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A Guide to the Mergers and Acquisitions Advisory Firm’s Role in Business Sales

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When an entrepreneur decides to sell their business, it’s usually a bad idea to jump into M&A (mergers and acquisitions) without the help of a knowledgeable, experienced mergers and acquisitions advisory firm. A business owner can prepare for the sale process by retaining an advisor, and as long as that person is qualified for the job, the ROI is often high. The difficulty of selling a business while trying to run it, and the disadvantages of going through the M&A process and leaving empty-handed, are some of the biggest reasons to hire an advisor. Read on to learn more about advisors’ fee structures, the vetting process, and role in business sales.

Fees For M&A Advisors

An advisor typically sees their biggest payout when a deal is closed. Known as a success fee, this payout is often based on the transaction’s final price. Success fees are usually negotiated by the advisor and the business owner when the relationship is formalized. If the contract calls for a percentage of the sale price, the advisor is motivated to maximize the transaction’s value for the business owner. Along with success fees, many established M&A advisors require upfront or monthly retainer fees, which assure the seller’s commitment to the process. CGK Business Sales does not charge retainer fees. We are only paid upon the sale of the business.

Vetting a Mergers and Acquisitions Advisor

Business owners should carefully examine a potential advisor’s competence, experience, and reputation before signing a letter of engagement. Sellers should look for a positive history of past deals, testimonials from past clients, and endorsements from other industry professionals. When advisors have worked in similar industries, they may be more acquainted with potential buyers.

The Advisor’s Role in Preparing a Company for Sale

A considerable amount of work goes into preparing the target market before a sales pitch is made, and adequate financial information is crucial. Many mergers and acquisitions advisory experts will insist that their clients have the company’s financial statements adjusted and reviewed by a CPA if the owner does their own accounting. All advisors want to ensure that potential buyers understand how much Seller’s Discretionary Earnings (SDE) the business produces each year. This type of analysis goes beyond just seeing how balance sheets are connected to their income statements. Beyond financial information, an M&A advisor should ensure that physical locations are properly maintained. Post closing, getting key suppliers and customers on board is another important task, as potential buyers will want some level of assurance that current customers will stay as the company changes hands.

Getting the Company to Market

During the most prominent part of the process, the mergers and acquisitions advisory firm puts the company “on the market” and chooses a method that maximizes the seller’s chances of success. In many cases, this involves contacting potential buyers to gauge their interest. Advisors should manage the process efficiently by qualifying buyers based on seriousness, expertise, and available capital. Depending on the target company’s time requirements and other features, an advisor may decide to market the business to a limited number of potential buyers at one time. No two companies are the same, and an expert advisor will treat every sale differently.

Finalizing the Deal

Finally, selling clients should be confident that an M&A advisor can help them negotiate terms, including structures, escrows, tipping baskets, seller financing, reserves, and other important issues. If contingent payments, non-compete clauses, or consulting contracts are needed, an advisor can help a seller formalize these components with the help of an attorney, as well.

Do not Start a Business, Buy a Business Instead

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Owning a business may be a dream, but the process of taking an idea and turning it into a viable organization is sometimes more of a nightmare. There is a lot of effort involved and most startups will not find enough funding to get off the ground. Many others do not make it past their first year in business. These facts do not mean that anyone should give up their entrepreneurial plans, they just need an alternative path to reach the success they desire.

Purchase a Success

One method that offers more security is taking over the reins of someone else. When an entrepreneur can buy a business, they have something with a proven track record of success and it is easier to prove to lenders that the company can make a profit. There are past experiences and routines to follow to prevent mistakes. A business acquisition provides the new owner with a company that already has brand recognition and a client list.

Avoid Common Missteps

New business owners often make the same mistakes. When buying a business, it is possible to have guidance and training from the previous owner to avoid repeating their missteps. In an established company, there is usually an existing, trained staff that makes it possible to continue the daily operations without interruption.

Expand Business Faster

An existing business owner should also think about how to buy a business that could expand their own company. Mergers help to increase the inventory, the equipment value and the services businesses have available without forcing them to undergo any construction or feel as if they are starting over. A merger with or the purchase of a competing company instantly eliminates the risk they once posed and increases client lists and much more without any undue effort. The value of the company is boosted immediately, and the acquisition sends a signal to potential clients of the success and professionalism of the company.

