When it comes to buying or selling a business, one of the biggest challenges is understanding what the business is truly worth. Unfortunately, business valuations are surrounded by myths that can create confusion for buyers, sellers, and even brokers.
One common misconception is that a business is worth whatever the owner believes it is. While emotional value is understandable, real-world valuations depend on performance, market conditions, and cash flow. Another myth is that revenue equals value. In reality, profitability and sustainability carry far more weight than top-line sales.
Online calculators also add to the confusion. They can provide rough estimates but ignore critical details such as customer loyalty, management strength, and industry risk. Finally, many people assume that valuations are only necessary for large corporations, when in fact small businesses often benefit most from professional valuations — especially when SBA financing is involved.
By separating fact from fiction, entrepreneurs can approach acquisitions with realistic expectations, negotiate smarter, and avoid costly mistakes. Understanding the truth about valuations ensures that investments are based on solid financial footing, not false assumptions.
In this article, we delve into the world of business valuations with Ryan Hutchins, founder of Peak Business Valuations. With over 1200 business valuations conducted each year, Ryan shares his expertise on how to determine the value of a business, the different approaches used, and the factors that can increase a business’s value. We will explore key takeaways from a recent podcast interview with Ryan, providing valuable insights for business owners looking to sell or buyers looking to acquire a business.
Key Takeaways
Business valuation is the process of determining the fair market value of a business, which is the price a willing buyer and seller would agree upon.
There are three primary approaches to business valuation: the asset approach, the market approach, and the income approach.
The asset approach focuses on the value of a business’s assets and liabilities, while the market approach looks at comparable transactions in the market. The income approach assesses the cash flow generated by the business to determine its value.
Hiring a bookkeeper and ensuring accurate financial records is crucial to increasing the value of a business.
Personal expenses should be separated from business expenses to provide a clear picture of the business’s financial health.
The Asset Approach
The asset approach is one of the three primary approaches to business valuation. It focuses on the value of a business’s assets and liabilities. However, this approach is more commonly used in liquidation scenarios rather than ongoing concern operating businesses. Ryan explains that the asset approach is not typically used for small businesses, as it does not take into account the future earning potential of the business.
According to Ryan, “The asset approach is not typically used for small businesses because it doesn’t take into account the future earning potential of the business.”
The Market Approach
The market approach is the most familiar approach to business valuation, as it is similar to how we assess the value of assets in our daily lives. Ryan explains that the market approach involves looking at comparable transactions in the market to determine the value of a business. Presently, this approach is commonly used for small businesses and involves analyzing the financials of similar businesses that have recently been sold.
Ryan states, “The market approach involves looking at comparable transactions in the market to determine the value of a business.”
When using the market approach, Ryan and his team set specific criteria to narrow down the comparable transactions. They consider factors such as revenue, profitability, and industry to select the most relevant transactions. They then analyze the financial ratios of these transactions to determine if the business they are valuing is performing better or worse than the comparable businesses.
The Income Approach
The income approach is another commonly used approach to business valuation. It focuses on the cash flow generated by the business to determine its value. Ryan explains that there are two primary methodologies within the income approach: the capitalization of cash flow or earnings and the discounted cash flow method.
But according to Ryan, “The income approach focuses on the cash flow generated by the business to determine its value.”
The capitalization of cash flow or earnings involves assessing the historical cash flow generated by the business and applying a cap rate to determine its value. The cap rate represents the perceived risk associated with achieving the cash flow on a year-over-year basis. Ryan compares the cap rate to the cap rates used in real estate transactions, as they are the most relevant industry for cap rates.
On the other hand, the discounted cash flow method involves projecting the future cash flows of the business and discounting them back to their present value. This method takes into account the time value of money and the risk associated with achieving the projected cash flows.
Increasing Business Value
When it comes to increasing the value of a business, Ryan emphasizes the importance of accurate financial records. Hiring a bookkeeper and ensuring that the financials are in order is crucial. Clear and accurate financial records provide a solid foundation for determining the value of a business and instill confidence in potential buyers.
Ryan states, “The first thing that I think you would agree with is hire a bookkeeper. Make sure you have someone going through your financials because if your financials are not in order, you can’t sell your business.”
Also, Ryan highlights the need to separate personal expenses from business expenses. Personal expenses should not be included in the financials of the business, as they do not reflect the true financial health of the business. By separating personal and business expenses, business owners can provide a clear picture of the business’s profitability and increase its value.
According to Ryan, “Personal expenses should not be included in the financials of the business, as they do not reflect the true financial health of the business.”
Recap and Insights
In conclusion, determining the value of a business is a complex process that requires expertise and careful analysis. By understanding the different approaches to business valuation and implementing strategies to increase business value, business owners can position themselves for success when it comes time to sell. Accurate financial records, separation of personal and business expenses, and a thorough understanding of the market are key factors in determining the business’s value. With the guidance of a business valuation expert like Ryan Hutchins, business owners can navigate the valuation process and maximize the value of their business.
