The International Business Broker Association (IBBA) and M&A Source, in a partnership with Pepperdine University, have released survey results that concern businesses listed for sale and sold during the 2nd quarter of 2014, and the findings give current and future sellers insight into the current state of the market, as well as what they can do to increase their chances of a successful sale.
For most small business owners, the data of greatest interest would be defined as "Main Street", or businesses with a value of up to $2 million.
For most small business sectors, the EBITDA Multiple (the estimate valuation of a business) increases with the size of the business. Very simply, the larger you grow your business the larger it's value will become to a buyer.
For businesses that have a valuation lower than $5 million, seller financing is still the king, Nearly one out of five businesses in the $500,000 to $1 million price range required some type of seller financing as part of the deal.
Another creative deal structure? The earn-out, where a seller and buyer bridge the valuation gap in a fast-growing business, although for smaller businesses valued at less than $5 million, this type of deal structure is uncommon.
For businesses that fell the less than $1 million category, first time buyers dominated the market, outnumbering any other type of buyer in the second quarter. The prevalence of first time buyers can create a challenge for business sellers because most new buyers don't have a clear understanding of how to read business financial statements or how to understand recasted numbers that make adjustments for things like personal expenses.
To avoid any confusion or the appearance of "cooking the books", streamline your financials before you list your business. Remove your personal expenses, make sure your payroll includes all key employees (including you) and have your business broker help you recast and organize your financial records and other pertinent documents. This way any first time buyer can clearly see what they are buying.
Unclear and unorganized financial records weren't the only downfalls of the 78% of deals that ended without closing in the second quarter of 2014.
The other biggest mistakes sellers made were setting unrealistic expectations, letting business sales decline, waiting too long to list the business and letting emotional ties to the business hold them back.
If you are trying to sell your business, it can be very easy to demand a high price and an all-cash offer, but the reality of the market is your business is only worth what someone is willing to pay – and the vast majority of deals come with at least some seller financing. By having realistic goals in place from the start, you can avoid getting hung up on expectations that will never be realized.
Another big mistake involves mentally checking out the moment your business is listed, typically causing falling numbers and a corresponding decrease in your valuation. It can take 9 to 12 months to sell a business, so if you want to get the best return on your investment, the time between listing and selling is when your business needs you the most.
If you are waiting for the perfect time to sell your business, now may be the time. The rebounding economy has buyer confidence up, and the wave of baby boomer retirees has yet to flood the market with other businesses for sale. Waiting too long may mean you enter the market when there are more sellers than buyers, so get out in front of the wave now.
The last pitfall, emotional ties, can be one of the most difficult to overcome. Your business is your baby, but to a prospective buyer it is nothing more than a potential investment opportunity. By seeing your transaction from the buyer's side, you will be less likely to be offended by low offers, renegotiations and the like.
If you are a business seller – the market looks good. Avoid the most common pitfalls and you could be well on your way to a successful sale.
The ultimate goal for many immigrants is permanent residency via the Green Card. The question is: how does one achieve this goal?
The most common answer to this question is by marriage. Marriage to a U.S. Citizen certainly is an option, but it must be a real marriage.
Married couples who would like to jointly immigrate to the United States do not have this option. However, there are some alternatives. The alternatives are in general two non-immigrant visas, an L-1 Intercompany Transfer Visa and an E-2 Investor Visa or an Immigrant Visa through the "purchase" of a green card.
The L-1 Intercompany Transfer Visa permits the transfer of a Manager of an overseas company to a subsidiary or affiliate in the United States. The manager can also be the owner of this company. The requirements are: a) that the transferred employee has been in a managerial or executive position in the overseas company for at least one year, b) that the U.S. company is a subsidiary or an affiliate of the overseas company, and c) that the U.S. company has a large enough operation that it will be necessary to hire U.S. workers.
Interestingly enough, the U.S. company does not have to have the same business activity as the overseas company. Also, there is no requirement to invest a set amount of money.
