Tag Archives: Business for sale in Minnesota

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Alternatives to the Traditional Sale of a Business

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When owners envision selling their business, they often have in mind the traditional sales model of selling the entire enterprise, often for the sake of a large payout to fund retirement. This is a perfectly valid scenario, but we recommend that owners consider other options which may be more lucrative specifically a private equity recapitalization structure.

Recapitalization

What is recapitalization? Broadly speaking, it’s the restructuring of a company’s debt and equity balance to optimize its capital structure. It often involves a change in financing, such as replacing preferred shares with bonds. Recapitalization strategies have traditionally been associated with public companies seeking to raise stock prices, but private equity groups have been embracing the approach for acquiring both public-traded and privately-held businesses.

Private Equity Recapitalization Structure

The private equity recapitalization model involves the private equity investor acquiring a majority stake in the business, and the owner retaining a minority stake. Typically this means that the business takes on debt roughly equal to the price paid to the owner. This way, the new majority shareholder isn’t at risk of extracting too much cash from the business while also avoiding depleting their own cash resources. The company’s debt-to-equity mix is thus altered, enabling the original owner to realize some of the inherent value of the business in the present, while their minority ownership stake maintains potential future value from eventual distributions or the next sale of the business. In some cases, owners stick around as the business changes hands from one investor to another, while an equity stake enables them to keep potentially profiting from the business.

Sell Your Business, Then Sell It Again

Ultimately, the most lucrative equation may result from selling your business multiple times under a private equity recapitalization structure.

Benefits of Private Equity Recapitalization

The owner enjoys the clear and direct benefit of cashing out a slice of the business’s value. However, other factors benefit the owner, investor, and management team:

  • New investors may have connections to fresh resources which promote rapid growth.
  • A broader ownership base diminishes risk.
  • When the ownership team diversifies, representing multiple different backgrounds, strategic decision-making is strengthened.
  • Typically, employees in management have the option to invest in the new entity. With skin in the game, their performance may soar.
  • The majority shareholder typically has the deep pockets to support growth and strategic acquisition.
  • The original owner may enjoy capital gains when the business sells a few years down the road – presumably at a higher value.

Risk Of Private Equity Recapitalization

Private equity recapitalization is not without risk, and it’s only suited to larger businesses.

A primary risk is overleveraging. In addition, private equity firms generally require a certain revenue threshold before they’ll invest. Most U.S. private equity firms require at least $20 million in annual revenues or $2 million in normalized EBITDA.

Timing Matters

Ownership needs to consider timing and investment horizons. This strategy is suited for a long game. When private equity firms acquire a business, they typically intend to grow and divest the business over a period of roughly seven years.

An owner wishing to retire in the next couple of years will benefit more from an outright sale. However, if an owner is looking at retirement 5-15 years in the future and their business is sufficiently large, this strategy is absolutely worth considering.

Ownership Team Performance is Crucial

When the ownership team performance aligns with the expectations of the private equity firm, this scenario can be a huge win for the owner.

Sold Your Business? What’s Next?

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Sold Your Business? Congrats! Here’s an Idea for What to Do Next.

You’ve spent years building a successful business, and the time has finally come to sell it. The long hours, working weekends, risks, and investments have all paid off. It’s time to hand the reins over to a new owner who will continue to improve on the strong foundation you built.

But if you’re like most entrepreneurs, the cabin life and mornings on the golf course won’t be enough. You’re sitting on a large sum of money from the sale of your business, and you’re eager to find a new opportunity.

We have an idea that can satisfy your need for more R&R with family and that entrepreneurial itch: the family office.

What is a family office?

A family office is a physical or virtual team of family and outside professionals, you bring together to oversee your assets and investments holistically. It’s a very active, hands-on approach to managing your money so it lasts through the end of your life and perhaps into the lives of your children and grandchildren.

What types of assets does a family office manage?

All of them! Most entrepreneurs who sell their businesses have a mix of cash, real estate, private equity, and traditional retirement and other investment accounts. Add that to their spouse’s assets, and there is some serious money to manage.

