Evaluating Your Company’s Weaknesses

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The time you spend evaluating your company’s weaknesses is, as it turns out, one of the single best investments you can hope to make. No one should understand your company better than you. But to fully understand your company, it is essential that you invest the time to understand your company’s various strengths and weakness.

Your company, from the beginning, has been an investment. It’s an investment in your time, your mental energy and, of course, your financial resources. The time and effort you expend to locate, understand and then fix your businesses’ weaknesses is time very well spent. Addressing and remedying your businesses’ weakness will not only pay dividends in the here and now, but will also help get your business ready to sell. Let’s turn our attention to some of the key areas of weakness that can cause some buyers to look elsewhere.

An Industry in Decline

A declining market can serve as a major red flag for buyers. You as a businessowner must be savvy enough to understand market situations and respond accordingly.

If you spot a troubling trend and realize that a major source of your revenue is declining or will decline, then you must branch out in new directions, offer new goods and/or services, find new customers and also find new ways to get your existing customers to buy more. Taking these steps shows that your business is a vibrant and dynamic one.

You Face an Aging Workforce

It has been well publicized that young people, for example, are not entering the trades. Many trades such as tool and die makers will be left with a substantial shortage of skilled workers as a result. No doubt, technology will replace some, but not all, of these workers.

This is an example of how an aging workforce can impact the health and stability of a business. If your business potentially relies upon an aging workforce then it is essential that you find a way to address this issue long before you put your business up for sale.

You Only Have, or Primarily Rely Upon a Single Product

Being a “one-trick pony” is never a good thing, even if that trick is exceptionally good. Diversification increases the chances of stability and can even help you find new customers. Additional goods and services allow you to weather unexpected storms such as a supply chain disruption while at the same time provide access to new customers and thus new revenue.

The Factor of Customer Concentration

Many buyers are concerned about customer concentration. If your business has only one or two customers, then your business is highly vulnerable and almost every prospective buyer will realize this fact. While it is an investment to find new customers, it is well worth the time and money.

A business broker can help you evaluate your company and, in the process, address its weaknesses. Remedying your businesses weakness before you put your business up for sale and you will be rewarded.

Copyright: Business Brokerage Press, Inc.

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What Should You Evaluate When Buying a Business?

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Buying a business can be an exciting prospect. For many prospective business owners, owning a business is the fulfillment of a decades long dream. With all of that excitement comes considerable emotion. For this reason, it is essential to step back and carefully evaluate several key factors to help you decide whether or not you are making the best financial and life decision for you. In this article, we’ll examine five key factors you should consider before buying a business.

What is Being Sold?

If you hate the idea of owning a clothing store, then why buy one? The bottom line is that you have to have a degree of enthusiasm about what you are buying otherwise you’ll experience burnout and lose interest in the business.

How Good is the Business Plan?

Before getting too excited about owning a business, you’ll want to take a look at the business plan. You’ll want to know the current business owner’s goals and how they plan on going about achieving those goals. If they’ve not been able to formulate a coherent business plan then that could be a red flag.

You need to see how a business can be grown in the future, and that means you need a business plan. Additionally, a business plan will outline how products and services are marketed and how the business compares to other companies.

How is Overall Performance?

A key question to have answered before signing on the bottom line is “How well is a business performing overall?” Wrapped up in this question are factors such as how many hours the owner has to work, whether or not a manager is used to oversee operations, how many employees are paid overtime, whether or not employees are living up to their potential and other factors. Answering these questions will give you a better idea of what to expect if you buy the business.

What Do the Financials Look Like?

Clearly, it is essential to understand the financials of the business. You’ll want to see everything from profit and loss statements and balance sheets to income tax returns and more. In short, don’t leave any rock unturned. Importantly, if you are not provided accurate financial information don’t hesitate, run the other way!

What are the Demographics?

Understanding your prospective customers is essential to understanding your business. If the current owner doesn’t understand the business, that is a key problem. It should be clear who the customers are, why they keep coming back and how you can potentially add and retain current customers in the future. After all, at the end of the day, the customer is what your business is all about.

Don’t rush into buying a business. Instead, carefully evaluate every aspect of the business and how owning the business will impact both your life and your long-term financial prospects.

Copyright: Business Brokerage Press, Inc.

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The Top Three Major Legal Mistakes to Avoid During a Sale

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The business sale process can be complex, which is part of the reason why it makes sense to have expert help in the form of a business broker. Legal mistakes can be very costly mistakes. A legal mistake can also bring the entire sale process to a sudden and complete halt. Let’s take a closer look at what you can do to avoid these kinds of issues when selling your business.

Major Mistake 1 – You Skipped the Non-Disclosure Agreement

Nothing quite invites trouble like skipping the non-disclosure agreement. If a deal falls through, then you have the NDA backing you up. This document ensures that the prospective buyer doesn’t tell the world that your business is up for sale. Never assume that a deal is going through until it actually is 100% complete. Buying or selling a business is a complex process with lots of moving parts. There is plenty of room for things to go wrong, and that is why you always need to have an NDA in place.

Major Mistake 2 – You Don’t Work with an Attorney

Let’s be very blunt here, if you are selling a business, then you need an attorney. Just as there is no replacement for an NDA, the same holds true for working with a lawyer. It is also vital that you properly prep your business for sale, which means getting paperwork organized and making sure that you have legally checked all your boxes. Working with an experienced and proven attorney will help you ensure that your business is ready for sale. If you’re not prepared for the deal, it can make buyers nervous.

Major Mistake 3 – You Failed to Get a Letter of Intent

A letter of intent is a valuable, and necessary, legal document. Some sellers are reluctant to use it, fearing that it will slow down the momentum of the deal. However, since this letter works to protect your interest and outlines expectations, this step should not be skipped. For example, a letter of intent details the termination fee for the buyer, meaning that the buyer can’t walk away without consequences simply because he or she is having a bad day. Importantly, a letter of intent ensures that you are only dealing with serious buyers.

