If you’ve ever heard the saying, “You don’t know, what you don’t know,” and never understood it, I was there also. I sold my family business about 18 months ago to a much larger company. At the time, I thought that knew a lot about the RV industry, after all, I was a third-generation owner. I figured if my grandfather and father had been successful for over 50 years, what they’d taught me ought to be enough. That idea, that concept embedded into the depths of my thought, couldn’t have been more wrong. I soon would learn “what I didn’t know.”
The first six months were really a blur. Our projections and goals were constantly changing based on more growth than I ever could’ve imagined. All of the new tools and information I now had at my disposal were amazing. Any question I had could be answered, and hunches could now be backed up with quantifiable data. I’ll admit it was a bit of an overload at first, but now it has become normal.
To people that have been brought into the light after having been in the dark, the world seems amazing, and this is how I felt. Along with this amazing feeling also comes a bit of shame. I now can say, “I didn’t know what I now know.” Shame comes from knowing that in 50 years of business, we never truly grew. Not when I came home from college with all my “fancy” degrees and learning. Not from an evolving economy. We only focused on small, consistent growth that was very risk-averse and preservation-minded. Debt was always considered bad. Sure, we made a great living, but now I know what could’ve been.
So to all those out there who “don’t know what you don’t know,” I suggest you learn before it cost you as much as it cost me. Sure, it cost me in the valuation of my company, but most of all, it cost me years of personal and professional growth. Now I am always searching for ways to improve, so if I am ever in the same position, my “don’t know” won’t last very long.
If you own an RV dealer, supplier, or OEM and would like to explore your growth options or exit options, I would welcome an opportunity to speak with you. Feel free to contact me for a confidential, no-cost, no-obligation consultation at email@example.com or 208-521-1521. I look forward to speaking with you.Read More
If you are thinking of selling your business in 2022 (or even 2025), taking the time now to get prepared and organized, will save time and effort in the future.
Here is a list of 12 things every business owner should review each year:
1) Financials: Every year, try to improve the quality and timeliness of your company’s financial reporting. The year-end is a good time to talk with your CPA about how to clean up your profit and loss statement and balance sheet and eliminate any line items that are no longer relevant. Work with your CPA to document and categorize any one-time expenses or personal expenses, so your CPA and your M&A advisor can help you calculate an accurate adjusted EBITDA for your business.
2) Due Diligence Checklist: Build a relationship with an M&A advisor and ask for an example of a basic due diligence checklist. Have someone in your company assemble as many of the items as possible and store scanned copies in a digital file storage area like Google Drive or Dropbox. This will save you an enormous amount of time and stress, especially if a great buyer suddenly shows up at your door. Work on it a little bit at a time (or delegate it) so it is not overwhelming.
3) Delegate: Think about your business and life goals. Are there things you want to achieve but have not been able to do because you are too busy doing other things? One way to improve the value of your business is to enable it to run without you. As a business owner, your role is to be a strategic planner and visionary. That means you need to delegate as much of your operating responsibilities as possible. Think about what you can delegate in the coming year.
4) M&A Advisor: Check in with an M&A advisor who you trust to discuss market trends, multiples, the pros and cons of your business, and get a valuation done. You should ask your M&A advisor to update your valuation every year so that you can make informed decisions about your options.
5) Sales and Marketing: Step back and consider your company’s overall sales and marketing strategy. If something is not working, try something new. Eliminate programs that aren’t working. Document everything so you can describe the strategy to a potential buyer.
6) Reduce Expenses: Have someone review expenses. Everything from paper costs to insurance premiums. Get new estimates on all major expenses. Every dollar you save goes to the bottom line, which is multiplied by the deal at the time of the sale. So if you can reduce your expenses by $20,000 next year, the value of your business increases between $60,000 and $140,000 depending on the industry you’re in and the size of your business.
7) Website, Social Media: If your website looks like it was made in 1998, it is time to invest in a new one. While we all know not to judge a book by its cover, most new customers and potential buyers judge you based on how your business presents itself online. So make sure your website looks professional, has accurate information, and works. If you have news, blogs, or social media posts, make sure they are up to date.
