Case Study 1: Consumer Facing E-commerce Business

Challenge

A B2C E-commerce business was struggling to reset itself after a period of high growth with a combination of high advertising costs and heavy discounting to meet growth targets.  New management was brought in to produce a revised strategy and put the company on a path to profitability.  New management needed a plan and a financial model to show investors an innovative approach which would lead to a sustainable business model.

The Solution

Oak Tree worked directly with the CEO and management team to rationalize the high growth by reducing discounts and bringing ad-spend into line with a targeted improvement in return on ad-spend (“ROAS”).  The CFO provided a financial forecast and pitch deck to demonstrate what a managed growth strategy would look like and achieve for the reconstituted business.  

Outcome

The company received multiple rounds of funding from existing investors.

Case Study 2 – Startup Media Business

Challenge

Well-known and recognized content provider of television content for targeted demographics was leaving her existing employer to establish a full-service studio focused on projects driven by complex and dynamic characters who represent diverse people, places, cultures, and concepts.  She believed that her target community was largely underserved by the large media providers.  She had created a high-level set of projections that potential investors gave feedback that the projections should be more detailed and more in line with what investors expected.

The Solution

Oak Tree was engaged to revise and expand the financial projections to make them more understandable  to investors.  The Consultant worked with the management team to expand and detail both the revenues and expenses.  A three-sheet model was developed to illustrate the implications of investments and to demonstrate how it would positively impact the business and its ability to get up and quickly.

The Outcome

The client was able to present a credible financial forecast for investors and received a much warmer reception to the request for capital.

Case Study 3 – Real Estate Developer

Challenge

Oak Tree worked with a real estate developer who was looking to obtain bank financing for the next stage of his combined commercial and residential development.  The developer did not have a good financial model that clearly communicated the amount of capital that was needed or the speed in which the project could be developed.  The internally developed projections that were not clear or acceptable to the lending institutions.

Solution

Oak Tree developed a detailed financial forecast with clear timing of revenues and expenses.  The Consultant worked with the developer to understand the timing of each segment of the project to allow the lenders to understand the timing of the loans and other investments and the payback periods.

Outcome

The developer was offered multiple loan opportunities and ended up getting cost effective funding from investors based on the model and the project returns.

Consider the addition of an Invesment Banker to your team of professionals when engaging in a Chapter 5 or 11!

A Banker’s experience in a sale can potentially drive a process towards higher valuations:

1. Pre-emptively identify potential buyers with a Debtor
2. Actively pursue potential buyers and get to market quickly
3. Create a competitive atmosphere pre-auction
4. Validate a stalking-horse’s offer (or parties “in-play” prior to banktuptcy)  and determine if an auction is even necessary
5. Conduct an auction if necessary and be prepared to “push for a second auction” if surprise buyers emerge
6. Valuations can increase substantially in our experience if proper techniques are utilized

Let Beechwood work with you through the important decision-making process prior to embarking on a final course of action.

If you want to sell your business, it can be complex to determine where to begin. The sale of a business can be a daunting task that can make someone feel overwhelmed. If selling your business is what you want to do, then this guide can help you plan and get through the sale.

Why do you want to sell your business?

Why have you decided to sell your business? This is a question that it is crucial you have the answer to, because it is one of the first things that any prospective buyer is going to ask you. Many business owners choose to sell because they want to retire, are overworked, bored, or because of illnesses or familial death. Another common reason to sell a business is that there is some sort of dispute with the partnership that currently owns it, and selling is necessary to end the dispute. All of these are easy to explain to a buyer, and they are understandable.

If you want to sell because the business is not profitable, you are going to have a hard time attracting any buyers. You might want to consider spending time working to make your business more profitable before selling it, so you can get more from the sale and have an easier time finding a buyer.

Get your financials organized

When you want to sell your business, one of the first things to do is get all of your financial information organized. If you use accounting software like QuickBooks, spend some time cleaning up your notes and making sure everything is in there. Get all of your financial statements in order, along with your projections and any important metrics related to your industry.

