Preparing your Restaurant for Sale

Megabite Restaurant Brokers SOLD our Viceroy Indian Restaurant – We can sell YOUR’s Too !

Megabite Restaurant Brokers SOLD our Viceroy Indian Restaurant

Megabite Restaurant Brokers, representing the Seller, recently transferred ownership of a successful Indian restaurant in the North Plano Frisco Texas market.

“Thank you for quickly finding a great buyer at a great price.  I am ready for retirement!”, said Amarender Reddy, the Seller.  Amarender was quickly presented with several buyers.  He recently completed the transition training with the new owners and wishes them every success !

Top 5 Reasons to Sell a Restaurant

If you are a restauranteur, then you already know the two HAPPIEST days in an restauranteur‘s life: the day you START or BUY your business and the day you SELL your business. Sadly, many owners wait until they MUST sell due to economic or emotional reasons. Anxiety can force you to accept an offer that simply is NOT GOOD for you.

1) Illness or Death. This is by far the most common reason to sell a restaurant and it is, sadly, a very unhappy one! Ill health (either our own or that of our loved ones) has a sobering effect on us. We tend to immediately realign our priorities.
2) Desire to ‘Cash out’. When most of our personal wealth is tied up in our business, the prospect of a sale offers an opportunity to convert our holdings into cash, diversify our investments and enjoy our newly liquid resources.
3) Anxiety. There are tremendous rewards in the ownership of a restaurant. Unfortunately, personal stresses can accumulate over a long period of time. The list of stressors is extensive: difficult employees, theft, tight deadlines, making payroll, personal financial guarantees, taxes, complying with health inspections, reinventing your restaurant concept, …. There is a point where the stress hits OVERLOAD, we feel saturated and need to sell!
4) Retirement. Although many entrepreneurs never consider this possibility, the inevitable problem of age emerges. The secret is to find the optimal timing so that the sale happens at a time of our choosing.
5) Burnout. After living on the edge for years, many entrepreneurs simply burn out and look to forward to reducing the incessant pressure. They choose to pursue other interests that challenge their knowledge, skills and ability. Selling their restaurant can pave the way to new professional and personal opportunities

 


Megabite Restaurant Brokers helps you value, sell, broker or buy restaurants, bars, nightclubs - restaurant valuations - restaurant appraisalsMegabite Restaurant Brokers can help you buy, sell or value a restaurant, bar or nightclub business? You can discreetly and confidentially contact a broker at Contact Us, read other testimonials at Client Testimonials, search buyers at SEARCH OUR BUYERS or research more info here if you just want to understand how to SELL A BUSINESS.

For more information, Contact Megabite Restaurant Brokers, LLC
Phone: (817) 467-2161   www.megabite-rb.com 

10 Questions to Ask Every Acquisition Target

10 Questions to Ask Every Acquisition Target

70% to 90% of all acquisitions fail to achieve the results acquirers want. Why? Most often, failure is directly tied to the integration plan and frequently, to diligence that wasn’t quite as effective as it could be.Concierge business brokerage and business valuation services to exceptional Dallas - Fort Worth business owners

According to a 2015 industry study by McKinsey & Company, companies with the best M&A results have strong capabilities in post-close integration. As a consulting firm, we’ve found that high performing M&A firms use the diligence exercise to gain critical insight into the target company, its management, key employees, its culture, and its customer relationships. They take a hard look at not only the financial numbers, but at the intangible assets that drive a company’s success plan. Most importantly, they have tools and processes to statistically document the value of the intangible and help them see into the future. They start building relationships with the potential target throughout the due diligence process, months before close.

In every case, the expectation post-close is that the value of the deal will increase. So how do you predict future success? Here are ten questions our highest performing clients ask every potential acquisition:

1. How closely aligned is the target company to its customers, and specifically to customers’ needs and expectations?

2. Who are the target company’s best customers (those who buy the most)? How do those customers perceive the company’s strengths and areas for improvement?

3. What are the industry’s key attributes — e., why a customer selects one company to do business with over another — and how does the target company perform against those attributes?

4. What is the customer concentration? Is it good for the long-term? How much of the business’s revenues are controlled by only a select few? Is there still more growth to be had from these few customers? If so, how?

5. What is the company’s share of wallet by customer (not just market share)?

6. What are customers’ perspectives on industry competition and how the target company compares?

7. What unmet or underserved needs do customers have, not only from the target company but from the industry? Where are the opportunities that have not been capitalized on?

