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When it comes time to sell their business, many owners sit down with their Business Broker or M&A Advisor and tell them that this is going to be easy – that they already know who the perfect buyer is for their business. “My competitor just down the road,” they often say “would be the perfect buyer – he already knows the business and he could just add my people and accounts. And I also sell X product or service that he doesn’t have, and he could add that to his existing offerings. It’s a perfect fit!”

Well . . . maybe. It might work. But be careful – offering your business to a competitor is fraught with peril. The risk here is that you and the buyer operate in the same marketplace. It’s a small world. You have overlapping suppliers, customers and even workers who know one another. Although your advisor will have all prospective buyers sign Non-Disclosure Agreements prohibiting them from disclosing the fact that you are selling to anyone except direct deal advisors (typically accountants and attorneys), because you are in the same market, even an inadvertent breach of confidentiality could cause you serious harm.

But is the risk worthwhile? Will the competitor pay a strong price or even an above-market price to acquire your company? We find that the answer is typically “no”. We consistently find that equity funds, individual buyers or other outside investors accept higher valuations than industry insiders. While your competition would love to acquire your clients and other assets, they generally don’t like to pay for good will – after all, they already know how to provide the goods or services you provide.

That’s not to say that selling to a competitor is never the right move - sometimes it is. For
example, if your competitor is doing a “roll-up” – aggressively acquiring a number of businesses in same the field to build a much larger company – you may be able to walk away with a good deal in hand.  Or if your business has something that your competitor desperately needs but can’t get, you may be able to leverage a strong price. But even these situations need to be handled with an abundance of caution.

What other types of buyers are there?

1. Private Equity Funds (PE)
   PE firms are private companies comprised of groups of investors who pool money to buy and manage a portfolio of businesses. Although there are huge PE firms like The Carlyle Group or The Blackstone Group acquiring very large companies, there are also thousands of smaller PE firms that are active in the lower end of the market, buying companies that are worth between $1 million and $25 million. PE firms buy mature companies from owners who are either planning to retire, ready for a new business pursuit or who understand that professional management is needed to take their company to the next level.
   
   PE firms offer several advantages over traditional buyers:

• High net worth – PE firms often don’t need to seek outside financing.
• Experience – PE firms typically have made multiple acquisitions and decide quickly whether they will make an  offer or not.
• Professional management – PE firms can often provide the
  management expertise the acquired company needs to realize its true potential.
• Strong price – once a PE firm has decided to make an acquisition, it typically will make a good offer and try to get the deal closed as soon as possible.

• Hi-net Worth Entrepreneurial Individuals
  These are individuals who have either been in business before or have the experience, skill and capital necessary to acquire and manage a business. Some will have a depth of knowledge and experience in your specific field; others will come with general business training and acumen that they can apply to manage and grow your company. An individual buyer uses his own money and/or borrows money from a lender to make an acquisition. Since he is risking his own assets, oftentimes including his home, he tends to be very careful. 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.

• Companies in Related Fields or Different Geographic Markets
  These are companies seeking to grow by acquiring a company with products or service offerings related to their existing core business or by acquiring companies in their core business in new geographic markets. They offer the advantage of having some degree of knowledge of your industry while being removed sufficiently as to not be a direct competitive threat. While perhaps not as aggressive as PE firms in their valuations, these companies often will pay a strong price because the acquisition creates synergistic value above and beyond the intrinsic value of the company they are buying.

  To help choose the right buyer for your business and learn more about the business sales process in general, click on the link below, call us at 240 290-5000 or visit us at www.primeinvestments.us. We’ll be happy to schedule a free initial consultation and complimentary business appraisal.

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

According to many Business Brokers and Mergers and Acquisitions Specialists, we're entering into a perfect storm created by baby boomers reaching retirement age and the country coming out of the pandemic lockdown. Boomer business owners who have wanted to retire, but have held their businesses off the market, are now moving forward in increasing numbers.

OK. We get it. There’s going to be a lot of businesses on the market over the next few years. That being so, how do you make your business stand out from the crowd? How do you make it attractive to buyers so you can get the deal you need to help secure your retirement?

