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Private Company Valuation Methods and an Important Rule of Thumb

May 1, 2020

The situation in our world right now is changing quickly. Consumers, communities, and businesses of all sizes are experiencing significant economic and social impacts. Businesses are scrambling to address the crisis by making adjustments to their workforce, operations, supply chain, and strategy in an attempt to maintain continuity.

Right now, many private companies have had to make some tough decisions and are looking to sell or merge their businesses, quickly.

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Although the circumstances are not ideal, this is a good time for those with the capital to invest in private companies but they need to move quickly.

If you are looking to invest in private entities, you need to know the company’s economic value to determine if it is worth the time and effort.

Simply put, a company or business valuation is a set of processes used to determine a company’s net worth. This is easily done with public organizations because all you really need to do is look at the stock price.

Determining the valuation of a private company isn’t quite as straightforward because their stock value is not available to the public. Their accounting and reporting standards are also not as strict as their public counterparts so financial statements often are unstandardized or inconsistent.

For the reasons above, we have decided to put together this overview of private company valuation methods.

Method #1: Comparable Company Analysis (CCA)

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The Comparable Company Analysis (CCA) is the most common method used to estimate the value of a private firm and assumes that similar companies with more financial information available in the same industry will operate with similar multiples.

Multiples are measurement tools that evaluate one financial metric as a ratio of another in order to make companies easier to compare. The two main types of multiples are Equity Multiples and Enterprise Value Multiples. Enterprise Value Multiples are the most common multiples used in mergers and acquisitions.

Enterprise Value Multiples are also called EV/EBITDA ratios or EBITDA multiples. They compare the value of a company (including debt and other liabilities) to the actual cash earnings.

To apply this method, the target firm’s size, industry, supply chain, operations, etc. are taken into account.

You then need to establish a group of companies that have equivalent characteristics. The multiples of these companies are then collected to calculate an average.

This – and all of the methods on the list – do take some research and if you are new to private equity investments, it can get fairly involved. Analysis may uncover that a company is overvalued or undervalued when using this method.

Method #2: Discounted Cash Flow (DCF)

The Discounted Cash Flow (DCF) method estimates the value of a business based on future cash flows. DCF analysis finds the present value of future cash flow using a discount rate i.e. interest rate.

Investors use this concept to determine whether the projected outcome is equal to or greater than the value of the initial investment.

If the value calculated is higher than the current cost of the investment, this signals a good opportunity that should be considered because it will yield positive returns.

Applying the Method

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First, applicable revenue growth rate must be calculated for the target firm. This is calculated by determining the average growth rates of the comparable firms that are publicly traded.

Those averages are then used to generate projections for the target firm’s future cash flow (CF) by evaluating assumed revenue, operating expenses, taxes, etc.

The investor must also determine an appropriate discount rate (r), which will vary depending on the industry. Many analysts use the weighted average cost of capital (WACC) as the discount rate.

To find WACC for a comparable public firm, cost of equity, cost of debt, tax rate, and capital structure will all need to be determined. Cost of equity can be calculated by using the Capital Asset Pricing Model (CAPM). Cost of debt generally depends on the target firm’s credit profile, which will affect the interest rate at which it incurs debt. Refer to the company’s comparable public peers to find the industry norm of tax rate and capital structure.

After you have all of this information you can then determine the DCF of your target firm using the formula below:

DCF = CF1/(1+r)1 + CF2/(1+r)2 + CFn/(1+r)n

  • CF is the cash flow for the given year. CF1 is for year one, CF2 is for year two, CFn = additional years
  • r is the discount rate

If this seems complicated, that is because it is. If you don’t have significant experience in financial modeling, we suggest speaking with a professional.

It is important to note that this method is less common and that is because it is mainly based on assumptions and future cash flows would rely on a variety of factors that are difficult to predict and control like the state of the economy and market demand.

