The 3 Most Important Words in the Sale of Your Business

When you think about the sale of real estate, regardless of the economic climate, you always hear the three most important words; location, location, location. When it comes to selling a business, there is a similar mantra you will need to know:


timing, timing, timing.


This somewhat analogous framework relates to a critical aspect of when to sell a business. We can discuss the different reasons why a business owner would need to sell the business for many pages, but in the interest of brevity let’s discuss one of the most important factors in the sale of a business – the timing.


When I finally decided that it was time to sell my ownership in a thriving, well-recognized, award-winning software services company, the timing could not have been better. For one thing, there were plenty of publicly-held corporate buyers with “deep pockets” that had voracious appetites to establish a presence in the Midwest. They were looking for an acquisition platform to obtain market share and establish their footprint in the market. Being recognized as one Microsoft’s Top 10 companies in the Great Lakes Region with the branding and respectable client-base of Fortune 500 companies, we were an ideal acquisition target.


While the timing was ideal, my knowledge of the business sale process was what I would now consider deficient. I was adept at running the company, focused in the management of company resources both on the human resource and financial sides, but I lacked the knowledge that it was actually an ideal time to sell the business. Unfortunately, the advisors I eventually hired to assist with the sale of the company missed the mark by not providing me the comprehensive education and information to make a wise decision on the sale. Due to this, I missed the timing which would have allowed me to sell at an optimal price. The whole process took more than 3 years and ended painfully. I walked away with only 17% of what I would have received if I had given thought to the importance of timing.


As painful as it was, I would say today that one of the greatest values of this experience was learning to provide guidance and information for other business owners and help them understand this key notion of “timing.”


There are many factors that business owners should consider when it comes to the optimal sale and exit from the business. Such factors are:


Economic Climate: Is the current economy a limiting factor to making your business attractive to a business buyer? One might think that a less than favorable economic climate would deter business buyers from considering acquisitions – nothing could be farther from the truth. A good and well-run business regardless of the economy will be appealing to business buyers. If you are well-positioned in a certain market, realistic in price, and have flexibility with regard to terms then business buyers will flock to do a deal. Given this, you still need to have an understanding of how the previous economy treated your business in the past and how it treats your business today. An understanding this will allow you to effectively communicate to the new owner how the future economy may affect the company moving forward.


Demographic Trend: You hear it again and again: the “boomer factor.” 10,000 people in the US turn 60 each day in 2011. A good portion them are owners of privately-held businesses who have contemplated the sales of their businesses in order to retire or change the pace of their lives. As more boomers consider exiting their businesses there will be increase in the supply of businesses for sale and we all know what abundant supply does to pricing. It may provide for lower valuations and once again affect the overall “take home” pay.


Tax Provisions: What type of tax treatment will you face when it comes to the sale of the business?  How will the current tax rates affect your overall “take home” pay from the sale of your business?  During President Bush’s administration several time-limited, corporate-friendly tax laws were enacted.  These changes provided a serious look into the timing of the sale of a business as it provided favorable terms for the business owner.


Industry Trend: You have to look to the past, the present, and the future of your industry. What cyclical attributes does your industry currently have? What are the trends of your business or service? With the proliferation of web and internet resources, obtaining such peripheral market data is easily attainable – research them every quarter. A good business owner will want to understand these trends. A good example of this is how the social media craze can increase or decrease the value proposition of your business.


Availability of Financing and Credit: What type of banking and credit climate will you be experiencing? Most small business owners were not prepared for the banking crisis in 2008. That alone reverberated in the small business community and halted some transactions. Generally business buyers don’t have $ 300,000 in cash just sitting in an account ready to do a deal. Most business sales are facilitated through the Small Business Administration’s (SBA) loan programs and other financing and credit facilities that, depending on the lending climate, may be unfavorable for putting together business deals. Another thing to think about is if you will need credit so you can obtain another piece of machinery or equipment that will take you to the top and make your business more attractive.


