Achieving the desired goal takes preparation and organization.  There are four key elements to the business buying process.

  1. Business identification
  2. Organized search process
  3. Collection of date
  4. Due diligence.

Business Plan

If you set out towards a destination without a map, you will get lost. Likewise, statistics show that without a business plan, the rate of success diminishes dramatically.

Items to include in your business plan.

  1. Financing- Acquisition time, a year of living expenses, acquisition-related costs (CAP, Attorney, etc.) down payment, working capital.
  2. Risk/Reward- analyze your risk to reward ratio. A buyer should assess how much he is willing to risk before he even begins the search. 
  3. Self-assessment-In evaluating a specific business, determine your skill sets. Self-assessment should include why business ownership is for you.
  4. Location-The organization phase should include an assessment of how far a buyer is willing to travel or commute and what geographic areas the buyer will not consider. Narrowing down the geographic parameters can facilitate the process.
  5. Timing-To include due diligence, industry projections, and is it the right time to buy?
  6. Ability to Act-Does the buyer have the means to act quickly when the right acquisition target becomes available?
  7. Confidentiality Agreement, Buyer Resume, and Profile- A business intermediary will qualify the buyer. Nondisclosure or confidentiality agreements are involved in almost all business transfers. A buyer profile, personal financial statements, financial  capability and liquidity
  8. What Type of Business Should I Buy?-Understanding your target Company: manufacturing, distribution, service or retail.
  9. Manufacturing-Manufacturing companies require a significant investment in capital assets: machinery, floor space, workforce, and capital needs such as cash for operations and capital for funding receivables and payables.
  10. Ideal Buyer Candidate: The ideal buyer is financially capable of funding with personal assets. Prior ownership experience in the manufacturing arena is a needed attribute.

PROS

  1. Market protection – proprietary product
  2. Loyal customer base for specific products with contracts
  3. Legitimate business operation
  4. Ability to expand

CONS

  1. Large capital investment for equipment
  2. Significant working capital levels and payroll expenses
  3. Large workforce requirement
  4. Significant plant / real estate implications
  5. Government regulation
  6. Distribution-In addition to inventory costs, the distribution also implies high accounts payable and receivable levels, drivers, and a sales team. Profitable distribution companies should be examined by buyers that have a keen feel for the capital requirements and the ability to sustain capital levels.

Ideal Buyer Candidate-The ideal buyer can fund or raise additional capital with personal assets and is well-connected in the industry being acquired.

PROS

  1. Ability to expand by increasing market penetration
  2. Having product lines with name recognition
  3. Highly collateralized business with significant inventory and accounts receivable levels

CONS

  1. Lack of market protection from manufacturer suppliers
  2. Large working capital requirements for funding significant inventory and accounts receivable levels
  3. Required distribution apparatus with rolling stock issues
  4. Government regulations
  5. Service-Service businesses are the safest investment for a first-time business buyer.

Ideal Buyer Candidate: The ideal buyer is a first-time business owner with average business skill sets; he can be a generalist with no technical skill sets needed.

PROS

  1. Many simple business formats requiring limited owner training
  2. Easier to staff
  3. Smaller fixed asset and working capital requirements

CONS

  1. Lack of market protection
  2. Competitors with similar services
  3. Unsophisticated workforce
  4. Possible licensing requirements
  5. Retail-Retail is the least sought-after business type. The negative view on retail businesses overlooks the relative ease in which retail establishments can be duplicated by setting up chain-type operations

Ideal Buyer Candidate: The ideal buyer is a first-time business owner with average business skill sets and people oriented.

PROS:

  1. Very little capital equipment investment necessary
  2. Leasehold improvements don’t need continued maintenance
  3. All-cash endeavor, no liquidity needed to fund accounts receivable
  4. Can reduce cost by landlord paying a portion of leasehold improvements

CONS:

  1. Limited clientele geography
  2. Continuous marketing and advertising usually required
  3. Extended hours of operation
  4. Large cash infusion necessary for initial inventory and continued inventory maintenance
  5. Difficulty finding and retaining workers

Position and transition the sale of this business without rocking the boat and upsetting contracted clients to the point that they pull their contracts.

Challenge:

TVG is representing a project-based business, with many future contracted projects totaling 3 million dollars.   Position and transition the sale of this business without rocking the boat and upsetting contracted clients to the point that they pull their contracts.

Approach:

TVG has just the right experience that the buyer and a seller need for a delicate sales transaction such as this. Both the buyer and the seller are invested in keeping the business clients happy and the client’s only concern is the quality of work they ultimately receive.

TVG uses a “business as usual” strategy where the sellers, slowly introduce the buyers to the clients.  With this defined and strategic positioning, the clients are assured that the new buyers are in “beneficial partnership” with the sellers.

Result:

In approximately 5 months, the business was successfully transitioned from the seller with minimal bumps along the way. The transaction was handled so successfully by TVG that the buyer had no worries of upset clients and the clients developed the trust they needed during the transition, that moving forward with the buyers was never a question.

 

 

 


Because buying a business is a process.

“I want to buy a business, from a retiring owner, that has a strong management team, a 6-figure cashflow, a double-digit profit margin, and a reoccurring revenue stream. Oh yea, and I want to find it within 90 days.”

