IN THIS ISSUE: Letter From the 2020 Chair A Pandemic Recession? How Virtual Data Rooms Enhance Communication Between Deal Participants The Impact of a PPP Loan on Recasting Differences Between Business Ownership and A Job New CBIs in 2020! LETTER FROM THE CHAIR: We Found a Way Barry J. Berkowitz, PhD, CBI, M&AMI Year […]
Main Street News September 2016
Letter From The Chair
SCOTT BUSHKIE, IBBA CHAIR
I hope everyone has had a great summer. It is hard to believe that summer is already over and kids are going back to school.
As you may know, the IBBA added two new member benefits in June 2016. It is my hope that everyone is taking full advantage of the two new benefits, PeerComps and Business Reference Guide Online, as they will both help you close more deals and work smarter.
am excited to see many of you at the IBBA Fall Conference in Tempe, AZ. The conference planning and educational committees have put in a lot of hard work to make this the biggest and best conference yet. The IBBA 2016 Fall Conference will take place using the new weekend format, allowing you to remain in the office more and not interrupt deal flow. IBBA Conferences typically take place over 2 days, but the IBBA 2016 Fall Conference will take place over 2.5 days, allowing for additional networking, peer sharing, and a record 26 educational workshops. The best part about the extended conference is that prices will remain the same as past conferences!
Attending the IBBA 2016 Fall Conference will allow you to walk away with several tips and ideas that you can put directly into your business to work smarter and become more successful both short term and long term.
The IBBA 2016 Fall Conference will also kick off the IBBA Member Excellence Award Program. The IBBA Member Excellence Program was developed by the IBBA Marketing Committee so that ALL members would have the chance to enter to win. I encourage you to enter the IBBA Member Excellence Awards as a way to show your clients, referral sources and general public that you are a step above the competition and that this is just another reason they should work with you vs. someone else. To learn more and enter the first ever IBBA Member Excellence Awards, click here.
During the next few months, the IBBA is hoping to unveil a new E&O insurance program that should save you money due to the large number of members in the IBBA. It is our main goal to give you real benefits and dollars back into your pocket as part of your IBBA membership.
I look forward to seeing you all in Tempe, Arizona for the IBBA 2016 Fall Conference in November. Remember, IBBA Conference are an investment in yourself and your company that you don’t want to miss!
One last note, I would like to thank the Board and all of the committee chairs and volunteers. We have accomplished a lot this year, and we couldn’t have accomplished it without you.
Finally, if you have any suggestions on how to make the IBBA better, call me at 920-436-9890 or email me at [email protected] I appreciate those of who you have already reached out.
Characteristics of A Successful Business
MICHAEL FEKKES, CBI, CEPA
Many businesses fall short of their potential valuation or maximum sale price. While there is no such thing as a perfect business without flaws or challenges, the businesses which sell at the top of the valuation range or command the highest multiple embody a number of common characteristics.
- Increasing revenue/profits. Cash is the fuel of business. Businesses that have strong financials with year over year growth in revenue and profits will be in demand and should achieve an attractive valuation.
- Clean Books. Having accurate, detailed, up-to-date and professionally prepared financial statements and records is one of the most critical components to a successful business sale.
- Bright prospects for future. Businesses that operate in an industry that has a strong outlook for continued growth in the years ahead will be highly sought after.
- No customer concentration. A business that has a diverse and broad customer base will have a lower risk that the loss of any one customer will have a material impact on the revenue and profits of the business.
- Multiple vendors. Companies with a diversified product and/or service offering with a deep bench of suppliers and partners will be a less risky acquisition than a company who is dependent on only one manufacturer or service provider to generate income.
- Stable work force. Having a loyal and content work force with long term employees is always a positive attribute for a buyer seeking to acquire a privately held business.
- Established Processes. A business that has written procedures detailing work flow and operational processes provides greater continuity during a business transfer of ownership.
- Owner not the business. Companies where the owner lends their expertise by working “on” the business vs. “in” the business are less likely to experience a loss of revenue during a sale. Owners who have become the face of the business where they are one of the chief reasons for customers using their products or services create challenges for the new owner in retaining these loyal clients.
