How to Get Ready to Sell Your Business

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You may have heard the advice, “the best time to prepare to sell is when you start your business.” While this statement is far from realistic for most business owners and may even sound humorous, it does contain a certain amount of wisdom. When it comes to getting the best outcomes selling your business, preparation cannot be undervalued. 

No matter where you are in the journey of running your business, we encourage you to prepare as much as you can. With that in mind, let’s take a look at some considerations and decisions that you’ll need to make when you do get ready to sell. It’s never too early to begin pondering the answers to these questions. 

If you are involved in the day-to-day running of your business, logic would dictate that you’re quite busy and don’t have time to dedicate a lot of time towards the process of selling your business. The good news is that is one area where a Business Broker or M&A Advisor will make all of the difference. 

Brokerage professionals will perform a variety of tasks from start to finish, including negotiating and interacting with prospective buyers on your behalf.  These professionals will be able to work on many things independently and, if it is your preference, they can notify you only about the most relevant details of the transaction. On the other hand, you may want to be very involved in the process of selling. If that is the case, let your brokerage professional know. 

Regardless of how involved you are with the business and the sales process, you will want to ensure that things stay as consistent as possible when you are in the sales phase. The reason for this is that buyers will want to see consistency. Any change in operations or revenue earned could turn out to be a red flag for a buyer. 

Another item that is worth thinking about ahead of time is confidentiality. Professional Business Brokers and M&A Advisors will put utmost importance on confidentiality. When confidentiality isn’t taken seriously, leaks are very common. These could quickly interfere with the sale, whether it is due to a client/staff looking elsewhere or competitors taking advantage of the situation. Your brokerage professional will advise you of the policies and precautions that work best when it comes to preventing leaks and only revealing details about your business to prospective buyers who have been carefully vetted.

If you have partners in your business, it makes sense to bring up the discussion of a future sale well in advance. This will allow you to get on the same page about your plans for how things will be handled when the time comes. In the case that the date of the sale ends up being before you expect it to be, it will be very helpful to have already addressed these issues. 

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The Importance of Employee Happiness

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Everyone knows that good employees are important for a thriving business. That’s why there has been so much emphasis on keeping employees happy. When your employees are feeling not only satisfied, but also valued, they will be more likely to keep your clients satisfied too. Your business will be more likely to thrive and grow. Of course, this works in the opposite direction as well. When your staff is frustrated and angry, their actions can drive away your customers and clients. If you are looking to sell your business for maximum revenues, it is a good idea to also maximize employee satisfaction levels.

Research from Oxford University found a link between happiness and productivity. According to their study, workers are 13% more productive when they are happy. It goes without saying that employees will be more likely to feel satisfied when they feel that their salary and benefits are fair for the work they do. If they are resentful about the compensation they are receiving for their work, this will ultimately impact their performance. 

When you think about some of the most successful companies, you realize that many of them invest substantially in supporting their employees to cultivate higher levels of employee satisfaction. For example, Google is well-known for offering a wide range of perks ranging from parental leave and paid time off to free lunches and fitness facilities. 

When it is feasible for employees to work remotely, many employers are finding that it makes sense to offer them this possibility. Not only will it help staff members to manage childcare, but also it can end lengthy and stressful commutes to work that could result in stress and anxiety. 

Research in the journal Frontiers in Psychology showed helpful interventions that are proven to increase employee happiness levels. These included training in resiliency, mindfulness, and cognitive-behavioral techniques. 

When you exhibit good leadership and act as a positive role model, your employees will likely follow suit. Employees should be acknowledged and rewarded for a job well done. In some cases, this may be a financial bonus, but in other cases it could simply be patting that employee on the back. Cultivating a positive company culture will prove to boost overall morale. This will increase success for your entire company. 

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Leases: Key Considerations That Can Make or Break a Business

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Are you selling a business that involves a lease? If so, this will be a factor that has significance to a buyer when you go to complete your deal. If your business relies heavily on its location and you don’t own property, then you’ll find the lease will be quite an important consideration for your buyer. By the same token, if you’re buying a business that involves a lease, you’ll want to carefully examine this document and consider how it might impact you and your business. Let’s take a look at some important clauses and terms you’ll want to be looking for. 

Lease Transfers 

What are the terms for transfer of the lease? This is something you’ll want to know before signing on the dotted line if you think you’ll be selling at some point in the near future. 

