Around the Web

Around the Web: A Week in Summary

A recent article from Divestopedia entitled “Cash Forecast Excel Tool: In Tough Times, Cash is King” provides actionable advice that business owners can use to navigate the current financial challenges.

The central theme for businesses trying to stay afloat during times like these is simple: be conservative. Most business owners’ basic instinct to save every dollar they can and narrow their focuses on continuing to turn a profit is reasonable. In this article is a checklist of tips for surviving the downturn, a tool to calculate weekly cash flow, and a list of questions business owners can utilize to perform a cash analysis.

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A recent article from Smart Business Dealmakers entitled “Coronavirus Has Disrupted, But Not Extinguished, M&A Options” discusses the benefits of the current market conditions for businesses, buyers and owners considering selling.

It is true that the current disruption to the economy is not ideal. Given the circumstances, it may seem as though negative consequences are all there is to look forward to. However, the situation at hand does present opportunities for the M&A market. For owners, buyers and sellers alike, here are some things to look forward to:

• Reduced Risk – For business owners looking to remain in business, now is an opportune time to consider bringing in a minority investor in order to grow the business or to reduce your personal risk as well as the risks for shareholders who may be concerned about their financial safety during a time like this.
• Buying a Company – During an economic downturn, there is also a leveling out of pricing. There is likely to be an increase in the number of businesses available for purchase, and with that will likely be a decrease in the average price of each company.
• Selling – As an owner, there are many reasons to consider the sale of your business right now. Whether it’s to avoid the difficulties that lie ahead or to put cash back in your pocket for security, there are plenty of investment firms and buyers on the lookout for new opportunities. While prices may decrease, the market will see an increased use of structuring tools such as earn-outs that may be enticing for some owners.

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A recent article from Axial entitled “PE Business Development Post-Coronavirus – COVID-19 Virtual Roundtable” provides the audio files and show notes from a discussion between eleven M&A professionals regarding the effects of COVID-19 on the lower middle market.

During their discussion, these experts discuss important questions such as:

• How is the business development ecosystem evolving in this time of upheaval?
• Are firms pressing pause on sourcing?
• Will investors change their mandates in response to the pandemic?
• How is time being spent differently right now?
• How have strategic acquisitions been affected?

For insight into these questions and more, access the recordings and the main takeaways from the discussion, as well as links to previous COVID-19 Virtual Roundtables.

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Around the Web: A Week in Summary

A recent blog post from BusinessBroker.net entitled “How A Business Broker Can Help You” discusses the important role a business broker has when it comes to buying a business and how they can help you.

It is important to work with an experienced business broker that you can relate to and that you feel comfortable with. A broker can help you find listings that appeal to you and fit your needs that you might not have found on your own.

There are many big and small steps in the process of buying a business and working with a business broker can help you through these steps to make it easier and more manageable. Some, if not most, brokers have a real estate license so they can broker property transactions and assist with leases.

Some other processes a broker may help you through include answering questions about provided information on businesses presented in a marketing packet, requesting additional information from the seller, scheduling appointments to meet with the seller, making a written offer, etc.

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A recent article from Forbes entitled “Thinking About Selling Your Business? Beware Of These Five Deal Killers” lists key actions to be aware of when selling your business that may kill the deal you’re working on and how to avoid this. A mistake could not only kill the deal but it also may significantly hurt the value of your business as well as your chances of selling. Keep these five deal killers in mind when selling your business:

1. Telling Your Employees Before The sale – A key here is to not tell any staff members until the deal is done and signed. You don’t want the news spreading and have employees concerned, unfocused and even quitting.
2. Allowing The Buyer to Work In the Business Prior to Closing – Involving the buyer in the business operations before the deal is done has the potential to overwhelm them and cause them to feel they are not prepared to take over.
3. Thinking You Can Handle The Transaction On Your Own – Whether it’s a business broker, attorney, or CPA, having an experience professional to help and advise you is always a good idea.
4. Telling Your Suppliers Or Vendors Before You Close – You want to have clauses and contracts in place to address terms with your suppliers for the transaction months, if not years, before the closing. But don’t tell them why.
5. Not Being Prepared To Defend Your Valuation And Not Having Clean Due Diligence Records – You want to make sure all your financials and record keeping are in place and organized. The more that everything is out in the open and organized, the easier it is to prove the value of your business.

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A recent article from Inc. entitled “How to Sell Your Business to a Competitor and Not Get Burned” looks at how to sell to a potential strategic buyer in your market while protecting yourself in the process. The key here is to gradually release information and protect yourself using the following practices:

1. Put agreements in place to protect the business – Have the potential buyer sign a non-disclosure agreement and a non-solicitation agreement.
2. Disclose Information Gradually – Even if you have agreements in place, you don’t want to share everything about your business right away. Some information you will have to give right away like financials but try to keep things like customer names and critical information private for a while.
3. Trust Your Instincts – Once a price is agreed upon, the reality is you will have to release all information about the business. By this point you should have spent enough time with the buyer to determine if you can trust them or not. If you don’t, then stop the deal.

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Around the Web: A Week in Summary

A recent article from Talk Business & Politics entitled “What you can expect when selling your business” reviews the importance of taking time to prepare your business for a sale and what you may need going into the process.

