Why You Shouldn’t Sell Your Business Without a Broker
Selling a business is not an easy endeavor in the slightest. Business owners who try to avoid the help of professional business brokers in New York City will be essentially handicapped to deal with this cumbersome process.
WHY YOU SHOULDN’T SELL YOUR BUSINESS WITHOUT A BUSINESS BROKER NEW YORK CITY
Below is a list of mistakes that business owners incur when trying to sell their company without the assistance of a business broker New York City:
1. INCORRECT PRICING
Even small business owners could struggle to define a fair value for their business. There will be a natural tendency to over evaluate o underestimate the business because of miscalculations and emotional factors.
When these miscalculations happen, there is a good chance that you’ll scare off prospective buyers, either because they find it suspicious that the business is sold at such a low price, or they feel the seller is asking for too much.
2. INCORRECT MARKETING
Most business owners are not very savvy in the art of selling a business. Unless they find relatives or friends interested in buying, they will ultimately be left with little to no candidates. This is because they lack the tools and connections necessary to draw the attention of investors.
Business owners will likewise tend to get emotional when showing their company. This may not be a very attractive approach to most buyers because, in most instances, they will come to the conclusion that something awry drove the owner to sell and they’d probably want to steer clear from proceeding with the deal.
You’d want a relatively emotionally-neutral third party who is able to showcase the perks and features of your venture without making it seem as if he/she simply wants to get rid of a troubled business (even if that is, indeed, the case).
3. Lack of Confidentiality
When you decide to deal with buyers yourself, you’re sometimes bound to disclose personal data.
Business owners are particularly susceptible to revealing too many details of their personal life and their company to people who might not be very serious about the sale and who may, in turn, reveal them to others who “have a dog in this fight”.
These are the hazards associated with doing a sale without the aid of competent business brokers in New York City. A good business broker is trained to deal with the sale in the most confidential way possible (at times, even your name is not mentioned at all during screening.)
4. Problems Gathering Documentation
Buyers will demand a copious amount of documentation in order to assess the company’s financial status, especially in the context of “due diligence”. Things can get quite tough at this stage, and gathering all the documentation could seem next to impossible.
Among other things, you’d have to make a list of all your current assets, fixed assets, liabilities, debts, and contracts, as well as collect a plethora of financial documents. These tasks can be effectively streamlined thanks to the help of a business broker New York City who understands all the nuances and caveats present in the process of selling a business that corresponds to your industry in the New York area.
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Takeaways from the Latest BizBuySell Insight Report
Whether you are thinking of buying or selling a business, it’s worth taking a look at the quarterly BizBuySell reports. The findings from these publications are taken from analysis of sales and listing prices of approximately 50,000 businesses across the United States. The report covers the statistics of sales prices and successful transactions. It also discusses the trends that are at play. Regardless of your role in the business world, these trends likely will have some sort of impact on you.
A Boom for Sellers
The latest BizBuySell report, which covers Q4 of 2021, found that now is a very positive time for sellers. Q4 actually surpassed the pre-pandemic numbers of the fourth quarter of 2019. Of course, this is a major shift away from the sales numbers in 2020. It is typical to see transitions dip in the fourth quarter; however, 74% of brokers stated that their sales were steady during this time period. Experts say that this strength has carried into early 2022.
Other notable sales statistics include the following:
- 8,647 closed transactions were reported in 2021, an increase from 7,612 in 2020
- Sales prices increased 16% year-over-year
- Median cash flow grew 10% year-over-year
Buyers are Looking for Quality
In terms of what buyers are currently looking for, 60% of surveyed buyers indicated that strong financials were simply a “must have” when they were considering a business. This number is in stark contrast to 18% of buyers who responded that discounted opportunities were a top consideration.
Labor Shortages a Factor
The BizBuySell report also discussed the prevalent factor of labor shortages. In fact, 64% of owners surveyed say that this issue has impacted them. Business brokers agree that labor shortage is currently the largest problem for small businesses. Another corresponding issue is that of supply chain disruptions, which 75% of the business owners responding to the survey said had an impact on them.