8) Tax Planning: Check in with your CPA and attorney to explore what you can be doing now to reduce or eliminate any capital gains taxes that will be due when you sell your business. Effective tax planning takes time but can save you a lot of money in the end.
9) Inventory: Make sure your inventory is current. Write off and get rid of any obsolete inventory.
10) Maintenance & Cleaning: Look at your business through a buyer’s eyes. Does anything need to be painted, cleaned, or thrown out? If a buyer called and wanted to meet with you tomorrow, would your business show well? Also, your employees will appreciate working in a clean, well-lit, and positive environment.
11) Financial Planning: Talk with your financial advisor to determine how much you need to net from the sale of your business in order to meet your financial goals. This does not affect the value of your business, but it does
12) Check in with your kids: The holidays are a good time to have an honest and open conversation with your kids about their goals and to see if they would be interested in taking over your business. Don’t wait until you’re ready to sell, to find out your kids always thought they would take over the family business.
It is not possible to address every item on this list at once. But, if you address one or two items a month, it will help improve the value of your company and make selling your business in 2022 much smoother.
Rich Jackim, is the founder of Jackim Woods & Co and the Exit Planning Institute. He’s also the author of The $10 Trillion Opportunity – Designing Success Exit Strategies for Middle Market Businesses.
If you are thinking of selling your business in 2022, contact Rich for a free, confidential, no-obligation consultation to learn about your options.
Valuations for vocational schools and training companies are at record highs now. As business performance rebounds, buyers are competing for strong performing businesses. That has led to an increase in the number of education-related businesses that were sold in Q3 of 2021. The number of education deals that closed in the third quarter increased 17% over the previous quarter, and 11% from the same quarter in 2020, according to Jackim Woods & Co, which tracks and analyzes vocational school and training company sale transactions.
2021 Education Industry Seller Confidence Index
Valuations for vocational schools and training companies are at record highs now because seller confidence is up. As the economy rebounds, owners of vocational schools and training companies are returning to the market, feeling more confident they can sell their schools and training companies for a good price and less willing to wait until the COVID pandemic is over. Seller confidence increased to 57 out of 70; that’s up from 45 in 2020. This is the highest seller confidence level since the high of 58 in 2018. Today 49% of the respondents believe they can receive a higher sale price for their school or training company today compared to a year ago, and 46% of respondents said the top factor motivating their confidence was an improvement in enrollment and revenue.
The average revenue for vocational schools and training businesses that were sold in the third quarter was $755,000, up 6% from the same time last year. Meanwhile, buyers of education-related businesses, especially Title IV schools, are paying record-high prices for businesses that performed well during the pandemic. The average sale price in the third quarter hit a new high of $1,780,000; that’s 17% higher than the previous year and 40% above pre-pandemic levels.
With current valuations above where they were pre-pandemic, many school owners are thinking now may be the right time to exit.
2021 Education Industry Buyer Confidence Index
Valuations for vocational schools and training companies are also at record highs because buyer confidence is up. Buyers noted that there is a limited supply of profitable well-run schools and training businesses on the market. In addition, several buyers noted that because of the shift to online learning, schools will be able to expand their geographic reach while reducing the cost of delivering educational services. The combination of these two factors signals significant growth opportunities and higher margins for well-run schools and training companies in the future. As a result, buyer confidence increased to 60, up significantly from 48 in 2020 and only slightly above the buyer confidence level of 59 in 2018.
It is interesting to note that demand for high-performing vocational schools and training businesses is increasing. According to Rich Jackim, Managing Partner of Jackim Woods & Co., “buyer inquiries on our education-related listings are up 39% since the same time last year. However, many business owners are putting off selling until their schools or training companies have fully recovered, so the supply of profitable, well-run schools is still limited. This is driving up values and makes it a sellers’ market.”
If you are beginning to think about selling your training business or Title IV vocational school and would like to explore your options, please contact Rich Jackim at firstname.lastname@example.org for a FREE, confidential, no-obligation consultation.Read More
As business performance rebounds, buyers are competing for strong performing businesses. That has led to an increase in the number of businesses that were acquired in Q3 of 2021. The number of closed transactions in the third quarter increased 17% over the previous quarter, and 11% from the same quarter in 2020, according to BizBuySell’s Insight Report, which tracks and analyzes U.S. business sale transactions. The report also includes an analysis of survey responses from over 2,000 business owners, business buyers, and business brokers.
