Each quarter, the Market Pulse Report issues a report revealing information about market conditions The report is supported by M&A Source and the International Business Brokers Association. The data that is analyzed is based on a comprehensive survey of business brokers and M&A advisors. The report focuses on Main Street businesses (with values up to $2MM) and the lower middle market (values between $2MM and $50MM.)
The research is conducted and then the report is published each quarter to reflect the state of the industry. In this article, we will look at some of the key takeaways of the report and what it reveals about the path ahead for buyers and sellers.
Tracking the Labor Shortage
For the second quarter, the report revealed a variety of interesting information. One massive data point from the report is that the labor shortage continues to be a significant variable for business owners. A staggering 92% of report respondents state that the labor shortage has negatively impacted their business with 54% stating that the shortage has had a “very negative impact” and 35% stating that the impact is “somewhat negative.”
The report further indicated that it is taking about seven months for a business to close. They noted that it takes about six months to a year to sell a well-priced business or a well benchmarked business. The report noted that approximately 60-120 days are spent in the due diligence or execution stage, once the letter of intent has been signed.
The Strongest Industries
In terms of what kinds of businesses are selling, the report points to restaurants making a solid comeback. It is interesting to note that restaurants valued from less than $500K to $1 million are enjoying a particularly strong rebound. Business services, personal services, construction and manufacturing remain steady.
The latest Market Pulse Report is pointing in several directions. Currently, three factors are impacting business owners, namely, the labor shortage, inflation, and supply chain issues. Many businesses have had no choice but to give large raises to employees, and others have been able to pass the costs on to consumers and buyers.
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No matter what type of brand you own, selling a business can be both exciting and paralyzing. Along with the validation of selling something you’ve spent so long working to establish, the stress of the sale process can grow overwhelming fast.
That’s where early preparation comes in. Organizing your business in advance allows you to to streamline the sale process and improve your company for greater profitability. If you’re considering selling your brand, here are a few steps to consider on the front end.
1. Be Sure You’re Ready to Sell
Before you start the selling process, be sure you’re mentally and emotionally prepared to sell. Consider the current shape of your company, talk with your support network, and seek advice from business owners who have gone through the process before you.
In addition, lay out a plan for what you’ll want to do in the first six months after your business sells. If you’re hoping to retire, in particular, you’ll want to ensure that you understand how much money the sale will contribute to your retirement plans.
2. Consider the Timing
It’s better to sell your company when it’s in its prime based on its recent profits, though this isn’t always practical for every business. In addition, consider the state of the industry as you go into the sale.
When possible, give yourself plenty of time—at least a year—to prepare for the sale in advance. This allows you to organize and improve your financial documentation and expand your customer base. These improvements can not only ease the transition, but they can also make your sale more profitable.
3. Get Your Paperwork and Finances in Order
Having clean, organized financial reports isn’t just good business. It can also be a helpful way of preparing to send information to potential buyers, and it shows wary investors they can trust you. The last thing you want is for a chaotic back office that gives would-be buyers concerns about how you’ve run the business in the past.
Make sure your signature shows up on the appropriate contracts, get your meeting minutes all in one place, and write and tidy up your documentation around key processes. Review any important assets, draw up an equipment list, and make sure any undocumented or verbal deals get put on paper.
You’ll also want to gather all of your financial documents going back at least three years. If needed, review these with your accountant. Make copies of significant documents to show prospective buyers.
This is also a great time to start preparing your due diligence documents. Buyers will have a checklist of documents they want to see, and preparing these standard due diligence documents in advance can save you time down the line. Work with your business broker to understand what to expect.
4. Deal With Anything That Might Raise Concerns
Buyers considering your business won’t want to see anything that looks like a loose end or a sign of mismanagement, especially if these things could raise their financial risk.
Before you sell, take care of any existing lawsuits, investigations, or other forms of litigation, no matter how minor. Risk-averse buyers will flee at the idea of purchasing a brand with ongoing issues.
At this time, you’ll also want to take care of any financial complexity from your accounts, such as mingling personal and business expenses. This can raise legal issues, and it can also complicate your business valuation and a buyer’s attempts to get financing.
5. Get a Business Valuation
Before you go into a sale, get a business valuation. Knowing your overall business value can help you understand whether or not you’re starting out with a reasonable asking price.
You can reach out to a financial professional for help with this, but most small business owners can do this evaluation on their own. You’ll need to use some of the financial information you’ve organized above, including your business assets and liabilities as well as your net worth. In addition, you’ll want to do some research into how much similar businesses have sold for in the past.
6. Assemble Your Team
Unless you have extensive legal, tax, and business sale experience, you’ll want to reach out to a few experts to help you. Having the right advice can ensure that you’re making a great deal, and it can also protect you if the sale becomes messy and complicated.
