Why Use a Broker?

Rule Number One in selling your business and real estate and ... almost anything is:

The greater exposure your business gets to potential buyers, the higher the sale price and the better the terms.

While the confidentiality of any transaction is of primary concern, the more screened, financially qualified buyers considering investing in your business, the more likely the business is to receive premium pricing. 

The value of each business is different to each buyer.  Sale price is based on the buyers estimate of future cash flow, perceived risk level and many other factors.  Some buyers will be able to grow the business to a more profitable level than others.  Some buyers will achieve more synergies with existing operations than others.  Each buyer's personal considerations will also affect the desirability of investing in the purchase of a business.  Clearly, some businesses are worth more to some buyers than others  ... if they know your business is for sale.

Middle South has a structured, proven approach to assisting you in meeting your objectives - financial, personal and tax. 

A Simple Example - Rule number one above is not unique to selling your business.  It applies to the sale of many different types of assets. 

If you want to sell your car, would you put an ad in the paper and park the car near a busy intersection with a for sale sign?  - or - Would you put a small sign on it and park it on a lonely dirt road?

With Middle South assisting you with the sale of your business, your business receives the best possible exposure to potential buyers consistent with the strictest of confidentiality requirements.  Confidentially valuing, marketing, structuring and closing the business sale is complex and requires experience.

Myth Number 1 - Most business owners believe their customers who have been expressing interest in buying the business for years will actually buy it.  Wrong!  99% of these buyers are not really interested or not qualified.  If and when you get a written offer from such individuals, it will not be what you have been discussing for years.  Keep in mind that without a written offer, you do not have an offer.

The value of each business is different for each buyer.  Some potential buyers will be able to grow the business to a more profitable level than others.  Your business is worth more to such buyers ... if they know your business is for sale.

Each buyer views a business' current and potential cash flow differently.  Some of these buyers will see, and be able to achieve, more of the growth potential that other buyers, and the business is worth more to these buyers.  How a potential buyer views the growth potential of a business will determine how much the business is worth to him.  To get the best price, the more potential buyers aware of the unique aspects of your business the better.

The following illustrates the various components of value and sale price:

Business sale price is determined first by the fair market value (FMV) of the assets. 

Next, if there is sufficient cash flow* from operations, the value of the cash flow is then the determinant of the business' value and sale price.

If there is an opportunity to grow cash flow and profitability, the value / sale price is ultimately determined by the present value of the projected cash flow stream after taxes and growth are considered.

* Why cash flow?

Businesses typically follow the classic pattern of: 

• Start-up

• Growth

• Maturity

(See also - Business Cycle Graph and Logo Explanation.)  

Where is your business in its business cycle and what is the growth potential.  These values determine the value / sale price of your business.

Rule 2:  Failure to secure qualified buyers

Knowing how to qualify a buyer is critical. Middle South pre-qualifies each buyer to avoid a negotiation that is doomed to fail. This saves you time and money. It can eliminate hundreds of wasted hours and misdirected efforts.

Rule 3:   Lack of deal structure expertise
When the seller has limited knowledge about the available alternatives for structuring the deal, he is at a definite disadvantage! And probably a costly one. Items such as leveraged buy-outs, leases, royalties, earn-outs, consulting agreements and non-compete contracts can add immeasurable value and security to both buyer and seller alike.

Rule 4:   Failure to adjust the net owner benefit
If you are to determine a proper value, the balance sheet and income statements must be recast / adjusted. Items such as owner's salary, depreciation, interest and fringe benefits may be added or subtracted depending on the circumstances. The adjusted income statement should reflect the true benefits of ownership in order to help determine the market value.

Rule 5:   Failure to maintain confidentiality
Confidentiality is vital to the selling of a business. If employees know that you are selling and changes are coming, they may seek other opportunities. Competitors may use this information as a selling tool. Vendors may not continue to extend favorable terms. Profitability and market value may be reduced.

Rule 6:   Failure to continue to run your business
It is important to maintain your business at peak operating capacity. The performance and productivity of your business is what you are really selling. The time taken from your business to sell it will have a toll on the business and as a direct result lower its market value.

Rule 7:   Failure to properly adjust for economic conditions and owner's ability
Generally speaking, the higher the skill level required to operate the business, the more difficult it will be to sell it. The value tends to increase when the owner can be replaced easily. The value also may increase when an industry is in a growth stage. For many industries there are specific valuation methods that are highly subject to the owner's duties in the company as well as outside economic conditions.

Rule 8:   Failure to provide credible information
A potential buyer will want information about your customer base, competition, financial history and industry characteristics, such as size, growth potential and areas of opportunity. This information must be provided in a salable format and in a way to ensure your confidentiality.

Rule 9:   Poor negotiating techniques
In many deals, poor negotiating techniques can cost the seller considerably in terms of selling price, terms and other opportunities. Many times a deal will fail to close because of poor negotiations and / or communications between parties.

Rule 10:   Failure to place the proper value on your business
A business has value to a buyer because of its anticipated earnings / cash flow from its established resources, a demonstrated successful track record and a reasoned forecast of growth opportunities, if any. Proper valuation of the business is crucial and enhances the chances of selling your business at the best price in the shortest amount of time..

Rule 11:   Failure to consider alternative investments
All buyers have alternative investment options. To make your business attractive, you must show a return consistent with other similar business opportunities and the risk profile of your business. You should be prepared to offer seller financing.

Rule 12:   Failure to prepare for proper due diligence
Due diligence issues are very important to the selling process. These issues can have a major impact on whether a closing of a business will occur. It is imperative to be prepared and organized. You must be able to defend and substantiate representations made during the selling process.

Rule 13:   Failure to seek professional assistance and consultation
There are legal, financial. marketing and other vital considerations that must be addressed in the selling process. Many decisions in the selling process should not be made without the advice of the right professionals. A wrong decision could lead to a fatal mistake!

The above are a number of things to consider in selling your business and there are many more just as important, depending on your particular situation.

We would like to give you our thoughts on these and other topics and recommend you start you Exit Strategy planning as early as possible.  Positioning the company for sale often takes years.

Whether you plan to sell your business today or in the next few years, you should begin planning now!  We would like to discuss these critically important issues with you.  Please contact us for a confidential, candid, to-the-point discussion of your options or register for our next seminar on this topic.

For a more thorough discussion of these and other things to consider, visit our Resource Center and look for the white paper entitled "Maximizing Business Sale Value".

To discuss your situation in detail, please contact us.  We would like to give you our thoughts on how to meet your objectives in today's competitive market environment.

Middle South Ventures, Inc.

2895 Hwy 190 - Suite 214

Mandeville, LA 70471

985.727.3220 - 985.727.3236 - fax

800.782.1417 - 985.778.9898 - cell

Trade Marked 2001 - Middle South Ventures, Inc. - All Rights Reserved