3 Tips for Business Owners and Business Sellers – July 2020

3 Tips for Business Owners and Business Sellers – July 2020

Since the outbreak of Covid-19,  the business brokerage / investment banking world seems to change dramatically every 30 days.

As we enter the middle of summer, here are three tips we are giving business owners and business sellers:

 

1. After the 30 to 45 Day Shut-Down Starting in Mid-March, There is a Market Again  

But, banks and institutional lenders have gotten much more cautious, taking marginal buyers out of the market.

We are qualifying prospects more carefully so we do not risk wasting a lot of time on transactions that cannot be financed.

We do recommend that if you receive a good offer, take it seriously as it will be harder to obtain as many offers as before this started.

 

2. Run Your Business Like You are Going to Own It Forever Particularly During a Sale Process

Your best negotiation strategy is that you are making money and will keep running it if you must.  Be profitable every day.

Clearly, due to current circumstances, some businesses cannot do that.  They should not sell at this time unless they do not have a choice.   Unfortunately, there are going to be a lot of unavoidable bad outcomes due to Covid.

If your business is in the middle ground, make the tough choices and get pricing up if necessary. Always work toward having your costs in line with your likely revenues.

 

3. Good Companies will Attract Buyers

The discount you will need to give from your February 2020 price is going to depend on the uncertainty in your industry, your supply chain, your customer concentrations etc.

The sense of risk has been elevated.  How high that perceived risk is will vary from no perceived increase in risk with liquor stores to incredible going concern risk with high end sit down restaurants.

Most businesses are somewhere in the middle and it appears they can sell with price reductions that make sense compared to the increase in risk.  Buyers and sellers may consider forms of risk sharing through earn outs and the like.

If you would like to learn the value of your business as you make important decisions, please connect with us. We would be happy  to discuss your business’ market appeal.

 


Clients choose Harvest Business Advisors for our accurate business valuations and our proven ability to deliver the highest price in the smoothest sale transaction possible. Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 877-838-4966 to discuss selling your business, ordering a business valuation or buying a business.

 

Business for Sale: Commercial Restoration Cleaning Company

Business for Sale: Commercial Restoration Cleaning Company

Harvest Business Advisors is pleased to present this Commercial Restoration Cleaning Company for sale.

 

An established, well-regarded commercial restoration cleaning company, the company has been serving their Mid-Atlantic customers for over 12 years.

 

All key managers are in place, technicians are well-trained and experienced.
All equipment, trucks, people, leases, software, and rights to geographic area will convey.

 

This Company has stayed up on capital investments so equipment is up to date and modern.

 

Financial highlights
Average revenues: over $2,000,000
Average historic seller’s discretionary earnings (SDE): $400,000
2019 SDE: $450,000.
Growing revenue and earnings history

 

Established industry accounts
Experienced long-term staff
Nine (9) vehicles including box trucks with lifts, vans, and cars, most less than two years old.
Extensive modern facilities in central locations

 

Asking Price; $1,995,000.

 

The Buyer:
Industry buyer seeking growth opportunities with an established company or individuals with a general management/sales background seeking acquisition of profitable business.
Benefits to buyer include:
  • Reputation
  • Recurring revenue
  • Experienced technicians
  • Long term customer relations
  • No significant additional capital investment needed
  • Location and facilities

Connect with Greg Caruso (GCaruso@HarvestBusiness.com) at 877.838.4966 to discuss this business opportunity in more detail.

Click here for a Non-Disclosure Agreement and Finance Document.

Open with Adobe Reader, use their Fill and Sign Feature to complete and electronically sign the document, then return to GCaruso@HarvestBusiness.com. We will then be able to discuss financial details and other confidential information about the business with you.


Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver a high price as part of a smooth exit transaction.

Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 877-838-4966 to discuss selling your business, ordering a business valuation or buying a business.

Merger Synergy = Post Merger Success

Merger Synergy = Post Merger Success

You did your due diligence before acquiring a complimentary business entity. Now what is the key to post merger success? Due Diligence.

To achieve the synergy required to create the desired result, greater success requires your follow-through. As you redefine “The Company”, all of the early actions need to clearly express all policies and procedures and expectations. Subsequent frequent tracking is necessary to uncover any weaknesses that may exist and where your attention needs to be directed.

CFO Magazine has some time tested steps for you to take to ensure the smoothest transition. As laid out in this article, Four Keys to Realizing Post-Merger Synergies, directing your post merger efforts will go a long way towards efficiently achieving your target goal: greater success.

http://snip.ly/04x2n3


 

Clients choose Harvest Business Advisors for our sage advice on profitably growing their business, accurate business valuations, and when the time is right, a consistent ability to deliver a high price as part of a smooth exit transaction.

Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 877-838-4966 to discuss selling your business, ordering a business valuation or buying a business.

Private Equity Investing in Software as a Service (SaaS) Companies

Private Equity Investing in Software as a Service (SaaS) Companies

Why is SaaS attractive to Private Equity firms?

  • High growth
  • Recurring revenue (which speaks to quality of earnings)
  • Scalable business models
  • Asset-light companies that do not require significant capital expenditures to grow.
  • Overall trend across all industries to harness data and streamline processes to enable companies to garner more intelligent business insights for more efficient and productive operations.

It seems intuitive that industries such as Education, Healthcare, Financial, Retail, and Real Estate top this list. These market sectors are very process and data driven, lending to SaaS applications. What is surprising is that Education tops leads the list. One would think that Healthcare and Financial applications would tower over the Education market in terms of SaaS applications and adoption.

