Improve Your Turnaround’s Forecast

Today’s business climate poses many challenges – from increased global competition to a tight capital environment – that can hinder or even destroy a business. Companies struggling with poor cash flow, inadequate capital and weak leadership are especially vulnerable. Such companies can provide significant upside potential to the right buyers. But to turn an unprofitable company around, new owners must have an implementation plan and be ready to execute it.

Getting to the Core

If you’re a potential buyer of a troubled company, you must examine it closely for hidden values, such as untried territories or poor leadership. Then decide if these opportunities mitigate acquisition risks and potentially provide enough financial benefits.

It’s essential to understand the company’s core business – specifically, its profit drivers and roadblocks. Without a clear understanding of this, you may misread the company’s financial statements, misjudge its financial condition and, ultimately, devise an ineffective course of rehabilitative action.

Due Diligence Matters

While due diligence is an important part of any acquisition, it’s probably the most critical stage in a turnaround deal.

Buyers should use a professional business intermediary who will take the time necessary to perform due diligence, request the supporting documentation needed and perform personal audits that cross-check reported and actual data. At this stage, it is important that the source of the company’s distress (such as maturing products or overwhelming debt) is pinpointed to determine what, if any, corrective measures can be taken. You also need to determine if the business harbors significant liabilities, such as pending legal judgments, product claims or dissatisfied customers.

This is the time to find hidden flaws. But due diligence may also unearth potential sources of value, such as tax breaks or proprietary technologies. Benchmarking the company’s performance with its industry peers’ can help reveal where opportunity lies.

Hit the Ground Running

hit the ground runningGenerally, the first post-transaction step is for new owners to determine what products drive revenue growth and which costs hinder profitability. This may be the time to divest the business of unprofitable products, services, subsidiaries, divisions or real estate. Staff cuts may further be in order. Make sure you keep key players. They may be expensive, but as long as they are pulling their weight and have good relationships, they have value when retooling.

Implementing a longer-term cash-management plan and forecast based on receipts and disbursements are also critical. Owners can manage each line item of the company’s weekly or daily receipts and disbursements in accordance with:

• Profit and loss projections,
• Changes in working capital, and
• Major debt and capital expenditures.

With a strong cash-management plan and a thorough evaluation of accounting controls and procedures, buyers should be able to identify lost revenue opportunities, such as unbilled services. This plan can also help buyers determine where they might be able to cut costs.

Mapping the Future

Buyers should ensure that accounting and reporting systems are producing the data necessary to run effective management reports. If these systems don’t accurately capture all company transactions and list all assets and liabilities, company leaders will be unable to fully pursue opportunities or respond to potential problems.

One troubled manufacturing company, for example, wasn’t tracking future purchase commitments. When the new owner took charge, it prepared and circulated among managers a comprehensive commitment and contingency report that helped senior management renegotiate the terms of the customer agreements.

Because the task may seem overwhelming, it’s easy for new owners to focus only on the business’s day-to-day operations. But a strategic plan that maps the path toward revenue growth and improved cash flow is necessary. Buyers may find, for example, that the company’s best revenue-producing assets aren’t reaching customers and that their potential could be realized with a more sophisticated marketing campaign or bigger sales staff. Macro- and micro-level planning is equally important.

Return to Profitability

Only a small window of opportunity is available to realize a turnaround’s potential. To take full advantage of it, buyers must get up to speed on the acquisition’s products, departments, delivery systems, staff and overall operating systems as soon as feasible.

Insurance specialists can also be used in a risk-management role, evaluating company insurance coverage and claims. Auditors may be useful for interviewing accounting personnel and financial statements to verify their accuracy. Finally, private investigators can research the backgrounds of key executives for possible fraudulent activity and misrepresentations.

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Keys to Negotiating a Successful M&A Deal

Keys to Negotiating a Successful M&A Deal  Whether you’re buying or selling a business, a few guidelines can help you negotiate a deal more effectively and improve your chances for an advantageous outcome. While you’re probably already familiar with basic negotiation strategies, most parties to an M&A transaction can use a refresher course when it comes to what may be the biggest deal of their lives.

Know Yourself

Good negotiators start by knowing themselves. Before you enter into sale negotiations, take time to identify your goals and your tactics for achieving them. If you’re buying, what’s your “reservation price”-the most you’re willing to pay? Would you be able to walk away from the deal if the seller refuses to budge on price?

If you’re selling, similar questions apply:

  • What’s the lowest offer you’ll accept?
  • Are you in a hurry to sell?
  • What conditions will you require as part of the sale?