A More Balanced Landscape
In the survey, brokers were asked if they believed that owners were more or less likely to sell their business in 2022 versus 2021. The general trend was towards brokers believing that there would be more businesses sold this year as compared to last year. Last year, the view was that buyers had the edge over sellers. However, now it seems as though brokers feel that the landscape has shifted and become more balanced overall.
Copyright: Business Brokerage Press, Inc.
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Don’t Hire The Wrong Business Broker
A business broker is a very useful “asset” for you, regardless of whether you’re interested in buying or selling a business. Hiring the right New York City business brokers is crucial for a successful deal. However, you must choose wisely to save lots of headaches and potential losses down the road.
DON’T HIRE THE WRONG NEW YORK CITY BUSINESS BROKER!
Has it ever happened to you that you paid a so-called “professional” to perform a specific job and he/she actually ended up making matters worse? A sort of “buyer’s remorse” kicks in, in which you end up thinking that you might have done a much better job on your own.
The same risks can arise with business brokers. New York City is packed with a plethora of people who advertise themselves as “business agents”, but not all of them have the required credentials or experience to handle all the chores involved in a business sale. In some cases, they have the pedigree but are simply too negligent or lazy for the job.
Traits of a Bad Business Broker New York City
These are some of the most common signs that you’ve hired the wrong business brokers:
* They will hardly ever respond to your calls or messages, even during office hours (unjustifiably so).
* They don’t really have a good network of connections, bankers, and clients to make the deal go faster (even when they claim they do).
* Bad business brokers would scare good prospective buyers and lenders off, at times due to intransigence and, at others, due to arbitrary changes in the negotiation terms.
* They would most likely leave a business listing to its own luck after publication and hardly ever answer questions from inquirers.
* A lousy business agent will fail to do proper marketing for a prolonged period, killing the momentum and making you lose a lot of good selling opportunities.
TRAITS OF A GOOD BUSINESS BROKER NEW YORK CITY
These are, conversely, the characteristics you’ll find in _GOOD_ business agents:
* They work hard to define the fair value of a business according to the company’s financial status and market conditions. They make sure to let the client know why they came up with a given valuation, even if it does not meet the business owner’s expectations at first.
* They tend to have a background in banking and to know the ins and outs of how financial institutions operate when it comes to loan applications.
* They have good connections with bankers that can fast-track the lending process for buyers.
* They assist both parties instead of just the one that hired them, so as to make the deal close faster and in the best interest of both.
* They’re prone to find a wide array of qualified potential buyers and, consequently, a great variety of offers for the seller to choose from.
* In the same vein, they actively screen businesses on sale to grant an investor with a long list of available options that match their interests.
* They’re capable of deterring the deal from being killed prematurely by the respective legal teams.
* They exercise a very aggressive marketing campaign in which they strive to display the company they’re aiding to sell under the best possible light.
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What You Need to Know About Family Businesses
Family businesses are critical to both the US and World economies. In fact, in the US alone, there are approximately 5.5 million family owned and controlled businesses.[1] While much of the world’s wealth is a byproduct of family-owned businesses, the fact is that most are not actually prepared to sell in a way that will profit the owners for their life’s work.
Many owners of family businesses care deeply about the legacy that they built and want it to remain in their family or with someone that will continue it with the same mission, vision, and values on which it operates. This is often difficult as the owners lack an established succession plan or exit strategy.
Studies show that about one-third of family owners never even plan to retire. As a result, they have no succession or exit plan in place. In some cases, the business is forced to form a strategy by default when the business owner becomes burned out, disabled or worse, passes away. This is clearly not the best path when it comes to maximizing profits.
Pros and Cons of Conveying Your Business to Family Members
According to Businessweek.com, the average lifespan of a family-owned business is 24 years. About 40% of family-owned businesses are successfully passed down to a second-generation with only about 13% passed down to a third generation. [2] With the fourth generation and beyond, the survival rate is 3% or less. Regardless of whether a family business owner intends to convey their business to a third party or have it remain in the family, it is important to maintain confidentiality and have the proper documentation in place for a successful transition.
