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.

 

“Around the Valuation World” – NACVA Webinar – April 20, 2020

“Around the Valuation World” – NACVA Webinar – April 20, 2020

“Around the Valuation World”, a monthly business valuation webinar sponsored by NACVA, (National Association of Certified Valuators and Analysts) features current topics by leading experts in the Valuation World.

The next episode will air on Monday April 20 at 1 p.m. ET and will be recorded.

This month’s session begins with Core Body of Knowledge featuring Janae Castell,  Mike Gregory and James Ewart discussing a recent Value Examiner (Jan/Feb 2020) article, “The New Revenue Accounting Standard: Lack of Comparability Poses Valuation Challenges”.

Following that segment, Chris Hamilton of Arxis Financial provides this month’s “Expert Insights’. Chris will share his perspective on “Transitioning to Full-Time Litigation and Valuation”.

During  Industry Intelligence  Stephen White focuses this month on the the impact of COVID-19. Stephen will summarize the recent Global Town Hall and  review the other NACVA’s events focused on “Staying in Business”.

Kim Tavares will review recent Valuation Verdicts involving key Federal and/or State Case Law Summaries (2-3 cases).

C.Zachary Meyers joins the webinar and will present Tips on Standards.

To close this month’s program, “Being Relevant” is Garrett Wagner’s (of C3 Evolution Group) topic for Growing and Building Your Brand.  Both new and established practices should find his insights particularly timely.

We expect this show to provide essential and actionable information for valuation experts and hope you can join in live or listen to the replay later.

“Around the Valuation World” is a monthly webinar on business valuation topics hosted by the NACVA and edited by Greg Caruso of Harvest Business Advisors.
For more information,  please visit the “Around the Valuation World” website.

“Around the Valuation World” – NACVA Webinar – April 20, 2020

Around the Valuation World: Webinar 3/16/2020

“Around the Valuation World”, a monthly business valuation webinar sponsored by NACVA,  features current topics by leading experts in the Valuation World.
The next episode will air on Monday March 16 at 1 p.m. ET and will be recorded.
This month’s session begins with Core Body of Knowledge  featuring Janae Castell,  Mike Gregory and James Ewart discussing a recent Value Examiner (Jan/Feb 2020) article, “The New Revenue Accounting Standard: Lack of Comparability Poses Valuation Challenges”.
Following that segment, Rebekah Smith of GBQ Consulting will share her “Expert Insights’ on Data Analytics in Forensic Practice.
Melissa Gragg  and Stephen White collaborate on a monthly review of Industry Intelligence.
Kim Tavares will review recent Valuation Verdicts involving key Federal and/or State Case Law Summaries (2-3 cases).
Carl Steffen  will cover Tips on Standards, discussing USPAP ( Uniform Standards of Professional Appraisal Practice ) Updates.
To close this month’s program, Brien Jones will share approaches for Growing and Building Your Brand, important to both new and established practices.
We expect this show to provide essential and timely information for valuation experts and hope you can join in live or listen to the replay later.
“Around the Valuation World” is a monthly webinar on business valuation topics hosted by the NACVA and edited by Greg Caruso of Harvest Business Advisors.
For more information,  please visit the “Around the Valuation World” website.
“Around the Valuation World” – NACVA Webinar – April 20, 2020

“Around the Valuation World” Webinar – 2/24/2020

“Around the Valuation World”, a monthly business valuation webinar sponsored by NACVA, features current topics by leading experts in the Valuation World.< BR>

The next episode will air on Monday February 24th at 1 p.m. ET and will be recorded.

“Around the Valuation World” will begin with Core Body of Knowledge with Mike Gregory C.V.A., C.B.A who will review various Article Summaries and provide Core Updates in Valuations.

 

We are very fortunate to welcome Glenn Block, CPA/ABV, CVA  of Block & Aldinger CPA to the program.
Glenn will share his Expert Insight, discussing the key points about Engagement Letters.

 

Melissa Gragg CVA, CFE, MAFF and Stephen White CVA discuss Industry Intelligence during their portion of the webinar.

 

Kim Tavares CVA brings participants up to date on select Federal and State Law Summaries during Valuaton Verdicts.

 

Then Robert Carter CPA/CFF, CVA will  spend some time reviewing relevant AICPA Forensic Standards.

