sd-business-advisors

Case Study: Sale of a Niche Digital Marketing Agency

Sat, 18 Apr 2026 16:04:32 GMT

Case Study: Sale of a Niche Digital Marketing Agency

Overview

Industry: Digital Marketing (Financial Sector / PR & Content)

Founded: 2016

Employees: 30 (full-time, part-time, and contractors)

Transaction Year: 2022

Adjusted Earnings: $382,000

Asking Price: $1.2M (3.14x multiple)

The Situation

The seller founded the agency in 2016 and successfully scaled it from the ground up to a team of 30. By 2020, the business was performing well and positioned for further growth.

After conducting a detailed growth analysis with her business coach, the seller mapped out a clear path to the next stage—complete with the required time, capital, and staffing. While the opportunity was attractive, she ultimately decided she did not want to take on the demands of scaling the business further.

Like many entrepreneurs, she recognized her strength was in building and growing businesses—but not necessarily operating them at the next level.

Preparation & Strategy

The seller engaged us in 2021 to begin the sale process. The initial phase focused on positioning the business for a successful exit:

Cleaned and normalized financials to ensure clarity and credibility
Clearly defined owner responsibilities and team structure
Identified the ideal buyer profile and strategic fit
Developed a targeted go-to-market strategy

Through market analysis and comparable transactions, we established a valuation of $1.2M, representing a 3.14x multiple of adjusted earnings.

Market Response

Once brought to market, the business generated strong interest:

233 buyer inquiries
152 signed NDAs
5 qualified offers

This level of activity validated both the quality of the business and the effectiveness of the positioning strategy.

Buyer Selection

The seller ultimately chose an existing agency owner as the buyer. While several offers presented stronger financial terms, this buyer stood out due to:

Relevant industry experience
Complementary service offerings
A clear vision for scaling the business

The acquiring agency provided broader digital marketing services, while the seller’s firm specialized in financial-sector content and PR. This created a strong strategic fit and clear synergy.

Deal Structure & Negotiation

The accepted offer met the full asking price of $1.2M, but included a notable structure:

60% seller financing

This is significantly higher than typical transactions, where seller financing more commonly ranges between 10%–20%, if included at all.

The buyer’s rationale was to preserve capital for immediate growth initiatives post-acquisition. While other offers included more favorable upfront cash terms, they lacked the strategic alignment and operational expertise the seller prioritized.

After extensive discussions, the seller chose to move forward based on:

Confidence in the buyer’s ability and integrity
Desire to see the business continue to grow
Commitment to employees and clients
Outcome

The decision proved successful:

The business has continued to grow post-sale
Employees and clients experienced a smooth transition
The buyer has consistently made payments on the seller note, which is now nearly paid off

Key Takeaways

Strategic fit can outweigh stronger financial terms
Seller financing can unlock the right buyer when structured thoughtfully
Preparation and positioning drive competitive buyer interest
Alignment of values (team, clients, legacy) is often critical in final decision-making

Testimonial From Seller

"I met Matt through a successful entrepreneur at my business coaching group. She had recently sold her business and found freedom. I knew I wanted to do the same. She told me about her experience with Matt, so I reached out to him about selling my firm. To be honest, my firm was pretty unsellable at that point, but Matt spent a year with me cleaning up the books, improving the value, marketing the business and finding the perfect buyer. There were a few times I almost gave up or lowered the price, but Matt kept us on track and we found the perfect buyer and got our asking price. Matt is trustworthy, reliable, experienced and has a tireless work ethic. The most important characteristic is his calming force throughout a stressful process. I knew I could count on him and trust him to get me to the finish line. Now I have my life back and money in the bank. So thankful to have met Matt!"

Sold: High-Margin $4.8M Niche Manufacturing Company

Fri, 03 Apr 2026 03:52:20 GMT

Sold: High-Margin $4.8M Niche Manufacturing Company

Closed at 4.3x EBITDA in Less Than 6 Months

A retiring owner of a highly profitable niche design and manufacturing company engaged SD Business Advisors to find the right buyer — not just any buyer.

Seller’s Goals

Cash out 85% of equity
Retain 15% ownership
Stay on post-sale as a design employee

Key Challenge

This was a highly specialized opportunity requiring a buyer with both:

Strong business operations experience
Relevant design sensibility and industry fit

Additional complexity included:

All fabrication was subcontracted, creating perceived continuity risk under new ownership
The seller wanted a partial equity rollover , requiring a buyer aligned with a more sophisticated deal structure

Our Process

150 buyer inquiries generated
80 signed NDAs
3 qualified offers received

The Result

We successfully identified and closed with a buyer who had the right mix of operational capability, design alignment, and comfort with the seller’s continued involvement.

