At Axios Ventures, we understand your needs are unique. Your Axios Ventures advisor is ready to help by meeting with you one-on-one, face-to-face to talk about your needs, and where you stand now. Your advisor will put together a plan that works for you.
Buying a Business
Your Axios Ventures advisor will help you work out a purchase plan and help you structure a deal to make sure your short- and long-term goals are met and not sacrificed.
First, the buyer should consider if he/she has the personality and drive to run a business. Simply being unhappy with the status quo in a corporate environment is not enough to determine the potential for success as an entrepreneur. It is also not enough to say that the entrepreneur will be independent and not work for anyone any more. A business owner is always accountable to someone, whether it is the Board of Directors for the firm or the most valued clients/customers of the firm. If the company has employees, the business owner has the incumbent responsibility to provide them with the tools and training to succeed. These are but a few of the topics the budding entrepreneur should consider before buying a business.
We can help you by providing a fairness opinion on the value of the prospective business. Typical terms for buying an established business are a mix of cash, buyer's financing and seller's financing. Typically, at least 20% - 30% of the Enterprise Value (EV), or assets plus liabilities, in cash is required at closing.
Selling a business
Perfecting the exit strategy is never an exact science. Macroeconomic factors, e.g. the current "recession," may force a delay in obtaining a liquidity event for you.
Items to consider to determine if your business is properly positioned to sell:
- audited financial statements for the past 2 years (at a minimum)?
- positive cash flow now?
- positive year-over-year growth trend for at least the past 2 years?
- no negative press/legal filings/liens regarding your business;
- seller's ability/willingness to finance part of the transaction;
- consideration regarding an asset or stock sale transaction;
With buyers now typically able to only get loans at about 4x cash flow, the seller should consider the typical buyer's ability to finance the transaction. For most businesses, a selling multiple of EBITDA (earnings before interest, Taxes, Depreciation, and Amortization or seller's discretionary earnings for "main street" businesses) of 3x to 4x may be realistic today. Seller financing over the short term is becoming a common feature in transactions today. In particular, do not be surprised if the buyer offers an "earnout" provision.
Metrics to consider in determining a proper value for your business include:
- sales per employee or per square foot
- a multiple of free cash flow
- a multiple of future cash flow
- a multiple of historic cash flow (trailing twelve months)
- a multiple of EBITDA
While businesses in the lower middle - market have historically sold at 7x - 9x EBIT, with today's economic situation and the scarcity of credit, a more typical multiple is 4x - 5x EBIT, as an average across all industries. By examining the seller's particular industry and assessing its quartile rank within that industry, we can provide the seller with a realistic fair value for the business.
Talk to an advisor today
Talk to an advisor today and get started on your short- and long-term business plans. Your Axios Ventures advisor is ready to help by meeting with you one-on-one, face-to-face at our office.
Call us today +1.214.347.0589 or email us at firstname.lastname@example.org to book an appointment.