For example, the retention of certain employees may be a priority. Also be prepared to speak confidently about your business’ strengths and address any perceived weaknesses. Since the buyer’s negotiating leverage emphasizes your weaknesses, you need to be aware of them and ready to provide a solution that mitigates an adverse effect on the buyer’s offering price.

Know the Other Party

Knowing the other side is as important as understanding your own priorities. This knowledge allows you to map out the negotiation ahead of time. As a buyer, you should have a thorough understanding of the business-gained through extensive due diligence.

If you’re a seller, it’s essential to know that your buyer can afford to purchase the business and, if the deal will be seller-financed, how well the company will be run while the note is being paid off. It’s also helpful to learn if your buyer has looked at many other businesses. Buyers who know they have other options if your deal falls through will probably drive a harder bargain.

Gathering knowledge involves more than research; you also need to be a good listener.

If you’re talkative by nature, make an effort to speak less and listen more when meeting with the other party. The better you understand them, the greater chance you have of anticipating their moves and preparing counter offers.

Build a Relationship

There are plenty of opportunities for differences of opinion in any business transaction, and a business sale is no different. Establishing a cordial relationship can go a long way toward reducing misunderstandings or unintended offenses. Social occasions such as dinner or a golf outing can break the ice. Expressing interest in the other party’s opinion and a sense of humor also can help build a good working relationship.

Going back on your word, exaggerating points or misrepresenting facts in an attempt to strengthen your position, on the other hand, can damage goodwill. Finally, don’t try to box the other party into an untenable position-it’s a tactic that’s likely to misfire.

Flexible is Vital

Selling a business is a complicated process, of which price is only one component. When entering the negotiation stage, keep in mind other items that are subject to bargaining:

  • Down payment amount;
  • Interest rate on a seller loan;
  • Collateral;
  • Seller warranties;
  • Earn-out provisions;
  • Non-compete agreements.

Also consider the structure of the deal-whether the company’s stock is being acquired, or just its assets. In general, sellers prefer a stock sale and buyers prefer an asset transaction, which provides better cash flow after the deal.

Good negotiators take advantage of the multifaceted nature of the process by remaining flexible throughout. This may mean compromising on some elements to get the ones that are most important to you, such as those related to financing terms, the closing date, employee retention or seller warranties.

With so many moving parts to consider, flexibility can get you past obstacles. If you’re hung up on a tough issue-say, the price of a particular asset-try putting it aside temporarily, moving to less controversial points such as the price of other assets, and then circling back later.

Creative Deal Structuring

CREATIVE DEAL STRUCTURING: EARNOUT AGREEMENTS

Acquisition talks are proceeding smoothly. Then the subject of price comes up. The buyer thinks the seller’s asking price is based on overly optimistic financial projections. The seller believes the buyer’s valuation of his company is far too low. Is the deal dead? Not necessarily. An earnout agreement can help resolve the dispute when a buyer and seller disagree about the seller’s business prospects. They are especially useful when dealing with the unknown — when the target is young and unproven, or it is emerging from a difficult financial situation. In short, earnouts offer a way for the parties to bridge expectation gaps.

business dealUnderstand the benefits

In an earnout, a buyer makes a partial, upfront payment to the seller. With the payment comes a promise to pay the rest of an agreed-on amount if the target meets certain pre-established goals. Meeting these goals generally results in a higher price for the seller, while falling short of the goals may result in a lower price. A well-designed earnout carries advantages for both parties. For instance, the buyer can initiate a transaction with a relatively modest amount of cash. It also can avoid the risk of paying too much for a company unable to deliver on overly optimistic financial projections. Finally, an earnout can help make the transaction more valuable by significantly motivating the seller to achieve its promised results. The seller, meanwhile, can use an earnout to help negotiate a better asking price. An earnout can be particularly helpful when the seller believes that the company’s future results are likely to be much better than its current ones.

Structure the agreement solidly

Whether an earnout succeeds can depend on how well it’s structured. An ill-considered and vague agreement can turn a dispute over valuation into a dispute about the agreement itself. A common problem is drafting an earnout that covers an inadequate period. When this happens, the seller may try to quickly boost its earnings, even at the expense of the company’s long-term financial health. By expanding the earnout period, the buyer can collect more data to evaluate the target’s financial performance. Many experts say an earnout should reflect at least a year’s worth of results and perhaps as much as three years’ worth. Keep in mind, however, that the seller’s business becomes increasingly influenced by the buyer’s management — setting the stage for finger-pointing if the seller fails to meet the earnout’s terms. The earnout also should include the right measures of financial success. Gross sales figures provide one popular measure because they’re more difficult to manipulate than net sales. Net earnings, though a good long-term measure, are subject to many variables and can be misleading over a short period.