There are disadvantages that need to be considered if you plan to sell your business to a family member. One key disadvantage is that a family business owner will typically receive less value for their business than engaging the sale with an independent third party. Selling to an independent third party can often force a family business owner to also paradoxically agree to a lower value in an effort to negotiate the retention of jobs and incomes for the family members they wish to remain with the business after the sale. It is important to prepare the remaining family members that they will have to accept the fact that they now answer to new ownership and management with the business.
Handling Multiple Owners and/or Decision Makers
If there are multiple owners and/or decision makers in the family-owned business and the business is being sold to a third party, it is important to appoint one family member to represent the negotiations. Having multiple decision makers at this critical step in the process of conveying the business to a third-party owner can lead to numerous issues and headaches for both the buyer and seller. Many times, multiple decision makers cause failure in the ability to transition the business to third-party ownership, as the parties involved have competing priorities with the sale of the business that prevents satisfying everyone involved in the process. Keep in mind that all family members must be in consensus with the price, terms and sale of the business or it will never happen. This fact can be true even if the family members involved are just employees or active/passive investors in the business. Disagreements among family members often derail the possibility of a deal happening.
Obtaining Outside Assistance
To increase your probability of success with conveying a family-owned business to future generations or new independent ownership, having a third-party guide you through the process who is not emotionally involved like the various family members involved, can be critical in making the deal happen. That’s why a variety of professionals including business brokers, M&A advisors, lawyers, and accountants should be brought in to help.
This article highlights just a few of the myriad of issues and process involved in conveying your business to new ownership once you decide it is time to retire or move on to a new venture. If you are just beginning or actively considering transitioning your business to new ownership, please do not hesitate to reach out to us for advice and assistance.
[1] https://www.gvsu.edu/fobi/family-firm-facts-5.htm
[2] https://www.johnson.cornell.edu/smith-family-business-initiative-at-cornell/resources/family-business-facts/
Copyright: Business Brokerage Press, Inc.
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Common Questions that Business Brokers in NYC Can Answer
Business owners can find it hard to wrap their heads around all the possible variables present in a business selling process. It’s part of what justifies the work of business brokers in NYC and beyond – to begin with.
A business broker (in NYC, of all places) should be readily available to answer many of the questions that an inquiring company owner may have, related to the arduous process of selling a business in such a regulated city. As well, he/she ought to be capable of offering recommendations on how to get the process going and informing of the different hurdles that can be found along the way.
Common Questions that Business Brokers in NYC Can Answer
Below we’ll list some of the most frequently asked questions that business owners may be asking:
1. HOW DO I CHOOSE THE CORRECT BUSINESS BROKER IN NYC?
The best possible way to determine whether a business broker is good for you is through interviews. By interviewing two or more individuals, you could intuitively discern whether the broker is reliable and has the necessary skills, knowledge, and connections to make the sale happen in the shortest period and with the best price tag.
As a side note, this is not a question that a specific business broker could answer, but we’ve included it here anyways.
2. How Long Does It Take to Close a Business Sale?
Business brokers get asked this quite a lot, and understandably so. Business owners would want the process to end as quickly as possible so that they may get on with their lives.
An honest business broker would tell the owner to not set expectations with regards to duration. Many factors could alter the time frame for a business sale, including the size of the company, its location, and the financing options available at a given time.
Valuations can already take a huge amount of time since all kinds of market metrics must be taken into account by business brokers. NYC is likewise a particularly difficult market to tackle due to the great number of competing businesses that operate therein.
In summary, the span of time it takes to sell a business cannot be feasibly ascertained.
3. How Does a Business Broker NYC Find A Buyer?
A business brokerage firm has the required tools to find buyers quite easily. They can choose from a network or shortlist of buyers, or through busy marketing via a myriad of business sale platforms. Brokers can also perform marketing listings on various top publications in the industry for increased exposure.
Additionally, business brokers in NYC are trained to sift through all prospective buyers and filter those with the most qualifications and possibilities of getting financed.
4. What Are The First Stages of A Business Sale?
Business brokers would first have to go through a business valuation and market analysis. For this purpose, a good business broker in NYC would ask for documentation and financial records to be able to delineate an accurate pricing range for the business. This would also grant a business owner the opportunity to invest in improving the business from an operational standpoint, as well as infrastructure, with the goal of settling for a higher price.
