Storytelling and Its Role in Selling a Business

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When it comes to selling a business, there is more to it than just relaying the facts. It’s also important to emphasize the story behind the business. Business brokers and M&A advisors are also storytellers, as they must convey to buyers the story behind the business and how it can ultimately be transformed. 

It is through storytelling that humans organize the information they have about the world. In short, storytelling is an exceptional way to learn lessons in life and a great way to frame information about a business to sellers. 

Telling Your Story

Everything begins with the financials, in short, the facts of the business. When a business broker or M&A advisor begins working with a seller, he or she will look to gather those details. Once that information has been gathered, it is possible to begin to create a story. That story can be presented in many ways, including through a confidential business review or confidential information memorandum.

While many, if not most, buyers and sellers may think that when it comes to business, they are cold and methodical like a reptile on the hunt, the truth is more complex. Human emotion always comes into play. It is no accident that well-crafted stories, with their power to motivate and guide, play a role in the art of buying and selling businesses.

Decisions are Guided by Emotion

If we want to make the best decisions, it is important to consider the role of emotions in our decision-making. “In order to have anything like a complete theory of human rationality, we have to understand what role emotion plays in it,” said scientist Herbert Simon who is an American Nobel Laureate. [1]

Good stories grab the imagination and enable people to expand their definition of what is and is not possible. When buyers are considering buying a business, it is important that they can picture themselves as being the hero that transforms that business and takes it to a new level. It is a story of evolution and reaching new heights while simultaneously achieving one’s own goals.

It is no accident that so many of today’s mass culture storytelling revolves around sequels. The notion that there is a “storytelling continuum” where a buyer can plug into something that already has a history can be a powerful motivating force. Most epic stories have the hero as part of some sort of continuum. In other words, the hero does not simply appear out of nothingness. It is the hero’s mission to transform the world, in some fashion, for the better.

[1] https://www.forbes.com/sites/forbescoachescouncil/2018/05/09/how-your-emotions-influence-your-decisions/?sh=7bda49da3fda

Copyright: Business Brokerage Press, Inc.

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How to Transfer Your Business to a Family Member

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Are you thinking of transferring your business to a family member? This occurrence is fairly common, especially among small businesses. Here are some considerations that will help with your planning and decision making.

Do You Have a Good Contract?

Sometimes close family members are tempted to skip a contract, but it’s always a mistake not to have things in writing. When you create a buy-sell agreement, it helps keep things clear between the parties involved. Make sure that your documentation is thorough. It should cover a wide variety of details including the amount being paid, your continued involvement, and the business value. 

Does Your Family Member Need Financing?

When it comes to selling businesses to family members, seller financing is common. You could even consider agreeing to a private annuity. This will allow payments to be spread out over many years.  One benefit to providing financing assistance is that you will receive a steady stream of income along with interest on the loan as well. 

You could also consider a self-cancelling clause on your installment note. This would allow debt to attach to your will in case of your untimely passing before the payments were complete. 

Are You Selling or Gifting Your Business?

Gifting a business takes place more often than you might think, due to the tax benefits involved. Also, when you gift a business, you can still maintain some level of control. 

The federal gift tax exemption changes every year. In 2022, the annual gift tax exclusion is $16,000. The lifetime gift exemption limit is $12 million. While you may owe some federal gift taxes if the amounts exceed the exemption limits, the good news is that after you have transferred your business, any future growth of the business won’t affect your financials. 

Is Everything Accurate?

Unfortunately, many business owners have acted unethically when it comes to transferring their business to their family members. As a result, the IRS tends to give this kind of transaction extra scrutiny. You will want to ensure that all your paperwork is in proper order and highly accurate. 

You may very well want to hire the services of a lawyer and accountant to assist you with this matter. Of course, a business broker or M&A advisor will also help you with the details of this agreement and figuring out what benefits you and your family members.

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Why Is Confidentiality So Vitally Important

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When it’s time to sell a business, you will want to keep confidentiality first and foremost in your mind. The reality is that many deals do not succeed when confidentiality is breached and others learn that your business is for sale. Let’s take a look at why this is the case.

What Can Occur When Confidentiality is Compromised?

If vendors or suppliers find out that your company is for sale, it can negatively impact your business in different ways. One common occurrence is that vendors begin to change the terms they have established with you. Even a small change might end up not being minor at all, as it could impact cash flow. The same can be said for word of your business being for sale reaching your creditors, as they could also suddenly change their terms. 

Another major issue that could be caused when confidentiality is breached is that your employees and customers might begin to worry. Employees could even start looking for new jobs. Your customers might worry about the new ownership and preemptively stop patronizing your business.

It goes without saying that you won’t want your competitors knowing that you are selling your business. This might make them more aggressive, and they could even start using this knowledge to take your customers. 

On some occasions, business owners set out to sell their business on their own. Unfortunately, this decision can put them at higher risk for confidentiality breaches to occur, which start to cause things to go wrong. When you are in the process of selling your business, you will want everything to appear as steady and reliable as possible.

Keeping Up Appearances

When a buyer is carefully vetting your business for a potential acquisition, you won’t want anything showing up on the radar that could give them pause. It’s important to show that the business is continuing to operate in a successful manner and there have been no recent changes. 