8. What is the cultural fit (if a bolt-on) or the cultural opportunity (if structuring a new platform)? How hard will it be for existing management and staff to execute a future roadmap that is both operationally-oriented and customer-centric?

9. What are the priorities and action plan post-close? (The acquirer and acquired should collaborate on this plan before the deal is closed.)

10. Where are the starting points? This enables acquirers to determine what the impact the acquisition has on overall performance. To do this, an acquirer should measure not only the synergistic savings and revenue Increases, but also how much improvement there is in customer loyalty, satisfaction, and share of wallet. 


Megabite Restaurant Brokers helps you value, sell, broker or buy restaurants, bars, nightclubs - restaurant valuations - restaurant appraisalsFor more information, Contact Megabite Restaurant Brokers, LLC
Phone: (817) 467-2161
www.megabite-rb.com 

Megabite Restaurant Brokers can help you buy, sell or value a restaurant, bar or nightclub business? You can discreetly and confidentially contact a broker at Contact Us, read other testimonials at Client Testimonials, search buyers at SEARCH OUR BUYERS or research more info here if you just want to understand how to SELL A BUSINESS.

Recurring Revenue Increases Business Value – CALL OR EMAIL TODAY

How Recurring Revenue Increases Business Value

When it comes time to sell their businesses, the first question that most owners ask is: “How much can I get?” It makes sense. Owners are eager to cash in and be rewarded for all of the hard work they have poured into their businesses over the years.

But the reality is that for many businesses, the initial valuation will be a much lower number than their owners want to see. In order to net enough from the sale (after taxes and fees) to fund the rest of their lives, most owners will have to work to boost the value of their businesses – sometimes significantly.

One great way to create value is to build recurring revenue into your business model.

The Benefits of Recurring Revenue

Recurring revenue is guaranteed revenue for some period of time (for example, through a product subscription). Because this type of revenue does not require the same level of sales and owner effort as one-time revenue, it typically results in much higher profit margins and is always highly coveted by buyers. The evidence shows us that businesses with recurring revenue models have higher valuations than those that don’t. In 2012, Adobe went from a one-time purchase model of its software to a monthly subscription model. Two years later, its market cap was $35.5B versus $16B – a 115% increase.

Examples of recurring revenue include:

  • Service or maintenance agreements
  • Consumable product or replacement part contracts
  • Subscriptions for products, services, or information
  • Memberships

Recurring revenue is stable and predictable income, and as such results in higher customer lifetime value. In addition, recurring revenue can help your business weather economic recessions and is likely to simplify your business operations in many ways.

Understanding the Value of Your Business from a Buyer’s Perspective

Companies on a growth trajectory that can demonstrate increasing cash flows through new customer acquisition, current customer retention, and increasing market share are always much more attractive to a buyer than those that have shown little growth. Buyers want to know that revenue and cash flow are growing at a steady rate and will continue to do so in the future. And a recurring revenue model can be a great way to increase the value of the business in the eyes of a potential buyer. In Cashing Out of Your Business – Your Last Great Deal, we discuss 8 key drivers of business value that owners need to focus on before selling their businesses:

  • Increasing Revenue & Profits
  • Future Growth Potential
  • Accurate Financial Statements
  • Solid Management Team
  • Quality Products & Services
  • Strong Sales & Marketing
  • Eliminating Business Risk
  • Putting Systems & Processes in Place

Adding a recurring business model is one of the best ways to address a few of these value drivers, boost profits, and enhance future growth potential — thereby increasing the value of a business in the eyes of a prospective buyer.

Even well-established businesses can usually add some kind of recurring revenue to their model and reap these rewards. It may require that owners think “outside the box” or change how they have operated historically, but it will pay off in the long term. Buyers will pay more for quality companies and those that have growth potential.

By assessing your business objectively, you will be able to identify areas for improvement so buyers will see your business in the best possible light. Planning in advance will give you time to improve your business and maximize its value. As a result, you will improve your chances of selling and obtaining the highest price for your business.  


Megabite Restaurant Brokers helps you value, sell, broker or buy restaurants, bars, nightclubs - restaurant valuations - restaurant appraisalsFor more information, Contact Megabite Restaurant Brokers, LLC
Phone: (817) 467-2161
www.megabite-rb.com 

Megabite Restaurant Brokers can help you buy, sell or value a restaurant, bar or nightclub business? You can discreetly and confidentially contact a broker at Contact Us, read other testimonials at Client Testimonials, search buyers at SEARCH OUR BUYERS or research more info here if you just want to understand how to SELL A BUSINESS.

