“We try to minimize the transaction risks as much as we can,” says Achim Neumann, President of A Neumann & Associates, New Jersey, “however, obviously, each party needs to feel comfortable with the respective risk.”

We can essentially segment the respective transaction risks into two phases: pre- and post-transaction risk.

The pre-transaction risk assessment pertains more to the buy side: it represents the actual risk tolerance of a buyer. For example, comparing a long-term employed engineer or corporate employee that was recently terminated, and now looking for a business, to a “serial” entrepreneur who has owned three or four businesses before, demonstrates different risk profiles. Clearly, the former is in all likelihood better served by looking at a franchise than a free standing, start-up business.

In addition to the basic “comfort level,” there are numerous financial considerations. “Quite often we have buyers approach us that clearly stretch themselves to buy a particular business” says Mike Gersten, Director Marketing, Northern NJ & Southern NY. “Very often, we explain that there needs to be working capital and a ‘rainy day’ fund beyond the cash needed for the acquisition.”

Another more significant issue involved with pre-transaction risk applies to both parties— namely, the proper prequalification. Specifically, in our firm, a buyer has to provide detailed background information, sign a Confidentiality Agreement and provide complete financial documentation demonstrating the capability to perform an acquisition before any information is released. Unfortunately, many brokerage organizations take short-cuts during this process, eager to present a buyer.

Similar challenges exists on the sell side, requiring a thorough review of the company; a detailed interview conversation with the owner; an analysis of financials; and a properly prepared third party appraisal. Only such detailed preparation ensures that there are no surprises later on— for either side.

Once a transaction has closed, there are various post-transaction risks. On the buy side, there is obviously the risk of failing once a business has been transferred. Such failure can be due to external or internal factors.

For example, on the external side, if customers of the business have not been serviced properly and slowly started migrating to a competitor a few years prior, then the seller will have to “double up” in order to maintain customers. As a matter of fact, a change in ownership could actually be the best remedy for the business at that time. Potential other risks could include pending lawsuits, tax exposure or lack of ownership, particular, as it relates to intellectual property questions.

“Some of these external issues have been successfully addressed by introducing buyers to a highly qualified attorney.” says Gary Herviou, Director Marketing, Central NJ and Lehigh Valley, “Additionally, the proper deal and legal structure can mitigate some of this exposure.” Most prominently, the discussion about asset sale versus stock sale comes into play here.

Internally, a buyer may find that he really does not like a (purchased) business after all, or that he is not qualified to run the business despite all previous research, due diligence, and excitement.

On the sell side, the risks are quite defined, too.

Most importantly, if there is a “seller note,” as is common for most transactions, the seller has a credit exposure. This risk can be mitigated by non-business collateral, such as the buyer’s private home or portfolio, however, no seller wants to incur the costs of litigation to recuperate some of the transaction receipts.

Nevertheless, the matter is even more complicated if there are contingency payments, such as licenses on gross revenues or earn-outs based on cash flow. Setting the obvious aside—namely, the required audit capability of the seller and the seller’s trust in the buyer that proper financials are reported—the seller clearly carries a significant exposure, and is ultimately dependent on the management capabilities of the new owner.

In sum, there are a variety of different risk exposures for both sides, pre- and post-transaction. A qualified merger & acquisitions advisor can certainly help each party to define some of these risks and create solutions to mediate the risk incurred between both sides, which is one of the reasons our firm has been closing deals for thirty years and takes a premier spot among M&A advisory firms, with many pleased buyers and sellers.

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About A Neumann & Associates, LLC
A Neumann & Associates, LLC is a professional merger & acquisition and business brokerage firm in New Jersey, New York and Pennsylvania that assists business owners and buyers in the business transfer process. The company is affiliated with BBN, and covers southern NY, New Jersey and eastern PA, with 450 offices and 25 years of experience and access to a national network of qualified buyers and sellers.. For more information, please contact A Neumann & Associates at 732-872-6777.