Many things can go wrong while selling a business. The more prepared you are before you begin the process, the greater the chances that you will not only avoid headaches, but also be successful. Long before you put your business on the market, you should begin working with a capable business broker and attorney. Their input and advice will prove to be invaluable and help you avoid a range of costly and time-consuming issues.

Copyright: Business Brokerage Press, Inc.

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Interested in Buying a Business? Check Out These 3 Commonly Overlooked Areas

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When it comes to buying a business, nothing is more important than the factor of due diligence. For most people, this investment is the single largest financial decision that they will ever make. And with this important fact in mind, you’ll want to leave absolutely no stone unturned.

Let’s examine the three most commonly overlooked areas when it comes to buying a business: retirement plans, 1099’s and W-2’s, and legal documents.

1. Examine All Legal Documents

While it may sound like a “pain” to investigate all the legal documents relating to a business that you are vetting for purchase, that is exactly what you have to do. The very last thing you want is to buy a business only to have the corporate veil pierced. Everything from trademarks and copyrights to other areas of intellectual property should be carefully examined. You should be quite sure that you receive copies of everything from consulting agreements to documentation on intellectual property.

2. Retirement Plans

Don’t forget about retirement plans when you’re buying a business, as this mistake can quietly translate into disaster. Before signing on the dotted line and taking ownership, be sure that both the business’s qualified and non-qualified retirement plans are 100% up to date with the Department of Labor and ready to go.

3. W-2’s and 1099’s

If 1099 forms were given out instead of W-2’s, you’ll want to know about that and be certain that it was done within the bounds of IRS rules. Imagine for a moment that you fail to do your due diligence, buy a business and then discover that you have problems with the IRS. No one wants IRS problems, but a failure to perform due diligence can quickly result in just that. So do your homework!

Never forget what is at stake when you are buying a business. If there has ever been a time to have laser-like focus, this is that time. There can be many skeletons hiding in a business, and you want to be sure that you protect yourself from any unwanted surprises. Not performing your due diligence can lead to a shockingly large array of problems. One exceptional way to protect yourself is to work with a business broker. A business broker knows what to look for when buying a business and what kinds of documents should be examined. There is no replacement for the expertise and experience that a business broker brings to the table.

Copyright: Business Brokerage Press, Inc.

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5 Key Factors in Transferring Your Business to a Family Member

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The odds are that you’ve put a great deal of yourself into your business. Inevitably, the day will come when you have no choice but to walk away from your business and begin a new chapter of your life. Quite often, businesses are transferred from one family member to another. In this article, we will examine 5 of the key factors you’ll want to consider when transferring your business to a family member.

Factor #1 Gifting Can Have Numerous Benefits

Will you be selling your business to a family member or simply gifting that business? Gifting comes with several major advantages, for example, this approach can reduce your real estate taxes. Also, the gifting process can allow you to maintain a level of control if the agreement is written properly.

Factor #2 The Buy-Sell Agreement

Don’t overlook the importance of the buy-sell agreement, which works to put everything in writing. You may be tempted to forgo a contract since you are dealing with a family member, but this is a mistake, no matter how close you might be with your loved ones. A buy-sell agreement adds clarity to the process, which can help to keep confusion levels low and the chances of success high. When the time comes to transfer your business to a relative, you’ll want an expert to create a document that outlines all relevant details. It should feature everything from the value of the business and the amount being paid for the business to who will be kept on the payroll to what level of involvement you’ll have once the process is finished.

Factor #3 Seller Financing

Seller financing is quite common among sellers, and when relatives are involved it becomes even more common. One option is to consider a private annuity. A private annuity allows for payments to be spread out for many years and can even extend until the end of your life.

Factor #4 Considering the Self-Cancelling Installment Note

In the installment note, it is possible to feature a self-cancelling clause, which can definitely benefit your family in the future. This part of the paperwork will confirm that if you were to pass away before all the payments have been made, the remaining debt can be attached directly to your will. If you are a parent selling a business to a child, then one of the key benefits of an installment note is that it keeps your other children from paying excess income tax on your estate.

Factor #5 Transferring a Business to a Relative and the IRS

You can expect the IRS to take a second look when you sell a business to a family member. The IRS does this to make sure that everything is above board, due to the fact that many past business owners have acted in an unethical manner. You’ll want to be very sure that every aspect of the sale is done professionally and that you have all your paperwork in order.

A business broker can help you deal the unique particulars that come along with selling a business to a relative. Every business is different, and every sale is different too. A professional business broker can help you avoid common mistakes and pitfalls.

Copyright: Business Brokerage Press, Inc.

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Maintaining Confidentiality Throughout the Sale Process

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There are two key ingredients when it comes to selling a business: professionalism and confidentiality. If either of these two ingredients are lacking, then you’ll most likely run into problems. Sadly, many sellers see their deals fall apart due to a breach of confidentiality. You certainly don’t want to be among their ranks.

The simple fact is that a breach in confidentiality can negatively impact everyone from suppliers and vendors to creditors. For example, vendors could change their terms and this, in turn, could have a major, negative impact on cash flow. There can be a chain reaction of events that spirals out of control.

The potential negative outcomes of a breach in confidentiality are quite numerous, for example, employees and customers alike could begin to worry about the future of the business. Employees could begin to worry about the safety of their jobs and begin looking for a new position. Dangerously, this situation could lead to changes in management and the loss of key employees. Likewise, customers, fearing instability with the business, could also decide to take the business elsewhere, leading to revenue problems.

Yet another complicating factor comes in the form of the competition. If the competition hears that your business is up for sale, they could sense blood in the water and look to steal your customers.

Ultimately, a breach could give potential buyers cold feet. At this point, it should be very clear that protecting confidentiality is a must. One of the single best ways to ensure that confidentiality is maintained is to opt for an experienced and proven business broker. Business brokers understand the simply tremendous value of keeping things under wraps.