Achieve consensus quickly

Even the best-structured earnout needs occasional monitoring. A good way to keep the agreement on track and minimize the potential for later disputes is to include a provision for periodic audits. Audits help reassure the buyer that the target is using appropriate accounting methods and operating its business professionally. A poorly conceived earnout will fail to achieve a consensus between buyer and seller, who may interpret the same facts in vastly different ways. Thus, earnouts often include a dispute-resolution mechanism, such as arbitration, which can be a less expensive alternative to litigation.

The VR Transaction Process: 20 Steps To A Successful Sale – Part 1

With over 30 years of experience in selling small to medium enterprises (SME), VR has developed a dynamic and effective Transaction Process to promote a win/win outcome for both Buyer and Seller.  Over the next two blog entries, we shall be sharing with you the 20 Step VR Process to Selling your business.  Here are the first 10 Steps to a successful sale:

1.     Initial Meeting:

The initial meeting serves as an introduction to VR and explanation on how VR can help maximize the value of your business and answer any questions. During this meeting your VR Intermediary will ask to review your business tax returns, company financials, brochures and sales materials, and any other pertinent information to understand your company.

Read the full article here.

6 Strategies to Surviving a Tight Credit Environment

Tight CreditTightened credit conditions are almost inevitable when the economy slows down. The cost of credit rises and lenders naturally become more risk-averse. There’s no way to get around the reality of tighter credit markets, but certain strategies can help your business survive – and even grow – during the downturn.

Consider these six strategies:

Keep lenders in the loop. Communicate proactively and frequently with your lenders, instead of waiting until you have an urgent need or problem. Keep them abreast of your company’s strategic plans and share your successes. But also let them know as soon as possible about potential issues. Your lenders are likely facing increased scrutiny themselves, and will feel more comfortable knowing you’re keeping them in the loop about how your company is doing.

View the full business article here.

VR Waukesha, Wisconsin Closes Two Transactions Valued at 7.7M

VR Business Sales | Mergers & Acquisitions, the leading business brokerage and mergers and acquisitions company in the world announced  today that the VR office located in Waukesha, WI has completed facilitating two unrelated transactions worth over $7.7M of market value.
The first transaction, valued at $3.7M was concerning a metal fabrication company and involved a recapitalization. The second larger transaction came about rapidly after a Private  Equity Group took interest in a manufacturer of Skid Steer Attachments and negotiations settled on a $4.4M price tag.

More Successful Transaction By VR Business Brokers

SUCCESSFUL BUSINESS TRANSACTIONS

Ground-Route Transportation Business

VR Business Sales of New Haven, Connecticut, a leader in the sale of privately-held companies, recently facilitated the strategic sale of a ground-route transportation business for $628,000.

The transaction, which closed last month, was handled by William Hall, a business intermediary specialist.

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Eco-Friendly Dry-Cleaning Plant

VR Business Sales of Greensboro, North Carolina, a leader in the sale of privately-held companies, recently facilitated the strategic sale of an eco-friendly dry-cleaning plant for $192,500.

The transaction, which closed last month, was handled by Ben Haines, a business intermediary specialist.

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NEW BUSINESS ENGAGEMENTS

Two Independent Compounding Pharmacies

VR Mergers & Acquisitions, located in West Palm Beach, Florida, announced it has been engaged by an owner of two independent compounding pharmacies to assist in facilitating the sale of their businesses.

These two full service pharmacies do both retail of over-the-counter and prescription medication as well as medical equipment such as wheel chairs, hospital beds and CPM machines. Go to the VR Web Site for further details.

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Pizzeria and Sports Bar

VR Business Brokers, located in Bensalem, Pennsylvania, the leading business intermediary firm in the area, has recently been engaged to assist in facilitating the strategic sale of a pizzeria and sports bar in Philadelphia.

This business is located in a busy neighborhood where the locals like to come for a good time. Great opportunity to enjoy the success of this restaurant. All inventory and equipment, as well as liquor license, come with the sale. Click here for more details.

ADDITIONAL ENGAGEMENTS

Superior Printing Company, FL: $1,225,000
Auto Salvage Yard, KS: $409,000
Liquor Store, CA: $235,000
Full-Service Day Spa, SC: $170,000
Upscale Print Shop, ON: $120,000

VR is celebrating over 30 years as the world’s only network of full-time professional business intermediaries that addresses the needs of small and mid-sized businesses.

VR has sold more businesses in the world than anyone®.

VR Business Franchise locations are available throughout U.S., Canada, and Europe.

Now is a Great Time to Become Part of VR Franchise Opportunity.

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