A Must Read Article on Having Children Take Over the Family Business

In a recent Divestopedia article entitled, “Kids Take Over the Business? 8 Things to Consider,” author Josh Patrick examines what every business owner should know about having their children take over their business.  He points out that there are no modern and accurate numbers on what percentage of businesses will be taken over by the children of their owners.  But clearly the number is substantial.

Patrick emphasizes as point number one that allowing a child to take over a business right after finishing his or her education could be a huge mistake.  After all, how can a parent be sure that a child can handle operating the business without some proven experience under his or her belt?

Point number two is that businesses frequently create jobs for the children of owners.  The flaw in this logic is pretty easy to see. This job, regardless of its responsibilities, isn’t in fact a real job.  Senior decision-making roles should be earned and not handed out as a birthright. The end result of this approach could create a range of diverse problems.

The third point Patrick addresses is that pay should be competitive and fair when having children take over a business.  Quite often, the pay is either far too high or far too low. This factor in and of itself is likely to lead to yet more problems.

Business growth must always be kept in mind.  When having your children take over a business, it is essential that they have the ability to not just maintain the business but grow it as well.  If they can’t handle the job then, as Patrick highlights, you are not doing them any favors. Perhaps it is time to sell.

Another issue Patrick covers is whether or not children should own stock.  If there are several children involved, then he feels it is important that all children own stock.  Otherwise, some children will feel invested in the business and others will not. In turn, this issue can become a significant problem once you, as the business owner, either retire or pass away.

In his sixth point, Patrick recommends that a business should only be sold to children and not given outright.  If a child is simply given a business, then that business may not have any perceived value. Additionally, if a child or children buy the business, then estate planning becomes much more straightforward.

In point seven, Patrick astutely recommends that once a parent has sold their business to their child, the parent must “let go.”  At some point, you will have to retire. Regardless of the outcome, you’ll ultimately have to step back and let your children take charge.

Finally, it is important to remember that your children will change how things are done.  This fact is simply unavoidable and should be embraced.

Working with an experienced business broker is a great way to ensure that selling a business to your child or children is a successful venture.  The experience that a business broker can bring to this kind of business transfer is quite invaluable.

Copyright: Business Brokerage Press, Inc.

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Embracing Technology to Boost Your Business

Forbes author Keith Gregg’s, February 8, 2019 article, “Using Tech to Enhance and Sell a Business,” has a range of interesting ideas that business owners should explore and embrace.  Gregg looks at three big ways that business owners can use technology to help them get the most out of the sale of the business.  He explains how important it is to address these three areas before placing your business on the market.

Upgrading Systems

The first tip Gregg explores is to upgrade systems.  Upgrading systems can be particularly important for attracting younger buyers.  It is common for businesses to be successful without proprietary technology or procedures, but that doesn’t mean that technology should be ignored.

Important information should be digitized, as this data will be vital for the new owner to grow the business over the long haul.  Incorporating software that can track and analyze data across the business is likewise valuable. Using software, such as customer relationship management and financial management software, will showcase that your business has been modernized.

Business Valuations

Determining the value of your business can be tricky and laborious.  Gregg recommends opting for a business valuation, as he feels, “business valuation calculations can remove much of the guesswork from the process.”

You should expect a business valuation calculator to include everything from verified data on comparable business deals, including gross income and cash flow figures and more.  There are even industry-specific calculations that can be used as well. The main point that Gregg wants to convey is that business owners should use tangible and proven data to sell their businesses.  Like upgrading systems appeals to younger buyers, the same holds true for using verified data to sell.

Take Advantage of the Digital Marketplace

Gregg’s view is that perhaps the single greatest technology for business owners to leverage is that of the digital marketplace.  Sites that link businesses with prospective buyers can help to streamline and expedite the sales process. Through such sites, it is possible to go deeper than a specific industry and even explore sub-sectors, thus enhancing the chances of finding the right buyer.

Technology can be used to help sell businesses in a variety of ways.  An experienced and proven business broker will leverage a whole range of tools to assist business owners when selling their businesses.  When you opt for a proven business broker, you can expect to receive offers from serious and vetted buyers and, in the process, save a great deal of time while maintaining confidentiality.