It may be tempting to try and sell your business on your own, but it is vital to understand that doing so can damage your businesses’ reputation. A good business broker knows how to shield your business from breaches of confidentiality. By working with a business broker, not only are confidentiality agreements signed and taken seriously, but also you’ll know that prospective buyers are vetted and fully pre-qualified. According to an article on Inc.com, broker feedback has revealed 9 out of 10 interested parties who respond to “business for sale” ads are not qualified to make the purchase. Why would you want to risk giving away key details to these parties?

In short, you’ll have a much better idea of who you are dealing with and how serious they are about buying your business. At the end of the day, there is no replacement for maintaining confidentiality.

Copyright: Business Brokerage Press, Inc.

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Key Elements for Every Partnership Agreement

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You should never forget that your partnership agreement is, in fact, one of the most important business documents you will ever sign. Many people go into business with loved ones, relatives or lifelong friends only to discover (once it’s too late) that they should have had a partnership agreement. A partnership agreement protects everyone involved and can help reduce problems that may arise. Outlining what will happen during different potential situations and events in a legal framework can help your business keep running smoothly.

What Should Be in a Partnership Agreement?

Every business is, of course, different; however, with that stated, any partnership should outline, with as much clarity as possible, the rights and responsibilities of all involved. A well written and carefully considered partnership agreement will keep small problems and disagreements from evolving into more elaborate and serious concerns.

There are times to take a DIY approach and then there are times when you should always opt for a professional. When it comes to partnership agreements, it is best to opt for working with a lawyer. Finding competent legal help for drafting your partnership agreement is simply a must.

What is Typically Addressed in a Partnership Agreement?

In theory, a partnership agreement can cover a wide-array of factors. Here are a few points typically addressed in partnership agreements.

What Questions Will a Good Partnership Agreement Address?

  1. Which partner(s) are to receive a draw?
  2. How is money to be distributed?
  3. Who is contributing funds to get the business operational?
  4. What percentage will each partner receive?
  5. Who will be in charge of managerial work?
  6. What must be done in order to bring in new partners?
  7. What happens in the event of the death of a partner?
  8. How are business decisions made? Are decisions made by a unanimous vote or a majority vote?
  9. If a conflict cannot be resolved when must the conflict be resolved in court?

Thanks to partnership agreements, all partners involved can proceed and start a new business with fewer areas of concern. The simple fact is that without a partnership agreement, your business can face a range of disruptions; these would be disruptions that could ultimately spell doom for your business.

Copyright: Business Brokerage Press, Inc.

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Embracing Retirement and Selling: 4 Tips for a Smooth Transition

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No one works forever. Regardless of how much you love your business, sooner or later you will have to step away. Owning a business can be very demanding. This fact can be doubly true for owner-operators of businesses. The simple fact is that you’ll have to embrace retirement at some point.

Most business owners have never sold a business before and may not know what to expect. The good news is that prospective buyers usually like the idea of buying an established business directly from a business owner. It is key, however, to do everything possible to make selling your business, as well as the transition period, as easy for a buyer as possible.

Prepping your business for sale has many diverse parts that need to be taken into consideration. Prospective buyers want to feel as though they will have a seamless transition, so it’s in your best interest to evaluate what steps you need to take to make the transition smooth.

You are the world’s greatest expert on your business. As a result, you are perfectly positioned to evaluate your business so as to ensure that it is both appealing to a prospective buyer and ready to sell. Let’s take a look at the steps you can take to ensure a smooth transition.

The Top 4 Transition Tips

1. Automate as many processes as possible.

In this way, prospective buyers are less likely to be intimidated by the level of work involved in owning a small business. The odds are good that many of your prospective buyers have never owned a business before. One of the best ways to not scare prospects away is to make owning and operating your business as streamlined as possible.

2. Work with your employees, key customers and vendors to ensure a smooth transition.

Anything that can cause a potential disruption may scare off prospective buyers. Put yourself in the shoes of prospective buyers and think about what may cause you concern if you were evaluating a business. Once you locate those areas of potential concern, do what you can start to remedy them well before placing your business on the market.

3. Pick out your “second-in-command” before you sell your business.

Having a competent and proven “right hand man or woman” that can step in and essentially operate your business is a very attractive asset to have in place when it comes time to sell your business.

4. Consider working with a business broker.

Brokers are expert in the art and craft of buying and selling businesses. They will be able to help you evaluate your business and address areas that need improvement so as to ensure a smooth transition.

Taking these steps will not just make your business easier to sell, but it will also shorten the amount of time it takes to sell. The last thing you want when you are ready to sell your business and retire is for the selling process to drag on forever.

Copyright: Business Brokerage Press

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Is It Time to Become a Business Owner? 3 Questions to Ask Yourself.

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Many people know that owning a business isn’t for them. But for others, the appeal and lure of owning their own business can be powerful indeed. If you are uncertain as to whether or not this path is for you, there are a few simple questions you can ask to gain almost instant clarity. In this article, we will explore those key questions and help you determine if owning a business is in your future.

1. Are You Dedicated to Growing Your Income?

Quite often people like the idea of making more money, at least in the abstract. But when presented with what it takes, many people realize that they don’t want to do what is involved. Owning and operating a business can be a lot of work and it’s not for everyone. Yet, those who embrace it can find it rewarding in a variety of ways.

Being a business owner is radically different than being an employee. As an employee, you simply don’t exercise much control. Summed up another way, your financial fate is clearly in the hands of someone else: your employer.

However, owning a business means that you can take steps to control your own financial destiny. You can make decisions that will, ultimately, boost the success of your business and in turn increase your own income.

As an important note, statistics from 2010 show that the longer you own your business the more money you, as the business owner, will make. It is typical for those who have owned a business for ten years or more to earn upwards of six figures per year. If you have had more than one year of experience in running an organization, the yearly salary will likely range from $34,392 to $75,076. However, if you’ve owned your business for more than a decade, you will likely earn more than $105,757 per year.

While there are no guarantees, owning a business can be a path to growing one’s income and wealth.