The Most Important Rule of Thumb in Private Equity Investing

Some try to say that there is a “secret formula” to determining if a private company is a good investment, but at the end of the day, you need to go with your gut. The numbers could look great but if you don’t think that the investment is right for you or your portfolio, we suggest looking into other opportunities.

At The DVS Group, we are well-versed in valuation analysis. We have helped many investors structure and negotiate their deals in a fair and reasonable way with our buyside representation services.

Learn More About Our Process
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Risk Reward Ratio and Determining the Value of a Business

April 27, 2020

Understanding the risk-reward ratio is vital for anyone planning to acquire ownership of a business via private equity investment. When acquiring a business as an investment, there are some considerations that need to be assessed before deciding to proceed with the acquisition to ensure your money is protected and that the company you acquire is profitable.

What is a Risk-Reward Ratio?

Risk-reward ratios are used as a measurement of a business’s financial health and indicate whether or not it is a worthwhile investment and will be profitable in the long term.

Although risk-reward ratios are essential for risk management, merely understanding how the risk-reward ratio is calculated is not enough to make a smart investment. An understanding of the industry the company operates in is also needed, and its impact on the risk-reward ratio.

To make a sound decision, investors need to be fully aware of the level of the potential risk they are taking on when they are making a business acquisition. A thorough understanding of the company’s debt level and how that impacts on its potential profit and prospects for further reinvestment in the business needs to be understood.

How Risk-Reward Ratio is Calculated

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There are a few different risk-reward ratio methods used when assessing how good a private equity investment is likely to be. Different investors may have a preference over which method of calculation that they use. However, these are the most widely used methods for calculating an investment’s risk-reward ratio: debt to equity ratio, debt to capital ratio, interest coverage ratio, and the degree of combined leverage.

Risk-Reward Calculation Methods

Debt to equity ratio – Calculated through how much a company is financed through debt versus funds received by the business.

Debt to capital ratio – Calculated by taking a company’s debt and dividing it by the total capital.

Interest coverage ratio – Calculated by the number of times that a company can cover it’s annual interest payments for debt through its current earnings.

The degree of combined leverage – Calculates the financial and business risks of a company’s earnings per share as a result of increased or decreased sales.

Businesses with a lower debt to capital ratio and lower debt to equity ratio are the preferred choice for investors. Companies with higher debt to capital ratios and higher debt to equity ratios are seen as a less attractive investment opportunity as they offer little security or reassurance of a company’s long term profitability.

Risk-reward for private equity investments applies similar rules as those used in trading stocks and shares. Investors use the ratio to manage how much capital they are investing and manage the risk of loss. Using the ratio also helps investors to calculate how much return they can expect from the money they invest and will help to show how risky the investment is.

Determining the Value of a Business

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No one wants to spend more than they need to acquire a business. Therefore, calculating the value of a company is essential. It is crucial to remember that the value of a business will change over time, so finding a data-based, objective way to establish its value is ideal, rather than relying on the price that the seller wants to charge.

The value of a business is influenced by both internal and external factors, which means that the value can fluctuate by conditions both in the business’s control and those that it has no control over.

Internal factors such as investment in the future of the business and management changes can influence the value. External factors such as the economy or changes to the legislation can also impact value.

There are three main approaches used to calculate the value of a business: the asset approach, the income approach, and the market approach.

Asset approach – the asset approach calculates a company’s value based on its assets and liabilities. However, this approach overlooks assets that aren’t tangible and therefore, almost impossible to value things like patents, intellectual property, and reputation.

Income approach – the income approach to business valuation is based on a company’s cash flow minus the legitimate expenses that it incurs. Looking at a few years of the company’s cash flow information and taking an average will help you to estimate the business’s future earnings.

Market approach – the market approach is based on comparison and determines a business’s value based on data from companies operating in the same or related industries. This offers a reliable method of valuing a business as it is based on real-world examples of what a business is realistically worth.

