Episode 148 – The Best of the Apex Business Advisors Podcast: Selling

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In this episode of our Best of Series, we revisit an episode where we discuss the dos and don’ts of selling in the 4th quarter.

Doug and Andy discuss common pitfalls, such as improper financial management aimed at reducing taxes, which can negatively impact a business’s valuation. They provide insights into planning ahead, offering strategies for cleaning up financials, optimizing taxes, and effective decision-making to enhance negotiation power and timing.

Elections Are Over, a New Year Beckons

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A topic we frequently come back to here and in our podcasts is timing. While people may always come up with reasons why they might want to postpone buying or selling a business, our experience as brokers is that the market never sleeps.

A particularly fascinating time of the year is now, as we head into that period of Christmas and New Year’s, in which people have a bit more free time and may be casually looking at listings on places like BizBuySell, then giving us a call to see what we think (or to find out if we have similar listings). Why is that?

New Year, New You

There’s nothing like the end of another year to remind people of mortality and the shortness of life. There’s a scene in Michael Mann’s classic Heat in which Robert DeNiro’s character is asked if he’s “doing what he wants to be doing.” He smiles and answers no, but that he will be doing that soon. Something about the end of a year can galvanize us into action the way that no other time of the year can. If you’re unhappy with what you’re doing in life, the promise of a new year and a new path is tantalizing.

Slower Pace

While there is no doubt a lot of frantic preparation for the holiday season, be it gift-buying or food preparation, or cleaning for the arrival of relatives, expectations of output in corporate America are generally lowered around this time of year, giving people more free time to think and contemplate.

Buyers and Sellers are Looking for Each Other

The phrase “now isn’t the right time” is definitely not true of the end of the year. Buyers are looking for deals and there are sellers looking to offer those deals. As we mentioned, there’s a special power at the end of a calendar year that can help push both buyers and sellers to the finish line.

Election Excuses End

For buyers and sellers who were “waiting” for an election result, that result is now weeks old. While the incoming government may still be holding cards close to its chest, there’s nothing like the general uncertainty that the population had, business-buying or otherwise, prior to the election. This is another converging reason for this being a great time of year for deals.

Time with Family

We always say that there are no deals to be had if family are not on board. This is a time of year when many people have more time with their family and more time to have some of the heart-to-heart conversations about life in the present and plans for the future. There are a number of deals we’ve done here over the years that began as a thread of a holiday conversation between relatives and friends.

Are you feeling the pull of this time of year? We can’t guarantee that there will be the right deal for you right away, but we’d love to take a look. Give us a call.

Episode 147 – The Best of the Apex Business Advisors Podcast: You’re Ready, but is your business?

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In our best of series, we revisit an episode where we discuss the confluence of Business, Owner, and Financial Readiness.

Get valuable advice on preparing your business three to five years ahead of time, learning from real-life case studies of businesses that hit their sale targets through diligent preparation and strategy adjustments. This episode underscores that proactive planning and setting aligned expectations with brokers can pave the way for a successful business exit.

How Private Equity is Upping the Home Services Game

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How Private Equity is Upping the Home Services Game

Photo by Brian on Unsplash

Earlier this year we talked about the fact that “boring businesses” had gone from ugly duckling to prom queen. Now it’s time to talk about the effects of all that PE money entering the market in those businesses.

First, Higher Prices

Just as the new owner of an apartment complex might do some landscaping and painting and raise rents 25%, so too many of the professional operators who took over the mom and pop laundromats and plumbing businesses took advantage of market inefficiencies to raise rates. But as other PEs bought competitors, there was no longer just one digitally and social media savvy plumber in town. Then higher rates for borrowing slowed the roll-up wagon.

But Also, Better Services

But those higher prices did often come with better services, whether that was someone actually picking up the telephone, or even responsive chatbots that could answer your questions or even take a booking.

Next, Add Revenue

So it wasn’t enough to bring these businesses out of the fax machine era and help them win with digital marketing, these new operators had to innovate and create new lines of revenue. And they have. Examples include:

  • Add an adjacent product or service, like car washes that have added oil change services. If you’re already stopping by to take care of keeping your car clean, why not knock out some pesky maintenance at the same time?
  • AI has driven ways to examine customer data and automate outreach campaigns, using combinations of email and SMS marketing. Instead of worrying about acquiring new customers, some businesses have focused on selling more to their existing customers.
  • Create serious strategic partners. A carpet-cleaning business is a natural partner for a home-cleaning business. Either type of business would be well-suited to screen potential partners in their markets and lean into joint marketing efforts.

