Buying/Selling a Business: The External View
There is the oft-told story about Ray Kroc, the founder of McDonalds. Before he approached the McDonald brothers at their California hamburger restaurant, he spent quite a few days sitting in his car watching the business. Only when he was convinced that the business and the concept worked, did he make an offer that the brothers could not refuse. The rest, as they say, is history.
The point, however, for both buyer and seller, is that it is important for both to sit across the proverbial street and watch the business. Buyers will get a lot of important information. For example, the buyer will learn about the customer base. How many customers does the business serve? How often? When are customers served? What is the make-up of the customer base? What are the busy days and times?
The owner, as well, can sometimes gain new insights on his or her business by taking a look at the business from the perspective of a potential seller, by taking an “across the street look.”
Both owners and potential buyers can learn about the customer service, etc., by having a family member or close friend patronize the business.
Interestingly, these methods are now being used by business owners, franchisors and others. When used by these people, they are called mystery shoppers. They are increasingly being used by franchisors to check their franchisees on customer service and other operations of the business. Potential sellers might also want to have this service performed prior to putting their business up for sale.
Copyright: Business Brokerage Press, Inc.
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What Makes Your Company Unique in the Marketplace?
There are unique attributes of a company that make it more attractive to a possible acquirer and/or more valuable. Certainly, the numbers are important, but potential buyers will also look beyond them. Factors that make your company special or unique can often not only make the difference in a possible sale or merger, but also can dramatically increase value. Review the following to see if any of them apply to your company and if they are transferable to new ownership.
Brand name or identity
Do any of your products have a well recognizable name? It doesn’t have to be Kleenex or Coke, but a name that might be well known in a specific geographic region, or a name that is identified with a specific product. A product with a unique appearance, taste, or image is also a big plus. For example, Cape Cod Potato Chips have a unique regional identity, and also a distinctive taste. Both factors are big pluses when it comes time to sell.
Dominant market position
A company doesn’t have to be a Fortune 500 firm to have a dominant position in the market place. Being the major player in a niche market is a dominant position. Possible purchasers and acquirers, such as buy-out groups, look to the major players in a particular industry regardless of how small it is.
Customer lists
Newsletters and other publications have, over the years, built mailing lists and subscriber lists that create a unique loyalty base. Just as many personal services have created this base, a number of other factors have contributed to the building of it. The resulting loyalty may allow the company to charge a higher price for its product or service.
Intangible assets
A long and favorable lease (assuming it can be transferred to a new owner) can be a big plus for a retail business. A recognizable franchise name can also be a big plus. Other examples of intangible assets that can create value are: customer lists, proprietary software, an effective advertising program, etc.
Price Advantage
The ability to charge less for similar products is a unique factor. For example, Wal-Mart has built an empire on the ability to provide products at a very low price. Some companies do this by building alliances with designers or manufacturers. In some cases, these alliances develop into partnerships so that a lower price can be offered. Most companies are not in Wal-Mart’s category, but the same relationships can be built to create low costs and subsequent price advantages.
Difficulty of replication
A company that produces a product or service that cannot be easily replicated has an advantage over other firms. We all know that CPA and law firms have unique licensing attributes that prevent just anyone off of the street from creating competition. Some firms have government licensing or agreements that are granted on a very limited basis. Others provide tie-ins that limit others from competing. For example, a coffee company that provides free coffee makers with the use of their coffee.
Proprietary technology
Technology, trade secrets, specialized applications, confidentiality agreements protecting proprietary information – all of these can add value to a company. These factors may not be copyrighted or patented, but if a chain of confidentiality is built – then these items can be unique to the company.
There are certainly other unique factors that give a company a special appeal to a prospective purchaser and, at the same time, increase value. Many business owners have to go beyond the numbers and take an objective look at the factors that make their company unique.
Copyright: Business Brokerage Press, Inc.
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The Advantage of Buying an Existing Business
Most people think of starting a business from scratch, developing an idea, building a company from the ground up. Starting from scratch, however, has its disadvantages including – developing a customer base, marketing the business, hiring employees and creating cash flow … without any history or reputation to rely on.
To avoid these challenges, buying an existing business may prove to be the better solution. Buying an existing business has its advantages – including, but not limited to:
The Business Is Established.
An existing business is a known entity. It has an established and historical track record. It has a customer or client base, established vendors, and suppliers. It has a physical location with furniture, fixtures, and equipment in place. The term “turnkey operation” may be overused, but an existing business is just that, and more. New franchises may offer a so-called turnkey business opportunity, but it ends there. Start-ups are starting from scratch with all the disadvantages stated above.
The Business Has Existing Relationships.
In addition to the existing relationships with customers or clients, vendors, and suppliers, most businesses also have experienced employees who are valuable assets to the company. A buyer may already have established relationships with banks, insurance companies, printers, advertisers, professional advisors, etc., but if not – the existing business/owner does, and they can readily be transferred to the buyer as part of the acquisition.