Product or Service Obsolescence: Where is your business when it comes to the demand of your service or product? Will advancement in technology affect the lifecycle of your business? Will the resources or supply from the global market influence your business? I’ve seen it happen with my former company when outsourcing software development became a main stream endeavor for my enterprise clients. It affected my pricing guidelines which had to be more competitive. How would such an opportunity for your customers affect your overall viability as a business?


Burn Out Factor: You’ve been doing the same thing over and over again. Would you have the staying power to keep it up until the company sells or are you burned out of your wits to the point where you can’t have an ongoing fresh outlook and effectively operate the business. The Burn-Out Factor could interfere with a smooth exit by hindering you from making critical decisions that take the company to the next level. I experienced this myself with my previous company because I “rode it hard.” I put in so many hours and so much effort to take the company to a certain level in just a few short years, but the Burn-Out Factor eventually got to me. I was concerned that the apathetic approach to winning additional corporate accounts to me meant additional employees, overhead, and work.


Drawing from my own experience of being on the other side of the table, I meet with business owners with this question in mind: will they know if this is the right time to exit from or sell the business?


As an entrepreneur and business owner you took on the gamble to embark on your business. Just like in Kenny Rogers’ old song, The Gambler “You got to know when to hold ‘em, know when to fold ‘em, Know when to walk away and know when to run…”


Timing is a highly critical element in the exit from and sale of the business – know when to consider it.

Displaced Execs Fueling Deals for Small Businesses

Mergers & Acquisitions

Displaced Execs Feling Deals for Small Businesses

Business First of Columbus - by Robert Celaschi For Business First

The market for buying and selling businesses is heating up.

The number of closed transactions reported to BizBuySell.com nationwide jumped in the second quarter. The San Francisco-based online marketplace for businesses tallied 1,106 transactions, up from 1,040. To put the numbers in perspective, the volume is about half what it had been in 2008, said BizBuySell, an Internet marketplace that has 700,000 visitors looking for business opportunities each month.

The market has buyers, especially for smaller businesses.

“In the last two or three years, there are corporate executives displaced, underemployed and unemployed. They are wanting to take control of their destiny through business ownership,” said Emmet Apolinario, president of Columbus business brokerage International Resource Group and president of the Ohio Business Brokers Association.

Clay Baker is one such buyer. An executive in mortgage banking for 16 years, his career took a turn along with the mortgage industry in 2007. He had savings, but not enough to retire. Besides, he said, mortgage banking didn’t look very good on a resume at that time.

“I recognized the only path to get back to the income level I was accustomed to was to own a business,” Baker said.

He did his research, and worked with Apolinario to buy a Fastsigns franchise.

Making signs and banners didn’t interest Baker that much, but he saw an opportunity.

“The previous owner was ... not that actively involved,” Baker said. ”I figured with a little sales and marketing, there should be an opportunity to grow this business.”

In the first nine months, revenue grew about 25 percent, he said. Then the recession hit, and revenue dipped a few percent in 2009. This year it is holding steady.

With revenue on a plateau, he’s considering whether to buy a second business.

“I think there could be opportunities, and I might be mitigating some risk factors by acquiring something completely different than the sign business,” he said.

Which brings up one of the factors putting the brakes on deals.

“We are running into buyers who want to buy, but we have trepidation from the banks,” Apolinario said.

Baker can testify to that. When he applied for financing in the spring of 2008, he got approval within 30 days, he said.

"Had I gone about this in October of 2008, I wouldn’t have been able to get financing. That’s how much things changed in six months,” he said.

Smaller deals are easier to finance, according to BizBuySell. But bigger deals still get done, said Frank Wisehart, business advisory services director for Schneider Downs & Co. Inc. in Columbus. His office has seen a pick-up in calls for M&A due diligence work.

The most active market comes from companies with revenue between $10 million and $100 million. He said banks have cleaned up bad loans and are able to put up more money this year, he said.

The other challenge is dismal performance. Because of the way business valuations are calculated, a company that had a lousy 2009 would fetch a lower selling price this year. On the other hand, sellers are looking at higher capital gains taxes if they wait until 2011, Apolinario said.

