Maximize Value How can I maximize the value of my business? As a Transworld Business Brokerage, we are asked this question frequently. There are steps and strategies a business owner can employ when preparing to sell a business. The key is preparation – the better prepared your exit strategy is, the higher the selling price it will command, and the more likely it will sell. A few minor enhancements can dramatically increase the marketability of your business.
THE LENDING ENVIRONMENT HAS CHANGED Like most things, the lending environment has changed recently due to COVID-19, and it is taking buyers and sellers by surprise. Underwriting timelines are being impacted and loans are taking longer to process. Banks are now less likely to flex their requirements to help people qualify for a loan. Why is this happening? There are several reasons. 1. Earning and revenues are coming down and banks are weary. 2. Few lenders process loans under $150,000 and those few lenders are now getting inundated with volume. 3. Because the same people that processed PPP loans are also processing business loans, this is impacting banks' ability to assess and close on new 7A loans. 4. Banks now have a lot of capital tied up in PPP loans. 5. Banks are now doing more due diligence and requiring more documentation, so underwriting is taking longer than in the pre-COVID environment. 6. Staff are being impacted by COVID and distancing guidelines so there are fewer people on location to work with underwriters and get loans processed. 7. We now have less than 40 business days before the September 27th deadline to take advantage of the SBA principal and interest payment benefit so loans not currently in process will likely not meet that deadline. 8. Banks want collateral in the form of equity in real estate. 9. Banks are looking for more post-closing liquidity. 10. Banks are looking for industry experience. 11. Banks are looking MORE at the 5 C's: Collateral, Credit, Capacity, Character, and Cash. 12. The strength of a buyer from a financial perspective is really important right now.
A great deal I got a call from someone who was in the process of purchasing a business from an Uncle. The Uncle wants a million dollars for the business which includes real estate, and is willing to sell to his niece on a contract for deed. The niece would pay for the business over time with the proceeds of the business. The niece, who currently works in the business, would eventually be the owner, without having to get approved for a bank loan or provide cash for a deposit. Seems like a win-win, right?
Thou shalt not open your mouth, and maintain strict confidentiality through closing. Thou shalt honor thy financial records and maintain their integrity. Thou shalt sell, repair, or pitch old, unused, or broken equipment prior to first tour. Thou shalt sell, give away, or pitch obsolete inventory. Thou shalt not covet unrealistic pricing multiples that your Uncle Harry heard your business is worth and price the business realistically for buyer cash flow and financing. Thou shalt not take the name of your broker in vain. Be transparent with your broker and include broker in all communications (No surprises please) Thou shalt not take thy foot off the gas and work hard to maintain sales and profit performance while business is for sale. Remember to have fun with the sales process, and prepare for busy and stressful moments. Thou shalt not take low offers personally. Thou shalt keep your eye on the prize and keep the big picture in mind.
Advantages of Buying an Established Business If you are trying to decide between starting your own or buying an existing business this blog is a must-read. Below are a few of the many reasons buying an existing business may be the better decision, along with a couple of tips that potential buyers should keep in mind before making a purchase.
Flea experts tell us that a flea can jump about 8 inches. This natural capacity to jump about 180 times their body length is fairly amazing in and by itself. Now, put a population of those fleas that can jump 8 inches into a container that is 4 inches tall for 3 days. You can pull the lid off that container after 72 hours, and that population of fleas that can jump 8 inches will not leave the container! In just 3 days, they have been trained to only use half of their capacity because of their capped experience.
Why would anyone buy a business prior to a re..rec…recession?