by Harvest Business Advisors | Jul 13, 2020 | Acquisition, Blog, Business Broker 'Bites', Business Valuation, Exit Succession and Planning
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 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.
by Harvest Business Advisors | May 26, 2019 | Business Valuation, Construction
How to Value a Construction Contractor or Subcontractor for Merger & Acquisition Purposes
Greg Caruso, Esq., CPA, CVA is a valuation expert who valued many construction contractors, subcontractors, and suppliers. As a business broker, with a strong construction background, Greg has sold many construction contractors, subcontractors, and suppliers. Greg spent many years working as a project manager and estimator at a large general contractor and was an owner of a speculative homebuilder that delivered 70 homes in peak years. He combines this background with his accounting and valuation practices to give an up to date primer on what is different and what to look for when valuing contractors for M&A and other purposes. Greg has valued and sold construction contractors from general contractors and subcontractors such as HVAC, plumbing, electrical, to material suppliers, and to engineering firms.
Want to know more about building value and selling your construction company – Click here to download our book, What’s Your Number? A Contractor’s Guide to Contingency and Succession Planning.
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.
by Harvest Business Advisors | May 24, 2019 | Blog, Business Valuation, Construction, Eddie Davis, Exit Succession and Planning, Home Page
Construction companies can be difficult businesses to sell. A key element to selling your construction company business is pricing it at proper market multiples. At a very high level, other major considerations for selling construction contractor businesses are:
- Be profitable. You are selling profits.
- Ensure that your financial statements clearly show the profits. For many companies this will require Reviewed Accrual-based financials along with clear Work In Process Schedules. If you intend to sell in the next year or two and you don’t do this now, review your situation with a knowledgeable broker.
- Create defined systems, and have a reasonable level of schedules. Your buyer needs to understand your business. He or she is not in the middle of your business like you are and is not in your head.
- Identify key people who will remain with the business. If your key people are your age and retiring with you, who will continue the relationships that drive the business? Who will know the systems?
- Do not wait until the next recession is on the horizon to start thinking about selling. Selling a construction company is a nine to 18 month process in good markets. During recessions, most contractors will not sell for much above work-out prices if they sell at all.
Finally, price the business fairly. It is hard to resist asking for the moon under the theory that a buyer will negotiate if they are interested and “… just maybe…..we will get lucky.” This rarely works out. Buyer prospects inquire on reasonably priced businesses (your buyer’s theory is “if they are serious, they will price it right”) and without prospects you can not sell. Price your business at the high end of reasonable, and if it truly deserves that pricing remain firm during negotiations.
Below are valuation multiple ranges we have seen for some typical construction contractors. Please note that these ranges can vary dramatically based on the nature of your contracts, the size of your business, bonding requirements, actual trade, and more. In all cases we recommend obtaining a business valuation by a valuation company that also brokers and sells companies. They will look at all the specific variables and come up with a much more accurate price.
| Type of Construction Company |
Discretionary Earnings Multiples |
EBITDA Multiples |
| General Contractor |
1.5 – 3 |
3 – 5 |
| Remodeler |
1.5 – 2.8 |
3 – 4.5 |
| Window Wall |
2 – 3 |
3.5 – 5 |
| HVAC/Plumbing/Electrical |
1.5 – 3.3 |
3.5 – 5.5 |
| Painting/Drywall/Insulation |
1.5 – 2.5 |
3 – 4 |
| Excavation (often asset based) |
Varies |
Varies |
What is included in the “price”? Most sales are asset sales. One of the difficulties in pricing construction contractors is defining what is included in the sale on the balance sheet as part of the price. Namely, who gets the accounts receivable and, when applicable, is the inventory included in the base price or added to it. How the “price” is quoted in relation to these two asset classes can cause big swings. Obviously excavators and other heavy equipment contractors can have pricing swings related to the age and condition of their equipment.
In conclusion, these multiples are a useful starting point but dangerous to use without a full business valuation analysis if you are really going to sell.
We would be pleased to discuss your situation with you in a confidential no-fee initial consultation. Click on the How May We Help You tab below.
Want to know more about building value and selling your construction company – Click here to download our e-book “What’s Your Number? A Contractor’s Guide to Contingency and Succession Planning.”