However, the overseas company has to remain operative during the entire visa validity. The L-1 Visa for a start-up company will be issued for one year with the option of renewal for three years and then another three years. The renewal of an L-1 Visa requires a significant number of employees.
For people who do not operate an overseas business or would like to get a Visa that is valid for more than one year, the E-2 Investor Visa is a viable option. In general, the E-2 Visa requires an investment of around $100,000 into the establishment of a U.S. company.
In order to apply for an E-2 Visa by owning a U.S. business, the investment has to have been made prior to submitting the Visa request. The investor must either have a purchase contract for an existing business with the purchase price in escrow or invest $100,000 into a new business with the potential for growth. If the investor uses the purchase of an existing business to qualify for an E-2 Visa, the business must already have employees. If the investor creates his own new company, he or she has to show that the business has the potential to employ U.S. workers and that the investor has already begun a search for employees.
As previously stated, the L-1 and E-2 are temporary non-immigrant Visas. Now the question is how does an L-1 or E-2 Visa holder qualify to stay permanently in the United States?
If your U.S. company is well established, profitable and providing employment for U.S. workers and your overseas company is still operating, then you can apply for a Multinational Manager Green Card. This type of Green Card is based on the fact that you are managing two companies in two different countries which both have employees.
For the Multinational Manager Green Card, it does not matter if you are in L-1 or E-2 status. The requirements are that you are managing two different companies in two different countries, you worked for the overseas company for at least one year before coming to the United States, and both companies currently have employees. It is not a necessity to hold an L-1 Visa in order to receive a Multinational Manager Green Card. However, if you closed your overseas business, you cannot apply for a Multinational Manager Green Card.
If you do not want to pursue an L-1 or E-2 Visa and prefer to go straight to permanent residency, then you can "purchase" a green card. This is the EB-5 program. This requires the investment of $500,000 to 1 Million Dollars either in the establishment of your own U.S. company or in the investment of a Regional Center. The amount of $500,000 is sufficient if invested in a designated rural or high unemployment area. If you choose to invest anywhere else, the minimum amount of investment is 1 Million Dollars.
A Regional Center is basically an administrative company that collects money from foreign investors and then invests it in designated projects, such as the build out of an airport, a solar field, housing or farms.
If you would like to invest in your own company, then 1 Million Dollars is necessary to qualify. Income or expenses of an existing U.S. business cannot be used as proof toward the 1 Million Dollar investment. There must be a clear paper trail showing the investor is putting $1 million of his own money into a U.S. based business.
After the respective investment is completed, you receive conditional residency for two years. By the end of these two years, your project at the Regional Center or your own company is required to have created at least ten full time jobs. If you can prove these jobs are real and ongoing, you will receive your permanent residency.
These are just three ways to qualify for permanent residency. Other ways get a green card include the Green Card Lottery, receiving a job offer from a U.S. company or by showing and documenting extraordinary abilities in the arts or other specialized fields.
There's something to be said for small business owners… they are creative individuals not afraid to take risks and are living their dream with passion. Our country is made up of thousands of those like minds, now more than ever, and they are making our country stronger and more viable.
Stepping out in the very beginning is not only a test of the strong-hearted but it should also prove a slow and steady race. Yes, you take risks as a business owner. Making major mistakes, however, can cost you everything. Here are some tips to help you venture down that "Road to Success" with as little detours as possible.
Trying to do it all will drain your energy and passion quickly. No one can simply know and do-it-all. Being mindful of your limitations and willing to hire someone with the talents you don't have will not only make your job much easier, but your business more successful.
Social Media is the window that can and will expose you faults to the world. If you make a mistake, own up to it. Those days of covering them up and quietly shuffling them under the rug will prove your downfall. It's not good for business and if you're the one who fesses up to your error, you'll be looked upon as an individual with a straight-up sense of doing business honestly.
You can't go into business blindly and expect your clientele to know what you're all about, where you're located and how you operate. The message you send has to be clear, precise, informative and even entertaining each and every time. First impressions count and if the message you're sending is convoluted, a new prospect will turn the other way.
