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.

 

Time Frame, Inc. a manufacturer of products used for awards and promotional products has been sold to TF Pressworks, Inc. and CBI managed the transaction.

CBI is proud of our track record, bringing successful companies and highly qualified buyers together. In business since 1976, we have managed the sale of more than 1,000 businesses. Our team of professionals are located throughout New England, Upstate New York and Atlantic Canada.

We Get The Job Done!

When the owners of this full service specialty kitchen store decided it was time to sell their business, they chose the services of Country Business, Inc. - we understood the special nature of their business. They required a firm that would provide professional advice, properly price the business, effectively and confidentially market their company so as not to disrupt business. They determined that CBI could best represent their interests.

For each client CBI:

• Thoroughly analyzes the business
• Recommends an appropriate price and terms
• Aggressively markets the business while maintaining confidentiality
• Provides a detailed offering prospectus to financially qualified buyers
• Assists in attaining financing
• Manages all aspects of the transaction

If you are considering the sale of your business now or within the next few years please contact us!

Leaps and Bounds at Look's Gourmet Foods......

Congratulations to Mike Cote and Look's Gourmet Foods and Bar Harbor Foods in Whiting, Maine, on their honor of being among the 5,000 fastest-growing companies in America, according to Inc. Magazine's annual ranking of private companies based on growth.

At CBI we are proud of our track record, bringing successful companies and highly qualified buyers together just as we did for Mike Cote and Look's.

Working with founders and their families we assist business owners in developing an exit strategy to meet their needs in a highly confidential manner.

When you are ready to buy a successful company we may have your solution, or if you are considering the sale of your business we can help you hit the sweet spot, just as we did for the former owner of Look's and many other satisfied clients.

Country Business, Inc. has been New England's only regional business broker since 1976.

Tammy Richards Joins CBI!

Tammy A. Richards, AVA, CMAP has become an associate of CBI (Country Business, Inc.). 

Mrs. Richards has spent the past 15 years in investment banking and business valuation. She worked for Citigroup in New York where she spent 5 years in the Acquisition Finance Group working closely with private equity firms in valuing and financing buyouts of middle market and large-cap companies. She then became Vice-President in the Global Loans Portfolio Management Group where she managed a portfolio of leveraged corporate loans.   After moving to Vermont with her family, Tammy worked for a leading regional accounting firm providing business valuations of family-owned and closely held businesses for sales and acquisitions, estates, gifting, and other tax related purposes.

Tammy is an Accredited Valuation Analyst, and is a NACVA Instructor where she conducts webinars for CPAs and other Business Advisors. She also earned the designation of Certified Merger and Acquisition Professional awarded by the Middle Market Investment Banking Association.

Philip Steckler, a principal of CBI states: “Tammy’s talents and experience enables us to expand our services.  As a certified business appraiser, she is able to accept valuation assignments where these credentials are required.   She is also a part of our business brokerage/mergers and acquisitions team.”  She will be working in Vermont, New Hampshire and Western Massachusetts.   

Tammy graduated summa cum laude with a Bachelor of Arts degree in mathematics from Hamilton College and currently resides in Williamsville, VT with her husband Drew and daughter Hailey.  Tammy can be reached at (802) 254-4504 or trichards@countrybusiness.net.

Founded in 1976, CBI is dedicated to excellence in the management of ownership transitions of privately held companies. With offices in strategic locations throughout Northern New England, Eastern Canada, and the Capital District of New York, CBI is the regions only privately held regional business brokerage and acquisition company. For more information about CBI, please visit our website at www.countrybusiness.net.

CBI Welcomes New Associate!

Reid L. Williams has joined the Burlington office of CBI. CBI is New England's largest privately held business brokerage firm with locations in New England, New York and Atlantic Canada and specializes in the sale of privately held businesses. Mr. Williams will be working in Northern Vermont and concentrating his efforts in Lamoille, Washington and Orange County.

Reid holds an engineering degree from Lafayette College. Having successfully founded, managed and sold a $20 million dollar business, Reid brings to CBI a wealth of business and entrepreneurial experience. He is currently residing in Stowe, Vermont with his wife.

