The Vant group is excited to announce that Bill Massie has joined the firm. He brings a wealth of experience in many facets of investment banking.
Bill has worked with entrepreneurs and high-growth companies for over 20 years. His experience ranges from venture capital raises to IPOs. He is highly skilled at sourcing early to intermediate stage equity and debt capital, structuring and placing mezzanine debt and selling privately-held companies.
Bill owned a Broker-Dealer firm for 15 years which specialized in private placements for high-growth entrepreneurs. His understanding of the needs and opportunities of these businesses will be invaluable to The Vant Group as we expand our investment banking operations.
2018 looks to be a significant year for The Vant Group. We have several large projects underway which will require significant capital raise expertise with market rollup opportunities for our clients as well as value creation for our investors. Here are a few examples:
- The Vant Group (TVG)is partnering with a firm to exploit opportunities in the cannabis business in Colorado and several other states this next year. Our efforts will include providing roll-up capital to consolidate and integrate disparate business operations, expand dispensary and production facilities, and develop new pharmaceutical products. We believe that there is enormous profit potential as the cannabis industry grows and becomes more sophisticated. The Vant Group intends to play a leading role in providing financing, advisory, and investment banking services to this space;
- TVG will spearhead a real estate development project in Broken Bow Oklahoma designed to meet the increasing demand of vacationers traveling to the area. Resort cabin rentals, purchases, and a corporate conference center will be among the offerings;
- TVG, along with one of our partners, has engaged with an exceptional operating group to purchase and grow a well-known local restaurant chain with attending real estate assets in Uptown.
This sampling of 2018 projects is part of the exciting times at The Vant Group. We are looking forward to working with our investment banking clients and capital sources as we seek to add value and make money for our partners.
A verifiable cash flow can determine the price of a business acquisition.
Buyers and business brokers go as far as stating that cash flow is a major deciding factor in a business purchase decision. For buyers, an owner’s discretionary cash flow, secured through a business purchase, is important in determining the value of a company.
Owner’s Discretionary Cash Flow (ODCF) is the amount of money a new owner can take annually from the business. TVG, as a professional business broker, can assist in analyzing the business’ income statement to determine the ODCF. There are common tax strategies that comprise the ODCF; net income, owner’s equity withdrawal and perks, depreciation and amortization, interest expense, and non-reoccurring expenses.
Your federal tax rate is determined by your net income. A common tax strategy is to offset the business profit with allowable expenses, therefore keeping your taxable income low. With this tax strategy in mind, a small net income does not necessarily reflect an unprofitable business.
The owner’s salary is a large component of ODCF. Again, there are tax incentives for paying less employer and employee tax, based on a lower income level. To decrease tax liabilities, business owners will often pay themselves a small salary and make up the difference with owner perks.
An owner perk is when the business pays for personal expenses, a benefit of owning a business. Although a good tax strategy, business paid personal expenses, lowers the net profit. To appropriately value a business for sale, an itemized perk list can be added to the income statement, increasing the value of the business on paper.
Both non-cash expenses, depreciation, and amortization are components of ODCF and used to reduce taxes. Depreciation decreases taxable income but does not reduce cash. It is acceptable to include depreciation and amortization in cash flow calculations.
Interest is a component of ODCF and can be attributable to bank loans, personal loans, equipment leases, and other debt instruments that may go away after the sale. One-time or non-recurring expenses are also considered components of ODCF. Extraordinary litigation expense is a good example unless litigation is an annual occurrence.
Calculating ODCF is an important component when preparing your business exit strategy. Contact The Vant Group today for help with your ODCF and exit strategy plan.
The professionals at TVG have some difficult and disappointing conversations with business owners when valuing their business for a sale.
Business owners spend their entire life building a business with the hopes of selling and realizing that big payday. Most sales are the result of health, fatigue or customer issues and when business owners decide to sell, they likely don’t have a proper plan in place to execute a successful sale.
Lacking an exit plan, the financials usually don’t support the sales value that the business owners have in mind. In the words of Stephen Convey, sellers should “Begin with the End in Mind”. The day a business is opened, an exit plan should be created as a roadmap toward that big payday.
Achieving the desired goal takes preparation and organization. There are four key elements to the business buying process.
- Business identification
- Organized search process
- Collection of date
- Due diligence.
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.
- Financing- Acquisition time, a year of living expenses, acquisition-related costs (CAP, Attorney, etc.) down payment, working capital.
- 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.
- Self-assessment-In evaluating a specific business, determine your skill sets. Self-assessment should include why business ownership is for you.
- 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.
- Timing-To include due diligence, industry projections, and is it the right time to buy?
- Ability to Act-Does the buyer have the means to act quickly when the right acquisition target becomes available?
- 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
- What Type of Business Should I Buy?-Understanding your target Company: manufacturing, distribution, service or retail.
- 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.
- 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.
- Market protection – proprietary product
- Loyal customer base for specific products with contracts
- Legitimate business operation
- Ability to expand
- Large capital investment for equipment
- Significant working capital levels and payroll expenses
- Large workforce requirement
- Significant plant / real estate implications
- Government regulation
- 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.
- Ability to expand by increasing market penetration
- Having product lines with name recognition
- Highly collateralized business with significant inventory and accounts receivable levels
- Lack of market protection from manufacturer suppliers
- Large working capital requirements for funding significant inventory and accounts receivable levels
- Required distribution apparatus with rolling stock issues
- Government regulations
- 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.
- Many simple business formats requiring limited owner training
- Easier to staff
- Smaller fixed asset and working capital requirements
- Lack of market protection
- Competitors with similar services
- Unsophisticated workforce
- Possible licensing requirements
- 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.
- Very little capital equipment investment necessary
- Leasehold improvements don’t need continued maintenance
- All-cash endeavor, no liquidity needed to fund accounts receivable
- Can reduce cost by landlord paying a portion of leasehold improvements
- Limited clientele geography
- Continuous marketing and advertising usually required
- Extended hours of operation
- Large cash infusion necessary for initial inventory and continued inventory maintenance
- Difficulty finding and retaining workers
Position and transition a sale of a business without rocking the boat and upsetting contracted clients to the point that they pull their contracts.
TVG represented a project-based business, with many future contracted projects totaling 3 million dollars. 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 used a “business as usual” strategy where the sellers, slowly introduce the buyers to the clients. With this defined and strategic positioning, the clients were assured that the new buyers are in “beneficial partnership” with the sellers.
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.