Using the Market Approach to Evaluate Industry-Specific Investment Risks

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To gain a thorough understanding of a business’s potential profit versus its potential risk, it is essential to understand the industry in which it operates. This can be achieved by examining comparable companies operating in the same industry for guidance and utilizes the market approach to business valuation.

Investors that are considering the acquisition of a private company can refer to publicly traded companies in the same industry or that provide similar offerings and use this to evaluate the risk of their potential investment.

To ensure that the prospective investment will provide a worthwhile return, a risk-reward ratio can be seen in these similar businesses over the timeframe that you plan to hold onto the company before selling it to realize their return.

This information is extremely valuable in the decision-making process for business investments, as it takes objective data from the real world as the basis of the decision-making process.

Whether you’re an individual looking to acquire a business, the experts at DVS group can help you every step of the way. If you are ready to get started, call us at (913) 701-3475 or use the contact form to set up a consultation. You can also click below to view our Acquisition Workbooks and resources.

Check Out Our Acquisition Workbooks!
guide-to-ma-deal-closing-process

Your Guide to M&A Deal Closing and Processes

April 20, 2020

As global competition continues to intensify, growth is at the forefront of many minds in the investment world to increase value and maintain revenue. To be fair, growth has obviously always been at the forefront but digital technology has kicked things into high gear in the last 20 or so years.

 

Many are currently looking to pursue this growth and stay competitive by carrying out mergers and acquisitions (M&A) which can be a challenging feat. However, if you know the processes and work with an investment firm that understands your goals, it can bring in big money.

 

Table of Contents

  • The Stages of an M&A Transaction
  • Coordinating State Filings Before Closing
  • Simultaneous Signing and Closing vs. Deferred Closing
  • Closing Time
  • Post-closing Important Things to Know

Whether you are new to the M&A world or just wanted a refresher on how closing processes work, we are here to arm you with the information you need to prepare for your next big deal.

The Stages of an M&A Transaction

Before we get into the closing process, let’s do a brief overview of the entire transaction. This starts after you have consulted with a firm and have chosen a company to buy that you believe will help you and/or your enterprise reach your financial goals.

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While every M&A transaction is unique, most of them fall into a similar pattern.

  1. Preliminary discussions: Here buyers and sellers engage in informal talks to see whether a transaction is worthwhile. Companies may decide to include representatives consultants but rarely discuss deal structures.
  2. Provision of non-disclosure agreements (NDAs): Here all parties concerned sign a legal agreement to remain tight-lipped about information relating to any upcoming M&A deal.
  3. Letter of intent: If the buyer likes the terms of the deal that have been laid out and wants to move forward with the transaction, they’ll issue a “letter of intent.” This idea here is to write down the structure of the deal formally and set out the terms under which acquisition or merger might be worthwhile.
  4. The pre-signing period
    1. Negotiating the final document: Both sides engage in a final negotiation period with legal counsel, to hash out the terms of the final deal. They may decide to set out the terms in the letter of intent formally, or they may modify or add to those terms in some way.
    2. Completion of due diligence. Buying parties usually want access to more in-depth information about a company at this stage and will circulate a list of information requests to their target. This list might include financial documents, intellectual property documents, and essential commercial contracts.
    3. Population of disclosure schemes: Population of disclosure schemes are a form of insurance for the buyer that provides them with recourse, should the target company fail to disclose certain information, or breach the terms of the contract. This document includes representations and warranties that describe the operation of the firm.
  5. Signing: Signing occurs when both parties agree on the terms set out in the formal purchase agreements. Signing can happen at the same time as closing, but not always – we will discuss this in the next section.
  6. Closing: Closing occurs when both parties are satisfied with the terms of the deal, and money changes hands from the buyer to the target.

Coordinating State Filings Before Closing

For an M&A to be official, you need to file with the relevant state authorities. In the US, not all state requirements are the same, but there are some general guidelines you should follow prior to closing.

