Author: Murphy Blog

Maximizing Value for Your Company

by Gokul Padmanabhan – Orlando, Florida Franchisee

Sooner or later many companies end up with more than they need for a successful operation. Being a business owner myself, I confess we love to dream big and perhaps overestimate when preparing for the future. We might obtain more office space than we presently need or buy more equipment “just in case.” We often mistakenly rationalize these decisions by declaring that if business increases significantly, we will need that extra room or additional piece of equipment.

The truth is, if and when you need the added space or that new printer (which does everything but make your morning coffee), you can always purchase it at the time you most need it for practically the same price you are going to pay for it today. So, why spend the money ahead of time?

As professionals in valuing businesses, we know that a profitable organization is valued based on its earnings — not its assets. It makes sense, then, that having a smaller office or passing on the latest technological gadget does not diminish the value of your business at all. Indeed, running your business frugally and showing a healthy bottom line is a surefire way to increase the value of your business.

Business Valuation – What Is a Business Worth?

Determining the value of a business is the first step in the process of buying or selling a business. The value of a business is related to the risk involved, the ability to generate an income stream, and the value of the tangible assets.

An expert business valuation report will be based on standard valuation methodology combined with the experience and knowledge of the valuation expert. The specific purpose of the business valuation and the size of the company will determine the depth of analysis and research required.

Basic factors that influence value are:

  • Value of hard assets
  • Recast cash flow analysis: normalize earnings
  • Review factors that can impact future earnings
  • Calculate and apply external factor discounts
  • Analyze intangible values

 

The final step of a business valuation report is to make sure that the suggested price for the business passes the sanity test:

  • Will the income cover the debt service?
  • Will the cash flow provide the owner or manager with a reasonable salary?
  • Can the cash flow provide for future capital equipment requirements?
  • Will the cash flow provide a cushion to allow for fluctuations in the business cycle?

What Do Business Brokers Sell?

The great majority of business brokers are what we call general business brokers. They sell businesses mostly priced under $500,000. That figure does not include the inventory of the business or the actual real estate if it is owned by the business. Almost all surveys of average selling prices of businesses sold by business brokers show that the average selling price is less than $300,000.

Industry Breakdown:
General Business Brokerage – Businesses priced under $500,000, annual revenues of less than $750,000, and with fewer than 10 employees. This category represents almost 80 percent of all businesses.

The Larger Business – Business priced between $500,000 and $3 million, annual revenues between $750,000 and $2 million, and fewer than 100 employees. This category represents about 11 percent of all businesses.

The Mid-Size Company – Businesses priced between $3 million and $20 million, annual revenues between $2 million and $30 million, and between 20 to 100 employees. This category represents approximately 9 percent of all businesses.

The Larger Company – Businesses priced over $20 million, annual revenues over $30 million, with over 100 employees. This category represents slightly over one percent of all businesses.

How Many Businesses Are There?
Business Size:

  • 1-4 employees: 6,600,000 = 62%
  • 5-9 employees: 1,900,000 = 18%
  • 10-19 employees: 987,000 = 09%
  • 20-49 employees: 680,000 = 06%
  • 50-99 employees: 250,000 = 02%
  • 100-249 employees: 132,000 = 01%
  • 250-499 employees: 32,000 = <1%
  • 500+employees: 34,000 = <1%

Business Buyers: Who Are They?

Buyers of small business are most likely replacing lost jobs or searching for a happier alternative to corporate life. Buyers of mid-sized and large operations are, typically, private investment companies seeking businesses to build and eventually sell for a profit. This is the broadest possible look at the types of buyers out there.

  • Individual Buyer: This is typically an individual who will purchase a business and be directly involved with the day-to-day management of the company. Many of them have come out of corporate America and are first-time buyers. Others are buyers who have owned a business in the past and are looking to once again become their 'own boss'. They generally will attempt to match the type of background or experience that they have with a given business opportunity. The individual buyer usually seeks a business that is financially healthy that will pay them a reasonable salary and any debt service required to purchase the business. Their financing sources are generally SBA loans, owner financing or loans from family members. They very rarely will pay all cash for a business. These buyers will usually limit themselves to transactions involving less than $1 million, cash.

