Professional Business Services
564 Beauregard
Conroe, Tx 77302
210-843-1983

                                                                     EXECUTIVE RECRUTING


Although new to the Houston area, we are affiliated with Recruiting and Staffing Careers of Boca Raton,Fl.
(fax: 561-952-4049) and thus we have acess to both the local and national markets for candidates. Our
home is here and most of our executive recruiters have over 30 years of experience right here un Texas.

We actually try to match job description with our computerized confidential database. We have found
that this process along with our pre-screening makes are clients happier and employee turnover is less.

We also do (upon request) employee testing and benefit plan recommendations to further reduce employee
turnover. Our fees usually run about half of what most executive recruiters charge, We operate on a
contingency which mean no fees are charged until a candidate is placed (20% of annual salary) and we offer
a 90 day guarantee which means we will replace (at no charge to you) any candidate who does not stay for
90 days.

We require all our staff to actually work in each industry to which they specialize (finance,
admimistrative,accounting, manufacturing and engineering) for 10 years before joining our firm.
That way they know the industry, your needs and they welcome any resumes fron experienced degreed
candidates who we feel would be a good match for your firm .  So tell your friends.

Our track record indicates that we have been able to fill positions not only quicker and faster than
firms who try on their own but we also take the worry and leg work out of the equation. Our screening
is very thorough and we take pride in finding the right candidate for you.

Sincerely,

John R. Harper
Executive Recruiter
Professional Business Services
564 Beauregard Dr.
Conroe Tx, 77302
PBSJRW@gmail.com

                

ABOUT OUR COMPANY

 Professional Business Services participates in a network of affiliated Business Brokers operating across the United States, Canada and Overseas which service the needs of business owners who wish to sell a business as well as to individuals wishing to purchase a business and/or obtain funding for expansion, investment or purchases.

Our firm allows you the ability to plug your company’s confidential listing into our national network – whether you are selling, buying or seeking equity funds for expansion. This ability gives you the advantage by giving your inquiry the maximum exposure to the largest pool of pre-screened qualified buyers, lenders and investment firms. This same exposure normally provides the shortest period of time, for the best price with maximum confidentiality assured.

                                
Professional Business Services provides you with the ability to continue to run your business while we are confidentially pursuing the sale or purchase of a business from or to a highly qualified and motivated seller or buyer. Our goal is: to get you the best price as quickly as possible.

Note: We will not represent both buyer and seller unless expressed written consent is received from both parties before beginning our search.

 

WHY SHOULD I USE A BUSINESS BROKER

Because of the complexity of guiding a sale to successful closing it is well advised that any sale have a broker assisting them in buying or selling a business. Brokers not only have knowledge of both sides of the table but they also have the resources to find buyers and sellers much quicker than any other method. By having a combination of knowledge and resources a broker has the capability of not only closing your sale in the fastest amount of time but also getting or saving you the most amount of money.

Many of our customers – who have already have an idea of what they want to buy or sale  - need funding to either complete the transaction, working capital or expansion. Since we pre-screen and in many cases complete a business plan – a customer’s request normally will be reviewed by a qualified investor/lender which in many cases they are too busy to do.

Many investors as well as buyers never read the paper and look toward a broker for potential candidates

WHAT HAPPENS ONCE I HAVE HIRED PROFESSIONAL BUSINESS SERVICES

DUE TO OUR LIMITATIONS ON MANPOWER AS WELL AS OUR COMMITMENT OF HANDLING EVERY TRANSACTION IN A PROFESSIONAL MANNER – WE CAN NOT OFFER OUR SERVICES UNLESS REVENUES, PURCHASE PRICE AND/OR AMOUNT NEEDED FOR FUNDING EXCEEDS ONE MILLION DOLLARS.

The Interview – we will conduct an interview with you to learn all about your business such as history, significant trends, major selling points of the business, etc. If you are a buyer – we will discuss your expectations and minimum rate of return you anticipate.  Please bear in mind there are many options available to both buyer and seller and we will make you aware of these.

Pricing – After we have completed our interviews and studies and have reviewed the financials as well as receive your input we will determine if the suggested selling price is reasonable.

