Resources
Guides, articles, and tools from DealCoach's M&A advisors.
Give Yourself the Gift of a Valuation This Holiday Season
As the year winds down, there’s a gift every business owner should consider—a current valuation of your business. While holiday lists often include items like client gifts or end-of-year celebrations, knowing the true value of your business is a gift that keeps on giving. Here’s why it matters now more than ever.
Before Selling Your Business, Finish Strong
Most buyers focus on the TTM (trailing twelve months) to evaluate what they will pay for your business, not what your EBITDA was five years ago in your peak, before you got tired, before you lost your mojo.
Deal Killers: Undisclosed Liabilities
When you’re selling a business, put issues on the table right away. Whether you have ineligible employees on your payroll, you just lost a client, or litigation is pending—be up front.
Top Reasons Why Business Owners Should Get a Business Valuation
A business valuation is a crucial tool for any business owner or manager, as it can provide valuable insights and information that can help inform important business decisions. There are several reasons why it is essential to know the value of your business and how often you should get a business valuation.
‘Operation clean sweep’: Preparing your business for sale
You’ve decided to sell. Now how can you get the most for your business? You need to “clean up your act,” so to speak, and address some operational issues that may not have been a priority for you over the years.
What are the myths of selling a company?
There are several myths about selling a company that can be misleading or simply not true. Here are a few common myths about selling a company:
How Will M&A Respond to the Next Recession?
The M&A world isn’t quite sure what to expect in the next recession. Private equity players weren’t nearly as dominant through the last market downturns. But today those firms have $1.8 trillion in uncommitted capital they need to put to work. With money to spend, and a timeline to do it, private equity may help keep valuations high.
Beware the Benchmark Valuation
You can practice some back of the napkin math to value a company, but it’s not always reliable. A company with $3 million in EBITDA, may, as a general rule of thumb, sell at a 4x to 6x multiple. In other words, it might sell for $12 million to $18 million in an average market.
Double Benefit or Double Whammy
When you sell in good economic times, most times your cash flow is growing, so you get more value out of your business. But multiples are also going up, so you get the benefit of rising cash flow plus rising multiples. Unfortunately, the reverse can happen in a down economy.
How will rising interest rates affect M&A?
There’s zero doubt that interest rates are going up this year. The Fed issued a 0.25 percentage point rate hike in March, the first increase we’ve seen since late 2018. But more increases are coming, perhaps even monthly, in the year ahead.
Economist Predicts Recession in 2024
Steven Chiavarone, CFA and economist with Federated Hermes, presented at our annual State of M&A conference held in Green Bay. Chiavarone spoke to the conflict and other economic indicators likely to affect mergers and acquisitions in the years ahead. Specifically, he addressed inflation and the risk of recession.
Employee Retention Adds Business Value
The talent market was tight before the pandemic, but now we’re in a critical state. Finding employees is a challenge for everyone. And if you’re selling your business, it might be the buyer’s top concern.
Dealmaking should be strong in 2022
Inflation, employee shortages, international tension, this little thing called COVID-19… In many years, any one or two of these dynamics could have put a damper on M&A activity and business values.
The Happiest Business Owners Know What’s Next
For many entrepreneurs, the business becomes their identity. It gives them direction. Without that outlet, some former business owners become unmoored. Suddenly, their phone isn’t ringing as much. No one needs them to make hard decisions anymore, and that can be troubling for some folks.
How covid slumps and bumps are affecting business values
I don’t know of anyone whose business wasn’t affected, at some level, in 2020. Businesses were either on the covid slump or the covid bump.
How three private equity firms valued the same company
As part of our annual State of the Market M&A conference, held virtually this winter, we invited three private equity (PE) firms to review and submit an offer on a hypothetical company. They revealed their offers at the conference, and we held a panel discussion on why they valued the company the way they did.
Burnout drives business owners to sell their companies
Business owners are burned out, worn out, and getting out. More than 1 in 4 business owners who put their business on the market this spring did so because of burnout. That’s according to a first quarter survey of business brokers and M&A advisors conducted by IBBA and M&A Source.
