Regrettably, the biggest mistake a business owner makes when he or she must make the biggest decision in one’s life — is they wait until the last minute to make that big decision?

Without proper planning, you can only receive a less productive result in selling your business.

You wouldn’t take on building a house from scratch without hiring an architect or getting a general contractor to help you with budgeting, or a decorator to help you with a design.   You would reach out to a team of people the help you with achieving the best result.

Something like building a home seems to require more help than selling a business.   Which is not the case as you have a list of advisors and information out there that a business owner needs to know before selling which can be around 100-200 different things.   Such as, what are your tax consequences upon sell? What happens to you your management team? Will you have health insurance?

Make sure to plan well in advance so you experience a successful result at the time of sale.

The Vant Group is here to help guide you through the steps of buying or selling a business. Here’s a great article we would love to share.

 


Challenge: Navigating unexpected delays The Vant Group was representing a Middle Market Multi – National Company on the buy side. Our mandate was to assist this company with finding an acquisition target to diversify their cash flow.

Their criteria was pretty broad; find a cash flowing business that has the ability to grow. Our clients were pretty successful in their core business and had more than enough cash on hand to execute various size deals.

Within 5 months, we were able to find and negotiate a favorable Letter Of Intent on a service business that our clients were excited about. Although our clients had the ability to write a check (PAY CASH) for the business, it didn’t make much sense with interest rates as low as they were. Our clients decided to pursue conventional bank financing for this acquisition.

Issues we hit with Conventional Lender:

No Assets

While our clients had a solid balance sheet, the business being acquired itself did not have any real tangible assets.  The banks were leery of lending on this business without significant assets being held as collateral.

Moving parent company’s business to new bank

Our clients were open to discussing some form of collateral, but before we got too far down the line, many banks also wanted our clients to move over significant assets of the parent company to the new lender. This was a deal breaker for our clients due to the size of the parent company. Any issues with the bank transfer of the parent company could severely hurt the company’s cash flow.

Approach:

Try SBA.  We then decided to pursue SBA financing. On the surface, this was the ideal SBA target. The business has a strong history of cash flow that was easily verifiable against the tax returns. After 2+ months of delays, the deal was back on track.

Issue with SBA Process

SBA Citizen Requirement

One of the guarantors for the SBA loan is going to be the Multi-National Company. The company is a C-Corp with many minority shareholders who are not US Citizens. The president and CFO of the company were US citizens but they only made up 42% of the total ownership. In order for the company to act as a guarantor, the company must have over 50% ownership be US Citizens. The company needed to reorganize the shares in order to have the majority of the company have US ownership. This delayed the deal another 2+ months.

Commitment Letter

After the company restructured, we were able to get a term sheet for financing. But this took nearly a month.The deal has now been delayed more than 6 months and we are now just able to officially start the SBA process and furnish a bank commitment letter to the sellers. As anyone who has been involved with any acquisition can tell you, “Time Kills Deals”.  The sellers had begun to lose any hope that these buyers would ever be to get this deal done. It was our job at The Vant Group to keep the lines of communication open between the buyer and the seller. We did everything possible to keep the sellers from backing away from the deal. And no one would have blamed the sellers from backing away at this point. While these delays were unique in nature, addressing delays is something that you may have to do on occasion as an intermediary. Being honest about progress as well as having a plan to move forward is what worked in this case.

Result:

We were finally able to close 10 months after signing the initial Letter of Intent. Both sides were happy and were glad The Vant Group was there to keep the process moving forward even if there were a few delays.


Compelling Reasons for Buyers / Seller Motivation

TVG has spoken with literally thousands of buyers over the years, asking them why they were interested in venturing into business ownership.

As former business owners and intermediaries counseling buyers, we have been in a position to take our own polls concerning buyers’ motivations. Although there have been many different answers, there are some basic motivations that continually reappear. It is our opinion that a short discussion relative to these motives can help put matters into perspective.

1. Controlling One’s Own Destiny

We have discovered that prospective buyers want to control their own destiny and perhaps the strongest motivation for those venturing out of Corporate America into the ranks of business ownership. As we question if this is a well-informed reason for buying; the idea of controlling your own future is largely a matter of perception. An example, many buyers believe that owning their own business means that the sky will be the limit because they are now free to go as far as their personal abilities will take them. While a seemingly unlimited profit ceiling might be a good motivator, many would-be owners overlook the many limiting factors on small business ownership. We find that by owning a business, not only does one bring his old set of problems with him, but he also inherits a new set of problems. There is nothing wrong with venturing into business ownership as long as a prospective buyer does a realistic assessment of his motivations.

