2013 recap & pricing

HOW TO CLOSE MORE DEALS AND

EARN MORE MONEY IN 2014

BBF CENTRAL CHAPTER TRAINING

JANUARY 15, 2014

BY LOU VESCIO, CBI, M&AMI

2012

BBF SOLD DATA

Average Median

Sold Price $235,114 $130,000

Discretionary Earnings $105,305 $75,000

Discretionary EarningsMultiple

2.022 (2.53) 1.431 (2.26)

Price/Sales 49.4% (73.4%) 36.7% (59.5%)

900 BBF Members sold 867 Businesses

Average Days on Market was 242

Currently have 2963 Listings

2013

BBF SOLD DATA

Average Median

Sold Price $240,948 $125,000

Discretionary Earnings $113,472 $75,743

Discretionary EarningsMultiple

1.827 (2.534) 1.644 (1.930)

Price/Sales 53.3% (62.6%) 40.6% (49.4%)

938 BBF Members sold 899 Businesses

Average Days on Market was 226

Currently have 3007 Listings

CURRENT LISTINGS

At the end of 2012

• 2963 Listings

• 374 had a DE <= $0.00 • 2589 had DE > $0.00• 1989 have a DE >= $50,000• 1107 have a DE >= $100,000

At the end of 2013

• 3007 Listings

• 368 had a DE <= $0.00• 2639 had DE > $0.00• 2021 have a DE >= $50,000• 1172 have a DE >= $100,000

106 sold in 2013 of which56 - Restaurants or Bars

SALES BY PRICENo. Sold % of Total Cumulative %

0 to 25,000$ 41 4.6% 5%

25,000$ to 50,000$ 124 13.8% 18%

50,000$ to 75,000$ 120 13.3% 32%

75,000$ to 100,000$ 100 11.1% 43%

100,000$ to 125,000$ 76 8.5% 51%

125,000$ to 150,000$ 72 8.0% 59%

150,000$ to 175,000$ 34 3.8% 63%

175,000$ to 200,000$ 54 6.0% 69%

200,000$ to 225,000$ 16 1.8% 71%

225,000$ to 250,000$ 36 4.0% 75%

250,000$ to 275,000$ 22 2.4% 77%

275,000$ to 300,000$ 25 2.8% 80%

300,000$ to 325,000$ 9 1.0% 81%

325,000$ to 350,000$ 16 1.8% 83%

350,000$ to 375,000$ 15 1.7% 85%

375,000$ to 400,000$ 7 0.8% 85%

400,000$ to 425,000$ 10 1.1% 86%

425,000$ to 450,000$ 14 1.6% 88%

450,000$ to 475,000$ 5 0.6% 89%

475,000$ to 500,000$ 11 1.2% 90%

Sold Price Range

43% of all deals sold for $100K or less

26% of all deals sold between $100K-200K

90% of all deals sold for $500K or less

2013 DONE DEALS BY DE

More of a “Sale of Assets”vs

Sale Based on Cash Flows

“Sale of Assets” means the “Assets

Sold” are valued at 75% or more of

the Purchase Price

SOLD VS

CURRENT LISTINGS

Current Listings

DE Range Avg Sold Price Non Sold DE Multiple % Sales DE Multiple % Sales No. DE Multiple % Sales

$75K - 100K 149,636$ 130 2.10 58% 1.75 50% 116 3.07 91%

$100K - 125K 209,598$ 79 2.26 75% 1.87 63% 57 3.49 93%

$125K - 150K 227,698$ 61 1.85 60% 1.65 54% 61 2.90 103%

$150K - 175K 306,679$ 34 2.17 63% 1.86 54% 42 3.96 129%

$175K - 200K 315,442$ 32 2.08 55% 1.67 44% 28 3.31 84%

$200K - 225K 432,717$ 23 2.23 56% 2.02 51% 29 2.96 92%

$225K - 250K 430,556$ 9 2.07 51% 1.84 45% 20 2.85 67%

$250K - 275K 593,899$ 16 2.61 71% 2.26 63% 12 2.24 58%

$275K - 300K 576,250$ 12 2.49 56% 2.01 45% 8 2.72 92%

$300K - 325K 644,666$ 9 2.31 58% 2.09 47% 6 5.80 151%

$325K - 350K 689,111$ 9 2.43 77% 2.02 63% 5 5.31 142%

$350K - 375K 958,867$ 6 3.06 54% 2.63 47% 6 2.01 42%

$375K - 400K 670,286$ 7 2.03 49% 1.74 41% 1 3.44 37%

Listed Sold

v

2013

BBF SOLD DATA

53.2% of all sales in 2013 were generated from these industries:

