We received the monthly BizQuest newsletter and had to share the articleby Michael Coyle as it’s a very relevant topic and talking point which needs to be discussed between business owners and their advisers: Selling or planning an exit in a down market.
Statistic: “”It is estimated that less than 15% of business owners have developed an exit plan from their business, despite the reality that it is a certain outcome for every business owner.”"
The SBA’s Standard Operating Procedures (SOP) was recently updated and released. It is more streamlined and condensed, allowing for easier reference to and understanding of guidelines.
One specific area we want to highlight is the requirement of an independent, third party business valuation for SBA loans exceeding $350,000. Here is the exert:
(i) Business Valuation
Most Americans continue to read, hear and see troubling news about the U.S. economic outlook. Business owners need some reassurance that the sky is not falling, particularly for business owners considering the future sale of their business. Today is a seller’s market! But, cyclical indicators point that this window will not stay open forever.
CNN Money put out a great Q&A article a couple of weeks ago: How to sell a million dollar business. If you are planning or hoping to sell your 1-2 million dollar small business in the next 2-3 years, save this to your favorites. Highlighted topics include:
The NY Times tackles a very important topic for today’s business owner: what to do when partners want to split. A buy-sell agreement protects all owners in a business for events when a minority, majority or equal owner decides or is forced to leave a business. In most cases, a buy-sell agreement will include a provision for determining “fair market value” via a credible third-party business valuation.
Serial entrepreneur Mike Doernberg used this saying in a business owners workshop and it has always stuck with me. In particular, he used this phrase as it relates to start-up business owners who have reached a point of no return and are about to “cross the chasm”. Either sell your business (run from the lion) at this juncture, or bear down for the next 3-5 years to really refine & develop the business (chase the naked lady).
If you own a business and are thinking about selling, it is important you recognize the value of a defined plan & strategy and the value of professional advisors. An article featured on Financial Post summarizes a recent study of business owners who sold their business within the past 5 years (more than 100 business owners were surveyed about selling and what they would recommend to other business owners following their own personal experiences):
In a NY Times article, “Failure Isn’t Always a Bad Thing”, an interesting formula on determining a start-up’s potential for success is presented which was extracted from venture capitalist David Sliver’s book “Smart Start-ups”:
V = P x S x E
Valuation = Problem solved x Solution’s elegance x Experience of management
Businessweek.com put out an article today under its Small Biz section titled “How to sell your business”. We want to draw your attention to the section discussing business appraisal. In summary, the author of this article suggests that the business owner conduct an analysis of their financial statements and an exercise known as “recasting”. Bottom line, this is an adjustment of owner’s salary, discretionary expenses, one-time fees, interest, depreciation and other expenditures. Then, the writer suggests the owner adjust fixed assets to fair market value. Once complete, THEN hire a business appraiser. Huh?
An interesting alert came across our desks this morning, from Forbes.com: The Most Valuable College Basketball Teams. I somewhat choked on my coffee and had to read again. The value of a collegiate basketball team? FMV is a proud supporter of the University of North Carolina at Chapel Hill and it was no surprise to see the Tar Heels top the list. The metrics used in this assessment were unique and certainly different from the world of small business valuation, but it was an interesting read. While the methods used by Forbes are based on ticket sales, tournament earnings and a teams impact on its school and athletic deparment, one major factor was completely ignored: team apparel sales! While it could be difficult to extract basketball apparel sales from football, one could quickly assess official basketball jersey, shorts, and other official merchandise sales directly associated with a collegiate basketball team. The valuations would skyrocket, especially for UNC as they are the #1 in licensed collegiate apparel sold world wide! Hmmmm, do you think that is because of basketball or football? In addition, with the limited data collected, Forbes used a conservative multiple of profit ranging from 1.5-1.75 to determine a teams valuation. Forbes ”valued” the top 20 NCAA basketball teams and the valuation gap from 1st to 20th (UNC vs Xavier) was not even 2x! How can UNC men’s basketball only be 2x more valuable than Xavier men’s basketball — that is way off.