The good news is that business brokers and M&A advisors have proven strategies that will keep the news that your business is for sale confidential. Your brokerage professional will be sure to vet all prospective buyers, and they will use the most reliable confidentiality agreements that will protect your best interests. 

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Selling a Business Means You Should Expect the Unexpected

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No one ever said selling a business was predictable. However, the truth of the matter is that every sale is different. Even the reasons behind a business owner deciding to sell his or her business vary tremendously. If you are getting ready to sell, it’s important to be aware of the various aspects that could catch you off-guard. If you are prepared for the unexpected, you’ll be mentally ready for the sales process, which often does not go as planned. Even the smoothest and most streamlined sales encounter a few road bumps along the way. 

Price Considerations

When it comes to the price structure for a potential sale, many business owners have numbers in their minds that do not meet with reality. As a result, a potential offer could be far less than what they expected, and this causes conflict and delays. Your brokerage professional will prepare you with a thorough valuation so you can have a clear idea of the fair market price of your business. Be sure to ask any questions that you might have so that you feel fully informed when it comes to prices.

Confidentiality 

Throughout the sales process, confidentiality must be carefully guarded. Otherwise, this too can interfere with a sale. Your business broker or M&A advisor will have effective strategies to help maintain the highest levels of confidentiality. Even with the best safeguards in place, there is a small chance that a rumor could begin to circulate and word could get out to your employees, customers or supplies. In the case of this incident, it’s important to have a contingency plan in place to quell the rumors. 

Your Stockholders

Oftentimes, business owners of privately owned companies forget that their minority stockholders have rights too. You will not be able to sell your business without dealing with all parties involved. When you get a “fairness opinion,” it can go a long way to convince your shareholders of the best price and terms. Even if your shareholders are members of your family, they will have to be successfully dealt with before the sale goes through. 

Expect to Allocate Time

You may have hired an experienced business broker or M&A advisor, but you should still be prepared to spend some time dealing with the sale of your business. You’ll be expected to do everything from prepare documents to meet with prospective buyers. This fact that selling will take up your time is particularly true if you haven’t begun making preparations years in advance. That’s why we advise clients to start working with us early on.

You’ll want to make sure that despite your need to focus on elements pertaining to the sale of your business, it is necessary to keep your business running smoothly. Otherwise, any signs of weakness could interfere with your potential sale and your efforts could backfire. This issue just stresses the importance of preparing to sell years in advance. 

Through the sales process you must still run your company as well as ever. You’ll want to make sure things are progressing nicely, even if you don’t plan to own the company in the near future. Obviously, your buyer will want things to look reliable and any dips can trigger a red flag. 

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What You Need to Know About Partnership Agreements

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There have been countless instances when someone has gone into business with a relative or close friend and made the mistake of skipping a formal agreement. No matter how good a friend may be, you will always want to get the terms of the partnership in writing. A partnership agreement is a vitally important document that is designed to protect all parties. It will reduce the possibility for disagreements or misunderstandings down the line. When you make sure you have everything documented legally, it will greatly serve you and your partner(s). 

Building Your Partnership Agreement

Your partnership agreement should first and foremost address the general rules of the partnership. This means it should cover who owns what, and how you will handle profits and losses. It should cover the basics of issues that may seem obvious, such as what are each partner’s roles and duties. And it should also address the details pertaining to resolving small potential problems that you may never expect to actually arise. 

Financial Issues

A good part of your partnership agreement should address issues related to money. As you can imagine, misunderstandings about earnings can quickly become huge disagreements if the details are not plainly stated in writing. On a very practical level, you’ll want your document to cover what percentage of earnings both you and your partner will receive. You will even want to go into detail about how money is distributed. What if money is required to keep the business operational and thriving? You’ll want to cover the details of who will contribute any necessary funds and how this will be handled. 

Other Decisions

Another decision you’ll want to make now will cover the nature of decisions themselves. For example, how will you make business decisions? Is it a vote, and if so, how does that vote work? You can also include other situations that could arise, such as what happens in the instance of the unfortunate death of one of the owners? What happens if you decide to bring in an additional partner or partners? 

Getting Assistance with Your Legal Documents

While it might seem possible to create your partnership agreement on your own, the best thing you can do is hire a competent professional to help you. That way you’ll know that your partnership agreement is written in the most accurate way possible. 

When you have this document established, you can proceed with your partnership with confidence that any potential problems down the line are addressed. It may take some extra time and consideration now, but in the long run, you’ll be able to run your business smoothly and more efficiently. The fact of the matter is that if you address everything now in a partnership agreement, it will benefit your business for years to come.

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Preparing for Your Eventual Retirement

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Many business owners are truly committed to their businesses. As a result, it is very difficult for them to step away even when they approach retirement age. It is not uncommon for business owners to keep working into their golden years. But the truth of the matter is that at some point almost everyone will need to embrace retirement whether it is for health issues, moving to a new location, or simply for greater peace of mind.

If you see this path approaching for you in the near future, it could feel overwhelming. After all, most people have not sold a business before. As a result, they feel unclear about the process and don’t know where to start. However, everyone should be thinking about the eventual sale of their business because this future event should determine many of your current activities and decisions. 

