What is the Best Time to Sell Your Company?
The old saying that “timing is everything,” usually applies to selling one’s business. Ultimately, every business owner will have to exit their business, and the sooner one prepares to sell, the better the final results will be.
With each passing year, more and more baby boomers are reaching retirement age. In many cases, this means that they have no choice but to sell their businesses. The time is now upon us where a simply massive number of businesses will be put up for sale.
Statistics and studies back up this claim. Studies show that people born between 1946 and 1964 make up 40% of small business owners, and about 10,000 baby boomers retire every single day. 1 Business owners who get out in front of this pending avalanche stand to benefit considerably.
There are many other good reasons to sell. Many business owners find that general burnout, and especially the burnout associated with operating a business during the pandemic, is prompting them to think about selling. Burnout isn’t just unpleasant for a business owner, but it can also be dangerous for the well-being and longevity of the business itself. An owner experiencing burnout is an owner who is unlikely to make the best decisions and seize on new opportunities. The results of burnout can be staggering and range from a loss of customers to getting caught off guard by new and existing competitors. In the end, burnout can dramatically decrease the value of a business or even destroy it.
The economy is bouncing back from the pandemic, and that can mean that right now is a great time to sell. If the covid pandemic reinforced any truism, it reminded us that the world and regional and global economies can change in a heartbeat. There are many complex variables on the table.
Simply stated, we are in a period of uncertainty, and that makes predicting the future of the marketplace harder than in recent decades. These facts, combined with the current strong economy, point towards now potentially being a good time to sell your business.
Most business owners have never sold a business before, but instead, they have spent a sizable chunk of their professional careers building up their business. As a result, most business owners don’t know what it takes to successfully sell a business. Working with a proven business broker, one with years of experience, is a smart way to evaluate your current situation and determine if now is the right time to sell your business.
Copyright: Business Brokerage Press, Inc.
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Why is Employee Satisfaction So Important?
Your employees are the heart and soul of your business. Therefore, if you want a thriving business, you need to put their satisfaction at the top of your list. After all, if your employees are not happy, this level of negativity will eventually spread to your customers and clients. Before you know it, you may see your level of profits and success decrease. Any time you spend thinking about positive changes in your workplace will be well worth your time and energy.
Hiring Processes
Be sure to pay careful attention to your hiring processes and the ways that you evaluate candidates. When you hire a new employee, this is the start of a relationship that will ultimately impact your business in a wide variety of ways. It’s worth the time to make the job attractive and be as accurate as possible when it comes to your job descriptions. Make sure that anyone at your company who is involved in the interview or selection process is professional and thoroughly coached on best hiring practices.
Steps to Ensure Employee Satisfaction
Once your employees are on board, it’s a good idea to take active steps to ensure that they are positive about their jobs. Oftentimes, business owners make the mistake of assuming that their employees will naturally be dedicated to their jobs and the tasks at hand. Unfortunately, this is not always the case. Therefore, you must take steps to ensure that your staff members feel motivated.
Here are some ideas:
- Offer competitive compensation
- Offer benefits
- Show appreciation for employee contributions
- Offer rewards such as praise and bonuses
- Offer days off for holidays, birthdays, and vacations
- Be respectful of all employees
- Ask staff members for their feedback and implement changes
- Provide opportunities for career development
- Help build relationships among staff members
When your employees are not happy, their stress and negativity will undoubtedly rub off on your customers. Further, their unhappiness will be more likely to make them miss days or work, whether it’s due to illness caused by stress or just the fact that they are unmotivated. Further, satisfied employees will be more likely to be productive and stay with your business for a long time.
Copyright: Business Brokerage Press, Inc.
The post Why is Employee Satisfaction So Important? appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
Valuating a Business: SDE or EBITDA
SDE and EBITDA are both financial metrics used to assess the profitability of a company, but they focus on different aspects of a company’s financial performance.
