Reevaluating Your Business

By now we all know how the pandemic that necessitated employees working from home sparked the great resignation. A huge portion of the workforce became aware of the lifestyle benefits that accompanied a reduced or eliminated commute to the office. Who would have previously imagined being able to spend so much more time with our families while still successfully doing our jobs and earning a good living? The popular mantra is now: “If my employer wants our relationship to return to what it was, then maybe I need to find a different employer.”

The pandemic triggered a nationwide reevaluation of most every individual’s work-life balance. It has impacted employees and employers alike and is not only about one’s ability to work from home.
Small business owners, who have invested a lifetime developing their products, could also be motivated to rethink their work-life balance, questioning themselves as to whether all of their goals have been met and whether they still have the energy and desire to continue that activity.

Ultimately, whenever a business owner decides a fundamental change is desired, the first question will always be: Is now the right time to sell my business? If an owner has done everything to keep the business current, but no longer has that energy or desire; If they want to spend more quality time with their family; If they have accomplished everything, they set out to do, then the answer, on a personal level, clearly can be ‘yes’.

Unlike an employee, a business owner does not realistically have the luxury of deciding to just leave and find another job. Of course, it can be done, but at what cost. Making the final decision to sell a business is much more involved. A business owner may first want to embrace a two- or three-year plan to get the business humming again and polish up its financial picture. But, if the business is robust and its market value is substantial, then the answer to the “right time” question will again be ‘yes’.

Interest rates and financing costs have been rising. It is impossible to know what the future will bring, but there are always buyers in the market for a well-run business with good cash flow and solid prospects for growth. It is just a matter of agreeing on a fair price. At A. Neumann & Associates we currently have each month over 300 specific inquiries from buyers for businesses that possess those characteristics. Our buyers are national and international. They include Individuals looking for a business to personally manage, existing companies wishing to add to current operations, and assorted private equity funds searching for attractive additions to their portfolios.

Prior to beginning the marketing process, a fair market valuation of the business must be established, and an offering price agreed upon. Over the years business owners will have worked to minimize reported annual income, thereby limiting taxes due. As part of the valuation process, we recast the company’s financials, making sure that any depreciated assets such as vehicles and machinery are included at current market value. Also, expenses that current owners have incurred, but a new buyer may not, must be added back so that maximum cash flow is exhibited. Based on such true cash flow of the business, we will then engage an independent valuation firm that will establish a weighted, eight-point fair market valuation for the company.

Any transaction valued at over $1 million will most likely involve some form of secondary financing. The buyer’s lender will need to be comfortable with the agreed upon price of the business since it will be the ultimate collateral for the loan. This is where the independent third-party accredited valuation takes on additional importance. Without it, every potential buyer would have to go through the valuation process on his or her own, likely causing substantial delays. In contrast, small business lenders readily accept independent valuations, often accelerating the closing process.

Thereafter, the marketing documents, consisting of a blind profile and confidential memorandum, will be developed by our firm. All such marketing documents have to be approved by the business seller, with confidentiality being a key component.

Owners should never want anyone to know that their business is for sale. If employees become concerned for their jobs, they could leave, potentially jeopardizing the ability to sell an ongoing enterprise. If customers, suppliers, and even competitors believe the business will not be there for the long term, they can each react differently, with potentially negative consequences for the business during the marketing process.

At Neumann & Associates, LLC. we require all interested buyers to sign strict non-disclosure documents. We also financially pre-qualify those buyers before any of our seller’s specific information is released.

The time required for a business transfer, covering the introduction, valuation, marketing and closing phases usually ranges from 7 to 12 months. We have successfully managed more than 200 business transfers over the last 20 years and handle the entire process, including providing referrals for bank lenders, transaction attorneys and CPAs, so that owners can focus on what they do best: running their businesses.

Investors far outnumber sellers by a large margin and no one can predict how fast the increase in interest rates, higher taxes, and less equity will negatively impact Mergers and Acquisition markets. There is no better time than now to begin the selling process, and no better team to engage than the one found at A. Neumann & Associates, LLC.