Let’s take a look at some things you can do well in advance to ensure that an eventual sale of your business goes as smoothly as possible. 

Automate Processes

When prospective buyers look at your business, they will want to be able to easily envision it operating smoothly without you involved. Because a good portion of business owners are so integral to the functioning of their businesses, it can be difficult for them to figure out how to decouple themselves from operations. In some cases, this process can take years. 

Now is a good time to consider this issue and what you can do to make sure your business can function without you one day. Give some thought to who at your organization could be a second in command. When a buyer sees that a competent and knowledgeable employee will be staying on to assist them, it can go a long way in allaying any concerns. 

Put Yourself in the Buyer’s Shoes

Imagine you were buying your business. What kinds of issues might be of concern to you? Chances are these will be the same issues that could concern potential buyers. Once you have identified any spots of weakness, you can start to zero in on figuring out how to handle them.

First and foremost, you will want your buyer to feel confident that there will be a smooth transition and that they can almost immediately begin to profit from their purchase of your business. Anything that you can do to help ensure that is true will benefit the sales process. 

Business brokers and M&A advisors are experts in the world of buying and selling businesses. They will help you to properly evaluate your business and look for these areas of weakness. Through this means when you do decide it is time to retire, the process will go more quickly and seamlessly. 

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A Look at the Market Pulse Report

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The Market Pulse Report Survey is a resource that has a variety of information that business brokers and M&A advisors regularly utilize to better understand the business landscape. The most recent survey was conducted April 1st to April 15th 2022 and had 360 broker and advisor respondents. It also marked the 40th edition of the quarterly report. The Executive Summary of the report can be accessed here https://www.ibba.org/resource-center/industry-research/ 

The Main Street Market 

One notable fact included in the latest report is that in the Main Street market, between 70% to 80% of buyers are likely to come from within a 20-mile radius. However, with larger companies, it is common for buyers to originate from a distance of over 100 miles away or greater.

The survey also indicated there are two key “headwinds” that businesses are currently facing. These include labor shortages and supply chain issues. Not surprisingly, labor issues are currently creating problems for organic growth. Likewise, supply chain issues can cause prospective buyers to shy away from a business.

The Profile of Current Buyers

The survey also indicated that Main Street buyers not only include the “typical” first-time business buyer. These individuals are often looking for a job in the form of owning a business. Serial entrepreneurs who have made money off previous deals are also now seeking to jump back in and buy another business. The survey indicates that about one-third of buyers who purchased businesses in the $500K to $1M range are serial entrepreneurs. 

Additionally, there is a great deal of money flooding into the industry. The money is mostly coming from private equity, family offices, and corporations. Feeling burned by the lack of bank credit by the 2008-2009 economic downturn, these buyers don’t want to get caught in a similar situation again. 

A Seller’s Market

The survey indicates that it is currently a seller’s market and that record setting multiples have been occurring. In Q1, an impressive 97% of businesses were receiving their asking price. However, nothing lasts forever. If you’re considering selling your business, it’s a good idea to start making progress now before this trend stops benefitting sellers. 

Even with the strong sales track record last quarter, it’s important to note that a fast sale is still improbable. Even in the best economic conditions, it typically takes many months to sell a business. 

There are many factors currently benefiting sellers, such as low interest rates, SBA involvement, and people not wanting to work for corporations. However, it’s important not to wait for the “right moment” as often that moment never comes. 

It’s always a good idea to begin taking steps to prepare for the sale of your business as soon as possible. This can make a tremendous difference toward fostering a positive final outcome.

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3 Ways to Make Your Business Appealing to Buyers

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If you are like most business owners, you have never sold a business before and might not have a clear idea of what the process is like. We recommend preparing your business in a way that makes the sale and transition process as easy for your buyer as possible. It should come as no surprise that buyers will like the idea of an easy transition. 

It will be very beneficial if you take the time in advance to evaluate the steps and think about what you can do on your end to benefit your buyer. Since you’re the expert on your business, you have unique insights into what would make the transition the most seamless for the other party. When you prepare for the sale with your buyer’s experience in mind, you will likely not only speed up the sales process, but also increase the selling price. 

1. Automate Processes

Just like you may have never sold a business before, your buyer may have never bought a business before. If you can figure out how to automate as many processes as you can, it will help with their workflow and reduce the level of intimidation your buyer may be feeling about taking over. 

2. Establish a Second in Command

One thing you can do is have a second in command on your staff. If there is a competent employee that your buyer can depend upon for assistance and support, that fact alone will be tremendously attractive. If you do not yet have that person in place, you might have an eye on choosing a person and preparing them for this role. Speaking of staff, you will want to make sure your entire staff is well-trained and any HR issues are resolved in advance. 

3. Keep Things Consistent 

As you get closer to the time you will put your business up for sale, you will want to begin to work with vendors and key customers. You will want to ensure that the supply chain and significant customers are consistent. Otherwise, this could cause major disruptions for your buyer and impede his or her success.  Of course, it goes without saying that you’ll want to keep the potential sale of your business completely confidential. If customers, vendors, and even employees learn about an upcoming sale, this fact alone can lead to a chain reaction of disruptions and problems. 

