Many business owners believe their business is worth more than it is. By putting in time, blood, sweat and tears in to your business, this doesn't mean the value should be unreasonable.
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So many individuals are looking to buy a business these days. Many folks who got laid off have savings but can't find a job. Buying a business could be a great alternative to them. Some may even retain you as an employee, if that is what you are looking for. Reach out for a free, confidential conversation. 
 
As a former business owner, I can vouch for how hard work "should" pay off. But, it doesn't always work that way. To a buyer, they will want to see numbers, not hear your hardships of getting to these sales figures. While you may place a value on blood, sweat and tears, a buyer my not.  You have to turn the tables and think, "would I pay that much for a business?" This is why you use a business broker, to take the emotions out of the equation and let us get your business sold for a great price.
 

Planning your exit - tips on how to build a better company

 

It is typical to feel anxious for a seller who contacts me and is ready to discuss the selling of their business. There are so many questions and “what if’s”. This is where most operators start the discovery of whether their business is ready to sell or not.  Here are some initial thoughts to consider.

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Be Realistic and Set Goals. As a business broker, one of the first questions I tend to get asked is “what is my business worth?” There is no way to give you this answer until we know more of the facts about your business. Yes, we can ‘throw on a blanket” and offer a range of what you can expect, but until the business is discussed in detail, that answer will not be accurate. It is my job to educate you on the realistic value of your business. There are many factors that can affect the price.

 

Assess the State of How Your Business is Run. Are you the sole owner? If you have a partner or family member partner, if so, are they also ready to sell the business? Will the business run without you? The buyer will always be concerned that if they buy your business, will your customers leave because of your exit? That is the risk they must assess when reviewing an acquisition. The best businesses that buyers like to see are the companies able to stand on their own without the owner’s present.

 

Due Diligence. You need to be ready to share confidential records, tax returns, P&L statements, and balance sheets and more to a qualified potential buyer. Many operators try to shelter this information, but a buyer must see all of this information in order to make an offer. That is why we get an NDA (Non-Disclosure Agreement) in place, so that the buyer can evaluate your business based on these fundamentals while keeping your information private.

Obvious Ways First – What Buyers are Looking for in a Business to Acquire.

 

Show a Profit.  Nobody likes to pay taxes, but when it comes time to sell the business, buyers like to see the business is already profitable. Depending on the buyer, if they wrap your business into their existing operation, they can trim off some of your overhead and make their ROI (Return On Investment) higher than what you show, but you generally get a better price when you are already profitable.

 

Absorb is a Dirty Word. Keep up with price changes and increases. This is not a hobby. When your COGS go up, so should the pricing you charge customers. When a grocery, retailer or other gets price increases, they do not absorb the increases. They pass it along to the consumer. Micro Markets and OCS are the easiest to raise prices in. There are no price labels on the market shelving for customers to memorize like in a vending machine.

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Diversified Customer Base. It’s important to not have one customer make up the majority of your sales. That puts too much risk to the buyer if that one customer cancels service. Try to have a mixture of business customers, such as dealerships, schools/colleges, white-collar and blue-collar. Most blue-collar vending customers tend to have much higher sales than white-collar workers. Sometimes it is the opposite when it is office coffee customers. So have a well-rounded customer base and not all just one type of customer.

 

Customer Commissions.  Pay the correct amount. “Factoring” is a term used in this industry that describes when an operator does not pay the correct agreed upon commissions to a customer. If you sell it at 10%, then you need to pay the 10% and not cheat the customer. The buyer does not want to buy your company, then must increase the commissions to what they should be. The buyer generally will not continue to pay the factored amount either. Always try to sell the customers without commissions if possible.

Don’t be afraid to say “NO”. Buyers like to acquire accounts that sell over $10,000 a year in vending sales. So many operators take on small accounts who generate sales of less than $800 per month. Preferably no less than $30,000 per year in sales in a Micro Market. With the newest technology, smaller Micro market accounts are more achievable in today’s market but be smart about prices and profitability in those accounts. It will always help if you also have the OCS at these smaller accounts.