Outcome:

✔ Sold at 4.3x EBITDA

✔ Closed in under 6 months

✔ Seller achieved liquidity, retained upside, and stayed involved in the business

Client Feedback

“Todd communicated quickly and efficiently and found the buyer that was not only qualified, but who also had an affinity for what we do… I have never experienced the quality of buyers that I did working with Todd.”

WHY CONTRACTORS NEED A SPECIALIZED ADVISOR WHEN IT'S TIME TO SELL

Tue, 03 Mar 2026 15:48:33 GMT

WHY CONTRACTORS NEED A SPECIALIZED ADVISOR WHEN IT'S TIME TO SELL

Contracting companies operate differently than most businesses, and those differences matter when it comes time to sell. Contractors are best served by advisors who understand the trades, not just transactions.

Contracting Businesses Don’t Fit a Generic Mold

Running a contracting company involves realities that outsiders often underestimate, including:

Jobs, backlog, and contracts that shift month to month
Dependence on experienced supervisors, estimators, and crew leaders
Licensing, bonding, insurance, and regulatory requirements
Ongoing labor availability and supervision challenges
Customer concentration with general contractors, municipalities, or commercial clients

To a general business broker, these factors can look like major risks. To the right buyer, they’re simply part of how contracting businesses operate and can be managed when properly understood and positioned.

The problem we see time and again is that many brokers don’t know the difference.

Why the Right Experience Changes the Outcome

Buyers who acquire contracting companies, whether they’re industry operators or private equity groups, tend to focus on very specific questions, such as:

How reliable and transferable the backlog really is
What happens operationally if the owner steps back after closing
Who is running jobs, estimating work, and managing crews
Where true operational risk exists versus perceived risk

When these questions are addressed early and clearly, deals move forward. When they’re not, they surface late in diligence, when buyers have more leverage and deal terms start to shift.

That difference alone can have a major impact on valuation, structure, and whether a deal actually closes.

A Better Way to Exit

Selling a contracting company doesn’t have to be confusing or painful. With the right preparation and specialized guidance, it can be a clean, well-structured transition that reflects the value you’ve built. Contracting companies shouldn’t be forced into generic frameworks. The process has to start with how these businesses actually operate day to day.

Article contributed by Mark Flores. Visit Mark's website to learn more: SellMyContractingCompany.com

15 CRITICAL MISTAKES TO AVOID WHEN SELLING YOUR BUSINESS

Tue, 03 Mar 2026 15:44:47 GMT

15 CRITICAL MISTAKES TO AVOID WHEN SELLING YOUR BUSINESS

As a business owner, you may someday intend, or hope, to sell your business. You’re always busy either running the business or with life in general, which means selling your business is likely not at the forefront of your mind. It’s common for owners to not think of, or prioritize, exactly how they are running their business and the decisions they make that can either add or detract from the business’s value. They’re often on autopilot, too focused on hammering nails to see what they’re building, majoring on the minors. Before they know it, it’s time to sell, whether by choice or not, and they haven’t taken the necessary step back to understand what, if any, value they’ve created for themselves.

Creating a valuable business should be a top priority for every business owner, whether or not they ever intend to sell. Why? Because aside from how much money a business makes, a well operated, balanced, and documented business is not only worth more, it’s much easier and enjoyable to run. An owner should attempt to always have their business operating in such a state, not only for efficiency and maximum earnings, but you never know when a desire or reason to sell may arise. Some aspects of a business could take years to adjust. Others can be done in the shorter term.

15 Mistakes Business Owners Can Address Now for Future Success

1. Selling in a Rush

Selling your business in a rush can force you to lose leverage. There may be several reasons beyond your control that have you in a time pinch to sell. Having your business prepared for a sale at all times can help minimize any time pressure to accept sub-par terms or price. Patience can be one of the most effective negotiating tools. Allow yourself enough time to ensure you’re choosing the best buyer available. Plan, plan, plan.

2. Selling When Business is Down

The last three years of business performance are critical to a buyer’s perception of the business’s value. A continuous downslope can be hard to merit a seller’s desired value. Naturally, when anything negatively affects the business or the industry the business is in, and then you look to sell, it can come with a hefty discount. If possible, sell when business profits have been on a regular increase for perhaps 2-3 years and operations have been in a steady place. Too often owners think about selling when something bad happens and they do not get nearly as much as they hoped.

3. Attempting to Time a Sale With the Market

The stock or general economic market should have little to no bearing on when you decide to sell your business. If you’re able to sell at a perceived premium because of market health, you’re using the same sale proceeds to invest/spend that money at the same premium market price for stock, real estate, or another business. The value of a good business should have little to no fluctuation with the larger external economy, and could sometimes be worth more in a down market. Naturally there can be exceptions for businesses in industries whose revenue tends to fluctuate with the economy [restaurants, travel, leisure, etc.] but a consistent history, a good broker, and a savvy buyer can help mitigate that.

