What Now? Stay Focused… Keep Going

What Now? Stay Focused… Keep Going

Over the past several weeks I’ve been talking to business owners who are either current, prospective or past clients of mine about how COVID-19 is affecting their business.

I’ve been telling them while the number of buyers seeking information about businesses that are currently for sale has declined over the last several weeks, for the first 12 weeks of 2020, economic indicators consistently signaled a strong and growing economy. Rate of inflation has been: LOW. Unemployment rate has been: LOW. Housing demand is: UP. Consumer Spending is: UP.

Depending on the industry, some businesses, like commercial construction, accounting service firms, B2B and B2C services, certain IT sectors, and government contractors are still doing well continuing work on current jobs and submitting bids on future work. Other business owners, however, are now feeling the effects of COVID-19 on their business.

So, what should a seller or a potential seller of a business do until the COVID-19 curve flattens out and this problem virus is history?

    1. Continue running the business hard, fast and lean.
    2. Call and talk to all your customers. Ask how the virus is affecting them.
    3. Prepare a short-term cash flow forecast.
    4. Review your short-term business plan.
    5. See if your company can provide services and/or products to support the fight against COVID-19.
    6. Review your bank covenants.
    7. Contact your bank and other financial providers and obtain their continued support. In addition, financing and other assistance is being offered at the Federal and State levels.
    8. If you were planning on selling your business this year, prepare and place the business on the market now since it may take up to a year to locate the right buyer as the economy improves. Also, many people who have lost their jobs due to the virus will be considering buying a business as an option to finding another job. Banks are still lending and the U.S. Government, through agencies like the Small Business Administration and the Veterans Administration, as well as state governments will have programs to help buyers purchase small businesses. This helps both sellers and buyers.
    9. Connect with me at Harvest Business and let me help you if I can. Even if you just want to talk, I’m happy to have a conversation.

If you have a good business with consistently solid financials and strong business attributes now is a good time to think about your exit plan and perhaps even begin preparing to put your business on the market. Whether you want to sell your business now or at some later time, my best advice is to stay focused, keep going and use this time to plan for the future.

(If you find yourself with a little time, we wrote an ebook – “Ten Ways To Increase the Value of Your Business Before You Sell” – that might be the perfect thing to read!)

This post was written by Richard Stopa, Harvest Business Advisors Partner

Richard Stopa
Partner
Rstopa@HarvestBusiness.com
703-307-1187

How are You Doing? Competitive Business Benchmarking

How are You Doing? Competitive Business Benchmarking

Previously, we discussed business benchmarking using internal measurements, tracking and analyzing 5-7 key indicators of your business’ growth and success.

Now, let’s focus on the second benchmarking measure – comparing yourself against your peers based on industry data.

The second form of benchmarking is to compare your business to industry data.

Industry data is available from many sources. The most available data is financial data from several companies that collect and sell the data to banks, accountants, and other advisors. Also, many industry trade associations collect and track much more detailed information. While not perfect, this data can provide a meaningful comparison for analysis on how you are doing. Often this data is sorted and available based on performance. For instance, companies can be sorted in the 25th, 50th, or 75th percentile of financial performance.

Since only half of all companies with revenues of $10 million to $50 million will sell, you want to compare yourself to companies in the 75th percentile or better. These are the companies that are performing well and are creating real value.

Your results will not mirror the industry data, but the data will be useful for comparison purposes.

For example, a drywall contractor may see that their cost of goods sold is 73% while the industry norm for companies in the 75th percentile is 70%. Yet overhead for the drywall contractor is 20% producing a 7% profit. The industry norm at the 75th percentile is 25% overhead and a 5% profit. In this case, profit is above industry norm.

Perhaps this contractor spends a little more on direct labor, but because they have better people they are able to perform with less oversight. If this is true, there is no reason to make a change based on the data. If not, perhaps the direct costs can be brought down. Perhaps better purchasing could reduce costs. Perhaps labor can be applied more efficiently. In all cases, do not use this data and analysis as a reason to rest on your laurels but as a process in order to find ways to improve.

Internal Benchmarking along with Competitive Benchmarking will help you adjust course to be as profitable as possible and identify areas for growth.

 


 

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.

The Importance of Time Off – for You and Your Business

The Importance of Time Off – for You and Your Business

It’s mid-August and we have a question.

Did you take any time off this summer?

Did you step away from your business and not call or email in?

Many business owners would say “That’s impossible!”

But why? Research shows that real unplugged vacations are critical to people’s health  – allowing  you to return restored, refreshed, renewed. And ready to dive back in to running and improving your business.

As Andrea Callahan says in this Money article, “Vacations sharpen the sword”.

From a purely practical perspective, a business that runs on its own is far more valuable and easier to sell than one that demands every minute of an owner’s life.

Plus you’ll enjoy your business more if you step away from time to time.

How can you change your business so you can take time off?