“Half of the success in closing a deal can be attributed to the expectations of the seller,” says Achim Neumann, President, A Neumann and Associates, New Jersey. ”We try to prepare sellers, educating them about the many aspects of a deal, however many are not willing to evaluate their situations realistically,” explained Neumann.

“We have had sellers whose business had only a single account, expecting full up-front cash payment, or sellers with dramatically increasing accounts receivables demanding full reimbursement for overdue billing.”

“Essentially, a properly prepared valuation remains the most solid foundation when selling a business,” explains Gary Herviou, Director Marketing, Central New Jersey. “Without the recasting and the valuation, an owner can simply not establish a baseline for a negotiation position.”

Recognizing the importance of such appraisals, A Neumann & Associates will ‘give back’ to their clients with a high-value service– a Business Evaluation Consultation, at no cost to the business owner or buyer. Under the auspices of the company’s professionals located in three offices across New Jersey, New York and Pennsylvania, each office will provide a complimentary 30-minute preliminary valuation for up to five clients, on a first come, first serve basis.

“This is an excellent way to ascertain a preliminary value range,” says Andre Dubbeling, Director Marketing, South Jersey. “A seller who is still pondering whether or not to sell, can obtain some early decision guidance.”

With over 20 years of experience, the company has learned that these consultations have a very high value and are a seamless way to move a business owner’s objectives one step closer to a goal. Quite often, sellers simply have pushed the retirement and business transfer process out too long, and have not taken the actions that a profitable business needs to take in order to survive.

“As a matter of fact, a free value estimate will not only be beneficial for business owners, but also for professionals like attorneys and CPAs,” adds Michael Gersten, Director Marketing, North Jersey. “As well, it will help professionals with clients that are not sure about what to do next, to extend their service spectrum at no cost”

Each complimentary 30-minute Business Evaluation Consultation includes a market sector evaluation, a business appraisal estimate and a market opportunity indication, supported by a Q&A session to address all questions with respect to the transfer process.

Beyond the assessment of the value range for a business, the session will address such issues as: seller financing, financing collateral, buyer’s acquisition funding, and expected business transfer periods.
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About A Neumann & Associates, LLC
A Neumann & Associates, LLC is a professional merger & acquisition and business brokerage firm in New Jersey, New York and Pennsylvania that assists business owners and buyers in the business transfer process. The firm is part of BBN with 450 offices and more than 25 years of experience, and with access to thousands of qualified buyers and sellers throughout the U.S. For more information, please contact A Neumann & Associates at 732-872-6777.

“The increasing number of strategic appraisals is confirmed locally at our three offices here in New Jersey,” says Achim Neumann, President of A Neumann & Associates.  “The trend is that savvy business owners realize that they need to establish a baseline value for their business in order to then improve certain features of it.”

Simply put, there are generally two types of business valuations. “Transactional valuations” are utilized for a sale or transfer of ownership, and “strategic valuations” are established to determine the key factors driving the value of an operation. While both types of appraisals are essentially the same in that they represent an independent third-party, fair market value of the company, the difference lies in the way that the client uses the valuation information.

For a business owner not looking to sell, there are various motivations for obtaining a business valuation.  We increasingly find business coaches, financial planners, estate attorneys, wealth managers and CPAs suggesting that their clients look into the business appraisal process for the purposes of family succession planning, partnership buy-outs or disputes, business expansion and long term exit strategies.

“Over 85% of business owners do not really know what their company is worth,” notes Gary Herviou, Director Marketing, Central New Jersey.  “The business owners we speak with are recognizing that they must get a handle on this information in order to address certain concerns and put themselves in a position to ultimately meet their long-term objectives.  After all, how can you get to where you want to be if you don’t know where to start from?”

It’s only natural for small and family-owned business owners to spend the majority of their time thinking about things such as short-term cash flow, personnel issues, customer satisfaction and the like.  The wise businessperson however, also finds the time to look at the bigger picture by understanding what the true value of their largest asset is— the business itself.

“Typically, 80% of a business owner’s net worth is tied up in his privately held business, and it’s important that this asset is maximized in the long term” says Andre Dubbeling, Director of Marketing for South Jersey.

