Episode 157 – Selling a Business: Government Contracts Businesses

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Andy and Doug are joined once again by Kevin Layton, this time to take a deep dive into the world of businesses that have a lot of government contracts.

In this episode, they explore the nuances of businesses involved in government services—from environmental services to high-tech platforms—highlighting opportunities for growth and strategic exits.

Discover how business brokers can effectively manage sales processes, addressing customer concentration risks and navigating certifications and designations. Gain insights into funding sources, buyer qualifications, and the importance of competition in securing the best deal.

Whether you’re interested in learning about transitioning certifications or understanding the current market dynamics, this episode equips you with expert knowledge to successfully approach the sale of a government contracting business.

Little Things That Can Threaten a Business Deal

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We recently ran into a situation in which a business deal started to teeter on the brink of falling apart. This wasn’t because the buyer and seller didn’t get along (meetings always went well) or because there was a haggle about price (it was a full price offer) or even because lawyers were overstepping boundaries. Deal points were being pushed back in a way that started to create suspicion and the seller’s response was, “Well the buyers need to just trust us.” We let them know that wasn’t going to cut it.

Consultation Time

In the original deal the buyer had wanted twelve months of access to the seller by phone or email to ask questions. Sometimes things come up later that aren’t covered in transition, and a buyer wants access to institutional knowledge and reflection. The seller revised this down to six months. This in itself was not a problem, as six months is still a lot of time, but as you’ll come to see, when added to other items, it started to contribute to a narrative of suspicion.

Note: very often, despite having negotiated transition time, buyers rarely use all agreed-upon consultations with the seller post-sale. By offering a generous consultation window, in some cases paid, sellers can give added confidence to buyers.

Training

The original deal had specified four weeks of training. The seller pushed back, saying he only wanted to do “20 hours a week, because that’s all I work anyway.” This is a fundamental mistake of the seller. It’s a mistake in attitude, treating a transition to a new owner as “just another week, which shouldn’t take any more time than any other week, and I better not be bothered.” It’s also a mistake in reality: just because the seller was only working 20 hours a week at the time of the sale doesn’t mean the buyer will be at the beginning of his business journey and will be putting in many more hours to learn the business.

Note: be ready to give the new owner all the support he/she needs. This is a big change for you as the seller, but realize how much bigger of a change it is for the buyer, who has to learn what you know like the back of your hand.

Noncompete

The original deal offered a five year/50 mile noncompete clause. The seller was trying to push back to 2 years/25 miles. This, more than anything else, was a problem for the buyer, and it would have led to problems with the bank if we hadn’t quashed it. If you’re looking at a ten-year note on an SBA loan, but the seller is implying he would like to be free to compete with you within a two-year time, banks (and buyers) aren’t going to be thrilled!

What was even more strange was that the reason for the sale was given as “retirement” by the seller…so why was he asking for the noncompete to be drawn down?

Note: if you want the freedom to compete again and start a business in the same category, be advised that this has every chance to sink a deal.

Ultimately, we got the deal across the line largely due to direct and honest communication with everyone involved. We spelled out understandable fears and we pushed back when modifications were unreasonable.

If you’re considering selling your business, you should be thinking about some of these issues. If you’d like to talk through them, give us a call.

Episode 156 – Know your Broker: Kevin Layton

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Andy and Doug welcome one of our “newer” brokers, Kevin Layton, a software engineer turned business broker. Through his impressive background in aerospace and digital marketing, Kevin shares his intriguing career journey from high-tech exec to facilitating lucrative business acquisitions.

Tune in to learn about the dynamics of the brokering world and discover how Apex’s team approach is helping sellers find the perfect match for their businesses. Stay informed about the latest trends and insights on business acquisitions, and don’t forget to visit the Apex website for more resources, including blogs, podcasts, and listings of both active and sold businesses.