Having books that are incomplete or messy can kill the sale of a business pretty quickly, so take the time to get them all organized beforehand. It might be worthwhile for you to have someone conduct an independent audit of your business’s financials to help make sure your books are in order and to give prospective buyers some peace of mind.

There are a few questions you should ask yourself as you organize this information:

•       What is the business’s financial position?
•       Do you have any outstanding liabilities?
•       What is your relative growth in both net income and gross sales?
•       What is the relative size of your business?
•       What is your average number of customers in a month, week, and year?
•       Does everything align with your current projects? If so, why not?

What is your business worth?

Before you put your business up for sale, you need to get it appraised, so you know how much to ask for. An appraiser will put together a detailed explanation of how much your business is worth. This will help back up your asking price and can give you an idea of what to put as the listing price.

Determine your goals for the sale

When selling a business, there is more to your goals for selling than just to sell. Ask yourself some of these questions:

•       Do you want to sell the entire company and just walk away with the money after closing? If you do not want to sell the whole company, how much of it do you want to sell?
•       Are there employees or family members you want to sell to?
•       Do you want to keep working at the business for a few years after you sell all or some of it?
•       How important is it to you that your brand keeps existing?

If you have specific goals for your sale, make sure you keep them in mind when you put the business up for sale. There is no need to spend time exploring options for your sale that do not align with your goals for the sale.

Working with a broker

If you plan on selling your business to an employee or a family member, a broken is not necessary. However, selling your business is a time-consuming task, so if you are not selling to someone you know, using a broker is a good idea. They know the industry and can help you get the best deal possible for your business. It also means that you do not have to spend time searching for a buyer while trying to keep your business running. While you may not want to pay the commission for a broker, it can save you a lot of time and headaches to do so. In the end, it can be worthwhile to hire a broker if you need to find a buyer who is not a friend or family member.

How long will it take to sell my business?

It can take between three and 12 months to close a sale on a business. There are many things that can go wrong during that time, so it is important to keep in mind that you are not done until closing.

While you have an active deal being processed, it is important for your business to keep running as it always has. It may seem hard to find the time to keep running the business while selling it since selling a business can be a pretty time-consuming task, but you need to keep getting profits and meeting your projections and goals.

Closing

One closing day is over, and everything has been signed; you have the money and are ready to begin the next phase in your life. You should spend some time planning out exactly what you plan to do with the proceeds from your business’s sale, so you can start working toward that goal once the sale is complete. While you should not put a down payment on a condo to retire to just yet, you can begin looking for the right one so that once the sale is finished, you can buy it and begin the next phase in your life, whether that is retiring or starting a new business. 

Purchasing a business when things look bleak could still be a gamechanger!

Why you should consider buying a business in an economy that is struggling:

1. Buying now could be a great way to incrementally obtain talent
2. Buying now could potentially future proof your business by expanding or moving into new product lines
3. Buying now could be the best way to get to the next level
4. Buying now could allow for EBITDA synergies creating a 1 + 1 = 3 scenario
5. Buying now could provide a valuation multiplier expansion

The flip side for sellers, is don’t despair!

1. Buyers always have capital for solid businesses with a promising future
2. Exits are always available during economic downswings

Let Beechwood guide you through this important decision-making process.

Construction companies are notoriously hard to sell due to their dependence on commodity prices and economic cycles. It can be frustrating because there is no clear guidance on how to sell your company or how to raise capital for business in the construction and restoration industries. Case in point, a number of steel fabrication businesses lost money in 2021 when they were forced to honor fixed-price construction contracts despite steel price increases to levels not seen since January 2011 due to COVID restrictions, supply chain issues, and reduced Chinese steel production.

Buyers of businesses look for stable companies that do well in good and bad economic conditions. Restoration from fire and water damage businesses are characterized by events rather than economic cycles and are generally more stable than conventional construction businesses, thus more attractive to both strategic and financial buyers. If you have one of these businesses, we know how to sell your business. 