Eliminate the Worry

Entrepreneurs have a lot to consider when they establish a company. They must determine if there is a market for their product or if there are enough people in the area to support the service they offer. Even seemingly simple decisions can talk a lot of time and money to develop and research. A logo, a company name, and a business motto could take months or longer to choose and there are no guarantees they will appeal to the public. It is possible to avoid all of this when someone chooses to buy a business. An established company has already proven they are viable and they have appeal.

The details of mergers and acquisitions are easier to understand when working with a company that specializes in this type of buying and selling service. It is a business transaction that enables everyone to get what they want. The existing business owner can see the continuation of the business they created while being able to move on to other projects or retire. The buyer has an instant company to make their own and adapt over time into their own unique organization. Find out more about the potential this opportunity offers before making any other investment.

Tips to Make Selling a Business Much Easier to Handle

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Business owners who are ready to move onto something different or just ready to retire and enjoy the money they’ve earned will want to make sure they can sell their business as easily as possible. However, selling a business does take some time and proper planning to ensure everything is done properly and that there are no issues with the sale.

Start Planning for the Sale as Early as Possible

When a business owner decides to retire or to start a new business, the first thought they often have is, will it be possible to sell my business? While most businesses that have positive cash flow will allow the owner to sell their business, this isn’t going to happen overnight. In fact, it could take up to two years from the thought of selling to the actual sale. If they’ve decided to sell the business, they will want to make sure they start planning right away, and this could mean finding the right help.

Get Help to Sell the Business

Many business owners who are interested in selling a business will want to make sure they have help from the very beginning. A mergers and acquisitions advisor is going to be able to help them whether they’re merging their business with an existing one as part of the sale or if they’re just selling it to an interested business owner. They can receive help determining the value of the business, organizing paperwork for the business, finding a buyer for the business, and more.

Determine the Selling Price of the Business and Any Conditions

When the business owner is ready to sell, the first step in how to sell a business is for them to determine how much they want to get for the business. They’ll need to determine the value of the business and how much they would like to get when they sell it. They might want to think about any conditions they might have for who can purchase it or what can be done with the business after the sale (i.e. are there any synergies?). This will help them make sure they’re ready to start looking for the right buyer. This is something the business broker or the mergers and acquisitions advisor can help them with to ensure the business is ready to be sold before a buyer is found.

Start Looking for a Buyer for the Business

The next thing they’ll do is look for a buyer for the business. This can be the most difficult part of trying to sell a business because they’ll want to make sure they find a buyer who is serious about taking over the business and who is going to be willing to pay the offered price or negotiate to a reasonable price for the business. If they have a mergers and acquisitions advisor helping them, the business owner can get the help they need to find the right buyer and complete the sale quickly.

For many business owners, the idea of selling a business can be daunting because it’s a long process and there’s a lot they need to do to ensure they’re prepared. If you’re ready to sell your business, make sure you talk to a mergers and acquisitions advisor today so you can start getting the help you need. They’ll help with every step to ensure your business is sold as quickly as possible and help you get the right terms and as much money as possible for it.

Things to Know About Business Valuation

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Businesses change ownership for a variety of reasons. Whether they’re merged, divided among partners, sold, or given away, ownership of even a stable business is subject to change at some time. When this happens, involved parties must have an accurate idea of the value of the company’s assets. This makes business valuation an important part of the transfer of ownership. Below are several things to remember when seeking a business valuation or learning how to sell your business.

Its Purpose

A company’s assets may change hands for various reasons that can affect how the company is valued. For instance, valuations for estate and gift tax returns are determined differently than those for divorces and shareholder disputes.

The Date of Valuation

A valuation’s date can significantly affect the business’ value. For example, a most business’ values would likely have diminished in 2008-2009 because of the devastating effects of the crash of the Great Recession.

The Value Standard

Valuations are put into three different categories: fair value, fair market value, and strategic or investment value, as defined in the sections below.

  • Fair value is typically used in divorces and stockholder disputes; it excludes discounts for lack of control or marketability.
  • Fair market value is the price for which a property would sell between a well-informed and willing buyer and seller.
  • Investment or strategic value is the value to a certain investor based on their expectations and requirements. It’s commonly used in mergers and acquisitions when a business buyer plans to change positions or product lines.

