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" You Want
How Much for your Business!"
This
is often a prospective buyer’s first response when given the price
of a seller’s business. This is especially true today when many
excellent and profitable businesses have few hard or physical
assets. For years, buyers, and even business appraisers, have called
the difference between the actual physical assets and the asking
price as “blue sky.” Goodwill has often been a prime force behind
the blue sky concept, and it is one of the reasons a potential buyer
might feel that the seller is asking an “arm and a leg” for the
business. Goodwill has been called many things – very few of them
good.
However, today’s goodwill is more than just the hard
work and effort a business owner has put into building the business.
The Web site name alone may be worth a lot of money. Think “Google,”
which by now may have achieved the same name recognition as Kleenex.
If another search engine company could use that name, the business
could be worth millions – even billions. The technology behind the
name has a lot of value, but it’s important to remember that the
name recognition or brand name, which is known all over the world,
is also where the big bucks lie.
How does this relate to
goodwill? The goodwill of a business can include patents,
copyrights, its Web site and/or domain name, licenses, trademarks,
proprietary software, secret recipes (What is the value of the
secret recipe for Coke?), royalties – the list goes on and on. Would
a McDonald’s business, assuming the same sales and profit, have the
same value if the name and franchise were not
included.
Buyers are beginning to realize that much of the
value of a business in today’s world is not to be found in the hard
assets such as the fixtures and equipment, but in the intangibles
that create the income. Take the McDonald’s just mentioned, it may
have beautiful stainless steel equipment, but the equipment is only
worth the income it can produce; and to take it a step further,
there are warehouses in every major city in the country full of “for
sale” stainless steel equipment. The real value is the name and what
it represents to the dining public.
For those who are considering
selling their business in the near future, this new emphasis on
goodwill means that some business procedures need to be changed.
Operations manuals should be copyrighted, Web sites and domain names
should be protected, product and specific service names should be
trademarked, inventions
When Is the Best Time To
Sell Your Business?
Many experts say that the best
time to sell is when the business is better than it’s ever been.
This may be good advice, but few follow it. Why sell when business
is good? You just suffered through a few not-so-great years and now
the experts are telling you to sell. Right or wrong – good or bad –
the decision to sell is generally event-driven. For example:
declining health, a partnership break-up, personal issues, too much
competition, family member elects not to purchase the business, etc.
Retirement sounds like a good reason, but it has no time pressure.
Unless one has made the decision to retire at a certain age, and
even then, when the seller realizes that he or she will have nothing
to do after a sale – the idea loses its appeal.
However, one
thing that a seller can do, without creating any pressure about
selling or not selling, is to take a bit of time every year and
prepare – just in case. This means tying up lose ends. Make sure
financial records are current and complete, leases reviewed and
renewed if necessary, any litigation resolved if possible, licenses
and permits updated, agreements and contracts renewed and updated if
necessary. You could call this eliminating the surprises, and you
could also call it good business.
By doing this, if a potential
sale comes out of nowhere – you’ll be ready.
patented. There
needs to be emphasis placed on intangibles that have to be earned,
such as name recognition, brand names, employees, business
relationships with suppliers and customers, long-term advertising,
reputation, etc. Don’t let anyone tell you that goodwill doesn’t
have value – it is most likely the most valuable asset of your
business.
Goodwill should be as protected as the law will allow.
A visit to an Intellectual Property attorney may well be the best
investment a seller can make.
For those who are considering
buying a business, make no mistake about it, in many cases, what you
are really buying is the goodwill of the business. If a buyer is
still hung up on buying the stainless steel equipment, we have a
warehouse full of it for sale!
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Some Tips on
Selling
• Price is not
a deal-killer, the terms are.
• Complexity creates
disinterest. The more complicated the deal, the less likely it
is to close.
• As simple as it sounds, a business will sell
for what a buyer is willing to pay and what a seller is
willing to accept.
• If a seller is completely inflexible,
a potential buyer will most likely walk away.
• Sellers
don’t have to deal with non-qualified buyers or with those
that are not motivated to buy.
• A professional
intermediary can save a seller time, money, inconvenience –
and perhaps even the deal itself!
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Many experts say that the best time to sell is when the
business is better than it’s ever been. This may be good
advice, but few follow it. Why sell when business is good? You
just suffered through a few not-so-great years and now the
experts are telling you to sell. Right or wrong – good or bad
– the decision to sell is generally event-driven. For example:
declining health, a partnership break-up, personal issues, too
much competition, family member elects not to purchase the
business, etc. Retirement sounds like a good reason, but it
has no time pressure. Unless one has made the decision to
retire at a certain age, and even then, when the seller
realizes that he or she will have nothing to do after a sale –
the idea loses its appeal.
