Current Insights Regarding the Labor Shortage

BizBuySell’s Insight Report is filled with key statistics and information on a range of topics, including the labor shortage and hiring problems that many businesses currently face. Visit BizBuySell for more information about the findings that they recently reported for the third quarter of 2021. This website also offers an archive of past quarterly reports dating back to 2013. 

The pandemic has “reshuffled the deck,” causing many to reassess their positions in corporate America. At this point in 2021, businesses are recovering, but the pandemic continues to play a role in business operations. 71% of business owners surveyed noted that they are facing higher costs than before the pandemic. Most respondents indicated that labor shortages have been having a significant impact on their businesses. There are issues both in hiring and retaining employees. 

As the report explains, “According to the U.S. Census Bureau, retail spending in September increased 13.9% over the previous year. However, many businesses still struggle to attract or retain employees. In fact, 49% of owners say the labor shortage is impacting their business, while Business Brokers see it as the number one concern facing small businesses.

Some of the problems related to the issue of labor shortage are not immediately obvious. As it has become common knowledge that employers are having trouble filling positions and are having to increase pay in order to attract new employees, existing employees are taking note. Since existing employees realize that new hires are being hired at higher wages, they are themselves often expecting raises. In turn, operational costs are going up for many businesses.

The fact is that the business owners are still selling and for a variety of reasons. BizBuySell’s statistics also indicate that of buyers who are planning to sell, 20% cite retirement as their main reason for selling, whereas 38% cite burnout as the primary reason.

According to the data collected by BizBuySell, transactions are up 17% over the last quarter, but are still 7% below pre-pandemic levels. However, it is expected that the number of transactions will grow to be well above their pre-pandemic levels in 2022.

Buyers and sellers alike should remember that the pandemic has changed business and will continue to do so in the near future. In short, the business landscape continues to evolve. 

Copyright: Business Brokerage Press, Inc.

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How to Purchase a Business Without Collateral

Many prospective business owners believe that it is impossible to purchase a business without collateral. The simple fact is that banks do expect collateral when making a loan. Since this is the core reality of the business world, it means that many who are eager to own a business will ultimately not be able to acquire one. However, while it is true that banks want collateral for loans, there are some ways that would-be business owners can still progress towards their goal of owning a business. In this article, we will explore a couple of the ways that a prospective business owner can still succeed. 

First, we must make a key distinction: there is a difference between not having collateral and having no funds whatsoever. It is key to note that the larger the business you plan to buy, the more money you will ultimately need. 

A great place to begin the process of buying a business without collateral is to talk to the SBA. The SBA’s 7 (a) program offers up incentives to banks to make loans to potential buyers. The SBA’s 7 (a) program is a simply fantastic program for those without collateral, as the program will cover a whopping seventy-five percent of the loan amount; this means that you, as the business owner, only need to have twenty-five percent of the price of the business. As though this program was exciting enough, the SBA’s 7 (a) program also allows prospective buyers to use money from investors or gifts towards the needed funds. Thanks to this great SBA program, you may qualify for a collateral free loan option.

A second option is seller financing. Seller financing is actually quite common in various forms. If you can find a motivated seller, such as one who is eager to retire, then seller financing becomes a potentially viable option. It may even be possible to combine seller financing with the SBA’s 7 (a) program for a powerful one-two punch. In this situation, a key part of the process is to find the right business and the right seller. 

Working with a Business Broker or M&A Advisor can serve as a massive shortcut towards finding just such a business and seller. Brokerage professionals have databases of businesses for sale along with unique insights. A Business Broker or M&A Advisor may instantly know of a business that is a good fit for buyers without collateral.

Ultimately, prospective business owners shouldn’t be dissuaded by the challenges that a lack of collateral represents. It’s true that a lack of collateral is an obstacle, but it doesn’t have to be an insurmountable problem. By teaming with an experienced brokerage professional, it is possible to find a path towards owning a business even without having collateral. 

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The Most Important Factors in Any Partnership Agreement

Every business has an array of important legal documents. However, the partnership agreement holds a unique and important place in your business and its future. 

The facts are that many people choose to go into business with close friends or family members, and often these personal relationships lead to a forgoing of the partnership agreement. Don’t go this route, as it would be a major mistake. As a business owner, you have a responsibility to protect, maintain, and grow your business. 

A well-written partnership agreement can greatly reduce the number of potential problems that your business can face down the road. Establishing a legal framework for the operation of your business is a must.

A good partnership agreement is one in which every major aspect of how the partnership should run is outlined and spelled out in detail. At the end of the day, your partnership agreement should be viewed as a legal document that serves as a key guidepost for the operation of your business. Since a partnership agreement is a legal document, it is essential that you work with a lawyer to create a contract that is specific to your company.

This type of agreement is often a more complex agreement than many business owners would initially expect, and for good reason. Due to the wide scope that a partnership can entail, the partnership agreement can address many different points. 

It is important to remember that partnership agreements are designed to minimize misunderstandings and outline how the business should function. Issues such as how money is distributed, what percentage each partner will receive, and which partners are to receive a draw, should all be covered. 

However, a partnership agreement does more than simply address how money is to be distributed. It should also outline key operational factors such as what happens in the event of the death of a partner. If that were to occur, for example, who will be in charge of managerial work? Issues such as how business decisions should be made, and how conflicts are to be resolved, are additional important issues that should be addressed. 

A good partnership agreement, one that strives to foresee as many problems as possible, serves to protect your business against future disruptions. Every successful operation or enterprise has rules by which it operates, and your business should be no exception.

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Are You Truly Ready to Become a Business Owner?

