Frequently Asked Questions

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How Do I Find A Business To Buy?
Dec. 27, 2012
The fact is every business eventually sells or dies...

This means every business you come across will eventually have to face this reality.

Another fact: for businesses that are worth buying there are MORE Buyers than Sellers.

Very few Buyers want to buy a business that is potentially headed for disaster. Most Buyers search high and low for a business that has strong history, a great market presence with a unique niche, great staff, the who's who of clients, and year after year of reliable profits. Nice idea but to date no one we know has found one, let alone convinced the Owner to sell that business.

As you make the decision to buy a business, it would be beneficial for you to complete real soul searching to develop a sense of the type of business you would like to buy. Is it retail, or manufacturing? Do you need people to run the business for you, or are you an expert in

Seller versus Buyer
Dec. 27, 2012
Every situation has two sides. What is the difference between the Seller and the Buyer?

It’s this simple:

Seller’s priority: To get the best deal possible (highest price with fastest payout).

Buyer’s priority: To get the best deal possible (lowest price with longest payout).

Strategic considerations when Buying a Business from a Competitor
Dec. 27, 2012
As a competitor you have several choices for how to pursue and successfully complete the process of buying your competitors business. As business people we all like to think that everything is available for purchase for the “right price”. The truth is there are some cases where you do not want to buy your competitors business for any price. Competition inevitably means one party wins and one party loses. If there is a strong history of antagonism between the Buyer and Seller, there is only a very small chance a successful deal can be negotiated. Even the initial discussion can lead to venting the hard feelings over clients “stolen or bought” away, ideas for competitive advantage that seem to have mysteriously been discovered before the roll out, or staff that has been “chicken hawked” away. The successful process to buying your competitors business must consider both sides of the transaction.

The truth is when your Competitor is Selling his business to you, his Competitor, the process is full of dangers to that business and typically has almost no consequence to the Buyer. As the intelligent Buyer you should consider the real meaning of that challenge. Before you say yes, here is the check: they have to show you everything about what they do and how they do it. Many people underestimate the RISK associated with this solution for buying your competitors business. By the end of the Due Diligence process you will know your Competitors clients, staff, profit margins, their “secret herbs and spices”, their future upside, and you still have the ability to walk from the deal. This all spells MAJOR RISK to your competitor. When buying your competitors business an intelligent Buyer must find deliberate ways to reduce that risk to increase the chances of successfully completing the deal. MAXIMA has worked through this process a number of times and has developed proven processes to reduce that risk by keeping the playing field level.

Strategic considerations when Buying a Business from a private Owner
Dec. 27, 2012
While a business worth buying may be the challenging to find, there are a number of ways to successfully work through the process of buying a business from a private owner. First priority is to become aware of opportunities. This may include:

1. Letting your network know you're looking. While people rarely take out a full page ad to say "I have had enough, I want to sell my business" they do talk with their friends.

2. Search through the internet and work your way through the many forms of data listing services, brokerage listings etc. While this can be frustrating and time consuming, the process is all part of becoming more aware of what is going on in the marketplace.

3. Talk to different Business Brokerages. Typically they will be listed in the Yellow Pages and easily found on the internet.

4. Be prepared to answer some qualifying questions. Brokerages get calls every day from someone looking for the perfect business for sale. When the Broker asks what sector of industry you're interested in, if you say “oh, don't know” or “oh, don't care as long as it makes money”, you will be moved to the “flake section” of the database; don't hold your breath waiting for a call back. When the Broker asks you about the dollar value of a deal you're looking for, you should know how much cash you have, how much access you have to a credit facility, and a rough estimate of the deal size. To save all the discussion on EBITDA or NET or Normalized Adjusted NPBT for another day, simply have an basic idea of your target range. i.e.: a transaction value of $5M or less. While it is safe to assume the target business should have some self-financing capabilities, this early in the process the Broker wants to know what radar screen you're on.

5. Ask the Broker what radar screen their firm typically work on. If 5 of the last 6 deals the brokerage completed were less than $1M, regardless of the one deal for $2M, you know what radar screen they are on. If the last 5 deals were over $20M you know who you're talking with. The last 5 deals MAXIMA has completed were between $4M and $10M, which is our radar screen. We have also built deals in the $20M-$30M range.

6. Another strategy is to engage a firm like MAXIMA to locate a business that fits your target profile. For a Work Fee to cover the time it takes to complete all the research and leg work, and a Success Fee on closing, MAXIMA will save you literally HUNDREDS of hours and complete the modeling, cold calling, qualifying, introductions, and will locate a business worth buying.

Strategic considerations when Buying the Business you work for - Management Buyouts
Dec. 27, 2012
It is not unusual for existing personnel to be interested in taking over and buying the business they are part of. Your plan for buying a business should include a number of logical steps, calculations, and homework. While every company is somewhat the same they are also somewhat different. Your process to buy a business should include:

1. Having an independent Business Valuation completed to clearly and fairly state the Fair Market Value of the business. This eliminates room for misunderstandings and "best guesses" or "I feel, because..." When the business owner and the management see an independent business valuation document, all parties are working with the same facts. There is still room for some tweaking adjustments like working capital, cash purchase verses some vendor carry however the business valuation will demonstrate a clear range of value.