Pre-clear Certificates Of Merger

You don’t want to get to the closing date and discover that the state will not accept your Certificates of Merger. For this reason, it is better to “pre-clear” documentation with relevant authorities before completing the transaction.

Use an Updated Charter

Some buyers get into trouble when the charter of the target firm changes, but there are no amendments to the Certificate of Merger. To check whether things have evolved, you should obtain a Good Standing Certificate – a document that will inform you of any alterations to the original text. When possible, date the Good Standing Certificates as close as possible to the date of closing.

Simultaneous Signing and Closing vs. Deferred Closing

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The type of closing process that is carried out can greatly affect the length of the transaction and how much leg work you and your team need to put in to finally close the deal. Here we will take a look at simultaneous signing and closing and deferred closing.

Simultaneous signing and closing

Both parties agree to sign and close the M&A deal at the same time.

Simultaneous signing and closing normally occurs in smaller deals that do not require a premerger notification form (see below), do not need a third-party present, or government approval for completion.

Think of simultaneous signing and closing as using a box of cake mix to bake a cake. It is much faster and easier to complete because you do not need as many ingredients or a full-blown recipe to get a finished product.

Deferred closing

There is a period of time between the signing of the documents and the final closing and exchange of money.

Deferred closing is like the cake you make from scratch. You still get a cake – or a closed deal – but it takes extra ingredients and time to get to the finished product.

There are two common reasons why many M&A transactions are deferred, but it is important to note that there are many other reasons that deals do not simultaneously sign and close.

First, if the transaction value for an M&A deal equals or exceeds a certain amount, a premerger notification filing with the Premerger Notification Office of the Federal Trade Commission (FTC) may be required by law, and the parties must wait 30 days to complete the deal.

This waiting period is subject to exceptions and can be terminated early by the antitrust authorities if there are no competition concerns.

If competition concerns are present, the waiting period may be extended, and the parties can receive a request for additional information and materials. This could easily add several months to a transaction timeline.

The other common reason is that the sale may require a third party or governmental approval, especially in highly regulated industries. The period of time this can extend transactions can vary greatly depending on the situation.

Deliveries on deferred closing – and some simultaneous signing and closing – deals might include things like:

  • Evidence of third-party consents
  • Acquiring legal opinions
  • Ensuring that key employees sign necessary agreements
  • Obtaining government approvals
  • Gaining ancillary contracts with third parties
  • Consent of the board and stockholders
  • A secretary’s certificate affirming that the charter documents of the target company are accurate

Closing Time

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Once all closing conditions are agreed upon, parties will proceed and complete the transaction.

Although we all like the idea of going into a huge board room and signing the contract with a fountain pen that weighs almost as much as a coffee mug, the transaction is usually completed electronically.

If necessary, the buyer will pay cash by wire transfer to the seller’s bank account and/or issue shares of the company.

At this time, a portion of the purchase price might be sent by the buyer to a third party financial institution serving as an escrow agent.

Various closing certificates will also be exchanged and things like transition services or ancillary agreement or employment agreements, might also be signed and become effective.

After this is all complete, the buyer now owns the acquired assets, and the seller has received all of the money from the transaction (unless some is tied up in escrow).

Post-closing: Important Things to Know

You may think that since the transaction is closed that means that the buyer and seller relationship is over, but that is far from the case in most situations.

Initially, the parties will likely cooperate in determining if it is necessary to pay a difference in the purchase price to reflect the actual assets or working capital that was previously agreed upon.

A seller may also provide transition services to help the new owner successfully move into their new position. This could involve anything from a briefing of operations to IT support.

There are many other potential post-closing conditions that may tie the buyer and seller that may remain effective for several years post-closing.

Whether you’re an individual looking to make a change, an executive hoping to make a strategic move, or a professional investor, we bring unique knowledge and skill to every step of the M&A process and provide you with the resources you need to succeed. Click below to check out our acquisition workbooks. If you are ready to get started on your next deal, call us at (913) 701-3475 or use the contact form to set up a consultation.