Don’t Focus on Pricing

There’s still a lot of froth around home service businesses now because YouTube has made them the hot new thing. That can lead to some of these PE firms asking (and getting) prices that are based on higher multiples simply because of the popularity of these types of businesses. Don’t sit out waiting for valuations to come down. They may not in the near future, or ever. Home services are a long-term smart investment, as AI cannot fix your leaky faucet, or put a new roof on your home after hail damage, nor can it give you a paint job you’ve been waiting for for ten years. You may be too late for a bargain in a home services business, but if you are sensible about plotting future growth, paying current market prices now may still be a savvy investment.

Are you interested in a boring business? Get in line, and give us a call.

Episode 146 – Business Sale Timelines: From Listed to Closed

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This episode examines various real-life scenarios about the typical timeline for selling a business, the importance of transparency, the role of due diligence, and how proactive communication with banks and buyers can expedite closure. Whether you’re planning to sell your business or expand your understanding of the market, this discussion is packed with practical advice and expert observations.

Whatever Happened to Redbox?

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Whatever Happened to Redbox?

Sonny doe, CC BY-SA 4.0, via Wikimedia Commons

Some of you reading this article are old enough to remember that there was such a thing as a video rental store. Those who don’t remember such businesses (or perhaps didn’t know such strange things existed) certainly knew of Redbox’s existence. But they may not have known that the parent company for this once booming business recently declared Chapter 7 Bankruptcy. It might be useful to see how this once-successful business didn’t go out with a bang, but with a whimper.

How It Started

There’s a lot to love about the Redbox startup story. It was initially developed in Chicago in the early 2000s as a simple 24/7 kiosk strategy for McDonald’s to provide a “vending machine” for fresh milk and other products. By 2004, McDonald’s had decided to use the kiosks to rent DVDs, and they implemented a “return anywhere” policy which means you could rent from one kiosk and return it at a different location, sometimes many miles away.

By 2005 Coinstar bought 47% of the company for $32M, a position they later increased to 51%, then the remaining 49% by early 2009. Traditional brick and mortar video rental stores were closing at a very high rate, but Redbox easily moved into existing retail locations like supermarkets and easily gained market share.

In 2009 Redbox dealt with a challenge from the studios, who wanted to put a 28-day waiting period on their movies going to Redbox to give a bigger boost to potential DVD sales. Redbox went to court, in the meantime buying the films at big box stores like other consumers, except they turned around and rented those films out. The legal tussle ended up positively for Redbox as it signed lucrative distribution deals with several studios for the rights to purchase and rent new-release films, and in the end, with both sides respecting each other a bit more, Redbox agreed to the 28-day period for some studios, a 7-day period for others.

By late 2010, the company hit its one billionth rental, and as of mid-2011, 68% of the US population was living within a five-minute drive of a Redbox kiosk. Those kiosks accounted for over a third of the disc rental market in the country. Later in 2011, Redbox added video game rentals. At its peak, in 2013, Redbox rented more than 770M items, accounting for 50% of DVD rentals in the US.

The Decline

By now you have guessed what arrived that ended the good times for Redbox: streaming. Widespread high-speed internet was necessary to lead this change, and by 2016 the parent company was shopping for a buyer. It ended up being sold, and Redbox was split out as a separate operating company.

In 2017 Redbox tried to get into the streaming market themselves which accounted for a brief bump in revenue, but instead of repurposing their kiosks and capitalizing on their brand, which didn’t only have to be associated with movies (they had already successfully extended to video games), they tried to go full into the movie business, underestimating just how much that would cost. Mistakes included:

  • Acquiring the rights to an independent film for a 90-day release period, marketing the movie as the first “Redbox Original.”
  • Forming a film and TV series production division called Redbox Entertainment
  • Creating Redbox Free Live TV, an ad-supported streaming television service

Things only got worse, and by 2022 Chicken Soup for the Soul Entertainment (which operated Crackle and other online video ventures) acquired Redbox for $50M in stock and assumed $325M of Redbox’s debt.