Start small – take the afternoon off and do something for yourself or with your family. Promise yourself won’t check email after 6 p.m. (or before 7 a.m.) Ease into a long weekend – and truly “get-away”.

Identify tasks or processes that only you can do – and train someone else to take them on, while documenting the training. Distribute responsibility to those you trust. Look into automation for some tasks.

Soon, taking two weeks off for a dream vacation won’t be impossible. It will be do-able- and your business will be stronger because of your efforts.

Are you ready for a real vacation? Or maybe you are ready to sell your business for a permanent vacation!

We can help you plan and start the process. Connect with us (info@harvestbusiness.com or call 877-838-4966) today for a complimentary consultation.


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.

Business Owner Succession Plans Should Consider ESOP’s

Business Owner Succession Plans Should Consider ESOP’s

ESOPs or Employee Stock Ownership Plans should be considered as a succession tool by business owners.

When business owners first start to consider the possibility of retiring or transitioning away from day to day operations, many look around them to see who might be a potential buyer. A family member or a friendly competitor or an allied business frequently often come to mind. But perhaps owners should consider their employees as potential buyers.

An ESOP is an Employee Stock Ownership Plan. In the right circumstances,  ESOPs can be a great succession planning tool.  ESOP’s receive extremely favorable tax treatment.  But they are not suitable for every situation and can be somewhat complex and costly.

They often work well if an owner wants to stay involved but obtain asset diversity by selling perhaps 1/3 of the business.  There are strong tax advantages.  When set up properly both the loan principal and interest is deductible for tax purposes.  Note, usually only loan interest is deductible for tax purposes.  This is a huge advantage.

An ESOP may be set up with existing cash from the plan sponsor’s balance sheet but are usually leveraged.

  • The loan may be from a bank or other financial institution or the selling shareholder may finance the transaction by taking back a note for part or all of the purchase price
  • The plan sponsor usually uses its balance sheet to secure the debt financing
  • Often the owner must guarantee to loan to the business.  Sometimes this guarantee can be limited in time and amount.

The ESOP borrows the money to purchase company stock (outstanding shares, new shares, or treasury shares) which is held in trust for the benefit of the employees.

  • The company makes tax-deductible contributions to the ESOP to enable the ESOP to repay the loan
  • As the loan is repaid, shares held by the ESOP are released and allocated to employee accounts
  • The employee shares are held in trust.

More information about ESOP options can be found at National Center for Employee Ownership or connect with Harvest Business Advisors to discuss your options – email info@harvestbusinessadvisors.com or call 877-838-4966.

 


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.

How Your Balance Sheet Affects Your Business Sales Price and Business Value in Merger and Acquisition Transactions

Or, In Business Planning such as: Business Mergers and Acquisitions, Business Valuations,  M&A Business Valuations, Exit Planning, Succession Strategies, Business Strategic Planning, Business Brokerage, for Companies Such As, Construction Contractors, General Contractors, Engineering Companies, Sub-contracting Companies, Distributors and Supply Houses, Service Firms, how your balance sheet will affect your ultimate business sales price.

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

 We mainly focus on the income statement in order to determine earnings and company value.  But your balance sheet is an essential component of any transaction.  This article will briefly address how your balance sheet impacts your business market value in the sales process.

 A strong balance sheet can keep you in business in tough times.  That can be true in business sales also.  After all, if you are running out of cash or have had a loan called – how strong is your negotiating position?

 When selling any business the theory is that the buyer should get the assets necessary to produce the income that they are buying.  These assets may be trucks but they may also be cash and receivables (working capital).  Just like when you sell your house and pay off your mortgage (whether it is more or less than the sales price) debt will be paid off by the seller out of the sales proceeds or at least count as part of the sales price. 

 General balance sheet tips – Have cash.  Manage accounts receivable.  Try to collect as rapidly as possible.  Put systems in place to collect.  This includes making sure your requisition package is complete, all insurance certificates are current and whatever else is required.  Keep inventory as low as possible.  Do you really have savings after handling, storage, loss, etc. from buying in bulk?  The squeaky wheel does get the grease.  Manage accounts payable.  You must pay but do your best to obtain extended terms when possible.  Keep bank debt to a minimum if possible.  I was once told and the saying has never failed me, “A banker is someone who gives you an umbrella and when it starts to rain asks for it back.”

 Have lines of credit but do everything you can to not NEED to be in them.  Keep physical assets in good repair but do not overinvest in the 3-2 years before a sale.

 If you have real estate owned by your company (review with your advisors then in 99% of the cases) get it into a stand-alone entity now.

 In this time of low profits and high receivables many businesses – particularly many contractors are worth more dead than alive.  Namely many contractors have more due to them in accounts receivable than the value of their company.  A market buyer will not give them a price as high as the accounts receivable.   An uncomfortable place for any owner to be.

In summary, maintain a strong balance sheet with plenty of current assets and working capital in order to strengthen your negotiating position in a business sale and tide your company through any short term rough waters. 

 

 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.