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How to Determine the Fair Market Value of Your Company

Posted on Mon, Jul 06, 2020

How to Determine the Fair Market Value of Your Company

Small and mid-sized business owners looking to sell need to assess the fair market value of their business (the value of their business in the real world) before they put their business on the market. Fair market value isn’t related to how much money you need for your retirement or how many years you devoted to building your business. It’s an objective valuation of your business in a competitive market. It answers the question – given that there are similar businesses available to purchase, how much would a buyer pay for my business? The answer is based on several factors.

Cash Flow

To understand how much a business is worth, it is helpful to first ask this question: why would anyone buy my business? The most common answer is that the buyer wants to make money – he wants to buy your business and maintain or grow your cash flow. The technical way that the market calculates cash flow is EBIDTA – Earnings Before Interest, Depreciation, Taxes, and Amortization. But buyers may also consider benefits they would receive as the owner of your business, such as owner’s salary, pension or retirement fund contributions, one-time expenses that won’t recur, and other discretionary expenses that the business will pay for the benefit of the owner. Adding the owner’s benefits into the calculations yields what is called Adjusted EBIDTA.

Comparables and Additional Factors

After the Adjusted EBIDTA is calculated, you will want to learn how much business with similar Adjusted EBIDTAs actually sell for. But comparable sales (“comps”) for businesses are much more complicated than simple real estate comps. In addition to the Adjusted EBIDTA, business comps factor in the industry you’re in, size, customer base, customer concentration, sales backlog, location, competition, economic trends, specific industry trends, management team, management systems, employee stability, intellectual property, equipment and vehicles and many other factors. All of these components go into determining what kind of company is truly “comparable” to another business and how one business stacks up against another.

Weighing all of these factors and considerations may seem a bit daunting. Gathering all that information, figuring out which of it is relevant to the market value of an individual business, and packaging it to present to prospective buyers is a full-time job! Fortunately, small and mid-sized business owners looking to sell can get help from the services of middle-market business brokers like Prime Investments. An experienced broker like Prime has the expertise and knowledge to prepare a comprehensive business valuation that takes into account all of the local and industry factors, as well as recent sales in your sector.

It’s the broker’s job to find and detail all of the Adjusted EBIDTA components to show the true profitability of your company and to evaluate all of the other factors that may affect its value. The broker then presents this information in a way that portrays your company in its best possible light. In this way, the broker can defend a strong valuation and achieve a sales price that meets, or even exceeds, your expectations.

If you are serious about selling your business, getting professional help to assess the fair market value for your company is a wise choice. 

Why Confidentiality is Critical When Selling a Business

Posted on Tue, Jun 02, 2020

Why Confidentiality is Critical When Selling a Business

Selling a business isn’t like selling a house. If you want to sell your house, you hire a real estate agent who puts a sign in your front yard for the world to see, puts an ad on the MLS, and generally tries to get the word out to as many potential buyers as possible.

Selling a business is completely different. When a business owner decides that now is the time to sell, they must understand why confidentiality is critical in selling a business.

Reputation

Concluding the successful sale of a business depends on maintaining the business’ profitability and attractiveness to prospective buyers while the selling process is going on. If news gets out that a business is for sale, the first assumption many people make is that the business is failing. Stopping those rumors before they start by maintaining confidentiality is critical to attracting qualified buyers.

Employees

Nothing gets employees busy updating their resumes faster than finding out that their company is for sale. They worry that the new owners won’t keep them. Uncertainty is the enemy of productivity and continuity, and business owners who are looking to sell need both. Key employees have experience and knowledge that is integral to the business’s value. Buyers want to know that they can pick right up where the previous owner left off and keep a successful business moving forward. They don’t want to spend their first year rebuilding a workforce and trying jump-starting what had been a thriving enterprise before key employees got scared off by learning prematurely about a sale.

Competitors

Learning that your business is for sale will likely cause your competitors to intensify their efforts to woo your customers (and employees) away. Most competitors won’t be able to resist the temptation to spread the word. They’ll seize on the opportunity to make your business look unstable and present themselves as the safer alternative.