A business broker or M&A advisor can help in a wide variety of ways when you are getting ready to sell. They are experts in maintaining confidentiality while taking you through the sales process from start to finish. Brokerage professionals will also assess your business and inform you of any areas that could be improved to make your business more attractive to buyers. 

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Three Reasons Why You Might Want to Own a Business

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Have you been thinking that business ownership is for you? Many people are committed to the idea of owning a business and work hard to pursue this goal. Of course, the path towards buying a business is indeed complicated and requires a significant investment of not only money but also time. As a result, you’ll want to ensure that you are fully committed to business ownership before beginning the process. Let’s take a look at some common reasons why individuals choose to buy a business.

Desire to Grow Your Income

Most people will say that they would like to make more money. However, keep in mind that while owning a business will likely mean you grow your income, it also requires a significant amount of work, especially in the early stages.

Research shows that the longer you own your business, the more profits you will generate. Those who have owned their business for more than a decade will typically earn more than 100K a year.  Of course, owning a business always comes with a degree of financial risk, but if you do successfully run your company for a series of years, you will likely succeed financially. Just be prepared for the possibility that the first few years may not generate as much income as you had hoped. 

On the positive side, owning your own business allows you to have control over your financial destiny. You have the ability to make decisions that will grow your business

Interest in Shaping Your Lifestyle

When you work for someone else’s business, the way your life is organized is dictated by the rules and regulations of the company. For example, you may want to work at home, but your job requires you to spend 40 hours a week in the office. 

If you want to make key decisions that impact your day-to-day life, owning a business will be quite attractive to you. You will be able to decide not only where you work, but also how many hours you work and with whom you work. You have the power and ability to shape many aspects of not only your life, but the life of your employees as well. 

You are Willing to Take on Some Risk

The personality of a typical business owner is a person who is comfortable with taking on some risks. After all, not all businesses succeed. At some level, you are always risking your time, money, and energy. Of course, this aspect will vary dramatically depending on the kind of business you acquire. 

It is also important to consider that many business owners find that they are working around the clock. They simply cannot go home and forget about their job at the end of the day. In sharp contrast, they are always on call and actively thinking about their business and relevant decisions. You also may not get a paid vacation or sick days. 

Guardian Life Small Business Research Institute studied the ideal personality traits for a business owner and found that successful owners are action oriented, curious, self-fulfilled, tech-savvy, and future focused. They surveyed over 1,000 small businesses to generate this data. If you resonate with these traits, it is likely you are indeed cut out to own a business. 

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4 Takeaways from the Latest BizBuySell Quarterly Report

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BizBuySell is an online resource that focuses on offering unique content that specifically addresses the needs of buyers and sellers. To make this happen, BizBuySell has teamed with a range of experienced business brokers who are covering topics relevant to business owners, buyers, and sellers. For example, they feature articles that focus on how to make a business more interesting to a potential buyer. These resources help to position BizBuySell as a go-to place for a range of relevant business information.

Of course, every quarter BizBuySell publishes Insight Reports complete with interactive market data. These reports offer a comprehensive overview of trends that are essential for brokerage professionals to know about. The latest report can be accessed here. It covers important trends noted in the first quarter of the year. 

Some of the changes that were noted in this important report include the following:

1. Rebounding Transactions

For Q1 2022, the Quarterly Report indicates that transactions are continuing to rebound from the slump of Q2 2020. Year over year, transactions shot up a whopping 24% and are now beginning to return to 2019 levels. 

Overall, the main sector that seems to be holding back an even stronger rebound is the restaurant sector, which is still not where it was in pre-pandemic years. However, with that stated, the restaurant sector has also dramatically improved and has shot up by 42% year over year. Yet, the restaurant sector is still down 22% from Q1 2019.

2. Changing Buyer Preferences 

When BizBuySell surveyed buyers as to what kind of business they wanted to buy, the numbers were eye opening. 35% of surveyed buyers responded that they were interested in the service sector, and this was followed by 15% of respondents choosing retail. Director of Sales Doug Whitmire stated, “Buyer demand seems to be leaning toward business services, self-storage, car washes, as well as advanced distribution services for manufacturers. There have been few opportunities, so buyers are flocking to them and inventory is limited.” The result of the limited inventory is record sales prices.

3. Listing Growth

In Q1 2022 listing growth has increased substantially, with service listings up 14%. While the restaurant sector is obviously still lagging, it is important to note that the Quarterly Report indicated that restaurants were experiencing a 10% growth. If the pandemic continues to recede, we could see a robust rebound in the restaurant sector.

4. A Boom in Sellers

The Q1 report also indicates that sellers, who have previously been sitting on the sidelines, are deciding that now is the time to sell. Once again there is talk of a “silver tsunami” approaching as Baby Boomers begin to sell. It is also interesting to note that many of those who are selling are doing so due to burnout. Importantly, burnout is occurring for a variety of diverse reasons, ranging from supply chain and labor issues to pandemic burnout.