2. Would You Like Greater Control Over Your Life?

Many opt to start their own business because they want more control. Business owners realize that unless they own their own business their financial fates rest in the hands of someone else. Some people are comforted with this feeling or don’t see a way around it and others are not so comfortable with the realization. If you want greater control over your life, then owning a business might be for you.

Owning a business increases the amount of control a business owner has over his or her life in many ways, not just financial. For example, business owners have more control over how they spend their time, where they work, when they work and who they work with on a daily basis. Instead of being part of a business, you help create, mold and shape it. Clearly, this is a lot of work and it isn’t for everyone, but again the rewards can be diverse and great.

3. What is Your Personality Like?

Owning a business translates to great control, but that control comes with a degree of risk. In the end, you’ll have to determine how comfortable you are in dealing with risk. As a business owner the “buck” stops with you. You’re risking your time, effort and, of course, money. You also don’t get a paid vacation, sick days or any of the other benefits so often associated with being an employee.

Other traits identified during a study by the Guardian Life Small Business Research Institute showed there are other ideal personality traits for business owners. These traits include collaboration, curiosity, focus on the future, and being self-fulfilled, tech savvy and action oriented.

Thinking about these three key questions is the perfect place to start when contemplating opening a business. Additionally, working with a business broker can help you gain clarity and determine if owning a business is right for you.

Copyright: Business Brokerage Press, Inc.

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The Top Two Ways to Purchase a Business without Collateral

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Banks love collateral and for a very simple reason. If you have collateral, then the bank has something it can take if you fail to repay your loan. At its heart, collateral is a remarkably simple concept. However, unfortunately, many people who want to start a business lack it. All of this leads us to the simple question, “Can I start a business without a collateral.

1. Try the SBA

There are ways that you can start a business without collateral, but you will need some amount of money. The larger the business, obviously the more money you’ll need. Those interested in the zero collateral route will want to take a look at the SBA’s 7 (a) program. This program incentivizes banks to make loans to prospective buyers. Through this program, the SBA guarantees an impressive 75% of the loan amount.

Of course, the buyer still has to put up 25% of the money in order to buy the business, but for those looking to own a business without having to put up collateral, the SBA’s 7 (a) program is an impressive option. Perhaps best of all, the cash buyers used can come from investors or even a gift, helping to make this program a potentially great one for first time business owners.

2. Think about Seller Financing

Another option is seller financing. Sellers frequently get involved in financing. When a seller is motivated to sell, due to retirement or some other factor, things can get interesting. Most sellers do agree to offer some degree of financing, so asking for selling financing is not unheard of or insulting to a business owner. Prospective business owners may even be able to combine seller financing with the SBA’s 7 (a) program. Correctly used, this path could provide a powerful and useful option.

Speaking of retiring, according to The International Business Brokers Association (IBBA), M&A Source and the Pepperdine Private Capital Market Project, 33% of deals now take place when owners are retiring. This clearly demonstrates how it is in the best interest of many sellers to consider seller financing.

While the SBA’s 7 (a) program is potentially very useful to buyers, it is important to note that under the program, the seller cannot receive any payments for two years. Working around this potential problem may very well require some creativity and effort on the part of the prospective buyer. In the end, it may be necessary to offer the business owner some incentive in order to justify waiting two years for his or her money.

Attempting to buy a business without collateral may, at first, sound like too large of an obstacle to overcome. However, these kinds of purchases really do happen all the time. By staying focused, persistent and understanding your options, you will increase your odds of success. Finally, get as much professional help as possible. Prospective business owners should consult with S.C.O.R.E., experienced business brokers and others to learn the best way to buy a business without collateral.

Copyright: Business Brokerage Press, Inc.

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Fairness Opinions

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Since one often hears the term “fair value” or “fair market value,” it would be easy to assume that “fairness opinion” means the same thing. A fairness opinion may be based to some degree on fair market value, but there the similarities end. Assume that you are president of a family business and the other members are not active in the business, but are stockholders; or you are president of a privately held company that has several investors/stockholders. The decision is made to sell the company; and you as president are charged with that responsibility. A buyer is found; the deal is set; it is ready to close — and, then, one of the minority stockholders comes out of the woodwork and claims the price is too low. Or, worse, the deal closes, then the minority stockholder decides to sue the president, which is you, claiming the selling price was too low. A fairness opinion may avoid this or protect you, the president, from any litigation.

A fairness opinion is a letter, usually only two to four pages, containing the factors or items considered, and a conclusion on the fairness of the selling price along with the usual caveats or limitations. These limitations usually cite that all the information on which the letter is based has been provided by others, the actual assets of the business have not been valued, and that the expert relied on information furnished by management.

This letter can be prepared by an expert in business valuation such as a business appraiser or business intermediary. The content of the fairness opinion letter is limited to establishing a fair price based on the opinion of the expert. It does not provide any comment or opinion on the deal itself or how it is structured; nor does it contain any recommendations on whether the deal should be accepted or rejected.

Fairness opinions are often used in the sale of public companies by the board of directors. It helps support the fact that the board is protecting the interests of the stockholders, at least as far as the selling price is concerned. In privately held companies, the fairness opinion will serve the same purpose if there are minority shareholders or family members who may elect to challenge the price the company is being sold for.

Copyright: Business Brokerage Press, Inc.

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Are You Asking a Reasonable Price for Your Privately Held Company?

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Placing a price on a privately-held company is usually more complex than placing a value, or a price, on a publicly-held company. There are many reasons for this fact, but one of the top reasons is that privately-held companies don’t have audited financial statements.

Why are Audited Financial Statements Lacking in Privately-Held Companies?

Preparing an audited financial statement is expensive and, as a result, many companies that have not gone public simply forego the expense. On the other hand, publicly held companies reveal much more information regarding their finances as well as a range of other kinds of information.

Compared to a privately-held company, a publicly held company can often seem like an “open book.” Buyers are left with the proposition of having to dig out a lot more information from a privately-held company in order to assess whether or not a valuation or price is accurate.

What Can You Do to Overcome this Factor?

You, as the seller, can help streamline this process. By having as much information available as possible and having your accountant make sure that your numbers are presented in a manner that is easy to understand and follow, you will increase your chances of selling your business.