It’s here that the business owner truly benefits from a strategic valuation so he or she will have all the information required to succeed and effectively position their business for a sale ten or fifteen years out. The increasing demand for strategic business valuations is clearly evidence of this positive trend in the marketplace.

For more information about how A Neumann & Associates can assist with business valuation services, please call 732-872-6777.

A Neumann & Associates, the tri-state’s leading merger & acquisition firm will address this question in a series of seminars across New Jersey, Pennsylvania and New York.  “We are very excited to launch this new initiative for 2012” says Achim Neumann, President of A Neumann & Associates in New Jersey. “Our roster of speakers brings over 25 years of experience and expertise to a multitude of workshops, seminars and conferences throughout the region in 2012.”

“Establishing a realistic value is very important,” says Neumann, as he explained in a Sunday Star-Ledger newspaper article last month.

Working very closely with local Chambers of Commerce and private networking groups, the company will facilitate a series of events, themed “Do You Know the True Value of Your Business?”

These informative seminars and workshops are geared directly to mid-sized business owners and buyers. Specifically, the presentations will address the many ways that a business valuation can be used to benefit the owner. This includes: the proper approach to conducting a valuation; the pitfalls of risky “rules of thumb” valuations and why “back of the envelope” multiples are just not accurate.

“This type of information is key for all business owners to have,” says Gary Herviou, Director Marketing, Central New Jersey.  “Most business owners are consumed with the income and cash flow side of their business. What’s usually missing is the concentration on the underlying asset— specifically what their efforts are doing to the true value of their business.”

Andre Dubbeling, Director of Marketing, South Jersey, adds “Our mission is to bring our real world experience directly to mid-sized business owners.  Every owner should know this information and have it in their toolbox. Andre was recently a featured speaker at the International Business Brokers Association (IBBA) convention in Denver, CO, where ran a workshop-seminar entitled, “How to successfully recruit, train and motivate new brokers.”

The company initially started its roadshow of talks in late 2011, presenting to selected “invitation only” management consultant client groups comprised of 30 business owners in the greater Lehigh Valley.

The company’s next “What is Your Business Worth?” presentation is being held for the Camden County Chamber Of Commerce, slated for Thursday, February 23, 2012.  The morning event will run from 8:30 to 10:30 am and registration is now open.  Details about this and other events can be found here.

“We are excited to see A Neumann & Associates provide our family business owners with some insight into the company valuation process,” says Steve Wolf, Director Family Business, Camden County Regional Chamber of Commerce

A number of future presentations are planned for individual firms, private networking groups and Chambers of Commerce events. Events are typically tailored to meet the individual needs and objectives of the respective organization. A Neumann Associates welcomes inquiries regarding custom talks. To learn more about upcoming presentations, please click here.

“The good news, however, for our clients on the buy and sell side, will be low interest rates that stay for a while.” says Achim Neumann, President of A Neumann & Associates in New Jersey. “Any one of the three factors mentioned above will have continued downward pressure on interest rates.”

Indeed, many business owners we talked to will experience a much needed reprieve in costs due to lower rates. Such interest rate reductions apply to many different forms of lending, whether it’s for acquisitions, working capital financing, or simply leveraged business expansions.

In addition, very often such lower interest rates translate into the ability of business owners to renegotiate a better lease for their business with their respective landlords which, also, have more flexibility to absorb lower lease revenues.

“On the buy side, the impact is even more significant,” says Neumann “not only will the buyer or investor experience lower costs in financing an acquisition, but the investor will also have more ‘leverage’ in terms of looking at more investments for any given investment amount.”

Naturally, this impact has not been unnoticed. Investors and buyers of mid-sized businesses still outnumber sellers by a margin of 3 to 1. Returns on stocks, bonds and real estate investments remain weak, so most savvy investors are searching for suitable businesses in a highly competitive market.

“All of our three offices in New Jersey consistently receive calls from highly motivated investors and buyers searching for profitable companies to purchase.” says Gary Herviou, Director, Marketing, Central New Jersey “As a matter of fact, the last two sell-side engagements we accepted were matched with a suitable buyer within less than three months.”