2021 Seller Confidence Index
As the economy rebounds, sellers are returning to the market, feeling more confident they can sell their businesses for a good price and less willing to wait until the COVID pandemic is over. Seller confidence increased to 57 out of 70, up from 45 in 2020. This is the highest seller confidence level since the high of 58 in 2018. 49% of the respondents believe they can receive a higher sale price today compared to a year ago, and 46% of respondents said the top factor motivating their confidence was improved sales or revenue.
The average revenue for businesses sold in the third quarter was $671,000, up 6% from the same time last year. Meanwhile, buyers are paying record-high prices for businesses that have continued to perform well during the pandemic. The average sale price in the third quarter hit a new high of $350,000; that’s 17% above the previous year and 40% above pre-pandemic levels.
With current business valuations higher than they were pre-pandemic, many business owners are thinking now may be the right time to exit.
2021 Buyer Confidence Index
Buyers noted that there is a limited supply of profitable well-run businesses on the market and they regret missing out on buying last year while prices were lower. As a result, buyer confidence fell to 48 out of 70, down significantly from 60 in 2020 and slightly above the buyer confidence level of 47 in 2018.
It is interesting to note that demand for high-performing businesses is increasing. According to Rich Jackim, Managing Partner of Jackim Woods & Co., “buyer inquiries on our listings are up 33% since the same time last year. However, many business owners are putting off selling until their businesses fully recover, so the supply of profitable, well-run businesses is still limited. This is driving up values and makes it a sellers’ market.”
If you are beginning to think about selling your business and would like to explore your options, please contact Rich Jackim at email@example.com for a FREE, confidential, no-obligation consultation.Read More
The number of businesses that were acquired continued to rebound with the number of closed transactions in the third quarter up 17% over the previous quarter and up over 11% year-over-year. That’s according to BizBuySell’s Q3 Insight Report, which tracks and analyzes U.S. business-for-sale transactions.
Sellers are returning to the market, feeling more confident they can receive a good price and less willing to wait as the effects of the COVID pandemic linger on, including supply chain disruptions and staffing shortages.
Seller confidence index increased to 57 in 2021, up from 45 in 2020, which is the highest mark since the high of 58 in 2018. Of those surveyed, 49% of business owners felt they could receive a higher sale price today compared to a year ago, and 46% said the top factor that influenced their decision to sell was improved sales and revenue.
“The number of active sellers in the market is still lower than in previous years, but we have definitely seen an uptick in new clients since 2020. The shortage of good companies for sale, combined with low interest rates and a stock market at all-time highs has driven up the value of the companies that are currently for sale,” said Richard Jackim, Managing Partner of Jackim Woods & Co.
Selling a business isn’t always about the price. It is not like selling a house where the most important factor is finding a buyer who is willing to make the highest offer. In fact, in my 25- years of being a business broker, I’d say that in roughly 20% of the deals, the purchase price was not the most important part of the deal. In the end, sellers are focused on achieving a combination of things, and maximizing the purchase price is only one of them.
Let’s examine some of the other most common goals and objectives sellers have.
- Maintaining the seller’s legacy. For one client, this means getting the buyer to agree to keep the company’s name (which was also the seller’s name) the same after the acquisition and not roll the company into the buyer’s parent company.
- Protecting Employees. For another client, they were the biggest employer in their small town, and the seller wanted to be sure that the buyer would not close down the plant, fire all the employees, and consolidate operations into their plant about 100 miles away.
- Participating in the Upside. Many clients want to remain involved in some fashion (usually in a passive or silent role) with their business after the sale. This often means accepting a lower price at closing but sharing in the company’s future growth going forward. This can be structured in several different ways, including a minority equity interest, a royalty on sales, or an earnout.
- Timing. Several of my former clients had very specific timing goals. In one case, it was due to the owner’s declining health; in another case, the owner’s son and key employee became disabled. In both cases, the owners wanted to sell as quickly as possible before the business suffered, and its value was diminished.
