stats for business salse stats in florida

Business Brokers of Florida

Central ChapterQuarterly Training

Maximizing the Broker’s ROIJuly 20, 2011

Agenda11:30 - 12:00

Our Current Market Statistics & What they mean?

12:00 – 12:30Panel of Experts Critique their Own Success Stories and Failures.

12:30 – 1:00Lunch

1:00 – 2:00Panel of Experts Continues followed by critique of 5 random listings (chosen by Lee Ossin)

Participants

Special thanks to Our Panel of Experts: Bob Adams Brian Bateson Michael Mensch (filling in for John Hoyt) George Rosen Mike Shea

Statistics supplied by Lou Vescio (unable to attend this meeting) and Michael Mensch.

The 4 Letter Word - RISK

Risk = Probability for a Loss

What is the risk in buying/selling a business? For the Seller?

For the Buyer?

For the Broker?


What is the risk in marketing a business for sale? For the Seller?

For the Buyer?

For the Broker?

Little risk on Seller & Buyer until the closing.

Broker Buyer SellerPrior to Listing XPackaging the Listing XAdvertising the Listing XWorking with Buyers X XBuyer-Seller Meetings X X XOffers Made X X XContracts Signed X X XDue Dilgence Phase X X XFinancing Phase X X XPre-closing Phase X X XClosing X X X

Time Investment



Low Avg HighPrior to Listing 5 10 40Packaging the Listing 3 10 50Advertising the Listing 2 5 20Working with Buyers 10 20 100Buyer-Seller Meetings 10 20 40Offers Made 2 10 50Contracts Signed 4 10 50Due Dilgence Phase 10 40 100Financing Phase 0 10 30Pre-closing Phase 5 10 40Closing 1 2 4

Total Hours 52 147 524Hours up to Offer 30 65 250

Broker’s Time Investment


Doesn’t include time for: Marketing Networking Attending office meetings Continuing education Creating BBF chapter meeting slides


The Broker, by far, has the most at risk in marketing a business for sale.

Yet with all the time that we invest, there are no guarantees: May not find interested buyers Seller may step out of the business Business may suffer a set back Deal may fall apart


How can we mitigate our risk? Weeding out lower probability sales

Businesses that are likely unsellable Setting realistic asking price & terms

Setting price in-line with market demand Prepping for realistic sale terms

Understanding common issues With specific types of businesses


Purpose herein is to better understand Low Probability Sales by: Reviewing sold & current listing

statistics Hearing insight from some

experienced brokers Analyzing issues with some sample

listings

Real World BBF Statistics In the prior 365 days, BBF brokers sold

841 businesses. BBF has 881 member brokers

average of 0.95 businesses per broker Average sale price was $241K Average BBF broker earned about $12K

in the past year.

*Assumes 10% commission and the listing/seller associate earns 50% of total or independent licensed broker would have about 50% in overhead costs.

Real World BBF Statistics

Of the 841 businesses sold 46% sold for less than $100K 27% sold in the $100K to $200K range 11% sold in the $200K to $300K range 4% sold in the $300K to $400K range 3% sold in the $400K to $500K range 9% sold at $500K or more

84%

Most Businesses sold by BBF Members

are Lower End Main Street Businesses

Real World BBF StatisticsBBF Listings Sold in the Past 365 Days as of July 6, 2011

841 # of busineses sold118 had Zero Sales Listed 14%124 had Zero Adj Net or Negative Adj Net 15%280 Had Adj Net below $50K 33%156 Had Adj Net between 50-75K 19%142 Had Adj Net between 75-100K 17%89 Had Adj Net between 100-125K 11%43 Had Adj Net between 125-150K 5%23 Had Adj Net between 150-175K 3%27 Had Adj Net between 175-200K 3%42 Had Adj Net between $200 -300K 5%13 Had Adj Net between $300 -400K 2%13 Had Adj Net between $400 -500K 2%22 Had Adj Net over $500K 3%

80% had Adj Net < $125k

Real World BBF Statistics

Of the 841 businesses sold: 46% (390) were a “sale of assets” and not

sold based on cash flows 45% (383) were sold with a cash flow of

$50K or more. 84% sold for less than $300k 80% had an adjusted net < $125k

*“Sale of Assets” = current & fixed assets valued at 80% or more of sold price and/or the adj net was less than $25,000.