Moreover, evident from Ryan’s insights that accurate financial records and the separation of personal and business expenses are crucial in determining the value of a business. Hiring a bookkeeper and ensuring that the financials are in order can instill confidence in potential buyers and increase the value of a business. Additionally, understanding the different approaches to business valuation, such as the asset approach, the market approach, and the income approach, can provide valuable insights into the fair market value of a business.
Looking into the Future
In the future, advancements in technology, such as AI, may enhance the business valuation process by automating certain tasks and improving research capabilities. However, the professional judgment and collaboration provided by experts like Ryan will continue to play a vital role in determining the value of a business.
Overall, business owners and potential buyers can benefit greatly from understanding the intricacies of business valuation and implementing strategies to increase the value of a business. With the guidance of experts like Ryan Hutchins, they can navigate the valuation process with confidence and maximize the value of their business.
DISCLAIMER:The views and opinions expressed in this program are my own and/or those of my guests. They do not necessarily reflect the views or positions of my employer.
Buying a business is a significant decision that requires careful consideration and thorough research. In this article, we will explore the journey of Jesse Carlson, who successfully purchased a FedEx business. We will delve into his background, the process of finding the right business, the challenges he faced during the transaction, and his experiences as a business owner.
Finding the Right Business
Jesse Carlson embarked on a journey to find the perfect business to buy. He researched various industries and considered recession-proof businesses. After extensive research and guidance from mentors, he decided to explore the FedEx business opportunity. The stability and potential for growth in the logistics industry appealed to him.
The Challenges of Due Diligence
Once Jesse found a listing for a FedEx business, he began the due diligence process. He inspected the trucks and reviewed financials to ensure the business’s viability. Jesse’s background in lending and real estate helped him navigate this process effectively. However, he faced challenges with lenders and had to switch to a more reliable lender to secure financing.
The Importance of Mentors and Support
Throughout the journey, Jesse relied on the guidance and support of mentors, including his stepfather and his wife. Their expertise and encouragement provided him with valuable insights and motivation. Having a strong support network is crucial when venturing into a new business.
Taking Over the Business
After the successful acquisition, Jesse took over the FedEx business. He quickly realized that the logistics industry is complex and requires meticulous attention to detail. Jesse’s commitment to learning and adapting helped him navigate the challenges of managing drivers, maintaining trucks, and ensuring compliance with FedEx regulations.
The Rewards of Business Ownership
Despite the challenges, Jesse finds fulfillment in owning a business. He enjoys building relationships with his drivers and ensuring their well-being. The ability to provide for his family and have control over his time are significant rewards of business ownership.
Conclusion
Jesse Carlson’s journey to buying a FedEx business highlights the importance of thorough research, a strong support network, and continuous learning. His experience serves as a valuable lesson for aspiring business owners. By carefully considering the right business, seeking guidance from mentors, and embracing the challenges of ownership, success can be achieved in the world of entrepreneurship.
DISCLAIMER:The views and opinions expressed in this program are my own and/or those of my guests. They do not necessarily reflect the views or positions of my employer.
In the world of business, evaluation is driven by sex appeal. The story you create around your business, its trajectory, and its potential for global domination can significantly impact its value. To ensure that your business is positioned for success, it is crucial to have a fractional CFO on your team. A fractional CFO can provide the financial expertise and strategic guidance needed to maximize the value of your business. In this article, we will explore the importance of a fractional CFO in multiple scenarios.
Clean Books and Informed Decision-Making
One of the biggest mistakes business owners make is neglecting to have a financial partner, such as a fractional CFO, from the early stages of their business. Without proper financial guidance, the books can become messy. Furthermore, it can be challenging to accurately assess the value of the business. A fractional CFO can help clean up the accounting, ensuring that the financial information is accurate and reliable.
With clean books, a fractional CFO can then assist in making informed decisions to increase sales and decrease expenses. By analyzing the financial data and creating budgets and cash flow forecasts, a fractional CFO can identify areas for improvement and develop strategies to achieve growth. This proactive approach to financial management can significantly impact the value of the business.
Crafting a Compelling Story
In addition to financial expertise, a fractional CFO can help business owners craft a compelling story for their business. When selling a business, having a clear vision and a compelling narrative can make it more attractive to potential buyers. A fractional CFO can work with the business owner to articulate the unique value proposition and growth potential of the business, creating a story that resonates with potential buyers.
The story of a business is not just about the numbers; it is about the vision, the mission, and the potential for future success. By working with a fractional CFO, business owners can develop a narrative that highlights the strengths of the business and positions it as an attractive investment opportunity.
Timing is Everything
Timing plays a crucial role in maximizing the value of a business. While it is essential to have a long-term plan for the sale of the business, it is equally important to be flexible and adaptable to changing circumstances. A fractional CFO can help business owners navigate the complexities of timing and ensure that they are selling at the right time.
