Why 2014 Could Be a Great Year to Sell Your Business

In the entrepreneurial ecosystem, business owners looking for an exit strategy are likely to find 2014 an optimal year for selling.- Peter Lehrman, Entrepreneur Magazine

By Heath Frantzen
Delta Business Services


Timing any market is always a tricky proposition, especially in this era of diminishing returns and lowered expectations.  The market for selling a small to mid-sized business is no exception.

Anyone considering selling a business, especially boomer business owners thinking about retirement, should have a list of compelling reasons why they want to sell and a plan to help them do so.


For most business owners, the timing will never be perfect, so waiting until the ideal moment to sell could be an impractical course of action.

However, certain indicators are pointing to a better than average success rate for selling a business in 2014.  That’s why it’s a good idea to employ strategies right now that will help you get the maximum money for your business.

2014:  The “Year of The Seller?” 

Three or four years of turmoil in a struggling economy makes some business owners understandably cautious when it comes to optimistic projections for 2014.

However, there are some very good indicators pointing to the possibility of a perfect selling environment for at least the next 18 months or so. 
 
For example:

 

• The majority of businesses have experienced increased profitability for the past 2-3 years.

For numerous business owners, 2008-2010 were flat as far as profits were concerned.  Those who survived this period felt lucky to break even, much less put profits on the books.   With demand down across the country for services and solutions, business owners were unhappily treading water 

However, the recession is slowly retreating, allowing businesses to recover.  Many are now in a position to show the three or four years of solid growth that qualified buyers want to see when they build projection models.

The ability for a company to demonstrate upward trends in their financials shows prospective buyers that it is right to make positive projections for future growth.  This in turn gives owners better valuations and does wonders to make the deal viable.  Buyers want to know that a business they purchase is poised to survive even a serious economic downturn.

•     Low interest rates (for a little while longer, anyway)

You don’t have to have an advanced degree in economics to understand that the artificially maintained low interest rates we now experience will soon be a thing of the past.   
Forecasters have been fretting that the Federal Reserve will be forced to curtail its’ bond-buying program soon.  A growing number of experts now say that 2014 could be the year when that finally occurs.  

This means, naturally, that waiting too long to sell might mean an owner will see higher interest rates and a lower price for his or her business.

The reason for this is that interest rates always have a direct impact on the price of capital used to purchase a company.    Buyers who rely on loans to acquire a business will feel the sting of these rising rates since earnings are used to pay the interest on loans.  An increase in the price of capital will almost certainly lead to lower valuations for businesses.

It makes sense that the more expensive it is for buyers to get capital, the less willing they are to pay top price for a business.  As soon as rates begin to rise in 2014, there will be a negative impact on business valuations.
 

• ·         Low levels of debt and lots of positive cash flow

Credit Suisse reported in February, 2014 that 73 percent of U.S. companies and 56 percent of European companies have incredibly low levels of debt on their balance sheets compared to their total market capitalization.   Private equity companies are awash in cash, with nearly $1.1 TRILLION in cash on hand.  At the same time, levels of corporate debt are falling to new lows.  

So, what does this mean for you as a business owner who is seriously considering selling?

Well, for one thing, since all this cash needs to go someplace other than under the CEO’s mattress, private buying groups will be out en masse looking for successful businesses they can buy and from which they can see immediate cash flow.  

For another thing, there is a natural mood elevation that goes on when so many dollars are in play.  The old saying “a rising tide lifts all boats” is applicable here.  Every billion dollar mega-deal that goes down makes every smaller business deal more attractive.  Small businesses are sure to benefit from the optimism that comes with any boom.

•  Changing demographics are pushing boomers to sell.  

The first half of the “Baby Boomer bubble” (2005-2010) has passed.  During that period, older Boomers were able to sell to younger boomers, although the success rate was still a mere 3%.   

However recent research indicates that the number of boomer owners indicating they wanted to retire increased from 50,000 in 2001 to over 750,000 in 2009/

It is possible we could see over one million businesses go on the market in the next 10-15 years in a transition tsunami.

If this holds true, then it makes sense to sell ahead of the herd and reap the benefits of the current buying frenzy fueled by low debt levels and loads of cash.

Even if you think you aren’t ready to leave your business yet, you should plan as if you are. Positioning your business to sell is never a bad idea or waste of time.

By crafting a well-thought-out exit plan, you will be prepared if circumstances (either good or bad) push you to sell, or if you get an offer from a qualified buyer that you just can’t afford to pass up.

You never know, maybe 2014 will be year you make a profitable transition from your business and start enjoying everything for which you’ve worked so hard.