Vendors and Creditors

Vendors and creditors get nervous when they hear that a business they work with is for sale. They may wonder what will happen to their invoices and their loan payments – they may stop entering into new agreements or think twice about renewing existing ones.

You may wonder how to sell your business at all if you can’t tell anyone it is on the market. That’s why the services of a professional business broker are so valuable. Brokers know how to attract serious buyers while maintaining strict confidentiality when selling your business. Whether you need a construction broker for your construction trades business or a broker that specializes in manufacturing, IT, or healthcare businesses, Prime Investments can help—and help ensure confidentiality in selling your business.

4 Mistakes to Avoid When Selling Your Business

Posted on Wed, May 20, 2020

4 Mistakes to Avoid When Selling Your Business

It took years for you to build your business, and it will take time to sell it. Rushing your exit could cost you money and leave you with regrets. Plan ahead and avoid these mistakes when selling your business.

Poor Preparation

Most buyers want to buy businesses that are “clean” and in good condition, not “fixer-uppers”. To maximize the value of your business, you need to prepare. You should file all tax returns that are due, make sure your financial statements are accurate and up to date, make sure customer contracts, vendor contracts, leases, and other business documents are current and accessible. All employee paperwork, contracts, non-competes, etc. should be current. If you have any employee issues or disputes, you should try to resolve them. Likewise, try to resolve any pending litigation. And don’t forget to clean up your physical facility. Serious buyers will want to see it. Cleaning out items you don’t need and a fresh coat of paint can often make a business more attractive.

Breaching Confidentiality

Your intention to sell your business must remain strictly confidential. If employees, clients or customers find out, or even suspect, that you intend to sell your business, they may start looking elsewhere for jobs and suppliers. Confidentiality is a major reason to involve a qualified business broker. Brokers keep all communications about the prospective sale away from the business. Whether the business is located in Philadelphia, Baltimore, DC, or elsewhere, an experienced business broker will serve as the hub for all of the activity relating to your sale, and allow you to operate your business as you normally do, even while the wheels of the sale are turning. A broker’s reputation rides on maintaining confidentiality as much as on the number of successful deals they conclude.

Valuing Your Business Incorrectly

Business owners will often look at their great employee team, the adversity they overcame together, the years of hard work, and feel that these factors should increase the value of their business. But buyers are not sentimental. Just like selling a house, or selling the product or service your company provides, your business will sell in a competitive market. Buyers will compare your business to other businesses on the market. They will want to know your EBIDTA—your earnings before interest, depreciation, taxes, and amortization. They will compare your business to other businesses on the market. They also want to know the risks and the trends in your industry. Your business broker will make sure that all legitimate items are counted in your EBIDTA so that your business is presented in its best light, and then “package” your business to highlight all of its positive attributes in order to obtain the highest possible selling price.

Phoning It In

When you have made the decision to sell your business, you may be tempted to ease off the day-to-day strain of keeping things going and continuing to grow. This is a big mistake. Not only will your employees and customers notice that you seem less involved, but “phoning it in” risks damaging your business’s value. No one wants to buy a declining business for anything more than fire sale prices. To get the price your business deserves, you must stay actively involved in sustaining quality, profitability, and growth.

These are just a few common mistakes to avoid when selling your business. Contact Prime Investments to serve as your business broker to help guide you to a successful sale.

Types of Potential Buyers for Your Business

Posted on Mon, Apr 20, 2020

Types of Potential Buyers for Your Business

If you are thinking about selling your business, it’s important to understand that different types of buyers for your business will have different motivations, concerns, and processes. Your professional business broker advisor will help you navigate among the different types of buyers and help you to find the buyer who will give you the best deal and carry your business forward successfully.

Entrepreneurial High Net-Worth Individuals

Individual buyers either have previously run businesses themselves or are first-time buyers who possess the general business skills needed to manage a business like yours. These buyers put up their own money and/or take on the risk of borrowing money to buy a business. Individual buyers have a lot at stake and tend to be cautious throughout the process. While it sometimes takes a bit more patience and hand-holding to get a deal done with an individual buyer, once he is comfortable that your company represents a safe investment, the entrepreneurial individual is often the perfect buyer.