I hear this all the time from prospective buyers.

This is always my response…

“Guess What? You and thousands other buyers are looking for the same company.”

I am not saying that these opportunities do not exist, however, hey are uncommon.  Spending time and resources searching for this “unicorn” may not be the best option.

In fact, the price will surely be inflated by the bidding wars that result in an opportunity like this!

According to industry statistics, nine out of ten prospective business buyers never complete a transaction. Why? 

The buying process is long and involved, with many steps. One of the first and most important steps is to set realistic expectations for the business you will buy.

Read this article, before you actively start your search.  The author provides invaluable steps to assist buyers in successfully completing the buying process.

The Vant Group is here to help guide you through the steps of buying or selling a business.

 


Developing a marketing package that tells your story

Do you have all required documents that market the story of your business?  Having a marketing package will ultimately shorten sell time and award the highest sales price. Without documentation, a buyer cannot make an informed decision about a purchase. In preparing for the sale of your business, below is a list you can use to develop a winning marketing package.

  • Interim financial statements

Interim financials show a buyer the up-to-date financial strength of a company since the last corporate year tax return filing. Interim financials are also necessary for lending institutions when trying to obtain financing.

  • Three years of tax returns and income statements

Three years of financial statements paint a picture for the buyer, on the financial stability of a company. A prospective buyer can use financial statements to analyze revenue and expense trends, determining the health and cyclical trends of the business.

  • Current asset list

When assets are a significant part of the equity, a higher sales price is easily justified. Anything above asset value is considered goodwill and is more difficult to justify. An asset list with total fair market values creates a base value for a business. If outside financing is needed for a business transfer, then an itemized list may be required.

  • Asset and Liabilities

Assets and liabilities on a balance sheet can either be transferred with the sale or kept by the seller. A buyer needs to know exactly what assets and liabilities are an educated offer. It is prudent for a seller to identify which leases and notes can be transferred before the negotiating process begins. Not taking this action could cause a deal to collapse. 

  • Facility information

It is necessary for the prospective buyer to know everything about the facility being purchased. Things to know are:

  1. Where is it located?
  2. What are the lease terms?
  3. Is real estate included in the deal?
  4. What is the square footage?

If the business is in a leased facility, it is imperative that a buyer performs due diligence to determine whether the lease terms can be transferred. Awareness of these factors can give the buyer a stronger negotiating position.

  • Employee information

The most valuable asset in addition to FF& E (Furniture, Fixtures and Equipment) are the employees. The following information should be included in the marketing package:

  1. Number of employees
  2. How long each employee has worked for the company?
  3. What is the current pay structure?
  4. How stable is the workforce?
  5. Do the employees know the business is for sale?
  6. Is the owner willing to stay on as an employee?

Employee information, without personal identifying information can be displayed using an organizational chart.

  • Company history

A chronological summary of a business will provide a prospective buyer a road map to a company’s history. A prospective buyer will be able to look at historic financial statements together with the company’s business history to perform an overall analysis. Information to know:

  1. Has a new line been recently added?
  2. Has the business been moved?
  3. When was this business formed?
  4. Is the business run by the original owner?
  5. What has been the marketing program since the company’s beginning?
  • Other information to include:
  1. Reasonable and fair Asking Price
  2. Deal Structure and Financing
  3. Is there SBA financing available?
  4. Marketing Strategies –Will aggressive marketing increase sales?
  5. Reason for selling? – Retirement, divorce or lack of interest?
  6. Industry Trends – How are industry revenues trending as a whole?
  7. Industry Trade Journal – if a buyer lacks industry experience, trade journals are recommended.
  8. Published articles – Has the business been featured in a newspaper article, or trade article?

Three years ago, the purchase of a business went like this.

Challenge:

The buyer submitted an LOI. To motivate the seller during the sales process, a clause was created whereby the seller could earn additional compensation on all new client contracts. At the close of sale, the buyer discovered that the “new” client contracts were bad, the company was inefficient, undercapitalized, and understaffed.

Approach:

The buyer spent the first two years making good on bad contracts, investing in systems, processes, and human capital. As a result, the financial statements of the first two years were not attractive to any potential buyers.

In year three, the company yielded great results and hit its stride. With two years of subpar performance, followed by an extremely good year, the market was confused on how to view the future projections for the company. Furthermore, the company was 70% project base and 30% recurring revenue.

Result:

The Vant Group was engaged to sell this company purchased three years ago by the client. Instead of putting a ceiling on the value, TVG tied a fixed multiple to the last twelve months of cash flow. Since the company was growing each month and the lower months were dropping off, the value of the company increased by three-fold which made financing options limited.

TVG identified a buyer who wanted to gain entry to this space and ultimately closed the deal with non-traditional bank financing.


Knowing when to sell your business is like knowing when the stock market is at its peak.

Each business owner wanting to sell their business, as a separate list of factors- from personal health to the strength of a specific industry, etc. The perfect time to sell is not determined by a date but an understanding of factors that affect business valuation. Generally, an owner works for 1-2 years to implement the identified business valuation factors. Even if all the M&A environmental factors were optimal, if your business is not ready to sell, then you could miss out on a strong selling time.  In this article, the author does an outstanding job answering the question.  The Vant Group is here to help guide you through the steps of buying or selling a business.