Before selling a business, a business’ current owner should consider the category into which the valuation falls.

The Value Premise

This is an assumption of the circumstances that may apply to the valuation. There are four categories to consider.

  • Book value, which is the total value of the assets minus the company’s liabilities
  • Going concern, which is the business’ value under the assumption that operations will continue
  • Liquidation, or the value of the business if it were to be ended and all assets divested
  • Replacement value, or the cost of replacing all the company’s assets with newer versions

For nearly all of our customers, who are normally selling a business that will continue on with the next buyer, the going concern methodology will be the one we use. When selling or buying a business, it’s important to have accurate financial statements during the valuation phase and beyond. With good financials, an owner can form a successful exit strategy and a new owner can assume control being fully informed. Visit the website for more information on how to sell a business.

Business Brokers Help Connect Sellers

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Business Brokers Help Connect Sellers with Investors Interested in Buying a Business

 

Business owners whose exit plan entails selling the company should get in touch with an Austin business broker well before they plan to move on to their next venture. The process of finding a suitable buyer could take a while but with the help of a business broker, a business owner won’t have to spend time focusing on who will take over their company. Although some business owners decide to sell the business themselves, there are some very good reasons to hire a business broker instead.

 

Experience

Business owners tend to be very attached to their companies. It can be very challenging for them to evaluate buyers and their offers. Business brokers, on the other hand, are impartial, so they can negotiate with buyers who want to buy a business, without looking for reasons they won’t be a good fit for the business for sale.

 

Marketing

Business owners are busy running their business. They don’t have time to do a lot of marketing. Business brokers, who do this every day, know the best ways to market a business and the best ones have a large database of people who are interested in buying a business like the type of company a business owner has for sale. A broker can highlight the positive aspects of the company to make it more attractive to buyers.

 

Pricing

A business owner usually can’t tell the true value of their company by simply looking at the books. Effective business valuation is a complex process that includes much more than sales and net income. Business brokers use resources only available to them to help determine the true value of a company. Plus, certain business brokers can financially model the company, using these complex financial models to find the true, intrinsic value for the business, as they would on Wall St.  They use these numbers as a reference point when they put the company on the market. Any particular businesses for sale may sell for more or less than the average.  There are nuanced reasons for this that go beyond just the accounting numbers.

Selling and buying a business should almost always be done through a business broker. Brokers help connect buyers and sellers and help both groups save time, headaches, and add expertise to the sale, since each process is unique. When business owners contact a business broker to sell their company, they’ll spend a lot of time learning about the company.  That way, the business broker understands the business nearly as well as the owner and can identify the right buyer, which helps continue the seller’s and business’s legacy.  Call CGK Business Sales today at 512-900-3770 for help selling your Austin business.

When Hiring An Austin Business Broker…

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You’ve worked hard over the years to build a business that would take care of you and your family.  Now, you think it might be time to sell your business.  This is a decision that most business owners in Austin do not take lightly.  They are proud of what they’ve built and would like to see their employees and customers treated well by the next owner.  Most often, the Seller would also like to receive full value and good terms for what they’ve built.  It’s hard building a business.  Unfortunately, it’s easy to mess up the mergers and acquisitions process.

It seems that in these late stages of a nine-year bull market, everyone and anyone thinks that they have the knowledge and know-how to sell businesses in Austin.  It’s easy to “hang a sign”, as they say.  The problem is, most practitioners do not have the education, backgrounds, or experience to do so.  We hear about it from frustrated buyers all the time:  “I think the broker I talked to was 20 years old.”  “I’m not sure they had any financial experience, whatsoever.”  “In order to sign up the deal, the broker gave the seller the most unrealistic expectations, making any kind of deal impossible.”  “I’m not sure the broker did any due diligence, at all, before bringing this to the market.”  “The broker knew nothing about the actual business.”  “The Information Memorandum, if you want to call it that, was full of wrong and useless information.”  “After spending thousands of dollars on due diligence, the cash flow was no where near what was advertised.”  “There was zero chance the bank would underwrite this deal.”  Or even worse, “The broker completely mis-priced the business on the low end.  I got a steal of a deal.”  On and on they go…  So, before you turn your life’s work over to a broker who will get these kinds of reactions from buyers, it’s best to choose wisely.