Lease Lengths 

How long is your lease? If your buyer can confirm that there are many more years on your lease, he or she will find that to be an advantage. 

In the case of a business owner with a new endeavor, a shorter lease may actually be an advantage. That way the owner can get out of the lease if the business is not successful. 

Competitors 

If you’re planning on a lease in a shopping center, it’s essential to get in writing that the center will not accept other tenants that do what your business does. Otherwise, you’ll be constantly faced with competing with a similar business. 

Unexpected Costs

It’s also important to look for clauses that address what happens in the case of an adverse event. For example, if the property was destroyed by a fire, who will pay in the interim? 

There are other practical considerations to consider in leases that many business owners tend to overlook. For example, how are real estate taxes covered? Will you be charged a fee to cover maintenance of the property and, if so, what is it? Is someone in particular responsible for necessary repairs and who will pay for those? 

It goes without saying that you’ll also want to check out clauses impacting rent changes. Otherwise, you may face unexpected rent increases that negatively impact your business. 

Personal Guarantees 

If you are a new business owner, a landlord may ask you to personally guarantee the rent. This would be quite a different lease from one that accepts a well-established corporation as a tenant. 

As you can see, there is much more involved in a lease than just the amount of the rent. Be sure to read your lease carefully and ask questions. A Business Broker or M&A Advisor can assist you with lease terms when you are buying a business. 

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What Should You Expect from Term Sheets?

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If you’re selling your business, at some point you’ll likely be presented with a term sheet. As the name suggests, this document will include the “terms” of the deal including the basic economic terms and conditions of a prospective acquisition. It is a list of conditions to be met if the sale successfully takes place, yet it is not legally binding.  

What is the Difference Between a Term Sheet and the LOI?

Both a term sheet and letter of intent (LOI) will include stipulations and lists for a buyer and seller to agree upon. The major difference is that the term sheet doesn’t require a signature, while the letter of intent does. In many cases, buyers are hesitant to sign before the due diligence stage. In this situation, you may find that the term sheet will precede the LOI. 

How Lengthy are Term Sheets?

There is no standard model or form to a term sheet. Therefore, it may be as short as one page, or it could even be five or more pages. But no matter how many pages it may be, it should explain what is being purchased and a stated price. In some cases, the information in a basic term sheet will lead to a formal letter of intent. 

What Components Should be Included? 

In addition to the price and terms, a term sheet can include other considerations relating to the purchase of the business. For example, it can include employment agreements or non-compete clauses. They can also include conditions to be met upon closing. Often the term sheet will detail plans for the buyer to conduct due diligence and gain additional information. You can expect to find everything from warranties and lists of what is included in the sale to exclusivity clauses within term sheets. 

One aspect of the term sheet that should not be overlooked is the method of payment. Typically, the payment sections are far more complex than just “cash at close.” Instead, they will describe a combination of elements including cash at closing, but also other forms of payments. In some situations, they will include details regarding a loan from the seller.  

The term sheet is quite beneficial as it can expedite the sales process and prevent serious misunderstandings. As a result, this non-legally binding document can initiate a smooth beginning to a successful deal. 

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Is Your Deal Really Done?

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Once you get to the stage of your deal where you have a signed letter of intent, you may already be feeling a sense of relief that your deal is near finalization. But remember that the due diligence stage is typically yet to come. This stage includes everything from financial and legal investigations to a review of specific information regarding how a business is run. 

The due diligence process can be quite comprehensive and it often reveals some surprises. Because it is important for sellers to know what to prepare and for buyers to know what to look for, let’s examine some of the categories that are reviewed during this process.

Trademarks and Copyrights

Will assets like trademarks, patents and copyrights be transferred?  This is a point that has certainly interfered with some deals being successful. Due to the fact that trademarks, patents, and copyrights are often essential parts of a business, they cannot be overlooked. 

Products and Industry 

Due diligence will likely include analysis of product lines and the respective percentage of sales that they make up. If the business in question is a manufacturing business, then all aspects of the process will be examined. For example, buyers will be looking for age and value of the equipment, information about suppliers, etc. 

Financial Statements

It goes without saying that financial statements should be poured over during due diligence. Current statements and incoming sales should be carefully reviewed.  Review of financial information will also include balance sheets. Is there bad debt? Is there work in progress? These kinds of issues will be evaluated. 

