eNewsletter
September 2017

Featured Clients this issue:
**Details of each client below article

- Traffic Control Company #1017
- Established Full Service Bar/Restaurant #617
- Custom Building Products #2616



When it is time to exit, is it better to liquidate the business or sell it as an ongoing business enterprise?

In our 35+ years of advising the owners of thousands of different businesses, we have encountered situations where it is better for the entrepreneur to liquidate and situations where we have advised the business owner that it is better to try to sell the business as an ongoing entity.  Below is a discussion of the pros and cons of each option.

Liquidation: 

Pros - A liquidation is straight forward, it can be executed rather quickly, and the owner can usually move on without any ongoing encumbrances.  We may recommend a liquidation if the business is losing money, as it may be the quickest way to stop the bleeding.  We may also recommend a liquidation if the business assets have appreciated to the point that the business income may not be able to support an appropriate rate of return on investment at the fair market value of the assets.  A classic example is real estate that could be repurposed to generate higher income.  For example, my father worked for a 100+ year old company in downtown Chicago.  Originally located in an industrial neighborhood, over the years, the area developed into high rise office buildings.  The family that owned the business and real estate decided to sell the real estate, but were at that stage in life where they did not want to go through the hassle of relocating the business, so they elected to liquidate the assets.   

Cons - Usually, liquidation results in the lowest net value for the business owner, because there is no goodwill attributed to the business in liquidation.  As a result, liquidation value is generally used as the floor when estimating a range of value for the business.  There also may be costs associated with liquidation.  Another consequence of a liquidation is the displacement of employees, as the business will cease to exist when the assets are sold.  There may also be expenses related to an ongoing lease or unoccupied real estate if the property is owned by the business or a related entity.

Sale as an ongoing entity

Pros - Assuming the business is profitable and has attractive characteristics, such as market share or a diversified customer base, buyers will generally pay a premium over the value of the assets.  An ongoing operation usually means the employees will continue to be employed after the business is sold and that the customers can still obtain goods and services from the business. 

Cons - The transaction may take longer than a liquidation in order to find the right buyer, negotiate a transaction, and obtain financing.  Additionally, in the sale of an ongoing business, the former owner is usually expected to assist the buyer in a transition period of 30 to 180 days. (The typical transition period is 30 to 90 days, depending on the complexity of the business and the experience of the buyer.)  Even though we are enjoying an attractive lending environment with an abundance of acquisition capital available at attractive rates, it is customary to have either a Seller note or an escrow of a portion of the purchase price to ensure that the business was sold as represented.  Buyer and lender concerns include potential warranty work for transactions previously completed by the seller and unpaid taxes.  The typical escrow amount is about 10% and lasts for 12 to 24 months, while a Seller note may be for 10% -15% of the sale price, and may run from three to seven years.  In some cases, a Seller note can provide additional income (current interest rates on seller notes are about 6 - 6.5%) and may provide tax benefits to the Seller by deferring a portion of the sale proceeds.

The bottom line is that there are a number of factors for business owners to consider in order to 1) avoid leaving money on the table, and 2) achieve goals and objectives in the best way possible.  The FBB team is available to assist you in providing options that will enable you not only to know the facts, but to make the decision that is best for you.

The majority of our business is derived from referrals. Please consider referring our services if you encounter a situation involving the potential purchase or sale of a business.


Ronald V. Chernak
President
 
Inspiring business relationships since 1982!
Traffic Control Company #1017
For over 20 years, this well-managed Traffic Control and Flagging Services Company has grown, due to its long term involvement with the Colorado Department of Transportation (CDOT) and various municipal projects.   The construction industry remains very strong in Colorado and this business is poised to capitalize on the state's infrastructure needs.   The owners are looking to retire, making this business a solid acquisition for a regional industry buyer or an entrepreneur looking to acquire a well-established, profitable business and expand into other areas of the state.  
  • Purchase Price...$1,495,000
  • Down Payment...$385,000
  • Gross Sales...$1,341,840
  • SDE...$441,981

For more information contact Robert Amerine rob@fbb.com.
Established Full Service Bar/Restaurant #617
This well-known southern Colorado sports bar and restaurant is consistently voted one of the best in the city. At the same location for nearly 40 years and operated by the current owners since 2010, this unique establishment has become a locals' favorite, as well as a great place where tourists frequently visit on their way through this historic area. With an experienced head chef in place and a seasoned wait staff, we believe a new owner/operator with restaurant training or an industry buyer looking to add another great location could continue to successfully operate this proven and profitable business.  
  • Purchase Price...$650,000
  • Down Payment...$162,500
  • Gross Sales...$1,554,518
  • SDE...$209,367

For more information contact Robert Amerine rob@fbb.com.
Custom Building Products #2616
This company, located in a high-end mountain community, offers decorative finishes necessary for most remodels, upgrades, and new construction projects.  With the growth in new construction and expansion of its product line, this company has seen an increase in sales year over year since 2011!  The business continues to expand into new geographic markets through its motivated sales staff.  Through its highly effective website, designers from around the world have discovered this company and the unique, quality products it offers. 
  • Purchase Price...$1,200,000
  • Down Payment...$300,000
  • Gross Sales...$2,066,559
  • SDE...$392,749

For more information contact Lynn Lage lynn@fbb.com.

Come learn about the trends and dynamics occurring nationally, statewide, and in our community!

The UCCS Economic Forum is the premier resource for  local economic information. This information is provided for--and supported by--local businesses. 

Don't miss the opportunity to hear how the global, national, state and local economies are expected to perform next year. Hear the information you will use to develop your business plan for 2017.

**Terms & Definitions

TBS (To be suggested by Purchaser) - Seller, in his/her sole discretion, has the right to accept or reject all offers.

Seller's Discretionary Earnings (SDE):  A term used to denote a business's cash flow or the amount of pretax money a buyer can expect to earn in first-year operations.

EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization):   All interest, tax, depreciation and amortization entries in the Income Statement are reversed out from the bottom line Net Income (It purports to measure cash earnings without accrual accounting, canceling tax-jurisdiction effects, and canceling the effects of different capital structures.)
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