Preparing your Restaurant for Sale

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.

When Selling your Business, Should You Take an Earnout

When Selling your Business, Should You Take an Earnout?

An earnout is a common way to bridge the gap between a seller’s expectation of business value and a buyer’s willingness to pay. Earnout structure varies, but the basic idea is that a buyer will make additional payments to a seller post-close, dependent on the business achieving certain goals.

“When properly structured, earnouts can work — and when they work, they work really well,” noted Kenneth Sanginario, Founder of Corporate Value Metrics, during a recent panel at Axial Concord. But earnouts can also turn nightmarish in the case of misaligned expectations, unfriendly terms, and hidden stipulations.

“Earnouts for sellers who are going to exit are too often a disaster,” said Scott Hakala, Principal at ValueScope Inc. “The best earnouts incentivize the people who run the business. Earnouts for CEOs who are just standing back and collecting a paycheck often aren’t good. Sellers always believe they’re going to make the earnout, then are mad if they don’t.”

Giff Constable, Axial’s VP of Product, goes even further. He recently emerged from a rollup that included multiple earnouts. “The more independent you keep an acquired company, the easier it is to put an effective earnout in place. The more tightly you want to integrate the two companies, the more troublesome they become.”

When Earnouts Go Wrong

Careful legal wording can protect against bad behavior, but even this doesn’t always work. Hakala told a story of an exited owner with a 3-year earnout who watched from afar as the “buyer changed gears six months in and basically tanked the company.” He’s also seen rollups in which buyers deliberately credited the wrong business with sales in order to avoid paying an earnout.

Henry Heinerscheid, Director of PWP Growth Equity, said he tries to avoid earnouts even in cases where the CEO is staying on. “Earnouts can change the spirit of partnership between investors and management. It creates a misalignment of interests between the management team and other shareholders, which can lead to management making short-term decisions to try and maximize the earnout rather than trying to maximize shareholder value over the life of the investment.”

Hakala agreed, especially in the case of quickly growing companies with uncertain prospects. “An earnout can be a way to bridge the gap and divide up the risk. But there’s also an S curve where the more you grow, the harder it is to keep growing. There’s a time when your natural momentum will start tailing down. That can mean that earnouts or incentives that assume continued growth at the same rate as in the recent past may be unrealistic.”

Clawbacks and Earnout Alternatives

Hakala said he tends to prefer management incentive agreements over earnouts — “they’re more long-term and sustainable.” Incentive agreements should include assurances that if the company is acquired the owner won’t be terminated (or will receive severance if they are).

Another alternative to an earnout is a clawback, noted Sanginario. “With a clawback, the seller might accept a lower valuation but agree that if the company grows to a certain level, they can ‘claw back’ equity — maybe 10-15% of what they gave up in the transaction.” He said that the clawback can foster alignment between buyer and seller on a longer term basis than an earnout, though it has to be very carefully structured to avoid misunderstandings after the deal.

Advice for Sellers

If you do consider an earnout, it’s crucial to “put in protective provisions and to make sure it’s realistic,” said Hakala. Work with an investment banker and an experienced M&A lawyer to make sure that your interests are represented.

Dexter Braff, founder of healthcare specialist investment bank The Braff Group, had a few pieces of advice for CEOs considering an earnout:

  1. “Make sure you have a cumulative clause for multiple year earnouts. If you’re short in the first year, but way long in the second, you should still get your earnout for year one,” said Braff. “It shouldn’t be about when you earned it but about whether you earned it.”
  2. “Be wary of buyers factoring in basic risk of the industry into the earnout.” Said Braff, “the earnout is supposed to reflect things that aren’t covered in the current valuation. You don’t want the base valuation to get sucked up in the earnout and take on more risk than you need to.”
  3. “If possible, base the earnout on revenues, not EBITDA. The more calculations you have to do the more room there is for trouble,” said Braff.

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.

Top 4 Missteps That Derail a Deal

Top 4 Missteps That Derail a Deal

Last year, 16% of the deals my firm represented on the sell-side required more than one offer before it finally closed. Those sellers experienced both the joy and the excitement of receiving an offer, but then the bitter disappointment of seeing the offer slipping away.

Deals fall apart for a variety of reasons. Some deals fall apart through no fault of the seller, and other deals fall apart due to completely avoidable misunderstandings.

Let’s look at a few common reasons that can cause a deal to blow up before the buyer and seller can sign on the dotted line.