Copyright: Business Brokerage Press, Inc.

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Thinking About Succession Planning

If you haven’t been thinking about succession planning, the bottom line is that you should be. In the February 20, 2019 Divestopia article, “All Companies Need to Look at Succession Planning,” author Brad Cherniak examines the importance of succession planning. Owning and/or operating a business can be a great deal of work, but it is imperative to take the time to develop a succession plan.

Succession Planning is for Businesses of All Sizes

Author Cherniak wants every business owner to realize that succession planning isn’t just for big businesses. Yet, Cherniak points out that the majority of small-to-medium sized businesses, as well as their senior managers, simply don’t focus much on succession planning at all.

Many business owners see succession planning as essentially being the same as exiting a business. Cherniak is quick to point out that while the two can be linked and may, in fact, overlap, they are by no means the same thing. They should not be treated as such.

Following an Arc Pattern

Importantly, Cherniak notes, “Succession planning should also be linked to your strategic planning.” He feels that both entrepreneurs and businesses managers follow an arc pattern where their “creativity, energy and effectiveness” are all concerned. As circumstances change, entrepreneurs and business managers can become exhausted and even a liability.

The arc can also change due to a company’s changing circumstances. All of these factors point to “coordinating the arcs of business,” which includes “startup, ramp-up, growth, consolidation, renewed growth and maturity,” with whomever is running the business at the time. In this way, succession planning is not one-dimensional. Instead it should be viewed as quite a dynamic process.

Evaluating Each Company Individually

Cherniak highlights the importance of making sure that the team matches the needs of a company as well as its stages of development. Who is running a company and setting its direction? Answering these questions is important. It also is of paramount importance to make sure that the right person is in charge at the optimal time.

Companies and their circumstances can change. This change can often occur without much notice. As Cherniak points out, few small-to-medium sized businesses focus on succession planning, and this is potentially to their detriment.

Copyright: Business Brokerage Press, Inc.

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Could the Red-Hot Market for Businesses Be Cooling Down

The economy is red hot, and that fact is translating over to lots of activity in businesses being sold.  However, it is possible that this record-breaking number of sales could cool down in the near future. In a recent article in Inc. entitled, “The Hot Market for Businesses is Likely to Cool, According to This New Survey,” the idea that the market for selling business is cooling down is explored in depth.  Rather dramatically, the article’s sub header states, “Entrepreneurs who are considering selling their companies say they’re worried about the future of the economy.”

The recent study conducted by Pepperdine University’s Graziadio School of Business as well as the International Business Brokers Association and the M&A Source surveyed 319 business brokers as well as mergers and acquisitions advisers.  And the results were less than rosy.

A whopping 83% of survey participants believed that the strong M&A market will come to end in just two years.  Perhaps more jarring is the fact that almost one-third of participants believe that the market would cool down before the end of 2019.

The participants believe that the economy will begin to slow down, and this change will negatively impact businesses.  As the economy slows down, businesses, in turn, will see a drop in their profits. This, of course, will serve to make them more challenging to sell.

The Inc. article quotes Laura Ward, a managing partner at M&A advisory firm Kingsbridge Capital Partners, “People are thinking about getting out before the next recession,” says Ward.  The Pepperdine survey noted that a full 80% of companies priced in the $1 million to $2 million range are now heading into retirement. In sharp contrast, 42% of companies priced in the $500,000 to $1 million range are heading into retirement.  Clearly, retirement remains a major reason why businesses are being sold.

Is now the time to sell your business?  For many, the answer is a clear “yes.” If the economy as a whole begins to slow down, then it is only logical to conclude that selling a business could become tougher as well.

The experts seem to agree that whether it is in one year or perhaps two, there will be a shift in the number of businesses being sold.  Now may very well be the right time for you to jump into the market and sell. The best way of making this conclusion is to work with a proven and experienced business broker.  Your broker will help you to analyze the various factors involved and make the best decision.

Copyright: Business Brokerage Press, Inc.

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What Kind of Buyers are You Most Likely to Meet?

Selling a business can be an exciting and rather lucrative time.  But going through the sales process means embracing the notion that you’ll have to be very prepared for whatever might be thrown your way.  A key aspect of preparing to sell your business is to know what types of buyers you’re likely to encounter.

