Nearly Every Offer You Receive Is Worth Considering

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offerPost by Business Broker Jay Lehenbauer, Certified Business Intermediary (CBI), and Apex President and Business Broker Doug Hubler, Certified M&A Professional (CM&AP)

When you’re ready to sell your business, you may feel like you’re putting your very self out to bid. So it’s natural to feel offended if a buyer submits an offer that shows he doesn’t value your business as highly as you do. But we’d like to help you see that nearly every offer you receive is worth considering.

Remember, most buyers are feeling pretty vulnerable, too. Many are putting their life savings on the line to buy your business.

First of all, you need to trust your broker to price your business competitively and only bring you deals that are worth considering. We rarely meet buyers who are trying to take advantage of a seller. If we do, we probably won’t even ask you to consider the offer. Remember, we represent you as the seller, so we always keep your best interest in mind.

As a general rule, we won’t consider an offer that’s less than 75% of the asking price. That’s a simple matter of our credibility and trustworthiness. If we do get a serious offer under that threshold, we might do some research to find out where the potential buyer is coming from. Does she know something about the business that we failed to uncover during our due diligence? That’s rare, but we do try to consider all the possibilities.

Low Offers May Have Merit
So, what happens if you get an offer that’s within 25% of your asking price, but it still feels too low? Here are some ways to consider it:

  1. How long has the business been on the market, and how quickly do you need to get out? If you’ve been on the market for more than a year, you might consider taking a lower offer.
  2. What can you do to lower the price? For example, can you remove some assets – such as older inventory or equipment – and sell them separately?
  3. What elements of the deal can you negotiate? Financing part of the purchase for the buyer may get you a better price, but bank financing and cash at closing may be more appealing.

Walking Away Can Be Dangerous
Several years ago, we were working with a seller whose asking price was $1.8 million. He was offended by a solid offer for $1.2 million and turned it down. Six months later, he shuttered the business. He would have been lucky at that point to get $100,000 for the inventory.

Another client priced his medical services business at $15 million and walked away from multiple early offers in the $11 million to $12 million range. A few years later, he sold for just $4 million.

Compromising May Work
Recently, we were helping a seller who wanted $1.1 million for his business and real estate. After two and a-half years on the market, the best bid he got was $400,000. He desperately needed to pay the bank and settle some other debts, so we all worked together and got creative. The buyer, the seller, the bank and Apex all gave a bit to make the deal work. And the proof is in the pudding. We’re still friends with the buyer and the seller today. The buyer has approached us about additional deals, and the seller has given us two referrals.

Keep the Lines of Communication Open
We often talk about the importance of building trusting relationships among the buyer, the seller and the broker. Some tips for successful negotiation:

  • This is a business transaction; try not to get emotional or take things too personally.
  • Even if you get upset, keep the lines of communication open.
  • Discuss every offer and consider why it was made the way it was.
  • Finally, be sure to have difficult conversations face to face or at least by phone. Email and texting can quickly send you down the path of misinterpretation.

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

5 Ways to Ruin the Value of Your Business

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Summer time is vacation time for many of us. But some business owners rarely take time off. Others go on vacation but call it a business trip and expense it to their company. As it turns out, your decisions about vacation can ruin the value of your business, making it very hard to sell for a fair price.

piggy bank1.Exaggerating expenses. Are you using your business as a piggy bank? We often see business owners writing off their family trips as a business expense. That’s one way to fund a trip you can’t afford and get a tax write-off, too.

But this type of practice can get you in trouble, inflating the expenses that show up on your P&L and reducing the net income of the business, making your performance look less than ideal.

When bankers consider your business for a line of credit or a loan, they have to look at the numbers on your tax returns; they can’t consider the back-story you provide. If you’re charging personal costs to the business, your expenses will look higher and your margins will appear lower than those of your competitors. This kind of practice can even force a banker to call an existing loan. We’ve seen it happen.

Excessive personal expenses made one client’s P&L look so bad that we couldn’t advertise his business for the price we needed. Now, he’s trying to go back and amend his books to show the actual expense figures. But his accountant is concerned the changes will inspire an audit. That’s not a good place to be when you’re looking to sell.