For example, during the COVID-19 pandemic, many businesses experienced significant disruptions. However, some businesses thrived in this challenging environment. A fractional CFO can help business owners assess the market conditions and determine the optimal time to sell. By selling at the right time, business owners can capitalize on increased sales and valuation, resulting in a higher return on investment.
Conclusion
In conclusion, a fractional CFO can play a critical role in maximizing the value of a business. From keeping the books clean and organized to providing strategic financial guidance, a fractional CFO can help business owners make informed decisions and position their businesses for success. By crafting a compelling story and timing the sale appropriately, business owners can achieve a higher valuation and maximize the value of their business. Whether you are a buyer or a seller, having a fractional CFO on your team can make a significant difference in the success of your business.
DISCLAIMER: The views and opinions expressed in this program are my own and/or those of my guests. They do not necessarily reflect the views or positions of my employer.
In a recent interview, I had the pleasure of speaking with Eric and Joy Rose, who recently bought a restaurant in Salt Lake City. The Roses shared their background, their motivations for buying a restaurant, and the challenges they faced during the negotiation and financing process. In this article, we will delve into the main themes discussed in the interview, providing an in-depth exploration of each theme using verbatim quotes from the transcript. We will also analyze the implications and potential impact of these themes, and conclude with a future outlook for the Roses and their restaurant venture.
Background and Motivations
Eric and Joy Rose both grew up in Cincinnati and had diverse backgrounds before entering the restaurant industry. Eric had a career in the federal government, working with the State Department and traveling extensively. Joy had experience in various fields, including education and acupuncture. Their love for food and adventure, as well as their desire to live overseas, led them to consider owning a restaurant. Eric’s experience in managing projects and working with people, combined with Joy’s culinary background, made the idea of owning a restaurant appealing to them.
According to Eric Rose, “I’ve achieved everything I wanted to in that part of my life and I’m still moderately young. I’m still got some life left in me. And I have other goals. I have other things that I want to do, other adventures and I’ve learned that having fun is just so important. So we wanted to do something that’s been fun.”
Eric and Joy’s decision to buy a restaurant was influenced by their desire for a new challenge and the opportunity to create something of their own. They wanted a business that would provide them with flexibility and the ability to work on the business rather than in it. The couple’s love for sushi and their observation that Salt Lake City lacked a quality sushi restaurant made them consider this particular venture. They were also drawn to the idea of owning a local, unique establishment that would allow them to express their creativity and passion for food.
The Process of Buying a Restaurant
The Roses embarked on the journey of buying a restaurant after realizing that it was time for a transition in their lives. With their children leaving home and their parents getting older, they felt the need to explore new opportunities. They began seriously considering owning a business and were open to various options. Eric’s background in project management and Joy’s culinary experience made them confident in their ability to run a restaurant successfully.
According to Joy Rose, “Everyone around me has been a mentor. I think that everyone has something to give and to share. And you just, you know, learn from even when people fail you, there’s still a mentor. And as you try to pull out the good things in them and what they can do and say, I know you’ve got better and you that you both learn and the problems become the solutions.”
The couple started looking for a business to buy about a year and a half ago. They were initially naive about the process but quickly educated themselves through research and conversations with industry experts. They reached out to a broker, Josh, who helped them navigate the complexities of buying a restaurant. The Roses were particularly grateful for Josh’s knowledge, experience, and honesty throughout the process.
Negotiations and Financing
During the negotiations, the Roses realized the importance of building relationships and establishing trust with the sellers. They met face-to-face with the sellers and their son, discussing their vision for the restaurant and understanding the sellers’ value system. This personal connection helped build goodwill and allowed for open communication throughout the process.
According to Eric Rose, “They were still willing to keep us on even with some of the changes in the financial situation. So that was really key. And I forgot the second point. But that was the most important one, I thought was that building relationships portion, Josh brought us all together at a really good time. It wasn’t before all of the pieces had to be together, but it was early enough that we could kind of understand where each of us were coming from and build up a little bit of trust and confidence.”
The financing aspect of the transaction presented some challenges for the Roses. They initially approached another lender who was hesitant due to their lack of restaurant experience and concerns about post-purchase income. However, they were fortunate to find a lender, Jared, who understood their unique situation and was willing to work with them. Jared helped structure the loan in a way that accommodated their changing circumstances, including Eric’s decision to retire from the federal government.
According to Jared Johnson, “There’s definitely some work that goes on with the brokers almost from being like a psychologist because you have the highs and lows with the buyer and seller, right. And they never seem to be on the same track. So it seems like a lot of times, you know, sellers nervous about selling. Maybe they get an offer so they get excited.”
Implications and Potential Impact
The Roses’ journey of buying a restaurant highlights the importance of perseverance and adaptability. They faced various challenges, from navigating the negotiation process to securing financing. However, their willingness to learn, seek advice, and explore creative solutions allowed them to overcome these obstacles.