It is only logical to anticipate the types of buyers you may be dealing with in advance.  That will allow you to plan how you might potentially work with them.  Remember that each buyer comes with his or her own unique desires and objectives.

The Business Competitor

Competitors buy each other all the time.  Frequently, when a business is looking to sell, the owner or owners quickly turn to their competitors.  Turning to one’s competitors when it comes time to sell makes a good deal of sense; after all, they are in the same business, understand the industry and are more likely to understand the value of what you are offering.  With these prospective buyers, a great confidentiality agreement is, of course, a must.

Selling to Family Members

It is not at all uncommon for businesses to be sold to family members.  These buyers are often very familiar with the business, the industry as a whole and understand what is involved in owning and operating the business in question.

Often, family members are prepared and groomed years in advance to take over the operation of a business.  These are all pluses.  But there are some potential pitfalls as well, such as family members not having enough cash to buy or not being fully prepared to run the business.

Foreign Buyers

Quite often, foreign buyers have the funds needed to buy an existing business.  However, foreign buyers may face a range of difficulties including overcoming a language barrier and licensing issues.

Individual Buyers

Dealing with an individual buyer has many benefits.  These buyers tend to be a little older, ranging in age from 40 to 60.  For these buyers, owning a business is often a dream come true, and they frequently bring with them real-world corporate experience.  Dealing with a single buyer can also help expedite the process as you will have fewer individuals to negotiate with.

Financial Buyers

Financial buyers are often the most complicated buyers to deal with, as they can come with a long list of demands.  That stated, you should not dismiss financial buyers.  But just remember that they want to buy your business strictly for financial reasons.  That means they are not looking for a job or fulfilling a lifelong dream.  For financial buyers, the key point is that your business is generating adequate revenue.

Synergistic Buyers

A synergistic buyer can be an excellent candidate.  The reason that synergistic buyers can be such a good fit is that their business in some way complements yours.  In other words, there is a synergy between the businesses.  The main idea here is that by combining the two businesses they will reap a range of benefits, such as access to a new and very much aligned customer base.

Different types of buyers bring different types of issues to the table.  The good news is that business brokers know what different types of buyers are likely to expect out of a deal.

Copyright: Business Brokerage Press, Inc.

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New Year’s Resolutions & Selling Your Business

Most people fail to keep their New Year’s Resolutions.  But where buying and selling a business is concerned, failing to keep those resolutions could mean an abundance of lost opportunity.

Todd Ganos at Forbes recently penned a thought-provoking article entitled The 8 New Year’s Resolutions for the Sale of Your Business.  In this article, he compares selling a business to getting in shape in the months preceding your visit to the beach.  It is necessary to do a great deal of planning and hard work if you want to be in good shape for the big “beach body reveal.”

When it comes to selling a company, Ganos believes that there are eight factors that must be taken into consideration.  Listed below are those factors he feels are a must for business owners looking to get their business ready for “the beach.”  These are the eight factors that Ganos believes are most essential and should be on your New Years’ Resolution list for your business:

  1. Planning
  2. Legal
  3. Leadership
  4. Sales
  5. Marketing
  6. People
  7. Operations
  8. Financial

In order to get your business ready, it is necessary to take a good long and honest look at each of these eight important categories.

Planning is at the heart of everything.  He points out that owners who truly want to get their business ready for the market will want to adopt a focused month-by-month plan.

This plan means having discipline, developing a business plan and involving your team in the development of that plan.  Once the plan has been developed, it should be reviewed with your leadership team each month.

New Years’ Resolutions fail because they don’t get properly integrated into peoples’ lives.  And the same holds true for making changes in one’s businesses.  Ganos correctly asserts that in order to get your business ready to sell, you have to make it an “all-of-the-time thing” in which you are constantly focused on success.

New Years’ Resolutions have to be about doing things differently, having a plan and then sticking to these changes permanently.

Copyright: Business Brokerage Press, Inc.

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Confidentiality Agreements: What are the Most Important Elements?

Every business has to be concerned about maintaining confidentiality.  In fact, it is common for business owners to become somewhat obsessed with confidentiality when they are getting ready to sell their business.

