Why are you selling?

There are many reasons to sell your business such as retirement, health issues, partner disagreements, lifestyle changes, financial needs, burned out, the business has plateaued, or you are seeking other opportunities.

Whatever the reason, Purple Cow Capital is here to help.

We focus on the things that matter most to you

• Protecting your employees and vendors
• Preserving your legacy
• Peace of mind that your business is in safe hands
• Receiving a fair price

We share your values. We will work with you to create a win-win solution and ensure a smooth transition. All without a long-drawn-out frustrating sales process or 10% business broker fees.

Why is selling a business so difficult?

We guesstimate that about 390,500 small to midsized businesses sold in 2020, compared to approximately 500,000 in 2019. And the selling environment is about to become even more competitive. Consider these stats:

• 50 million baby boomers will retire over the next 10 years
• 12 million baby boomers own businesses
• 4.5 million of these businesses will transition over the next 10 years
• Only 20% of businesses that go to market end up selling

If you’re thinking about selling your business, and you DON’T want to spend years searching for a buyer, READ ON to learn more about our simple process.

WE BUY GOOD BUSINESSES!

Confidentiality

It’s very important that you maintain confidentiality throughout the sales process. Should your employees get wind of a potential sale, they may start to feel uneasy and this uncertainty could lead to departures.

And if your competitors learn that your business is for sale, they may use the opportunity to poach customers as well as your key employees.

You’ll also want to maintain business as usual while we’re discussing a potential sale and purchase. We suggest only informing key trusted advisors, for example, your accountant and attorney.

Confidentiality is crucial because you don’t want any sort of business disruptions caused by rumors and uncertainty.

Before releasing important information to us such as financials, customer lists or intellectual property, we will sign an NDA (nondisclosure agreement) with you. We are legally bound by this agreement not to disclose sensitive information learned while studying your business.

Valuation – What’s your business worth?

Valuing a business is not cut and dry as one may believe and there are several ways to arrive at a valuation. A business is often worth more in the eyes of the founder than it is in the eyes of the buyer. This is understandable given the years of blood, sweat and tears the owner has poured into the business.  However, it’s important to be objective and have a rational economic justification for your asking price.

The statistics we quoted above for the number of listed businesses that actually sell, can be discouraging. But this is partially due to unrealistic expectations of value. So, investigate your industry to see how similar sized businesses are being valued.

The three primary ways to value your business are:

• an asset based approach
• a market based approach
• an income based approach.

Here’s a brief look at each of the three methods.

Asset Based Approach
If your business is heavy on assets but light on cash flow, this may be the technique of choice. An investor is generally looking to purchase assets and the ability of those assets to generate a return. If there isn’t any cash flow to speak of, the value of the business is essentially the value of all the assets less all of the liabilities. This is your book value. This approach is not all that useful for most profitable businesses.

Market Based Approach
Like valuing real estate, a market based approach looks to see what similar business have sold for and attempts to establish a valuation based on recent sales. Unfortunately, this data is not readily available and is often unreliable. Unless you are a franchise, there are too many variables and differences between businesses for this method to be useful.

Income Based Approach
There are two main income based approaches:

• discounted cash flow, and
• multiple of historical earnings.

The discounted cash flow method attempts to forecast future earnings and discount those earnings to present dollars. The calculations can be a bit complex so we will stick to using a multiple of historical earnings.

So, what earnings numbers do we use? We will use adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). We use adjusted numbers because, unlike a public company, a private company usually does everything it can to prove that it is not making money to reduce the tax liability. Thus we have to factor in the expenses that we won’t incur like your family vacation to Hawaii and your golf club membership.

If you look at your company’s tax return for any given year, start with your ordinary business income (which is before tax), then add back interest, depreciation, amortization and any personal expenses that you can easily document. But don’t get carried away and add back legitimate business expenses that we will also incur.

Now that we know your EBITDA, we’ll look at your last three years and calculate an average. We will use the average EBITDA (excluding any extraordinary years with fantastic [outlier] sales) and a market multiple to get a ballpark valuation for your business. For example, if your three-year average EBITDA is $500,000 and you use a multiple of 2.5 times EBITDA, the value of your business using the income based approach is $1,250,000.

So, what’s the proper multiple to use in your calculation? This varies based on many factors, but the most important is revenue. Larger companies with stable or accelerating growth receive a much larger multiple. Other factors are industry growth, customer concentration, owner dependency, reputation, synergies, clean financials, intellectual property, regulatory risk, and outstanding legal issues to name a few. Generally, you can expect private companies to sell at a multiple of 1-5 times EBITDA. In a report published by Transworld Business Advisors for Q4 2018, the average EBITDA multiple for “closed” deals was 2.24 x.

Deal Structure

Purchase price is only one component of the deal. The structure of a deal is equally as important and there are many issues to consider such as the tax implication of various deal structures, the type of entity involved (C corporation, S corporation, LLC), whether it’s an asset sale or stock sale, liabilities assumed by the buyer, current assets retained by the seller and more. We urge you to consult with your accountant and attorney to determine what is best for your unique situation.

With that said, every sale will involve some combination of debt, equity, seller financing and possibly an earn-out. There are many creative ways to structure a deal and it pays to be open minded. Although every seller would like to simply show up to the closing and receive a big fat check for the entire purchase price, the truth is this rarely happens. Almost all transactions involve some amount of seller financing.

Even if we went through the rigorous process of obtaining an SBA loan, the SBA will require you, as the seller, to take back a note for a portion of the purchase price and that note will not be paid off until the SBA loan has been repaid.

This is not all bad news. A creative deal structure can create a win-win situation for both of us and allow you, as the seller, to achieve your desired goal.

Seller financing offers several potential benefits. First, if you’re willing to offer financing, it tells us that you have confidence that the business is strong, and it will continue to provide a return on our investment.

Second, if you don’t have an immediate need for cash, the return you will earn on the note, will be significantly higher than the return you would receive by simply depositing those funds in the bank.

Finally, spreading the payment over several years vs. taking payment in one lump sum, may provide some tax benefits. (Be sure to discuss this with your CPA, we are not accountants and cannot offer tax advice.)

An earn-out is a useful tool that can be used to bridge the gap between differences of opinion on the value of your business.

For example, if you feel your business is worth $2,000,000 and we believe that your business is only worth $1,700,000, is our deal dead? Not necessarily, if you are creative and open minded.

Let’s say we agree to pay you $1,700,000 plus 10% of all revenues in excess of $3,500,000 for the next 5 years. If the business continues to grow, you’ll not only have successfully sold your business, you will end up receiving more than your original asking price!

The point is that there are many ways to structure a deal and achieve your goals.  And it may pay to be a little flexible.

Simple Acquisition Process

If you’re thinking about selling your business, we would like to invite you to schedule a call and receive a FREE business valuation. We’re currently looking for good businesses to acquire and it would be a pleasure to speak with you.

Scroll down to the calender below to schedule a brief Introductory Call.

We understand that the thought of selling your business can be overwhelming, however we’ve simplified the process and we’ll work with you to efficiently and confidentially complete the sale in a timely manner.

This is our simple ten step process:

1. Schedule Introductory Call
2. Sign NDA (Non-Disclosure Agreement)
3. Basic Information Request – Provide Financial Statements / Tax Records For Analysis
4. Business Valuation – Receive Opinion Of Value
5. Confidential Meeting
6. Written Offer / Indication Of Interest
7. Negotiate Terms
8. Letter Of Intent
9. Due Diligence
10. Closing

Every acquisition starts with a phone call. We hope to hear from you soon!

Get Your Free Business Valuation!

Please schedule a short Introductory Call by selecting a date & time below: