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.  

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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.

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