Archive for category: General

We see a few deals every year that end up being more challenging than they should have been. The issue is usually a lack of due diligence. Did the seller tell you everything? Due diligence is all about discovery. Is there something hidden in the financials? Can the seller verify that the revenue and cash flow are accurate? It is very important to double check these numbers so that you can make an informed decision.
Due diligence takes place after an offer is accepted. While a buyer is getting bank or funding approval, there is normally a period of two weeks to do the due diligence. The buyer and seller sit down to verify the information that has already been provided. If a seller avoids giving concrete documentation, you should see red flags.

We had a seller not willing to provide W2 information by claiming employee privacy issues. The seller was trying to hide the real cost of payroll. In essence, they were hiding the fact that business was down by burying it in the financial details.

We coach our buyers to do effective due diligence. Sometimes buyers need an accountant to help them go through the QuickBooks, Peachtree, or other accounting files to truly understand what the data means. If there are customer contracts to review, an attorney may need to be at the table. At the end of the day, we want our buyer to be as well informed as possible as we help them complete a deal. Finding inaccurate information doesn’t necessarily mean a deal is bad, it may help you negotiate a better deal.

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

Prospective buyers are looking for revenue, consistency and growth when looking at businesses to buy. Last minute changes, especially major changes, can impact the value of the business or make the buyer nervous about the unknown consequences. The buyer could also leap to an unfounded conclusion about why the owner is selling.

Here is an example:
A man talking about selling his business purchases a $700,000 piece of publishing equipment. He believes that revenues will rise and more clients will come on board because of the new capabilities. The problem is nothing can be proven yet. All we have to go on are the actual numbers from the past three years. These numbers do not support the increase in price that the seller is considering, and our recommendation is to wait to sell his business until he has proven the new publishing equipment is going to have a significant impact on the bottom line. If he decides to move forward, he will probably end up taking a loss on the capital expense if he wants to sell now.

A better way to have handled this would have been to recommend the machine and potential results to a prospective buyer. There are many ways that the prospective buyer could have funded the purchase of the equipment instead of taking on the debt. The seller was debt free when this decision was made.

Before you make a major decision, be sure to talk to your broker about the impact on business value and sale strategy as well as timing.

It might seem like common sense, but the accounting in your business needs to be checked by a second set of eyes on a regular basis. Whether it is a mistake or intentional, the math doesn’t always add up. You may have a bookkeeper that does the daily accounting, but having an external accounting firm or accounting professional review the information is important. We recommend quarterly to semi-annually. You want to catch a problem and be able to fix it before getting into the next tax year.

There are quite a few stories to tell to illustrate what can happen, but here is one that stands out because it happened recently:

In the process of doing our due diligence on a business and asking for financial statements and tax returns, the seller’s CFO was not forthcoming with the information we need. He was not responding to our questions about the financials. It was finally discovered that he had embezzled almost $2,000,000 over many years. This obviously held up the process of selling the business. The seller had to get his books in order and the CFO was going to have to spend time in jail. The weird twist to this story is that the CFO ended up turning in the seller for insurance fraud to receive a lighter sentence. Now the seller and the CFO are in jail. No deal. This may be tongue in cheek, but you would be surprised what we run into.

We are all busy running our businesses, but this is one thing that can’t get pushed into the “for later” pile. Get an audit done regularly on your books. If you have any questions, want to hear more stories, or want an introduction to a firm that can help, give your broker a call.

Tax time is looming. As a business owner, it is important to actually FILE your tax returns. This might sound strange to you and it is… we actually have clients that have provided us with three years of tax returns as part of the due diligence process. As the deal progressed and the buyer’s bank was verifying financial information, they discovered that the tax returns were never filed. The IRS had no record of the tax returns.

The motivation behind this could be a couple of things. It is a way to delay paying taxes. If the business was showing a loss, they might have assumed they didn’t have to file a return. In either case, by not filing, there are going to be penalties and interest that will cause a lot more expense in the long run. This can also seriously delay the actual sale of the business and can put the deal at risk because the potential buyer could and should start asking serious questions about the business and other information that was supplied. The bank funding the deal will raise a series of red flags as well… the beginning of an uphill battle.

The fact that you did not file your taxes will be discovered at some point in the process of selling your business. This issue, as well as many others, comes up often. We can help you prepare for the sale of your business and you need to start now… it may take years of appropriate practices to make sure your business is as attractive and valuable as you think it is. Call us for a free consultation.

Too often, companies don’t celebrate their growth. We are growing and excited to have Jeff Wilson join our team as a Senior Broker. Jeff joined us at the beginning of August. Doug has known Jeff for more than ten years and they go to church together. Jeff has joked that it was a REALLY long interview process… It is nice to have a strong level of trust with our most recent broker addition. Trust drives our business at every level.

Jeff was previously the Director of Children’s Services at Leawood United Methodist Church. Prior to that, Jeff was doing sales in the music industry. He also had his Real Estate license in Kansas and Missouri. It is this wealth of experience that makes Jeff a perfect fit for the Apex team. If you have a chance, please welcome Jeff by phone at (913) 433-2316 or email at .