Archive for category: General

This is another real world story of the interesting situations that we find when brokering deals.

We had a great business with great cash flow and great products. On the surface, everything looked like this was a business that could be sold at 3 or 4 times cash flow. When we dug deeper, we found that there was one huge customer. Yes, the customer was profitable, but they made up two-thirds of the business revenue. That is challenge enough, but it got worse. The account manager for this major customer was a family member of the owner, and was being paid twice the market rate for their position.

The price of a business gets discounted for each of these situations separately, but when combined, it makes it almost impossible to get a deal done. In this situation, the person that would benefit the most and have the best chance for success, as a buyer, is the family member. But they are also the individual with the most leverage to influence business price.

What could the business owner have done to have a better chance at selling? The business owner needed to be making strategic changes at least 12 months before trying to sell. The first move would be to get a new account manager involved with the major customer to minimize the risk of the relationship with the family member. In addition, it would be a good idea to have an employment agreement in place with the new account manager that includes a non-compete. The harder thing is to expand the business so that one customer doesn’t represent so much of the revenue stream. Not easy, but this can be done.

If everything can be fixed except for the customer concentration, you could probably sell, but be prepared to finance the buyer.

We are proud to announce that we have expanded our core service offerings to include Business Valuation. It is not a requirement of our clients to have a valuation analysis performed. However, since it is not required, this tends to reduce the importance of this process in the mind of the seller. Business Valuation is a critical part of selling your business or preparing to sell. Don’t leave money on the table!

Too many people have the impression that it is an expensive and painful process. It is not. The basic process requires a document to be completed and 3 years of tax returns supplied. Your broker will help you with this to make sure that the information is accurate, complete, and presents the business in the best possible light.

As a result, we have formalized the process. If you want to make sure you get full value for your business, click the link below to find out more!

Business buyers want to replace an income, have more control over their destiny, and increase their wealth opportunities, but may not know where to start. Searching for the right business can take months or even years using the old standard method of reviewing whatever comes on the market at the time it comes on the market. Sometimes that means making do with what is available – “compromising”.

Although this method actually works in many cases, a more efficient means of finding a business would mean instituting a focused search process. In a formal search, the broker is working for the buyer rather than a seller. The broker seeks out businesses based on the buyer’s experience, financial ability, location, and specific business types. The broker contacts businesses that meet the buyer’s criteria, assesses potential seller’s interest, gathers data, and assists in negotiations. Using this process, the buyer is in control and has options.

Often, from the seller’s point of view, they don’t want to be “For Sale”. Keep in mind that many, many businesses sell every year that are not advertised for sale. Business owners may be willing to talk about selling if they know the buyer is serious. There’s no better way to prove how serious a buyer is than performing a focused search. To learn more, contact one of our brokers.

Big customers always seem to be a big carrot for business owners. It’s hard to blame them when the big orders come in. With all the excitement of the big order, the owner with extreme customer service focus makes the customer very happy. Over time, these large customers may drive down the gross margin of the business because of their power and influence, and because they know the business owner needs them. At first it seems ok. As time goes on, the big customer gets most of the owner’s attention and most of the company’s resources.

Often times we see businesses that have customers that exceed 50% of total revenues. The customers are challenging, but gee wiz, they are the best customer ever! Many times the business owner hasn’t done the analysis that may reveal the customer costs them much more than the value received.

Sometimes businesses are built solely to service one customer. The whole intent and strategy to enter the business was because of a connection with the customer or a creative fix to an existing problem that the customer had. The future challenge becomes building diversification in the business so that no customer exceeds 10-15% of revenues. The stress from having one major customer can be a real negative influence on business owner’s strategic actions. The decision to have one major customer is fantastic if the business owner understands the risk.

When a decision to sell the business enters the picture, customer concentration risk has a huge impact on value. The more concentration there is with a few customers, the lower the value of the business. It’s that simple. There is too much risk for any buyer, even strategic buyers. Talk to your Kansas City Business Broker for details of how to prepare ahead of time to transition your business to family, employee, or to an outside party.

“I don’t have monthly financial statements. I don’t have an operations manual! Employee job descriptions… ha! It’s all in my brain.”

If you are trying to sell your business and any of the above statements ring true, you desperately need to seek help. The value of your business may have just dropped dramatically, and you can’t fix this problem in a short period of time. You need to have every bit of the financial picture of your company clearly documented and your accounting files and tax returns need to back up your data. Even if you aren’t trying to hide anything, the buyer might think you are. The risk you are taking is that the buyer walks away or uses this opportunity to reduce their offer.

A good reason to hire Apex is that we will help you through the pre-sale planning. The value of your business depends on this preparation.

Example: We had a potential seller that operated his business out of his checkbook with no monthly financials. There was enough cash flow to justify half a million for his business. However, nobody could touch the deal because there were no solid monthly financial records to show a bank, and prospective buyers couldn’t rely on the outdated tax returns.

Due to health issues, the seller didn’t have the time to fix the problem and had to shut down the business. Don’t let this happen to you. A little preparation goes a long way, and you need to start now if you haven’t already.

In our next blog post, we will be talking about the seller negotiation process, so stay tuned!