Posted on Thu, Jun 03, 2010
A respected colleague in the business brokerage industry in Prescott, Arizona, Brian Harron, is the original author of this helpful article about selling a restaurant or bar. Much of what Brian writes is applicable to the sale of any business. We hope you find this valuable.
When is the best time to sell a restaurant or bar? Another question that I get asked is when is the best time to list a restaurant or bar for sale? So here are ten answers to the questions.
#1 Before you absolutely have to. The best time to sell is when there is no sense of desperation due to economic circumstances, divorce, health or whatever. Whenever desperation is present, it seems to infect the process everywhere and creates an unbelievable buyer advantage or a situation where buyers just stay away.
#2 After you have sought professional advice. Smart Sellers confer with their attorney, their tax adviser and a professional business broker and perhaps a business appraiser before putting their business on the market. Tie up loose ends first, not last, get your legal and tax house in order and know the consequences of the sale first so that when the sale is done there are no unpleasant surprises and you get a deal that you can live with.
#3 Before a deadline. You do not want to be trying to sell when the lease is running out or when you thought you were going to retire. When you want to sell, you need to know that the average time length for a business sale can be six months or longer. Allow for it and let the process unfold normally.
#4 After you spruce the business up. This is all about fixing up your business both physically and fiscally. Paint, clean, replace. This is no different than selling a house. Then get to work on the money side of your business. Clean up your financial reports, report all sales. remove unnecessary expenses and maximize your Seller's Discretionary Earnings, the thing that most likely will have the greatest impact on the price that you can get for your business.
#5 When cash flow is strong. Don't know what Seller's Discretionary Cash Flow is? SDE has a formula but in short it is the amount of cash taht an owner has access to directly or indirectly. Profit counts but not as much as SDE because most small business owners do not like paying taxes. SDE gets at the ways owners can have cash and it is generally the number that gets capitalized to create the estimate of listing price. Better read the Blog on SDE to be sure that you realize it importance to brokers, bankers and appraisers and yes, seller's too.
#6 When general economic trends are rising. Right now, April of 2010, is an excellent time to list a business. The economy is improving as is the general level of optimism. When the economy is hot is also a great time to have a business on the market as buyers are willing to pay higher prices and there are more buyers to deal with.
#7 When it is a Seller's market. A wonderful time to sell is when there are more buyers than sellers and buyers get anxious to buy, sometimes becoming a little less demanding than what they might ordinarily be. Supply and demand is always in the favor of the seller when there is a small supply and a great demand.
#8 When you have ample time left on your lease. The length of time on your lease can be critical to your ability to sell your business. Your buyer needs time to get his investment back and then time to get a return on the investment. Anything less than three or four years will cause a very deep discount in your price. With an average life span for restaurant ownership of approximately five years, a five year lease with one or more renewal options can be very important to your sale strategy.
#9 When sales are steady or increasing. Strong sales are a very good indicator of a healthy business. Generally only bottom feeders are going to be interested in a business with significant reductions in sales. Start your sales plan two to three years ahead of the time that you list your business for sale and make increasing sales one of your biggest goals.
#10 When the business is no longer fun. Most entrepreneurs get into the restaurant business because it is fun and they love it. it is for many, a physically and emotionally demanding business. When it is no longer fun or when you can feel the burnout arriving, it is most likely time to sell - before your performance,. your attitude and the business deteriorates, making it harder to get the best price at the time you want it.
To read Brian Harron's original article on his blog, click here.
If you'd like more information on this subject, please contact us at 520-327-4454 or visit us at www.allenandyoung.com
Posted on Thu, Jun 03, 2010
This great article by Mitch Biggs from Associated Content, raised 5 important questions that any potential business buyer or seller should think about when interviewing a business broker.
I like Mitch's to this, and fully believe that business brokers should be 100% transparent with their prospective clients and willing to answer these questions:
1. How long have you been a business broker?2. How many active listings do you currently have listed?3. What is the price range of your current listings?4. How do you get paid?5. How will you market my business and what success have you had with each method?To see the Mitch's original article, just click here.
If you'd like more information on this subject, please contact us at 520-327-4454 or visit us at www.allenandyoung.com
Posted on Sun, May 09, 2010
Have you listed a business for sale in the past? Do you have a business listed for sale now? Or are you considering listing a business for sale in Tucson sometime in the near future? Have you worked with a business broker during this process?