Confidentiality – ALL Buyers who have or will see any information about your company must sign a non-disclosure agreement beforehand to ensure confidentiality.

                                                          HOW TO BUY A BUSINESS

Objective:

People buy businesses for reasons other than financial. Some buy for personal reasons because they want to get into a new market (Example: restaurants) or they are retired and just want to stay busy. Normally these are never good reasons to buy but are to sale if you are lucky enough to find a gullible buyer. Unless you as the buyer have a special reason to make the purchase (such as the reasons mentioned below) buying a business that is marginal in profits and cash flow is a very risky venture.
 
Assumptions:

Assuming you are buying a business to make a profit and increase cash flows. You will always have alternatives such as investing the purchase price in a good and steady mutual fund to use as a floor. If you make less than this amount – you have made a bad purchase.  

 

 

Most buyers pay very little attention to price as long as the return on the investment is there, the purchase price is discounted to insure a good return or the firm has enough history of earnings as evidence by their financial statements (hopefully audited or at least from the owner’s tax returns.)
 
Note:
If the owner refuses to provide you with financial statements that your accountant or tax advisor finds acceptable – then tell the owner you are not interested and save a lot of people their time, including your own. Legal and professional fees can be expensive.

In many cases, an owner wants to retire or the partnership wants to dissolve and they are looking for a quick payout. Normally if it is obvious that it is a bargain price - have your banker, attorney and accountant review the financials and proposed sales agreements. If one has to make a down payment either before or at closing, always get the owners to finance part of the purchase price. This way they have a vested interest in your success (even if it is only six months if the cash flows were higher than forecasted). A good rule of thumb is - a down payment of 25% to 33% percent of the purchase price should be made at closing. Have the owner finance the balance over 2 to 4 years depending on the parties in the transactions. If they want their money sooner – I would insist that the purchase price be discounted.
 
Pricing:

Pricing in buying a business is sometimes subjective but it should never be. If the financials are healthy (and can be verified) a business usually sells for 3 to 5 items earnings (depending on the items listed below) plus the net book value of any equipment and inventory that will be transferred at the time of sale.

Note:
Do not be a penny wise and a pound foolish if fixed assets and/or inventory are a part of the sale. I recommend an independent inventory service or equipment dealer and/ or CPA to value the assets and have stated in the sales document that if the value falls below a certain percent in six months – an adjustment to the purchase price or loan balance (another good reason for owner financing) will be made. Again, this independent review and inventory is normally done at the sellers' expense and if they refuse then a warning flag should go off in your head. I often have had the opposite approach where a buyer was going to keep certain worthless equipment. If it is worthless – then offer the buyer a dollar for it and in the worst case you can sell it for scrap. Many assets are not worthless but in buying a business – most buyers try to over inflate inventory and the asset values to increase the purchase price. Saleable inventory (those that will sale in less than a year) should be segregated from slower moving inventory which should be discounted at the buyers borrowing rate.

Markets:
 
You should always verify if the reasons you are making the purchase are still valid. I have seen people who have bought on rumors. They were hoping to develop new markets with the sales from the purchase business and then be able to sell their products as well – just to find out later the markets just weren’t there. It is always a good idea to have your senior marketing and/or sales managers review the perspective new business including their sales and customer list, and their major products to see if they are realistic and can be confirmed. One question to ask the sales staff of the purchase business is: What are the chances of continued sales for existing products?

What to look for on the Positive side:

Does the new business have a proprietary prouct(s) or market niche that would be hard to duplicate – these firms are worth more than 3 times earnings.

Are the owners selling because they want to cash out and/or are they under some pressure to sell? Normally the longer you can drag the discussions out – the lower the price becomes (unless you know other buyers are also in the bidding process.) Be sure to do your homework here – normally a seller must answer your questions honestly if the sales agreement is enforceable but in most states they are not required to volunteer information.
 
I was looking at a possible purchase which we thought was a good match and in a good location for our firm. The purchase would also enable us to be in markets that neither, we or our competitors had. Then one of our manufacturing personnel asked about the drainage ponds in the back of the property. To make a long story short the state had advised the perspective business that they were going to have to fill up these ponds and drain the waste material out at a million dollars a pond. This was the deal breaker that would have gone unnoticed had someone not asked.

