Information and Resources re:

Buy a Business - Sell a Business - Business Valuation 

Small Business Succession - Small Business Value Creation

Small business facts:

  • 98% of America’s 9.5 million businesses employ less than 100 people

  • 90% employ less than 20

  • 1.5 million Americans operate home based businesses

  • Small business accounts for all growth of the GNP

  • Responsible for creation of essentially all new jobs

  •  Less than 1% are Public companies

  • 160,000 new businesses are created monthly  

The rate of success in selling businesses summarized by those doing the selling:

 

Success Rate  

Information Source

Business owners

 2% 

Our survey of 200 business owners who attempted sale of their business on their own

Real estate brokers

5%

Surveys conducted by Business Brokerage Press

Business brokers

14% to 25%

Surveys conducted by Business Brokerage Press

Franchise re-sales

24%

Surveys by Quick Print magazine of more than 5,000 quick print franchisees

Sold from Internet web site

      10%

Results published by the largest Business for Sale website (45,000 businesses 
listed for sale - 4,568 businesses sold)  

Investment bankers

90+%

Our M&A manager's experience as director of M&A activities for a major 
Wall Street firm

Business Selling System users

90+%

Our experience since transitioning to our Business Selling System over 15 years ago

 Succession expectations

  •         50% of business owners plan to pass their business on to family

  •        10% anticipate selling to a competitor

  •        30% plan to sell to employees

  •       10% expect to sell to outsiders

Succession realities

  •      15% pass to a second generation, and 5% of the second generation businesses pass on to the third.  

  •       10% sold to competitors  

  •       5% sold to employees  

  •      10% sold to outsiders  

  •       Balance (40%) are closed and liquidated  

  •        A recent survey of more than 5,000 Franchise businesses owners revealed that 76% closed their doors in order to “move on” -- only 24% of the businesses succeeded the owner or were sold

  •       100,000 go out of business monthly  

Why selling a business is difficult and different

  •    Confidentiality must be maintained (Don’t let anyone know the business is for sale, but sell it quickly)  

  •     Buyers don’t know exactly what they are looking for to buy

  •     No one really knows what a business is worth but everyone has an opinion  

  •     Banks are reluctant to provide acquisition funding  (Goodwill lacks collateral value)

  •     Future profitability is totally dependent upon new owner, past performance cannot predict future results  

  •     Most private business owners strive to minimize profits making “real earnings” difficult to discern.

  •     Usual buy/sell rules cannot be applied when selling a business  

  •      A highly charged emotional atmosphere complicates the purchase and sale of smaller businesses  

  •     The buy or sell decision requires a careful balancing of personal as well as financial considerations  

  •      Business buyers and sellers are unfamiliar with the unique process employed to safely transfer ownership

  •     Buyers, sellers, and their advisors fail to recognize the real motivation of buying or selling and instead focus solely on financial matters

Most business owners wonder what their businesses are worth and financially savvy professionals seldom agree -- Why?

  • Sales are private and, unlike real estate transactions, not recorded -- therefore scant comparable sale 
      data is available

  • Rumored sale results are often inflated or exaggerated

  • Public company sales ratios are not analogous and should not be used to estimate the value of a Private companies

  • Valuation methodologies taught in Business School are inappropriate for estimating the value of a small business - see above

  • Financial information is usually of secondary importance to buyers of small businesses

  • Little is known or understood of the different categories of buyers in the marketplace for small and mid size businesses -- the different buyer types pay dramatically different prices.

  • The impact that restricted financing has upon value and transaction structuring is overlooked or ignored

  • The fact that a business’s Fair Market Value is not necessarily its Fair Cash Value is not understood by most business owners or their advisors

  • Relationship of motivation and value is not easily measured

What multiple of earnings is appropriate when estimating the value of a small business?

  • Multiples currently in use range from a low of 1 to a high of 15 -- but a multiple of what?

  •  Unlike the public company sector where earnings are defined as after tax, a standard definition of earnings for private companies does not exist -- instead an array of “true earnings” computations has evolved

  • Some buyers will discount earnings entirely and focus solely on the value of assets to be transferred

Are there valuation “rules of thumb” that can be used on specific types of businesses?

  • Yes, and they are sometimes accurate -- however, most “rules of thumb are dumb” and should not be relied upon in serious considerations

  • Hundreds of rules of thumb have evolved to fill the void caused by the lack of comparable sales data

 Informative Articles for About Selling a Business

Information About Buying a Business

Resources to Help You Find a Business

Business Valuation Articles 


Library of Articles re:

Buying a Business     Selling a Business     Business Valuation


For additional information contact:

Ted Burbank, FIBBA, CBI
Parker-Nelson Publishing
508 794-1200

tedburbank@comcast.net

www.buysellbiz.com