4. Having Commingled Books or Taxes

It’s not uncommon for business owners to combine business or personal funds/taxes into the same entity. This makes it very difficult, if not impossible, to separate revenue and expenses between the businesses, and for an acquirer to be comfortable with the numbers. Keep unrelated entities separate if you ever desire to sell one of them.

5. Being a Point of Contact with Customers or the Face of the Business

If your customers do business with your business because of you, the business is too dependent on you. As an owner, take yourself away from customer interactions and delegate that to a salesperson/account manager. Otherwise, a buyer will see those relationships with a low level of transferability. In the same thread, as much as some owners enjoy being the face of a business, it’s hurting the business’s value. Buyers may not see Joe Smith’s Driving School as having any value without Joe Smith.

6. Having any Single Customer or Client Make up More Than 10% of Your Revenue

If any single customer makes up 10% or more of your business’s revenue, a buyer would be worried if that customer were to leave after a sale and decrease revenue by 10% or more. It’s not always easy or possible, but add enough customers and diversify to decrease dependency on any single or small group of customers. If customer concentration is too high, a seller may only get incremental portions of revenue after a sale, conditioned on those customers remaining with the business after closing.

7. Ignoring Issues You Need to Address

You can’t ignore them away. An issue, whether externally or internally, that has been a challenge or that you see coming will arise in either a due diligence process, training period, holdback, earnout, or even a lawsuit. Be honest with yourself, your sales advisor/broker, and buyer. There may be a simple fix, reference, or term to consider prior to listing and negotiation that can save you a lot of time, money, and headache.

8. Not Allowing Enough Time to Prove any Major Changes Were Effective

It is very common for business sellers to make a major change to the business in the time leading up to a sale and assume a buyer will understand or be confident in the decision. The truth is, buyers (and lenders) want to see a history of consistency with a business’s offerings and operations to perceive value. Just because you fixed or added something to the business that improved revenue/profit six months ago, doesn’t mean it’ll immediately add a significant price jump. Conversely, don’t cut necessary expenses for long-term operations for better perceived short-term margins. It will be noticed and can decrease the value.

9. Not Knowing the Total Costs of a Sale with Taxes and Fees

The sale of a business can be taxing in more than one way. Once you’ve had an advisor conduct a realistic valuation on your business, consult your tax professional and financial advisor regarding your tax and larger financial responsibilities. Before making major financial decisions on your future, know what your business might be worth. Decisions could prove irrelevant if you don’t know the facts. Don’t let incorrect assumptions about taxes, fees, or your business’s value lead to poor retirement planning or business decisions.

10. Assuming You Know How a Sale Will Go

The sale of a business rarely goes how everyone expects it to. You may get a price you hope for, but the process itself often takes longer than expected, along with aspects that weren’t expected but are usually surmountable. Having a good combination of optimism, flexibility, and perspective will get you to a close. If you’ve hired a good sales advisor, they should be helping you foresee and overcome any challenges, providing you with information and options to make the best decisions for yourself.

11. Telling Everyone You Want to Sell

99% of the time don’t tell anyone! Except your spouse, certain family, and trusted advisors. Telling people such as customers, employees, or vendors opens them, and you, up to a world of uncertainty, pessimism, anxiety, and problems that are usually not merited. Issues are often more quickly overcome once a deal is done. Having the wrong people know about a potential sale can hurt your buyer and thus the business’s value. There can be specific cases when it makes sense, or may even be required, to tell people outside your ‘circle of trust’, but ensure you fully understand those reasons and the pros and cons.

12. Assuming You Can Start a Similar Business After You Sell

It may be obvious to some, but sometimes sellers don’t realize they cannot open a similar or same business after a sale. If you sell a business in an industry, a buyer will require a non-compete in that industry or geographic market. A common period is five-10 years. Keep in mind this can apply to any customer, vendor, or even employee overlap, depending on the circumstance. If your plan was to restart after a sale, revisit the plan.

13. Being Dependent on One or Few Suppliers or Service Providers

There can be exceptions to this with long term, transferable, or new contracts put in place. Since such contracts are not as common, having one or a few suppliers is not desirable and risky for buyers. If possible, ensure there’s a quick and solid backup plan if that supplier were to disappear. Regardless of how much you’re making, if you’re simply a retailer for a unique product or service, if someone else can use the same supplier in the same market, your business may have little to no value. The competitive risk for a product or service with a low barrier to entry may be too great.