Advice for Sellers

The BizBuySell team strongly advises that sellers should fix major supply chain issues before entering the market. Whitmire noted, “We try to get our clients to work with us to fix those issues before we go to market. Many times, you only have one chance with a buyer and then you lose them.” It definitely makes sense for sellers to try their best to remedy any issues that might have resulted from Covid-related circumstances. This will ensure that the sales process goes as smoothly as possible. 

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The True Meaning of a Fairness Opinion

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Many people assume they know what “fairness opinion” means because they are familiar with the term “fair market value.” Fair market value refers to a price that is reasonable for both a buyer and seller in an open and competitive market. However, a fairness opinion is quite different. This term refers to a report that evaluates the facts of a merger or acquisition or any other type of business purchase. 

A fairness opinion is typically in the form of a letter that contains an actual opinion and justification of why a selling price is fair. Of course, there are limitations, as this report is fully based on information that has been provided by the management of the business. 

Who Prepares a Fairness Opinion?

A fairness opinion must be prepared by a professional with expertise in business valuation. It is typically done by a business intermediary or appraiser. An investment banker can also prepare a fairness opinion. Although the professional who prepares the fairness opinion may very well have experience in structuring deals, this letter does not include any information or opinion on the deal itself. It also doesn’t include advice or recommendation. In preparing the report, the advisor seeks to look at the deal from the perspective of the investors. 

Basically, it is structured to specifically comment on fairness from a financial perspective, based on the information on hand.

Who Uses Fairness Opinions?

You will most frequently see fairness opinions utilized in the sale of public companies by the board of directors. When this document is received, it shows that the board is working to protect the shareholders. Of course, fairness opinions can also be used for private companies. In this case, it can serve to protect the interest of shareholders or family members who may later look to challenge the sales price. However, in most situations that involve middle market private acquisitions, a fairness opinion is not necessary. 

In the end, a fairness opinion assists with communication and decision-making. It serves to lower the risks surrounding a deal. This important document can be used in court if a shareholder later decides to file a lawsuit against the director of a company.

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Telling the Story of Your Business

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Often selling a business comes down to storytelling. The buyer and seller are the main characters of the story that is being told. The seller is the one relaying the story, and the ideal buyer is the one who truly sees the future opportunity. 

A Brokerage Professional Can Help Tell Your Story

The simple fact of the matter is that often even sellers don’t know what the true story of their business actually is. They tend to lack the proper perspective as they are too deeply involved. Sellers may be burnt out or have never really thought through the story of their business in the first place. 

Business brokers and M&A advisors serve a great function as a third party who can look at the story from a different perspective. These professionals are numbers people, but it goes beyond that, as they can clearly see your business as a story to be told. And they can help you control that storyline for optimal results. 

Embracing the Human Element

In order to tell the story of the business and why a buyer should want to buy it, it is necessary for your business broker or M&A advisor to truly understand your business. This is why good communication is so important. After the interview process, these professionals must precisely arrange all the relevant information in such a way that the buyer can digest it and see the potential within the business. Through that means, a prospective buyer can understand that value and envision him or herself as the hero.

It Goes Beyond the Financials

Business brokers and M&A advisors also help sellers determine the price and work as advisors on pricing. The story of the business does start with the financials and the facts. But this is only the beginning of the process. Brokerage professionals will want to interview you to learn how to weave together your story. 

In the end, every story has a moral. It is important to pull all of these elements together to make an engaging story that will ultimately inspire and motivate a buyer to buy the business.

Storytelling Leads to Successful Deals 

When buyers open their minds to the story being told, they are able to envision the future potential of the business and why it is going to be a valuable opportunity.  At the end of the day, selling a business isn’t strictly about numbers, figures, facts, profit and loss margins, and other financial variables. Instead, it is also about the people. 

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Is it Possible to Buy a Business Without Collateral?

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When it comes to getting a loan, you can be certain that a bank will want collateral. This is true for both personal and business loans. Simply stated, if you have collateral, your bank won’t be concerned about being left empty handed if you can’t repay the loan. Many budding business owners are, in fact, held back by the fact that they lack the collateral needed to buy a business. However, the good news is that there are ways that one can buy a business with no collateral or very little collateral. 

The Small Business Administration (SBA) is the first stop for those wanting to start a business with a low level of collateral. The SBA’s 7 (a) program provides banks with incentives to make loans to buyers. It is through this program that the SBA will provide guarantees for a whopping 75% of the loan amount. The borrower still has to have the remaining 25% of the loan amount. This means that on a $1 million dollar business, the borrower just has to come up with $250,000 and not the full $1 million dollars. 

Through the SBA’s 7 (a) program it is possible for prospective business owners to consider businesses that would otherwise be completely out of their reach. Yet, there is a second excellent aspect to the program, namely that the cash that buyers use to meet the 25% requirement can come from an investor or a gift. Anyone looking to become a first time business owner will want to fully explore all that the SBA’s 7 (a) program has to offer.

A second route for those looking to buy their first business is seller financing. Seller financing is not rare, as many may suspect. This method of financing is actually quite common. If sellers are motivated, they are much more willing to consider seller financing. Keep in mind that there are many reasons why a seller may be motivated, such as retirement, unexpected personal problems, or just burnout. Seller financing and the SBA’s 7 (a) program could, in some situations, be used together. This combination could serve to greatly increase your chances of buying a business.

