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You Might be Dealing with a Bad Business Broker if…

Business brokerages are no different than any other businesses – there are good firms and there are bad firms. So how do you determine a bad business broker from a good one? First, don’t confuse a broker’s personality with his/her business practices. There can be very poor business brokers with likable personalities, so it’s important not to choose a broker just because you like the individual – you really need to understand if you’re dealing with a good firm.

When it comes to signs you should be looking for that point to a bad business broker, here are some important things to consider.

You might be dealing with a bad business broker if…

You’re having difficulty getting references quickly

When you ask for references, you should expect to get a minimum of three names, and you should expect to get that information immediately. A good business broker has numerous references at his/her fingertips, and doesn’t need time to look for people who will give a good recommendation.

In addition, don’t just limit yourself to references the broker provides you. See if the broker has any Google reviews, or check the specific agent’s LinkedIn account to see what people have said about him/her. Even a bad business broker can scrounge up a decent referral or two, so don’t just count on what a reference says. Take the time to do a little digging on your own also.

The broker charges upfront fees

First, a disclaimer about upfront fees: Just because a business broker charges upfront fees does not mean it’s a bad firm. With that said, if a broker is asking for money upfront, you certainly need to do your homework and understand why.

Are upfront fees typically required by brokers in your area? In some parts of the country just about every broker requires fees upfront, while in other areas most reputable brokers don’t charge anything upfront. Do enough research to know what’s standard in your market.

Does the broker apply all of your fees to the final commission at closing? You want to make sure that if you are paying a fee upfront that those dollars will be applied to the broker’s final commission. If you pay $25,000 upfront and the broker’s commission ends up being $100,000 after the sale, you should only owe him/her $75,000 at closing.

What is the broker’s “pitch?” Be leery of why a broker is asking for a fee upfront. He/she should be able to give you a clear explanation as to why a fee is justified, what it covers and how the amount is determined.

You don’t understand the marketing plan

Effectively marketing a business for sale is not easy. So it stands to reason that any good business broker will have a defined program he/she employs on every single business listing. This plan should not be a mystery to you – the broker should be able to explain his/her marketing program so that you can understand what will be done.

A bad business broker won’t have a defined and thoughtful marketing plan, or he/she won’t be able to explain the plan to you. There is a major difference between “hoping” a business sells and “selling” a business. A bad business broker hopes listings will sell and has no real plan to overcome difficulties in the process, while a good business broker knows the likelihood of selling every listing is extremely high because of the system he/she has in place to market the business.

The broker lets the buyer dictate the process

How does a buyer actually buy a business? If you’ve been involved in a business acquisition before, then you know there are literally hundreds of steps and details that need to be handled in order to close a transaction. Bad business brokers leave this process up to the buyer and allow the buyer to take charge.

Your broker needs to be the authority in this process, and should be able to walk you through how he/she manages buyers and the buying process. A good business broker provides a buyer with a detailed, step-by-step plan that guides the buyer through the entire gauntlet of the acquisition, and then works with the buyer to make sure all his/her needs are being met and questions are being addressed along the way.

Having a clear buyer plan is also imperative in order for the broker to provide adequate protection for you. By letting a buyer dictate the process, you are running a huge risk. Without proper oversight, buyers could unintentionally damage your business simply because the broker is not there to guide them.

The broker doesn’t provide you with a detailed business valuation

Anyone can quote you a value for your business. Some brokers might actually be willing to give you an estimate over the phone after asking a few simple questions, while others might look over your financial statements for a day and then give you a verbal estimate, and some may even just email you a number. These are all signs of bad business brokers.

You deserve much more than a “back-of-the-napkin” estimate when it comes to determining your business’ value – you certainly didn’t put years of blood, sweat and tears into your business only to have it reduced to a number a bad business broker spends an hour “calculating.”

valuation-paper-on-clipboard-with-glasses

You should expect a business broker to provide you with a comprehensive, detailed, written business valuation report. A good business broker should not only explain the “what,” but also the “why,” “when,” “who” and “how.” While you may not agree with the valuation you get from a broker, you should at least be able to respect the process the broker went through and the effort he/she put into the analysis.