However, one thing that a seller
can do, without creating any pressure about selling or not
selling, is to take a bit of time every year and prepare –
just in case. This means tying up lose ends. Make sure
financial records are current and complete, leases reviewed
and renewed if necessary, any litigation resolved if possible,
licenses and permits updated, agreements and contracts renewed
and updated if necessary. You could call this eliminating the
surprises, and you could also call it good business.
By
doing this, if a potential sale comes out of nowhere – you’ll
be ready.
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By W. Mark
Crain.
Lafayettte College, Easton, PA 2005. [93] pages,
under contract SBHQ-M-0522
The following is an
overview of a report recently released by the Small Business
Administration (SBA). The report points out that “90 percent
of all firms in the United States employ fewer than 20
employees [and bear a disproportionate share of the federal
regulatory burden]. By comparison, large firms (those with 500
or more employees) account for only 0.3 percent of all
firms.”
Overall Findings
In the
face of higher costs of federal regulations, the research
shows that small businesses continue to bear a
disproportionate share of the federal regulatory burden The
findings are consistent with those in Hopkins (1995) and Crain
and Hopkins (2001).
The research finds that the costs of
federal regulations totals $1.1 trillion; the cost per
employee for firms with fewer than 20 employees is
$7,647.
Highlights
• This report details the
distribution of regulatory costs for five major sectors of the
U.S. economy: manufacturing, trade (wholesale and retail),
services, health care, and other (a residual category
containing all enterprises not included in the other four).
The sector-specific findings reveal that the disproportionate
cost burden on small firms is particularly stark for the
manufacturing sector. The compliance cost per employee for
small manufacturers is at least double the compliance cost for
medium-sized and large firms. In the service sector,
regulatory costs differ little from small to larger
firms.
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• The disproportionality of the burden
borne by small firms, identified in previous Advocacy studies,
is further validated in this instance. On a per employee
basis, it costs about $2,400, or 45 percent, more for small
firms to comply than their larger counterparts. The
2001 study, using a slightly different methodology, concluded
that the disproportionality rate was higher – nearly 60
percent. • Environmental and tax compliance regulations
appear to be the main cost drivers in determining the severity
of the disproportionate impact on small firms. Compliance with
environmental regulations costs 364 percent more in small
firms than in large firms. The cost of tax compliance is 67
percent higher in small firms than the cost in large firms. In
the aggregate estimates for all sectors, the cost per employee
of economic regulations falls most heavily on large firms. The
cost per employee of workplace regulations falls most heavily
on medium-sized firms.  “Environmental and tax compliance
regulations appear to be the main cost drivers in determining
the severity of the disproportionate impact on small
firms.” The above article is just an overview of the
Report. The full article can be accessed
at sba.gov.advo/research/rs264tot.pdf |
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Many business owners probably have asked
themselves this question. There are many unique and different
types of businesses. Some fill very small niches while others
have carved out a unique product or service while still others
require a unique or very specialized talent, knowledge or
experience. An owner of a “unique” or at least unusual
business may feel that there is no one out there who would buy
it. Almost all businesses are saleable, but the big
question is: Is the seller willing to sell? Because of
Internet marketing and other new technologies, business
brokerage professionals know how to reach potential buyers
world-wide. Somewhere there is a buyer for almost every
business. Locating the right buyer is the job of the business
broker professional, who recognizes that the seller’s
willingness to sell is the key. Why is a seller selling; what
is important and what is not. If a business owner just wants
to see what the market might pay for the business; or hopes to
“make a killing” on a sale – it most likely won’t
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Gauging what is
most important in the selling process is very important.
Following are some critical factors that every seller or
would-be seller should assess:
• Full price
• Down
payment
• Keeping existing employees
• New owner’s plans
for the business
• Confidentiality
• Selling costs
•
Buyer qualifications
• Keeping the business locally
•
Providing jobs for children/relatives
• Structure of the
sale
There may be other factors that are important.
Keep in mind that every one comes with a string attached. What
are the most important ones? Will you bend on them? you lose a
sale over it? Businesses with a broad appeal and a successful
track record are in a much better position to stand firm on
the important factors. The unique or niche businesses or those
with a less stellar track record may have to be willing to
bend on any or all.
Sellers should tell their business
broker professional what is really important – and take note
of the one or two factors that could be “deal-breakers.”
Remember: almost all business can be sold, but every sale
requires a willing buyer – and a willing
seller.
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This newsletter is not intended
to render accounting, legal or other professional service; the
publisher and sponsors assume no liability for a reader’s use of the
information herein. |
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