Why does this happen?  Quite simply, his happens because most people in the business brokerage industry do not have the proper backgrounds to be in mergers and acquisitions.  On Wall St., M&A investment bankers are often the best students, who go to the best schools, who go through rigorous financial training to help make vital decisions for their Fortune 500 clients.  These deals are often multi-billion dollar decisions that can make or break companies, CEO’s, and shareholders.  The stakes are high.  While your company may not be a Fortune 500 company, it is nonetheless just as important to you.  To you, the stakes are just as high, if not higher.

This is why it is vital to understand the backgrounds of those you might hire to sell your business.  Reading through the websites or LinkedIn profiles of most business brokers in Austin will likely sound impressive.  They want you to trust them.  They are putting their best foot forward.  They might have good corporate backgrounds at Fortune 500 companies.  They might have built a business and sold it.  They’ve been in “your shoes”, they will say, and are now selling businesses.  They might have even done M&A at a corporation as a buyer.  Unfortunately, these are the kinds of backgrounds that lead to the aforementioned reactions from a couple of paragraphs ago.

So who should you hire?  Before you make that decision, think about who the potential buyers for your company might be.  From our perspective, buyers tend to be in three general categories.  Ultra-sophisticated private equity or venture capital buyers, who have spent an entire career learning how to buy, run, and sell businesses.  These are your Ivy League or equivalent MBA’s and Goldman Sachs alums.  Think “Shark Tank”, but better.  There are also high-net worth, individual buyers who have built a great deal of capital by being really good at what they do.  Even if they, themselves, do not have M&A experience, they tend to be very sharp, and hire those that do, as advisors.  Finally, there are strategic or corporate buyers.  These are who most sellers at this level believe will buy their business.  Often, though, the smaller corporate buyers do not see the value in M&A.  These smaller corporate buyers are generally founders, who have built their businesses from scratch, and can’t understand paying millions of dollars for what they believe they can accomplish with a few more advertising dollars.  These are often your best fit, if they truly “get it”, but they usually are few and far between because they are unwilling to pay market prices.  Finally, that leaves us with larger corporate buyers.  We often hear about “Public Company A or B” that is going to be interested in my small business.  That’s exactly the problem.  If your business can’t move the needle, in terms of revenue or earnings, or provide some real, unique niche to a public company, then chances are, they are not going to be interested.  In the event that they are interested, we will likely be dealing with someone sophisticated at the firm, who is out for a good deal.

This is why we feel very strongly that we must be one of your calls, if you are truly interested in getting the best deal possible. We get good deals, in both price and terms, for your Austin business.  Remember, every buyer wants a good deal.  A high, headline sales price is worthless to you as a Seller, if you never receive the money or get jilted by other terms or deal structures.  There are some very sophisticated buyers in the marketplace.  Some will have backgrounds that are so much better than their business broker counterparts, that they are going to run circles around them during the deal process.  Unfortunately, some sophisticated buyers will try to rob you blind.  Most business brokers and smaller M&A advisors won’t even realize their mistakes.  The Seller, the broker, and their attorney believe they’ve gotten a good deal but they haven’t.  Your broker might have just squandered millions of dollars, in an instant, due to their lack of sophistication and M&A know-how.  But wait, you say, the broker I just talked to has been in business for 20 years and sold hundreds of businesses?  Have you ever heard the saying, “They don’t know, what they don’t know”?  We consistently sell businesses that other business brokers in Austin could not.

We run a different kind of process here at CGK Business Sales.  We get the best prices and terms because of our differentiated, proprietary process.  We reach buyers that other brokers simply don’t have access to or were too lazy to contact.  We have the types of education, backgrounds, and financial training to go to-to-toe with the most sophisticated buyers.  Put us to work for you.  Get the deal you deserve.  It’s your life’s work.  Protect it.  Call us at 512-900-3770.

How To Sell My Business In Austin TX In 3 or 4 Years

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What are the top 5 ways to sell your business in Austin TX in the next 3 or 4 years?  How should you prepare?  What are the best ways to extract the most value for your business sale?