Navigating SBA Financing for Acquisitions – CALL OR EMAIL NOW

Top 5 Tips for Navigating SBA Financing for Acquisitions

The U.S. Small Business Administration (SBA), is a government agency that offers support to small businesses through contracting, counseling and capital.

SBA loans have a reputation for being hard to access, for good reason. SBA loans can be particularly tricky to secure if you’re using that capital to acquire a business. If you’ve never gone through the SBA financing process before, it can be confusing. Heck — it can be confusing even if you have gone through the process before.

To ease the pain, here are five tips for navigating the complex process of gaining SBA financing for a business acquisition:

1. Shop around for the right bank.

While you may want to secure an SBA loan from your current bank, limiting your options may lower your chances of success. For your reference, the SBA website has a list of the 100 most active SBA lenders. See who is in your area and go talk to them.

When you do, here are some good questions to ask:

  • How many SBA deals has the bank done in the past two years?
  • How many SBA deals has the loan officer done in the past two years?
  • What was the average size of those SBA deals?
  • Did the loan include real estate? (This will help you know how they expect to collateralize the deal)

2. Understand the distinction between PLP vs CLP.

There are two main SBA programs that banks can be a part of: Preferred Lenders Program (PLP) or Certified Lenders Program (CLP). Knowing the distinctions between each program can help you understand what type of lender is right for you.

  • Preferred Lenders Program:. A PLP bank reviews and approves its loans without SBA intervention. The SBA doesn’t need to approve these loans, meaning you’ll only have to go through the bank (instead of the bank and a random SBA reviewer.) This makes for a faster process.
  • Certified Lenders Program: CLP banks are best for complex initiatives or deals that the bank doesn’t want to accept full liability for because of some obscure issue or request. CLP banks will have to pass off the loan to the SBA for the final decision to receive the government guarantee, so it could take a bit longer to get approved than with PLP banks.

The CLP process can be advantageous for really esoteric deals, but otherwise it’s best to use a PLP lender for speed and ease of communication.

3. Expect to provide a personal guarantee.

If you are going to hold 20% or more of the company’s equity, the SBA requires a personal guarantee. If you default on the loan, your personal assets are on the line. Because of this risk, most SBA loans are refinanced within three to four years. You usually only have prepayment penalties of no more than 3% for the first three years of the loan, so refinancing at four years carries no additional fees. And don’t try to be clever here — ten people each holding 10% equity doesn’t mean you’ve sneaked past this. Someone always has to guarantee the loan.

4. Experience matters.

The bank and the SBA will take your management team’s experience as well as the business’ experience in the industry into account when evaluating your loan. A lack of direct experience in the industry doesn’t mean you won’t qualify for a loan, but it will likely require you to explain more about your qualifications.

It’s also key that you have an attorney some experience in SBA loans on your side, if possible. That said, your loan officer will be the biggest determinant of success (See Tip #1).

5. Be prepared.

Remember: Banks want to see concrete plans for the deal you want to do. Don’t expect them to help you craft the deal structure from thin air. Go to them when you have a good idea of your proposed deal structure and then ask them to respond. Have the following:

  1. Letter of Intent
  2. Three years of tax returns and financials (plus any year to date information)
  3. Your personal financial statement
  4. A chart of your desired financing sources and uses

Getting an SBA loan for a business acquisition is far from impossible- it just requires some front-end homework. Thankfully, there are a lot of teachers around you. Seek out SBA lenders at banks you trust, or find a friend that has secured SBA financing, or research advisors who have experience putting SBA deals together. Bring these tips to conversations with those experts and you’re well on your way.  


Megabite Restaurant Brokers helps you value, sell, broker or buy restaurants, bars, nightclubs - restaurant valuations - restaurant appraisalsFor more information, Contact Megabite Restaurant Brokers, LLC
Phone: (817) 467-2161
www.megabite-rb.com 

Megabite Restaurant Brokers can help you buy, sell or value a restaurant, bar or nightclub business? You can discreetly and confidentially contact a broker at Contact Us, read other testimonials at Client Testimonials, search buyers at SEARCH OUR BUYERS or research more info here if you just want to understand how to SELL A BUSINESS.