If so, ask yourself this important question: did your business broker take the time to educate you about the process of buying and selling a business in Tucson? Or did they just ask you the price you wanted to put on your business, give you a copy of the listing, and disappear without setting expectations and ground rules for managing the process of selling to your best advantage?
Do you know what kind of listing you have? What are the price, and terms? The commission structure? Even if you think you have experience in all this, the fact is that most sellers can make simple mistakes that end up being costly during the sale process. And when they do, it's actually their broker's fault for not spending enough time with them to fully prepare them for every contingency.
Here are a couple of examples of situations that can cause you problems if you're the seller:
1. Handling Buyers:
- Do you know what your listing agreement says about how to handle buyers that walk in the door unexpectedly? Most sellers assume that these buyer prospects are theirs without having read the agreement. But they could well belong to the broker.
- Many buyers will return to the business and try to find the seller after being shown the business. They may ask the seller to quote a price, or to show them books and records.
- This could put you in a difficult spot in front of others, and severely compromise your negotiating position.
- Did your broker coach you on how to handle such situations?
2. Keeping Your Business For Sale Listing Quiet:
- If you really want to keep secret from your employees, customers, suppliers and competitors the fact that your business is for sale, have you considered how hard that is going to be if you're the one dealing with buyers?
- One of the most important roles of a broker is to shield you from these conversations, and handle them for you.
- Is your broker playing this role for you?
If you're considering selling your Tucson business, make sure that you know as much as possible about every step in the process of selling a business before you start. That way, you can avoid being caught off guard by events and surprises along the way. Click here to take a moment to walk through the steps of selling a business.
And remember, if there is something, anything, about the process of selling your business that you are not completely clear about, and you're already working with a business broker, then you have the right and should ask that person for a detailed explanation.
If you'd like more information on this subject, please contact us at 520-327-4454 or visit us at www.allenandyoung.com
Posted on Tue, Nov 03, 2009
Do you plan on selling a business in Tucson or Southern Arizona? Think for a moment about what someone who wants to buy a business in Tucson would love to see. Wouldn’t they be simply delighted to find all of your accounting and customer records completely accurate, computerized, and ready to be used without the need for any confusion or translation
If you’re already running Quickbooks or a similar small business accounting package, you can increase the value of your business by taking the next step and organizing your customer records using one of the many affordable small business Customer Relationship Management (CRM) systems that are available today. These systems will allow you track all manner of customer information, take notes, make appointments, broadcast email campaigns, etc. They build on the customer record in your accounting package, and let you do much more.
CRM systems are available as both “on-premise” solutions (meaning that you buy and install the software on your computers) or as Software As A Service (SaaS), or internet hosted solutions that you pay for monthly on an a per-user basis. The latter have the advantage of continual upgrades to the software itself, and do not require any expenditure on hardware.
By exporting your customer records from your accounting software into a CRM system, you will gain the ability to cost-effectively communicate with your customers and to track their activity in a more detailed fashion than the accounting software generally allows.
Why will this increase the value of your business? Well let this business broker tell you!
In terms of marketing expenditures, it is nearly always more cost effective and profitable to gain additional share of business from current customers than it is to prospect for new customers. Existing customers are also typically less price sensitive and therefore higher margin, whereas you will generally need to offer new customers some form of an incentive to switch to your product or service, which lowers your margin.
Using a CRM systems can also transform the way sales and marketing work within your organization when combined with analysis of past sales, and the visibility they offer for managing the pipeline of future sales. If you fully understand the products, services, channels or customers that make the largest contribution to your bottom line, a CRM system will allow you to redirect your marketing resources and sales efforts in a highly targeted fashion to focus on the areas of your business that matter most.
From the perspective of a prospective buyer of your business, imagine how much more confidence they would have in their investment if you could clearly demonstrate who your customers are, what their sales patterns have been, what orders or repeat business is in the pipeline, and by deduction, what the future value of those customers are.
A buyer will generally not pay for future value, preferring instead to base their evaluation of your business’ value on its historical financial performance. However, if you can show them this level of detail about your business, and give them the greatest possible level of confidence that they could hit the ground running after buying it and expect the same or better results, then they are likely to be willing to pay you a higher price.