It goes without saying that owners don’t want the word that they are selling to spread to the public, employees or most certainly their competitors.  Yet, there is something of a tug of war between the natural desire for confidentiality and the desire to sell a business for the highest amount possible.  At the end of the day, any business owner looking to sell his or her business will have to let prospective buyers “peek behind the curtain.”  Let’s explore some key points that any good confidentiality agreement should cover.

At the top of your confidentiality list should be the type of negotiations.  This aspect of the confidentiality agreement is, in fact, quite important as it stipulates whether the negotiations are secret or open.  Importantly, this part of the confidentiality agreement will outline what information can be revealed and what cannot be revealed.

Also consider the duration of the agreement.  Your agreement must be 100% clear as to how long the agreement is in effect.  If possible, your confidentiality agreement should be permanently binding.

You will undoubtedly want to outline what steps will be taken in the event that a breach does occur.  Having a confidentiality agreement that spells out what steps you can, and may, take if a breach does occur will help to enhance the effectiveness of your contract.  You want your prospective buyers to take the document very seriously, and this step will help make that a reality.

When it comes to “special considerations” category, this should be elements that apply to the business in question.  Patents are a good example.  A buyer could learn about inventions while “kicking the tires,” and you’ll want to be quite certain that any prospective buyer realizes that he or she must maintain confidentiality regarding any patent related information.

Of course, do not forget to include any applicable state laws.  If the prospective buyer is located outside of your state, then that is an issue that must be adequately addressed.

A confidentiality agreement is a legally binding agreement.  And it is important that all parties involved understand this critical fact.  Investing the money and time to create a professional confidentiality agreement is time and money very well spent.  An experienced business broker can prove invaluable in helping you navigate not just the confidentiality process, but also the process of buying and selling in general.

Copyright: Business Brokerage Press, Inc.

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Goodwill and Its Importance to Your Business

What exactly does the term “goodwill” mean when it comes to buying or selling a business?  Usually, the term “goodwill” is a reference to all the effort that a seller puts into a business over the years that he or she operates that business.  In a sense, goodwill is the difference between an array of intangible, but important, assets and the total purchase price of the business.  It is important not to underestimate the value of goodwill as it relates to both the long-term and short-term success of any given business.

According to the M&A Dictionary, an intangible asset can be thought of as asset that is carried on the balance sheet, and it may include a company’s reputation or a recognized name in the market.  If a company is purchased for more than its book value, then the odds are excellent that goodwill has played a role.

Goodwill most definitely contrasts and should not be confused with “going concern value.”  Going concern value is usually defined as the fact that a business will continue to operate in a fashion that is consistent with its original intended purpose instead of failing and closing down.

Examples of goodwill can be quite varied.  Listed below are some of the more common and interesting examples:

  • A strong reputation
  • Name recognition
  • A good location
  • Proprietary designs
  • Trademarks
  • Copyrights
  • Trade secrets
  • Specialized know-how
  • Existing contracts
  • Skilled employees
  • Customized advertising materials
  • Technologically advanced equipment
  • Custom-built factory
  • Specialized tooling
  • A loyal customer base
  • Mailing list
  • Supplier list
  • Royalty agreements

In short, goodwill in the business realm isn’t exactly easy to define.  The simple fact, is that goodwill can, and usually does, encompass a wide and diverse array of factors.  There are, however, many other important elements to consider when evaluating and considering goodwill.  For example, standards require that companies which have intangible assets, including goodwill, be valued by an outside expert on an annual basis.  Essentially, a business owner simply can’t claim anything under the sun as an intangible asset.

Whether you are buying or selling a business, you should leverage the know how of seasoned experts.  An experienced business broker will be able to help guide you through the buying and selling process.  Understanding what is a real and valuable intangible asset or example of goodwill can be a key factor in the buying and selling process.  A business broker can act as your guide in both understanding and presenting goodwill variables.

Copyright: Business Brokerage Press, Inc.

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The Sale of a Business May Actually Excite Employees

Many sellers worry that employees might “hit the panic button” when they learn that a business is up for sale.  Yet, in a recent article from mergers and acquisitions specialist Barbara Taylor entitled, “Selling Your Business?  3 Reasons Why Your Employees Will Be Thrilled,” Taylor brings up some thought-provoking points on why employees might actually be glad to hear this news.  Let’s take a closer look at the three reasons that Taylor believes employees might actually be pretty excited by the prospect of a sale.

