Thinking about whether or not you are ready to exit is an important question. It’s something that every business owner will have to address at some point. Importantly, you don’t want to wait until the 11th hour to prepare to sell your business. There are far too many pieces in this particular puzzle to wait until the last minute. You’ll want to begin the process sooner by asking yourself some key questions.
First, you’ll need to determine the actual value of your business. It is a harsh truth, but what you think your business is worth and what the market feels that it is worth may be two very different things.
This point serves to underscore the importance of working with a business broker or M&A advisor early in the process. An experienced broker knows how to go about determining a price that will generate interest and seem fair. Remember that at the end of the day, it will be the marketplace that determines the value of your business, but working with a seasoned professional is an excellent way to match your offering price with what the market will ultimately bear.
Secondly, you’ll want to consider whether or not you truly want to sell. It is not uncommon for business owners to begin the process of selling their business only to realize a few hard facts. Wanting to sell and the time being right to sell are often two different things.
Upon placing your business on the market for sale, you may learn that you’re not emotionally or financially ready. If this happens to you, consider it a learning experience that will serve you well down the line.
Get Your Ducks in a Row
If you have done a financial assessment, a little soul searching and have begun working with a business broker or M&A advisor to determine that now is a good time to sell your business, then there are several steps you’ll need to take. You can be sure that any serious prospective buyer will want a good deal of information regarding your company.
At the top of the list of items potential buyers will want to see are three years of profit and loss statements as well as federal income tax returns for the business. Other important documents ranging from lease and lease related documents, lists of loans against the business and a copy of a franchise agreement, when applicable, are all additional documents that you will need to provide. You should also have a list of fixtures and equipment, copies of equipment leases, lists of fixtures and equipment, and an approximate amount of inventory on hand. A failure to not have this information organized and ready to present at a moment’s notice could be a costly mistake.
Working with professionals, such as accountants, lawyers, and brokers, is a savvy move. Owning and operating a business can be a complex process, and the same holds true for selling a business. Investing the time to seek out experienced and professional advice is the first step in selling your business.
Determining when it’s finally the right time to sell can be a tricky proposition. If you are thinking about selling your business, one of the best steps you can take is to contact a business broker. A good business broker will have years, or even decades, of proven experience under his or her belt. He or she will be able to guide you through the process of determining what you need to do in order to get your business ready to sell.
One major reason you should contact a business broker long before you think you might want to sell is that you never know when the right time to sell may arise. Market forces may change, unexpected events like a large competitor entering your area, or a range of other factors could all lead you to the conclusion that now, and not later, is the time to sell.
In a recent The Tokenist article, “When is the Best Time to Sell a Business?”, author Tim Fries covers a variety of factors in determining when is the best time to sell. At the top of Fries’ list is growth. If your company can demonstrate a consistent history of growth, that is a good thing. Or as Fries phrases it, “What never varies, however, is the fact that growth is a key component, buyers will look for.” Growth will be the shield by which you justify your price when you place your business on the market.
If your business is experiencing significant growth then you have a very strong indicator that now could be the time to sell. Fries points to a quote from Cerius Executives’, CEO, Pamela Wasley who states, “When your business has grown substantially, it might be time to consider selling it. Running a business is risky, and the bigger you get, the bigger the risks you have to face.” Again, growth is at the heart of determining whether or not you should sell.
Knowing the “lay of the land” is certainly a smart move. For example, have there been a variety of businesses similar to your own that have sold or were acquired recently? If the answer is “yes,” then that is another good indicator that there is substantial interest in your type of business.
Reviewing similar businesses to your own that have sold recently can help you determine how much buyers are paying for comparable businesses. This can help you spot potential trends. In short, you should be aware of market factors. As Fries points out, everything from relatively low taxes and low interest rates to strength in the overall economy and an upward trend of sales prices can impact the optimal times for a sale.
Now, as in this exact moment, might not be the right time for you to sell. Getting your business ready to sell takes time and preparation. Fries points out that smart sellers “look for a good time, not the perfect time” to sell a business. Working with a business broker is a great way to determine if now is the right time to sell your business and what steps you have to take in order to be prepared for when the time is right.
The value of your family-owned sports and fitness center may be one of the largest assets in your marital estate. As a result, it is essential for both spouses to know and understand the exact value of their business when contemplating divorce. Simply guessing at the value or using rules of thumb, or having someone who is not an expert in the sports and fitness industry could result in a valuation that is either way too high or way too low.
That’s where Sports Club Advisors can help. As experts in the sports, fitness and leisure industry, we offer a wide range of business valuation services to spouses contemplating divorce, including a Calculation of Value, a Broker’s Opinion of Value, a Section 59-60 Valuation, and Expert Witness Testimony.
