Posted on Wed, Dec 02, 2009
Whether you are selling or buying a business, allowing a business broker to assist you with the due diligence process is a good idea. Most business brokers would use a simple definition of “due diligence” to mean the process through which a potential buyer evaluates a target company or business for the purpose of acquisition.
According to the U.S. Securities Act of 1933, business brokers must conduct a due diligence investigation for the businesses they are selling and disclose their discoveries in order to not be held liable for non-disclosure.
In Arizona, business brokers are governed by the Arizona Department of Real Estate, which requires them to disclose material information that could affect a buyer’s interpretation of the sale price as well.
The due diligence process is similar to a forensic analysis. According to many business brokers, relevant areas of concern can include financial reports, the business’s place in the market, real and personal property, insurance and liability coverage, review of debt, employee benefits, immigration, and international transactions.
Business brokers say that due diligence should be performed before a company goes to market. This helps to uncover any hidden or unexpected costs that may be associated with the sale of the business, ensuring that the seller is receiving a fair sum from the buyer. The best advice is to employ the help of a qualified business broker.
Protecting the seller is a business broker’s job, and properly performing due diligence is one of the most important steps to take when selling your company. Broker’s may also be retained to protect the interests of buyers.
Portions of this post originally appeared on Web site of the International Business Brokers Association, Inc.
http://www.ibba.org”>http://www.ibba.org
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 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