Also, be on the lookout for a broker who gives you a high value without supporting it. Bad business brokers are notorious for presenting you with unrealistic values to get you excited so you’ll list your business with them. Their hope is that when offers start to come in at a lower, more realistic price, that you’ll break down and accept it. This is a tactic called “seller’s fatigue” and bad business brokers will use it.

The broker doesn’t seem that interested in you or your business

At its core, a business acquisition is pretty basic – one party buying something from another party. That’s exactly how a bad business broker looks at your deal. It’s just a transaction and a commission.

How can a broker effectively represent your business if he/she hasn’t taken the time to really dive in, ask the tough questions and ultimately understand what makes your business unique and valuable? Furthermore, how can a broker expect to represent you if he/she hasn’t made the effort to understand your motivations for selling and what’s truly important for you to accomplish after the sale?

Your broker should be passionate about your business and your goals, otherwise he/she should never accept your listing.

You haven’t heard anything negative about your business

There is no perfect business. Period. Every business has problems and challenges that will make it difficult to sell. Some of these issues are quite serious, while others are minor – but in either case your broker should be discussing these topics with you and offering solutions on how to overcome them.

A bad business broker either ignores a business’ problems or chooses to avoid discussing those problems with you for fear of losing the listing. If you haven’t heard any concerns coming from a broker who is evaluating your business, that should be a major red flag. A good broker will discuss challenging aspects of your business with you, making sure you understand his/her concern.

At the end of the day, choosing a business broker is a life-changing decision because selling your business is a life-changing event. While you want to avoid “analysis paralysis,” it’s in your best interests to take the extra time to ensure that the business broker you are choosing to handle the most important transaction of your life is not only someone you can trust and feel comfortable with, but is also someone who avoids the bad business broker red flags outlined above.

 

How to Sell Your Awning Manufacturing and Installation Company

Awning manufacturing and installation companies are taking advantage of recent residential and commercial growth

Traditionally, the commercial real estate sector has driven the awning manufacturing and installation industry. While commercial projects are still the primary revenue sources for these companies, an increase in residential work has proven substantial. According to a 2017 report by Grand View Research, the awning industry was approximately $2.4 billion in 2015. Given the growth in both the commercial and residential markets, that figure is expected to eclipse $3 billion by 2020, with 50% of that coming from the residential side.

As new commercial real estate development continues to progress, that piece of the awning market has steadily increased. Obviously a portion of this growth due to new construction, but for every new awning system that is installed on a building, there is a maintenance job coming to repair or replace that awning a few years down the road. What is really driving industry growth, however, is the bump in residential work. Homeowners have experienced a growing interest in quality outdoor living spaces – not just having a patio set on the porch, but a true outdoor living area. A critical piece to these new additions is some sort of shade system, and residential awning installation has grown as a result.

Given the positive market trend and steady recent growth in the awning industry, coupled with the traditional cyclic nature of construction, now is a great time to sell an awning manufacturing and installation company while the market is hot. The first step in this process is to find out how much your business is worth. We have provided some basic formulas you can use to estimate the value of an awning business and get a rough idea of where you stand. Keep in mind, however, there is much more to putting an accurate value on your business than these simple guidelines. A professional business broker can analyze your entire business operation and give you a true market valuation.

  • 5x-4.5x SDE (Seller’s Discretionary Earnings) + Inventory
  • 75% Total Revenue + Inventory

With a rough value estimate in mind, you might be wondering what you can do to increase the value of your awning business. Obviously, growing revenue and profitability will add value, but there are also other important attributes specific to your industry that not only improve your value, but also you marketability. Our firm has valued and sold numerous businesses like this – so we put together these five tips that can increase the value and attractiveness of your company.