Record Setting Pace for Global Mergers and Acquisitions Deals
As we predicted, many companies and Private Equity firms are on the hunt for new opportunities and are spending the “dry powder” (cash reserves) they amassed while waiting out the uncertainty with the pandemic in 2020.
Gritty kids, organizations have the will to persevere
What is the biggest characteristic that contributes to future success? Think for a moment about how you would answer that question. Would you say intelligence? Strategic thinking? Vision or subject matter expertise? Why do you think you’ve gotten where you are?
Financial Planning – Business Valuation
Financial planning begins with knowing what your business is worth. For business owners, how can any decisions be made about securing the future of your family, employees, and business without knowing the value of your largest asset? Get started with an estimate of value from DealCoach today!
Business owners put more planning into parties than sale of business
According to the quarterly Market Pulse Report, we know that when it comes time to sell their business, less than half of all business owners plan ahead. What that means is that most business owners wait for some kind of trigger before they go to market. Those triggers are reactive and often negative in nature, stemming from a family health issue, conflict, or (most commonly) burnout.
Specialist, connection saves $300K
The closing day was set, and we just needed to finalize what should have been a few minor details. Then, at the eleventh hour, the buyer’s accountant asked for a particular point of negotiation that would have cost my client $300,000 in tax implications—or roughly 10% of his takeaway.
Spring Cleaning is Good Business
We’re just a few weeks into spring and that means it’s time for spring cleaning, at home and at work. I only wish my clients did a regular housekeeping. It would make due diligence and the whole business sale process a lot smoother. Here’s what I mean:
Looming tax changes could accelerate M&A
President-elect Joe Biden has made it clear that corporate tax rates, and taxes on high net worth individuals, will increase under his administration. Just how many of those plans will come to fruition, and how quickly, is unknown.
When COVID is the “next buyer’s” problem
As we continue to take companies to market during COVID, we’re asking new questions about business response plans and resilience. It’s been interesting to see the different attitudes and approaches
Don't go in the Basement! Escaping M&A “DEAL KILLERS”
Cue the scary Halloween music. When selling your business, you can expect to hit a couple of snags before the deal is complete. But proper planning can help you avoid the most common “deal killers” like these:
Pros and Cons of Selling to a Strategic Buyer
When it’s time to sell your business, you may have multiple buyers to choose from. You could receive offers from strategic, financial, and individual buyers.
Private Equity “OPEN FOR BUSINESS”
We’ve been talking to private equity groups around the country to keep a pulse on where the M&A market is at right now. And the message we keep hearing is that these firms are “open for business.”
Leading in the time of COVID-19
Leaders who can keep people engaged and motivated in times of crisis are those who will inspire greatness under any conditions.
Some M&A Buyers Ramping up the Pace
Talk to anyone trying to buy a house right now and they’ll tell you competition is tight. In certain price ranges, buyers need to put an offer in fast (like the day it’s listed fast) and should expect stiff competition. According to data from Zillow, new for-sale listings are down about 25% over a year ago but house values are up 4.3% year-over-year.
Competitor Down the Road Not Your Only Option
Many business owners have preconceived notions about who will buy their business or whether it’s even salable at all. A lot of owners think their most likely buyer option is the competitor down the street. Maybe that was true, once upon a time. But the M&A world has changed dramatically—and continues to evolve.
Business Values May Not Decline
According to the Q1 2020 Market Pulse Report published by the International Business Brokers Association, M&A Source, and the Pepperdine Private Capital Market Project, advisors reported that of the small and medium businesses currently for sale, about 35% had closed, 40% were operating at partial capacity, 4% had benefited, and 21% remained unaffected by COVID-19.
No Set Asking Price
You want to know you’re getting fair market value for your business. The best way to do that is to create a structured transaction process.
COVID-19 M&A: Buying a Business in Uncertain Times
The market doesn’t like uncertainty. Certain buyers are retreating into wait and see mode, waiting to see how long the lockdowns will stay in place, how supply-demand issues will shake out, and whether we’ll hit a full-blown recession. But opportunities happen when others retreat. That’s why the coronavirus pandemic could be the best opportunity we’ve seen to buy a business in the last five years.
