Q3 2015 Sellability Score Tracker Results- How Sellable Is Your Business?
The 3rd quarter 2015 Sellability Tracker showcases survey results based on business’s completing The Sellability Score Survey, an interactive tool offering a comprehensive assessment of the “Sellability” of a business. Completing the Sellability questionnaire gives you an overall Sellability Score out of 100, plus your score on the eight key drivers of Sellability, which are statistically proven to increase the value of your company.
The average offer multiple of earnings for owners completing the survey for Q3 2015 was 3.76. Below are a few Q3 highlights from a few of the 8 key drivers that have an affect on how Sellable a Business is and on Multiples of Earnings from buyer’s offers. How Sellable is your business?
|
Multiple of Earnings |
Q3 2015 Sellability Tracker Average is 3.76 |
| 3.99 | If your business is geographically scalable |
| 4.03 | Companies that offer little or no customization to their product or service get somewhat higher offers. |
|
Owner Relationship with customer |
|
| 2.92
4.52 |
Owner knows each customer by first name
Owner does not know customers personally and rarely gets involved in serving an individual customer. |
|
How Easy Would It Be To Accommodate 5 X Demand? |
|
| 2.94
4.56 |
Impossible
Very easy |
|
Businesses with recurring revenue > than 50% of total revenue get more offers and higher multiples. |
|
| 3.76
4.14 |
12.29% of surveyed received offers (average)
17.56% with recurring revenue > than 50% of revenue received offers |
|
Size matters |
|
| 2.86
3.67 4.42 5.10 |
< than 1m in Revenue
1-3m in Revenue 3-10m in Revenue 10m+ in Revenue |
|
Record Keeping |
|
| 2.37
3.42 4.59 |
Bring shoebox of receipts to CPA at years end
Use accounting software product like QuickBooks Review and Engage accounting audit in place |
|
Overall Sellability Score |
|
| 2.76
3.59 3.76 4.17 5.10 6.27 |
<50
50-60 Average 70-80 60-70 80+ |
The Sellability Score algorithm was developed using a quantitative survey of business owners and is continually refined, based on the thousands of business owners who get their score each quarter. Achieve a Sellability Score of 80+ and – based on research from thousands of test cases – your company will be worth 71% more than the average business. To learn more about how to improve the Value of Your Business visit Evobizsales.com or call Evolution Advisors in the Roseville/Sacramento area at 916-993-543.
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A Buyer’s Quandary
Statistics reveal that out of about 15 would-be business buyers, only one will actually buy a business. It is important that potential sellers be knowledgeable on what buyers go through to actually become business owners. This is especially true for those who have started their own business or have forgotten what they went thorough prior to buying their business.
If a prospective business buyer is employed, he or she has to make the decision to leave that job and go into business for and by himself. There is also the financial commitment necessary to actually invest in a business and any subsequent loans that are a result of the purchase. The new owner will likely need to execute a lease or assume an existing one, which is another financial commitment. These financial obligations are almost always guaranteed personally by the new owner.
The prospective business owner must also be willing to make that “leap of faith” that is so necessary to becoming a business owner. There is also the matter of family and personal responsibilities. Business ownership, aside from being a large financial consideration, is very time consuming, especially for the new business owner.
All of these factors have to be weighed very carefully by anyone that is considering business ownership. Buyers should think carefully about the risks – and the rewards. Sellers should also put themselves in a buyer’s position. The services of a professional business broker or intermediary can help determine the relative pros and cons of the transaction.
Read MoreSmall Business Transactions Down Slightly From 3rd Quarter 2014 reported by BizBuySell
As reported in BizBuySell’s recent Q3 2015 Insider’s Report the number of business transactions in the 3rd quarter of 2015 are down. This is compared to the markets record high level in 2014. Bob House, Group GM of BizBuySell.com andBizQuest.com said “After a very active 2014, this year’s small drop in transactions should be viewed as a stabilization of the market rather than a trend in the opposite direction. Overall, the buying-selling environment remains very robust.”
Below are some notables from the report. To view the entire report click here.
- Small Business transactions down 9% compared to 3rd quarter 2014 totaling 1814 business’s changing hands.
- Financial stability of business’s listed grew 4% to $450,000 in average revenue.
- Retail industry saw the biggest decline at 17% fewer transactions
- Pacific region down 22% in business sales transactions
- The median revenue of small businesses has been on a steady incline since mid-2012, leading to higher sale prices upon exit.
- BizBuySell Buyer-Seller Confidence Index reported a Seller Confidence Score of 62, up after two consecutive years at 56.
Regional Business Listed Data*
| California Highlights | # listed | Cash Flow Multiple | Hypothetical 250kCash Flow x Multiple = Listing Price |
| Contra Costa-Alameda-Solano, CA | 189 | 2.75 | $687,500 |
| Sacramento–Arden-Arcade–Roseville, CA | 212 | 2.85 | $712,500 |
| San Diego-Carlsbad-San Marcos, CA | 401 | 2.50 | $625,000 |
| San Francisco-Oakland-Fremont, CA | 363 | 3.17 | $792,500 |
| San Jose-Sunnyvale-Santa Clara, CA | 162 | 2.96 | $740,000 |
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Should your Company get an Annual Business Valuation?
Many executives of both public and private firms get a physical check-up once a year. Many of these same executives think nothing of having their investments checked over at least once a year – probably more often. Yet, these same prudent executives never consider giving their company an annual physical, unless they are required to by company rules, ESOP regulations or some other necessary reason.