You may wish to coordinate your estate planning, insurance, trusts, accounting, tax, legal, and philanthropy through your family office. Each one of these areas may require an expert’s help: CPA, bookkeeper, estate planning attorney, and insurance agent. While these professionals may not work in-house at your family office, they will coordinate with your family and each other to manage your assets responsibly.

Who benefits from a family office?

You and your family do. Managing the operations of a family office can ease the transition from business owner to retiree. It also engages your spouse, children, and grandchildren. They’re empowered to make decisions on how and when to grow your assets and what philanthropic projects the family should support.

The family office is an often overlooked option for entrepreneurs who are ready to sell but not ready to fully retire. For help starting a family office for you and your loved ones, contact Opportunities in Business today.

Due Diligence Risks: Mistakes to Avoid

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When an acquisition or merger is on the horizon, the prospective buyer is compelled to pursue a detailed process of due diligence. The stakes are high: It’s a complex, high-pressure and demanding process. Firms which frequently undertake M&A (merger and acquisition) transactions generally cultivate an in-house team of specialists. Other players are advised to engage seasoned outside professionals to make sure the due diligence process is as thorough and accurate as possible.

What Is Due Diligence?

Simply put, the due diligence team seeks to answer these questions: Do we buy? How do we structure the transaction? What’s a fair price?

The areas of focus generally fall into these areas:

  • Operational assets
  • Legal matters
  • Strategic position
  • Financial data

These areas can be further broken down into a variety of categories. Experienced analysts incorporate accepted principles and proven methods to perform their duties. Considerable skill and experience are essential to evaluate businesses in today’s complex global marketplace. Well-executed, comprehensive due diligence is crucial to a successful deal.

Common Failures in Due Diligence

Both buyers and sellers should be wary of some common mistakes in the due diligence process. Consider these potential pitfalls, along with suggestions for avoiding them.

Isolated Communication

As multiple parties focus on their own area of expertise and concern, they may to silo their information and conclusions, interfering with a holistic view of the big picture. It’s important to consciously integrate the findings from diverse perspectives as the process unfolds. Good communication between members of the due diligence team, and also between selling and buying teams, helps avoid misunderstandings and tunnel vision. Teams should work according to a shared calendar, with frequent check-ins of goals and milestones.

Last Minute Surprises

Waiting to the 11th hour to reveal or evaluate a vital issue can be a trust-killer and a deal-breaker. A sudden wrinkle can have a domino effect, jeopardizing or negating elements which were thought to be settled. Any negative findings should be swiftly evaluated internally by the due diligence team. After crafting a course of action, the team should promptly bring the issue to light with the other party.

Neglecting Industry Nuances

Specific deals and specialized industries have their own complexities. While boiler-plate lists of due diligence documents and issues are a helpful starting point, they fail to address some issues. Existing or upcoming regulations, economic cycles, supply chain issues and more may have a big impact on value, despite not immediately meeting the eye.

Pointless Negotiations

Negotiations are time-consuming and can spark negative feelings. Make sure to dismiss unnecessary discussions–they waste time, money and resources. For example, customers and accounts receivable are a normal point of negotiation, but an early-stage start-up might not have any yet, so cross it off the list and move on.

Let an expert like Opportunities in Business help you through this process. With over 30 years of experience we’ve seen it all and can help you avoid any pitfalls along the way.

When Is The Right Time to Sell Your Business?

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Every business owner considers the question eventually: Is it time to sell my business?

Here’s the bad news: there’s no formula to generate the definitive answer to this question. Each business is different; each owner is different, and there are infinite landscapes and circumstances.

EMOTION VS. LOGIC

Ultimately, both logic and emotion drive these decisions, so think it through from both perspectives.

ARE YOU EMOTIONALLY READY TO MOVE ON?

Let’s consider emotions first, because that’s doubtless what got you into the business in the first place. It’s nearly impossible to found and build a business without passion. Passion is the fuel that allows you to dedicate long days, seven-day work weeks, and marginal material rewards to create a business from the ground up.

Is the passion still there? If you’re not feeling the passion anymore, perhaps the business has shifted from your original vision; your role in it has changed; the challenges it offers have changed; or you’re just plain tired.

