Burnout is an often-used reason for an owner selling his or her business. Potential buyers may have trouble accepting this as a valid reason for sale. However, burnout is a valid reason for selling one’s business. Read more
Burnout is an often-used reason for an owner selling his or her business. Potential buyers may have trouble accepting this as a valid reason for sale. However, burnout is a valid reason for selling one’s business.
A business owner can experience burnout even with a business that’s successful and growing. Many independent business owners feel they’ve worked hard, made their money, and now is a good time to cash out and move on, before burnout endangers the health of the business.
The following warning signs should remind a business owner that cashing out beats burning out:
You are overwhelmed on a daily basis.
When a business owner is a one-man show, even small tasks and minor decisions can seem bigger than Mount Everest. These owners have been shouldering the burden alone for too long, and the isolation has taken its toll.
You sense a failure of imagination.
Burnt-out owners are so close to their work that they lose perspective. Prioritizing becomes a major daily challenge, and problem solving sometimes goes no further than the application of business Band-Aids that cost money in the long run rather than increasing profits.
The joy is gone.
Although owning a business is hard work, it should also provide a good measure of enjoyment. When the work day begins with dread or boredom, the owner probably needs a change of scenery and a new challenge.
You are simply exhausted.
Being “just too tired” is a complaint heard just as often from the owner of the successful business as from the business that’s struggling to survive. In fact, a business that is growing will create increased demands of time and energy.
No matter what the status of the operation, the sheer work of keeping a business going day after day, year after year, is enough to encourage a business owner to make a change. This kind of schedule is not for everyone; in fact, statistics show that it’s hardly for anyone on a long-term basis.
Recent studies indicate that it now takes, on average, about eight to ten months to sell a small business. This figure seems to increase yearly. Why does it take so long to sell a business? Read more
Recent studies indicate that it now takes, on average, about eight to ten months to sell a small business. This figure seems to increase yearly. Why does it take so long to sell a business?
Price and terms are the biggest reasons! It is very important not to overprice the business at the beginning of the sales process. A business will also sell more quickly if there is a reasonable down payment with the seller carrying the balance. Having all of the necessary information right from the beginning can also greatly reduce the time period. Finally, being prepared for the information a buyer may want to review or having the answers available for the questions a buyer may want answered is another key.
Here is the basic information a prospective acquirer will want to review and a seller should have prepared to help facilitate a quicker sale:
Copies of the financials for the past three years.
A copy of the lease and any assignments of the lease from previous sales.
A list of the fixtures and equipment that will be included in the sale. Note: If something is not included in the sale, it is best to remove it from the premises prior to the sale or at least have a list that specifies which items are not included.
A copy of the franchise agreement, if applicable, or any agreements with suppliers or vendors.
Copies of any other documentation pertaining to the business.
Supporting documents for patents, copyrights, trademarks, etc.
Sales brochures, press releases, advertisements, menus or other sales materials.
In addition, here are some key questions that buyers may likely ask. A prepared seller should have ready answers and information to support those answers.
Is the seller willing to train a new owner at no charge?
Are there any zoning or local restrictions that would impact the business?
Is there any pending litigation?
Are any license issues involved?
Are there any federal or state requirements, or environmental OSHA issues that could affect the business?
What about the employee situation? Are there key employees?
Are there any copyrights, secret recipes, mailing lists, etc?
What about major suppliers or vendors?
A prepared seller is a willing seller, and having the answers to the above items can significantly reduce the time it takes to sell a business.
Using the services of a professional business broker can also greatly reduce the time period. Business brokers are knowledgeable about the current market, they know how to market a business, and they can advise a seller on price and terms. They can also recommend professional advisors if a seller doesn’t have them already. Using advisors who are transaction experienced can also shorten the time it takes to close the sale.