People frequently dream of owning their own business, as ownership has a range of perks and benefits. However, it is important for prospective business owners to step back and consider if they are truly ready. In this article, we will explore three essential questions that you need to answer before taking the next step and buying a business.

Question One – Do You Have the Right Personality Type?

Truly not everyone has the right personality type to enjoy being a business owner, and it is best that you understand if you have the right set of traits before attempting a purchase. For example, you must be comfortable assuming a certain degree of risk. 

Risk and business go hand-in-hand. This is true no matter how well your business may be operated. Not everyone is comfortable with this level of risk. Owning a business means that you are not only taking financial risks, but you are also giving up the stability that can come with just being an employee. Summed up, you must have the right mindset to operate a business.

Question Two – Are You Determined to Grow Your Income?

Owning and operating a business means that you’ll have to put in a great deal of work and potentially longer hours than you are accustomed to. This is typically necessary in order to build your business and increase your income. It is key that you ask yourself if you are ready for the amount of work that typically comes along with owning and operating a business. Statistics show that the longer you own a business, the more money you will generally earn.

Question Three – Are You Comfortable with Achieving More Control in Your Life?

At first glance, many people may instantly feel that they want more control over their professional lives. Yet in reality, this is not always the situation. Being a business owner means that you have far more control over your professional and business life. Most people will view this as a very good thing. Not having someone else control your fate is a good feeling, as you’ll be able to allocate your time as you see fit. As a business owner, you are not just part of a business, but instead are the person controlling, modeling. and guiding it. At the end of the day, there is nothing quite like being your own boss.

If you are ready for the amount of work and risk that goes along with owning a business, then it might be time to take the next step. One of the easiest ways to move forward, and begin the process of owning your own business, is to work with a Business Broker or M&A Advisor. These types of professionals have years of hands-on experience in the buying and selling of businesses and can help determine what kind of business is the best for you.

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3 Overlooked Areas to Consider When Buying a Business

Without a doubt, there are a multitude of factors that go into buying a business. Since there are so many variables involved, it is easy to potentially neglect some important aspects. In this article, we will explore some of the key areas that can be overlooked when buying a business. Three areas in particular warrant special attention.

#1 Legal Documents

Upon first glance, it might seem obvious that all legal documents should be evaluated; however, many buyers forget that all legal documents are important and should be given weight. In short, there is no such thing as an irrelevant legal document, as one never knows what problems could be lurking within any given legal document. 

For this reason, you’ll want to carefully examine any legal document before making a purchase. The stakes are simply too high to not evaluate everything from trademarks and copyrights to leasing agreements.

#2 W-2 and 1099 Forms

It is important to note whether or not 1099 forms were given out instead of W-2 forms. The reason is that the IRS has very specific rules regarding these forms. The last thing that any buyer of a business wants is to sign on the dotted line only to discover that there are problems with the IRS. Taking ownership of a new business only to learn that there are IRS issues is something that should clearly be avoided.

#3 Retirement Plans

Just as it is vital to look over all financial documents, including W-2 and 1099 forms, the same holds true to evaluating retirement plans. You shouldn’t buy a business unless you know if the business’s qualified and non-qualified retirement plans are completely up to date with the Department of Labor. A failure to properly evaluate a given company’s retirement plans can be a very costly mistake.

Ultimately, there are many potential topics that can be overlooked when buying a business. In this article, we outlined three areas, but in reality, there are many more. This fact underscores the tremendous importance of working closely with a business broker, as well as other trusted professionals, such as lawyers and accountants, in order to properly vet any business that you are considering. One of the key steps in buying any business is to take every possible step to perform due diligence. No business is a flawless enterprise, but a seasoned business broker or M&A advisor can help you to successfully chart a path forward.

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The Importance of Quality Negotiations

When it comes to finalizing deals, successful negotiations are at the heart of the matter. It only makes sense to think about how to improve your communication skills and to choose a Business Broker or M&A Advisor who is well versed in the art of negotiation. 

Cultivating Win-Win Situations

Achieving a win-win for all parties is essential, and there are many components involved. It’s essential to understand what the other party is seeking and to help them also feel as though they succeeded in the deal. 

One tried and tested strategy is to lead people through a series of “yeses” by starting with topics and points that can be agreed upon and then working forward. In the beginning of this negotiating strategy, the yeses may come from getting others to agree on what may be seen as trivial things. However, this step works to create the right climate for moving forward so that yeses can be obtained on more important issues.

Maintaining the Flow of Information

The flow of information is a critical aspect of the negotiation process. For this reason, it’s best for negotiations between buyers and sellers to go through their brokerage professionals, rather than conducted directly.  

The simple fact is that otherwise there are too many variables and opportunities for something to go wrong, ranging from egos getting in the way to miscommunications. When you choose a qualified Business Broker or M&A Advisor, you’ll be able to place trust in that person to achieve optimal outcomes.  

Understand One Another

It is important to keep the other side talking and show that you understand their perspective and the issues they may have. It is in this way that you can encourage cooperation and diffuse resistance in advance. 

Ultimately, great negotiations stem from proper strategy, preparation, proper education, enhanced communication, and understanding the other party’s needs. When you and your Business Broker or M&A Advisor foster good communications with the other party, it will enhance the chances of achieving the kind of cooperation you are seeking. This in turn, dramatically increases the chances of achieving win-win outcomes.

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How Changing Market Conditions Can Impact Your Business

Recently, the International Business Brokers Association (IBBA) released its Q2 survey report, The IBBA and M&A Source Market Pulse. This survey features feedback from an impressive 301 brokerage professionals across 44 states with 266 transactions taking place in the quarter. The report had numerous key findings that will be of interest to those looking to buy or sell a business.