 

  • Strategic Buyer: This buyer is almost always a company, having its goal entering new market share, gaining new technology, or eliminating some element of competition. In essence, it is part of this buyer's strategy (hence the name) to acquire other businesses as part of a long-term plan. Strategic buyers can be either in the same business as the company under consideration, or a competitor. Strategic buyers will be looking chiefly at businesses with sales over $20 million, with a proprietary product and/or unique market share, and effective management in place and willing to remain.

 

  • Synergistic Buyer: The synergistic category of a buyer is usually a company looking to grow by acquiring products or services of a complementary nature. The joining of the two companies will produce more or be worth more than just the sum of their parts. They now have the opportunity to sell the existing customer base additional products or services.

 

  • Industry Buyer: This type is often a competitor or a highly similar operation. This buyer already knows the industry well and, therefore, does not generally pay for the expertise and knowledge of the seller. The industry buyer is interested mainly in combining manufacturing facilities, consolidating overhead, and utilizing the combined sales forces, expanding their operation geographically. These buyers will pay for assets but in most cases, they will not pay for goodwill, covenants not to compete, or seller consulting agreements.

 

  • Financial Buyer: Financial buyers are influenced by a demonstrated return on investment, coupled with their ability to get financing on as large a portion of the purchase price as possible. Working on the theory that debt is the lowest cost of capital, these buyers purchase businesses with the sole purpose of making the maximum amount of money with the least amount of their capital invested.

Buy A Franchise – Convenient Hair Care for the Entire Family

As a walk-in, no-appointment hair cut salon, we are the largest salon franchise in the world. We have perfected a system for delivering value-priced hair cuts to the entire family in a convenient environment. Being positioned in the $55 billion dollar market for the past 28 years, we currently have over 2,800 franchisees.

This opportunity allows you to keep your job and hire a manager to run your salons. Our segment of the hair cutting industry is very recession resistant, very predictable, a simple business plan, technology resistant and a cash business with no sales required!

An ideal candidate for ownership has strong management skills, business management experience, is profit-oriented and needs no hair care experience! The desire to own multiple units is ideal. To give you an idea of our current franchisee ownership, 70% have a white collar executive background, 15% as a diversified business owner and 15% are semi-retired. Our average franchisee owns 5-6 salons after 5 years of operation. It is important for our owners to be skilled at recruiting and motivating staff, somewhat analytical, can follow a system and understand the basics of business.

We can provide you with a very strong Item 19 from our FDD, which outlines average salon revenues, operating cash flow and top 20% of salons earnings. All of our units are 100% franchisee owned with a very high success rate.

Again, this is an opportunity that you can keep your job and build a simple, very profitable #1 branded business. Selecting a franchise is a big step. If you are someone who is transitioning out of Corporate America and has an exit strategy for the future, but wants to keep your professional career, we feel confident of our management opportunity and encourage you to go here to find out if this Beauty/Personal Care, Hair Salon franchise could be a good fit for you!

Buy A Franchise – Residential Cleaning Service

As a maid service franchise owner, you don't lift a broom – you hire people to do the cleaning for your customers. You'll have the satisfaction of growing, managing and motivating a team of employees, but best of all you'll be in a great business for yourself.

Here are some top features of our opportunity:

  • Lifestyle business: M-F, 8-5
  • Cash business, no receivables or bad debt
  • Recurring and predictable revenue (97% retention rate of customers year after year)
  • No inventory
  • By the end of year 2, a manager can be promoted or hired and run 90% of the business
  • Strong Item 19 earning claim!

 

Our initial investment is very affordable as we believe it's important that our new owners get off to the best start possible, saving hard-earned capital to launch the business, retaining more profits to grow their new business. We believe in selling the right size territory to each new franchise owner, using sophisticated demographic data and mapping so a territory can satisfy growth projections.