Lawn Biz 4.0%

Restaurant 23.5%

Liquor Related/Bar 5.2%

Real Estate - Prop Mgmnt 5.6%

Coin Laundry & Dry Clean 4.6%

Beauty/Barber Shop 5.5%

Business Services 4.8%

LAWN BIZ DETAILS

36 Lawn Businesses were sold in 2013

Avg Price $147238

Median Price $60500

Avg Listed Mult DE 1.54

Avg Sold Mult DE 1.28

Avg Listed Price/Sales 72%

Avg Sold Price/Sales 60%

82 Lawn Businesses Currently Listed



83%

RESTAURANT

DETAILS

211 Restaurants were sold in 2013

Avg Price $156,904

Median Price $97,500





628 Restaurants Currently Listed



82%

LIQUOR

RELATED/BAR

47 Liquor Related/Bar businesses were sold in 2013

Avg Price $240,595

Median Price $165000





138 Liquor Related/Bar Businesses Currently Listed



82%

REAL ESTATE

RELAT-PROP MGT

50 Real Estate/Prop Mgt businesses were sold in 2013

Avg Price $194,906






33 Real Estate/Prop Mgt Businesses Currently Listed



98%

LAUNDRY &

DRY CLEANING

41 Laundry/Dry Cleaning businesses were sold in 2013

Avg Price $152,229






75 Laundry/Dry Cleaning Businesses Currently Listed



84%

BEAUTY -

BARBER SHOP

49 Beauty/Barber Shop businesses were sold in 2013

Avg Price $97,215






174 Beauty/Barber Shop Businesses Currently Listed



82%

BUSINESS

SERVICES

43 Business Services businesses were sold in 2013

Avg Price $167,152






30 Business Services Businesses Currently Listed



87%

BBF BROKER SUCCESS

• BBF Brokers sell about 10-15% of their listings

• Current Listings

• The current average listing is 3.76 x DE

• The current average listing is 92% x Sales

• 2013 Sales Data

• The average sale in 2013 was 1.827 x DE

• The average sale in 2013 was 53.3% x Sales

PRICING A BUSINESS

Steps to good Business Pricing

• Education – Need to know how to do it!

• Proper Recasting of Financial Statements

• Use Good Comparable Sales Data

• Common Sense

• Sanity Check

PRICING A BUSINESS

Where to get an Education on Pricing

• IBBA 210: Analyzing and Recasting Financial Statements (16 hours)

• IBBA 220: Introduction to Pricing Small Businesses (8 hours)

• IBBA 221: Pricing Small Businesses – Level 2 (8 hours)

• IBBA 224: Pricing a Business to Sell (4 hours)

IBBA 210, 220, 221 will be offered in Orlando, FL on April 6 - 9, 2014 http://ibba.org/events/summit

RECASTING FINANCIALS

Purpose of Recasting Financials

1. Undo the owner’s tax strategy

2. Make adjustments that will impact the new owner

RECASTING FINANCIALS

Recasting – Common Problems

• “Owner to Prove” & “Owner Estimate” are not real financial statements and are suspect

• Must Convert Cash Method to Accrual Method

• Can only add back one owner – make market adjustments for other owners

• Use owner’s W2 salary as the add-back for owner’s comp

• Banks will accept owner’s comp (W2), depreciation, amortization and interest add backs – others may be suspect

• Don’t forget adjustments the new owner will experience –increased rent, replacing underpaid family employees, necessary annual replacement costs, etc.

