It is often said that perception becomes reality. Something perceived as new, young or innovative has a higher perceived value in the market. Similarly a company for sale can see an increase or decrease in interest based on how it is perceived by buyers. The site visit by the buyer can cause them to accelerate interest in the opportunity or leave skid marks in the driveway.
Goodwill in a financial sense is the money paid for a business above the value of its tangible assets. When a buyer pays for even a dollar of a company’s goodwill, the buyer is in essence paying that dollar on trust that the business will continue in a similar manner to how it has been operating. As the dollars paid for goodwill increase, buyers follow an ever increasing “trust but verify” approach during due diligence as they request documents which support the seller’s position on value (e.g. backlog is increasing, quoting is strong and/or the production equipment have been regularly serviced). It is often easy to produce reports or locate invoices, which support these statements. A more difficult challenge in due diligence is proving the value of certain assets on the balance sheets in prior years, assets such as inventory, receivables, payables and accrued items. This is where the level of your financial statements comes into sharp focus.
Value, both tangible and intangible, can be created and enhanced by differentiating a business from its competitors and within its industry. Certifications, awards and recognitions are among the ways a business can standout to a buyer. Be sure to note the importance of the business being recognized, not the owner or an individual employee. Buyers are interested in the legacy of the company, more than the accomplishments of individuals.
“I am proud to be an American and do not mind paying my taxes, but I could be just as proud for half the money.” - Will Rogers
One of the major challenges for business owners is getting objective advice and counsel. Family members often want to support the owner, knowing how hard they work to make the business a success. Employees are eager to please the boss and are hesitant to offer any view that could be construed as criticism. Many other outside interests provide the owner with advice geared toward convincing he or she to buy what they are selling. Even long time outside advisors, like CPAs and attorneys, can be very good at solving problems and completing tasks but do not provide strategic counsel to the client. In some cases, the advisor is not asked to be part of the business’ strategic planning. In others, strategic planning may not be the advisor’s strength.
Ryan Kim delivers an intuitive presentation offering the Buyer's Perspective as the Keynote Speaker of the Elements Conference. Kim warns that there is no "One Size Fits All" category for Buyers, there are many different types, each with their own investment style and preferences. Their "likes" and "dislikes" will vary widely based on the type of investor and category of deal.
Most businesses can be compared to other businesses within their industry, even those of a different size, by use of financial ratios. Some of most common financial ratios for a closely held business include:
Beacon Equity Advisors co-hosted The Dealmakers Event: Latest Trends in Mergers & Acquisitions on Monday night at the Boston Marriott Newton Hotel along with Gray, Gray & Gray, TD Bank & Nixon Peabody.
To Prepare for a Sale, help Entrepreneurs & Business Owners to sucessfully navigate the muddy, murky world of transitions - and bring them to "What's next for me?" When they have something to look forward to, they can begin the process of letting go.
To many investors the existence of patented products or technology is a key question in their evaluation of an opportunity. In some cases, a patent can be an important part of the transaction and a significant barrier to entry. However, the cost of obtaining a patent and the resources needed to defend it against infringement must be considered before deciding whether to seek a patent.