- Business qualifies for acquisition funding. A business for sale that meets the qualifications for acquisition funding by a bank or SBA backed lender will benefit from their ability to be marketed to a wider audience. Certain issues prevent 3rd party financing from being secured including poor financial performance or messy books with unreported cash and questionable add-backs.
- Professional Advisors. Successful business sales require a team of professional advisors who are experts in their designated field. Members should include an experienced M&A advisor or business broker, a business attorney who specializes in transactions, and a CPA knowledgeable about tax structuring and asset allocation. Experienced advisors are worth their weight in gold and will add value that far exceeds the fees involved.
Small business ownership involves some level of risk. The price a business is valued at should reflect the degree of risk. While the element of risk can never be eliminated from small business ownership, the ten characteristics detailed above should mitigate many of the issues that cause concern for buyers when pursuing an acquisition. This in turn will enable the business value and sale price to be maximized.
Michael Fekkes is a Senior Broker at ENLIGN Business Brokers in Nashville, TN. Michael is a Certified Business Intermediary [CBI], a Certified Exit Planning Advisor [CEPA], Chairman of the International Business Brokers Association [IBBA] – Communications Committee, as well as a former business owner. He can be reached at 910.691.2202 or [email protected]. ENLIGN Business Brokers is a Professional Services Firm serving the Southeast that is headquartered in Raleigh, NC providing business intermediary services ranging from valuation and sale to exit & succession planning strategies.
The Nuances of Selling an Established Franchise
VASILIS GEORGIOU, CBI, M&AMI, CBB, MBA
Like any business, there comes a time when franchise owners may decide to sell their franchise. The reasons for selling it are no different than any other owner: It could be because of a new venture or change in direction, health, divorce, retirement, or simply wanting to capitalize on the many years of hard work spent building an asset with exit value.
In my many years as a Business Broker and Franchise Consultant, having worked with many hundreds of potential Sellers and Buyers of franchises and businesses, I have often found that selling a franchise has its own complexities, as well as its own inherent advantages for the owners. Brokers should bear in mind that when Buyer Prospects are considering an investment in a franchise resale, they are typically not only evaluating the demand for its products or services, industry trends, complexity of the model, and people requirements, but they also evaluating the reputation and staying power of the Franchisor. In other words, Brokers and the owners they represent need to be prepared to position and leverage any positives the Franchisor can add to the selling proposition. At the same time, the Franchisor can be very useful in providing valuable insights into the industry, but more importantly, would often have a pretty good idea of what the Seller’s Discretionary Earnings (SDE) multiples look like, based on previous re-sales in the system. Seller’s Discretionary Earnings (SDE), is defined as the total benefit an owner enjoys, which includes discretionary add-backs plus the owner’s salary.
Owners of franchises often have a bit of an advantage when it is time to sell. The advantage stems from the fact that a franchise, by nature, is typically monitored and audited by the Franchisor. That fact results in less uncertainty when it comes to revenues and expenses. The overall financial model can also be validated on a high level by reviewing Item 19 of the Franchise Disclosure Document, which outlines financial data for the whole system. There are also more opportunities for Buyer Prospects to validate the financial model directly by working through a parallel investigation with the Franchisor, and also reaching out to other franchisees in the system.
Another inherent advantage for the franchise owners is that the franchise is part of a network of franchisees who often act as a de-facto marketplace for re-sales when they want to expand and add on to their own operations. World class Franchisors understand the importance of helping their franchisees exit gracefully and with the highest valuations the market will bear. They understand that the exit event is part of their value proposition, a way to ensure that top quality candidates will continue to be attracted to their model.
Overall, Brokers need to guide owners of franchises when preparing and planning for an exit event, by helping them consider some of the following questions, which are very similar to any other business owner, with some variations:
- Does my franchise have the appropriate level of staffing that allows the new owner to simply replace the current owner? Or does the new owner need to hire additional personnel to maintain the current operational efficiency?
- If the new owner needs to hire additional personnel, what does that do to the SDE and the business valuation? Can current employee roles be expanded or modified to cover shortcomings?
