1.
SELLING YOUR
BUSINESS
FOR MAXIMUM
VALUE
Lower Mid-Market Business Brokerage,
M&A, Intermediary, Consulting

2.
ABOUT THE SPEAKER
• Robert “Bob” Dolan, Licensed Florida Real Estate Broker.
• More than 30 years of experience.
• Began in franchising; former owner of a printing company that
grew to $900K in four years, sold after nine years and still in
business today.
• Mergers & Acquisitions, Intermediary, Lower Mid-Market
Business Brokerage, working mostly with businesses in the
sales range of $700,000 to $15 million.
• Straight talk, good listener, patient, to the point, and does
what he says he will do.
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3.
REASONS PEOPLE SELL
• Want to be entrepreneurs versus
managers.
• Choose not to invest the money
and energy to take it to the next
level.
• Cash in on success.
• Explore new opportunities.
• Lifestyle change/retirement.
• Health.
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4.
TOP PRIORITY
• Helping my seller customers get the best prices
possible, maintaining confidentiality.
• With the best terms possible.
• In all cash, or mostly cash, at closing.
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5.
MOST IMPORTANT ASPECTS OF THE PROCESS
• Price point.
• Packaging of the business.
• Marketing of the package.
• Responsiveness to inquiries.
• Negotiating skills.
• Understanding the emotional issues of the parties.
• Ability to secure long-term financing for the
transaction.
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6.
STRUCTURING THE SALE
• Almost all transactions are asset sales.
• This limits liabilities for the buyer.
• This allows the buyer to restructure the assets and
allocation of the purchase price.
• The seller receives the purchase price, plus trade
accounts receivables as of the closing date; keeps
the A/P and any Promissory Notes.
• Equipment leases, in most cases, are assumed by
the buyer.
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7.
ESTABLISHING THE PRICE POINT
• Seller’s discretionary cash flow (SDCF).
• EBITDA plus add-backs (Earnings Before Interest,
Taxes, Depreciation, Amortization).
• Add-backs lender underwriting will accept.
• Sales not reflected on the tax return do not exist.
• Value of not expensing personal expenses;
resulting increased profits will pay X2 or more.
• Private Equity or Strategic Buyer EBIT.
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8.
WORKSHEET SHOWING ADD-BACK PROCESS
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9.
PRICE POINT SHOULD BE HIGH –
BUT NOT TOO HIGH
• Unless there is something unusual, the multiple
range of SDCF (Seller Discretionary Cash Flow)
typically is X2–X3½.
• A/R trade accounts that seller keeps add to the
multiple.
• Multiple factors affect the multiple to be used:
• SDCF – the higher the number, the higher the multiple
• Sales trend
• What is extraordinary about the business
• The market where the business is located (metro/local)
• How quickly you want to sell
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10.
BUSINESSES WITH SDCF OVER $900,000
• Can command a higher multiple than 3.5
• With middle management in place.
• No customer represents more than 10% of sales.
• Most trade accounts (A/R) under 60 days.
• No major retooling needed to take sales to the next
level.
• Equipment and tools in good condition, current
technologies in place.
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11.
WITH SDCF OVER $900,000 – PRIVATE EQUITY
• Most are interested in keeping top management.
• Lets the seller take some money off the table.
• Can use Private Equity resources to grow the company
to the next level.
• Most are interested in building the business, then selling
it in three to five years.
• Allows the seller to share in the increased value.
• I am well-connected to in the Private Equity community,
know who is interested in what kind of business and
adding to their current holdings.
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12.
PREPARING TO SELL
• First impressions matter.
• Clean up your financial statement; do everything you
can to reduce costs and increase profits.
• Credit control – clean up your trade A/R; large amounts
over 60 days are not favorable.
• Consider your staff –are they polite and professional?
• Consider having your accountant prepare your year-end
statement.
• Consider how to create transferable value.
• Eliminate clutter.
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13.
PROJECT OFFERING – RECASTING P&L;
MARKETING
• The importance of good documentation.
• Recasting prior year’s financial statement to show
SDCF.
• Project offering for concise overview of the company
history and opportunity for growth.
• Importance of having a complete package before going
to market, being responsive.
• Value of a secure virtual data room with absolute control
and tracking.
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14.
TO INCLUDE IN OVERVIEW
• A focus on benefits to the buyer.
• What will be of interest to a prospective buyer.
• Spotlight on benefits of the business.