14. Attempting To Do It On Your Own

Selling your own business yourself could make sense if it's small, the money is not a concern to you, and you're doing it with someone you know and trust very well. Even that can be riddled with problems and has low success. Using an advisor/broker will help ensure you’re getting a maximum price from a large buyer network. There are many potential terms, issues, and problems that can arise when selling a business. Even seasoned professionals don’t always get it right. Use an experienced advisor to protect yourself and get the most value.

15. Not Hiring Professionals That Specialize in Business Sales/M&A

I’ve seen many either real estate or commercial brokers attempt to sell businesses unsuccessfully. There are some that do both, but ask enough of the right questions to ensure they’re well versed in business sales. Business sales have a world of differences and complexities from real estate sales, which is why the fee is higher. I’ve also never seen a generalist attorney that didn’t specialize in business sales help close a transaction. Although I’m sure it’s happened at some point, there are many unique legal norms, terms, and language that needs to be known in business transactions. Ensure your counsel is versed in business sales for maximum value and a smooth process.

Now you know some major critical mistakes to avoid when selling and running your business. Applying solutions and avoiding these mistakes will not only make your business more valuable later but also help you run a smoother and more sound operation now, regardless of when or if you sell. Don’t sell in a rush or when business is down. Don’t be a main point of contact for the business or ignore problems. Ensure your customers are diverse and do not be dependent on a single supplier. The sooner changes are made and the longer such changes can be portrayed as effective, the better. Lastly, hire professionals that are experienced and focused on business sales. Your future self will thank you.

Article contributed by Matt McDonald. Visit Matt's website to learn more: www.businesssalesadvisor.com

BUSINESS VALUATION: WHAT YOUR COMPANY IS REALLY WORTH (AND WHY IT MATTERS)

Fri, 20 Feb 2026 03:28:25 GMT

Business Valuation: What Your Company Is Really Worth (and Why It Matters)

Understanding the true value of your business is one of the most important and often misunderstood parts of ownership. At its core, business valuation answers one fundamental question:

What would a knowledgeable, willing buyer pay for this busi ness today?

The answer is rarely as simple as a multiple you saw online or what a competitor sold for last year. Real valuation blends financial performance, risk, growth potential, and market demand.

Two businesses with identical revenue can have dramatically different valuations. Why?

Buyers evaluate business fundamentals as much as any financial metrics. Key value drivers include:

Consistent and growing cash flow
Diversified customer base
Recurring or contracted revenue
Strong management team
Clean financials and documented processes
Low owner dependency
Favorable industry trends
Stable margins

Conversely, risks such as customer concentration, inconsistent earnings, or owner-centric operations reduce value. Business valuation is not just a formula. It is a blend of data, judgement, and real-world transaction experience.

Business owners tend to focus on the overall potential selling price while the deal structure is of equal importance. An all cash transaction will likely carry a different value than a structure that includes seller financing, an earn-out, working capital adjustments, or seller equity roll.

The best time to understand your company's value is before you plan to sell. Early valuation allows time to fix weaknesses, increase profitability, and position your business for a stronger exit.

Business valuation is not a one-time event. It is an ongoing measurement of how attractive your company is to buyers at any given time. Owners who treat valuation as a strategic tool, rather than a last-minute requirement, consistently achieve better outcomes.

If you're asking yourself, "How much is my business worth?", it's never too early to find out. Whether your business is located in San Diego or anywhere else, our team of experienced advisors is happy to provide a free and confidential business valuation. We sell businesses nationwide. Please fill out the form below to get the process started.

NAVIGATING NEGOTIATIONS

Wed, 04 Feb 2026 16:13:24 GMT

Navigating Negotiations

In a well-structured business sale, there are often two phases to the negotiations: (1) Non-Binding LOI and (2) Binding Purchase Agreement phase. Some advisors may argue that all negotiations should take place in a single phase. However, this is only realistic if you have a very straight forward deal or a situation where you are only attempting to entertain an offer from a single potential buyer. Some deals will require several stages to cover a multitude of complexities or for reasons related to new developments that emerge throughout the process.

Phase One: The first phase is to outline the key deal points in a non-binding letter of intent (LOI) aka Term Sheet. The LOI will provide the framework for the eventual binding purchase agreement but without including every detail. There are a lot of deal points to cover in a business sale. Jumping right into all the minutiae can interrupt the honeymoon phase between a buyer and seller sooner than necessary. It is like negotiating a prenup agreement on a second date. It is too much too soon. Start with the basics in the LOI to keep building the relationship so it is strong enough to withstand potential bumps down the road.