Here are 3 tips for getting your business in shape to sell:

1.     Enhance Your “Curb Appeal”

Studies have shown that a thorough detailing can add as much as 20% to the value of a used car. Whether it’s cleaning old debt off the books, getting rid of obsolete inventory, updating your IT infrastructure, or sprucing up your physical plant – updating and cleaning up your business before it goes on the market pays for itself many times over at the closing table. Buyers don’t want to buy a business that appears to have been neglected.  They don’t want to have to replace the phone system or deal with some uncollectable receivable on their first day of business. They want everything to be in place, bright and shiny and ready to help them realize their dreams.

2.     Start Letting Go of the Reins

Some business owners have trouble delegating – they keep their hands tight on the reins, make all the important decisions themselves and are the main point of contact with key customers.  That’s great as long as it works, but it’s not so great when it’s time to sell. Buyers will avoid or discount companies where all decision making and key customer relationships reside with the owner. If you don’t already have one, it’s important to create a strong second level of management before you put your company on the market. Start delegating decision making to your next-in-command. Transition key customer relationships to trusted managers. It may be painful for some owners to give up some control, but it will yield strong dividends at the sales table.

3.     Start a Relationship with an Experienced Business Broker or M&A Advisor

Even if you are not ready to sell today, it makes sense to meet with a qualified Business Broker or M&A Advisor. An experienced professional can advise you as to changes you need to make in your business to make it more attractive to buyers, educate you as to what you can expect during the process of selling, package your business to show it off in its best light to command the highest price, and guide you through potential pitfalls.

It can take a year or more to sell a business. To discuss your situation and start your personal planning, click on the link below, visit us at click here or call us at 240 290-5000. We’ll be happy to schedule a free initial consultation and complimentary business appraisal.

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

You’ve been thinking about selling your business for a while, maybe you’ve even had preliminary discussions with a Business Broker or Mergers and Acquisitions advisor. But you have one nagging concern - wouldn’t it be easier to sell your business to a trusted manager or key employee, or even to a group of employees? And wouldn’t it be the right thing to do? After all, these are the people who helped you build your business into what it is today. Shouldn’t they be rewarded for their loyalty?

In an ideal world, the answer would be “yes”. But in that “ideal” world, employees would have large savings and perfect credit, spouses would be willing to guarantee notes and place liens against their homes, and employees would have the commitment, motivation and risk tolerance of business owners.

But it’s not an “ideal” world – it’s the real world. In the real world, employees don’t have large savings or perfect credit, spouses aren’t willing to put their homes on the line as collateral and employees are employees for a reason – not everyone is cut out to be an entrepreneur. And banks don’t make loans to unqualified buyers.

In the real world, unless you are willing to personally lend the employees the bulk of the sales price, the answer to the question “should I offer my business to my key employees when I’m ready to sell” has to be “no”. It’s not in your interest – and it’s not even in your employees’ interest:

Employees Typically Won’t Qualify for Financing

Despite the best intentions of the owners and employees, in all likelihood, your employees just won’t qualify for a loan. They don’t have the required down payment, high enough credit scores, sufficient collateral, or business ownership experience. And then there is the squabbling – employee “A” has 50% more equity in his home than employee “B”, isn’t it fair that he get a bigger share?, employee “C” had a personal bankruptcy and employee “D”s spouse won’t co-sign. The infighting won’t stop.

Fear of the Unknown

The employees can’t qualify to buy the business themselves, but now they know you are planning to sell. What will the new owner be like? Will he want to keep them on or are they going to lose their jobs? Fear of the unknown is a normal human response. Even though new owners virtually always want everyone to stay, if your employees learn about a sale before they can meet the new owners, they may decide that the best way of dealing with the uncertainty is to start looking for a new job. By offering the business to your employees, you’ve let the cat out of the bag, and it won’t go back in. It’s best for everyone not to inform employees about a sale until after it is consummated.

“Blackmail” or “Veto” Power

It’s one thing to be told that the business you work in has been sold and that the new owners would like to keep you on. Most employees would feel surprise and then relief that their job was secure. It’s quite another thing to be offered a chance to buy your company – to have a chance at the American dream of owning your own business – and then have that chance evaporate when you are turned down for financing. And then, to add insult to injury, have the business sold to an outsider. Now the employee doesn’t feel relieved, he feels envious. We’ve seen instances where envious employees have tried to derail a sale, either  by getting together and “vetoing” a prospective buyer (by vowing not cooperate with someone they didn’t approve of) or by demanding a “bonus” (really blackmail) to sign up with the new owner. All because they were offered something they shouldn’t have been offered in the first place.

