Carolina Business Advisory Services and VR Business Brokers Charlotte

LATEST RESEARCH REPORT Q3 2022

Seller Resources

What's My Business Worth?

Every business owner wonders what their business is worth. We have correctly valued hundreds of thousands of businesses since 1979.

When you work with us to develop a valuation report, the goal is a simple one, the creation of an accurate and comprehensive document that will stand up to scrutiny. You will receive a professional business valuation that becomes the best tool to obtain maximum selling price. Without a professional valuation, a business owner must be prepared to defend his opinion of value. Our depth of experience coupled with a vast knowledge of valuation will result in an expert opinion of value, delivered in a responsive, timely and efficient manner. We have valued and sold virtually every type of business.

Small and mid-sized businesses typically depend on four key value factors:

Seller's Discretionary Earnings (SDE).
Risk.
Terms of the Sale.
Industry.

Seller's Discretionary Earnings: The main factor of determining value for small and mid-sized businesses is the total cash flow benefiting the owner - also known as Seller's Discretionary Earnings (SDE). SDE is calculated using the following six categories:

Profit or loss as reported.
Owner's Salary.
Discretionary Expenses.
Non-recurring Expenses.
Non-cash Expenses.
Expenses not included in the P&L.

Once theses categories are added together and an SDE is developed, a multiplier is applied. The multiplier can range from 1 to 5 (or more), depending on many factors, to arrive at the appropriate value for the business.

Risk: The second valuation factor is the level of risk. Factors in this category include:

Years in business and with the current owner.
Profit trend.
Quality of books and records.
Franchise membership.
Brand recognition/strength.
Level of competition.
Dependence on current owner.
Diversification of customer base.
Lease length and terms.
Asset value.

Terms of the Sale: This is the one source of value that the business seller can almost completely control. Components of the terms include:

Down payment.
Interest rate.
Monthly payment.
Non-compete agreement.
Seller training of buyer.

The majority of sales include the seller to provide some level of financing to the buyer of the business. With seller financing, the seller receives part of the purchase price at the time of the sale ("the down payment") and the remainder over several years. The buyer uses the cash flow from the business to pay off the debt. Structuring a sale with attractive terms can significantly increase the value of a business.

Certain businesses are valued at five (or more) times the seller's discretionary earnings while other businesses only bring 1 time. An important reason in determining the multiple of SDE is the industry of the business. Certain industries are more desirable than others. Factors influencing desirability include:

The fun and ease of operating the business.
Location.
Facilities.
Employee relations.
Operating hours.
Growth potential.

Valuing Your Business:

To estimate the value of your business, we will consider all these factors, the selling prices of comparable businesses, as well as any other factors unique to your particular business that may make it more valuable. Contact us for a no-obligation estimate.

Preparing to Sell

Owners sell their businesses for reasons stemming from retirement, partnership disputes, personal relocation, family concerns, the desire for change, illness or to enter another business venture. Knowing the reason for the divestiture aids us in structuring the most advantageous transaction. We turn to our professional alliances to help you seek the appropriate tax strategy, succession plan or investment strategy to again help you maximize the benefit of the sale.

We have identified specifics needed in order to aid a successful transaction:

Having provable books and records increases the numbers of potential buyers. Buyers want proof of sales and profits the business has attained in the past.
Expectation of a reasonable price and terms. Educated buyers only consider competitively-priced businesses.
List of assets including furniture, fixtures and equipment. A complete inventory that can be referenced during inspection.
Attractive lease. Knowing the terms of assignment or of a new lease.
Best possible appearance. Having the business premises neat, clean and in good repair.
Valuing the business properly. An appraisal on the business creates a document that proves value to the buyer and shows the business to be competitively priced.
Covenant not to compete. Preparing the terms of non-competition within an appropriate distance and for a reasonable period of time.
Reason for sale. Buyers will want to understand the reason for sale and be comfortable that there is not undisclosed information that could negatively affect their investment in the future.
Time is of the essence. Be prepared to move forward when a qualified buyer shows interest in the business.
No surprises. Most adverse situations such as landlord problems, outstanding loans, tax arrears, unfavorable equipment leases as well as non compliance with zoning, health or other regulations can be overcome if disclosed.

Developing Your Exit Plan

Did you know that 85% of small business owners never develop an exit plan?

Without an exit plan, a business could quickly be damaged by a sudden crisis such an illness, death, divorce, partnership dispute or rapid change in market or competitive environment. Perhaps worse, a business may deteriorate gradually as the owner burns out and neglects the business, or transfers it to a weak leader. Either way, the result is the same: greatly diminished business value.

By contrast, more sophisticated owners rarely fund or purchase a business without first having a formal exit plan in place. We can help you create an exit strategy, so that you will be prepared for when you’re ready to step down as a business owner.

So what is an exit plan? It’s actually a series of continually evolving and interrelated plans that will help you address at least the following critical questions:

What are your preferred options and timing for exiting the business? For example, sale to outsider, sale or gift to family or employees, merger with competitor, buyout by a partner, etc.
What family members, if any, are involved in the business, and what are their objectives?
What are your financial objectives and retirement plans?
What is the value of your business now?
What key actions are necessary to increase business value and position it for sale at the optimum after-tax amount needed to achieve your financial objectives?
What actions are necessary to manage estate, trust and tax issues you will face through retirement and beyond?
What actions, programs and agreements are necessary to ensure continuity of the business in the event of departure, death, or sudden injury of any of the owners or key executives? Examples include training programs, system development, buy/sell agreements, key man insurance, and non-compete agreements.
Who will replace you or other owners upon departure? Are any current executives and/or family members capable of doing so, and if so, what additional skills, training, licensing, etc. are needed? If not, what is the strategy for recruiting and developing a replacement?
What changes in the business and your role are needed now to preserve your quality of life and your passion for the business?
A comprehensive exit plan addresses a wide variety of intricate strategic, operational, financial, tax, human resource and legal issues. While a primary focus is meeting the owner’s objectives, it should ideally reflect the desires and concerns of all important stakeholders, including family, business partners, employees, and in some cases customers, suppliers and the community. Input should be gathered from key advisors, including your CPA, wealth planner, estate planner, business consultant, insurance broker, appraisers and mergers and acquisitions advisor.