Private Equity

While it’s unlikely that small to mid-sized business owners will see large financial players or huge hedge funds show an interest in their company, smaller private equity groups often purchase businesses in the $1–50 million range. These groups are composed of investors who pool their money to acquire portfolios of businesses. They might involve several members of a wealthy family, where the family wealth itself is the “business,” or they may simply be a group of experienced investors, successful enough not to need outside financing, who see the potential in a mature business that can benefit from professional management when the founder is ready to move on. Private equity funds look at numerous businesses. If they like yours, they can make a quick decision and usually are willing to pay a strong price.

Other Companies in the Same or Related Industries

Companies in your industry or a related field often find that acquiring businesses in the same or related field is the quickest route to growth. These companies might have an interest in purchasing a business in a particular location to expand their geographic reach. Location might make a difference, so if, for example, your business is in Virginia, look for a business broker with experience selling Virginia-based businesses. While selling to a direct local competitor can risk breaching confidentiality, a company in your industry but not in your area (or in your area but who is not a direct competitor) can be a good buyer who will understand the value of your business and is willing to pay a good price.

Different types of potential buyers for your business will approach the purchase differently—as an opportunity to expand their market share in your industry, to add to their portfolio, or as a chance to strike out on their own. All these motivations will drive how these buyers value your business and what information about your business they’ll look at most closely.

How to Choose the Right Business Broker

Posted on Wed, Mar 25, 2020
 
How to Choose the Right Business Broker
 
Finding the right business broker requires every bit as much forethought and consideration as deciding to sell your business in the first place.
 
Before you make any inquiries, learn how to choose the right business broker.
 

Confirm Their Commitment to Confidentiality

Even sniffing around to get referrals and checking references can compromise confidentiality. It is critically important to keep your intention to sell your business secret. Do some research on your own and narrow down a list of possible brokers for your business and interview them. When you talk to candidates, your first question should be, “What steps do you take to ensure confidentiality?” The broker should have a set of procedures in place that ensures confidentiality and minimizes the chance that word of a potential sale of your business can get out.

Establish Experience

Ask any business broker candidate how many deals they’ve successfully concluded in the past year. Of those, ask how many were in an industry similar to yours, and how many were of a similar size. If yours is a mid-tier kind of business, look for a middle market business broker who understands the issues involved in selling similar-size businesses in your geographic area. Experience counts when considering how to choose the right business broker.

Avoid Upfront Fees

Some brokers charge lots of up-front fees – fees for providing an appraisal, fees for “packaging” your business (creating the prospectus), monthly retainers – fees that they keep whether they sell your business or not! And then, if they do sell your business, they get another fee! Other firms operate strictly on a success fee basis - they get paid only when the sale of your business actually goes to closing. Beware of any business broker who asks for money upfront. If the broker has confidence in his ability to sell your business, he should be happy to earn his commission when the deal is done and get paid when you do - at the closing table.

Trust Your Instincts

You will spend a lot of time with, and share a lot of information with, the broker you choose to help you sell your business. If you don’t feel comfortable with the broker, it’s not likely you’ll get a deal done. Be honest with yourself about whether you think you can create a good working relationship. If you don’t feel the broker listens to your concerns, or doesn’t respond to your inquiries promptly, look elsewhere.

Stay Local

You should meet with your broker, in person, eyeball to eyeball, before you make the decision whether or not to hire them. Is this a firm that you can trust to successfully guide the sale of your business and achieve the results you want? Choose a broker who is nearby and accessible. Although the buyer may come from out of the area, the broker needs to be local so that he can guide the process, attend meetings, assess personalities, anticipate and solve problems, hold hands, negotiate, cajole, etc. – to do whatever is necessary to get the deal done. A broker’s work simply cannot be “phoned in”.

Prime Investments has the experience, the contacts, and the expertise to help sell businesses in Maryland, Washington, DC, Virginia, Pennsylvania, and Delaware, with a nationwide roster of buyers looking for businesses like yours.

Selling a Business: When and How to Tell Employees

Posted on Wed, Mar 11, 2020
Selling a Business: When and How to Tell Employees

It is critically important to keep your plans to sell your business confidential until the sale has closed. The best time to tell your staff is after the transaction is completed. Here’s  when and how to tell your employees you  are selling your business.