Key suggestions include:

• Plan ahead and start early because it can take years to properly prepare your business for sale
• Ready your business so that problems are fixed and a buyer can realistically take over
• Utilize qualified accountants, attorneys and other professionals who have experience with business transactions
• Make sure you have financial statements prepared by an accountant
• Be prepared to accurately show your assets such as real estate, inventory and client list
• Have realistic expectations

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A recent article from The Ledger entitled “Better, not necessarily bigger, when selling a business” looks at the different factors that go into determining a business’s value and how to use these factors to build a more valuable business.

There was a time when you had to grow your business bigger for it to become more valuable. The goal for most business owners now, though, is to build more valuable companies.

The reason one company sells for more than another has to do with a number of factors. In order to grow a more valuable company you have to take look at multiple business value drivers. Some of these drivers include business scalability, happy customers, recurring revenue streams, increasing annual profits, proactive steps to improve cash flow, etc.  Most buyers want to buy a profitable business with a history of increasing profits that they can grow, and these value drivers can demonstrate that.

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A recent article from Africa.com entitled “How to Sell a Business on a Budget” provides tips on how to keep the cost of selling your business low if you are low on resources. Some suggestions include:

Be prepared: Start gathering documents and records early to avoid last minute costly surprises. The earlier you start, the more time you have to structure your business in a way that will yield you a higher sales price.

Find the right business broker: You don’t want to simply go with the first broker you meet. Interview multiple brokers and ask about their qualifications, reviews, experience and how long they expect it to take to sell your business.

Market your business online: Online business-for-sale advertisements give you the opportunity to reach lots of buyers with relevant information while keeping the sale confidential.

Envision the business’s future: Buyers are thinking about the future, so be sure you can demonstrate the potential growth opportunities that exist for your business.

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Around the Web: A Week in Summary

A recent blog post from Transworld Business Advisors entitled “Pre-Sale Checklist for Selling Your Business” provides a comprehensive list of things you should have prepared before selling your business.

The checklist includes several documents such financials, leases, and employee lists. These documents give insight into many different aspects of your business. Having these documents will help you prepare to answer questions a buyer might ask and make your business more attractive to potential buyers.

Not only will this list help you prepare for discussions with buyers, it also helps you identify strengths and weaknesses in your business. This can help identify areas to make improvements to your business in advance of the sale to make it more valuable and easier to sell.

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A recent blog post from BusinessBroker.net entitled “Business Assets” discusses the role of assets when considering the criteria for purchasing a business.

In one scenario, if you are buying a business that does not generate a profit then you are essentially buying the assets.  Assets can make it easier to obtain financing. These assets also come with possible tax implications and future replacement costs.

In another scenario, if you are buying a profitable business then you are essentially buying the cash flow, and assets may be less of a factor. The key is to see how the owner made the business profitable.

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A recent article from Northern Nevada Business Weekly entitled “Now might be the time to sell your business” details signs that it may be time for a business owner to consider selling and external factors that make it a good time to explore a sale.

Signs that an owner may want to consider selling include:

• Decision making that once was easy becomes a major event
• Difficulty prioritizing
• Ineffective problem solving
• No longer enjoying the business
• Dreading the workday

Current external factors that make this a good time to explore a sale include:

• Strength of the economy
• Low inventory of attractive businesses for sale
• High number of buyers in the market

Click here to read the full article.

Around the Web: A Week in Summary

A recent article from Forbes entitled “4 Things You Need To Do To Start Planning Your Exit Today” provides insight into the steps you should take when you are considering a business exit plan.

It is very common for a business owner to wait until they are ready to put their business on the market before doing any exit planning. It seems like planning the exit can wait while there are other tasks at hand to give your attention, but the opposite is true. A strategic successful exit requires careful and diligent planning.

There are 4 things you can do to start your exit planning:

1. Build a successful business that is attractive to outside investors
2. Ask yourself key questions that a potential buyer will ask such as “Is the business dependent on the goodwill of the ownership team?” and “Is your revenue stream diverse or dominated by a handful of clients?”
3. Review and analyze income tax planning strategies
4. Make a plan to maximize gifting strategies and your legacy

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A recent article from Business Observer entitled “How to buy out a business partner” provides advice for approaching a buyout of one business partner by the other partner.

One key factor in this process is to stay level-headed. While this may be an emotional time, it is best to keep your emotions in check and look at the transaction with a level head.

It is best to create a buyout plan long before a partner decides it’s time to make their exit. Planning ahead can help this process be much smoother for all parties involved.

Another key factor is use the help of professionals for things like a third-party valuation of the business to help determine what the business is worth and an intermediary to guide the process.

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A recent blog post from Allan Taylor & Co. entitled “Show Your Business Some Love: Get A Valuation” provides insight into the many benefits of getting a professional business valuation.

Getting a business valuation can allow you to see your business from a new perspective which may help you make improvements to the business and reduce or eliminate current struggles.

Potential benefits of a business valuation include:

1. Identify ways to improve your margins, which in turn improves the value of your business.
2. Put into focus how your business generates cash and what you can do to predictably generate more cash so that you can make short term improvements while also building value.
3. Uncover inherent risk in your business such as too much dependency on the owner so that you can take steps to mitigate these risks.

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