The starting point for every sale is financial information. Unless the business owner has reviewed or audited financial statements, we often recommend that they obtain a quality “financial statement” report from a credible regional or national accounting firm. The better recognized the firm is, the more credibility that the financial statements will have. Many of our M&A clients do not prioritize maintaining proper accounting statements, and it often becomes an obstacle to getting the business sold.

Identifying growth potential is a crucial factor for a buyer to consider since buyers will often look to leverage the purchased business with debt, and growth can repay the debt and earn a return. In the remediation and restoration business, there is often an opportunity to expand into contiguous states or even nearby cities that are underserved, especially if the seller has experience expanding their business and is willing to stay with it. We’ll help you sell your business or raise capital as you expand your business into a broader market.

While most remediation and restoration companies typically have diversified revenue streams from both third-party insurance administrators and direct commercial and residential clients, some have a dependence on three or four major TPAs and have few options if those sources dry up.  This is one of the reasons many restoration companies are reducing their dependence on TPAs and seeking a more direct business which will demonstrate the recession-resistant nature of an individual company within the broader industry. You want to exercise caution when looking at your customer composition for purposes other than business expansion.

It is critical for owners to have a plan to attract and retain workers. Many companies have had to limit their growth due to the inability to find qualified workers due to the low unemployment rate and the reluctance of employees to come back to work. The restoration business looks to hire people with certifications or people who have the ability to qualify for the certifications in mold remediation and other areas, so the challenges are often greater than for businesses that hire lower-skilled workers.

These are a few of the areas to focus on if you are interested in selling your restoration and remediation business for full value. Help with selling your business or raising capital is what we do. Give us a call to discuss selling your business or raising capital. We can guide you through the sale process as well as help you prepare to go to the market.

Beechwood has the experience in the “digital world” to address your needs and help you monetize your crypto. We’ll find a market for your digital securities and work with bankruptcy and other professionals to analyze and market hard-to-sell digital assets. Beechwood’s experts can even show you can convert a portion of your sales proceeds into crypto. To help get you started, here are 5 tips for you as you evaluate how cryptocurrency can work for you:

1. Have a strategy: Make sure you look critically at the different crypto platforms
2. Manage & Prioritize Risk
3. Diversify your portfolio
4. Automate purchasing
5. Be in it for the long term

At Beechwood, we’ll be with you at every step and our institutional connections allow us to efficiently provide guidance on valuation and liquidation.  

How do you know if anyone will be interested in your business in volatile and uncertain times?  This is a question that we hear on a regular basis due to the current economic environment.

1. Approach

Beechwood has developed an efficient, low-cost method of exploring whether there is any market interest in your business. We prepare a detailed “teaser” (business name and location not specifically disclosed) and send it out to a wide universe of buyers who we know would have interest in your industry. We then get real-time feedback and analysis allowing for prudent decision-making.

2. Timing and Costs

This process takes from one to two months and there are limited and modest monthly fees compared to traditional engagement fees. If enough potential buyers express interest, we can move forward with a more traditional sales process. Otherwise, the process is terminated without any future commitment. The choice is ultimately yours!

Don’t let uncertainty get in the way of your financial planning. There are ways to assess the market without risk or great expense.

If you’re looking to sell your business, Beechwood Capital Advisors has the methodology and resources to help you do it with little risk and upfront cost

You’ve worked hard over the years to build your company, and now you’re thinking about selling all or part of your business. But rather than immediately focusing on the “who,” “what,” “where,” and “when” aspects of sales and valuation, as many executives do, consider this question: Are you sure that your business will be fully valued, or will even be attractive to a prospective buyer or investor? These questions and more should be included in the steps to selling your business.

The fact is that very often, businesses are undervalued because executives overlook or underestimate the importance of six critical factors buyers use to make their decisions. Moreover, it is not enough to know where to sell your small business, you must also know how to sell your small business. Take a step back and examine some of these things you may have previously regarded as unimportant. The good news is that, by addressing these issues well before you put your business up for sale, you can significantly increase margins and growth and maximize the value of your business in the marketplace.

Are You Leaving Money on the Table?

