18 Feb Around the Web: A Week in Summary
The following information has been sourced by Business Brokerage Press for the benefit of the business brokerage community. The views of these articles do not necessarily represent the views of Business Brokerage Press. We hope you find this information helpful.
A recent article from The Business Journals entitled “3 phases of selling your business successfully” offers advice for business owners considering an exit in order to maximize value and be happy with the sale.
When approaching the sale of your business, consider the following three-phased strategy:
- Preparing to sell your business – Start this process 2-3 years in advance. This involves setting goals, assembling your deal team, identifying present value and implementing measures to increase value.
- Selling your business – Lean on your deal team to navigate you through this journey. Consider your updated value and the status of your buy-sell agreement.
- Living after selling your business – What’s next for you and how will you use the funds from the sale?
A recent article from Richmond Times-Dispatch entitled “Ask SCORE: Buying a business is a big decision, but follow these tips when conducting due diligence” discusses the importance of due diligence and what to consider when evaluating a business for sale opportunity. Buying a business is a huge decision, so it is best to approach it with care.
Key questions to consider when conducting due diligence include:
- Why is the owner selling?
- Is the business financially sound?
- Is there any pending litigation?
- Will the owner provide all pertinent documents?
- Is there stability in the staff?
- What is the reputation of the business?
- What payment options exist?
A recent article from Mercer Capital entitled “All EBITDA Is Not Created Equal” explores the popular performance measure EBITDA or earnings before interest, taxes, depreciation, and amortization. EBITDA is a measure of discretionary cash flow available to the current owner or a new owner.
EBIDTA has five basic uses: pay interest, pay taxes, capital expenditures, repay debt and distribute to owners. The quality of a dollar of EBITDA can vary depending on how much of that dollar is allocable to taxes and capital expenditures.
If taxes and capital expenditures consume a smaller portion of EBITDA, that leaves a larger portion to benefit shareholders in the form of paying interest, repaying debt or distributing to ownership. This scenario may result in a higher value. So to drive value, focus on improving EBITDA margins.