There’s Really Only One Reason a Deal Falls Apart

We can come up with many reasons why deals disintegrate, but in reality there is only one reason for a deal to go south – mismanaged expectations.

I’ve often said that surprises are deal killers, but this isn’t entirely true. Good surprises certainly don’t derail acquisitions. But bad surprises are most certainly deal-breakers.

If a buyer makes an offer with a certain set of expectations, but later finds the reality to be different than their expectations, this is normally the reason that causes nearly every deal to break.

So as you prepare your business for sale, or as you go through the process of selling it, understand that you are engaged in a process of “setting expectations.” If you properly manage your buyer’s expectations, you’ll increase your chances of closing the deal.

Let’s look at some specific scenarios.

Forgetting to Disclose Elements In Your History

A few years ago, one of our advisors was helping a client sell his online business. He moved our client through the process of selling smoothly and without issue. It wasn’t long before a buyer was found and started doing his due diligence.

At the end of the due diligence period, however, the buyer discovered a previously undisclosed lawsuit. A few years back, our client was on the wrong end of a lawsuit, but when the buyer discovered this omission, it caused a ripple effect that eventually unraveled the deal.

The lawsuit itself was a non-issue. It was a frivolous lawsuit that the plaintiff quickly dropped. The problem was that it had been concealed.

It is not enough to simply disclose everything you are thinking of – you need to take stock of what you may have accidentally omitted and disclose that as well. Our client did not intentionally withhold information about the lawsuit from this buyer. He legitimately forgot it even happened since it was some years back and to him was a non-issue.

Remember to disclose everything, and take the time to identify anything you may have missed.

Recent Downturns in Financial Performance

It is all too common for a business to experience its worst financial performance during the week leading up to the closing. If the process of selling your business isn’t stressful enough for both you and the buyer, your business may decide to have a hiccup in sales, leading to doubt for everyone.

A downturn in your business shouldn’t come as a major surprise, however. Many CEOs say that selling their business was more work than actually running the business.

When you sell your business, you’ll be buried in negotiations, legal document reviews, running reports, and generating statements. Not only will your time be swallowed up whole during these stages, but your mental bandwidth will be completely consumed as well.

So you should plan ahead for this downturn as much as possible. Understand that your time will be in very high demand, and plan for late nights at the office and early mornings.

Most importantly, try to avoid major life changes. It never ceases to surprise me the number of sellers who sell their business during a move, city relocation, marriage, or birth of a child. One major life event is stressful enough. If you can avoid having two at the same time, it would be good for your sanity.

Opportunistic Vendors

As I said at the beginning of this article, not every deal falls apart because of something the seller does. In fact, I would say that less than half of the deals fall apart due to seller error. Some deals fall apart because of the vendors.

Even if you think that you do not have a special relationship with your vendor, your vendor may think otherwise.

I have been party to multiple transactions (two of which I was the buyer) in which a vendor tried to change their terms for the new buyer. Their explanation is always the same – the change in these terms was coming for the seller eventually. You just happened to step in at the time the change was pending. An unlikely story but how can you disprove it?

The reality is that some vendors are opportunistic, and some vendors are hesitant to offer the same grandfathered terms to a group they do not have a history with.

For example, I bought a content website years ago whose owner employed an outside company to sell advertisements. When I tried to negotiate a similar contract with the company, they wanted stronger commissions and a minimum term commitment. To them, I was a complete unknown, so they were not inclined to offer me perks.

Opportunistic vendors are a major barrier to getting a deal done. So you may want to consider contacting the vendor in advance about your intent to sell your business. Alternatively, you may want to research a backup option should any of your vendors choose to get greedy. Having a backup option will give you leverage to negotiate the same terms for your buyer.

If you are not comfortable talking to your vendors before a sale is guaranteed, just be sure to be present during this process. Having your presence during the transition will help in ensuring a smooth transfer.

Messy Processes

Over the years of owning your business, you have unconsciously developed habits, shortcuts, and efficiencies, many of which you may not even realize you do. A buyer, however, will notice these shortcuts.

If a buyer has trouble envisioning themselves in your role, or replacing your role, you will have difficulty closing the deal. Therefore, it is essential that you take the time to document your processes as much as possible.

Around one year before you sell your business, document your processes into standard operating procedures. Then match up your actual workflow to these SOPs. Modify them as needed.

