Managing Cash Flow for Business

By Phil Haney

Cash Flow is one of the most imperative factors in operating a business and its success for today and for the future. It is critical for Sellers to insure that Cash Flow is Managed Efficiently and that action steps are always taken to improve Cash Flow of the business. You may have a wonderful business, think everything is fine with Revenue and Net Profit but the Cash Flow could be suffering from added expenses that aren’t focused on.

Remember, as you all know as Business Owners that Cash is King.

Good Cash Flow is where business management begins with having a clear understanding on where cash enters the business and leaves the business. You have to keep an eye on the short and the long term to insure you don’t become surprised by any cash flow issues and then have your plan to correct these anomalies when they happen.

A lack of profit is one of the main reasons why businesses fail. Sometimes business owners are making a profit but have run into cash flow problems which will ultimately force them into serious financial issues, having to close or sell the business. Cash Flow issues can arise with all businesses whether big, medium or small; especially if there are high business expenses and you are constantly feeding your profits back into your business. You need revenue in your bank account after you’ve paid all the bills and are continuing to build your income and wealth management.

The best practices are to review with your CPA or Accountant/Bookkeeper and Software Systems you have to ensure that you are on top of issues that come up on expenses in the business.  Also be focused on customers or clients that provide late payments which cause cash flow issues. Make sure the terms and conditions are in writing and that the customers are aware of the invoice terms and then always follow-up if any delays in the payment schedules.

There are always some unanticipated costs that need to be to handled,  so it is good to have some type of cash flow forecast for six to 12 months and hopefully to build some emergency funds. Also have the right insurance for the business for some of those unexpected interruptions in the business.

Then of course fully understand the profit, cash flow and ROI to insure the business financial health and how to handle the taxes.

Prepare for avoiding seasonality if that is part of the business, look at diversification in some areas of the business to improve the cash flow during those times.

There are many significant businesses and franchises that we represent for sale and for buyers looking to purchase the right business.   If you are a potential Seller wanting to confidentially sell let us know

Sunbelt is the place to go to buy or sell a business. http://www.sunbeltnetwork.com/bakersfield-ca/

 

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The Reality Behind the Dream

Russ Allred MBA

We love to celebrate successes!! CHEERS! LOCALE

Many people dream about being their own boss.  Some work most of their lives to save enough money.  They rent a space, pay for tenant improvements, buy equipment, and then start hunting for clients.  If they do well, they might make money after three years.  Most fail and close the doors within five.  It is common for a restaurateur to spend $300,000 in start-up costs, with no guarantee of success.   That’s the truth.

A young woman, fresh out of culinary school, contacted me about buying an existing diner.  She had a dream of running a restaurant using locally sourced products.  The diner was basically a hamburger stand in a converted garage, located next to two of the most popular restaurants in town.  The diner was only open for lunch.  Sales paid for all the expenses, but didn’t provide the owners enough money to live.

The buyer saw its potential and after some negotiation, offered %80 down and the sellers carried a note for 20%. The day she bought the diner she made a bank deposit from food sales and continued to earn money while she gradually implemented her changes.   It has been two years.  The note is paid.  The restaurant has been repaired and painted, a new logo developed and new signs installed.  Business is strong and patrons are pressuring the owner to open for dinner.  A neighboring club wants the owner to provide their food service. 

Please relax on my couch and allow me to interpret this dream:

1.  The buyer had a vision of what she was going to build (she even had pictures of how it would look).

2.  The buyer followed the most cost effective path to get what she wanted.

3.  Though the original business was not successful, it had all the necessary equipment.

4. The business was located where customers congregate.

5.  The new business offered a better choice in the marketplace

If you dream of owning your own business, consider buying a complimentary business and converting it to what you envision.  As you convert your dreams of business ownership into reality, review these observations.  They will work in most businesses.  Also talk to a business broker.  We might have something that will work for you.  