It really isn't too good to be true...

Why the Delta Solution is NOT “too good to be true”

By Heath Frantzen

Delta Business Services

www.deltabusinessservices.com

When business owners and potential buyers learn how the Delta Solution is rewriting the rules for business selling, giving them an opportunity to sell their businesses more quickly, with fewer hassles, while creating a lifetime stream of income...

they are usually skeptical.

After all, most of us have come to believe the old chestnut, “If it seems too good to be true, it probably is.”

The idea that one company has workable, proven solutions for all of the problems plaguing the sale of a business causes some buyers and sellers to become a bit skeptical.

I can understand that.  After all, I’ve gone on and on about how the Delta Solution solves all of an owner’s concerns when selling a business.  That’s true enough, but there are also lots of problems for a potential buyer.  How does Delta address issues that buyers have that often result in “sale fail?”

Let me give you a snapshot of a few of the top issues facing those who want to buy successful businesses.

The growth cycle for businesses mirrors the growth cycle for people.  They’re born, they grow quickly, hit adolescence (which is a pretty funky time), and then reach young adulthood where they can usually take care of themselves without someone watching them every second of the day.  Young adulthood is followed by middle-age, where everything starts firing on all cylinders.  Businesses have similar experiences in this “prime” period. 

Then, something strange happens.  People experience a “mid-life crisis,” a time when life seems to be an endless treadmill where one neither advances nor retreats and where longings are difficult to define and nearly impossible to satisfy.  In business, this period of angst-filled transition is called “No Man’s Land”.  It is a place where boulders can roll down on both sellers and buyers.  

Let’s take a look at some of the more obvious barriers to a successful sale and see exactly why the Delta Solution is the best, indeed the only, way to overcome them.

1. Falling into the “Capital Gap”

The capital markets are interesting creatures.  I’ve been operating in the capital markets for the better part of 25 years now and even won a National Champion of Fundraising title. I can tell you unequivocally that capital likes what it likes, and hates what it hates.  By that I mean deals have to meet certain criteria to attract particular types of financing, and if they do, there are usually many sources.  But the ones that don’t meet all of these certain criteria usually can’t attract a single source of capital.  This makes financing for businesses (the life blood of a selling a business) in the “Capital Gap” a tricky proposition.

There are three general categories of businesses: small, medium, and large.  Small businesses get financed mainly by commercial banks that view business loans as individual loans and qualify the business owner based on personal criteria.  These banks can make some loans, but only up to certain limits—no more than the borrower can personally repay.  Those are critical words…“personally repay”.  For most banks, there is a limit of $500,000 for bank loans, and this constitutes the “floor” of the capital “gap”.[1]

For large businesses, the opening financing amount for capital tends to be about $5 million (the “ceiling”).  Institutions interested in financing these kinds of business deals are mainly commercial banks (the commercial division), venture capital companies, corporate financing arms, and private equity companies. 

The problem for these institutions is that loan acquisition and servicing costs combined with risk-adjusted returns to the investors prevent these institutions from profitably making loans at anything less than a 25% rate of return (interest rate).  Obviously, this is a non-starter for businesses as these usurious costs of capital would put the enterprise into a chokehold.[2]

“So what does this mean, Heath?” you may be asking. Well, what I am about to tell you is the sad truth for mature small and medium businesses who are stuck between the floor and the ceiling.

There is simply no capital for your deal. Zilch, zip, nada…

It’s a sobering reality, and it underscores the number one problem for business buyers.

It is a big problem too, because the logical extension of this reality is that not having capital for buyers also means that there is no capital for sellers either. Both buyer and seller are in a world of pain due to this fact.  The Delta Solution addresses this lack of capital in a real way by eliminating the middlemen (banks, brokers, finance companies) who drain the capital well dry.

---

[1] No Man’s Land, by Doug Tatum, Ch. 5 pp. 125-126.

[2] No Man’s Land, by Doug Tatum, Ch. 5 pp. 126.

 

2. You can’t structure a deal to make sense

Even with an “all cash” deal structure on a $1 MM cash flow acquisition (which NEVER happens by the way), a seller would get, say, $3 MM in cash up front and pay at least half of that to brokers, lawyers, accountants, lenders and tax authorities leaving them with about 1.5 MM (if they’re lucky). 

Only if a seller is then also very good at investing and minimizing broker/transaction fees on the investment they then buy, they might be able to net $150 K per year (10%), which is then taxable and subject to inflation.  Going from $1million in income a year to $150,000 is a big hit.  I’m fine with downsizing, but I don’t think anyone wants to downsize that much!  