Customer Lists

If you are selling a business, you should be prepared to share lists of major customers. Buyers may also want to compare your market share to that of your competitors. 

Key Employees

Buyers should be looking for information on key personnel, as well as data on any potential employee turnover. If you are selling a business, it’s important to try to fix any staffing problems that might interfere with a buyer’s ability to properly run the business. 

A key goal of the due diligence process is to find potential problems, such as liabilities and contractual issues. But on the upside, due diligence also includes investigation into assets and benefits. The end result should be that the selling price of the business is justified and both parties walk away satisfied. As stated above, it is very common for problems and issues to pop up during due diligence, so it’s important to stay proactive and be open to negotiation until the deal is finalized.

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Questions to Ask When Negotiating a Deal

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Almost every sale of a business involves a high degree of negotiation between buyers and sellers. In this article, we share some of the questions you can ask yourself to prepare for this part of the process. After all, optimal outcomes are typically only achieved through proper negotiation strategies. Keep in mind that one of the key strengths possessed by Business Brokers and M&A Advisors is expertise and skills in negotiating deals. 

Can Both Parties Split the Difference?

If the buyer and seller can’t agree on a number, one negotiating tactic is to have them split the difference. This is a tactic that is simple to understand, and it shows both parties that the other is willing to be flexible. This reveals a good degree of goodwill and can serve to not only keep both parties talking, but also lower any pre-existing tensions. When both parties are still at the table, there is still hope that a deal can be reached. This tactic serves to continue the discussions and can often be highly beneficial.

Can the Buyer and Seller Better Understand One Another?

When it comes to good negotiations, one of the goals is for both parties to seek to understand one another. Sometimes a buyer or seller’s needs don’t even involve the numbers on paper. Instead, they may be seeking to adjust terms to make them more conducive to their overall goals. If you can keep an open mind and seek to better understand what the other party is ultimately looking for, it can go a long way in making the deal happen.

Can You Bring in a Professional?

There is an old saying that says “Never negotiate your own deal.” One of the benefits of bringing in a brokerage professional is that this third party won’t have the same level of emotional investment. This means that he or she can keep a neutral perspective and be more apt to see things from both sides. Sometimes a new perspective can work wonders. Further, a brokerage professional will understand the myriad of complex factors that must be successfully resolved before the deal is finalized. A Business Broker or M&A Advisor will have tips and techniques that can only be gained from years of first hand exposure to making deals happen. 

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How Can You Tell If a Potential Buyer is Really Serious?

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When you’re trying to sell your business, the last thing you want is to waste time dealing with buyers who aren’t qualified and are unlikely to actually make a purchase. After all, you will not want to reveal details about your business to someone who may be looking to take advantage of the situation. Let’s take a closer look at how you can weed out legitimate buyers from those who are just kicking the can down the road.

Legitimate buyers will ask the right questions. They will have a keen interest in your industry and are seeking to gain more information. They will also be likely to ask intelligent probing questions about your customer base and the strengths and weaknesses of your business.

The best buyers will also ask logistical questions about your inventory and cash flow. It goes without saying they will want to know details about profits that are generated. Real buyers will also be concerned about wages and salaries. Their goal will be to ensure that your employees are taken care of and will be unlikely to quit. 

Another area that you can expect serious buyers to ask about is capital expenditures. They will evaluate any equipment and machines involved in the business. They will also likely inquire about inventory that is unusable due to the fact that it is outdated or problematic. After all, if they are truly planning to buy the business, they would inherit any headaches. 

A good rule of thumb is to imagine yourself in the shoes of the prospective buyer. What kinds of questions would you ask? If you find that a buyer is only asking the bare minimum of questions that only scratch the surface, odds are that they are not really interested. You can expect the legitimate buyer to ask about everything from environmental concerns to details about your competitors. 

The best way to evaluate buyers is to turn to the experts. Your Business Broker or M&A Advisor will have years of experience in talking to buyers and will have a leg up on evaluating who is worth your time and energy. 

Further, you would likely be overwhelmed with the process of handling buyer inquiries while you are still trying to effectively run and manage your business. A good brokerage professional will handle your incoming inquiries and only notify you of buyers who are suitable, qualified candidates. They will ensure that the highest standards of confidentiality are held along the way. 