2. Financial Reward

When buying a business, there should always be a balance between risk and reward. There is without doubt monetary reward in owning your own business. The lure of making substantial wealth attracts some buyers to the acquisition market. Many buyers have made a lot of money for their employers and now want to make that money for themselves. The prospective buyer needs to be realistic with the risk/reward proposition. Both sides of this equation need to be deliberated before starting the acquisition process. Buyers must understand that as an entrepreneur, owners get paid last.

3. Being the Person in Charge

Prospective buyers often mention that they are tired of being under the microscope, having a boss looking over their shoulder. The lure of not having a boss in business ownership is synonymous with controlling your destiny. In reality, the small business owner finds himself working for many bosses. Customers frequently tell the owner when and how high to jump. The small business owner sometimes ends up being the subordinate to the customer. In addition, lenders can seem like a boss dictating how things are to bed one. Perhaps the perception, that you have the ability to walk away when you want that is so appealing. The end result is that the obligation to earn a profit and stay afloat wins out over personal control of the owner’s workweek or independence.

4. Ability to Use Personal Skill Sets

Buyers have expressed that owning their own business will allow them to demonstrate their true abilities. Many displaced executives coming out of Corporate America feel they have certain abilities that will raise the business to the next level. It is equally important to look at the abilities that have been required of the existing owner to get the business to its current position. This experience, or the lack thereof, can be a key determinant of ownership success. In operating a business, an owner might find himself dealing with company management one minute, and delivery drivers the next.

5. Seller Motivation

A lack of seller motivation, as much as any other reason, can cause deals to fail. As intermediaries, we have found it absolutely imperative that we know precisely why a business owner is selling. Many buyers are skeptical of seller motivation and with good reason. It is understandable why many buyers question the sellers’ motivations. There are many other acceptable reasons why sellers enter the marketplace for their businesses.

6. Why Companies Are for Sale

A business owner can spend his entire career developing a business until it becomes his baby. Selling can be the most difficult and emotional decision a business owner will ever make. It is filled with emotions similar to sending a child off to college or giving a daughter away at her wedding. The timing and reasons for selling must be right, and the reason for selling should be paramount to a prospective buyer. A buyer needs to be assured that the reason for selling is not due to negative factors such as problems in the industry, increased competition, or employee problems.

Burnout / Boredom
A business owner can lose his passion for the business, dread going to the office and cannot wait to leave. Burnout and boredom are the most common reasons for an owner selling his business. If sales have flattened or started to decline, employee morale, customer service, and/or supplier relations may have deteriorated.

Retirement (Age)
At some point in life, the time comes to reap the benefits of years of hard work. This is another common reason for sale in the business transfer industry. From a buyer’s perspective, this is the most justifiable reason for sale, which creates a comfort level when analyzing a business. If the owner does not have heirs to pass the business to, he is faced with the prospect of selling.

Health
Health is a very unfortunate reason for selling because it is usually out of the business owner’s control. Often, the sale has to be quick because of a decline in sales and a void of top decision-making due to less time being spent at the business by the owner.

Lack of operating capital / Need for growth capital If it were not for capital concerns, many business owners might never sell. There comes a point when the continued worry of funding accounts receivable, payroll, or the rent will push a business owner over the edge. A business can actually become harder to handle financially with increasing sales even though there is more money generated by the business.

Industry overview
To know the future of an industry, it helps if you have a crystal ball handy. If the industry is heading in a bad direction, business owners start contemplating a sale. It would be unwise to suggest that every time an industry dip or change occurs that an owner should think about selling, but a management style that has proven successful in one climate may be challenged in another.

Sales / Cash-flow
It might not be an overstatement to say that in buying and selling small businesses, “Cash flow is king.” The main scenarios when cash flow is not “king” is when the assets are the only value of the company or if a competitor is just looking at your clientele. When analyzing a business, prospective buyers and lenders key in on even the slightest slip in annual revenue and cash flow.

Over-inflated offer
There are times when a business owner is approached to sell his business for an inflated value even though the business is not on the market. Many business owners will take advantage of this opportunity if the price is right. Motivation is an important issue on both sides of the equation: buyer and seller. It is important for the buyer to take a personal assessment of not only his own motivations but also that of the seller with whom he intends to work.

 


Buying a business is one of the most important decisions that an individual will make during their entire life.

And most likely, the purchase of a business would be larger than a purchase of a home, which most people view as the biggest investment they will need to make.

Buying a business can be as easy as providing the financing needed to procure the business.  Unfortunately, many unqualified, not ready, inexperienced buyers go into the buyer pool and buy businesses without really knowing what they are buying or really looking at.

Fortunately, there are many M&A firms that can assist buyers.  Businesses can range anywhere from a million-dollar business, that a corporate executive type buyer might purchase all the way up to a $100 million manufacturing company that may prefer to grow through acquisition.

Both individuals and corporations would have the opportunity to have an M&A advisor be on their side Unlike, buying a home, buying a business has no true comparables.