Don’t wait until you want or need to sell your business in Tucson to take advantage of the power and insight that your customer records can provide when you use a CRM system to manage them.
If you'd like more information on this subject, please contact us at 520-327-4454 or visit us at www.allenandyoung.com
Posted on Tue, Nov 03, 2009
A good broker will create a marketing or purchasing plan for your business.
If you’re selling, the marketing plan will involve an advertising plan and information relevant to the sale of your business. But developing this plan is not the first or only task of a thorough business broker. A broker must understand you, and your objectives, and most importantly the financial results your business has generated in recent years. Pricing your business correctly, and knowing how you are willing to participate in making a transaction possible are the most important element in a solid marketing plan. Once the message and the facts are well understood, your broker should put together an attractive marketing document or package which should include recast financials and answers to questions it is anticipated that a prospective buyer will ask.
If you’re buying, expect the purchasing plan to include information about comparable listings, recent sales data, and benchmark data about the industry category the business(es) you are considering belongs to.
As the business owner or buyer, it isn’t unreasonable for you to be involved in the development of the plan. But remember: You hired a business broker for a reason. It’s okay to offer input, but you should also be willing to take your business broker’s advice.
If you'd like more information on this subject, please contact us at 520-327-4454 or visit us at www.allenandyoung.com
Posted on Sat, Oct 10, 2009
Manage the Income Statement
As a small business owner, when you hear “manage the income statement” your thoughts most likely jump immediately to thinking about strategies to minimize tax impact.
However if you are considering selling a business in Tucson or Southern Arizona, tax deferral is no longer your objective. It is time now to shift gears and begin to examine the income statement from the perspective of someone who may be preparing to buy a business in Tucson or Southern Arizona.
Buyers like to see consistent revenue growth and consistent operational expenses. Revenues, or expense categories, that visibly fluctuate up and down on your income statement from year to year will immediately invite questions. When the option exists, these fluctuations on the income statement may be balanced out by increasing or decreasing revenues, giving or postponing bonuses or capitalizing or expensing certain. Just remember that any such changes made to smooth out the income statement still need to be according to Generally Accepted Accounting Principals.
Taking personal discretionary expenses results in a lower net profit and less taxes. But just remember that for every $1.00 spent, the sales price may be reduced from $3 to $5 or more. Keep receipts for all discretionary expenses in separate folders so that you have proof of these expenses to show to a buyer.
A business broker can explain the process of “recasting” your Income Statement to better determine the profitability of your business and thus the likely pricing range it will fall into in the market. How you have managed your income statement will have an impact on what a buyer is willing to pay for your business.
If you'd like more information on this subject, please contact us at 520-327-4454 or visit us at www.allenandyoung.com
Posted on Sat, Oct 10, 2009
If you want to sell a business in Tucson or Southern Arizona, or make a Tucson business investment, choose your business broker carefully.
Most business owners seeking to sell their business in Tucson or Southern Arizona have a pretty good idea of what they would like to get for their business. And there are many business brokers who will simply ask them what price they want for their business, and then tell them what they want to hear. “Sure, I can sell a business in Tucson like yours for that price,” they’ll say. They will tell a business owner that they can get whatever he or she wants for the business in order to get the listing. They base this decision not on any analysis of comparable businesses for sale in Tucson or Southern Arizona in the past or present, nor based on the soundness of the business’ financials, rather on their desire to get the listing. Such brokers are in the “listing business”, and are not being 100% honest with business owners seeking to sell their business in Tucson or Southern Arizona during this process.
When you sell a business in Tucson or Southern Arizona, what you end up getting for your business is not what you want for it, but what a buyer, someone wanting to buy a business in Tucson or make a Tucson business investment, will be willing to pay for it. Any rational buyer (and nearly all buyers of small businesses are highly rational about how to invest their hard won dollars) will perform due diligence on your business and determine what they are willing to pay for it based on the reality of its historical financial performance and a realistic assessment of future cash flows. The fact is that this has very little to do with what you may want for your business, or think it is worth. If you are trying to sell a business in Tucson or Southern Arizona, keep in mind that the asking price is what a seller wants, and the sales prices is what a seller gets based on market realities.
