Beat the Odds-Most Businesses Do Not Sell

Steps Owners Can Take to Realize a Successful Transaction

By: Philip Steckler

 

The New York Times recently published an article entitled “Why Many Small Businesses Cannot Be Sold” by Josh Patrick.   In the article, Mr. Patrick states that many business owners have a dream of selling their business, but most businesses will never be sold.

He refers to BizBuySell.com, the well known web site where business listings are posted.  At any one time, the site includes about 30,000 businesses for sale.  According to the sites “Insight Report”, transactions which have actually closed per quarter have ranged from 1,650 to 1,890 for the past 5 quarters. This translates into 4% to 5% of the businesses which are listed on the site being sold in any one quarter; or, on an annual basis, 16% to 20% of businesses for sale.     

 

This statistic is similar to that published by the Business Brokerage Press a number of years ago—essentially around 20% of the businesses which are for sale actually sell.  The statistics on “sold” businesses increase to around 35% as businesses get larger and fall below 20% with smaller businesses. 

 

Traditionally the primary reasons businesses did not sell were lack of profitability, and unrealistic expectations of the owner. Competition and industry challenges have become increasingly prevalent in recent years.

  
Businesses are generally sold to the following classes of buyers:

• Individuals (Includes couples)
• Existing Companies (corporate buyers)
• Professional Equity Groups

The size of a business and its related activity influence the type of entity that may be attracted to a business.  Individuals are the prime buyers for smaller businesses, but there certainly are wealthy individuals seeking larger enterprises.  Middle market and larger entities (generally manufacturing, wholesale, or distribution businesses) are attractive to existing companies seeking strategic acquisitions.  These businesses are also attractive to professional equity groups which invest and contribute management expertise.

A successful marketing program should identify the most logical type of purchaser, and focus on generating interest from a number of qualified prospects. 

BUYERS SEEK:

• Profitability and Growth.  Buyers aggressively seek profitable, growing companies.  Businesses which offer these ingredients are in the best position to maximize value.  
• Capable Staff.  Businesses that rely on the current owner for most functions are vulnerable when the owner leaves.  Allocating responsibility to qualified employees broadens the appeal of the business.
• Equitable Price & Terms.  A business is attractive to a buyer if it can generate a reasonable salary, pay debt, replace assets which wear out, and provide a return on investment.

ENHANCING THE SELLING PROCESS:
Business Plan.  Most owners are aware that their business operates better with a working business plan.  However, when it’s time to sell, owner’s often cease planning.  A current plan serves to enhance performance of?? the business during the selling process.  Being on plan reinforces projections and identifies avenues of future growth. 

 

Business Valuation.  This important step is really a decision making tool.  A business owner should proceed with the selling process if a sale will enable him to meet his goals.  Essentially, “can I do what I want to do, and will the sale enable me to afford to pursue my goals”? 

Tax Planning. “It’s not what you sell it for, it’s what you get to keep”.  Uncle Sam has his hand out to receive a share of the proceeds of a sale.  Careful planning can reduce the tax burden, and enhance the net proceeds to the owner.

Professional Help.   Professional advisors are invaluable in the selling process and will generally include:

• Accountant.  An accountant familiar with dynamics and implications of a business sale will recommend allocations of the purchase price and help structure the transaction to minimize taxes.
• Lawyer.  A lawyer protects the client’s legal interests, and some are well versed in tax laws.
• Business Broker or Merger and Acquisition Specialist. Generally the “quarterback” of the team, the experienced broker will prepare accurate offering material, actively search for and qualify appropriate buyers while maintaining confidentiality, work closely with the client’s CPA and lawyer, assist in negotiating the transaction, and help prepare financing proposals and work with the buyer to attain financing.
• Financial Planner.  The financial planner should assist in advising a client how best to invest the proceeds of a sale, consistent with client’s goals.  

SELLING a business is time consuming and complex.  In order to realize the most advantageous sale, the process should be carefully planned and implemented.  Done correctly, most successful businesses sell generating satisfactory results to the business owner.      

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Philip Steckler Pratt's Stats Hall of Fame Winner!

Philip Steckler of Country Business, Inc. of Brattleboro, VT., has been selected as one of the 2012 Pratt’s Stats Hall of Fame award winner.  Pratt Stats, owned by Business Valuation Resources, is a database of completed transactions.  This database provides details of completed sales and is used by business brokers, merger and acquisition professionals, and appraisers, in seeking comparable sales in various industries.  Mr. Steckler received this recognition for providing information on the many business sales he has managed over the years. 

Philip Steckler became a principal of CBI in 1976. Since that time, Phil has managed the sale of hundreds of business transactions throughout New England. Steckler helped formulate the mission of CBI-"to manage the sale of successful businesses to qualified buyers who will continue to be successful." Steckler frequently addresses business owners, accountants, and bankers on business succession planning and valuing businesses.

CBI is dedicated to excellence in the management of ownership transitions of privately held companies.  With locations in principal cities throughout New England, Eastern Canada, and the Capital District of New York, CBI is the region's only organized marketplace for business transactions. 

 

 

2013 Outlook

We project continued increases in activity in the current year. The fact that transitional activity is largely seller driven, our aging population, particularly an increase in baby boomers reaching retirement age, indicates more businesses will be available for sale. One of the nation's largest accounting firms projects that close to 70% of small to mid-size businesses plan to sell within the next ten years.

