Survey Of Business Buyers Indicates Now May Be A Good Time To Sell Your Restaurant Or Retail Business

A recent world wide survey of business buyers, sellers and brokers reveal some positive information about the market for small businesses for sale. You can read the results HERE

There is some good news for business sellers - especially if you are in the retail or food sectors. The survey shows that there is more demand for these types of businesses among buyers than there is supply.

Click Here for the summary of the survey - you'll find three different pdf files at the bottom of that page that analyze the results.

I would be curious to know if your views match those of the sellers that were surveyed. Especially if you are in the food or retail sector - have you found a solid group of buyer out there for your business?

Selling A Business - Common Mistakes

Here is an interesting article about 3 common mistakes business owners make when they sell their company.

I think every seller needs to pay particular attention to mistake #2. " set an asking price that's too high in relation to documented income and then claim the price is right because actual income is higher than reported"

I have to agree with the author that any buyer who is naive enough to believe the seller when the brag about how much extra profit they make "off the books" is likely to be a failure once they buy the business. More likely though is teh chance they have no money to buy a business in the first place.

The lesson here is that you asking price must be justified with facts not promises.

Here's the article, let me know what you think:

Selling A Business - Common Mistakes

How To Sell Your Business - Questions & Answers

I've started a new section on my site that allows business sellers to submit a question specifically about their situation. Then we answer it online. The Q&A format is a great way to learn from other's experience. Here is a recent question one business owner sent in.

What Multiple Do I Use For A Hotel/Resort w/ Conference Center, Golf Course & Restaurant

Our business is a golf and beach resort with about $72 M in gross rev. includes condo resort rental pool, restaurants, golf courses, conference center, tennis and other amenities. EBIT is about $4.7M. What multiple of EBIT are typically used for a business like ours?

The Answer

I don't think multiplying EBIT times a multiple is the best thing to do in your case. There are two reasons for this.

1.) With a resort/hotel, the real estate accounts for a seizable share of the business' value and a multiplier would not be helpful for determining it's value.

2.) Your business is made up of several different operations - hotel, conference center, golf course, restaurant etc. A single multiplier will not apply equally to all of them.

Placing a value on this type of multifaceted operation is more complicated than most other businesses, but I will give you some guidelines to help you get started.

In other industries, you may be able to value a business with multiple revenue generating units by valuing each unit separately and then added them together, But with your business, all the secondary revenue generators probably feed off the resort/ hotel, so it is with the hotel that any valuation must begin.

Fortunately, hotel industry groups constantly compile and update detailed statistics on a host of operational metrics. Therefore, comparative analysis is a good method to start with when valuing a hotel or resort. Using comparative analysis at the start will give you a much more accurate price range to begin your valuation with than the "EBIT X Multiplier" method.

I say "at the start" because the industry standard for valuations of this type of business is to use the discounted earnings method. But to get a general idea of the price range for this business the comparative analysis approach is quicker, easier and cheaper.

A few examples of the the type of data that is collected by the industry are:

*occupancy rates *room expense ratios *restaurant and banquet revenue-to-expense ratios *average room rate

"Average Room Rate" is a key calculation that goes into valuing a hotel. The formula for calculating it is standard in the industry and recommended by the "Uniform System Of Accounting For The Lodging Industry", published by the American Hotel and Motel Association: www.AHLA.com

The formula for average room rate is:

Net Room Revenue/Number Of paid Rooms Occupied = Average Room Rate

Also important is the "Room Expense Ratio" which is total room expense/total room revenue. In most cases you want to see room expenses equal to no more than 25% of room revenue.

These ratios will give you a good idea of how profitable the hotel can be and are an easy way to make comparisons to other similar hotels that have been sold in your region.

The "Uniform System Of Accounting For The Lodging Industry" provides additional revenue information on hotels like yours that include food and banquet facilities.

Go here to read more questions and answers about How To Sell Your Business

Business Buyers - Telling The Good From The Not So Good

The other day I talked about the fact that 90% of the people who say they want to buy a business never do.

So how can you tell up front if someone is part of the 90% or the 10%?

Well, there is no way to know exactly but here are a few behavioral traits that distinguish the two.

** They ninety-percenters focus almost exclusively on money while the ten-percenters focus on money AND the dream/idea/challenge of being in business for themselves.

** The ninety-percenters want a "turnkey" business that they can put on cruise control while the ten-percenters want a business they can improve, build and make their own. Ten-percenters are looking for a good business they can make better and are willing to work hard to accomplish that.

** Ninety-percenters think they should be paid handsomely from day one while the ten-percenters are willing (and prepared) to cut back on their lifestyle and expenses for as long as it takes to pay for the business.

The good news is that even if just 10% of prospects are good prospects, that's still enough prospects for you to sell your business.