If you’ve been thinking about selling your business, it’s best to get professional advice before you make the kind of misstep that could put the successful sale of your company in jeopardy. To learn how to avoid these major mistakes click here or click on the button below or call us at 240 290-5000 and we’ll map out the steps you need to achieve the highest possible market price for your business.

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

Business owners are always looking for ways to maximize profits and increase the value of their business. There’s lots of advice out there, but it’s usually just some variation of “increase your sales and reduce your expenses” – duh – as if you hadn’t thought of that. Here are three ideas that you may not have thought of: 

Grow Your Recurring Revenue Base
Any business broker or mergers and acquisitions advisor will tell you that business buyers love recurring revenues. And there’s a reason. Recurring revenues are like magic. You make the initial sale and then do nothing (or next to nothing) and a check just shows up every month. It’s the best. And recurring revenues have additional advantages. First, because the customer is tied to you in some way, recurring revenues are usually quite stable. Second, because no additional sales effort is needed, they tend to be high-margin. And third, recurring revenues keep you connected to your customer so when he’s ready to make a new, large purchase, you’ll likely get the sale. There are lots of ways to build a base of recurring revenues – license or lease your product or technology instead of selling it outright, sell products that need periodic supplies or maintenance, sell service or maintenance agreements, franchise, sell your product through a distributor, etc. It’s well worth concentrating your energies on growing your recurring revenue base – it will pay dividends both in the short-term by increasing your profits and in the long-term by increasing the value of your company.

Fire Your Customers
Most everyone has heard of the 80-20 rule – that 80% of a company’s profits typically come from the top 20% of the company’s customers. But not enough small business owners focus on the effect on their company of the bottom 20% of customers. How many of these customers are marginal or even unprofitable? You probably have no idea. But you should. Marginal or unprofitable customers are often high-maintenance and low volume. They consume more resources than they pay for, bleed you with slow pay, or simply are too small to cover your overhead allocation. They divert attention from your hi-margin customers and use up resources that are better deployed elsewhere. We’ve sold businesses where the seller, content with his profits, never took a hard look at each customer’s profitability. When a new owner took over, however, he found that the business was losing money on each transaction with many of the company’s clients. He “fired” his marginal and losing customers and profits increased dramatically. There’s no reason to wait to get rid of losing accounts – do it now, increase your bottom line and increase the value of your company.

Have a Business Plan
Studies show that most small business owners do not have a business plan. You may not feel like you need one. You know your business, you know your market and you know competition. And you run your business more on gut feel than hard analysis. And it works – for now. But did you know that businesses with defined, current business plans do better than those without? It makes sense. If you have a plan for growth, you tend to grow. If you don’t, you can stagnate or even lose ground. Most business owners are reactive rather than proactive - they react to changes in their market instead of analyzing changes and trends, identifying their strengths and weaknesses and then devising a plan to best position their company to move forward. It’s easy to get caught up in day-to-day operational issues and crises and to lose sight of the big picture. A business plan helps keep you focused on growth.

For more information about issues that may affect the value of your business, please visit us at www.primeinvestments.us. There are lots of white papers to download and blog topics of interest to business owners. Click here or on the link below if you are thinking about selling your business or call us at 888 468-1660. We’ll be happy to schedule a free initial consultation and complimentary business appraisal.

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

Are you “burned out”? Tired of dealing with the same problems every day? Don’t have the  passion anymore that it takes to improve your business? Don’t want to risk making the big investment your company needs to grow? Wish you could spend more time with your family? Travel more?

You’re not alone. Most owners who sell their businesses are in their mid-40s to early 60’s. They’re tired of the stress of having it all on their shoulders, the long hours away from home and family. They’re not forced to sell because they’re too old to run their company; rather, they choose to sell because they want a different lifestyle. Click here to listen to stories from entrepreneurs who have chosen to sell their businesses.