 

 

 

Where Do You Find Possible Candidates
 
OK - Assume you want to buy a business. Just remember - there are a lot more business for sale than there is cash to buy them. Number one rule is and always will be: DO YOUR HOMEWORK. Do not be afraid to ask opinions of other professional in your industry as well as attorneys, accountants and bankers who are not. This is a good case where two heads are better than one. Note: The buyer may require you to get non-disclosure agreements signed by all non-employees of your firm. This should not be a problem. I normally do not seek professional help unless the chances of the purchase are good. To have them do the initial review could be expensive. If the purchase appears to be promising and even if the owner’s will guarantee cash flows – I would still want a professional second opinion before I would close.
 
One of the best places to find firms for sale, depending on the sellers’ size in revenues, is through your banker(s). Many of their customers often ask them if they know someone who might be interested in their business. Using your accountants (if they work for one of the major firms) are a good source as well as attorneys. Normally, firms that are up for sale, only discuss this with their bankers if they are serious about selling. Smaller businesses typically use business brokers before the prospect is found. I would often broadcast to these professionals and brokers if you are looking to buy and provide a bullet list that these prospects have to meet before you will entertain any discussions. Purchase price should never be discussed unless you have financing available and can give a ball park estimate of the most you would be willing to pay – be sure to add the disclaimer that the purchase price depends on acceptable historical financials.
 
For individuals and smaller firms, business brokers are normally a good partner for the buyer since the broker works off commissions that comes from the seller. But I have found - when a good commission is involved – they will often help the seller come to the table buy showing to the seller why the purchase would be a good deal including the sellers' pressure to sale. Often they are a good source to bounce offers off before making a firm one to the seller.

Normally, firms that are above 3 million dollars in revenues, rarely use brokers. They prefer banks, attorneys or other professionals.
 
Be sure to talk among business associates which can be a good source for finding prospects. The statement “Did you hear that XYZ firm might be for sale” – never hurts to ask. It doesn’t hurt to ask a broker if they have anything to sale. Although the sales’ price maybe out of their range, – the corporate office of the broker maybe better to assist you. Note: Be careful who you talk to and secure non discloser agreements when possible. It is never a good idea to let your competitors know anything about your business. At the same time finding a good candidate may take months depending on your requirements. You can use this time to line up financing if the purchase price is higher than expected and run several what if analysis to handle possible changes.
 
Direct calls:
 
I have never had a perspective seller who did not want to talk about their business. Especially if you are honest about their success and the management that helped it work. Whether it is - a cold call (do not tell them who you work for – that you represent certain financial institutions) could be a very good source for prospects. You may have read where one of the owners passed away suddenly (I would not mention this to the business unless you knew them personally). If you know your markets and competition as well as most business do – you already have a good idea of who would make a good candidate and at what price. When you venture out of your present market such as going into another state – it is always good advice to seek professional assistance especially about the state tax laws.

Numbers Game:

When looking for potential acquisition candidates – it best can be described as throwing a hundred ping pong balls into the air and hope 3 or 4 fall into the glasses. I know from reviewing actual prospects’ that I have tossed tons of proposals into my file cabinet I keep underneath my desk. Out of the four – you will have to run the numbers to see if the financials warrant continued investigation (note if they are marginal you still may want to have your sales group review to see if new markets or cost reductions could be made). Normally out of the 100 candidates - you may have 2 that could be of interest to you. Someone still needs to do an onsite visit of the location of the business to be sold.

Target Hit List:
 
For firms that passed the litmus test and appeared to be good candidates – I usually call to have a meeting with the owners and key management. I always carry a hit list of what I want to review and questions to ask before I ever stepped on the property or board room. Brevity is fine and you can always talk about business to ease the edge that always occurs in these interviews. But the hit list will always bring you both back to those items that need to be discussed. I often give the seller a copy in advance so they can have a lot of what needs to be reviewed available.

Bullet Hit List:
 
Does the seller have any proprietary products and/or market niches? Who are their competitors as well as major customers – how are their products sold and are there any long term contracts for sales. This could have either a positive or negative effect on gross margins.