Prospective Small Business Purchaser Testimonial – CALL OR EMAIL NOW !

Megabite Restaurant Brokers, LLC are grateful for the opportunity to confidentially and discreetly help you buy, value or sell a business.  We have an extensive network of restaurant, bar or nightclub business buyers looking for established, profitable businesses.  This is a testimonial just received  from a prospective purchaser.  

We have 100’s of testimonials from business buyers and sellers.  Many of these buyers provided testimonials after successfully purchasing a business in which we represented the SELLER of the business.  These buyers are willing to confidentially and discreetly share their experience with you.  Please contact us should you wish to speak with them.


“Just a quick note to say thanks for taking the time on MON night to discuss business ownership and the acquisition process.  Both your insight and your candor are greatly appreciated.  I can see why Mark Crumblish spoke so highly of you and your expertise.  As you recommended, I will remain patient and look forward to hearing from you when an opportunity may present itself.”

Name Available by Request, Prospective Purchaser


Megabite Restaurant Brokers helps you value, sell, broker or buy restaurants, bars, nightclubs - restaurant valuations - restaurant appraisalsFor more information, contact Megabite Restaurant Brokers, LLC
Phone: (817) 467-2161
www.megabite-rb.com 

Megabite Restaurant Brokers can help you buy, sell or value a restaurant, bar or nightclub business? You can discreetly and confidentially contact a broker at Contact Us, read other testimonials at Client Testimonials, search buyers at SEARCH OUR BUYERS or research more info here if you just want to understand how to SELL A BUSINESS.

Why Banks Ask for a Personal Guarantee Before a Loan

Why Banks Ask for a Personal Guarantee Before a Loan

It’s a common scenario: You have a thriving business, and it’s doing so well that you believe it’s time to expand. That expansion requires more money, and, of course, increases your risk of failure. But you have studied your options, talked with advisors, and everyone agrees it’s a smart and potentially lucrative move.

Your bank has been there with you from the start. They know you, your integrity, and the way you run your business. So when your bank requests a personal guarantee to borrow money for your business, it can be upsetting. Why do they need a personal guarantee on this loan? Is it a reflection of the bank’s assessment of my business or my plans? Does it mean the bank doesn’t think my business is worth the risk?

The quick answer to all of those questions is no. It’s common for banks to request a personal guarantee before making small business loans. It’s reassurance that you, the business owner, are willing to assume more risk to assure your business’ success.

It’s Not Personal

Personal guarantees on loans to small businesses (i.e., businesses with valuation of up to $25 million), while typically required, became the norm as states enacted legislation introducing new corporate structure options such as the limited liability company or LLC. Unlike a sole proprietorship or general partnership structure, the LLC shields owners and investors from personal financial responsibility for the business’ debt.

The advent and popularity of the LLC among small business owners prompted bankers to definitely require personal guarantees from owners.

“It’s understandable that you want to limit your liability, but we have to ensure the owner stays very involved and engaged. He or she is the key figure, and the most valuable asset of the business, and as the bank, we want to keep the owner motivated and involved,” says BBVA Compass Director of Credit Risk – Small Business David Peacock.

At most small businesses, the owner is the CEO, the face, and the visionary of the business. The owner knows the customers and vendors, the employees and community, and the opportunities and risks.

If a small business defaults on a bank loan, it’s difficult to find another CEO with the needed specific skill set that the bank can hire to keep the business going, says Tommy Crawford, Director of Business Loan Underwriting at BBVA Compass.

“The CEO is absolutely the key to the success of the business, and a personal guarantee increases my confidence in the CEO and in the company,” Crawford says.

SBA Loans Require Guarantees

Personal guarantees are required by some government-backed loans. For all SBA loans, personal guaranties are required from every owner of 20 percent or more of the business, as well as from other individuals who hold key management positions.

BBVA Compass typically requires an unlimited personal guarantee from an owner or CEO, which provides additional protection to the bank for collecting existing and future debts, says Credit Manager David Battles. In some cases, where ownership is dispersed among a number of different owners — such as a large law firm or medical group, for instance — the bank will consider and sometimes accept a limited guarantee shared by all business partners, says Battles.

“In most cases, customers understand why the bank requires a guarantee,” says Battles. “They understand it’s simply a part of doing business.”