Using Downtime During COVID-19 to Add Value to Your Business
As business owners are working to process the impact of COVID-19, we’re looking at how it will affect M&A. In the short term, some companies will slow the pace of acquisitions. That’s natural in uncertain times.
‘NO SHOP’ Protects Buyers Investment in M&A
A no shop provision is an important part of M&A transactions. Also known as an exclusivity clause, a no shop clause prohibits the seller from sharing information or negotiating with other would-be buyers for a specified timeframe.
EARNOUTS: Breaking The M&A Deadlock
Earnouts are used to bridge a valuation gap between a buyer and a seller. It’s a compromise, of sorts, to break a purchase-price deadlock when the seller wants more than the buyer is willing (or able) to pay.
Platform Businesses the Belle of the Ball
Business owners thinking about exiting their business may be hearing the terms “platform” and “add-on” acquisitions. Understanding these terms, and knowing which category you might belong to, can help you prepare your business for a competitive, higher value sale.
Can’t Stop, Won’t Stop
Your business is on the market and you’re looking forward to that glorious day when you can let go of the pressure and responsibilities of ownership. But don’t let those future plans distract you from what’s going on today.
You Are the Least Valuable Part of Your Business
You don’t want to hear this. You might even be a little offended. But when it comes time to sell your business, you are the least valuable part of the equation. Unless you’re sticking around with an ownership stake or long-term employment contract, your experience means very little to a buyer.
Earnouts Don’t Deserve A Bad Reputation
Even if you stay on with the business, you don’t have complete control over how new ownership runs the company. If the business does well, you get paid. If business drops, you don’t.
No Haircuts
Imagine a buyer has offered you a six-multiple on EBITDA in their initial letter of intent. Unfortunately, you don’t have clean financials that have been tested and scrutinized by an outside party. Once the buyer vets your financials, they uncover some adjustments they don’t agree with and revenue that was accounted in the wrong period.
How three offers came in with a $10 million swing
Lower-to-mid-size businesses typically go to market without a preset asking price. You will set an internal benchmark with your M&A advisors, but we won’t publish or discuss your value expectations with potential buyers.
The case of the $5 million valuation discrepancy
Recently, we did an estimate of value (EOV) for a company, calculating that it would sell for around $8 million or $9 million in the current market. It’s a nice business and I think that number is achievable. We might even get a bit more with a strategic buyer.
Top 5 Reasons Deals Go Wrong
Last year set new records for M&A activity. Big corporations drove the market, and that momentum was also reflected in the lower middle market and Main Street. But not everyone got a deal done last year. Let’s review why some business transitions go sour:
When I’m 65
“Some business owners plan to sell when they reach a milestone age like 55 or 65. But planning to sell at a particular age means you aren’t planning to sell when your business is worth the most.
Valuations Near All-Time Highs
Timing is right to sell. If you’re thinking about selling in the next few years, get an estimate of value and talk to an advisor right now. Here’s why valuations are at all-time highs:
Professionals Have Coaches
“Professionals have coaches; amateurs don’t.” I heard this at a conference recently, and the idea stuck with me.
Plan for Business Life After Death
A sudden death or disability is a tragedy we hope never to face. But planning for those tragedies is a necessary part of life. If we don’t, we leave behind a legacy of stress and confusion for those we care about most. If you own a business, a contingency plan is critical for the sake of your family and for everyone else who depends on your organization.
Love Your Business Again
In The E-Myth Revisited, author Michael Gerber suggests that each business owner has three personalities: entrepreneur, manager, and technician. For many, the technician is the dominant type. These owners are skilled tradespeople, scientists, and service professionals, and they excel at the hands-on work of their company.
Buyers Blinded By Love
Love is blind, so the saying goes. I’m certainly not going to suggest I’ve ever seen friends make questionable choices in their love life, but I have seen business buyers so enamored with an opportunity that they either ignored certain warning signs or willfully chose not to look.
Organic or Acquisition
In today’s marketplace, if you’re not growing, you’re going backwards. According to a new Ernst & Young report, a whopping 69 percent of U.S. CEOs plan to grow through acquisition this year. Driving the trend are increased confidence in economic growth and the availability of capital.