SDE stands for “Seller’s Discretionary Earnings.” It is a measure of a company’s earnings that is calculated by adding up the net income, owner’s salary, and other non-cash expenses such as depreciation, amortization, and interest expense. SDE is often used to value small businesses or to determine how much income a business generates for its owner. SDE considers the cash flow available to the owner after all the business expenses have been paid.
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” It is a measure of a company’s profitability that shows how much earnings the company generates before accounting for certain expenses. EBITDA is often used in financial analysis to compare the profitability of different companies, as it eliminates the impact of different financing and accounting strategies. EBITDA does not include interest expenses, taxes, depreciation, and amortization, which are considered non-operating expenses.
In summary, SDE is a measure of the cash flow available to the owner of a business, while EBITDA is a measure of a company’s operating profitability. SDE includes owner’s salary and other non-cash expenses, while EBITDA does not include interest expenses, taxes, depreciation, and amortization.
How to calculate the SDE
To calculate the SDE you need to start with the company’s net income and add back certain expenses that are not essential to the ongoing operations of the business but may be necessary for the current owner to maintain the current level of earnings.
Here’s the formula to calculate SDE:
SDE = Net Income + Owner’s Salary + Depreciation and Amortization + Interest Expense + Non-Recurring Expenses + Other Non-Essential Expenses
Here’s a breakdown of each component:
- Net Income: This is the company’s total revenue minus all expenses, including operating expenses, interest, taxes, and any other charges. It is the company’s earnings after all costs have been considered.
- Other Non-Essential Expenses: These are expenses that are not necessary to the ongoing operations of the business but may be necessary for the current owner to maintain the current level of earnings. Examples may include travel expenses, entertainment expenses, or subscriptions to professional organizations.
- Owner’s Salary: This is the salary paid to the current owner of the business. This is added back because a new owner may have a different salary requirement or may choose to take their salary in a different form.
- Depreciation and Amortization: This is the non-cash expense that reflects the wear and tear on equipment, buildings, and other assets.
- Interest Expense: This is the amount of interest the company pays on its debts, such as loans, bonds, or other financing arrangements.
- Non-Recurring Expenses: These are one-time expenses that are not expected to occur again in the future, such as legal fees, restructuring costs, or a large purchase of inventory.
By adding up these components, you can calculate the SDE, which provides a measure of the cash flow available to the owner after all business expenses have been paid. This metric is often used to value small businesses or to determine how much income a business generates for its owner.
How to calculate EBITDA
EBITDA is calculated by taking a company’s earnings before interest, taxes, depreciation, and amortization. The formula for calculating EBITDA is as follows:
EBITDA = Net Income + Interest Expense + Tax Expense + Depreciation + Amortization
Here’s a breakdown of each component:
- Net Income: This is a company’s total revenue minus all expenses, including operating expenses, interest, taxes, and any other charges. It is the company’s earnings after all costs have been considered.
- Interest Expense: This is the amount of interest the company pays on its debts, such as loans, bonds, or other financing arrangements.
- Tax Expense: This is the amount of taxes the company pays to the government on its profits.
- Depreciation: This is the decrease in value of a company’s assets over time. It is a non-cash expense that reflects the wear and tear on equipment, buildings, and other assets.
- Amortization: This is like depreciation, but it applies to intangible assets, such as patents, copyrights, or trademarks. It reflects the decrease in value of these assets over time.
By adding up these components, you can calculate a company’s EBITDA. This metric is often used by investors, analysts, and lenders to evaluate a company’s financial performance, as it provides a measure of its operating profitability before accounting for certain expenses.
When to apply SDE
For main street businesses, it is typically more appropriate to use SDE rather than EBITDA for valuation purposes. The reason for this is that SDE considers the owner’s salary and other non-cash expenses that are unique to small businesses, which may not be captured by EBITDA. This is important because small businesses often have a significant owner involvement and the owner’s salary is a major expense that affects the profitability of the businesses.
In addition, main street businesses may have different financing and accounting strategies than larger businesses, which can impact their EBITDA calculations. SDE, on the other hand, provides a more accurate representation of the cash flow available to the owner after all business expenses have been paid.