The implications of their experience extend beyond their personal journey. The restaurant industry is known for its high failure rate, but the Roses’ success story demonstrates that with the right mindset, preparation, and support, it is possible to thrive in this competitive field. Their emphasis on building relationships, both with the sellers and their lender, played a crucial role in their success.
According to Eric Rose, “We’ve done the 9 to 5 job and it has its benefits and it has its reassurances security, but there’s not as much creativity that you can bring into it. And you’re capped as far as what the opportunities are and where you can deal with. But being our own boss, the possibilities for the future really are. And we I know we, we mentioned this to the owner’s son at one point, we said this is our creative outlet.”
The potential impact of their venture goes beyond their own restaurant. By creating a unique and high-quality dining experience, the Roses contribute to the culinary landscape of Salt Lake City. They bring their own creativity and passion to the table, offering customers a taste of their vision and expertise.
Conclusion and Future Outlook
In conclusion, the journey of buying a restaurant is a complex and challenging process. The Roses’ experience highlights the importance of thorough research, building relationships, and adapting to changing circumstances. Their story serves as an inspiration for aspiring restaurant owners, demonstrating that with the right mindset and support, it is possible to turn a dream into a successful reality.
As the Roses continue their journey as restaurant owners, they are well-positioned for future success. Their commitment to providing a unique dining experience, their dedication to quality and creativity, and their ability to adapt to changing circumstances will undoubtedly contribute to the long-term success of their restaurant.
According to Joy Rose, “We’re in the midst right now of trying to renovate and it has not gone the way we thought it would go. But you go with the flow and you learn from even when people fail you, there’s still a mentor. And as you try to pull out the good things in them and what they can do and say, I know you’ve got better and you both learn. The problems become the solutions.”
The future outlook for the Roses and their restaurant venture is promising. With their passion, experience, and commitment to excellence, they are poised to make a significant impact in the culinary scene of Salt Lake City. As they continue to refine their operations, build their brand, and attract a loyal customer base, the Roses are well on their way to achieving their vision of owning a successful and thriving restaurant.
DISCLAIMER: The views and opinions expressed in this program are my own and/or those of my guests. They do not necessarily reflect the views or positions of my employer.
Welcome to the world of restaurant acquisitions, where dreams are realized, challenges are faced, and success is earned. In this interview, we dive deep into the journey of restaurant buyer and passionate entrepreneur, Jeptune Lupiter. From his background in the industry to the process of buying a business, Jeptune shares valuable insights and lessons that can inspire and guide aspiring buyers and sellers.
The Path to Entrepreneurship
Jeptune’s journey began in Utah, where he grew up and developed a love for the restaurant business. After leaving college to pursue his entrepreneurial dreams, he joined a family member in starting a small Mexican restaurant called Charlo Loco. Through hard work and dedication, they successfully expanded the business, eventually buying out a neighboring Chinese restaurant and transforming it into a thriving establishment.
The Power of Partnerships
One of the key lessons Jeptune learned early on was the importance of partnerships. When he joined the Habaneros brand in Las Vegas, he saw an opportunity to grow their restaurants through franchising. Instead of seeking outside investors, Jeptune proposed offering the opportunity to their skilled cooks, providing them with the chance to become franchisees. This innovative approach not only helped the brand expand rapidly but also empowered individuals who may not have had the means to start their own businesses.
A Buyer’s Search for the Perfect Business
When it came time for Jeptune to venture out on his own, he turned to online platforms like BizBuySell to find potential businesses to purchase. After contacting various brokers and exploring different listings, he came across a restaurant that caught his attention. The location, the concept, and the quality of the food all resonated with him. Despite some initial concerns about the financials, Jeptune decided to make an offer and was thrilled when it was accepted.
Navigating the Acquisition Process
The process of buying a business is not without its challenges. Jeptune encountered a hurdle when it came to verifying his down payment, as he had kept a significant amount of cash at home. This led to a last-minute scramble to find a solution, ultimately involving a family member gifting him the funds. Jeptune emphasizes the importance of properly documenting finances and being transparent with lenders to avoid such complications.
Ownership Transition and Beyond
Once the acquisition was finalized, Jeptune focused on ensuring a smooth transition. He retained the existing staff and observed the operations closely, making minimal changes in the first month. However, he plans to grow the business and potentially expand to multiple locations in the future. Jeptune’s goal is to provide exceptional food and service to customers while creating opportunities for his employees and fellow entrepreneurs.
Lessons Learned and Future Outlook
Reflecting on his journey, Jeptune shares valuable advice for aspiring business buyers. He emphasizes the importance of seasoning funds in a bank account to facilitate the verification process. Additionally, he highlights the significance of open communication with lenders, disclosing any potential issues or challenges upfront. Jeptune’s mentor, Dan Pena, inspires him to maintain laser-like focus and embrace the challenges that come with entrepreneurship.
