Certified Business Brokers
The Business Transfer Newsletter
September 2015
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How A Competitive Analysis Can Uncover Your Company's Strengths & Weaknesses

  
 
 



The Importance Of Finding The Right Buyer For Your Business



 

How to Spot Hidden Opportunities for Sales Growth

 

 

 

Here's How Steve Jobs Measured Success. How About You?


 

 

  

 

 

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Selling Texas Businesses

Since 1974  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.


 

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"The best library of articles about how to sell

your business "..... says The New York Times


 

Businesses For Sale


    Review All Listings                         Manufacturers For Sale 

    Wholesale / Distributors                 Service Businesses For Sale 

    Auto-Related Businesses                Child Care Centers For Sale   

                          Restaurants - Fast Food - Bars 

 

 

Featured Business Listing

* Featured Restaurant Listing 

 

 

By: Principium Group


Everybody knows that a company's revenue and profits play a big role in its value.  After all, a multiple of EBITDA (earnings before interest, taxes, depreciation and amortization) is one way to estimate the value a business.  However, valuation is not nearly as simple as that. One way to improve your multiple and increase the value of your business is to improve cash flow and decrease working capital requirements. These steps will also make your business stronger regardless if or when you plan to sell it.

Cash vs. Profits

Cash flow is different than profits in that it measures the cash coming in and out of your business rather than an accounting interpretation of your profit and loss. For example, if you charge $10,000 upfront for a service that takes you three months to deliver, you recognize $3,333 of revenue per month on your profit and loss statement for each of the three months it takes you to deliver the work.

But since you charged upfront, you get all $10,000 of cash on the day your customer decides to buy. This positive cash flow cycle improves your company's valuation because when it comes time to sell your business, the buyer will have to write two checks: one to you, the owner, and a second to your company to fund its working capital - the cash your company needs to fund its immediate obligations like payroll, rent, etc.

The trick is that both checks are drawn from the same bank account. Therefore, the less the acquirer has to inject into your business to fund its working capital, the more money it has to pay you for your company.

The inverse is also true. If your company consumes cash, an acquirer is going to calculate that she needs to inject a lot of working capital into your business on closing day, which will deplete her resources and lessen the check she writes to you.

How To Improve Your Cash Flow

There are many ways to improve your cash flow - and therefore, the value of your business. Here are a few key ways.

Some landscape services businesses bill their customers at the end of the month for the services provided that month.  Others bill their customers at the  beginning of the month for the services to be provided during the month.  On average, both sets of customers take about the same number of days to pay, so companies that bill at the beginning of the month generate more cash and may be worth more as well.  It isn't easy to switch from the end of the month to the first of the month, but you might consider putting each new account on a bill at the beginning of the month cycle.  In this way, you can gradually increase your cash flow and the value of your business.

Another way to increase cash flow relates to how you pay your bills.  Many landscape business owners pay their bills immediately when they are received which may be several weeks in advance of the due date.  By timing the payment of those bills when they are due will improve cash flow and contribute to increasing the value of your business.

One often overlooked tactic is to spend less on the machines your company needs to operate.

In the restaurant business, for example, there is an often repeated truism that it takes three bankruptcies at a single location before any restaurant can make money. The first owner of the restaurant walks in and - with all of the typical optimism of a new entrepreneur - pays cash for a brand new commercial kitchen complete with fancy stove, commercial grade walk-in coolers, etc., as well as all new dishware, pots and pans, thus depleting his cash reserves before opening night. Within a year, the restaurant owner runs out of cash and declares bankruptcy.

Then along comes a second entrepreneur who decides to set up her restaurant at the same location and buys all of the shiny new equipment from owner number one's creditors for 70 cents on the dollar, figuring she has made a wonderful deal. But the outlay of cash is still too great and she too is out of business within a year.

It's not until the third owner comes along that the location actually survives. He saves his cash by buying all of the equipment off the second owner for 10 cents on the dollar.