If you work with a business broker who is in the “listings” business, and who goes along with listing the business at the price you might want, but a price that is not supported by the financial performance of the business and prevailing market realities, you will get a wake up call not long after the business has been listed. Your broker will tell you, usually within 30-60 days, that your business hasn’t received many inquiries from investors seeking to buy a business in Tucson or Southern Arizona, and that they would like to lower the asking price. They will lower the price repeatedly over time until it reaches the range of its realistic market value. In other words, the price it should have been listed at to begin with. At this point, buyer inquiries are more likely to occur and to be serious.
If this sounds to you exactly like what happens when you are selling a house, you’re right, because it is. Most business brokers operate their businesses based on the real estate model, and have no further training or certification to enable them to properly understand the differences between valuing and selling a business and a home. But the two could not be more different.
If you want or need to sell your business, wouldn’t you rather work with a broker who counsels you to set a realistic market price based on fact-based analysis, and who will sell your business as soon as possible because it is priced right?
Allen & Young’s brokers have achieved many additional accreditations and specializations within the field of business brokerage, and we do not run our business based on the real estate model. Our customers are only satisfied when we put money in their pockets, as soon as possible. We will not list a business at all unless the seller agrees to set a realistic asking price.
If you are serious about selling your business, and want to deal in a straightforward process based on experience, integrity, facts and analysis, please contact us.
If you'd like more information on this subject, please contact us at 520-327-4454 or visit us at www.allenandyoung.com
Posted on Sat, Oct 03, 2009
If you are considering selling a business in Tucson or Southern Arizona, or making a Tucson Business Investment, another critical aspect of your business that needs to be in order before you sell is your Income Statement.
Don’t wait until you are ready to sell, or need to sell, your business to invest the time and resources in ensuring that your income statement (and all of your accounting records) is thorough, accurate and consistent in the methods applied. If someone else, perhaps a book-keeper or CPA, has been doing your bookkeeping for you and you perhaps have only been reading top-line reports, you may not be aware of how entries are being booked.
Review the Income Statement and understand each of the entries. Dig in to the General Ledger to thoroughly understand what sub accounts and line items are being rolled up into each Income Statement Summary line, for both revenues and expenses.
Pay particular attention to what is included in the different expense accounts. Someone considering buying a business in Tucson or Southern Arizona, or making a Tucson Business Investment, will expect a detailed explanation of all expenses and will be looking for discretionary items that can be added back to income. Make sure you have recorded these, and kept back up receipts for spot check and cross reference during due diligence.
Make sure the Cost of Goods sold is accurate based upon accurate inventory amounts and purchase prices. If current prices of major inputs have changed since the time your raw material inventory was purchased, make sure to make a buyer aware of that and its materiality to the business.
We believe It can be well worth the expense to hire an outside bookkeeper or CPA to look over your bookkeeping processes and advise you on an changes in your procedures that may be advisable or necessary.
Again, don’t wait until you want or need to sell to commit to accurate accounting records. The Income Statement is the first place a buyer will go, and yours better be able to stand up to scrutiny during due diligence or you may lose the deal. Then, you’ll be hiring a forensic CPA to go back in time and clean things up. It is easier and more cost-effective to do things right the first time.
If you'd like more information on this subject, please contact us at 520-327-4454 or visit us at www.allenandyoung.com
Posted on Fri, Oct 02, 2009
If you are like most small business owners who have ever thought about selling your business in Tucson or Southern Arizona, you have probably asked yourself on many occasions “I wonder how much my business is worth.”
A small business is typically the owner’s principal asset, aside from a home. And yet, surprisingly few business owners in Tucson or Southern Arizona thinking of selling a business put themselves in the shoes of a potential buyer when asking that question.
The value of your business will be determined by the market. In other words, the asking price is what the seller wants, and the sale price is what the seller gets from a buyer. The amount that a buyer may be willing to pay for your business is a direct consequence of the money they believe your business will put in their pocket. Buyer’s have a number in mind, a desired rate of return. And they have many investment options available to them when making a Tucson or Southern Arizona business investment. How will you demonstrate to them the potential cash flow that your business offers a buyer in exchange for their investment?
The answer: by showing the buyer accurate and verified financial and accounting records.
Don’t wait until you think you want or need to sell your business in Tucson or Southern Arizona to begin organizing and standardizing your accounting records. There is nothing that will discourage a buyer wanting to make a Tucson or Southern Arizona business investment more from further evaluating the purchase of your business than incomplete, inaccurate, or unprofessional accounting practices and records. If you put yourself in the buyer’s shoes, you would expect the same.