In conclusion, Jeptune’s story is a testament to the power of passion, perseverance, and partnerships in the world of business acquisitions. His journey serves as a valuable guide for those looking to enter the restaurant industry or any other field. By learning from his experiences and applying the lessons he shares, aspiring entrepreneurs can navigate the acquisition process with confidence and set themselves up for success in the ever-evolving world of business.
DISCLAIMER:The views and opinions expressed in this program are my own and/or those of my guests. They do not necessarily reflect the views or positions of my employer.
Welcome to the Before You Buy or Sell, a business podcast where we help buyers and sellers learn more about the acquisition process, discuss recent transactions, and stay up to date on the latest news in the market. In this episode, we dive into the challenges of acquiring a business and explore a recent deal that unfortunately did not close. Join me, Jared Johnson, as we unpack the insights and lessons learned from this experience.
Background and Motivation
In this episode, I am joined by Tommy Speigner, an aspiring entrepreneur with a background in IT and a passion for art. Tommy shares his journey from growing up in Florida to moving to Atlanta and eventually settling in Las Vegas. Along the way, he discovered his interest in buying a business rather than starting one from scratch. Tommy’s motivation stems from his desire to replace his current income and his fascination with the art framing industry.
The Business Opportunity
Tommy stumbled upon an established art framing business in Las Vegas that caught his attention. The business had a solid customer base and promising initial numbers. Tommy’s personal connection to framed art made it an appealing opportunity for him. He envisioned expanding the business by offering delivery and installation services, as well as exploring digital art and collaborating with local artists. The potential for growth and the alignment with his interests made this business an attractive prospect.
Replica of the painting Au Moulin de la Galette by Auguste Renoir displayed hanging on a wall in an ornate gilt frame
The Negotiation Process
With the help of his business broker, Lindsay Devino, Tommy navigated the negotiation process. They analyzed the financials, considered the market value, and settled on a purchase price of $602,000. However, during the due diligence phase, Tommy discovered some significant challenges. The labor costs were higher than anticipated, and the lease agreement had unexpected increases in expenses. These findings had a substantial impact on the bottom line and raised concerns about the viability of the deal.
Adjusting the Offer
Armed with the new information, Tommy reevaluated the purchase price. He adjusted the multiplier and proposed a revised offer of $535,000. Unfortunately, the seller was unwilling to accept the lower offer, insisting on a price closer to the original listing price of $600,000. Despite Tommy’s willingness to compromise and meet halfway, the seller remained firm in their position. Ultimately, the deal fell through, and Tommy had to cancel the transaction.
Lessons Learned and Future Outlook
Reflecting on the experience, Tommy emphasizes the importance of patience and thorough due diligence. He acknowledges that buying a business is an emotional roller coaster, requiring resilience and adaptability. Tommy remains optimistic about future opportunities and continues to explore potential acquisitions. He plans to take the time to find the right business and build a network of mentors and advisors to guide him through the process.
Challenges of Buying a Business
Tommy’s journey highlights the challenges and uncertainties involved in acquiring a business. It underscores the need for comprehensive due diligence and the importance of understanding the financials and market dynamics. The negotiation process can be complex, requiring flexibility and open communication between the buyer and seller. The experience also sheds light on the need for increased regulation and standardization in the business acquisition industry to protect the interests of buyers and sellers alike.
Conclusion
While Tommy’s deal did not reach a successful conclusion, his experience serves as a valuable learning opportunity for aspiring entrepreneurs. It reinforces the need for patience, thorough research, and a strong support network. Acquiring a business can be a rewarding endeavor, but it requires careful consideration and a deep understanding of the industry and market dynamics. By leveraging the lessons learned from this experience, Tommy remains determined to find the right business opportunity and continue his entrepreneurial journey.
As the business acquisition landscape evolves, it is crucial for buyers and sellers to stay informed and seek guidance from experienced professionals. The Before You Buy or Sell podcast aims to provide valuable insights and resources to support individuals in their pursuit of successful business acquisitions. Stay tuned for more episodes and join us as we explore the ever-changing world of buying and selling businesses.
DISCLAIMER:The views and opinions expressed in this program are my own and/or those of my guests. They do not necessarily reflect the views or positions of my employer.
Welcome to the Before You Buy or Sell a Business podcast. We provide valuable insights and advice for buyers and sellers in the business acquisition process. In this episode, we have a special guest, Ron Quinn from Accelerated Law Group, who has over 22 years of experience in handling business transactions. Ron shares his expertise and discusses the important factors that buyers and sellers should consider when choosing the right escrow company for business transactions, the process of asset purchases, the impact of bulk sale laws, and the rise of stock purchases in recent years.
