Buyers, as part of their due diligence, usually employ accountants to check the numbers and attorneys to both look at legal issues and draft or review documents. Buyers may also bring in other professionals to look at the business’ operations. The prudent buyer is also looking behind the scenes to make sure there are not any “skeletons in the closet.” It makes sense for a seller to be just as prudent. Knowing what the prudent buyer may be checking can be a big help. A business intermediary professional is a good person to help a seller look at these issues. They are very familiar with what buyers are looking for when considering a company to purchase.
Here are some examples of things that a prudent buyer will be checking:
- Is the business taking all of the trade discounts available or is it late in paying its bills? This could indicate poor cash management policies.
- Checking the gross margins for the past several years might indicate a lack of control, price erosion or several other deficiencies.
- Has the business used all of its bank credit lines? Does the bank or any creditor have the company on any kind of credit watch?
- Does the company have monthly financial statements? Are the annual financials prepared on a timely basis?
- Is the owner constantly interrupted by telephone calls or demands that require immediate attention? This may indicate a business in crisis.
- Has the business experienced a lot of management turnover over the past few years?
- If there are any employees working in the business, do they take pride in what they do and in the business itself?
- What is the inventory turnover? Does the company have too many suppliers?
- Is the business in a stagnant or dying market, and can it shift gears rapidly to make changes or enter new markets?
- Is the business introducing new products or services?
- Is the business experiencing loss of market share, especially compared to the competition? Price increases may increase dollar sales, but the real measure is unit sales.
When business owners consider selling, it will pay big dividends for them to consider the areas listed above and make whatever changes are appropriate to deal with them. It makes good business sense to not only review them, but also to resolve as many of the issues outlined above as possible.
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Residential Care Facilities for the Elderly (RCFEs) in California are a great business model for meeting the needs of our aging population. It is estimated that by 2040, about one in five Americans will be age 65 or older (Urban.org) which means that there will continue to exist a need for senior care services. RCFEs are a non-skilled setting, meaning there are no requirements for licensed staff to be a part of the business model with the main focus being on providing a positive quality of life within a safe environment via non-skilled caregivers.
As business brokers, when we work with our RCFE sellers, we often are given the task of educating our owners for their sale. One the biggest mistakes that our sellers make is not being able to account for their financial position over the past three years and year to date. It is imperative that our RCFE sellers understand that keeping an efficient accounting – bookkeeping practice is essential. The profit and loss statement, the balance sheet and the cash flow report allow us as business brokers to be able to justify an accountable sell price.
Next, we need to understand the property and whether it is being leased from a third party or whether the RCFE seller is the property owner. When we have a landlord, one of the first things that the seller and the broker need to assess is the current landlord mindset when it comes a rental agreement. We need to be aware of the current rental agreement, the existing rental market and the landlord’s subjective standing on where they want to take their lease terms with our new RCFE buyer. This conversation should be had sooner than later and it will depend on the certain variables such as the seriousness of the seller to sell their business, the seriousness of the buyer and the landlord’s overall flexibility. If the RCFE seller is the property owner, addressing realistic market rental rates are essential. An unrealistic set of lease terms will only scare off potential buyers and are deal breakers.
License. We make it a practice of asking our buyers to procure their RCFE Administrator’s license ahead of time. We explain to the buyer’s that by having their license ahead of time that it adds credibility to them as buyers as well as to create a much smoother transition once the sale is consummated. The existing RCFE owner will also have their own licenses in place for both their facility and their own RCFE Administrator – both of which need to be part of the buyer’s due diligence.
Finally, a few other ideas for brokers to be mindful of: existing bed rents, employee turnover, current RCFE patient demographics, existing owner’s relationship with their Licensing Program Analyst (LPA) and their Ombudsman, current employee HR files, up to date resident file documents, and more.
Healthcare Biz Brokers, Inc. is a niche-based healthcare business brokerage located in Southern California with clients throughout the state of California. We assist our clients with formal valuations, selling strategies, lead generation, and more. If you have any questions, call us at (818) 731-7173 or email us at info@HealthcareBizBrokers.com.Read More
There is no doubt that the times are definitely changing. The COVID-19 pandemic has caused a shift across many industries, and the simple fact is that many industries will never return to the old normal. Success in the 21st century will require a good deal of adaptation and the ability to evaluate where you stand today and where you need to be tomorrow.
One of the cornerstones of being successful in life and in business is to embrace flexible thinking. A flexible approach to problems can lead to finding new and highly effective ways of tackling problems. Being able to find success in the 21st century is about much more than simply riding the next technological wave or trend. Instead, it is about being amongst the first to use flexible thinking to spot trends and developments ahead of the competition and exploit those developments first. Technology and the world are changing faster than ever. Being able to utilize fluid, flexible thinking to identify problems and then seek out cutting-edge solutions to those problems will be a key aspect for success in this century.
A Solid Plan
Flexible thinking is essential for success, but so is having a plan. Just as business leaders needed a plan to achieve final success two-thousand years ago, the same holds true today. In many ways, evolving technology has not reshaped basic logic.
You’ll want your business plan to strike the right balance between being rigid and flexible. At the same time, you’ll need a solid business plan that includes specific written goals and concrete time frames.