Calculation of Valuation
A Calculation of Value is a detailed financial model that estimates the fair market value of a sports or fitness center based on its historical performance, future prospects, and market conditions. The purpose of this valuation is to provide an estimate of value that the parties can use in divorce settlement negotiations. This is the most cost-effective option, but the results from this approach are the same as in the other valuation approaches we use. We use the same financial model and the same valuation practices and principals as in the Broker’s Opinion of Value and the Section 59-60 Valuation, the only difference is we don’t write up a formal report with the results.
Broker’s Opinion of Value
A Broker’s Opinion of Value starts with a Calculation of Value and then adds a cover letter that explains the information we reviewed to prepare the valuation, the methodology we used, and our conclusions. This is often helpful if you need to present the valuation to a third party and you don’t want them to have to interpret a financial model.
Section 59-60 Valuation
A Section 59-60 Valuation is the highest standard of valuation. It gets its name from the section of the Internal Revenue Code that spells out what the IRS requires in a valuation. This standard has been adopted by most courts and is used whenever litigation is required. A Section 59-60 Valuations requires a trained, experienced appraiser to gather, analyze, and report on the financial performance and future potential of the business. This unbiased process removes subjectivity and supports a company’s true value. This is the most expensive option, so we recommend starting with a Calculation of Value or a Broker’s Opinion of Value. We can always update a Calculation of Value to a Section 59-60 Valuation if a settlement can not be reached and litigation is ultimately required.
Expert Witness Testimony
Rich Jackim and Jim Bates, the founders of Sports Club Advisors have a lot of experience serving as expert witnesses in divorce matters involving sports, fitness, and leisure-related companies. We are prepared to present our findings to a court and to explain our process and methodology in an objective, neutral manner.
Why Work With Sports Club Advisors to Value a Sports & Fitness Center?
The valuation professionals at Sports Club Advisors are committed to ensuring you receive the most accurate, efficient, and easy to understand business valuation of your sports or fitness center.
Our valuations are prepared by Rich Jackim (author of the $10 Trillion Opportunity, Designing Successful Exit Strategies for Middle Market Business Owners) and by Jim Bates (Business Valuation for Dummies) who are experts in all areas of business valuations. We are committed to provide you with an intelligent, informed analysis of your business and assure you of 100% confidentiality from start to finish.
Hidden Factors that Affect the Value of a Sports or Fitness Center
Personal Goodwill – Personal goodwill is the value of your business that is the direct result of your personal involvement in the business. The best example of this in a sport and fitness center is when the owner teaches classes or provides private personal training services and had built up a client list of personal clients. If that spouse were to leave and go to work at another fitness studio or training center, it is very likely that many or all of these clients might go with that spouse. The value of the personal “book of business” is that spouse’s personal goodwill. Since personal goodwill is not a part of the marital estate so it is important that both spouses understand whether personal goodwill is present in their business and how much of the company’s value is attributable to personal goodwill.
Term Remaining on Lease – The term remaining on a fitness center lease has a big impact on the business value. It there is not at least 3 years left on the lease a potential buyer will not have enough time to realize a return on their investment, so the value of the business goes down. The same is true if the lease can be renewed but at a much higher rent. The higher rent means lower EBITDA, which translates to a lower value.
Adjusted EBITDA vs Seller’s Discretionary Earnings – Most business brokers value sports clubs and fitness studios based on seller’s discretionary earnings or SDE. SDE is equal to all of the cash flow a company generates. EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. It reflects all of the cash flow a company generates, less a market-based salary for the owner who works at the club. This is very important if one or both of the spouses work in the fitness center. If you value your fitness center based on SDE you will overvalue it because you are not taking into account the salary a new owner would need to pay to replace you.
Value of Intellectual Property – Some health clubs and sports-related businesses have built up a valuable portfolio of intellectual property that is not reflected on the balance sheet or income statement. For example, we sold an organizer of professional kickball tournaments about a year ago. They hosted 10 professional kickball tournaments around the country each year and they videotaped each game as well as the national championship. Kickball enthusiasts from around the world would then sign up and pay a monthly fee to have access to watch these games. About 50% of the value of this business came from the EBITDA it generated, but the other 50% came from the revenue potential represented by this video library and licensing platform. If your fitness center has developed a proprietary app or training program, it may represent significant value that is often overlooked.
Membership Trends – To accurately value a sports or fitness center it is essential that the valuation expert look at membership trends to understand membership attrition rates, membership dues trends, changes in membership types, and other key membership data. Clubs with high member retention rates and increasing dues trends are much more valuable than a fitness center that has 50% membership attrition and is having to lower dues to try to attract new members.
Competitive Analysis – The value of any business, including a sports and fitness center, is based on the expected future performance of that business. As a result, a valuation expert should look at who the center’s competitors currently are, and what competitors are opening up, to understand what impact, if any, the changes in the competitive environment may have on the future performance of the business.
