Statistics - USA25,000,000 businesses in the US20% for sale at any one time25% of the 20% (5%) actually sell• “Testing the Water”• Over Priced• Solve the Issue Causing the Need to Sell – Divorce, Health, Etc.3% of “Buyers” making a purchase inquiry actually buy
StatisticsBaby Boomer Businesses for Sale in Next 2 Decades? • One business owner turns 65 every 57 seconds • People 55+ own 50% of all businesses • 50% want to sell in next decade • Children less likely to want to take over businessNumber of Gen Xers in a Financial Position to Buy???
Statistics 75% of Owners Have no Exit Plan Selling within 6 months of deciding to do so can reduce the business’s value by 50% to 70%.
Are You Ready to Sell?Why Selling? Retirement, Health, Relocation, New Competitor, Bored?What are you going to do next ? (especially important with a family buyer)Selling What ?• Partnership Position – Buy/Sell Agreement in Place?• Business – Stock or Assets• Building ?Ship Shape ?• Financials - Accurate, Growth, Debts• Brand Reputation, Market Position, Pending Competition• Employees – Disgruntled, Loyal to Business?• Customers – Loyalty, Diversity• Pending Capital Improvements – Equipment, Facilities, etc.
30,000 Foot View Business’s Financial Position – 3 Categories1. Business earns more than a reasonable salary for owners… • Provides Return on Investment • Valuation of Discretionary Cash Flow is Meaningful2. Business earns just a reasonable salary for owner • Make vs. Buy - FMV of assets ? • - How much “baggage” (bad employees, weak inventory, etc.) • + Value of one less competitor in the market?3. Business earns less than a reasonable salary for owners… • Risk = what significant discount on FMV of assets? • - Pain of “Gutting” (bad employees, weak inventory, etc.) • + Value of one less competitor in the market?
Who to Sell to … ? Existing Partner Another Business • Strategic Buyer • Competitor Stranger Employee Employees - ESOP Liquidator
Conditions of SaleConsulting Agreement? Paid or Unpaid ?Non-Disclosure / Non-Compete ?Earn-Out ?Owner Financing ?Trusted Employee(s) – What Happens to Them ?Competitor Purchase – What to Disclose ?Existing Debts – Who Pays ?Accounts Receivable – Who Collects ?Lease – If favorable, how much longer and can you sub-lease?
Team Due Diligence Negotiation Preparation Marketing Closing PricingYou x x x x x xAccountant / CPA x x x xAppraiser xAttorney x x x xBusiness Broker x x x x xConsultants x xYour Banker x x
Process Build Team Adjusting Financial Statements, Pricing Marketing Confidentiality Agreement Buyer Interview / Qualification Financial Disclosure – 3 years or more Negotiation Term Sheet / Letter of Intent Purchase Agreement Closing! Fulfill Consulting Agreement
Adjusting Financial Statements Net Income + Salaries to non-working family members + Payments on the condo in Vail + Payments on non-essential vehicles
Marketing FSBO Ads in Local Newspaper; Networking Broker ~ 10% commission Directory BizBuySell.com; businessbrokers.net
Discounted Cash Flow 30% discount Rate Today Year 1 Year 2 Year 3$23,077 $30,000$22,485 $38,000$19,572 $43,000$160,207 $46,000 1% Growth$225,341 Business Value + Non Critical Assets
Price Agreement…Once You’ve Agreed on Price…, The Negotiations are still not finished…
Seller vs. Buyer Tax Preferences Stock Sale Seller gets capital Gains Treatment Buyer looses ability to depreciate assets Asset Sale Seller taxed at corp. level and then again at personal level Buyer gets to depreciate assets
Asset Price AllocationAsset Sale - $1,000,000 Sale Price Seller Buyer Building 600,0001 400,0001 Machinery 200,0001 150,0001 Inventory 40,0002 100,0002 Accounts Receivable 100,0002 200,0002 Consulting Agreements 60,0002 150,0002 1 Buyer get cap gains treatment Seller has long depreciation 2 Buyer has to recognize as income Seller gets immediate expense
Questions Mike Upah 515.296.7828 firstname.lastname@example.org