The moral of the story is: find a way to reduce the cash you spend on equipment, however  you can. Can you buy your gear used? Can you share a very expensive piece of machinery with another non-competitive business? Can you rent instead of buying?

In the landscape industry, some business owners prefer relatively new equipment and others prefer to buy used equipment and keep it for a long time. Typically, they have mechanics on staff to keep the equipment in good shape and many clients won't even be able to tell the difference. Both camps feel pretty strongly about which is better.  Capital expenditures affect cash flow and cash flow affects value.  It depends on many factors which choice produces better cash flow now and in the future, but it's worth some analysis in your particular situation.

One more caution, not only does your actual cash flow affect your business's value, so does what is expected to happen after an acquisition.  Some business owners defer maintenance and capital expenditures in advance if selling their businesses in the belief that it will increase the value of their business.  That doesn't really work because a buyer will likely be looking forward to see what cash requirements will be going forward.  If the buyer will have to increase capital expenditures to update a fleet, they will most assuredly factor that into what they will pay for your business.

Profits are an important factor in your company's value but so is the cash your company generates.  Improving cash flow can help you move your multiple and get a higher value for your business and improve your business in the mean time.
  
Sold 
Dinosaur Plastics  
Pictured left to right: Virginia Stephens & Chris Conrad (Sellers), Eric Estrada (Buyer), Marcia Bowron (CBB Broker)
 
We thank the Buyer of this business, Mr. Eric Estrada, for writing this post for us and providing his testimonial.
 
"Things have been very busy at Dinosaur Plastics, a commercial sign manufacturer that's been operating in Houston since 1968. The first week of owning the business has gone great...Chris and Ginny, the former owners, have done an excellent job showing me how the business operates and I'm soaking up all the knowledge I can. The business is exactly as advertised and I've seen a consistent flow of orders by repeat customers all week. This is my testimonial to CBB:
 
A+ to Marcia and the rest of the team at Certified Business Brokers! As an aspiring entrepreneur, I couldn't have asked for a better team to work with for my first business acquisition. From the first meeting with the seller to the final day of closing, the entire process was handled in an organized and professional manner. I had been searching for the right business opportunity for over a year and when I came across Dinosaur Plastics I knew I had found the perfect fit. Dinosaur Plastics has been providing signs, banners, custom graphic solutions and promotional products to the Houston area for almost 50 years with an impressive client list including The University of Houston, Macy's, AT&T and the City of Houston. As the new owner I will ensure that we continue to provide the same great products and services that our clients have grown accustomed to. I also have some exciting plans for growing the company such as implementing a web-to-print interface that will allow our customers to place orders directly through our website. Visit our website at dinosaurplastics.com for more information and feel free to contact me with any questions about the business or my experience with Certified Business Brokers."
 
-Eric Estrada
 
This business was sold within four months of going to market. SBA financing was part of the deal. Marcia Bowron listed and sold the business.
 
Sold 
Moody Tile  
Pictured left to right: Dan & Gretchen Worrell (Sellers), Peggy Tate (CBB Broker), Matthew & Mary Biagiotti (Buyers)
 
This commercial tile sales & installation company has been in operation since 1950. The owners, Dan & Gretchen Worrell, already working part-time in the children's ministry at their church, sold the business in order to work the children's ministry full time.
 
This was the only business the buyers, Matthew & Mary Biagiotti, looked at with our firm. As former owners of a flooring enterprise in New York, they appreciated the very unique business model with no overhead expenses. The business is run from home. Materials are drop-shipped to the locations from their vendors, so no need to store inventory. Vendors have showrooms that the company uses to show tile samples to their customers, so no need for a storefront. An experienced, long-term sub-contractor team does the installation, so no need for employees.
 
The sellers and the buyers were very excited to have made the connection with eachother. Some seller financing was part of the deal. Frank Stabler listed the business and Peggy Tate sold it.