There are more than 15 million family businesses in the United States. History tells us that less than one-third of family owned companies will make it to a second generation. One reason for the disheartening statistic may be that business owners tend to forget about succession planning. Read more
There is the old saying that the time to develop an exit strategy is the day you open for business. Sounds good, but it’s not very realistic. Further, it also isn’t very optimistic. On the day you open for business, thoughts about how you get out of it aren’t pleasant, or helpful, thoughts. Read more
There is the old saying that the time to develop an exit strategy is the day you open for business. Sounds good, but it’s not very realistic. Further, it also isn’t very optimistic. On the day you open for business, thoughts about how you get out of it aren’t pleasant, or helpful, thoughts. However, as you get the business to a place where you have a bit of extra time to plan, you will find that the things you need to do to improve your business are some of the very things you will need to work on to plan an exit strategy.
You can’t predict misfortune, but you can plan for it. One never knows when an accident or illness will force one to sell. When the drive to your business becomes filled with dread, maybe it’s time to consider selling. The following ideas will improve your business, even if you’re not currently considering selling. Dealing with these areas will also supply the information a buyer will most likely be looking at when the time does come to sell.
Buyers want cash flow.
This, at least on the surface, is the thing a potential buyer will want to look at.
Appearances are important.
You may think everything about the business looks fine, but the two letters on the neon sign that don’t work indicate to a possible buyer that the seller may have lost interest in the business, causing them to also wonder what else doesn’t work or has been neglected.
There is probably more value than you think.
Business owners often don’t look at things that do create real value such as: customer lists, secret recipes, specialized computer systems, programs, customer loyalty programs, etc.
Eliminate the surprises.
Make sure the lease is transferable and that your landlord is willing to cooperate. Resolve that issue with town hall. Resolve the problem with that angry customer. Minor problems and issues will often raise their ugly heads during sensitive times, spooking a possible buyer. So, the time to resolve them is before going to market.
Photo Credit: morebyless via Compfight cc
1. Established.
An existing business is a known entity. It has an established and historical track record. It has a customer or client base, established vendors, and suppliers. It has a physical location and has furniture, fixtures, and equipment all in place. The term “turnkey operation” is overused, but an existing business is just that, plus everything else. New franchises may offer a so-called turnkey business, but it ends there. Start-ups are starting from scratch.
2. Business Relationships.
In addition to the existing relationships with customers or clients, vendors, and suppliers, most businesses also have experienced employees who are a valuable asset. Buyers may already have established relationships with banks, insurance companies, printers, advertisers, professional advisors, etc., but if not, the existing owner does have these relationships, and they can readily be transferred.
3. Not “A Pig in a Poke”.
Starting a new business is just that: “a pig in a poke.” No matter how much research, time, and money are invested, there is still a big risk in starting a business from scratch. The existing business has a financial track record and established policies and procedures. A prospective buyer can see the financial history of the business — when sales are the highest and lowest, what the real expenses of the business are, how much money an owner can make, etc. Also, in almost all cases, a seller is more than willing to stay to teach and work with the new owner — sometimes free of charge.
4. Price and Terms.
The seller has everything in place. The business is in operation and a price is established. Opening a new business from scratch can be the proverbial “money pit.” When purchasing an established business, the buyer knows exactly what he or she is getting for his money. In most cases, the seller is also willing to take a reasonable down payment and then finance the balance of the purchase price.
5. The “Unwritten” Guarantee.
By financing the purchase price, the seller is saying that he or she is confident that the business will be able to pay its bills, support the new owner, plus make any required payments to the seller.
The typical business owner will only sell a business once. Understanding the complex process involved will help produce the best results. But don’t fall prey to the myths that can derail or seriously affect a potential sale. Read more
The purpose of this article is to demonstrate the importance of the tax impact in the sale of your business. Of course it is critical that both buyers and seller consult their CPA or tax attorney before entering into any transaction. Read more
In many cases, the buyer and seller reach a tentative agreement on the sale of the business, only to have it fall apart. There are reasons this happens, and, once understood, many of the worst deal-smashers can be avoided. Read more
Buyers are generally categorized as belonging to one of the following groups although, in reality, most buyers fit into more than one.