Wisehart said companies that have downsized have returned to profitability and are seeing more sales.

“Manufacturing and technology seem to be improving,” he said. “Nearly everyone agrees the market will turn positive. The question is when that occurs or what event triggers the tipping point. ... I think economic prognosticators were caught flat-footed by the recession, and no one wants to wrongly predict an extended positive growth period.”

Robert Celaschi is a freelance writer.

Lending Problems Still Hamper Small Business Sales

April 1, 2009
Lending problems still hamper small business sales
By JOYCE M. ROSENBERG
AP Business Writer

Andrea Edmunds got a great deal when she decided to buy a small business. But that still didn't make it easy.

Edmunds recently bought back PoshTots and PoshLiving, two linked retail companies she had co-owned until three years ago. The firms' new parent company was in bankruptcy court and Edmunds wanted to buy the businesses back, even though the companies' sales were way down and financing is hard to get.

"I had enough confidence and faith that it's going to turn around," Edmunds said of her businesses and the economy.

Edmunds managed to accomplish what many would-be entrepreneurs are hoping for in a troubled economy: to buy a small business despite the many obstacles that are making deals hard to complete.

Business brokers, who bring buyers and sellers together, say there are a growing number of people who want to buy, including many who have lost their jobs over the past year and need to make a living. And there are plenty who want to sell, including baby boomers hankering for retirement.

Getting financing for deals is still tough, although the government has taken steps to make Small Business Administration loans easier to obtain. The brokers say banks are not only uneasy about borrowers, they're also questioning the health of the companies up for sale.

"Even with those changes, we feel that it seems as if the money may never reach the small business owner," said Jeff Hoops, senior vice president of The Haley Group in Paso Robles, Calif.

Small businesses have found it hard to borrow from banks for years, long before the recession; a neophyte owner or company has been too risky for many banks to take on. The recession and banks' unwillingness to lend in general over the past six months have made it that much harder.

Edmunds said her financing came from a private, locally-owned bank that was supportive of her plans. The fact that she knew her businesses so well was a plus, and the purchase price was down dramatically — $735,000, compared to the $12 million she and two partners got three years ago. The companies, based in Glen Allen, Va., sell upscale home furnishings.

Brokers are seeing lower prices in general along with fewer transactions.

Peter Berg, managing director of Transworld Business Brokers in Fort Lauderdale, Fla., said the volume of deals his firm did last year fell 10 percent but the value of all the deals put together went down 30 percent.

Meanwhile, deals are taking longer to complete while banks give prospective borrowers and companies much closer scrutiny. Emmet Apolinario, who owns a Sunbelt brokerage in Columbus, Ohio, said that before the credit crisis, a purchase could close in 45 to 60 days after an offer was accepted. Now, one of his pending deals will take five months to close.

Would-be buyers have been hit in several ways. Besides the bank financing issue, the nest eggs they would have used for down payments have shrunk as the stock market plunged. They can't draw on home equity because housing prices are down, and if they already had a home equity line of credit, their banks have very likely pulled the accounts or cut them drastically. Also, banks that are willing to lend are demanding bigger down payments.

Sellers have their own set of problems. More of them are having to act as lenders to close the deals. Apolinario has been telling them, "there is no way I can get you 100 percent cash. You will have to provide some seller financing."

That does have an upside for sellers, though: They get income from the interest on the loans they grant their buyers.

But, Apolinario said, many owners are also finding that they can't get the price they expect on their companies; these assets have fallen in value along with real property and stocks.

Brokers see small signs of a possible pickup in deals. Apolinario said the SBA loan changes have led to more prospective buyers calling.

Berg said he sees many people actively looking for a company: "They either have been laid off or are afraid of being laid off and want to be pre-emptive."

Still, he said, "it doesn't mean an uptick in the number of transactions. We're just seeing an uptick in the number of inquiries."

Hoops expects the climate for buying and selling to start picking up perhaps as early as June, "when people get comfortable with the fact that they're going to have to live with this (economy) for a while."