The Emergence of Covid-Proof Businesses 

One key fact of interest is that a full 25% of businesses are still operating below capacity due to the pandemic’s enduring impact. The Market Pulse survey concluded that a quarter of all small and medium sized businesses are either in a position where they are temporarily closed or are operating below capacity. On the other side of the equation, the survey noted that 29% of businesses have either emerged as “Covid proof” or have actually benefited from the pandemic. 

For sellers with Covid resistant businesses, now could be an excellent time to sell. For buyers, there are potential deals to be had, especially for those who are willing to look beyond the current pandemic fueled environment and towards the future.

Why are Sellers Selling? 

The report also noted that burnout is a major factor impacting deal activity. Retirement continues to be the leading reason why businesses are selling, but burnout has become a quickly rising secondary reason. 

The top five reasons that sellers are putting their business on the market are: retirement (35%), burnout (27%), health (15%), tax increases (7%) and general Covid fatigue (7%). The pandemic is still likely playing a role in the minds of many business owners who are looking to sell, which means that buyers could find good deals due to the pandemic. It is important for buyers to note that as pandemic conditions improve, many of today’s good deals will likely vanish.

While the IBBA and M&A Source Market Pulse report noted that over the last year it took longer for deals to close in most sections, there were exceptions to that rule. For example, in the $5 million to $50 million sector, there has actually been an acceleration. On average, deals in that range are taking a mere ten months to close. 

Top Buyers in 5 Sectors 

Sellers will be pleased to hear that the report concludes that buyers are indeed active, noting that in the Main Street market, personal services were trending. In the lower middle market, it was manufacturing and construction/engineering that dominated industry transactions. 

The top buyers in the $0 to $500,000 sector were first time buyers (39%), in the $500K to $1MM range, the top buyers were first time buyers (37%), and in the $1MM to $2MM range, entrepreneurs (29%) lead the way. For the $2MM to $5MM range, it was first time buyers (36%) and serial entrepreneurs (28%) who led the way. For the $5MM to $50MM range, PE firms seeking a platform deal (33%) were the most represented group of buyers. It is interesting to note that with the exception of the $5MM to $50MM range, first time buyers topped the list.

Buyers and sellers will be pleased to learn that the IBBA and M&A Source Market Pulse report clearly outlines just how much the climate has changed from 2020 to 2021. Today’s market conditions are different than they were a year ago. If you’re looking to purchase a business, you can still find great deals. Those looking to sell should find increased interest from an array of buyers, especially first-time buyers.

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The 5 Must-Do’s When Considering Buying Any Business

There is no doubt that buying a business can be a very exciting idea; however, it is critical that prospective buyers don’t lose track of what is truly important. Let’s explore the five most important steps that any buyer needs to take when evaluating a business. The simple fact is that as a buyer, you have no choice but to look beyond the sizzle and work to find the steak. In other words, it’s essential to determine the true worth of a given business.

#1 – Evaluate What is Actually Being Sold

No buyer should assume that he or she understands everything that is, or is not, being sold when buying a business. One of the most important tasks for any buyer is to carefully evaluate the business under consideration and invest the time to understand what the business does and what is included in the sale. This is a task that your Business Broker or M&A Advisor will perform as well. 

#2 – Understand Business Performance

Understanding the performance of a business can be more complex than it initially appears. On one hand, the numbers don’t lie, and it is possible to quickly evaluate the bottom line. 

However, in the process of evaluating the business, you and your Business Broker or M&A Advisor might discover that there are many flexible factors that could quickly alter how well the business performs. For example, you’ll want to take into account the number of hours the current business owner is working and if key employees are contributing enough to the business. These are just two of a wide variety of factors that could influence overall performance.

#3 – Look at the Financials

Ultimately, there is no replacement for understanding the current financials of a business. Perhaps a business has all the potential in the world, and you can easily see that potential. However, remember that almost all buyers must obtain financing; this means that it is usually critical that the business has strong financials in its current state. Before considering any business, you and your team of professionals will want to carefully evaluate profit and loss statements, tax returns, balance sheets, and other important financial documents.

#4 – Evaluate the Business Plan

Understanding the current owner’s goals and what steps they’ve outlined to achieve those goals is a key step. As a new owner, you’ll want to know that there is a path forward for growing your business, and a business plan is essential for achieving that goal.

#5 – Look at the Demographics

One of the single best ways to grow your business is to understand your customers. For this reason, it is important that you have a clear understanding of the demographics of the business and why customers should remain loyal. If there are challenges on the horizon, such as an expanding competitor or new competitor entering the arena, then you’ll want to know this information as well.

Evaluating a business is not a simple process. Working closely with a brokerage professional who has years of experience in evaluating all types of businesses is essential. This is an excellent first step towards buying the right business for your needs.

Copyright: Business Brokerage Press, Inc.

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The Often-Overlooked Importance of Leases

When buying or selling a business, it is critically important that you evaluate the lease. It is a strange phenomenon that otherwise savvy business people will treat leases as a secondary concern. However, problematic terms in a lease can literally force you to pack up a business and move. This would not only be a jarring experience, but a very costly one as well. 

Finding a good location is of paramount importance to both the profile and profitability of your business. You may feel that there are more important issues when buying or selling a business. But by the end of this article, you’ll see the wisdom in placing a lease near the top of your “to evaluate” list.

There are three different kinds and types of leases: a new lease, an assignment lease and the sublease. All three of these options are most definitely different from one another and can potentially impact your business in different ways.