2.Not recognizing revenue to delay taxes. Have you ever gotten a chunk of revenue toward the end of the year and been tempted to report it the next year to delay the taxes? That’s another good way to ruin the value of your business.

We had one client who moved a large payment from December to the next January. He definitely dodged some taxes for the current year. But that move threw off his financials, reducing the value of the business by $2 million. To make matters worse, he did this while a buyer was in discussions with him and the buyer had to reduce the amount he was willing to pay!

customer3.Concentrating on only a few customers. Having a large customer or two can give you a great short-term advantage, but it also presents a huge risk for a buyer. You may be allowing one or two customers to overly influence your business decisions.

And the loss of just one customer could ruin your value. As a rule, it’s best not to allow any one customer to represent more than 25% of your revenue.

4.Skipping vacation. Do you find it impossible to take a real vacation from your work? Would the company fall apart if you weren’t there? These are signs your business is overly dependent on you – which means you’ll have a hard time selling it. When your success is too closely tied to one individual, it’s tough for someone else to take over.

If you’re controlling most of the client relationships or your skills are the primary ones driving the business, you need to start delegating responsibility. A business whose owner never goes on vacation isn’t attractive to a potential buyer – not just because of the lifestyle factor but also because of the vulnerability.

5.Having no marketing presence: You don’t have to be a social media maven to manage your basic marketing presence. But you do need a visible, up-to-date website. Potential buyers want to be able to verify your public presence and do a little research on you. If they can’t find your website or your LinkedIn profile, they’ll wonder if you’re hiding something.

All these factors affect your ability to build trust with a potential buyer. One or any combinations of these mistakes can make a buyer question the long term viability of the business and whether the business will provide a reasonable return. Owners need to focus on both the price of the business and the marketability of the business. To get a better price, the business needs to be widely attractive. 

If these value-reducing practices look familiar, now’s the time to begin reversing them. Making some changes will boost the value of your business – and maybe even let you schedule a little R&R!

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

6 Critical Factors That Make Businesses More (or Less) Attractive To Buyers

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Valerie VaughnPost by Valerie L. Vaughn, Certified M&A Professional (CM&AP) | Certified Business Intermediary (CBI) | Business Broker

Six factors can make the difference between selling at a premium—or a discount.

If you’ve decided to sell your business now or in the next few years, you might stop and ask yourself if anyone will want to buy your business. Seriously.

Is your business going to be attractive to buyers? Will they value it as highly as you do? Is your baby ugly to everyone but you, or could it win a Beautiful Baby contest?

Business owners are frequently unaware of what buyers value and are surprised when they go to sell and learn that their business isn’t ready or won’t bring the price they want. If you want to maximize value, then plan to sell. Few businesses are ready without preparation.

Here’s a checklist of six key value drivers that make businesses more or less attractive to buyers. They make the difference between selling at a premium or a discount. How does your business measure up?

Management and key people. Owner-centric businesses are more difficult to sell. Buyers prefer strong management teams or the next level of key employees to already be in place. Can you leave the business for extended periods of time without worrying that it will go off track? If your answer is anything but “yes,” it’s time for a change. Your employees can add value to your business. Are you treating them well and developing them appropriately?

Customer concentration. Most buyers want to see a diverse customer base rather than a concentration of revenue from one or a handful of customers. What percentage of annual sales is attributable to your largest customer? Your largest five customers? For most industries, no one customer should represent more than 10 percent of revenue.

ThinkingBiggerThere’s still time to register online!

Systems and procedures. Buyers like to see systems and procedures that make the business easier to manage and transition. This includes manual, automated and information technology-based systems and procedures. Do you have written policies and procedures in place? Are employee roles and responsibilities defined in writing? Is your company’s information technology up to date?

sell a businessSales and marketing. Sales and marketing should be delegated or outsourced and not dependent solely on the owner or founder. If you are still the face of the company and hold most or all of the customer relationships, this is an area that needs some work.

