On today’s episode, Andy and Doug discuss the pros and cons of a popular tax deferral strategy, the 1031 Exchange.
Are you considering selling your business? Are you considering entering the world of entrepreneurship? If so, please get in touch for a FREE consultation. The best way to learn about us is at our website, which includes connecting with Doug, Andy, or the rest of the Apex Team.
Ed Pendarvis founded Sunbelt Business Brokers in 1979 and grew it into a company with over 300 offices in the US and 30 offices in foreign countries. BizBuySell tapped Ed to write a book distilling some key ideas for buyers and sellers to consider in a transaction and that 100-page text is The BizBuySell Guide to Buying a Small Business. It’s available for $.99 in Kindle format, or you can get it for free if you’re willing to give some information to BizBuySell.
The book is chock-full of solid information for first-time buyers and sellers. Chapter titles include:
As we said the book is only 100 pages so it’s an easy and worthwhile read. But we chose three ideas that you should take to heart right away.
Early in the book Ed talks about business owners and how they make decisions. They have to make the best decision (which is sometimes a guess) based on the data available to them (which is sometimes incomplete or even nonexistent). Add common sense and your gut and you’ve got a complete decision.
If that is what the entirety of what decisions in your business life will look like, you should realize that this is already in effect when you are buying or selling a business. A transaction is never going to be a straightforward slam-dunk. Do what you can to mitigate risk, then make the best decision you can. Whatever challenges you face can be chalked up as tuition for continuing to build that business and what you can inform a future owner about.
Ed is insistent that the basic purpose of a business is to make a living for the owner. If it is not consistently doing that, it’s failing as a business and if it’s failing in that purpose for long enough, it might be time to call it.
He also gives three years as a benchmark for survival. He says that a business is on the way to saleability if it’s lasted at least three years. There’s a certain momentum that comes with longevity. But remember that without systems in place, a business can’t sell.
While buyers might be focused on what the seller has done in the past or is doing now, Ed encourages them to consider instead what they would do if they took over. If they take the time to think through ideas and possibilities for new products and services and/or revamping the company as it is now, you can solicit the current owner during the transaction to get his/her perspective.
Now keep in mind that if you want to add social media to the business and the previous owner doesn’t even know what social media is, he/she might not have too much to share. But perhaps you want to expand into a different market or cut a cost or even fire a vendor: the previous owner might have experience to share.
Or the owner might tell you that those were things he/she would have loved to get to but never did and has some encouragement and contacts for you to leverage your ideas. Don’t count on having an unlimited open line to the seller forever. Utilize the period from the Offer to Purchase all the way to closing to get as much information from them as you can.
Apex is part of the legacy of Ed Pendarvis, so you can imagine we are fans of his ideas. If you have questions about parts of the book, we’d love to talk with you about them. Give us a call!
On today’s episode of the Apex Business Advisors podcast, Andy and Doug discuss how current economic issues impact buying and selling a business. Topics include inflation, rising interest rates, and employee retention and recruitment.
No matter how many years you’ve been in business, you only sell that business once. That’s why a sale deserves at least some of the care and planning you put into building that business all these years. And yet, we still (more often than we’d like) get the call with the equivalent of, “I’d like to list my business on Friday and sell it on Monday…maybe Tuesday at the latest.”
If we could go back at least six months (ideally twelve months or more) with that caller, we’d talk to them about putting together their Dream Team for this sale.
Business brokers think of ourselves as team captains. This isn’t our first rodeo and we know how to bring the best out of all these players who may never have met each other before. We’ve got a playbook that works and when we don’t personally know the answer to a problem or challenge we have resources to the tune of hundreds of years of experience (and hundreds and hundreds of transactions) in our office.
Particularly for those business owners who are looking to retire after this business sale, numbers really matter. Questions like “how much do I need?” and “what is the business worth?” have to be asked and answered.
A solid financial advisor will not allow you to come up with an impossibly high “what do I need” number which includes every possible contingency for life. He/she will also not take your word for what the business is worth. These advisors will get a valuation for the business and/or ask you to explain your reasoning for the business value. Having what the business is worth line up with what you need on retirement is the most important math equation to solve before the sale. And it’s not something you can just wish into existence. We also can’t tell you the number of times we’ve heard, “Well the business has to be worth that much because that’s what I need to retire.”
Wrong answer.
As the financial advisor asks the larger questions, your company CPA can answer the question every buyer will have: are the books clean?
If they are not, they need to get clean some time before the sale. We aren’t talking about weeks or months. We are talking about years. Unreliable books for 2-3 years and one good year isn’t just a bad recipe for getting bank financing, it’s also unlikely to hook interested buyers.
While the best CPAs will have warned you for years against too many addbacks, ones fit for your dream team will get your books clean as soon as possible and put systems in place to ensure they stay that way for the future owner.
So you’re going to have a liquidity event when you sell that is going to create tax problems to solve. You need someone experienced in these issues to help you structure a deal that makes sense for your plans (this means talking to your financial advisor, too) but also doesn’t give more to the government than you are legally or morally obligated to.
A dream team tax advisor will have helped more than one business owner structure a deal before, perhaps even helping to create a deferred sales trust when that made sense.
While you may have been working with a number of great attorneys over the years, when it comes to your transaction, you should look at experience over a relationship. This transaction isn’t about friendship, it’s about business, so find someone with experience to help you get the most out of it.
We’ve said before that inexperienced attorneys can exceed their remit in business transactions so if you’re short on recommendations in your network, we’ve got a number that have consistently shown themselves as dream team players in transactions with us.