The New Lease

A new lease, as the name indicates, is the result of a lease that has expired. That means that the buyer must work with the landlord to establish a new lease. Buying a business only to discover that you don’t have a lease and the landlord isn’t interested in keeping your business at its current location is most definitely a shock that no business owners want to encounter. Buyers should be one-hundred percent certain that they have a lease in place before they buy a business.

Assignment of Lease 

The second type of lease is the assignment of lease; this form of lease is quite common. It involves the buyer of a business being granted the use of the location where the business is currently located and operating. Through the assignment of the lease, the seller is able to assign the buyer the rights associated with the lease. Of course, it is important to keep in mind that the seller is not acting as the landlord, but instead, simply has the ability to assign the lease. 

The Sublease 

The third option for lease is the sublease. The sublease is basically a lease within a lease, and it comes with some important distinctions that must be understood. A sublease generally requires the permission of the landlord and that permission should not be viewed as a “foregone conclusion” or “automatic.”

The bottom line is that no new business owner wants to discover that their new business doesn’t have a home. There are an array of very important issues to work out when buying a business, and it is critically important that buyers never overlook what kind of lease is involved. A savvy seller will highlight what kind of lease they have, especially if the terms are favorable. But buyers should always be proactive and ask questions about the status of the lease and make certain that lease terms are clearly defined.

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Buying/Selling a Business: The External View

There is the oft-told story about Ray Kroc, the founder of McDonalds. Before he approached the McDonald brothers at their California hamburger restaurant, he spent quite a few days sitting in his car watching the business. Only when he was convinced that the business and the concept worked, did he make an offer that the brothers could not refuse. The rest, as they say, is history.

The point, however, for both buyer and seller, is that it is important for both to sit across the proverbial street and watch the business. Buyers will get a lot of important information. For example, the buyer will learn about the customer base. How many customers does the business serve? How often? When are customers served? What is the make-up of the customer base? What are the busy days and times?

The owner, as well, can sometimes gain new insights on his or her business by taking a look at the business from the perspective of a potential seller, by taking an “across the street look.”

Both owners and potential buyers can learn about the customer service, etc., by having a family member or close friend patronize the business.

Interestingly, these methods are now being used by business owners, franchisors and others. When used by these people, they are called mystery shoppers. They are increasingly being used by franchisors to check their franchisees on customer service and other operations of the business. Potential sellers might also want to have this service performed prior to putting their business up for sale.

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The Advantage of Buying an Existing Business

Most people think of starting a business from scratch, developing an idea, building a company from the ground up. Starting from scratch, however, has its disadvantages including – developing a customer base, marketing the business, hiring employees and creating cash flow … without any history or reputation to rely on.

To avoid these challenges, buying an existing business may prove to be the better solution.  Buying an existing business has its advantages – including, but not limited to:

The Business Is 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 with furniture, fixtures, and equipment in place. The term “turnkey operation” may be overused, but an existing business is just that, and more. New franchises may offer a so-called turnkey business opportunity, but it ends there. Start-ups are starting from scratch with all the disadvantages stated above.

The Business Has Existing Relationships.

In addition to the existing relationships with customers or clients, vendors, and suppliers, most businesses also have experienced employees who are valuable assets to the company. A buyer may already have established relationships with banks, insurance companies, printers, advertisers, professional advisors, etc., but if not – the existing business/owner does, and they can readily be transferred to the buyer as part of the acquisition.

The Business Isn’t “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 you invest, there’s still a big risk in starting a business from scratch. An existing business has a financial track record along with established policies and procedures. A prospective buyer can see the financial history of a business – when sales are high and low, what the true expenses of the business are, and how much money an owner can make, and more. Also, in almost all cases, a seller is more than willing to stay on to teach and work with a new owner – sometimes free of charge.

An Existing Business Comes with A Price and Terms.

As stated above, an existing business has everything in place. The business is in operation and typically has an established selling price. Opening a new business from scratch comes with a great degree of uncertainty and can become a proverbial “money pit”. When purchasing an established business, a buyer knows exactly what he or she is getting for their money. In many cases, a seller is also willing to take a reasonable down payment and then finance the balance of the purchase price.

The “Unwritten” Guarantee.

By financing the purchase price, a 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.

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How Understanding Psychology Can Benefit Your Deals

We work closely with our clients to preserve the integrity of deals so that they have the best chance of a successful closing. An often-overlooked aspect of the process is understanding and embracing human psychology. In this article, we will explore some of the most common ways that psychology comes into play. 

The Element of Time

It is critical that both buyers and sellers feel well prepared at every stage of the process. It is also essential that a certain momentum is established through every stage of the deal. When too many delays happen, this can start to derail deals. 

Think about the Buyer and the Seller 

For both parties, the buying or selling of a business is a life-changing event. For this reason, it is important that you invest the time to think about the point of view of the other people involved. No doubt, buying and selling can be stressful, so it’s important to take other people’s thoughts and feelings into account. You are not the only one who may be experiencing a little stress. 

The Issue of Non-Active Partners

In some deals, non-active partners can pose challenges to finalizing deals. They often have different motivations than the seller who is in the role of running the business. In a situation where two sellers have divergent goals, it can pose a challenge to a deal. The best thing to do is to try to understand the point of view of each seller and help them both reach their respective goals. 

Identify Influencers

Influencers and recommenders can have a powerful sway over both buyers and sellers. By influencers, this could mean accountants, lawyers, relatives, etc. In order for a deal to go through successfully, often these influencers must be identified and their viewpoints must be addressed. On a practical level, there are also other people involved that can interfere with a deal, such as landlords. It’s important to make sure that these individuals feel as though they will benefit from the success of the deal as well. 