Taylor is 100% correct in her assertion that employees may indeed get nervous when they hear that a business is up for sale.  She recounts her own experience selling a business in which she was concerned that her employees might “pack up their bags and leave once we (the owners) had permanently left the building.”  As it turns out, this wasn’t the case, as the employees did in fact stay on after the sale.

Interestingly, Taylor points to something of a paradox.  While employees may sometimes worry that a new owner will “come in and fire everyone” the opposite is usually the case.  Usually, the new owner is worried that everyone will quit and tries to ensure the opposite outcome.

Here Taylor brings up an excellent point for business owners to relay to their employees.  A new owner will likely mean enhanced job security, as the new owner is truly dependent on the expertise, know-how and experience that the current employees bring to the table.

A second reason that employees may be excited with the prospect of a new owner is their potential career advancement.  The size of your business will, to an extent, dictate the opportunities for advancement.  However, if a larger entity buys your business then it is suddenly possible for your employees to have a range of new career advancement opportunities.  As Taylor points out, if your business goes from a “mom and pop operation” to a mid-sized company overnight, then your employees will suddenly have new opportunities before them.

Finally, selling a business could mean “new growth, energy and ideas.”  Taylor discusses how she had worked with a 72-year-old business owner that was exhausted and simply didn’t have the energy to run the business.  This business owner felt that a new owner would bring new ideas and new energy and, as a result, the option for new growth.

There is no way around it, Taylor’s article definitely provides ample food for thought.  It underscores the fact that how information is presented is critical.  It is not prudent to assume that your employees may panic if you sell your business.  The simple fact is that if you provide them with the right information, your employees may see a wealth of opportunity in the sale of your business.

Copyright: Business Brokerage Press, Inc.

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A Look at Divestopedia’s Article, “The Myth of Fair Business Valuation”

In Divestopedia’s article, “The Myth of Fair Business Valuation: What Professional Valuations Don’t Tell You,” author Chak Reddy is quick to point out that the “type of buyer and method of sale are two important (yet often overlooked) value determinants when finding a starting price for your business.”

Reddy brings up some excellent points.  One notion in particular that every business owner should be aware of is that there is “NO fair value for illiquid assets.”  He points to the fact that between January 2007 and March 2008, the historic Bear Stearns went from a value of $20 billion dollars to just $238 million.  In a mere 14 months, Bear Stearns lost most of its value.

Additionally, the article points to the fact that business owners often suffer enormously from “dramatic valuation compression.”  In Reddy’s view, this compression is the direct result of poor planning and a failure on the part of business owners to select the right advisory teams.

Reddy believes that professional valuations can be quite lacking.  He feels that they are “contingent on multiple assumptions,” and that the valuations are only as good as the assumptions upon which they are based.  In other words, professional valuations can be limited and flawed.  In particular, he points to the fact that two of the most important factors in valuations, future growth rate and operational synergies are “highly subjective and no two views on these topics are likely to be identical.”  Summed up another way, valuations are inherently a matter of opinion and perspective.  Reddy feels that a seller will be “lucky” if the real sales price comes within 10% to 20% of the professional valuation.

In the end, as always, it is the market that determines value. It is the acquirer who will determine the value more than any other factor.  The perception of the buyer will play a key role in the process and, further to the point, no two buyers will perceive the business exactly the same way.  In other words, valuations can be tricky and certainly do involve a personal element of the individual who is appraising the business’ value.  Adding to this point, Reddy states, “From our experience, the type of buyer and the type of sale skew the valuation to such an extent that it is unwise for a business owner to not be familiar with these variables and their impact before the beginning of the sales process.”

Ultimately, finding the right buyer is essential and this is where a business broker can prove simply invaluable.  And finding that right buyer may take time.

Copyright: Business Brokerage Press, Inc.

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5 Big Questions to Consider when Financing a Business Sale

How should the purchase of a business be structured?  This is a point that you’ll want to address early in the sale process.  For most people, buying or selling a business is one of the most, if not the most, important business decision that they will ever make.  For this reason, it is vital not to wait until the last minute to structure your deal. Let’s turn our attention to the most significant questions that you need to answer when entering the sales process.