Review and discuss the present management staff – identify the keepers and “ have to haves” and seek their opinions where possible. Note: I have seen many firms purchased just to acquire the management staff. The assets can always be sold but locking in key people can enhance a firm’s growth and success. Be sure to get with the key staff of keepers to try to lock them in after the sale. This helps both you and the employees - because they naturally will be thinking the worst about keeping their jobs. It is imperative that you convey to them the need of their continued support. If you are planning to keep the acquired business as a going concern – you must first realize that the employees of the acquired business are nervous about losing their job and can make or break your chances of success. If one cannot fathom this basic concept – they would be much better off investing in the stock market.

I have seen were key employees where offered stock options, bonuses, and other perks depending on the success of the firm including maintaining profits and increasing cash flows of the new firm. I would be glad to give any one a dime for every dollar placed in my hip pocket. Don’t be too greedy and if you cut the benefits of the acquired firm – they all will be out looking for a new position before the sales is completed.

1.Be sure to run the numbers to see what financial liabilities you would have if you let someone left. Many have pensions which (if not assumed by the new firm) that may have to be paid out. Is there a liability for vacations on the books and how could these impact cash flows?

2.Does the seller have a 401k plan and how is it funded. It may not sound like much but with firms who have a lot of employees - these liabilities could be a deal breaker. Does the seller have any contingent liabilities including possible law suits that could be presented if the court case was not favorable – NOTE: Most states will issue to the seller “ a letter of good standing” with the state and advise if any taxes are due (including unemployment and sales tax).
 
3.Does the seller have audited financial statements, copies of tax returns and interim financials? Do they use an outside auditor (and who are they). How much of the financials are prepared internally. Is the auditor (s) aware of any major weakness in the firm’s internal controls?

4.Does the firm have any environmental impact problems such as effluent or pond contamination, scrubbers on the furnaces etc?

5.Does the firm know how many times inventories and receivables are turning. Do they have any cash forecasts available ?

6.Review the key players in sales and marketing, production, accounting, R&D and any other manager that plays a key role in the day to day activities. NOTE: At some time you will need a list of all employees, the titles and duties and remunerations including perks so you can keep the key players on board.

I usually advise the seller that this sale is an ASSETS sale and we are not assuming any liabilities not on the books and disclosed at the time of closing. This makes the seller liable for any undisclosed prior sins. If the seller insists that the sale is a stock sale – than this is normally a deal breaker, the purchase price should be discounted, sales contracts amended to handle any prior liabilities – known or unknown – and find out why they insist on a stock sale.

NOTE:
Most sellers with nothing to hide could care less whether the sale is an asset sale or stock sale as long as they get their money. They normally will answer any question you have and may even offer ideas in buying a business.
 
I have completed over a dozen purchases and they have all been assets sales and on few rare occasions – certain prior liabilities were payable by the seller that were not disclosed at closing.

1. Get a list or a copy of all pertinent documents (can be blank) for customer sales, refunds, employment agreements, purchase orders, list of approved vendors or any other document that could have legal costs if not properly executed.
 
2.Do they have any government contracts and do they have experience personnel to bid on them.

3.Do not be afraid to ask the obvious – such as why are you selling , how would you cut cost or grow the business or ask them to put themselves in your place – what would they do first for the next year.
 
4.Are the cash flows real and can they be verified. Most buyers want to recover their investment within 36 months unless proprietary products (still under patent) are available. Personally I have never seen a buyer go past a payback period of more than 48 months.

Most buyers have out grown the need to be involved in the day to day functions of the business including their opportunity cost become imperative and they will be the first to tell you that it takes as much time and effort to close a $400,000 sale as it does $4,000 one but they will also know at the same time which is more profitable for the firm.

These owners are looking for three things mainly:
 

1.The value of the stock (of both business added together) – hopefully will go up after the sale.
 
2.Ways to put both businesses on auto pilot so they do not have to get involved in anything they don’t have time for.

3. Synergisms – often one plus one does not equal two but sometimes 3 or 4. These are cases where sales will increases for reasons not necessarily obvious – new markets and customers – reduce production cost because of skilled management and consolidation, reduce staffing and other reasons not obvious to someone not involved in the business. Asking the seller if they are aware of others is like getting a ton of investment advice for free from a qualified professional.

