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ARTICLES
Selling Texas Businesses
Since 1974
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Selling Texas Companies Since 1974
Our monthly newsletters provide information about buying or selling a business, current economic conditions, and highlight some of our newest business-for-sale opportunities. Our record of
professionalism and reputation as a top firm in the nation has a lot to do with our people -- a knowledgeable long-term administrative staff and a very experienced team of professional brokers. We are headquartered in Houston and have offices in Austin.
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"The best library of articles about how to sell
your business "..... says The New York Times
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Recasting Financial Statements: A Crucial Step In Preparing Your Business For Sale
What does it mean when we say that we need to "Recast" your financial statements as one of the initial steps in preparing to sell your business?
Financial statements and tax returns for most privately-held businesses are prepared for tax purposes, not for business sale purposes. The objective of business owners and their financial advisors is to use all available accepted accounting methods to minimize taxable net income. This is effective for minimizing taxes, but may paint an incomplete picture for business valuation purposes....and for showing the company's true profitability to a potential buyer. The goal when presenting financial information to a potential buyer is to maximize net income by clearly outlining the owner benefits, net income, and cash flow of the business.
Since bottom-line earnings is the primary factor that influences business value, a proper presentation of the financials is essential. Prospective buyers must be able to appreciate the full benefit of owning the business and be able to understand its actual income-generating ability. By recasting, or adjusting, the financial statements, the actual financial performance of the business can be demonstrated.
A "recast financial statement" is a crucial tool used by a buyer to determine the price they are willing to pay for your business and how much money a bank will be willing to lend to the buyer. This recast statement is a reconstructed representation of the earnings that a buyer would be able to enjoy from the business by:
- Normalizing the figures by removing unusual, non-recurring, and one-time or extraordinary income and expenses
- Showing adjustments for accounting anomalies
- Identifying owner compensation, owner "perks" or fringe benefits
- Detailing non-cash expenses, such as depreciation & amortization, interest, investments in future growth, such as new facilities or expansion, and other items that are common in privately-held businesses
The following is a checklist of some of the most common recasting adjustments for small businesses:
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American Parking Control
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Pictured left to right: Paul Dort & William O'Connor (Buyers), Frank & Rhonda Nance (Sellers), Marcia Bowron, (CBB Broker)
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American Parking Control (APC) has provided paving for parking lots and industrial sites, installed concrete curbs and speed bumps, and performed site preparation, excavating, and foundation work in the Houston and surrounding areas for 30 years. The company has a very loyal customer base and is ready to grow.
Frank Nance, the former owner, started the business in 1984 and is enjoying retirement mode. He and his wife Rhonda will be traveling the country in their RV, pictured below. Nance also has a love for his horses and the rodeo, which will both be prominently placed on his now open agenda. And, he said, "Thank you, Marcia, for your help and professionalism in selling our business. It's happy roads ahead!"
The Buyers, William O'Connor and Paul Dort are two young veterans who are very well educated. William has a Masters Degree in Civil Engineering from UT, and received the "President's Call to Service Award" that was personally presented to him by President George W. Bush. O'Connor and Dort met at their current place of employment and decided to put their skills together and buy a business. O'Connor has left his position to run the business while Dort will continue working to support the financial/ organizational aspects of the business. Dort has a Math Degree from the US Naval Academy and a Masters in Global Leadership. APC is the only business the buyers looked at with CBB.
SBA Financing was part of the deal. The business was sold within 6 months of going to market.
Marcia Bowron listed the business and sold the business.
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| | "Thank you, Marcia, for your help and professionalism in selling our business. It's happy roads ahead!" |
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Great Wraps - Downtown Houston
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| | Pictured left to right: Marcia Bowron (CBB Broker), Carlos Margiotta (Buyer), Shabana & Karim Haji (Sellers) |
Buyers, Carlos Margiotta, and his brother/partner, Juan Margiotta, are from Brazil. Carlos has lived and gone to school in the States and his brother hopes to move here within 3-4 months. Carlos will manage the store. He has a BS in Music and a Masters in Accounting. He's worked in the fast food industry during his school years and worked for two accounting firms after college. The two brothers have always wanted to own a business and work for themselves. They began looking at business
opportunities with CBB in May 2014, and achieved their dream within nine months.
The Seller, Karim Haji, owns somewhere in the vicinity of 17 fast food franchises, such as Great Wraps, Charlie's, and Bullritos. He has bought and sold numerous businesses through CBB over the years. This Great Wraps store was the last of the franchises in which he had a partner and was pleased to have the energetic brothers take over.
Marcia Bowron listed and sold the business.
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Ask The Experts
Question:
I'm just beginning to think about selling my company. But, I was wondering if instead of listing the business for sale, that it might be easier and much quicker to see if one of my competitors or other business acquaintances might be interested?
Answer:
Customers
If customers get wind that your business is on the market, they will most likely, in about a New York minute, hike on over to one of your competitors to do business. Losing customers affects the value of the business.
Employees If employees are told that the business is up for sale, think nano-second. If they feel insecure about their future, they may seek what might feel like more stable employment. Fear of new management and whether job cuts would ensue are legitimate concerns for anyone in which your business is their livelihood. If key members of staff left the business after hearing the news, it may seriously cripple the performance of your business. Consequently, not only will the value be reduced, but the chance of selling your business is significantly diminished. Suppliers Suppliers may feel that your decision to sell is based around financial difficulties and, if you currently purchase supplies on credit, they may reconsider your position and demand cash on delivery, which may certainly have an effect on your immediate cash flow. Great businesses are sold every day. However, in general, their is a negative perception of a business when it is rumored to be for sale. Banks Banks are very cautious of small businesses because of their risky nature. So, it is no surprise to how they would react when they find out that yours is for sale. They may decide to put a halt on further borrowings, overdrafts or lines of credit. Or, even worse, put out a call to recover any outstanding debt. Competitors How would you react to news of your competitor putting their business on the market? Very positively one would assume. This is exactly how your competitors will react should they discover that you are selling your business. They would, most likely, take quick action to affect your sales and customer confidence. Competitors would announce it from roof tops if they could to make it known that you are selling so they can reap the harvest of new profits from your old customers.
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Texas Economic News