The best way to ensure that you achieve your goals when selling your business is to develop a comprehensive exit strategy before you start the sales process. This assures that everyone on your team is on the same page and is rowing in the same direction.
Rich Jackim, the Managing Partner at Jackim Woods & Co, is the author of the best-selling book, “The $10 Trillion Opportunity: Designing Successful Exit Strategies for Middle Market Business Owners”. He has advised over 200 clients to create their exit plans and helped over 100 clients sell their businesses for a combined value of over $500 million. The book’s success led Rich to create the Exit Planning Institute and created the Certified Exit Planning Advisor (CEPA) program. He has trained over 300 lawyers, accountants, financial advisors, consultants, and business brokers to develop exit plans for their clients.
If you are thinking of selling your business in 2021 or beyond, contact Rich Jackim at 224-513-5142 or firstname.lastname@example.org for a FREE, confidential, no-obligation discussion about your options.Read More
M&A deal activity has recovered from its 9-month pandemic-related dip. Based on the overall strength of the stock market, we expect continued strong mergers and acquisitions activity for 2021 as well.
The total dollar value of mergers and acquisitions announced in the U.S. fell to roughly $20 billion in March as the pandemic set in, according to data from Barrons. That was a sharp drop-off—from about $180 billion in January. Yet the recovery has been equally sharp. Deal volumes reached approximately $205 billion in October according to Barron’s data.
Looking forward, Rich Jackim, managing partner at Jackim Woods & Company said, “low-interest rates, optimism about a COVID vaccine, record-breaking fundraising by Special Purpose Acquisition Companies (SPACs), and even a less contentious global trade policy will all contribute to continued strong M&A activity in 2021.”
Interest rates are currently at historic lows, reducing the cost of funding acquisitions. In addition, the good news about several COVID vaccines provides a light at the end of the tunnel and the assurance that buyers need to make a purchase.
And SPACS—special purpose acquisition corporations that raise money through an initial public offering in order to buy other companies—have raised more than $64 billion this year. SPACs raised just $13 billion in all of 2019, suggesting that SPACs will be the new driver of middle-market M&A activity in 2021.
“The M&A wave is regaining momentum and should continue for the next 12-18 months,” Jackim says. He believes the following industries will see an uptick in M&A activity in 2021.
2021 will be a year of recovery as retail and restaurant workers displaced by COVID-related closures seek other careers and gainful employment. As a result, Jackim believes the vocational/technical training and education sector will of interest to buyers and investors. The US has been suffering from a shortage of skilled workers for over a decade, so there are plenty of high paying jobs available for people with the right skills. Enrollment in vocational programs tends to rise as unemployment rises, so we expect 2021 to build on the strong results that the technical education industry saw in 2020, and to attract renewed interest from both financial and strategic buyers and investors.
The energy industry is another industry where we expect to see a lot of M&A activity in 2021. The price of crude oil has dropped to just above $40 a barrel since early summer, nowhere near the $63 a barrel price at the beginning of the year. At the same time, the rise of clean energy and potential regulation are threatening companies that focus on traditional fossil fuels. As the fossil fuel industry shifts toward a lower-growth model, exploration and production companies will be looking to generate returns through acquisitions that would yield economies of scale and other benefits, or diversify their product or service offerings away from fossil fuels.
Sellers generally desire all-cash transactions; however, oftentimes partial seller financing is necessary in typical middle market company transactions. Furthermore, sellers who demand all-cash deals typically receive a lower purchase price than they would have if the deal were structured differently.
Although buyers may be able to pay all-cash at closing, they often want to structure a deal where the seller has left some portion of the price on the table, either in the form of a note or an earnout. Deferring some of the owner’s remuneration from the transaction will provide leverage in the event that the owner has misrepresented the business. An earnout is a mechanism to provide payment based on future performance. Acquirers like to suggest that, if the business is as it is represented, there should be no problem with this type of payout. The owner’s retort is that he or she knows the business is sound under his or her management but does not know whether the buyer will be as successful in operating the business.