Sold Multiples to Consider

Brokers that sold businesses in the past year, priced them high but not high enough to deter a Buyer.

Listed Sold Listed SoldAdj Net Mult Adj Net Mult % Sales Rev % of Sales Rev

50000 - 75000 1.84 1.47 56% 44%75000 - 100000 2.12 1.75 69% 57%

100000 - 125000 1.94 1.61 51% 43%125000 - 150000 2.22 1.88 70% 59%150000 - 175000 2.79 2.24 103% 81%175000 - 200000 2.49 2.17 90% 80%200000 - 300000 2.45 2.06 61% 52%300000 - 400000 4.04 3.51 97% 82%400000 - 500000 2.21 1.90 69% 60%500000 plus 3.23 2.86 72% 65%

Average 2.57 2.12 66.57% 54.92%

Adj Net

21.2% 21.2%

Current BBF Listed dataBBF Listed Data as of July 6, 2011

3276 number of current listings40 Had Negative Adj Net 1%

446 Had Adj Net of 0 14%682 Had adj net 0-50K 21%550 Had adj net 50-75K 17%401 Had adj net 75-100K 12%296 Had adj net 100-125K 9%182 Had adj net 125-150K 6%126 Had adj net 150-175K 4%

89 Had adj net 175-200K 3%237 Had adj net 200-300K 7%110 Had adj net 300-400K 3%

44 Had adj net 400-500K 1%73 Had adj net over 500K 2%

74% have Adj Net < $125k

Current Listed Multiples compared to Sold Data

Current CurrentListed Sold Listed Sold

Adj Net Mult Adj Net Mult % of Sales Rev % of Sales Rev50000 - 75000 3.03 1.47 87% 44%75000 - 100000 2.58 1.75 72% 57%

100000 - 125000 2.89 1.61 79% 43%125000 - 150000 2.75 1.88 82% 59%150000 - 175000 2.91 2.24 74% 81%175000 - 200000 2.85 2.17 75% 80%200000 - 300000 3.43 2.06 90% 52%300000 - 400000 4.62 3.51 117% 82%400000 - 500000 4.35 1.90 101% 60%500000 plus 4.05 2.86 123% 65%

Average 3.35 2.12 90.07% 54.92%

Adj Net

Current listings are priced so high that most will never attract a serious Prospect, let alone a yield Buyer.

58.0% 64.0%

Current Listings Are priced 50 to 100% too high. At least 36% will qualify as a sale of

assets. (adj net < $50k.) Based on our current trend, only about

12.8% will result in a closing. That suggests that BBF brokers have

wasted at least 296,000 to 840,000 hours of effort in the past year trying to sell bad listings.

Supporting Data This data is not new! In 2008, JohnsonServices.com

completed a detailed study for the IBBA

White Paper entitled “Will Your Listing Sell” – paper by Douglas Perreault (April 2008)

Copies available on requestemail: [email protected]

JohnsonServices.com Data

JohnsonServices.com reviewed Listed Data Sold Data

from all of the databases they manage – includes BBF MLS data

Every effort was made to exclude any duplicate data

Start-up listings were also excluded The data was combined and just the

overall results are provided

Percent of Listed to Sold Of the 96,935 listings in the databases,

about 16,000 were still listed, leaving 80,927 businesses to evaluate.

Of this number, 8468 businesses were sold.Sold10.5%

Not Sold89.5%

Current Status Listed PercentSold 8,468 10.5%Not Sold 72,459 89.5%

Totals 80,927 100.0%

Sold Based on Source of Financial Data

Sale of Assets (sale of fixed assets only)

Non Operating

Projected, Owner to Prove, Annualized & Owner’s Estimate

P&L’s, Tax Returns, Part Yr

2794 Unsold 330 Sold 10.56% Sold

17,751 Unsold

3,877 Sold 17.93% Sold

14,244 Unsold

2,416 Sold 15.50% Sold

3078 Unsold 29 Sold 0.93% Sold

56% of Listings, 62% of Sold

What the Data Suggests Brokers can reduce their risk by:

Pricing businesses properly. (Those that sold were listed at a price within ~20% of the sale price).