Market Area Analysis – The value of a fitness center or sports club is directly related to the demographics of its local market area. As a result, to get an accurate valuation of your fitness club, the valuation analysis must determine what changes if any are likely to occur in your market area. Is a large new employer moving into the area? Is a developer building a large new apartment complex in the area? Any material changes to the demographics in your market area can have a big impact on the value of your fitness center.
If you own a fitness center or sports club and are contemplating a divorce, you owe it to yourself to seek competent, qualified advice from professionals who understand the sport, fitness and leisure industry.
Contact us today to learn more about the valuation process.
When the complicating variable of family is added to the equation of selling a business, the situation can get rather messy. Family usually complicates everything and businesses are, of course, no exception. Ken McCracken’s recent article “Family business: to sell or not to sell?” 6 questions to help you make the right decision,” seeks to decode the complexities so often associated with family businesses.
Consider the Market
The foundation of determining whether or not now is the right time to sell must begin with market forces. Determining how much your business is worth is a key variable in any decision to sell.
The best way to determine the worth of your business is to have an outside party, such as a business broker, evaluate your business. What you believe your business to be worth and what the market dictates could be very different. You may discover that your business does not have the value that you hoped for. If this is the situation, then selling simply may not be an option.
What is Next for You?
Tied to knowing your market value is understanding what you will do next after you sell your business. For example, do you have a family member who can run the business without you? What will you and any family members who work for the business do after the sale goes through? You may discover that the sale could be very disruptive for you personally. All too often, people fail to recognize the emotional and mental stress that comes along with selling a business. Many owners begin the selling process only to discover that they are not emotionally ready to do so. While everyone wants to be unemotional in making their business decisions, this is not always the case.
You will also need to deal with the issue of due diligence. Working with a business broker is an excellent way to handle the due diligence process. Business brokers usually vet prospective buyers ahead of time, which can save you a great deal of aggravation and wasted time.
McCracken believes business owners should investigate how the prospective buyer handled previous acquisitions. Specifically, McCracken believes that business owners should look to how well the prospective buyer honored previous commitments, as doing so is an indicator of how trustworthy a buyer may be.
Planning for Negotiations
Finally, McCraken believes it is essential to know who will oversee negotiations. It is key to note that many deals that could have otherwise been successful, fall apart due to poor negotiations. A business broker can be invaluable in negotiations. After all, who wouldn’t want someone with dozens, or even hundreds, of successful transactions advising them?
Selling a family business can be emotionally charged and can cause significant life changes for not just you, but for members of your family as well. Often, family businesses were built up over a lifetime or even over generations, which can make the decision to sell quite emotionally charged.
If you are like many business owners, you are primarily focusing on building your business. Yet, as we’ve covered here many times before, you should start thinking about what you’ll need to do to sell your business before you even officially launch. Many businesses can take years to sell or even fail to sell all together. For this and many other reasons, it is important to invest some time and energy into thinking about proper exit planning and strategies.
Walker Deibel’s recent Forbes article, “How Proper Exit Planning Benefits the Buyer and Seller,” Deibel discusses his interview with Exit Planning: The Definitive Guide, author John H. Brown. Brown and Deibel both agreed that, when properly handled, exit planning can help both the seller and the buyer.
Exit planning can make a business more transferable. As Deibel points out, when buyers are evaluating businesses, transferability is a key factor. A buyer must feel that he or she can walk into a business, take it over, keep it running effectively and even grow the business in the future.
A key aspect of being able to buy a business and having that business be successful is that all relationships from vendors to customers are transferable. A good management team, one that can step in and help a new owner thrive, is a must. Building that team in advance is a savvy move for any business owner looking to sell his or her business. Concerns on any of these fronts can spell doom for a seller. If a buyer doesn’t feel that they can operate a business, then they probably shouldn’t be buying it.
Great exit planning most definitely benefits the seller as well. As Deibel notes, when sellers engage in exit planning, they realize how much money they need in order to exit. In turn, this forces sellers to become very focused and goal-oriented. Sellers will take proactive steps to ensure that their business is as appealing to a potential buyer as possible.
Ultimately, proper exit planning is a win-win, one that benefits both buyer and seller. Exit planning can provide sellers with much-needed clarity while simultaneously lowering the overall risk that sellers face.
Buying or selling a business is a multifaceted, and often quite complex, process. The sooner you begin working with a professional, like a business broker, the better off you’ll be in finding the right business for you and your particular needs. For most people, buying or selling a business is the financial decision of a lifetime. Having a proven trusted partner, one that knows the lay of the land, is simply invaluable.
Selecting the right damages expert witness can make or break your case. Knowing how to pick the right expert is key to obtaining a successful outcome.