Value of Valuation

By: Scott Lieberg, CBB, CMSBB

Valuing businesses is an advisory service we here at Sunbelt offer our clients. This multi-step process involves hours of work to establish a price for sale. Having a valuation, produced by seasoned professionals, facilitates and supports the sale process.
Using tax returns, P&L’s, balance sheets, and other business specific documents, we arrive at the adjusted earnings of the company. Buyers are looking for the revenues that are available after recurring expenses are paid and non-business expenses are added back. The next step is to analyze the business activity of the company being valued and develop projected earnings.
Coupled with earnings, we adjust the Balance Sheet, looking at changes in working capital and performance ratios. These ratios include liquidity, turnover, debt capacity, etc.
We then work toward our calculation of value using several methods. These methods are the Adjusted Asset Method, the Discounted Future Earnings Method, and the Comparable Transaction Method. Careful selection of sold comparable companies, insuring similarity, is critical to building a sound data basis for value. Digging into the business activity of the comps is essential. As the complexity of the business being valued rises, so the task of selecting and weighting comps. Weighting is a seasoned judgement call.
The last step and most difficult is the reconciliation of final values. Each method is assigned a value, a weight, and a confidence level. The market experience of the preparer is never so important, as in the valuation reconciliation.
At Sunbelt, the five of us have over 130 years of experience. Put us to work on your Valuation needs.

A Conflict of Agents: How Attorneys Kill Deals

Russ Allred MBA 

A business broker’s job is to bring a willing buyer to a willing seller and draft a deal that benefits them both.  A typical deal, with SBA financing requires that the seller carry some paper, ensuring ongoing oversight for the new and inexperienced buyer.  A cooperative working relationship is essential to a successful deal.  The broker’s compensation depends on both sides accepting the deal and working together.  This past month I spent negotiating, cajoling, encouraging and babysitting the buyers and sellers of two deals that had been polluted by the influence of their respective attorneys.   

I have many attorney friends.  I required the advice and services of attorneys to represent me in a commission dispute.  An attorney prepared my family trust, helped me incorporate my business, and attorneys refer me as a receiver to mitigate losses while business partners work out their differences.  I like and need attorneys and my Business Broker Code of Ethics requires me to recommend my clients seek the advice of an attorney, but when it comes to selling a business they can be deal killers.

The job of an attorney is to aggressively represent one side.  They get paid based on the time that they work.  It is to their advantage to foment discord between parties.  Attorneys decry that business brokers have a conflict of interest because they may represent both the buyer and seller in a transaction.  They seldom see their own conflict of interest, in that their client wants to do the deal.  Their job should be to facilitate that transaction and prepare against a worst-case scenario. 

In one of the deals I had to save this month, I negotiated a $2.3 million dollar compensation package for my sellers.  My client had previously hired a broker who listed their business for only $1.6 million.  It was truly the best deal that anyone could have offered them.  The buyer demonstrated his competence by negotiating an SBA loan, and had a back up loan with another willing lender.  In my 36 year career working with businesses, the situation was unprecedented.  The Sellers specifically said to me, “We really like these buyers.”

The sellers hired their attorney to prepare the stock transfer.  As the transaction progressed, the attorney also prepared the seller carry note.  A job that escrow usually does.  As is often the case, the purchase loan was delayed due to bank requirements.  The sellers started to refer to the buyers as “incompetent, inexperienced.”  The seller carry note became more restrictive.  The sellers tried to infuse punitive damages on the buyers for delaying the deal.  When the loan was funded, they refused to provide the transitional consulting that they originally agreed to.  When the buyer had questions about the new requirements the sellers’ attorney told the buyer to have their attorney call her.  Their business broker certainly didn’t advise these actions.  The contention came from the attorney.  In the end the sale was consummated on the terms I had originally suggested, but the parties are off to a very bumpy relationship.  The attorney nearly killed the deal and on her advice the sellers may yet lose the $300,000 they are carrying. 

When you seek the advice of your attorney, take charge of the transaction.  Make your best deal and instruct the attorney what you want them to do.  They work for you.  Keep a lid on the cost by controlling the time they work.  Above all, recognize that you can’t sell your business without a buyer and the buyer must be successful to pay you.  Don’t let your attorney put a wedge between you and your future.

Show me the $$$$

Perry Angress

I have a constant flow of buyer leads for business opportunities. But not all Buyers qualify. The first item of business is to have all of my potential buyers sign a Confidentiality and Non-Disclosure Letter. At the same time, I ask the Buyers to provide a copy of a Bank Statement or some proof of liquid assets.

 I have found that if a buyer has no liquid assets, or assets that can be converted to liquidity, the chances of moving forward to assist that buyer is slim to none. There are other methods of bringing the buyer funds to purchase, these include: Family, Friends and of course outside investors.  I have had a parent provide funds to purchase for their offspring. In those situations, I ask the parent to sign the purchase agreement for the business as means to provide them a position of control.