Sellers are typically energetic and vigorous entrepreneurs who have built great companies, made good money and are ready to enjoy their lives and families while they are still healthy and able to do so. They want to spend more time with their children or grandchildren (who might have been shortchanged while they were devoted to building the business), travel the world, or even take on a new business challenge.

How do you know when it’s time to go? Here are 3 good indicators: 

1. You Feel ‘Burned Out’
   It’s hard enough to wear all the hats you wear and keep your business firing on all cylinders when you’re motivated – it’s a nearly Herculean task when you’re not. It’s not that you can’t do it, it’s just that you don’t want to. The same problems day in and day out, the never-ending routine of collections, vendor issues and employee problems. It’s not challenging anymore. It’s not even fun. You’re in a rut. You need a change of pace.
2. You Aren’t Willing To Make a Necessary Investment In Your Business
   You know what you need to do to take your company to the next level. And if you were younger, you would do it in a heartbeat. But now you’re not so sure. Getting your company to the next level would take a huge additional time commitment just when you were trying to scale back. It would require you to re-invest substantial assets when you were thinking about taking money off the table, reducing your exposure, securing your retirement or seeding a new venture.
3. You’re Thinking There Must Be More To Life Than Work
   You’ve heard rumors about this and decided to investigate. Maybe you’ve dipped your toe in the water and taken a long trip to an exotic destination. It wasn’t so bad. You could do that again. Or you can take a few weeks to go wilderness camping with your son before he goes away to college. Or sail the Caribbean. Or pick up your old electric guitar and get the band back together. Or finally spend time at your dream vacation home you built ten years ago. Or play more golf.

Business brokers and mergers and acquisitions specialists know that the time to sell your business isn’t after you’ve neglected it, let it run down and its value has decreased -- the time to sell is when you’re at the top of your game and your business is performing well. And when you’re young enough and healthy enough to enjoy the fruits of your labor and do the things that you have always wanted to do.

It can take a year or more to sell a business. To discuss your situation and start your personal planning, click on the link below, visit us at www.primeinvestments.us or call us at 888 468-1660. We’ll be happy to schedule a free initial consultation and complimentary business appraisal.

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

Business owners tend to be “type A” personalities. They make decisions and want to see them executed – not tomorrow, not next week or next month, but NOW.

When they finally decide that it’s time to go (and it usually takes some time to reach that decision) they’re the same way. They want the deal done yesterday. But selling a business takes time. It is a delicate and complicated process that needs to be guided by a hands-on, experienced professional. Your business likely represents the bulk of your estate and the monetary value of your life’s work. You can’t rush it. You need an experienced, professional Business Broker or Mergers and Acquisitions Advisor to help guide you through potential pitfalls, avoid costly mistakes and maximize the value of your business. There aren’t second chances here. Click here to learn more about the process.

It normally takes between six months to one year to sell a business. 

The good news is that during that time, you’ll be running your business and making money. The bad news is that you will have to be patient as the process moves forward to closing.

Here’s a typical timeline of the process of selling a business:

Month 1.  Your Business Broker or M&A Advisor will give you a list of items he needs from you to write the Confidential Business Review (CBR) – the prospectus that tells prospective buyers about your business, shows your business in its best light and is calculated to help achieve the highest possible market price for your company. You will provide the requested items and your Advisor will draft the CBR for your approval. He will make any necessary changes and then finalize the document.

Months 1-2.  Your Broker or Advisor will accumulate a list of potential buyers. Buyers might be private equity funds, hi-net worth entrepreneurial individuals or other companies. He will vet the potential buyers and have them sign Non-Disclosure Agreements (NDAs). NDAs require buyers to keep all of your information confidential, including the fact that you want to sell. He will provide the CBR to potential buyers, answer their questions and follow up with you on requests for additional information.

Months 3-6. Your Broker or Advisor will develop a “pipeline” of serious prospects. These prospects will want to meet you. Your Advisor will arrange in-person or virtual meetings. If the meeting is in-person, it should be held off-site or after hours to maintain confidentiality. Some buyers will move forward; others will drop out. Your Broker will facilitate responses to requests for additional information prospects who remain interested and arrange additional meetings.

