Not All Contracts are Created Equal
Posted on May 3rd, 2017
What’s the value of a customer when it’s time to sell your business? The short answer: It depends.
What’s the value of a customer when it’s time to sell your business? The short answer: It depends.
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.
By Scott Bushkie – CBI, M&A Advisor
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.
Working capital is a measurement of operating liquidity, most of the time it is calculated as AR, inventory and prepaids minus AP and accruals. Lines of credit are most often excluded as well as cash, long term debt and notes payable. Because working capital is required to run a business, buyers typically require a certain amount of net working capital be left in the business to meet standard operating needs.
Working capital is not typically used in calculating the initial offer price, although it is certainly a critical point of negotiation. But basically, the higher your net working capital, the less money you put in your pocket after a sale.
When buying a company, one key factor in your success is the transition that happens immediately afterwards. You need time with the previous owner to understand how and why they operated the business the way they did. And you need their support to transition customer relationships.
As you think about negotiating for the seller’s time after a sale, think about their role in the business. Do they have a strong, empowered management team? Or did the seller operate the business from a place of tight, centralized control?
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
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.
By Scott Bushkie – CBI, M&A Advisor
No one likes to think about all the what-if scenarios in life. Most business owners have no plan for exiting their business at all, much less exiting in the face of conflict or tragedy. As you finalize your business goals for next year, make time to protect your business against the five dismal D’s.
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.)
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.