Buyers actively seek to buy underperforming businesses where a combination of operating improvements and growth can result in high returns. You must have a firm understanding of what is capital in a business. Take the fictional example of a large private equity fund that purchased a rapidly growing technology firm. The revenues declined under the former owners from approximately $40 million to less than $20 million. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) declined from over $10 million to less than $5 million.  

The buyer brought in new management and made numerous operational and financial changes to increase EBITDA to $10 million within a year of buying the company. The new management team took steps to save on manufacturing costs. A new sales team was able to increase sales and reduce working capital.

This story gets repeated numerous times across every industry as buyers, such as private equity funds, announce successful exits from investments. The question for you as CEO or senior executive is, “Will you make the operational improvements and have your company fully valued, or will those gains accrue to the buyer because they made the operational improvements?”   

To increase the value of your business, think like a prospective buyer or investor. Use the following questions to help you determine where to focus your efforts:

1. Do you have a clear vision and mission for your company and can you communicate it to your buyer?

A well-defined statement of vision and mission sets the context for all of your business decisions including advanced business capital advice. However, buyers will be looking to see if these statements are supported with up-to-date systems and processes. This includes a strategic business plan, annual budgeting process, accurate financial statements, and specific metrics for operating the business. Many times, pieces of this information can be out-of-date or missing, especially when a company is in high growth mode. Even worse, some companies do not have the systems capability to allocate inventory costs to sales and instead expense the inventory when purchased. The inability to maintain accurate records can cost your company dearly in creditability and valuation. Keeping this data current in an easy-to-access format generates confidence in your company’s ability to achieve its vision and mission and allows the buyer to give your team the benefit of the doubt for those “off” years where earnings and sales were down. 

2. Is your business growing at a rate commensurate with or above the rate of growth for similar-sized businesses in your industry?

If your industry is growing, but your business is not increasing at or above the growth rate of the industry, you need to look at changing your customer base or changing the way you sell your products.  The growth rate of your business is critical because it demonstrates the acceptance of the product by the customer base. If the growth is below the industry average, a problem exists somewhere in the business. High growth businesses command a higher multiple of EBITDA than lower growth businesses. A buyer is looking to double or triple the investment in five years and needs to be convinced high growth is possible, or the investment will not be successful for them. Looking at why your business is not growing at or above the industry norm and making the appropriate changes could have a significant impact on your business’s valuation.

3. Is your business operating at or above the gross margins for similar-sized businesses in your industry? 

If your gross margins are below the industry norm, you need to reduce your materials costs or lower labor and other direct costs.  These costs are the cost of goods sold that are typically 100% variable. Margins reflect how well you manage the production process. Low margins imply a commodity business with little competitive advantage other than price. Higher margins command large premiums since they imply a defensible market position. Gross margins are often related to how successfully the business is at buying materials that go into the production of the final product as well as how controlled are the direct labor costs.  

4. Do you focus on maximizing cash flow or minimizing taxes?

The best approach is to maximize cash and not to manage the business to minimize taxes.  When cash is the focus, there is typically more money flowing into the owner’s pocket.  One of the most important components of valuation is the cash flow or EBITDA. Anemic cash flow due to management’s focus on maximizing tax savings and not on generating cash can significantly reduce the valuation of the business. Your business’s ability to generate cash will be buyers’ prime criteria for valuation. Additionally, a business with a small capital structure might not look as appealing to some buyers. If you have not focused on the cash you may find your business valuation significantly reduced due to a poor cash generation history.  

5. Do you have an undue concentration of revenue with a single large customer? 

We would recommend that a balance be achieved of no more than 10-15% of sales from any single customer with the balance of sales being broadly diversified among numerous smaller and mid-sized customers. Your customers should also be spread among more than one industry. A large customer, one that creates over 30% of your revenue, can put your company at risk if the customer goes out of business or decides to replace your company with another supplier. This can reduce the valuation because the buyer will want to mitigate this risk by paying a lower price. Therefore, while the sales cycle may be faster by concentrating on selling to a few large customers, creating a balanced portfolio of revenue is an essential strategy if you’re interested in gaining maximum value for your company. Increase business value and seek business capital elsewhere.   

