A presentation about what goes into selling or buying a business, and the role a business broker plays to help maximize your chances for success. Presented by Murphy Business.

1. Selling or Buying a Business
Presented by:
Justin W. Sandridge
Murphy Business & Financial Corp
100 West Road, Suite 300
Towson, MD 21204
410.558.6365
j.Sandridge@murphybusines.com
www.MurphyBusiness.com

2. Today’s Topics
• Small business statistics
• Selling a business
• Buying a business
• The role of a business broker or intermediary
• Why use a business broker or intermediary?

3. Small Business Statistics
• 8,000 Large size businesses in USA (1,000+ Employees)
• 3,000 Mid-size businesses (100-999 Employees)
• 8.1 Million Small Businesses (1-100 Employees)
• 69.6% have < 5 employees
• 14.3% have 5-9 employees
• 8.6% have 10-19 employees
• 5.5% have 20-49 employees
• 2.0% have 50-99 employees
Source: Entrepreneur.com

4. • Small Business Annual Revenues
• < $100,000 = 28.1%
• $100,000 - $249,000 = 13.9%
• $250,000 - $499,000 = 12.9%
• $500,000 - $999,000 = 14.6%
• $1.0 Mil - $4.9 Mil = 20.1%
• $5 Mil - $9.9 Mil = 3.9%
• $10 Mil - $24.9 Mil = 3.2%
• $25 Mil - $49.9 Mil = 2.0%
• $50 Mil - $99.9 Mil = 0.2%
• $100 Mil + = 1.1%
Average = $3.6 MillionSource: Entrepreneur.com
$3.6 Million
Average Small
Business Annual
Revenue
Small Business Statistics

5. Small Business Statistics
• SBA defines a small business as having < 500 employees
(Really?!)
• Approximately 30 million small businesses
in the USA
• Over 22 million are self-employed owners with
no employees (called non-employer businesses)
• Over 50% of the working population works in a small business
Source: Forbes.com

6. Small Business Statistics
• Small businesses generate 60% to 80% of the net
new jobs annually. Source: Entrepreneur.com
• 7 out of 10 employer companies survive at least 2
years, half at least 5 years, a third at least 10 years,
25% at least 15 years or more
• 19.4 million non-employer businesses are sole
proprietors, 1.6 million are partnerships
and 1.4 million are corporations.
Source: Forbes.com

7. Small Business Statistics

8. More Revealing Facts
• 50%+ of small business owners have
NO strategic plan
• 40% of business owners plan to invest
or acquire another business
• 30%+ of business owners have NO
estate plan beyond a will
• 75% of owners do not an have exit or
transition plan
Source: IBBA

9. Business Facts
• Currently about 30 million small businesses in U.S. are collectively
worth $10 trillion ($333,333 Average size) Source: BLS
• 1.1 million businesses in Canada Source: IBBA
• 65% to 75% of small companies in the U.S. will go up for sale in the
next 5 to 10 years Source: Pew Research Center
• Ten TRILLION dollars worth of businesses will change hands by
2025 Source: Pew Research Center
• On average, 20% of businesses are for sale at all times (6 million)
• 47% of business sellers have never sold a business beforeSource:
Businessforsale.com

10. Business Facts
• Average time to sell a
business: 8 – 10 months
• 9% of businesses for sale
have been on the market 2+
years Source: Businessforsale.com
• 44% of buyers are first time
business owners
Source: Businessforsale.com

11. How Long Does it Take to Sell?
10
27
38
16
8
1
1-4 5-7 8-10 11-13 '12-18 '>19
% Sold
Months To Sell

12. Baby Boomer Statistics
It is estimated that:
• Baby Boomers were born between 1946 and
1964 (Actually a fact) Source: U.S. Census
• 60% of business owners were born before 1964 Source: APEX Exit Advisors
• A Baby Boomer small business owner is turning 65 every 57
seconds and that will continue for the next 17 years Source: APEX Exit Advisors
• 64% of sell side clients are Baby Boomers Source: IBBA/M&A Source Market Pulse Report
2014 2nd Quarter
• 87% of business owners do NOT have a documented exit
strategy plan Source: APEX Exit Advisors