Check Out The DVS Group Acquisition Workbooks
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How to Sell a Business Quickly and Invest in the Market

April 17, 2020

Right now is an extremely uncertain time for many small business owners. The market is bear, the shelves in stores are bare, and you may have already been toying with the idea of selling your business before but the current situation surrounding the CoronaVirus has pushed you to take action.

Selling a business is no small feat, but it isn’t as difficult as you may think it is – especially if you enlist the help of a professional, experienced team to help you stay on track and find the right buyer.

After you sell, you can take your earnings and invest them in the market. If you weren’t already investing in the market, now is a fantastic time to buy. Let’s take a look at the steps to take to sell your business quickly and why now is the time to take that money and invest in the market.

How to Sell Your Business Quickly: A Step-by-Step Guide

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1. Prepare a Business Summary

A business summary is an overview of your business that tells buyers important information about your business. After potential buyers sign a non-disclosure agreement (NDA) you can send this to them to look over so they can decide if they want to purchase your business as part of a sales strategy.

You should work with a professional to help you prepare your business summary. Professional firms and brokers know what buyers want to see in a business summary and can be objective when putting the summary together – something that can be difficult for owners to do.

1a. Review Accounting Records

Your accounting records show potential value to a buyer based on your firm’s success. To discover how to sell a business fast, create a set of accounting records that includes the following:

  • Accurate, up-to-date records that comply with accounting standards
  • Annual business planning, budgeting, and forecasting
  • Cash flow forecasting and management
  • Metrics and dashboards
  • Industry benchmarks and analysis

1b. Overview of Business Operations

Potential buyers want to know how steadfast your daily operations are.

A buyer (and their consultant) can usually tell if a company has top-notch fulfillment, billing, sales processing procedures and more in place, but why do they care?

There are usually two reasons why it is suggested to include an overview of your business operations in your summary.

  1. Companies who have good operational procedures in place tend to remain competitive in their industry.
  2. Most buyers don’t want to take on the burden of overhauling and implementing processes. Think of it in real estate terms. Many people want a turn-key house that they can move right into instead of a fixer-upper.

Here are some key items that a buyer may want to review:

  • Procedures manual
  • Organization charts
  • Current supplier and customer contracts, employment agreements
  • Documents outlining automated processes

Preparing an effective and thorough business summary is going to give you the best chance of selling your business when reaching out to buyers. This first step is critical and is the foundation for the rest of the steps on our list.

2. Market Your Business to Sell

During summary preparation, you will need to figure out who your ideal buyer is and how you plan to reach them.

For example, many business owners want the buyer to have experience in their industry and advertise their business in publications such as business journals or magazines that industry investors read.

3 Ways to Find Buyers for Your Business

  1. Reach out to them directly through phone calls or email. If your business is valued at over $1 million, this might be the best approach to take. Employ a third party to contact the potential buyers, so you can remain anonymous during the correspondence. If you know someone personally who would be a good candidate to buy your business, you can reach out to them yourself but we highly recommend having a professional help you write up a phone script or email that includes important things you should say.
  2. Advertise throughout your industry. We briefly mentioned this approach above. It includes advertising in trade publications, magazines and other media such as industry blogs that targets your investors. This is typically best for small businesses priced less than $1 million. This is likely the best option for businesses in certain industries that require specific experience, such as medical services or oil and gas engineering. Again, use a third party to help you reach out to publications and sift through inquiries.
  3. Advertise your business sale outside of your industry. This type of advertising includes print, web media such as blogs, and more. There are 15-20 standard websites that brokers use to advertise and sell businesses. Advertising this way can be expensive if you choose to do it yourself and not use a broker. To sell your business as quickly as possible, you want to advertise on as many of these sites as possible, but you should consider the cost of doing so.

