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You’re the Boss Blog: Business for Sale: A Long-Haul Trucking Company

March 20, 2013 by Leave a Comment
Creating Value

Are you getting the most out of your business?

Let’s take a look at another business for sale. And once again, we’ll consider the business from the point of view of a potential buyer, but we will also see what lessons this business might hold for owners of other businesses.

This business for sale is a trucking company that specializes in what’s known as hot-shot trucking. There is some confusion over what precisely constitutes hot-shot trucking, but this company works in the oil industry and specializes in moving high value oil-and-gas parts all over the county. Based in the northern Plains, it has been in business more than 20 years. Unlike many trucking companies, this one gets paid for trips that go to and from a delivery.

It appears to be a very clean company, with the necessary permits, an excellent safety record and the required insurance, authorities and audits in place. Please note: As with the last business for sale that I wrote about, this one was brought to me by the brokerage site Bizbuysell.com. I have no stake in the sale of the business, nor do I certify that any of the information about the business presented is accurate. The information provided came to me in the form of the public listing and through conversations with the selling broker.

The broker for this business is Joe MacGuire of the Murphy Business and Financial Corporation. It claims to have strong profits and seems to have provided the present owner an excellent living. As we’ll see, there have been some issues that may have slowed the sale of this business.

Broker: Mr. MacGuire.

Type of business: Trucking company serving oil and gas companies nationwide.

Employees: Eight full time and two part time.

Location: Northern Plains states.

Asking price: $2.2 million.

Fixed assets and real estate: $1 million.

Intellectual property: Knowledge in specialized sector of trucking business.

Reason for selling: Owner has been in business for 30 years and is approaching retirement age.

Financials:

 

Business Overview

The owner is the founder and has worked in all aspects of his business. He is said to run a tight ship and is known for having a sound operation. He says he has had opportunities to grow the business, turning down business on a regular basis, but has been happy with the money he makes. The business has operating agreements with several service companies that provide recurring revenue. As you probably noticed, sales dropped from 2011 to 2012. I would want to know why this happened.

There are significant barriers to entry in this business. Besides the cost of the trucks, there are permits and licenses that are required of those in the long-haul trucking business. Also, employees have to go through significant training to operate large trucks and for the freight they carry.

The owner says he is in no rush to sell and has told his broker that he will wait for the right deal.

Challenges

This could be a challenging company to sell. It’s a specialized business, and it will take a buyer time to learn the details of operation. The seller has indicated that he’s willing to stay on with a new buyer for several years. As long as this works and the owner and new buyer get along, the owner’s knowledge base should be transferable.

The seller might want to think about systematizing the operations of his company. The more information that is documented, the easier it will be to transfer the company to a new owner.

Deals of this size can be hard to finance, and it can be difficult to find buyers who have enough cash. The owner may have to agree to help, and if he decides to do so, he should review the creditworthiness of the buyer carefully. An alternative financing method could be finding a Small Business Administration lender that would be willing to underwrite a significant portion of the transaction. It appears the company has about 45 percent of the asking price in hard assets.

Things to be learned

If you own a business like this and you really want to sell it, plan early for your transaction. Having a systematized operation with a real supervisor or supervisors can make the business far more attractive.

The seller has saved money outside his business. This is allowing him to take his time and wait for the proper buyer. Business owners who have put money into a retirement plan or other outside investments often have more options when it’s time to sell than those who don’t. This owner is also well served by having solid business contracts that produce recurring revenue. Buyers like that.

This business is making enough money to cover its cost of replacement equipment and provide cash for growth. Both are issues a sophisticated buyer will consider.

My take on this company

I find this type of company interesting. It has a strong niche, and it is producing solid profits. It is significant that the broker says the business is spotless — clean trucking companies can be hard to come by.

The broker told me that the seller was loyal to his employees and was very interested in making sure he finds them a good owner. There has been some conversation about selling to competitors, but at this point, the seller has not been pursuing those conversations. He is concerned that his competitors may not treat his employees the way he did.

Because the owner has put some roadblocks in the way of selling the company, he may have a hard time finding a buyer that meets his needs and desires.

If you were considering buying this company, what issues would you be concerned about? What questions would you want to ask the seller? Do you think the business is priced correctly? What would you pay?

Josh Patrick is a founder and principal at Stage 2 Planning Partners, where he works with private business owners on creating personal and business value.

Article source: http://boss.blogs.nytimes.com/2013/03/20/business-for-sale-a-long-haul-trucking-company/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

Creating Value: When Your Broker Doesn’t Really Represent Your Interests

December 19, 2012 by Leave a Comment
Creating Value

Are you getting the most out of your business?