Experts agree that there are several steps a seller of a privately-held company can make when he or she is establishing a price or a value. First, use an outside appraiser or expert to determine a value. Next, establish what your “go-to-market” price is. Third, know your “wish price.” A seller’s “wish price” is the price that he or she would ideally like to see. Finally, it is critical that sellers establish the lowest price that they are willing to take. You should know in advance how much you are willing to sell for as this can help a negotiation move along.

The Marketplace Will Ultimately Decide

It is common that the final sale price for the company be somewhere between the asking price and the bottom-dollar price established in advance by the seller. Yet, it is important to note, that on occasion a selling price may, in fact, be lower than any of the four we’ve outlined above. At the end of the day, the undeniable fact, is that the marketplace will establish the final sales price.

Here are a few of the areas that you can expect a buyer to review when establishing the price that he or she is willing to pay: stability of the market and stability of earnings, the potential of the market, product diversity, the size of the customer base, the number and seriousness of competitive threats, how broad the customer base is, the relationship with suppliers, the distribution network in place, needs for capital expenditures and other factors. The more favorable each of these points are, the more likely it is you’ll receive a higher price.

Copyright: Business Brokerage Press, Inc.

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Examining the Mind of the Serious Buyer – 5 Points to Consider

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Are you looking for a way to perfect your presentation? Understanding what the typical serious buyer wants will help you get your business ready for selling.

Let’s turn our attention to looking at what these types of individuals and entities really want. After all, your time is precious.

1. An Interest in the Industry

First, prospective buyers will want to have a better understanding of your industry. Any serious buyer will want to understand the industry as a whole, as well as your existing customers, prospective customers and the strengths and weaknesses of your business. Key factors, such as threats from competition, will also be a major factor for prospective buyers.

2. Seeking Knowledge about Discretionary Costs

Secondly, expect buyers to take a long look at discretionary costs. Sellers will often look to reduce their expenses in a range of discretionary areas including advertising, research and development and public relations; this is done to help make a business appear more attractive to a buyer. However, it is important to note, that a savvy prospective buyer will notice reduction in discretionary expenses.

3. Inquiries about Wages and Salaries

Wages and salaries is another area that receives attention from buyers. If your business is paying minimum wage or offers a limited retirement program then employee turnover is likely to be high. Buyers may be concerned that employee stability may be low, which, of course, can potentially disrupt business.

4. Questions about Cash Flow and Inventory

No serious buyer will ignore the issue of cash flow. Any prospective buyer will want to know that the business they are considering buying will continue to generate profits both now and in the future.

Inventory is another area that will not be ignored. If your business is carrying a large amount of antiquated, unsalable or simply unusable inventory, then expect that to be factored into a prospective buyer’s decision-making process. It is best to disclose such inventory instead of hiding it, as it will be discovered during due diligence.

5. Seeking Capital Expenditure Details

Finally, capital expenditures will be examined by buyers. You can expect buyers to carefully evaluate machinery and equipment to ensure that there will be no expensive surprises looming on the horizon.

These give areas are definitely not the only areas that buyers will explore and investigate. Everything from financial agreements and environmental concerns to government control will be examined in depth. You should invest some time thinking about the situation from the perspective of a buyer, as this will help you discover many potential problems and try to secure viable workarounds. Working closely with a business broker is another way to ensure that you can successfully anticipate the needs of buyers.

Copyright: Business Brokerage Press, Inc.

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Is Now the Right Time to Sell Your Company?

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Like many things in life, timing can be everything when it comes to selling your company. Every day more and more baby-boomers are now reaching retirement age. Soon, the market will likely be flooded with companies looking to sell.

According to a 2016 survey of business brokers, 54% plan to exit in the next ten years. We may be on the verge of a massive wave of businesses hitting the market. Getting out in front of that wave could be in your best interests. Now very well may be the time to sell.

Are You Suffering from Burnout?

If you’ve been running your business for many years, it is quite possible that you are suffering from burnout. This issue is remarkably common with business owners and it is also very dangerous. Owners suffering from burnout don’t invest as much of themselves and their creative energy into their businesses, and that has a range of implications.

Everything from losing customers to failing to keep up with the competition are all possibilities when an owner feels ready to throw in the towel. The end result is that owners, through poor decisions and inaction, can inadvertently decrease the value of their businesses. Combine this fact with the fact that a wave of businesses may soon be hitting the market and selling may start looking more and more attractive.

Jump into a Strong Economy

Further, today’s strong economy means that new and unexpected competitors may soon enter the picture. It is difficult to predict how the marketplace may change in the coming years, but a strong economy means both more opportunities for existing businesses and the potential for greater competition.

Interest rates have remained at historic lows and that could definitely help you sell your business. Working with an experienced business broker is one way to test the waters. You may determine that now is the perfect time to sell your business. There are many factors involved in selling your business, and a skilled broker can help you look at the overall situation at hand and determine when it is the right time to sell.

Copyright: Business Brokerage Press, Inc.

Kasia Bialasiewicz/BigStock.com

If You’re Selling, Get Ready to Expect the Unexpected!

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Many experts agree that the best time to prepare to sell your business is when you start your business. That may sound extreme. However, few business owners reach that level of preparedness. A simple fact of life and owning a business is that most sales are event-driven. Factors such as problems with a partnership, health issues, burnout or even divorce can drive a business owner to sell.

Once you’ve made the decision to sell, it is essential that you realize one key fact. Unexpected events and factors will always rise to the surface. In this article, we’ll explore four key questions that you’ll need to address before selling your business.

1. What is the Value of Your Time?

Meeting with prospective buyers can be a serious time sponge. One of the key benefits of working with a business broker is that a broker can take some of the pressure off of you. They can interact with buyers on your behalf.

A large percentage of business owners are also deeply involved in the day-to-day operation of the business. Business owners don’t have time to meet with every interested party or take the time to weed out the qualified prospects from the window shoppers.