There are many moving parts needed to get to the finishing line. Human psychology plays a huge role in what decisions get made. It’s vitally important to take the time to consider what others involved in the deal might be thinking or doing. Your Business Broker or M&A Advisor will benefit you by getting to know all parties involved and taking the appropriate actions to ensure things are done to the satisfaction of all parties. 

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Is Your Business Charging Enough For Goods & Services?

A small increase in what you charge for your goods and services can make a tremendous difference to your bottom line.  The fact is that many businesses could charge more for their goods and services than they do, but fail to do so.  Owners often do not realize the great value of charging just one-percent more.  In this article, we’ll explore how charging even slightly more can dramatically impact your business.

Let’s consider a hypothetical example.  A business owner tells a potential buyer that he or she could safely increase their prices by 1.5% and do so without the price increase causing any negative impact to sales or business disruption.  The savvy buyer quickly realizes that the business, which has $70 million in sales, is leaving $1 million dollars on the table by not increasing its prices by 1.5%.  A smart buyer realizes that after purchasing the business, all he or she has to do is institute this small price increase in order to achieve a sizable increase in profits.

In his best-selling book The Art of Pricing, Rafi Mohammed explores the often-overlooked area of pricing.  He keenly observes that one of the biggest fallacies in all of business is to believe that a product’s price should be based on the cost of the product.  In The Art of Pricing, Mohammed points to several examples.  One comes from the restaurant industry.  He points to the fact that McDonald’s keeps entrée prices attractive with the idea of making up profit shortfalls in other areas, ranging from desserts to drinks and more.  Or as Mohammed points out, McDonald’s profits on hamburgers is marginal.  However, its profits on French fries are considerable.

Mohammed’s view is that companies should always be looking to develop a culture of producing profits.  He states, “through better pricing, companies can increase profits and generate growth.”  Importantly, Mohammed points out that it is through what he calls “smart pricing” that it is possible to extract hidden profits from a business.  Summed up another way, pricing couldn’t matter more.

All too often business owners, in the course of their day-to-day operations, fail to place sufficient importance of pricing.  Any business looking to achieve more will be well served by first stopping and taking a good look at its pricing structure. 

Likewise, buyers should be vigilant in their quest to find businesses that can safely increase prices without experiencing any disruption.  At the end of the day, small changes to pricing can have a profound impact on a company’s bottom line.

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Insights from BizBuySell’s 3rd Quarter Insight Report

Most business buyers and sellers are wondering what 2021 and beyond will bring.  BizBuySell and BizQuest President Bob House provided a range of insights stemming from BizBuySell’s 3rd Quarter Insight Report and a survey of over 2,300 business owners. 

The simple fact is that the pandemic has most definitely had a major impact on the buying and selling of businesses.  This fact is obvious.  But diving deeper, there are a range of insights that can be gleaned. 

First, owners do understand that COVID is a massive force in business right now.  According to the survey, 68% of owners feel that they would have received a better price for their business in 2019 than in 2020.  Only 37% of respondents felt that they would receive a better price this year.  Of owners who felt that they would receive a lower price in 2020 than in 2019, 71% of these owners said that their assessment was directly tied to the pandemic and its accompanying economic impact.

A question on the survey asked owners if the pandemic had impacted their exit plans.  55% responded that the pandemic had not changed their exit plans.  Additionally, 22% said that they now planned on exiting later, and 12% stated that they planned on exiting earlier.  In short, the majority of business owners were not changing their exit plans.

On the other side of the coin, buyers are acknowledging that the present seems to be a very good time to buy.  A staggering 81% of buyers stated that they felt confident that they would be able to find an acceptable price point.  In terms of their purchasing timeline, 72% of respondents stated that they were planning on buying a business soon.  Survey follow-ups indicated that large numbers of buyers were also planning on buying in 2021.

Generational differences are playing a role as well.  Baby Boomers tend to be more optimistic than non-boomers as far as their overall views on the recovery.  43% of Baby Boomers now expect the economy to recover within the next year as compared to just 30% of non-Boomers.  House pointed out, “Baby Boomers are the generation that did not plan, which makes it harder for them to adjust transition plans if they were preparing to retire, as small businesses don’t have the infrastructure and management teams in place to wait out a bad cycle.”

Based on the information collected by BizBuySell’s 3rd Quarter Insight Report and their survey, it is clear that there is a new wave of buyers on the horizon.  The report supports the notion that the pandemic has made small business ownership an attractive option for new entrepreneurs.  Factors driving new entrepreneurs into the marketplace include everything from being unemployed and wanting more control over their own futures to a desire to capitalize on opportunities. 

Finally, House notes that 2021 could be a “perfect storm for business sales,” as 10,000 Americans will turn 65 each and every day.  This means that the supply of excellent businesses entering the marketplace will likely increase dramatically.

Copyright: Business Brokerage Press, Inc.

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What Makes a Deal Close?

For every reason that a pending sale of a business collapses, there is a positive reason why the sale closed successfully.  What does it take for the sale of a business to close successfully?  Certainly there are reasons that a sale might not close that are beyond anyone’s control.  A fire, for example, the death of a principal, or a natural disaster such as a hurricane or tornado.  There might be an environmental problem that the seller was unaware of when he or she decided to sell.  Aside from these unplanned catastrophic events, deals abort because of the people involved.  Here are a few examples of how a sale closes successfully.