With interest rates this low, little change is predicted– and that is our prediction for 2012!

A Neumann & Associates is happy to ring in the new year with a number of new announcements including an expansion of its operations with the appointment of a new Director of Marketing, and the launch of a new website redesign.

During this time of industry contraction, A Neumann & Associates is one of only a few reputable mergers & acquisitions and business brokerage firms left in New Jersey with over two decades of experience. Despite the slowdown in the economy, the company has continued to close deals and show profits.

The new site design of www.neumannassociates.com streamlines information and makes it easier for visitors to locate potential businesses and learn about business valuations.

Additionally, the company will now expand into southern New Jersey, as well as Bucks and Montgomery County in Pennsylvania. Currently, with an office in Atlantic Highlands, the company previously served mostly central and northern New Jersey.

In his capacity with A Neumann & Associates, Andre Dubbeling, Director of Marketing, will represent the company within various Chambers of Commerce and other local business networks in southern New Jersey and Philadelphia. His responsibilities will range from establishing the company presence to brokering new deals.

“We are very pleased that Andre has come on board,” says Achim Neumann, President of A Neumann & Associates. “With his affinity for numbers and ability to quickly understand the needs of buyers and sellers, he will be a true asset to the business.”

Prior to his appointment with A Neumann, Dubbeling owned his own successful export management firm for seven years before selling it to his partner. Also, he was previously employed  by a competing brokerage firm, where he quickly rose to a management position. Dubbeling specializes in working very closely with buyers and finding them suitable businesses and commercial properties. He is well versed in orchestrating both small and large transactions. Dubbeling prides himself on “going the extra mile” when putting together deals.

“I am delighted to have joined this prestigious firm. I look forward to solidifying the company’s reputation in the Delaware Valley area. Timing is very important in business, and this is the best time for owners to take a critical look at their business and consider their options. We can help them do that,” says Dubbeling.

“Neumann and Associates has the know-how and the expertise to handle the transfer of business ownership in a manner that both respects the confidentiality of the parties and injects professionalism and rigor to the process” he adds.

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About A Neumann & Associates
A Neumann & Associates, LLC is a professional business valuation and business brokerage firm in New Jersey that assists business owners and buyers in the business transfer process. As President and Founder, Achim Neumann brings more than 25 years of business and management experience from multiple industries. This trusted NJ business broker is the New Jersey representation of Business Brokers Network, a firm with 450 offices and more than 20 years of experience, and with access to thousands of qualified buyers and sellers throughout the U.S. For more information, please contact A Neumann & Associates at 732-872-6777.

“In times when financial resources are more limited, a financial structure becomes paramount in facilitating a deal” says Achim Neumann, President of A Neumann & Associates in New Jersey.  “A few years ago, deals would usually consist of 75% cash to the seller and a 25% seller note. Increasingly, we’ve seen changes to this ratio.”

When analyzing a financial acquisition structure further, a lender would quite often contribute 50% to a transaction amount— included in the previously mentioned 75% cash. Additionally, where the industry type might be ONE determining factor in defining the contributing amount, it has increasingly become THE determining factor.

“Businesses that are cash flow-strong and have fewer assets, such as service and distribution businesses, need to be matched with buyers that have a strong net worth position” says Neumann.  “These businesses tend to have less of an asset base that can be used as financing collateral for a lender.”

Most asset heavy businesses, such as manufacturers—and to a certain degree retailers—have sufficient assets in place to allow a lender to find more collateral within the business, rather than looking at the buyer’s net worth.

In an environment marked by more stringent lending criteria, cash flow-based lending is increasingly in retreat and asset collateral, whether from the investor or from the company itself, takes a more profound position.

Somewhat of a mitigating factor is the SBA lending process. However, it is not the cure or a game changer. “Often, we are approached by buyers who believe that the SBA pre-qualification of our engagements makes any acquisition possible, independent of the buyer’s finances” says Neumann, “but nothing could be further from the truth.”