He expects prospective buyers to say, "things are bad, but I've got to plan for what I'm going to do next, no matter what happens in the economy."

Franco Ferrari, owner of a Sunbelt business brokerage in Casselberry, Fla., near Orlando, expects that the entrepreneurial spirit is what will bring more buyers in, rather than expectations that government steps will heal the economy. "There's confidence in their ability as a mom and pop operator that they can go in there and make that business produce," he said.

Year 2010 M & A Market Hoping New Year Brings More Activity Than Did Dismal 2009

M & A market hoping new year brings more activity than did dismal 2009
RICK ADAMCZAK
Daily Reporter Staff Writer
December 24, 2009

A local leader in the mergers and acquisitions field said he's "cautiously optimistic" about increased activity in the coming year after a moribund 2009.


"The recession for Wall Street is over, but then I talk to companies and they're still not hiring," said Emmet Apolinario, president of the Ohio Business Brokers Association.
During tough economic times businesses that are struggling may not be attractive because buyers want to acquire more successful companies.


"We do have a lot of buyers right now but there's a shortage of good businesses being taken to market," Apolinario said.


On the other hand, it's also a good time to go bargain hunting, he added, if the companies are stabilized.


"There are valid reasons for a sale. They don't have to be distressed," he said.
Many businesses hurt by the economy, however, are attempting to slug it out during the slow times with hopes of improvement not far away, Apolinario noted.


"I'm seeing a lot of distressed businesses hanging in there, hoping for a glimmer of hope," he said.


Other, more financially strong businesses are waiting to see if they can improve more and fetch a higher selling price, Apolinario said.


There some signs of life, however, especially among buyers.


"There is still some money in private equity, executives looking to buy, (but) some have been looking for a year. There's a shortage of good businesses to sell," he explained.
Many of those buyers are executives or Baby Boomers looking for a new career and or the independence that comes with being an owner.


"They've been in the corporate jobs for 20 years and they are finding opportunities in buying businesses," Apolinario said, adding they're often doing it not as a part-time or side gig, but as a full-time job.


As far as the types of businesses sought, health-care companies are in the strongest position, Apolinario said.


Also, handyman and repair businesses are doing well as consumers hang on to products longer rather than purchase new ones and perhaps need the old items maintained.
At the other end, the retail sector is abysmal.


"Businesses that have a footprint in the retail market have not done well, being affected of course by consumer spending," said Apolinario.


Restaurants, too, are "challenging," he said as consumers have cut their spending on dining out.


Any increase in activity would be an improvement on what's occurred this year in the deal-making business.


"It's been a tough year for mergers and acquisitions and business brokerage," said Apolinario. "The SBA stimulus package was a big help to get some deals done."


The federal stimulus package in the spring included a 90 percent federal guarantee of U.S. Small Business Administration loans by banks and lowered fees, which encouraged banks to provide more small business loans.


Still, it was such a rough year that Apolinario said he's seen some people leave the business brokerage field and that Ohio Business Brokers Association membership is down more than 20 percent this year.


Meanwhile, national mergers and acquisitions experts, too, are holding their breath that activity will improve next year.


"While it is likely that deal activity may not return to pre-crisis levels within the next few years, there is some cause for optimism when looking at the three drivers of deal activity: confidence, credit and cash," said Steve Krouskos, Americas markets leader for Ernst & Young LLP's transaction advisory services, in a recent statement.


For the second half of 2009, deal activity remains sluggish but is showing signs of modest acceleration, according to Ernst & Young.


The firm said deals continue to get done, but the types of deals completed, and the way these deals are financed and executed, has changed significantly.


"The new 'normal' is defined by continuing uncertainty, weaker demand and margin erosion, scarcity of capital and more risk-aversion in strategic decision making. Managing all aspects of the capital agenda is the best way to manage the new normal," said company officials.


"In this deal environment, the margins for error have narrowed," added Rich Jeanneret, Americas vice chairman for Ernst & Young's transaction advisory services. "Many companies feel inclined to stash cash and be reactive, but winning companies will be those that have the confidence to use their capital to seize opportunities."