An LOI should identify Who, What and When:

Who are the parties? If the buyer and / or seller are not sole proprietors, the entities should be identified as well as their designated officers or managing members who will be signing the contract.
What are the offer price and primary terms? The LOI should be specific about what is included and not included in the sale.
When will certain things take place, including the due diligence time frame, length of contingencies, target closing date, etc.?

If an LOI is too short and sweet, it may be leaving out very key deal terms. The parties may feel that they are on the same page but learn that there are major discrepancies far down the road. On the other hand, an LOI that is too detailed can cause a long delay in being able to reach an executable version. If there is a lot of friction early in the process, the buyer is more apt to walk away.

I find that buyers and sellers can get really hung up on the language in an LOI, rather than the deal points themselves. It is best to table certain language for the binding purchase agreement if you reach an impasse on any insignificant terms. You and the buyer may be perfectly in agreement on the spirit of a clause but struggle to find common ground on how to spell it out. This occurs quite often but it is better to work through some of these items in phase two so you can allow your relationship with the buyer to continue to progress.

Although an LOI is non-binding in that it does not obligate a buyer to complete the purchase, there may be certain items that are binding upon the seller. The primary example is exclusivity. If an LOI contains a no shop clause, you will be disallowed from soliciting offers from other potential buyers for a period. Like everything else, this can be negotiable.

From a buyer’s perspective, they do not want to invest a lot of time and money in moving towards purchasing your business if they feel there is a threat that you will sell it to somebody else. From a seller’s perspective, you do not want to tie up your business off the market for a significant period, not knowing whether your buyer will complete the purchase or not.

If you have the luxury of multiple competing offers, you will be in a better position to dictate certain parameters, including exclusivity. You may be able to use exclusivity as a bargaining chip. For example, you grant the buyer exclusivity in exchange for a slightly higher price, less seller financing, or a quicker closing, etc.

Exclusivity should always have a reasonable expiration, typically ranging from 14 days for a very straight forward deal and up to 90 days for a much more complicated transaction. If your buyer is adamant about having a longer exclusivity period than you are comfortable with, you could propose there be different stages to the exclusivity period. For example, the buyer may be granted exclusivity for 30 days and if they hit a certain milestone within that timeframe, the exclusivity will be extended for another 30 days.

Your buyer will likely request that you cease all solicitation efforts during the no shop period. However, you may request the right to continue soliciting backup interest but will agree not to enter any negotiations with another suitor. It is important for the buyer to understand that you are also risking time and money by taking the business off the market for a significant amount of time.

Phase Two: The second stage of the negotiations will come during the drafting process of the binding purchase agreement. If the LOI was drafted properly, you should not be negotiating major deal terms at this point but working out the specific language of items such as the non-compete agreement, training and transition protocol, representations and warranties, dispute resolution, prorations, work in progress adjustments, etc.

Prepare to have flexibility without giving up much in the way of monetary value. Prioritize which items are most important to you and decide what bargaining chips will be easiest to part with. A small concession on your end might hold a lot more value for the buyer. Like any relationship, most deals fail when one or both parties are too stubborn to see the others side's perspective.

Throughout the negotiation process, remain thoughtful with how you respond to the buyer's positions. Avoid in person negotiations unless you truly reach an impasse. Selling a business can be an emotional process. If you are not apt to remaining even keeled, take your time in responding. The number of deal points to negotiate can be quite overwhelming, and at times, you will likely think the buyer is being ridiculous with their positions. Maintain your focus on the big picture and don't allow simple things to derail the transaction.

YOUR CPA (PROBABLY) VALUED YOUR BUSINESS WRONG

Wed, 04 Feb 2026 16:08:55 GMT

Your CPA (probably) valued your business wrong

Valuing a business is a complex task that requires a comprehensive understanding of various factors, including financial statements, market conditions, and industry trends. Traditionally, accountants have been entrusted with the responsibility of conducting business valuations. However, an argument can be made that business sales advisors are better suited for this task due to their nuanced understanding of actual business transactions.

The Limitations of Accountants in Business Valuations:

Focus on Historical Financial Data: Accountants primarily rely on historical financial data when assessing the value of a business. While this information is crucial, it often fails to capture the dynamic nature of businesses and their potential for growth or decline.
Lack of Industry Insight: Accountants may lack industry-specific knowledge, making it challenging for them to accurately assess the unique factors that influence the valuation of businesses within a particular sector.
Overemphasis on Quantitative Metrics: Accountants are trained to analyze quantitative metrics, such as revenue, profit margins, and cash flow. While these are important, business valuation also involves qualitative factors that contribute to the overall picture of a company's worth.