A leading CPA firm conducted a survey that revealed:
- 65% of business owners do not know what their company is worth;
- 75% of their net worth is tied up in their business; and
- 85% have no exit strategy
There are many obvious reasons why a business owner should get a valuation of his or her company every year such as partnership issues, estate planning or a divorce; buy/sell agreements; banking relationships; etc.
No matter what the reason, the importance of getting a valuation cannot be over-emphasized:An astute business owner should like to know the current value of his or her company as part of a yearly analysis of the business. How does it stack up on a year-to-year basis? Value should be increasing not decreasing! It might also point out how the company stacks up against its peers. The owner’s annual physical hopefully shows that everything is fine, but if there is a problem, catching it early on is very important. The same is true of the business.
Lee Ioccoca, former CEO of the Chrysler Company said in commercials for the company, “Buy, sell or get-out-of-the-way,” meaning standing still was not an option. One never knows when an opportunity will present itself. An acquisition now might seem out of the question, but a company owner should be ready, just in case. A current valuation may be as good as money in the bank when that “out of the question” opportunity presents itself.
One never knows when a potential acquirer will suddenly present itself. A possible opportunity of a lifetime and the owner doesn’t have a clue what to do. Time is of the essence and the seller doesn’t have a current valuation to check against the offer. By the time it takes to gather the necessary data and get it to a professional valuation firm, the acquirer has moved to greener pastures.
Having a company valuation done on an annual basis should be as secondary as the annual physical – it really is the same thing – only the patients are different.
© Copyright 2015 Business Brokerage Press, Inc.
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Why Your Company Needs a Physical
Many executives of both public and private firms get a physical check-up once a year. Many of these same executives think nothing of having their investments checked over at least once a year – probably more often. Yet, these same prudent executives never consider giving their company an annual physical, unless they are required to by company rules, ESOP regulations or some other necessary reason.
A leading CPA firm conducted a survey that revealed:
- 65% of business owners do not know what their company is worth;
- 75% of their net worth is tied up in their business; and
- 85% have no exit strategy
There are many obvious reasons why a business owner should get a valuation of his or her company every year such as partnership issues, estate planning or a divorce; buy/sell agreements; banking relationships; etc.
No matter what the reason, the importance of getting a valuation cannot be over-emphasized:An astute business owner should like to know the current value of his or her company as part of a yearly analysis of the business. How does it stack up on a year-to-year basis? Value should be increasing not decreasing! It might also point out how the company stacks up against its peers. The owner’s annual physical hopefully shows that everything is fine, but if there is a problem, catching it early on is very important. The same is true of the business.
Lee Ioccoca, former CEO of the Chrysler Company said in commercials for the company, “Buy, sell or get-out-of-the-way,” meaning standing still was not an option. One never knows when an opportunity will present itself. An acquisition now might seem out of the question, but a company owner should be ready, just in case. A current valuation may be as good as money in the bank when that “out of the question” opportunity presents itself.
One never knows when a potential acquirer will suddenly present itself. A possible opportunity of a lifetime and the owner doesn’t have a clue what to do. Time is of the essence and the seller doesn’t have a current valuation to check against the offer. By the time it takes to gather the necessary data and get it to a professional valuation firm, the acquirer has moved to greener pastures.
Having a company valuation done on an annual basis should be as secondary as the annual physical – it really is the same thing – only the patients are different.
Are there Advantages to Seller Financing?
Business owners who want to sell their business are often told by business brokers and intermediaries that they will have to consider financing the sale themselves. Many owners would like to receive all cash, but many also understand that there is very little outside financing available from banks or other sources. The only source left is the seller of the business.
Buyers usually feel that businesses should be able to pay for themselves. They are wary of sellers who demand all cash. Is the seller really saying that the business can’t support any debt or is he or she saying, “the business isn’t any good and I want my cash out of it now, just in case?” They are also wary of the seller who wants the carry-back note fully collateralized by the buyer. First, the buyer has probably used most of his or her assets to assemble the down payment and additional funds necessary to go into business. Most buyers are reluctant to use what little assets they may have left to secure the seller’s note. The buyer will ask, “what is the seller not telling me and/or why wouldn’t the business provide sufficient collateral?”
Here are some reasons why a seller might want to consider seller financing the sale of his or her business:
- There is a greater chance that the business will sell with seller financing. In fact, in many cases, the business won’t sell for cash, unless the owner is willing to lower the price substantially.
- The seller will usually receive a much higher price for the business by financing a portion of the sale price.
- Most sellers are unaware of how much the interest on the sale increases their actual selling price. For example, a seller carry-back note at 8 percent carried over nine years will actually double the amount carried. $100,000 at 8 percent over a nine year period results in the seller receiving $200,000.
- With interest rates currently the lowest in years, sellers usually get a higher rate from a buyer than they would get from any financial institution.
- Sellers may also discover that, in many cases, the tax consequences of financing the sale themselves may be more advantageous than those for an all-cash sale.
- Financing the sale tells the buyer that the seller has enough confidence that the business will, or can, pay for itself.
Certainly, the biggest concern the seller has is whether or not the new owner will be successful enough to pay off the loan the seller has agreed to provide as a condition of the sale. Here are some obvious, but important, factors that may indicate the stability of the buyer:
- How long has the buyer lived in the same house or been a home owner?
- What is the buyer’s work history?
- How do the buyer’s personal references check out?
- Does the buyer have a satisfactory banking relationship?
Advantages of Seller Financing for the Buyer
- Lower interest
- Longer term
- No fees
- Seller stays involved
- Less paperwork
- Easier to negotiate
© Copyright 2015 Business Brokerage Press, Inc.
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