Some SaaS companies do not target a specific industry. Instead, they provide a service for a business function, across industries.

For SaaS companies serving specific functional areas, Business Management and Human Resource tools top the list by a significant margin, followed by Marketing. Again, all three of these functional areas are very process and data driven.

 

 


Clients choose Harvest Business Advisors for our sage advice on profitably growing their business, accurate business valuations, and when the time is right, a consistent ability to deliver a high price as part of a smooth exit transaction.

Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 877-838-4966 to discuss selling your business, ordering a business valuation or buying a business.

SBA 7(a) Business Loans have new guidelines SOP 50 10 5(J) Reducing Equity Requirements

The SBA has new rules SOP 50 10 5(J) for 7(a) business loans reducing equity requirements in Sale Transaction to 10 percent. 

Download the full summary by clicking here: SBA 7(a) SOP 50.10.5(J) SBA Summary of Changes to 7(a)

(Harvest performs many SBA Business Valuations or SBA Business Appraisals required as part of the 7(a) program for sale transactions.  We work for lenders such as Access National Bank, Howard Bank, M&T Bank, and others).

Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.

The Summary announcement was released October 13, 2017.  The full SOP is expected soon.  Everyone expected that equity provisions might be changed but a reduction for all loans and loan sizes to 10% equity will open up the lending process to many more buyer/borrowers.  Along with the reduction of equity required by the SBA is a curtailment of allowing Seller Take-back Loans to count as equity in sale transactions.

There are quite a few other provisions but these are the most significant to the business selling and business buying market up to $5 million in loan amounts which is where SBA is a necessary and powerful program.

One thing that remains to be seen is how banks will respond to the announcement.  Namely, just because the SBA allows it does not mean underwriters and bank loan committees will approve it.   So how banks finally address the reduced equity and therefore how many new loans get approved remains to be seen.  But, the SOP does open up the way for greater flexibility and more lending.

Connect with Harvest Business Advisors today – email info@harvestbusinessadvisors.com or call 443.334.8000

How to Write a Letter of Intent for a Business Sale, Business Acquisition or Purchase

How to Write a Letter of Intent for a Business Sale, Business Acquisition or Purchase

Below are some steps we have found effective in negotiating letters of intent for the acquisition or sale of a business. This is written from the point of view of making suggestions to a business buyer who is going to propose a letter of intent to a seller as this is the normal process.

(Please note this is NOT legal advice.  Please retain an attorney familiar with local laws and customs before you finalize any purchase agreement).

Connect with Harvest Business Advisors today – email info@harvestbusinessadvisors.com or call 443.334.8000

Prior to beginning to write the letter of intent for a business purchase or sale review the overall facts of the business and the proposed transaction. Most importantly, confirm that you believe all the parties involved have high integrity.  This is a difficult process that gets more difficult if you really don’t trust one-another.  (On the other hand, remember Ronald Regan’s “Trust but Verify”).  Very wise words.

It is useful to ask questions about what might be acceptable, how might the transaction be structured, etc.  If a broker is involved have those conversations with the broker.  Remember when asking about any part of an offer that the hard part in giving a useful answer is it all has to tie together.   This means that asking what the minimum or maximum of something (price, down payment, seller financing, etc.) is not always productive.   If you take the most favorable possibility in each term you end up with a poor offer. For that reason, it is almost impossible to get specific on a part of the transaction without have a reference to the whole offer.  The answer is always – “it depends”.

Keep in mind that business sellers want enough of a down-payment (usually from you and the bank) that it is your baby not theirs.  Business sellers as a group (and your seller is likely to be no different) believe that if they have to worry too much about getting paid from the business they might as well run it and collect the whole profit.  We have found 75 to 90% down often is acceptable. Of course there are a few business owners who do want to provide most of the financing but this is usually dependent on a prior relationship or superior collateral etc.

Often to protect themselves business buyers add earn-out or claw-back clauses to adjust the total price.  At a high level this means you tie payments into resulting cash flows.  Usually we use revenues because any other cash flow (such as profit)  is hard to agree on later.  An example from a recent transaction is:

  • Last 3 years average revenues was $1,300,000.  If revenues from the 12 months following closing are less than $1,235,000 then the price will be reduced $1 for every $2 of revenue loss.  The price will not adjust beyond the $130,000 note amount and will be offset against the note to the extent the note is outstanding.    (sellers like if you give them an upside also but…)

Sometimes there are performance bonuses or purchase payments if people stay or other milestones are achieved.    Compensation for new sales to clients or bringing in new clients during a transition can be built in and compensated if formally desired.

If you are going to use SBA financing for your business purchase, all variables (other than payment of a fixed amount note) must be fully determined by one year from the closing date.  As a rule, sellers tend to believe that after a year its really your baby too.  Of course, as I said above, many things are possible if the risk/reward makes sense.

We also have to consider how taxes tie into your transaction and the seller’s transaction.   That is another topic altogether.  I know what applies to the types of transactions I put together.  We certainly are doing our best to convert any offer to “after tax dollars” and I assume you will do the same.

So it is a dance and in the end we will find something everyone can live with at the time of negotiation and be quite pleased with one year downstream.

These are a few of the bigger terms when negotiating a letter of intent for the purchase or sale of a business. You can also join our member section and download a letter of intent template. Again, this is just a template not legal advice. Always retain local counsel when proposing a transaction.

Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver the highest price in the smoothest sale transaction possible. Harvest provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 443.334.8000 to discuss selling your business, ordering a business valuation or buying a business.