How to Find the Most Logical Buyer for Your Business - Part 4

To conclude this series, I’d like to highlight three things every owner should do before attempting to sell – have your business valued; implement a de-risking initiative; and, create a life after ownership plan. Checking these boxes will not only establish a solid foundation for your exit plan but will also enable you to more clearly envision the most logical buyer and position your business accordingly.

Valuation

First, it’s imperative to understand the value of your business. Many owners think they know what their business is worth, but most have never had it formally appraised. Instead, they rely on gossip from friends and colleagues and articles touting rules of thumb or describing publicly announced transactions. These source typically provide incomplete information that in the best cases is not applicable to the reader and risks being completely false.

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How to Find the Most Logical Buyer for Your Business - Part 3

Part 2 of this series explored the numerous financial and non-financial objectives an owner may have when pursuing the sale of their business. Today’s edition will discuss the possible conflict between objectives and help an owner determine what to do if the most logical buyer for one goal is in conflict with another.

Most business owners are pro-small business, and if they’re being honest with themselves will say that they’d love to see their legacy carried forward by another individual who can grow the business and reap the same rewards as the seller has throughout his or her career. In today’s environment, however, it’s rare that an individual is able to make the best financial offer, and the valuation gap between individuals and corporations or private equity investors can be massive.

That doesn’t mean that selling to an individual precludes the owner from netting enough from the sale to achieve whatever financial goals he has set forth. Making this determination requires a strong evaluation of the business to determine the valuation an independent buyer would place on the business today, and a subsequent analysis of the owner’s personal balance sheet and ability to achieve certain goals upon a liquidity event. It’s entirely possible that this lower valuation still enables the seller to achieve full financial freedom, and in such a case it may not matter that the buyer isn’t paying the highest price. 

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How to Find the Most Logical Buyer for Your Business - Part 2

In our first article, we provided an introduction to our framework for identifying the most logical buyer along with a high-level overview of the general categories of buyers of small and middle market companies. Today, we’ll take a deeper dive into the profiles of individual buyers, small business owners, middle market private equity investors (both traditional funds and search funds), and strategic buyers.

Individuals

When individuals buy businesses, they are effectively buying themselves a job. The majority seek a business with a retiring owner whose role in daily operations they can quickly replace.

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How to Find the Most Logical Buyer for Your Business - Part 1

This is the first in a multi-part series on identifying the most logical buyer for a business.

Selling a business is not just about finding anyone to buy it – it’s about finding the right buyer, the most logical buyer. Identifying a logical buyer requires defining the type of person or entity to whom you’d most like to sell, which in turn involves a deep dive into the owner’s goals, both personally and professionally, for the outcome of the transaction.

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Is 2016 The Year You Sell Your Business?

Many are calling it the greatest generational transfer of wealth in history. In the United States, approximately 66% of all privately held companies are owned by baby boomers. As this population begins to transition from workforce to retirement, boomer business owners seek to transition their businesses to a new owner.

According to a recent survey by the Exit Planning Institute, 76% of Boomer business owners plan to transition their businesses over the next ten years, representing 4,500,000 businesses and over $10 trillion in wealth. For most business owners, this represents not only the largest financial transaction of their lives but also determines if and how they are able to retire, as the average owner has 80-90% of his or her net worth tied up in the business. The importance of properly planning for a sale cannot be over-emphasized. 

Successfully transitioning your business to a new owner can take months, if not years, of hard work. So if 2016 is the year that you decide to sell, the preparation starts now. Here are a few important tips to help you get started:

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The Key Elements That Determine the Value of a Small Business

If there’s one thing that seems to constantly puzzle small business owners it’s their company’s value.

Agreeing on your company’s value will make or break a transaction – ultimately, a company is only worth what someone else is willing to pay for it. That said, there are four key elements that impact every valuation:

  1. The Buyer
  2. Cash Flow
  3. Risk
  4. You

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Private Equity Investments in Veterinary Practices

The market for veterinary practice acquisitions has typically involved two categories of buyers: other veterinarians, either individuals purchasing their first practice or other owners looking to expand, and large national chains like VCA and National Veterinary Associates (NVA). In recent years, however, a third player has emerged: private equity. 

Our white paper titled "The Next Investor in Veterinary Practices" will explore the motivating factors behind private equity investments in the veterinary services industry and the impact on private practice owners. We will also provide our outlook on practice sales for 2015 and 2016. The following are two brief excerpts:

On Private Equity's Interest in Animal Hospitals

The veterinary industry attracts PE investment because it aligns very closely with the investment criteria typically associated with PE funds. It is a stable industry with predictable demand. It grew modestly over the past five years, averaging annual growth rates of 4.5%, but many (including us) believe that growth will accelerate over the next 5-10 years. Pet ownership in the United States is up, with 68% of households owning a pet (up from 56% in 1988). Most veterinary services are private pay, so there is little/no risk associated with third party reimbursement. Finally, the industry is highly fragmented, characterized by a few large operators and thousands of small and medium-sized practices, suggesting that the industry is ripe for consolidation. ...

On the Outlook for 2015-16

... Good practices in attractive markets receive interest from numerous buyers, resulting in bidding wars that drive up prices. This will continue as long as the demand for practices exceeds the supply of practices for sale.

The prospects over the next 12-18 months are very bright, but ...

To download the full white paper, please click here.