 Money is key to buying a business, having enough to purchase the business is not enough to fulfill opportunity to succeed. The Buyer should have savings for what the business produces in gross sales in 6 months. This will allow the buyer to meet expenses for payroll, taxes, inventory, Cost of goods, insurance and rent should the business have a slowing sales cycle due to any economic fluctuations.

 “Show me the Money! Is my basis for bringing a qualified Buyer to the negotiation table with my seller.

I have had times where a buyer would ask if they could have a Seller Carry back financing on a purchase. This is almost never an issue if the Buyer has the financial capability to keep the business operating and has enough money to put down usually 50 to 70% of the selling price. It comes down to building a trust relationship between the Seller and the Buyer.

 So if you’re interested in selling your business and looking to have an experienced Business Broker bring you a qualified Buyer. Call me anytime!

Buy or Sell a Fantastic Business for the Holidays and the New Year

The Holiday’s are almost here and this is an exceptional time to think about either wanting to sell your business or to purchase a business during the Holiday and New Year Season. It might be time to think about your career goals and objectives or exit strategy and the Cash Flow and Seller Discretionary Earnings that you require and if you are thinking about changing your career path. There are many significant businesses that we represent for sale and for buyers looking to purchase the right business.   If you are a potential Seller wanting to confidentially sell your business in any service, professional, automotive, restaurant, manufacturing related, beauty, internet or technology business or any type of franchise and resell of the franchise or a Buyer wishing to purchase a Business then think no further than Phil Haney-Senior Business Broker/Sales Agent in the Santa Clarita Valley. I am fully focused and involved successfully in Representing Sellers and Buyers in the Sale and then Purchase of all types of businesses based on my vast business expertise and professionalism in business brokering for the last 17 years and also providing consulting for businesses and clients. Further my vast business expertise in operating and running large Divisions in Manufacturing and Operations in the Corporate World for many years and handling Mergers, Acquisitions and Owning several Franchises along with my past as an Officer in the Military has given me the insight to provide the best Representation and Guidance for Sellers and Buyers and Valuations on Business and providing a Win/Win for Sellers and Buyers.

 At Sunbelt Business Brokers and Advisors we are the largest Business Brokerage Entity in the United States and sell more businesses than any other organization. Sunbelt is the place to go to buy or sell a business.  This can be the perfect time for you and family to consider your options and future plans for your next vocation or career path or to sell your business and receive the rewards for all your growth and hard work or for your exist strategy.

At Sunbelt we use a 10-Step Process to Sell a Business:

A Business Broker Professional & Consulting Service Executive such as our Sunbelt Business Broker & Advisors organization can provide the necessary professional knowledge, skills, and business advice and Representation to either sell your business, provide consulting and an improved thought process for you, and for prospective buyers to purchase what they desire. To also represent the sale of the Business for you when ready or to assist you as a Buyer.  Give me a call or email me to coordinate a confidential meeting on your business and representation or buyer requirements. I can be reached at my email address at phil.haney@sunbeltnetwork.com or calling our main office or my personal cell phone at 661-644-5313.    

 Happy Holidays, Season Greetings and a Merry Christmas coming up. Enjoy and give me a call to talk further. A wonderful Gift would be a profitable business!!!

 PHIL HANEY

Looking Forward to 2017

The election is over. I know so many of my clients were so tired of hearing the news media producing negative information on the people running for government jobs. It created a negative effect on our economy during the last 2 years.  It kept many people from making decisions on purchasing a business in 2016. I call it the fear of the unknown. But, the political battle is over and now people can get back to rebuilding their business lives and rebuilding America.

Choosing to buy a business is not an easy task. It requires motivation, study, and the ability to recognize that a price agreed to at time of final negotiations is the correct path to closing the deal. As a Business Broker, I sometimes see buyers hesitate to make the decision to purchase a business.  They later recognize often too late in the game that they made the wrong decision. They lose out on a Great deal, simply because of the fear of the unknown. There will always be risk involved in purchasing any business. This is an absolute.  But, if you as a buyer can steady your hand and visualize the path that lies ahead for a company that you’re going to purchase, you will always make the right decision.