1. What is My Lowest Price?

The first question you should ask yourself is, “What is the lowest price I’m willing to take?”  If an offer is made, the last thing you want is to be sitting around trying to decide if you can take a given offer at a given price.  You need to be ready to jump if the right offer is made.

2. What are the Tax Implications?

Secondly, you’ll want to seriously consider the tax consequences of any sale.  Taxes are always a fact of life and you need to work with a professional, such as an accountant or business broker, to understand the tax implication of any decision you make.

3. What are the Interest Rates?

The third factor you want to consider is interest rates.  If you get a buyer, what is an acceptable interest rate for a seller financed sale?

4. Are there Additional Costs Involved?

A fourth key question to ask yourself is do you have any unsecured creditors that have not been paid off?  Additionally, you’ll also want to determine whether or not the seller plans on paying for a part of the closing costs.

5. Will the Buyer Need to Assume Debt?

Finally, will the buyer need to assume any long-term or secured debt?  The issue of long term and/or secured debt is no small issue. Be sure to clarify this important point well in advance.  Also keep in mind that favorable terms typically translate to a higher sales price.

Business brokers are experts at buying and selling all kinds of businesses.  When it comes time to structure a deal that benefits both the buyer and the seller, business brokers can prove to be invaluable.  At the end of the day, working with a business broker is one of the single biggest steps you can take to ensure that your business is sold and sold as quickly as possible.

Copyright: Business Brokerage Press, Inc.

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Obtaining a Fair Market Value for Your Business

Divestopedia published a rather insightful article, “Letting the Market Bridge the Valuation Gap.”  In this October 2018 article, Dave Kauppi dives in and explores how fair market value can be used as a way for business owners to “bridge the gap between the valuation they feel they deserve and that which they’re likely to receive.”  This, of course, increases the chances of a deal actually taking place.  Let’s turn our attention to some of the key points in Kauppi’s informative article.

Understanding the Reality of Selling a Business

One key point is that only a low percentage of businesses actually sell on their first attempt.  The article points out that a mere 10% of businesses that are for sale are actually sold three years later; this is a simply brutal fact.  Few facts, if any, help underscore the value of working with a business broker more than this point.  Selling a business can be difficult under even the best of circumstances.  The process is complex, and most sellers have never actually sold a business before.

Divestopedia believes that it is critical for business owners to have realistic expectations regarding valuation.  As the article points out, the market doesn’t care “how much money you need for retirement,” or how much you’ve invested.

Four Points to Consider

According to the article, it is important that business owners understand that a few business characteristics will ultimately drive the sale.  There are four key factors to consider: contractually recurring revenue, durable competitive advantage, growth rate and customer concentration.

There is a lot packed into these four points, but here are a couple of big takeaways.  In terms of customer growth, if a large percentage of your business is derived from a single customer, then that is going to be seen as a problem.  As Divestopedia points out, if your company is dependent and partially dependent on a single customer, then you can expect a lot of pressure for you, as the business owner, to stick around a lot longer to ensure that this key customer isn’t lost.  If intellectual property, such as software, is involved, then things can get even more complex.  In the end, determining value in technology-based companies can be more challenging.

In the end, working with a seasoned business broker, one that understands valuation and how best to get there, is a must.  You want to receive the best possible price for your business.  An experienced business broker will help you understand how to navigate the complex process of determining a price.  However, and most importantly, a business broker will help you achieve a fair market value, so that your business doesn’t remain unsold for years.

Copyright: Business Brokerage Press, Inc.

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Determining Your Company’s Undocumented Value

Business appraisals are not one-dimensional.  In fact, a good business appraisal is one that factors in a wide range of variables in order to achieve an accurate result.  Indisputable records ranging from comparables and projections to EBITDA multiples, discount rates and a good deal more are all factored in.

It is important to remember that while an appraiser may feel that he or she has all the information necessary, it is still possible they have overlooked key information.  Business appraisers must understand the purpose of their appraisal before beginning the process.  All too often appraisers are unaware of important additional factors and considerations that could enhance or even devalue a business’s worth.

