Lower Middle Market...AKA LMM
Lower middle market is the lower end of the middle market segment of the economy, as measured in terms of annual revenue of the firms. Firms with an annual revenue in the range of $5 million to $50 million are grouped under the lower middle market category.
Companies in the LMM have grown beyond the Main Street Market. They are above $5M in revenue, have multiple employees, systems and processes, etc.
Why it Matters to…
Indication of Interest...AKA IOI
Presented by a buyer, prior to the LOI, indicating they are interested in pursuing the business further. Documents includes:
- range of anticipated valuation,
- rough outline of anticipated structure,
- expectation of timeline from LOI acceptance to close, and sources and uses of funds.
Site visits are usually done after IOIs are submitted. This is generally kept to a small number of buyer groups. Most sellers do not…
Business & Market Strategy Guide...AKA B&MSG
IRS Revenue Ruling 59-60 determines the basis of fair market value. It states that fair market value is, "The amount at which the property would change hands between a willing buyer and willing seller when the former is not under any compulsion to buy, and the latter is not under any compulsion to sell, both parties having a reasonable knowledge of relevant facts."
A calculation estimating how much money someo…
Working Capital PEG
A benchmark or baseline amount of net working capital that is agreed upon by the buyer and the seller and is usually determined toward the end of financial due diligence.
The Working Capital PEG negotiated between the buyer and the seller. It is the WC amount that will be left in the business as of the date of closing.
What is negotiated? The basic formula of assets - liabilities = WC is hardly ever the calculation used when negotia…
This ratio reflects the ability to finance current operations and is a measure of the margin of protection for current creditors. This ratio also indicates how efficiently working capital is being used. A low ratio (close to zero) may indicate inefficient use of working capital. A high ratio (high positive or high negative) often signifies overtrading, creating a vulnerable position for creditors.
The capital of a business which is used i…
Part 2: Business Preparation
So, you are ready to sell your business. Where do you start? Should you put a “for sale” sign in the window and contact the newspaper to attract buyers? I hope common sense is jumping in at this point and a few warning sirens going off.
In the Forbes article “The Business For Sale Marketplace - - Why 90% of Listings Never Sell” (Oct 24, 2016), only 10% of businesses trying to sell actually get to the closing. This information is based on IBBA (International Bus…
Part 1: Deal Team
Why would a small or medium size business want to go it alone, considering publicly traded companies that are part of a Mergers & Acquisition process always have professional representation? Is it the thought of paying for representation? Do owners question the return on investment (ROI)? Do they consider the amount of time and resources it takes to successfully navigate a business transaction? Do they have a reasonable expectation of value?
According to Bo Burlingham Auth…
According to many business surveys, approximately 85% of business owners do not know the value of their largest asset, their business. This was also the case for the owner of a manufacturer who was counting on the proceeds from the sale of the business to fund his retirement.
Over the years, he had a gut feeling that the business was worth $8M but had no documentation backing up that figure. The owner was beginning to feel burnt out but continued on as usual because $8M did not fund his retire…
Seller’s Discretionary Earnings...AKA SDE
A seller’s discretionary earnings are the pretax and pre-interest profits before non-cash expenses, one owner’s benefits, one-time investments, and any non-related income or costs.
All of the cash at the “bottom line” of your financial statement is available to the business owner.
Why it Matters to You
This tool is used to help you, the business owner, make accurate comparisons between companies. SDE can so…
Losing a family member is never easy. There are so many things that need to be dealt with, funeral planning, handling financial affairs, grieving. In the midst of all of this, would you want to force your family to also deal with trying to take over or sell your business?
I have worked and spoken with many business owners who express deep pride in all of the effort and sweat equity that has gone into building their companies. Their families have been by their side over the years, supporting …
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