2. What Do You Want Your Level of Involvement to Be?

Working with prospective buyers is obviously time consuming, but so is knowing every detail about a prospective buyer’s visit. A seasoned business broker can sift through what information is essential and what information is extraneous. In this way, you only hear about what is relevant and can skip the rest.

It is important for business owners to keep in mind that buyers expect that the business will continue to run successfully not just during the sales process but through closing as well. For this reason, you’ll want to stay as focused on the day-to-day operations of your business as possible; after all, if a deal falls through the last thing you want is to have a dip in revenue.

3. Are There Other Decision Makers?

Determining whether or not there are any other decision makers is a very smart move. Part-owners and silent partners will have to be addressed when it comes time to sell.

4. Just How Important is Confidentiality to You?

Confidentiality is important when it comes to selling your business. The more active your selling process, the greater the chances are that you’ll have a leak if you’re not extremely careful. Leaks unfortunately occur more than you might think.

How much will this issue negatively impact your business if it does occur? You should have a “leak plan” ready to go. In your plan, you should have in place what steps you should take to minimize the damage caused by the leak. Being ready to deal with key customers, employees and distributors is the cornerstone of dealing with any leak. Business brokers are experts at helping clients maintain confidentiality. This can save you a great deal of time and effort on many fronts.

By answering these four questions fully, you will save yourself time, stress and effort. Selling a business is a complex process. But with the right planning you can minimize your effort and maximize your results.

Copyright: Business Brokerage Press, Inc.

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How Your Employees Can Boost Profits and Values

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The simple fact is that without employees, you don’t have a business. Given the tremendous importance of your employees, it is important to step back and reflect on the value associated with keeping those employees happy.

There is a direct relationship between happy employees and happy customers. A happy employee takes steps to ensure that your customers are satisfied. This approach in turn leads to a higher level of customer retention and helps in attracting new customers. On the flip side, unhappy employees can be quite dangerous to your company’s bottom line.

The hiring process is a key process for the health of your business and should never be overlooked or treated as a secondary process within your business. Cultivating happy employees begins at this point. Hiring can and will either make or break your business.

Offering great pay and benefits is only one important factor in keeping employees happy. A more overlooked important factor is to appreciate the contributions that employees make. If employees feel as though they are being overlooked or not appreciated, their overall happiness level will falter. Many owners unnaturally expect their employees to have the same dedication to their business that they do, and this can lead to problems.

Your employees realize that they don’t own the business. As a result, most are only willing to invest so much of themselves, their talents and their abilities into your business. Taking steps to keep your employees engaged, such as showcasing that their talents are appreciated, will help keep employees invested and happy. Research has also revealed feeling happy will make them more productive. A few years ago, Fortune Magazine wrote an article that cited a UK study connecting employee happiness and productivity. It’s definitely worth a look.

Being a positive owner is a gigantic step in the right direction where cultivating happy employees is concerned. Being a good role model is at the heart of having happy employees. It is vital that you reward people with praise and bonuses for jobs well done and fire employees that are consistently negative or failing to perform their respective duties. Special touches, such as giving employees their birthdays off, can go a long way towards cultivating the kind of climate that leads to increased satisfactions. And don’t forget, your team’s satisfaction will increase your bottom line.

When it comes time to sell a business, you can be sure that prospective buyers will be interested in your level of profits. In this way, the investment you make in the happiness of your employees can be returned many fold.

Copyright: Business Brokerage Press, Inc.

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Around the Web: A Month in Summary

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A recent article posted on the Axial Forum entitled “What Do Buyers Look for in the Lower Middle Market?” explains how to make your business valuable to potential buyers and how to find the right buyers for your business. The buyers in the lower middle market are usually strategic buyers, financial buyers, private equity firms, and search fund advisors.

Buyers in this market are generally looking for the following characteristics:

  • A strong management team who has incentive and is prevented from competing against the company if their employment is terminated
  • Stability and predictability of revenue and cash flow
  • Low customer concentration
  • Other value drivers such as state-of-the-art operating systems
  • High level of preparedness

The article warns about the biggest obstacles for owners. Business owners should consult with experienced deal attorneys and investment bankers before speaking to any buyers. They should also consult with advisors before the company goes on the market to make sure the business is properly prepared for sale. A business owner’s management team may also be subject to rigorous professional assessment and background checks if a private equity or financial buyer is interested.

Currently in the marketplace, buyers are offering amounts higher than the historical norms. This means that along with the higher sale prices, sellers are subject to more scrutiny through due diligence. This is all the more reason for a seller to be prepared and to work with experienced advisors to get their business ready for sale.

Click here to read the full article.

A recent article from the Axial Forum entitled “5 Ways Sell-Side Customer Diligence Can Maximize Sale Prices” explains how third-party sell-side customer diligence has become increasingly more common and why it can help sellers maximize and justify sale prices. Here are the 5 ways this due diligence can help you get the best sale price:

  1. Determine if it’s the right time for a sale – Positive customer feedback can help reinforce the decision to sell, and neutral or negative feedback can help improve the company so it will be better prepared for a sale.
  2. Attract and persuade buyers – Your confidential information memorandum (CIM) will show how strong customer relationships are, how your market share has grown, how the business has become more competitive, and more. Thorough documentation of the health of customer relationships will also help attract buyers.
  3. Control the message – Having the seller contact their customers reduces the risk of anyone being tipped off about the sale and also allows for the seller to provide a better interpretation of the results.
  4. Prove there is a clear path for future growth – Pre-sale due diligence can help justify the ways in which the company can grow in the future.
  5. Accelerate the timeline – Having customer diligence done ahead of time will speed up the process so the buyer doesn’t have to do it.

Sell-side due diligence gives the buyer a good overall assessment of customer relationships while also allowing the seller to control the process of the findings and substantiate their asking price.

Click here to read the full article.

A recent article from Inc.com entitled “The Art of Finding the Right Buyer for Your Business” gives us three essential items to consider when selling a business.

