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Buying or Selling a Florida Business
"For every good business, there are multiple buyers," says Pensacola business broker Bill Gibson. Not every business for sale in Florida is a good business, however, and it takes work to separate the wheat from the chaff. A few basics:
Where should I look? Business owners who sell their own companies advertise in newspapers, business publications and trade magazines. A buyer will find a wider range of businesses for sale, however, by contacting a business broker.
Members of the Florida Business Brokers Association (FBBA) use a multiple-listing service similar to that used by residential real estate brokers. Typically, about 1,600 businesses are listed at any one time. Limited information (type of business, county, selling price, down payment, gross sales and owner's benefit) on each listing is available through FBBA's Web site (http://www.fbba.com).
How much money does it take? Gibson, the Pensacola broker, says a rule of thumb is that if a buyer wants to buy a business for $250,000, he or she must have a net worth equal to that amount. To cover the down payment, the buyer's liquid assets must total 35% to 50% of the sale price.
Who will finance the rest? In most cases, at least part of the sale is financed by the seller, with payback expected in three to five years. Banks may lend some money, typically 50% of the value of assets, and the Small Business Administration's Certified Development Corporation/504 loan program may provide long-term financing for the purchase of machinery and equipment.
What's a fair price for the business? "Most sellers are trying to hit the lottery with their business," says Gary Henrion, president of National Business Consultants in Fort Myers. That means a buyer should expect to vigorously negotiate the price and terms of the deal. In general, the larger the down payment, the more leverage the buyer has in reducing the final sales price.
Orlando business broker Franco Ferrari gives a general guideline for Florida buyers interested primarily in purchasing a business based on how much income it generates for the owner. He says that a seller typically wants to get three times the business' earnings potential, a buyer wants to buy at two times the earnings potential, and they often split the difference. Nationwide, Ferrari says a business often sells for about 50% of its gross sales.
How long will it take to close the deal? After negotiating the sale price, the biggest hurdle is the due diligence, which can take several weeks.
... And If You Want To Sell
"The seller sells for one reason only, to make money," says Jacksonville broker M.B. Ben Ossi. Indeed, for many sellers the business has been their life's work and their major asset. What price the business commands will determine whether the business owner has a comfortable or a bare-bones retirement.
How much should I ask? There's no easy answer because buyers value companies in different ways. A strategic buyer interested in a business in order to enter a new market, for example, might pay more than a financial buyer looking just at the business' earnings power. It's better to try to value a business based on its potential rather than past performance, but that's often difficult. Allen C. Ewing & Co., an Orlando-based investment banking firm that works with businesses priced from $500,000 to as much as $50 million, cites three common ways of valuing a business using more readily available historical information: a multiple of earnings or cash flow; a multiple of gross revenues; or a multiple of net assets or book value. Ewing's free publication, "Selling Your Business" (407/423-2525 or http://www.allenewing.com) gives more details.
Why should I work with a broker or investment banker? Confidentiality of the sale is the key reason most business owners don't sell on their own. If a business' employees and suppliers know there's an impending sale, they may get nervous. If a competitor knows, he'll likely take the opportunity to lure away customers. "Just like any ongoing business, you wouldn't want to put a for sale sign in front of it," says Pensacola business broker Gibson.
How should I find a broker? In Florida, a third-party selling a business must be a licensed real estate broker. There's no requirement that the broker have experience in business sales, however, so sellers must choose carefully. Look for membership in a trade group, such as the Florida Business Brokers Association or the International Business Brokers Association, or an indication that the broker is a "Certified Business Intermediary."
How much will a broker charge? The fee is negotiable, but a typical business broker's commission is 10%.
Business Issues
On Their Mind
Forget the credit crunch of the early 1990s; forget the problems of global competition. Florida business leaders say the number one problem facing their companies is finding and managing people. That's one finding of a recent survey of 229 CEOs of Florida small and mid-sized companies by the Florida chapter of The Executive Committee (TEC). Some details:
Forty-one percent of Florida CEOs cite "people" as their number one business concern. Other key issues are profitability 18%; competition 12%; sales 11%; regulations 10%; and capital 5%.
The top problem facing Florida today is education, listed by 51% of respondents. Crime (22%) is the state's next most important problem, followed by drug abuse (5%) and immigration issues (5%).
Customer service, employee training and marketing are the three strategies cited most often by CEOs as the single greatest reason for their business success, with 17%, 16% and 13% of responses respectively. Only 5% of CEOs say hard work and determination made the most difference in their success.
On some issues, business leaders were in agreement: 96% favor a capital gains tax cut, 92% favor a balanced budget amendment and 92% are optimistic about their own business for 1997.