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How to Sell and Successfully Launch Your Retirement

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Many business owners are emotionally attached to their businesses, and it is easy to understand why. Typically, business owners invest not only a considerable amount of time and money into their business, but a good bit of themselves as well. Owning and operating a business often becomes part of one’s identity. However, the fact is that no one will work forever, as retirement eventually comes for almost every business owner. With this in mind, it is important to prepare for selling your business well in advance.

Brokerage professionals can take your knowledge regarding your business, and use it to help you frame your business in the best possible light. Your expertise in your business can also help a broker find ways to improve your business so that it is more attractive to potential buyers. With all of this in mind, let’s turn our attention to the key steps you should take when preparing to sell your business and transition into retirement.

Select Your Second-in-Command 

Any savvy buyer will want to know that the business is well supported by a capable team. Buyers rightfully worry about having a smooth transition period, and nothing helps dispel those fears like having a proven and capable second-in-command standing by. When selecting this important individual, it is important that you pick someone that understands how your business works and is a proven asset to its operation.

Automate, Automate and Automate

Buyers can be intimidated by taking control of a business. Having a proven second-in-command ready to assist is one smart step. Automating as much as possible is yet another prudent move. In short, you want your prospective new buyer to feel more confident about buying and operating your business.

Make a “Smooth Transition” List

As the seller, you have the critically important job of removing buyers’ fears. When you boost their confidence that they can successfully run your business, you increase the odds that your sale will go smoothly. Making a smooth transition list, which includes all the steps that you can take to improve the odds of a buyer being successful, is a smart investment of your time and effort. 

A good transition list will include information about how to work with key customers, employees and vendors. You want to ensure that your customers, employees, and vendors understand that a sale will take place, but also understand that the process will be smooth and trouble-free. Whether large or small, take any steps that you can to show buyers that the transition will be well-received.

The average business owner has, in fact, never sold a business before, and is unprepared for this very complex process. Since the process of buying or selling a business is a very complicated one, they should strongly consider working with an experienced Business Broker or M&A Advisor who can help guide them through the process. Brokerage professionals are experts at buying and selling businesses. They understand what both buyers and sellers want and need. As a result, they can help you take the necessary steps to get your business ready to be sold.

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A Guide for Determining a Reasonable Price for Your Small Business

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There is a considerable difference between determining the value of a privately-held company and a publicly-held company. Topping the list of considerable differences is the fact that privately-held companies do not have audited financial statements. Let’s look at how the owners of privately held companies should proceed in establishing a reasonable price for their company.

An audited financial statement is a costly endeavor. In order to avoid the cost, many companies simply don’t go public. Of course, it should be noted that publicly held companies, as the name indicates, reveal much more about their finances than their privately held counterparts do. Privately held companies are often seen as being more mysterious whereas publicly held companies are considered more “open.”

Business owners looking to sell their business will, of course, want to address the fact that their company lacks the public information associated with publicly held companies. Providing prospective buyers with as much verified information about your business as possible is one of the fastest and easiest ways to overcome buyers’ concerns. A smart move for any business owner is to work closely with their accountant to go over the numbers and create an easy-to-understand presentation for prospective buyers. This should serve to allay many of their concerns. 

Working with your accountant is only the first step in providing prospective buyers with the information they need to feel comfortable. The second step is to work with an outside appraiser or other expert who can determine the value of your business. After that, you’ll want to decide on what your market price will be, as well as your “wish price,” or the price that you would ideally want. Third, you must know your “rock bottom” lowest price. You, as the owner, need to have this information as it will greatly facilitate and streamline all negotiations. 

When buyers are reviewing materials and working to determine what price they are willing to pay, they will look at a wide range of factors including: 

  • Product diversity 
  • The size of your customer base 
  • Potential competitors in the area 
  • Competitors on the horizon 
  • Potential disruptions to your business, such as supplier problems
  • The stability of your earnings 
  • The stability of the market 
  • Need for capital 

Different buyers may place differing levels of emphasis on certain areas, but you can be certain that the aforementioned areas will be examined with care. The process is undoubtedly rather complex. This complexity underscores the need for professional assistance.

Ultimately, the market will determine the sale price of your business. For business owners, the first and most important step is to work closely with professionals such as accountants, appraisers, Business Brokers and M&A Advisors to establish the price of your privately held business. You can count on brokerage professionals to properly organize the facts and numbers that support that price.

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Current Insights Regarding the Labor Shortage

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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. 