The Individual Buyer
This is typically an individual with substantial financial resources, and with the type of background or experience necessary for leading a particular operation.
The individual buyer usually seeks a business that is financially healthy, indicating a sound return on the investment of both money and time.
The Strategic Buyer
This buyer is almost always a company with a specific goal in mind — entry into new markets, increasing market share, gaining new technology, or eliminating some element of competition.
The Synergistic Buyer
The synergistic category of buyer, like the strategic type, is usually a company. Synergy means that the joining of the two companies will produce more, or be worth more, than just the sum of their parts.
The Industry Buyer
Sometimes known as “the buyer of last resort,” this type is often a competitor or a highly similar operation. This buyer already knows the industry well, and therefore does not want to pay for the expertise and knowledge of the seller.
The Financial Buyer
Most in evidence of all the buyer types, financial buyers are influenced by a demonstrated return on investment, coupled with their ability to get financing on as large a portion of the purchase price as possible.
Almost all the purchasers of the smaller businesses fall into the individual buyer category. But most buyers, as mentioned above actually fit into more than just one category.
© Copyright 2013 Business Brokerage Press, Inc.
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Anthony Citrolo Elected President & Director of The Long Island Chapter Of The Accountant/Attorney Networking Group Inc. (AANG)
NEW YORK (January 2013) – It has been announced today that, Anthony Citrolo, CPA, CMAA, CBI has been elected as the 2013 President and Director of the Long Island Chapter of the Accountant/Attorneys Networking Group Inc. (AANG)
The Accountant/Attorney Networking Group is comprised solely of practicing accountants and practicing attorneys who service multiple clients. The purpose of the group is to facilitate networking between and among attorneys and accountants – two professions that have enormous synergy and potential for cross referrals. AANG offers 12 monthly networking breakfast meetings exclusively for accountants and attorneys. AANG also hosts two major networking cocktail receptions open to all professionals. The organizations’ web site is www.aangny.org
According to Mr. Citrolo a Managing Partner of M&A firm New York Business Brokerage, Inc., “the AANG creates a great platform for Accountants and Attorneys to meet and share information and ideas that can be used to bring cutting edge financial and legal solution to business owners or entrepreneurs engaged in a business sale or acquisition. Further Mr. Citrolo adds, “since Accountants and Attorneys are key players of the deal team that represent business buyers and sellers, the coordination of their efforts can result in lowering the fees incurred in the transaction and giving the deal the best chance of being consummated.”
About New York Business Brokerage, Inc.
New York Business Brokerage, Inc. is a full-service Merger & Acquisition and Business Brokerage firm in Melville, New York assisting companies with up to $50M in revenue to develop an exit strategy or make a targeted acquisition. In addition to M&A and consulting services, New York Business Brokerage, Inc. offers valuation services in determining both Business and Transaction Values. Anthony can be reached at 631.390.9650 or anthony@nybbinc.com.
For more information, contact:
Anthony Citrolo, CPA, CBI
Certified Merger & Acquisition Advisor
New York Business Brokerage, Inc.
68 South Service Rd., Suite 100
Melville , NY 11747
Phone (631) 390-9650
Email: Anthony@nybbinc.com
Web: www.nybbinc.com
Before answering the question, it makes sense to first ask why people want to be in business for themselves. What are their motives? There have been many surveys addressing this question. The words may be different, but the idea behind them and the order in which they are listed are almost always the same.
These surveys indicate that by far the biggest reason people want to be in business for themselves is to be their own boss. The first three reasons listed revolve around this theme. Some may be frustrated in their current job or position. Others may not like their current boss or employer, while still others feel that their abilities are not being used properly or sufficiently.
The important item to note is that money is reason number four. Although making money is certainly important and necessary, it is not the primary issue. Once a person decides to go into business for himself or herself, he or she has to explore the options. Starting a business is certainly one option, but it is an option fraught with risk. Buying an existing business is the method most people prefer. Purchasing a known entity reduces the risks substantially.