Some people thrive on the bootstraps-pulling growth part of the process, and feel stagnant when stability is reached. Established companies usually swap the high-thrills, high-stakes growth phase for a set of more mundane problems, like mastering HR and administration.

Have a frank dialogue with yourself–do you still have the passion? If not, it may be time to sell, or to strategize how to re-craft your role in the business to reignite your passion.

If you’re attracting interest from buyers, you’ve got to recognize that circumstances change and the window is bound to close. Ask yourself whether you are emotionally prepared to wait for the next window to open if you miss this one.

LOGICAL FACTORS TO CONSIDER

Once you embrace the possibility of selling, how can you be sure you’re selling at the right time? You can’t. Just like with selling a house or a car, you never know if there’s another buyer around the corner with deeper pockets than the one you’ve got. You’ve got to evaluate the deal on its own merits, and not let a bunch of “what if”s torture you.

The ideal time to sell is when multiple buyers are eager, raising the potential price. This depends on a constellation of coordinated circumstances: Robust market conditions for your segment, yielding strong investor confidence; a recent history of financial improvement, both in earnings and revenues; strong evidence that earnings and revenues will increase. If your business is in this enviable catbird seat, you can’t ask for a better time to sell.

Are your skills still valuable for the business? Often a young company demands a different set of skills than a mature one. If it’s clear that your leadership (and passion) are better suited for a young company, consider moving on to or creating one.

Is the market shifting dramatically? It might be time to get out. Taxi companies facing Uber, movie rentals facing Netflix, waterfront properties facing rising sea levels–all these enterprises face a ticking clock.

Does the company need money to grow? Are you willing to take on financing in exchange for a seriously altered role? It can be a profound mental shift to swap your role as captain of the ship to one of many mates making it run. If you aren’t willing to hand over at least some of the reins in exchange for investment, selling is a better option.

DECISION TO SELL IS A BALANCING ACT

It’s one of life’s great ironies that the better the business is doing, the better the time is to sell: the worse the business is doing, the more motivated you are to sell but the harder it is to find good buyers. Evaluating the right time to sell is a tight-rope walk between these two extremes.

Call us today for a complimentary consultation and check-out some of the recent businesses we’ve sold. 

How to Prevent Failed Mergers & Acquisitions

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Mergers and Acquisitions (M&As) are on the rise as the economy recovers from the 2008 financial crisis.

A strategic, well-executed M&A can be a ticket to success. It’s one of the best ways to grow quickly, and in a perfect world, can increase revenue overnight. A good M&A enables you to potentially expand into a fresh geographic market and/or access new customer segments due to offering new products/services.

However, any M&A is a massive investment: in knowledge, time, money and bandwidth. It’s crucial to entertain the prospect of a M&A with both feet on the ground and eyes wide open. Success is not guaranteed: studies vary, but the failure rate of M&As ranges from 50%-70%-90%.

How can you increase the odds that the M&A you pursue will be one of the winners?

It will take a ton of due diligence in preparation for the deal, and lots of work and thoughtful strategy after the deal is signed.

Here are a few suggestions to start with.

According to a study by Deloitte in 2014, customer retention and expansion is the most important component of a successful integration. You can’t assume all customers are loyal: if they’re just sticking around due to inertia, the changes that result from a M&A may be enough to send them to a competitor. It’s also crucial to know your competition. Employ tools such as Net Promoter Score (NPS) to assess customer satisfaction of the target company, and of their competition, to help gauge how much customer retention you can expect. You also need to assess the competition to ascertain whether the market will bear any price increases.

Evaluate the economic environment in the industry and consider potential disruptions: innovations, up-and-coming competition, regulator pressures, changes to the purchase journey, and local, national and international economic circumstances. It pays to have some strategies in place for worst-case scenarios.

Inadequate involvement from the owners is a frequent cause of poor M&A performance. A mid- to large-sized deal virtually requires professional (and costly) M&A advisors, which tempts some owners to take a hands-off approach. This is a big mistake: the owner should stay in the driver’s seat, while utilizing advisors as assistants, not leaders.

