Buying a Business - Huddle with the Experts

Acquiring a business is a team effort and finding the right business broker (intermediary) is just the start of building your squad.

Oftentimes, buyers do not know how to go about tackling the whole process of investigating the business they like or how to evaluate the financial data. This questions represents a common real- buyer inquiry:

"I'm ready to purchase the freight company I've been looking at that's currently listed for $1.2 million. I've never bought a business before and I need someone who can help me through the various phases so I don't overpay and don't miss key legal issues that might be involved. Where can I find such a person?"

The answer is: You need more than one person.

Making a business acquisition is a team effort, and your business broker, also known as a business intermediary, is the quarterback. The broker drives the deal by acting as the buffer and go-to guy with the buyer, the seller, the attorney and the accountant. We do everything to move the deal along, including coaching and some tactical rationale therapy.

It's an extremely emotional process. Sometimes, the reason deals don't get done is that emotions get in the way. A good intermediary will take the emotion out of the transaction. Feeling an emotional connection to the business you intend to purchase is important since it will be a large part of your life. However, during the due diligence process common sense must be injected into the game plan.

As the coach, the broker sees the big picture. S/he keeps the ball spiraling towards the goal and creates the synergy needed to prevent false starts, fumbles and needless setbacks.

Your broker can help you find your other team members, including an attorney to act as your blocker to protect you in the legal aspects of the transaction and an accountant to tackle the numbers and tax issues.

As a general rule, small business owners sell a business only one time -- and buyers purchase a business only once in their lives. A business owner's professional advisors who have counseled them on the operations of their business consists of their attorney who does general business law and their accountant who does their books and tax filings. New buyers, too, have probably called on attorneys for various reasons such as preparing a will, for example, and have used accountants to file their income taxes. It is important to note that these types of professional advisors may have little or no experience in a business sale transaction.

Another general rule is that a deal structure that favors a buyer from the tax perspective normally is detrimental to the seller's tax situation and vice versa. Negotiations are opposing in nature and require creative solutions by experienced business brokers....the negotiators.

Good brokers will have a list of professionals with whom they have worked with in the past - deal makers versus deal breakers. You need an accountant and attorney that specialize in business transfer transactions.

You wouldn't call an eye doctor to perform foot surgery, so why call a patent attorney or a general accountant to help you perform due diligence on an acquisition candidate. You need specialists.

Professional advisors can make or break a deal. You must articulate your wishes to your team in order to have them working together towards the common goal. Each advisor, such as a business broker (intermediary), an attorney or an accountant, has a specific role in the transaction and should be working on behalf of their client to achieve the objective for which they were engaged.

Your advisors should provide the information you need in the time period required -- so you can make the decision on the purchase. You are the ultimate decision maker in the deal.

Communication between all of the parties involved is a priority to prevent the deal from dying. Each advisor should clearly understand the wishes of their client.

The accountant needs to know from the client that this is an earnestly desired transaction and that, unless something completely unanticipated is discovered, his or her job is to provide, review, and verify the financial records of the business in order to get the deal done.

If there is no one monitoring and leading the progress of the transaction, the ball can be dropped somewhere along the way before the final yard...before breaking the plane of the goal line.

The use of a professional business broker to captain the effort can alleviate communication problems, avoid needless delay, and keep the momentum rolling.

The experienced business broker has been through the due diligence and closing process many times, much more often than any of the attorneys or other advisors involved. They keep the deal on track and act as the captain that keeps the team working together towards the common goal.......the successful consummation of the sale.

As long as all advisors in the huddle understand the game plan and are all getting the same signals from their respective clients -- the buyer and the seller -- the odds are good that the effort will have the desired result -- a win.

Selling A Business In Houston - It's Still Hot!

Back in March 2007 I wrote an article touting Houston's booming economy. In revisiting that article, while there is certainly economic turmoil on today's national scene, Houston is still hot!

The reason for this blog post is to share some of our current hands-on observations and experiences that keep us aware of the climate in Houston. And, I'm not talking about green house gases or other global warming theories. These are facts straight from the microeconomic level.

Our firm is like a barometer for the Houston business marketplace. We know what business owners are feeling and thinking -- they talk to us. Everyday, we visit with these entrepreneurial people who are keeping Houston's economy as one of the best in the nation. And, we also serve as the information source for those who want to become business owners. Yes, they talk to us too. They are calling from New York, California, Ohio, Canada, England, well -- in other words, we are seeing international interest in Houston for business acquisitions.

What we are finding is that many business owners in Houston who are ready to sell their businesses or are beginning to prepare for their exit, are hesitant. They don't know what's going to happen in the upcoming election and they are worried about the economy they tell us. Not only are these valid concerns, they are the realities facing the nation today. Who isn't worried about these issues?

But let's talk facts -- Let's focus on the facts about the Houston marketplace:

1) The number of businesses in Houston is growing and our population is growing. Corporate firms are either relocating their headquarters to Houston or are making strategic acquisitions of smaller businesses here to expand into our market. From corporate, private equity, to the individual entrepreneur, they have their eyes on Houston. And no wonder, Houston is the #2 best business climate in the Nation (Site Selection).