  • Set goals – The first step is to set goals for the future of your business, yourself and your family. You’ll want to consider factors such as how the transaction will affect your employees, if you will continue on as a team member or transition out of the company, and what your overall goals for the company are. This will help you and your advisor customize the sale process.
  • Explore options – Be sure to know the difference between a private equity group and a strategic corporate buyer, and find out how they can benefit your business. There are also “family offices,” which are investors who manage the wealth of a family or multiple families, but they hold a business forever.
  • Keep an open mind – It’s especially important in the beginning to stay open to both types of buyers and find a good advisor who can help guide you towards the right buyer. Whether they are a financial buyer or a strategic buyer, you don’t know how they are going to handle the future of a company until you get to know them.

Click here to read the full article.

A recent article from the M&A Source entitled “Gold Rush: New Entrepreneurs Seek Search Funds to Finance Takeovers of Baby Boomer Businesses” explains how new entrepreneurs are looking for funding to take over businesses as the baby boomer generation starts to retire. There is currently an entrepreneurial generational gap with far less young entrepreneurs than there are baby boomers looking to sell. Healthy financial trends paired with recent tax reforms have contributed to making ideal conditions for the new generation of small business owners.

This new generation of entrepreneurs is coming from recent MBA graduates who are choosing to acquire a business instead of heading to Wall Street. Most notably, they are doing things differently when it comes to financing by turning to the search fund model which is seeing unprecedented growth as of late. This process known as entrepreneurship through acquisition (ETA) is also becoming increasingly popular in business schools which are now offering ETA programs.

It is believed that this trend is going to continue and that the timing is right. More schools are increasing awareness about it and the model will get easier as more baby boomers retire and sell their businesses. As more big money sources see this model gain popularity, there will be more money to support this growth as well.

Click here to read the full article.

A recent article posted by Divestopedia entitled “Avoiding the Biggest Deal Killer: Time” tells us that the key to a successful deal is preparation and momentum. This means that the seller should be fully ready when the business hits the marketplace, not when the first offer is made.

To keep the momentum going, there are 14 factors to consider:

  1. Know when it is a good time to sell your business
  2. Know why you want to sell
  3. Know the company’s strengths and weaknesses
  4. Know what you will do after you sell your business
  5. Know the value of your business
  6. Have a realistic asking price
  7. Be sure you are current on all taxes
  8. Make sure operational details are organized and recorded
  9. Know that the business can operate without you
  10. Know your company’s place in the market
  11. Be prepared with accurate financial statements, tax returns, and financial reports
  12. Know that your team of trusted advisors is ready
  13. Have a growth and marketing plan for your buyer
  14. Know what is most important to you so you can stay focused on the key issues and not worry too much over minor details

Click here to read the full article.

Copyright:Business Brokerage Press, Inc.

Rido81/BigStock.com

Around the Web: A Month in Summary

/in /by

A recent article posted on the Axial Forum entitled “What Do Buyers Look for in the Lower Middle Market?” explains how to make your business valuable to potential buyers and how to find the right buyers for your business. The buyers in the lower middle market are usually strategic buyers, financial buyers, private equity firms, and search fund advisors.

Buyers in this market are generally looking for the following characteristics:

  • A strong management team who has incentive and is prevented from competing against the company if their employment is terminated
  • Stability and predictability of revenue and cash flow
  • Low customer concentration
  • Other value drivers such as state-of-the-art operating systems
  • High level of preparedness

The article warns about the biggest obstacles for owners. Business owners should consult with experienced deal attorneys and investment bankers before speaking to any buyers. They should also consult with advisors before the company goes on the market to make sure the business is properly prepared for sale. A business owner’s management team may also be subject to rigorous professional assessment and background checks if a private equity or financial buyer is interested.

Currently in the marketplace, buyers are offering amounts higher than the historical norms. This means that along with the higher sale prices, sellers are subject to more scrutiny through due diligence. This is all the more reason for a seller to be prepared and to work with experienced advisors to get their business ready for sale.

Click here to read the full article.

A recent article from the Axial Forum entitled “5 Ways Sell-Side Customer Diligence Can Maximize Sale Prices” explains how third-party sell-side customer diligence has become increasingly more common and why it can help sellers maximize and justify sale prices. Here are the 5 ways this due diligence can help you get the best sale price:

  1. Determine if it’s the right time for a sale – Positive customer feedback can help reinforce the decision to sell, and neutral or negative feedback can help improve the company so it will be better prepared for a sale.
  2. Attract and persuade buyers – Your confidential information memorandum (CIM) will show how strong customer relationships are, how your market share has grown, how the business has become more competitive, and more. Thorough documentation of the health of customer relationships will also help attract buyers.
  3. Control the message – Having the seller contact their customers reduces the risk of anyone being tipped off about the sale and also allows for the seller to provide a better interpretation of the results.
  4. Prove there is a clear path for future growth – Pre-sale due diligence can help justify the ways in which the company can grow in the future.
  5. Accelerate the timeline – Having customer diligence done ahead of time will speed up the process so the buyer doesn’t have to do it.

Sell-side due diligence gives the buyer a good overall assessment of customer relationships while also allowing the seller to control the process of the findings and substantiate their asking price.

Click here to read the full article.

A recent article from Inc.com entitled “The Art of Finding the Right Buyer for Your Business” gives us three essential items to consider when selling a business.

  • Set goals – The first step is to set goals for the future of your business, yourself and your family. You’ll want to consider factors such as how the transaction will affect your employees, if you will continue on as a team member or transition out of the company, and what your overall goals for the company are. This will help you and your advisor customize the sale process.
  • Explore options – Be sure to know the difference between a private equity group and a strategic corporate buyer, and find out how they can benefit your business. There are also “family offices,” which are investors who manage the wealth of a family or multiple families, but they hold a business forever.
  • Keep an open mind – It’s especially important in the beginning to stay open to both types of buyers and find a good advisor who can help guide you towards the right buyer. Whether they are a financial buyer or a strategic buyer, you don’t know how they are going to handle the future of a company until you get to know them.