There Can Be Unwritten Value

Value isn’t always “black and white.”  Instead, many factors can determine value.  Prospective buyers may be looking at variables, such as profitability, depth of management and market share, but there can be more that determines value.

Here are some of the factors to consider when determining value: How much market competition is there?  Does the business have potential beyond its current niche?  Are there a variety of vendors?  Does the company have easy access to its target audience?  At the end of the day, what is the company’s competitive advantage?  Is pricing in line with the demographic served?  These are just some of the key questions that you’ll want to consider when evaluating a company.

There are Ways to Increase Both Valuation and Success

No doubt, successful businesses didn’t get that way by accident.  A successful business is one that is customer focused and has company-wide values.  Brian Tracy’s excellent book, “The 100 Absolutely Unbreakable Laws of Business,” notes that it is critical for businesses to have a company-wide focus on three key pillars: marketing, sales and, of course, revenue generation.  Tracy also points out that trends can be seen as the single most vital factor and bottom-line contributor to any company’s success and, ultimately, valuation.  For 2018 and beyond, projected trends include an increase in video marketing, the use of crowdfunding as a means of product validation and more.

No Replacement for Understanding Trends

If a company doesn’t understand trends, then it can’t understand both the market as it stands and as it may be tomorrow.  Savvy business owners understand today’s trends and strive to capitalize on the mistakes of their competitors while simultaneously learning from their competitors’ successes.

Tracy accurately states that while there are many variables in determining value, finding and retaining the best people is absolutely essential.  One of the greatest assets that any company has is, in the end, its people.

Copyright: Business Brokerage Press, Inc.

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Considering All of Your Business Real Estate Options

In a recent December 2018 article in Divestopedia entitled, “Options for Business Real Estate When Selling a Company,” the topic of business real estate was explored at length.

One of the key points of the article was that understanding one’s business real estate options would ultimately help in achieving “the goals desired in a transaction.”  The article is correct to point out that many, or even arguably most, business owners simply don’t know what real estate options are available to them when it comes time to sell the company.

In particular, there are two big options:

  1. Sell everything including the real estate.
  2. Hold onto the real estate for the rental income.

In the Divestopedia article, the authors correctly point out that if you, as the business owner, personally own the real estate in a separate entity, then you are good to go.  You should have a “clear path to valuation.”

However, if your company owns the real estate, then things get a little more complicated.  If this is the situation you’ll want to have a third-party appraisal of the real estate so that its value is clear.  The article also points out that if your business is a C-Corp and your business also owns the real estate, then it’s a good idea to talk to your accountant as there will be differences in taxation.

Every situation is different.  Many buyers will prefer to acquire the real estate along with the business.  On the other hand, many buyers may prefer a lease, as they don’t want everything that comes along with owning real estate.  Communicating with the buyer regarding his or her preference is a savvy move.

Now, as Divestopedia points out, if you do plan to retain the building, then you’ll want to be certain that a strong lease is in place.  Ask any business broker about the importance of having a strong lease, and you’ll get some pretty clear-cut feedback.  Namely, you always want to have a strong lease.

Issues such as who repairs what and why should all be spelled out in the lease.  It should leave nothing to chance.  One of the best points made in the Divestopedia article is that you will want a strong lease for another key reason.  When the time comes to sell the property, you want to show you have a lease that is generating good income.

Real estate and the sale of your business are not one-dimensional topics.  There are many variables that go into selling when real estate is involved.  It is important to consider all of the variables and work with a business broker who can help guide you through this potentially complex topic.

Copyright: Business Brokerage Press, Inc.

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Four Significant Issues You Need to Consider When Selling Your Business

The process of selling a business can be very complex. Whether you’ve sold a business in the past or are selling a business for the very first time, it is imperative that you work with an expert. A seasoned business broker can help you navigate through what can be some pretty rough waters. Let’s take a closer look at four issues any seller needs to keep in mind why selling a business.

Number One – Overreaching

If you are both simultaneously the founder, owner and operator of a business, then there is a good chance that you are involved in every single decision. And that can be a significant mistake. Business owners typically want to be involved in every aspect of selling their business, but handling the sale of your business while operating can lead to problems or even disaster.