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The Most Important Factors in Any Partnership Agreement

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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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Disruptive Factors in Selling Your Business

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At some point, every business owner will need to think about selling his or her business. This means you’ll need to be ready to overcome a range of obstacles, as the process of selling a business can be both confusing and time-consuming. This is especially true for those who have not gone through the process before. Let’s turn our attention to some of the key reasons why deals can fall apart.

Psychological Factors 

Buyers, like sellers, enter the process with a variety of preconceived notions about how the process should work, as well as what they consider to be “a great deal.” The psychological factors involved in selling a business shouldn’t be overlooked. 

Sellers need to understand the specific wants and desires of the buyer as well as their own psychology. 

Even serious buyers may have highly unrealistic expectations regarding various aspects of a business, ranging from its price to its opportunities for future growth. In some cases, they may stall due to the fact they are not quite ready to buy a business and see no urgency in the matter. 

Buyers can also be influenced by outside parties, whether advisors or friends and family. In short, sellers may discover that, for all practical purposes, buyers may actually be several people who are forming a collective opinion on issues regarding the business.

Seller Psychology

A seller’s own psychology can play a huge role in whether or not a business is successfully sold. Many sellers enter into the process without a full understanding of what is involved. This factor, of course, underscores the tremendous importance of working with professionals months, if not years, before you actually place your business on the market. These professionals should include an M&A Advisor or Business Broker. 

Another major obstacle is that many sellers have unrealistic expectations about both price and the time frame in which their business can be sold. Sellers should enter the selling process with their eyes open and realistic expectations in place. Be sure to establish a fair price. It’s also important to understand that it may take a year or longer before a buyer is found.

Acts of Fate

Sellers should remember that there are many “acts of fate” that can disrupt a deal. A deal may seem like everything is moving along without problems, only to discover at the last minute that the buyer isn’t able to secure the needed funds as expected. 

It is important for all parties involved to realize that until a deal is finalized, problems can still arise. In fact, they can arise from unexpected directions. But it is difficult to anticipate and spot every potential disruption. The complexity of selling a business is one of the main reasons why so many business owners opt to work with a brokerage professional. 

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The Importance of Quality Negotiations

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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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Market Trends Reported in the IBBA and M&A Source Market Pulse Survey: Second Quarter 2021

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Created in 2012, the IBBA and M&A Source Market Pulse Survey was created to provide business owners and their advisors with a clear understanding of ever-changing market conditions. 

Through this survey, it is possible to gain clarity on businesses being sold in Main Street (values $0-$2MM) and the lower middle market (values $2MM -$50MM). Scott Bushkie served as the originator of the Market Pulse Report with IBBA and M&A Source and has continued to play a key role since the report’s inception. 

A core finding of the IBBA and M&A Source Market Pulse Survey for Q2 was that there has been a big shift between the turmoil of 2020 and the climate of 2021. Across the spectrum of sizes and price ranges of businesses, sellers now have an advantage or are at least in a better position to sell their business. This is quite different from the situation in 2020. 

The market has shifted towards being a seller’s market for a variety of reasons including the fact that many private equity groups are now looking for ways to grow their money. Acquiring an existing business has become an increasingly attractive option to buyers due to the current labor pool conditions. 

Buyers are now looking at existing companies as a way to bypass attracting talent. Instead, they can secure that talent via acquiring a new business. In short, many buyers are looking to buy versus organically build to meet their talent needs.

Another reason that now is a good time for sellers is that many buyers are looking to leave corporate America. This situation has likely been accelerated by the pandemic and people seeking to control their own destiny. The increase in global uncertainty has made the idea of becoming a business owner increasingly attractive.

The shift in climate from 2020 to 2021 underscores the value of the IBBA and M&A Source Market Pulse Survey. Through this revealing survey, it is possible for business owners and their advisors to gain a clearer understanding of market conditions and what to expect.

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Important Points for Selling to a Family Member

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Eventually every business owner will have to turn over control of their business to someone else. There are many options for how this can play out. They range from selling the business to a prospective buyer or selling to a competitor, to turning your business over to a family member. It is key that you start thinking about these options years before you end up in a situation where you actually have to sell. 

Working with a Business Broker or M&A Advisor is one way to determine what sales options are optimal for you based on your specific situation. Let’s explore some of the variables you’ll want to consider when you decide to transfer your business to a family member.