The Buyer and Seller Are in Agreement From the Beginning

In too many cases, the buyer and seller really weren’t in agreement, or didn’t understand the terms of the sale.  If an offer to purchase is too vague, or has too many loose ends, the sale can unravel somewhere along the line.  However, if prior to the offer to purchase the loose ends are taken care of and the agreement specifically spells out the details of the sale, it has a much better chance to close.  This means that a lot of answers and information are supplied prior to the offer and that many of the buyer’s questions are answered before the offer is made.  The seller may also have some questions about the buyer’s financial qualifications or his or her ability to operate the business.  Again, these concerns should be addressed prior to the offer or, at least, if they are part of it, both sides should understand exactly what needs to be done and when.  The key ingredient of the offer to purchase is that both sides completely understand the terms and are comfortable with them.  Too many sales fall apart because of a misunderstanding on one side or the other.

The Buyer and Seller Don’t Lose Their Patience

Both sides need to understand that the closing process takes time.  There is a myriad of details that must take place for the sale to close successfully, or to close at all.  If the parties are using outside advisors, they should make sure that they are deal-oriented.  In other words, unless the deal is illegal or unethical, the parties should insist that the deal works.  The buyer and seller should understand that the outside advisors work for them and that most decisions concerning the sale are business related and should be decided by the buyer and seller themselves.  The buyer and seller should also insist that the outside advisors keep to the scheduled closing date, unless they, not the outside advisors, delay the timing.  Prior to engaging the outside advisors, the buyer and seller should make sure that their advisors can work within the schedule.  However, the buyer and seller have to also understand that nothing can be done overnight and the closing process does take some time.

No One Likes Surprises

The seller has to be up front about his or her business.  Nothing is perfect and buyers understand this.  The minuses should be revealed at the outset because sooner or later they will be exposed.  For example, the seller should consult with his or her accountant about any tax implications prior to going to market.  The same is true for the buyer.  If financing is an issue it should be mentioned at the beginning.  If all of the concerns and problems are dealt with initially, the closing will be just a technicality.

The Buyer and Seller Must Both Feel Like They Got a Good Deal

If they do, the closing should be a simple matter.  If the chemistry works, and everyone understands and accepts the terms of the agreement, and feels that the sale is a win-win, the closing is a mere formality.

Copyright: Business Brokerage Press, Inc.

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Buying a Distressed Business 

It is safe to state that Howard Brownstein, President of The Brownstein Corporation, is a true expert in providing turnaround management and advisory services to companies, as well as their stakeholders.  Brownstein serves as an independent corporate board member for both publicly held as well as privately-owned companies and nonprofits.  During his career, he has been named a Board Leadership Fellow by the National Association of Corporate Directors (NACD) and served as Board Chair and President of its Philadelphia Chapter.  He also serves as Vice Chair of the ABA Corporate Governance Committee and has been named a Fellow of the American Bar Foundation.  He has been a speaker at many of the world’s top universities including Harvard Business School and Wharton.  Brownstein received his J.D. and M.B.A. degrees from the University of Pennsylvania.

Mr. Brownstein is considered to be one of the world’s top experts in distressed businesses.  He believes it is essential to remember that not all distressed businesses are, in fact, the same.  There is simply no way to know how bad things are for a given distressed business until one begins to “look under the hood,” and get a full view of what problems may lurk underneath. 

Brownstein firmly believes that distressed businesses can represent a real and often overlooked opportunity for buyers.  The recent economic downturn brought about by COVID-19 means that there will likely be a great deal more distressed businesses on the market in the coming months or even in the next couple of years. 

Why is a Given Business Distressed? 

Before you consider purchasing a distressed business, you absolutely must understand the core reasons for the distresses.  Without a proper and detailed understanding of why the business entered a state of distress in the first place, it is impossible to clearly articulate why the business will potentially be valuable in the future.  It is essential to be able to convey “what went wrong” and how the problems can be fixed.

Brownstein points out that while there are many reasons for a business to enter distress, two symptoms top the list.  The first is cash flow issues and the second issue relates to management.  Often it turns out that the management was simply not rigorous enough.  He also notes that companies will tend to gravitate to external issues as a way to explain away their failure.

Of course, no two distressed businesses are failing from 100% identical causes.  Brownstein suggests a series of questions that you need to ask when you begin exploring a distressed business.

  1. What is the business’ potential value?
  2. Is there something of value under the problems?
  3. Under better or different circumstances, could the business be viable?

These are all questions that your business broker or M&A advisor can assist with.  It’s important to gain a clear understanding of the business’ past, present and future. 

Copyright: Business Brokerage Press, Inc.

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Considering Generational Strategies

When you are buying or selling a business, you might very well end up making a deal with someone from another generation.  Therefore, it only makes sense to take the time to understand that individual’s background and how that might cause behavioral differences.  It is important to understand and reflect upon where many of them are coming from and the collective experiences and trends that shaped their identities and perspectives.  At the same time, you can identify your own biases, strengths and weaknesses that may be caused by your own upbringing.

The strategies in this article originated from Chuck Underwood who is considered a leading expert in the diversity of communication styles between generations.  He is the author of a major book on the subject as well as host of the long-running “America’s Generations with Chuck Underwood” on PBS. 

Generational Sensitivity 

Underwood’s perspective is that people of each generation were molded by their unique formative years.  The decisions that buyers and sellers make will be impacted by their generation.  Mostly likely, the buyers or sellers you will be coming into contact with will be either Baby Boomers, Generation Xers and Millennials. 

Working with Baby Boomers

Baby Boomers (those born between 1946 and 1964) are a major force in the business world.  While they often possess a patriotic passion to improve the country, they were also witness to a time of great change via many movements including the civil rights and women’s movement. 