This article was written by Sherri Goodman.  Birmingham-based Sherri Goodman was a print journalist for 15 years, writing and editing for daily newspapers in Alabama, New Mexico, Georgia, and Utah, and The Associated Press in Texas and Georgia. She also has worked in media relations and communications for companies in the banking, energy, and automotive sectors. 


Megabite Restaurant Brokers helps you value, sell, broker or buy restaurants, bars, nightclubs - restaurant valuations - restaurant appraisalsFor more information, Contact Megabite Restaurant Brokers, LLC
Phone: (817) 467-2161
www.megabite-rb.com 

How can Megabite Restaurant Brokers sell your restaurant, bar or nightclub business? You can discreetly and confidentially contact a broker at Contact Us, read other testimonials at Client Testimonials, search buyers at SEARCH OUR BUYERS or research more info here if you just want to understand how to SELL A BUSINESS.

SBA Loans Tips

SBA Loans Tips – Do’s and Don’ts

Ready to grow your small business?

An SBA loan can help you accomplish your goal and may result in more favorable terms, such as a longer loan life and lower equity requirements. But because it is backed by the federal government, applicants need to be ready to play by the rules so that the process goes smoothly.

Daniel Walsh, Vice President and Senior Corporate Relationship Manager with BBVA Compass, offers these do’s and don’ts when it comes to applying for an SBA loan:

Do

  • Seek out an SBA preferred lender. The designation means the Small Business Administration has a comfort level with the lender and that matters, Walsh says. “It allows the lender to make a final credit decision without sending the request to the SBA for a decision. SBA preferred lenders have an earned level of confidence.”
  • “Have your documentation in order,” says Walsh. “There can’t be anything missing.” You should be ready to hand your loan officer three years of business financial statements and tax returns, a personal financial statement, a statement of personal history, your business plan, and articles of incorporation, if applicable.
  • Get your financial house in order. Make sure your financial statements include a profit and loss statement, projected financial statements, ownership and affiliations, business certificate/license, loan application history, business and personal income tax returns, your business lease, and résumés for all the principals.
  • Proactively explain unusual events and growth projections. Did your business suffer a dip in sales one year?  Spell out why and how it happened. Does your forecast include a dramatic jump of revenue? “Explain the reasoning behind your projections and your confidence level, says Walsh. “Don’t expect your banker to be able to fill in the blanks.”

Don’t

  • Rule out the SBA loan option. “Talk to a banker, check into it. A lot of times companies don’t realize they can qualify for it,” he says. Also some businesses may question whether the documentation requirements are worth the extra steps, even if they can qualify for a traditional loan. “If your business has been renting and you are thinking of buying, you could amortize that loan for 20 years with traditional financing. With an SBA loan, you could amortize it over 25 years, which helps improve month to month cash flow,” he says.
  • Balk at the request for a personal guarantee. “It’s 100 percent required,” says Walsh. “It’s reassurance that you, the business owner, are willing to assume more risk to assure your business’ success.”
  • Let the documentation requirements discourage you. “It’s a wonderful product that we can offer that provides much more flexibility and much less reporting requirements long term,” says Walsh. “While it may appear stringent up front, it is often well worth your while.”

This article was written by Sherri Goodman.  Birmingham-based Sherri Goodman was a print journalist for 15 years, writing and editing for daily newspapers in Alabama, New Mexico, Georgia, and Utah, and The Associated Press in Texas and Georgia. She also has worked in media relations and communications for companies in the banking, energy, and automotive sectors. 


Megabite Restaurant Brokers helps you value, sell, broker or buy restaurants, bars, nightclubs - restaurant valuations - restaurant appraisalsFor more information, Contact Megabite Restaurant Brokers, LLC
Phone: (817) 467-2161
www.megabite-rb.com 

How can Megabite Restaurant Brokers sell your restaurant, bar or nightclub business? You can discreetly and confidentially contact a broker at Contact Us, read other testimonials at Client Testimonials, search buyers at SEARCH OUR BUYERS or research more info here if you just want to understand how to SELL A BUSINESS.

2017 M&A Trends for Sellers

2017 M&A Trends for Sellers

For business owners, the New Year is an ideal time to reflect on long-term goals for your organization. A banker can provide valuable insight on trends in your industry and the market as a whole.

We talked to George Shea, Managing Partner at Focus Investment Bank, and Keith Dee, Founder and President of Osage Advisors, about a few of their insights for M&A going into 2017.