Sold 
Pro-Floor  
Pictured left to right: Michael Johnson (Seller), Tom Pence (CBB Broker), Michael Shanahan, Jon Cashion, Dan Shanahan (Buyers)
 
This award-winning flooring company & showroom, established in 2007, has a unique business model allowing for low overhead with no employees or inventory expenses. The owner sold the business as part of his retirement plans and is moving to Colorado.
 
The buyers, of PSI Flooring, own a conglomerate of family owned businesses in seven different cities, including Houston and Austin.
 
This business was sold within two months of going to market. Some owner financing was part of the deal. Tom Pence listed and sold the business.

Sold 
Memorial Postal Center  
Pictured left to right: Hitesh Dhariya (Buyer), Randip Nibber (Seller)
 
Randip Nibber, the seller, purchased this mailbox rental and shipping center through CBB in 2009. It has been in business for 22 years and is located in the energy corridor area of Houston. Randip decided to sell the postal center to concentrate on his other enterprise, US Global Mail Services, which he also purchased through CBB. US Global Mail, is a worldwide mail and package forwarding company that specializes in providing technologically advanced mail and package forwarding services for expats and international shoppers.
 
The buyer purchased this business to add to the group of businesses his family operates in the Houston area.
 
The business was sold within four months of going to market. Jay Yoo listed and sold the business.

Sold 
Hollywood Deli  
Pictured left to right: Rico & Vivian Dan (Sellers), Rania & Malak Samaan (Buyers)
 
Established 13 years, this deli ideally located and surrounded by several office buildings, a large office park, and a fitness center, was sold within four months of going to market. Some seller financing was part of the deal. Jay Yoo listed and sold the business.
 
Ask The ExpertsQuestion Ask The Experts

Question: 
Is the market still performing well for current businesses for sale?

Answer:
The short answer is Yes.  According to the latest Market Pulse Survey, 2nd Quarter 2015, sponsored by The International Business Brokers Association and M&A Source, in partnership with Pepperdine Private Capital Markets Project, "the number of businesses on the market remained relatively stable, increasing slightly. More Baby Boomers are making the tough emotional decision to sell their business and part with their 'baby.' However, the majority of Boomers still haven't made the move....many because they can't separate their personal identity from that of their business.  In the near future, we may see a glut of Boomers coming to the market all at once. And if that happens, valuations are likely to decline due to an oversupply of businesses on the market. Business owners who sell now are ahead of the curve, earning higher values due to less market competition."
 
Texas Economic News

 

We watch economic and market conditions compared to the rest of the country because these factors affect business value. The following articles were all published since our last newsletter.

 

 

How Much People In Texas Energy Earn
 

Toyota's Texas Twist  

 

Wind Energy, A Booming Business In Texas 

 

Texas Business Groups Blast Avalanche of EPA Proposals  

 

CHART 'Very Small Business' Biggest Challenges in 2015 

 

Texas Unemployment Drops To Historic Lows 

 

The 5 Best And Worst States For Small Businesses - Texas No. 1 

 

Texas Craft Brewer Challenges State's Beer Law as the World's Two Biggest Beer Companies Talk Merger  

 

Growing A Small Business, Creating Jobs, And Leveraging Resources Like SBDCs - Forbes Magazine

 

Why 3D Printing Is The Future Of Manufacturing - Fortune Magazine

 

We'll Be Needin' More Concrete

 

3 Ways Rising Interest Rates Can Impact Businesses 

 

U.S. Entrepreneurship Hits New High, Study Shows 

 

Houston Outperforms Nation in Jobs, But Will Hire Less In Q4  

 

Main Street Shrugs Off Wall Street's Woes: Small Business Index Up 

 

Top Texas Schools Improve Ranking on U.S. News & World Report Best Colleges List  

 

Toyota Exec: More Jobs Coming To Texas 

 

This Chart Shows How Much Each State Contributes To The U.S. Economy 

 

5 Things To Watch On The Economic Calendar - Wall Street Journal 

 

Texas Farmers Brace for EPA's Contested New Clean Water Rule

 

The Saudis Gambled and Texas Won - Wall Street Journal 

 

 

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