Broken Nest Egg

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brokennesteggMany of our business owner clients who want to sell are doing so because they are ready to retire. They have a plan in place, the business is at least stable, and they want to start interviewing potential buyers. We have another set of potential business owner clients who continue to delay the sale of their business because they don’t feel they are getting the true value for the business, they haven’t saved enough, or they just aren’t ready.

Timing is very important in the sale of a business. Are the revenue trends upward or level, are the net margins strong, is there a stable workforce, etc? If you are at retirement age or just burned out, give strong consideration to sell when things are going well. Don’t wait for the business to turn upside down.

Here’s a current example: We have a client who has waited beyond the good years. He is now in his late eighties, owns a large manufacturing facility in rural Oklahoma, and for the last few years has seen a declining revenue trend as he has not had the same energy and focus to keep the business growing as he did a decade or two ago. His business is now worth about one-third of what it was just a few years ago. He has fought his advisors for the last couple of years with his stubborn opinion of value. Now it will be very difficult to sell at all (other than an asset auction).

There was a good article in the Wall Street Journal recently that gets into this issue a little deeper. It’s also interesting to review the comments posted about the article.
If you have a business, you need to plan ahead. Talk to one of our Kansas City Business Brokers.

Jeff Crooks’ Anniversary

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jeff_crooksApex Business Advisors would like to congratulate Jeff Crooks for having the longest tenure, and being the most successful broker here at Apex.
He has been our lead broker now for over 12 years. That’s quite an accomplishment in the business broker world! Jeff is best at bringing professionals to a deal to help with tax challenges, cleaning up financial statements and getting proper legal advice, etc. He also spends much of his time working with buyers around the country searching for specific business acquisitions.

On the personal side, anyone curious about how to survive in the wilderness for more than a few hours needs to talk to Jeff about the proper equipment needed in your home and car. He will also tell you he is Lt. Colonel of the US Army Reserves, so he might be a little blunt at times. Besides selling businesses, Jeff teaches at the Ft. Leavenworth Army’s Command and General Staff College.

Good Businesses Don’t Come to Market Everyday

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GoodBusinessDontComeToMarketEveryDayIf you wait for the perfect situation before attempting to buy a business, you could miss out on great opportunities. For example, let’s say a service business is cash flowing $250,000 per year and is priced at three times cash flow ($750,000). It comes on the market and we let our network of buyers know that it is available. There is competition for all businesses, especially the ones that are cash flowing well.

The typical process is that a prospective buyer (you) sees that we have the new listing and asks for more information. We email a packet of information about the business for you to consider. It may be a week or two while you think about the opportunity. Then you respond with questions asking for even more information. After four weeks of going through this information collection, there are probably already two or three offers on this business!

What the other guys did quickly was to allow us to set up a meeting with the seller in our office. They asked the seller these questions directly, which saved them time and gave them a better sense of the opportunity. This also showed the seller how serious they were about pursuing their business.

The moral of this story is to act quickly by letting us help you engage sellers directly. This doesn’t mean you are responding recklessly, just that you are moving with a purpose.

Jumping the Gun

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jumpingYou’ve planned to sell your business for some time. You’re tired and ready to retire. You’ve got a buyer knocking at your door. You’ve agreed to a price with the buyer and he seems like a good guy. So, now you’ve got the urge to go to the beach or play golf or anything other than dealing with your business. Big mistake!

Over the years of selling businesses, one of the major goofs we have witnessed is a business owner that changes their normal operations when they think a deal is done. Some of the changes have been; discontinuing marketing and advertising projects, cutting inventory levels, taking a long vacation, and they may even stop paying the bills. Guess what? Those deals died quickly!

It is critical to continue normal operations through the sale process. Buyers will continue their investigation of the business up to the day of closing. If a buyer or a bank realizes that revenues are off, or that there are other changes taking place that may negatively impact the business, they may get nervous and pull out of the deal. That’s not only bad because there’s no deal and no big payoff, but now the seller has a business that may need to be repaired and rejuvenated.

An alternative to keep the deal together is to renegotiate the price or to offer seller financing (if the buyer is still interested). Or worse, if the buyer didn’t catch on that you were making changes during the sale that adversely impacted the business; their attorney may have something to say about it.

To get competent advice when selling your business, talk to your Apex Business Advisor.

Working Capital Needs

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PenniesBuying a business is one of those times in life when you feel true accomplishment. You are going to be able to show all those knuckleheads in the corporate world that you can do it better! The deal is done, now it’s you and the seller working through the transition. Pat yourself on the back because you are ready to really kill it!

However, stress starts to build as you realize you just plunked down most of your available funds for the down payment and what you have left in your personal checking account is to keep the kids fed and your spouse happy.

Right out of the gate you may need to order inventory, employees might need to get paid on Friday, vendors are working with you on service transition and may want deposits, etc. The business has had a good cash flow, but if you have customers on credit you have to wait 30 days for some of your customers to pay. If you have a cash and carry business, is the first week or two of business expected to cover your bills that are going to hit fairly quickly?

An important aspect of buying a business is making sure that you have the ability to fund the business acquisition and the business operations for a period of time. Complete a projected cash flow detail for the first few months with the seller’s assistance. Sometimes the bank who is giving you a loan for the business purchase will also give you a loan for the working capital needed in the short term. It’s important to ask what they might prefer; either keep some of your down payment money to have ready cash, or get a working capital line of credit. Whether you need it or not, in the beginning it is much easier to ask for a line of credit rather that going back in a month and asking for another loan. One thing for sure, if you don’t ask for it, you won’t get it.

Contact Apex Business Advisors to discuss preparing your business for sale or to buy an existing business.