3. Screen Buyers and Respond via Email

Most sellers either don’t screen their buyers or do it incorrectly, which is something you absolutely want to avoid.

These days, you will receive most of your buyer inquiries via email. You will need to prepare an email template to use for those inquiries. Use this template to respond to every inquiry even if it is from someone you have met in the past. As we said earlier, we highly recommend you work with a professional broker to field these requests.

Serious buyers almost always ask additional questions and request more information. If this occurs, give them general information about your business and request that the interested party sign an NDA before you provide further information or your business summary.

This will immediately eliminate people who are not serious about buying a business. Buyers who aren’t motivated almost never sign NDAs. We aren’t exactly sure why unmotivated buyers reach out, but their intentions are likely not good.

Keep your NDA  simple and limited to one document. At this point, the goal is to screen buyers to see if they have the motivation and money to buy.

This and the next step are extremely timely. If you take too long to respond, the interested party may not think you are serious about selling and not move forward with the deal. 

4. Meet with Potential Buyers

Email your summary to buyers who sign the NDA and have the motivation and cash to buy your business. Put a number that you can be reached at in the email (your email signature doesn’t count) with a sentence saying that they can reach out to you anytime with questions.

This is a time to practice the “Don’t call us, we’ll call you” adage. Do not call the buyer or email them multiple times to follow up. If a buyer is serious about continuing to discuss buying your business, they will follow up with you.

If the buyer emails you a few questions, answer them. If there is a lengthy list of questions or you notice you have emailed back and forth multiple times, set up a meeting via video conference (in person is not ideal due to COVID-19).

If they persistently ask for more information and won’t meet with you, you may want to move on to your other prospects.

There are no real rules for screening and correspondence with a potential buyer. If you feel that something is off with a potential buyer, talk to your broker, consider their advice, but pay attention to what your guy is telling you.

You can meet with multiple buyers at this time but remember that buyers won’t want to wait around for you to make a decision so try to move quickly.

5. Negotiate and Agree on an Offer

If you didn’t have a professional firm on your side throughout the first four steps of the process, now is the time to reach out to someone. Negotiations can be tricky and something as simple as misspeaking can cost you.

This is when you ask the buyer to make an offer. If they do not make one, they might not be as serious about buying as you thought.

Focus on establishing an agreement between both parties, then you can have an offer drafted. You do not quite need an attorney, yet.

Before you start negotiating, have the buyer submit proof of funds along with the offer. If they are truly interested, they will oblige.

6. Due Diligence and Closing the Sale

In the financial world, proper due diligence requires an in-depth analysis of financial records before entering into a transaction with another party. Click here to view our Due Diligence Request Checklist.

Closing the sale is a routine process. The key to success, again, is preparation.

Prepare for the closing weeks in advance and maintain momentum with organized checklists and timelines.

See Successful Deals from DVS Group
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Business Growth During Coronavirus: A Successful Merger During Chaos

April 13, 2020

Can anyone use a feel-good business story right now?

15 years ago, DVS Managing Partner Kevin Lindsey mercilessly cajoled and harangued a friend, Janine Akers, for about a year into buying a business. “She was so smart, so confident and so driven, it was just so obvious she needed to own and control a business,” he said.

At that time, Janine was also the mother of two daughters under the age of four,  was running a home-based business, and her husband, Bill Akers, had recently bought into Ace Scale Company which was based in a different city. Hard to imagine a better time to make the jump and buy a business and create a dual entrepreneur household, huh?

Building a Business and Completing a Merger During Coronavirus

Eventually, Janine bought DataFile Technologies, a medical record scanning business, that consisted of two scanners, two employees and a handful of customers. There are so many incredible stories about this dual entrepreneur household making it work.

It has been amazing to watch this brilliant, fearless woman grow a small company into an industry leader with over 325 employees. Janine recently completed a successful merger with another industry leader, ScanSTAT Technologies, in the middle of a harrowing business crisis.