(Note – the Author, Greg Caruso, JD, CPA, CVA, has 15 years experience as a project manager for large general contractors and then as an owner/operator of a home building company that delivered up to 70 homes a year. Greg ha been a business broker and Certified Valuation Analyst for more than 18 years.)
Harvest Business Advisors provides business brokerage, business valuations and succession transaction services. Our team has extensive experience and diverse backgrounds in the financial, legal, medical, information technology and contracting fields. Harvest Business Advisors has 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..
by Harvest Business Advisors | May 15, 2019 | Business Valuation, Exit Succession and Planning
Selling your business for a high price can be like a chess game. You need to be planning three moves ahead – anticipating the other “player’s” moves. sometimes before you even know who you are playing!
Since most owners will only sell their business once, be sure to maximize your business sale profits and minimize your stress by preparing well for the sale. Experienced business broker and valuation expert Greg Caruso tells you how.
For a Downloadable PDF of this article, “Selling Your Business at a High Price with Low Stress; An Experienced Business Broker Weighs In” click here.
- Increase profits right up to the end. This item is first because it’s the single most important thing you can do to increase your business value. Too many business sellers take their foot off the gas once their company goes on the market. Stay focused on profits from the beginning of the sales process right through to the end. Strong profits also create excitement so that your buyer wants to close. That’s a really good thing.
- Make sure you are mentally ready. Selling a business can be stressful. All aspects of your business – even ones you may not want to deal with – are going to be reviewed. On a personal note, have you really decided what you are going to do next? Have you talked to your spouse, lawyer, CPA and other trusted advisors? Only you know what is right for you and your business but it helps to share your thoughts with those closest to you.
- Recognize that it takes 12 to 18 months to sell a business. Start early and know that it will be a process that takes time.
- Keep it confidential. In a perfect world, you would have been talking for years about selling your business with your management team and key advisors as part of your planning and goal-setting process. In the real world, if you have not regularly had that conversation and you are now starting the business sale process it is important to keep things confidential until people need to know.
- Have the conversation with family members. Similarly, if you want to sell to insiders or family members talk to them about it. The earlier the better. These transactions often take 3-5 years to plan and 5-7 years to execute. These may be difficult conversations but they are important ones if you really want a satisfactory outcome for all including yourself. Quick, last-minute inside deals rarely work.
- Prepare your business well in advance. Document your business systems. A quality system allows normal people to obtain extraordinary results every time. Remember if everything depends on you, you may not have a business to sell. Make sure equipment and technology are in satisfactory condition. You do not need to be cutting edge but if everything needs to be upgraded and replaced it will lower value. If you run a sloppy shop, clean it up. Emotion is a big part of this process and clean and organized says valuable.
- Obtain an accurate business valuation. Sorry but this is not a valuation from an app or free computer program. It does not need to be high priced but it should be performed by someone with real experience at doing valuations for pricing purposes. Anticipate being disappointed with the value as businesses do not sell based on owner effort. To get maximum benefit from the valuation work, talk to the valuer about how and why they arrived at the value and what you can you can do increase the value of your business.
- Your ongoing involvement after closing is likely. Realize that you are likely to be involved with your business from two weeks to five years after the sale. Your transaction may also have a seller note and/or an earn-out.
- Hire a professional. If you want to sell to outsiders, hire a quality business broker or investment banker. Find one that sells your size businesses or at least something close. Bigger firms are not always better. Experienced, honorable, and hardworking are good qualities to look for.
- Acknowledge it will take time. Recognize that selling a business is all about people and emotion and that those matters are not always efficient. Namely they take time. It is often easy to find prospects. Turning prospects into buyers, however, is complex and time consuming. And referring back to tip number 1, if you are busy working with prospects who is overseeing improving business profits? Selling your business is a balancing act that will take time and commitment.
Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.
Selling a business is a process. Harvest Business Advisors knows the process well because selling and valuing businesses is all we do.
If you have questions, please do not hesitate to email or call us. We are always happy to assist.
Greg Caruso, JD, CPA, CVA, Partner, Business Brokerage and Business Valuation and Appraisal, 609-664-7955 gcaruso@harvestbusiness.com
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.
by Harvest Business Advisors | Mar 12, 2019 | Business Financing, Business Valuation
How to Order an Small Business Administration (SBA) Business Valuation for Your SBA Loan
When buying a business and financing with SBA, your bank’s SBA business valuation is very important.