 

CBI currently represents some very successful businesses, and these are generating a significant level of activity. Demand for businesses is strong. Equity groups are aggressively seeking larger manufacturing and distribution businesses. Existing companies recognize that the best opportunity for growth in "a limited" growth economy, is through acquisition. And inquiries for opportunities from individuals or couples remain strong. CBI's greatest challenge remains on the supply side of the equation - there are plenty of qualified prospects seeking successful businesses, but the supply is always limited. These supply and demand factors along with low borrowing rates, and continued beneficial rates on capital gains indicate that those selling their business should do very well.

 

Blueberry Fields Whole and Organic Natural Foods, the Monadnock Region's premier natural food and vitamin supplement store on Emerald Street in Keene, has been sold to Richard P. (Rick) Reman II.

Blueberry Fields opened in 1995, and the current owner and seller, Matt Everson acquired the business in 1997.  Under Mr. Everson’s guidance, the business developed into a substantial enterprise.   “We recognized the national trend towards healthier lifestyles, and knew that natural foods, vitamins and supplements were an essential component.  Sourcing quality natural foods and leading manufacturers of vitamins and supplements enabled us to mirror national trends of 10% to 20% annual growth in the industry”.   After 15 years in the business, Mr. Everson said, “it has been a great experience and I will miss the customers and staff, but it was time to pursue other interests and spend more time with family and friends.”     

Rebman and his family recognized Blueberry Fields was a significant and vibrant regional business.  Mr. Rebman has been in the food business for nearly thirty years as an owner, a broker, and a distributor.  “This is a continuation of my commitment to the food business, enabling me to concentrate on providing natural products for healthier living. 

Mr. Rebman intends to build Blueberry Fields by listening to its customers and sourcing exactly   what they need and want from the growing natural products industry.  Mr. Rebman will implement two operational improvements: “As soon as we have adequate additional staff, we will extend hours until 7 pm every evening and open Sundays.”

Blueberry Fields has 5,500 sq ft of space and is conveniently located on Emerald Street in Keene.  The store has free parking and easy accessibility to Keene residents as well as those traveling to find the selection of natural living products that have been featured in the store through the years.   

The transaction was managed by Philip Steckler, a principal of Country Business, Inc.  The company has offices throughout New England.  Mr. Steckler’s works out of the company’s Brattleboro, VT office as well as from Moultonborough, NH.

John Stimets has been named Associate of the Year for 2012 with Country Business, Inc. (CBI). Brian Knight, President of CBI has stated that “John’s ability to identify his client’s needs and meet their expectations is exceptional.”

 John Stimets has been the lead intermediary in the Burlington office since 1991. John's expertise in finance, sales, negotiation and management assures his clients of positive results when he is retained to manage the transfer of their business.

CBI is New England’s largest privately held business brokerage firm. The sale of small and mid-sized businesses is the firm’s principal activity. Since 1976 the company has valued or managed the sale of over 1000 businesses with sales prices ranging from a few hundred thousand dollars to $10 million. For further information about CBI services visit the website at www.countrybusiness.net

Is It A Good Time To Sell?

Factors to Consider:

The Owner's Main Objectives and Motivation
Operating a small company is demanding work, and eventually the primary interests of an owner can start to shift to activities other than operating their company. Owners who are proactive about planning for their futures will generally have more time to enjoy other activities. An owner’s declining interest or ability in operating their companies can quickly lead to erosion of ownership value and a smaller pool of potential buyers. Lastly, the very low rate of successful ownership transfers across generations suggests that many small companies will perform better under new, independent leadership.

Interest Rates and Taxes
Interest rates remain at historically low levels which is supporting the economy. Income tax rates on capital gains also remain at lower levels. Many expect both interest rates and tax rates to increase in the not-too-distant future in order to raise funds for repayment of the significant national debt. Increased taxes can lead to decreased net proceeds from the sale of a company. Likewise, increased interest rates can make acquisitions more costly to buyers which can suppress pricing since “value” and interest rates work inversely to each other - as rates move higher, value moves lower.

Company Performance and Trends
Economic conditions over the past few years have been difficult on many small companies. Those companies that have continued to operate successfully from a strong foundation demonstrate unique value to buyers.  Identifying a new owner while a company is performing well can produce better results in terms of net proceeds and buyer quality.  Demand for business acquisitions from all sectors—high net worth individuals, corporations, and private equity groups— remains strong. However, as we have seen, the future is uncertain and market conditions can change suddenly and dramatically. Trying to ‘time the market’ is risky when selling a private company just as it is in buying shares of publicly traded stock.

Four months, two offers, full price!

" My wife loved her Smart Cart so much I bought the Company!"



  

• CBI knows every business is unique and needs expert analysis to maximize its value.
• CBI's database of prequalified buyers carefully selected from inquiries to its 10 locations provides sellers with the greatest exposure - often resulting in multiple offers and ALWAYS resulting in the best possible price for their businesses.
• CBI has experience and contacts necessary to negotiate selling terms to meet the financial and tax needs of each seller.

During our 36 year history, CBI has completed sales of thousands of businesses. When you sell your business through CBI, we will work side-by-side with you just as we did with the owners of Muller's Smart Carts- resulting in Muller's Smart Carts being sold to a highly qualified buyer in a short timeframe at a price reflecting its unique value.