Cash is King and the King Likes Attention

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Cash IS KingEveryone knows that “Cash is King”, right? Cash is critical to a businesses’ survival. But unreported cash can be a problem for a business. There is a tendency for many business owners to hide cash, under report revenue, or exaggerate expenses in order to reduce their tax bill (illegally). Two obvious downsides to doing this, besides facing an IRS audit, are:

  • If the owner needs a loan to cover receivables, inventory, or expansion, it is likely the bank will turn down the loan application or not offer as much as the owner needs because the business will look “weaker” than it should. We have also seen banks call outstanding notes based on poor financial reports. It doesn’t matter if the customer is making all their payments, if the bank thinks there is something wrong with the business, they will ask the business to find a new bank. It happens!
  • The other major impact of under-reporting financial results is that the value of the business becomes greatly diminished. If an owner tries to sell their business with hidden cash, inflated expenses, and unreported revenue, buyers become very skeptical, and banks will only base their loan approval on the tax returns of the business the buyer is pursuing. So a potentially strong business becomes much less desirable in the marketplace, the price has to drop, and the seller may need to finance the sale!

It takes several years to clean up the books to improve the business value. That’s great if you have the time and there are no emergencies. But “things” happen and a business owner should be prepared.

If you want some great advice about how to get the most for your business, talk to one of our experienced Apex Business Advisors.

Doug Hubler
President

Planning for Your Next Stage

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Kick in the buttThe act of “Planning” can conjure up some dread: thoughts of hard work, long meetings, limited results, and risk of missing goals. I guess that’s why so many business owners never put a plan in place for either building a business or exiting a business.

I found a great article that gets to the real importance of having a plan and how it will absolutely impact your next phase of life. And if you are in your 30’s, 40’s, or 50’s and believe you don’t need to think about it right now, kick yourself in the butt for me!

Read about planning for your next phase and call your financial advisor. If they have never asked you about the value of your business and, more importantly, how you calculated that value…find a new financial advisor.

Contact your Apex Business Advisor today for more tips on buying or selling a business.

Doug Hubler
President

Planning Ahead for Higher Value

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RewardJustAheadSmall business thinking leads to small business value. Thinking as a big company will likely lead to an increase in value. Some simple things to implement now, long before you are even considering selling, that can tremendously impact the value and marketability of your business include:

  • Financial record keeping. Quit using the company checkbook as a guide to financial health and analysis! Implement and utilize a consistent and intuitive bookkeeping system such as QuickBooks.  Clean books are essential to calculating value.
  • Management team/delegation. While an owner who does everything and puts in a 60 or 70 hour work week may save on overhead, a buyer will recognize this as a deficiency and will reduce their offer based on their perceived personnel needs. Make a move to add necessary staff now, delegate your workload, and shift your focus to working on the business.
  • Sales staff. Same as above. If the owner is the main sales person, a buyer will perceive a huge risk of losing clients in a transition.
  • Web presence. Seriously, no website?
  • Customer concentration. If only a few customers make up a large portion of the business volume, regardless of the margins, buyers will mitigate their risk of losing key customers by simply paying less for the company.
  • Separation of personal and business expenses. Stop paying personal expenses out of the business checkbook. Treating the business as a personal slush fund significantly complicates a buyer’s verification of business profitability. And reporting $5,000 in personal expenses on your business tax return may save you $1,500 in taxes, but it just nicked business value by about $15,000 or $20,000.
  • Seller Motivation. The business owner needs to be committed to the selling process. A “throw it out there for an outrageous price and let’s see what happens” mentality results in fewer interested buyers and in a final selling price that is lower than if the business had been priced and marketed appropriately from the start. Business owners should demonstrate to buyers that they are serious about smoothly transitioning their business by setting a reasonable asking price, providing accurate information, and responding expediently to questions and requests. Buyers will respond favorably.

These simple steps implemented long before the selling process begins can have a strong impact on business marketability and value. Which of these will you begin to implement right now?

Talk to your Apex Business Advisor for a free review of your business value and market “readiness”.

Doug Hubler
President

When is the Right Time to Sell?

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timetosellKnowing the best time to sell can be a real challenge.

