intended to create win-win solutions for both tenant and leaseholder.
by
Eric J. Gall
Principal
Blue Chip Business Solutions, LLC
239-405-8818 or 800-599-0503
eric@bluechipbizsolutions.com
www.LeaseAdjuster.com
BUYERS STARTING TO JUMP BACK IN THE GAME
March 27, 2009
After a mild downward trend in the fourth quarter of 2008, and an absolute dearth of new buyers in the nine weeks since the inauguaration, we just now starting to see buyers jumping back in the game.
Has there been a better time? There has always been a steady stream of sellers. The laws of supply and demand tell us there will be weary sellers out there willing to lower their price because they are eager to retire or move on.
My Advice?
If you are a seller, remember your motivation. Why do you want to sell? If money is the motivator, you must remain patient and continue to manage and grow your business. If getting out is your motivator, like I said, we are once again seeing buyers willing to pick up bargains slightly below historical multiples. And, given the credit situation, you must be prepared to finance a significant portion of the transaction.
If you are a buyer, now is a great time to look at what is out there for you. There are many great businesses with motivated sellers who will finance the sale. Cash deals draw a lot of interest from sellers and are frequently discounted.
Call or email me at 800-599-0503 or eric@bluechipbizsolutions.com if you are a motivated seller or buyer and let me help you move on to, or into, your next life.
DO YOU HAVE A PLAN TO EXIT YOUR BUSINESS?
March 13, 2009
Business owners spend years pouring their blood, sweat and tears into their businesses focusing on their day-to-day struggle to satisfy customers and manage costs and employees. Most spend very little time thinking about the payoff — the cash they hope to receive when they decide to sell. Do you have an exit strategy?
Following are five different strategies in order of preference. The good news? You only need one.
1. Find an “insider” to buy: Family, friends and employees are often interested parties in purchasing your business. As long as the transaction is clean and fair, this is definitely a great solution.
2. Find an “outside” buyer: If friends, family or employees are not an option, bringing in an outside buyer is alway an excellent option. Of course, I am going to recommend my services for preparing your business for sale, marketing it to the appropriate set of buyers and complete the transaction to the mutual satisfaction of seller and buyer.
3. Bleed it dry: Slowly take the capital out of the business until there is none left. Excess profit can be taken for owner benefit. Inventory can be slowly reduced. Assets can be sold and replaced with leased equipment. It is important to understand as the business is bled dry, there will be no capital for growth and there may be negative personal tax implications.
4. Go public: Sounds great, but not likely. Very few companies actually are attractive enough to investors to “go public.” And, they require a ton of time, effort and money to launch. In the U.S., there are thousands of private companies, but less than 10,000 public companies. Why? It is just not as easy as it appears.
5. Close the doors: Shut the business down, sell the assets and customer lists to pay creditors, then divide the remainder among shareholders. Typically, if the business is profitable, this is not a wise option as you are throwing away a valuable asset — the cash flow generated by an operating business.
So, what is your planned exit stategy? Call or email me at 800-599-0503 or eric@bluechipbizsolutions.com and I can help you evaluate the pros and cons of each strategy.
Lease Adjuster Can Save You Money, Keep You in Business
February 27, 2009
Blue Chip Business Solutions, LLC–Estero, Florida–In response to a growing number of small business owners working harder than ever, but showing little or nothing for it, Blue Chip Business Solutions has established LeaseAdjuster.com. LeaseAdjuster.com is a carefully crafted program to assist small business owners renegotiate leases often 50 to 100% above present market rates.
For most small business owners approaching a landlord can be an uncomfortable and emotional experience. From the business owner’s perspective, they have worked hard all month to put money into their pocket. The lease they negotiated a couple of years back when the economy was strong is now significantly higher than what they would pay for the empty space next door or down the street. They are fighting for survival and their landlord is pocketing the same, or possibly more rental income than before.
From the landlord’s perspective, the business owner signed a contract. They are obligated to pay what they signed up for. No one forced them to sign this agreement. The business owner should be expected to honor the contract.
LeaseAdjuster.com approaches every situation with the intent to produce a “win-win” scenario for business owner and the landlord. Our approach is non-confrontational, non-threatening and non-emotional. We simply work with the business owner to create a scenario whereby the landlord fully understands they “win” by reducing the business owner’s rent burden. And the reality is they do win. The business owner stays in business and the lease space stays occupied. Vacancies are costly and LeaseAdjuster.com knows how to present the business owner’s case so the landlord makes a sound, rational business decision in everyone’s best interests.
What is most appealing regarding having LeaseAdjuster.com handle a renegotiation is the cost. LeaseAdjuster.com guarantees the business owner at least a $1000 savings on their monthly rent, or all fees are 100% refunded. If LeaseAdjuster can save you more than $1000 per month, the full cost to the business owner is $1500 or the savings generated for one month’s rent, whichever is greater. Business owners who choose to renegotiate the lease themselves often find the landlord will drag out negotiations two to three months before agreeing to a rent reduction. LeaseAdjuster.com will have paid for itself two or three times over by the time the average business owner comes to terms with the landlord. LeaseAdjuster.com generates the “win-win” scenarios everyone feels good about.
