Wall Street Journal (03/08/12) P. B8 Maltby, Emily

Increasingly, selling a business has become more complex with buyers asking
sellers to help finance sales, with sellers being paid in installments over
time. In some cases, buyers want or require sellers to continue working at the
firms once the sale is completed so that buyers can more easily take over the
managerial role without disrupting employee or customer relationships. A recent
survey by the American College found that more than 50 percent of more than
1,200 business owners are concerned about obtaining the highest possible value
for their businesses to help fund retirement. The concerns are valid given the
increase in seller financing as buyers still find it difficult to secure
third-party funding — which generally needs between 50 percent and 80 percent
of the sale price financed — and concerns of buyers about business debt or
declining or flat business returns. Business brokerage Generational Equity LLC
says 90 percent of 2011 transactions had a seller-financing arrangement, up
from 25 percent of transactions before the recession. Worldwide Business
Brokers LLC says that banks are more willing to lend to buyers that have
collateral, such as real estate, but even with access to financing, sellers may
still have to finance 20 percent or more of the deal for buyers. BizBuySell.com
reports that the median sale price for small businesses totaled $155,000, about
18 percent less than in 2008 but 3 percent higher than in 2010.

Growing Your Business
Through Acquisition

Miami Herald (03/18/12) Cassel, James

James Cassel, co-founder and chairman of the Miami-based investment banking
firm Cassel Salpeter & Co., says that now is a good time to buy a business,
as Baby Boomers are retiring and their children do not always want to inherit
the business. Some companies seek to acquire a business as part of a growth
strategy, and there are several things they should do to ensure a successful
purchase. They can expand their business by buying a direct competitor, a
similar firm in a different geographical area, or a company that offers
cross-selling opportunities. They should make sure they have the finances to
make the acquisition, being realistic about the estimated costs, ensuring their
existing business has enough capital, and avoiding too much debt. They should
forge relationships with companies they might want to acquire in the future to
give them a competitive edge when those companies decide to sell. Additionally,
they need to plan the integration of the new business and the transition of its
employees in advance, and they should not be afraid to walk away from a deal
that is not going to achieve their goal of expansion.

How to Value Inventory
When Buying a Business

GlobalBX (03/07/12)

Business valuation is an important part of a business purchase or sale to
ensure that buyers are not paying too much and sellers are not selling for too
little. To properly evaluate a business’ inventory, buyers and sellers must
agree on the method used for valuation, such as the original purchase price or
the current value of the items. Given that inventory levels will fluctuate
during the transaction process, final count and valuation should be done at the
close of the sale, and anticipated value for inventory must be provided by the
buyer and seller and adjusted if necessary. Should a valuation disagreement
arise, both parties should consult with an accountant, and the buyer must
account for errors in inventory control software and perform a physical count
of inventory when necessary. The condition and quality of items in the
inventory should be assessed, with salable items included in the valuation.
When buyers and sellers have a good relationship, inventory counts should be
done together and buyers can use the opportunity to ask the seller about
aspects of the business. An outside inventory service firm should be considered
to count and assess items as well.

Can Your Business Be
Sold?

Inc.com (03/14/12) Handelsman, Mike

Exiting a business can be a tough decision, but owners and their advisors must
first determine if the business is a good sale prospect that someone would want
to buy whole or in pieces. Buyers are looking to purchase not only assets but
also the reputation, clients, and marketplace advantages of a particular
business. Experts agree that the business’ condition must be assessed in terms
of sales and profits over the last three years, costs and operational expenses,
current financial condition, liabilities, superiority of products and services,
and its reach beyond local and regional clientele or prospects for client
growth, among other intangible assets. Once the firm has been assessed, areas
for improvement should be strengthened before a sale offering is completed,
which will require an action plan for each and a timeline for completion. Once
finished, business owners and advisors will determine if the business can be
sold immediately or later or eventually be liquidated.

Fewer Sellers, Plenty
of Buyers for Business

Colorado Springs Gazette (02/23/12) Heilman, Wayne

Colorado Springs, Colo.-based business broker Ron Brasch says that now is the
time to sell a business, given that values are up 20 percent to 25 percent
since 2009. Brasch, a merger and acquisitions specialist at First Business
Brokers Ltd., says, “It is really a sellers’ market for quality businesses
with accurate financial statements because there are fewer sellers and plenty
of buyers.” Rather than finding another job, Brasch says that more people
are looking to buy a business, and an increase in loans guaranteed by the U.S.
Small Business Administration is making this possible. He adds that some
business owners from the Baby Boomer generation are hanging onto their
businesses as they wait for income to return to pre-recession levels. The cash
flow generated by the business plus the owner’s salary, demand from prospective
buyers, and the fair market value of inventory and equipment, among other
things, will determine its value, according to Brasch.

Merger and Acquisition
Deals Expected to Increase in 2012

Los Angeles Times (03/01/12) Hsu, Tiffany

A new report from KPMG and the University of Pennsylvania’s Wharton School
finds that companies are likely to pick up their merger and acquisition
(M&A) activity this year while interest rates are low and they have more
cash on hand to spend. Of the 825 executives polled for the study, 34 percent
said they are feeling more hopeful about making deals this year, 40 percent
feel as hopeful as they did last year, and only 2 percent say they are much
less hopeful. Some factors affecting respondents’ feelings about the current
M&A environment are the sluggish job market, Europe’s uncertain fiscal
outlook, and the upcoming U.S. presidential election. Nevertheless, companies
have been eagerly seeking deals for months, even though agreements now are not
as lucrative as they were several years ago. Private equity buyouts reached a
three-year high last year of $277.7 billion in deals as emerging markets became
more active in dealmaking. Close to 70 percent of the executives queried said
they expect their companies to complete one or more acquisitions this year,
compared to the 57 percent who said the same last year.

The answer is of course “Not the next day, but it could be soon afterwards”.

All buyers expect some sort of transition or training period with the former owners. They need to meet the key customers, suppliers, etc., and get a chance to know the employees. Of course the transition period is a matter subject to negotiation. Generally anywhere from a couple of weeks to a couple of months will be required and will vary with the industry knowledge and experience level of the buyer. The seller’s job is to help the buyer shorten the learning curve so that he can run the business as soon as possible.

Often in larger transactions, the buyers want the seller to stay for an extended period of time, sometimes a year or two. These transactions generally involve a management contract of some sort and will involve compensation for the seller. Some owners view selling as a chance to allow the business to achieve a new level of growth and capital expansion and they would like to continue being a part of the story. A smaller piece of the pie, but a much bigger pie is their goal.

There are usually motivations on the part of the seller which argue for an early departure. A seller may be just plain tired of the business – burned out – and need and want a change of scenery. There may be an illness requiring or encouraging the sale. Perhaps retirement is urging them on, or advancing age, and all of those things still to be done. Most small to medium business buyers will understand these desires and actually want the seller to leave sooner rather than later so they can start doing their own thing.

A desire for early departure by the seller may also be a red flag for a buyer. Questions could arise about why such a hurry? Is there something about to go wrong that he’s not telling us?

So if you are selling, try to understand the buyer’s issues and be a little flexible in your departure plans.