Many sellers are under the impression that selling a business is easy.  They have often been approached by interested buyers over the years.  What if I told you that only 20% of privately-held businesses actually sell?  Would that change your opinion?  Surely, though, they think, my business is different.  After all, you’ve been approached by many different buyers over the years.  Understandably, you think your business is special.  It IS.  After all, it takes an enormous amount of work to grow a business.  Most fail.  You HAVE created something special.  But, suppose I told you that almost EVERY business I speak with has an interested buyer before they come speak with me?  How is it possible then that almost 80% of businesses never sell?  The answer is easy- There is a big difference between a SERIOUS buyer and those that are merely kicking the tires.  There is also a BIG difference in businesses that are prepared for sale and those that are not.  Almost every business I represent has at least 100 buyers interested in it before we find that RIGHT buyer.  Most importantly, there are times when there ARE numerous and very serious buyers, but the business is ill-prepared to be sold.  How can you avoid that situation?  If you’ve thought to yourself, “Hmmm…How to sell my business in Austin TX in 3 or 4 years“, please keep reading.

  1. Keep good books and records
    Have an outside CPA do your taxes.  Hire that same CPA or a reputable bookkeeper to do your books on at least a quarterly basis for three or four years.  It looks much better to an outside buyer than keeping your books yourself.  It is also much better than trying to prove that you make what you make with a box of old receipts.  The buyer will trust outside, professional help much more than you.
  2. Limit Your Capital Expenditures To What Is Necessary
    Are you about to spend an inordinate amount to upgrade your website or POS system?  You may want to rethink that.  You only get credit for pre-tax, pre-financing profits that show up on your P&L.  If you spend a bundle on an item and depreciate the item over time, you will not realize the full investment of that item if you sell your business in the midst of that time period.  Of course, if you definitely need to upgrade a vehicle or other item, go ahead and do so.  A buyer will hold it against you if they buy a vehicle from you with 200,000 miles and clearly needs to be upgraded.
  3.  Keep the proper amount of working capital on hand.  No more, no less…
    Most buyers do not know any better.  Meaning, most buyers are going to assume that the amount of working capital on the books is what is needed to run the business.  If you are in the habit of buying more inventory than what is needed when it is “on sale”, beware.  A buyer will believe the amount on your books is the right amount necessary to properly run the business.  If you haphazardly collect accounts receivable from your customers, a buyer will assume they need that amount of A/R in order not to put in any more capital beyond the purchase price.  Remember, you have perfect information about your business, the buyer does not.  They are at much more risk than you are.  Keep the right amount of working capital on hand.
  4. Limit the personal expenses in your business
    This is easy.  While everyone is trying to limit the amount they pay on their income taxes, it is difficult for a buyer to separate what is truly needed for the business versus and “personal” items that are expensed through the business.  These include travel, entertainment, and even your compensation amount.  Buyers are likely to see everything at face value.  The 33% you save on your taxes is minuscule compared to the multiple of earnings you get for every dollar of seller’s discretionary earnings.  If you are determined to save money on taxes, just don’t expect to add-back those amounts when it comes time to sell.  Most business brokers do sellers a disservice by adding back personal expenses.  The bank usually won’t loan money for this and buyers simply don’t accept it.  Don’t do it…
  5. Put Contracts in Place
    Remember, you need to put yourself in the buyer’s shoes.  They will be nervous that they will give you a lot of money at close and then the business collapses.  This is how they think.  Trust me.  To mitigate this risk, see if you can lock up some of your customers with a contract.  Buyers love contracts.  Buyers also get nervous that all the employees are going to quit, especially key employees.  Can you lock them up for numerous years?  Are there ways to offer your employees incentives to stay on after the transition?  This does not have to be just by paying them more money or in bonuses.  Studies show that more responsibility, titles, and autonomy can be very effective ways to keep employees satisfied and engaged, rather than simply throwing more money at them.As you contemplate, “How To Sell My Business In Austin TX In 3 or 4 Years“, keep these procedures in mind.  It will make your business more attractive to more buyers and result in a higher sales price.

