Many entrepreneurs at some point will want to buy or sell a business. Buyers and sellers are always facing a difference when it comes to the price for the business. The seller is obviously looking to obtain the highest sales price, and the buyer wanting to pay the lowest possible price. Unfortunately, many businesses that are for sale do not have a formal certified valuation report prepared as part of this process, and a fair value needs to be ascertained. We can assist you in determining its fair value, negotiating the transaction and assist in the strategic plan to take the business to the next level.
HELPING A BUYER NEGOTIATE THE BEST PRICE AND IMPROVE OPERATIONS AFTER THE PURCHASE
A buyer needed to determine the value of a business and asked us to assist in the acquisition, but, more importantly, to determine the potential of the business under various alternatives. The business was a manufacturer of wholesale dessert products operating in the same location for over 25 years. The business has lost money for the last three years and several years earlier had gross revenues over $2 million. The owner had a formal business valuation completed that would have suggested a sales price around $750,000. Again, the task was to determine a fair value, negotiate the lowest purchase price, and then assist the buyer in restructuring the company that would allow for the business to be profitable again.
In the short time available to us, we were able to determine that significant inefficiencies were taking place causing the direct costs of manufacturing the product to be approximately 10% greater than it should be. Since sales were significantly off, an analysis of payroll quickly determined that it was not staffed properly and had excess labor costs. Additionally, based on its current production, it was determined that instead of the factory producing goods five days a week for six hours a day, by switching to three days at 10 hours per day, significant costs of operating the equipment and operational expenses could be reduced. By talking with the employees, it appeared that several of the employees had great sales skills, and a sales program was developed to allow them to sell product for the company those two extra available days, earning them additional compensation.
The end result was that the buyer paid approximately one-third of the original asking price and became profitable after three months under a structured organization and operation plan. Buying a business is a two-step process, negotiation/purchase of the business and then the plan moving forward.