Listing businesses with positive cash flow (probability increases by 1.5 to 19 x).

Listing businesses with provable financial data. Listing businesses with financing (PeerComps)

Now lets see what the experts say…

Panel of Experts

Will each discuss: A good listing that they sold A bad listing that they could not sell Someone else’s listing (chosen at random)

Audience: Feel free to ask questions or add insight.

Mensch – Sellable Listing

Answer Good OKNot so Good Bad

Years Established 20 XYears Owned 20 XFinancial Records Tax Return XMeets Financial Model for Industry

Cost of Goods Sold 50% XLabor Costs 10% X

Profitability 26% XRent as % of Sales 3.5% X

Profits over recent historySales Increasing, Decreasing, Steady Increasing X

Pricing DE multiple to comparable sold businesses 2.07 x DE 2.2 w/o inv. 2.45 w/ inv.

% Sales to comparable sold businesses 46% 57% to 64%ROI to comparable sold businesses 36% 34 to 38%

Financing OfferedBank or Third Party Yes X

Seller Yes X

Other Comments1 Health foods & supplements X2 Revenue steady through year X3 Minimal add backs and all provable X4 Seller worked 45 hrs/wk with one wk off/month X5 Seller was part of the business brand X

Mensch – Sellable Listing

Mensch – Unsellable Listing



Cost of Goods Sold 69% XLabor Costs 7.5% X

Profitability 11.5% XRent as % of Sales 6% X

Profits over recent historySales Increasing, Decreasing, Steady Same X

Pricing DE multiple to comparable sold businesses 1.64 X DE 2.02 w/o inv. 3.25 w/ inv.

% Sales to comparable sold businesses 35% 23% to 37%ROI to comparable sold businesses 44% 43% w/o inv. 27% w/ inv.


Seller Yes X

Other Comments1 Niched electronics store X2 Business was very well known in area X3 Revenue seasonal X4 Seller only worked 20 hrs/wk and traveled X5 Add backs were a little heavy X


Stable cash flow!

Mensch –Sellable Listing

Many months breaking even or in the red!


Listings 1 thru 5Random Listing Critique 1

Random Listing Critique 1


Years Established 10 XYears Owned 10 XFinancial Records P&L XMeets Financial Model for Industry

Cost of Goods Sold 42% XLabor Costs ? Owner works 80 hrs/wk

Profitability 19% X 15% if 1 employee is addedRent as % of Sales 7% X

Profits over recent history Yes XSales Increasing, Decreasing, Steady Increase X

Pricing DE multiple to comparable sold businesses 1.9 x DE 2.6 w/o inv. 3.19 w/ inv.

% Sales to comparable sold businesses 39% 33% 62%ROI to comparable sold businesses 42% 19%

Financing OfferedBank or Third Party Yes X Only 40% financing

Seller No X

Other Comments1 Owner works 80 hrs/wk - error in adj net X2 Only two employees X3 Spike in sales in 2010 & $20k depreciation X45


Rosen – Sellable Listing

Rosen – Sellable ListingAnswer Good OK

Not so Good Bad


Cost of Goods Sold 22% XLabor Costs ?

Profitability 17% XRent as % of Sales 11% X

Profits over recent history Yes XSales Increasing, Decreasing, Steady Static X

Pricing DE multiple to comparable sold businesses 1.59 x DE 2.79

% Sales to comparable sold businesses 45% 48%ROI to comparable sold businesses 38% 26%

Financing OfferedBank or Third Party No X

Seller No X

Other Comments1 Lease - Up for Renewal Market Rate X2 Management team X3 Recasting minimal add backs X4 National Franchise X5 High Profile Location X

Rosen – Unsellable Listing





Profits over recent historySales Increasing, Decreasing, Steady DOWN X


% Sales to comparable sold businesses 39% 77%ROI to comparable sold businesses N/A X


Seller No X

Other Comments1 1 Partner wants out, Silent Partner Ambivalent X2 Liquor License worth $130,000 X3 Financial Add-Backs are myriad X4 Owner Works Short Hours (20 / week) X