Keep Mum Until the Deal is Done

is to not disclose your intention to sell your business to anyone, except your outside lawyer and accountant. If employees get wind of your plans, they may get nervous and begin looking for a new job. Clients and customers who hear about it could lose confidence in you, and lenders may withhold credit. No good can come of announcing your plans.The best course of action 

A business broker helps to maintain confidentiality by keeping communications with potential buyers away from your business. Work with a business broker you trust to maintain absolute confidentiality. For example, if yours is a manufacturing operation, interview several manufacturing business brokers and choose a broker that gives you confidence that he can maintain confidentiality and is familiar with issues specific to your industry.

In rare circumstances, the buyer may require information that 

only your controller, CFO, or other key employee can provide. If you need an employee’s help to complete the sale, tell them only what they need to know, and only when they absolutely need to know it. In some cases, the buyer may insist on meeting with key employees before closing to be comfortable that these employees will stay with the company after the sale. Only allow these meetings to occur at the very end of the process—a day or two before closing and after all other contingencies have been satisfied. And even then, keep these occurrences to an absolute minimum and impress upon the employees involved the need to keep their knowledge of the impending sale confidential from their coworkers.

After the Closing, Call a Meeting

Now that you’ve sold your business and have closed the deal, you need to tell your employees. Call a staff meeting and explain what has happened and why. You will be speaking to the people who made your company successful and attractive to a buyer. Speak from the heart and tell employees how much you appreciate their hard work. Reassure them that you have chosen the buyer carefully, and the sale means the business will continue to grow and thrive. Explain that you will still be around for a period of time to ease the transition.

In order to minimize employee apprehension about what the change in ownership means for them, you should introduce the new owner to the team as soon as possible. When the new owner speaks to the employees, he should mention how you spoke highly about them all and reassure them that everyone’s job is secure and that he is not planning any immediate changes.

Deciding when and how to tell employees you are selling your business is tough, and actually doing it may be even tougher. A seasoned, professional business broker should be engaged who employs proven methods to ensure confidentiality, and who can advise and guide the seller as to the proper timing and context of informing the employees about the sale.

 

Advantages of Using a Business Broker

Posted on Thu, Feb 20, 2020

advantages-of-a-business-broker-4Building a successful business is an impressive accomplishment. Selling a business can be the business owner’s crowning achievement or, if done incorrectly, his biggest disaster. If you’re thinking about selling your business, consider the advantages of using a business broker. An experienced, professional business broker will ensure confidentiality, attract the right buyers, negotiate the best terms, and bring your sale to a successful closing.

Business Brokers Ensure Confidentiality

If word gets out that you’re selling your business, the game could be over before it has begun. Employees will hear about you selling your business and may become distraught or leave. Customers or clients may lose confidence in your products or services and look elsewhere.

A business broker acts as a shield between the business owner and prospective buyers, keeping your identity and your business’ identity confidential while fielding all inquiries and vetting prospective buyers. A broker will ensure that vetted buyers sign strict non-disclosure agreements before they reveal the business’ identity or any further details.

Business Brokers Have Broad Access to Business Buyers

Experienced business brokers know the market for businesses like yours. They can activate a broader network of buyers than a business owner could on his or her own. You may know one potential buyer, but your business broker will know many and will make them compete to buy your business. Your job as a business owner is to keep your operation running successfully, maintaining or even increasing revenues, while your business broker does all the work involved in selling your company.

Valuation and Marketing

Your business’ market value is not just based on a mere statement of taxable income. Business brokers build a case for how buyers will make money for themselves in the future if they buy your business. The broker takes many factors into account. Cash flow (calculated as adjusted EBIDTA—earnings before interest, depreciation, taxes, and amortization) is a primary concern; however, valuation also considers things such as trends in your business sector, location, competition, and proprietary products or trade secrets, among others. It’s the broker’s task to analyze these and other relevant factors, derive the highest obtainable selling price, and then professionally package the business to attract prospective buyers.

