Working with KKBA, or a KKBA Affiliate Broker, will dramatically increase the chances of selling your large or small business faster and for more money than with any other brokers. It is the goal of every one of our honest hardworking professionals to help you realize your entrepreneurial dreams.
You Spent Years Building the Value. We Help Buyers See It.
Selling a business is very different from selling a house, a building or a piece of equipment.
A buyer isn’t simply purchasing your assets.
A buyer is purchasing the future economic benefits those assets, employees, customers, relationships and operations are capable of producing.
That means one of the most important parts of successfully selling your business is demonstrating not simply what the business earned—but why it earned it, how dependable those earnings are, and how much of those earnings can reasonably transfer to a new owner.
That’s where KKBA® ‘s approach begins.
Buyers Buy Earnings
For decades, small and middle-market businesses have frequently been priced using industry rules of thumb and a financial measure commonly called Seller’s Discretionary Earnings (SDE).
We believe today’s sophisticated buyers deserve—and increasingly demand—a better analysis.
An industry multiple doesn’t know your business.
It doesn’t know that 70% of your customers have been with you for years.
It doesn’t know that your revenue is contractual or recurring.
It doesn’t know that no single customer represents more than 3% of sales.
It doesn’t know that you have an experienced management team capable of operating without you.
And it doesn’t know whether last year’s earnings were unusually high, unusually low, or representative of what the business can actually produce.
Your business should be evaluated on its economics—not simply its industry classification.
We Start by Determining What Your Business Really Earns
Tax returns and financial statements are essential, but they don’t always tell the complete economic story of a privately owned business.
Business owners legitimately make financial decisions that may reduce reported income without reducing the economic benefits they receive from owning the company.
There may be owner compensation and benefits, personal or discretionary expenditures, nonrecurring expenses, unusual legal or professional fees, related-party expenses and other items requiring adjustment.
But credible normalization works in both directions.
There may also be expenses that are understated or absent. An owner may perform a job that a buyer will have to replace. Rent may be below market. Family members may work for less than market compensation. Maintenance may have been deferred. Necessary expenditures may have been postponed.
KKBA ‘s objective is not to manufacture the largest possible earnings number.
Our objective is to determine a credible measure of Normalized Income that we can explain and defend to a buyer.
From Reported Income to Normalized Income
Our analysis considers the economic reality behind the financial statements:
Reported Income
+ Legitimate Owner-Related Adjustments
+ Genuine Nonrecurring Expenses
− Missing or Understated Operating Expenses
± Related-Party and Other Normalization Adjustments
= Normalized Income
This provides a much stronger starting point for understanding the value of the business than simply applying an industry multiple to reported income.
But Normalized Income alone still doesn’t tell the whole story.
$500,000 of Earnings Isn’t Always Worth $500,000 of Earnings
Imagine two companies.
Both generate $500,000 of Normalized Income.
The first has recurring revenue, hundreds of customers, low customer concentration, stable margins, experienced management, low owner dependence and years of consistent performance.
The second depends heavily on several customers, relies upon its owner for sales and operations, has unpredictable revenue, declining margins and significant upcoming capital requirements.
The earnings may be the same.
The quality of those earnings isn’t.
And that can have a significant effect on what a knowledgeable buyer is willing to pay.
Introducing KKBA FCF+™EQR™
A Virtual Test Drive of the Business
A virtual test drive can’t eliminate acquisition risk, and it doesn’t replace your independent due diligence. But it can help you better understand the economic engine of the business before you decide whether you want to own it.
KKBA developed FCF+EQR to look beyond traditional business-broker calculations and examine both the amount and the quality of a company’s earnings.
FCF+ helps us analyze and normalize the economic income generated by the business.
Our Earnings Quality Rating (EQR) then evaluates characteristics that may affect the sustainability, predictability and transferability of those earnings.
Depending upon the business, our analysis may consider factors including:
- Recurring and repeat revenue
- Customer concentration
- Customer retention
- Revenue trends
- Earnings trends
- Gross-margin stability
- Owner dependence
- Management depth
- Employee stability
- Contractual revenue
- Supplier concentration
- Competitive position
- Working-capital requirements
- Capital-expenditure requirements
- Deferred maintenance or expenditures
- Regulatory and licensing considerations
- Earnings consistency
- Earnings predictability
- Transferability to new ownership
The result is a much more complete picture of the business a buyer is considering.