After the deal is done, the integration begins, and it’s crucial. Before completing the deal, carefully appraise and identify crucial products and projects; key employees; sensitive processes; potential bottlenecks. Then explore how to overcome potential integration wrinkles via outsourcing, consulting, automation or other strategies. Cultural integration is also vital.

Consider your capacity and bandwidth, as an executive and as a company. Realize you need to allocate significant resources including money, time, effort and expertise to have a successful M&A, and that unknown issues are bound to arise which will put further pressure on your resources. Costs may soar. Will you be able to devote the necessary resources?

Lastly, with such a high failure rate in the M&A arena, have an exit strategy. Enter the deal with a sense of what success looks like, how much time you’re willing to give the process, and a calculated notion of when you’ll need to cut your losses.

Thinking about selling your business or merging with another company?

Give us a call, we’d be glad to help educate you on the process to help you get the highest value for your business! Learn more about OIB!

How to Value a Business

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At Opportunities in Business, we’ve been appraising small, closely-held businesses of all kinds for over 30 years. While the most obvious reason to appraise a business is when it’s changing hands in a buy/sell agreement, business appraisals are also needed for estate planning, stockholder disputes, tax disputes, and divorce settlements.

“Fair market value” of a business won’t be found in your financial statements or tax returns: It’s much more complicated than that, and ultimately depends on buyer perspective.

Business valuation is complex, subjective, and very dependent on somewhat abstract factors such as location and anticipated earnings. Here are three primary strategies we rely on, as a professional business brokerage firm. A thoughtful analysis will evaluate from all three perspectives to triangulate a realistic value for your company,

Assets-based analysis

For the most basic evaluation, calculate the value of a business’s hard assets, minus its debts. For example, a building contractor owns trucks, tools, and equipment: estimate the resale value of these hard assets and subtract business debts to reach an asset-based value. This method tends to establish a low company value because it doesn’t take into account the vital but intangible “goodwill” accrued by the company.

What is “goodwill?” According to Investopedia.com, “Goodwill is an intangible asset… The value of a company’s brand name, solid customer base, good customer relations, good employee relations and any patents or proprietary technology represent goodwill. Goodwill is considered an intangible asset because it is not a physical asset like buildings or equipment.”

Companies typically have at least some goodwill–for example, a thriving restaurant or spa–so an asset-based valuation will be too low.

Comparables

Another common valuation technique is developing metrics based on the sales price and profits of similar companies. For example, accounting firms may trade at one times gross recurring fees while home/office security businesses may typically sell for two times their earnings. To make an accurate analysis, evaluation begins by selecting a group of companies which share industry, size, and region. Industry conferences and publications are good places to get a starting point on this multiplier.

The usefulness of comparables is limited, however. The resources for comparable data do not provide enough details to ascertain whether the businesses used for comparison are really comparable.

Earnings based methods are the most common methods used for businesses which are profitable. The various methods first define the earnings of the business, and then assess risk factors to determine multiplier and capitalization rates.

Ultimately, a business is like any commodity. It is worth what a buyer will pay for it, and if they have a strategic reason to acquire it, the sky may be the limit. However, having a professional evaluation of the business value is a crucial component to engaging in a successful sale.

Want to learn more? Give us a call today at 612-331-8392!

How to Prepare Your Business to Sell

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Selling a business is a milestone most business owners will eventually encounter. Whether motivated by retirement, potential profit, or external circumstances, selling a business is a high-stakes undertaking and demands plenty of due diligence to ensure the best outcome.

Even if you’re not ready to sell, it’s smart to view your business through a buyer’s lens. Just as you’d want to keep your home in good condition in case you suddenly need to put it on the market, you benefit from a business in which loose ends are tied up and books and documents are in order.

Here are 5 steps to take to ensure that your business is ready to go on the market and attract top-value offers.

First…Obtain a business valuation. Hire an experienced professional entity to analyze your business and establish its value. Business brokers, investment banking firms and accounting firms offer this service. Find one with experience in your industry, and get an objective assessment of your business’s financial situation, market position, strengths, and weaknesses. Opportunities in Business has been doing valuations for over 30 years.