COMPARABLE SALES

Direct Market Data Method

• Most common method used by brokers to determine the Most Probable Selling Price (MPSP)

• Relies on good comparable sales data

• For main street businesses – eliminate outliers - DE multiples under 1.0 or over 5.0

• All comparable sales databases have errors

• The more data the better – but should have 10-12 data points as a minimum

• Try to “bracket” the target business – Sales plus or minus 20-25% for accuracy

COMPARABLE SALES

Where to find Comparable Sales

• BBF Database – exclusive for BBF Members

• BizComps – free access if you contribute sold data

• IBA database – Must be an IBA member

• BizBuySell - free access if you advertise & contribute sold data

• PeerComps – pay site – only includes deals that sold with SBA Loans – (most accurate)

COMMON SENSE

Your Time is Valuable - Don’t let bad Sellers waste your time

• Is the owner ready to sell• Is the owner committed to sell• Will the owner provide you the data you need prior to

listing (Tax Returns, P&L’s, Sales Data, etc.)• Are price expectations reasonable• Are terms expectations reasonable (will they hold any

paper)• Have all owners agreed to sell – (corporate resolution)• Has the spouse agreed to sell – (spousal agreement

letter)• Don’t waste time on “open listings”

SANITY CHECK

Develop Your Own Price Sanity Check

• Do the Price and Terms provide a living wage for the buyer after debt service

• If the DE drops 10-20%, will the buyer be able to pay the debt service and pay his bills (banks use a debt coverage ratio)

• Is there an acceptable return on the total investment (average business sells for a 37.5% ROI)

• Is there an adequate return on the invested capital (ROE typically 40%+)

THINGS TO AVOID

Broker prices a business for $200,000

• Seller agrees to price, but wants all cash

• Business will not qualify for an SBA Loan

• Seller will not agree to hold any paper

What should the Broker do?

• Have a frank discussion with the Seller –explain the “business brokers facts of life”

CASH SALE VS.

FINANCING

Assume a buyer has $200K in cash to invest.

A. Can buy a business for $200K in cash

• Probable cash flow is ~$100K

• No debt service

• Earns about $100K per year

B. Can make a $200K down payment on an $800K business (25% down)

• Probable cash flow is ~$250 to 300K

• Debt service* ~$112K/year

• Earns a minimum of $138Kper year after debt service

*$600K financed at 8% for 7 years

Which is a better deal?

SELLER FINANCING

Why use Seller Financing?

• Expands the pool of qualified buyers

• Seller can negotiate a higher price

• Seller earns interest on the note

• Seller holds a lien on the business

• Buyer signs personal guarantee

Improves the probability of selling

BEST DEAL

STRUCTURE

Selling with an SBA Loan or other 3rd Party Lender

• Increases the pool of qualified buyers• Best deal for Seller• Better quality business for the Buyer• Easier business for Broker to Sell• Higher probability of closing the deal

Typical Deal structure

• Buyer Down Payment = 25%• Third Party Lender Loans 50 - 75%• Seller holds paper for the balance (0 – 25%)

SBA DEALS SELL FOR

MORE MONEY

Restaurant (Limited Service) Comparison

Sales

BBF Multof DE

(All Comps)

BBF Multof DE

(TR & P&L)PeerCompsMult of DE

$500,000 1.8936%

2.239%

2.7459%

750,000 1.9138%

2.4244%

2.7548%

$1,000,000 1.9136%

2.4242%

2.7550%

Use the Proper Comps for SBA Qualified Businesses

LISTING SUGGESTION

Since we never know exactly the price a business will actually sell at:

• Price the business for where you think it will sell (MPSP)

• List it for that price on the listing agreement

• Advertise it for 10-15% more to leave room for negotiations

• Sometimes it is possible to sell it above the MPSP making the Seller happy

• Commits the Seller to selling at the MPSP on the listing agreement

SUMMARY

To make more money in 2014

• Get Educated – Learn to price businesses

• Use the proper comparable database

• Develop your own Sanity Check

• Don’t overprice a business just to get a listing

• Educate your Seller on deal structure –Seller financing key to getting deals done

• Try to get listings that are SBA qualified

• Don’t take bad listings that waste your time

SUMMARY

Make 2014

Your Best Year Ever

Thanks for Your Time

Lou Vescio

[email protected]

(321) 255-1309

2013 recap & pricing

Business

Transcript of 2013 recap & pricing