Rosen – Unsellable Listing

Random Listing Critique 2Answer Good OK

Not so Good Bad

Years Established 14 XYears Owned 14 XFinancial Records Projection XMeets Financial Model for Industry



Profits over recent historySales Increasing, Decreasing, Steady Decreasing X


% Sales to comparable sold businesses 60% 33% 138%ROI to comparable sold businesses 34% 4.50%


Seller Yes X

Other Comments1 Selling based on projected growth X2 Total debt service > 2010 adj net X3 $650k in inventory > 2010 CGS X45

Shea – Sellable Listing

Discussion Good points Bad points

Shea – Sellable Listing

Shea – Unsellable Listing


Years Established 6 XYears Owned 5 XFinancial Records Projection XMeets Financial Model for Industry

Cost of Goods Sold 89% XLabor Costs ? No expense listed for any year!

Profitability 11% XRent as % of Sales ?

Profits over recent historySales Increasing, Decreasing, Steady Increasing X


% Sales to comparable sold businesses 34% 74%ROI to comparable sold businesses 41% 11.90%


Seller No X

Other Comments1 Projecting doubling two years in a row? X2 No expenses listed X3 No financing X4 Low profit margin X5


Adams – Sellable Listing



Cost of Goods Sold 28% XLabor Costs ?Profitability 13% X

Rent as % of Sales 9% XProfits over recent history Yes X

Sales Increasing, Decreasing, Steady XPricing

DE multiple to comparable sold businesses 1.9 x DE 2.59% Sales to comparable sold businesses 40% 33%

ROI to comparable sold businesses 38% 27%


Seller No X

Other Comments1 Lease - 3 five year options X2 Manaagement team X3 Recasting minimal add backs X45

Good Listing Checklist

Bob Adams Good ListingAdams – Sellable Listing

Adams – Unsellable Listing


Years Established 24 XYears Owned 7 XFinancial Records O to P XMeets Financial Model for Industry

Cost of Goods Sold 37% XLabor Costs ?Profitability 47% X

Rent as % of Sales 2% XProfits over recent history ?

Sales Increasing, Decreasing, Steady ?Pricing

DE multiple to comparable sold businesses 1.5 x DE 2.1% Sales to comparable sold businesses 40% 33%

ROI to comparable sold businesses 38% 23%


Seller No X

Other Comments1 Lease - 3 years remaining X2 Minimal hours opened X3 Owner to prove financials suspect X4 Buying a $50K job for $125K X5 Has 1 PT employee X

Good Listing Checklist

Bob Adams Not So Good ListingAdams – Unsellable Listing



Cost of Goods Sold 39% XLabor Costs 31% X

Profitability 10% X 12-15% desiredRent as % of Sales 2% X

Profits over recent historySales Increasing, Decreasing, Steady Yes X

Pricing DE multiple to comparable sold businesses 2.48 x DE 2.96 For Bus only

% Sales to comparable sold businesses 37-39% 38.6% Real Estate excludedROI to comparable sold businesses 28-33% 25%


Seller No X

Other Comments1 Lease - 3 five year options X Real Estate sold with Biz2 Management team X3 Recasting minimal add backs Recasting error in rent X4 Very nice Conf Bus Review X Very nice work5


Bateson – Sellable Listing


Bateson –Sellable Listing

Bateson – Unsellable Listing


Years Established ?Years Owned 9Financial Records Tax Return XMeets Financial Model for Industry



Profits over recent historySales Increasing, Decreasing, Steady ? Gross sales decreased but Gross Profit fluctuating


% Sales to comparable sold businesses 34% 41%ROI to comparable sold businesses 41% 12.70%


Seller No X

Other Comments1 A/R, Inventory & F,F &E not included? X2 Slim margins X3 No financing X45


Summary

The Broker carries most of the risk in marketing a business for sale.

Steps should be taken to minimize your risk and maximize your time & money: Screening for sellable listings Pricing & packaging them right Following your gut

Thank you!

stats for business salse stats in florida

Business

x x x contracts

x x x time investment

listing x

negative adj net

adjusted net

letter word risk risk

bbf brokers

current bbf