Second…Put your books in order. Buyers typically require at least a three-year financial track record, and it’s important that your taxes are up to date and in order.

Third…Review and organize all legal paperwork. Track down all permits, leases, incorporation papers, licensing agreements, vendor contracts, customer contracts, etc..

Fourth…Focus on sales and growth. Buyers will closely examine the growth potential of your company. As you ramp up to putting your business on the market, it’s a good strategy to grow your sales efforts and invest in growth initiatives. Don’t focus exclusively on gross revenue; most buyers will rely on net or EBITDA (earnings before interest, taxes, depreciation, and amortization). An attractive EBITDA is key to a higher price.

Fifth…Perform a SWOT analysis, defining your strengths, weaknesses, opportunities, and threats. Buyers will negotiate by targeting your weaknesses and threats: you’ve got to be prepared to defend yourself, and to counter with emphasis on strengths and opportunities. Identify and address problems now. If you have fires, put them out. If you have skeletons, rehearse how to explain them succinctly and clearly, and then move on.

If you’d like to talk to an expert about your business and what you need to do to sell it, please give us a call at 612-331-8392.

How to Select a Business Broker

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Smart sellers engage business brokers to maximize value and ensure a smooth transaction. As you shop for a business brokerage firm, it’s your responsibility to ask the right questions so you select the right party to sell your business.

Here are some questions to get you started, grouped into three general categories: experience, marketing, and administration. Choosing the best broker for your situation is crucial to getting top dollar with minimal headaches, so take your time interviewing candidates.

EXPERIENCE

How long have you been a business broker?

Experience is crucial in this business–it’s a huge part of the value proposition you’re paying for with your commission. If the agent you’re interviewing doesn’t have a long track record, they can still do a good job providing that they get adequate support from their highly experienced colleagues. Ask detailed questions to confirm that you’ll be benefiting from experienced professionals. Also, confirm how long they’ve been with their present firm. While it’s normal to change firms occasionally, excessive transitions suggest a problem.

In what industries have you sold businesses?

If the broker hasn’t sold any businesses in your industry, they can still do a good job if they exercise due diligence and learn about the field. Ask them to share their experience in your industry. If it’s new to them, they should explain how experience with other clients will contribute to success, and how they’ll come up to speed in your industry.   

How many listings do you have?

A qualified business broker should have a number of active listings at any time–generally between 15 and 20. If their number is on the low side, find out why. If their number is on the high side, ask them about the size and performance of their administrative and support staff.

How many businesses do you sell annually?

A typical annual volume is eight to ten businesses a year. If the number is lower, find out why. If they sell very large businesses, a smaller number may be acceptable, but it’s important to learn more.

How many businesses have you sold in total?

More sales equals more experience. Again, if your prospective broker doesn’t have extensive experience, but has excellent support from colleagues and the resources of a large, established firm, she or he may be a suitable candidate.

What is your closing ratio?

When you get an offer, you want it to close successfully. Find out the closing ratio of your candidate, and ask what pitfalls they’ve encountered in the past which have disrupted closing, and what steps they’ve taken to address the problems.

Do you have testimonials?

Ask for testimonials and contact references. However, remember that business sales are confidential and brokers cannot disclose the information on any completed transactions without the seller’s permission.

MARKETING

How do you determine the value of my business?

A professional valuation of your business is one of the main benefits of retaining a business broker. You want a brokerage which stringently determines your business’s worth. They must consult industry standards, examine business comps and run calculations to come up with an accurate and realistic number. They also need to be transparent in this process, sharing the data with you to justify their conclusions. Correct pricing is crucial to a timely sale.

Do you have a database of buyers? How big?

A digital database sorting potential buyers can speed up a sale.

ADMINISTRATION

What’s your process for qualifying buyers?

Brokers have a duty to protect your privacy, so they shouldn’t share details about your business recklessly. Before the firm shares financials on your business, what measures do they take to qualify buyers?

Do you assist with obtaining financing?

Financing has undergone big changes in recent years. Make sure your broker knows what financial institutions are interested in financing your business.

Do you have reliable attorneys, lenders and tax specialists?

