They say selling your business is the most important sale you may ever make, but what can you do to ensure that you get the most out of the deal? For the many answers to this important question, you've come to the right place.From our studio in Southern California, with guest experts from across the country and around the world this is Deal Talk, brought to you by Morgan & Westfield, nationwide leader in business sales and appraisals. Now, here's your host, Jeff Allen.Jeff:
Hello, and welcome back to the web's number one content source for small business owners committed to building a business for eventual sale. Here on “Deal Talk,” it's our mission to provide information and guidance from our growing list of trusted experts that you and all small business owners can use to help you build your bottom line and improve your company's value.
So how can you get the most out of the sale of your business, that's the question of the day. Let's ask today's guest. His name is Mark Sievers and he is the owner of the business brokerage and consulting firm, Sievers & Company, LLC based in the Lexington area of Kentucky. Mr. Sievers, welcome to “Deal Talk,” sir. It's good to have you.Mark:
Glad to be here and I'm excited about being part of your show.
One type of intellectual property would certainly be the name and the logo which is the brand. And without the brand, the brand name, brand image, and brand equity there's a lot less value to the business.
Very good Mark, pleased to have you. And what I'd like to do is give you just a second Mark, a few seconds to tell us a little bit more about yourself, about your company, Sievers & Company, and how it is that you work with businesses.Mark:
I'm based in Central Kentucky, in the Lexington area. And I represent both buyers and sellers, mostly sellers but sometimes buyers, and helping people buy and sell small- and medium-sized businesses, franchises, and sometimes other things like equipment inventory and intellectual property. I do certain small business consulting services also. Prior to that, I spent 27 years working for national restaurant chains.Jeff:
Let's get into the subject of today's program Mark a little bit. You recently wrote a paper on the subject that we're talking about today, and the number one thing on your list to help business owners get the most out of the sale of their companies is getting a professional valuation.
Why do you believe that this is necessary? We've been told that not all business sales require them. In fact, the majority of sales that go through don't often have a professional valuation as part of that transaction, as part of the process. But you do, in fact, say that this is important. Tell us a little bit about your theory on this.Mark:
Well, it doesn't have to be an expensive, professionally done valuation, although in some cases that's prudent. But you do have to have some well-thought-out thinking about, realistic about what your business value is. And the reason for that is people think in terms of there's two parties to every transaction, a buyer and a seller.
Realistically in most cases there's three parties and the other one's a lender. So that valuation or some valuation range is what I call an ‘economic touchstone’ that the buyer, the seller, and a lender all have into buy into in order to make the transaction work and the process work.
Certainly there are negotiations that go and back and forth. It's an arm’s length transaction. But the valuation range needs to be realistic. If it's not realistic going into the process then you have a potential for wasting a lot of time and resources, and not really getting an effective business sale.
Once you start, the process that you're trying to sell a business and especially after you have a contract in place to sell a business but you haven't closed yet, it's really important that you maintain business as usual. You don't cut back on advertising, you don't change things radically. You just keep everything going to maintain the value.
What about those components, Mark, of a business that may contribute to its value that aren't always so obvious? Where do we look for those kinds of things? You touched on this a little bit in your paper. We're used to the obvious things, the various assets whether that be equipment, the tools that we use to manufacture whatever inventory, real estate, and all of these things, furniture.
But are there some components there that we may not necessarily be aware of that could contribute to the value of our company? Mark:
Certainly, as I alluded to before there's a value that's usually talked about in terms of a range of value. And it's those hidden values or non-obvious values that can push a business up towards the higher end of that range. I can give you several examples of that.Jeff:
One would be favorable lease terms. If you have a long-term lease that's favorable, below market, that's one. If you have suitable licenses, liquor license is an example, or a health care provider ID like a Medicare number, foreign health care business, it might have a code or a used value like grandfather codes.
For example, in some municipalities, they're not letting people open up liquor stores or drive-thru's but there's already a drive-thru that is grandfathered in and stays. Loans that are assumable, the seller might have a loan and somebody could come in and part of the transaction assume that loan. But still we might have excess space or excess capacity which provide upside, human resources, if there's staff that have uncommon tenure, or expertise, or other value that would be hard to replace.