When products and services aren't selling, the first thing you should do is drop prices, right? Well, experts say wrong! If the quality can stand on its own accord, most customers are more than willing to pay extra. If times are tough prospective customers will purchase if convenience, added benefits, and top quality prevail. Constantly slashing prices can lead to your business failing because the money isn't streaming in to cover expenses.
Don't reach too high first out of the gate. Set realistic financial goals for yourself. Yes, there's nothing wrong with wanting to make millions, but it's more important to get your business off the ground and grow slowly.
Being successful is dependent on how strong and effective a leader you are. However, that doesn't mean being a tyrant. Your employees are the foundation to your success. They don't need a buddy. They need someone at the helm who inspires them, shows his appreciation, and knows where they're going and how to get there.
We all know what happens when we over-assume. Never, ever assume you are the best and greatest at what you do. Competition exists, it's lurking and snipping at your heels, ready to take over the #1 spot. The minute you let down your defenses, someone can and will step into the lead. You'll keep your customers because you work hard every day.
If anyone is an overnight success, it never lasts and goes the distance. Success takes years of slow and steady growth to achieve. Remember that it's luck, perseverance and time that will get you there.
It's part of the job, and it's also a big part of why we get paid to do what we do. Business brokers act as buffers – in negotiations, during buyer and seller meetings and at the closing table.
The business transaction process has a lot of moving parts, and typically involves at least a handful of people and their advisors (like brokers, CPAs and attorneys). It can be very difficult, if not occasionally impossible, to get all parties to agree on a consensus and get a deal all the way through to closing. Avoiding miscommunication, maintaining confidentiality, putting out emotional "fires" when one side has offended the other – these are part of the day to day duties of a good broker.
The reality of the business buying and selling process is that some kind of issue during the course of your transaction is probably unavoidable. You could have the greatest broker in the world and your deal might still fall apart. If you are unfortunate enough to be stuck with a not-so-great broker, then the chances of a deal getting all the way to closing successfully are probably pretty slim.
So how can you tell if your broker is doing a good job or if what is happening is truly out of their control? Let's look at the types of things that typically happen during the course of a transaction and what your broker can (and can't) do about it. This third article in our series? The Other Side.
Sending requests for information to some brokers is like sending requests into a vortex of no return. It can take days, even weeks for some in our business to answer an email, send over a P&L – and that can be very frustrating both for us as brokers and also for our clients.
The same issue can come from many parts of the transaction. An attorney taking two weeks to amend a purchase contract, a CPA going over financial records for more than a month, even sellers going weeks and weeks without responding to requests for more information.
All of these unanswered requests can slow down and even kill a deal.
If your own broker is really good about responding to your calls and emails, but you still aren't getting requested information – then the broker's hands are probably tied. They can only pass on to you the information they receive, so try your best to be patient.
That is not to say you should wait for crazy amounts of time for information. If it's just too long, ask your broker if the time has come to move on to another deal. Sometimes the mere threat of walking away can get information flowing, although you should let your broker decide when the time is best to play that card.
If your own advisors are part of the problem, do your best to hurry them along. Sellers should also do their part in ensuring requested information is provided in a timely fashion. It can sometimes seem like the requests are neverending – but it is important to remember that the buyer is about to spend a very large amount of money on your business. You would want lots of information and answers too.
The problem is not always on the seller side. Buyers can hold up the transaction just as easily. Many buyers go into due diligence, thereby pulling the business off the market, only to repeatedly request more and more time. If you are serious about making a decision on a business, it really shouldn't take you any more than two weeks to go through the financial records and determine if the business fits with your goals. Holding a business off the market for extended periods of time, especially if you don't end up closing, is incredibly unfair to the seller's side. Extremely long due diligence can cause a seller to kill the deal simply because for every day you aren't buying the business – someone else can't either.
The business transaction process needs the cooperation of all parties in order to be successful, so you must do your part and also be fair to the other side. Demanding and impatient requests can derail a deal, as can dragging your feet. Listen to your broker when they tell you what reasonable time frames should be, and then stick to those suggestions.