2) We have full-occupancy in our Class A office space, and we have experienced the #1 job-growth rate in the country (U.S. Bureau of Labor Statistics) due to the opportunities available in our expanding market.

3) Our housing market is #1 in America. Houston is bucking the trend of decreasing home sales, as reported by USA TODAY on 2/15/08. Houston was identified as one of only a few US metro areas showing home growth. In fact, the Houston Association of Realtors in their January 16, 2008 press release, reported 2007 as one of the best years on record for property sales in Houston, second only to 2006.

4) Texas has one of the top 10 best economic outlook rankings in the U.S. according to senior economists for the Wall Street Journal. Another senior economist with Moody's Economy.com, says in his Texas economic forecast through 2008, "Houston is probably the state's biggest economic hot spot thanks to its sheer size and broad-based growth and booming energy industry." Houston is indeed a world-class city and economic powerhouse.

5) At a panel convened by the Center for Houston's Future this month, experts concluded that one of Houston's strengths was its entrepreneurial culture and the shared feeling that growth is good. Other driving forces mentioned were the city's great port, critical mass of industry clusters, and its cultural arts districts. "We really are impressed by Houston," said one expert on the panel, "we're convinced you are on your way to becoming America's fourth global city after New York, Chicago and Los Angeles."

I can go on and on, but I'll leave it at that for now. Of mention, however, is Inc. Magazine interviewed me last week for their upcoming April 2008 issue. They, too, are aware that Houston is the happening place. They wanted to know what specific types of businesses are hot in Houston and what makes some businesses more valuable than others. So there you go. If you are a business owner and have been wondering if you should test the water, jump in and ride the wave. It's not only the weather that's hot down here in Houston.

Houston TABB Chapter Announces Luncheon with Guest Speaker Former Federal Reservist Bill Sherrill

HOUSTON, TX -- The Houston Chapter of the Texas Association of Business Brokers (TABB) announces their first monthly luncheon for the new year to be held February 27, 2008, featuring guest speaker Mr. William Sherrill as he presents Houston's economic forecast for 2008.

Mr. Sherrill, who has significant experience in such fields as real estate development, electronics, manufacturing, banking, and finance and has made noteworthy contributions in these areas, will discuss Houston’s Economic Forecast for 2008 with the members of TABB at the Briar Club in Houston. Mr. Sherrill has been twice appointed as Governor of the U.S. Federal Reserve Board and served as Director of the Federal Deposit Insurance Corporation (FDIC). A champion of entrepreneurial management, Mr. Sherrill founded the Center for Entrepreneurship & Innovation at University of Houston's Bauer College of Business and currently serves as its Co-Chairman.

Houston's Chapter of TABB hosts monthly luncheons for its members which focuses on a range of topics such as educational programs, legal, tax, economic, local trends, and other issues that impact the business transfer marketplace in Houston.

Certified Business Brokers (CBB), whose team members have served on TABB's Houston Chapter Board since 1983, is the largest business brokerage firm in Texas and was established in 1974. The firm was a founding member of the International Business Broker Association (IBBA), the largest business broker association in the world, and a founding member of TABB, the precursor and model used to form the IBBA and other business broker associations across the country. Their clients are small to mid-market privately-held companies. Their services include Mergers & Acquisitions, Business Brokerage, and Business Valuations.

Buying A Business -- Make Your Acquisition A Good Investment

Future profit potential – and how much you can impact that future – is the most important information you can have when purchasing a business and will ultimately be the measurement of the merits of the investment.

One the most serious shortcomings when evaluating an enterprise is to focus only on historical performance without considering what the business might be capable of under new management. While its history provides some insight, it is what will happen to the company in the future that is key.

In any conventional evaluation process, the buyer will pay for what has been achieved but will buy for upside potential. Successful acquisitions are all about generating a premium on the investment. The major "determinator" in considering an acquisition should be how a new owner can improve the business. Probing for underlying growth opportunities that are ripe for exploitation will help achieve that goal.

Factors to consider in order to adequately gauge the company's future outlook include industry trends, overall market and economic conditions, regulations, societal changes, technical trends, competition -- in addition to your ability to grow the business through better sales techniques, innovative marketing programs, adding more products or services, refined operational processes, wider distribution, and an increased capital base. Each of these enhancements can dramatically expand the bottom line.

Most business pricing models have two major components: a base, usually revenue or profit, and a multiplier. To get the base you need a clear view of the revenue picture from previous years, the historical performance. The multiplier is derived from industry-specific ranges. That multiplier is actually the number of years it will take to recoup the price you just paid for the business, assuming it doesn’t grow (or shrink.) Having a clear view of the future – and how much you can impact that future – is the most powerful intelligence you can have when determining the soundness of a business investment.

For example, if you have to pay 3x earnings, and believe you can double the business in twelve months, that is a good deal. If you have to pay 10x earnings, and you expect 10% growth – it’s going to take a very long time to see a return on your investment.

Using these principles as a guide in making an acquisition decision may markedly increase the chances that your journey to profits and success will end with positive results.