13. Exit Planning
Ways an owner can exit a business:
• Leave it for your estate to dispose of
• Liquidate the business
• Orderly liquidation
• Forced liquidation
• Give/sell it to your children (Cash?)
• Sell to key employees/ESOP
• Minimum annual company payroll to qualify for ESOP ≈ $1M / 30 employees
• ESOP Association member’s average Revenue is $20-$50M
• Sell to a third party while still profitable
• Best option for business owner
• Best way to capture the value of your equity

14. Maximize Value Through Selling
• Best Way to Accommodate Owner’s Goals
• Work with a Business Broker or M&A Team
• Intermediary coordinates the:
• Appraiser, Accountants, Attorneys, Lenders, Landlord, etc.
• Find right buyer by finding all buyers
• High net worth individuals
• Strategic buyers
• Financial buyers
• Realize the full worth of the business
• Normalize business financial statements
• Proper price and structure
• Knowledge of the Market

15. Recast or Normalize the Financials
ABC Business, Inc.
LAST YEAR PREVIOUS YR 2 YEARS AGO
12 MONTHS 12 MONTHS 12 MONTHS
Sales $ 3,060,000 $ 1,980,000 $ 2,340,400
Cost of Goods 1,890,000 1,200,000 1,420,000
Gross Margin 1,170,000 780,000 920,400
Operating Expenses 937,800 887,600 918,000
Net Income 232,200 (107,600) 2,400
Adjustments:
Owners Salary 172,640 172,640 162,240
Salesman to
Replace Owner (40,000) (40,000) (40,000)
Interest 7,500 11,361 7,487
Depreciation 8,725 7,093 12,517
Owner’s Life Ins. 10,476 6,868 5,378
Personal Vehicles 2,000 2,000 2,000
Total Adjustments 161,341 159,962 149,622
Discretionary Earnings $ 393,541 $ 52,362 $ 152,022

16. Timing is Important
• Huge amounts of Investment Capital available
• More buyers than sellers at all levels
• Pent up buyer demand after recession
• Pent up demand by Baby-Boomer owners wanting
to sell/retire after the recession
• PEG’s and Strategic Buyers interest is at all time high
• Interest rates are reasonable
• Lenders lending again at favorable rates and terms
• Positive economic outlook
The ideal time to sell is when the industry is hot –
“A rising tide lifts all boats.”

17. Difficulties Sellers Encounter
• Valuing the business
• Competitive price
• Proper terms
• Marketing the company
• How?
• Where?
• Keeping it confidential
• Arranging financing
• Preparing effective
BLI/CBR
• Dealing with buyer
• Negotiating with buyers
• Remaining objective to buyer
requests
• Structuring a transaction
• Keeping transaction moving
forward. Delay is an enemy.
• Running their business AND
selling their business
… when trying to sell their own business

18. Role of an Intermediary
• Provides confidentiality
• Educates all parties on process
• Creates customized marketing
package
• Executes strategic marketing plan
• Act as buffer for emotions
• Knowledgeable in structuring deals
• Provides negotiation skills
• Facilitates process from start to finish

19. The Steps to Selling A Business
• Plan for selling
• Gather your data
• Recast financial
statements
• Determine value &
assets to be sold
• Prepare CBR/Data
Package
• Prepare 1-pg
business summary
Planning
• Activate buyer search
plan
• Distribute summary
• Qualify buyer
• Determine buyer
interest
• Sign nondisclosure
agreement
• Present CBR/Data
package
Search • Buyer Visit/1st
meeting
• Tour business
• Probe buyer interest
• Motivate buyer to
act
• Facilitate
negotiations
• LOI or offer to
purchase
Deal Making
• Coordinate due
diligence
• Loan request package
• Lender introductions
• Assist in resolving all
issues
• Definitive purchase
agreement
• Review final
documents
• CLOSE!
Closing

20. Owning a Business
Many dream of owning a business to:
• Be their own boss
• Have job security
• Control their hours
• Earn more than being an employee
• Build equity and wealth
• Leave something to their heirs
• Create a legacy