As I explained in my last post, Holly Hunter’s first try at selling her business didn’t work out. The second time around she decided to hire a seasoned company that specializes in selling small financial services businesses. This broker had great public relations and a history of having sold many businesses.

What Ms. Hunter did not fully understand was that when you sell a business you essentially enter an alternate universe. It can be a confusing and scary place. For one thing, there are different types of brokers, and some of them get paid to represent the buyer and the seller. The was the case with the broker Ms. Hunter hired.

She would soon discover that brokers who represent both parties often don’t really work for either party. And in her case, it ended up looking as if the firm was working mostly in its own interest. This eventually left the buyer and seller with a disaster on their hands.

Another problem that often arises in the selling of a business is that sellers tend to put pressure on themselves to get a deal done. This can lead them to do things they would not ordinarily do. Good brokers understand this and prepare their clients for the process, offering steadying advice as the deal unfolds. But when the broker advises both parties, there is an unavoidable conflict of interest, and that means that one or even both parties may not get the best advice.

After Ms. Hunter listed her business for sale, her broker told her that 60 parties had expressed interest. The broker whittled the group down to 12 potential buyers it considered realistic. If Ms. Hunter’s broker had been working only for her — and not for both parties — it most likely would have set up what is known as a structured auction to sell the business.

The auction process would have narrowed the buyers from 12 to about five, and then the broker would have gone back and forth among the five buyers to produce the best deal for Ms. Hunter. Not only didn’t the broker use this avenue to sell the business, it never informed Ms. Hunter that using a structured auction was an option.

Instead, Ms. Hunter’s broker put together a negotiated deal. The buyer the broker negotiated with agreed to pay Ms. Hunter one third of her purchase price immediately and two thirds as a seller’s note over five years. Ms. Hunter thought this was a good deal, in part because she thought that the entire payment was guaranteed

Ms. Hunter’s buyer was a 40-year-old certified financial planner. Ms. Hunter obtained a personal guarantee from the buyer and his wife, but it wasn’t until more than a year after the sale was complete that she learned that a personal guarantee needs to have assets behind it to have any value. And that was a problem. While Ms. Hunter’s buyer owned a house, he had very little equity in the house.

Before her sale closed, Ms. Hunter hired a lawyer who had a good reputation within her industry but little experience in mergers and acquisitions. She probably would have been better off hiring a lawyer who specialized in helping business owners buy and sell businesses. Ms. Hunter’s lawyer used specimen documents — sample documents that are used as a model — that were provided by her broker. Such documents can save the client time and money, but there is often reason to be wary of them, and they are a long way from best practices in the industry.

The lawyer did recommend that Ms. Hunter get a personal guarantee from the buyer. The broker assured her that, even though the buyer had no real financial assets, she would be covered because he was a certified financial planner and the clients he was buying from her would be plenty of collateral. When you sell your business and provide financing, you essentially become the bank for your buyer. That means you must act like a bank. And no bank — not even one with Small Business Administration backing — would have made a loan based on that collateral.

Three weeks before closing, the waters were muddied even further. The buyer informed Ms. Hunter that he had a new silent partner. This silent partner was a wealthy person who could have offered the security that Ms. Hunter or any bank would require as part of a deal, but he refused to provide his personal guarantee. At this point, Ms. Hunter felt she was too far down the road of selling her business and couldn’t back out. I’ve been in that position, and I know how she felt. Once you are that close to selling, it takes herculean effort to back out.

The deal closed, and for a year everything seemed to go well. Then, disaster struck. An employee left the buyer’s practice — taking staff and clients. Suddenly, there was no business, and Ms. Hunter learned the hard way that there were no assets backing up the personal guarantee she had obtained. She ended up being unable to collect most of what she was owed by the seller.

In my next post, we’ll look at how seemingly minor details in a transaction, if not handled properly,  can make your life miserable.

Do you have any cautions you would like to share about how to hire someone to sell a business? Were you ever involved in a situation like this? How did it turn out?

Josh Patrick is a founder and principal at Stage 2 Planning Partners, where he works with private business owners on creating personal and business value.

Article source: http://boss.blogs.nytimes.com/2012/12/19/does-your-broker-really-represent-your-interests/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

Transaction: Can Owners Handle the Truth About a Business’s Value?

September 22, 2011 by Leave a Comment

Transaction

Putting a price on business.

About two years ago I told a business owner a number of things she wasn’t ready to hear about the sale of her business. She was disappointed with our meeting, called later to tell me she disagreed with what I had said, then listed her business for sale with one of my competitors. I didn’t lose much sleep over it at the time. In fact, I happened to admire both her and her business, and I slept better knowing that I had told her what I thought.

