Selling or Buying a Business?
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Our affiliations with National and International Business Brokerage and Merger & Acquisition associations guarantee you that we adhere to the highest professional standards when helping you sell a business. And, as a client, these networks enable the Murphy business brokers to provide you with access to the broadest number of qualified, potential buyers - something you just can't get with many neighborhood real estate and business sales firms. Instead of having access to your own local market, we connect you worldwide.
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Selling or Buying a Business?
- 1. Selling or Buying a Business Presented by: Paula Carr Murphy Business Brokers 4030 Wake Forest Rd, Suite 300, Raleigh, NC 27609 303-888-7890 p.carr@murphybusiness.com www.elitecarolinabrokers.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. • < $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% Source: Entrepreneur.com $3.6 Million Average Small Business Annual Revenue Small Business Statistics • $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% Small Business Annual Revenues
- 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
- 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. 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. The Many Steps to Selling a Business
- 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. Why Murphy Business? • Founded in 1994 in Florida • 160 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: Paula Carr Murphy Business Brokers 4030 Wake Forest Rd, Suite 300 Raleigh, NC 27609 303-888-7890 p.carr@murphybusiness.com Thank You For Your Attention!