2. Another key concern when buying a business from your employer is the process of determining where does the funding to pay out the exiting owner comes from. Buying a business from your boss typically includes determining how much financing the boss is willing to carry for some future payout. As the person buying the business you need to understand this creates increased RISK for the Owner. It is important to understand and be prepared to work with the fact the owner will need to have ability to protect his investment if the business starts to wander from the course it has been built on. Management buy outs definitely can work, however both sides need to be well prepared for the challenges and time frames to complete the process. In the end, both sides have to agree to a win-win model or the deal for buying the business will create significant grief for both the Buyer and the Seller.

Strategic considerations when Buying the family business
Dec. 27, 2012
Think about this; statistically there is a 75% failure rate for second generation owners. . However, as a second generation Buyer, you will most likely know this business better than any other business you would consider buying.

To initiate the process all parties should come to an agreement on the value of the family business. We strongly recommend you invest in an independent third party valuation. This eliminates the "best guess" and the "I feel it should be worth this much because we spent so many years building it" estimates. While the list of factors is quite long, when considering buying your family business you have to determine how you will fund the transaction: how much is outside financing, how much is family financing, and the consequences of both kinds of payments on cash flows over the payout period. You need to carefully consider the potential risks of the loss of the business before you have fully paid out your family and the impact of that reality on both you and your family's future. It is critical you work through the process of coming to agreement on what your role will be after you all sign off on the deal, and how other family members will exit the day to day operations of the business. This process has to include risk mitigation issues like your name being placed on guarantees, security agreements etc. MAXIMA has an effective process to work with all parties to establish a formal mutually agreeable business model to complete the buying the family business transaction.

Strategic considerations when selling my business to a Competitor
Dec. 27, 2012
1. Your Competitor operates in the same marketplace you do. They know the culture, the currents, the challenges, and the opportunities. Any sale they don't get, you (as their competitor) do get. As a competitor you literally make them work for all their marketplace goals. While anyone would initially think of a Competitor as the perfect buyer for your business, there are many good reasons why they are the Buyer of last resort. The last project you bid you were competing head to head, and now you're going to open up your business for their full inspection hoping to get a fair offer to get you out of their marketplace.

2. No Confidentially Agreement will keep your competitor from telling someone you’re considering selling. If they tell their key staff, it is only a matter of time before they tell someone else. If they tell their Board it is only a matter of time before they tell someone else. If they tell the funders it is only a matter of time before they tell someone else. This is not a risk to them; it is a risk for you!

3. Over the years MAXIMA has seen the following challenges come up when the process of selling your business to a competitor is not properly managed:

4. Suddenly your key employee gets an offer to work somewhere else. Because that employee was shocked to hear (from the competitor) you were selling the business, now he has to wonder what the new owners will be like and he takes the job he would not have considered before.

5. With that key employee exiting to your competition there goes the knowledge base your business has been developing for years. Or suddenly that strategic plan you and your team had been developing is no longer a surprise and your advantage of “first to market” is gone.

6. That big project you were bidding on suddenly starts stonewalling you. You check into why and find out they are aware your selling and they want to work with someone they know, and they don't know who will buy your business.

7. That cornerstone client you have been servicing for years suddenly gives notice. They explain their relationship is with you, not the pending new owners of the business. Once you're gone, they will go out to someone who has been chasing them for years...

8. We have even seen a competitor advise the Vendors' bank they were potentially selling the business. The banker had not been advised of this and proceeded to cut their credit line and called their loan.

9. On the other hand, your competitor might be the perfect Buyer. How can you find out the interest without revealing your hand? And then how do you have that competitor somehow share the risk? Good question, ask us – we deal with competitor reality every day.

Strategic considerations when selling my business to a Corporate Buyer
Dec. 27, 2012
1. Corporate Buyers are generally knowledgeable at buying a business. They know what they are looking for, what their mandate includes, and ways and means to structure the best deal for their corporation. The best transaction will include buying your business for the lowest purchase price.

2. Buyer representatives may earn bonuses based on the gap between fair market value and what they manage to negotiate below that price. You need to know what your business is worth when selling the business.

3. On other hand, some Corporate Buyers make it a point to review as many businesses for sale as they can. Even if they know that business does not fit their mandate. This provides them with a firsthand view of what is going on in the general marketplace with no risk to them. This can consume a lot of time, energy and resources for you. Qualifying the Buyers goals are a critical part of the process of selling your business.

4. Strategic Buyers have the ability to pay top dollar for a business which meets their corporate mandate or demonstrates strong synergies. This means the right Buyer will pay a premium for a company that achieves his goal. (This is commonly called “leveraging”.) You need to learn what that goal is as early in the process of selling your business to a Corporate Buyer as possible.