After her contract expired with the other broker, her business still unsold, she called me again. What she said to me was something I’ve been told by other business owners in a roundabout way in the past. But on some level I had been waiting to hear the sentiment expressed in the exact words she used on the phone: “I appreciate you telling me the truth.”

There seem to be two camps when it comes to hearing unpleasant truths (whether it has to do with politics, relationships or business) — those who want you to give it to them straight, so they can roll up their sleeves and do something about it, and those who want none of it. Reality can be hard to accept, especially when it comes to your business. A recent article asked business owners to share their stories about a business that didn’t make it. One former owner couldn’t talk to the reporter when asked to contribute. “I don’t know if I could make it through your questions,” she said in the article. “I might just cry and cry.” It had been 10 years since her business had failed.

When my husband and I opened our business brokerage firm after selling our own business in 2006, I thought I’d be helping entrepreneurs achieve an incredibly joyous and lucrative milestone in their lives — the sale of their business. There would be high fives and hugs amid popping champagne corks. Unfortunately, this is not the case as often as I would like. Much of my time is spent on the less glamorous tasks of educating business owners on how the marketplace will view — and value — their business, and helping them set realistic expectations for the arduous process of selling. In short, I’ve had to learn the fine art of being a downer.

Along with the huge upside of cashing out and moving on, there can be many unpleasant realities associated with the sale of your business. Businesses tend to be valued at much less than the seller had anticipated, family members and employees feel betrayed, Uncle Sam takes a depressingly large cut of the deal, and even in the best possible scenario the seller can feel a deep sense of loss.

In the world of business exits there is something known as “the value gap.” This is defined as the dollar amount between what the seller wants — or needs — and what the business is really worth to a buyer. It’s a fairly straightforward, quantitative exercise to figure out what it would take to fill the gap. Figure out what multiple of earnings would result in the owner’s desired value, determine the corresponding increases in revenue and profit required, then plan the necessary operational changes to achieve those targets. But there is a mental and emotional component to this process that is harder to fill.

Because it’s so much easier to place blame, I believe that the media are partly at fault for creating this perceptual gap. All of those examples of the guy who started a fabulous business in his dorm room closet and sold it to Google for millions (without turning a profit) may be harmful. While I am as awestruck as any reader, these stories are far from the ham-and-egg reality of what most small-business owners go through when selling. Looking to those magazine headlines for any semblance of what it’s like to sell a business is like reading a romance novel for marriage advice.

Perhaps it’s human nature to want to be deceived. But denial in the business world can be costly. Selling a business is a high-stakes game in more ways than one. I asked that business owner — whose plans for the future had to be shelved for two years while she was stuck in her business — if there was anything I could have said or done that would have been helpful during our initial conversation. She said no, and admitted that she simply needed to learn a long, hard lesson.

In the meantime, I continue to try to close the gap between perception and reality when it comes to selling a business. And while some people walk away, I’m O.K. with that. Evidently, some of those people come back when they’re ready.

Article source: http://feeds.nytimes.com/click.phdo?i=c71e31e59665c15520a8784e8eb807ea

Filed Under: Small Business Tagged With: , ,

You’re the Boss Blog: One Way to Close the Sale of a Business

August 11, 2011 by Leave a Comment

Jane JohnsonJane Johnson

Transaction

Putting a price on business.

I once worked with a man whose license plate read BCRE8VE (translation: Be Creative). It was the perfect mantra for a director of advertising — and equally fitting for business owners and deal makers navigating today’s business-for-sale marketplace. While there has been a slight uptick in business sales of late, getting a deal done with tight credit markets, depressed valuations and skittish investors continues to require as much art as science.

There’s a common saying that buyers will pay you only what your business is worth today. If sales and earnings at your company were stellar three years ago but have since dropped off, the buyer is not going to value your business at the previous year’s level. If your business has the potential for growth in the coming years, particularly in the hands of a strategic acquirer, then a buyer may indeed pay you for that future value — but don’t expect the payment today. Instead, be prepared to understand and structure an earnout, a contingency payment that is based on the future performance of the business.

A flexible tool that can be used in combination with other terms of a sale to arrive at a mutually agreeable price, an earnout can serve a number of purposes, including making up the difference between what the seller wants and what the buyer is willing to pay, backing up seller claims about future growth opportunities, and balancing out perceived risk.

Earnouts are used frequently in the sale of high-tech and service businesses like CoActive Consulting Group, a 15-person firm that installed and automated software systems at companies throughout New England and that Jane Johnson and her partners sold in 2004. At first, when a buyer put in a weak initial offer, the deal looked like a nonstarter. But then Ms. Johnson started thinking creatively.