Managing the Process

Another reason to use a business broker is that your broker will manage the sales process. Selling a business is much more complicated than selling real estate. There are many steps in the process and many obstacles to overcome along the way. Brokers solve problems as they come up (they always do!), manage all the moving parts, and keep the parties involved (buyer, seller, lawyers, accountants, consultants, and financial institutions) moving forward toward a successful closing.

You’re an expert in running your business; your business broker is an expert in selling your business! If you concentrate on running your business while your broker invests a very substantial amount of time to value, package, market, and sell your business, your sale is sure to be successful!

 

 

How to Prepare Your Business for Sale

Posted on Thu, Feb 20, 2020
How to Prepare Your Business for Sale

You may have a good idea of when you’ll want to sell your business; perhaps you’re nearing retirement, or you just want to try something new. Selling a business takes time—at least six months to a year. If you’re wondering how to prepare your business for sale, here are some concrete steps you can start on right now.

Keep It Confidential

The only person who should know you’re thinking about selling is you. Don’t confide in employees or friends. You’ll have a lot to do to prepare your business for sale, not the least of which is keeping it running and growing to be attractive to prospective buyers. If word gets out that you’re thinking of making an exit, your business could suffer and your plan to sell could fail before it gets off the ground.

Get Your Papers in Order

One of the most important ways to prepare your business for sale is to get your financial records in order. Clean up any abnormalities on your books; make sure you’ve filed all your taxes. You should have three to five years of financial and accounting data prepared and ready, including financial statements and annual reports (if you have them) and tax returns.

Additionally, make sure that all of your licenses, permits, and contracts are current and up to date. These include licenses to do business, industry licenses, special permits, contracts with vendors and customers, leases, operating agreements, etc.

Think About Why You’re Selling

One of the first questions buyers will ask is, “why is the owner selling now?” You should be clear about your reasons for selling your business and be able to talk about them. A buyer needs to be confident you’re moving on because you’re successful—not because you foresee tough times or problems for your business in the near future.

Find an Experienced Business Broker to Value Your Company

Businesses don’t sell in a vacuum; they sell in a competitive market where buyers can choose which companies they want to bid on. A Business Broker has access to information about recent sales in your industry and knowledge about factors you may not have considered, but that are important to buyers in determining how much they are willing to pay. An experienced Business Broker will advise you on how to best position your business in the market.

Using a Business Broker increases the value of your business. By professionally packaging your business for sale—creating a custom-written prospectus highlighting your achievements and presenting your business in its best light—a Business Broker is able to achieve the highest possible price. He also defends that price by explaining to the buyer how the business was valued and by showing the buyer comparable businesses that have sold for similar amounts. If you’re thinking, “maybe it’s time to sell my business” your next thought should be “I should look for a professional, experienced business broker.”

These are some of the things you should think about as you prepare to sell your business. To learn more about the process of selling a business, call us at 240 290-5000 or click here to send us a note.

Of course, there’s no cost or obligation, and we will hold all communications in the strictest confidence.

Signs It's Time to Sell Your Business

Posted on Thu, Feb 06, 2020

Signs Its Time to Sell Your Business

Many business owners consider selling their businesses as retirement age approaches. But choosing the right time to sell can be difficult. Here are some signs it's time to sell your business.

You’re Unmotivated

If managing your business feels like a chore, it may be time to sell. Many business owners find that the passion they had when they started out just isn’t there anymore. The long hours, the stress, the sacrifices made, the challenges overcome, all take their toll over time. You aren’t excited about coming to work anymore—but you force yourself to do it. This is a common experience, called “owner burnout,” and it’s a key sign that it is time to sell your business. If you delay selling and hold on, it is very likely that your lack of enthusiasm will cause the business to start to decline. It’s best to heed the signs and sell your business when you are on top!

The Economy is Strong

Your business may be doing great, but the price you can achieve in a sale depends not only on your business, but on larger economic factors as well. For example, what do interest rates look like? If interest rates are high, the buyer’s payments on acquisition debt will also be high, and that will restrict the value that he can afford to place on your business. If, on the other hand, interest rates are low, debt payments will be low, and the buyer can afford a higher purchase price. Economic forecasts are important as well. If the economy looks like it is going to fall off a cliff, it would be hard to sell your business at any price. If, on the other hand, the economy is expected to grow, buyers will have confidence and are motivated to buy. Clearly, the best time to sell your business is when the economy is strong and interest rates are low.