Tax Advantages

There are some significant advantages to transferring your business to a family member. No doubt topping the list of advantages of going this route is the fact that the transfer can be considered a gift. One advantage of this approach is that you’ll reduce your real estate taxes. Depending upon how the agreement is written, you also may be able to maintain some control over the business. For many business owners, this factor can be a big advantage. 

Seller Financing

One issue you’ll want to explore when opting to transfer your business to a family member is seller financing. Seller financing is a common practice when it comes to buying and selling businesses in general. This type of financing is even more common where transfers to relatives are concerned. 

Seller financing opens up the versatile option of implementing a private annuity. A private annuity can serve to spread payments out across a long period of time. This could be a win-win situation for both you and your relative. You would receive a long-term stream of income as a result of ongoing payments. In turn, this decision may very well make ownership more financially realistic for your relative. 

Legal Agreements 

Keep in mind that if you sell your business to a relative, this in no way negates the need for a buy-sell agreement. Even when you are dealing with your most trusted family members, legal agreements must be firmly in place. A buy-sell agreement is an invaluable tool that protects everyone involved. 

This contract clearly outlines all aspects of the arrangement. Your buy-sell agreement should include such key information including the value of the business, amount being paid, information on which employees will be retained, the current business owner’s level of future involvement, and much more.

Working with Professionals

Ultimately, there are a range of potentially powerful benefits associated with transferring a business to a relative. While it is true that you can expect the IRS to closely evaluate the sale, this should not dissuade you from considering this option. Business Brokers and M&A Advisors are experts at buying and selling businesses, and they understand the specifics of transferring a business to relatives. Working with professionals early in the selling process can help you gain tremendous insight into the best way to proceed. 

Copyright: Business Brokerage Press, Inc.

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How to Circumvent Three Legal Mistakes Sellers Make

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After decades of hard work, selling your business can be an exciting and rewarding time. Yet, many business owners overlook the importance of focusing on the legal matters associated with sales. In this article, we’ll explore three of the most significant mistakes sellers make. 

1. Use an NDA

The first critical mistake that business owners should be guarding against is skipping the use of a non-disclosure agreement. Simply stated, a business owner should always make sure that a non-disclosure agreement is in place before disclosing to any buyers that a business is on the market.

NDA’s stand as an invaluable way to restrict who does and does not know your business is for sale. After all, the last thing any business owner looking to sell his or her business wants is for competitors or employees to learn confidential information. 

2. Hire an Attorney

The second critical mistake that many business owners make is they skip working with an attorney. There is no way around the fact that if you are selling a business, or for that matter anything of significant value, you need to work with a lawyer experienced in the area of sales. 

Business owners become accustomed to doing a great many things themselves and learning on the job. There is no doubt that this is a personality trait that has served them well over the years. However, when it comes time to sell your business, there is zero room for “on the job training” or relying on your own instincts. One of the best ways that you as a business owner can protect your future is to work with a lawyer when selling your business. In fact, a Business Broker or M&A Advisor can be a vital resource for helping you to find a proven lawyer with a background in the buying and selling of businesses. 

3. Get a Letter of Intent

A third significant mistake that business owners frequently make when selling their business is that they fail to get a letter of intent. Much like an NDA, a letter of intent is a key legal document in the process of selling a business. All too often business owners will skip requesting a letter of intent out of fear of slowing down the process and potentially disrupting a deal. 

The letter of intent is designed to both clearly spell out expectations, while simultaneously protecting your interests as a business owner. When a buyer signs a letter of intent, it indicates that he or she is taking the process seriously. This will protect you from wasting your time. 

The process of buying or selling a business is complex in many different ways. Whether it is dealing with human psychology, organizing your books, thinking about what information prospective buyers are likely to want to see, or addressing a wide array of legal issues, it is a complex and time-consuming process. Working closely with a Business Broker or M&A Advisor is one of the fastest ways that you can increase your chances of a successful sale.

Copyright: Business Brokerage Press, Inc.

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Put Your Strengths First When Selling Your Business

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You understand the finer points and potential of your business better than anyone; however, that doesn’t mean that prospective buyers will instantly see your business’s various strengths. When you are looking to sell your business, you have two very important jobs. The first is to get your business ready to be sold. A second essential job is to showcase your business’s greatest strengths. At the end of the day, you must be the one to articulate why your business is worth buying. This effort, of course, will be supported by your Business Broker or M&A Advisor. 