Top 3 Ways To Add Value To Your Business Without Adding Sales

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The easy way to add value to any business is to add sales, which, if your margins stay consistent, should add to your bottom line.  Adding sales is intuitive.  But what if it is not easy to add sales?  What else can a potential business seller do to increase the value of their business?

1) Add Infrastructure– What do we mean by this?  Promote from within and add a layer of management.  Add a head of sales, head of operations, etc.  Even if this title does not add anything to the employee in the way of monetary value, having a team around the owner makes the transition to a new owner seem a little less scary for a potential buyer.  Ideally, a new owner can step right in and the transition will be seamless for that new owner.  Having a management staff around that new owner will give the buyer confidence that they don’t need to know every aspect of the business to be successful.  Remember, as a business seller, you have perfect information about the business.  The buyer does not, even if they have direct experience with that same type of business.  Every business is different.  Adding a layer of management makes the transition less scary for a buyer.

2) Subtract Responsibilities– This is along the same lines as #1, except different.  No buyer wants to work 100 hours/week.  In the same vein, no buyer wants too much responsibility when they take over a business.  Many business owners are the bookkeeper, HR department, marketing department, strategist, etc.  The less a new owner has to do, the more attractive a business can be.  Although every dollar is precious, some of these functions can be outsourced for far less than it would take to hire someone internally.  For instance, ADP, the payroll company, has many of these functions.  You can outsource these functions to them for a low cost.  While this may not seem attractive, as money is flowing out the door, this frees up time for the business seller.  The seller can then focus on what they do best; growing the business or simply adding better clients and subtracting those that eat up 80% of your time.

3) Add Margin- Every buyer wants a special business.  As Warren Buffet would say, buy a business with a moat around it.  This moat keeps the business safe from attack from competitors.  How can you as a seller add margin?  In every industry, there are products or services that have extra margin to them.  They might be hard to get or take a special technology, but there is a reason why you, as a seller, can charge more for that product or service.  Maybe you have an exclusive contract, rights, or a protected territory?  Margin is proof that there is something special about your business.  With margin, you can show a buyer empirical evidence, rather than simply telling the buyer that your business is special. Adding margin, in the form of special products or exclusive contracts, can make a buyer feel better about expansion opportunities or simply make them choose your business over the other hundreds of opportunities that are out there in the marketplace.

Many business sellers, right after they ask, “What is my business worth?”, ask, “How can you add value to your business?”  Following these three guidelines will help.

The Current Austin TX Business Climate in 2015

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How is the current Austin TX business climate in 2015?   It is very good right now.  With an average of less than 180 days to closing (the lowest since the Great Recession), there is demand for almost every kind of business and service you can imagine.  Can it last?  With unemployment hovering near 5% and interest rates still near 0% for the better part of a decade, it is definitely a seller’s market right now.  Where I live in Central Texas certainly did not see the downturn that the rest of the U.S. saw during the economic downturn in 2008 and 2009.  Therefore, the local economy here in Austin is especially hot right now.  People are moving hear at a rate of over one hundred people per day.

As a seller, how do you take advantage of these good times?  If you are concerned about another recession and feel as though you are at an age where that might zap too much out of you, the time to sell might be now.  This, of course, depends on each individual’s personal situation.  But, at six-plus years, this is already the third longest bull market in history.  As of early September 2015, the stock market is starting some gyrations and the Federal Reserve is meeting in a few weeks to determine if it is time to raise interest rates for the first time in almost ten years.  While a slight, .25% increase in interest rates will not materially affect your business’s value, this could start the Fed on a course to keep raising rates.  The more rates go up, the more the value of your business could theoretically go down.  Why?  Buyers simply cannot afford to pay the same amount that they previously could for your business.    If your business continues to increase the top and bottom lines by twenty-five percent or more per year, this increase may not matter as much to you.  Your business will continue its rapid ascent in value.

If you are thinking about potentially selling your business in the next five years, it might be to your advantage to talk to your local business broker about your options.  Some business owners were mentally wiped out after the last recession.  If you were one of those people, this could be the right environment for you to start thinking about your exit strategy, especially considering the current Austin TX business climate in 2015.

Contact Us

CGK Business Sales

401 Congress Ave

Austin, TX 78701

phone: (512) 900-3770

website: https://businessbrokersaustin.com