To be an effective tool, your exit plan should have a timeline and be regularly updated to reflect changes in your life, family, health, goals, finances, and business. If an exit plan sounds like a lot of work, it is. But having one can help you leave a legacy that endures for generations.

We can answer your questions as you set-up your exit plan and help you determine what your business is worth. For a free, confidential consultation including a valuation, please contact us.

Buyer Resources

How to Finance a Purchase

Once you find the perfect business, where do you get the money to buy it?

Let us begin by saying that it is very difficult to buy a business with "no money down". Business buyers need to have some funds to offer as a down payment in order to successfully acquire a business. That said, we work with motivated buyers in a variety of creative ways to help you tap into all available resources to finance your dream business. Below is a list of some financing opportunities to be considered in the pursuit of your dream. We can advise you on the applicability of these sources to your particular situation. You do not need to be an expert in financing - we will work with you to get the money you need.

Very Common

Cash equivalents (checking and savings accounts; money market funds).
Stocks and bonds.
Certificates of deposit.
Gifts/loans from friends and family.
Second mortgages and other real estate loans.
Seller financing.
Credit card financing.

Moderately Common

SBA financing/bank loans/bank lines of credit.
Retirement accounts (IRAs, 401Ks, SEPS, pensions, etc.).
Borrowing against a different existing business (lines of credit, accounts receivable factoring, inventory financing, equipment financing).
Asset sales (real estate, autos, etc.).

Rare

Customer and supplier financing.
Venture capital.
Small business investment companies.
Private placement.
Convertible debt financing.

We have access to many lenders including SBA resources, and are happy to provide introductions. Please contact us for more information.

Buy or Start a Business?

Did you know that 80% of new businesses fail in the first 3 years?

If you are motivated by personal accomplishment, stimulated by challenge, and want to be your own boss, then business ownership is for you. However, let someone else take the risk and high cost of starting from scratch. Buying an established business provides you with two of the three necessary components of success - a proven location (or customer base) and the right product. You provide the third ingredient - management.

Other Advantages of Buying a Business

The market cannot support another competitor.
Can get your new business up and running quickly.
A successful business may stay successful while you get up to speed.
Your new business may already have the equipment and assets you want.
Set-up and installation costs are cheaper or non-existent.
The old clientele may well be your new clientele.
Get the "best" location or acquire a favorable lease.
Expenses and revenues are known.
Easier to get licenses and permits.
Easier to get loans and other financing.
Intangibles: Goodwill/Brand Name.
Supplier relationships are established.
Trade credit may be established.
Inventory is in place.
Get key employees on your team.
Get trained experienced employees and staff.
Prevent competitor from entering area.
Little competitive backlash or reaction.
May be able to use the experience and advice of the previous owner.

The Buying Process

We Use a Multi Step Buying Process to Help You Navigate a Business Purchase

Commitment: Your commitment to purchase a business at price and terms consistent with the marketplace that matches your needs and abilities.

Disclosure: You sign an agreement promising to maintain confidentiality for all the information provided to you on the businesses we discuss.

Background Information: You provide us with information about yourself such as a resumé and financial statement. The more we know about you, the more likely we can find a business you will like. The more information we provide the seller, the better the terms he will consider.

Review: Together we discuss and review various types of businesses and select some that appeal to you.

Introduction: We introduce you to the businesses you are interested in and discuss the important factors of each.

Background: We provide the seller information regarding your background, financial wherewithal, and professional experience. Favorable background information about you will result in favorable consideration of your offer.

Explanation: We carefully explain the terms and conditions of the offer to the seller and decision makers.

Meeting: A meeting between you, the seller and your VR Business Intermediary in Charlotte may take place. This gives you the opportunity to ask questions you may have about how the business operates and to describe your qualifications to the seller.

Offer To Purchase: With our assistance, you write an offer to purchase on the business you like. A refundable, earnest money deposit will be required to demonstrate your seriousness to the seller.

Removal of Contingencies: All offers contain contingencies that must be removed before the contract is binding. Typical contingencies include your inspection of the books and records, the assumption of the lease and attainment of proper financing.

Acceptance: The seller accepts the offer to purchase as presented or writes a counter offer.

Mutual Acceptance: When buyer and seller agree to all terms and conditions of the sale, the offer becomes a Purchase and Sale Agreement.

Due Diligence: You meet with the seller to examine the financial records. Any questions you have are resolved at this time. We work with the landlord to get an assignment of the current lease for you.

Open Escrow/Closing Attorney: We provide all documents to the transferring agent or attorneys so they can prepare the closing documents. They make arrangements to assign any notes or equipment leases.

Inventory: Arrangements are made for you and the seller to count and price the inventory (if required.)

Transfer of Ownership: All parties meet to sign documents.

20 STEPS TO SELLING YOUR BUSINESS