Conclusion

Obviously, we always hope for every deal to proceed smoothly and close without a hitch. Unfortunately, life can sometimes throw a series of speed bumps in your way, which can complicate matters. But with the right amount of preparation, and the right mindset going into a negotiation, silly misunderstandings can be avoided, and you can close the deal in record time.


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.

When Selling your Business, Run your Business as If it Was Not for Sale

Don’t Let a Sale Process Get in the Way of Selling your Business

 At a recent Vistage breakfast, a CEO asked a simple question: “If I’m in the process of selling my business and a big but unprofitable customer comes my way that I normally would not take, but which might bump my valuation, what should I do?”

My advice was simple: run your business as if the deal won’t happen, because most deals don’t.

That’s the truth as I saw it as an investment banker at Jefferies/Broadview. It is reflected in data by Sutton Place Strategies that says that only 25% to 30% of companies brought to market end up in a successful transaction.

So what are the reasons behind that statistic?

  • There is an unbridgeable gap between what the seller thinks their business is worth and what the buyers are willing to pay.
  • Buyers refuse to budge on deal terms that are unacceptable to the seller (and terms are often more important than the price).
  • There is a “showstopper” flaw in the selling company that puts off buyers (excessive revenue risk, heavy legal or financial liabilities, talent flight risk, etc).
  • Macroeconomic fears freeze investment activity (which clearly happened in both 2002 and 2009).

Note that just because a business is flawed does not mean that an exit is out of reach. You might have greater revenue concentration than you desire, or a complex contract that no one wants to take on, or stale technology with cash flows but no growth prospects — but you can still find potential buyers in each of those cases (although probably not if your business is facing all of those challenges at once!). It all comes down to price and terms.

To return to the original question, every owner has to account for their own level of risk, but remember this: it is painful enough to go through a sales process and come up empty handed. It is twice as painful to have that happen with material damage done to your business. So think about those risky moves. Think about when you disclose a potential sale to your management team, and how you set their expectations. Think about how you control the optics of the process to the market and to your customers (and competitors!).

Negotiate in good faith, but operate like the deal will fall through.


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.

Networking with Investors and Buyers to Sell your Business

Networking with Investors and Buyers to Sell your Business

First impressions can sometimes make or break a deal. Here are 3 tips for networking with investors and buyers to sell your business.  Here are a few Quick Tips

Meghan Daniels
Managing Editor, Axial Forum

#1 Exude confidence.
“When speaking directly to investors, exude confidence and communicate your strong conviction of the success factors that are driving your business,” says Peter Formanek, Founder and Managing Partner at Young America Capital.
Capital providers and potential buyers “really want to understand the economic opportunity,” says Formanek. They will ask different sets of questions depending on whether your objective is to sell or raise capital. “That said, if you’re contemplating both, articulate that too. It all comes back to your clarity of messaging.”

#2 Don’t discuss price.
“We want our clients to remain pristine throughout the process,” says Dexter Braff, President of The Braff Group’s Braff. “Don’t provide buyers with any reports or exhibits” that your investment banker hasn’t reviewed (if you have already engaged a banker).

#3 Be yourself.
“Regardless of what is exchanged during the meeting, what the buyer or management team is really focused on is, ‘Do I trust this person? Do they have vision?’ It’s the soft stuff that turns a good deal into a great one,” says Braff.


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.

The State of Mid-Market Mergers and Acquisitions: Q4 2016

The State of Mid-Market Mergers and Acquisitions: Q4 2016

After a record-breaking 2015, M&A activity is on the decline.

Worldwide M&A activity for the first nine months of 2016 is down 22% from the same period in 2015, deal-making activity is down 32%, and PE-backed deals are down more than 27%, according to data released by Thomson Reuters.

We checked in with three deal professionals to see how these trends are being felt in the middle market, and get their predictions for the months to come.

Eric Mattson is Principal at Excellere Partners, a private equity firm based in Denver, CO. Mike Richmond is Managing Director at The DAK Group, an investment bank based in New York, NJ, and PA. Arun Prakash is Managing Director at Carbon Arrow Advisors, a consulting firm based in Austin, TX.Concierge business brokerage and business valuation services to exceptional Dallas - Fort Worth business owners

What trends have you noticed over the past year?