Financial record keeping. Clear and accurate financials accurately tied to tax returns add value to a business. No kidding, folks—this one is really key. You can’t tell Uncle Sam that your business isn’t profitable or just barely breaks even and then expect a buyer to trust you that it’s truly very profitable. No earnings, no value.

Revenue and earnings trends. Buyers and banks that finance buyers focus on historical trends over a three- to five-year period; increasing trends are obviously best. If revenue and earnings are in decline, you still might be able to sell the business, but be prepared for a smaller pool of interested buyers. Be able to explain the downward trends, and know that your business will likely sell at a discounted price.

If you haven’t already begun, start to look at your business through the eyes of a prospective buyer. Run a SWOT analysis and work to strengthen your weaknesses and develop barriers to threats. Preserve your strengths and position yourself for opportunity.

With a little forward planning, you can significantly increase the value of your business and the odds of a successful sale. If you aren’t sure how to start, connect to a knowledgeable business intermediary.

Valerie L. Vaughn is a certified business intermediary and a certified mergers and acquisitions professional with Apex Business Advisors. If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

Spring Cleaning: 4 Quick Ways to Ready Your Business for Sale in 2016

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Are you starting to think about selling your business? Maybe you’re hoping 2016 is the year to make it happen. If so, there’s no time like now to get started on the process. Here are four things you can do to get started.

  1. Spiff yourself up.
    If you’re selling a home, you think about curb appeal, right? If it doesn’t look good from the outside, you won’t attract any buyers. So you might give the front a fresh coat of paint, hang a wreath on the door and trim up the yard.You need to do the same for your business. How’s your website looking? What’s your social media presence? Does your location look nice from the street? If you don’t provide a positive first impression, you could turn a potential buyer off before he has a chance to look inside.
  2. clean upReport your revenue and expenses accurately.
    Some small business owners under report revenue or inflate expenses to improve their tax situation. Those practices may save $5,000 or $10,000 in the short run, but they could affect the business value by $90,000 to $120,000.We talked with a seller the other day who was under-reporting revenue by $150,000 to $200,000 a year and was hoping to sell for around $3 million. We’ll be surprised if the seller is able to sell at all, given the inaccuracy of the books.
  3. Clean up your assets.
    Do you have equipment or other assets that don’t work or aren’t providing value to your business today?If so, sell them off before looking for a buyer. Streamlining your business will help buyers understand what’s really necessary to operate.
  4. Engage an advisor.
    Advisors typically charge just 10% of the deal, and they can vastly improve what you earn on your business. We recently talked to an owner who was so concerned about the cost of an advisor that he literally gave away a business and real estate worth $350,000!He left $315,000 on the table based simply on his fear of paying too much for help. Any advisor worth his or her salt will make the terms of the deal clear from the beginning, so you can make an informed decision about whether to engage.

We often talk to sellers who think they’re ready but who are missing these important basics. When that happens, it can take several months to straighten out.

Best of luck with your spring cleaning and tax reporting!

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

Smart Business: Why You Need A Broker When You’re Selling

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meetingThere are many reasons to use a professional Business Advisor/Broker such as Apex Business Advisors. Here are a few (in no particular order of importance):

  • We sell lots of businesses and that’s all we do.
  • Sellers typically will sell one business in their lifetime and often make a mess of it on their own.
  • We know the right professionals to bring to the transaction to ensure a smooth closing, such as attorneys and accountants.
  • We expand the market and make the market for your business. Maximum exposure while maintaining confidentiality.
  • The seller needs to run the business and not spend time dealing with “tire kickers” on Craigslist or from other advertised sites who aren’t serious buyers.
  • We know the pitfalls and the warning signs in deals and can help steer around them.
  • We understand the market and what drives business value and will give you a really good handle on your true business value. It’s an art and it takes many years of experience to master.
  • We bring buyers who are serious and qualified from all over the world. Buyers are already in our network and waiting for the right business.
  • We have great relationships with the banks who can make the deal happen.
  • A seller needs a facilitator or a filter to handle the buyer and the process.
  • It’s better to use a broker to assist in the negotiation, keep relationships strong and maintain professionalism throughout the process.