How Does Your Company Rate?

Valuing a business involves, not only numbers, but also very importnant subjective factors. Here are some importnant subjective factors to consider. How does your company rate?

• Stable market
• Stability of earnings historically
• Cost savings after purchase
• No significant capital expenditures required
• No significant competitive threats
• No significant alternative technologies
• Large market potential
• Reasonable market position
• Broad-based distribution channels
• Sound management willing to remain
• Product diversity
• Wide customer base
• Non-dependency on few suppliers

Successful Fire Alarm and Security Company

The following is from John Stimets, CBI VP

CBI, New England's leading business brokerage firm, is looking for a person, family or corporation interested in a well established,  profitable and successful fire alarm and security company. This company has 50% of its revenues from repeat and ongoing business. Another 40% of its revenues come form the established customer base who require upgrades, replacements and ongoing service. There are a minimal number of employees, most with 15 years tenure. The cash flow exceeds $250,000 annually and provides excellent returns on investment. There is plenty of opportunities for expansion. This may be one of the best businesses I have worked on as a business broker. This and other great Vermont businesses for sale are available through Country Business, Inc. (CBI), a business brokerage firm that sells successful businesses to qualified buyers.

The following is from John Stimets,VP 

CBI, New England's leading business brokerage firm, is looking for a person, family or corporation interested in a terrific Vermont business. This well established company is an outsource manufacturer that operates under long term and long standing contracts with its customers. There are a minimal number of employees. The manufacturing process is simple and easily learned. The cash flow exceeds $250,000 annually and provides excellent returns on investment. There is plenty of excess capacity for expansion. This may be one of the best businesses I have worked on as a business broker. This and other great Vermont business opportunities are available through Country Business, Inc. (CBI), a business brokerage firm that sells successful businesses to qualified buyers.

VT Computer IT Service & Web Development Business

CBI, New England's leading business brokerage firm, is looking for an entrepreneurial person who is interested in a growing computer IT service & web development business. This person should have basic IT skills so the staff of 9 can be managed properly. This 10 year old service business has a huge amount of repeat business. The income is very attractive and will lead to owning the business outright after five years. It may be very suitable for a semi retired person or a young "techie" who wants to find a way to return or remain in Vermont. This and other great business opportunities are available through Country Business, Inc. a business brokerage firm that sells successful businesses to qualified buyers.

CBI, New England's leading business brokerage firm, is looking for an entrepreneurial person who is interested in a terrific Vermont lifestyle business. This person or family will enjoy owning a great business in a small Vermont community. This retail opportunity will immediately immerse the owner into the community. Superior homestead opportunities are available to live on a pristine Vermont lake or hillside. The income is very attractive and will lead to becoming a millionaire over time. This business, represented by Country Business, Inc. presents a unique opportunity for a family to work together in a proven, successful concept. It may be very suitable for a semi retired person with an adult child who wants to find a way to return or remain in Vermont and make a good living and re-establish family ties between the generations. This and other great Vermont business opportunities are available through Country Business, Inc. (CBI). We sell successful businesses to qualified buyers!

Top Ten Mistakes Made by Sellers

The following is an excerpt from The Privately Held Company Newsletter.

1. Neglecting the day-to-day running of their business since it will sell tomorrow.
2. Starting off with too high a price since the price can always be reduced.
3. Assuming that confidentiality is a given.
4. Failing to plan ahead and sell/deciding to sell impulsively.
5. Expecting that the buyers will only want to see last year's P&L.
6. Negotiating with only one buyer at a time and letting any other potential buyers wait their turn.
7. Having to reduce the price because the sellers want to retire and are not willing to stay with the acquirer for any length of time.
8. Not accepting that the structure of the deal is as important as the price.
9. Trying to win every point of contention.
10. Dragging out the deal and not accepting that time is of the essence.

Avoid These Business Sale Myths

The Following is from the International Business Brokers Association, Inc.http://www.ibba.org

The typical business owner will only sell a business once. Understanding the complex process involved will help produce the best results. But don't fall prey to the myths that can derail or seriously affect a potential sale.