Click here to read the full article.

A recent article from the M&A Source entitled “Gold Rush: New Entrepreneurs Seek Search Funds to Finance Takeovers of Baby Boomer Businesses” explains how new entrepreneurs are looking for funding to take over businesses as the baby boomer generation starts to retire. There is currently an entrepreneurial generational gap with far less young entrepreneurs than there are baby boomers looking to sell. Healthy financial trends paired with recent tax reforms have contributed to making ideal conditions for the new generation of small business owners.

This new generation of entrepreneurs is coming from recent MBA graduates who are choosing to acquire a business instead of heading to Wall Street. Most notably, they are doing things differently when it comes to financing by turning to the search fund model which is seeing unprecedented growth as of late. This process known as entrepreneurship through acquisition (ETA) is also becoming increasingly popular in business schools which are now offering ETA programs.

It is believed that this trend is going to continue and that the timing is right. More schools are increasing awareness about it and the model will get easier as more baby boomers retire and sell their businesses. As more big money sources see this model gain popularity, there will be more money to support this growth as well.

Click here to read the full article.

A recent article posted by Divestopedia entitled “Avoiding the Biggest Deal Killer: Time” tells us that the key to a successful deal is preparation and momentum. This means that the seller should be fully ready when the business hits the marketplace, not when the first offer is made.

To keep the momentum going, there are 14 factors to consider:

  1. Know when it is a good time to sell your business
  2. Know why you want to sell
  3. Know the company’s strengths and weaknesses
  4. Know what you will do after you sell your business
  5. Know the value of your business
  6. Have a realistic asking price
  7. Be sure you are current on all taxes
  8. Make sure operational details are organized and recorded
  9. Know that the business can operate without you
  10. Know your company’s place in the market
  11. Be prepared with accurate financial statements, tax returns, and financial reports
  12. Know that your team of trusted advisors is ready
  13. Have a growth and marketing plan for your buyer
  14. Know what is most important to you so you can stay focused on the key issues and not worry too much over minor details

Click here to read the full article.

Copyright:Business Brokerage Press, Inc.

Rido81/BigStock.com

Don’t Let the Dust Settle on Your Lease: 8 Factors to Consider

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Owners often neglect understanding their leases and this can be problematic. If your business is location-sensitive, then the status of your lease could be of paramount importance. Restaurants and retail businesses, for example, are usually location-dependent and need to pay special attention to their leases. But with that stated, every business should understand in detail the terms of its leases.

There are many key factors involving leases that should not be ignored or overlooked. If you adhere to these guidelines, you’ll be much more likely to control your outcomes.

  1. At the top of the list is the factor of length. Usually, the longer your lease the better.
  1. Secondly, if the property does become available, then it is often in an owner’s best interest to try and buy the property or he or she may be forced to move.
  1. When negotiating a lease, it is best to negotiate a way out of the lease if possible; this is particularly important for new businesses where the fate of your business is still an unknown. Experts recommend opting for a one-year lease with a long option period.
  1. You may want to sell your business at some point, and this is why it is important to see if your landlord will allow for the transfer of the lease and what his or her requirements are for the transfer.
  1. Look at the big picture when signing a lease. For example, what if your business is located in a shopping center? Then attempt to have it written into your lease that you’re the only tenant that can engage in your type of business.
  1. If you’re located in a shopping center, then try to outline in your agreement a reduction of your rent if an anchor store closes.
  1. Your lease should detail what your responsibilities are and what responsibilities your landlords hold. Keep in mind that if you are a new business, it is quite possible that your landlord will likely require a personal guarantee from you, the owner.
  1. The dollar amount is necessarily the most important factor in determining the quality of your lease. It is important to carefully assess every aspect of the lease and understand all of its terms.

There are many other issues that should be taken into consideration when considering a lease.

  • For example, what happens in the event of a natural disaster or fire? Who will pay to rebuild?
  • Is there a percentage clause and, if so, is that percentage clause reasonable?
  • How are real estate taxes, grounds-keeping fees and maintenance fees handled?

Investing the time to understand every aspect of your lease will not only save you headaches in the long run, but it will also help to preserve the integrity of your business.

Copyright: Business Brokerage Press, Inc.

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The Importance of the Term Sheet

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The value of the term sheet shouldn’t be overlooked. From buyers and sellers to advisors and intermediaries, the term sheet is often used before the creation of an actual purchase or sale agreement. That stated, it is important that the term sheet is actually explained in detail. Let’s take a closer look at its importance.

What is a Term Sheet?

Even though term sheets are quite important, they are rarely mentioned in books about the M&A process. In the book, Streetwise Selling Your Business by Russ Robb, a term sheet is defined as, “Stating a price range with a basic structure of the deal and whether or not it includes real estate.”

Another way of looking at a term sheet, according to attorney and author Jean Sifleet, is that a term sheet serves to answer to four key questions: Who? What? Where? And How Much?

Creating the Right Environment

A good term sheet can help keep negotiations on target and everyone focused on what is important. Sifleet warns against advisors, accountants and lawyers who rely heavily on boilerplate documents as well as those who adopt extreme positions or employ adversarial tactics. The main goal should be to maintain a “win-win” environment.

At the end of the day, if a buyer and a seller have a verbal agreement on price and terms, then it is important to put that agreement down on payment. Using the information can lead to a more formalized letter of intent. The term sheet functions to help both parties, as well as their respective advisors, begin to shape a deal, taking it from verbal discussions to the next level.

Make Sure Your Term Sheet Has the Right Components

In the end, a term sheet is basically a preliminary proposal containing a variety of key information. The term sheet outlines the price, as well as the terms and any major considerations. Major considerations can include everything from consulting and employment agreements to covenants not to compete.

Term sheets are a valuable tool and when used in a judicious fashion, they can yield impressive results and help to streamline the buying and selling process. Through the proper use of term sheets, an array of misunderstandings can be avoided and this, in turn, can help increase the chances of successfully finalizing a deal.

Copyright: Business Brokerage Press, Inc.

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