Episode 135 – Navigating Business Sales: Asset vs. Stock Sales Explained

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In this episode, we dive into recent business closings, including a landscape equipment dealer and a local salon, discussing the complexities faced during these transactions.

Our main focus is on the key differences between asset sales and stock sales. We cover tax implications, risks, and benefits for both buyers and sellers, along with the importance of thorough due diligence and consulting tax professionals.

Whether you’re buying or selling, this episode offers crucial insights into structuring deals, negotiating terms, and understanding the financial details of business sales.

Book Club #39: Value Control by Ron Kleier

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Book Club #39: Value Control by Ron KleierIf the author’s name sounds familiar, it’s not a mistake. Ron Kleier is a familiar face around the Apex Business Advisors offices and we’re pleased to be featuring his book, Value Control: Selling Your Business for the Best Price and Terms Using the Controlled Auction Process.

It’s a mouthful of a title, and we’ve addressed controlled auctions in a previous article. The real value of Ron’s book is to orient first-time sellers to some general and specific things to keep in mind as you prepare to sell a business. Each chapter even features “key takeaways” so that you can use the text as a workbook to get your business ready to sell.

Important Points

The text isn’t long. You can get through it in half an afternoon (slightly longer if you are making notes about your business along the way) so there’s no need for us to cover everything in the book. Here are some points Ron makes that we never tire of talking about:

  • Selling a business is one of the most emotional things you will ever go through, even if you don’t consider yourself an emotional person. But the price has nothing to do with your emotions or what you think your “blood, sweat, and tears” are worth. The market and the bank and the SBA only care about one thing: a professional valuation. That valuation is derived from clean books and tax returns.
  • Confidentiality is key. Do not assume the possible behavior of your employees were they to find out about a sale. We’ve seen this lesson ignored too many times to count and the overwhelming majority of the time, it means a business doesn’t sell.
  • Don’t try to time the market. While you want to sell when the business is flourishing and the economy and industry are doing well, don’t wait for those conditions if you’re ready to sell. Sell when you’re ready, not when you hope the market will match your readiness.
  • You might be ready to go to Bora Bora, but buyers can sometimes be spooked by a seller who wants to turn over the keys and never be heard from again. Ensuring a smooth transition, whether that be 9 days, 90 days, or 9 months is peace of mind to a buyer. Put yourself in their shoes.
  • Don’t undervalue cultural fit. You should be mentally invested in the business succeeding even when it’s not your concern anymore. You likely have valued team members who will continue on and you might even have a small percentage of the sale in a seller note which will come due in a couple of years. The more culturally aligned with a buyer a seller is, the likelier that diligence and closing will go smoothly, and transition and growth will happen even after you’re no longer involved.

Ron being Ron, he also featured some others in the Apex team in the text. Doug Hubler wrote the Foreword and Debbie Small and Valerie Vaughn, among others, offer some stories from the trenches.

If you want some other tips not covered in the book, feel free to reach out and speak to Ron or anyone else on our team.

Episode 134 – Planning Your Financial Future: Insights from Mitzi Swaffer

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Welcome to the latest episode of the Apex Business Advisors podcast! We pick up our conversation with Mitzi Swaffer from MS Financial. Mitzi brings her expertise to discuss the importance of planning your financial future and preparing for a successful business exit.

In this episode, Mitzi shares unique insights on the differences between financial strategies for female and male business owners. She highlights the long-term planning approach often favored by women and the challenges men face with short-term market chasing. The conversation also delves into the risks of not having a proper exit plan, the impact on employees, and the critical role of estate planning for business owners.

Listeners will enjoy practical advice on transitioning into retirement, including real-life examples of phased retirement strategies and the psychological phases retirees often experience. Mitzi and Andy discuss tools like risk assessments and owner readiness surveys to help business owners prepare for their next chapter.

Tune in for an engaging and informative discussion that will help you navigate the complexities of financial planning and ensure a smooth transition when the time comes to exit your business.

For more insights and to connect with Mitzi Swaffer, visit MS Financial Resources or call 913-529-2304.

Preparing for a Controlled Auction

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Preparing for a Controlled AuctionBe honest. Just hearing the word auction sets off familiar sounds in our heads: “$300 do I hear four, bid-up bid-up bid-up…” It’s exciting. While a “controlled auction” may not sound as exciting, nor will it feature said “bid-ups,” it’s an excellent way for businesses valued at $1M and above to accept possible interests and proceed to a sale that maximizes value for everyone involved.