 

Closing this month’s program with a fascinating topic –  “”Should You be a Digital Disruptor?” –  is special guest, marketing expert Lee Frederiksen Ph.D. of Hinge Marketing.

This show will be packed with essential and timely information for valuation experts – we hope you can join in live or listen to the replay later.

“Around the Valuation World” is a monthly webinar on business valuation topics hosted by the NACVA and edited by Greg Caruso of Harvest Business Advisors.
For more information please visit the “Around the Valuation World” website.

Seller Expectations and Repricing Issues

Seller Expectations and Repricing Issues

With a lot of activity in the market, 2020 is off to a fast start, promising to be another strong year for the sale or acquisition of privately owned companies. As always, serious sellers and buyers with the right motivation and reasonable expectations will succeed.

This month, we want to revisit the topic of buyers “repricing” an offer and how that can impact the seller’s expected transaction prices. We’ll illustrate what repricing is, how it happens and how it might impact the seller’s expected sale price.

It’s extremely important that sellers know upfront that the repricing of a deal is a possibility and what situations might require repricing. Being blindsided by an unanticipated repricing issues in the midst of the transaction process can be a potential “deal killer”.

Let’s go through a simple example to illustrate.

Disclosure: the following is a hypothetical illustration to show how repricing issues can impact the final deal price; results will vary depending on facts and circumstances

What Is Repricing

Repricing is a common occurrence and part of the normal transaction process. Repricing issues are real issues that need to be resolved (negotiated) in order to complete the deal, otherwise the deal could fail.  Repricing issues generally occur when the buyer completes their due diligence and finds issues that, in their opinion, should reduce the transaction price, a.k.a. repricing.

Seller Expectations  

Sellers need to have realistic expectations regarding the potential business value and that includes an understanding of possible repricing issues. Consider this typical scenario:

  • Bob decides to sell his business because he has realized it’s time to do what he wants to do or for some other ‘the time is now'” reason – but he has not really prepared to sell
  • Someone (a friend or associate) tells Bob that your price businesses “3 times the cash flow”
  • The past results are:

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  • So Bob determines his sale price is  $1,500,000    (3 times $500,000)

 

Repricing Issues

After some time, Bob finds a potential buyer who has offered $1,500,000.

But, while completing their due diligence, they discover 2 significant issues that, in their opinion, result in a repricing of their offer (a reduction from Bob’s $1,500,000 price).

They meet with Bob to review the repricing issues with the intent to renegotiate (reprice) the original price. The two issues they discover are:

    1. A need for working capital required to run the company
    2. The need to update company assets (equipment, vehicles, technology etc)

The buyer has determined (in their opinion) the additional cost (investment) for these issues are:

    1. Working capital needed:  $100,000
    2. Investment needed in capital assets:  $300,000

You can see where this is headed… the buyers are going to revise their offer (reprice) and expect Bob to accept the revised purchase price.

Sellers Expected Deal Price – Repriced

How does this impact the sellers expected sale price?

Seller’s expected sale price (above)                      $1,500,000

Buyer repricing adjustments:

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Bottom Line:

  • Bob wasn’t aware of the issues that a buyer may object to and based his decision to go to market with a transaction price of $1,500,000 based on a formula that didn’t really consider the many factors that determine a solid price

Where do Bob go from here? Can the parties renegotiate the deal price or is the repricing significant enough to kill-the-deal and the deal fails (worst case)?

 The Takeaways

  • It is very important to work with an advisor who has experience with the business sale process and can properly value your business.
  • Buyers will search for repricing opportunities during their due diligence; it’s one of the reasons they do their diligence – it’s just part of the transaction process.
  • Keep cool: if the business price needs to be negotiated, it’s usually just a hurdle not the end of the process. But the issues can be resolved if both parties want to get the deal done and are negotiating in good faith

NOTE TO SELLERS: Owners who reinvest in capital assets, stay current with maintenance schedules and properly manage cash flow will be rewarded in the ultimate deal price. Those who don’t, won’t … it will cost you.

With experienced advisors by your side, we assure you that  a proper price will be set based on  facts and figures and,working together, most issues can be resolved to everyone’s satisfaction and the deal can go forward.

We’re here to help you with your transaction planning and our consultation is free with no obligation.

This article was written by Eddie Davis C.P.A, C.V.A., Partner at Harvest  Business Advisors.

Contact:  EDavis@HarvestBusiness.com or 301-325-7687


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.

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