“When I first started DVS Group, I was driven by the idea of helping good people buy good businesses and they will do good in the world, which eventually became our why – Make Change Positive,” said Lindsey. “Janine embodies everything our Why and what that stands for.”

Janine was the first deal that was closed while social distancing was in place – which is a bit of a bummer, but we are confident that we will be able to have a real closing celebration soon enough.

Watch our world, as Janine Akers is only getting started!

We can’t wait for the second, third and fourth acts. #nofreelunchcards. You go, girl!

A special thank you to Erik Edwards, Bill Mahood, Steve Munch, Polsinelli, Michelle Brown, Kathryn Rhodes, CBIZ, Frankie Forbes, Forbes Law Group, Vistage.

See More Done Deals From Our Team

SBA Disaster Loan Assistance Program: What You Need to Know

March 24, 2020

Hi everyone-

We wanted to try to put into plain, practical English what we’re seeing out there in terms of information about the SBA Disaster Loan Assistance program. 

If you are a business owner. Here’s what you care about: can you get money RIGHT NOW? Can you get it directly from the SBA right now, with little to no headache? 

At this moment, 3/23/2020: NO. 

The SBA’s Role in the Market

For those unfamiliar with the Small Business Administration’s role in the capital markets, let’s get one thing clear at the top: the SBA usually doesn’t lend money directly.

 The SBA participates in lending the vast majority of the time by sharing some risk with banks on loans that banks wouldn’t otherwise make. That’s the purpose of the 7a and 504 programs; helping BANKS to make loans. 

Banks all over the place are very good at underwriting and funding those loans, because… they’re banks. The SBA mostly just reviews the bank’s work. The SBA doesn’t have the apparatus to lend hundreds of millions of dollars of cash daily. 

The SBA Disaster Loan Assistance: What You Need to Do

The group within the SBA that does lend money directly to borrowers is very small and very much dedicated to natural disaster relief. Think smallish loans for quick cash after hurricanes, tornadoes and earthquakes. 

The SBA’s usually very restricted ability to lend directly has been greatly expanded, yes, but the area where you live must still be declared a disaster area by the governor of your state and then the SBA has to accept that declaration. Then you have to apply for a loan, wait for SBA employees to review it, find out their decision, and then wait for funding. 

This assumes the website doesn’t crash repeatedly. At the moment, given the volume of loan requests AND the fact that most states aren’t even on the SBA Disaster Loan Assistance website as of this writing, we think anyone applying today is several weeks away from getting a check. 

We have spoken with a few seasoned bankers who utilize the SBA 7a program since Friday morning in addition to the local head of the SBDC via webinar. Nobody knows how fast that disaster money can get to people in any meaningful amount. If you’re hoping to get SBA disaster cash next week, you’re going to be disappointed. 

What about this legislation getting moved through the House and Senate at lightning speed to save us? Hit a roadblock last night, to use the journalist’s term. As we’re reading as quickly as we can to keep up, there are some fantastic measures there that, as a small business owner and business broker, put us into touchdown dance mode. But Congress MUST pass the legislation with measures to deputize banks if things are going to start moving quickly. And we just put “Congress” and “quickly” in the same sentence, so you do the math.

So, what now? You need to call your SBA banker. Email them, text, send them a messenger pigeon, you might even be able to fax them too. Whatever you do, get that conversation started. Your bank wants to talk to you. They want to help. If you have a 7a loan you have the opportunity to defer payments and save your cash, but only if you start by talking to your banker. 

Aren’t I at risk of getting in trouble though, you ask? What if the bank decides to call my note at the first sign of weakness? Well this is one of the beauties of an SBA-guaranteed loan. You’re pretty much untouchable if you’re current on your payments. 

Unless you’re 60 days late on paying the bank, they have a mountain of incentives not to endanger their 75% guarantee from the SBA. So, get into a discussion and do it now. If they don’t hear from you, they can’t help you. 