“As to be expected in an election year, there’s some of the normal wait-and-see chatter, but there really has not been a discernible new trend that’s developed in the markets we track. Deal flow remains as strong as ever and the quality of the businesses we see are outstanding. Anecdotally, we are hearing from investment bankers and service providers (lawyers, accountants, etc.) that an unusually high number of transactions are failing to close. This is likely a dynamic resulting from some combination of premium pricing (perhaps we’ve hit the peak), uncertainty around the election, under-prepared businesses coming to market, and/or tighter credit markets.”
-Eric Mattson, Excellere Partners

“The deal activity we have seen has been strong all year. We expect this positive activity cycle to continue into 2017. Today, in the middle market, prospective buyers are looking for companies with very specific factors, and are willing to pay for them. Some of these factors include: that they have defensible market positions, stable historical growth, a solid plan for future growth, and that they provide added value to the existing company.”
-Mike Richmond, The DAK Group

What do you foresee for deal activity and volume in Q4?

“Post-election, we expect to see deal activity pick-up. The wildcard here for private equity is what happens in the debt markets.”
-Eric Mattson, Excellere Partners

“We see 2017 as a very strong year with transaction multiples at or near record highs. Financing will still be readily available, though borrowers may have to work harder to obtain higher leverage and the best terms. Mergers and Acquisitions volume and valuation trends are cyclical and there is no way to predict how long the favorable environment will last. Business owners considering a future exit strategy may want to begin preparing now if they hope to take advantage of the current climate.”
-Mike Richmond, The DAK Group

Is there a particular industry in which you foresee a decline in activity? Why?

“Given the concerns over a possible correction, discretionary markets and large capital goods markets could see some deal pressure in the coming quarters.”
-Eric Mattson, Excellere Partners

Is there a particular industry in which you foresee increased activity? Why?

“Business services. The uneasiness in the economy will affect these companies the most as they tend to be less sticky, so their owners may want to sell.”
-Arun Prakash, Carbon Arrow Advisors

“We are seeing a lot of activity in niche manufacturing, value added distribution and the industrial markets, particularly in the Northeast. In addition, there has been an uptick in all healthcare-related businesses.”
-Mike Richmond, The DAK Group

“There are number of ‘prognosticators’ who are predicting an economic correction in 2017-18; therefore, the safe bets are in non-cyclicals and those sub-sectors that perform well in tighter markets. In addition, given the unfortunate reality of terrorism here in the US, we see the security and safety market as having a strong tailwind. Since the recovery has not really created a bubble scenario, we’re not overly concerned with the magnitude of a potential correction.”
-Eric Mattson, Excellere Partners

In your opinion, what external forces have shaped or will most significantly shape dealflow in Q4 and 2017?

“Absent a significant geopolitical event that disrupts the global capital markets, or a severe tightening of credit, we’re not seeing anything on the horizon that’s signaling a dramatic change in the M&A markets. PE still has massive amounts of capital to deploy, the public corporations still have growth targets to hit, and mid-market business owners are approaching retirement age at an increasing rate. Therefore, Mergers and Acquisitions will remain strong for the foreseeable future.”
-Eric Mattson, Excellere Partners

“In 2016, the single factor that has helped M&A activity has been the economic stability of the United States. The economic strength is providing record high amounts of cash being used for investing in acquisitions. This stability has also continued to attract foreign buyers interested in investing here.”
-Mike Richmond, The DAK Group

“If there was one event that would have a major effect on deal flow the next few quarters, it would be whether the Fed raises rates in November or December. If rates go up, overall deal acquisition multiples may decline, which could stall some deals and deal flow. Certainly the election, especially if Trump wins, could have some impact as a result of post-election volatility and uncertainty, but interest rates, in my mind, remain a key driver of financing and multiples and trickle down to affecting deal flow.”
-Arun Prakash, Carbon Arrow Advisors

 


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.

What I Wish I Knew Before Selling My Business

“What I Wish I Knew Before Selling My Business”

Entrepreneur Chad Elms spent most of his childhood in Stephenville, Texas, the self-proclaimed Cowboy Capital of the World, “making things and trying to sell them for money.”

He came from a family of cowboys and business owners — his grandparents started a western wear store in the 1950s that his parents later took over. Chad got his start in business fashioning braided key chains and leather decorations for cowboy boots festooned with beads and conchos and silver — “things you’d never see anywhere but the country.”

But when he grew up, he decided to go into physical therapy, in part to keep his cowboy relatives healthy, he jokes. Still, “that entrepreneurial spirit was always there.”

When Chad was first entering the world of PT, he watched as one of his mentors started his own company. “I didn’t know until then that you could have a service-oriented business and be self-employed. I thought that was so cool. He had a number of outpatient clinics, and was able to make his own decisions and guide the company as he felt best.”