These are just a few of the reasons why having a professional Business Advisor/Broker in your corner is just smart business when you’re looking to sell. To learn more, give us a call at (913) 383-2671.

Guest Post: Shawn Kinkade…Grow Faster by Slowing Down

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We read the following article recently and it really brought some things to light that we’ve talked about for a long time. But Shawn Kinkade of AspireKC stated it so well that I wanted to share it on our blog and with our readers (with his permission, of course).

Shawn has been my business coach for years. I highly recommend working with a business coach (and I’m happy to introduce you to Shawn if you’re looking for one of the best), especially if you’re a know-it-all who doesn’t realize yet that you don’t know it all.

The key to having a successful, growing, and viable business long term is getting help, delegating, and being aware of the ever-changing world. Taking it all on yourself is a recipe for disaster…or at least getting really tired and burnt out. I hope you enjoy Shawn’s article as much as we did…It originally appeared in in Thinking Bigger magazine.

Grow Faster by Slowing Down

Shawn Kinkadeby Shawn Kinkade

November 1, 2015

Working too hard is killing your business.

You’ve owned your business for a while now. You provide a product or service that people need or want, and you do a good job of it. How do I know this? Because you’re still in business. Business owners who don’t offer a great product or service don’t make it very long.

But your company feels like it’s stalling a bit. You’re still really busy—in fact, you’re probably busier than you’ve ever been. But growth, in both top-line revenue and profit, has been really hard to come by. There’s a reason for that stall. It’s counterintuitive, and you’re not going to believe me initially, but it’s true.

You’re working too hard.

The American Dream is founded on hard work, and you strongly (and correctly) believe that if you want to get ahead, you have to work for it. However, once your business is established and has success, the path to the next level of growth requires a different approach. You still need hard work, but as the owner, you have to stop doing all the day-to-day stuff. You have to let go—at least a bit.

Here are the top three reasons you should be working less.

AspireKCThere Are Only 24 Hours in a Day

You’re really good at whatever it is that you do. You may be better at that than anyone you know. But once you’re working a full schedule, there’s no room for any more growth. It’s simple math: If you want more business, then you must get other people to do that critical work. If that’s not possible, then you can’t grow.

The good news is that it’s possible to find other people to do that work. Maybe not quite as well as you can do it, but close enough.

Your job as the business owner is (eventually) to teach others how to add that value that you’ve been adding—not to deliver it yourself, but to teach others.

See the Forest, Not Just the Trees

The world is changing fast these days, and your industry is different from even just five years ago. Social media, marketing, sales, technology—all these things are evolving very quickly, and they all have an impact on business.

If you’re working too hard in your business, then you haven’t had any time to spare to think about the big picture and what needs to be done to work on your business. As the business owner, your primary job is looking at what’s going on in the world and adapting your business to all those changes. That’s not just a survival technique. It’s also the best way to uncover great new growth opportunities.

You’re Getting Tired

When you started your business, you weren’t thinking about how excited you would be working 60 to 70 hours a week with no end in sight. Or about not having the option to take a vacation or spend time with your family or friends.

You’re all about hard work. That’s why your business is successful in the first place. But no one can sustain that kind of pace for a long time without complications. Best case, you get burned out, you start going through the motions and you get really resentful about your business. Worst case, you end up with health issues, and you reach a point where you physically can’t do the work that’s needed.

It’s okay to work smarter rather than harder. In fact, if you want to grow your business, you’re going to have to do that. Remember, if the business owner isn’t excited about the business and where it’s headed, then no one else will be either. And you can’t be excited and focused if you’re tired and distracted.

Where Do You Go From Here?

If you’re like most business owners, your initial thought is that you can’t afford to slow down. The reality is if you want to grow, you’re going to have to. You have to build a leadership team (not all at once, but over time) that can truly own most of the day-to-day responsibilities of the business. You have to find a way to get yourself out of the value chain, because that’s the only way to find the time to figure out how to continue to improve the business.

It’s not easy, which is why there aren’t more really successful businesses, but it can be done if you make it your priority.