Myth#1-I Can Sell It Myself
Many owners believe they're qualified to sell their business without professional assistance. Many owners are entrepreneurs and the key salesperson for the company. But selling a business is not like selling a product or service.
If you're looking to sell on your own, confidentiality is lost. If word of a potential sale gets out, there are definite risks of losing clients, employees and favorable credit terms.
Do you really have the time to run your business and compile marketing materials, advertise, screen buyers, give tours and facilitate due diligence?
When you're looking to sell you want to put even greater emphasis on running your business, boosting your sales and not taking on new challenges.

Myth#2-I'll Sell When I 'm Ready
Certainly, an owner wants to be sure he or she is mentally and emotionally prepared to sell, but personal readiness is just one factor. Economic factors can have a significant impact on the sale of a business.
Sale prices can be affected by industry consolidation, interest rates, unemployment and many other economic measures. Talk with a professional and aim to sell when your personal goals and market conditions align.

Myth#3-I Know What It Is Worth
Some owners will base the company value on what they need for retirement. Others will tell you they want $100,000/year for "sweat equity." Still others utilize industry multiples.
A third party valuation is a good idea for anyone seriously considering the sale of their business. An outside valuation will include a thorough analysis of the business and the market it operates in. This will provide a solid understanding of the company's growth potential, not some vague industry average.

Myth#4-It's Like Selling A House
Preparing to sell your house may take a few weeks, then you want to get the word out to everyone that the house is on the market. Once you get a satisfactory offer, you sign on the dotted line, turn over the keys and move on.
Selling a company is much more complex. A successful business sale usually requires a great deal of pre-planning, at least a year and maybe as long as three years to drive sales, develop key staff, document the operations and control expenses.
The average house will sell in less than four months, while the average business sale is nine months to a year.
Even after the business is sold, the seller can be expected to put in at least a few months, and possibly years of transition time, helping to make the new owner a success.
Sound sale strategies will bring you the optimum price the market will bear. Go to market with realistic expectations by getting a professional valuation and using a professional business broker or intermediary.

How's Your Corporate Social Responsibility (CSR) ?

Your first question may be, "Just what is Corporate Social Responsibility (CSR)" We see CSR demonstrated in a variety of ways in areas such as:

• THE COMMUNITY: Contributing to local community programs through financial support and personal involvement.
• THE ENVIRONMENT: 1-Using packaging and containers that are environmentally-friendly.2-Recycling 3-Using low-emission and high-mileage vehicle where possible 4-Seeking more efficient manufacturing processes, etc.
• THE MARKET PLACE: 1-Utilizing responsible advertising, public relations and business conduct 2-Exercising fair treatment of suppliers/vendors, contractors and shareholders
• THE WORKPLACE: 1-Implementing fair and equitable treatment of employees 2-Upholding workplace safety, equal opportunity employment and labor standards

Actions such as these not only uphold today's business standards, but they also pave the way for future generations. In years past, many of these elements were considered almost anti-business and some had to be enforced by government regulation.

Successful companies such as Tom's of Maine (producer of natural personal care products) and Newman's Own have practically been built on CSR. More and more companies-public and private-are following the elements of CSR. Google is a desired workplace because of the way they treat their employees: great benefits, great food in the employee cafeteria, exercise equipment - you name it, Google provides it.

Recognizing CSR in today's business climate not only increases shareholder/investor interest, but also increases value. Socially-conscious companies are considered sound investments. They attract buyer interest and acquire higher selling prices when it comes time to sell.

After all, most buyers want to find a business with the following attributes:

• Good relations with the local community
• Products and/or services that are meeting the current trends in the marketplace and are positioned to meet future trends
• Positive relations with employees and low turn-over
• Excellent customer loyalty
• Good relationships with suppliers and vendors
• No "skeletons" in the company closet

In addition, good environmental practices reduce costs, create efficiencies and provide excellent public relations. Good employee relations make for happy workers, which translates to higher productivity and lower absenteeism. Good relationships with customers and suppliers eliminate, or greatly reduce, the possibility of legal entanglements.

All in all, Corporate Social Responsibility not only creates additional value and helps in creating a higher selling price when that time comes, it is also very good business for now and in the future.