ABI - Allen Business Investments
The Newsletter for Business Owners, their CPA's, Attorneys and Financial Advisors

We know that the sale of a business is one of the most critical financial decisions a business owner may make in their lifetime.

Allen Business Investments specializes in the marketing and sales of privately-held companies. We are one of Northern California's oldest, most respected and most successful firms.

Licensed in California, and with more than 35 years experience in business brokerage, mergers & acquisitions, valuation and financing, our value added services will bring the highest levels of professionalism and confidentiality, and assist in getting the maximum value from the sale of an owner's business.

www.abi-ma.com • phone: 925.838.8150
Why Now Just May Be a Good Time to Sell

The economy is in a downward tailspin, business overall is lousy, unemployment is increasing, and the banks and other financial institutions are crying “wolf.” So, why may it be a good time to sell your business? It probably isn’t if you don’t have a good reason to sell now. But, if you have been toying with the idea lately, if the drive to your business seems to be getting longer, if your spouse is pushing you to take it easy, if you’ve been thinking about retiring or moving closer to the grandkids, you might want to read on.

You probably have all the reasons you shouldn’t sell now: business is down slightly, you still want a price based on last year’s sales and income, you’ve still got a dependable cash flow, and you wonder who would even consider buying a business in today’s business climate. Keep reading.

First, high unemployment creates new buyers. Many of those who are now unemployed may have always wanted to be in their own business, and now is an opportune time; there aren’t any other jobs available and one has to make a living. Many of the unemployed are over 45 and so, very few companies will hire them. Those who could get hired may just plain be tired of getting laid off, downsized, etc. The more buyers there are, the higher the price sellers will receive.

return to top

Building the Value of your Business: How Does Your Business Stack Up?

The cover article provided some information about how the price of a business is determined. The multiple of SDE (seller’s discretionary earnings) was mentioned as being most often within a range from 1.6 to 3. As a quick quiz, how does your business stack up on the following important value indicators? Use 1 to 4 as a scoring system (with 4 for excellent) and see where your business falls on the scoreboard.

• Profitability
• Type of business
• History of business & industry
• Business growth
• Customers/Clients
• Market share
• Quality of financial statements
• Size
• Management
• Price & terms of sale

These are all important factors from a buyer’s vantage point. Obviously, the higher the figure for each item, the higher the score. Now divide the total by ten, the number of factors, and see where your business falls on the SDE scale.

Here is an additional question to consider:
Are your prices for products or services current, or are you charging yesterday’s prices? It might be time to take a second look and perhaps consider raising prices.

return to top

Selling Your Business?Do-It-Yourself is Risky Business!

When the owner of a business makes the decision to sell, he or she is taking a giant step that involves the emotions as well as the marketplace, each with its own set of complexities. Those sellers who are tempted to undertake the transaction on their own should understand both the process and the emotional environment that this process is set against. The steps outlined below are just some of the items for a successful sale. While these might seem daunting to the do-it-yourselfer, by engaging the help of a business intermediary, the seller can feel confident about what is often one of the major decisions of a lifetime.

1. Set the stage.
What kind of impression will the business make on prospective buyers? The seller may be happy with a weathered sign (the rustic look) or weeds poking up through the pavement (the natural look), but the buyer might only think, “What a mess!” Equally problematic can be improvements planned by the seller that appeal to his or her sense of aesthetics but that will, in fact, do nothing to benefit the sale. Instead of guessing what might make a difference and what might not, sellers would be wise to seek the advice of a business broker -- a professional with experience in dealing regularly with buyers and with an eye experienced in properly setting the business scene.

2. Get the record(s) straight.
Although outward appearance does count, what’s inside the books is even more important. Ultimately, a business will sell according to the numbers. The business broker can offer the seller invaluable assistance in the presentation of the financials.

3. Weigh price against value.
All sellers naturally want to get the best possible price for their business. However, they also need to be realistic. To determine the best price, a business broker will use industry-tested pricing techniques that include ratios based on sales of similar businesses, as well as historical data on the type of business for sale.

4. Market professionally.
Engaging the services of a business broker is the key to the successful marketing of a business. The business broker will prepare a marketing strategy and offer advice about essential marketing tools--everything from a business description to media advertising. Through their professional networks and access to data on prospective buyers, business brokers can get the word out about the business far more effectively than any owner could manage on an individual basis.

Key Items Necessary for Selling a Business

  • Three years of profit and loss statements
  • Federal taxes for the same period
  • Current list of fixtures and equipment
  • The lease and related documents
  • Franchise agreement (if applicable)
  • List of encumbrances, loans, equipment leases, etc.
  • Approximate amount of inventory on hand
  • Names of outside advisors with contact information
  • Marketing materials, catalogs, promotional pieces, etc.
  • Operational Manual (if available)
  • Brief history of business

return to top

How Unique is Your Business?

Most business owners think that their business is unique. There are obviously many different attributes that can make a business stand out from others. However, there are some key factors that make a business both unique and, at the same time, make it more valuable in the marketplace and more desirable by prospective purchasers. Just as importantly, they are also unique factors that are generally transferable to a new owner. Here are some key ones:

Intangible Assets
One example could be a long-term lease for a great location that is transferable to a new owner. Other examples include a mailing list of current and past customers, a popular franchise relationship, a well-known product line such as Hallmark, or a well-established mailing program designed to attract new customers or clients. Trademarks and copyrights are some other examples of intangible assets.

Difficulty of Replication
For example, in most jurisdictions, liquor licenses are doled out by population or on some other limited basis. One can not just decide to rent some space and open a liquor store. Franchises often limit the number of units in a geographical area. Selling Department 56 collectibles is a license not granted to just any store.

Proprietary Products, Services or Technology
A business owner may have developed or have had developed software unique to their business which is a key to its success. Or the proprietary item could be something as simple as a secret recipe for a food item, sauce or other food product unique to a restaurant.

Reputation
There is the pharmacy that is known all over town for delivering prescriptions or other medical needs. And there is the hardware store that will still sharpen knives or fix screens. Then there are the local businesses that have “just what you need” or that special something that makes them known all over town. While these characteristics make these businesses unique, it is up to a new owner to continue them.

When looking at businesses to buy, buyers should look beyond the numbers for the unique qualities that separate a particular business from the pack.

return to top

This newsletter is not intended to render accounting, legal or other professional service; the publisher and sponsors assume no liability for a reader’s use of the information herein.