The absolute best time to sell is when you don’t have to sell. Meaning that business is booming, the market or industry is strong, you are healthy, you have a wonderful marriage,  and you still enjoy going to the office. (Sounds like rainbows and butterflies.) You and your business are successful, and you are in an absolute position of strength! The value of the business is probably at its highest point, or “Apex”.

But having all these variables at their best at the same time is fairly rare. So if things aren’t perfect, when should you consider selling?

It depends. Much like trying to time the stock market for the optimal moment to buy or sell, it doesn’t usually work too well. Instead, focus on the facts and try to leave the emotions out of your decision. You should seek advice from your trusted professionals or peers who will best understand your situation.

In general, if you aren’t at the peak of business success, it is best to start the selling process when:

  • you don’t have the capital to invest in growing the business
  • you feel your energy level to operate the business is decreasing,
  • your excitement is waning,
  • you are feeling stagnant,
  • you are not sure what else you can do for the business,
  • or if you think your skill level is falling short of the needs of the business.

However, to get the highest value for your business, it could take several years of planning and preparation. So start the process while things are going well!

Talk to an Apex  Business Advisor about your situation to determine the right time to sell  your business.

Our next Buyer Seminar will be held on March 25th. We will be discussing the Buyer Search Program. Keep an eye open for registration information.

Doug Hubler
President

Year-End Planning

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celebrationtimeSounds boring right? If you made it this far, thank you. Keep reading.

For business owners there is a fair amount of planning that goes into finishing up the year and preparing for next year.  Year-end expense adjustments and tax planning can consume a ton of time. But I don’t want to talk about that.

We really need to take some time for celebration. I have to admit that I am not known for over-celebrating (note of sarcasm). I tend to look for the next deal, meeting, connection, or activity of interest. It can be hard for us to take the time to appreciate the successes and let people know that they are important to our businesses and our lives.

It’s been a great year for Apex and for many of our partners and clients. I first want to thank my fantastic team at Apex! There is not a better team anywhere. They work hard, in a very stressful environment to help our clients and customers be successful.

To all of our professional friends who make it possible to get deals done: the attorneys, accountants, and bankers (you know who you are), Thank You!

Of course, I want to thank our clients and customers for the trust they’ve had in us over this past year and we look forward to a fruitful 2015!

Doug Hubler
President

Raising the Price After an Offer

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Bang HeadNumber One Way to kill any deal? Raise your price after receiving a full-price offer! (Bang head on wall now.)

Fortunately, this doesn’t happen frequently, but I’m afraid it does occur. We spend quite a bit of time establishing a business value with the seller, and then publishing the price in the marketplace. We have also spent years developing a database of ready and willing buyers, so when there is quick interest in a new business for sale, it’s not because the business is priced too low.

Emotions can take over and beat common sense out of just about anyone, and this is a perfect example of emotions taking the lead over logic. Whenever this situation occurs, the buyer interest completely dries up. Buyers can be waiting for months for the right deal to pop up, and when they find out the price just increased because they had interest, they get a little “aggravated”. The buyer (and broker) then question the seller’s motivation and wonder how difficult a transaction is going to be with the one-time-seller.

If you are a seller, remember, buying a business is a difficult and stressful process. A buyer will be looking for a good business with a seller they can trust and who will assist them in a smooth transition, improving their chance for success.

We love to assist sellers and buyers especially when they listen to their Apex Business Advisor!  We’ve done this a bazillion times!

Doug Hubler
President

Do Not Change Business Model While Selling

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SuccessAheadWhen selling a business, it is important to keep the attributes that made the business successful in the first place intact.  It is not the time to cut marketing and sales efforts to save money or decide to semi-retire, change employee pay plans, or stop paying bills. Sometimes sellers think they are safe making these alterations after an offer has been accepted, forgetting that a closing may be months away or that a deal can collapse when revenues suddenly drop or fixed expenses change significantly.

Businesses are typically priced based upon the net owner benefit that the business provides.  Both the buyer and lending institution want to be comfortable that the historical net owner benefit can continue after transition.  As such, they will ask for current financials just prior to closing to ensure that there have been no significant changes to the net owner benefit.

