BBP Blog

Something Special

Read your article on the BBP blog…very interesting and applicable. I’d say a majority of the businesses I visit in this area fit into the category of ‘too much asset’ for cash flow…generally that asset causing the problem is real estate included in the sale. It seems to me this causes the same problem as ‘fancy’ equipment, etc. Am I wrong? You mention “unless the seller is willing to do something very, very special (which I’ll explain some other time)”…I’d appreciate your elaborating on that a bit.

Regards
Montana Broker

BILL'S RESPONSE

Thanks for the kind comments.

The banks I deal with call these business elements “underperforming assets”. That’s any asset that isn’t producing enough profit to make the deal viable.

For example:

If an owner has a business that is generating EBITDA + owner benefits (what I call NOB…Net Owner Benefits) of, say, $200,000, and, if that owner also owns a building that might appraise at $1,000,000, I would do the following evaluation:

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Posted on 10/27/2011 5:48 AM By Bill Martin
In: [Pricing & Valuation], [Working With Buyers] | No Comments »

Restaurants -- Quick Check (2011)

Bagels	30% to 35% of annual sales
Bars	50% of annual sales
Bar & Grills	(50% liquor) 40% to 50% of annual sales
Barbecue	30% of annual sales
Bistros	30% of annual sales
Brew Pubs	40% of annual sales
Billiard Parlors	45% of annual sales

Source: Business Brokerage Press and the Boston Restaurant Group, October 2011

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Posted on 10/26/2011 2:43 PM By Tom West
In: [Pricing & Valuation] | No Comments »

The Independent Contractor Revisited

As the federal government and the state governments look for more ways to bring in money, the independent contractor status is a likely place for them to look. After all, by using independent contractors rather than employees, employers don't have to withhold taxes, provide workers' compensation, contribute to unemployment compensation, or provide any benefits such as 401-k programs, health insurance or other benefits. Plus you can use and discontinue independent contractors as needed.

Certainly, in this age of home-based businesses, the use of outside sources makes a lot of sense. After all, outsourcing a lot of business needs has been done for years and will only increase with growth of small business. Most one-person and small businesses don't need full-time employees. Many requirements can be outsourced to independent contractors who in turn outsource many of their requirements.

It is the use of workers who are classified as independent contractors but who are really employees that can cause legal issues.

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Posted on 10/25/2011 9:56 AM By Tom West
In: [Legal & Tax Issues] | No Comments »

Tom's Comments on "How Much Is My Business Worth?"

How Much Is My Business Worth?

By Bob Sweeney

The fact is that your business is worth whatever the most motivated buyer is willing to pay you at the time you are ready to sell. That’s where our matchmaking skills & database that has been developed over 20 years becomes very valuable. There is no set formula that all buyers adhere to. Never pay thousands of dollars for an appraisal unless you need it for legal purposes – divorce, estate matters, partnership dispute, etc. For a mere $200, our firm provides an opinion of value for those who are curious to know what their business is worth or are contemplating a sale. Buyers pay zero credence to the results of a full blown appraisal.

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Posted on 10/20/2011 8:04 AM By Tom West
In: [Pricing & Valuation] | No Comments »

WEB SITES - 5 Legal Tips

Web sites get stale and out of date. Laws and regulations change. If you haven't updated your Web site in the past 12 months, it's time for a review.

1. Jurisdiction Statement?

The Internet makes access to Web sites possible from anywhere on the planet. You want to make it clear that your Web site is governed by the laws of your selected state. This way, you are less likely to find yourself being sued for violating the laws of some other place.

For example, my Web site says, "This Web site shall be governed by and construed in accordance with the laws of Massachusetts, USA, without regard to its choice of law rules." http://www.smartfast.com/pages/juris.html

2. Disclaimer?

Does your site have a disclaimer?

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Posted on 10/19/2011 8:58 PM By Jean Sifleet
In: [Legal & Tax Issues], [Marketing] | No Comments »

Franchise Rules of Thumb

We have listed franchises with a “quick” rule of thumb, or range, usually expressed as a percentage of sales. For many of them we have based it on quite a few actual sales; others may have been based on just a few; and in some cases just one where we felt it was appropriate. They can be a good starting point for pricing the business.