When you’re dealing with Baby Boomers, it is important to remember that they will want to build relationships and get to know you.  Common courtesy is very important to Baby Boomers.  That means they’ll expect you to show up on time and turn your phone off during meetings. 

You’ll want to keep in mind that older Baby Boomers may be experiencing hearing and eyesight loss.  As a result, you’ll want to keep your type and font size larger, and make text easy to read. 

When you’re working with your clients, it only makes sense to pay attention to the generation during which they were raised and adapt your approach accordingly.  Understanding generational differences will help you get a leg up on the competition while at the same time helping your clients achieve their goals.

What is Generation X?

Generation X (or Gen X) had a wildly different formative experience than the Baby Boomers.  Generation X is generally defined as being born from 1965 to 1980.  This generation spent its formative years from the 1970’s through the 1990’s.  In stark contrast the relatively more pleasant and optimistic childhoods of the Baby Boomers, Gen X had a rougher ride. 

America became more mobile during the time period during which Generation Xers grew up.  As a result, many children were uprooted and separated from their friends, family and hometown roots.  Growing up, these individuals witnessed a variety of scandals ranging from political and religious figures to sports figures.  Gen Xers witnessed the systematic dismantling of the American middle class and with it a general lowering of quality of life, opportunities and confidence in corporations.  In the end, Gen X was quite literally left home alone and lived as “latch key kids.”  It is no wonder that this neglected generation has some issues.

Individuals growing up during this time learned early on that they had to be ready to fend for themselves.  Since Gen Xers have been met with consistent and systematic disappointment and even wide scale institutional betrayal, this generation, on average, is more distrustful of organizations. 

Gen Xers are self-reliant and independent and one of their core values is survival of the fittest.  In his view, Gen Xers are self-focused, individualistic and want everyone to skip the nonsense and get to the point.  They have no real interest in getting to know you or playing a round of golf.

Working with Millennials

Millennials spent their formative years in the 1980s and early 90s.  They are a very optimistic and tech savvy generation.  They are also the most classroom educated generation in history.

It is also very important to note that Millennials are the most adult supervised generation in history.  So-called “helicopter parents” who work to protect their children from setbacks are the norm.  Employers find that Millennials are entering adulthood, but are still relying upon their parents to help them make decisions and even career choices.

Where Gen Xers are distrustful of the “wisdom of their elders,” Millennials actively seek out such advice.  Likewise, Millennials tend to volunteer a good deal and look for ways to solve the world’s largest problems.

You will find that Millennials will enjoy building a relationship with you.  Keep in mind these individuals tend to be quite socially conscious and they may very well expect you to agree with their views.  Additionally, there is a chance that they will have their parents involved in their business dealings. 

Keep in mind that the de facto tech addiction, or at the very least acute overreliance on technology, has led to issues with Millennials’ soft skills.  They can often lack the ability to read another person’s body language and adjust accordingly.

In the end, regardless of what generation you are working with, it is important that you continually adapt.  This will greatly increase the odds of cementing a successful deal.

Copyright: Business Brokerage Press, Inc.

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Essential Meeting Tips for Buyers & Sellers

The buyer-seller meeting is quite often a “make or break” meeting.  Your business broker or M&A Advisor will do everything possible to ensure that this meeting goes as well as possible. 

It is vitally important to realize that rarely is there an offer before buyers and sellers actually meet.  The all-important offer usually comes directly after this all-important meeting.  As a result, you want to ensure that meetings are as positive and productive as possible.

Buyers need to understand how the process of selling a business works and what is expected of them from the process.  Buyers also need to understand that following their broker’s advice will increase the chances of a successful outcome. 

Sellers should be ready to be honest and forthcoming during the meeting.  They also want to be sure to not say or do anything that could come across as a strong-armed sales tactic. 

Asking the Right Questions

If you are a buyer preparing to meet a business owner for the first time, you’ll want to make sure any questions you ask are appropriate and logical.  It is important for buyers to place themselves in the shoes of the other party. 

Buyers also shouldn’t show up to the buyer-seller meeting without having done their homework.  So be sure to do a little planning ahead so that you are ready to go with good questions that show you understand the business. 

Building a Positive Relationship

Buyers should, of course, plan to be polite and respectful.  They should also be prepared to avoid discussing politics and religion, which often can be flashpoints for confrontation.  When sellers don’t like prospective buyers, then the odds are good that they will also not place trust in them.  

For most sellers, their business is a legacy.  It quite often represents years, or even decades, of hard work.  Needless to say, sellers value their businesses.  Many will feel as though it reflects them personally, at least in some fashion.  Buyers should keep these facts in mind when dealing with sellers.  A failure to follow these guidelines could lead to ill will between buyers and sellers and negatively impact the chances of success.

Sellers Should Be Truthful

Sellers also have a significant role in the process.  While it is true that sellers are trying to sell their business, they don’t want to come across as a salesperson.  Instead, sellers should try to be as real and honest as possible.

Every business has some level of competition.  With this in mind, sellers should not pretend that there is zero competition.  A savvy buyer will be more than a little skeptical.

The key to a successful outcome is for business brokers and M&A Advisors to work with their buyers and sellers well in advance and make sure that they understand what is expected and how best to approach the buyer-seller meeting.  With the right preparation, the odds of success will skyrocket.

Copyright: Business Brokerage Press, Inc.

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Negotiating the Price Gap Between Buyers and Sellers

Sellers generally desire all-cash transactions; however, oftentimes partial seller financing is necessary in typical middle market company transactions.  Furthermore, sellers who demand all-cash deals typically receive a lower purchase price than they would have if the deal were structured differently.