Moreover, the owner has taken the business risk while owning the business; why would he or she continue to be at risk with someone else at the helm? Nevertheless, there are circumstances in which an earnout can be quite useful in recognizing full value and consummating a transaction. For example, suppose that a company had spent three years and vast sums developing a new product and had just launched the product at the time of a sale. A certain value could be arrived at for the current business, and an earnout could be structured to compensate the owner for the effort and expense of developing the new product if and when the sales of the new product materialize. Under this scenario, everyone wins.
The terms of the deal are extremely important to both parties involved in the transaction. Many times the buyers and sellers, and their advisors, are in agreement with all the terms of the transaction, except for the price. Although the variance on price may seem to be a “deal killer,” the price gap can often be resolved so that both parties can move forward to complete the transaction.
Listed below are some suggestions on how to bridge the price gap:
- If the real estate was originally included in the deal, the seller may choose to rent the premise to the acquirer rather than sell it outright. This will decrease the price of the transaction by the value of the real estate. The buyer might also choose to pay higher rent in order to decrease the “goodwill” portion of the sale. The seller may choose to retain the title to certain machinery and equipment and lease it back to the buyer.
- The purchaser can acquire less than 100% of the company initially and have the option to buy the remaining interest in the future. For example, a buyer could purchase 70% of the seller’s stock with an option to acquire an additional 10% a year for three years based on a predetermined formula. The seller will enjoy 30% of the profits plus a multiple of the earnings at the end of the period. The buyer will be able to complete the transaction in a two-step process, making the purchase easier to accomplish. The seller may also have a “put” which will force the buyer to purchase the remaining 30% at some future date.
- A subsidiary can be created for the fastest growing portion of the business being acquired. The buyer and seller can then share 50/50 in the part of the business that was “spun-off” until the original transaction is paid off.
- A royalty can be structured based on revenue, gross margins, EBIT, or EBITDA. This is usually easier to structure than an earnout.
- Certain assets, such as automobiles or non-business-related real estate, can be carved out of the sale to reduce the actual purchase price.
Although the above suggestions will not solve all of the pricing gap problems, they may lead the participants in the necessary direction to resolve them. The ability to structure successful transactions that satisfy both buyer and seller requires an immense amount of time, skill, experience, and most of all – imagination.
The post Negotiating the Price Gap Between Buyers and Sellers appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
The rapidly evolving impact of the COVID-19 virus is being felt everywhere—in the healthcare system, employment, politics, and the economy. This is certainly a time of uncertainty in our lives and businesses. The closest thing I can compare it to is the tremendous uncertainty everyone felt in October 2008 as the financial crisis was unfolding.
Then, like now, business owners are seeing the values of their business plummet. Smaller businesses are naturally more vulnerable in an economic downturn, but everyone is affected in one way or another. Strategic and financial buyers, sellers, business owners, and M&A advisors are all paying attention right now and trying to understand how this will impact them, and how they can mitigate the negative consequences.
Reflecting on the financial crisis of 2008-2009, however, helped me identify a few things that are likely as we deal with the impact of COVID-19 on the M&A market and business sales.
Like in 2008 and 2009, M&A activity will most likely contract significantly in the near future as the volatility in the stock market will likely put the M&A market on hold. For deals in the early stages, there will be a lot of anxiety on the part of sellers and a lot of caution on the part of buyers. As a result, we expect that many buyers and sellers will press the pause button to wait and see how the situation unfolds over the next few months.
But there are a lot of indicators that when the COVID-19 scare is behind us, the M&A market will rebound with gusto. Right now, strategic buyers and private equity groups are flush with capital. Not only are PE firms ‘open for business’ but many of them are accelerating efforts to close in-process deals, and even to scale future investing activities.
“I’m bullish on the outlook for M&A activity in the medium and long term once the financial markets adjust to the ‘new normal’. There is an unprecedented amount of capital that needs to be deployed, interest rates are at record lows, and the federal government’s stimulus package should make borrowing even easier. At the same time, the record high valuations that we’ve seen over the last year or two are likely to decrease, which will make financing acquisitions less risky and fuel a strong increase in M&A activity.”
Richard Jackim, Managing Partner, Jackim Woods & Co.
