Archive for category: Must Knows About Business Sales

You will often hear us state in our blog articles Stephen Covey’s well-known maxim: “Begin with the end in mind.”  This very much applies to a Letter of Intent, and it’s one of the most important parts of a business sale.

It’s so important, in fact, that we’re doing a three-part series on it.  This article is going to focus on the purpose of the Letter of Intent, often referred to as the LOI.

What is it?

A LOI is essentially a “term sheet.”  It details a purchase price and any other terms or conditions that a buyer may stipulate in the purchase of your business.

Now, “Letter of Intent” does sound fancy, but there’s usually limited “legalese” in a LOI, and generally, it’s nonbinding.  This means that both the buyer and the seller retain the ability to walk from any deal should terms for a final closing not be agreed to.

Put another way, the LOI is a blueprint for the sale, so while it’s nonbinding, it’s a serious document.  Whatever appears in a LOI is generally considered to be a “good faith” negotiating point and if, as a seller, you don’t accept everything in the letter, you should definitely have it amended before signing it.

What’s the purpose of the LOI?

The LOI serves a purpose for both the buyer and the seller.  For the buyer, it provides exclusivity during a certain time period.  For the seller, the LOI is a serious and demonstrated interest in a purchase, and there is often a deposit that’s put down to accompany the LOI.  For both parties, it’s a prologue to a hopeful conclusion and gives the basic outline for the mountain of due diligence that awaits both of them.

Is there any reason you wouldn’t sign an LOI?

Simply put?  Yes, for the same reason you wouldn’t sell (remember, begin with the end in mind), namely, price and terms.

If you sign a LOI too early, before the buyer is better informed about your business, you may get a lower price and weaker terms.  They are building in risk into their offer.  Don’t be afraid to push back on a LOI, or counter with more information (like a certified valuation) which de-risks the business for them and indicates why you think the price and terms are too low.

You may also receive an “indication of interest” prior to an LOI with a valuation range.  In fact, if the buyer is aggressive and insistent on an early LOI, take a step back and be cautious.  Is this someone you will want to work with?

In the next part of this mini-series, we will examine the structure of a LOI.

Apex is actively looking for Advisors to join our team. If you or someone you know would like to learn more, contact Doug Hubler at or 913-433-2303

It’s time to start planning and budgeting for 2017 – and that includes tax strategies. While tax planning is one of the more confounding aspects of the business owner’s job, it also presents opportunities for improving your cash flow and profitability.

We ran across a good article on this topic and thought our readers would appreciate it, too. It covers some predictions for tax changes under the new federal administration, along with tips for maximizing your deductions – both personal and business. We hope you find it enlightening.

The article comes from HSMC Orizon, a CPA, business and technology consulting company. They have a lot of experience and a good handle on tax issues affecting business owners. We’ve networked personally with Chairman Gary Hawkins, CPA, CGMA.

One important tip on this topic: When working with your CPA on year-end wrap-up activities and planning for 2017, be honest. Disclose everything that’s going on in your business – both good and bad. Your CPA can be a strong partner in enhancing the value of your business and keeping your books straight. Both are important for ongoing management and will serve you well when you’re ready to sell.

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!

Post by Apex President and Business Broker Doug Hubler, Certified M&A Professional (CM&AP)

As a business owner, you may be tempted to avoid paying yourself a conventional salary. After all, payroll is an extra expense, right? Who needs those employment, Social Security and Medicare taxes? Plus, the bottom line will look a lot better if you don’t take a paycheck, correct?

Not exactly. I’d like to take a few minutes to bust those myths and ask you to consider the advantages of paying yourself a reasonable salary from your business.

1.You lose the opportunity for retirement savings and the associated tax deductions.

If you don’t take a paycheck, you can’t take advantage of tax deferred retirement plans such as deferred comp, 401(k) or SEP accounts. That means you miss out on saving for retirement.

Considering the power of compounding, skipping just a few years of retirement savings can put a big dent in your potential nest egg. Foregoing a paycheck and retirement savings also means you may actually pay more taxes.

2.Your Social Security payments will suffer.

If you don’t take a salary or take too little, you could be reducing the amount of your Social Security benefit. According to Investopedia, your benefit is based on your highest 35 years of earnings.

If you don’t record income for at least 35 years, the formula inserts $0.0 for the missing years and indexes your benefit accordingly.

3.You could run into problems with the IRS.
Paying yourself too little or not at all can also create problems with the IRS. The IRS expects you to pay yourself a reasonable salary for a person in your position. I’m a small business owner myself, so I understand how hard this decision can be.

I worked with my financial advisor, Joe Pribula at Wells Fargo, to come up with a salary amount that made sense given the needs of my business, my family and my retirement goals.

4.You skew your business valuation.
When you go to sell your business, your paycheck will factor into the company’s valuation. Most buyers will want to see how their personal income needs match with what the sellers’ salaries have been. And taking no salary or commingling your personal expenses with those of the business will confuse that picture significantly.

Buyers and their bankers won’t understand why a seller wasn’t able to pay himself a salary when the business shows a consistent profit. They will see red flags instead. Believe me, you don’t want to be going backwards and trying to correct or adjust your books when it’s time to sell.

If you’re not sure how much to pay yourself, you might want to consult with an accountant or a tax specialist. At the minimum, you’ll want to consider:

• Funding your own personal needs
• Maximizing your tax-deductible savings
• Keeping enough cash in the business to supply working capital for three months or more

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!

Post 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!

Post 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.

There’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?

Sales 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!