The important point here is that you don't want to waste all your time trying to please the 90% who aren't going to buy.

And you don't want to waste your time trying to turn a ninety-percenter into a ten-percenter.

Too many sellers make the mistake of trying to please everybody. They try their hardest to paint a rosy picture of easy money for little work. They brag about how their business is a "turnkey" operation. And all for a bargain basement price.

To the 90% of non-buyers, this is just what they are looking for. To the 10% that are educated, prepared and qualified, it sounds too good to be true.

The best way to ferret out the real buyers from the 90% who can't or won't buy, is to treat everyone like they are part of the 10%. Here's how:

1.) Describe your business in the best possible light without going overboard .

2.) If there are opportunities for growth explain them to the buyer in detail so he understands. Don't settle for generalities about how easy it will be for the new owner to "explode profits".

3.) If, along with these opportunities are challenges and the need for hard work and sacrifice, say so.

4.) If you have made mistakes that have hurt growth and earnings admit to those mistakes.

If your prospect responds by showing real interest in the inner workings of your business and the opportunities it presents then you probably have a good buyer. If their only response is to ask for a price discount along with 100% financing then you know you don't have a buyer.

The bottom line is that even though only about 10% of the prospects out there are good ones that is still enough good prospects - after all, you only need to find one. But you can't afford to waste time with bad prospects.

So stop trying to please the 90% who aren't going to buy anyway. It's amazing how quickly these prospects lose interest once you are honest about what it takes to run a business successfully.

The high quality prospects however, know that there is no free lunch and are not going to be impressed when you present a situation that is too good to believe. So don't even try.

Sell Your Business Tips, Hints & Techniques: Enter your name & e-mail address below and each week I'll send you tips, advice & ideas you can use right away to help sell your business faster and for more money. (Click Here For More Info About Selling Your Business Tips)

Small Business Buyers - The Few That Actually Buy

A few weeks back I wrote about what really motivates someone to want to buy a business.

If you recall, the biggest reasons where not money. They where psychological reasons like wanting to control one's own fate and to experience more freedom.

Yet it seems like most of the material out there on how to buy a business focuses on money (I'm probably as guilty as anyone so I'm not pointing fingers).

So, to maximize our chances of successfully selling a business we need to have a better understanding of buyers and why they are interested in owning a business in the first place.

The 90% Rules

Here are some facts about business buyers that one study after another has shown to be true for a long time:

** 90% of people who respond to business-for-sale ads never buy anything

** Of the 10% that actually do buy a business, 90% of them are first time buyers.

** 90% of buyers don't know what kind of business they want (or they are at least open-minded about considering several different kinds of businesses).

** 90% of buyers are looking to replace a job. They will not be passive investors. Instead, they will be showing up every day to run the business.

** 90% of buyers don't have enough money to pay cash for the business so their purchase will be financed. And 90% of those buyers get the financing from the seller. So, about 81% of sales are financed by the seller.

Since 9 out of 10 people who respond to an ad do nothing, it means the 10% who do actually buy are part of a special minority.

To this special minority, the idea of owning a business is more important than the specific type of business.

More than how much money they can make, it is all those other benefits that you must sell to the buyer. After all, if all they want is money they can stay in their present job.

It's the things that they can't get at a job - the chance to control their own destiny, the pride of ownership, the opportunity to create something that is uniquely theirs - that will motivate them to take that leap of faith necessary to go into business for themselves.

(And remember, 90% of buyers have never been in business for themselves before so you have to keep reminding them of the fun and satisfaction they will get from being their own boss. Just because you, as a business owner, know the benefits don't assume the buyer does)

The 90% who never buy anything either don't have any money or they have the money but they don't have the guts. While I would say more than half of the do-nothings don't have the money, a surprising number do have it. But they are scared off by the reality that owning your own business is hard work.... and risky.

That's why you never want to whitewash how hard you work, or the difficulties you deal with as part of running your business. The do-nothings will be turned off by it, but the real buyers won't care - they want and need the benefits of business ownership more than they want or need a cushy work schedule or a guaranteed paycheck.

If you try to paint a rosy picture of quick money for little effort, the buyer isn't going going to believe you anyway.

If you work 60 hours a week, including most weekends, tell the buyer the truth. If that is what it takes to make your business work, the buyer needs to know that.

Otherwise, you will be selling your business to someone who will be unprepared to succeed. And if you are in that 80% of sellers who finance the sale, you will be lending your money to someone who is going to fail.

Sell Your Business Tips, Hints & Techniques: Enter your name & e-mail address below and each week I'll send you tips, advice & ideas you can use right away to help sell your business faster and for more money. (Click Here For More Info About Selling Your Business Tips)