Choosing the Right Escrow Company
When it comes to selecting an escrow company, Ron emphasizes the importance of finding a company that understands business transactions. He highlights the complexity of these transactions. Transactions can involve multiple parties such as buyers, sellers, landlords, and attorneys. Ron advises buyers and sellers to look for escrow companies that specialize in business transactions and have a strong background in business and legal matters. He also cautions against using escrow companies that do not have experience in this specific field. Not all escrow companies are equipped to handle the intricacies of a business sale.
The Process of Asset Purchases
Ron provides a detailed overview of the typical asset purchase process. Once a purchase agreement is in place, the buyer conducts due diligence to ensure they want to proceed with the transaction. During this period, the escrow company conducts various searches and investigations to verify the accuracy of the information provided by the seller. This includes checking business licenses, tax records, lease agreements, and other relevant documents. As the closing date approaches, the escrow company prepares the necessary documentation and facilitates the transfer of assets and funds between the buyer and seller.
Understanding Bulk Sale Laws
Ron explains that bulk sale laws vary from state to state. In California, for example, there is a bulk sales law that requires sellers to publish a notice in the newspaper and send a notice to creditors before the sale can be completed. This law also imposes transfer tax liability on the buyer based on the value of the personal property being transferred. In Nevada, however, the bulk sales law was repealed in 1991, but there are still successor liability issues related to taxes and other obligations. Ron advises buyers and sellers to be aware of the specific laws in their state. Seek professional guidance to ensure compliance.
The Rise of Stock Purchases
Ron notes that stock purchases have become more common in recent years, especially since a change in the law allowed business brokers to sell stock. He explains that stock purchases or membership interest purchases can be advantageous in certain situations, such as when there are contracts in place that are not assignable. However, he cautions against choosing a stock purchase solely because it seems easier. Ron advises buyers to carefully consider the specific circumstances and potential liabilities associated with stock purchases before making a decision.
Key Elements in a Purchase Agreement
Ron highlights several important elements that should be included in a purchase agreement. These include a clear description of the business, a list of assets being transferred, provisions for trade name and social media assignment, a covenant not to compete, lease assignment details, seller financing terms, and provisions for training. Clear and concise language in the agreement removes ambiguity and potential disputes.
The Importance of Due Diligence
Ron advises buyers to conduct thorough due diligence before finalizing a business purchase. This may involve reviewing financial statements, tax returns, sales tax records, lease agreements, and other relevant documents. He also recommends verifying the accuracy of the information provided by the seller; not all sellers are forthcoming. Also, ensure that all necessary licenses and permits are in order. Ron emphasizes the need for open communication between the buyer and seller during the due diligence process to address any concerns or questions that may arise.
Seller Financing Considerations
When it comes to seller financing, Ron suggests treating the seller as a lender and following standard lending practices. This includes drafting a promissory note, a security agreement, and potentially obtaining a personal guarantee. Buyers need to consider the term of the loan, the interest rate, the payment structure, and any collateral that may be required. Treat seller financing as a professional transaction and ensure that all terms are clearly defined and agreed upon by both parties.
The Challenges and Rewards of Business Transactions
Ron shares some of the challenges he has encountered in his years of handling business transactions. He highlights the highly personal nature of these transactions for sellers, who have invested their time, effort, and emotions into building their businesses. Ron emphasizes the importance of effective communication and managing expectations to ensure a smooth transaction. He finds the variety and complexity of business transactions rewarding and stimulating.
In conclusion, buying or selling a business is a complex process. It requires careful consideration and expert guidance. Ron Quinn’s insights and expertise shed light on the key factors that buyers and sellers should consider when entering into a business transaction. By choosing the right escrow company, conducting thorough due diligence, and understanding the implications of different types of purchases, buyers and sellers can navigate the process with confidence. With the guidance of experienced professionals like Ron, buyers and sellers can achieve successful and rewarding business transactions.
DISCLAIMER: The views and opinions expressed in this program are my own and/or those of my guests. They do not necessarily reflect the views or positions of my employer.
Welcome to the Before You Buy or Sell the Business podcast, where we help buyers and sellers learn more about the acquisition process, discuss recent transactions, and stay up to date on the latest news in the market. I’m your host, Jared Johnson, and today we have a special episode in store for you. We will be diving into a deal that didn’t end up closing and exploring the reasons behind it. Joining me today is Jarryd Osborne, a past client who has a unique perspective on the acquisition process. Jarryd will share his experience and insights, shedding light on the challenges and opportunities that arise when buying or selling a business.
Background and Search Process
Jarryd grew up in Austin, Texas, and had a diverse professional background before venturing into the world of business acquisition. He played tennis competitively in his youth and went on to play at a junior college. After college, he worked in various corporate roles, including mortgage banking, tech, and insurance. However, he always had an entrepreneurial spirit, coming from a family of business owners. Jarryd decided to give the corporate world a try before pursuing his own business venture.