The Business Isn’t “A Pig in a Poke”.
Starting a new business is just that: “a pig in a poke.” No matter how much research, time, and money you invest, there’s still a big risk in starting a business from scratch. An existing business has a financial track record along with established policies and procedures. A prospective buyer can see the financial history of a business – when sales are high and low, what the true expenses of the business are, and how much money an owner can make, and more. Also, in almost all cases, a seller is more than willing to stay on to teach and work with a new owner – sometimes free of charge.
An Existing Business Comes with A Price and Terms.
As stated above, an existing business has everything in place. The business is in operation and typically has an established selling price. Opening a new business from scratch comes with a great degree of uncertainty and can become a proverbial “money pit”. When purchasing an established business, a buyer knows exactly what he or she is getting for their money. In many cases, a seller is also willing to take a reasonable down payment and then finance the balance of the purchase price.
The “Unwritten” Guarantee.
By financing the purchase price, a seller is saying that he or she is confident that the business will be able to pay its bills, support the new owner, plus make any required payments to the seller.
Copyright: Business Brokerage Press, Inc.
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12 Ways to Increase the Value of Your Company
1. Build a solid management team. A business with sales of $5 million and up needs a full complement of officers and directors. Such a team might include: a COO, a CFO, a sales manager and, depending on the of type business, an IT director. It is also beneficial to create a Board of Directors with at least two outside members. This professionalization of management can remove the stigma of “the one man band.” Not only will this build a stronger company, it will increase the value to a possible acquirer. Smaller firms should also build a strong management team, and creating an outside advisor group is also a good idea.
2. Loyal employees. Happy and loyal employees make for a strong company. Top management should have non-compete and/or confidentiality agreements. Solid benefits plans for all employees should be in place. A company’s greatest asset is its employees and perhaps its biggest value-increaser.
3. Growth. Some smaller companies are kept small to maximize the owner’s benefits – the proverbial “cash cows.” However, if building value is the goal, then developing new products or services, building market share, expanding markets or opening new ones, is critical. This generally requires a financial investment, but building a strong growth rate also builds value.
4. Understanding your market. The value of a company may be contingent on its industry, its place in the industry and the direction of the industry itself. How big is the industry, is it headed up or down, who is the competition and how big is the company’s market share? Is it time to change direction or diversify?
5. Size counts. Companies with less than $5 million in sales and an EBITDA of less than $1 million can be perceived as small. Therefore, they may be dependent on continuing outside financing and lack the critical mass for both buying and selling power. These companies can be perceived as too small for acquisition or are penalized when it comes to value. However, over the past few years corporate buyers, as well as private equity firms, have seen the advantages of purchasing smaller firms. Obviously, companies with $10 million or more in sales and an EBITDA of $1 million or more are considered as solid and able to stand on their own.
6. Changing direction. Small companies can be very adept at changing course and implementing change. They have to be able to change and move quickly to take advantage of new markets, to fill voids in existing markets and even to add or change products or services.
7. Documentation. Business plans, financial plans and personnel plans should all be in writing – and kept current. Terms of employment agreements should be spelled out and in writing. Business planning and company objectives, etc., should also be in writing and reviewed periodically. Contracts should be reviewed and maintained on a current basis.
8. Diversification. A major problem with many small companies is that their business is concentrated on one or two major customers or clients. Ideally, no customer or client should represent more than 10 percent of sales. Expanding to new markets, introducing new products, and finding new customers must be considered without deviating too far from the company’s core business.
9. Name and brand identity. Nothing beats the name Walt Disney, or Kleenex® or the soft drink called Coke® – they are household names. Small firms may not have the brand or name recognition of these companies, but they can work at it. This recognition is especially powerful in the consumer product area. But franchising has expanded this name or brand recognition to many different types of businesses.
10. Taking advantage of proprietary and other assets. Patents, brand names, copyrights, alliances, and joint ventures are all examples of not only proprietary assets, but, in many cases, valuable ones. Even equipment can be used in several different ways. Large landscape companies in cold climates put snow plows on their trucks, utilize their existing workforce and become a snow plowing company for their regular landscaping customers — office complexes, apartment and condo developments, etc.
11. “Lean and Mean.” Many companies lease their real estate needs, outsource their payroll, have their manufacturing done offshore, or have UPS handle all of their logistical needs. Since all non-core requirements are done by someone else, the company can focus its efforts on what they do best.
12. Do it now! The owners of small firms, even large ones, have an attitude that says, “I don’t have time now, I’ll do it tomorrow” or “I’m too busy now putting out fires.” So the real challenges of building the business, and value, get sidetracked or put off indefinitely. Creating value is critical to the long-term (and short-term) success of the business.
