Frequently Asked Questions

A Certified Business Intermediary (CBI) is the top honor designated by the International Business Brokers Association (IBBA). It is earned by business brokerage professionals who have exhibited proven leadership in their field and have shown the expertise necessary to execute valuation, business marketing, negotiations and the multitude of complex details involved in the purchase or sale of a business. To qualify, CBI candidates participate in a rigorous curriculum of at least 60 hours of Association courses, complete a comprehensive examination and pledge to the IBBA’s Code of Ethics. Not easily achieved, less than 400 brokers in the U.S. have been awarded the CBI distinction. This prestigious designation brings a new level of standards and ethics to the business brokerage profession.
When it comes to pricing a business, several factors need to be considered to maximize your value. We estimate what your business will earn by assessing its asset value, comparable sales, goodwill and the value of future income potential. Other factors considered are the condition of equipment, local competition, available workforce, location, demographics and the overall outlook for the industry. We work with you to ensure a selling price that will not only appeal to potential buyers but will also give you the return on investment you expect from your business.
You’re not just a number at Whitmore, Prokes, Micallef & Associates. With a select client base, we offer personalized one-on-one attention and open-door access to our principals every day. That means we’re working with you to effectively market your business through a personalized marketing plan tailored to your needs and the needs of your business. This includes utilizing online resources, connecting with our wide network of buyers and investments firms, and actively showing your business to qualified buyer candidates. All potential buyers are required to sign a non-disclosure agreement.

If you are selling your business, it is important to note that there are factors that positively influence value and other factors that negatively affect value. Looking at your business from a buyer’s perspective is critical since a prudent buyer will be adding and subtracting these various factors when arriving at an offer. Of key importance is the price at which a buyer will walk away from a deal. Buyers naturally try to buy the business at the lowest possible price possible, however, most also have a top price at which they are not willing to surpass. Here are some of the “high value” factors as well as some of the “low value” factors to consider when evaluating the value of your business.

Indications of High Value

  • High sustainable cash floor
  • Room for the business to grow
  • Anticipated industry growth
  • Competitive advantage – trade mark, location, proprietary product, etc.
  • Business niche
  • History and reputation
  • Low failure rate in industry
  • Well maintained facility

Indications of Low Value

Customer concentration on a few major customers/clients

  • Reliance on owner
  • Poor financials
  • Distressed circumstances
  • Product or service sensitivity
  • Poor outlook for industry – regulations, foreign competition, price cutting, discount stores, etc.

Considering the above factors and how to address them can help a seller look at the business through the eyes of a potential buyer. A professional business broker can help the business owner sort through the many areas that buyers consider when looking at a business and trying to arrive at an initial offering price.

Copyright 2006 Business Brokerage Press

  • Not really defining what is for sale – are all of the trademarks, copyrights, patents or other intangibles included in the sale price? For example, in the sale of a fast food chain, are the proverbial “secret recipes” included in the transaction price?
  • Forgetting favorable attributes – A stone quarry may have one of the few available permits to excavate in a particular state or county, or a distribution business may own exclusive territorial rights, etc. These attributes should result in a premium on the valuation of the business.
  • Not discovering the true level of earnings – Making accurate adjustments to earnings (normalization) is essential to recognizing the real earning power of a company.
  • Not finding the value detractors. Is the revenue concentrated in just a few customers? Is the equipment antiquated? Are the financial statements in disarray? Will significant capital expenditures be required in the near future? Consideration must be given to the impact of potential value detractors such as those listed above.
  • Forgetting the real value of the assets – It is easy to forget that particular balance sheet items may be worth more than their indicated book values. For example, capital equipment may have been depreciated to an amount significantly under its actual value.
    Selecting the incorrect earning period to capitalize or discount – Are they last year’s earnings, an average of the past few years, or merely a projection of next year’s earnings? Historical earnings cannot be used if future earnings are expected to be substantially different.
  • Choosing an inappropriate multiple or capitalization rate – Is it applied to EBIT or EBITDA and why? How was this multiple derived? Today’s EBITDA multiple is not necessarily tomorrow’s!
  • Not considering current market conditions – The current business climate and economy can significantly impact valuations. Changes in overall market conditions can cause valuations to substantially fluctuate.

Copyright 2006 Business Brokerage Press

Unlike buyers, who are inclined to obtain professional assistance only after an acquisition is found, sellers should rely on an advisory team from the earliest possible stage. An effective team will include an accountant, attorney and business intermediary/broker. These professionals all have their specific roles. The most important responsibility of this team is the positioning of the business for sale to ensure that it will be sold within a reasonable time and for the best price and terms possible.

Buyers generally fall into one of the following groups, although in reality, most buyers have traits from all of these categories:
Individual Buyer
An individual with financial resources and has a background or experience for leading a particular operation. These buyers usually turn to outside sources for additional financing. Most individual buyers have sold a business and are looking for a replacement or are unhappy with their present position and are looking to go out on their own or have had a career change and now want to own their own business.

Strategic Buyer
This buyer is often a company that is looking to make a purchase for one of the following reasons: entry into a new market, increasing market share, gaining new technology or eliminating competition. Strategic buyers are generally looking for larger acquisitions and place a premium on a proprietary product or unique market share.

Synergistic Buyer
The synergistic buyer is usually a company looking to purchase a particular business in order to be more competitive and profitable. The joining of the two companies should result in synergistic advantage.

Industry Buyer
Sometimes known as “The Buyer of Last Resort” this type is often a competitor or a company with a highly similar operation. This buyer usually does not want to pay for the experience or goodwill of the company or the value of the assets a seller thinks they are worth.

Financial Buyer
The financial buyer is influenced by a demonstrated return on investment. This buyer usually uses their ability to get financing on as large a portion of the purchase price as possible, working on the theory that debt is the lowest cost of capital.