Seek the advice of a professional CPA in order to review and standardize your accounting practices, and, if you have not already, invest in a small business accounting software such as Quickbooks that most buyers will be familiar with. Make sure that any personal expenses that were charged to the business are clearly disclosed or annotated as such, to make the process of explaining to a prospective buyer the true Discretionary Income generated by your business clear and direct. Keep a file containing those receipts for future cross-reference and spot check by a potential buyer during due diligence. If a buyer wanting to make a Tucson or Southern Arizona Business Investment can quickly understand the financials of your business and find them trustworthy, they are much more likely to move to the next stage of evaluation.
Don’t wait until you need or want to sell a business in Tucson or Southern Arizona to invest the time in developing accurate, standardized and systematized accounting records. Having them will allow you better visibility into your business, and lead to better decision making that will increase it’s value. It will also allow you to immediately show a buyer that your business is worthy of their consideration.
If you'd like more information on this subject, please contact us at 520-327-4454 or visit us at www.allenandyoung.com
Posted on Thu, Oct 01, 2009
Whether you are buying a business in Tucson or Southern Arizona, or selling a business in Tucson or Southern Arizona, or considering making a Tucson Business Investment, remember one thing: the market rules.
Most business owners considering selling a business in Tucson or Southern Arizona, will at some point ask themselves “I wonder what I could get if I sold my business?” The asking price is what a seller wants, and the selling price is what a seller gets.
Here are 4 common myths about selling a business in Tucson or Southern Arizona that Allen & Young would like to help you avoid:
Myth One: Businesses in my industry all sell for “X” times annual revenue.
While many people fall back on these kinds of “rules of thumb,” they turn out to be unhelpful because as regards the sale of your business, averages don’t apply. Just consider: If you had 5 businesses sell, and 4 sold for $150,000 and the 5th sold for $500,00, the average would be $220,000. A buyer is not going to pay an average price for your business; they will pay what your business is worth as determined by the market.
Myth Two: A local competitor selling a business in Tucson or Southern Arizona sold the business for X times revenue a few months ago, so mine must be worth at least that much.
False. The 3 things that determine the price you can ask for your business are:
a) The cash flow it generates
b) The buyer’s or investor’s required rate of return
c) The expected growth in cash over foreseeable future.
Rarely will a buyer pay for projected future revenue unless there is a VERY compelling case to be made. Establishing a value for the business is based on the confidence that the historical financials you have provided are a reliable predictor of future business performance. It is based on upon what a buyer can reasonably expect to generate in their pocket based on past historical information.
Myth Three: My business loses money, so it isn’t worth anything
False. Many businesses lose money. But that does not mean that have no value. The most common valuation for a small business is called Seller’s Discretionary Income. It involves pretax profit, owner’s salary, owner’s perks, interest and depreciation. We all take money out of our business for personal uses. But clear documentation is necessary of everything that is taken out at the owner’s discretion as a personal expense in order that it can be added back to show a potential buyer that these personal expense are actually income that the business is generating for the owner. This is critical to establishing value.
4) Valuing your small business should only be done when you’re ready to sell or need a loan from a bank
If you are considering selling a business in Tucson or Southern Arizona and you wait until the moment you actually decide to sell to find out how much your business might be worth in the market you have missed the opportunity along the way to make or improve upon critical business decisions and estate and planning issues.
If the Tucson or Southern Arizona business that you are selling is to have a life after you, you should value your business at least once a year. If you knew what your business was worth today, we believe you would certainly begin tomorrow to take steps to increase its value. Don’t wait until you want or need to sell your business in Tucson or Southern Arizona to discover the ways you could have increased the value of the business
Money is not the key motivator behind a person’s decision to buy a business in Tucson or Southern Arizona, or make a Tucson Business Investment. Countless studies have shown that it is more about freedom, lifestyle, and the desire to be their own boss. The money the business generates is the by-product of this broader decision.
If you want to sell a business in Tucson or Southern Arizona, put yourself in the shoes of someone who may be considering buying a business in Tucson or Southern Arizona, or making a Tucson Business Investment, and be prepared to showcase and sell the benefits of the lifestyle you lead as a result of the business you own.
If you'd like more information on this subject, please contact us at 520-327-4454 or visit us at www.allenandyoung.com