Call Blue Chip Business Solutions today at 800-599-0503 for a free, no obligation consultation.
Press Contact:
Eric J. Gall
Blue Chip Business Solutions, LLC
Affiliate Florida Business Exchange, Inc.
office: 239.405-8818
e-mail: eric@bluechipbizsolutions.com
website: www.LeaseAdjuster.com
IT IS A BUYERS MARKET – GREAT DEALS FOR UNDER $100,000
February 13, 2009
In the business brokering field, just as in baseball, you have home run hitters and you have singles hitters. So who is doing well in this market?
Well, mostly the pitchers – LOL! But, the singles hitters are having some success, especially selling businesses requiring less than $100,000 down. Using the 25% down rule of thumb, this would include businesses for under $400,000 where a seller is willing to finance a significant portion of the deal and businesses where the total sales price is under $100,000.
What businesses typically sell for under $100,000 down? Here is a list of some businesses which can be considered great deals for buyers in this market:
Appliance Repair
Bread Routes
Car Wash
Coin Laundry
Fitness Center
Florist
Gift Shops
Hair Salons
Lawn Business
Medical Home Care
Pet Grooming
Photo Studio
Plumbing
Pool Maintenance
Printing/Graphics
Property Management
Smoothie Store
Tax Centers
Why did I select these businesses?
For several reasons:
1. There is always demand.
2. Competition has thined out due to failure.
3. When in a good location, they make money.
Call or email me at 800-599-0503 or eric@bluechipbizsolutions.com and let me help you find a business within your budget. Remember three or four singles usually equal one home run!
BENEFITS OF A THIRD-PARTY BUSINESS VALUATION
January 30, 2009
Business owners thinking of selling often disregard the value of a third-party business valuation. In today’s economy, it is often thought of as an expense that is just not required prior to sale. I can say with much certainty a third-party business valuation always pays for itself, often times many times over. Let’s look at why a business valuation is worth the price:
1. Often times, the broker will deduct the cost of the valuation upon closing, i.e., it is free to the business owner.
2. The business owner will have greater comfort in the listing price.
3. Greater understanding of the business owner of the tangible assets and the intangible assets
4. Buyers will recognize the business is not overpriced attracting more buyers.
5. Sets expectations on buyer financing alternatives for the business owner.
6. The business owner will have greater confidence in negotiating the selling price for the business.
Business valuations can be used for many additional purposes as well:
1. Discussions with minority owners, lenders, business advisors and family members.
2. Developing exit strategies and/or retirement plans.
3. Required by the IRS to change tax status, execute employee stock option plans and estate.
The decision to use a third-party Business Valuation is always made by the business owner or other appointed responsible person, such as trust officers, with consultation and advise from the business owner’s tax advisors, attorneys or other professionals. Call or email me at 800-599-0503 or eric@bluechipbizsolutions.com and let me help you with selecting a third-party valuation source.
HOW WILL TAX CHANGES IMPACT THE SALE OF YOUR BUSINESS?
January 16, 2009
The much talked about repeal of the Bush Tax Cuts by Congress and the new administration may impact the sale of your business in two ways.
1. Small businesses pay taxes at individual income tax rates. If individual tax rates go up, tax expense on your P&L goes up, hence net income and owner benefit go down. This will directly impact market valuations based on owner benefit multiples, hence sales price will likely be reduced.
2. The Bush Tax Cuts cut the capital gains tax from 30% to 15%, hence the capital gains taxes paid on the net gain from sale of your business will double if it is retuned to 30%.
This is important as you plan your exit strategy. These two factors may make it a great time to sell as:
1. Buyers have yet to discount price based on new income tax policy.
2. Sellers of businesses having appreciated significantly in value can sell before the capital gains tax increase.
Call or email me at 800-599-0503 or eric@bluechipbizsolutions.com and we can discuss tax strategy and an appropriate time to sell your business.
BUSINESS SALES ARE ON THE RISE
January 2, 2009
Per Money Magazine (link below), business sales have gone the opposite way of the economy. Sales of businesses continue to climb. Two reasons:
1. a glut of buyers due to layoffs, early retirements, etc.
2. business owners are tiring from steering their ship through this economy.
What does it mean? The strong demand due to the flood of buyers means business valuations are on the rise! If you have a solid, profitable business and are interested in selling, let me help:
1. Prepare your business for sale.
2. Market it appropriately.
3. Guide you through the process confidentially and confidently.
4. Get you business sold and closed!
If you have any questions, please feel free to contact me at 800-599-0503 or eric@bluechipbizsolutions.com.
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