Our system provides its owners incredible freedom, with weekends off and the opportunity to build an extremely profitable business, all with the credibility of the most recognizable name in residential house cleaning. We have over 25 years of brand equity and millions of satisfied customers. Over the last decade, residential housecleaning has become one of the fastest growing industries in the country. Over 12 million households use paid domestic services.

Our business generates repeat, cash paying customers. There is low inventory with a quick start-up timeframe and our customers find our franchisees. No strong selling required! With multiple revenue streams, it's easy to get excited out the advantages of our business model.

If you have a can-do problem-solving attitude, good management, and leadership background and are ambitious to succeed, lead and belong to a winning team…go here to find our more about ownership of a Cleaning; Maid Service business.

Developing an Exit Strategy Plan for Business Owners

It is important to for small business owners to develop an Exit Strategy early on. A three-year plan is optimal; a three-week plan is distressing!

The following is a list of important items to include in your strategy. Identify and gather all appropriate documents:

  • Tax returns for the last three years
  • P & L and Balance Sheets for the last three years, plus the most current on you have available.
  • Develop a year-end projection for the current year of sales and expenses. An explanation of any additional capital purchases needed, or recruitment of additional personnel required.
  • A list of your top 10 accounts and the annual sales generated by each for the most recent year (if applicable).
  • A list of assets that are owned by the company. The year purchased, make and model, and fair market value. Items like office furniture can be grouped together and listed as a group.
  • A list of your key employees, their compensation and benefits, and how long they have worked for you.
  • A description of your office space owned or leased, the terms if leased and options that are currently in place.
  • A brief description of how you market your business and what areas generate the majority of your sales. Give percentages and breakdown of sales by specific sectors. Please also provide copies of any printed marketing materials you may have.
  • Are there any pending law suit, employee or supplier issues a buyer should be aware of?

 

Upon your decision to exit, a business broker or intermediary, can help you value, market and sell your business, developing a current value for your business using the market approach, the income approach or the asset approach.

Buy A Franchise – Dryer Vent Cleaning and Service

Imagine a scene in a household when a dryer stops working. A consumer's first inclination is to believe that the dryer is broken. In many situations a repair person is called only to find out that it is not a malfunctioning dryer, but the dryer vent needs cleaning. Dryer vent lint build-up causes dryers to work inefficiently or not at all. Because repair center personnel do no clean, repair or replace dryer vents, they refer customers to the Yellow Pages.

Here's the market niche…there has been no organized company providing this service in the Yellow Pages. When the home is in disarray because there are no dry clothes, the search to find someone to help is an urgent call! This is where we come in. Through networking with local repair centers and property managers, our franchisees receives referrals that put them in touch with consumers who need our service and need it now!

A competitive advantage: An important aspect of our service is safety. Dryer vent lint build-up is the leading cause of fires in homes. Also dryer vents in older homes do not meet current building codes. In addition to the safety hazard and building code problems, a clean dryer vent helps to safeguard homes from the dangers of mold and mildew. With a lifetime warranty, our consumers are assured that we will be out on an annual basis to clean, repair or replace their dryer vent.

A Proven Concept: Our closing ratio is 94%. Our average ticket is $358.00. We have perfected the cleaning, repairing and replacement of dryer vents, so our franchisees don't have to reinvent the wheel.

Key Business Model: This is an Owner Operated OR Executive Model franchise opportunity. With low overhead, few employees and family friendly hours this may be the right opportunity for you!