Even if a seller took back a 5-year seller note at a market rate of interest, they would get approximately $360 K for the first five years, but the tax authorities would take out taxes on the capital gains and income taxes on the interest, leaving a seller with “skin and bones”.  Oh, and did I mention it was only a 5-year note?  The checks stop coming at that point and the asset column becomes bone dry.

Conversely, out of a buyer’s 1 million in cash flow comes the $360 K in debt service to the seller and approximately $600K to the bank, leaving a paltry $40 K net for the first five years for a buyer to put in his pocket— no joy for any professional business buyer, particularly given the risks involved. In this instance only the broker, the banker and the taxman make any money on the deal.  Delta eliminates this situation by cutting out the middle men altogether.   After all, why should the broker, the banker, and the tax man get all of the profit from your hard earned efforts?

3. A buyer has to make personal guarantees to a bank or other lender.   

Another issue buyers must deal with is that they have to make personal guarantees to banks and other lenders.

Such guarantees provide zero benefit to sellers.  Any astute buyer will structure their finances in such a way that a deal going bad won't sink them.

Bankruptcy protection ensures that sellers won't get paid out of a personal guarantee.  Banks know this but use it as a limitation on loans, and will often only loan to wealthy people with exposed assets.  

This really puts the buyer at risk for 200% of the guarantee—100% from the business plus another 100% from additional assets at risk.  Delta’s response to this untenable situation is to collateralize its guarantee. 

By doing this, we minimize the risk of default for the seller and ensure that the assets pledged aren't protected via the bankruptcy statutes, as they would be with a personal guarantee.  This makes it real and ensures that it won’t take lawyers to get recourse if a deal goes sideways.

At Delta Business Services, we knew we had to fix the financing issues for buyers and sellers in order to solve a big problem in the market place.  With Delta, the financing is built right into the deal, which greatly streamlines the entire process for both buyer and seller.

The reason we're willing to do this is simple: it is a great deal for us as well as for the seller.  Our unique proprietary selling platform allows both buyer and seller to avoid the hassles and stress of the sale and achieve their mutual goals. 

And now you see how the Delta Solution is not “too good to be true”.  It’s a real solution to real problems. facing baby boomer owners who want to successfully exit their businesses.

Find out more- get our free reports and other resources:

http://deltabusinessservices.com/welcome/

Sometimes "too good to be true" is both TRUE and GOOD

re: talking yourself out of the ultimate selling solution...

by Heath Frantzen

Delta Business Services

www.deltabusinessservices.com 

If you've been in business for any length of time, you've certainly earned your right to a healthy dose of skepticism.

Most business owners have endured more than their fair share of eye-glazing, brain-numbing sales pitches and vendor-sponsored events.  They've been pushed to try numerous products, procedures, and systems; many of which have failed to deliver anything but mediocre results.

That's why, even though you might be near retirement and more than ready to start the process of selling your business, solutions presented to you that promise a better, more financially lucrative, and less stressful way of doing so put you on the immediate defensive.

"Too good to be true." "Heard it before." "If this works so well, then why doesn't everyone do it this way?"

These are just a few of the familiar, yet understandable, responses I get from business owners every day when I explain my powerful system for selling businesses.

When I tell Baby Boomer business owners who are looking to sell their businesses that they can do so without using business brokers, in less time than they thought possible, and for the fairest, most reasonable price and that they can create a lifetime income which they cannot outlive...they simply don't want to believe me.   

I admit, our process is a lot different from the old school way of selling and the system we've created does seem almost magical.  

However, it is proving itself again and again with business owners just like you who want or need to sell their businesses.  These Boomer owners realize that for most people, selling a business is a one shot deal.  If you make mistakes you could very well end up running out of money in retirement.

That scenario was simply not acceptable to the professionals at Delta Business Services.  We decided  that we had to find a simple, effective cure for the pitiful 3% success rate for sellers of businesses.  After all, the number of Baby Boomer owners who want to retire, but cannot find qualified buyers, is growing exponentially.   It was evident to us that a better way had to be found-quickly.

My partner, Patrick McDonald, and I dissected over 300 potential selling deals and came to some startling conclusions about why the current model of selling businesses is broken and can't be repaired.  We figured out exactly what needed to be done to construct a new one and we put some of our findings into free reports, like our newest one, "11 Steps You MUST Take Now To  Sell Your Business Successfully."

Our system isn't magic, but rather a carefully crafted blueprint for selling success born out of our own experiences buying and selling businesses.  