Although buyers may be able to pay all-cash at closing, they often want to structure a deal where the seller has left some portion of the price on the table, either in the form of a note or an earnout.  Deferring some of the owner’s remuneration from the transaction will provide leverage in the event that the owner has misrepresented the business.  An earnout is a mechanism to provide payment based on future performance.  Acquirers like to suggest that, if the business is as it is represented, there should be no problem with this type of payout.  The owner’s retort is that he or she knows the business is sound under his or her management but does not know whether the buyer will be as successful in operating the business.

Moreover, the owner has taken the business risk while owning the business; why would he or she continue to be at risk with someone else at the helm?  Nevertheless, there are circumstances in which an earnout can be quite useful in recognizing full value and consummating a transaction.  For example, suppose that a company had spent three years and vast sums developing a new product and had just launched the product at the time of a sale.  A certain value could be arrived at for the current business, and an earnout could be structured to compensate the owner for the effort and expense of developing the new product if and when the sales of the new product materialize.  Under this scenario, everyone wins.

The terms of the deal are extremely important to both parties involved in the transaction.  Many times the buyers and sellers, and their advisors, are in agreement with all the terms of the transaction, except for the price.  Although the variance on price may seem to be a “deal killer,” the price gap can often be resolved so that both parties can move forward to complete the transaction.

Listed below are some suggestions on how to bridge the price gap:

  • If the real estate was originally included in the deal, the seller may choose to rent the premise to the acquirer rather than sell it outright.  This will decrease the price of the transaction by the value of the real estate.  The buyer might also choose to pay higher rent in order to decrease the “goodwill” portion of the sale.  The seller may choose to retain the title to certain machinery and equipment and lease it back to the buyer.
  • The purchaser can acquire less than 100% of the company initially and have the option to buy the remaining interest in the future.  For example, a buyer could purchase 70% of the seller’s stock with an option to acquire an additional 10% a year for three years based on a predetermined formula.  The seller will enjoy 30% of the profits plus a multiple of the earnings at the end of the period.  The buyer will be able to complete the transaction in a two-step process, making the purchase easier to accomplish.  The seller may also have a “put” which will force the buyer to purchase the remaining 30% at some future date.
  • A subsidiary can be created for the fastest growing portion of the business being acquired.  The buyer and seller can then share 50/50 in the part of the business that was “spun-off” until the original transaction is paid off.
  • A royalty can be structured based on revenue, gross margins, EBIT, or EBITDA.  This is usually easier to structure than an earnout.
  • Certain assets, such as automobiles or non-business-related real estate, can be carved out of the sale to reduce the actual purchase price.

Although the above suggestions will not solve all of the pricing gap problems, they may lead the participants in the necessary direction to resolve them.  The ability to structure successful transactions that satisfy both buyer and seller requires an immense amount of time, skill, experience, and most of all – imagination.

Copyright: Business Brokerage Press, Inc.

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6 Tips and 90 Days to Protect Your Business

There can be no way around it, Inc. contributor Brian Hamilton’s April 2020 COVID-19 centered article, “6 Actions to Take in the Next 90 Days to Save Your Business,” isn’t pulling any punches.  Hamilton, Founder of the Brian Hamilton Foundation, believes that the next 90-days could be make or break days for business owners looking to navigate the choppy waters of the COVID-19 pandemic.  His latest Inc. article provides readers with 6 actions they should take now to survive the economic fallout of the COVID-19 pandemic. 

Tip #1 Vigorously Control What You Can

Hamilton’s first tip is to “Vigorously control what you can.  Vigorously ignore what you can’t control.”  As Hamilton points out, you can’t control the economy; instead, you need to focus on what you can control.  His view is that there has never been a more important time to focus, “More than ever, you’ll need to go to war with things within your control.”  Now is the time to exercise control.

Tip #2 Guard Morale

During tough economic times, employee morale can be a real issue.  This brings us to Hamilton’s second point, “guard employee morale.”  Significant drops in employee morale can lead to serious problems with your business, which is exactly what you don’t want to see right now.  Hamilton notes that you have to be the general that helps his or her troops rise above potential panic.

Tip #3 Preserve Cash

Hamilton’s third tip is to “preserve cash where you can.”  He states, “Right now, your motto should be: Live to fight another day.”  The pandemic means that you need to keep expenses down and watch every dollar.  No one knows what the next few months, or the next couple of years, could have in store.

Tip #4 Be First in Line

“Be first in line,” is Hamilton’s fourth point.  Hamilton wisely pushes business owners to be the first in line for government assistance.  This is very good advice, as SBA and other funds are likely to be limited.

Tip #5 Get Back to the Basics

Fifth, Hamilton recommends, “Get back to the basics…starting with monomaniacal customer service.”  As always, customers, whether existing or new, are the lifeblood of your business.  You can’t afford to lose customers now and for this reason, you need to have a laser-like focus on customer service. 

Tip #6 Pivot your Product or Service 

Hamilton’s sixth tip is to “Pivot your product or service to new conditions.”  Small changes to your business can open up new streams of revenue.  Even if these streams of revenue are comparatively small, they could mean the difference between sink or swim!  Try to step back and look at your business with fresh eyes and strive to find ways to offer something new to your customers.  Whatever you offer should be based on your existing goods and services and not require a new, large expenditure.

The COVID-19 pandemic is obviously disruptive, but it won’t last forever.  Hamilton’s advice of focusing intensely on the next 90 days is sound advice.  You won’t regret looking for ways to safeguard your business for the next 3 months.

Copyright: Business Brokerage Press, Inc.

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