Example of this would be when shopping for a home, you have similar houses in the neighborhood that you can compare square footage, how many bedrooms and bathrooms etc. However, when buying a business there could be over a thousand different decisions point needed to determine the value or to determine viability or continued viability of that business.

Most Important, make sure you understand what the living breathing organism is of that business.

Smaller businesses can be more tied to the seller.   These entrepreneurs can wear several hats, such as CFO, HR, Sales, Marketing etc.   These people can never be replaced by an inexperienced buyer. Imperative that buyers know what the infrastructure is and continuity is included in the business.

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

Here’s a great article on buying a business we would love to share.


Challenge: Reporting Financials / Partner Disputes

Due to partnership conflicts, our client went from being a passive minority investor to a majority active owner in an industry with limited knowledge in a short period of time.

To make matters worse, late paying customers and a non-traditional accounting approach made year-end financials appear drastically different from the health of the business which caused great pause for lenders. Given a majority of deals are financed through some type of third-party financing and the financial limitations of the company, we knew the buyer pool could be limited which could increase the time to close. The seller was anxious to sell quickly so we had to balance the seller, the business hurdles, and marketplace.

Approach: Expanded Deal Structure / Demonstrated Value

  • Established Expectations. Because of the late-paying customer and non-traditional accounting methods, we understood the lending climate would be limited at best if not non-existence.
  • For this reason, we educated the seller a significant amount of seller financing would be involved. We provided an estimate of value as well as expected deal structure before engagement ensuring the sellers would be open to all types of offers and the lay foundation a full-price all-cash offer would be the exception and not the norm.
  • Told the story. While every buyer could see the financials were on a decline, the company still have some great assets. The company has some great accounts, focused on a very niche industry within the IT sector and had multiple channels of revenue. The core of the company was still intact and with a focused growth strategy, a new buyer could easily return the company to its glory days.
  •  Focus marketing search. Given the issues of the company, we understood a generic buyer probably won’t be the best buyer to target. We either need a strategic partner who understood the assets of the company and could create synergies or an IT professional who wanted to run his own operation.

Result:

  • Received 3 competing offers | Closed in 4 ½ months | Seller received 94% of asking price.
  • An IT professional purchased the company using a ROBS (Rollover for Business Startups).
  • The purchase price consists of equity from the buyer and a seller note.
  • Since no outside banks were used, we will able to have a quick close and save time.

There are key steps involved in a business transfer. Each step will vary in its complexity and size; having knowledge of the complete process will help to keep you on a path to closing successfully.

Step 1: Business owner deciding to sell his or her business

Sounds simple, doesn’t it? However, unless a business owner is truly deciding to sell, the process should not begin. Scenarios can occur daily for many business owners to cause them to ponder the idea of selling. Often, a more cataclysmic event needs to occur to push an owner over the edge into a selling mode. A business owner must come to a definitive decision before he begins this process. If not, it could be a waste of time and money.

Step 2: Determining the market value of a business

Before placing a business on the market, a value or range of value must be established so that you have a basis for what and how to negotiate. This is one of the most critical steps and should be handled with special attention. There are many different people that you can turn to in determining a business’s market value, which includes but is not limited to CPA, attorney, valuation company, self, and a business broker. Depending on who sets a value on a company, the pricing range can be wide.

Step 3: Gather pertinent information into a marketing package

The resulting marketing package created is the first interaction a prospective buyer will have with a business; therefore, the old adage, “You can only make a first impression once” could not be more appropriate. The marketing package should include at a minimum, information about financials, employees, assets, and the operation of the business. A business analysis must be performed to explain the strategic plan, financial statements, strengths, and opportunities.

Step 4: Marketing the business

Potential buyers need to be approached in order to be made aware of your business. There are two basic avenues of marketing a business: hiring a business broker or selling it yourself. In general, there are many methods that either party can use to reach the market: The Internet, newspaper, trade associations, and others. The most important factor is that a game plan is absolutely necessary to ensure that the greatest numbers of qualified buyers are contacted regarding the sale.

Step 5: Identify potential buyers

The key is determining who they are if they have the necessary funding and if they are a good fit. A brief list of potential buyers includes corporate executives, customers, suppliers, competitors, investment groups, and employees. It is imperative not only to identify the potential buyers but also to ensure they are financially capable of purchasing your business.
There are a number of pre-qualification methods that can be used to ensure a prospective buyer is financially secure. All potential buyers should sign a confidentiality agreement and provide verification of their financial ability to complete the transaction.

Step 6: Arrange meetings with buyer and seller

The first meeting between a buyer and seller is similar to a first date. Each side is wondering if the other likes them. The meetings with a seller are of paramount importance in a buyer’s final decision. You should always be forthright in your answers and give quick responses to inquiries on updated information.