Looking to build your dream team? Don’t wait until you’re ready to sell. Start building it when you’ve built something saleable and know that you’d like to sell it one day. The best prepared get the best results.
And remember, you’re only going to sell this business once. So make it count.
In this podcast, we answer listener questions on our first mailbag episode!
Are you considering selling your business? Are you considering entering the world of entrepreneurship? If so, please get in touch for a FREE consultation.
Most landlords who own fewer than ten properties use pen, paper, and spreadsheets to manage their tenants. But in a digital age, aided by solid software, there had to be a better way. Or, so thought Ryan Coon, who built Avail and enjoyed an 8-figure exit to Realtor.com. His story offers lessons for all business owners, even if they aren’t building a software company.
Most people are familiar with the freemium software model, in which some basic features are offered and the more advanced ones are offered to those who are “power users.” Popular examples include Spotify and Dropbox. 90% of Avail’s users are on their free tier, and they often remark, “I can’t believe this is free.”
But it took a while to figure out the right balance of paid and free features. The team played with different landing pages for their Google ads and found that often customers were happy to pay a little something for software that met their needs. They often valued that payment more than software that was entirely free.
This led to discovering that their average customer LTV was $500, which happened over a four-year period. But since they were spending up to $100 for customer acquisition, that meant that they needed to get outside funding to fuel growth to gobble up market share. That meant they couldn’t bootstrap and so Ryan had to spend portions of his time on the road meeting potential investors.
A key part of branding your business is not making the business name difficult for your customers. While Ryan and his business partner thought that “Rentalution,” a combination of “Rental” and “Solution.”
Good theory. But reality refuted that theory daily.
Ryan’s desk was near customer service and on a daily basis he overheard his reps gently correcting callers who clearly spelled the company name wrong. Hilariously, when he announced the name change to investors, one said that he liked what he thought was the current name of the company…and went on to spell it incorrectly.
Point taken all around, and Rentalution went away and Avail emerged.
Ryan noted too that Avail was about helping both landlords and tenants whereas the old name sounded like a detached software brand.
Given that they raised their last round of funding only six months before the company sold, even the most casual observer can see that selling the company was not on Ryan’s mind. What happened, however, was a series of conversations that led to “let’s explore” with a financial services firm who thought that a curated list of landlords would be a good fit for some of the other products they were offering.
But the kickoff call revealed that this probably wasn’t going to be a good cultural fit. At the time Avail had 45 total employees and the would-be acquirers had 50 on the call, of whom 40 were lawyers!
But the Avail team didn’t want to give up immediately and made it pretty far down the road with them before both parties decided not to move forward.
But that meant that they had a data room full of reports and that helped accelerate the process with who would be the eventual acquirer, Realtor.com.
Three key lessons from this story:
Looking for a business in the real estate sector? We have those! Give us a call today.
On today’s episode of the Apex Business Advisors Podcast, Andy and Doug discuss what to do when your business is confidentially listed, and someone asks if your business is for sale. Was it broken confidentiality or a coincidence? We discuss strategies for how to answer that question.
Even in the last decade we may have been astonished at the pace of change in technology just in our personal lives. Imagine what it’s been like for businesses, and even more so, for businesses more than ten years old. But in that change lies a lot of opportunity, and we often see a lot of prospective buyers’ eyes light up when they hear how “behind the times” a successful business is. That’s because being “behind” technologically signals a whole lot of opportunity.
If a business is successful despite not having a website (or a good one), or the owner thinks SEO is some new band the kids like these days, or the 1970s is calling, asking for their branding back, that means customers like or need the products and services enough that they don’t care.
But that also means that every effort into these areas will gain new customers and enhance links with the ones you already have. Bottom line? These changes offer a lot of upside with not a whole lot of investment. Here are some areas that buyers should be scrutinizing during diligence, to add to their “get this improved ASAP” list.
Sometimes companies are long overdue for a brand refresh or even a rebranding. The logos and taglines were done ages ago when the company first started out and haven’t been touched since. This may have been because the company has been doing well and it hasn’t been top of mind. But that doesn’t mean that an improved brand won’t gain more business.
This is especially true if that improved branding is seen on window displays or vehicle wraps or other advertising venues.
Websites have come a long way from the equivalent of hanging an online shingle. Today’s websites have to perform many key functions. Just a few of them include:
One of the keys for any business is getting found in search, whether that’s through traditional searching by keywords, or newer forms of search like voice through tools like Siri or Alexa. You can earn your search ranking through solid and persistent content or you can pay for your ranking. Either way, potential customers can find you, but if you’re not doing any SEO, you’re not even there to be found.
There are so many pieces of software out there that make life easier for business owners and allow them to collect data on their prospects and clients. But many businesses are still functioning with paper and pencil…and fax machines (seriously!) Again, there’s nothing wrong with that. These businesses have been successful for a reason. But without that tech assist, there’s a ceiling as to what they can do.
With communication tools like Slack or marketing tools like Hubspot or SEO research software like Ahrefs, the sky’s the limit as to how you can communicate with your team or keep customers in your sphere of influence or what you can know about the customer journey.
None of these changes will cost new owners a lot of money. In fact, they are all classic examples of low investment, high return. And remember, the reason these changes were never made is likely because the owner wasn’t aware of them, because they were too busy running a successful business. That’s a good problem to have, right? And it’s even better to, in a way, gift these easy wins to the new owners.
If you’re looking for businesses that offer these early easy wins, we’ve always got new ones listing each week. But call us soon, as they tend to go fast.
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