For those looking to explore a transaction in 2017, “my biggest advice is to begin thinking long before you execute, whether you do it on your own or hire an investment banker,” says Shea. “Make sure you have your financial house in order and understand the key metrics of your business — you should be able to slice and dice your financial information quickly and efficiently.”

3 M&A Insights

1. “Search funds have proliferated the lower middle market.”

Search funds typically comprise individuals who are looking to buy and then operate a company (usually one smaller in size than the typical target for a private equity firm). “There were a handful of search funds five years ago, and now they’re everywhere,” says Dee. “When a business does not fit the overall objectives of either a strategic buyer or private equity fund, search funds provide a viable option for owners looking to sell their businesses.

Promoted as part of top MBA programs, “they’ve become a generational trend for young entrepreneurs who want to buy a business and who have an investor base backing them up.” He notes that search funds tend to be conservative when it comes to valuations — he estimates 90% will be below strategics or even private equity — “because they will become the owner-operator of the business and have to go back and sell the deal to their investors who write the checks for them.”

2. “Private equity is going upstream.”  

“I’ve found equity investors are less interested in small add-ons unless they meet very stringent investment criteria,” says Dee, who typically works with companies between $1-$5 million in EBITDA.

“This is especially true for sub-$2 million deals, an area they were much more aggressive in a couple of years ago. With the money they’re raising now — half billion dollar funds vs. quarter billion dollar funds — it might not make sense as they are looking to deploy more capital per transaction.”

This may mean smaller companies looking to sell turn to strategic buyers, search funds, or independent sponsors (also on the rise).

3. “It’s still a seller’s market.”

We’re not at the peak of the seller’s market yet, according to Dee. “There’s so much money in the lower middle market, and even more being raised on the equity side. Equity investors and strategics alike are all looking for quality deal flow. It all comes back to supply and demand. It continues to be a seller’s market due to a short supply of quality companies, and I’m not sure when the pendulum will switch to a buyer’s market.”

“Timing is everything,” he adds. “You always want to be selling on an uptrend. You don’t have to be selling at the top of the market, but you do want to be selling on positive trends both in terms of sales and EBITDA.”

3 Industry Trends

1. “The precision machinery industry is hot.”

This is particularly true in the aerospace markets, says Dee. “We get a huge number of inquiries from buyers, both private equity and strategics, looking for aerospace-related businesses. The trend has been constant through 2017 and we expect it to continue into 2017.

“This is partly because large manufacturers like Boeing and GE are gearing up for big projects in the next 20 years. Just as important though is the human capital component — buyers are looking for talent. A highly skilled labor force is difficult to find right now. In addition, larger companies have reached capacity in their own facilities and are interested in acquiring smaller companies that may not be at full capacity.”

2. “Infrastructure, energy, and defense companies might want to wait and see on M&A.”

Dee predicts that due to the new presidential administration, “infrastructure, energy, and defense-related companies will likely see a bounce of work not next year, if not next year, certainly in 2018 or 2019. The question for sellers is, does it make sense to wait to see how it plays out? That’s a personal choice you have to make.” Dee notes that older business owners may be better off initiating a deal process rather than playing a waiting game. “If you’re a couple years older, you may find yourself in a more vulnerable position and there may be other concerns that come into play.”

3. “Buyers continue to reward recurring revenue in IT services businesses.”

“At every level of the IT services industry, buyers are rewarding recurring revenue. This is a global trend we’ve been seeing,” says Shea, who specializes in software and IT services companies. “Buyers are paying much higher premiums to companies that have shifted to recurring revenue vs. project-based.” 


Megabite Restaurant Brokers helps you value, sell, broker or buy restaurants, bars, nightclubs - restaurant valuations - restaurant appraisalsFor more information, Contact Megabite Restaurant Brokers, LLC
Phone: (817) 467-2161
www.megabite-rb.com 

How can Megabite Restaurant Brokers sell your restaurant, bar or nightclub business? You can discreetly and confidentially contact a broker at Contact Us, read other testimonials at Client Testimonials, search buyers at SEARCH OUR BUYERS or research more info here if you just want to understand how to SELL A BUSINESS.

Build Your Restaurant Exit Plan With Your Restaurant Buyer in Mind

Build Your Restaurant Exit Plan:  Build Your Business With Your Buyer in Mind

CEOs who have never sold a company before often take for granted that if they just focus on building value in their business, the rest will sort itself out. But even the shrewdest, most successful owner-operators can fail to realize this value if they are underprepared for the unavoidable eventuality of any business — an exit.