The Delta Solution is centered around achieving the best results possible for Baby Boomer owners and their families and is built on a solid foundation of business acumen, well-refined skills and tools, and reasonable expectations.  

Delta Business Services isn't a business brokerage (in fact, we believe brokers are partly responsible for low success rates) but rather a dedicated group of professionals with real world business experience.

Check out  this short video that explains how we partner with Baby Boomer Business owners to achieve incredible results.

https://www.youtube.com/watch?v=ZHnrYzHYikw

In addition to having the tools and skills necessary to reach a seller's goals, Delta Business Services adds several intangible elements to the mix

1. We LOVE what we do.  We are grateful for the opportunity to locate, acquire and manage great businesses.  It gives us experiences we could have never otherwise had.  We actually enjoy writing checks to our sellers every month, helping them ensure that they won't outlive the proceeds from their sale.

2.Our unique referral program can provide substantial income to our referring partners for the deals they send our way.   We love sending out these checks, too!

3. Young entrepreneurs hold a special place in our hearts.  Our system gives qualified young people the opportunity to buy successful businesses for nothing down, without having to provide a personal guarantee or "sweat equity."   They are able to pay off the business from the proceeds with clear backing, training, and mentoring from the Delta Team, which is 100% vested in their success.

4. While we know there is ALWAYS some risk and the possibility that a business might not survive long term, we do everything possible to mitigate risk.  Our primary focus is on making any business we acquire even more successful than it was before.  If for some reason that isn't possible, we cover our sellers. (and stick Wall Street with the bill!)

Uh oh... 

Now the Delta Solution really must sound too good to be true.

But, it isn't.  Please check out all the resources mentioned in this article.  Also, take a look at some of  the real life testimonials posted on our Youtube channel.

https://www.youtube.com/channel/UCjufR0LbcISUdsOMcQM-uzg

You'll see some Baby Boomer business owners who were skeptical, just like you.  These owners soon discovered that the Delta Solution is truly the only effective method for selling a business that allows you to get the right price for your business, in less time, with less stress... while guaranteeing you a lifetime stream of income.

by Heath Franzten
Delta Business Services

In working as a consultant to Baby Boomer business owners who want to sell, I often have people say to me, "Heath, I only wish I had started thinking about selling years ago." What they are saying essentially is that "Proper planning prevents poor performance." Nowhere is this cliché truer than in the world of business exit planning.

The fact is: the majority of baby boomer business owners never take the time to plan for the inevitable day when they will want or need to leave their businesses. These successful business owners come up with every imaginable excuse to avoid this strategic imperative.

The net result of neglecting business exit planning, of course, is that when the time comes to leave (and it will come, no matter what you want) sellers are backed up against a wall and forced to make hasty decisions. These decisions seldom result in the most favorable outcome for the seller and create a lot of unnecessary stress and heartache.

Often, the same issues that make it difficult to discuss things such as funeral planning and life insurance creep into discussions of business exit planning. To some people, thinking about exiting a business is akin to thinking about death- the last great taboo in American society. Boomer owners also fail to plan to exit their businesses due to inaccurate assumptions such as believing that a spouse, significant owner, child or grandchild will automatically take over the business, or that they can sell the business to their employees when the time comes.

Owners also assume that the personal estate planning they have done will factor in the issues related to their business. While the two things are certainly connected, the strategies for achieving success are quite different. Your estate planning attorney may be exceptionally competent at keeping as much of your estate out of Uncle Sam's hands as possible but he or she may know little to nothing about how to guide a successful business sale and create a lifetime stream of income in the process. It pays to have an acquisition expert on your team to create a separate and distinct plan for selling your business.

Another reason for procrastination in planning business exits is that the entire procedure seems overwhelmingly complex. Most business owners are experts at running their businesses, but they realize they haven't a clue about how to successful sell one. Often times, owners approaching retirement realize they need to do something, so they read articles, listen to business experts, watch videos and... get very depressed.

An owner quickly concludes that selling a business in today's economy is extremely complex. They take one look at their disorganized office and messy, incomplete financials, their neglected infrastructure and lack of systems and procedures, and become discouraged, with no clue where to even begin. I am guessing the feelings are something like those of a housecleaner hired to clean a 50 room mansion that hasn't been cleaned in 10 years.

Business exit planning doesn't have to be this way, though. With a little help from some trusted mentors, you can start planning now and avoid most, if not all, of the mistakes other owners make when leaving their businesses.

Imagine, having a blueprint in your hands months, even years before your exit; a map of exactly what you need to do to achieve a transition that is simpler, faster, and more lucrative.