Hiring A Professional Business Broker to Sell Your Business

There are four different ways that business owners typically use to Exit their businesses:

  • Close the Business
  • Accident, Illness, or Death
  • Succession
  • Sale of the Business

 

The obvious choice for many is Sale of the Business. Statistics show that approximately one out of every five businesses in the U.S. change ownership every year. Selling a business requires dedicated professional attention. Marketing and facilitating a business transfer is a full-time job. The goal of the seller is to maximize the after-tax profit on the sale of the business while maintaining strict confidentiality. The following steps must be taken in order to achieve the seller’s goals:

PRICING AND VALUATION. Sellers want the best possible price for their business. To determine the best price, a professional broker will use the industry-tested valuation techniques, including ratios based on sales of similar businesses and historical data of the types of business for sales. A critical factor in pricing a business is the terms offered, and the type of deal structure. The broker will work with the seller’s financial advisors to achieve the highest amount of “net proceeds” after the sale. While the selling price is important, the amount that the seller “keeps at the end of the day” is what is really important.

PREPARING THE BUSINESS FOR SALE. To make an informed decision, a buyer will require information on the business activity, history, customers, sales and earnings, marketing strategy, employees, assets included, facilities, location and the reason for sale. A complete Offering Memorandum will enable a buyer to make an informed decision and obtain the required financing to proceed with the deal. Generally, buyers are more educated on the process of buying a business than sellers are in the process of selling.

MARKETING AND ADVERTISING. Designing a marketing plan specifically targeted to the types of buyers that would be interested in the business is a key factor. Business brokers use databases of buyer’s prospects, professional associations, and investment groups. Target marketing through trade publications, direct mail and Internet sites specifically for business transactions may be used to reach buyers. Advertising in newspapers both local and national, as well as in industry trade journals will produce qualified buyer prospects.

QUALIFYING BUYERS. The business broker will focus on those prospects who are financially qualified and who are genuinely interested and have the skills needed to run this type of business. Finding a “real, qualified buyer” is a skill that is developed by years of experience in doing business transactions.

PRESENTING THE BUSINESS. The professional business broker is experienced in handling negotiations. The broker also offers the seller convenience of continuing to manage the business while the selling process is under way. Information is disclosed to buyers in stages, as needed, while the deal progresses through the due diligence process.

MAINTAINING PRIVACY AND CONFIDENTIALITY. Business owners are extremely concerned about confidentiality. A professional broker is skilled at protecting the confidentiality from the employees, suppliers, creditors and customers of the business.

NEGOTIATING THE BUSINES SALE TRANSACTION. The business broker will be a vital advisor during the sale transaction. Knowledgeable about negotiating price, terms and other key aspects of the sale, the broker will guide the seller each step of the way. Proper deal structure will greatly affect the net amount that the seller will end up keeping after selling the business. The Broker will help coordinate the Legal, Accounting, and Financial Professionals that are required to complete the transaction.

Buy A Franchise – Sport Nutrition Centers

American's invest $16 billion dollars in sports nutrition & weight loss supplements a year and is growing 6 to 7% annually. Needless to say, health and fitness is now a huge industry and shows every sign of continued growth. A notable segment of the American public now understands the value of staying healthy and living longer and more productively. We stand ready to help Americans achieve their goal!

Who constitutes our customer base? 90% are mostly normal everyday people who desire to get into shape. Women now constitute 42% of that base. The smaller 10% are people looking to build more muscle and do it well. High school athletes needing to increase more muscle and endurance athletes of all ages come to us, looking to increase lean muscle mass and lose the fat. Our products are highly nutritious, easily digestible, easy to take, flavorful and pack the needed punch!

This franchise opportunity is devoted exclusively to that market, through single unit, multi-unit or regional territories. Our franchisees offer clients information, motivation, guidance, knowledge and supplemental products. While this is a retail store operation, our hours are typically 10am to 6pm, low number of employees, wide margins, an upbeat, forward-thinking clientele and a chance to help people improve their own health and fitness. Our stores are low overhead and low maintenance with no food preparation!

Franchisees can own and operate one or more stores and owners can hire managers to create more passive involvement. Larger, regional territories are available for qualified candidates.

Our ideal candidate would be someone with a strong desire and willingness to build a successful retail business and a strong belief in health, fitness and nutrition. Strong people skills are helpful as a willingness to market, network and promote business in the community is key.