As he entered PT school, “I always had starting my own company in my mind as a goal.”

Considering CapitalMegabite Restaurant Brokers helps you value, sell, broker or buy restaurants, bars, nightclubs - restaurant valuations - restaurant appraisals

Fast forward a few years, and Chad and his business partner at the time had founded Momentum Physical Therapy & Sports Rehab in a suburb outside San Antonio, Texas. Despite “not knowing anything about running a business,” they bootstrapped their way to impressive growth, taking out small lines of credit at local banks and paying them back as quickly as possible. They opened another location, then another. After the third, they started financing their growth through cash flow. Before Chad knew it, he had been running the business for a dozen years and Momentum had expanded to 10 locations in the San Antonio area.

The team started thinking about raising capital to grow more quickly. “We were exploring all the different options on the table — traditional lenders, banks, PE groups, VCs, and we weren’t finding the right fit. At the point, the idea of being purchased wasn’t on the table.” Still, people were reaching out to them, especially as they began to be recognized nationally for their success — Momentum was on the Inc. 5000 list of America’s fastest growing companies two out of three years in a row.

“We kept pushing people off, saying that we weren’t interested,” says Chad. He started using Axial with the intent to find a private equity group, but instead got in touch with a strategic acquirer that had expertise and knowledge in their field, Houston-based U.S. Physical Therapy Inc. “They could provide more robust systems, and help us grow the right way. We decided that maybe it did make sense to shift gears a bit and bring on a strategic partner to help achieve our vision.”

Eventually, U.S. Physical Therapy Inc. bought 60% of Momentum for $7.2 million.

Lessons Learned – Selling My Business

Chad acknowledges that letting go of control of the company he had worked so hard to build wasn’t easy, and says he learned a few hard lessons along the way. Here’s the advice he has for fellow CEOs considering M&A.

1. Make sure you’re emotionally ready for a change.

“When you’ve worked 12 or 13 years to build something, it’s scary to think about selling a majority share,” says Chad. “The number one piece of advice we got from mentors and people who had done it before was to make sure you’re mentally and emotionally ready for things to change, because they will change. Your role won’t be the same.”

Says Chad, before the sale, “I had a lot of involvement with our executive team, providing leadership and strategic planning, but I was also the guy that handled all the financial planning and budgeting and spreadsheets — I was basically the comptroller. That was a huge thing to give up when we were acquired — a lot of the detail stuff I was doing got rolled up under the corporate umbrella, and that was a big change.”

2. You have to have a team.

“Neither my business partner nor I had any idea how detail-oriented the process would be, how many documents we would have to compile,” says Chad. “It was very, very labor intensive.”

He says that one of the most important pieces of advice their advisor gave was to build a deal team. “You’ve got to have people on your team helping you compile this info — you can’t do it alone. You can’t take the eye off the ball of running your business this long to get things done or operations will really start to trail off.”

It’s crucial “to either have a team in place that can continue to drive the operations and growth of the business while you focus and pour yourself into all that preparation and time that goes into getting a merger done, or have a team that’s dedicated to the M&A process, so that you’re not draining from existing resources.”

Chad tells the story of a friend who was looking to sell a tech company without a deal team in place. “When he first started the conversation about M&A and potential sale, the value that they were talking about was really high — a nice value. He spent the next 12 months getting the deal to the point where they were ready to sign.

“But then the acquiring company came back to him and said, ‘We can’t pay what we first talking about because the performance of your business has gone down.’ The value had taken a nosedive because the owner was investing all his time into the transaction.”

“The value had taken a nosedive because the owner was investing all his time into the transaction.”

3. Don’t overlook culture.

“One of the things that made me want to go into business for myself in the first place was to build a culture where we were more like family, a close-knit community that delivered unparalleled care,” says Chad.

Working with an advisor helped him understand how important a cultural fit was when searching for a partner, as did watching others go through mergers. “I think we made the right decision, but I’ve seen others that have sold their companies and stayed on as an employee afterwards — they ended up having to make an ugly exit from this company that they had built and grown.”

4. Don’t underestimate the complexity of integration.

Integration can be the most difficult part of an inherently challenging process. “Knowing we were like-minded with our new partners, and sharing such similarities of culture and vision and all those things,” Chad says, may have led him to assume the transition from two companies to one would be an easy one. “It has been really good for the most part, but we did underestimate the number of changes. Even though it was mostly for the better, it’s still a change.” In particular, Chad regrets the uncertainty the changes caused for his staff.