To sum up, SDE is a more appropriate valuation metric for small businesses because it reflects the unique characteristics of these businesses and provides a more accurate picture of their financial performance.
When to apply EBITDA
EBITDA is often used to value mid-market businesses for several reasons:
Comparable Metrics: EBITDA is a widely accepted metric for valuation and is often used as a benchmark in the market. This means that it is easier to compare the valuation of one business to others in the same industry or market.
Focus on Operating Performance: EBITDA focuses on the operating performance of the business by excluding non-operating expenses like interest, taxes, depreciation, and amortization. This provides a clearer picture of the business’s operating profitability, which is important for investors and potential buyers.
Flexibility: EBITDA provides flexibility in the valuation process as it allows for adjustments to be made for one-time or non-recurring expenses that may not reflect the ongoing operating performance of the business. This flexibility allows for a more accurate valuation of the business.
Investor Preference: Many investors prefer using EBITDA to value mid-market businesses because it allows for easier comparison to other businesses and is seen as a more objective metric.
In conclusion, EBITDA is a more appropriate valuation metric for mid-market businesses because it provides a clearer picture of the operating performance of the business, is widely accepted in the market, and allows for flexibility in the valuation process.
Alfredo Gonzalez
International Business Group
Coral Gables, FL
Alfredo Gonzalez is an economist from the University of the Pacific and holds a degree in economic development from Vanderbilt University. Additionally, he obtained a law degree from the Universidad Santa María (USM) de Caracas.
In Venezuela, he served as the head of the Superintendency of Foreign Investments (SIEX) and was the founding-president of the Bank of Foreign Trade (BANCOEX).
Currently, Alfredo serves as the managing director of his own business brokerage firm in Coral Gables, Florida. He is an active member of the Florida Association of Business Brokers (BBF) and the International Association of Business Brokers (IBBA).
The Lease Can Prevent Your Transaction from Closing
Get your lease ready before you sell! Instruct your seller to start thinking about the future at lease renewal time.
Get your lease ready before you sell! Instruct your seller to start thinking about the future at lease renewal time.
Over 80% of the return you will make on your business will come when you sell. Do not let your landlord oversee your transaction.
The time to negotiate is when you are leasing or renewing a lease. Keep these things in mind at the time of renewal. At other times you are bound by the terms of your lease.
3 things you can do when negotiating a new lease.
1. Make sure the lease is freely assignable. You do not want to go to the landlord for approval to sell. This can kill a deal and all future deals.
2. Build defined renewal options into the lease. A buyer using SBA financing will need a lease agreement with a term or options as long as the loan term. This is typically 10 years.
3. Do not personally guarantee the lease. The personal guarantee puts the tenant’s own assets on the line should their business not be able to pay the rent or other lease obligations.
Preparing your Buyer for discussions with the landlord:
- Importance of properly timing your start and finish dates.
- The lease is the last item of due diligence.
- The buyer should be in contact with the landlord within 24 hours of DD acceptance.
AND DON’T FORGET YOUR COMMISION!!!
As a Licensed Real Estate Agent, you have just negotiated a real estate lease. This is standard practice. Don’t leave money on the table!
Roberta Caputo
President & CoFounder, Capital Business Solutions
Deerfield Beach, FL
Licensed Broker, Alabama, Florida, and Kentucky
- State Vice Chair, Business Brokers of Florida
- Past President, South District, Business Brokers of Florida
- Proud Recipient of the BBF Chairman’s Award
- Multiple Winner of the Top Dealmaker Award
- 18 Year Annual Winner of the Million Dollar Plus Award
- CBB (Certified Business Broker)
- CMEA (Certified Machinery and Equipment Appraiser)
- CSBA (Certified Senior Business Analyst)
- Author and Material Expert for Kaplan University – Thirty Hour Training Series for Business Brokerage – Three Part Training Series for Succession Planning
- Member of APMAA (Association of Professional Merger and Acquisition Advisors)
- IBBA (International Business Brokers Association)
- Business Advisory Council
- Society of Business Analyst
An Award-Winning Event Indeed
Our recent awards ceremony was a fantastic event to recognize and honor the BBF’s best of the best and to recognize several individuals for their exemplary dedication to our great association. In addition, the event served as a testament to the exceptional skills of the top-producing business brokers and showcased the power of co-brokering. Collectively we continue to make our mark in the world of business intermediaries.