The Strengths of Business Sales Advisors in Business Valuations:

Holistic Understanding of Business Dynamics: Business sales advisors bring a holistic perspective to business valuations. They consider not only financial metrics but also operational efficiency, market positioning, and growth potential, providing a more comprehensive view of a business's value.
Industry-Specific Knowledge: Business sales advisors often specialize in specific industries, giving them a deeper understanding of the unique challenges and opportunities within those sectors. This industry-specific insight allows for a more accurate valuation tailored to the business in question.
Real-World Transaction Experience: Unlike accountants who may lack direct involvement in business transactions, business sales advisors often have firsthand experience in deal-making. This practical knowledge enables them to factor in real-world considerations that impact a business's value.
Qualitative Assessment: Business sales advisors excel in qualitative assessments, considering factors such as brand reputation, customer loyalty, and the strength of management teams. These intangible elements play a crucial role in determining the true value of a business.

Conclusion:

While accountants play a vital role in financial reporting and compliance, business valuations demand a more nuanced approach. Business sales advisors bring a wealth of real-world experience, industry-specific knowledge, and a holistic understanding of businesses that goes beyond traditional accounting metrics. As businesses continue to evolve, the valuation process must adapt to capture the intricacies of the modern business landscape, making a compelling case for the involvement of business sales advisors in this crucial task.

WHEN SELLING A BUSINESS, RELATIONSHIPS MATTER

Thu, 18 Aug 2022 16:23:19 GMT

When Selling a Business, Relationships Matter

You can buy or sell a home and never meet the other party in the transaction. This is almost never the case in the sale of a business. In fact, the relationship between a buyer and seller in a business sale may be the single most important element of the transaction. However, the significance of this relationship is too often overlooked.

The majority of small business transactions (sub $10m) are between a first time seller and first time buyer. Buyers and sellers often describe the process as far more complicated and frustrating than they had anticipated. This is because business transactions are quite complex. In the sale of a home, there is a significant amount of predictability to the process. If a buyer finds a home that fits their needs, qualifies for the loan and there are no major inspection issues, the transaction is likely to be completed, with very few obstacles.

Business sales have far more levels of complexity. The price and terms are often dictated by many of a company's individual characteristics as opposed to industry comparisons. Beyond getting a buyer and seller to see eye to eye on valuation, there are ongoing potential changes that a business may experience throughout the length of a transaction, whereas real estate is seldom affected by outside influences in the length of time it takes to complete a transaction. i.e A business may gain or lose value during the duration of the sales process due to changes in market conditions, lost or gained clients and key employees, litigation, inventory fluctuations, bad debt...the list goes on and on. Beyond being susceptible to obstacles from a changing environment, there are a vast number of deal points that need to be negotiated beyond the price and payment structure. i.e. non-compete agreement, training and transition, included vs excluded assets, transfer of accounts, licenses, IP, etc.

These complexities are often what leads to the compromise of a solid relationship between a buyer and seller. If there is a single issue, there is generally a reasonable amount of give and take by both sides and the relationship remains intact. When there are a multitude of issues with outstanding resolutions, often a buyer and seller will perceive the gap to be much larger than what is reality. Given the nature of buying or selling one's first ever company, emotions may run high. When this occurs, it is paramount for buyers and sellers to take diligence in how they communicate with the other party. Small problems can result in big blowups that lead to terminating a deal that actually made sense for both parties.

Upon completing the sale of a business, the transition period is going to likely involve a significant amount of interaction between the buyer and seller. With this in mind, it should be an absolute priority to maintain a cordial relationship throughout the duration of the negotiations, due diligence and contingency periods. At times, giving in to the other party's wants could cost very little while the upside of an improved relationship could result in much greater overall value.

Here are some best practices for establishing and maintaining a solid relationship with the other side:

Avoid In-Person Negotiations: Not only will you avoid committing to something in jest, misunderstandings are very prevalent during in-person negotiations. All proposals should be in clear writing to avoid any ambiguity.

Don't Overreact: Overreaction is the leading cause of a failed negotiation process. Take your time in responding, even if you are certain of your position. Allowing both parties to "sleep on it" will generally result in a more rational response and better reception.

Put Yourself In Their Shoes: This advice applies to all relationships but is easier said than done. Keep in mind, the process is just as challenging and frustrating to the other side. If they have never bought or sold a business, it can be increasingly fragile. If you're a buyer, don't forget that in addition to selling to you, the seller has a business to continue operating in the interim so some of their frustrations may have to do with day to day challenges that don't involve you. If you're a seller, don't forget that the buyer is investing their hard-earned money. They don't need to buy your business or any business, for that matter.

Separate Each Issue: When there are a million little things, they collectively feel very big. This is tip for problem solving in general. Don't let one problem give more weight to the next problem. If you isolate each issue and focus on a singular solution, the perceived enormity of the situation won't feel so vast.