According to the SBA SOP (Small Business Administration Statement of Policy) your bank will be required to obtain a third party business valuation, if you have more than $250,000 of goodwill OR if your business acquisition transaction has related parties.
Related parties can be family members or boss / s;ubordinate relationships. If the third party valuator does not find the proper value, your loan amount may be reduced or the loan may be rejected.
Whether you are a banker, a borrower, or a seller below is a summary of the ordering process for SBA loans. Finally, should you have any questions on the process you are always welcome to contact us at Harvest Business Advisors (info@harvestbusiness.com).
Have three years of tax returns for the business. Have current and prior year, (i.e. March 2019 and March 2018) year to date data. This allows the reviewer to see if the business is doing better or worse from last year taking seasonality into account.
If the Company has reviewed or audited financials provide them also. In certain circumstances, you may need internal financials for all years, but that will vary case by case.
Have other important documents available such as
- real estate lease
- contract of sale or the letter of intent
- loan commitment
- the accounts receivable aging
- the accounts payable aging
- owner and manager salary and benefit information. (Owner benefits including health insurance, auto, travel, entertainment, and unusual personal purchases.)
- payments and benefits to other family members
Most valuators will also have a questionnaire for management or interview management. If there are many personal benefits, those will have to be supported with additional documentation. In some cases additional documents may be required based on the business and fact pattern.
Use an experienced valuator. There are a tremendous number of assumptions baked into any business valuation. Proper selection and weighting of those assumptions and choices require experience and will have a tremendous impact on your final value found. Being able to write a clear report and defend the valuation requires even more experience. Experience matters in business valuation. To select a proper valuator know the following:
- Have they performed SBA business valuations? (this is important as the SBA has some slightly different requirements from other valuations)
- Have they performed over 25 business valuations? (judgment is gained in practice)
- Are they approved by your bank? (some banks have their “own” lists)
- Recognize that while an opinion of value is a specific number due to the large quantity of assumptions and adjustments coming into play, valuations can reasonably come in over a range. Most valuators feel that two valuations with values within 10% of each other have pretty much found the same value.
- Typically the SBA business valuation will take anywhere from one to two weeks from when all documents are provided (not the order date) depending on the size and complexity of the work. Often additional documents will be needed after the first set is reviewed. Provide those documents as quickly as possible to keep your costs down and speed up the process.
- Finally, realize that your valuation is likely to cost less if your records are clear and you provide the valuator all of the documents in an organized fashion. The longer it takes to get documents and the more work the valuator has to do just to get the documents in working order, the more your valuation will cost.
To learn more about business valuations, please download our e-book: “7 Things You Must Know Before You Order a Business Valuation”
About the Author: Gregory R. Caruso, JD, CPA, CVA, Partner at Harvest Business Advisors. Greg is the Editor In Chief of “Around the Valuation World” for the NACVA. Harvest has performed over one hundred SBA business valuations and hundreds of other business valuations. Greg can be reached at gcaruso@harvestbusiness.com.
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.
by Harvest Business Advisors | Dec 26, 2018 | Business Broker 'Bites', Business Valuation
Business Brokers Guide to Building Business Value for Business Owners – Developing a Sales and Marketing System
“We see that Bob, while a talented engineer, is really an excellent technical salesperson. We want Bob on our team and will acquire your business to get him.”
On the other side of the equation, Bob was excited to have the opportunity to sell more services at the larger firm that was acquiring the company where he was employed.
This true story shows the power of having a good sales force that is not dependent on you as the owner.
At engineering firms, often all sales are made by the Partner Owners. In this case, it had been delegated to a talented younger engineer. Simply because the main salesperson was staying with the selling company after the sale the risk to the buyer was reduced – and the price went up.
Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.
Great systems where decisions can be made without you, the owner, necessarily being involved increase the value of the business.
Having a sales system that does not involve the owner is even more powerful as it means the client relationships do not all rest with you – because you intend to leave. The sales systems rest with your employees who will stay.
Continuity in client relationships is a powerful indicator that your business and business profits are transferable.
Look at how you can build your business to include a sales process that does not require you and build your business value.
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.
