How Are Businesses Priced? Understandably, this is one of the first questions a prospective seller will
ask. The art of finding the correct buyer is key to closing the deal. Keep in
mind, a high valuation that cannot close is of no value to the seller. We are
familiar with market considerations and, by reviewing financial information
and asking a few questions, we can provide an idea of what can be currently
expected in the marketplace. If the seller has reasonable expectations, which
correspond with the current marketplace, then the probability that the
business will sell is raised considerably.
NOTE: Sophisticated buyers purchase a multiple of cash flow (technically
they are interested in EBITDA...Earnings Before Interest, Taxes, Depreciation
and Amortization).
Are inventory, changer funds and accounts receivable sold separately? Yes. Warehouse/field inventory, changer/impress funds and accounts receivable
are purchased separately over and above the selling price.
Confidentiality is extremely important. How do you handle confidential issues? Confidentiality is one of the most important considerations in selling or
buying a business.
Sellers understandably are concerned about confidentiality. They do not
want the news that their business is being sold to be on the street. Customers
may be concerned, competitors may spread rumors, employees might fear for
their future.
JSBS will channel the process to keep the transaction within safely silent
bounds. We will do the following:
Qualify the buyer. We will present only qualified buyers. Many potential "buyers" are
either not serious or not financially qualified. JSBS will contribute to
confidentiality by limiting the exposure of the business to only qualified
buyers.
Confidentiality Agreement JSBS will require potential buyers to sign a strictly-worded Confidentiality
Agreement. The Confidentiality Agreement prohibits the potential buyer from
disclosing any information about the operations of the seller's business or
that a sale is in process.
Manage Release of Information Until a Purchase and Sale Agreement has been signed, JSBS will assist in
managing the release and character of information to the potential buyer, so
as to protect the confidentiality of your business.
Meetings with Buyer Meetings regarding the sale of your business will be confidential and will be
scheduled off premises.
What are Buyers Buying? They are purchasing the future. Buyers will project the seller's current
business into the future, which will serve as their basis for determining the
market value of the business.
Who are the Buyers? Buyers fall into four general categories:
Synergistic Buyer, often a competitor of the potential seller
and interested in combining facilities and consolidating overhead.
Strategic Buyer, primarily interested in entering new markets
and/or increasing market share in their existing market.
Individual Buyer, approaches the purchase with substantial
financial resources and experience in heading up a company.
Financial Buyer, focused on obtaining a high return on investment
and financing as large a portion of the purchase price as possible.
How Long Will It Take to Sell My Business? The time needed for a sale to complete depends on a great many factors,
including the businesses location, price and market conditions. Once an
interested, qualified buyer is identified, it is our experience that it takes
three to nine months to sell most businesses. Of course, it also depends on
how quickly the buyer receives all the information they require, and how
thorough, complete and accurate is the information they receive.
Is Seller Financing Important to the Sale? A seller who asks for all cash may receive less than those who accept terms.
Often, the more cash down required by the seller, the lower the selling price.
Conversely, the smaller the cash requirements of the seller, the higher the
selling price. With reasonable terms, however, the chances of selling increase
dramatically, and the time period from listing to sale greatly decreases.
Does the Seller Sign a Non-compete Agreement? Yes. Generally, the non-compete agreement details the area from which your
current customers are generated and a time period that meets the buyers needs.
When Should I Tell My Employees About the Sale? Our experience is that it is best to tell your employees about the sale
immediately before or immediately after the sale is complete. Of course, there
may be employees whose expertise will be needed before the sale, in which case
you have to reveal to them that the sale is in process.
Do I Need an Attorney? Yes. The attorney you engage should be familiar with the business buying
process. An experienced attorney can be of real assistance in making sure that
all of the legal details and legal decisions are handled properly. Sellers
should make their own business decisions. We have seen buyer and seller
attorneys make business decisions for their clients and torpedo deals that
should have been consummated.
Your attorney and/or your accountant will help you understand the tax
implications of selling your business. The big question is not how much your
business sells for, but how much you get to keep.
I'm New to the Industry... Why Should I Buy an Existing Business? If you are a new buyer, you will generally have a greater chance of success
if you buy an existing business than if you start from scratch and try to grow
one. An existing business will be up and running, have an existing account
base, and the seller will provide support. Think of a three year old peach
tree...it will more assuredly provide fruit, and a lot sooner, than if you
start by planting a seed.
I'm Already in the Business... Why Should I Buy an Existing Business? If you are a Strategic Buyer looking to enter a market where you don't have a
presence, one option is to set up a sales organization and begin to acquire
accounts. This is a slow, expensive process without assurance that you will
be successful in establishing a beachhead. However, your chances of success
are much greater if you purchase an existing business in your target market
and keep the existing management in place.
If you are a Synergistic Buyer, you will be looking to fold a competitor's
operation into your own business by consolidating facilities, reducing
overhead and increasing your purchasing power. In this case, the combined
company will be worth more than the sum of the parts, and provide a way to
grow your business efficiently and effectively.