Investors rarely cut checks to companies when they cannot envision what an eventual exit will look like. Particularly for financial buyers (private equity firms, family offices, etc.) understanding when, how, and to whom they can sell is key in building a return profile for the business, determining a valuation, and ultimately, deciding whether or not to consummate the deal.

Gil Beyda, founder and managing partner at Genacast Ventures, a practiced entrepreneur and investor in early-stage technology companies, recently wrote what he dubbed a “love letter to CEOs,” asserting that companies — even the most promising ones — don’t simply sell themselves.

In his post, Gil suggests that CEOs should think not only about building value for their shareholders and employees but more specifically for the parties that could end up on the other side of a sale process.

Regardless of whether a sale is in the immediate horizon or several years down the road, start thinking of your eventual acquirer as a discrete entity for whom they are building value.

Thinking about the eventuality of the business is one of the first things Genacast does when considering an acquisition target. “When we do our diligence process, we ask ourselves and ask the company, who are your potential acquirers,” Gil says. If there isn’t an easy list to compile, some investors may take this as a signal that the dynamics of the business aren’t solid enough to warrant an investment.

So if investors and buyers are always thinking about the exit, even in the early stages of backing of acquiring a company, why shouldn’t an owner do the same? Here are a couple of ways to frame your thinking around building a business with a buyer in mind.

Understand the Why

The reason a company gets acquired depends on the specific buyer. Each prospective counterparty will have a unique set of characteristics they are looking for in a target company. It’s important to understand all of the different reasons your company may get acquired (for intellectual property owned by the company? For a hard to access customer base? For a highly skilled team?).

If you have a preferred buyer type in mind (based on your exit priorities) then focusing on the area of value that seems most relevant to them is one strategy to make the business increasingly attractive to that particular party.

Test the Waters

In Gil’s experience, some of the best acquisitions are born out of partnerships developed during the course of business. Conversations will evolve as a partnership becomes more successful and one company sees an opportunity to expand. “Few acquirers come from out of nowhere and make multi-million dollar offers to acquire companies with whom they have no previous relationship,” he writes.

Knowing this, you can be more proactive about developing such relationships. Which of your eventual buyers can you do business with today? If you believe your company could eventually be bought by a larger company, a distributor or supplier, or even a competitor, developing a mutually beneficial relationship before bringing your company to market may be the best way to test out synergies.

Get Your Name Out There

Many will stress the importance of engaging advisors and bankers early in the process for information on what other buyers and sellers are doing. Of course, the more intel you have, the better. But there’s another reason to strike up relationships with bankers in your space.

Helping intermediaries understand the nuances of the industry and allowing them some insight into how you are managing to take advantage of them will make it more likely that your company comes up during their conversations with other buyers and sellers in your market. The more you are talked about, the better: you never know what will pique a potential acquirer’s interest.


Megabite Restaurant Brokers helps you value, sell, broker or buy restaurants, bars, nightclubs - restaurant valuations - restaurant appraisalsFor more information, Contact Megabite Restaurant Brokers, LLC
Phone: (817) 467-2161
www.megabite-rb.com 

How can Megabite Restaurant Brokers sell your restaurant, bar or nightclub business? You can discreetly and confidentially contact a broker at Contact Us, read other testimonials at Client Testimonials, search buyers at SEARCH OUR BUYERS or research more info here if you just want to understand how to SELL A BUSINESS.

Avoid Unwanted Surprises During Due Diligence

Avoid Unwanted Surprises During Due Diligence

Potential buyers frequently uncover unwanted surprises during due diligence — resulting in downward purchase price negotiations, lower valuation multiples, lenders getting scared off, or the deal falling through.

In today’s economic climate, potential buyers are willing to search long and hard to identify the best acquisition candidate. Transparent financial and operating information is more important than ever.

For companies anticipating sale, sell-side due diligence can identify and quantify issues and exposures that could negatively impact a deal.

How Sell-Side Due Diligence Helps Sellers

According to a recent survey commissioned by BKD, 66% of closely held/family-owned businesses anticipate a change in ownership in the next 10 years. For would-be sellers looking to maximize value, it is prudent to begin preparing now.

Sell-side due diligence is a process in which a company hires a third-party expert to conduct a dry run diligence assessment. It usually covers areas such as financial statements, taxation, information systems, and operations.