As for the 71% of CEOs who said they don't understand the role of Enterprise Florida, the state's public-private economic development group, we suggest they read "Can Florida Compete?" the cover story in November's Florida Trend.
SBA Small Biz Briefs ...
Since the Florida/NASA Business Incubation Center opened in August, seven start-up businesses, making everything from software to a soap dispenser that doesn't require contact, have taken space at the 10,000-square-foot facility. Sponsored by NASA's Kennedy Space Center, the state of Florida's Technological Research and Development Authority and Brevard Community College, the facility helps early-stage technology businesses with marketing and technical advice. On-site businesses pay $50 a month for a furnished office, including electricity. The cost for off-site businesses is $100 per year.
At Home Professional, a new Brandon, Florida-based publication for home-based businesses, began publishing in October. The magazine will come out six times a year and be distributed nationwide. For information, call 813/681-3996. ... Small Biz Briefs Continued
The Small Business Administration's 8(a) program for socially and economically disadvantaged businesses now accepts computerized applications from corporations (http://www.sbaonline.sba.gov). Applicants will learn within 15 days whether they qualify for the program, which helps minority-owned businesses obtain federal contracts for goods and services. For now, sole proprietorships and partnerships must apply on paper.
Miami telemarketers Michael and Teri Chierico will pay $1 million to settle Federal Trade Commission charges that their four companies conned small businesses into ordering over-priced office and cleaning supplies. The Chiericos, who didn't admit wrongdoing in the agreement, were targeted in "Operation CopyCat," a joint federal, state and local government crackdown in July.
Finance
A Winning Team
When entrepreneurs go looking for money, they pitch their businesses as the next Microsoft or Boston Market if only they could get a $50,000 or $100,000 loan or investment. Most often, financiers turn them down. "Where most companies are falling short is that 80% of the thrust of what sophisticated investors look at is the team that is going to implement the plan," says Linda Chandler, a Fernandina Beach-based entrepreneurial consultant.
Far too many entrepreneurs looking for capital don't have a management team, says Chandler, author of the recently published "Winning Strategies for Capital Formation" (Irwin Professional Publishing). To remedy that, she recommends:
Create an advisory board of directors. They should be people of proven accomplishment in five areas: feasibility, manufacturing, distribution, marketing and management. Chandler says that typically, board members will get some equity participation in the company.
Put as many of those key board members as possible into the company. Chandler believes there should be a mixture of leadership styles, ages and cultures. "Take the blinders off as far as generations," she says.
Chandler says that Florida entrepreneurs have a wonderful resource at their disposal with the pool of retired executives and quasi-retirees in their 50s and 60s who have been downsized and burned out and have come to the state. She says, "In this group are people who are not only ?angels' but are interested in taking an active role in companies."
Franchises
What's In A Name?
From Mailboxes Etc. to Miracle-Ear to the ubiquitous McDonald's, franchises are everywhere and their popularity is on the rise. In the best situations, franchises offer entrepreneurs a less risky way to operate a business. "You have someone up there holding your hand," says Sue Schmidt, who with her husband, Bob, ran a Dairy Queen franchise in Iowa and, most recently, an American Speedy Printing Center franchise in Fort Myers.
On the other hand, if the franchise doesn't have name recognition, doesn't offer much training and has a shaky financial history, there's not much to offer a prospective business owner. As with any investment, it's important to learn as much as possible about a franchise by reading all documents thoroughly and talking to current and former franchisees.
Although Florida, unlike some states, does not regulate the sale of franchises, the U.S. Federal Trade Commission (FTC) has specific requirements. Franchisors must give potential franchisees written disclosure documents, often called offering circulars, and allow at least 10 days for review. The FTC's tips are detailed in the free publication "A Consumer Guide to Buying a Franchise," (202/326-2222 or http://www.ftc.gov).
Some advice:
Franchisor's history: Examine the executives' overall business backgrounds and their experience in running a franchise. Look at prior litigation involving the franchise and whether the franchisor or any of its executives have been in bankruptcy. Have an accountant review the franchisor's financial statements.
Costs: Know the total investment required. In addition to an initial franchise fee, there are often other costs to rent a site and purchase inventory. Some franchises also require royalties based on a percentage of the business' gross income as well as payments for advertising.
Training and support: Assess whether the franchisor's initial training and ongoing support will provide the necessary skills for running the business. Find out how many employees are eligible for training. Compare the instruction to that of other franchises in the same industry.
Terms of the deal: Look at restrictions on what products and services you can sell and to whom. Understand when a franchisor can terminate the franchise and under what conditions you can sell it.
Earnings Potential: Franchisors are not required to make earnings claims. If they do, they must provide written documents that substantiate claims. Examine carefully.