It was great to see so many familiar faces and quite a few new ones. Even with the early morning awards breakfast starting time, there was great excitement from the over one hundred and thirty folks in attendance. I was honored to have Mrs. Roberta Caputo, BBF Vice Chair, as my co-host of the event. Hearing her share background information and particular details of many award recipients was fantastic. Her insight and glowing personality were the perfect match for this special occasion.
The BBF had record-breaking 209 top-producing award winners for the year 2022. As an association, our top producers sold just shy of one billion dollars in businesses, which is an outstanding accomplishment. What makes these numbers even more exceptional is our business intermediaries co-brokered almost thirty percent of the 1161 deals closed last year. Demonstrating yet again the value of co-brokering to our buyers and sellers, along with other intermediaries.
The list of winners is quite long, too long to share here in this article. However, the complete list of winners is showcased on the BBF member section of our website, and I encourage each of you to review this list to congratulate your fellow members on their extraordinary achievements. With that said, I want to highlight the best of the best across the whole state, as it takes a considerable amount of work to outperform all the highly skilled professional intermediaries in our association.
From the over three hundred plus co-brokered deals across the state, Rick Gruber in the Tampa District took the “Most Co- Brokered Deals” award. In addition, Tampa District gave us another top producer of closing fifty-four deals, awarding the “Most Done Deals” for the state going to George Antonaklas. Finally, the North Florida District had the intermediary who produced the “Highest Deal Value” for the whole state, John Geiwitz. We are honored to have such talent in our association, raising the bar for next year’s award winners.
I would be remiss if I didn’t acknowledge the accomplishments of our service award recipients. As the Chairman, I must decide who I felt impacted my role in leading the BBF. While there were many people to choose from, however, there were two individuals that stayed at the top of my list, so I decided to honor them both. Therefore, I was pleased to bestow the “Chairmans Award” to Mr. Mark Habib and Mr. George Rosen. This is the first year that we’ve recognized one of our affiliates. Many of us in the association know this gentleman as one of the best closing attorneys in the state. For over 40 years, he has closed hundreds, more likely a thousand deals. What is little known is that Mr. Steven Kutner has been quite generous of his time to our association, providing legal advice where needed, and has been instrumental in drafting quite a few of the documents we use daily in our deals. For this, we honor Mr. Kutner with the “Exceptional Service Award” and wish to thank him for his service and dedication to the BBF over the past 23 years.
The highest and most prestigious award in the BBF was created in honor of one of our founding members Mr. Ken Stebbins. This award is passed from the 2021 recipient Mr.John Hoyt to recognize the member who has shown exceptional dedication and sacrifice to the BBF. This individual has been instrumental in many of the improvements we all enjoy over the past several years. In addition, whenever there is a request for help, he raises his hand repeatedly. It is an honor to see Mr. Paul McNally receive the “Ken Stebbins Award”.
In closing out this incredible event, we want to acknowledge an exceptional person who was not only an amazing business intermediary but was instrumental in inspiring his daughter to become one of our association’s best intermediaries, business owners, and incredible leaders. Unfortunately, with great sorrow, we lost Mr. Jean Kruger a few months back, so we felt it befitting to honor Mr. Kruger with the “Honorary Membership” award by presenting this to his loving daughter Mrs. Roberta Caputo.
We are the biggest and best business co-brokering association globally, with over two hundred award winners to prove it. I congratulate you all and look forward to your successes in the next year.
Joe Shemansky CBI, M&AMI, CM&AP
Chairman
Business Brokers of Florida