There are some key questions buyers want, or should want, answers to, once the decision to purchase an existing business has been made. Below are the primary ones; although a prospective buyer may not want answers to all of them, the seller should be prepared to respond to each one.
Years ago, it could be said that prospective buyers of businesses had only four questions:
In addition to asking basic questions, today\’s buyer wants to know much more before investing in his or her own business. Sellers have to able to answer not only the four basic questions, but also be able to address the wider range of questions outlined above.
Despite all of the questions and answers, what most buyers really want is an opportunity to achieve the Great American Dream – owning one\’s own business!
For a business to sell, there has to be a seller – and a buyer. The buyer of today is a bit different than the one of yesterday. Today’s buyer is not a risk-taker, is concerned about the financials, and seems to be overly concerned about price. Unfortunately, buyers have to understand that they cannot buy someone else’s financial statements. The statements might be a good indication of what a new buyer can do with the business, but everyone does things differently. It is these differences that ultimately determine how the business will do. The price may not be the right question for the buyer to ask. What is usually the most important question is how much cash is required to buy it.
Today’s buyer is finicky, due certainly in part to the fact that, he or she is not a risk taker. Quite a few buyers enter the business buying process and, at the last minute, cannot make the leap of faith that is necessary to conclude the sale. The primary reason that buyers actually buy is not for the reason one might think. Money or income is about third, maybe even fourth on the list.
Buyers buy because they are tired of working for someone else. They want to control their own lives. In some cases, they have lost their job, or are being transferred to a place that they don’t want to move to, or are very unhappy in their job. Surveys indicate that about half of the people in the county are unhappy in their jobs. People buy a business to change their lifestyle. A recent newspaper article quoted a very successful business woman, who left her job and bought a book store because she was “looking for a change, a way to be more rooted and be at home more.”
The make-up of a typical buyer
The typical small business buyer usually has many of the following traits:
Who is a serious buyer?
Sellers should take a second look at those who express interest in their business. If the prospect has very few of the above traits, perhaps the seller should move on to the next potential buyer. On the other hand, if you are a buyer, or think you are, take a second look at the traits of the serious buyer. If you don’t have many of them, you may not be as serious as you think. You might want to rethink the reasons for owning a business and be sure that this is the right decision for you.
Most prospective business buyers really don’t know from the outset the exact type of business they want to buy. Experienced business brokers and intermediaries know that many business buyers end up with what is sometimes a far cry from what first captured their imagination.
Take, for example, the old story of the buyer who saw (and probably smelled) a doughnut shop in his business dreams. This was the business he was sure he wanted to own and operate – until he discovered that someone, most likely him, had to get up at 3 a.m. to make the day’s baked goods. It is important that, before making the dream a reality, those prospective buyers understand just what the business is and how it fits their personalities – what they want to do and what they don’t want to do! Obviously, if getting a good night’s sleep is important, owning a doughnut shop is not a good idea.
In searching for the right business, here are some of the crucial questions a prospective business buyer might ask himself or herself:
Professional business brokers can offer many different businesses for a prospective buyer to consider. Prospective business buyers can discuss their needs and wishes with a professional business broker who can then show them opportunities that they might never discover on their own.
Statistics reveal that out of about 15 would-be business buyers, only one will actually buy a business. It is important that potential sellers be knowledgeable on what buyers go through to actually become business owners. This is especially true for those who have started their own business or have forgotten what they went thorough prior to buying their business.
If a prospective business buyer is employed, he or she has to make the decision to leave that job and go into business for and by himself. There is also the financial commitment necessary to actually invest in a business and any subsequent loans that are a result of the purchase. The new owner will likely need to execute a lease or assume an existing one, which is another financial commitment. These financial obligations are almost always guaranteed personally by the new owner.
The prospective business owner must also be willing to make that “leap of faith” that is so necessary to becoming a business owner. There is also the matter of family and personal responsibilities. Business ownership, aside from being a large financial consideration, is very time consuming, especially for the new business owner.
