As economy rebounds, brokerages report better-performing businesses, more cash-ready buyers, and more sellers in the marketplace.
By Dan Emerson, Minnesota Business
Regardless of industry, target market, or other factors, no one stays in business forever. For most entrepreneurs, the ideal outcome is selling the business at the “right” time — however that may be defined — for a nice profit.
Of course, business deals don’t occur in a vacuum. Current conditions in a given industry and the overall economy have a major impact on transactions, helping determine the size of the prospective buyer pool, negotiating challenges, and ultimate sale price. The recent recession had a dampening effect, but the rebounding economy has led to increased sales-and-acquisition activity, as reported by business brokers.
Andy Kocemba, president of Edina-based Calhoun Companies, Minnesota’s oldest and largest business brokerage, has experienced the uptrend firsthand. He cites several reasons for it, as listed by the International Business Brokers Association: more cash-ready buyers in the market; better-performing businesses, which makes them more attractive to prospective buyers; more confidence and less uncertainty among buyers; and more sellers in the marketplace.
The recession not only had a negative impact on business performance, but it also took a bite out of retirement accounts, causing many company owners to postpone selling. Recently, “more business owners have been able to build back up to where they once were and are again in position to sell,” says Kocemba, who runs Calhoun Companies along with his father, Wally Kocemba.
One of the first steps in considering the sale of a business is usually enlisting the help of a qualified business broker. The latter can access and market to the business-for-sale marketplace, navigate the universe of potential buyers, and achieve the desired outcome.
“Our business is about connecting people and building trust, because to some degree the buyer and seller are working together,” says Kocemba. “They have a common interest in seeing the deal succeed.”
The broker’s focus on getting the deal done allows the business owner to concentrate on running a successful business. “It’s a process that does take some time, and if a business owner loses focus and drops the ball for even a few months, that can have a negative effect on the numbers,” Kocemba points out.
According to Craig Arends, a business broker, CPA, and partner with Minneapolis-based CliftonLarsenAllen, one of the crucial steps in selling a business is arriving at a fair, realistic, and empirically supported valuation for the enterprise. It’s also an area with potential pitfalls. Less experienced owners, he notes, sometimes make the mistake of starting with an arbitrary target price. “Someone might say, ‘My company is going to be priced at eight times EBITDA.’ ” But valuation, he says, is based on a number of factors, including recent, current, and projected revenue growth; industry trends; degree of customer concentration; and quality and age of the management team.
Also, “transition date” and “retirement date” are often negotiable points in a merger or acquisition deal, Arends notes. Typically, a buyer will be willing to pay a little more for a management team and ownership that is going to stick around, if only on a temporary basis. “If the seller’s group retains some percentage of minority ownership and has ‘skin in the game,’ that will give you greater valuation, as well,” he says.
Small-business acquisitions are most often financed by a bank, with a combination of cash-down and seller-financing, according to Kocemba. His firm often uses business acquisition loans from the U.S. Small Business Administration, which can generally qualify up to 70 percent of the loan amount. In a typical case, the buyer might make a 20 percent down payment, with the seller financing another 10 percent. Helping buyers secure suitable financing is another one of the broker’s functions.
Kocemba counsels business owners that “it’s never too early to start thinking about selling your business. Even if you are only a few years into a startup, you should always have an exit plan in mind, because — one way or another — every owner eventually leaves the business.” Following, the stories of business owners who recently sold their companies — and the lessons they learned along the way.
Tags: Minnesota business, sellers, small business, lessons, industry, tips, business advice, advice, selling a business, selling