Ferris Bueller once famously said, “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.” He wasn’t explicitly talking to business owners, but he makes a great point.

Your business exists to get you what you want out of life. Is that currently happening with your business? If not, what can you do about it?

(Shawn Kinkade is a licensed professional business coach and owner of Aspire Business Development, helping business owners and entrepreneurs grow strategically through focus, clarity and momentum. (913) 660-9400 // // www.aspirekc.com)

Your Business Is Only As Good As Your Team

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teamThe last couple of months have been really challenging with getting two kids off to college, selling a house, buying a complete gut job house, planning an Apex sales award vacation for 7 couples, working on my deals, and operating a business with 12 other brokers.

Needless to say, there’s no way I would be able to do this without a great team behind me!

Owning a successful business will always have its challenges. Building an organization that can operate without the owner is critical to ongoing and long-term success.

I’m a firm believer that every company should have a good office manager (we love our very own Christi Hancock) to keep things running smoothly.

In fact, one of the critical aspects of assessing the value of any business and its marketability are the capabilities of the existing staff, how much responsibility they have, and understanding the owner’s role and responsibilities.

I don’t plan to sell my business anytime soon. Many entrepreneurs don’t. But what if there was an immediate need to sell due to unexpected health issues? What if I had an opportunity to move to Belize?

No matter the scenario…smart business owners regularly plan for the “What If” moments. And having a great team in place makes those “What If” moments much more manageable.  

Additionally, every business owner should regularly manage their business in a way that would be attractive to potential buyers.

The more the business relies on the owner, the more difficult it is to sell. And ultimately that impacts the sales price.

I’m very thankful to have a great team at Apex. They don’t need me to hold their hands and make decisions for them. Everyone has the same goal and common interest in helping our clients to get their deals done.

That’s why we’re here. As individuals. And as a team.

Post written by Doug Hubler, President, Apex Business Advisors

Improving Your Options and Your Odds – Part Three of Three

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signingIn Parts One (See Link to Part One) and Two (See Link to Part Two) of this blog series, we explored the importance to the business owner of maximizing both the quantity and quality of the buyer pool for their business.  Below is a real life example of how implementation of these concepts culminated into a successful transaction.

We recently sold a manufacturing company that catered to a very niche market.  The company had a number of very positive attributes, including a tremendous growth trend and limited competition.  However, the majority of the company’s revenue was produced by three main customers.  Most business buyers would deem this to be too risky.  If the seller had required us to identify a buyer before providing us with critical information, odds are that the one buyer would not have proceeded once the customer concentration was revealed, leaving the seller frustrated that we were unable to present him with an offer from the buyer but also unaware that his expectations were nearly impossible for us to meet.

Fortunately, the seller provided us full access to information and engaged us to take the business to market.  We wrote a “blind teaser” that did not include the name of the business or other confidential information, but provided basic high-level financial information and highlighted the business’s positive attributes, its challenges, and the seller’s preferred exit strategy.  This was distributed to a large network of potential buyers, which quickly led to further inquiries from a number of buyers who found the business to be attractive, warts and all, because it was synergistic with their other business interests.

After signing appropriate non-disclosures, interested buyers received additional information and entered into discussions with the seller.  Within a month of putting the business on the market, the seller had selected his buyer from the six parties who submitted offers.  The terms of the accepted offer were very much in line with the seller’s preferred exit strategy and expectations, and due diligence proceeded fairly seamlessly, since the challenges had been disclosed up front.  The transaction closed approximately two months after the offer had been accepted.

What’s the moral of the story?  To optimize the best price and deal terms for your business, don’t limit your options to one buyer.  Rather, provide full information on both the attributes and challenges of your business.  Then let your Apex Business Advisor market the business in a manner that will create a buyer pool of the best and most motivated buyers for your business.

Anita Lieser
Senior Advisor

Improving Your Options and Your Odds – Part Two of Three

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2of3In Part One (See Link to Part One), we discussed the impact on price, terms, and expediency of having multiple buyers simultaneously interested in a business.  Dissemination of information about the business to potential buyers was mentioned as part of the process to entice the largest quantity buyers.  But this information isn’t intended to only produce the most buyers.  Its purpose is also to bring forward the best buyers.