If you are a business owner thinking about selling, what does all this mean to you? First and foremost, it’s important to remember that while the next few months may be painful, the fundamental value of your business is likely still intact. There is no doubt that if you were waiting for the market to peak before you sell you missed the window. But that doesn’t mean your business is unsaleable or that it has no value. The value is still there because buyers buy companies for the future cash flow that business will generate. That means buyers take a long-term perspective. If your business is fundamentally sound, it is very likely that its value will rebound once the economy returns to the new normal.
Many of the business owners I’ve spoken to in the last few weeks believe that the current market conditions will scare away buyers. It is true that undercapitalized buyers will sit on the sidelines and wait for the dust to settle, but stronger financial and strategic buyers will recognize the short-term nature of the crisis and see this as a good opportunity to buy a good business at a lower multiple of EBITDA than last year.
If you’re thinking of selling your business it’s important to work with someone who understands the dynamics and changing motivations of sellers and buyers to advise you during these uncertain times. Below are our recommendations for business owners to take over the next 2-3 months if you are thinking about selling in the next few years.
- Focus on Exit Planning (talk with us about our formal process that can use this time to help you and your business get prepared for sale)
- Get an evaluation of your business (so you understand how much your business is worth)
- Understand what you can do to improve the value of your business and make it more attractive to potential buyers
- Talk to your financial advisor to understand how much you need to retire
- Work with an M&A advisor or business broker to begin putting together a data room and formal marketing materials so you can hit the ground running when the market recovers.
Our team is comprised of experienced investment bankers and M&A professionals who literally wrote the book on exit planning. We helped over three dozen companies between 2008 and 2010 help get ready for sale and then sold them for top dollar when the market recovered. We will provide you with a value-focused, hands-on approach to help you and your business develop a strategic exit plan that allows you to exit your business on your terms and for its highest possible value.
If you are interested in selling in the next three years and would like to talk to a licensed business broker and M&A professional about how this crisis affects your options, please feel free to contact Rich Jackim for a FREE, confidential conversation at email@example.com or at (224) 513-5142.Read More
Thinking about whether or not you are ready to exit is an important question. It’s something that every business owner will have to address at some point. Importantly, you don’t want to wait until the 11th hour to prepare to sell your business. There are far too many pieces in this particular puzzle to wait until the last minute. You’ll want to begin the process sooner by asking yourself some key questions.
First, you’ll need to determine the actual value of your business. It is a harsh truth, but what you think your business is worth and what the market feels that it is worth may be two very different things.
This point serves to underscore the importance of working with a business broker or M&A advisor early in the process. An experienced broker knows how to go about determining a price that will generate interest and seem fair. Remember that at the end of the day, it will be the marketplace that determines the value of your business, but working with a seasoned professional is an excellent way to match your offering price with what the market will ultimately bear.
Secondly, you’ll want to consider whether or not you truly want to sell. It is not uncommon for business owners to begin the process of selling their business only to realize a few hard facts. Wanting to sell and the time being right to sell are often two different things.
Upon placing your business on the market for sale, you may learn that you’re not emotionally or financially ready. If this happens to you, consider it a learning experience that will serve you well down the line.
Get Your Ducks in a Row
If you have done a financial assessment, a little soul searching and have begun working with a business broker or M&A advisor to determine that now is a good time to sell your business, then there are several steps you’ll need to take. You can be sure that any serious prospective buyer will want a good deal of information regarding your company.
At the top of the list of items potential buyers will want to see are three years of profit and loss statements as well as federal income tax returns for the business. Other important documents ranging from lease and lease related documents, lists of loans against the business and a copy of a franchise agreement, when applicable, are all additional documents that you will need to provide. You should also have a list of fixtures and equipment, copies of equipment leases, lists of fixtures and equipment, and an approximate amount of inventory on hand. A failure to not have this information organized and ready to present at a moment’s notice could be a costly mistake.
Working with professionals, such as accountants, lawyers, and brokers, is a savvy move. Owning and operating a business can be a complex process, and the same holds true for selling a business. Investing the time to seek out experienced and professional advice is the first step in selling your business.