How to Amass a Fortune by Strategizing to Either Buy or Sell a Business
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How to Amass a Fortune by Strategizing Either to Buy or Sell a Business You can find us on the web at www.bizgropartners.com
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You receive more money selling a business in one day than running one for a full year. Further, well executed Mergers and Acquisitions is the fastest, safest way to grow a small or mid-sized company. In today’s economy, it is becoming more challenging to strictly rely on organic growth strategies to grow a small company. Competition is fierce, our economy has become global, and new regulations have closed many avenues for growth. Under these conditions, acquiring a company can be a viable solution for those entrepreneurs who are interested in accelerated growth. Other business owners remain in businesses that they have failed to grow in recent times and simply do not have the lust for their business they once had. Moreover, many do not want to make the kind of investment required to grow the company. For these owners, selling all or part of your business can be the perfect strategy to retain the value they have built over the years. At our workshop, you will learn the following: A simple formula for valuing any privately held company. If you understand this valuation formula, selling or buying a company becomes a lot easier to execute. How to determine whether you should be a Buyer or Seller in today’s marketplace? How to prepare your business for a business acquisition or business sale transaction strategy? Why banks and investors are willing to part with money for viable business acquisition opportunities? How to raise money for any acquisition without having to invest a single dollar of his own? Pre-sale Planning: It’s not the gross proceeds but the net that you keep. Post Sale Strategies: How to grow your nest egg so that you can provide a comfortable lifestyle for you and your family? And a whole lot more……
Transcript of How to Amass a Fortune by Strategizing to Either Buy or Sell a Business
How to Amass a Fortune by Strategizing Either to Buy or Sell a
BusinessYou can find us on the web at www.bizgropartners.com
Housekeeping
Speaker
How Do You Know What a Privately Held Business is Worth?
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There are 2 Elements of Business Enterprise Value:
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Earnings + Goodwill Transferability= Business Enterprise Value
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Definition of Earnings:
“Profitability of a company which includes owner’s compensation, reported profit, one time expenses, owner perks, depreciation minus real equipment replacement costs, and amortization.”
Minus“The cost of replacing owner(s) labor. i.e. New President’s Salary or cost of retaining owner(s) to run the company.”
Typically Earnings will determine the price of a business since a business will trade for a multiple of its earnings. A recent study states that 90% of privately held businesses producing under $50MM in revenues sell between 2 and 5 times EBITDA.
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General Rule:
The higher the earnings, the higher the multiple, the higher the enterprise value.
Without earnings, your value is reduced to a discounted value of your tangible assets i.e inventory, accounts receivables, equipment, minus all your business debt.
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Definition of Goodwill Transferability:
“The likelihood that the earnings of a business will be fully inherited by a 3rd party buyer once a transaction is consummated.”
In other words, Goodwill Transferability brings to light the transaction risks associated with a deal.
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Goodwill Transferability Risks:
1) Concentrations issues (Customers, Product, Suppliers, Salespeople). 2) Downward trends in sales.3) Expiring Customer Contracts.4) Non-recurring revenues.5) Business too dependent on owner(s)
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How Does A Seller of A Business Get a Great Deal?
1) Focus on increasing Earnings2) Reduce transaction risks and particularly focus on creating recurring revenues through a business that does not need your day to day involvement. 3) When it is time to sell, focus on tapping into the total universe of buyers. 4) Build a great relationship with the Buyer.
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How Does a Buyer of a Business Get A Great Deal?
1) Look at a lot of deals. 2) Understand business valuation (Earnings + Goodwill transferability)3) Create a systematic marketing process for finding business acquisitions.4) Understand the differences between a Fold in transaction v a Stand Alone Transaction.
5) Think like a Private Equity Group.6) Build a Great Relationship with A Seller.
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