Understand Who Will Buy Your Business 

Most people have never sold a business before and don’t fully understand what is involved in positioning one’s business for sale. The bottom line is that not every business is a good fit for every buyer. Finding the right buyer for your business will greatly expedite the process. This is yet another reason why it is critically important to work with experienced professionals. Business Brokers and M&A Advisors not only know what buyers are looking for, but also what sellers need to do to get their business ready to sell.

How to Navigate Roadblocks 

Selling a business, especially if you attempt to do so without professional help, is a very time-consuming and often draining process. Successfully running a business requires attention to detail and focus. Unfortunately, these can both suffer when owners attempt to put on yet another hat and handle the sale of their business. 

While you are attempting to sell your business, it is critically important that you maintain normal operations. The last thing you want is to weaken the finances of your business while you are waiting to find a buyer. Remember that it takes months, a year, or even longer to find a buyer for the typical business. Don’t let your business suffer damage in the interim. 

Think Like a Buyer

Preparing your business to be sold isn’t as simple as making a few cosmetic changes and calling it day. Instead, you’ll want to think like a buyer. 

What would you want to see if you were buying a business? You would want to know a great deal about that business and how it operates, who its key employees are, how likely those key employees are to stay, who the main customers and suppliers are, and the strength of the business location and competitors. Of course, you would also want a very detailed picture of the business’s financial situation. 

In short, you would want to clearly understand what the business does and what it’s really worth, how financially healthy it has been in the past, what the business’ prospects are moving forward and, in general, how much effort the business will take to operate. These are exactly the kind of key facts that any serious buyer will want to know. It’s only to be expected that a buyer would expect to learn this information before making a decision. 

At the end of the day, working with a Business Broker or M&A Advisor is one of the easiest ways to streamline the sales process. Thanks to years of experience, they already understand the pitfalls that you may experience as well as what is needed to position your business so that you can find the right buyer quickly and receive the best price possible. 

Copyright: Business Brokerage Press, Inc.

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Buying/Selling a Business: The External View

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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.

Copyright: Business Brokerage Press, Inc.

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What Makes Your Company Unique in the Marketplace?

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There are unique attributes of a company that make it more attractive to a possible acquirer and/or more valuable. Certainly, the numbers are important, but potential buyers will also look beyond them. Factors that make your company special or unique can often not only make the difference in a possible sale or merger, but also can dramatically increase value. Review the following to see if any of them apply to your company and if they are transferable to new ownership.

Brand name or identity

Do any of your products have a well recognizable name? It doesn’t have to be Kleenex or Coke, but a name that might be well known in a specific geographic region, or a name that is identified with a specific product. A product with a unique appearance, taste, or image is also a big plus. For example, Cape Cod Potato Chips have a unique regional identity, and also a distinctive taste. Both factors are big pluses when it comes time to sell.

Dominant market position

A company doesn’t have to be a Fortune 500 firm to have a dominant position in the market place. Being the major player in a niche market is a dominant position. Possible purchasers and acquirers, such as buy-out groups, look to the major players in a particular industry regardless of how small it is.

Customer lists

Newsletters and other publications have, over the years, built mailing lists and subscriber lists that create a unique loyalty base. Just as many personal services have created this base, a number of other factors have contributed to the building of it. The resulting loyalty may allow the company to charge a higher price for its product or service.

Intangible assets

A long and favorable lease (assuming it can be transferred to a new owner) can be a big plus for a retail business. A recognizable franchise name can also be a big plus. Other examples of intangible assets that can create value are: customer lists, proprietary software, an effective advertising program, etc.

Price Advantage

The ability to charge less for similar products is a unique factor. For example, Wal-Mart has built an empire on the ability to provide products at a very low price. Some companies do this by building alliances with designers or manufacturers. In some cases, these alliances develop into partnerships so that a lower price can be offered. Most companies are not in Wal-Mart’s category, but the same relationships can be built to create low costs and subsequent price advantages.

Difficulty of replication

A company that produces a product or service that cannot be easily replicated has an advantage over other firms. We all know that CPA and law firms have unique licensing attributes that prevent just anyone off of the street from creating competition. Some firms have government licensing or agreements that are granted on a very limited basis. Others provide tie-ins that limit others from competing. For example, a coffee company that provides free coffee makers with the use of their coffee.