The End

That huge debt had come from Redbox, due to a cash crunch, refusing to pay its bills. The new acquirer didn’t have free cash to acquire new movies, and a death spiral ensued. By June 2024 Chicken Soup for the Soul Entertainment filed for Chapter 11, amending to Chapter 7 the very next month. As of July 2024 Redbox’s online streaming and mobile app ceased functioning, but many of the remaining kiosks have been taken over by hobbyists who are keeping the machines going by using technical assistance available on the web.

Takeaways

It may be easy to play Monday-morning quarterback, but if Redbox had called us in 2013 at the height of its powers and asked what to do, here are some things we may have said:

  • Most businesses don’t ever plan to be the “next big thing.” The minute you become that next big thing, you should be looking at when that run might end and sensible pivots that could be executed without major capital investment. Getting into the movie business was a stupid idea and the majority of their board should have known better.
  • Technology changes every business. We always remind sellers that they need to talk about how technology might transform the business they are trying to sell so that buyers can better understand what they are getting into. The company renting more movies than anyone else should have seen that they couldn’t compete with streaming, which cut out the “trip to the store” behavior they had used for so long. They could have used their well-known and trusted brand to offer almost any other product other than the declining physical media that they defiantly kept pushing.
  • Pay your bills. By the time the bankruptcy hit, CVS disclosed that it had not been paid any fees since 2002 and was owed over $420,000 in back payments. CVS had even canceled its deal with Redbox, but Redbox refused to remove their kiosks (to be fair, they didn’t have the money to fund those removals). Without proper cash flow, Redbox couldn’t add new movies, which only exacerbated their woes.

Alas, Chicken Soup ended up not being good for the Redbox soul.

Episode 145 – Timing Your Business Listing: When’s the Best Moment?

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In this episode, we explore the intricacies of listing business opportunities during unique times of the year, like the holiday season and an election year. We also discuss the pros and cons of listing during these periods and how market perceptions can impact decision-making.

6 Ways Sellers Can Fool Buyers

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Here at Apex we pride ourselves on giving ethical presentations of the businesses we represent. Unfortunately, there are some individuals who try to sell a business without holding themselves to our standards. Here are some common ways they can hide crucial information from buyers.

Misleading Inventory

There are a few ways inventory can be misleading, starting with basic human error. Bad systems and careless employees can create inaccurate data. But more frequently, we run into inventory that includes obsolete or worthless materials marked at their purchase price. Just as bad as obsolete inventory is inventory that may be expiring or earmarked for a client prior to a sale closing (and is not otherwise marked as “work in progress”).

Inventory is one of the basic measures of value in a business, so if it’s misrepresented, there are implications for valuation and the chance for a deal to get sidelined or derailed.

Personnel/Legal Issues

Not everyone’s labor problems are as public as say, Boeing’s. Most Main Street businesses that are prepared to sell are run by competent staff. But just because staff are competent doesn’t mean that they will stay with a new owner. Oftentimes even the nicest new owners can’t change the feeling that “it’s time to move on” for employees (and customers) so it’s important to make sure that, as much as can be estimated within the bounds of confidentiality, any personnel issues are fully disclosed. The same goes for any legal issues. On more than one occasion a seller has pledged to deal with an ongoing legal issue on his/her own dime as part of the negotiations pending a sale. That sort of honesty and willingness to compromise helps to get deals over the line.

New Technology/Competition

Often buyers will be entering an industry/market for the first time by buying a business. That means sellers need to be their eyes and ears for the state of the industry: what technology is coming up (or could come up) and what competition is present or could come soon? If you have grown complacent in past years, just staying in your business lane, it’s important to do some research into these subjects so that even if you miss something, it won’t be for lack of diligence on your part.

Unclear Financials

While clean books are a gospel we preach, when we say “unclear financials” we are less referring to the types that are incomplete or poorly categorized and more the ones that have dramatic changes with no context. Examples include:

  • Large, unexpected expenditures
  • Major changes to employee compensation
  • Uneven expenses (or revenues)
  • A significant amount of “miscellaneous” expenditures
  • As mentioned above, inventory swings

The goal with financials shouldn’t ever be: “Hey, you’re the buyer; you figure it out.” Sellers should give as much context and explanation for financials as possible. No buyer yet has ever complained about receiving “too much information” about financial statements from a business.

Are you worried about getting fooled by some of these techniques? Let us help you in the process. Give us a call today.