Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

August 10, 2015

Our Second Biggest Competitor – Nobody!

By Joseph Eneldas

business-broker-business-for-sale

In last month’s e-newsletter, I talked about how our biggest competitor in business transitions turns out to be the owner’s kids.  Most business owners figure they don’t need an intermediary to help them pass the business on to the next generation, and they’re largely correct.  However, we can assist, but mostly in helping the owner determine the value of the business, not with the transition itself.

Many people are surprised, though, when I tell them that our second-biggest competitor is “nobody.”  Nobody?  What I mean by having “nobody” as a competitor is that many small business owners are determined to sell their businesses on their own.  Why would a seller try to do this?  The obvious reason is that they simply want to avoid paying a commission.  Every dollar saved on broker commissions goes right into the seller’s pocket.  And they think there is no downside – they think that they can sell their own business easily and effectively.

“We are always impressed by the ingenuity and determination of the business owners we meet in creating and growing their businesses,” says Achim Neumann, President of A Neumann & Associates, LLC, the full-service M&A advisor and business brokerage firm in New Jersey, “but building and running a business is not the same skillset as selling it.”

“Most buyers are experienced in business transitions,” says Vincent Eades, Managing Director of the Southern Maryland Region.  “Most sellers aren’t.  Therefore the buyer has a tremendous advantage over the first-time seller.”  How so?

For one thing, how do you set a price?  The business seller needs to evaluate his business correctly.  Unlike real estate, you can’t go on-line and look up comparative sales.  “If the price is too low, the seller has left money on the table,” says Gary Herviou, Managing Director of the Central New Jersey region.  “If the price is too high, the business won’t sell at all.”

Furthermore, how does a seller find qualified buyers, including, perhaps, from among competitors?  Again, selling a business is not like selling real estate.  “You can’t just hang a sign on the building to advertise that a business is for sale,” says Steve Wrubleski, Managing Director of A Neumann & Associates’ Southern New Jersey region.  “When word gets out that the business is up for sale, many of the best employees – and best customers – will leave.  The objective is to transfer value, not to destroy it!”

Even if a business seller can find an interested buyer, how do you make sure that they’re qualified?  You’ll need to separate the “tire kickers” and “window shoppers” from serious business buyers.  Unqualified buyers can waste your time and breech confidentiality, wasting a lot of the seller’s time in the process.  Even worse, an unqualified buyer will most assuredly show up at closing without enough money to do the deal.  Then what?

The seller will also need an experienced professional representing him or her during the negotiations.  Once a deal is reached, all the relevant terms of the deal – not just the purchase price – need to be clearly specified in a single document.  Without such specific Offer-To-Purchase, legal costs are a multiple of what they should be.

So how can a seller do all this WHILE managing the business?  If the owner “takes his eye off the ball,” business will suffer, the buyer will notice it – and the price will go down. Case in point: a mere three percent decline in the cash flow, translates into a 7% to 12% transaction value reduction – easily exceeding a broker’s commission!

In this installment, I’ve discussed many of the things that can go wrong when a seller tries to save a few percent of the purchase price by doing all the work him- or herself.  In this regard, our argument against the competitor “nobody” is to remind the owner that without a professional intermediary, many things could go wrong that will lead to a much worse outcome – including no deal at all or compromising the business value in the process – than if they paid an intermediary to do things correctly.

At times, business sellers will recognize the advisory value as an insurance policy against making costly mistakes.  But what if there is another argument?  What if there is direct evidence that using an intermediary actually increases the expected sale price by substantially more than the commission?  Stay tuned for next month’s newsletter!

 

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About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional merger & acquisition and business brokerage firm with over 30 years of experience in Maryland New Jersey, New York, Pennsylvania, Delaware and that assists business owners and buyers with the business transfer process in a completely confidential manner. The company is affiliated with BBN, with 450 offices and access to a national network of qualified buyers and sellers. For more information, please contact A. Neumann & Associates at 732-872-6777.

About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or info@neumannassociates.com

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“I recently contacted A. Neumann and Associates about getting a valuation of my business done. I spoke with Marc, who explained the process in detail. After meeting with Marc in order to get a clear understanding of my business, and what I was hoping to accomplish. His patience in answering all my questions and his knowledge of the proper way to market my business gave me great confidence that this is the firm I will be using to sell my business for max value. Working with Marc at A Neumann & Associates was very easy and professional. I did not know all that was going to be involved in selling my business but they helped me through the process. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. I highly recommend this firm to anybody who wants to sell now or down the road. Marc not only knows his stuff, but actually is a real nice guy.”

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“I recently completed an acquisition using A Neumann & Associates. Tony Valentino was very helpful and accessible during the entire process. They do a thorough job vetting both parties and got us to the finish line.”

Srini Mudambi

“Claus out of Florida helped us with the sale of our business. We had never done anything like this and him and his team walked us through the process from start to finish. We had some challenges through the process and Claus continued to show up even in the difficult conversations.”

Colby Harris, Co-Owner, Del Mar Designs

“Claus Madsen thoroughly helped us with selling our company. From the 1st introductory meeting explaining to us what was possible, to providing us with resources to assist with the sale. Claus was invaluable throughout the whole sales process. Claus was with us every step of the journey and always made himself available for any questions or issues that came up along the way. If you are interested in selling your business, I encourage you to reach out to Claus and the ANA team so that they can let you know what’s achievable. These guys will make it happen!”

Ron Harris, Co-Owner and Vice President, Del Mar Designs

“A Neumann & Associates is the only business broker I would use or consult with. They have assisted with 3 business sales over the past 15 years with me. They are honest and sincere and have always performed better than my expectations. They are the only one i would use for the sales of my businesses.”

James Belanger, Business Owner

“I wanted to take a second to commend the exemplary customer service from both you [Karin Neumann] and Mr. Valentino. It’s both a rarity in the industry, and very much appreciated.”

Andrew G., Investor

“We worked with Neumann & Associates to investigate the purchase of a research company in 2010 and found Achim to be capable, forthright and realistic. His depth of experience enabled us to fully understand our options, offering creative options that might enable the acquisition. While we didn’t acquire that particular company at that time, we know exactly who to call whenever we’re looking to buy or sell a business.”

Daniel Coates, Buyer

“Purchasing a business through this firm was a pleasure. Gary was very professional and transparent throughout the entire process. I look forward to working with A Neumann & Associates in the future.”

William Klemens, Buyer
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If you are considering selling your business, please contact us to learn more about our comprehensive service spectrum. Our experienced professionals will answer all your questions about selling a privately held business in complete confidentiality. Please fill out our contact form, or call us at 732-872-6777. We will contact you directly and will never identify ourselves to your employees.

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