Can Do Sales & Marketing, So Why Should I Use A Professional Intermediary?

27 Reasons to use a Professional Intermediary

 

  1. To maintain confidentiality: it is difficult to be working in your business and talking to prospective buyers on phone, without “letting cat out of the bag”!
  2. Someone to coordinate the key participants: schedules phone calls and meetings.
  3. A professional intermediary regularly interfaces with “Deal” professionals: business attorneys, transaction accountants, and other advisors.
  4. To keep principle, players, and advisors focused…your professional intermediary generally only gets paid when the “deal” closes and YOU get paid!
  5. To maintain deal momentum: a professional intermediary manages the flow of information and documents. “Deals are like sharks”, they die if they don’t keep swimming forward.
  6. To negotiate the broad strokes and parameters of a possible “deal”. An intermediary is a professional negotiator; he/she does this for a living.
  7. To handle frustration levels: every deal is a roller coaster and a professional intermediary “wears a lot of hats” such as connector, dealmaker, psychologist, facilitator, delivery service, EMT, etc.
  8. To find the pool of potentially qualified buyers: An intermediary has the tools, databases, and experience to find and vet qualified buyers.
  9. To chase the buyer: it’s all about the follow up, & then more follow
  10. Intermediaries have broad third-party prospective from completed and failed deals.
  11. Intermediaries and some advisors know how to sell businesses; most sellers don’t.
  12. To deal with buyer competition: brokers create and manage it.
  13. Intermediaries coach sellers to answer buyers’ questions and concerns.
  14. The compensation basis of a professional intermediary is commission upon sale or partially contingent upon done deal.
  15. To determine the best selling price.
  16. To determine the best time to offer a business for sale.
  17. To develop a marketing strategy and plan its implementation.
  18. To perform financial analysis and recasting.
  19. To help the buyer obtain financing.
  20. To minimize interference with seller’s management or company.
  21. To perform a quick sale when an owner is facing a pressing crisis.
  22. To receive, present, and help evaluate purchase offers.
  23. To reconcile differences between tax returns and financial statements.
  24. To reduce frustration during the offering and sales process.
  25. To view the business from the perspective of buyers.
  26. To understand the local marketplace of businesses for sale.
  27. To properly field an unsolicited offer from a buyer which requires a professional intermediary’s expertise.
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Checklist for Selling & Operating your Business

Checklist for selling & operating your business

 

  • Be confident- A good rule for most any endeavor in business & life. You are going to make the case to a buyer why your business is the best thing since “sliced bread” or at least a great investment.

 

  • Be credible: This is essential! If the credibility of seller is lost or called into question, it becomes difficult, if not impossible, to regain credibility.

 

  • Have a selling strategy: Who’s your buyer?  How do you reach them?  How do you introduce them to the opportunity?  What’s your time frame? Are you pricing for maximum return or a “quick sale”? Answering these questions are important.

 

  • Plan your marketing: Do you have the time and expertise to do this?  If not consult a professional.

 

  • Seek professional advice: As described above, if marketing & selling businesses is not part of your skill set, hire a professional.

 

  • Pre-qualify your business for lending: Is your bank a preferred SBA lender?  If not, find a bank that is and ask them to prequalify your business for SBA or conventional bank lending. This makes a powerful statement in your marketing to be able to say that your business is, “pre-qualified for SBA/bank financing for qualified buyers”.

 

  • Address internal issues: There is a saying in the business intermediary community that “there are no perfect businesses & no perfect buyers”, but you still want to do everything you can to present your business & employees in the best possible light.

 

  • Prepare for buyer’s due diligence: It is a good idea to have a professional (accountant) do a “pre-sale” due diligence project to uncover any issues that can be fixed.

 

  • Anticipate buyer’s questions: Put yourself in the buyer’s place. What questions would you ask?  Ask a professional to coach you.

 

  • Use professional intermediary to market and negotiate for the highest value: A good business intermediary will often pay for themselves, by getting a better and quicker deal than a seller can. To reiterate my new favorite phrase, “if you think a professional is expensive, try an amateur”!
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Considerations When Performing a Business Valuation

Considerations in Determining Value

There are many things that go into valuing a business. We like to say that the endeavor of business valuation is “part science and part art”. The science is usually a fairly objective pursuit involving crunching numbers and cash flow multiples etc. Whereas, the “art” part is often a partially subjective endeavor where experience, opinion, and the “eye of the beholder” comes into play. With that being said, here is a short list of items that we take into consideration when performing a business valuation.

· Seller’s discretionary earnings (SDE)/cash flow: Sum of the benefits that the business accrues to the owner(s). (Net income + owner’s compensation + fringe benefits etc.)

· Market Value of tangible assets: furniture, fixture, & equipment

· Value of intangible assets: reputation, goodwill, copyright, IT, etc.