Give Buyers a Virtual Test Drive
A buyer considering the purchase of your business faces a difficult problem.
They can tour your facility. They can meet your employees. They can inspect equipment. They can review financial statements.
But they cannot own the business for six months before deciding whether to buy it.
FCF+EQR is designed to give a qualified buyer something approaching a financial “virtual test drive” of the business.
It helps the buyer understand what drives the company’s earnings, what makes those earnings attractive, what risks affect them, and what may reasonably be expected to transfer with the business.
For a seller with a genuinely good business, greater understanding can be an advantage.
Our goal isn’t to hide the weaknesses of your business. It is to make sure buyers fully understand its strengths.
Better Information Can Create Better Buyers
One of the greatest obstacles to selling a privately owned business is uncertainty.
Uncertainty creates risk.
And buyers frequently compensate for risk by lowering their offer, demanding more seller financing, requiring larger escrows, imposing additional contingencies or simply walking away.
A professionally prepared presentation of the company’s operations, Normalized Income and earnings characteristics can help a serious buyer understand the opportunity earlier in the acquisition process.
That doesn’t eliminate due diligence.
It can make due diligence more informed.
We Prepare the Business Before We Market the Business
Our selling process begins before an advertisement is ever published.
- Understand Your Objectives
We begin by understanding why you are considering a sale, your desired timing, your role following the transaction and the objectives most important to you.
Price matters—but so can timing, confidentiality, employees, legacy, transaction structure and certainty of closing.
- Gather and Analyze Financial Information
We collect appropriate historical financial statements, tax returns and supporting information necessary to understand the company’s financial performance.
- Normalize Earnings
We identify and evaluate potential owner-related, nonrecurring, discretionary and other adjustments affecting reported earnings.
We also identify expenses that may need to be restored or normalized so that the resulting earnings presentation is credible.
- Evaluate Earnings Quality
Where appropriate, FCF+EQR helps us evaluate the characteristics affecting the sustainability, predictability and transferability of the company’s earnings.
- Identify Value Drivers — and Value Risks
We look for the characteristics buyers are likely to reward as well as issues likely to concern them.
This gives us an opportunity to properly explain those issues—or, when time permits, help the owner improve them before going to market.
Value Can Be Built Before a Sale
Sometimes the best time to begin working with KKBA is before you’re ready to sell.
If your expected sale is one, two or even three years away, there may be opportunities to improve the quality and transferability of the company’s earnings before buyers ever see the business.
That could mean reducing customer concentration, developing recurring revenue, strengthening management, reducing owner dependence, improving financial reporting, documenting procedures, securing longer-term customer relationships or addressing deferred capital requirements.
Increasing earnings is valuable. Improving the quality of those earnings can be equally important.
Establishing a Defensible Asking Price
KKBA doesn’t believe the value of your business should be determined simply by finding an industry multiple in a book and multiplying it by SDE.
Industry information can be useful, but valuation requires judgment.
We consider the amount of Normalized Income together with earnings quality, historical performance, risk, growth prospects, market conditions, comparable transactions where meaningful, financing realities and other characteristics specific to your company.
The objective is to establish a price that is attractive enough to generate buyer interest while defensible enough to withstand buyer scrutiny, financing and due diligence.
Presenting Your Business Professionally
Once we understand the company and its economics, we prepare the business for confidential presentation to the market.
Depending upon the transaction, this may include a confidential business profile, financial information, operational information, industry information, growth opportunities, competitive advantages and other material needed to help qualified buyers understand the opportunity.
We don’t simply advertise that a business is for sale.
We build the case for why the business is worth owning.
Finding the Right Buyers
KKBA markets businesses confidentially through a combination of our own buyer resources, targeted outreach, appropriate business-for-sale marketplaces and direct contact with strategic and financial acquisition prospects when appropriate.
Depending upon the company, prospective buyers may include:
Individual acquisition entrepreneurs
Existing industry operators
Strategic acquirers
Private equity firms
Family offices
Search funds
Management teams
Other qualified investors
The objective isn’t to generate the greatest number of inquiries.
It is to generate the right inquiries.