“Rather than give up, I built a spreadsheet that showed the synergies between our companies and future revenue and profits we could make together,” said Ms. Johnson, who started CoActive in 1990 to give herself a more flexible schedule while starting a family. After working with the buyer, a Boston-based accounting firm with more than 250 employees, on several consulting assignments, Ms. Johnson and her partners were confident the two companies would be a good fit. “I was determined to make this deal work,” she recalled.

Most earnouts involve structured payments to the seller that are tied to milestones like gross sales, gross profit or net income, with a typical term of one to five years. “We agreed on the assumptions for the spreadsheet and successfully negotiated an earnout based on both new business as well as recurring revenue from our existing customer list on the date of the sale,” Ms. Johnson said of CoActive’s earnout. “It was based on gross consulting revenue and software margin, not the buyer’s bottom line. We did not want to be penalized for their overhead spending.”

Earnouts work well for the sale of a business whose primary stakeholders are willing to stay on and ensure that the agreed-upon milestones are achieved. “I knew that I could put aside my ego and work for someone, at least for a few years,” said Ms. Johnson, who was CoActive’s chief executive. “I had worked successfully in larger organizations in the  past, so I knew I could do it.” Each of CoActive’s partners had a five-year employment agreement, although the agreement was not contingent on the partners staying on. After selling CoActive, the partners received payments from the buyer every six months for the next five years.

Earnouts have become particularly relevant during the recent economic downturn, as they can also be useful for businesses that have experienced a downward trend in revenues — a situation that many business owners now face. One of the disadvantages of selling your business is that you forgo any benefit from the company’s future growth. An earnout can facilitate a sale today, while allowing the seller to enjoy some of the upside that comes with improved economic conditions. Earnouts can also minimize the tax consequences associated with the sale of a business (be sure to discuss the tax consequences of any deal structure with your advisers early in the negotiation process).

Setting up an earnout does involve certain risks. Chief among these are delaying payment in full, reliance on the buyer’s operational skills, and the prospect of unanticipated disputes surrounding the earnout’s structure and payout. Business owners should try to strike a balance between the potential risks and rewards. “We realized a much larger payout than we could have ever received if we took all cash up front,” said Ms. Johnson, who received the majority of the sales price of CoActive through the contingency. “We decided to shoulder most of the risk, and it paid off.”

Since selling her business, Ms. Johnson has been specializing in exit- and transition-planning for business owners.

Barbara Taylor is co-owner of a business brokerage, Synergy Business Services, in Bentonville, Ark. Here is her guide to selling a business.

Article source: http://feeds.nytimes.com/click.phdo?i=eb2725e7f19a3df4ee7a1d723ca63e08

Filed Under: Small Business Tagged With: , ,

You’re the Boss: Business-for-Sale Market Shows Improvement

July 8, 2011 by Leave a Comment

Transaction

Putting a price on business.

BizBuySell.com recently released its latest Insight Report on trends in the business-for-sale marketplace, showing an increase in closed transactions for the second quarter of 2011. While access to credit remains tight, the number of  deals completed was up 8 percent over the same period last year.

“We’ve been anticipating an upward trend in the business-for-sale market as more profitable businesses start to become available for sale,” said Mike Handelsman, group general manager, in a press release. Mr. Handelsman also attributed the uptick to business owners who were finally emerging from survival mode and returning to profitability. An industry breakdown of the 1,198 small businesses sold during the second quarter showed that almost half were in the service sector, while 26 percent were in retail, 18 percent were restaurants and 5 percent were in manufacturing.

The small-business economy continues to send mixed signals, with some saying that the recession has not ended on Main Street and with others reporting a surge of confidence among owners of privately held companies. Personally, my favorite economic indicator is the phone in my office, which has indeed started ringing more often with business owners calling to begin the process of a sale or exit. Many business owners have been asking me if now is a good time to sell, a question that I try to answer with as much candor as possible.

If you own a Main Street business — which I’ll define here as an owner-operated business with less than $2 million in annual gross revenue — things are still a bit hit and miss. If your business has performed well throughout the economic downturn (“flat is the new growth”) and is in a stable industry, there’s no reason not to take your business to market. Good businesses sell in any economy, and there are plenty of worthy buyers out there who have been looking hard for businesses to buy.