· Comparable sales: What are buyers/investors paying for this type of income stream? What multiple of SDE are businesses like this being transacted at?

· Replacement value: What would it cost to replace the income producing capability of the enterprise?

· Marketability factor: How desirable is the business? Is it catering to a “hot” demographic?

· Market segment: Business to business? Business to consumer?

· Territory rights: Exclusivity? Competitive environment?

· Do you know how buyers will value your business?

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Reasons Why Business Sellers Hire Brokers

Business sellers often wonder the value of retaining a business broker to help sell their businesses and frequently ask, “Why should I hire a business broker?” There are many reasons we can think of but our simple response to the question is “because helping people sell their businesses is what we do.”

We recognize that you are the expert in your industry, whether you own a machine shop, an e-commerce business, or a distribution / warehouse company. You know the ins and outs of your business and its industry because this is what you do every day. Likewise, selling businesses is what business brokers do every day.

Business brokers know the steps needed to prepare and market a business, carrying it through to closing. Brokers have strategic alliances with other professionals necessary in the transaction, such as attorneys and accountants, to whom they can refer sellers to utilize their services. Most business brokers have spent years working with hundreds or thousands of buyers, developing a keen knowledge of the buyers’ perspective. Understanding the buyer’s perspective helps brokers effectively market their client’s business, ultimately increasing the seller’s chances at closing the deal.

Again, helping business owners sell their businesses is what business brokers are here to do. When selling a business, owners have certain responsibilities and time constraints. Retaining a business broker takes the pressure off a seller to manage all the steps of the selling process. Determining a fair market asking price, gathering the necessary information and documents needed, marketing, finding and screening qualified buyers, answering buyers’ questions, collecting and dispersing appropriate information to the right people at the right time, managing negotiations… the list goes on. It’s important as a business broker to have a complete understanding of our role and the selling process, so in turn the seller will have the confidence to hire a broker and trust us with their business.

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Meet Ken Henke, Owner of Secur-Tek, Inc.

Written by Olga Kennedy Hardy

Interviewed by Don Emmett

As part of our association with Small Business Insights of the Triangle, Don Emmett spoke with Ken Henke, Owner of Secur-Tek, Inc. to learn a bit about Ken, his business, and his thoughts on business.

July 20, 2015. Apex NC. Don Emmett, Managing Director at Entrust Associates, and I recently met with Ken Henke, Owner of Secur-Tek, a Triangle-area business where home- and business owners can turn for home security and other automation systems.

When we first met Ken, he greeted us with a firm handshake, introduced himself and led us up a flight of stairs to the meeting room where we would sit and get to know a bit about him and his business. He exuded a no-nonsense attitude, and after a few moments of getting to know us, we got right down to business, starting with a little history of Secur-Tek and how it came to be.

Ken has been in the security industry since 1983; after coming to North Carolina from Florida and staying with his uncle for a month, Ken was told that he would have to get a job. And that was the beginning of this great story. Seven years into his first security job, Ken was ready to branch out on his own, and so in 1990 Secur-Tek was born.

With his experience thus far in the security industry, Ken built his business as a means of providing quality alarm systems to his customers. As the business grew, additional disciplines and product lines were added, including intercom systems, Bose® whole house music and theater systems, Dirt Devil™ central vacuum systems, and Control4® home and commercial automation systems.

When asked about challenges he has faced and how he has managed them, Ken tells us that through the last 25 years he has learned to make good decisions, admit to and learn from mistakes, hire good people and treat them well, and most importantly to keep focused on the business and its mission and not to get sidetracked. He has seen competitors diverge from the path, a decision that has not served them well. Fortunately, with perseverance, discipline, excellent customer service and knowledgeable technicians, Secur-Tek has survived downturns in the economy and continues to grow. Ken is thankful that he has had a good support system—family, employees, customers and vendors that have helped the business, develop and maintain an excellent reputation in the industry, and have brought in leads.

And what does the future hold for Ken Henke and Secur-Tek?

Having taken “the upticks as they come and managing the downticks as they come,” Ken is at the point where he is enjoying the benefits of having a successful business. He still enjoys what he does; he’s still staying focused, and will continue to offer products and services to customers in the Triangle area and Eastern North Carolina.

With that being said, Secur-Tek is here to stay, and Ken is certainly the man to make that true.

 

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Entrust Associates Represents Strategic Systems USA in Successful Business Transaction to CEI

Raleigh NC. Entrust Associates announced that it represented the seller in the sale of Strategic Systems USA (SSUSA), a computer-related business-to-business company. The new owner, CEI, purchased SSUSA from Jon Douros, who had been with the business since 1997.

 

Listing broker and Managing Director Don Emmett says, “Congratulations to both seller and buyer in this transaction. I am grateful to have been part of the Strategic Systems transaction, which has resulted in wonderful results and opportunities for both Jon and CEI.”