Are you a seller who has questions about what buyers can and can't ask for during due diligence? Are you a buyer who is frustrated by the amount of time it takes to get information on a business and want to know what can be done to speed up the process? Ask us! Please feel free to leave us a comment or question here.
Want to read part 1: The Bad Offer? Click here.
Want to read part 2: Confidentiality? Click here.
So how can you tell if your broker is doing a good job or if what is happening is truly out of their control? Let's look at the types of things that typically happen during the course of a transaction and what your broker can (and can't) do about it. This second article in our series? Confidentiality.
Confidentiality is a very big part of business sales, as it is the only way for a functioning business to stay in business long enough to be sold. Many bad things can happen if the sale of a business is disclosed – from the entire staff quitting, vendors and clients cancelling contracts or the competition moving in for the kill. Why? A business that is for sale is perceived to be weak or on the verge of going out of business, even though this is rarely the case. Even though most businesses for sale are far from closing the doors, it is imperative for the future of the business that the sale stays under wraps until after the sale is complete.
We give everyone the speech. We tell sellers not to tell their staff or their friends and neighbors about the business going on the market. We make all prospective buyers sign legally-binding non-disclosure agreements and tell them not to tell anyone outside the circle of the sellers, brokers and themselves anything about the business. We refuse to work with real estate agents or attorneys who are attempting to "moonlight" as business brokers because they know nothing about confidentially marketing and showing a business – we know that they will invariably disclose the business improperly.
We do all of these things, but every now and again the news of the sale of a business gets out anyway. We've had a chatty seller tell a woman sitting next to him on a plane all about the business he was selling – and unbeknownst to him she lived in the community where his business was located. She told all of her friends and neighbors about the business being for sale as soon as she got home, and within days the entire staff and community knew. We've had buyers waltz into restaurants demanding to talk to the management and get a tour during business hours when all of the staff is present, even with the looming legal penalties of a non-disclosure agreement. We've had real estate agents take pictures of the business and post them, with all of the confidential information they should have withheld, on the MLS system available to anyone with an internet connection.
The point here is a good broker is going to do everything in their power to keep the status of a business confidential, so if you are selling – beware the "moonlighting" broker as the consequences of disclosure can be enormous. If your business gets disclosed because of a buyer, a good broker will immediately make the necessary moves to impose the consequences of the non-disclosure. However, disclosure on the buyer side is not nearly as common as disclosure by the seller themselves. Be tight-lipped about your business sale, and if you aren't – then you can't really blame your broker for your lack of discretion.
Are you a seller who would like to know more about how we are able to successfully market your business while maintaining confidentiality? Are you a buyer who would like to know more about non-disclosure agreements and what they mean for your business search? Please feel free to leave us a comment or question here, and we will be happy to help.
Want to read part 3: The Other Side? Click here.
So how can you tell if your broker is doing a good job or if what is happening is truly out of their control? Let's look at the types of things that typically happen during the course of a transaction and what your broker can (and can't) do about it. This first article in our series? The Bad Offer.
If you are trying to sell your business, there's a chance that a buyer will come along and write an offer on your business that is so ridiculous your broker really wishes they didn't have to tell you about it. They know the instant they tell you the offer, you're going to be angry as hell.
Well, we have to. Legally, we do. Any offer that is submitted to your broker must go to you, so the point here is don't kill the messenger. Your broker has no desire to make you angry, as they are the ones in the transaction who have to deal with you.
Try to remember that even a garbage offer can be a starting point for negotiations, or at the very least can tell you whether a prospective buyer is serious about buying or not.
On the flip side, if you're a buyer, your broker has to submit every offer you write – even the ones that they know are going to blow up in your face and prevent any future negotiation on a business you actually want. So listen when they tell you that an offer is a bad idea. They want you to get the right business, and that won't happen if you leave a trail of angry sellers in your wake.