• ID competitors, and what makes you different.
• Post-acquisition training/integration to be provided.
• Explanation of why the business is being sold.
• What the seller plans to do after the sale.
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15.
KNOWING THE POTENTIAL BUYER
• Investigate what they are interested in and why.
• Explore what they want to accomplish.
• Know their background and how it relates to the
business.
• Ensure the business is a fit for their cash needs.
• Find out if they have the cash injection needed to
secure long-term financing.
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16.
SELLING THE FUTURE CREATES ADDED VALUE
• Having a plan on how to take the business to the
next level will add value.
• The trend of the past three years is a consideration.
• Seller’s last year’s federal tax return is the main
consideration.
• The results before the financial meltdown will not
be a basis of consideration.
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17.
ESTABLISHING TRUST
• Full disclosure with no surprises.
• Accurate and complete information.
• Forthrightness.
• No overstating – maintaining a high level of
creditability is paramount.
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18.
LISTENING
• Hearing beyond what is being said.
• Considering why something is being said.
• Noticing the way the potential buyer speaks, such
as inflections.
• Observing non-verbal communications.
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19.
REMOVING SKELETONS FROM THE CLOSET
• Aggressive tax deductions.
• Contract labor or 1099 employees.
• Undocumented employees.
• Family or ghost/phantom employees.
• Legal disputes, tax levies.
• Warranty issues.
• Lingering divorce issues.
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20.
THE PRICE HAS TO MEET LENDER STANDARDS
• The buyer must be able to repay the loan, which will be
amortized over 10 years at 2.75% over the WSJ prime
rate.
• The business must be able to pay a salary to cover the
buyer’s personal obligations with P/R taxes.
• There has to be a 1.25 debt coverage ratio.
• Profit after debt service and buyer’s salary/debt service.
• It is one thing if a buyer buys your price, but if you can’t
get it financed, what is the point?
• The price needs to be realistic.
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21.
PRIVATE EQUITY, STRATEGIC BUYERS & SMALL
INVESTMENT GROUPS
• Looked at differently than an entrepreneur.
• Looking more at EBIT as compared to SDCF.
• Will not set asking price; need to establish
enterprise value & transaction structure first.
• Intellectual property – secure provisional patent if
no patent exists.
• Post-acquisition integration; cultural integration,
financial & reporting requirements.
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22.
PRIVATE EQUITY PREFERENCE = LEASE REAL
PROPERTY
• Money in enterprises making money, not passive
investments.
• Leasing real property.
• Can provide opportunity to sell property as income
generator with long-term lease and strong tenant.
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23.
WHAT I NEED FROM YOU
• The value attributes of the business.
• Need to ID and understand your competitors.
• Realistic and achievable growth opportunities.
• Past three years of tax returns and financials.
• Copies of business premises lease, equipment leases.
• List of top 25 customers by sales ranking (without
names).
• Accounts receivable aging summary.
• Furniture, Fixtures and Equipment fair market valuation
and description.
• Organizational chart.
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24.
ADD-BACKS LENDER UNDERWRITING WILL NOT
ACCEPT
 Automobile used in the business.
 Automobile fuel and repairs.
 Health insurance for the seller.
 Travel, Entertainment.
 Replacing more than one active owner.
 If seller owns the real estate, adjustment needed
for FMV rent.
 Cell phones.
 Training.
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25.
ADD-BACKS THAT LENDER WILL ACCEPT FOR
UNDERWRITING
• “Extraordinary” expenses, such as new HVAC unit.
• Moving.
• Paid-off equipment lease that will not have to be
replaced anytime soon.
• Depreciation & Amortization.
• Interest.
• Family health insurance coverage (in some cases).
• Salary of Seller (1)
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26.
FUNDING THE TRANSACTION/ALTERNATIVES
• Unless a buyer has overwhelming financial
strength, funding unavailable without an SBA
Guarantee.
• Private Equity for transactions with SDCF over
$900,000 and a strong upside potential.
• Seller financing (despite the risk).
• Selling a Note from the buyer (possible in certain
cases, but not as clean).
• Green Card needed for non-citizens, E-2 will not
work.
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27.
REQUIREMENTS WITH AN SBA LOAN
• For long-term financing, an SBA loan is the only
alternative in most cases.
• Sales have to be stable or increasing.
• If sales have declined, there have to be at least
three months of increasing sales.
• There must be a reasonable explanation for the
sales decrease.