This is not to state that there are zero obstacles or limitations with the SBA’s 7 (a) program. For example, the program requires that sellers cannot receive any form of payment for a full two-year time period. There are ways to address this problem, but it is something that buyers and sellers alike should be ready to address.

A lack of collateral doesn’t have to mean the end of the dream of owning a business. If you are interested in owning your own business and lack collateral, meet with a consultant at S.C.O.R.E. and other experienced professionals, such as a business broker or M&A advisor. An experienced brokerage professional will have a wide-array of ideas for how to buy a business with little or limited collateral. 

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How Sellers Can Boost Their Levels of Success

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Many buyers view a publicly-held company as virtually being an open book with at least a modest level of transparency, whereas privately-held companies reveal much less about their inner workings, financial, and otherwise. Of course, this means that buyers of privately-held companies are left with no choice but to dig through whatever information is available in an effort to determine if a valuation or price indeed reflects reality.

Comparing Publicly and Privately Held Companies

Determining the price on a privately-held company is typically more time-consuming since privately-held companies don’t have to deal with audited financial statements. But why do most privately-held companies typically forgo the process? Audited financial statements are expensive, and it is this expense that often prevents companies from going public. A publicly-held company is expected to reveal significantly more information, including often sensitive financial information.

What Sellers Can Do

If you’re a seller, you can take steps to make the process a bit easier for buyers. One step is to work closely with your accountant in an effort to ensure that the numbers are not just accurate, but are also presented in a concise and easy to understand fashion. This move serves to boost trust between buyers and sellers and, in turn, can increase the chances of selling your business. 

Determining value is another area where sellers of privately-held companies can take steps to assist buyers in determining price or value. Sellers should consider opting for an outside appraiser or expert when it comes to determining the value of their business. The opinion of an outside expert clearly carries more weight, and using an outside expert is yet another step that sellers can take to boost overall trust with buyers. 

Establish Your Bottom Line

Another key step is for sellers to establish their wish price. The wish price can be thought of as what price the seller would ultimately like to receive. It is also helpful for sellers to know well in advance what their lowest possible price for their business would be. 

When establishing a price, there are several areas of the business where sellers can expect buyers to pay special attention. Here are a few areas that buyers are likely to explore: 

  • Size and scope of customer base 
  • Needs for capital expenditures 
  • Overall stability of the market 
  • Stability of earnings 
  • The general landscape of competitors 
  • Businesses relationships with suppliers 

As with all transactions, the marketplace will have the final word regarding the sale of any business. Sellers should expect to receive a price somewhere between their asking price and their lowest price. But taking the right steps throughout the process can definitely make the process go more smoothly and boost the chances of success.

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Not All Buyers Are Created Equal: The Mindset of the Serious Buyer

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Just as every person is different, the same invariably holds true for buyers. No two buyers are the same. Further, no two buyers have the same mindset, emotional makeup, or approach to business. The simple fact is that buyers opt to buy businesses for a very wide range of reasons. The bottom line is that it is up to business brokers and M&A advisors to find serious buyers so as not to waste everyone’s time. In this article, we will examine how we zero in on serious buyers.

A serious buyer, one that wants to achieve success and isn’t just window shopping, will want to understand both the business they are considering buying and the industry as a whole. Consider this rough analogy for a moment. Someone serious about winning a game will work to understand the rules before jumping in and playing. You’ll want to look for a buyer who wants to understand the strengths and weaknesses of a business. He or she will also want to comprehend the strengths and weaknesses of competitors as well as potential industry wide problems both now and in the future.

Savvy business people realize that wages and salaries make up a huge percentage of the typical business’s operating cost. A serious buyer will endeavor to understand not just the wages and salaries of employees, but also additional related costs. These can include retirement related costs, the cost of training new employees, the rate of employee turnover and more. Smart buyers are looking for stability throughout the business, and that includes its employees.

The kind of buyers you want to attract are the ones that are not just “thinking about buying” a business. You’ll want to only deal with buyers who have carefully thought through what it means to buy a business. A key aspect of buying a business, as simple as it sounds, is to fully understand what is being sold. For example, serious buyers will dive in and understand capital expenditures. They will also examine and evaluate machinery and equipment so that they understand what kinds of equipment might need to be repaired or replaced. Replacing and repairing equipment can mean substantial costs. That’s why quality buyers can be expected to evaluate all equipment extremely carefully.

Buyers who understand what it means to buy a business will even go beyond evaluating the stability of employees and the state of machinery and equipment. You can expect a serious buyer to want to know if there are any environmental concerns, they will check and evaluate the lease, and they will want to inspect the state of all buildings. They will want to know who the key clients and key suppliers are and determine if those relationships are stable or if they put the business at long term risk.

At the end of the day, the kind of buyer that you’ll want to work with is a buyer who is proactive. Quality buyers will be accessing every aspect of a business to determine its long-term viability. A buyer who goes far beyond “kicking the tires” is exactly the kind of buyer you want.