Success comes from what you overcome
There’s a woman in my neighborhood, a busy mom, who had a stroke last year. The sudden, life-threatening illness came out of the blue for this young, healthy woman.
Accurate accounting doubled business value
You made it. You’ve paid back your business loans and can run your company with just a line of credit. You’re profitable. You’re comfortable. And you don’t have to pay such rigorous attention to things like accounts receivable turnover and your particular accounting methods.
Wonderful Company at a Fair Price
Warren Buffet once said, “It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.” I certainly think he’s right. Working with our buy-side division, of course we understand that everyone wants to get a great deal. They want to find that perfect company and get it at a four-multiple when the market is running closer to six. We’ve seen clients walk away from perfect deals that hit all of their requirements, only because they wanted to buy below market.
Address Culture Conflict Before a Sale
As an owner, one way to maximize value in your business is to demonstrate that you’re not the smartest person in the room. In an ideal state, you work yourself out of a job, moving on to an advisory role while your management team runs day-to-day operations. With that said, it’s equally important that your goals and values are in sync with your managers’. When selling a business, you want to show buyers a positive work culture in which team members work well together and make each other better.
Not All Contracts are Created Equal
What’s the value of a customer when it’s time to sell your business? The short answer: It depends.
Hire a Specialist
I don’t just tell people to use a specialist and then go home and try to do things on my own. I just sold my house, and because of the licensing I need to sell a business, I had the proper credentials to sell it myself. I already have all the forms and a good relationship with an attorney who would advise me.
Market and competition impact sale price
These are all factors a business owner can typically control within a relatively short time frame, in as little as two to three years. That said, other key business elements such as industry and competition also impact the sale price, but business owners will need a much longer-term strategy in order to effect change in these areas.
Pro-business climate should spur M&A
It’s about that time when I like to make some forecasts for the year ahead. I am happy to report that last year’s predictions were pretty much on target and the M&A marketplace continued to run strong throughout the year. One thing I did not predict, however, was a Donald Trump presidency. We generally expect elections to create uncertainty, but the markets have responded in a positive manner. I believe the M&A marketplace will follow in kind with a productive and active year ahead. Here’s what else I see coming. By Scott Bushkie – CBI, M&A Advisor
What Buyers Want Under the Tree this Season
Here’s hoping all your holiday gifts were well chosen and gratefully received. If you’re anything like me, you bought all your presents on Christmas Eve morning. There’s something about that final shopping day that puts me in the spirit. Of course, that kind of last minute shopping might work for gifts, but not when it comes to buying a business. As you think about business growth, sit down with your team and figure out if acquisition could be the right strategy. Here’s why several of our active buyers are searching the market right now.
Extraordinary multiples – fact or fiction?
Your business owner friend is boasting about how they got a 10 multiple on the sale of their company. Fact or fiction? For most companies, this would be fiction. (Or, to give your friend the benefit of the doubt, perhaps it’s a multiple of net income rather than the more standard EBITDA.)
Seller’s remorse – and how to avoid it
After selling businesses now for 18 years, there’s still one stumbling block that takes me by surprise and hits hard, and that’s seller’s remorse. On average, I see it every two or three years – a seller goes through the whole process and then ultimately can’t pull the trigger. The last time it happened was April of 2015.
Why most librarians aren’t rich
I recently came across a Warren Buffet quote that struck me: “If past history was all there was to the game, the richest people would be librarians.” Don’t I wish that were true. My mom was a teacher for 30 years, and she knew a lot about history. When it comes to buying a business, past performance is important. As a buyer, you’ll typically look at the last three years of financials, with a particular focus on the trailing twelve months. But you can’t get so tied up in historical numbers that you forget to ask the right questions about future performance.
Put the plan in succession planning
Succession planning is a real buzzword right now. With the large number of Boomers set to retire, everyone is talking about how to help them make it happen. Unfortunately, many business owners are having these conversations far too late. If business owners just did one thing, one thing that I believe would make their work more enjoyable and more profitable, it would be to set a succession plan from day one of starting or buying a company.