“I Need the Business to Pay Me This Much”

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"I Need the Business to Pay Me This Much"

Photo by Money Knack on Unsplash

Buying a business requires a balance between the purchase price, the revenue the business generates, and the costs of ownership. When you factor in debt repayment, taxes, and working capital, there’s often less left over for an owner’s salary than many people anticipate. That doesn’t mean business ownership is unattainable—it just means careful planning and realistic expectations are essential.

A typical business within reach of a modest down payment might provide enough free cash flow to cover its expenses and offer a comfortable salary for someone with minimal financial obligations. However, if you’re accustomed to a higher income or supporting a family, the gap between expectations and reality can be significant.

Not that long ago someone called our offices looking to buy a business. “I’ve got $150,000 saved up,” she said. “What can I buy that will get me a $350,000 salary because that’s what I make now.” This isn’t the first time we’ve gotten such a call, and as we usually do, we walk through the numbers.

$150,000 Down

Let’s say a reasonably sized business for a $150k down payment could generate around $350,000 a year in free cash flow. From that $350k, we will need to subtract annually:

  • debt service on a typical SBA loan (rates are averaging 10% these days)
  • an average working capital estimate for the business
  • Income taxes

After working on the calculation, what does that leave for an annual owner’s salary? In this case, the available cash flow remaining for an owner’s salary might be in the $100-150k range. If the business doesn’t provide the necessary wage, a buyer may need to increase their down payment to reduce borrowing costs or adjust their expectations. To achieve that $350k salary, a buyer would probably need to invest at least to that level initially, which means a more significant business. Expect to invest at least 10% of the business value.

$300,000 Down

If she had $300k, which she might find through saving more, getting a partner, or using a retirement account to add funding to what she already had, we could look at a business that more readily meets her needs.

Now, we are much closer to her original request for $350k, as this business could get her a $250-300k annual salary. By tightening her belt a little bit now and by putting some great ideas to grow the business over time, that salary could quickly grow to $350k and beyond, and now, freed from her job, she would also be free from the financial and time constraints that a job puts on her.

Observations

You might note in our fictional example that doubling the down payment resulted in three times the potential salary. This is a general principle: the larger the initial investment, the larger the business you can buy, and the larger the annual salary/distribution the owner can take.

You might also realize now that you can come at this problem from either direction, either from how much you have to put down or how much you need to make. There are plenty of calculators online to help you play with numbers.

Finally, if you can’t match your current salary when buying a business, what sacrifices are you willing to make to accept that lower salary? Is your family on board for those sacrifices? If they aren’t, then there’s no point in proceeding further.

What size business are you looking to buy? Give us a call and we’ll tell you what we have available.

Episode 155 – The Art of Exit Planning: Aligning Business Goals with Market Realities

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This episode features a special presentation by Doug and Valerie Vaughn. They revisit their well-received EPI chapter meeting presentation, “Bridging the Gap,” to discuss the importance of aligning business owners’ goals with market realities.

You can view the companion video by clicking this link.

Discover the various types of goals that business owners consider when planning their exit. Doug and Valerie discuss common misconceptions in business valuation, explain the role of M&A intermediaries, and suggest strategies to help owners prepare for successful transitions. The conversation explores financial, legacy, and emotional goals, as well as practical techniques for aligning expectations with market conditions. Andy contributes to the discussion by presenting real scenarios and myths related to quick sales, valuations, cash transactions, and transitional periods for business owners. The episode wraps up with practical advice on involving M&A advisors early in the exit planning process to ensure a smoother and more profitable exit strategy.

How to Stand Out as a Buyer

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While there are cases of a single buyer connecting with an owner, submitting an offer, and having everything go smoothly and close within 90 days, that’s the exception, not the rule. The best businesses have multiple suitors and to win in those situations you need to think about how the best candidates stand out when applying for a job: differentiating themselves.