Many of the franchises are well known while others are very new with just several units. By the time this goes to press, some of the franchises may have folded, sold or merged. We try to keep this as up-to-date as possible. We could use your help. To contribute to our ever-growing list, just go to our Web site and click on Franchise Update and complete the form that will show up and email to us at tom@bbpinc.com and also if you find that a franchise has disappeared or merged, etc, please let us know. Obviously the big changes such as Mail Boxes to UPS Store will be caught by us or by our researchers (hopefully).

Keep in mind that rules of thumb are just that. Every business is different and rules of thumb will never take the place of a business valuation or even an opinion of value. But, they will give you a quick ballpark idea of what the business might sell for everything else being equal. A rule of thumb will tell you whether a seller is in the ballpark when he or she tells you what they think their business is worth or what they want to sell it for.

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Posted on 10/18/2011 5:05 AM By Tom West
In: [Franchises], [Pricing & Valuation] | No Comments »

Asking for Guidance (Part 3 of 3)

This posting is a continuation from Part 1 and Part 2 of Asking for Guidance.

(8) We use a different formula for commercial service businesses (like executive suites) than for retail businesses, or restaurants, or manufacturing.

You will note that the formula I’m recommending does not take into consideration the value of the FF&E. Yes, I understand how hard it is to tell a seller who has an “under performing asset’ (FF&E that’s ultra nice, but that isn’t producing enough profit; or too much slow moving inventory; or who owns a building that’s “too nice” for the profits being generated), that his business is only worth a multiple of the cash flow. I, like all brokers, have had to explain this to many, many sellers over the years. But, I’ve never been clever enough, for example, to sell a machine shop, that, say, has $1,000,000 in FF&E, but that only has an EBITDA discretionary cash flow of, say, $100,000…and then price it for the $1,000,000 the seller thinks he should recapture in a sale…unless the seller is willing to do something very, very special (which I’ll explain some other time). Similarly, when you encounter a greeting card shop that only has an EBITDA cash flow of $50,000 for an owner operator, but that has over $300,000 in inventory (at cost), you can’t sell it for $300,000 or more, and the buyer can’t finance it, unless the seller does something very, very special. The “something special” is NOT simply owner financing. The answer to selling businesses that have too much of the “wrong” asset, for a price the seller can accept, that is ok with the buyer and his banker, is...

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Posted on 10/12/2011 1:21 PM By Bill Martin
In: [Pricing & Valuation] | No Comments »

Asking for Guidance (Part 2 of 3)

This posting is a continuation from yesterday. Click here to see the question and first third of Bill's response.

(6) All our “formula’s” start, as almost all brokers do, with an analysis of the historic cash flow, and an EBITDA recasting.

But, we never do a projection. That’s one of the “conservative” elements that are rare in business brokerage. All our analysis are based on history, not forecasts. That, alone, causes the recasting to be more conservative (and more sell-able, and more finance-able) than the recasting done by brokers and other experts who base their pricing opinions on future growth of the business. Why do we not use projections? Because you can’t prove that opinion. And, today’s more sophisticated, and more informed, buyers (and their bankers) usually look on projections as “the oldest, and least honest, broker trick in the book”. But, we can prove the historical cash flow. We rarely get any arguments about those conclusions.

Another reason for our avoiding forecasting, especially in tough times, is that buyers and bankers simply are ultra uncomfortable with the risks associated with over-relying on growth we can’t prove. In 2011, especially with the negative forecasting that now burdens most of the national economic news, buyers and bankers are even less willing to “buy into” growth, than in past years. But, they will “buy into” the idea that...