Preliminary Steps

As you might have guessed, a controlled auction is not a DIY process. You’ll want a professional to help you through the process, which includes:

  • A marketing timeline: begin with the end in mind in terms of numbers and closing date
  • Preparing a comprehensive buyer package
  • Outreach to potential acquirers across multiple channels and platforms
  • Execution of generic NDAs then a more specific NDA
  • Offering preliminary details to interested parties

Indications of Interest (IOI)

After your M&A professional has done all of that, he/she will start gathering IOIs. Think of this as a dossier of “who we are, why we’re interested in you, and what we’re prepared to spend.” An IOI should include, but is not limited to:

  • The credentials and philosophy of the acquiring individual or team
  • Breakdown of working capital expectations
  • Plans for current employees and management team
  • Expectations of current owner participation post-sale
  • A due diligence schedule and a list of required documents
  • Target closing date
  • Price range and transaction structure and the assumptions underlying them
  • Additional issues (e.g. real estate, non-compete, licenses, etc.)

Narrowing Down the Candidates

With the IOIs in hand, the seller and broker can have calls and/or face-to-face meetings with the interested parties and move to the final stage, which is a submission of a formal LOI by a specific deadline. Competing offers puts a seller in a frame of abundance, allowing him/her to choose the best offer amongst ones that can value in total amount, structure, and cultural fit. It also puts the buyers on notice: they are not the only interested party; ergo they are on alert to put their best foot (and offer) forward, lest they lose out to someone more thoughtful (or aggressive).

A controlled auction isn’t for every type of business. As we said, most businesses that engage in this are worth at least $1M and may go up to $100M in value. Often, these businesses offer unique technologies, synergies, or market positions.

Just as business owners may have had decades building and growing a company but have had zero experience selling one, they will have even less experience running a controlled auction. The hidden weapon in the process will be your M&A specialist, who will leverage his/her expertise to guide you each step of the way, give you context for decisions, and offer second opinions on interviews and data when you are unsure.

Do you think a controlled auction might be the right fit for your business sale? Let’s chat.

Episode 133 – Navigating Business Sales and Retirement Planning with Mitzi Swaffer

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In this episode of the Apex Business Advisors Podcast, Andy and Doug are joined by the accomplished financial expert Mitzi Swaffer from MS Financial Resources. With over 15 years of experience as a certified financial planner, Mitzi shares her insights on retirement planning, especially tailored for business owners.

Mitzi delves into her background, including the acquisition of a financial practice, and discusses the importance of having a comprehensive financial plan. She explains the nuances of retirement planning, comparing the needs of W-2 employees with those of business owners, and highlights the critical role of understanding cash flow and secure income sources.

Andy and Doug explore key topics with Mitzi, such as the complexities of selling a business, the importance of obtaining realistic valuations, and the tax implications of different business structures. Mitzi also stresses the need for early planning and collaboration with tax professionals to optimize financial outcomes.

Tune in to gain valuable advice on how to navigate the financial landscape of business sales and retirement, ensuring you are well-prepared for the future. Don’t forget to visit the Apex website for a wealth of resources on buying or selling a business.

For more insights and to connect with Mitzi Swaffer, visit MS Financial Resources or call 913-529-2304.

Better Websites can Lead to Better Valuations

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Better Websites can Lead to Better ValuationsFor the vast majority of history, businesses have not needed a website to successfully sell. Even now, there are niche businesses, perhaps secondary or government contractors, who have a few clients who know about them and are not really customer-facing. But for the vast majority of businesses, a website isn’t just a checkbox on a due diligence worksheet: it’s an integral part of your business valuation.

It’s Not Just a Shingle

Very reasonably, back in the 1990s, one could have thought of a website as a virtual shingle. You’ve got your company name and logo, maybe a few images, your contact information, and a “contact us” box. That allowed anyone who wanted to find you to do so, and it communicated that you were a real business (of a kind).

Today’s consumer (and business buyer) demands a lot more. Websites are:

  • Your first chance to make a good impression. This means that your site needs to be updated and watched.
    • By this we mean making sure someone is keeping track of all the software updates that may be happening across your website. If you don’t do this links or images may break or become non-functional.
  • Your brand on parade. Businesses these days understand the power of creating a brand experience. That means the fonts and colors that you use for your brand are there. That means you may have a chatbot to meet the customer right there instead of waiting passively for a “contact us” message. You’ve got customer testimonials, links to Google Reviews, and features of your team so that you’re not just an anonymous business.
  • Lead generators. Those businesses who are utilizing best practices know that there’s nothing better than an evergreen lead machine, and a website and associated content is the best way to compete for those leads. Content includes:
    • Blogs (like this one) or podcasts (like ours) that show subject matter expertise or useful tips
    • Video content that can be oriented informatively like blogs or are more fun and whimsical. Video content can be shot in batches and then cut up into one minute slices to share on sites like Instagram and YouTube.
    • Google My Business Questions and Answers in which you can showcase that you are monitoring what the public is asking of you
  • Lead receivers. If you are doing Google LSA or Adwords spending, you’re often going to take those who click through to a customized landing page or your website itself. Someone who is ready to buy needs to be impressed when they come to your site.