While SBA pre-approval is an important measure for determining the interest level of banks and the underlying financial requirements for a transaction, in the end it will not significantly divert from basic lending parameters.

“Our company has been fortunate during the past three years, that we had no deals rejected on the basis of financing” says Neumann. “It has always been possible to put deals together. Sometimes, it did require a little bit more seller financing, but ultimately, the deal was closed.”

Achim Neumann, President of A Neumann & Associates, LLC
Atlantic Highlands, New Jersey

The leading Mergers & Acquisitions and business brokerage firm in the tri-state region.
Visit the firm at www.neumannassociates.com or call 732-872-6777

To understand the concept of Goodwill, it’s important to look at the methodologies used by various valuation companies to establish the value of a company as a whole. Once this is established the components can be broken down.

Typically, a company is valued by a multitude of factors, which can be roughly grouped into balance sheet-based and income statement-based categories. Or more specifically, asset-based and cash flow-based. If the cash flow-based valuation is less than the asset-based valuation, the owner is usually better off liquidating the company’s assets than selling the company as an ongoing concern (setting aside for a moment the discount effect for selling the assets).

“However, generally, the cash flow based-valuation, based on several different methods of assessing cash flow, will exceed the asset-based valuation. In other words, there is a “premium” above the assets, or the Goodwill.” says Neumann.  “Specifically, if the cash flow-based valuation arrives at a value of, say, $6.3m, but the (tangible) assets are $3.9m, then the resulting Goodwill is $2.4m.

One concern business owners have is why there is no Goodwill even though the company has various assets that the owner considers to be Goodwill, such as a customer list, software programs and so on. “Realistically, a buyer will only attribute Goodwill to these assets if they produce cash flow, now or in the future,” says Neumann, “and the focus here is more on ‘now’. But, there are certainly also exceptions, for example, patents or inventions that will create significant cash flows in the future.”

Another issue frequently expressed is the comparison of ratios and Goodwill between a midsized, privately held company and publicly held companies. As a very rough rule of thumb, a price/earnings valuation of privately held companies is close to half of publicly held companies in a similar industry or market sector.

Finally, there is Uncle Sam. “Once there is an agreement between the buyer and seller of a company, it will be important tax wise as to how the Goodwill is allocated,” says Neumann, “as the depreciation rates differ among different asset classes, and consequently, this will have an impact on the future owner’s cash flow.”

Naturally, there are conflicting interests. A buyer prefers to deduct as much upfront as ordinary deductions resulting in ordinary income for the seller; whereas a seller prefers an allocation to capital gain property, which allows a buyer to recover only through tax deductions over 15 years.

Under Section 197 of the IRS code, the balance of the purchase price (aka ‘Goodwill’) which cannot be assigned to cash, receivables, inventory or fixed assets, has an amortization period of 15 years and is considered to be a capital gain to the seller. Goodwill is the value of the business above the asst value, and is based on expected continued customers due to its name, reputation or any other factor.

In sum, given the large number of business transfers and valuations, there is a significant knowledge base with respect to Goodwill and the respective proper treatment in the business transfer process. A Neumann & Associates has advised many business clients in the past ten years to find an optimal solution for both parties and has appropriate experts available to further address issues in this complex arena.

“This year, however, has been quite different,” says Achim Neumann, President of A Neumann & Associates, New Jersey. “We have had a significant number of valuations performed for businesses about to enter the market. The amount of valuations in August alone has exceeded similar timeframes during our best years.”

Possibly, this may foretell better times for business buyers. The ratio of business buyers to sellers has continued to stagnate at 3 to 1 for the past 18 months, based on a national average among the 450 Business Brokers Network’s offices— with many buyers not being able to find a suitable investment.

Where such a ratio in the current economic environment may seem unbelievable to an outsider, the fact remains that more buyers have stepped up due to lack of alternate investment opportunities. At the same time many sellers, due to declining profitability in their businesses, have exited the market.