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Posted on 10/12/2011 1:16 PM By Bill Martin
In: [Pricing & Valuation] | No Comments »

Asking for Guidance (Part 1 of 3)

THE INITIAL QUESTION:

Dear Bill:

I hate to take up your time, but I have a matter you may be able to help me with. I got your name from the BBP publication. What I’m looking for is an indication of a pricing mechanism(s) for an “Executive Office Suites” business, which a friend of mine established in Massachusetts and has owned and operated for 25 years. My research on pricing and/or sales has proven very unproductive.

He improved the raw space, has 65 offices for rent in an excellent location on a major thoroughfare in a large office complex, provides the usual secretarial, phone, etc. support, but rents the 17,000 square feet from the landlord. He is 95% occupied.

Do you have any ideas about to put a proper value on this business?

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Posted on 10/11/2011 2:25 PM By Bill Martin
In: [Uncategorized], [Pricing & Valuation] | No Comments »

Total Seller Consideration

*CORRECTION*

This article was originally posted with the numbers in the chart lined up incorrectly. Thankfully, Len notified us that we had not displayed his information accurately. Please note the corrected chart and we apologize for this error.

Some of you may already be doing this, but I have started adding a standard extra page to the “Seller Carry” version of a valuation. This is only for the purpose of “selling” the idea of Seller Carry to my Client Prospect.

Below you will find an example for a large company I am about to list (I hope).

There are two objectives:

1. To show them how much more they will receive from the sale if they carry a note. Notice that these sellers would earn another $59,188 in interest
2. To get them used to the idea that our commission is coming out of the cash at closing. Note that, after interest, they would receive 96.3% of the purchase price.

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Posted on 10/7/2011 8:03 AM By Len Krick
In: [Financing], [Working With Sellers] | No Comments »

“Cap X” For Business Brokers

From my perspective, each of us sells businesses all the time (I hope), and with our sellers and buyers we frequently discuss the “Cap X” (annual capital expenditures), the monies our buyers need to invest in the business annually to keep the business running and growing. Each of us, as business brokers/intermediaries, have our own business, with about 50% of us working in multi-intermediary offices, and about 50% being sole practitioners. But in almost every case, each of us “are our business” since most of us are almost wholly commission based, so our success is created by ourselves, and directly effects our income. Just because our profession has a very small barrier to entry is no reason to think that each of us, as independent businesses, do not have an annual “Cap X.” However, in our professions case, most of our “cap x” is in intangible assets, not tangible assets. Nevertheless, those expenditures are necessary to keep our businesses growing. What are some of the key expenditures for us? I suggest that two primary items are Marketing (in multiple manners) and Education. And, in our case, most of the education comes from our associations, and obviously within our particular association, association membership is directly tied to education and vice versa.

Few things in my career as a business broker have had the financial impact that

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Posted on 10/6/2011 11:11 AM By Ron Johnson
In: [Marketing], [General Business Brokerage], [Education Opportunities], [Office Management] | No Comments »

MOTIVATED SELLERS, what makes them motivated?

You see this term on many business listings online or hear it from listing brokers all the time. Have you ever wondered what makes a seller a "Motivated Seller?"

There are several reasons that a Business Seller would be considered a "Motivated Seller." Generally they all have a sudden important "motivator" such as a serious personal or family health issue, or they are planning on moving out of the geographic area for reasons beyond their control. Perhaps they are just really burnt out and want to get out of the business. These are only a few of the possible reasons for a seller to be especially motivated.

Whatever the reason, the "Motivated Seller" is usually spurred on by a need to sell as quickly as possible.

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Posted on 10/5/2011 9:30 PM By Ralana Shelley
In: [General Business Brokerage] | No Comments »

Hot Business List -- September 2011

Below you will find the current “hot” business list courtesy of data from Businesses For Sale. We asked Businesses For Sale for a monthly ranking of business types based on the number of “hits” on their site. This ranking is not based on the actual sale of businesses.

Top Ten Main Street Businesses for September 2011

1. E-Commerce
2. Websites
3.   Miscellaneous Restaurants
4.   Convenience Stores
5.   Bars

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Posted on 10/4/2011 12:46 PM By businessesforsale.com
In: [Hot Business Lists] | No Comments »