Again so many times a purchase is made not because of financial reason especially when there are synergisms and/or proprietary products involved. I would not buy a restaurant or retail shop because the hours are way too long and there is no way to put these operations on auto pilot, securing and keeping good people who won’t rob you blind is too difficult to do. That is not to say that even attorneys buy convenience stores (called C-stores) because the C to me stands for cash. These are quick cash generators – require a minimum amount of inventory, do not need many employees and one does not have to get involved in the day to day operations. Only problem is the stores with the highest returns are located in high crime neighborhoods.

One of the most important questions to ask regardless if you are looking for a 10,000 firm or a 40 million dollar one – is how can we put this operation on auto pilot so I can clone other managers to grow the business. I once told a perspective buyer that the maximum revenues he could buy would be around 25 million and no more. When he asked why – I told him that if it was any larger then he wouldn’t be able to personally manage it (he did not believe in cloning or developing other managers). His revenues haven’t stayed basically the same since the day I first mentioned this to him.

You have basically have three choices –

1.You can get involved with the day to day operations –
2.Put 80 hours a week in the kitchen or store 
3.Depending on your management style - you can go broke or grow rich. 

 

                                    Tail That Swallowed the Dog
 
There have been countless occasions were a 40 million company (in revenues) have purchased firms 10 times their size. If the management of the buyer warrants it – funding is usually not a problem – and even in tough times money is there to invest provided the return is there. Do not think for a minute that because you have less sales in dollars that this disqualifies you as a possible bidder. Since you may not be associated with their major competitors they may want to sell to you to maintain autonomy. My advice is forget the revenue for a moment and run the numbers – if you can pay off the debt in 36 months or less from the cash flow of both firms – then run this by your financing bank.

Financing:

Although running the numbers by your current bank, makes since because they know you as well as your management – the bank maybe way to conservative to do much for you. You may want to consider an Investment banker (or several) to see if they would be interested in doing the financing. These banks usually charge a higher (but not prohibited interest) and will try to get to know not only the buyer but seller as well. Many times they will finance the total purchase price plus the pledge of the owners on their assets until repayment is made. I would spend as much time securing good financing as to find a good prospect because both can affect the outcome of the sale. Besides it is always good to have a fall back when it comes to financing. Financing these purchases can be risky business as well so bankers feel they can ask for concessions such as stock options or preferred stock at the time of closing.

Taxes

Many years ago firms were purchased so that their tax losses could be used to help pay for the financing. The IRS has changed many of the rules in this regard. You need to seek counsel of a qualified Tax expert to see what if any tax advantages would be available from the purchase. If the answer is marginal to none then ignore the tax effect in your cash flow calculations. If they would be allowed and are material – then I would plug them into my cash flow projection and note it in the assumptions of your model. It also wouldn’t hurt to run these projections by a qualified tax professional as well to see if they agree with your approach. Be conservative but realistic and again do your homework. If the venture won’t meet your expected returns on investment or cash flows, it is best to drop the purchase and move on to the next one.

Other

Acquisitions are made for many reasons as mentioned above. Depending on the mindset of the buyer – they normally go broke, work themselves to death trying to manage it or get rich. There are as many possibilities in buying a business as they are buyers and sellers. Making sure your buyer even if it you have to qualify them before making an acquisition is very important. For firms that aren’t married to their present business products or markets – an acquisition can take them to the next level although totally different than where they were before. Some have made fortunes buying firms that fit 60% of the way and spinning off the other 40% at a price that almost pays for the acquisition. Others have made fortunes by buying and selling firms but so have people, who bet on the horses. Acquisitions can be risky – always plan what would be the worst case if the venture folded. Buyers want profitable ventures not used assets of firms that have failed unless they can secure them at bargain prices.

In closing keep two things always in mind when buying a business – DO YOUR HOMEWORK including cash flows and due diligence. Some purchases just put the buyer in a bigger frying pan than they left because of the management time involved.
 
Decide what you want before buying a business and who you want to be - before going to a banker or broker – it is a little different than buying soap at Target.

PROFESSIONAL BUSINESS SYSTEMS