Deals often disintegrate because other parties such as attorneys, lenders and tax specialists drop the ball. Seek a firm that has established relationships with these professionals. There are a lot of moving parts in a high-stakes transaction, so clear expectations and a proven sequence of steps are crucial. For example, to minimize tax liability they must engage tax specialists to assist with structuring the deal before the business changes hands.

Check-out our recent list of businesses we’ve sold! 

Buys and Sells used “one of a kind” Architectural / Building / Antique items.

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TYPE OF BUSINESS: This well established salvage yard, which was established over 50 years ago by the current owner, buys and sells used “one of a kind” Architectural / Building / Antique items for residential and commercial properties. Samples of the products are lighting, fireplace mantels, buffets, lumber, hardware, doors and windows. The business is well known for their outstanding selection.  The owner’s responsibilities are to oversee the operation and purchase the used inventory.  Owner is willing to work with a new owner after the business has been sold to insure a smooth transition. Hours of operation are 8:00a.m. – 5:00p.m. Monday – Friday and Saturday 8:00a.m. – 1:00p.m. The potential to grow this business is tremendous.   A new owner would want to have all their products available through the internet. Currently, the business has a web site but needs a major upgrade.  This is the largest company of this type in Minnesota. There is a tremendous opportunity to sell these products over the internet.

 

FACILITY:  This business operates in a free standing 93,000 sq. ft. Seller willing to give new owner rent free (building only) for up to 2 years.  The business must re-locate.

 

EMPLOYEES: 6 full-time and 5 part-time employees.

 

GROSS SALES/CASH FLOW:  The gross sales for 2012 were approximately $800,000, 2011 were $792,500; 2010 were $1,008,350 and 2009 were $1,046,450. Based on 2012 sales, the owner reports that cash flow was approximately $118,000 ++.

 

ASKING PRICE: The asking price for the business is $250,000, which includes equipment, furniture and fixtures (estimated value $200,000).  The owner is willing to sell the inventory to the buyer on a consignment or floor plan basis.  The buyer will not have to pay for the inventory until it is sold.  The cost of the inventory to the buyer will be negotiated between buyer and owner.  The owner indicates that the cost of the inventory is in excess of $1,000,000.

 

REASON FOR SALE:  The owner is tired and wants to retire.

 

Important Notice:  The above information has been provided by the Seller.  Neither The 20/20 Group, Inc. (dba Opportunities In Business) nor its agents guarantee its accuracy or comprehensiveness.   7670  b.k.

Beautiful Clothing / Jewelry Boutique located in Stil

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TYPE OF BUSINESS: Beautiful Clothing / Jewelry Boutique; Prime location on Main Street in historical Stillwater that is surrounded by popular restaurants and retail businesses. The business was established in 2010 and offers a unique shopping experience. This beautiful store specializes in the sale of wide range of women’s apparel, jewelry, shoes, hats, accessories and more. This is a very easy business to operate and would be perfect for the first time buyer. Hours of operation are; Monday – Sunday 9:00 to 10:00 in summer and 10:00 to 5:00 in winter.  The owner does not work the business – however, his responsibilities include: Bookkeeping and Staffing.

 

FACILITY:  This business is located in a prime location on Main Street. The business operates in about 1,800 square feet. Monthly rent is $3,300.  The lease expires in 2014, and there is an option.

 

EMPLOYEES:  Again, the owner doesn’t work the store. Business operates with 2 full-time and 8 part-time employees.  Their hourly wages are between $8.00 and $10.00 per hour.

 

GROSS SALES/CASH FLOW:  The gross sales for 2012 were approximately $263,000; cash flow was approximately $70,000 for an owner operator based on 2012 sales.

 

ASKING PRICE: The asking price for the business is $70,000 plus inventory. This includes the furniture, fixtures, equipment, website, phone number, client and vendor list.  The value of these assets is approximately $30,000. Inventory is approximately $50,000 at cost.

 

REASON FOR SALE:  Owner is re-locating.

 

 

 

Important Notice:  The above information has been provided by the Seller.  Neither The 20/20 Group, Inc. (dba Opportunities In Business) nor its agents guarantee its accuracy or comprehensiveness.  7750 b.k.