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William Bruce is a business broker, an Accredited Business Intermediary and a Senior Valuation Analyst with Sunbelt Business Brokers of the Southeast.
He currently serves as president of the American Business Brokers Association.
William Bruce is a graduate of Auburn University with a degree in economics and business administration. He has served as a bank director, as chairman of his city’s airport and industrial authority and on several state and national boards of professional, business and civic organizations.
Additionally, William Bruce has owned and managed several businesses of his own. His business brokerage experience ranges from small retail shops to large manufacturing plants.
MO: How has your rich and varied business experience helped you hone your skills and instincts as a business broker?
William: I think the best business brokers come from a varied business background. Probably most important is the prior ownership of a small to medium size business. This definitely gives you a leg up when talking to business owners who want to sell and also to individuals who want to become business owners.
In my case, I’ve also been fortunate to have served as a bank director which exposed me to many types of businesses with their unique problems and successes. You learn a lot in that position.
Service as chairman of my city’s industrial development board also was a valuable business experience. In that position, you’re recruiting businesses. But you’re also judging businesses who want to locate in the city and demanding all sorts of incentives to do so. You learn pretty quickly how to separate the real from the illusory.
MO: What tips can you provide to our readers when it comes to valuing their business? Are there any measures that they can take to increase the value and make it more attractive to buyers or investors?
William: First, clean up the business books. And in computing owner’s discretionary cash flow (the most important determinant of value), be able to identify expenses that are not necessary to the operation of the business (ie: expenses that are personal in nature that a new owner of the business would not inherit). Each dollar in non-necessary expenses that a business owner can identify will add $2 to $3 dollars to the value of the company.
For my article on how to use rule of thumb guidelines to estimate the value of a business, please go to http://williambruce.wordpress.com/2010/08/13/what-is-a-business-really-worth/.
Also, I might mention that business owners must be realistic about the market value of their company. Some business owners, I have found, have unrealistic expectations about the value of their company. It is the market that determines the value, not the seller. Significant and growing discretionary cash flow is the most important driver of value in a small to medium sized privately held business.
MO: On the flip side, what advice would you give to someone looking to purchase a company? What key elements should they be looking for?
William: The prospective buyer should dig into and understand the books of the business. Does the business produce enough cash flow to provide the new owner a living wage and pay back the money borrowed to buy the business.
Also, he / she should also consider what new products, services, technology or savings they could bring to the business to increase revenue and profits.
The prospective buyer should also recognize that confidentiality in the sale and acquisition of a business is extremely important. If word gets out on the street that the business is for sale, nothing good for the buyer or seller happens. Key employees start looking around, fearing that the new owner may not keep them. Suppliers get nervous and may not ship to the business. Customer may start looking around and shopping elsewhere.
For my article on how to analyze a business, please see http://williambruce.wordpress.com/2010/08/24/how-to-analyze-a-business-you%e2%80%99re-considering-buying/.
MO: Can you expand on how the recovering economy is creating more mergers and acquisitions opportunities and what the means to potential investors?
William: First, the recovering economy means that business acquisition financing is becoming more available. It dried up during the Great Recession.
Business owners who held off selling their businesses during the recession (because valuations were depressed and acquisition financing was non existent) are now coming into the marketplace. Additionally, the leading edge of the Baby Boomer generation turns age 66 this year, and a lot of them are business owners, now at retirement age. These two factors mean that a lot of quality businesses with long term track records are going to be available shortly.
For potential investors, the market situation for 2013 might be compared to a kid in a candy store.
MO: What is Master Franchising and who should consider it?
William: Sometimes called regional franchises, a master franchise is a special type of franchise agreement that gives an entrepreneur the exclusive rights to sell or open a given number of franchises in a large geographical area.
Stated another way, it is the owning of the rights to develop a franchise system within a territory. The territory can be a metropolitan area, an entire state, several states or a whole country.
This system may be one of the least known business ownership opportunities available today. The master franchise model allows the entrepreneur to build a large business operation within a relatively short period of time with a concept that has already been developed by the franchisor.
Individuals who should consider this type investment are entrepreneurs or corporate executives with the necessary capital and management talent. The investment in this type of franchise may be large, but the rewards can far exceed those of other franchise or business ownership opportunities.
MO: What are some of the main reasons that buying/selling agreements fall apart and how can these issues be avoided?
William: There are reasons this happens, and once understood, many of the worst mistakes can be avoided.
What keeps a sale from closing successfully? In a survey of business brokers across the United States, similar reasons were cited so often that a pattern of causality began to emerge. According to BizBuySell.com, the nation’s largest small business marketplace, the following is a compilation of situations and factors affecting the sale of a business:
The Seller Fails To Reveal Problems. When a seller is not up-front about problems of the business, this does not mean the problems will go away. They are bound to turn up later, usually sometime after a tentative agreement has been reached. The buyer then gets cold feet. Again and again, business brokers surveyed said: “We can handle most problems… if we know about them at the start of the selling process.”
The Buyer Has Second Thoughts About the Price. In some cases, the buyer agrees on a price, only to discover that the business will not, in his or her opinion, support that price. Whether this “discovery” is based on gut reaction or a second look at the figures, it impacts seriously on the transaction at hand. The deal is in serious jeopardy when the seller wants more than the buyer feels the business is worth. It is of prime importance that the business be fairly priced.
Both the Buyer and the Seller Grow Impatient. During the course of the selling process, it’s easy–in the case of both parties–for impatience to set in. Buyers continue to want increasing varieties and volumes of information, and sellers grow weary of it all. Both sides need to understand that the closing process takes time. However, it shouldn’t take so much time that the deal is endangered. It is important that both parties, if they are using outside professionals, should use only those knowledgeable in the business closing process. Most are not. A business broker is aware of most of the competent outside professionals in a given business area, and these should be given strong consideration in putting together the “team.”
And None of the Above. The situations detailed above are the main three reasons cited as to why transactions fall apart. However, there can be problems beyond anyone’s control, such as Acts of God, and unforeseen environmental problems. However, many potential deal-breakers can be handled or dealt with prior to the marketing of the business, to help ensure that the sale will close successfully.
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