I had a buyer recently that had a fear of paying taxes because the company he was going to purchase made too much money.  There is nothing wrong with paying taxes, as long as you know you are going to realize the bottom line goes into your pocket.

2016 has been an exciting year. I have helped so many clients formalize their decisions on purchasing a business. If they didn’t purchase a business in 2016, they now have a path to assure them a smooth transition to a business purchase in 2017. I value my clients and I am always available to bring my consulting efforts to the table. I look forward to a very strong and profitable year in 2017 for all of my clients. If you want a path to a successful business future, give me a call anytime!  Perry Angress

Free Help for Business Owners

My client’s father asked him a very important question about his future as a business owner, “Are you going to work half day on the last day of your life?”  This question is more poignant to me because my father had a stroke at work and never came home again.  Fortunately, my client has built a strong, profitable business.  As his business broker, every day I find people interested in buying it.  We are currently in escrow and will close a few days after this article is published.  My client will take home over $1.5 million dollars, a consulting contract and 10 years of rent on the property he owns, a package deal totaling well over $2 million.

What is your business worth?  Will you be comfortable in retirement upon selling it?  I often wish I could meet a business seller 5 years before they want to exit their business.  I have a process that has helped hundreds of owners increase the value of their business by millions of dollars.  Among my clients are Coconut Joe’s, Mauricio’s, Porterville Citrus and my protégé helped to develop Pop Cap Games, the creator of Bejeweled.  Pop Gap sold for $1.3 billion dollars.  Many of our clients have been honored in INC magazine as the fastest growing businesses in the nation.

The process is contained in Best Practices of High Performance Entrepreneurs, currently available on Amazon.com.  While the book is very helpful, we have found that most business owners need some encouragement to implement the process.  It all starts with a change in attitude about your business.  Instead of puzzling over your next sale, you should be planning how to generate another $1 million in sales.  The scope of your business will change dramatically as you implement your strategy.  You will require policies and procedures to help you control the growth.  That is where the book comes in.  It is a checklist of the things great businesses do to make more money and increase equity, so you get more for the business when you sell it.  This is not a revolutionary process, most great CEOs follow similar steps to increase their stock price, but very few entrepreneurs know how to do that.

We at Sunbelt Business Brokers and Advisors invite you to come to a free seminar in the first quarter of 2017 and learn how you can increase the value of your business by millions of dollars in five years.  Please call 661-323-2358 to find a convenient time.

By Russ Allred MBA

No REGRETS

“I can’t play golf every day.” “My wife wants to see more of me — but not at every breakfast, lunch, and dinner!” “What do other ex-owners do after they’ve sold out?” Failing to answer these concerns can create vacillation, reluctance, and ultimately, an unwillingness on the part of many owners to proceed with planning for their business exits. To examine these concerns, lets analyze a panel of former business owners involved in the owner to former owner transition. All three reported that selling out was the “best thing possible for me and for my family.” That said, each owner approached the sale differently and each has pursued different interests in its aftermath. Tom Frankl was 62 when he sold his high-tech manufacturing firm. He was prompted to sell first when his accountant introduced Tom to Exit Planning and helped him put in place a successor management team. Complementing this concrete Exit Planning step was Tom’s realization that his emotional connection to the business was loosening. When these objective and subjective events converged, Tom began working with his advisors to orchestrate a sale. Bill Dirrito, the owner of a clothing and apparel manufacturing company, entered his business with one goal: reach $50 million in sales and sell out. Bill reached that threshold and determined that he’d have to make a huge investment to retain his current market share so he hired a transaction attorney and an investment banker and sold the company. Unlike Bill, John Six, the 55-year old owner of a low-tech manufacturing company was not focused on an eventual sale. In fact, he didn’t want to sell because he felt he finally “had it going just right.” When confronted with the idea that the time to sell coincides with the existence of continued upside potential, John started thinking about the hard times he’d been through. If hard times returned, he wondered if the company could survive and knew that losing his “upside” would be the least of his worries. He, too, made the call to his advisors. Having all arrived at the closing table via different routes, each now-former owner, has found a similar satisfaction in the decision to sell and in life after the sale. Tom arranged his sale so that his employees kept their jobs and gained greater career opportunities. This gave and continues to give Tom more peace of mind. While he did not have a detailed plan in place for life after the sale, he quickly found new outlets for his energy. He has become the “Park Superintendent” of his 70-acre property. He’s spending time with his wife and family, has time to travel the world, is considering developing some farmland and has taken an active role in community philanthropy. In Tom’s words, “One of the things I appreciate most in this ‘retired life’ is that it isn’t a ‘retired life’ at all.” John echoes Tom’s comfort with this decision. “Of course I wondered what I would do [after the sale] because I was in that business for 30 years. But the day I walked out of there I never looked back. I never missed it. It’s incredible but my schedule is calendared 18 months ahead.” On John’s calendar are motor home vacations, developing an industrial park and expanding his world class collection of race cars. John leaves the house by seven each morning and doesn’t find his way home until late afternoon. Bill, the planner of the group, anticipated that he’d need a place to go— outside of his home — on the day after the sale. He rented and equipped an executive suite and mapped out the first three months after the sale. Today, he spends time on his hobbies (golf, horses and motorcycles). He has educated himself about investing, advises other business owners and works collaboratively with his investment manager. By any yardstick these former owners remain engaged and vital. They have moved into a new era in their lives — an era untroubled by financial concerns.  Not every former owner has the same experience, but our firm believes that owners who thoughtfully plan their exit increase the likelihood that they will be satisfied with their exit and whatever follows.  We’d like to sit down and talk about the role that we can play in crafting a future that works best for each and every business owner. Getting the most for your business and getting it in the best way. We know stuff  that our contemporaries can’t know.