Jarryd began his search for a business in 2018 and 2019, but it wasn’t until 2020 that he found a potential opportunity. He came across a concierge relocation and home organizing company and started negotiations. However, during the due diligence process, Jarryd discovered some discrepancies and red flags that led to the deal falling through.
The Deal That Didn’t Close
Jarryd’s experience with the deal that didn’t close provides valuable insights into the challenges and complexities of the acquisition process. He initially found the business through a traditional online marketplace and began negotiations. However, he decided to reach out to the company’s competitors to explore other options. This proactive approach led him to discover a potential opportunity with a competitor.
According to Jarryd, “They can just go directly to these deals. So that’s their appetite, right? That’s what they’re seeing.”
The negotiations with the competitor went well initially, and Jarryd was excited about the potential acquisition. However, as the due diligence process progressed, issues arose. One major sticking point was the seller’s refusal to admit that they were following generally accepted accounting principles (GAAP). This lack of transparency and unwillingness to provide accurate financial information raised concerns for Jarryd and his attorney.
Jarryd explains, “I had actually had an operator in place and so I had an operator in place. We had a contract agreement and everything. We found out the financials weren’t on par of course, but um, so that, that the business we were going to buy ended up hiring the person that I found as the CEO to run that company.”
Additionally, there were disagreements over certain clauses in the purchase agreement, such as indemnification limits and representations and warranties. The attorneys on both sides began arguing, further straining the relationship between Jarryd and the seller. Eventually, the deal fell through, leaving Jarryd disappointed after months of hard work and anticipation.
Lessons Learned and Moving Forward
Despite the disappointment of the failed deal, Jarryd learned valuable lessons throughout the process. He realized that he enjoyed the art of the deal and the fundraising aspect of business acquisition. He also discovered his talent for advising others and helping them navigate the complexities of buying or selling a business.
Jarryd made the decision to transition from full-time searching for a business to becoming an advisor. He joined Riviera Capital, a company founded by Luke Ellis, who has extensive experience in brokerage. As a minority partner in the firm, Jarryd now helps individuals and businesses buy and sell businesses.
The Role of an Advisor
When clients approach Jarryd for assistance with buying or selling a business, he begins by understanding their criteria and timeline. Riviera Capital offers two types of services: retained clients and contingent clients. Retained clients pay a monthly fee for Riviera Capital to handle the entire buying process or assist with the search. Contingent clients handle their own search but engage Riviera Capital to facilitate the transaction.
According to Jarryd, “We’re going in we just got an executed ally with with a 10% rollover, so we’re going to need to address that.”
Riviera Capital has built a network and database of investors who are interested in cash-flowing businesses. These investors are looking for opportunities in the SMB (small and medium-sized business) world, which offer higher cash distributions and potential for growth. They see these investments as a real estate play with better upside.
Conclusion and Future Outlook
Jarryd Osborne’s experience highlights the challenges and complexities of the acquisition process. His journey from searching for a business to becoming an advisor showcases the opportunities that arise when buying or selling a business. As an advisor at Riviera Capital, Jarryd helps individuals and businesses achieve their goals in buying or selling a business.
Looking ahead, the SMB market continues to evolve, with private equity firms showing interest in smaller businesses and pushing up valuations. However, it is crucial for buyers and sellers to carefully evaluate deals and consider the long-term implications. With the right approach and support, success in the acquisition process is within reach.
As the market continues to grow and change, Jarryd and Riviera Capital are well-positioned to assist clients in achieving their goals and navigating the complexities of buying or selling a business.
Jarryd concludes, “I think that’s what I’d really do. So one of the deals that we didn’t talk about that failed, we were post low. I had actually had an operator in place and so I had an operator in place. We had a contract agreement and everything. We found out the financials weren’t on par of course, but um, so that, that the business we were going to buy ended up hiring the person that I found as the CEO to run that company.”
The acquisition process can be complex and challenging, but with the right guidance and support, buyers and sellers can navigate the journey successfully. Jarryd Osborne’s experience and insights provide valuable guidance to clients, ensuring they make informed decisions and maximize their opportunities.
To connect with Jarryd Osborne, you can find him on Twitter at SMBKapital or on LinkedIn as Jarryd Osborne.
DISCLAIMER: The views and opinions expressed in this program are my own and/or those of my guests. They do not necessarily reflect the views or positions of my employer.
Welcome to the Before You Buy or Sell the Business podcast, where we help buyers and sellers learn more about the acquisition process, discuss recent transactions, and stay up to date on the latest news in the market. I’m your host, Jared Johnson, and today we have a special guest, Alina Joseph, who has acquired two businesses and is in the process of selling one. We’ll be diving into her background, the challenges she faced, and the valuable lessons she learned along the way.
Background and Journey to Business Ownership
Alina Joseph has a diverse background with a bachelor’s degree in political science and a minor in business. She initially considered going to law school, exploring various fields such as sports entertainment, criminal law, and business law. However, after some consideration, she decided that pursuing a career in business was the best fit for her. She moved from Florida to Los Angeles to pursue a dual degree in MBA and JD at Pepperdine University.