Prioritize: Some buyers and sellers become very entangled in principal. i.e "5% interest on the seller financing is unreasonable! It should be 7%." If you take a step back and calculate the difference in total interest, you may find this to be a $10,000 gap. $10,000 is certainly a lot of money but it is all relative. If you are negotiating a $2,000,000 deal, $10,000 may not be such a priority. It may be helpful to actually write down each outstanding issue and order them from most important to least, again tackling one at a time.

Choose The Right Intermediary: If you are attempting to buy or sell a business and are working directly with the other party, you are far more likely to experience a failed transaction. A skilled intermediary will help coach you on what to expect and will be the glue that keeps the deal together. Keeping your distance from the other party in the negotiations can help you focus all of your time with one another on relationship building.

For more information on this and other important business selling advice, please contact the author, Dustin Sigall. dustin@sdbiz.com (858) 382-4974.

TOP QUALITIES OF A VALUABLE BUSINESS

info@sdbiz.com (Dustin Sigall) — Fri, 04 Feb 2022 01:12:32 GMT

Top Qualities Of A Valuable Business

What are the top drivers of value in a privately held company? Is it revenue, longevity, industry type? These certainly come into play but they don’t make our top 10.

We have sold over 170 businesses over the past 12 years and have conducted well over 1,000 valuations of small and medium size businesses. We have encountered very few business owners over the years who were well versed in the most important elements of what creates value in a company.

How many of the features listed below can you identify as attributes of your business?

10. REPUTATION: Perhaps not the most important item on this list, reputation remains a significant quality as it often affects the first impression of prospective buyers. It is reasonable to expect a buyer to Google your company within the first five minutes of their initial assessment. If the results are full of negative reviews, you may immediately lose interest.

9. BARRIER TO ENTRY: If your company is easy to replicate and there is a significant cost-benefit to a buyer simply starting from scratch, your company’s value could be negatively impacted. On the contrary, if you have something unique about your company such as a patent or proprietary software, your company likely has a significant barrier to entry, thus resulting in a higher value.

8. QUALITY OF BOOKS AND RECORDS: Having clean, well organized financials greatly improves your ability to sell your business for a top of market valuation. If you have a lot of “creative” write-offs, you will need to be able to provide supporting evidence of the adjustments. These adjustments (aka add-backs) should be limited to a degree as a more tedious due diligence process will likely limit your buyer pool and reduce the likelihood of a buyer being able to leverage with bank financing.

7. QUALITY OF EMPLOYEES: There is a fine balance between having all-star employees and creating a situation where one or more employees become so key to the operation that there is risk if they don’t transition with the company. Cross training your staff can help alleviate concerns of an employee becoming irreplaceable. Never create a situation where an employee is in such a leverage position that they can hold you hostage from selling your company.

6. CLIENT CONCENTRATION: What’s better…3 clients who generate $300,000 profit per year for your business or 15 clients generating the same amount? The answer depends on who you ask. Certainly 3 clients sounds easier to manage than 15 but if one of your 3 clients disappears, your business will tank. Most buyers will view a business as having a client concentration issue if one or more of your clients equates to greater than 10 – 15% of your overall revenue. Client concentration doesn’t necessarily impact the overall value of your business but will most certainly affect the terms of the purchase. i.e. A buyer will want to mitigate against risk by adding an earn-out component to the deal. An earn-out is simply a portion of the purchase price that is tied to future events post sale, such as client retention or maintaining certain performance metrics.

5. PROFITABILITY: Profit is king, right? There’s a reason it’s not number one on my list. Although most businesses are valued based on a multiple of net profit, the appropriate multiple is based largely on the qualities of the business as indicated in this list. The more of these traits your company possesses, the higher your company is likely to sell for.

4. VOLATILITY: Most businesses experience ebbs and flows but consistency is a valuable trait. If your company is highly affected by outside influences such as the overall strength of the economy, consumer spending trends, seasonality, etc., the unpredictability of future performance will have a negative impact on valuation. Even if you are coming off your best year in business, if the year over year performance is overwhelmingly better in the current year, buyers will remain cautious about the viability of maintaining such a level of success. The optimal scenario is three consecutive years of incremental growth.

3. BUYER POOL: Your company can check a lot of boxes on this list but if the buyer pool for your business is relatively small, these other factors may not save your valuation. i.e. If your company requires certain credentials that the general population of buyers do not possess, you will lack leverage for a substantial offer with a low level of demand.

2. SCALABILITY: One of the most important features of a company is its ability to scale. Retailers have the least appealing model when it comes to scalability. Yes, you can always open more stores but the success of location dependent businesses is certainly not bankable. Rather, a service based company may be well equipped to expand operations into other regions with less risk and more upside potential.

