Episode 140 – Selling a Business: Navigating Partner Disputes

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In this episode of the Apex Business Advisors podcast, Andy and Doug dive into the complexities of partner disputes and business valuations. They explore real-life scenarios where business partners face challenges in buyouts and share their expert insights on how to navigate these situations effectively.

We provide actionable advice for those considering partnerships, emphasizing the importance of selecting a neutral third-party for valuations and the potential pitfalls of 50-50 partnerships.

Classic Seller Blunders to Avoid

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Classic Seller Blunders to AvoidWhile every deal is different in its own way, sellers seem to make the same kind of blunders that can either make their business unsellable or tank a sale in progress. We offer these examples as a public service announcement to those who are serious about selling a business. To those who are buying a business, these are the sorts of situations solid due diligence (and a serious broker) will uncover.

Excessive Personal Expenses

A certain amount of personal expenses run through the business is something we are used to seeing. But in most cases, it might be season tickets to the symphony or some sports events. We generally like to see less than $10,000 of these types of expenses. Where we start to get into trouble is when we see $50k, $100k, $200k in personal expenses run through the business. That’s when we get into “company boats,” “company lakehouses,” “company home remodelings” and “company plastic surgery.” Obviously, there’s nothing “company” about those expenses: they were being run through the business to evade taxes. The morality of that is a topic for another time. What matters for business transactions is that banks won’t go near businesses that operate like that.

That doesn’t mean they would never go near such businesses. It’s just that all those expenses would have to be properly categorized and live outside the business for a number of years so that your business would look the way a bank wants it to look: clean.

Not Filing Taxes

What goes hand-in-hand with not running a lot of personal expenses through the business is making sure you are timely with taxes. We had a situation one time in which a bank was validating tax returns (as they always do before a deal closes) and we found out that the seller had never filed his taxes. He had filled them out and signed them…those were the copies he had given to us. It turns out he was then just putting those in a file in his desk somewhere. He managed to rectify things with the IRS before the deal closed precisely because there wasn’t going to be a deal to close if things were not buttoned up with the IRS. We don’t know what it ended up costing him to “save” in this way but it’s not likely to be a technique he’ll repeat in a future business.

Commingling Businesses

Some entrepreneurs have multiple businesses that run in related ways to each other. And that’s great. What’s not great is when funds get commingled and improperly reported, which makes it very difficult to see which business has which kind of margin so as to help determine a proper valuation. A best practice in life and in business is to keep separate things separate. It’ll be less confusing to everyone and, as noted above, makes a deal more likely to be bank-financed.

Cash Hoarding

Believe it or not, some sellers stop paying their bills, including their rent, in the final 30-60 days of owning the business, thinking that they can just stick the tab onto the buyer. These sorts of tricks almost always get noticed and can truly threaten the closing of a deal.

Failing to Consult a Lawyer

For some reason or another some first-time sellers, in a transaction that is likely going to net them 6-7 figures, will ask, “Do I really need a lawyer for this?” as they slide over something they printed on LegalZoom the night before.

Firstly, we have an Offer to Purchase, a signature service that is precisely geared towards covering you initially without hitting you too hard financially.

Secondly, is this really where you want to skimp? The legal paperwork covering one of the most significant financial transactions of your life?

Finally, consulting a lawyer will also help get the ball rolling, if it hasn’t been rolling already, on your financial planning regarding the tax events that will accrue as a result of the sale. This is not a part of business life that you want to DIY.

Do you want to avoid these blunders? We’re here to help. Give us a call today.

Episode 139 – Strategic Planning

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Andy and Doug explore the critical need for business owners to plan ahead when considering selling their business. Andy recounts a story of a client who faced unexpected financial implications due to a lack of foresight and planning. They stress the importance of involving accountants, attorneys, and financial planners early in the process to maximize the business’s value and ensure a smooth transition.

Know Your Broker: Attending the IBBA Conference

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Know Your Broker: Attending the IBBA ConferenceMany moons ago when we at Apex first started attending the IBBA conference, there were maybe 50-100 people there. These days there are 2,000 members and there are regularly 700-1,000 people at conferences. We go for many reasons, but perhaps the most important is that going helps us become better brokers and hence get better outcomes for our clients.

Learning and Networking

As with any conference, you’re going to have a great opportunity to learn and network. There are plenty of talks and breakout sessions (our very own Andy Cavanaugh presented at this year’s conference on how to use your time wisely) that will keep you up-to-date with developments in the industry, including changes in legislation and approach.

We also get the chance to constantly refine our best practices. It’s true that it’s important to stick to systems and methods you’ve built in-house, but when you get to hear similar methods and systems working for colleagues in Australia or Europe, you can assure your clients that you’re not just following some in-house traditions, but practices used around the world.