- Can I reasonably explain and justify all the add-backs I am claiming?
- Can my accounting books withstand scrutiny?
- Especially in the case of a franchise, do I know enough about my Buyer and his/her financial viability so that I am confident that he/she will get approved by the Franchisor?
- Have I taken into consideration the impact of transfer fees and commissions in my asking price?
- Have I taken into consideration the timing and sequence for the transaction, and have I budgeted enough time to accommodate the process?
- Have I considered how any licensing transfer process would take place?
A typical task sequence for a franchise transaction after a Buyer has been located, is shown below:
- Offer acceptance (Letter of Intent)
- Purchase Agreement signed
- Franchisor notified, Buyer introductions
- Due Diligence completed
- Any industry specific licensing transfer process initiated
- Buyer Franchise Disclosure Document (FDD) review
- Buyer investigation/approval process
- Escrow process
- Transfer Fee paid
- New Buyer Franchise Agreement signed
- Escrow Closes
- New owner training by current owner and Franchisor
- Transition period begins
Vasilis Georgiou, M&AMI, CBI, CBB, MBA – President, CrossRoads Business Brokers, Inc.
Vasilis Georgiou, CBI, M*AMI, CBB, MBA is President of CrossRoads Business Brokers, Inc. Vasilis has a distinguished track record in representing and selling enterprises in various industries and in marketing and positioning enterprises for maximum value in the marketplace. He is experienced in building and growing businesses and practices from the ground up.
Vasilis has fifteen years of entrepreneurial experience as an owner of four different ventures: A Management Consulting firm, a Business Brokerage firm, a Franchise Consulting practice, and a non-medical Home Care Agency franchise.
Vasilis previously served as a Senior Manager with BearingPoint (formerly KPMG Consulting) where he was instrumental in building a multi-million-dollar practice. He has over twenty-one years of experience and successful achievements in professional services.
Vasilis has earned his Mergers & Acquisitions Master Intermediary (M&AMI) certification from M&A Source, a Certified Business Intermediary (CBI) certification from the International Business Broker Association, and a Certified Business Broker certification from the California Business Broker Association. Holds an MBA from UC, Irvine, a B.Sc. in Electrical Engineering from Michigan State University, and is a licensed CA Real Estate Broker.
IBBA Meet the Candidates Town Hall Webinar
September 7, 2016
12 pm EST
Join us for a Town Hall webinar to meet your candidates for the IBBA’s 2017 Board of Directors. You’ll learn about the backgrounds of each candidate, be able to ask questions on matters important to you, and ultimately play a key role in the future direction of the IBBA. Please note, this webinar is intended for current members of the IBBA.
Certified Business Intermediary (CBI) Announcement
JEFF SNELL, CREDENTIALING COMMITTEE CHAIR
Thank you for being an IBBA member and if you are a current CBI thank you for maintaining your certification requirements. If you’re still working on earning your CBI I hope to see you in Tempe/Phoenix in November where there will be many educational and networking opportunities.
The CBI is the most recognized main street business brokerage credential and as you know it’s not easy to earn or maintain.
Unfortunately, there are some brokers that are using the credential without authorization. For many we assume it’s an oversight – someone who is a current member who held a CBI, but has let it lapse. Members are not permitted to use the credential in any form if nit current. For example, an lapsed CBI cannot use phrases like “Former CBI” or “CBI since 19XX”. Others have not renewed their membership nor maintained their CBI requirements. These individuals may not use the CBI or the IBBA logo in their marketing. At the extreme there are simply bad actors – individuals that have never been members and never earned the credential.
The IBBA Credentialing Committee does its best to monitor use of the designation in the marketplace. However, comprised entirely of volunteers the task is larger than can reasonably be tackled.
If you are aware of an individual who using the CBI designation that does not appear on the ibba.org website as a CBI please forward the individuals contact information and where/how the CBI is being used to [email protected]. The IBBA will send them a letter explaining the policy, asking them to remove/correct the improper usage and provide information about how they can join the IBBA and how they may be able to re-instate their CBI designation.
Jeff Snell, Credentialing Committee Chair
Mark Hartmann Jr.
Mary Anne Servian
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