“What I would have done differently is to communicate more with our partner. There were some things in the fog of the changeover that fell through the cracks. We thought they were taking care of it, they thought we were taking care of it.” A detailed calendar of dates and timelines and responsibilities would have allayed some of those concerns and made the transition more seamless for both sides.

5. Find an advisor you trust.

“I honestly can’t say enough about how helpful our broker was throughout the process,” says Chad. “I can’t imagine trying to go through the process on our own.”

Before engaging Martin Healthcare Advisors through Axial, he had already received a few offers for the business. “We really thought, ‘We’ve got this wrapped up, we don’t need to bring anyone in at this point.’ We thought we were standing at the 95-yard line with 5 yards to go.” After bringing in an advisor, though, “it became apparent that we were standing at the 5-yard line with 95 to go. They helped us to see that this would be a marathon, not a sprint.”

Chad says the offers the company received before engaging Martin Healthcare “were half of what we received after we brought them in.”

The offers the company received before engaging an advisor “were half of what we received after we brought them in.”

In addition to helping maximize their valuation, Chad says that Martin Healthcare’s “knowledge and experience in negotiating multitudes of previous M&A deals gave us insight on some of the other intangibles we needed to negotiate. Everyone thinks about the initial buy-out price, but not a lot of people put much thought into details like employment contracts, your specific role after the merger, earn-outs, etc. Having a trusted advisor was invaluable for us in knowing what things we should be paying attention to, as well as what things were usual and customary to ask for throughout the negotiations.”

Martin Healthcare was also crucial when it came to preparing marketing materials and preparing for meetings with potential buyers. They “coached us on the right questions we should be asking, in order to ensure we were ultimately picking in the right partner.”

Chad says his biggest piece of advice to “make sure that you’re working with a broker that represents your best interests. Bigger companies are in the mode of doing mergers and acquisitions all the time — they’re good at it. No matter how ethical they are, they’re going to work out the deal in a way that keeps their company’s best interests top of mind. You need somebody fighting for yours too.”


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.

The Cost Of Not Having an Exit Plan

The Cost Of Not Having an Exit Plan

By Peter G Christman, Cepa

Not too long ago, a CEPA emailed me and asked, “what is the cost of not having an exit plan or master plan?” I thought that was a great “ask” because I have never seen that question quantified. I wrote and told him I needed to think over that question. This is an attempt to provide that CEPA with some kind of intelligent answer.

My immediate response to the cost question is a common answer in the business of Master Planning, “it depends”.Megabite Restaurant Brokers helps you value, sell, broker or buy restaurants, bars, nightclubs - restaurant valuations - restaurant appraisals

Yes, it depends on a lot of factors: in fact too many to mention in this space. The real answer is that not having a plan can only be measured by three costs: loss of enterprise value, the morality cost of not doing the right thing, and the cost of timing.

The real cost of not having a plan is the cost of increased risks in each of the above areas!! Having a Master Plan greatly decreases your risk factors!!

Loss of Enterprise Value:

The biggest risk in all of these areas is the fact that business owners are human!!

What will be the effect if the owner is not involved or gone from operations forever??

I have seen statistics from the financial planning industry that says 50% of businesses who lose their owners because of disability or death become insolvent in two years.

There is no available guarantee that provides for owners to be around today, tomorrow, next month, next year, etc.

Just how is this risk quantifiable? Again, “it depends”! The size of the business, current business value, business operations assessment, industry, company resources, people, products, facilities, etc. all come into play in calculating the risk of being “human”.

If a Master Plan is in effect to “maximize the value of the business” as described in “Leg One” of a Master Plan and something happens to the owner, at least the blueprint for success and increasing company value is in place for others to implement.

THE MORALITY COST OF NOT DOING THE RIGHT THING:

Often a business owner is involved in being a “lifestyle” owner and they forget the “responsibilities” they have as a business owner. One the biggest they have is to their employees.

The company’s future success has a resonating effect on the success of each employee’s life and family.

BUT, if the owner doesn’t have a Master Plan in place and the business fails or their growth deteriorates and value decreases what is the cost effect of upon their employees and families????

How is that measured???

THE COST OF TIMING:

This cost covers a lot of risks in all legs of the stool.

In “Leg One”, what if products, services aren’t timed perfectly as they would be in a good Master Plan. How about the recruitment of personnel in a timely manner?