If you don’t already work with either a tax attorney or a CPA, it’s time to find one. Working with these experts can help you get your finances in order long before the sale. These professionals can also help you understand your financial requirements both during and after the transition.
The expertise of a business lawyer can also be invaluable if you’re striving to get favorable terms, and a lawyer can also help you with the burden of gathering and organizing the necessary paperwork. As you meet and negotiate with prospective buyers—who will likely have their own team of lawyers on hand—a business attorney can defend your interests.
Last, working with a business broker is often a smart move if you need to free up time to deal with things that matter—such as running and growing your business. Brokers can also help you increase your brand’s value, identify fair offers, and even get a higher price for your business.
Prepare Before Selling Your Business
Selling your business can be a monumental event, and it often takes much more preparation than the average entrepreneur expects. From managing your finances to finding the right team, you’ll need to have a few plans in place before you make the leap.
If you’re looking for expert assistance with the sale of your brand, we’re here to help. As a full-service, confidential business broker you can trust, we’re happy to answer questions about everything from exit strategies to valuations. To learn more, contact us today or reach out for a buyer consultation.Read More
When it comes to selling a business, there is more to it than just relaying the facts. It’s also important to emphasize the story behind the business. Business brokers and M&A advisors are also storytellers, as they must convey to buyers the story behind the business and how it can ultimately be transformed.
It is through storytelling that humans organize the information they have about the world. In short, storytelling is an exceptional way to learn lessons in life and a great way to frame information about a business to sellers.
Telling Your Story
Everything begins with the financials, in short, the facts of the business. When a business broker or M&A advisor begins working with a seller, he or she will look to gather those details. Once that information has been gathered, it is possible to begin to create a story. That story can be presented in many ways, including through a confidential business review or confidential information memorandum.
While many, if not most, buyers and sellers may think that when it comes to business, they are cold and methodical like a reptile on the hunt, the truth is more complex. Human emotion always comes into play. It is no accident that well-crafted stories, with their power to motivate and guide, play a role in the art of buying and selling businesses.
Decisions are Guided by Emotion
If we want to make the best decisions, it is important to consider the role of emotions in our decision-making. “In order to have anything like a complete theory of human rationality, we have to understand what role emotion plays in it,” said scientist Herbert Simon who is an American Nobel Laureate. 
Good stories grab the imagination and enable people to expand their definition of what is and is not possible. When buyers are considering buying a business, it is important that they can picture themselves as being the hero that transforms that business and takes it to a new level. It is a story of evolution and reaching new heights while simultaneously achieving one’s own goals.
It is no accident that so many of today’s mass culture storytelling revolves around sequels. The notion that there is a “storytelling continuum” where a buyer can plug into something that already has a history can be a powerful motivating force. Most epic stories have the hero as part of some sort of continuum. In other words, the hero does not simply appear out of nothingness. It is the hero’s mission to transform the world, in some fashion, for the better.
The post Storytelling and Its Role in Selling a Business appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
Are you thinking of transferring your business to a family member? This occurrence is fairly common, especially among small businesses. Here are some considerations that will help with your planning and decision making.
Do You Have a Good Contract?
Sometimes close family members are tempted to skip a contract, but it’s always a mistake not to have things in writing. When you create a buy-sell agreement, it helps keep things clear between the parties involved. Make sure that your documentation is thorough. It should cover a wide variety of details including the amount being paid, your continued involvement, and the business value.
Does Your Family Member Need Financing?
When it comes to selling businesses to family members, seller financing is common. You could even consider agreeing to a private annuity. This will allow payments to be spread out over many years. One benefit to providing financing assistance is that you will receive a steady stream of income along with interest on the loan as well.
You could also consider a self-cancelling clause on your installment note. This would allow debt to attach to your will in case of your untimely passing before the payments were complete.
Are You Selling or Gifting Your Business?
Gifting a business takes place more often than you might think, due to the tax benefits involved. Also, when you gift a business, you can still maintain some level of control.
The federal gift tax exemption changes every year. In 2022, the annual gift tax exclusion is $16,000. The lifetime gift exemption limit is $12 million. While you may owe some federal gift taxes if the amounts exceed the exemption limits, the good news is that after you have transferred your business, any future growth of the business won’t affect your financials.
Is Everything Accurate?
Unfortunately, many business owners have acted unethically when it comes to transferring their business to their family members. As a result, the IRS tends to give this kind of transaction extra scrutiny. You will want to ensure that all your paperwork is in proper order and highly accurate.
You may very well want to hire the services of a lawyer and accountant to assist you with this matter. Of course, a business broker or M&A advisor will also help you with the details of this agreement and figuring out what benefits you and your family members.