What is Worth More, Vending, Micro Markets or Office Coffee Service Companies? In the general hierarchy, when it comes time to sell the business, Office Coffee is the top of the hierarchy, then Micro Markets, then Vending. However, Vending Sales are still the highest sales for all 3 across the USA.

 

Updated Equipment. Try to stay up with technology and keep the machines updated and current with the needs of today’s customers. All machines should be capable of having a credit card reader installed.

Investing in Technology Will Make Your Business Worth More.

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• Credit card Readers on 100% of machines. Having technology in place saves the buyer from having to spend the time money and resources to go behind your machines after the sale of the company and add in the technology needed, such as card readers and upgrade boards to accommodate credit card readers and telemetry. Credit card readers not only increase your sales but also are transferable to the buyer when you sell the business. This drastically lowers your offer price when it comes time to selling the business. You want to give your customers as many options to spend money with you as possible. Keeping your machines updated also prevents the buyer from having to replace the vending machines as well, thus essentially buying you twice. You will need to keep up with the ever-changing technology as well. 2G and 3G are way gone, so assume that 5G will change as well.

 

• VMS. (Vending Management System). This is a must. If you think you are going to save money by not investing in a vending management software, you are mistaken. This is one of the first few questions that are asked by a buyer. Buyers always want to see that you invest in technology for your business. Old School ways are very frowned upon these days. It can be a benefit to have the same VMS as the buyer, but it is not necessary. Most VMS providers have a way to export the data needed to merge into the buyer’s software system.

 

 

A VMS gives them the reports that are needed to analyze the business, besides just reading a P&L and balance sheet. Without these reports, the buyer will be blind to this important information.

 

Such reports as:

• Sales per customer per year or specified time period.

• Sales by machine.

• Sales by location.

• Grouped accounts by location.

• Master machine list with details.

• Machine list per customer with details.

• Average selling price in machines.

• Plan-o-grams

• 2-tier pricing sales and details.

• Commission reports.

• Machine pricing

• Routes

 

The difference in a buyer buying a vending company who has already invested in this technology versus not investing will heavily change the offer price when it comes time to sell the business.

 

 

 

Here is an example on valuation.

Using a “vending only” business with all the technology above and take the sales of $2,000,000 to base this example on. A company with all technology will bring about 15% or $300,000 or more than a company without technology. Of course there are many other factors involved in selling a business, but by being transparent with technology, it gives the buyer a much better vision of what your business is worth and greater details to analyze it.

 

 

•  Micro Markets. Most buyers are more interested in micro markets than traditional vending. Micro markets generally increase sales and provide less maintenance and service calls, on top of providing the customer with better selection, experience and atmosphere, verses vending machines. Micro markets have more value for the buyer and are generally worth more than vending account sales. Smart Markets are also emerging at a rapid pace and will fit into the micro market arena.

 

For Example:

 

Taking a “micro market only” business, using the sales figure of $2,000,000 in overall Micro Market sales. On average, micro market sales will generate about 25-30% more for your business versus vending machine sales. On the sale of a micro market business with sales of $2,000,000, it potentially could gain you $500,000 to 600, 000 more when you sell the business. Obviously, many factors will also play into the value of your business.

 

• Prekitting. All of the major buyers are all using the prekitting route method. If you are not already prekitting, then this means the buyer has to go transform your customers from the old school of route service to a new prekitting system and route days. This disrupts the customers in a large way and requires a lot of manpower from the buyer to convert. It also put’s the buyer at a much larger risk due to the change in the way the machines and routes are fulfilled.

 

• Automated warehouse picking system for prekitting. Using an automated warehouse picking system will also make your business stronger and show the buyer that you have invested well in the business, especially if they resume your warehouse with continued operations. A warehouse picking automation system can help you pick correct orders, save enough labor to pay for itself, organize and automate your warehouse, and add a better bottom-line profit. It also allows your staff to already have the proper training, should they move to the buyer’s location.

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