Preparing for Your Eventual Retirement
Many business owners are truly committed to their businesses. As a result, it is very difficult for them to step away even when they approach retirement age. It is not uncommon for business owners to keep working into their golden years. But the truth of the matter is that at some point almost everyone will need to embrace retirement whether it is for health issues, moving to a new location, or simply for greater peace of mind.
If you see this path approaching for you in the near future, it could feel overwhelming. After all, most people have not sold a business before. As a result, they feel unclear about the process and don’t know where to start. However, everyone should be thinking about the eventual sale of their business because this future event should determine many of your current activities and decisions.
Let’s take a look at some things you can do well in advance to ensure that an eventual sale of your business goes as smoothly as possible.
Automate Processes
When prospective buyers look at your business, they will want to be able to easily envision it operating smoothly without you involved. Because a good portion of business owners are so integral to the functioning of their businesses, it can be difficult for them to figure out how to decouple themselves from operations. In some cases, this process can take years.
Now is a good time to consider this issue and what you can do to make sure your business can function without you one day. Give some thought to who at your organization could be a second in command. When a buyer sees that a competent and knowledgeable employee will be staying on to assist them, it can go a long way in allaying any concerns.
Put Yourself in the Buyer’s Shoes
Imagine you were buying your business. What kinds of issues might be of concern to you? Chances are these will be the same issues that could concern potential buyers. Once you have identified any spots of weakness, you can start to zero in on figuring out how to handle them.
First and foremost, you will want your buyer to feel confident that there will be a smooth transition and that they can almost immediately begin to profit from their purchase of your business. Anything that you can do to help ensure that is true will benefit the sales process.
Business brokers and M&A advisors are experts in the world of buying and selling businesses. They will help you to properly evaluate your business and look for these areas of weakness. Through this means when you do decide it is time to retire, the process will go more quickly and seamlessly.
Copyright: Business Brokerage Press, Inc.
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A Look at the Market Pulse Report
The Market Pulse Report Survey is a resource that has a variety of information that business brokers and M&A advisors regularly utilize to better understand the business landscape. The most recent survey was conducted April 1st to April 15th 2022 and had 360 broker and advisor respondents. It also marked the 40th edition of the quarterly report. The Executive Summary of the report can be accessed here https://www.ibba.org/resource-center/industry-research/
The Main Street Market
One notable fact included in the latest report is that in the Main Street market, between 70% to 80% of buyers are likely to come from within a 20-mile radius. However, with larger companies, it is common for buyers to originate from a distance of over 100 miles away or greater.
The survey also indicated there are two key “headwinds” that businesses are currently facing. These include labor shortages and supply chain issues. Not surprisingly, labor issues are currently creating problems for organic growth. Likewise, supply chain issues can cause prospective buyers to shy away from a business.
The Profile of Current Buyers
The survey also indicated that Main Street buyers not only include the “typical” first-time business buyer. These individuals are often looking for a job in the form of owning a business. Serial entrepreneurs who have made money off previous deals are also now seeking to jump back in and buy another business. The survey indicates that about one-third of buyers who purchased businesses in the $500K to $1M range are serial entrepreneurs.
Additionally, there is a great deal of money flooding into the industry. The money is mostly coming from private equity, family offices, and corporations. Feeling burned by the lack of bank credit by the 2008-2009 economic downturn, these buyers don’t want to get caught in a similar situation again.
A Seller’s Market
The survey indicates that it is currently a seller’s market and that record setting multiples have been occurring. In Q1, an impressive 97% of businesses were receiving their asking price. However, nothing lasts forever. If you’re considering selling your business, it’s a good idea to start making progress now before this trend stops benefitting sellers.
Even with the strong sales track record last quarter, it’s important to note that a fast sale is still improbable. Even in the best economic conditions, it typically takes many months to sell a business.
There are many factors currently benefiting sellers, such as low interest rates, SBA involvement, and people not wanting to work for corporations. However, it’s important not to wait for the “right moment” as often that moment never comes.
It’s always a good idea to begin taking steps to prepare for the sale of your business as soon as possible. This can make a tremendous difference toward fostering a positive final outcome.
Copyright: Business Brokerage Press, Inc.
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4 Takeaways from the Latest BizBuySell Quarterly Report
BizBuySell is an online resource that focuses on offering unique content that specifically addresses the needs of buyers and sellers. To make this happen, BizBuySell has teamed with a range of experienced business brokers who are covering topics relevant to business owners, buyers, and sellers. For example, they feature articles that focus on how to make a business more interesting to a potential buyer. These resources help to position BizBuySell as a go-to place for a range of relevant business information.
Of course, every quarter BizBuySell publishes Insight Reports complete with interactive market data. These reports offer a comprehensive overview of trends that are essential for brokerage professionals to know about. The latest report can be accessed here. It covers important trends noted in the first quarter of the year.
Some of the changes that were noted in this important report include the following:
1. Rebounding Transactions
For Q1 2022, the Quarterly Report indicates that transactions are continuing to rebound from the slump of Q2 2020. Year over year, transactions shot up a whopping 24% and are now beginning to return to 2019 levels.
Overall, the main sector that seems to be holding back an even stronger rebound is the restaurant sector, which is still not where it was in pre-pandemic years. However, with that stated, the restaurant sector has also dramatically improved and has shot up by 42% year over year. Yet, the restaurant sector is still down 22% from Q1 2019.