Longevity Matters

Part of what leads to the “authority” of websites is how many websites also link to it and how long it has been around. That means you can’t wait until you are planning to sell your company to suddenly put up a shiny new website as part of brightening the curb appeal of your business. You need time to build and maintain the website, as well as create a lead engine via content. While a website may take weeks to build, inhabiting and maintaining a website takes months and years.

Part of why a better website can lead to a better valuation will be part of the traffic and analytics you can present to potential buyers. They will see what you have been doing both organically (“free”) and via paid advertising and part of the value they will look to add will be to see what they can do above and beyond what you’re doing to bring in more sales using the website.

If your website is just a shingle or you’ve never thought of using it as a vector for leads, that’s going to be an area of investment for buyers, which will be something they may deduct from what they offer, as they know what we’ve articulated above: it’s not your grandfather’s business anymore; websites are really important.

Some of what we mentioned here was also discussed in a podcast episode which you can listen to here. If you need a recommendation for someone to help build or refresh your website, we know a few people: give us a call.

Episode 132 – Selling a Business: Lost Days

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In this episode, we discuss the intricacies of business transactions, focusing on efficiency and the impact of lost days.

We examine a lengthy liquor store deal in depth, highlighting challenges such as managing multiple buyers, non-responsive attorneys, IRS liens, landlord approvals, and the impact of losing days. Andy emphasizes the importance of tracking activities, having a project manager, and maintaining timely due diligence.

Whether you’re a seasoned business advisor or just starting out, this episode provides practical insights that can be applied to navigating complex deals and maintaining efficiency. Don’t miss this engaging and informative discussion!

3 Mistakes Business Sellers Make

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3 Mistakes Business Sellers MakeWe recently met with a buyer who was looking at a manufacturing business with an operating income of $100,000. The seller wanted 3X (arbitrary multiple with no valuation). The business paid no rent, as it operated on the seller’s property (meaning the buyer would need to pay for a move, then start paying rent). With the cost of the move and the cost of the rent, a large part of the $100k a year would be wiped out, leaving the buyer on the hook for a $300,000 purchase (if a bank would even have financed such a deal). Let’s look at all the mistakes the seller made that led the buyer to run away from this deal as fast as he could.

1. My Business is Worth X

So a 3X multiple for a manufacturing business is in range, but the problem was the multiple was based on false cash flow. The seller somehow managed to overlook that a buyer would have to pay rent, reducing the cash flow, and that the buyer would need to pay to move all the equipment, incurring a one-time cost that would devalue the business. In all likelihood, the seller just decided that 3X “sounded good.”

Remedy: Get a professional valuation done. A valuation would have caught these problems and delivered a realistic number to the seller. The seller could then have decided if that was an acceptable number to list at or whether he/she wanted to put in the work to get a better valuation.

2. Dealing with Tire Kickers

While it’s attractive to “save 10%” on a FSBO business sale by cutting out a business broker, what you get to deal with in exchange are a lot of tire kickers. Why?

  • Business brokers have a list of financially-qualified buyers asking to be notified whenever a good business becomes available. FSBO sellers do not.
  • While FSBO sellers may have spent years successfully running a business/businesses, they have likely spent no time whatsoever selling a business, so they don’t know what a serious buyer looks and sounds like, leading to potentially endless meetings with no conclusion

Remedy: Hire a broker. You’ve spent a good part of your life building something of value. Now, right before you cash out, you want to DIY and pretend you’re back in startup mode? Save your time and sanity and outsource this to the experts.

3. Understating Time Spent in the Business

“I only spend about 5-10 hours a week in the business.” If we had a dollar for every time we’ve heard this, shall we say, wishful thinking…

Business owners consistently underestimate the amount of expertise they’ve accrued over the years and while they may have built a system which makes the business less reliant on them, very rarely do we list purely absentee businesses.

The other aspect of the “5-10 hours a week” myth is the underlying assumption: “Because I have key employees in place without which the business would implode within weeks.” Have sellers taken care to get to know the aspirations of their key employees enough to know they won’t fly the coop in a sale? If those employees might do just that, what are the backup plans in place to put other team members in place?

Remedy: Forget everything you know and put yourself into the position of someone buying the business who has never worked in your industry. What sort of time would it take to get up to speed, and then what kind of timeline would it take for that buyer to get to consistently reasonable hours?

Are you in the process of making any of these mistakes but still want to sell your business? It’s not too late to get professional help. Give us a call today.