While studying, Alina gained real-world experience by working in the finance and regulatory department of California’s leading utility company. She spent five years in this role, dealing with rate cases and other complex financial matters. This experience provided her with a strong foundation in finance and a deep understanding of the regulatory landscape.
After completing her degrees and gaining valuable work experience, Alina and her husband decided it was time to pursue their entrepreneurial dreams. They wanted to be more independent, start a family, and create a lifestyle that aligned with their goals. They spent months devising a plan and exploring different business opportunities.
The First Acquisition: An Auto Repair Business
Their first acquisition was an auto repair business in Arizona. Alina’s background in finance and her ability to analyze businesses from a financial standpoint played a crucial role in evaluating the potential of this opportunity. She focused on the business’s profitability, growth opportunities, and the financial goals she wanted to achieve.
Alina emphasizes the importance of conducting thorough due diligence when evaluating a business. While the SBA may vet the business to some extent, it is essential for buyers to do their own homework and evaluate the business independently. This includes analyzing the financials, understanding the key players in the industry, and assessing opportunities for growth.
In the case of the auto repair business, Alina looked beyond the top-line revenue and focused on the seller’s discretionary earnings (SDE) to understand the true profitability of the business. She also considered the industry dynamics and the potential impact of changes in regulations and market saturation.
According to Alina, “You want to make sure it’s a fit for you and for your family. And then, you know, you want to make sure that you look at your goals financially and how the business can help you achieve that and your goals for the business.”
Lessons Learned from the First Acquisition
Alina shares valuable lessons she learned from her first acquisition. One of the most important lessons was people management. She realized that managing people’s expectations, both within the business and in the community, was crucial for a smooth transition. Alina and her husband found themselves in the middle of a community with high expectations and concerns about big corporations entering the industry. They had to navigate these dynamics and build trust with the community.
Another lesson was the importance of patience and taking the time to understand the business before making significant changes. Alina advises buyers to wait and observe, focusing on learning and building relationships with the existing team. This approach allows for a smoother transition and better buy-in from employees and stakeholders.
The Second Acquisition: An E-commerce Snack Business
After realizing that the auto repair business was not the right fit for them personally, Alina and her husband decided to sell it and pursue another opportunity. They acquired an e-commerce business that sells snacks from around the world. This business aligned more closely with their interests and skills, and they felt more comfortable in this industry.
Alina highlights the importance of finding a business that fits your personal life and values. While financial performance is crucial, it is equally important to consider the industry, the people you will be working with, and the overall fit with your lifestyle and goals.
Challenges and Successes in the Second Acquisition
The second acquisition presented its own set of challenges. With a newborn baby, Alina and her husband had to juggle their personal and professional responsibilities. They relied on a strong team to manage the business initially, allowing them to focus on their growing family.
Once they were able to dedicate more time to the business, they faced challenges with the existing team and external service providers. They had to make difficult decisions and replace some of the service providers to align with their goals and expectations. This experience taught them the importance of finding the right team and ensuring that everyone is aligned with the business’s vision.
Despite the challenges, the second acquisition has been successful. Alina and her husband have implemented changes, focused on marketing and advertising, and have seen positive results. They are now in a growth phase and have exciting plans for the future, including a commercial and a special candy bar to celebrate the company’s ten-year anniversary.
Advice for Buyers and Sellers
Based on her experiences, Alina offers valuable advice for both buyers and sellers. For buyers, she emphasizes the importance of thoroughly evaluating the business and understanding its fit with your personal and financial goals. Conducting independent due diligence, analyzing the financials, and assessing growth opportunities are crucial steps in the process. Alina also advises buyers to be cautious. Aspiring business owners should not solely on the SBA’s evaluation and to seek professional assistance if needed.
Additionally, Alina highlights the importance of keeping clean books and maintaining transparency throughout the process. Being open and honest about the business’s performance and challenges can help build trust with potential buyers. Sellers should also consider the industry dynamics, their personal fit with the business, and their long-term goals when deciding to sell.
Conclusion and Future Outlook
In conclusion, Alina Joseph’s journey as an entrepreneur provides valuable insights for both buyers and sellers in the business acquisition process. Her experiences highlight the importance of evaluating the fit of a business with your personal and financial goals, conducting thorough due diligence, and maintaining transparency throughout the process.
As Alina continues to grow her businesses and explore new opportunities, she remains focused on finding the right fit and building successful ventures. Her story serves as a reminder that success in business acquisition requires a combination of financial analysis, industry knowledge, and personal alignment. With the right approach and mindset, buyers and sellers can navigate the challenges and achieve their goals in the ever-changing business landscape.
DISCLAIMER: The views and opinions expressed in this program are my own and/or those of my guests. They do not necessarily reflect the views or positions of my employer.