In “Leg Two” what about the timing of someone selling their business without appropriate financial planning? What if their financial resources fall short of the owner’s life span, etc.? What if there is no estate planning or poor planning and the business has to be sold to cover taxes when the owner dies?

How can the costs of these results be measured??

In “Leg Three”, what if they transition from the business without a life plan? What if family members aren’t involved? What if the owner loses their personal identification? What is cost of all of this personal non-planning?

SUMMARY:

I could write a book (and have) about this subject of “What is the Cost of Not Having a Master Plan or Exit Plan”.

Cost can only be measured in the “risks” that aren’t covered or are created without a plan in place.

Of course, the biggest risk that every owner must cover is the risk of being “human”!!!

This makes having a plan in place…………………………..mandatory!!!!


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.

Buyer-Seller Confidence Index: Small Business Sellers Remain Confident about Prices

Media Release from BizBuySell … 2016 Buyer-Seller Confidence Index: Small Business Sellers Remain Confident in Current Market but the Gap is Closing as Buyers Seeing More Realistic Asking Prices

BizBuySell
September 27, 2016

Both Buyers & Sellers Say Election Result Could Change Their Plans in the Market, Data Shows a Clinton Win Could Lead to More Sellers in 2017

San Francisco, CA – BizBuySell.com, the Internet’s largest business-for-sale marketplace, announced today the release of its 2016 Buyer-Seller Confidence Index, a national indicator of small business buyer and seller sentiment of the current business-for-sale environment. The confidence index is calculated by evaluating survey responses of more than 2,000 people interested in either buying or selling a small business. A separate score is calculated for both current small business owners interested in selling and prospective buyers currently exploring the market. Each group’s score ranges from 0 to 100, with 100 representing a perfect environment for buying or selling a business and a score of 50 representing neutral confidence.

This year’s survey results show that while sellers continue to feel more confident than prospective buyers in the today’s market, the gap is closing. The 2016 Seller Index stands at 59, down slightly from 62 in 2015, while the 2016 Buyer Index grew to 49, up from 47 a year ago.

Overall, the Seller Index did drop three points from last year, but the 59 score remain higher than the 56 reported in both 2013 and 2014. In fact, nearly 60 percent of respondents said they are confident that they would receive a price that met expectations if they sold their business today. A majority (65 percent) also believe that they could get either the same or a higher price than they could last year.

Looking at the Seller Index’s slight dip more closely, owners appear to be a little less confident in the future than they were last year. In 2015, 59 percent of sellers believed they could wait a year and receive a higher price for their business. In 2016, that number dropped to 48 percent. Concerns of those with lower confidence include fear of a depressed small business environment and economy (38 percent), increasing costs (31 percent), declining sales and revenue (22 percent), changing wage regulations (17 percent) and changing healthcare regulations (15 percent).

Similarly, this year’s survey shows that almost 48 percent of owners believe selling right now would be difficult in terms of time, effort and expense. Just 40 percent believed the same in 2015. So what is making it more difficult? The top reason why owners said they couldn’t sell right now was that they didn’t believe they could get enough money to fund their future plans, whether that be retirement, a new venture or another purchase. Others said they couldn’t find a buyer right now or didn’t believe their business was performing well enough.

“While the Seller Index fell a few points, overall optimism remains,” Bob House, President of BizBuySell.com, said. “We’re seeing rising financials from most of the businesses sold on our marketplace this year so it makes sense that now would be viewed as a good time to sell.”

Prospective Buyers Noticing More Acceptable Asking Prices, Improving Small Business Economy

As is evident by the increasing Buyer Confidence Index score, buyers appear to be growing more confident they can hold their own at the negotiating table. Seventy-three percent of buyers said they would be able to buy a business today for an acceptable price, a slight increase from the 70 percent that said the same last year. When asked what makes small business sale prices more acceptable this year, most potential buyers credit owners for setting a more realistic price (38 percent) while others attribute the change to an improving small business environment and economy (35 percent), less demand/competition for listings (29 percent) and increased supply of businesses for sale (23 percent). Interestingly, sellers list the small business economy as a concern but buyers are seeing it as a positive.

In the bigger picture, however, buyers remain less confident in the market than sellers. Naturally, buyers are suspect of the other side as 60 percent believe small businesses for sale are currently overvalued, compared with just 4 percent who believe they are undervalued. Because of this, nearly half of buyers said buying a business right now would be difficult in terms of time, effort and expense. Many didn’t see the environment changing either as only 29 percent said they thought they can get a better deal if they wait a year to purchase. Most (56 percent) said prices would likely stay at their current values in 2017.