Sometimes a business might have economic development credits and incentives that are not all used up yet, like a manufacturing business or something like that. And that has its own value. Favorable contracts and relationships with suppliers, exclusive customer contracts or distributorships, customer list and mailing list, social media sites...Jeff:
The list can go on there as we can see. And a number of things that we often don't give thought to. Do you think it is commonplace, Mark, that if you did in fact hire a professional valuation consultant that they would pick up on all of this stuff naturally speaking or are these things often missed even by the professionals? And this is kind of incumbent then on the business owner to take note of these things so that they can bring these up when the valuation consultant comes by.Mark:
A lot of times those valuations, at the minimum, they're very heavily quantitative and numbers driven. So it's incumbent upon the seller to make sure that the valuation consultant and the business broker also understand all those intangible values that can enhance the attractiveness of the business and the opportunity. Jeff:
Excellent. Mark Sievers is our guest. Mark is the owner of Sievers & Company, LLC in Lexington, Kentucky. He is a business broker and also business consultant. We're talking to him today about how to get the best or how to get the most out of this sale of your company.
My name is Jeff Allen. It's so good to be with you once again. Mark, we've talked many times on “Deal Talk” about the importance of keeping tight financials and getting your bucks organized. And so we know that that's really critical and we can probably do another show on that, and go into that in complete detail.
But I'd like to jump over to the idea of seller financing as being perhaps key to once again, getting the most out of the sale of your company. This is something that you talk a little bit also about in your paper. Why do you believe that seller financing could be a critical component to getting the most value out of your company?Mark:
I think there's two or three reasons. Number one is that if they're willing to do some seller financing it can automatically increase, I think, your buyer pool. And the more buyers or prospects, the better. Number two, in some cases, if it's a bank loan and it's an SBA-backed loan, small business administration, they will require a certain down payment, maybe 20%. But if the seller's willing to finance 20% of the sale then sometimes that's 10% could kindly get to 20%.
And then by seller financing you automatically reduce the buyer required down payment by as much a half. So that's another way of increasing the buyer pool. And another thing is it really helps... it makes a positive statement about how you feel about the future of the business. And that's very comforting to a buyer that they'll sell, some will finance some of this because they believe in the business in which way it's going.
In most franchise agreements, when a franchisee is ready to sell, the franchisor has the first right of refusal to buy that franchise for themselves. However, I will say that 90% of the time, they never do that.
So it brings confidence on the part of the buyer, is that correct?Mark:
Post closing transition assistance is often very important I know to an incoming owner, someone who is buying a business. They obviously want to continue to carry on the past success and current success of the company that they are buying is continuing to have, and they would like the momentum to continue.
You talk about how important it might be for a business owner to consider this. What kinds of things might a business owner be asked to do by an incoming buyer to help them continue to move that company forward in that transition to make it as smooth as possible?Mark:
One critical thing might be transitioning and helping make the employees, the staff feel comfortable about the new ownership and have a familiar face there for a while involved in the business. That's always a positive.
If it's a business that has, let's say a manufacturing business or some of the businesses where they have just a lot of business concentrated among the small number of customers in making sure that the seller does what I call a warm introduction and smooth the way toward transitioning that relationship from the seller to the new owner so they make everything seamless as possible.
Or maybe specialized knowledge that is the type of knowledge that you can't transfer or place in a matter of just a couple of weeks. It may take several weeks or even months to do that knowledge. It all depends on the type of business obviously.
And you have to sort of calibrate that transition systems to the type of business, and also what the capabilities of the buyer are and the seller. Every situation is different and you have to structure it that way.
Typically, somebody comes to me and they're a franchisee of a concept and they're ready to sell their business. And as I mentioned before, the two parties to a transaction, the buyer and the seller. And then the third party maybe being a lender, well then the franchisor becomes sort of a fourth party to the transaction.
Typically speaking is there an average amount of time that you're familiar with now Mark and the businesses and the business owners that you've dealt with where they are asked to stay aboard as a consultant to the new business owner. We're talking 6 months, a year, could it go beyond that?Mark:
I don't think there is an average. What I would say is it depends on the type of business. Certain types of retail businesses, food service, you may only be talking a couple of weeks, two or three weeks. If it's a manufacturing business maybe, or some businesses that have a high level of I guess trade secret, proprietary processes, that could be three or four months and actually could go out further than that.Jeff:
Mark, we're going to stock down here for just a moment, take a break, and we're going to come back and we're going to continue our conversation. I hope that you are enjoying this program. And if you want to listen to it again, you know what, you can do that because it's a podcast. So you can always stop it and restart it. You can take a break for lunch or whatever, pause it and come back, and listen to the rest of it.