All of these factors have to be weighed very carefully by anyone that is considering business ownership. Buyers should think carefully about the risks – and the rewards. Sellers should also put themselves in a buyer’s position. The services of a professional business broker or intermediary can help determine the relative pros and cons of the transaction.
Today’s independent business marketplace attracts a wide variety of buyers eager for a piece of ownership action. Buyers of small businesses are most likely replacing lost jobs or searching for a happier alternative to corporate life. Buyers of mid-sized and large operations are, typically, private investment companies seeking businesses to build and eventually sell for a profit. This is the broadest possible look at the types of buyers out there. Business owners considering putting their business on the market should be aware of the finer “distinctions” among buyers, as well as what they are looking to buy, and why.
1. Individual Buyer
This is typically an individual with substantial financial resources and with the type of background or experience necessary for leading a particular operation. The individual buyer usually seeks a business that is financially healthy, indicating a sound return on the investment of both time and money. If these buyers do not have the amount of personal equity required for acquisition, they most likely will turn to family members or venture capital sources for financing. (Buyers and sellers should be aware that, in many cases, seller financing will be an essential element, benefitting both parties in the long run.)
Even when such sources are available, the individual buyer will hit a strong bottom line when it comes to price. Therefore, these buyers will usually limit themselves to transactions involving less than $1 million, cash.
2. Strategic Buyer
This buyer is almost always a company, having as its goal to enter new markets, to increase market share, to gain new technology, or to eliminate some element of competition. In essence, it is part of this buyer’s “strategy” (hence the name) to acquire other businesses as part of a long-term plan. Strategic buyers can be either in the same business as the company under consideration, or a competitor. Example: a bank in one part of a state purchases or merges with one in another part of the same state. The acquiring bank enters a new market and “eliminates” competition at the same time.
Strategic buyers will be looking chiefly at businesses with sales over $20 million, with a proprietary product and/or unique market share, and effective management both in place and willing to remain.
3. Synergistic Buyer
The synergistic category of buyer, like the strategic type, is usually a company. The difference is that, with this buyer, the acquisition or merger flows from the complementary nature of the purchasing company and the company for sale.
Synergy means that the joining of the two companies will produce more, or be worth more than just the sum of their parts. Example: a large real estate company purchases a mortgage company. It can now use its existing customers (those who buy homes) and offer them the mortgage funds to finance their purchases. The benefits of this type of acquisition help both companies be more competitive and profitable.
4. Industry Buyer
Sometimes known as “the buyer of last resort,” this type is often a competitor or a highly similar operation. This buyer already knows the industry well and, therefore, does not want to pay for the expertise and knowledge of the seller. The industry buyer is interested mainly in combining manufacturing facilities, consolidating overhead, and utilizing the combined sales forces. These buyers will pay for assets (but probably not what the seller thinks they are worth); they will not pay for goodwill, covenants not to compete, or consulting agreements with the seller. There can be some cases in which the industry buyer is also a strategic buyer, with the price determined by motivation.
5. Financial Buyer
Of all the buyer types, financial buyers are most influenced by a demonstrated return on investment, coupled with their ability to get financing on as large a portion of the purchase price as possible. Working on the theory that debt is the lowest cost of capital, these buyers purchase businesses with the sole purpose of making the maximum amount of money with the least amount of their capital invested.
Each type of buyer has distinctive characteristics that correlate to the motivation behind the purchase of a particular company. In addition, the price each is willing to pay for a company is directly proportional to the motive. The relative sizes of acquisitions by different buyer types (compressed into their broader categories), is shown in the accompanying chart (keep in mind that all figures are approximate):
Type of Buyer (Less than $3 million) ($3 to 10 million) ($10 million):
Sole Proprietors (45%) (25%) (5%)
Public Companies (30%) (20%) (20%)
Private Companies (10%) (15%) (15%)
Investment Groups (20%) (30%) (20%)
