Apex Blog

Capital gains taxes will be going up from 15% to potentially 25% in 2013.  If you are doing a deal that is valued at $1M, that can make a big difference in what you are able to put in the bank after selling your business to the tune of $100K.  If you are close to retirement or thinking about selling your business, you should move aggressively to prepare your business.  You will realize a substantial savings if you close by December 31st of 2012.

The shocking thing to us is how little this is being talked about in Kansas City.  If you are reading this and you know someone who owns a business, please consider forwarding this on to make sure they are in the loop… you never know when they are considering a sale of their business.

There are many sources on the internet documenting the potential rise and we especially liked the article from Forbes discussing how the increase could go based on various legislation. (Source link: Forbes, January 24, 2012)

We are excited to celebrate the fact that Mike Funk has been a Senior Broker with Apex for 6 years!  Mike was originally a client of ours when he was selling his wholesale distribution business.  His entrepreneurial background fit well with the organization and his experience allows him to provide valuable insight to the business owners he represents and the buyers who look to him for guidance. Mike has won several awards with Apex, including the Million Dollar Club. 

What we appreciate so much about Mike is that he is a straight shooter and can bring fun to the process of selling businesses.  If you want a true professional that will give you the real story, Mike is your man… and we are proud to have him as part of the Apex team!

This is another real world story of the interesting situations that we find when brokering deals.
 
We had a great business with great cash flow and great products.  On the surface, everything looked like this was a business that could be sold at 3 or 4 times cash flow.  When we dug deeper, we found that there was one huge customer.  Yes, the customer was profitable, but they made up two-thirds of the business revenue.  That is challenge enough, but it got worse.  The account manager for this major customer was a family member of the owner, and was being paid twice the market rate for their position.
 
The price of a business gets discounted for each of these situations separately, but when combined, it makes it almost impossible to get a deal done.  In this situation, the person that would benefit the most and have the best chance for success, as a buyer, is the family member.  But they are also the individual with the most leverage to influence business price.
 
What could the business owner have done to have a better chance at selling?  The business owner needed to be making strategic changes at least 12 months before trying to sell.  The first move would be to get a new account manager involved with the major customer to minimize the risk of the relationship with the family member.  In addition, it would be a good idea to have an employment agreement in place with the new account manager that includes a non-compete.  The harder thing is to expand the business so that one customer doesn’t represent so much of the revenue stream.  Not easy, but this can be done.
 

If everything can be fixed except for the customer concentration, you could probably sell, but be prepared to finance the buyer.

 

We love to tell real world stories about what happens when buyers and sellers come together to try and do a deal.  Recently, an owner agreed to finance 50% of the purchase price of their business.  As the due diligence process began, the type of questions that the buyer was asking became a red flag for the seller.  The process was also getting bogged down by the buyer not responding in a timely manner.  The buyer wouldn’t answer what we would consider normal, everyday conversational questions some of which had to do with moving his family to town to run the business.

This caused the seller to start to doubt that the buyer was going to pay back the loan, run the business properly and take care of the employees. The seller was thinking: "If you are acting this way with me, my key people aren’t going to be able to work with you and will leave.  If the key people leave, the business will fail and you won’t be able to pay back the loan".

The lesson here is that character and being responsive are incredible factors that come into play when a deal is being discussed. Remember to put yourself in the other person's shoes for a moment. Negotiations could go your way more often.

We are proud to announce that we have expanded our core service offerings to include Business Valuation.  It is not a requirement of our clients to have a valuation analysis performed.  However, since it is not required, this tends to reduce the importance of this process in the mind of the seller.  Business Valuation is a critical part of selling your business or preparing to sell. Don't leave money on the table! 

Too many people have the impression that it is an expensive and painful process.  It is not.  The basic process requires a document to be completed and 3 years of tax returns supplied.  Your broker will help you with this to make sure that the information is accurate, complete, and presents the business in the best possible light.  

As a result, we have formalized the process.  If you want to make sure you get full value for your business, click the link below to find out more!