The bad offer is entirely dependent on the buyer in a transaction, so while a good broker might be giving the best advice, bad offers can and do happen. Remember that the business transaction process is just that – a process. Listen to the advice of your broker when receiving or writing an offer and you will have a far greater chance of success.
Are you a business seller who wants to know the best way to deal with a bad offer? Are you a buyer who wants to know what a decent offer looks like? Ask us! Please feel free to leave a comment or question and we will be happy to assist you throughout the transaction process.
You are ready for a new chapter in life, so you've listed your business for sale. Your thoughts are on a much needed vacation, sipping drinks in a beach chair – but there are good reasons to focus on your business now more than ever.
It can take a long time to sell your business.
It typically takes 9 to 12 months to sell. How much damage can you do by mentally checking out for that long? Probably a lot. Sellers who mentally check out months before they've even found a buyer can do real damage to the bottom line. A sudden downturn in sales, losing a major account or falling profits can cause buyers to decrease their valuation of the business when the time comes to negotiate price. A business with a disconnected seller tells a buyer that no one cares about the stability or future of the business – so why should they?
It is an unfortunate truth of the business market that some businesses just never sell. It might be because of a lofty listing price that scares buyers off, it might be because the business is too niche, it could be because a seller has a change of heart or a change of circumstance that causes them to pull the business off the market – or it might even be because a seller has let the business slide to train-wreck levels. Whatever the reason for languishing on the market, once you've decided not to sell and return to ownership for the foreseeable future, you don't want to leave yourself with a mess. You should always assume, whether you're selling or not, that you will always be the owner of the business and maintain full responsibility until the day you hand over the keys.
The moral of the story? Even if you are completely burned out – you need to see your business through to the closing table. If you can push through the sale process while keeping your business in good shape, you will get a far better return on your investment than if you didn't.
Are you a seller who feels like you need to sell now? Do you want to know how long it would take to get from listing to closing? Leave us a comment or question here and we would be happy to help.
Does My Company Really Need An Operating Agreement…?
Operating agreements, which are akin to corporate bylaws, dictate the management and operation of a limited liability company ("LLC"). An operating agreement serves to reinforce the limited liability status a company has elected, may prevent misunderstandings between owners, and plays an important role in determining the requisite authority for conducting LLC business and transactions.
An LLC with multiple members should utilize an operating agreement to specify the profit and loss sharing, management structure of the company, and procedures for the removal and addition of members. In the absence of an operating agreement, a Florida LLC is subject to Florida's Statutes which may or may not be appropriate for the goals and structure particular company.
Florida law provides for the distribution of profits and losses among company members in accordance with the agreed value each member's capital contribution to the company as stated in the company records. Capital contributions may be made in the form of cash, services, or property. Further, if an operating agreement provides for the reinvestment of profits, or portions of profits, back into the company, it is important that such allocations contemplate each member's income tax liability with respect to their distributions. An LLC member is required to pay income tax on his or her entire distributive share, not just the portion of such share that he or she collects. Acknowledgement of the value of each member's contribution, clearly stated in an LLC's operating agreement, will avoid conflict among members regarding the method and manner of distributions of profits. Further, proper tax planning and consideration of such provisions when drafting an operating agreement will ensure that the applicable distribution scheme is practical for the members.
An LLC may choose to operate as a member-managed or manager-managed company. In the absence of an operating agreement, Florida law provides that an LLC shall be member-managed. This means that the power to make decisions regarding the management and operation of the LLC's affairs are vested in proportion to each member or managing member's percentage or profit share of the LLC, unless specified otherwise in an operating agreement. In the alternative, a manager-managed LLC may appoint a manager, or managers, with the authority to make certain decisions and conduct day to day operations on its behalf. Depending on the size, purpose, and goals of an LLC, one form of management may be more appropriate than the other and, therefore, should be considered when drafting the operating agreement.
Voting rights and requirements often become important in determining the direction and operation of an LLC as well. Typically, voting rights are structured either in accordance with each member's percentage interest or each member is entitled to one vote (also known as "per capita" voting). In the absence of an operating agreement, Florida law provides for the members of an LLC to vote in proportion to their current percentage interest as stated in the LLC records or determined in accordance with each member's respective capital contributions.