Revenue Mixstack-of-cash-and-coins-on-top

Awning manufacturing and installation companies that receive the vast majority of their revenues from new construction projects are not going to be valued as favorably as those that have a healthy repair and replacement revenue segment. While new construction jobs are fantastic and tend to be larger projects, the cyclical nature of construction – especially commercial construction – can create a sense of guarded optimism with buyers. However, if your business has a strong foundation of repair and replacement work, the new construction risk can be mitigated somewhat.

Customer Concentration

Customer concentration is especially concerning in awning manufacturing and installation companies because it oftentimes comes with the heavy influence of new construction. Some companies fall in the trap of riding the new construction wave, and inherently will start to focus on one or two primary costumers that are sending them consistent work. As great as this impact might be for the owners in the short-term, when it comes to valuating and selling the company, it can be shockingly negative. Buyers want to see businesses spread their customer risk out, so that the loss of one or two accounts won’t devastate your company.

Organized Departments

Buyers also evaluate the operational risk of a business, in additional to financial factors. A company that has distinct departments with dedicated employees performing specific responsibilities is going to be valued more favorably than a business with employees multi-tasking with no clear duties. Specifically in awning companies, buyers want to see dedicated estimators/salespeople who quote and sell the jobs. Then the jobs are handed off to the production department that has specific employees doing fabrication or sewing. Finally, there are the install crews who handle assembly and installation. Companies that have a primary group of employees that move between multiple job responsibilities day-to-day are not going to be as attractive to buyers as those companies with more operational structure.

Large Projects

Be leery of selling your business in a year that may have been disproportionately propped up by a large project. In businesses like awning manufacturing and installation, this is a legitimate concern. If your business typically has a large project or two in a year and you can show a consistent history of securing these types of jobs, then it’s less of a concern. However, if you just happened to land a big project and decided to sell your business now based on the increased revenue you show, you can be sure that buyers will discount your business based on that anomaly. While it’s positive to demonstrate to buyers that your company can obtain and perform those larger projects, don’t expect them to pay a premium based off one abnormal year.

Vertical and Horizontal Integration

Another value-builder in the minds of buyers is integration. If you have the opportunity to add a service or product to your company that you are currently outsourcing, it can add not only a real cost-savings and improve the bottom line, but also impact the overall impression buyers have of the uniqueness and stability of your business. A vertical integration such as powder coating and painting is a good example. Additionally, think about other complementary products or services your customers need that are closely related to awnings. Electrical sign manufacturing comes to mind as a potential horizontal integration for an awning business. Anything along these lines you can integrate into your company will ultimately add value and distinctiveness with buyers.

Hopefully you can utilize these five tips to analyze your own operation and find ways to increase its value and marketability. Today’s market conditions for these types of businesses, along with more and more financing available for acquisitions, make this a tremendous time to consider selling your business. Whether that’s in the cards for you today, or you still need some time to get your company ready to sell, a professional business valuation is a great resource to have. That’s why we always offer business owners a no cost, no obligation business valuation before doing anything else. Feel free to contact us today and we can get that process started for you.

Seller Question #1: How Can I Get a Higher Price For My Business?

This seems simple enough. If you want your business to be worth more, then just increase the revenue and profit, right?

While that’s an obvious, simple answer to Seller Question #1, it’s not necessarily the most realistic solution. It’s also not what we’re examining here.

I’m sure you’ve seen or experienced a situation where two businesses from the same industry and relatively the same size ultimately sold for very different amounts. Why is that? In most cases the difference between these two businesses will lie in their intangibles.

What I mean by intangibles are those aspects of a business that aren’t necessarily noticeable on an income statement or tax return, but significantly impact a business’ value nonetheless. These intangibles really boil down to two issues – buyer confidence and perceived risk.

Here are some of the most important intangibles relating to your business’ value, along with some perspective on how to address them to increase your final sale price.

Customer Concentrationblue-figures-lined-up

If a significant percentage of your revenue comes from only a few customers, your business’ value will be hurt. From a buyer’s perspective, if, for example, you have one customer that accounts for 50% of your revenue, there is a tremendous amount of risk in buying your business. By losing just that one customer, the business’ revenue would be cut in half. So a buyer will likely try and mitigate that risk by reducing the offer price.