Disclosing information up front to improve the quality of buyers and of offers

In the real estate scenario presented in Part One, one could hardly expect a home buyer to submit an offer on a house without knowledge of some key pieces of information such as location, the number of bed and bathrooms, or the seller’s price expectations.  However, we could provide countless examples of business owners who tell us that they would like to sell their business, but who want us to present them with a buyer before they provide relevant information about the business.

Lack of information significantly handicaps our ability to match the business to the buyers for whom the business would be the best fit.  Though the business website might give some indication of what the company does, it is nearly impossible to determine which buyers might find it most attractive without details about the business operations, financial history, and anticipated price.  It is extremely difficult to get a buyer to spend time and effort considering a transaction, much less making an offer on one, when they have no idea whether the business meets any of their needs and criteria and when the business owner’s motivation might be perceived as questionable.  And if forced to make an offer prior to knowing these details, the buyer’s offer is likely to be lower to accommodate for the unknown and is very likely to be modified or withdrawn as details are disclosed during due diligence.

In order for an Apex Business Advisor to bring forward the best buyers for a business, the Advisor must gain significant insight into many aspects of the business.  This allows the Advisor to present the business to potential buyers in a way that best highlights its attributes and puts its challenges into perspective.  Buyers are then able to make a much more informed decision about whether the business matches their business-buying requirements.

A buyer’s conclusion that a business is a good fit for them can positively impact the buyer’s offer price, excitement, motivation, and sense of urgency.  An informed buyer’s offer also stands a much greater probability of surviving the due diligence process, as the opportunity for the buyer to uncover “surprises” has been significantly diminished.  Now that we’ve defined the importance to the business owner of maximizing both the quantity and quality of the buyer pool and strategies for accomplishing this, in Part 3, we’ll discuss a real life example of how this resulted in a transaction that was beneficial to both the buyer and the seller.

Contact Apex Business Advisors for more information on our procedures for identifying the best buyers for your business.

Anita Lieser
Senior Advisor

Improving Your Options and Your Odds – Part One of Three

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1 of 3“Hi Joanne. This is Denise. I understand that you might be interested in selling your home. I can help you with that,” said the Realtor when the homeowner answered the phone.

“Great! I am interested in selling,” Joanne replied. However, when Denise began to ask for more information, such as the price, address, square footage, and number of bedrooms, Joanne quickly cut her off. “I don’t want to put it on the market, but if you have a serious buyer, I’ll give you my address and more details about the house once you bring me an offer,” she said.

Denise quickly realized that Joanne had created challenges that would likely mean that she would not receive the highest price and best terms for her house. These included:

1.    Limiting the quantity in the buyer pool
2.    Expecting offers prior to disclosing information

At Apex, it is not unusual for us to have a similar conversation with a business owner who communicates a desire to sell but unknowingly creates these same obstacles. Parts One and Two in this series of blogs will address these barriers. Part Three will detail a recent success story that highlights how smoothly the transaction process can and should work when the business owner and their Apex Business Advisor work in tandem towards the same goal.

Expanding the buyer pool to improve the quantity of buyers
Simultaneous interest from multiple parties is critical to obtaining the best price and terms and to moving the transaction forward at the most expedient pace. Business owners who limit brokers to one specific buyer or who only entertain the random buyer or two who approach them directly are undermining the process that would render them the highest price, as this creates no sense of urgency or concern of competition for the buyer.

A business is of the greatest value to buyers for whom it most closely aligns with their buying criteria. Taking a proactive approach by allowing your Apex Business Advisor to concurrently present basic non-confidential information to a vast number of potential buyers can create immediate traffic on the business and a sense of urgency among buyers. The buyers for whom the business is the best fit and who are most motivated will quickly rise to the occasion.

Contact your Apex Business Advisor to further discuss our processes for maximizing the quantity of potential buyers for your business.

Anita Lieser
Senior Advisor