And another great thing about “Deal Talk” is the fact that we provide transcripts absolutely free of charge for you to take a look at and read and keep for later on for easy reference. And the nice thing is, unlike the old days where you had to send a self-addressed stamped envelope and a check for five bucks to get a transcript. These days, they're free. They're right there on the website below the podcast at morganandwestfield.com. My name is Jeff Allen. I'll be back with business broker Mark Sievers when “Deal Talk” continues after this.If you'd like to share your knowledge and expertise on any subject related to selling businesses or helping business owners improve the value of their companies, we'd like to talk with you about joining us as a guest on the future edition of Deal Talk. Interested? Contact our host Jeff Allen directly. Just send a brief email with "I'd like to be a guest" in the subject line. In a brief message include your name, title, area of specialty, and contact information, and send it to firstname.lastname@example.org, that's email@example.com.
Selling your business may be the most important business transaction you'll ever undertake so don't go it alone. Work with an organization that has made it their business to sell businesses and that's all they do. Morgan & Westfield at 888-693-7834. At Morgan & Westfield we know that selling your company is not something you should take lightly. It can be a stressful, difficult, even emotional process. That's why it's important to work with a team whose one and only specialty is selling businesses throughout the United States. And Morgan & Westfield will help you every step of the way. From helping you plan your exit strategy, to preparing a comprehensive appraisal, and locating the right buyers. Without the right team behind you, you could be leaving money on the table. So don't leave your most important business transaction to chance. Call Morgan & Westfield for a free consultation at 888-693-7834, 888-693-7834, or visit morganandwestfield.com.
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Jeff Allen with you today, Mark Sievers my guest, owner of Sievers & Company, LLC, a Kentucky-based business brokerage and consultant firm. And we're talking about getting the best out of the sale of our company or getting the most out of the sale of our company.
With franchises though is it a little bit different in that you have a franchisor who kind of oversees really the operations of all of the locations in that company's network. Is it different in working the transaction when you're a franchisee selling your portion of the company?Mark:
Yes. Typically, somebody comes to me and they're a franchisee of a concept and they're ready to sell their business. And as I mentioned before, the two parties to a transaction, the buyer and the seller. And then the third party maybe being a lender, well then the franchisor becomes sort of a fourth party to the transaction because they will have their own...
If the franchise resales, so every franchisee has their own what I call process and protocol on franchise resales because they would have to approve the buyer as a franchisee granted that the buyer would have to meet their franchisee requirements, some from a financial liquidity and network worth, but also maybe experience. And if they're a cultural fit for the franchise organization.
And then there's also, sometimes there are franchisor fees associated with the sale of a franchise, like a lease review fee, administrative fee, franchise transfer fee. Franchise transfer fee is usually some percent of the initial franchise that somebody would pay if they were opening up a franchise from scratch. So it's just one more process that has to be layered in into the overall sale process. And one of the things you have to do is work with the franchisor and who in that organization is responsible for franchise resale.Jeff:
Let me ask you a question about franchise resales for just a moment. If I'm a business owner myself and maybe I've owned a franchise location about 10 years or something like that, I found some real success but I'm ready to move on to other things and sell my company, and I'd like to try to make it as easy on myself as possible, would I be able to go back to the franchisor and ask them, "Look guys, do you have anybody who's submitted some kind of an interest, or shown an interest in this location?
Or do you have a pool of potential business owners that have already been vetted that you might be able to help me shop my location with?" Mark:
Well, there's two issues there that I'd like to point out.
One critical thing might be transitioning and helping make the employees, the staff feel comfortable about the new ownership and have a familiar face there for a while involved in the business. That's always a positive.
Number one, in most franchise agreements, when a franchisee is ready to sell, the franchisor has the first right of refusal to buy that franchise for themselves. However, I will say that 90% of the time they never do that. They reverse sell the exercise right but that right is there.
Second, in some cases they may have prospects that have said, "I'm from this part of Kentucky, or Ohio, or whatever, and I'm interested in becoming a franchisee." There might not be any territories available but some franchisors are frankly more organized than others, so some might have a database of those contacts and some might not. But it's certainly something that a franchisee should consider when it gets ready to make the sale.Jeff:
Okay. We're going to jump back into this list now Mark that you've composed and this is a part of a white paper that that you've provided, and people by the way can find this right there on your LinkedIn page I believe, and that they might be able to possibly pick this list up from you Mark I would imagine if they were to just simply write to you and request it because it really provides a wealth of knowledge, and it's very digestible and easy to read.
But let's get back into it. You talk about the importance of really taking into account your intellectual property when you're trying to get the most out of the sale of your company. IP is something that's become very, very popular in terms of a discussion where business and businesses for sale are concerned. Why is that so important? Why do we need to be cognizant of all of the intellectual property that we have under us?Mark:
Well, intellectual property of course encompasses a broad range of types of intangible assets. But one type of intellectual property would certainly be the name and the logo which is the brand. And without the brand, the brand name, brand image, and brand equity there's a lot less value to the business.