Choosing the right expert for a litigation matter goes beyond just checking that the person has the right credentials to act as an expert on financial damages. It is equally important that the expert can connect with the judge or jury, and educate them about how the available data and other information supports your client’s position.
Know What Skills Your Expert Witness Must Have
Expert witnesses are often referred from one attorney to another, however, when you need an expert with a very specific skill set, like expertise in business valuation and mergers and acquisitions issues related to the sports, fitness and leisure industry, clients and law firms do research to identify potential experts.
When picking an expert witness it is critical that you and your attorney know exactly what skills you want your expert witness to have. Richard Jackim, the Managing Partner at Sports Club Advisors, is a former mergers & acquisitions attorney and an experienced investment banker who has been involved in over 25 mergers and acquisitions in the sports, fitness and leisure industry, has performed over 90 valuations of sports & health clubs, fitness centers, and boutique fitness studios, and is familiar with franchise agreements and the world of franchising. Jackim earned his law degree with honors from Cornell University Law School and his Master of Business Administration with honors from the Kellogg Graduate School of Management at Northwestern University. Rich also developed and taught the Certified Exit Planning Advisor program offered through the Booth School of Business at the University of Chicago. A copy of his expert witness curriculum vitae is available here.
In addition to the right credentials, an effective expert witness must be able to communicate in a clear, concise, and articulate manner. He must come across as knowledgeable, accessible and self-assured, but not condescending. The ability to build rapport with the judge and jury is essential; and when both sides present a strong, technically sound case, a jury often favors the side whose expert was able to communicate the issues more clearly or convincingly. To that end, we offer clients and their attorney’s a free, one-hour initial assessment of their claims so they can determine if our approach and communication style meets their needs.
Richard Jackim is a personable and knowledgeable expert and has a unique ability to present complicated issues in a clear and concise manner that connects with judges and juries.
Credibility is Key
An expert must also be polished and unflappable in the face of tough, sometimes seemingly stupid questions from opposing counsel. An expert witness must be able to answer questions about his background and experience to withstand a Daubert challenge. It’s critical for the attorney to have an upfront conversation with the expert to ensure they are of good character; have worked for both plaintiff and defendant; learned of any positions they may have taken that are adverse to the position taken in this case, whether through testimony or through publications of an article; and whether they have been Dauberted.
Richard Jackim’s top-tier academic credentials, plus his 30 years of business experience including practicing mergers & acquisitions law, and leadership positions at several leading investment banking firms, provides him with unique qualifications as an expert witness. His opinions are based on market realities and actual transactions, not just financial theories. As a result, he can speak to industry best practices and what is “market”.
An Expert’s Experience = Your Advantage
It’s also important that you select an expert witness who has experience testifying in a courtroom or providing deposition testimony. This experience enables them to have a clear understanding of the moving parts of a case, gives them an advantage by being able to understand how litigation and depositions work, allows them to anticipate the kinds of questions opposing counsel might ask, and helps you and your attorney understand the key weaknesses in the opposing expert’s presentation.
Richard Jackim has consulted on over thirty-two different litigation matters, testified in six depositions, and provided expert witness testimony in two trials. His experience as an industry expert and as an expert witness helped the parties settle thirty matters without the need to go to trial. On the two matters that did go to trial, Jackim’s clients won both matters on the merits, with the judge stating in one case that Jackim’s testimony was clear and convincing and could not be refuted by the opposing expert witness.
Areas of Expertise for Sports Businesses & Health and Fitness Centers
- Business Valuations
- Financial Damages (lost revenues & profits)
- Valuation of Membership Lists
- Valuation of Personal Goodwill
- Earnout Disputes
- Lender or Creditor Disputes
- Shareholder Disputes
- Buyer & Seller Disputes
Engage An Expert Witness as Early as Possible
For these reasons, we encourage clients and their attorneys to contact us as early as possible. Early collaboration provides us with an opportunity to help you and your attorney to discuss strategy. Ideally, we would be engaged early enough to assist in formulating requests for discovery. As a well-versed damages expert, Jackim knows what information is needed to ensure a thorough and supportable analysis. In addition, engaging us early in the process allows time to think through the issues and help you and your attorney develop the most cost-effective strategy to present your case.
In the event we find we cannot support your position based on the information provided, knowing this early on can give you time to either revise your strategy or find a different expert. Remember, unlike attorneys who are advocates for their clients, your expert witness should be a neutral, third party whose opinion is objective and unbiased. Jackim has built an impeccable reputation by providing clients with honest, objective, advice based on the available facts and his years of industry experience.
As an experienced damages expert, Jackim is familiar with recent case law in the subject area, as well as the best health club and fitness center business practices and mergers and acquisitions norms. He understands his role and can be the deciding factor in your case if you choose to use his knowledge, experience, and credentials. For a free initial consultation, please contact Richard Jackim at firstname.lastname@example.org or at 224-513-5142.Read More