Professional Advisors Archives - Keystone Business Advisors

November 19, 2018 By Dave Richards Leave a Comment

Maximizing the Value When Selling a Business

Many factors go into the valuation of a business. From industry type, to revenue and EBITDA totals, to longevity of the company. As a result, it can be an arduous process to get to the final number where both buyer and seller will be satisfied. Below are a few steps to consider that would help the cause:

1. Reduce Risk Through Semi Absentee Operation

Many businesses rely heavily on the owner’s skill set for their success and require full time hours from the owner to operate. Buyers may consider this situation more of buying a job than a business. Companies that do not need an owner to run the day to day operations will demand a higher price since they already have management in place.

2. Aligning the Financials

Consider having the financials completed by a professional CPA. This will clean up the statements and provide [Read more…]

November 5, 2018 By Dave Richards Leave a Comment

Five Important Steps to Consider When Selling a Business

Selling a business can be a daunting and time-consuming task, particularly when planning has not occurred ahead of time as part of an exit strategy. When deciding to sell your business, some critical steps should be taken that can help to ensure the deal will go smoothly and that a strong value is obtained for the company. Often owners are not prepared until the time they are ready to sell and as a result will rush through some important steps that could end up costing time and money. Planning for the sale early on, even years before the owner is ready is a good practice and will prove valuable when the time comes to sell the business.

To maximize the value of the company it is important to begin as soon as possible, regardless of whether you are ready to sell or not. While there are many facets to the sale of a business below are five important things to consider: [Read more…]

October 22, 2018 By Dave Richards Leave a Comment

The Importance of Confidentiality When Selling a Business

One principal concern a business owner has when deciding to sell a business is confidentiality, and rightly so. Selling a business is a time-consuming process that can take months depending on the level of preparedness the owner has put into their exit strategy. During this process, it is important that the company maintains discretion when getting the message out to prospective buyers or going through initial due diligence. Word getting out prior to the sale can spark undesirable reactions not only from employees but also from clients, vendors, and competitors.

Once an employee finds out about a potential sale, the word can spread throughout the operation which can reduce workforce leading to the reduction in capacity. Employees will question their future which eventually triggers poor performance and early attrition. This could have a domino effect on the rest of the company and lead to poor quality and customer service. Not to mention a damaged company culture.

Word can also spread to clients who may begin to question why the business is for sale in the first place. For example, could the company [Read more…]

October 8, 2018 By Dave Richards Leave a Comment

Key Items to Include in a Letter of Intent when Buying or Selling a Business

One of the first significant steps in the route to buying or selling a business is the signing of the Letter of Intent (LOI). The purpose of the LOI is to express certain understandings and agreements between the buyer and seller of the prospective business and can be viewed as the first step in formalizing the negotiation process. The LOI is non-binding contract between the buyer and seller but may include some binding provisions such as an exclusivity period and confidentiality provisions. This document represents the end of preliminary due diligence and the beginning of the formal due diligence process where the buyer and seller will determine whether this company is the right fit.

While the letter of intent should be detailed enough to ensure that the main material issues are brought to light and potentially negotiated early on, it is also important to understand that more detailed discovery’s will happen during the formal due diligence process. During the formal due diligence process additional issues may surface that were previously not outlined in the LOI and may need to be negotiated prior to the final purchase agreement. Generally speaking, the more that is covered in the LOI the smoother the process will tend to go.

It is common that the LOI will be prepared by the buyer’s attorney and presented to the seller’s Business Broker or M&A Advisor. While it is the M&A Advisors role is to manage the negotiations of the purchase price and deal terms of the agreement, it is strongly recommended that the seller engages a transaction attorney to review and approve the agreement prior to execution as the LOI will set the tone for transaction going forward.

While information will vary depending on the business, some specific items to include in the LOI are:

Purchase Price

This section should outline the price offered based on the perceived value of the company, often determined by a multiple of EBITDA as well as many other factors that are specific to the business. Some LOI’s will include an explanation of the assumptions that were used to come to the purchase price. This amount could vary by the time the actual Purchase Agreement is signed and could be subject to change based on various findings during the formal due diligence process. Therefore, including an explanation of the method used could help with any potential adjustments if required. One option to reduce the likelihood of a buyer reducing their purchase price later in the process is to provide additional preliminary due diligence information prior to buyer prior executing an LOI. We have found this especially useful when receiving offers from multiple buyers.

Transaction or Deal Structure

The transaction structure outlines the deal and will determine how the sale of the company will occur as well as cover debt terms and forms of payment. The deal structure can become a [Read more…]

September 20, 2018 By Dave Richards Leave a Comment

Significance of Preliminary Due Diligence when Buying or Selling a Business

When pursuing a potential business acquisition, a buyer should have specific criteria in mind in defining the ideal target company. Once a buyer has located the potential prospect, a low cost, high level due diligence should be performed. This initial act of uncovering information can be referred to as the preliminary due diligence process. In this stage the prospect will provide information with minimal supporting evidence as this is more of a cursory review to help evaluate whether to take the next step in the formal, more detailed due diligence process down the road.

Preliminary due diligence should occur after the buyer has determined that the targeted business meets certain characteristics. This can be accomplished during the initial search process by reviewing information from the business listing as well as from the Confidential Business Review (CBR).

The initial search process occurs prior to preliminary due diligence and should provide a high-level view of significant characteristics such as: [Read more…]