Selling a business can be a stressful event. Given the size of the asset – and likely it’s importance to your retirement – you can just imagine that there are going to be some white knuckle moments. To reduce your anxiety level and increase your odds of success, here are five items to consider as you ramp up for a sale. Continue Reading…
Your small business is ready to grow and you need a loan to make it happen. Just like with a personal loan or a mortgage, you will want to shop around and find the best rate and terms to meet your needs. Being prepared will be key to expediting the process. Follow these four basic steps and watch load offers roll in.
1. Improve your personal and business credit scores.
One of the challenges that we often face is correlating value to “sellability.” In many cases a business may have value to the owner, but there may be a very limited market for the company. (In fact, this notion is the basis of the concept of a Discount for Marketability.) For example, a small 3-person company with a single working owner may generate significant value for the owner. But that same business might not have significant conveyable value to a buyer. Continue Reading…
Retirement planning is a long uphill battle. As financial planning professionals will tell you, the sooner you start putting in place a comprehensive plan, the better off you’ll be. Oftentimes, small business owners invest everything into their companies and bank on utilizing the proceeds from the future sale of the business to fund their retirement. With an average sale price of $180,000 for small businesses, this lump sum is far from an adequate base to live off of for the next 20+ years. Granted, the majority of companies that we work with are much much bigger – but our experience is that owners consistently tend to overvalue their companies.
Here are some key statistics provided in an interesting article regarding funding your retirement with this onetime liquidity event:
- Out of 1,987 small businesses sold in Q3 2014, the median sale price was $189,000 (BizBuySell.com).
- By age 65, an average full-career worker needs to have banked 11 times annual pay. That means a household earning $75,000 a year would need to have saved $825,000. Work to age 67 and the multiple drops to 9.4 ($705,000); retire at age 62 and the multiple rises to 13.5 ($1 million).
- EBRI estimates that a 65-year-old couple in 2019 that does not have any employer-provided health benefits will need $450,000 to have a 50% chance of funding health care expenses not covered by Medicare. Even with employer benefits, there is a 50% chance that out-of-pocket expenses will reach $268,000. Plan for this big expense.
- But most alarming is the fact that 43% of small business owners have no formal financial plan in place (Source: Exit Planning Institute).
Still think that $180,000 (or $1.8 million) is enough to live comfortably and enjoy a life of leisure? Even if a business owner believes their business is worth more than this average, it is prudent to work with a financial advisory team in order to determine the true value of one of their largest assets in order to bridge the difference in what will need to be saved and invested over time.
It’s incredibly important to set yourself up for success: well before the decision to go to market you should be arming yourself with two critical pieces of data: what is the business worth, and how much do I need? We call this process “Gap Analysis” – and it’s literally the first step of every exit planning engagement we take on.
Takeaway: Understanding business valuation early, and working with a financial advisor, can help you set the right track.
Here’s a universal truth about earn-outs: buyers love them and sellers hate them. From a buyers point of view, what could be better? We are deferring a portion of the purchase price and transferring risk back onto the seller. From the seller’s point of view…. what a load of horse-hockey! Continue Reading…
Mid-tier contractors face unique challenges competing for federal dollars. Sized out of small-business preference programs, they must battle large vendors’ hefty BD teams and extensive past performance qualifications. Growing contracts organically is time consuming, requires large amounts of cash upfront, and necessitates niche expertise relating to each contract. As we’ve all seen, the preference for incumbent awards always makes new bids a challenge. With that in mind- a smart buy-side merger & acquisition strategy can help mid-tier government contractors rapidly growth their businesses and readily compete with large government contractors. Here are seven ways an M&A strategy can help you grow your government contracting operations and business. Continue Reading…
Running your business requires you to manage dozens of tasks each day, and delivering a quality product or service to your customers is the first priority. Some owners become overwhelmed by daily business operations and neglect their financials, which may cause big problems down the road. Use this list to evaluate your financial fitness and to keep your business on track. Continue Reading…
Quantive’s Dan Doran recently sat on a panel of Private Equity and M&A experts hosted at Long Island’s Post University titled “What the Heck is my Long Island Business Worth?” Sponsored by the Long Island EPI Chapter and AM&AA, the panel featured a range of middle market professionals from Duff and Phelps, MCM Capital, BNY Mellon Wealth Management, KLH Capital, as well as Quantive.
Quantive’s Dan Doran said “BNY’s Dan Shaughnessy did a fantastic job putting together a highly informative event. I loved the mix of buy-side and sell-side viewpoints from the fellow panelists. It’s always interesting to see how the ‘other side’ views deals and to understand their key points of consideration in assessing deals.”
Discussion Learning Objectives
Highlights and learning objectives from the panel discussion included:
- Valuation multiples
- What are they and why are they important to business owners?
- What macroeconomic factors are driving M&A valuation multiples to current record highs?
- What value drivers help boost the business’ valuation?
- What red flags in a business could hurt a business’ valuation?
- What are some of the most common mistakes that business owners make when selling their business that impact its value (and how can those mistakes be avoided)?
- How are business owners are “getting paid” for their business? Earn outs, rolled equity, seller note, employment agreement with RSU’s, etc.
- The most important negotiating points in a deal that impact the sale price?
One common step in all business valuations is the “search for adjustments” – whether it be a public company with GAAP accounting or a small pass through entity. Valuation analysts are (almost) always looking at past performance as a proxy for future value. In doing so, we need to understand what the “real” earnings capacity of the company is. Unfortunately, the story isn’t always so clear. Myriad factors cloud the question of “what’s real?” Nonetheless, analysts work through a process to start quantifying these changes – or Adjustments – to earnings to realizing the real number. From there, we can work through modeling performance, risk, and ultimately value.
Why do we care? A few reasons: Continue Reading…
The M&A market is booming, and for entrepreneurs and family businesses seeking to capitalize on a historically great seller’s market, some are finding that the lack of long term planning is weighing on valuation. As we approach the end of a historically great M&A market it’s important to start thinking about trading some smaller portion of value in return for a deal that closes while the market is still at its high point. Continue Reading…