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Selecting a Business Broker

Selecting a Business Broker

When the time comes to sell your business you will be best served by finding a qualified professional to assist you. You should seek out an experienced Business Broker. Business Brokers specialize in selling businesses. Be careful, Realtors and Commercial agents are generally not experienced in the sale of a business enterprise. Most realize this and don’t attempt to operate outside their skill set. However some residential and commercial realtors will seek to “pick up” a business listing. The results can be disastrous. In general Realtors do not understand the complex process of selling a business or the critical importance of confidentiality.

Business Brokers are the only ones who can guide you through the sale of your business and do so while maintaining confidentiality throughout the process. In Florida we have a Professional Association of Business Brokers called the Business Brokers of Florida (BBF). A good first place to start would be to visit their website at www.bbfmls.com. There you will find a directory of members. By selecting a member of the BBF you know you are working with a professional who is bound to the high ethical standards of our profession.

It is also a good idea to ask your Broker the follow questions.

1. How many businesses have you sold?
2. Do you have a professional designation?
3. How will you advertise my business?
4. Will you protect the confidentiality of my business during the sales process?

A good Business Broker will assist you in properly pricing and marketing your business. They will walk you through the process and bring it to a successful conclusion. Knowing how to select the right Broker is your first step in the process of selling your business.

Anthony John Rigney PA is licensed Business Broker in the State of Florida

He is a Board Certified Intermediary and Licensed Real Estate Broker Associate.

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Launch of New Facebook Page

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The Jacksonville Branch of Florida Business Exchange has just launched a new Facebook page.

Please visit us at the link below and of course like our page but only if you like it.

https://www.facebook.com/jacksonvillebusinessbroker    

Tips for Selling your Business

I am often asked by business owners “when should I start preparing to sell my business”. The startling answer is from the first moment you own it. The day you open the doors on your business is the day you should begin planning your exit strategy.

Here are nine tips for selling your business.

  1. Profitability – It may seem redundant but the first thing buyers are looking for is a profitable business. Since businesses are priced based on multiples of Net Profit (EBITDA or Adjusted Net), the more profitable the business the more attractive it is to a buyer.
  2. Good Books – The rule is if you are not showing it to Uncle Sam, the buyer won’t pay you for it. Keep good books, records and manuals. Not only will you get more money for your business but it will make the process go more smoothly.
  3. Employees – A well trained and stable staff will encourage them to believe that the business can continue without you.
  4. System – Have a system in place. The most attractive business is the one that runs efficiently in the owner’s absence. Don’t make the mistake of having the business too dependent on you. Ideally you should be able to remove yourself from the business and insert the new owner with little or no disruption.
  5. Branding – It can be a mistake to identify the business too closely with your personality. Big Tom’s Pizza might sound catchy but how will it affect the business when big Tom is no longer around. A more generic name will make it easier to sell. How about The Good Pizza Company.
  6. Don’t be greedy – If you ask too much for your business you run the risk of frightening away buyers. A professional Business Broker will help you price the business correctly. And be prepared to hold a partial loan for the seller. This increases your pool of buyers, can increase the overall price you receive and has many additional advantages you should discuss with your accountant.
  7. Be honest – When you get a good buyer tell the truth. If you are upfront about the negatives they may not mean as much to them as you imagine. Furthermore your honesty will build the trust which is critical to a successful transaction.
  8. Help – Don’t disappear with check. You should offer a transition period to train and assist the seller. Even after this period make yourself available if needed for the occasional phone call.
  9. Let go – This is the other side of the coin. Don’t disappear but don’t overstay your welcome either. You sold the business now let it go. It’s time to sail off into the sunset.

Anthony John Rigney PA
Anthony is a Board Certified Intermediary and licensed Real Estate Broker Associate in the State of Florida. He is currently active as a Business Broker operating out of the City of Jacksonville.

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Multiple of Earnings – Business Valuation Method


In an earlier post I dealt with EBITDA a formula for determining the earnings of a business. Once we have determined the EBITDA or true cash flow of a business the next step to determining its value is to apply a Multiple of Earnings. We can find this value in a number of places. A first stop would be to consult the Business Reference Guide published annually by Business Broker Press.

Another good source of information is a database of business sales. Such a database is maintained by the BBF (Business Brokers of Florida) our State Association. From this database we can draw on actual sales and determine typical Multiples of Earnings for various business types.