6. Is your organization optimally led and managed?

One of the most important criteria for a buyer is a competent, high-performance executive team. While documented processes are one measure of control, it’s important to look for multiple pieces of evidence that the rest of your organization is operating at maximum speed and effectiveness. Persistent organizational problems, such as unusually high employee turnover, absenteeism, hiring difficulties, resistance to new technology, and a high number of customer complaints, can often be signs of overlooked leadership and management issues. The greater the degree to which formal processes are in line with these measures of organizational reality, the greater the buyer’s confidence will be in your executive team and in the organization’s ability to deliver what it promises. 

Higher Value for Your Future

If your company comes up short in one or more of these areas, it may be tempting to leave these issues for the next owner to fix. However, as we demonstrated in the technology company example, this can result in leaving money on the table. Plus, by addressing these issues early and taking care of them as they arise, not only will you get the larger payoff at the end, but you will also benefit along the way because you will improve your company and be able to enjoy its success. 

When you address these six questions on a consistent basis, long before putting your company up for sale, you’ll be rewarded with a maximum return on your business, higher equity valuation, and an accelerated sales process. You’ll discover where to focus your efforts on a consistent basis, as well as the necessary steps to take to ensure you have a well–run business, and your results will enable you to get the highest value for your business, regardless of the current economy.

Have you ever wondered why less than half of all businesses on the market for under $100 M  actually get sold? While it seems like it should be fairly straightforward, such transactions have many factors at play and, therefore, many opportunities for things to go wrong. Based on our 30+ years of experience selling businesses, we’ve narrowed it down to four common mistakes that hold sellers back from success. If you’re asking yourself how to sell your business, keep these potential mistakes front and center.

1. Unrealistic Expectations

The biggest reason for a failure to close the sale is that the business owners have an unrealistic idea about the value of their business. Let’s face it, you probably have no idea about the best time to sell your business. Many owners base their understanding of value on hearsay and rumors of what other owners claim to have received. The reality is finding buyers with adequate buyer purchase capital in business can be challenging. We have seen countless cases of sellers turning down appropriate offers only to be forced to sell their business for an even lower price a year or two later. An investment banker can guide the client through valuation with specific examples of similar-sized businesses in the same or complementary industries.

2. Lack of Marketing

Another pitfall is waiting for a buyer to show up rather than hiring an appropriate professional to market the business. When a buyer is the only one biding and starts negotiating with the seller, the seller can figure out pretty quickly that they are the only bidder. The buyer will then offer a reasonable price and then renegotiate a much lower price during due diligence since there is no competition. An M&A marketer knows the questions to ask before selling your business.

3. Failure to Hire M&A Professionals

Failure to hire skilled merger and acquisition professionals (M&A) can be a deal killer.  Many sellers compromise by hiring an attorney who is not experienced in M&A, who may ultimately recommend a course of action that is not in the seller’s best interest. If a sophisticated buyer is involved and ascertains that the seller’s attorney has limited M&A experience, that buyer will often walk away, fearing the deal will not close without the involvement of seasoned professionals. Knowing how to determine the selling price of your business is a skill few possess. Beechwood Proactively involves the right M&A experts to ensure that our clients have the appropriate guidance to make a closing possible.

4. Failure to Get Professional Review

Surprises should be avoided at all costs when it comes to selling. The financials of a deal should be reviewed or audited by a CPA firm to assure the buyer that all revenues and expenses are properly accounted for.  Many deals are coming to market with a Quality of Earnings Report by an outside accounting firm to confirm the adjustments to EBITDA.  Any issues that may have a negative impact on the business should be disclosed as early as possible in the process. Anything that the buyer finds in diligence that has not been disclosed will have a negative impact on the valuation and raise doubts in a buyer. This could lead to a revision in the purchase price and potentially become a deal killer.

If you’re looking to sell a business, Beechwood Capital Advisors have the insight, experience, and resources to help you do it; from valuation to closing contact us today to find out how we can help you succeed.