21. Reasons Why Owners Sell
• Retirement (34%) (Baby Boomers)
• New Challenge – Burnout, Boredom (24%)
• Relocating to different area/country (22%)
• No Time to Run Business, Other Interests
(12%)
• Always Planned to Sell (12%)
• Health, Illness, Death (10%)
• Divorce, Dissolve Partnership (2%)
Note: Some respondents gave more than one reason
Source: Businessforsale.com

22. What Buyers Look For
• Cash flow – Earnings
• Verifiable Books and Records
• Diverse customer base
• Growth potential
• Covenant not to compete
• Transition (by seller for 1–6 months)
• Reasonable price
• Available Financing – SBA or Seller (Leverage)
• Reasonable lease term and cost
• Earnings will cover the note payments
• Earnings that provide the buyer a Living Wage
• Earnings that provide a Competitive Return on (Total)
Investment
• Earnings that provide a Competitive Return on Cash
Investment

23. The Many Steps in the Buying and Selling Process
PLANNING SEARCH DEAL MAKING CLOSING
Determine motivation / reason
for wanting to sell. Owner
interview. Explain sale process.
Data gathering; financial and
operational information. Sell
business valuation.
Recast Financial Statements.
Research industry, market
conditions, competition, etc.
Prepare Valuations Report
Obtain the Engagement
Agreement
Prepare Confidential
Business Review and
Executive Summary
Activate Buyer search. Send
out Executive Summary
Report to Buyer list.
Screen responses. See if
Prospect’s criteria matches
Company’s attributes.
Financially qualify buyers
Obtain confidentiality/
nondisclosure agreement
Present Confidential
Business Review.
Answer questions and
develop Prospective Buyer
interest.
Possibly have a conference
call prior to first meeting
Probe Buyer interest.
Work towards obtaining LOI
Present LOI to Seller. Work
with Seller to prepare
response to LOI
Continue to facilitate
negotiations until mutually
acceptable LOI is achieved.
Agreement in principle
Coordinate Due Diligence
Begin financing
preparations.
Lender Introductions. Assist
in formal business appraisal
and environmental reports.
Assist Buyer and Seller in
resolving any issues.
Review definitive purchase
agreements. Assist in
resolving any issues.
Obtain final closing
documents approval.
CLOSING
Arrange and attend Buyer
visit with Seller.

24. Why Use An Intermediary?
• Helps price the business
properly
• Will explain
business
analysis
• Owner continues to run the
business, not deal with
unqualified buyers
• More effective at
marketing a
business
• Maintains
confidentiality
• More
experienced at
negotiating
• Will help buyer
understand the
buying process
• Saves legal fees
using broker’s
P&S agreements
• More experienced at
negotiating price & terms
• Knowledgeable in transferring
leases, licenses, supplier
agreements, franchises, etc.

25. What Do Clients Look for?
• Experience
• How long doing business brokerage
• How many closings have you had
• Experienced in a particular type of
business/industry
• Certification/Education
• BCI, CMAI, CBI, M&AMI
• MBA, CPA
• Professionalism
• Your website, examples of CBR’s,
testimonial letters, brochures, marketing plans
• References
• From lawyers, accountants, former buyers/sellers, etc.
• Honesty
Professional
Experience
References
Honesty
Education

26. Professional Certifications
Certification Abbreviation Organization
Board Certified Intermediary BCI Murphy Business & Financial
Services LLC
Certified Mergers &
Acquisitions Intermediary
CMAI Murphy Business & Financial
Services LLC
Certified Business Intermediary CBI International Business Broker
Association (IBBA)
Merger & Acquisition Master
Intermediary
M&AMI M&A Source
Certified Business Appraiser CBA Institute of Business Appraisers
Certified Valuation Analyst CVA American Institute of CPAs
Senior Member ASA Am. Society of Appraisers
Certified Machinery &
Equipment Appraiser
CMEA National Equip. and Business
Brokers Association

27. Murphy Business & Financial Services LLC
• Founded in 1994 as Murphy
Business & Financial Services
• 180 franchise offices including 25
regional offices in USA & Canada
• Small to Mid-Market size clients
• Largest Business Brokerage
Company
• Recognized Brand Name
• Network of experts in all industries
• Full complement of business related
services

28. Questions?
Presented by:
Justin W. Sandridge
100 West Road, Suite 300
Towson, MD 21204
410-558-6365
Thank You For Your Attention!