Months 4-7. Your Broker or Advisor will solicit offers from interested buyers and help you negotiate terms. Offers will typically be in the form of a Letter of Intent (LOI) – a short, non-binding document outlining the basic terms of the prospective deal. There may be multiple LOIs before you and your Advisor are satisfied that a proposed deal is right for you.

Months 5-12. Once an LOI is accepted and fully signed, it typically takes between three and six months to go to closing. During this time several things need to happen. The buyer will retain legal counsel and draft a Purchase Agreement – the formal document that defines the terms of the deal. Your lawyer will review the document and make changes that help to better protect your interests. There is normally a fair amount of back and forth negotiation before the Agreement is acceptable to both parties. There may other documents to draft and negotiate as well – Covenants Not to Compete, post-closing Employment or Consulting Agreements, Security Agreements, etc. During the early part of this period, the buyer will conduct his due diligence – his examination of the company in more detail to ensure that everything is as it is supposed to be. He may retain accountants and attorneys to help with this task. He will, if necessary, also finalize his funding. When due diligence is completed, all the closing documents are agreed to, funding is finalized and any necessary approvals are received, it is time to go to closing.

Although we have sold businesses as quickly as 90 days, we find that most businesses take 6-12 months to go to closing. Click on the button below and we’ll map out the steps you need to achieve the highest possible market price for your business. There’s never an up-front cost or obligation, and all communications will be held in the strictest confidence.

As a business owner, you are likely quite loyal to your employees. They’ve stuck with you through the tough times and helped you build your company into what it is today. You wouldn’t be where you are without them. So when it’s time to sell your business, it’s not surprising that many owners are conflicted – they feel like they are betraying their devoted employees loyalty and trust.

Some owners feel guilty about keeping the sale a secret from a trusted manager or employee, especially those individuals with whom they have close personal or working relationships. But when employees learn their company is for sale, they get nervous. It’s a natural human reaction, a normal response to an event they believe may threaten their well-being. An employee will worry the new owner won’t keep him on, so he may start looking for another job – and perhaps share his fears with other employees. This is the type of news that spreads like wildfire, often distorting or losing the truth in the process.

It’s best for everyone if news of the sale is not revealed until after the closing. This way, you control how and when the details are communicated. After the closing, your employees will have the opportunity to meet with the new management, who will assure them they are valued members of the team – which is true – and that their jobs are secure. 

And if you tell even one employee, you’ve told them all. Even a trusted manager is likely to confide in his co-workers. And then word could get out on the street. Your vendors might put you on COD, your competitors will tell your clients you’re going out of business and your banker will start calling you. Nothing good can happen from breaching confidentiality.

But how do you maintain confidentiality during the sale process? Here are some tips for keeping your deal confidential:

1. Create a buffer zone. If buyers are communicating directly with you, you’re fielding their calls and emails at work. This may lead to premature disclosure of the sale. Use a Business Broker or M&A Advisor to provide a buffer zone between your company and prospective buyers. A Broker will protect the confidentiality of the sale by shielding you from direct contact with potential buyers. All buyer communications will go through the Broker. The Broker will only contact you using an agreed-upon confidential email or mobile number.
   
   
2. Have all buyers sign non-disclosure agreements. Non-disclosure agreements prohibit the buyer from sharing confidential information, including the fact that you are considering selling, from anyone except his lawyers and accountants involved in the deal. They also prohibit the buyer from speaking with your employees, suppliers, vendors, etc. without your prior written approval.
   
   
3. Conduct all meetings off-site or after hours. Unless its normal for you to have meetings with people your employees don’t know, avoid buyer meetings at your business site during business hours. Schedule meetings at your merger and acquisitions advisors office or at another convenient location such as a coffee shop or hotel lobby. If it becomes important for the buyer to see your operation, schedule the meeting in the evening or on the weekend when your employees are gone.
   
   
4. Don’t Rush To Sell To Your Competitors. When an owner tells us that he believes that a competitor would be the natural acquirer of his business, we strongly urge caution. Buyers from your own industry are not the buyers who are most likely to pay the highest price. We consistently find that equity funds and outside investors accept higher valuations than industry insiders. While your competition would love to acquire your clients and other assets, they generally don’t like to pay for good will – after all, they already know how to provide the goods or services you provide. And selling outside your industry makes it simpler to maintain confidentiality, while even an unintentional slip or breach of confidentiality by a buyer in your industry could cause problems.  That’s not to say that selling to a competitor is never the right move - sometimes it is - but when it is, it needs to be handled with an abundance of caution.