Clear procedures provided by way of an operating agreement for the removal, death, or retirement of a member and/or sale of a member's ownership interest will further assist in the smooth operation and evolution of an LLC. Such procedures are useful for planned and unforeseen transitions, and typically eliminate any confusion or misunderstanding which may arise otherwise.
– Transitional procedures for the removal, addition, or sale of members and interests.
The assistance of an attorney, or other professional, who specializes in formation of business entities should always be sought when preparing an operating agreement.
VIDEO: The 3 Question Success Formula!
A recent industry survey directly from business brokers was just released last week. I have picked some of the things that surprised me that anyone wanting to sell their business would want to know.
Given that we are in the age of technology, I feel that this one surprised me the most and this is further proof that most business brokers wait for the phone to ring rather than marketing your business, being proactive and trying to sell your business.
With what frequency did you use each marketing service in 2013?
We will distribute your listing to our network of buyers, pull data on strategic buyers for your business, referral partners, attorneys and so many more to ensure that your business is exposed to the greatest number of potential buyers as possible.
79% of brokers have been in the business at least 5 years so a good website would be expected, with a blog – a place to write about and promote their businesses, right? Less than 1/3 are even utilizing a blog, while only 21% have been using one for over a year. Unfortunately the same thing goes for the most utilized social media site, Twitter.
How have you utilized the following professionally?
Nearly 2/3 of business brokers are sole practitioners so the average monthly expenditure on advertising is only $653 per month. So you are getting charged, 10%, 12% or maybe even 15% to sell your business; what kind of exposure are you getting for your money?
What does your office spend on advertising per month (not counting recruiting)?
81% of respondents spent $1000 or less.
On average most business brokers are using less than 2 sites to advertise your business while some do not use any internet advertising.
What NATIONAL internet listing exchange programs do you use?
This is real simple, over 50% of business brokers charge an upfront fee to take your listing. So if an average business broker is only spending $653 in advertising why would you pay them an upfront fee? For the trouble of taking your listing?
I am here to sell businesses, I am confident in our system and the amount of businesses that I sell and will risk my own funds, give a free evaluation and market the business.
Do you charge an up-front fee (not including those for valuation/pricing)?
This shows that at least 20% of business brokers are taking listings just to take listings, will tell you what you want to hear or are desperate and need listings. If a business broker is not trying to evaluate the business is worth, how can they confidently and professionally sell the business for what it is worth?
Do you perform an actual valuation, with or without a fee, prior to taking a listing?
Although it is good to see that over half do not charge for a valuation, the other half are charging in the range what a certified appraisal would cost for a main street business.
What do you charge for this valuation?
With my marketing system we reach clients all over the country and all over the world. Proof that the system works is that well over 80% of my buyers are from another state or outside of the country. Why limit yourself to such a small pool of potential buyers?
68% of brokers have cooperated with another broker less than 25% of the time.
I am here to expose your business to as many qualified buyers and brokers as possible. I am often times in the position of selling another broker's listing because it is right for the buyer, likewise if another qualified business broker brings a qualified buyer I am happy to split a deal for the benefit of my seller. And many times I have found that this exposure brings more and better offers, which equals more money for you.
co-brokered (outside of your own firm)?
I am in the top 5 of all business brokers in Florida according to the BBF, so I sell more businesses than the average office.
What was the total number of businesses sold in 2013?
One of the benefits of my marketing program is that I draw a large amount of international buyers. Over 80% of my deals are all cash allowing the seller to walk away without having to worry about payments.
What percentage of your 2013 transactions were financed by the following sources?
After being able to see and evaluate information provided by other business brokers, it really should make any potential seller think about who they want to list their business with.
The facts are co-brokering/cooperating has proven effective, a solid marketing program proves to sell businesses as it shows in my numbers of sales and the amount of cash I get for businesses should make me your first and last call to sell your business.