Business Valuation

Please join us in celebrating Anita being with Apex Business Advisors for 5 years! Anita joined our company in January of 2007.  She was introduced to Doug Hubler by another long term broker, Jeff Crooks.  Jeff was certain that Anita would make a great addition to our team.  He was absolutely right!  Anita has proven to be a great asset to our company, and as proof has won several sales awards including our annual trip for the top producers.  This past year the award winners spent 5 days in Playa del Carmen.

When you sell a home, your realtor walks through your house, takes some pictures and lists your property on MLS.  They determine the starting list price based on features of your home and comparables in your area.  This process usually takes a few days.  Selling your business is NOTHING LIKE THIS.
 
We have to analyze your business, develop the value, set up the marketing program and start soliciting our current pool of buyers.  If we had a buyer on your business the very first day we got the listing, and we negotiated an acceptable price and terms with the buyer, it would still take 60-90 days to get to closing from that point.  It is not uncommon for a new business listing to be on the market for months.
 
We have literally had people call us on a Friday and said “can I have my business sold by Monday?”  This is no joke, and honestly, this is not a business we chose to represent.
 
If your goal in 2012 is to sell your business, we should be talking now and getting prepared!

Business buyers want to replace an income, have more control over their destiny, and increase their wealth opportunities, but may not know where to start. Searching for the right business can take months or even years using the old standard method of reviewing whatever comes on the market at the time it comes on the market. Sometimes that means making do with what is available – “compromising”.
 
Although this method actually works in many cases, a more efficient means of finding a business would mean instituting a focused search process. In a formal search, the broker is working for the buyer rather than a seller. The broker seeks out businesses based on the buyer’s experience, financial ability, location, and specific business types. The broker contacts businesses that meet the buyer’s criteria, assesses potential seller’s interest, gathers data, and assists in negotiations. Using this process, the buyer is in control and has options.
 

Often, from the seller’s point of view, they don’t want to be “For Sale”.  Keep in mind that many, many businesses sell every year that are not advertised for sale. Business owners may be willing to talk about selling if they know the buyer is serious.  There’s no better way to prove how serious a buyer is than performing a focused search.  To learn more, contact one of our brokers.

 

If you own your own business, odds are that your business is your largest asset.  Do you know what it is worth?  Really know?  If you have talked with your financial planner in the last few years, they are probably asking the same question so that they can get a true picture of when you will be able to retire.

If you haven’t done a formal valuation, you might be leaving significant money on the table.  We suggest having an independent, certified professional perform the valuation for your company.

Many times, business owners are looking to hand the business off to family or employees.  To get more specific, we had an owner that thought his business was worth $750,000.  When we walked him through a true valuation with an independent firm, the value of his business was closer to $1,000,000.  He was selling his business as part of his transition to retirement.  Imagine the smile on his face as a result of having an extra $250,000 in his pocket that he wasn’t really expecting.

As we have talked about in previous posts, this is another reason that you have to keep clean books.  The valuation process requires a review of three years of tax returns, cash flow analysis and other general questions.  If that list made you nervous, you know you need to focus on this!  Talk to your broker to get this figured out.

Big customers always seem to be a big carrot for business owners. It’s hard to blame them when the big orders come in. With all the excitement of the big order, the owner with extreme customer service focus makes the customer very happy. Over time, these large customers may drive down the gross margin of the business because of their power and influence, and because they know the business owner needs them. At first it seems ok. As time goes on, the big customer gets most of the owner’s attention and most of the company’s resources.

Often times we see businesses that have customers that exceed 50% of total revenues. The customers are challenging, but gee wiz, they are the best customer ever! Many times the business owner hasn’t done the analysis that may reveal the customer costs them much more than the value received.

Sometimes businesses are built solely to service one customer. The whole intent and strategy to enter the business was because of a connection with the customer or a creative fix to an existing problem that the customer had. The future challenge becomes building diversification in the business so that no customer exceeds 10-15% of revenues. The stress from having one major customer can be a real negative influence on business owner's strategic actions. The decision to have one major customer is fantastic if the business owner understands the risk.

When a decision to sell the business enters the picture, customer concentration risk has a huge impact on value. The more concentration there is with a few customers, the lower the value of the business. It’s that simple. There is too much risk for any buyer, even strategic buyers. Talk to your Kansas City Business Broker for details of how to prepare ahead of time to transition your business to family, employee, or to an outside party.