BY:Paul Willingham

Choppy Waters

Navigating the Choppy Waters of a Sale to a Third Party by Paul Willingham

So what if you’ve never sold a business before? Who better to lead the sale process than the guy who knows far more about the business than anyone else? Who better to steer the ship than the gal who knows exactly what she wants from the sale of a business?

Before you answer, pause for a moment to consider the possibility that you might just be the worst possible person to sell your company.

Why? As the one most emotionally attached to your business, you will likely find it difficult (if not impossible) to negotiate with a prospective buyer in a detached, dispassionate and effective manner.

In the mid-market range, most buyers are experienced and skilled in buying companies just like yours. They understand that all deals travel rough and shark-infested waters because they are the sharks! Their favorite meal is the owner sailing the sale waters alone.

Further, at some point, all sales negotiations become intense. Experienced transaction professionals anticipate and manage the inevitable lulls and storms that few owners have the stomach to endure.

But let’s assume (as you might) that you will have no problem navigating the rough waters of the typical sale process. Can you do so while simultaneously doing everything necessary to keep your business running at full steam? Rare indeed are the owners who can keep their companies running at peak performance while negotiating the intricacies of a sale.

If there was ever a time to stay focused on your company, the period during which you negotiate the sale of your business (often six months or more) is it. Any drop in company productivity, sales, or income is like blood in the water and will be subject to the buyer’s scrutiny and has the potential to scuttle even the best deal.

If you need another reason to decline the lead role in sales negotiations, keep in mind that once the deal closes, you are the only member of the cast who may have to work with the buyer as an employee. The more crucial you are to the success of your company, the more likely it is that a buyer will require your continued services after the sale. For that reason, many sellers understand that it may be in their long-term interest to assume a less visible (and thus less adversarial) role during the sale process.

Consider that if you allow your deal attorney, business broker, or investment banker to take the lead in the negotiations, you are better positioned to remain detached from, yet in control of, the process. For example, if your lead advisor reaches an impasse with the buyer’s representatives, you can insert yourself, at the appropriate time, to break a deadlock. This is precious capital that you cannot afford to squander by being in the thick of the fray day in and day out.

As transaction intermediaries (business brokers) are quick to point out, the right transaction intermediary should bring value to the sale process. They argue that you should receive more money on better terms when they organize and conduct negotiations.

You may find the assistance of a good transaction intermediary to be valuable in:

Assessing the marketability of your company. Accurately pricing and valuing your company. Locating qualified buyers. Conducting a competitive auction. Negotiating and closing the deal

For all of these reasons, put your energy into selecting the best possible crew: an Advisor Team (including a transaction intermediary) that has navigated these waters—many times.

While you may depend on your crew to navigate your voyage to a safe harbor, you remain the captain of the ship. If you have questions about the sale process, your role in it, or the role of your advisors, we can help. Please contact us.