Imagine having a trusted expert's guidance, someone who does the best job possible for you because he or she does not work on commissions and is totally versed in the procedures for successfully selling a business. Only around 3% of businesses on the market sell successfully.

Wouldn't it be nice if you had a way to increase your odds of selling dramatically, and decrease the amount of time your business is on the market?

 If you could sell your profitable business for more money, in less time, with a lot less stress, and create a stream of income for retirement that you could not outlive, is there any reason you would not want to do so?

There is a way to do all these things and more if you have the right guidance from seasoned professionals who can help you put together a realistic, workable exit plan. Consultants and acquisitions experts know that you cannot overstate the importance of having a such plan in place before deciding to sell.

 This is especially true for Baby Boomer owners who are within 2-5 years of retirement, whether or not you plan on leaving the business to a family member. An even better idea is if you build your company with a view to selling it from the get-go. After all, a business exit blueprint isn't set in stone, it's an organic part of your strategic planning process that can be changed and amended as your needs and desires change

The most important thing is that you need to start. To help you get started creating the perfect business exit strategy, Delta has produced a comprehensive check list you can use as a guideline. This list will do a lot to help you start putting together the resources you need in order to write your plan.

You can download it at http://www.deltabusinessservices.com.

Or call Delta's office M-F (Central time) to request a copy. (210) 369-4161. If you have any questions or need help, please reach out to us either through email or by phone.

Live near Austin, Texas? Don't miss this special event!

The Demographic Shift That Will Affect Us All, Especially Baby Boomer Business Owners

re: economist Harry Dent explains how to weather the upheaval

Will Leaving Your Business Turn Your Family Into Hatfields and McCoys?

by Heath Frantzen
Delta Business Services

Will Your Family Become Like the Hatfields and McCoys When You Sell Your Business?

Selling a business is a difficult, complex, and frustrating undertaking, as anyone who has run the selling gauntlet will tell you.   The process is rife with dangers lurking below a seemingly calm surface, just waiting to rise to the top and kill the deal.

Pitfalls, most especially interference from intermediaries such as attorneys, business brokers, and lenders, can toss monkey wrenches into even the most well-designed exit plans, resulting in more headaches for the seller.

One of the commonly overlooked situations with the potential to wreck a sale is conflict within a seller’s family.

By doing a few simple things before you decide to sell your successful business, you can avoid family feuding that will surely impede the selling process and quite possibly cost you money as well.

Don’t keep secrets

Resist the temptation to leave your family out of the equation.  Don’t wait until the day before the sale closes to mention that you’re leaving the business.   Keeping it under wraps might seem to be a great way to avoid problems, but in reality it usually only serves to create more conflict, hurt feelings, and resentment.

Have a trusted third party involved

Remember this is first and foremost a business.  It’s important to take as many emotions out of selling as possible so that you do not make mistakes that will wind up costing you time and money.  For this reason, having someone outside your inner circle, such as an experienced consultant, CPA, or business mentor can be crucial to your success.

Don’t make assumptions   

A big mistake I see business owners making is that they assume certain things about their heirs which may or may not be true.   Common assumptions are that their kids are eager to run the business, that they want to run the business but lack the necessary skills, or that they have no interest at all in the business.  The best way to know for sure is to meet with your heirs and ask them. 

Reconsider the “fairness” issue

Many business owners throw out common sense in favor of making things fair.  Intellectually, most of them are aware that life and business are often not fair.  They tend to ignore this truth, however, when their kids or grandkids come into the equation.  That’s why normally lucid-thinking business owners will take up the fool’s errand of trying to make every aspect of the sale fair to every member of the family.

Maybe these owners remember what used to happen when their heirs were little kids, engaging in temper tantrums and meltdowns whenever their childish notions of fairness and equity failed to be implemented.  Perhaps they see this striving for fairness as a path of least resistance.

Whatever your reasons for wanting to be fair, you must understand that it might not be possible to achieve in your particular situation.    Having an exit plan in place long before you need it and discussing this plan regularly with your family will do wonders to help you avoid hurt feelings and misunderstandings. 

If your heirs will be involved in running the business, try introducing them gradually over a period of time.  That way employees (some of whom might be siblings or other relatives) customers, and vendors can get used to the idea of working for or with the future new owners.  Even if your children are young, it’s not too early to show them what you do on a daily basis and to observe their interests, strengths, and weaknesses.  

Whatever you do, be sure to keep your family in the loop with regard to your future business plans; even if you think you want to work until they carry you out.