Recently, when reviewing a client’s financials, we noticed that various projections were not being met. Revenues were off slightly, but expenses had dropped fairly dramatically. Well, the seller explained that he had stopped his marketing and advertising several months ago. Revenues for future orders were being represented as income, but none of the offsetting direct expenses were being shown.  The reality was that backlog had decreased substantially. This caused several interested buyers to walk away.

To ensure you get full value for your business, you should contact your Apex Business Advisor for expert advice.

Doug Hubler
President

Open Book by seller greatly improves the odds of a win-win

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EasyHardWe have buyers jumping through hoops to get good businesses! So when they jump through hoops, there is an expectation that the business “seller” is ready to jump too.

The business owner has the ability to make the process super easy or extremely difficult. Generally speaking, how the owner conducts business will translate to the ease or difficulty of the transaction.

  • Are the sellers open and honest with employees, advisors, and the IRS, or do they keep their cards “close to the vest”?
  • Are the books clean, or do they have multiple versions of questionable financials?
  • Are there operations manuals or does the owner orchestrate all activity and have it all organized in their head?
  • Are the partners in agreement regarding goals and strategy or are partners sending differing messages during interviews with advisors and potential buyers?
  • Are the sellers able to meet and communicate during extended business hours or only on Sunday evening between 6:30 and 8pm (for example)?
  • Is the seller responsive to questions or do they seem put out and delay communication?

The process of buying and selling businesses is not easy, but it can be made easier if it is approached correctly. Open communication with advisors and potential buyers is critical to smooth transitions. Eliminate surprises!  Contact an Apex Business Advisor for more information on buying or selling a business.

Doug Hubler
President

Cash Is King

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CashKingBusinesses large and small depend on cash. Cash is the main measuring tool of financial stability and health. Cash production is also the main element in most business valuations. Wealth Advisors will analyze cash on the balance sheets of publicly traded companies to help make investment decisions. Cash is King! Small companies also have advisors who will focus their efforts on calculating cash balances, cash used, and cash generated by the business.

It’s very important to listen to the advisors, such as CPAs because they have experience in dealing with cash crunches and how to avoid them. Cash is critical to support businesses in good times and bad. When times are good, cash is required to build inventory, buy equipment, pay suppliers, and pay employees, etc, etc. When times are bad, cash is still required to operate the machines, maintain inventory levels, and keep the doors open.

Too often, cash balances are used to pay for boats, cars, and other fun stuff that does not support business operations. Owners can get too complacent and spend versus preserve. Of course, business ownership is a terrific way to build wealth, but keeping it is very important too!

Contact an Apex Business Advisor to assist in the sale or purchase of a business.

Doug Hubler
President

Seller Preparation

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money trailOver the years we’ve talked about the need to have some sale pre-planning to improve the position of the company and increase its value. There are numerous variables that need to be addressed and an owner may have to modify how they operate their business in order to reap large rewards.

Another critical aspect of selling a business is preparing for a buyer’s due diligence process. Many deals collapse when problems arise during the review of financial statements. A buyer, and probably their accountant, will spend quite a bit of time analyzing the financial statements and tax returns to validate stated income and cash flow.

Clean and clear financial statements that conform to GAAP standards and tie to tax returns are critical to the success of a deal. Having the ability to run monthly, quarterly, and annual reports give some comfort to a buyer, but they need to hold up to scrutiny too. Explaining the basics of the financial reporting to a buyer or having the company’s accountant available to answer questions is a must.

A seller needs to keep in mind that a buyer may believe the cash flow is there and can follow the trail of money, but if it isn’t reported clearly and correctly, or if there are too many inconsistencies, the buyer’s bank will most likely turn down the buyer’s loan application. Lack of preparation hurts the seller in several ways:

  • extra time and effort in explaining the money trail which leads to time not spent on the business,
  • time wasted with a buyer and waiting for bank decision,
  • perception of other buyers who think that there is something wrong with the business when it becomes available again,
  • downward pressure on price,
  • and, maximum stress on all involved!

Please consult with an Apex Business Advisor about what it takes to sell a business for maximum value in less time.

Doug Hubler
President