2. Changing Buyer Preferences
When BizBuySell surveyed buyers as to what kind of business they wanted to buy, the numbers were eye opening. 35% of surveyed buyers responded that they were interested in the service sector, and this was followed by 15% of respondents choosing retail. Director of Sales Doug Whitmire stated, “Buyer demand seems to be leaning toward business services, self-storage, car washes, as well as advanced distribution services for manufacturers. There have been few opportunities, so buyers are flocking to them and inventory is limited.” The result of the limited inventory is record sales prices.
3. Listing Growth
In Q1 2022 listing growth has increased substantially, with service listings up 14%. While the restaurant sector is obviously still lagging, it is important to note that the Quarterly Report indicated that restaurants were experiencing a 10% growth. If the pandemic continues to recede, we could see a robust rebound in the restaurant sector.
4. A Boom in Sellers
The Q1 report also indicates that sellers, who have previously been sitting on the sidelines, are deciding that now is the time to sell. Once again there is talk of a “silver tsunami” approaching as Baby Boomers begin to sell. It is also interesting to note that many of those who are selling are doing so due to burnout. Importantly, burnout is occurring for a variety of diverse reasons, ranging from supply chain and labor issues to pandemic burnout.
Advice for Sellers
The BizBuySell team strongly advises that sellers should fix major supply chain issues before entering the market. Whitmire noted, “We try to get our clients to work with us to fix those issues before we go to market. Many times, you only have one chance with a buyer and then you lose them.” It definitely makes sense for sellers to try their best to remedy any issues that might have resulted from Covid-related circumstances. This will ensure that the sales process goes as smoothly as possible.
Copyright: Business Brokerage Press, Inc.
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The True Meaning of a Fairness Opinion
Many people assume they know what “fairness opinion” means because they are familiar with the term “fair market value.” Fair market value refers to a price that is reasonable for both a buyer and seller in an open and competitive market. However, a fairness opinion is quite different. This term refers to a report that evaluates the facts of a merger or acquisition or any other type of business purchase.
A fairness opinion is typically in the form of a letter that contains an actual opinion and justification of why a selling price is fair. Of course, there are limitations, as this report is fully based on information that has been provided by the management of the business.
Who Prepares a Fairness Opinion?
A fairness opinion must be prepared by a professional with expertise in business valuation. It is typically done by a business intermediary or appraiser. An investment banker can also prepare a fairness opinion. Although the professional who prepares the fairness opinion may very well have experience in structuring deals, this letter does not include any information or opinion on the deal itself. It also doesn’t include advice or recommendation. In preparing the report, the advisor seeks to look at the deal from the perspective of the investors.
Basically, it is structured to specifically comment on fairness from a financial perspective, based on the information on hand.
Who Uses Fairness Opinions?
You will most frequently see fairness opinions utilized in the sale of public companies by the board of directors. When this document is received, it shows that the board is working to protect the shareholders. Of course, fairness opinions can also be used for private companies. In this case, it can serve to protect the interest of shareholders or family members who may later look to challenge the sales price. However, in most situations that involve middle market private acquisitions, a fairness opinion is not necessary.
In the end, a fairness opinion assists with communication and decision-making. It serves to lower the risks surrounding a deal. This important document can be used in court if a shareholder later decides to file a lawsuit against the director of a company.
Copyright: Business Brokerage Press, Inc.
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Takeaways from the Latest BizBuySell Insight Report
Whether you are thinking of buying or selling a business, it’s worth taking a look at the quarterly BizBuySell reports. The findings from these publications are taken from analysis of sales and listing prices of approximately 50,000 businesses across the United States. The report covers the statistics of sales prices and successful transactions. It also discusses the trends that are at play. Regardless of your role in the business world, these trends likely will have some sort of impact on you.
A Boom for Sellers
The latest BizBuySell report, which covers Q4 of 2021, found that now is a very positive time for sellers. Q4 actually surpassed the pre-pandemic numbers of the fourth quarter of 2019. Of course, this is a major shift away from the sales numbers in 2020. It is typical to see transitions dip in the fourth quarter; however, 74% of brokers stated that their sales were steady during this time period. Experts say that this strength has carried into early 2022.
Other notable sales statistics include the following:
- 8,647 closed transactions were reported in 2021, an increase from 7,612 in 2020
- Sales prices increased 16% year-over-year
- Median cash flow grew 10% year-over-year
Buyers are Looking for Quality
In terms of what buyers are currently looking for, 60% of surveyed buyers indicated that strong financials were simply a “must have” when they were considering a business. This number is in stark contrast to 18% of buyers who responded that discounted opportunities were a top consideration.
Labor Shortages a Factor
The BizBuySell report also discussed the prevalent factor of labor shortages. In fact, 64% of owners surveyed say that this issue has impacted them. Business brokers agree that labor shortage is currently the largest problem for small businesses. Another corresponding issue is that of supply chain disruptions, which 75% of the business owners responding to the survey said had an impact on them.
A More Balanced Landscape
In the survey, brokers were asked if they believed that owners were more or less likely to sell their business in 2022 versus 2021. The general trend was towards brokers believing that there would be more businesses sold this year as compared to last year. Last year, the view was that buyers had the edge over sellers. However, now it seems as though brokers feel that the landscape has shifted and become more balanced overall.
Copyright: Business Brokerage Press, Inc.
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