 

About Strategic Systems USA

Strategic Systems USA is a valued-added reseller of equipment, including printers, computers and related peripherals, with a wide range of IT expertise. Clients are offered managed print solutions, i-Series production infrastructure solutions, disaster recovery and systems back-up solutions, desktop and workgroup infrastructure, as well as the ability to purchase hardware from industry leaders, such as EMC, Cisco and Xerox.

 

About Entrust Associates

Entrust Associates (www.EntrustAssociates.com) are Triangle-based business consultants, with offices in Raleigh and Chapel Hill, who advise and represent business owners in Central North Caroliana. Entrust offers confidential assistance in valuing, preparing and strategically executing exit strategies for small- and medium-sized businesses. Entrust business advisors are professionals with advanced degrees and entrepreneurial experience. Their background enables Entrust to provide unequaled service to the Triangle business community.

 

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Contact Information

Olga Kennedy

Entrust Associates

4700 Homewood Ct., Suite 200

Raleigh NC 27609

919.881.9997

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Businesses Valuation and Why Most Librarians Aren’t Rich

A guy goes to a mathematician and asks him how much is 2 plus 2. The mathematician explains that there are so many different mathematical systems, that he can’t possibly answer that question without lecturing for at least an hour about the philosophical underpinnings of mathematics.

The guy next goes to an accountant to ask how much 2 + 2 equals. The accountant takes out his spreadsheet does the calculation, and informs him that using generally accepted accounting principles, 2 + 2 equals exactly 4.

Next stop is a lawyer’s office. The guy asks the lawyer the same question — how much is 2 plus 2. The lawyer looks around for a bit, pulls down the window shades and closes the door. Then he asks in a whispered tone: “How much do you want it to be?”

While this is a story created to make fun of lawyers (I’m a lawyer, but always appreciated lawyer jokes), there’s a basic truth about valuing businesses embedded in the story. There are literally hundreds of ways to value a business but there is no right way. Ultimately the marketplace will value a company.

I’ll spend some time in future newsletters considering some of the more popular valuation approaches. In this newsletter though, I’m going to try to gently suggest a slightly different mindset than is often used among small business buyers and sellers.

Armed with three years or five years worth of financial statements, the typical small business seller or buyer sits down with his calculator, software program, and preferred formulas, and proudly comes out with a piece of paper disclosing the value of a business.

This exercise is actually an excellent way to determine what a business was worth last year, or the year before. But historical information–which is what financial statements are–can’t reveal what a business is worth today, because what it’s worth today is based on future results.

The buggy whip manufacturers in the late 1800s learned this lesson to their dismay, when their strong financial results led them into a false state of comfort right before they were about to get run over (literally) by the newly emerging automobile industry.

Similarly, investors who shied away from Amazon.com because of the rivers of red ink in the early years missed out on buying a great business.

To borrow some wisdom from Warren Buffet:

If past history was all there was to the game, the richest people would be librarians.

So, it’s pretty simple to explain how to price a business. Figure out its future performance, and price in an appropriate rate of return.

Simple to explain. Hard to do.

Yogi Berra put his finger on the real dilemma:

“It’s tough to make predictions, especially about the future.”

Ouch!!

How do you value a business based on the future, given that you can’t predict the future?

For now, our point is simpler. Don’t fall into the trap of thinking that the value of a business is based on its past. Don’t ignore financial statements. They’re important for a lot of reasons. But, consider whether their greatest importance may be based on the clues they can provide about the future.

Consider using the same approach that large corporations use. In contrast to small businesses, larger corporations consciously spend almost all their time thinking about the future and not the past. They develop pro forma financial statements, and then use due diligence to verify the inputs that underlie their analysis of the future.

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Searching for the “Perfect” Business

The search for the perfect business has been going on for just about as long as the search for the fountain of youth. And with the same lack of success.

Too many buyers are out there looking for the perfect business. As a result, they miss out on great opportunities in non-perfect businesses.

This is a syndrome that’s been around for centuries. Be wary about letting the perfect be the enemy of the good. You may never make a decision. You’ll always be hoping for something better.

We would never tell you that you have to buy a particular business–you don’t. And, heaven forbid, if you think we’re advising that you buy “schlock.” We’d never suggest that!

But, if you keep looking at good businesses but holding off buying because you’re hoping for a better one, you may find yourself in a long-term rut of non-decision.

Don’t know if this will help cure your chronic indecision, but here’s one statement you can take to the bank:

No business is perfect. None.

But, that’s not necessarily a bad thing. In fact, while it may be counterintuitive, the fact that a particular business is not perfect, may, in fact, be one of its most attractive qualities!

Here’s a quick illustration.

Two virtually identical businesses are for sale — same industry, same product, similar sales and cash flow. Business A is brilliant at marketing and sales. Unfortunately, Business B is at the other end of the scale — very weak when it comes to marketing and sales.