But there also might be secret recipes, trade secrets, patents, patents pending, processes, formulas, a lot of things that are important to the operation of the business or might be potentially important. This is not quite fully utilized if at all. So intellectual property has to be inventoried and accounted for when you're doing a business sale.Jeff:
And by the way, if people have any questions about that you can always contact an attorney there, our attorneys who specialize in intellectual property and intellectual property rights. And your business attorney, if you have one, and I'm talking to our audience right now, Mark, should be able to help you with this as well.
However, they may in fact refer you to another professional, someone to have on your team. And this is really I think important when you have an inventory of intellectual property as part of your business. We know that fixed assets, furniture fixtures, equipment, really important to have that running list of market all-times and we want to make sure that our listeners understand that they need to have that inventory.
You're talking about old and obsolete inventory, why could this be potentially a problem for the sale of a company. Why do we need to take special account of that old stuff that we've got lying around that we haven't sold?Mark:
This is an issue that probably doesn't affect restaurants too much and certain other businesses. But certain businesses like retail businesses and possibly manufacturing and other types of businesses can be really important. For example, you may have $300,000 for example of inventory. A lot of an inventory types may have a lot of turnover and high demand, but you may have, let's say, 60,000 of that 300,000 inventory that's been sitting in your warehouse two to three years and is obsolete. There's no demand for it.
The buyer would need to understand sort of the age of that inventory, write down the inventory by type and then how long each of that inventory's been there. Because that over inventory that's possibly obsolete, or maybe not obsolete, there's no demand for it, there's a very different value calculation that would be attended to that type of thing.Jeff:
And Mark, finally, I'd like to touch on one last item here on your list here of the keys to getting the most out of your business sale and that is ‘business as usual’ operations. I've heard some horror stories about the things that can go terribly wrong that can actually end up cancelling a sale altogether because the business owner who is looking to get out for whatever reason, things end up not working as usual during the course of the transaction itself.
And this can be a real negative in terms of the company's performance. Just tell us a little bit about more about why this is so key to making sure that you're running things as if there are no changes imminent and taking place.Mark:
Yes. Once you start, the process that you're trying to sell a business and especially after you have a contract in place to sell a business but you haven't closed yet, it's really important that you maintain business as usual. You don't cut back on advertising, you don't change things radically. You just keep everything going to maintain the value. You don't want to do anything that could be considered by the lender or a buyer as a material adverse change.
If there's something that maybe not you did but something else happens to the business that impacted it, maybe loss of a major account or something else, maybe a bad PR event, a public relations event. You need to make sure that you're acknowledged in that and working with a buyer who's explaining, "This is what happened. This is what we're doing with it." You don't want to hide these things.
And also it's a type of thing where there might be major decisions that have to be made during the interim process between signing a contract and closing, like maybe an advertising decision or equipment decision. Then you need to work with the buyer and mutually agree on how those types of things ought to be handled during the transition period. Jeff:
Some very important key points brought about to help our listeners at some point when they're ready to sell their companies, some things to be mindful of, some things to remember to help them once again and we're going to repeat it, get the most out of the sale of their company.
If you've worked long enough in your company, you built it up to what it is now, if anybody is interested Mark in our audience in reaching out to you perhaps to talk to you about some of the things they've heard us discuss today on this edition of “Deal Talk” and maybe even work with you and have you help them on their road to selling their own company, how can they contact you?Mark:
The easiest way is my email which is firstname.lastname@example.org. They can also go to my website, www.thesieverscompany.com
. And then I'll even, for this audience, share my phone number, 859-576-2257.Jeff:
Mark Sievers, again, I appreciate your time, sir. Thank you so much and all the best for success in the future. Mark:
It was my pleasure. I enjoyed it.Jeff:
That's Mark Sievers. He's owner of Sievers & Company, LLC in Lexington, Kentucky. Tell a friend about Deal Talk. In addition to morganandwestfield.com you can find us on iTunes, Stitcher, and Libsyn. “Deal Talk” has been brought to you by Morgan & Westfield, a nationwide leader in business sales and appraisals. Learn more at morganandwestfield.com. My name is Jeff Allen. Thanks so much for listening and we'll talk to you again soon.While we take reasonable care to select recognized experts for our podcasts please note that each podcast presents the independent opinions of such experts only and not of Morgan & Westfield. We make no warranty, guarantee, or representation as to the accuracy or sufficiency of the information provided. Any reliance on the podcast information is at your own risk. The podcast is for general information only and cannot be considered professional advice.