You’re going to have to talk sooner or later. Better be at the front end of outreach and initial planning. You probably have some more time on your hands than you anticipated 2 or 3 weeks ago. 

Stay safe out there and stay positive. 

Got questions? Our team works with SBA bankers all over the country as well as other business owners. We are happy to be a resource to you during these unsure times. Fill out our contact form or give us a call at (913) 713-4156.

 

 

Opportunity Zones and Opportunity Funds

Opportunity Zones and Opportunity Funds

January 31, 2019

Thanks to Robert Drumm for writing this article for us. Robert is an attorney and entrepreneur with 16 years experience in special-purpose real estate finance and development, business transactions, workouts, and day-to-day business operations. He returned to full-time legal and consulting practice after successfully rejuvenating a specialty packaging business serving the craft beverage industry.

Starting in the 1920s, “1031 Exchanges” give real estate investors a way to recycle and preserve capital by deferring tax on gains from the sale of one property by promptly reinvesting it in another. Unfortunately, investors in operating companies have not had a similar vehicle to forestall the tax man. Read more

Much Ado About Little: 2018 M&A Update

November 12, 2018

It’s a great time to be a seller. But, don’t buy all the hype. There’s a difference between what the newspaper says and what you or your clients will experience. It’s not much ado about nothing, it’s much ado about little.

In this update on 2018 M&A activity, we’ll dig into valuations and multiples, interest rates, tax reform, and the fight for talent. The conclusion will look at a few of our first-hand observations.

Remember, as always, everything we cover is in the context of our dealmaking scope. That means we’re talking about companies that are mature (not start-up’s), privately-held, and small- to lower middle market-size (revenue ranging from $1M – $50M). Read more

What is “Closing”? A Dealmaking Timeline from Two Weeks Out to Signing on the Dotted Line

September 18, 2018

If you’re selling your business and the deal’s “Close” is just two weeks away, you’ve gotten through the bulk of it.

But, there are still two weeks left of the dealmaking process and you’re not sure what “closing the deal” actually means. Keep reading to get some practical guidance for items not necessarily addressed in the legal documents, such as “Where should I be, physically, on the day of closing?” Read more

The Ultimate Guide to Private Equity

August 28, 2018

Just like that thing you can’t quite put your finger on – private equity is somehow all over the place and nowhere at the same time.

It’s elusive but you still hear about it over and over again.

You wonder:
What exactly is private equity?
How does it work?
And, does it have anything to do with me and my business?

We’ll cover all that and more in The Ultimate Guide to Private Equity.

Let’s get to it. Read more

Allocating Risk in a Deal - Representations and Warranties

Allocating Risk in a Deal: Representations and Warranties for Buyers and Sellers of Businesses

July 24, 2018

Thanks to Robert Drumm for writing this guest post. Robert is currently an attorney at Van Osdol and has a long history of completing private company transactions. We’re grateful he was willing to share his expertise here. 

Sometimes clients who are involved in their first business transaction are surprised and even frustrated that the lawyers on both sides of the deal devote so much time and attention to “Representations and Warranties” when they negotiate a definitive purchase and sale agreement (the “PSA”).  This part of the PSA might initially seem like wasted words that make the document thicker and the legal bill higher, but they are important. Read more

Deal Documents 101

Deal Documents 101: An Introduction to the Alphabet Soup of CIMs, NDAs, LOIs, and PSAs

June 19, 2018

Thanks to Robert Drumm for writing this guest post. Robert is currently an attorney at Van Osdol and has a long history of completing private company transactions. We’re grateful he was willing to share his expertise here. 

Technical jargon and acronyms are natural to every subject.  Jargon usually makes “insider” communication easier but at the cost of clarity to outsiders.  Investment bankers, lawyers and other business transaction professionals have our own alphabet soup of jargon, and sometimes, without meaning to be rude, we inflict that jargon on our clients: Read more