Click here to learn more about maintaining confidentiality during the sales process or click on the button below or call us at 240 290-5000 and we’ll map out the steps you need to achieve the highest possible market price for your business. There’s never an up-front cost or obligation, and all communications will be held in the strictest confidence.

You’ve decided that the time has come to exit your company. You’ve worked hard, grown a great business, provided a stable living for your employees. But enough is enough – it’s time to go. You know what you’ve built and know what you want. You’re ready to sell. But just like in your business, it takes two parties to make a sale – a willing seller and a willing buyer.

Experienced Business Brokers and M&A Advisors agree - in order to position your company to achieve the best results when you sell, you need to think like a buyer.

Why do buyers buy businesses? To generate revenues? To own plant and equipment? To have employees? The answer is “no” to all of the above.

Buyers buy businesses in order to make money. Everything else is just a means to that end. Whether the buyer is an equity fund, a private individual or another company in your industry or a related industry, by purchasing your company the buyer is paying for the right to step into your shoes and make as much (and hopefully, more) money as you do.

While some buyers are looking for very specific types of companies to acquire, most are interested in broad categories like service, construction trades, tech or distribution, and then limit their search by geographic and size considerations.

Because buyers buy businesses to make money, it is not surprising to learn that businesses are valued largely by how much money they make.  Other factors that influence the valuation include the type of business, recent trends in the individual business and in its industry, assets and or liabilities included in or excluded from the transaction, geographic desirability and the existence of risk factors that might cause the goodwill of the company to evaporate after the sale.

Buyers avoid businesses where there is a substantial risk that the business’s goodwill - its ability to generate profits – might disappear. This could happen for one or more of the following reasons: unstable customer concentration (one or two big customers whose loss would cripple the business); lack of management structure (where the knowledge and relationships necessary to conduct the business reside exclusively with the owner); or external risk factors, such as increased competition, impending loss of a valuable location, technological obsolescence, etc.

Just like in your business, business sales - mergers and acquisitions - occur in a competitive market. Why should a buyer make a bid on your business as opposed to the many other businesses available for sale?

Here’s what you can do to make sure your business is attractive to buyers:

1. Keep your hand on the wheel. Once you commit to selling your business, it’s crucial that you continue to manage your business as if the sale were not on the horizon. It’s easy to take your hands off the wheel, your foot off the gas, and put your business on autopilot until closing. Big mistake. Nothing spooks a buyer more than getting a current sales report with lots of red numbers and downward arrows. You need to concentrate on maintaining and even growing your business, even as your Business Broker or M&A Advisor is guiding your sale forward to closing.

2. Avoid risky customer concentration. Some business owners make the mistake of structuring their company around a single client or customer who makes up 30-50% or more of overall revenue. Companies in this position face big obstacles when they want to sell. Unstable customer concentration presents a major risk to potential buyers. The buyers will want to deal with the risk of losing such a critical customer by either discounting the price or structuring the deal so that a portion of the purchase price is connected to future revenues from that customer. To protect and enhance the value of your business, it’s best to diversify your customer base so no one client accounts for more than 30% (and better yet, 20%) of total revenue.

3. Structure second-level management. Some business owners have trouble delegating – they keep their hands tight on the reins, make all the important decisions themselves and are the main point of contact with key customers.  That’s great as long as it works, but it’s not so great when it’s time to sell.  Buyers will avoid or discount companies where all decision making and key customer relationships reside with the owner. If you don’t already have one, it’s important to create a strong second level of management before you put your company on the market. Start delegating decision making to your next-in-command. Transition key customer relationships to trusted managers. It may be painful for some owners to give up some control, but it will yield strong dividends at the sales table.

To discuss your situation and to see if your business is positioned well for sale, click here or click on the button below and we’ll map out the steps you need to achieve the highest possible market price for your business. There’s never an up-front cost or obligation, and all communications will be held in the strictest confidence.