The Structure of Your Offer

One of the first ways you’ll be able to telegraph who you are as a buyer is through your offer. Components include:

  • Means. Is this being financed from ready cash or do you plan to finance using the SBA?
  • Price. Are you offering full price? If you aren’t, do you have reasonable objections backed up with data?
  • Down Payment. How much are you willing to put down against the purchase price?
  • Earnout. Are you tying any percentage of the offer to an earnout? If so, for what period of time?
  • Seller financing. Do you expect any amount of the offer to be seller financed? If so, for what percentage?

As you might guess, an ideal scenario is all cash, full-price, 20% down, no earnout, no seller financing. But that rarely happens. What you have to do as a buyer is put forward your best effort possible when making your offer. If you hold anything back, it may be just that little bit that leads to you losing out against a close competitor.

Meeting in Person

The money is the most important part of the deal, but the second most important is the connection between the buyer and the seller. Many sellers have an emotional tie to their businesses, having built them over many years. They want to make sure that the business and their team members are being handed over to a safe pair of hands. Things to consider for an in-person meeting (or, if the situation calls for it, a video call):

  • Be yourself, but be friendly. If you tend to be more reserved and quiet, try to be a bit more open and talkative during this meeting.
  • Share your professional past, with humility. Yes, you want to show that the seller’s business will be safe with you, but you need to do so with a spirit that you are also going to be learning to be a business owner. The worst thing you can do here is come in with a spirit of knowing everything.
  • Share your ideas, ask for input. Before this meeting you will have had a chance to look at financials and other aspects of the business. Whatever your questions for growth or expansion, lead with curiosity and ask for feedback all the way. Examples include:
    • “I was thinking about expanding into online sales, have you tried that before?”
    • “I see we haven’t done digital marketing before, what do you think of that?”
    • “What’s the biggest opportunity you would have gone after if you had to start over today?”

As we said already, the best businesses have the best offers, and sometimes even your best effort might fall short. What you have to keep in mind is that buying a business is a marathon, not a sprint, and at some point the right intersection will happen for what you bring to the table and what’s on offer.

If you’d like to see what’s on offer these days, give us a call.

Episode 154 – Call Me When You Have a Serious Buyer

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Welcome to another episode of the Apex Business Advisors podcast. Today, we’re covering our recent closings, including the story of a unique mailbox rental company acquisition. Our main topic is the misconception there are few “serious buyers.” We finally discuss the strategies to bridge the gap between seller expectations and market realities, including the role of the Exit Planning Institute (EPI) in helping business owners prepare for a successful sale.

Advisers Buy Businesses, Too

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Many of our team here at Apex came from business owner backgrounds. It’s part of what draws us to this work. We can stay, in a way, involved with the challenges and struggles of entrepreneurs without having the onus and accountability for running the businesses day-to-day.

But that doesn’t mean we aren’t occasionally tempted (or sometimes actively looking for businesses). How does it work when an adviser attempts to buy a business?

No Special Treatment

We don’t get any special deals. Our main advantage is that we get eyes on the business before anyone else does. But that means other advisors are potential “competitors” for such deals and most likely want to put their own buyers on the deal. But we are still invested in the best deal for our clients. So even if we were to love a company and put an offer in on it before it’s even listed on the market, it would be unprofessional and unethical for us to then pressure a seller to take our offer. A business adviser’s offer has to stand on its own beside all the other ones a seller is considering.

Here at Apex if an advisor does want to put in an offer on a business he has to get the President’s signoff first, for various reasons, and certain disclosures would need to be made to the seller that the person making the offer is an Apex Advisor.

Reminder: offers aren’t only about offering full-price, there are also the questions of down payment, earnouts, and seller financing.

Operating Partner Needed

Unless they’re planning to exit the business adviser space (and sometimes that happens), an adviser who buys a business is going to need to install an operating partner of some kind immediately. There are cases in which an adviser forms an investment group of sorts in which various individuals add value or contribute financially. Still, as attractive as any business would be, it’s rare that an established adviser leaves the field of business advising to become a full-time business owner again.

We’re here to help. Give us a call today.