Part of those practices, particularly in the last ten years, have revolved around technology. There are so many software tools available now to help you screen candidates/market and value businesses/track your work. We built our own system some years ago but we can always look at features from the new software on the block to see if they might be worth incorporating into what we are doing. Of course there’s always all the swag you can pick up on Vendor’s Row.

You Don’t Know It All

Early on there was some resistance to going to the conferences and getting certified — the thinking was that “we know what we’re doing and we don’t need to go to some fancy conference to know that.” But Doug Hubler had witnessed how valuable those conferences were for himself and the other brokers who joined him so he effectively bribed (read: gave bonuses) brokers to get the certifications. “Our business just blossomed after that,” he notes.

The conference also helps tick some practical boxes, as continuing education is part of maintaining certifications, and those can be knocked out while there.

One more way to build your knowledge? Masterminds. You can sit with peers and work through particular challenges you are going through or have gone through in the past and tap the wealth of experience gathered together for the convention that you wouldn’t otherwise normally have access to.

If you want to hear some reflections from Andy and Doug, check out this podcast episode recapping their experience at this year’s conference in Louisville.

Episode 138 – Navigating Business Acquisitions: Offers, Buy-Side Searches, and Seller Tips

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Welcome to another episode of the Apex Business Advisors podcast. This week, Andy is joined by Jeff Crooks, a seasoned expert with over 20 years in the business brokerage industry. In this episode, Jeff shares valuable insights and practical advice for both buyers and sellers in the business marketplace.

Jeff dives into the importance of always making an offer and why hesitating can cost buyers the business they desire. He stresses that the worst response one can receive is a simple ‘no,’ and that shouldn’t deter anyone from making an offer.

Jeff further elaborates on the concept of buy-side searches, explaining how they can be a game-changer for focused buyers. He discusses the methodology and philosophy behind these searches, and how they often lead to future sell-side listings. Listeners will gain a deep understanding of the buy-side search process, including response rates and the transition from buy-side to sell-side engagements.

The episode also covers common mistakes buyers make, such as settling for a business that doesn’t meet their criteria and the importance of thorough due diligence. On the seller’s side, Jeff offers tips on preparing for a sale, including cleaning up financials and understanding true business valuation.

For new brokers, Jeff emphasizes the importance of networking, staying on the phone, and integrating into specific industry communities to build valuable connections.

Tune in to this episode for a wealth of knowledge from Jeff Crooks, and learn how to navigate the complexities of buying and selling businesses effectively.

Cautionary Tale #13: Open Mouth Syndrome

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Cautionary Tale #13: Open Mouth SyndromeWe’ve engaged with a bakery seller several times in the past, and the deals have not worked out for one reason or another. But the reason for the most recent failure was entirely on the buyer, who lacked self-awareness and accountability.

Confidentiality Matters

We understand that it might not instinctively occur to everyone that the possibility of a sale should not be disclosed. This allows employees to potentially flee, competitors to excitedly circle, and customers to get concerned. This can all be avoided by just keeping quiet about all goings-on. In any case, it’s not a done deal until it’s a done deal, so no need to have to manage a rumor mill while you’ve got your heads down in due diligence.

That is unless you love the attention.

Word Gets Out

Before too long, pretty much everyone in the community around the bakery knew a) it was for sale and b) who the potential buyer was. The buyer had spoken to a niece she wanted to hire who had told (her potential future) employees at the bakery about it, who then asked the seller if it was true. The buyer had spoken to many people: friends, family, insurance agents. She was assuming that it was a done deal and not realizing how much damage she was causing to the deal by talking about it everywhere she went.

No Accountability

While the sellers were upset at the situation, it wasn’t enough for them to pull out of the deal. For her part, the buyer couldn’t seem to understand why there was now a lack of trust from the sellers. But that was part of a pattern. She wouldn’t listen to our advice or the banker helping with the deal. She was consumed with her desire for the business and saw the whole exercise as a formality.

The Bank Drops Out

While finances play a big role in getting deals done, banks also have to look to the future. If we give this person this money to buy the business, will the business continue and grow and thrive so we can be made whole and earn some money for this risk? The banker had heard some of the buyer’s future plans for the business, which didn’t seem to make any sense. After talking to her about these things and not perceiving any remorse or accountability, the banker decided to pull the approval for the loan.

As we’ve discussed elsewhere, losing a bank approval is not the end of the world. You can try again with another bank. But by this time the sellers were convinced that not only was the buyer not a trustworthy counterparty, she just wasn’t built to be a serious business owner. They took the business off the market, resulting in a lose/lose/lose for everyone who had invested many hours of time in the project, and the expenses associated with selling a business.