1. RELIANCE ON OWNER: Once again, if your business checks all of the other boxes, you may not even be able to sell your company if it is highly reliant on you as the owner. Here are some tips on making your business more turn-key:

Avoid significant personal interactions with your clients to the point where they only want to work with you.
Create written policies and procedures so that you and your employees can easily be replaced.
Whenever possible, focus your energy on the big picture agenda for your company and less on putting out fires.
If you are constantly putting out fires, learn to delegate better and reward those who demonstrate a capability of taking on more responsibilities such as scheduling, training, etc.

If you found this information to be helpful, we have a lot more tips to share with you on how you can create the ideal exit strategy for your company. The advice is free and we are always happy to provide free and confidential valuations.

DRE#01790469 DRE#01790467

SELLING A BUSINESS – DO’S AND DON’TS

info@sdbiz.com (Dustin Sigall) — Fri, 04 Feb 2022 01:12:32 GMT

Selling a business - Do's and Don'ts

A Seller’s interaction with a buyer can have a huge impact on their ability to achieve top dollar for their business. In fact, this may be one of the most under-appreciated elements of a sale. You may have a thriving business but how you communicate with a buyer can make a world of difference in valuation and the likelihood that your business will even sell at all. I have been a part of countless “Wanna Get Away?” moments in meetings with Buyers and Sellers so I thought I would share some insights with you on how to put your best foot forward when you are meeting a potential buyer for the first time.

Do: Refer to your business as We and Us, not I. This is one of the most common mistakes that I see sellers make. It may not seem that important but the more you separate yourself from the company, the easier it is for a buyer to envision the company operating without you.

Don’t: Use the opportunity to vent about your frustrations. As common sense as this may seem, I have been in all too many meetings where the seller forgot they weren’t on their therapist’s couch. There is a way to discuss inefficiencies and conflicts in a manner that suggests opportunity. For example, if you know the Buyer is technologically savvy and it is an area you lack in, you can feed them a subtle ego boost while conveying opportunity for bettering processes or cutting overhead.
Do: Be completely honest with the Buyer. If you want to avoid a disaster down the road, be upfront with your skeletons in the closet. If they aren’t discovered now, they will during due diligence. Sweeping potential deal killers under the rug is more damaging than being upfront from the beginning.
Don’t: Oversell your company. Some sellers are so afraid of saying something negative about their business that they come off as a used car salesman. Yes, it is okay to highlight your company’s accomplishments. Don’t brag, overstate, or over promise unless you are prepared to put your money where your mouth is. My most common example: Seller states he anticipates 50% growth next year. Buyer’s solution: Make the purchase price contingent on future performance.
Do: Discuss your plan for how you envision a seamless transition. This is one of the best ways you can wrap up your initial meeting if there seems to be common ground. One of the buyer’s greatest fears is how the business will be transitioned. Come up with a plan before meeting with the buyer so that you can communicate it effectively. You can eliminate a lot of the buyers concerns by making them feel that you are going to be very hands on and supportive during the transition.
Don’t: Negotiate in person. I have seen sellers commit to something they wish they hadn’t in the spur of a moment. Buyers may put you in an uncomfortable spot at times. An easy way to avoid making a knee jerk decision is by asking the buyer to submit their proposal in writing. If they don’t respect this method, they are not a real buyer. They should appreciate the fact that you carefully consider your decisions. It demonstrates that you truly care about the best direction for the company.

WHAT IS YOUR BUSINESS WORTH?

info@sdbiz.com (Dustin Sigall) — Fri, 04 Feb 2022 01:12:32 GMT

How much is my business worth?

Many Sellers, before meeting with a Business broker have an idea in their mind as to how much they should ask for their business.

Their CPA or their friend or their realtor may have offered suggestions. So at the time when they do meet their Business Broker and the Broker offer a suggested selling price, sellers will sometimes respond with the dollar figure that their CPA, friend or realtor thought that they should sell for.

The predicament of the business Brokers is how to and will they tell the seller that the price will be too high for their business.

Most professional business brokers will explain the reality of an overpriced business including the fact that overpriced businesses help reasonably priced businesses of the same to type to actually sell.

A business owner needs to understand that a Business Broker is valuing the business logically and realistically based upon past sales and experience whereas a seller looks at the business emotionally. The art of valuing a business is just that, it is an art and not a science. A business sells for what a willing buyer will pay and what a willing seller will accept.

Another option is to obtain an outside valuation for a cost of about $3,000.00. Sometimes these outside valuations are theoretical and not a Market Price Analysis and may not be worth the cost.

For more information on how a business is valued, contact your First Choice Business Broker professional whose only position is listing and selling businesses full time.