Your Company is Outgrowing Its Management Structure

It’s great to be successful, but sometimes success brings problems as well as rewards. You are the best in your market at providing the product or service your company provides. You are not only successful, but an expert in your field. People come to you for advice. But while you are an expert in your product or service, you are not an expert in the other skills—finance, HR, compliance, marketing, etc.—that running a business of your size requires. At some point, growth requires that you add levels of management—a first level, second level, third level, etc. Each time you do this, it adds overhead and eats into your profits, at least until the company grows enough to make up the difference. A signal that it’s time to sell your business is when your business is running at full capacity with the people you have. Sell your business while your margins are high and before your need to reinvest in the company!

Retirement Doesn’t Look so Bad

You’ve worked for decades to grow your company and achieve financial security for yourself and your family—you’ve earned your retirement. If you find yourself thinking more about traveling, playing golf, and spending time with your family, that’s a sure sign that it’s time to sell your business. It’s your life! Don’t just daydream—take advantage of what you have achieved before it’s too late to enjoy it!

If you notice any of these signs that it’s time to sell your business, we recommend contacting us at Prime Investments. Here at Prime Investments, we’re dedicated to selling your business to the right buyer at the right time and at the highest possible price. We maintain complete confidentiality in the sales process and, unlike other business brokerage firms, we never charge up-front fees. We get paid when you do—when your sale is complete.

Business Broker Report 16: 3 Tips to Avoid Getting "Burned" by Your Broker.

Posted on Mon, Mar 23, 2015

describe the imageSo, you’ve finally decided to sell your business. Congratulations - it’s a tough decision to make.

But the decision-making isn’t over yet. Now, it’s time to choose your Broker - the firm you need to handle your sale and get you the best possible deal for your business.

But how do you make sure you’re not getting burned by your Broker?

Follow These 3 Tips to Make Sure You Don’t Get Ripped Off:

  1. Don’t Pay Any Up-Front Fees.
    You’ve probably attended seminars where they promise to sell your business for three, four, five or even ten times its true value.
      Back away – don’t get sucked in. This is actually a very sophisticated scam.

    Companies like this put on slick presentations, but are really only interested in collecting big up-front fees, not in actually selling businesses. They claim they can create a “frenzy of buyer interest” that will “skyrocket the price to stratospheric levels.” Don’t be fooled. It’s all smoke and mirrors. They want to get you excited and then stick you with a $30-60K up-front fee.
    Money you don‘t get back when they fail to sell your business!

  2. Use a Brokerage Firm that Doesn't Get Paid Until You Do. 
    Not all business brokerage firms ask for up-front fees.
      Some operate strictly on a success fee basis. These firms get paid only when the sale of your business actually goes to closing. These success-fee based Brokers have the confidence that they can get the deal done. After all, if your sale doesn’t close, they don’t get paid.
     
  3. No Track Record? No Way! 
    You don’t want your Business Broker or M&A Advisor to learn on the job with your sale. Do your due diligence! Check their track record, case studies and success stories, making sure they’re credible. Probe into past and present clients. Are the clients satisfied? Do they even exist?

Don’t learn the hard way -- if it looks too good to be true, it probably is. Stick with a reputable Broker with a solid track record who is willing to earn his success fee only when the sale of your business is completed!

If you’re ready to sell your business - with no up-front fees and no smoke and mirrors - please click here or on the link below or call us at 888 468-1660. We’ll be happy to schedule a free initial consultation and complimentary business appraisal.

There is never an up-front cost or obligation, and all communications will be held in the strictest confidence. 

Sell Your Business The Right Way

Prime Investments Business Brokers takes the risk out of selling. For over 25 years Prime has helped owners in Virginia, Maryland, Florida, Georgia, Pennsylvania, Delaware, Washington, D.C. and New Jersey get the best deal when they sell their businesses – without charging any upfront fees.

Tags: M&A Advisor, sell your business, selling your business, business broker