Which business would a buyer be more interested in? Which is likely to command the higher price?

It depends.

But the answer could certainly turn out to be Business B.

The search for potential buyers for Business B should focus on buyers with strong marketing and sales experience. The Seller (and/or its representatives) should forthrightly identify the weakness in marketing and sales. For the right buyer, the weakness of Business B represents an opportunity.

Businesses should be bought, sold, and valued based on their future prospects. And all other things being equal, by replacing weak marketing and sales skills with stronger ones, the right buyer is more likely to create a rosier future for Business B than he could for Business A, which already has strong marketing skills factored into its results.

As a buyer, don’t automatically be scared off by problems. Consider how your strengths fit into those weaknesses. You may be surprised at how that fit will allow you to create strong business value by seizing opportunities that former ownership didn’t have the skill or experience to find.

And, as a seller, it’s never the right thing to hide business problems from a potential buyer. And that’s true for a whole lot of reasons, beginning with how important credibility is to a successful sale.

Honestly identifying business weaknesses and potential solutions can actually add value to a business.

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Reasons Why Business Sellers Hire Brokers

Business sellers often wonder the value of retaining a business broker to help sell their businesses. They ask why they should hire a business broker. There are many reasons we can think of; in fact, Ted Leverette of “Partner” On Call Network wrote a list of “62 Reasons Why Business Sellers Hire Brokers” (May 2013). We’ve reviewed his list and in line with our own beliefs on why business brokers are an essential part in business transactions, our simple response to the question is because helping people sell their businesses is what we do.

We recognize that you are the expert in your industry, whether you own an auto body shop or a hair salon or a distribution/warehouse company. It’s what you do every day. You know the ins and outs of your business and its industry. Likewise, selling businesses is what business brokers do every day.

Business brokers know the steps needed to prepare and market a business and then carry it through until closing. They have strategic alliances with other professionals necessary in the transaction, such as attorneys and accountants, to which they can refer sellers.

Business brokers have spent time working with buyers so they are aware of the buyers’ perspective, which is something sellers should know. Knowing what buyers look for and what buyers ask for helps sellers effectively market their businesses.

Again, helping business owners sell their businesses is what business brokers do. If you own a business, you have certain responsibilities and time constraints. Retaining a business broker takes the pressure off a seller to manage all the steps of selling a business: determining a fair market asking price, gathering the necessary information and documents needed, marketing, finding and screening buyers, answering buyers’ questions, collecting and dispersing appropriate information to the right people at the right time negotiating with buyers … and the list goes on.

Click here for more information on how we at Entrust Associates help business sellers.

For Ted Leverette’s complete list of 62 Reasons Why Business Sellers Hire Brokers, click here.

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Qualifying Buyers When Selling a Business

A while back, I posted a blog that briefly discussed why business brokers ask for a potential buyer’s financial information before releasing even the name of a business that is for sale. In short, it’s our obligation to the seller to only release their confidential financial information to someone who has the ability to make the purchase.

Even after a buyer provides information that would indicate his financial ability to make a purchase, business brokers and sellers may indeed ask for further proof of funds, especially if you’re at the point where a LOI (letter of intent) contract is in place. Buyers may feel uneasy about this, but it’s not much different than purchasing a house—real estate agents and sellers usually request a pre-qualification letter from a bank. When buying a business, there is the same type of risk for the seller.

Years ago in a transaction, a buyer inquired about a listing. He completed and returned his buyer documents (a confidentiality agreement, an agency disclosure, and a buyer profile). After receiving initial information on the business, this buyer flew into town, met with the sellers and promptly submitted an LOI followed by a contract. However, when it came time for the transfer of funds at closing, problems arose. Funds weren’t as readily available as was stated.

The end result is that the closing was not completed. The buyer walked away, and the seller suffered. Time, energy and money were lost in what was thought to be the final steps in the sell process. Time is important in all aspects of life, especially in business transactions. No one enjoys having theirs wasted.

Situations like the above result have led to the need for increased buyer qualification. This includes steps in addition to having a confidentiality agreement and an initial buyer profile. For both the seller and the buyer, it is important that each party has faith in the other that the time and energy put into a transaction end in a successful close.

Sellers will want to interview potential buyers in terms of their financial ability to make the purchase, as well as about buyers’ skill sets and compatibility with the business itself. If sellers are considering financing part of the sale, they will want to do a credit check and/or a background check on buyers. If third-party financing is in play, buyers should expect to obtain and show proof of funds prior to getting too far into the process.

Buying or selling a business is one of the biggest decisions one can make. We’ve said it before: Sometimes the process can be incredibly smooth, and sometimes there may be bumps in the road; but if there are steps both parties can take to help get to a win-win closing, it’d be worth it!

 

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