“Valuations have always been a leading indicator for us,” says Neumann, “and conceivably we could have a change in the business transfer climate given what we have seen in August, despite a difficult business environment.”

Click to See Selected Businesses Here

Achim Neumann is president of A Neumann & Associates, LLC
Atlantic Highlands,
an affiliate of BBN, Dallas, Texas, with 450 offices nationwide.

Visit the firm at www.neumannassociates.com
or call 732-872-6777

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About A Neumann & Associates
A Neumann & Associates, LLC is a professional business valuation and business brokerage firm in New Jersey that assists business owners and buyers in the business transfer process. As President and Founder, Achim Neumann brings more than 25 years of business and management experience from multiple industries. This trusted NJ business broker is the New Jersey representation of Business Brokers Network, a firm with 450 offices and more than 20 years of experience, and with access to thousands of qualified buyers and sellers throughout the U.S. For more information, please contact A Neumann & Associates at 732-872-6777.

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“A typical business owner will sell a business only once in his or her life, and as a result typically underestimates how complex the process is. This understanding is crucial to a successful business transfer” says Achim Neumann, President of A Neumann & Associates, a leading New Jersey Business Brokerage firm in Atlantic Highlands.

Myth #1 – I Can Sell My Business Myself

Many owners believe they’re qualified to sell their business without professional assistance based on the skills they’ve acquired running their companies. Many owners are entrepreneurs with solid selling skills, and many function as the key salesperson for their company. However, what many don’t anticipate is that selling a business is nothing like selling a product or service.

“If you’re looking to sell on your own, confidentiality is immediately lost” says Neumann. “If word of a potential sale gets out, there are definite risks. You could lose clients, employees and favorable credit terms with banks— not to mention managing potential landlord questions.”

More importantly, business owners must ask themselves: is there really sufficient time to run a business while compiling marketing materials, advertising, screening many buyers (and tire kickers), and giving tours? On top of all of this, do you have the time and wherewithal to negotiate a comfortable deal—an adversarial process by nature—plus facilitate due diligence?

These are important considerations strewn with nuances, and all are time-consuming requirements that directly impact the selling price of a business.

Myth #2 – I Know What My Business is Worth

When self-evaluating the value of their business some owners want $100,000/year for sweat equity or will base their price on what they personally need for retirement. Others utilize “industry multiples,” most often some nebulous concept of EBITDA. Yet others just pick a number out of the air.

“None of these self-derived values will carry any credibility whatsoever with the buyer” says Neumann, “nor will it help the buyer’s bank to provide acquisition funding at closing.”

A third party appraisal by a national valuation company is the only solution to a solid understanding of a company’s growth potential, not some vague industry average. It’s surprising, but not uncommon how many business owners expect a buyer to pay several million dollars for their business, yet are not prepared to spend a few thousand dollars for a qualified third party opinion.

“A seller will instantly lose all credibility with any buyer by not being able to present a properly prepared package that includes a comprehensive company appraisal” says Neuman.

Myth #3 – Selling a Business is Like Selling a House

Preparing to sell a house takes a couple weeks, and then word of the sale is spread as far and wide as possible. Once a satisfactory offer is received, the keys are turned over and the seller moves on. No confidentiality, no pre-qualification, no detailed marketing package, no transition time, no seller note.

Selling a company, however, is much more complex. A successful business sale requires a great deal of pre-planning, valuation, cash flow recasting, document preparation, buyer evaluation and so forth.

It takes three to five times as much time to sell a business as it takes to sell a house. And even after the business is sold, the seller can be expected to stay on for at least several months helping the new owner to succeed with the business— thereby securing payback on the note extended to the new owner.

“Sound sale strategies will bring the seller the optimum price the market will bear,” says Neumann. “However, for business owners wanting to cut corners there is a price to be paid, particularly in this competitive environment!”

Achim Neumann is president of
A.Neumann & Associates, LLC
Atlantic Highlands,
an affiliate of BBN, Dallas, Texas, with 450 offices nationwide.

Visit the firm at www.neumannassociates.com
or call 732-872-6777