Keep in mind that the best time to consider selling is when business is good, the business is running profitably, and many of the above “value-adders” are in place. By contacting your local professional intermediary you can explore which of the above will add the most value to your firm, so it will be ready to sell when you are.
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How to Sell a Restaurant: The Ultimate Guide
Did you know there are just over 1 million restaurants in the US?
On some nights, nothing beats heading over to your favorite restaurant. It feels good to give up cooking duties for the night.
Unfortunately, on the other side of the coin, the owner of the restaurant is over their head. They’re pulling out their hair while you slurp pasta. Or they may simply ready to move on from the business.
Does the owner sound like you? If you own a restaurant and want to sell it, keep reading. We’ll teach you how to sell a restaurant.
Tidy Up the Appearance
Just like you would when you sell a house, spend time tidying up the appearance to better appeal to potential buyers. It’s best to survey the restaurant when there aren’t any customers.
Look at the flooring, doors, windows, and counters. Does anything need a renovation or repair? We’re sure some bumps and dents have occurred over the years.
Head into the kitchen for a peek. Are the appliances working correctly? How bad are the splotches and stains?
Take a look at the overall aesthetic of the restaurant. The decorations and paint job may need some love and care.
Lastly, tidy up the outside of the restaurant. Guarantee the entrance is inviting and appealing to those passing by.
Contact local designers and contractors for anything you need to be taken care of. To save money, head to the local hardware store to get supplies for minor DIY fix-ups.
Know the Legal Stuff
Potential buyers need to know all about the legal formalities. Be one of the most organized restaurants for sale by keeping track of your lease, licenses, and permits.
Guarantee everything is up-to-date, and highlight any important rules and guidelines the new owner needs to know. It’s best to type up a comprehensive handbook or document to present to a potential buyer.
Never lie about the information you give the potential buyer. One way or another, the truth will come back around. If you’re having issues, tell the truth, and offer a solution.
Get a Grip on Your Finances
When looking at all the businesses for sale in an area, you’ll notice many are being sold due to unorganized finances and poor bookkeeping. Get a grip on the numbers.
Even if you don’t have the tools or resources to save the restaurant yourself, do what you can to organize the books so you aren’t handing off too large of a mess to the new owner. Work with an accountant if you need extra assistance.
Do you notice any loose ends? Before selling off the restaurant, tie up loose ends where you can.
Contact a Business Broker
Not many people can say they know how to sell a company. Business brokers do. Get in contact with one to keep the ball rolling in the right direction.
They’ll have a list of contacts to reach out to for leads on buyers. To be more specific in your search, hire a business broker with experience and a specialization in selling restaurants.
Brokers are large investments, but they’ll most likely be able to sell your restaurant at a much higher price than you could on your own. Plus, they take the extra stress off your back.
Remain Rational and Logical
Selling something you worked hard to create is emotional. You’ll go through waves of sadness, disappointment, happiness, and relief. It’s a rollercoaster ride.
Recognize your emotions, but remain logical throughout the selling process. Don’t let the emotions get to your head. Do your best to steer clear of cold feet.
If the stress and anxiety are too much, seek out a therapist. Even if it’s only for a short time, a trusted therapist will help you work through what you’re feeling.
Refrain from dragging your employees into the emotions. They may also be sad, especially if they’re left without a job.
Learn How to Negotiate
Did you decide to do without a broker? Spend time learning the psychology of negotiation. It’s crucial.
Smart and experienced buyers will do their best to push down the price. Depending on how good they are, you may not even realize they’ve lowered their asking price to an unfair level of low.
One written or verbal error on your end can wreck a big deal. Be thoughtful with your pitch and offers.
Place an Ad
If you’re having a difficult time selling your restaurant, it’s time to place an ad. Head on over to Google, a local newspaper, or even Facebook.
Advertise your restaurant, and always provide contact information. Take time each day to sift through any emails or phone calls you’ve received regarding your offer.
Keep an open schedule to meet with potential buyers. Give them a short tour of the restaurant, answer any questions, and ask about their experience owning a restaurant. Be friendly and professional.
Before giving a tour, remember first impressions are key. While you might be in the middle of renovations, do your best to keep the place clean.
Trust Your Gut
Until the papers are signed and the money is paid, the restaurant is yours. Take care of it.
Trust your gut and intuition throughout the selling process. If an offer seems too low, it’s too low. If a buyer doesn’t seem like they’re a good fit, they’re not a good fit.
Seek out a business coach and trusted friends if you need advice and reassurance.
Let It Go: How to Sell a Restaurant
Hiding under the stress and work it takes to keep a restaurant afloat is especially overwhelming as you learn how to sell a restaurant. Hopefully, our guide above provided clarity.
Perform maintenance and touch-ups before advertising the space. If you need help selling the company, reach out to a business broker. No matter what, always trust your gut through the process.
Are you not sure where to turn to find a trustworthy business brokerage? Look no further than our site. Contact us today for the help you need.
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