The post How to Transfer Your Business to a Family Member appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
If you’re thinking of selling your restaurant, one of the first steps you’ll need to take is to have your business appraised. This will give you a better idea of how much your restaurant is actually worth and what kind of return on investment you can expect from a sale. However, valuing a restaurant business is not as simple as looking at its revenue or profit margins.
There are a number of factors that must be taken into account in order to arrive at an accurate valuation. Most people would agree that the restaurant business is a gamble. So when it comes time to sell your restaurant, how do you ensure that you are getting a fair price for all of your hard work?
Determining the Value of Your Restaurant Business
There are a number of different methods that can be used to value a restaurant business. The most common method is to use a multiple of the business’s annual sales. For example, if a restaurant does $2 million in sales per year, it could be valued at $4 million (a multiple of 2).
Other factors that can be considered include the profitability of the business, the level of debt, the location and condition of the property, and the long-term prospects for the industry.
When valuing a restaurant business, it’s important to use comparable sales data from recent transactions in order to arrive at a realistic figure. It’s also important to consult with an experienced appraiser who understands the nuances of the restaurant industry.
With accurate information and professional guidance, you can arrive at a fair valuation for your restaurant business. Let’s look at some specific valuation approaches.
Market Valuation Formulas
Business valuation is the process of determining the economic value of a business or company. There are many factors to consider when valuing a business, but the three most important are usually the market approach, income approach, and asset-based approach.
The market approach looks at similar businesses that have recently sold and uses those sale prices to value your business. With this approach, you first need to find comparable businesses that have sold in your area.
This can be a challenge, but it’s important to find businesses that are as similar to yours as possible in terms of size, type, and location. Once you have found a few comparable sales, you can use those sale prices to estimate the value of your business.
The income approach looks at the potential earnings of a business and discounts those earnings back to present value. This approach is often used to value businesses that are not yet profitable, such as start-ups.
With this approach, you need to estimate the future earnings of the business and discount those earnings back to present value using a suitable discount rate.
To help you estimate the future earnings of your business, you can use financial projections. Financial projections are a forecast of a company’s future financial performance. They usually include income statements, balance sheets, and cash flow statements.
The asset-based approach simply adds up the value of all of your business’s assets (property, equipment, inventory, etc.) and subtracts any debts or liabilities. By taking this approach, you arrive at the book value of your business, which is often different from the market value.
When valuing a restaurant business, the market approach is usually the best option. However, all three of these valuation approaches can be helpful in arriving at a fair price for your business.
Factors to Consider When Valuing a Restaurant Business
There are a number of factors that can impact the value of your restaurant business. Some of these include:
The Size of the Business
It goes without saying that larger businesses usually sell for a higher price than smaller businesses. There are a few other factors to consider when it comes to the size of your business, however. For example, businesses that have a large number of employees usually sell for a higher price than businesses with fewer employees. This is because businesses with more employees tend to be more stable and have a lower risk of failure.
The Location of the Business
Another important factor to consider is the location of your business. Restaurants that are located in busy areas with a lot of foot traffic usually sell for a higher price than restaurants in less desirable locations. This is because businesses in busy areas have a built-in customer base and tend to be more profitable.
The Type of Business
The type of restaurant you own can also impact its value. For example, fast food restaurants usually sell for a lower price than full-service restaurants. This is because fast food restaurants have lower operating costs and tend to be less labor-intensive.
The Condition of the Business
Another factor to consider is the condition of your business. Restaurants that are in good condition usually sell for a higher price than restaurants that are in poor condition. A business in good condition tends to be more profitable and has a lower risk of failure. They are ready to go and in less need of renovation and major overhauls before they can be up and running.
The Financial Health of the Business
Of course, the financial health of your business is one of the most important factors to consider when valuing your restaurant. Businesses that are profitable and have a strong financial history usually sell for a higher price than businesses that are struggling financially.
Growth Potential and Profitability
A business that is not yet profitable but has high growth potential may sell for a higher price than a business that is already profitable but has little room for growth. This is because businesses with high growth potential are seen as being more valuable because they have the potential to generate a lot of revenue in the future.
Master the Food Industry
While there is no one “right” way to value a restaurant business, the three most common methods are the market approach, income approach, and asset-based approach. By taking into consideration all three of these methods, you can get a well-rounded understanding of what your restaurant is worth and ensure that you are getting a fair price for your hard work.
When you’re ready to sell, book a consultation with Fusion Business Brokers. We have a team of experienced restaurant brokers who will guide you through the process of valuing and selling your business. We’ll help you determine the best asking price for your business and market it to a wide range of potential buyers.Read More