Tuesday, March 8, 2016

Is it the Best Time to Sell my SW Florida Business?

You’ve probably thought about selling your business, but you also know you don’t have to sell it today. After all, you’ve worked hard for many years to build the value of your business. Sure you want to spend more time with family, friends and perhaps even feel the urge to travel more, while you’re still young enough to enjoy it. But not at the cost of leaving money on the table, particularly because your business is doing so well right now. You’ve rebounded since the recession, profits are high and work continues to pour in. You, the strong, have survived and endured the challenges the economy brought to Southwest Florida in the late 2000’s and beyond. Now it’s time to capitalize and recapture that money you had to put into the business to stay alive. Just a few more years and you’ll be ready. 

So, why now?
We can’t answer that question for you from the personal point of view, you and your family have to make that decision. But, we can offer some insight into the market and what current conditions are like – and the conditions appear to be extremely favorable to business sellers. History has taught us, the best time to sell anything is when there is high demand and low supply: a seller’s market.

Over the last several years, many business owners who have considered selling have held off because of the recession, or in some cases, their rebound from the recession. That trend hasn’t really changed much in 2015 and looks like it will continue into 2016. Therefore, Buyers that truly want to buy, have had thin pickings. This has created a HUGE BACKLOG OF BUYERS, private equity funds and companies searching for business opportunities to purchase. Sounds like a pitch doesn’t it? If you won’t take my word for it, I encourage you to do some research, you’ll be happy you did!! It’s true, individual buyers, private equity funds and companies have been flush with cash and are ready to spend, but only on opportunities that make sense. The same can be said about lenders, who need to make deals to stay in business, we continually sit down with lenders and their representatives expressing the need to write loans. We give them what we can, unfortunately a major problem has been, there are limited businesses available that will qualify! The Small Business Administration (SBA) recently increased its ceiling for business purchase loans and most of their approved lenders are streamlining the approval process. Low interest rates also make it affordable by lowering the debt-service payments and putting more cash back into the business, which is what buyers are after to begin with.

Another reason to consider now, rather than later - Baby Boomers!! It has been discussed for years, the Baby Boomer generation is poised to put their retirement plans into action. With the recent recession, the Boomers may have pushed their plans back a bit, so most have not come to market yet. Many Boomers own quality businesses that they, much like you, have spent years developing and will be soon be ready to take those businesses to market. When that happens, the buyer-to-seller ratio is very much poised to shift. When? No telling, but given that the selling cycle for a business can range between 8 months to over 1 year, delaying could have an impact in the selling value for your quality business.

If you believe the timing may right and would like to have a confidential conversation on how to prepare your business to be sold, feel free to contact Dan Smith at (239) 207-1632 or dan@cibb.net | www.swflbiz4sale.com  

Preparing Your Southwest Florida Business for Sale

Getting your business ready for sale can improve pricing and reduce the time to complete a transaction, but there are two other compelling reasons to begin grooming your business:

·         Most of the steps you will take are, in fact, good business practice.

·         You never know when the opportunity for a sale might arise, either because of ill health or injury, or because an offer comes along that is too good to pass up.

Preparing your business for sale can take time, which means that you need to get started well in advance. Your reward is a feeling of confidence that you can seize the interest of more qualified buyers quickly, and possibly get a better price. You will also know that you are passing on the business in the best possible condition.

 Could Your Business Be Sold Today?

To best determine whether this question can be answered right off the bat, the following steps and questions may help you assess certain factors buyers may consider when evaluating the worth of your business.

Assess the condition of your business as a sale prospect:
-          Do you have the past 3 years of sales and profit history organized and properly 
-          Over the past 3 years, have sales and profits consistently increased?
-          Have costs and operating expenses increased only at a rate consistent with 
        revenue increases?
-          Do the assets of your business exceed the liabilities of your business?
-          Is your business able to consistently cover its costs and expenses from the 
        sales revenue?
-          If your business success is reliant on its location, is it covered by a long-term 
        and transferable
-          Does your business have modern facilities and equipment?
-          Other than yourself, does your business have a staff that customers or clients 
        know and trust, 
        which can provide continuity after your departure?
-          Do you have key staff members in place and secured to ensure a smooth 

What is Your Business Worth?