The sell-side diligence process will assist companies in resolving or managing potential issues before potential buyers discover the problems on their own. To best position a company for a successful sale, we recommend beginning the sell-side diligence process one to three years in advance of the anticipated sale.

Here are a few specific ways in which sell-side due diligence can expose potential issues in advance of a transaction.

  • Make sure EBITDA addbacks are appropriate

To reduce the likelihood of purchase price disputes, sellers should take caution to make sure adjustments to restated EBITDA are appropriate and supported through proper documentation. For instance, a manufacturer who has leveraged process changes or purchasing practices to drive EBITDA growth needs to depict or model the actual run rate improvements that they should get full credit for. This should be supported by data that demonstrates throughput rate increases and purchase price decreases.

  • Avoid disputes around net working capital 

Unless clearly defined early in the process, target net working capital is another area commonly disputed during transaction negotiations. Purchase agreements frequently define closing net working capital computations as “consistently applied and in accordance with generally accepted accounting principles (GAAP).” Costly disputes can arise when a company consistently applies certain accounting policies that are not in accordance with GAAP, particularly at interim period-ends.

If as the seller, you haven’t followed GAAP “to the letter,” it’s often beneficial to address this with the buyer early in the process. For example, in a recent manufacturing deal we assisted on, the seller proactively defined the accounting methods he had used around valuation of inventory. With some effort, the buyer was able to get comfortable with inventory and the deal proceeded to close. Sell-side due diligence can identify GAAP departures early on to help ensure net working capital computations are clearly defined prior to the purchase agreement.

  • Develop meaningful analytical information to support valuation

Sell-side due diligence can help a company produce meaningful analytical information from its accounting system (i.e., gross margin by customer, product line, market segment, etc.). This supporting detail can help substantiate changes in historical EBITDA as well as model future performance (given varying assumptions).

In one recent deal, a manufacturer combined invoice details, purchasing data, and bill of materials to illustrate material margins at a customer and product level. Even before conducting due diligence, the buyer had a clear view to the drivers of changes in performance, and was able to focus on future opportunities among customers and products.

  • Uncover liability issues and exposures

In nearly every buy-side due diligence engagement, we have uncovered liability issues and exposures related to state tax compliance and nexus, many of which surprised the seller. These types of exposures are common in privately held companies and can frequently be addressed and mitigated in advance of going to market. State and local tax (SALT) due diligence can also identify savings opportunities by identifying potential tax reductions. Savings generated through reduced SALT payments effectively increase EBITDA, which can lead to increased company valuations.

  • Identify technology improvements to increase EBITDA

Information systems sell-side diligence focuses on identifying current technology capabilities, suggested improvement opportunities and internal controls while balancing investment demands and priorities. Operations sell-side diligence is a fact-based and metric-driven analysis to provide a company with potential improvement opportunities and cost saving suggestions, both of which could generate increased EBITDA.

Other situations where sell-side due diligence in advance of a sale process are beneficial include:

  • When the company has made one or more recent acquisitions and is presenting financial information on a pro forma basis, as if the acquisition(s) had occurred at the beginning of the period, and wants to present meaningful trend analysis
  • When the company is unaudited and complex GAAP accounting requirements (i.e., multiple deliverable revenue recognition) apply to its financial information
  • When the company records its financial statements on the cash basis of accounting, while buyers would require GAAP basis accrual financial information

In summary, sell-side due diligence provides companies with an objective third-party view from the buyer’s perspective and helps companies resolve issues before potential buyers discover them on their own. By engaging in sell-side due diligence several years out from a transaction, companies can avoid unwanted surprises and ensure a transaction runs as smoothly as possible.

This article was co-written by Monte McKee, Managing Director – Transaction Services at BKD and Chris Schumann, Managing Director at BKDnext. 


Megabite Restaurant Brokers helps you value, sell, broker or buy restaurants, bars, nightclubs - restaurant valuations - restaurant appraisalsFor more information, Contact Megabite Restaurant Brokers, LLC
Phone: (817) 467-2161
www.megabite-rb.com 

How can Megabite Restaurant Brokers sell your restaurant, bar or nightclub business? You can discreetly and confidentially contact a broker at Contact Us, read other testimonials at Client Testimonials, search buyers at SEARCH OUR BUYERS or research more info here if you just want to understand how to SELL A BUSINESS.