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Important Factors to Consider in Your Lease

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Owning and operating a business can be rather demanding and that means from time-to-time details can slip through the cracks. All too often, businessowners don’t fully comprehend their leases and this can lead to a variety of problems. For example, if your business location is a key part of your success, it is incredibly important that you are well aware of all the essential points in your lease. Many businesses, ranging from restaurants and service businesses to retail stores, can be very location sensitive. 

Don’t Let Key Details Slip by You

Regardless what kind of business you own, it is vital that you understand every aspect of your lease. You may even have to get an attorney involved to help you understand the implications of the minor points. A failure to do so could translate to the failure of your business.

The Length of Your Lease

The length of your lease tops our list of lease related factors you need to understand. While there are many variables that will affect you, in general, the longer your lease the better. It should come as no surprise that a longer lease gives your business an increased level of stability.

Exit and Exclusivity Clauses

If you are negotiating a lease, it is prudent to include an option for getting out of the lease. Just as having a longer lease provides you with greater flexibility, the same holds true for being able to exit your lease if the need arises.

A lease is not a one-dimensional document, just as your location is not one-dimensional either. The location in which your business is located matters. If you are signing a lease to locate your business in a strip mall or shopping mall, you should try to have written into your lease agreement that you are the only business of your type that will be located in the mall. After all, the last thing you want is to see a similar business opening up nearby.

Transferring Your Lease 

Negotiating a long lease and having a way out of your lease are critically important, but so is being able to transfer your lease. At some point in the future, you may need to sell your business. For this reason, it is in your interest to have a clear understanding of how, and under what circumstances, you can transfer your lease to a new owner.

It is important to discuss the possibility of selling your business with the landlord before going to market to understand if the lease will be able to convey.  While the landlord cannot restrict the sale of your business, you could get left holding a personal guarantee in order for the lease to remain in place for the remainder of the existing lease term.  Then the new owner would be left to negotiate the lease renewal on their own.

Assignment of Responsibilities 

Rounding out our list of key factors to consider for your lease are what you are responsible for and what the landlord is responsible for handling. If you as the business owner are to shoulder responsibilities related to the property, then those responsibilities should also be clearly outlined in the lease.

There is no doubt there are many variables involved in owning and operating any business. The physical location of your business should be among your top concerns. You should do everything possible to understand your lease. When signing a new lease, try to negotiate a lease that will be as helpful to you as possible. 

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3 Warning Signs for Sellers to Be Aware Of

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If you’re getting ready to sell your business, you’ll want to be on high alert for potential warning signs that could potentially derail the deal. Of course, time is of the essence when it comes to finalizing your deal. Why spend time negotiating with a buyer who is either not really interested or is simply not qualified to buy? Let’s take a look at some of the top buyer warning signs.

1. Lack of Buyer Experience

When it comes to individual buyers, you’ll want to see if they have experience in your industry. If a prospective buyer is not knowledgeable about your business, they might initially seem very excited but then get cold feet once they dive in and learn more about the industry.

The same can be said for a potential buyer who has never purchased a business before. If you’re dealing with a newbie, you’ll want to feel confident that this individual understands the ins and outs of buying a business before you dedicate too much time to their deal. After all, the process of buying a business can be long and complicated. Inexperienced buyers might find that they no longer want to continue progressing once they get a better idea for what is involved.

2. Undisclosed Financial Information

Along similar lines, you’ll want to work with a buyer who is open about their financials. If you are denied access to financial statements, you will have no way to verify that this buyer is actually equipped to purchase your business.

3. Early Communication Issues

Another common red flag to watch for is that a company says they are interested in buying your business, but the company’s actual decision makers are uninvolved in the communication. If a company is legitimately interested in purchasing your business, you will be communicating with a key player like the President or CEO.

Protect Your Interests

When your business is on the market it is a very important time to make sure that things stay consistent. If a legitimate buyer sees dips in sales or quality of your offerings, it could put a future deal on the line. That’s why you will want to protect your time by not wasting it with buyers who are not a good fit or who lack a high level of interest. Along the way, be sure to trust your intuition. If you sense something might be “off” with a potential buyer, this might very well be the case.

When you work with a business broker or M&A advisor, it will offer you a high degree of protection against falling into a rabbit hole when you should be focusing on keeping your business running as successfully as possible. Your brokerage professional will carefully vet buyers to ensure that they are actually viable candidates.

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4 Questions to Ask Yourself Before Buying a Business

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When in the process of buying a business, some buyers have accidentally overlooked important questions that need to be asked. However, you don’t want to find yourself in a situation where you wish you’d found out details that would have impacted your decision-making. With that in mind, let’s take a look at some often-overlooked inquiries. 

1. What Is Included in the Sale?

It is possible to get so focused on the purchase of the business itself, that you overlook key details such as what is included. Don’t just assume that you’ll also receive important assets such as real estate, inventory, or machinery. All of this must be carefully outlined and documented. You will want to know exactly what you’ll be getting for your investment. 

2. What Assets Are Included?

You’ll want to get the ins and outs of the proprietary materials and ensure that they are included with the business. If there is intellectual property, such as patents and copyrights, formulations, or software, you’ll want to ensure it is included. If it’s not included in the sale, you’ll want to know why. After all, the success of the business could depend on these. 