Step 7: Offer to purchase/letter of Intent

The two most utilized legal vehicles used for formal contracts are a Letter of Intent and an Offer to Purchase. The main difference between the two documents is the level of commitment.
A Letter of Intent is a document stating intent by a buyer to buy a business. An Offer to Purchase is more detailed and binding. A Letter of Intent is usually followed by an Offer to Purchase. In some instances, a further step is taken with the preparation of a Definitive Agreement, which is a more formal version of an Offer to Purchase. Be advised that the documents are merely tools to ultimately get to the closing though they should include as many detailed “deal points” as possible.

Step 8: Negotiating and deal structure

There are three primary decisions: accept, decline, or negotiate. The sale price is only one of several negotiation points on a contract. Variables such as payment terms, the length of training, consulting agreement, and allocation of sale price are just a few items that can be leveraged to make a deal more favorable. The most important aspect of a business transfer is what a seller ultimately receives after the transaction has been completed.

Step 9: Due diligence

The beginning is mainly taking the time to learn more about the other person, the business, and to determine if both sides are compatible. Due diligence is performed by the buyer to ensure that the books, records, and operation of a business are as they have been portrayed. If it is a solid company, then the due diligence should be effortless, but if there are problems with the business, then due diligence could take longer and be more complicated. Due diligence can last between 7 and 45 days with the average length being around 21 days. The size, type, and complexity of a business, as well as the style of the buyer all, affect the amount of time due diligence will take.

Step 10: Closing

Closing a deal is the finest part of the whole process! It’s time to get paid. Prior to closing, the Offer to Purchase or Definitive Agreement is submitted to an escrow company or closing attorney, so that due diligence can be performed. The closing agent’s responsibilities vary from agent to agent, but at a minimum should include: lien and title search, real estate and personal tax pro-rations on the business, preparation of closing documents, and disbursement of funds to the seller.

To learn more or to get the “Exit” book please visit www.thevantgroup.com.

 

 


You have work to do now – Seven steps to getting the price that you want.

The required steps to be ready to sell a business outlined in this article was excellent! Great attributes are put into place during the growth stage of a company, however, some of those things may have a negative effect on the actual the sale price.  For example, overspending on hiring, advertising in anticipation of growth and then hitting a good a projection but missing the overall projection, causing the net income to be lower which would cause the value to be to lower.

General preparation for selling a company is something that must be done many years in advance, as the key is nailing down those numbers.  Ensuring that those figures are as high as possible will maximize your sale price.  At the end of the day, a business is sold at a multiple of how much profit it makes.  Read more

The Vant Group is here to help guide you through the steps of selling a company and make it a successful transaction!


The prices for small businesses changing hands in the Dallas-Fort Worth area have soared in recent months as older owners are finally being enticed to sell, according to industry data provided to the Dallas Business Journal.

The sale of 59 local small businesses tracked by online marketplace BizBuySell in the second quarter went for a median value of $220,000.

That’s up from $160,000 during the same period one year ago.

“There has been an imbalance between supply and demand for a few years,” said Dirk Armbrust, managing director, and investment banker at Dallas-based The Vant Group. “There are more buyers than sellers in the small-to-medium business or “Main Street” space. But this hasn’t manifested into higher prices until recently.” Armbrust said bank financing has played a part in keeping these prices in check.

Many times, sellers rely on the Small Business Administration backing to finance an acquisition. The process keeps loan amounts from soaring above the amount of revenue a target business brings in.

But recently, Armbrust said more stable, revenue-rich small businesses have been coming to market finally pushing prices higher to reflect the glut of buyers. BizBuySell doesn’t track all small businesses sold in the market. The data is self-reported, and sometimes the terms are kept confidential. But the numbers give a glimpse into the space. The median revenue for small businesses sold in the second quarter was nearly 5 percent higher than one year ago, according to the data. Most of the activity has remained among companies that provide services to other businesses. But the median asking price for small manufacturing firms has ballooned to $550,000 from under $440,000 one year ago.

The highest sale price during the second quarter was a liquor store in Dallas that went for $2.1 million.

A combination of rising prices and low-interest rates, which affect the return sellers receive, has pushed older owners from the Baby Boomer generation overdue for retirement to sell off the businesses they’ve been running their whole lives.


The Vant Group recently served as an exclusive transaction intermediary to InterCool, Inc., which was acquired by InterCool USA, LLC. Feb2017

InterCool is an Industrial and Commercial Refrigeration Design-Build Contractor with a comprehensive range of services including engineering, design, installation, construction, service, and system analysis.  Intercool is headquartered in Carrollton, Texas.


Deal-making among private equity firms in the U.S. declined in the third quarter as prices for middle-market companies remains well above their value, according to a report from PitchBook Thursday.

Learn more…