Legal Fees – The Inexpensive Option

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legal feesWe’ve all heard the countless jokes about attorneys and their fees. You’ve likely even heard someone relay a real-life complaint about legal bills they’ve incurred. But some of the worst real-life horror stories that we’ve heard involve clients or customers who decided to forego paying an experienced attorney to guide them through a transaction. When a conflict later arose, they paid much more to “right a wrong” than what they would have paid up front for properly written, attorney prepared documents.

Rather than utilizing the services of an experienced and reputable transaction attorney, we sometimes see parties use lower cost methods for getting a contract written. They might use a friend who handles traffic tickets or bankruptcies (still good attorneys) and who will do it as a favor at a cut rate. Worse yet, they may lift a generic contract from the internet. At Apex Business Advisors we require parties to the transaction to have legal representation.

What many business buyers or sellers fail to realize is that the responsibility of a good “deal” attorney is to protect their client. Good attorneys want to mitigate risk and avoid future lawsuits and claims. Both parties need protections. Shortcutting it by going cheap isn’t the answer. Utilizing a transaction attorney who knows how to sufficiently document these protections may well pay off in the long run rather than spending many thousands of dollars more trying to correct a problem down the road. Remember the old saying from Benjamin Franklin, “An ounce of prevention is worth a pound of cure”.

We can recommend transaction attorneys who are skilled at negotiating and drafting contracts with appropriate protections for all parties. Please call your Apex Business Advisor for our attorney recommendations.

Congratulations to Debbie for her 8 Year Anniversary with Apex

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Debbie50505075It’s time to congratulate another Apex Business Advisor on another year of service. Debbie Small joined us 8 years ago! Time flies when you’re having fun. Debbie’s experience started as a potential buyer who had been working with Jeff Crooks for a couple of years. However, Debbie kept thinking that being a Business Broker in Kansas City would really play more to her strengths as an experienced sales person in the small business market. Jeff finally relented to her frequent inquiries and introduced her to the Managing Partner for an interview.

The Managing Partner proved to be a genius and hired her right away! Debbie has consistently been one of our top producers, and has strengthened Apex and our team with her energy, focus, caring, and ethical standards.

Debbie has had many clients compliment her work over the years and continue to refer new business to her. If you’ve ever had a chance to work with her, you know that she works extremely hard to get deals done for her clients – and she accomplishes the task with the most cheery and positive attitude. We are all grateful to have Debbie here at Apex and wish her continued success!

Take a Vacation

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vacationTaking a vacation is something business owners sometimes pride themselves on avoiding. Others relish the time away and take vacations as much as possible. It can be hard to step away, even for short periods, from the business that is responsible for your family’s security.

My friend and advisor, John Stevenson of Client Kudos, sent me some helpful tips about the importance of business owners taking vacations. As I write this while overlooking a beautiful lake in Minnesota, I understand the physical and mental benefits of getting away. My office manager and brokers aren’t calling me every minute to discuss issues. They can handle whatever comes their way. We business owners like to feel critical to the operation, but sometimes we can get in the way.

Aside from the personal benefits that come from vacation, a business owner also has to think about the message that is sent to a potential buyer of their business down the road. When meeting with a seller of a business, almost every buyer will ask the owner if they take vacations. Can they get away for a week or two? Do they take long weekend breaks? How do they do it and can the staff handle the business? Or, if I buy this business will I be a slave to it for years?

Take a vacation. You and your business will thank you!

Good Communication Pays Off, Again

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communicationI’m sure you can think of a couple of times (more like hundreds) when you and a very important person in your life had a miscommunication about … when you would be home for dinner, how much your assistance was needed to clean toilets prior to a dinner party (geez I mowed the lawn!), household budget, etc., etc. That miscommunication is innocent and without malice, but it doesn’t keep you from getting into hot water. Does it?

Clear communication is important in buying and selling businesses too. To keep everyone on the same page, we start with a target closing date, set time limits for due diligence, and applying for financing. However, this is just the beginning. The process can take many twists and turns, so whether you are a buyer or seller or broker, it is critical to keep everyone abreast of current activities even if that means agreeing to adjust the target close date.

We just had a closing on a deal that took over 6 months to get completed. There were plenty of times that the various parties got nervous, but the banker, buyer, seller, broker, and attorneys stayed connected. Relationships are stronger and transitions are smoother when there is open communication between all parties.

Contact your Apex Business Advisor to answer your questions regarding buying or selling a business.

Value Drivers: Business Operational System

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make it easyMost people looking for a business to buy need a reason to pull the trigger. If the transition is easy – that’s one of the biggest reasons to pull the trigger, quit the job, grab the 401k, and jump into the deal. If you have set your business up to be easily managed, have operational policies for the employees to follow, financial and operational reporting is in place, and sales management systems and client database are up to date, then the buyer will be able to picture themselves in the owner’s seat.

The typical buyer has management experience, finance experience, sales, or marketing experience, but probably does not have all the skills necessary (on day one) to run your business. Most buyers are strong enough to learn as they go and make it work. However, in order to attract more buyers to your business, you need to make it appealing to a wide range of personalities and skill sets. Also, you have to remember that there may be a spouse involved in the decision to buy your business and they will want to be secure with their husband’s or wife’s desire to leave a job and buy your business. Set your business up with the written systems mentioned above and you will make that decision much easier for the buyer and their family.

The impact of this on the price of the business is a little more difficult to calculate. But, the time it takes to sell will no doubt be shorter, there will be less need to negotiate your price, and you will probably have multiple interested buyers from whom to choose. By the way, you might find that having written operational systems will actually improve your business!