Selling a Business | Recognize the Risk of “Just One More”
Timing is everything when selling a business. Whether it be winning in sports, finding your spouse, starting a company and ultimately selling it, when you do something can be every bit as important as how you do it.
When I See It Strategy
Most first-time business buyers start the acquisition process with an ‘I’ll know it when I see it’ strategy. Both individuals and existing business owners come to us with this approach. It won’t surprise you to hear, however, that it’s not a good use of our time to engage in a sales scenario destined to go like this: “How about this business?” No. “How about this?” No. “This?” No, that’s not right either.
For Value, Seek Boundaries Not Burnout
Too often, I hear from business owners who “vacation” with their family, only to stay back in the hotel glued to a computer or phone while their spouse and kids have fun without them. But working harder isn’t necessarily a good thing, at least not long-term. By setting boundaries and finding the right work-life balance, I’m able to bring more energy and focus to my work. It makes me a better leader to my employees and a better advisor to my clients.
Take a Vacation to Build Your Business
Spring break is close ahead, and as I prepare to take some time off with my family I’m remembering several years ago when a vacation like this was harder to come by. But as my team and company have continued to evolve and mature, I’m able to spend more time away from the office. Taking a break benefits both you and your team. You want to build a business that can operate without you. Sometimes that means you need to step away so your people have room to stretch and take on new roles. If you have to be on the phone all the time, constantly checking in and working on vacation, you may actually be hurting the value of your business. A business that is overly-dependent on the owner is not as attractive to a potential buyer. take on new roles.
You Can Help The Stars Align So Business Will Sell
When it comes to selling your business, you hang some of those stars in the sky on your own, by building up sales, minimizing risk, and developing a strong leadership team. But other stars must line up on their own, due to market forces you can’t control.
Take Timing Under Advisement
Timing is everything in the M&A market, and in many cases things you can’t control will impact your value more than those you can. Here’s what I mean:
One For The Record Books
As the new year begins, I want to comment on the M&A year behind us and the one ahead. As expected, the market was strong in 2015. Deal volume hit a new global record by early December, reaching $4.304 trillion, ahead of the previous record set in 2007.
Start Bucket List For Perspective
We’re in the process of an office remodel at Cornerstone . As part of that project, we’re pulling down all the pictures of businesses we’ve sold and helping our clients envision the future instead. To do that, we’re asking past clients to tell us what they’ve done with their time and money after their sale. As you’re thinking about selling your business, it’s time to plan your own bucket list. Because if you don’t spend time looking ahead, you’ll let fear of the unknown get in the way of a sale.
Selling, when money isn’t top concern
Instead of focusing on price, some sellers are more interested in making sure the company stays where it is, that the employees continue to have jobs, and that the management team gets an opportunity to buy an ownership stake. Given these priorities, we look at the different ways this company could go to the market.
Private Equity Rollup, Inside the Numbers
I’m representing a company out west doing $20 million in sales with $4 million in EBITDA at Cornerstone Business Services . That’s in the mid-tier size for regional businesses, but it’s not enough to get the national players excited about an acquisition. The big firms want opportunities closer to $10 million EBITDA. But as I contact various strategic buyers in the region, I find a few Boomer business owners who are also looking to sell. So after a few of those calls, I have a different story to tell. Now we’re partnering with a private equity group that may come in and buy not just my client, but one or two others of similar size. The acquisition makes sense for them because they know they can combine two or three of these businesses and reach that $10 million EBITDA target.
M&A | Windows of Opportunity Close Faster Than They Open
I spent my 10-year anniversary in Indiana, closing a deal. Before you start feeling bad for my wife, let me clarify—it was my company’s anniversary. Ten years ago, I started Cornerstone Business Services. I’d been working in …
Mergers and Acquisitions | The Benefit of M&A Associations
This should show business owners, that when it comes to mergers and acquisitions, there’s definitely an advantage in working with someone who continues to improve himself or herself and gain new knowledge. In the M&A world, this kind of commitment gives clients a much higher chance of successfully selling their company.