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Justifying Your EBITDA
All too often a business owner decides to sell, only to learn a number of harsh realities. For example, oftentimes a business owner discovers that their lack of financial data represents a major problem. The simple fact is that prospective buyers will dive in and scrutinize every aspect of EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) when looking at their perceived value of your business. This will most likely take place through what is called a Quality of Earnings Analysis Report (Q of E). General Accepted Accounting Principles serves as the key basis and language for financial reporting (known as GAAP Accounting). GAAP Accounting and Reports often represent a marked departure for how many companies handle their general and day-to-day accounting. The end result of all this can be a substantial shift in EBITDA as compared to what the actual number really is.
Potential buyers will ultimately receive numerous documents that outline the financial and operational health of your business during what is called the due diligence process in acquiring a business. This means that you, as a business owner, must be ready to invest a good deal of time in the process of disclosing as much accurate information as you can, in support and defense of the true and accurate EBITDA of your business. In short, preparing your business to be sold is no small affair when it comes to making sure that information is fully disclosed and in defense of the actual quality of financial and operational health to ensure the highest and best acquisition price.
EBITDA is one of the most common ways to value a business based on multiples of that number. When engaging your business for acquisition in the open market, you should expect that any buyer or potential investor will perform a review of your income statement for adjustments in order to arrive at an adjusted EBITDA that makes sense for THEM.
You need to be ready and fight back as to what the true Adjusted or Normalized EBITDA is, that serves as the basis for a purchase price of your business creating a value used with a multiple to negotiate a final price and terms that make sense for both parties. Miss out on the correct EBITDA for your business by $100,000 on a 3 multiple and you just gave up $300,000 in acquisition cost of your business – as an example.
There are three common EBITDA adjustments:
- First, items related to conversion based on a GAAP Accounting basis; this number can have a considerable range.
- Second, one-time events such as legal expenses, PPP loan forgiveness, insurance settlements, unusual expenses associated with issues/growth of the business can greatly factor into an adjusted EBITDA amount.
- Third, certain personal expenses a business owner takes that would typically not be part of the future cash flow of your business is another potential impact on EBITDA.
It is important not to ignore balance sheets when it comes to representing the financial health and aspects of your business as well. Smaller businesses typically focus strictly on profit, and this factor can result in balance sheets not being reviewed as often as they should be. A balance sheet needs to be recast in a way that the potential buyer truly understands the assets and liabilities that convey in a sale. It is better to recast the balance sheet upfront to what truly conveys with the business as the end result can be items popping up during due diligence causing hiccups in deal making and negotiations.
As an example – many times we see that business owners may park large amounts of cash in their business and on their balance sheets – over and above what is normally necessary. The minute a potential buyer sees a $1,000,000 cash position on a business when a $60,000 working capital position is needed, they are going to want that $940,000 cash to convey with the business. That’s fine if they are willing to pay $940,000 more for the business but not if they want the sale price of the business on a “cash free, debt fee” basis when the business conveys to stay the same with a reasonable sale price.
The same is true with liabilities. If you intend to convey the business without debt – if $500,000 in liabilities is relieved from the business, the value and burden of debt on the business logically increases by an adjusted amount in cash flow that is not needed by the business moving forward. This mathematically (and logically) increases the value of the business based on the cash flow used against the multiple used for valuation. Relieve $100,000 debt service to the business against a 3 multiple for the value equates to an additional $300,000 in value and price that the business should sell.
There are three key points that business owners should keep in mind when they are planning on selling their business:
- Make sure that managers and key employees are able to step in and run the business during the transition period.
- Review your financials, and get ready for GAAP reporting requirements during due diligence with a potential acquisition.
- Consider having a Quality of Earnings analysis performed with your business before going to market so you truly understand the financial health with your business.
As this article underscores, selling a business is a process with numerous moving parts. Well organized and solid financials – defensible EBITDA and operational health, represents to buyers and investors a sound and well-run business with an owner that is professional and realistic in their expectations.
Bottom line? Even if you believe it will be years before you place your business on the market, it is never too early to begin preparing.
Copyright: Business Brokerage Press, Inc.
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