The days of ignoring technology or “working around” it are simply gone. The modern business landscape has integrated not just digital marketing, but digital financial transactions as well. This trend is only going to become more pronounced in the coming years.
The business landscape means understanding and embracing the fact that commerce now has a massive digital component at every level. The pandemic has served to accelerate this fact and has very likely permanently changed how business will be conducted in the future. Whether it is meeting clients or customers online for a Zoom or Skype meeting, embracing digital marketing, or a range of other changes, it is essential for business owners to recognize change and incorporate it into their business and their long-term plans.
You can try to fight the future, but in the end you will fail. Charting the right course for the future means having the right mindset and a great support team in your corner. Business Brokers and M&A Advisors are experts at helping business owners prepare their businesses for sale. Demonstrating that your business has adapted to the dynamic and ever-changing environment will help you make your business much more attractive to prospective buyers.
By Ralph Santos, Broker – Healthcare Biz Brokers
In of May of 2021 the California legislature closed the door on the creation of new hospice agencies commencing in January 1, 2022 with a six-year moratorium that shook up the day to day business model of the hospice industry. This legislation stems from fraud and abuse that has been reported in the industry and with the stoppage of new agencies, it would allow for the policing of any existing fraudulent behavior within the hospice community as well as to allow for the business market to recalibrate as to the market price.
The market for years has priced the hospice agencies based on various factors to include the agency’s location, the age of the agency, the financial valuation of the existing agency, the agencies goodwill to include a zero aggregate CAP, existing contracted insurance providers, existing clinical staff, existence of consistent referral sources, existence of a healthy billing infrastructure free from additional development requests (ADRs), a robust agency database, an up to date operational framework that would include an up to date Policy and Procedures, Emergency Plan, Quality Assessment and Performance Improvement (QAPI) and more.
The valuation for the hospice agencies has traditionally been approached by one of two manners: (1) market price versus (2) a valuation based on the agency historical and current financial standing. The market price will vary based on the geographic area which include the per capita of existing agencies in a given area. The legislative changes that will commence on January 1, 2022 will impact the market significantly. First, there will be a supply and demand issue where due to the fact that no new agencies will be available, those existing hospices in the market will command a higher market price as long as the aforementioned variables are healthy and regardless of the financial valuation since in essence the buyer will be acquiring a commodity, in this case a highly sought after license and or an accreditation to operate as a hospice agency. Secondly, the focus of the state and federal law enforcement in policing the industry to remove those agencies that are creating havoc and potentially fraud will further decrease the supply. Finally, the legislation will create a mandate for those that are operating within the hospice community to abide by the rules, thereby deterring further fraud.
Our brokerage’s opinion based on our experience in the hospice industry is that we will feel the immediate effects of the hospice agency valuation will increase the market valuation by $100,000.00 -$200,000.00 and possibly more as we get closer to the January 1, 2022 deadline. We further believe that the newer agencies, the agencies with a historically low census, the agencies that have focused more so on the Medi-Cal community, the agencies with a zero aggregate CAP will fare the best in this new hospice environment when it comes to valuation.Read More
There can be no doubt that selling your business stands as one of the most complex and important decisions you’ll likely ever make. It is quite often the case that a business represents decades, or even a lifetime, of dedicated work. In this article, we’ll examine some of the key steps that you should take when it comes time to sell.
One of the most important steps that any seller can take is to begin the sales process far in advance of the date that he or she plans to put the business on the market. Working with an experienced business broker or M&A advisor (and doing so preferably years in advance) is one of the single best ways to ensure that you’ll be ready to sell your business when the time comes. It will also help you to avoid the numerous pitfalls that potentially await.
A good brokerage professional can also help identify weaknesses in your business and help you address those issues; however, this is only the beginning. Your broker can help you with everything from strategy and negotiations, maintaining confidentiality and establishing the market value of your business, to connecting you with other seasoned professionals, such as accountants and lawyers.
A third key point that all sellers should consider is their own psychology. It is vital that all sellers remain flexible in their approach to selling their business and also remain respectful of prospective buyers. It is important that you put yourself in the shoes of your buyer and try to think of what they will need to feel confident in their decision.
The right seller psychology is also absolutely essential. Sellers should not attempt to rush or force a sale or overprice their business. In short, you need to keep “your head in the game” and as much as possible, keep your emotions out of the process.
Sellers also need to realize that the statistics strongly indicate that seller financing is likely. Only 75% of sellers ultimately receive their asking price, and businesses that are listed as “all cash” generally don’t sell. Reasonable sales terms will greatly increase the chances of successfully selling a business. It is common that sellers fail to realize just how much interest they can generate by financing the sale of their business. A reasonable down payment is also another way to improve the odds of selling a business. Being willing to offer financing makes a clear statement to a prospective buyer that you believe in the business and its ability to generate revenue. From a buyer’s perspective an “all cash” demand can be a red flag.
At the end of the day, an open mind and steady temperament will increase your chances of selling. You may want to sell your business and completely move on to new things. But the reality of selling a business is such that “walking away” may not be feasible. Transitioning your business into the hands of a new owner is usually more of an ongoing process than a “sign on the dotted line and receive a check” type of situation. Understanding this fact, and working closely with a business broker or M&A advisor in advance of selling your business, will help to streamline the sales process and greatly improve your chances of a successful outcome.
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