Protecting Confidentiality
Confidentiality is essential in a business sale.
We do not indiscriminately distribute sensitive information about your company.
Prospective buyers are required to execute an appropriate Non-Disclosure Agreement before receiving confidential information, and KKBA seeks information concerning their financial resources and acquisition qualifications.
We Take Confidentiality Seriously
Our Non-Disclosure Agreement is intentionally comprehensive. It isn’t designed to be the shortest or simplest NDA a prospective buyer will ever sign—and that’s deliberate.
When you entrust KKBA with the sale of your business, you are also entrusting us with highly sensitive information about your company, employees, customers, suppliers, finances and the fact that the business may be for sale.
If our NDA discourages a casual browser from requesting your confidential information, it has done part of its job.
Our confidentiality process is designed to discourage curiosity seekers, establish clear obligations before sensitive information is released, and remind serious buyers that the information they are about to receive deserves appropriate protection.
A legitimate acquisition buyer should expect confidentiality to be taken seriously.
Your business isn’t just another listing, and your confidential information shouldn’t be treated like one.
Sensitive information can then be released progressively as a buyer demonstrates greater interest, financial capability and seriousness.
Helping Buyers Understand the Opportunity
A qualified buyer who understands your company is better positioned to make an informed offer.
KKBA facilitates communications between buyer and seller, helps answer transaction questions and works to make sure the buyer understands both the financial and operational characteristics of the business.
FCF+EQR can become particularly valuable at this stage.
Instead of merely telling a buyer:
“The SDE is $500,000.”
we want to be able to explain:
How the Normalized Income was calculated.
What adjustments were made.
Why those adjustments are reasonable.
What drives the earnings.
What risks affect them.
Why those earnings may be sustainable and transferable.
That is a much more compelling acquisition story.
Negotiating More Than Price
A good transaction isn’t defined solely by the headline purchase price.
KKBA assists sellers in evaluating the entire proposed transaction, including price, cash at closing, financing, seller financing, working capital, earnouts where appropriate, training and transition, contingencies, timing and certainty of closing.
A higher offer isn’t necessarily a better offer if it has little chance of closing.
Financing Can Determine What Your Business Is Worth
Many business acquisitions are financed.
That means a transaction must make economic sense not only to the buyer and seller, but frequently to a lender.
KKBA works with financing resources familiar with business acquisitions, including SBA and conventional lending, to help determine whether a proposed transaction can be financed successfully.
A properly prepared earnings analysis can help everyone understand the company’s ability to support acquisition debt while continuing to operate successfully.
Due Diligence
Nearly every serious business acquisition includes comprehensive buyer due diligence.
The buyer and the buyer’s professional advisors may examine financial records, tax returns, contracts, employees, customers, assets, liabilities, licenses, leases and numerous other aspects of the business.
Larger transactions may also involve an independent Quality of Earnings (QoE) study performed by an accounting or transaction advisory firm.
FCF+EQR does not replace buyer due diligence or an independent QoE.
Instead, our objective is to enter due diligence with the business and its financial story already well organized, understood and supportable.
Surprises discovered during due diligence kill transactions. Preparation helps prevent them.
From Offer to Closing
KKBA helps coordinate the many moving pieces between an accepted offer and a successful closing, including communication among buyers, sellers, attorneys, accountants, lenders, landlords and other transaction professionals.
We remain involved through due diligence, financing, contingency resolution, lease matters, transition planning and closing.
Selling a Business Should Be a Process — Not an Advertisement
Putting a business on a website is easy.
Successfully transferring a privately owned company to a qualified buyer at a defensible value is considerably more complicated.
At KKBA , our job begins with understanding the economic value you have created.
Then we work to analyze it, explain it, present it, market it, defend it and ultimately transfer it to the right buyer.
You spent years building your business.
When it’s time to sell, make sure buyers understand what you’ve built.
Talk With a KKBA Business Advisor | Request a Confidential Business Evaluation | Learn About FCF+EQR
KKBA ‘s FCF+EQR methodology is an analytical and valuation-support process. It is not an audit, review, compilation, appraisal, independent Quality of Earnings engagement, legal opinion, tax opinion or guarantee of value or future financial performance. Sellers and buyers should consult their appropriate professional advisors regarding transaction-specific financial, legal and tax matters.