Proprietary technology

Technology, trade secrets, specialized applications, confidentiality agreements protecting proprietary information – all of these can add value to a company. These factors may not be copyrighted or patented, but if a chain of confidentiality is built – then these items can be unique to the company.

There are certainly other unique factors that give a company a special appeal to a prospective purchaser and, at the same time, increase value. Many business owners have to go beyond the numbers and take an objective look at the factors that make their company unique.

Copyright: Business Brokerage Press, Inc.

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12 Ways to Increase the Value of Your Company

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1. Build a solid management team. A business with sales of $5 million and up needs a full complement of officers and directors. Such a team might include: a COO, a CFO, a sales manager and, depending on the of type business, an IT director. It is also beneficial to create a Board of Directors with at least two outside members. This professionalization of management can remove the stigma of “the one man band.” Not only will this build a stronger company, it will increase the value to a possible acquirer. Smaller firms should also build a strong management team, and creating an outside advisor group is also a good idea.

2. Loyal employees.  Happy and loyal employees make for a strong company. Top management should have non-compete and/or confidentiality agreements.  Solid benefits plans for all employees should be in place. A company’s greatest asset is its employees and perhaps its biggest value-increaser.

3. Growth. Some smaller companies are kept small to maximize the owner’s benefits – the proverbial “cash cows.” However, if building value is the goal, then developing new products or services, building market share, expanding markets or opening new ones, is critical. This generally requires a financial investment, but building a strong growth rate also builds value.

4. Understanding your market. The value of a company may be contingent on its industry, its place in the industry and the direction of the industry itself. How big is the industry, is it headed up or down, who is the competition and how big is the company’s market share? Is it time to change direction or diversify?

5. Size counts. Companies with less than $5 million in sales and an EBITDA of less than $1 million can be perceived as small. Therefore, they may be dependent on continuing outside financing and lack the critical mass for both buying and selling power. These companies can be perceived as too small for acquisition or are penalized when it comes to value. However, over the past few years corporate buyers, as well as private equity firms, have seen the advantages of purchasing smaller firms. Obviously, companies with $10 million or more in sales and an EBITDA of $1 million or more are considered as solid and able to stand on their own.

6. Changing direction.  Small companies can be very adept at changing course and implementing change. They have to be able to change and move quickly to take advantage of new markets, to fill voids in existing markets and even to add or change products or services.

7. Documentation. Business plans, financial plans and personnel plans should all be in writing – and kept current. Terms of employment agreements should be spelled out and in writing. Business planning and company objectives, etc., should also be in writing and reviewed periodically. Contracts should be reviewed and maintained on a current basis.

8. Diversification. A major problem with many small companies is that their business is concentrated on one or two major customers or clients. Ideally, no customer or client should represent more than 10 percent of sales. Expanding to new markets, introducing new products, and finding new customers must be considered without deviating too far from the company’s core business.

9. Name and brand identity. Nothing beats the name Walt Disney, or Kleenex® or the soft drink called Coke® – they are household names. Small firms may not have the brand or name recognition of these companies, but they can work at it. This recognition is especially powerful in the consumer product area. But franchising has expanded this name or brand recognition to many different types of businesses.

10. Taking advantage of proprietary and other assets. Patents, brand names, copyrights, alliances, and joint ventures are all examples of not only proprietary assets, but, in many cases, valuable ones. Even equipment can be used in several different ways. Large landscape companies in cold climates put snow plows on their trucks, utilize their existing workforce and become a snow plowing company for their regular landscaping customers — office complexes, apartment and condo developments, etc.

11. “Lean and Mean.”  Many companies lease their real estate needs, outsource their payroll, have their manufacturing done offshore, or have UPS handle all of their logistical needs. Since all non-core requirements are done by someone else,  the company can focus its efforts on what they do best.

12. Do it now! The owners of small firms, even large ones, have an attitude that says, “I don’t have time now, I’ll do it tomorrow” or “I’m too busy now putting out fires.” So the real challenges of building the business, and value, get sidetracked or put off indefinitely. Creating value is critical to the long-term (and short-term) success of the business.

Keep in mind that the best time to consider selling is when business is good, the business is running profitably, and many of the above “value-adders” are in place. By contacting your local professional intermediary you can explore which of the above will add the most value to your firm, so it will be ready to sell when you are.

Copyright: Business Brokerage Press, Inc.

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