For those buyers who are still waiting to pull the trigger, the key constraint appears to be limited supply of suitable businesses as opposed to availability of financing. This year’s top inhibitor to ownership was simply not finding the right business (44 percent), much more common than those who said they don’t have available capital (25 percent) or can’t find funding sources (7 percent).

“It’s good to see the gap closing between buyers and sellers and a more balanced market forming,” House said. “As we move closer to 2017, it will be interesting to see how variables like the election results impact confidence.”

Buyers & Sellers Say the Election Result Could Determine Their Plans to Enter or Exit Small Business Ownership

With the U.S. Presidential election fast approaching, it’s possible these confidence numbers could be influenced by the winner. It appears both buyers and sellers would be more confident under a Donald Trump presidency. Fifty-seven percent of sellers and 54 percent of buyers said Donald Trump is the candidate who would most improve the small business environment. Comparatively, just 27 percent of sellers and 31 percent of buyers feel Hillary Clinton would most improve the small business environment. Further, 53 percent of sellers and 47 percent of buyers believe the small business environment would worsen if Hillary Clinton was elected.

Perhaps more telling than voting direction is that a significant number of buyers and sellers say they will actually change their ownership plans based on who wins, specifically if the less-favored Hilary Clinton takes office. In fact, one in five sellers said they would be more likely to sell their business if Hillary Clinton is elected President. Similarly, 31 percent of buyers said they would be less likely to enter small business ownership if Clinton wins.

Clinton supporters said they might take similar action should Donald Trump win. Sixteen percent of current owners said they would be more likely to sell and 15 percent of buyers said they would be less likely to buy if Trump wins the election.

So just why is the election result so important to small business owners and prospective buyers this year? When asked what issues were most important to them, both parties list tax reform, health care, economic policies, and jobs in that order.

Sellers Not Fond of New Overtime Regulation While Buyers Actually Support Them

Beyond the election, another issue impacting the small business community is the new Department of Labor overtime rules. Effective December 1, 2016, the new rules mandate any employees making less than $47,476 annually must be paid at least time and a half their regular rate of pay for any hours worked in excess of 40 a week.

Not surprisingly, small business sellers (the owners soon to be directly affected), were more likely to be against the changes. More than a third (37 percent) were against the changes, while 29 percent were in favor of the regulation changes; 22 percent have no opinion and 11 percent said they were not aware of the changes. Looking at the future, almost half (48 percent) of soon-to-be sellers believe the new overtime regulations will decrease the value of small businesses.

Buyers, on the other hand, were more likely to agree with the purpose of the overtime changes. In fact, most (41 percent) prospective buyers are in favor of the overtime changes, and the majority (80 percent) said the changing rules will have no effect on their plans to purchase a small business. It’s possible these buyers see a bargaining chip for the future purchase. Forty-eight percent said the overtime changes will decrease the value of small businesses.

About the BizBuySell’s Business Buyers-Seller Confidence Index

BizBuySell.com is the Internet’s largest marketplace for buying or selling a small business, with over 1.6 million monthly visits. The company releases its Business Buyer-Seller Confidence Index on an annual basis, reporting changes in buyer and seller opinions of the current business-for-sale environment. The index and scores are calculated through a number of weighted survey questions issued to over 2,000 people currently interested in either buying or selling a small business. For more information on the survey findings and index scores, please contact BizBuySell directly.

Media Contact:

Bobby Chilver
Walker Sands Communications
office: (312) 546-4712


Megabite Restaurant Brokers helps you value, sell, broker or buy restaurants, bars, nightclubs - restaurant valuations - restaurant appraisalsMegabite 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.

 

 

 

Testimonial from Attorney

Testimonial from AttorneyMegabite Restaurant Brokers helps you value, sell, broker or buy restaurants, bars, nightclubs - restaurant valuations - restaurant appraisals

I cannot recommend Jeff Adam highly enough. He maintains a grasp of all of his transactions and never seems to be at a loss of what is going on in each. I have on numerous occasions discussed with Jeff’s clients their appreciation of the personal service he provides whether the transaction involves $100,000 or is a multimillion dollar transaction. If you are looking for someone who understands each and every facet of your business or transaction, you will not be disappointed in choosing Jeff Adam.

Franklin Cram, PC, Attorney at Law


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 value, sell or buy 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.