There are also other databases that compile sold statistics such as Pratts Stats. There is typically no public record for the sale of a privately held business. This means that useful statistics are proprietary and subject to membership or use fees and dependent on voluntary reporting.

Industry organizations and even the sellers themselves can also provide guidance on the standard multiple for the Industry in question. Finally many experienced Business Brokers will rely on a “gut check” before arriving at a Multiple of Earnings. Having done their research they will apply their own judgment and knowledge of the subject business to determine if the multiple is realistic.

Once a multiple has been arrived at it must then be applied to the EBITDA. Using this Example from my earlier post we will determine the likely selling price of Company B.
For the sake of this exercise we will assume a multiple of 4 times EBITDA.

Company B.
2011 $800,000
2012 $1,000,000
2013 $1,200,000

Because we already determined that the most recent years earnings are the best reflection of the Companies performance and because our analysis shows that the earnings are continuing on this track for 2014 we will use the EBITDA figure of $1,200,000.

Applying the Multiple of Earnings we get.
$1,200,000 x 4 = a likely selling price of $4,800,000
Business Brokers often prefer to offer a range of value rather than a set number. In this case a Broker might suggest a range of $4,500,000 to $5,000,000 with the likely selling price falling within this range.
While the Multiple of Earnings Method is not the only valuation method available it is considered to be the most accurate as it relies on real world data to arrive at its conclusions.

Anthony John Rigney PA

Anthony is a Board Certified Intermediary and licensed Real Estate Broker Associate in the State of Florida. He is currently active as a Business Broker operating out of the City of Jacksonville.

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Pricing a Business – the role of EBITDA


When engaged in pricing a business for sale we are concerned with two important numbers. EBITDA (Earnings before Interest, Tax, Depreciation, and Amortization). This figure represents the real cash flow of the business. We also will obtain a factor to multiply the EBITDA by in order to estimate the correct price range. This factor is call a “Multiple of Earnings” and we will explain this in greater depth at a later date. For now we concern ourselves with deriving the EBITA figure.

To do this we normally obtain at least a three year financial history for the subject business. For each year we will determine the net profit and then add back for Interest, Depreciation, Tax and Amortization. Once we have done this we have the EBITA for each year.

But now that we have this information how do we balance the financial result from different years. Well let’s looks at an example below. In each case we are dealing with EBTIDA for the given year.

Company A.
2011 $1,200,000
2012 $1,000,000
2013 $800,000


Company B.
2011 $800,000
2012 $1,000,000
2013 $1,200,000


Company C.
2011 $1,200,000
2012 $900,000
2013 $1,100,000


We could us an average to come up with a working EBITDA to apply to our “Multiple of Earnings”. However if we take an average of the last three years for Company A and Company B. We come up with the same figure $1,000,000. But note Company A has declining income. Company B. has increasing income. If we use the average method we come up with the same value but Company A is clearly worth more than Company B.

So in this instance we would normally use the most recent year earnings to apply to the multiple. Beyond this we would also look at current earnings to determine if the trend is continuing. If Company A is continuing to grow we would further take this factor into account when pricing the business. If Company B is continuing to decline we must also take this into account.

In the case of Company C – an average seems more appropriate. Averages can be useful when a Company exhibits zigzagging performance. Even so if we are going to average the EBITA for Company C we should weigh it so that the more recent financials are given greater weight – for example. We might apportion 15% of weight to 2011, 30% of weight to 2012 and 55% of weight to 2013.

This would give us the following result
2011 .15 x $1,200,000 = $180,000
2012 .30 x $900,000 = $270,000
2013 .55 x $1,100,000 = $605,000
Weighted average = $180,000 + 270,000 + $605,000 = $1,055,000

There are other factors that go into pricing a business. But the financial trend is probably the most important. In looking at a business we must determine the reason for declines and increases in earnings. It is important to know if these trends are due to one off events (such as winning or losing a big contract) or part of a long term pattern.

As a Business Broker we must take great care in properly pricing a business. A business that is priced too high will remain on the market longer and may not sell at all. A business priced too low may cheat the seller out of obtaining a fair price.

Anthony John Rigney PA

Anthony is a Board Certified Intermediary and licensed Real Estate Broker Associate In the State of Florida. He is currently active as a Business Broker operating out of the City of Jacksonville.

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Buying or selling a business is a complex process. Make sure you have the right team on your side. Contact us today!