Businesses that are in the fortunate position of attracting interest from either a strategic acquirer or a private equity group are truly in a seller’s market. While Main Street America has muddled through the recession and uncertain recovery, larger companies and investors have been sitting on great gobs of cash — which they are actively looking to deploy. It used to be that I would only see interest from a private equity group on businesses with a minimum of $2 million in pre-tax earnings. Over the last two years that earnings floor has dropped to $1 million, as good deals have presumably been in short supply and the private equity folks look to do smaller “add-on” acquisitions of businesses that complement one of the larger companies in their portfolio.

Even if you’re on the fence as to whether now is a good time to sell, it is always a good time to start planning for what can be a lengthy and complex process. I’ve had a number of business owners approach me recently about building value in their businesses with an eye toward selling in the next year or two, a topic that I am more than happy to discuss. In fact, the phone ringing and the question of value enhancement are music to my ears.

Barbara Taylor is co-owner of a business brokerage, Synergy Business Services, in Bentonville, Ark. Here is her guide to selling a business.

Article source: http://feeds.nytimes.com/click.phdo?i=b9ce63c6be5976abf8ed7f7876706620

Filed Under: Business News Tagged With: , ,

You’re the Boss: Timing a Business Sale

April 7, 2011 by Leave a Comment

True Creative
Transaction

As with most economic news of late, there are mixed signals right now in the business-for-sale marketplace. Some folks say now is great time to sell — or, at a minimum that the market is better than it has been over the last two years — while others disagree. Where can a business owner turn to get clear direction? Since the dartboard has been used famously for picking publicly traded stocks, let’s ask the Magic 8 Ball a few questions about selling a small business.

Question No.1: Should I sell before 2013?

The Bush-era tax cuts have been extended, and this includes keeping the current capital gains rate at 15 percent until the end of 2012. A large portion of the sale price of a small business can fall into the asset category known as good will. In an asset-sale scenario, sellers typically want as much of the sale price as possible to be classified as goodwill because the Internal Revenue Service will tax it at the capital gains rate — which is usually much lower than the seller’s income tax rate. If a deal is structured as a stock sale, then the entire transaction would be taxed at the capital gains rate applicable for the year of the sale.

If the capital gains rate goes up to at least 24 percent in 2013, as one article suggests, a portion of the incremental value you build in your business over the next few years may be eroded by the higher rate. I’m not big on prognosticating the future of the United States tax code but given the looming deficit issues facing our country, I haven’t come across many who are betting that the capital-gains tax rate will stay at 15 percent after 2012.

Magic 8 Ball says: “Outlook good.”

Question No. 2: Should I sell after 2013?

According to a recent survey of business brokers released in February by BizBuySell, “stable businesses with appropriate price expectations will likely receive quality offers from prospective buyers if they come on the market during the next 12 months.” While I agree with this statement, I find it a bit bland — the same would hold true in almost any market. The statement does allude to one of the underlying reasons more deals are not getting done right now: seller price expectations are inconsistent with current valuations, which have been depressed since late 2008.

The reality is that business valuations have not gone back to pre-recession levels, and it’s entirely possible that they won’t for some time. While it may be disheartening to think of the value of your business being tied to the overall marketplace for investment opportunities, it is. According to the “Ten Year Transfer Cycle” created by Rob Slee, a mergers and acquisition expert who is author of “Private Capital Markets” and founder of MidasNation — it would appear that the next prime selling market will be between 2013 and 2018. (Here is Mr. Slee’s chart.)

Magic 8 Ball says: “It is decidedly so.”

Question No. 3: Will retiring Baby Boomers affect the market?

The Baby Boomer generation will be retiring over the next 10 to 15 years, during which time an estimated $10 trillion of wealth currently held in privately owned businesses will need to be transferred. Many MA specialists predict that the marketplace will be awash in businesses for sale as the Baby Boomers barrel into retirement. Simple supply and demand economics would suggest that this single demographic shift will tip the scales to give buyers the advantage in the years ahead.

Magic 8 Ball says: “As I see it, yes.”

Unfortunately, the Magic 8 Ball can offer only so much help. There are lots of factors that can affect the decision to sell — and one or more of these factors may be at odds with one another. Often, the business owner is mentally ready to sell, but the market is less than ideal. Conversely, the market may be right when the owner has yet to commit to an exit strategy.

Whatever your situation, the sooner you start thinking about the many issues associated with the sale of a business and how they will affect you, your family and your transaction, the more successful your outcome is likely to be.

Barbara Taylor is co-owner of a business brokerage, Synergy Business Services, in Bentonville, Ark. Here is her guide to selling a business.

Article source: http://feeds.nytimes.com/click.phdo?i=4ae6ee2f8fd2d03b235a12898b891001

Filed Under: Small Business Tagged With: , ,