With this in mind, take a look at your customer concentration and see if you have a potential problem. Do you have a few customers that account for a large portion of your revenue? Are the same customers at the top of that list year after year? Do you have any sort of contract with those top customers that ensures they won’t leave you?

Once you’ve identified the issues, you can begin to take steps to reduce your concentration problem by focusing on adding new customers, or growing existing, smaller customers. By finding a solution to this issue, you will be able to reduce a buyer’s risk potential and increase your business’ value.

Owner’s Role & Responsibilities

We’ve all heard business owners use the expression, “I’m the chief executive office and chief bottle washer” when talking about their duties within their companies. While most business owners use that expression tongue-in-cheek, you should really give some thought to what it is that you actually do for your company. Are you really the chief bottle washer?

Buyers have a tendency to adjust values up and down based on how involved the owner is in the business. If you are intimately involved in just about every aspect of your operation, buyers see that as a negative, while they appreciate and add value to companies with owners who have delegated themselves out of menial day-to-day tasks. Buyers want to see companies with empowered and responsible employees filling assigned roles, where the owner is the conductor of sorts, as opposed to trying to conduct while playing several instruments at the same time.

Take a hard look at how your business is structured, what responsibilities you still cling to and if it makes sense to let go of some of those tasks. You can still effectively manage a successful business without controlling everything that goes on. Buyers will recognize this structure and feel more confident they can achieve the same success you’re having, which makes your business more valuable to them.

Transferrable Knowledge & Business Systemsman-and-woman-shaking-hands

There’s something special and unique about your business that makes it successful. It could be a specific product you manufacture, it could be a prime location your business operates from, it could be a marketing program that has built your brand name, it could be a series of processes and systems you’ve developed to make your business efficient – whatever that “secret sauce” happens to be, to truly add value to your business that knowledge has to be transferrable to the next owner.

If a buyer can’t understand what makes your business unique and successful, he/she is not going to have confidence in the ability to replicate the results you’ve produced. And if a buyer is worried about replicating results, you can expect a reduced offer to account for that added risk.

So take some time to examine your company and its operations, focusing on how you do what you do. Make sure the knowledge, processes and systems you use to run your company are not only present, but are also transferrable. It wouldn’t hurt to even make an “owner’s manual” of sorts that spells everything out. Your business is more valuable to buyers if they believe they can learn what you already know.

Clean, Accurate Financial Records

Nothing hurts business value more than poorly managed financial books and records. You could have a wildly successful business with great employees and an impeccable reputation, but if a buyer has to spend an inordinate amount of time trying to understand and get comfortable with your financials, your business value will be hurt.

There are several issues surrounding your financials that buyers have to concern themselves with. Can they follow the money and identify the cash flow that’s driving the business value? Can they trust a business owner to be honest and forthcoming about his/her business when that same person has not been truthful in reporting their financials? Can they be confident in financials if they have to reconstruct them themselves?fan-of-money-in-hands

These are all good questions, and they are all real questions buyers have to deal with. Unfortunately, when the answer to any of these questions is “no,” the business value will be severely damaged.

Maybe the most impactful thing you can do to improve your business’ value is to clean up your financials. All things being equal, if buyers feel supremely confident in the accuracy and transparency of a business’ financials, they will be more likely to accept the risk associated with the other intangibles about the business that may giving them pause.

While every business is unique and has its own circumstances driving value, these are four intangible factors we see impacting value time after time. Whether you’re considering selling your business this year or in 10 years, it would be prudent to contact a reputable business broker, like Sigma Mergers & Acquisitions, today for a no cost, no obligation business valuation. This is a great way to examine your business’ value and identify things you can do to ultimately increase your sale price.

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Sigma Mergers & Acquisitions LLC: 18170 Dallas Parkway, Suite 203, Dallas, Texas 75287
Dallas Business Broker, Mergers & Acquisitions Dallas / Fort Worth / Texas

214-396-8100 Office
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