Key Takeaways:

  • Confidentiality isn’t just important in life in general, it’s absolutely necessary for business deals. While it may be difficult to keep something so momentous a secret from your team and those close to you, they will understand after the deal closes.
  • Business ownership, particularly when you’re a buyer, isn’t about how much you know and how great you’re going to be. It’s about humility and taking the time to see what worked so well such that someone like you came along to buy the business. If the existing owners tell you they don’t think something is a good idea, it’s worth stopping to listen and give their words some credence.
  • Bankers are not just ATMs. You are being watched for your character and conduct and bankers will not hesitate to pull an approval should you conduct yourself in an unbecoming manner.

Do you have a business you want to sell and are worried about how to keep it confidential? We have all sorts of ways to assist you. Give us a call.

Episode 137 – Unlocking Business Opportunities: The Power of Buyer Searches

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Welcome back to the Apex Business Advisors podcast! This week, Andy is joined by the industry titan, Debbie Small, who brings an impressive array of credentials, including multiple national awards from the IBBA and Apex. Debbie shares her expertise on the intricate process of buyer searches, a strategy she believes is the best way for buyers to find the right business in a highly competitive market.

In this episode, Debbie explains how buyer searches work, the importance of establishing a strong relationship between the buyer and seller, and the advantages of having a broker dedicated to the buyer’s interests. She delves into the specifics of what makes a buyer search effective, including the criteria for selecting businesses, the role of fiduciary responsibility, and the financial dynamics involved.

Listeners will gain insights into the competitive nature of business acquisitions, the importance of buyer engagement, and how to navigate the lending and due diligence processes. Whether you’re a seasoned buyer or just starting your search, this episode provides valuable advice on how to expedite the process and secure the best deals.

Tune in to learn more about how a buyer search can help you find the perfect business, avoid competition, and enter acquisitions with equity. Don’t miss this opportunity to hear from one of the best in the business!

Apex Success Stories #5: Persevere!

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Apex Success Stories #5: Persevere!We always try to stress to buyers and sellers not to take things personally, despite a business transaction’s tendency to be one of the more emotional things people can engage in during their lives. But sometimes, there’s a variable that makes existing challenges that much harder.

This particular story starts with a business that often has a more specialized buyer pool: an auto service shop. The seller wanted to retire and had some health issues. The buyer was an experienced mechanic who had always wanted his own shop. The match looked good on paper, so it was time to start the work on the deal.

Banking Challenges

The buyers initially got approval for a loan, but a couple of months later, the bank reversed course and said that they would not back the loan. The buyer didn’t really want to disclose why the bank had done so, and the seller ended up calling the bank and getting their side of the story. Whatever the reasons for the bank’s hesitance, a seed of doubt was now planted — not so much with the seller himself, but with his wife, who now felt that the buyers were “not the right buyers.”

The buyers, for their part, had stayed the course. They had always liked this opportunity, and they knew they were not part of a frenzied group of bidders for the business. They were the right fit, even if the seller’s wife didn’t think so. They found another bank that was happy to back them.

Environmental Challenges

As with businesses of these kinds, some environmental inspections may be required, either for banking or municipal reasons. The company the bank hired to do the environmental studies initially messed up and had to redo its work. This roadblock was another aspect of the narrative that the seller’s wife was nurturing: this deal isn’t going to happen…these people are bad, this thing is cursed, etc.

Attitude Challenges

As might be inferred from what we’ve talked about already, it wasn’t enough to have these challenges, challenges which are completely normal in any given business transaction, but we had to have, in a way, a party close to the seller, who was creating a hostile environment.

The buyers didn’t get pulled into this. They stayed positive and just kept putting one foot in front of the other. For example, when the sellers requested that inspectors come on the weekends, outside of business hours, to preserve employee confidentiality, the buyers gently coaxed and encouraged these inspectors to accommodate these demands.

Key takeaways:

  • Banking relationships matter. But not all banks will agree on the funding of a deal. Just because one bank says no doesn’t mean another won’t say yes. The buyers didn’t lose heart. They kept going and got a Yes where they had originally gotten a No.
  • People will mess up. We are humans and those environmental inspectors did not have a plan to try to sabotage or delay a deal. They made a mistake. Instead of getting frustrated when obstacles happen in a deal, take a breath. Or three.
  • Tune out the noise. Ultimately the seller was able to tune out the negativity from his spouse and accept the good faith and hard work being shown by the buyers. He knew that there were not a lot of people banging down the door to buy his business and stayed the course with the only people in the room. That allowed this deal to get to the conclusion that we hoped for and got: a win/win/win.

Do you want to be our next success story? We’d love to help you with buying or selling a business. Give us a call.

Episode 136 – Selling a Business: Bad Idea #5,038

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Welcome back to the Apex Business Advisors podcast! In this episode, Doug shares insights on why buying unnecessary equipment or inventory to reduce taxes can backfire, especially if you plan to sell your business soon.

Whether your business is valued at $50,000 or $50 million, the team at Apex Business Advisors is here to guide you every step of the way.