• No one customer can represent more than 10% of
sales.
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28.
FINDING A LENDER FOR THE BUYER
• Local and big national banks are a joke.
• All will say they can fund the loan, then 60 to 90
days later say they are sorry but no deal.
• Buyer and seller get discouraged, transaction
goes cold and blows up.
• I use a loan packager – knows what the lender
wants to see and how they want to see it, know
which lenders will fund the loan.
• All lenders used are SBA PLP
• The lender pays the loan broker.
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29.
THE ADVANTAGE OF A LOAN BROKER
• If there is a problem with one lender, it is fast and
easy to flip the loan package to another lender.
• We have someone who will keep us informed and
in the loop.
• I am not compensated in any way from the broker –
my mission is to get the transaction funded as
quickly as possible.
• The broker gets the loan funded, even in the middle
of the meltdown.
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30.
I DO NOT WORK WITH MULTI-LISTING SERVICES
• Required to work with everyone.
• Many are under-trained and pose a security risk to
your confidential information.
• Will co-broker, after review of their professional
credentials and references considered.
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31.
HOW YOUR BUSINESS WILL BE MARKETED?
• Proprietary company database of potential buyers.
• Network of other known broker colleagues.
• Blind Internet advertising.
• Private Equity, stand-alone or as add-on.
• Strategic buyers.
• Small investment groups.
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32.
QUALIFYING POTENTIAL BUYERS
• Every inquiry must include a signed Non-Disclosure
and Confidentiality Agreement.
• Submit a personal balance sheet.
• Ideally submit a bio or résumé.
• Determine whether the potential buyer has:
• Enough cash to buy the business and closing cost
(capital
injection)
• Has an appropriate background to secure long-term
financing
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33.
DUE DILIGENCE WITH PRIVATE EQUITY
• Typically much more extensive, taking more time.
• More extensive look at competitors and industry trends.
• Will want to compare to industry benchmarks.
• Evaluation of growth opportunities and the costs
involved.
• Looks at prior three years’ month-by-month P&L and
Balance Sheets.
• Not unusual to invest $150,000 to $200,000 in due
diligence.
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34.
POTENTIAL PROFESSIONAL ADVISORS
• Transaction attorney.
• Business transaction tax accountant.
• Tax attorney.
• Environmental attorney.
• Litigation attorney.
• Financial planner/investment counselor.
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35.
PROCESS UP TO LETTER OF INTENT (LOI)
• Initial meeting, establish suggested selling price
range, choose price point or not.
• Sign exclusive one year engagement agreement.
• Gather information, package the business, upload
to a secure data room.
• Takes average of nine months to close and fund
(beginning to end).
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36.
LETTER OF INTENT TO CLOSING
• From LOI to funding normally takes 60 to 90 days.
• Once an LOI is signed by both parties, immediately start
working on getting the buyer financed and completing due
diligence.
• Typically, we present a loan package to a lender within two
weeks, depending on the buyer’s responsiveness.
• Typically, a lender will make an offer within two weeks.
• The potential buyer starts working with an attorney to prepare
a definitive purchase agreement and related documents.
• The lender sends the loan to underwriting, then will give a
commitment within one week to ten days with the potential
buyer signing the agreement.
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37.
SIGNING THE LOAN COMMITMENT TO CLOSING
• The Buyer signs the commitment letter and
provides a substantial non-refundable deposit to
the lender.
• Buyer and Seller attorneys negotiate the Definitive
Purchase Agreement and agree upon the price
allocation.
• The bank provides a list of items it will need to
close.
• A funding and closing date is set.
• The transaction closes.
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38.
C CORPORATIONS CONVERTED TO SUB S
• If you have a C Corporation that was converted to a
Sub S Corporation in the years 2004, 2005, 2006 or
2007, discuss “built-in gain savings” with your tax
professional.
• This is part of the Tax Relief Act of 2012.
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39.
THANK YOU FOR ATTENDING.
FOR ADDITIONAL INFORMATION
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Robert M. “Bob” Dolan, CEO
Licensed Real Estate Broker
Intracoastal Building
3000 NE 30 Place, 5th Floor
Fort Lauderdale, FL 33306
Office: 888-893-6661
Fax: 208-493-1310
Cell: 954-579-4687
Email: bobd@dolansales.com
Website: www.dolansales.com
LinkedIn: www.linkedin.com/in/dolansales
Member