Whether you have determined that your business can be sold today or are in the exit planning stage, it may prove beneficial to discover what your business could potentially be worth by starting with a business valuation and analysis

A business valuation involves many variables (and many of them are subjective) that often means various “experts” looking at the same company can formulate different recommendations. However, many small to medium- sized companies are sold for prices expressed as a multiple of cash flow or earnings. Each industry has a “rule of thumb” and an expected multiple that buyers expect to pay. If the business’s current financial picture doesn’t match a buyer’s expectations, one or the other has to be adjusted. 

Today’s combination of low interest rates, capital market liquidity and significant pools of private equity and debt are driving a high level of business sales and B2B acquisition activity. This can be a great opportunity for business owners. The competition for quality deals is intense, putting upward pressure on business valuations. 

Define Your Motivation and Objective

One of the first questions a buyer will ask is about motivation to sell. You need to be able to articulate your motivation; red flags are raised if the answer seems ambiguous and unsure. This is why it’s better to sell when times are good rather than the alternative.

·      Your Motivation:

-          You’re bored
-          You feel burned out
-          You want or need to move to a different geographic area
-          Personal changes in your life
-          Your business would benefit from increased investment and energy
-          Partner disputes
-          Divestiture
-          Retirement
-          Other interests

Your values can help guide you in setting your objectives. Take some time to think these through, perhaps discuss with your professional advisors, and come up with reasonable expectations. 

·         Your Objectives:
 -          Maximizing the total value received for your business
 -          Maximizing the cash received on closing of the transaction
 -          Immediately transfer ownership and walk away from the business
 -          Transition ownership over a specified period of time (usually 3 to 12 months)
 -          Define your after-sale interests to help design a sale approach
 -          Preserving the well-being of existing employees, customers and supplier
 -          Remain with the company at the managerial helm post-closing

Get Your Books in Order

Prospective buyers will want to see at least three years of financial statements, including balance sheets and income statements. You will need to be able to document your business’s true profitability by identifying nonoperational expenses. Sellers need to quantify and substantiate these items because buyers purchasing a business are really buying its profitability. Ideally, business records should be separate from personal records. If your expenses are a bit tangled, it will be greatly beneficial to separate and create a financial profile history for just the business.

Be Sure All Legal Commitments are in Order

Understanding permits, leases, licenses, client and vendor contracts and how each impacts your business is essential in the selling process. For example, if the business location is key to its performance, a long-term lease with options at or below fair market value would be appealing to a buyer. 

Understand Tax Implications
You will be taxed on the profit you make from selling the business. You may be able to control the timing through the terms of the deal, but the IRS will take its share at some point. The amount of tax you will ultimately have to pay depends upon whether the money you make from the sale is taxed as ordinary income or capital gains. Allocation of Sales Price Governs Tax Consequences. There are a number of qualifications to the rules, and issues that present planning opportunities for sellers of businesses.

·         Here are some that frequently come up:
-          Ordinary income vs. capital gains
-          Installment sales
-          Double taxation of corporations
-       Tax-free reorganizations 

Can Your Business Be Operated by Someone Else? Some businesses cannot survive without the owners trying to do everything themselves; and they have NO key employees to help manage the operations. Even though you may have a stable of loyal customers and great reputation in your specialty, buyers may be concerned whether they themselves can replace the skills and experience of the owner. If you are absolutely vital to the business, efforts should be made to gradually delegate key responsibilities to various staff members. While not every business can be successfully operated by “any buyer”, buyers want a business that can thrive whether you’re at the helm or they are.

Polish Your Business with the Prospective Buyer in Mind: When grooming your business for sale, consider it through the eyes of a prospective purchaser. This will help you show your business in the best light possible. The decision to sell your business will be driven by your personal and financial objectives. However, it’s good business sense to recognize that life and business are unpredictable and that events and opportunities may mean you find yourself pursuing a sale earlier than you had planned. The investment you make in planning will be well worthwhile and give you the peace of mind of knowing that you are able to respond to events quickly and from a position of strength.

For more information on selling a Southwest Florida business, businesses for sale, acquisition 
opportunities and business valuations; contact Florida Business Broker Dan Smith at dan@sellbusinessfl.com or 239.207.1632 for a free consultation. Visit our Corporate Investment Business Brokers website at www.floridabusinessbrokers.com or my personal website atwww.swflbiz4sale.com.