5. Corporate Buyers also have many transaction models. For example: some Corporate Buyers want to merge your business into their clients’ business. Some Corporate Buyers want to own control and start adding other products and services into your business. Or perhaps the Corporate Buyer is looking for a struggling company to roll into another operation or cut up and flip. Any strategy may be appropriate however you need to understand the Corporate Buyers goal as you negotiate your deal structure.

6. Whatever the strategy of the Corporate Buyer, you need to develop a sense of what that strategy is as early in your negotiation process as possible.

Strategic considerations when selling my business to a Fund (i.e.: equity fund)
Dec. 27, 2012
1. Funds typically have expert Buyers who are looking for the best deal built around what works out best for the fund.

2. Funds typically have ability to pay more cash down on closing.

3. Funds are usually very solid financially and tend to complete valuations in the higher range of the valuation scale.

4. When a Fund is buying your business the Fund is buying “return on investment” not risk. This typically means the business model going forward has the least amount of changes from the historically proven model. They look for clients to stay on, staff to stay on, and in many cases negotiate longer term work out agreements with the business owners.

5. Funds will apply sophisticated analytical models to your business which is more likely to find reasons not to compete the deal rather than confirm your business for sale is the one to buy. For example: one fund group from Vancouver looked at over 200 companies before completing a purchase.

6. Most funds operate under a larger amount of fiduciary responsibility and are highly accountable to their shareholders. This means the paperwork, financials, inventories, and general documentation throughout the process will pass through many levels of scrutiny.

7.Successfully selling your business to a Fund requires considerable planning, preparation, consistent negotiations, time, and resources.

Strategic considerations when selling my business to a Private Buyer
Dec. 27, 2012
1. Private Buyers may be less experienced in the process so will tend to work in a series of steps rather than a process. This may lead to significantly longer deal times.

2. Private Buyers typically sit in two camps: one is where the private Buyer is looking for a company with a long history of profitability and low risk. The other is where the private Buyer is looking for a good company which is financially challenged. The private Buyer feels they know how to make the changes necessary to make the business profitable once they negotiate a substantially discounted price.

3. Longer deal times means you may be bound by a “no shop” clause while you're waiting for the Buyer to make up their mind! This can keep your business off the market.

4. Private Buyers tend to look for larger portions of Vendor Carried Financing.

5. Private Buyers may not fully understand your business model and business operations which will lead to a more hands on roll for you as you train them in the business. That extra time needs to be factored into the deal structure early in process to avoid misunderstandings later in the deal cycle.

6. Unsophisticated private Buyers tend to try to negotiate down the price throughout the deal cycle, and particularly in Due Diligence cycle. This process must be managed throughout selling your business to keep the deal you end up with similar to the deal you agreed to in the Letter of Intent.

7. Importantly, most private Buyers are simply looking to build a fair and reasonable deal where all the stakeholders win. This process should be managed in a way that addresses the priority of all parties.

Which method of selling your business is of most value to you?
Dec. 27, 2012
1. Selling my Business to family: Statistically 75% failure rate for second generation owners. When selling your business to your family you have to consider the consequences of payments over a longer period of time and potential risks of the loss of the business before you're fully paid out. It is critical you work through the process of coming to agreement on what your role will be after you all sign off on the deal, and how you exit the day to day operations of the business. This has to include risk mitigation issues like your name coming off guarantees, security agreements etc. MAXIMA has a proven effective process to work with all parties to establish a formal “fit for purpose” sale of business model to complete the sale.

2. Selling my Business to employees - Management buyouts: While many times existing personnel are interested in taking over and buying the business, the challenges start with the Buyer looking for a "good guy" discount; “after all I have worked here and helped you make this business what it is so I should get a discount”. Another key concern when selling your business to your employees is the process of determining where the funding to buy you out comes from. How will the employees come up with the funding and the collateral for the deal? This typically includes determining how much vendor financing you will carry after the sale and the risks involved. As the business owner you need to have the ability to protect your investment if the business starts to wander from the course you have built. Management buy outs definitely can work, however both sides need to be well prepared for the challenges and time frames to complete the process.

3. Selling my Business to a Competitor: Many Business Brokers feel this is the easiest solution. Selling your business to a Competitor can result in the highest price, but is full of risk to you and has little consequence to the Competitor. You have to show them everything about what you do and how you do it. Generally business owners underestimate the risk associated with this solution for exiting your company. By the end of the Due Diligence process that Competitor will know your clients, your staff, your profit margins, your “secret herbs and spices”, your future upside, and still have the ability to walk from the deal. This all spells MAJOR RISK! When selling your business to a competitor you must find deliberate ways to reduce that risk. Over its ten year history, MAXIMA has managed competitor acquisitions with proven methods to reduce our clients’ exposure to risk.

4. Selling your Business to a Non-Competitor: While a Buyer outside your market space may be the most challenging to find, they represent a market that will pay fair market price (or higher). An outside Buyer knows they have to provide a clear model to have you paid out in the appropriate period of time. MAXIMA has developed proven channels and means to find quality Buyers, including international Buyers. Typically this market carries the lowest risk to vendor/owners of the business.