3. How Can You Grow the Business?

Before you buy a business, it’s a good idea to ask yourself about its potential for growth. Many sellers will be prepared to provide you with ideas and strategies. If it is deemed that the growth for the business is limited, this is something you’ll want to determine in advance. Also, it is important to think about the amount of working capital you’ll need to not only run the business, but also to make any necessary changes. 

4. What is the Staffing Situation?

You’ll want to think about how dependent the business is on the current owner or manager. If and when the current owner leaves, how much will that impact operations? You’ll also want to know in-depth information about who the management team is and how experienced they are. It is essential that your expectations are in line with reality. 

As you can see, many variables must be taken into consideration before you sign on the dotted line. Much of this will be handled during the due diligence process. However, it is essential that you ask the right questions and speak up whenever you need clarity on an issue. When a business is properly vetted, you’ll not only be satisfied, but you’ll also be more successful. 

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When It Comes to Selling Your Business, Let Others Do the Heavy Lifting

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While brokerage professionals are working to sell your business, it’s important for you to keep running things in a smooth and seamless manner. In countless cases, sellers have made the mistake of letting things slide simply because they are distracted while trying to sell. You’ll want to make sure things remain the same, as prospective buyers will otherwise start to become nervous. Be sure to keep the premises in tip top condition. Things such as operating hours and inventory levels should remain unchanged. After all, if sales and earnings decrease, that will raise a red flag for buyers.  

Business brokers and M&A advisors will help tremendously with various details and events that will take place during the sales process. From start to finish, they will keep their eye on the prize so that you have the time and energy to focus on running your business. The same holds true for other professionals who may help you, such as attorneys and CPAs. 

Get Professional Advice on Pricing

You may have a pre-established figure in your mind of what your business is worth and how much you expect to make when you sell. However, the truth is that you will only receive what the market will allow. That’s why it’s so important to get a professional valuation before you decide on a price. If you set too high of a price on your business, it will only slow down or even halt your journey towards successful results. 

Keep Things Confidential

Until your sales transaction is completed, you’ll also want to make sure the highest standards of confidentiality are held. If your vendors and employees know that you are selling, it could lead to circumstances that are detrimental to the value of your business. For example, key employees could seek employment elsewhere and/or vendors could terminate contracts. 

Decide On Your Strategies 

Will you be willing to stay on in some capacity? In many cases, this decision can help increase what you receive for your business. Buyers will often pay more when a seller stays on for a designated period of time as they see this as a reduction in their risk. Would you be willing to offer seller financing? Again, buyers will see this as a sign that you believe in the future success of the business. 

Prepare in Advance

It’s always best to prepare when you are not experiencing external pressures. You never know when life could take its toll and force you to sell. That’s why so many sellers start preparing years in advance by taking actions such as cleaning up paperwork, handling litigation and/or environmental issues, and organizing documents. 

Selling a business can be highly distracting for business owners. That’s why most reach out to a business broker or M&A advisor. In fact, the best policy is for business owners to start talking to brokerage professionals quite a few years in advance. That way they can make sure everything is optimized for positive results. 

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Takeaways from the Latest BizBuySell Insight Report

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Whether you are thinking of buying or selling a business, it’s worth taking a look at the quarterly BizBuySell reports. The findings from these publications are taken from analysis of sales and listing prices of approximately 50,000 businesses across the United States. The report covers the statistics of sales prices and successful transactions. It also discusses the trends that are at play. Regardless of your role in the business world, these trends likely will have some sort of impact on you. 

A Boom for Sellers 

The latest BizBuySell report, which covers Q4 of 2021, found that now is a very positive time for sellers. Q4 actually surpassed the pre-pandemic numbers of the fourth quarter of 2019. Of course, this is a major shift away from the sales numbers in 2020. It is typical to see transitions dip in the fourth quarter; however, 74% of brokers stated that their sales were steady during this time period. Experts say that this strength has carried into early 2022. 

Other notable sales statistics include the following:

  • 8,647 closed transactions were reported in 2021, an increase from 7,612 in 2020
  • Sales prices increased 16% year-over-year 
  • Median cash flow grew 10% year-over-year

Buyers are Looking for Quality

In terms of what buyers are currently looking for, 60% of surveyed buyers indicated that strong financials were simply a “must have” when they were considering a business. This number is in stark contrast to 18% of buyers who responded that discounted opportunities were a top consideration. 

Labor Shortages a Factor

The BizBuySell report also discussed the prevalent factor of labor shortages. In fact, 64% of owners surveyed say that this issue has impacted them. Business brokers agree that labor shortage is currently the largest problem for small businesses. Another corresponding issue is that of supply chain disruptions, which 75% of the business owners responding to the survey said had an impact on them. 

A More Balanced Landscape

In the survey, brokers were asked if they believed that owners were more or less likely to sell their business in 2022 versus 2021. The general trend was towards brokers believing that there would be more businesses sold this year as compared to last year. Last year, the view was that buyers had the edge over sellers. However, now it seems as though brokers feel that the landscape has shifted and become more balanced overall.

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