The bottom line is that you can’t handle it all. You’ll need to delegate the day-to-day operation of your business to a sales manager. Additionally, you’ll want to consider bringing on an experienced business broker to assist with the sale of your business. Simultaneously, running a business and trying to sell has gone awry for even the most seasoned multitaskers.

Number Two – Money Related Issues

It is quite common that once a seller has decided on a price, he or she has trouble settling for anything less. The emotional ties that business owners have to their businesses are understandable, but they can also be irrational and serve as an impediment to a sale. A business broker is an essential intermediary that can keep deals on track and emotions at a minimum.

Number Three – Time

When you are selling a business, the last thing you want is to waste time. Working with a business broker ensures that you avoid “window shoppers” and instead only deal with real, vetted prospects who are serious about buying. Your time is precious, and most sellers are unaware of just how much time selling a business can entail.

Number Four – Don’t Forget the Stockholders

Stockholders simply must be included in the process whatever their shares may be. A business owner needs to obtain the approval of stock holders. Two of the best ways to achieve this is to get an attractive sales price and secondly, to achieve the best terms possible. Once again, a business broker serves as an invaluable ally in both regards.

Selling a business isn’t just complicated; it can also be stressful, confusing and overwhelming. This is especially true if you have never sold a business before. Business brokers “know the ropes” and they know what it takes to both get a deal on the table and then push that deal to the finish line.

Copyright: Business Brokerage Press, Inc.

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The Importance of Understanding Leases

Leases should never be overlooked when it comes to buying or selling a business.  After all, where your business is located and how long you can stay at that location plays a key role in the overall health of your business.  It is easy to get lost with “larger” issues when buying or selling a business.  But in terms of stability, few factors rank as high as that of a lease.  Let’s explore some of the key facts you’ll want to keep in mind where leases are concerned.

The Different Kinds of Leases

In general, there are three different kinds of leases: sub-lease, new lease and the assignment of the lease.  These leases clearly differ from one another, and each will impact a business in different ways.

A sub-lease is a lease within a lease.  If you have a sub-lease then another party holds the original lease.  It is very important to remember that in this situation the seller is the landlord.  In general, sub-leasing will require that permission is granted by the original landlord.  With a new lease, a lease has expired and the buyer must obtain a new lease from the landlord.  Buyers will want to be certain that they have a lease in place before buying a new business otherwise they may have to relocate the business if the landlord refuses to offer a new lease.

The third lease option is the assignment of lease.  Assignment of lease is the most common type of lease when it comes to selling a business.  Under the assignment of lease, the buyer is granted the use of the location where the business is currently operating.  In short, the seller assigns to the buyer the rights of the lease.  It is important to note that the seller does not act as the landlord in this situation.

Understand All Lease Issues to Avoid Surprises

Early on in the buying process, buyers should work to understand all aspects of a business’s lease.  No one wants an unwelcomed surprise when buying a business, for example, discovering that a business must be relocated due to lease issues.

Summed up, don’t ignore the critical importance of a business’s leasing situation.  Whether you are buying or selling a business, it is in your best interest to clearly understand your lease situation.  Buyers want stable leases with clearly defined rules and so do sellers, as sellers can use a stable leasing agreement as a strong sales tool.

Copyright: Business Brokerage Press, Inc.

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The Pre-Sale Business Tune-Up

Owners are often asked, “do you think you will ever sell your business?” The answer varies from, “when I can get my price” to “never” to “I don’t really know” to everything in between. Most sellers may think to themselves when asked this question, “I’ll sell when the time is right.” Obviously, misfortune can force the decision to sell. Despite the questions, most business owners just go merrily along their way conducting business as usual. They seem to believe in the old expression that basically states, “it is a good idea to sell your horse before it dies.”

Four Ways to Leave Your Business

There are really only four ways to leave your business. (1) Transfer ownership to your children or other family members. Unfortunately, many children do not want to become involved in the family business, or may not have the capability to operate it successfully. (2) Sell the business to an employee or key manager. Usually, they don’t have enough cash, or interest, to purchase the business. And, like offspring, they may not be able to manage the entire business. (3) Selling the business to an outsider is always a possibility. Get the highest price and the most cash possible and go on your way. (4) Liquidate the business – this is usually the worst option and the last resort.

When to Start Working on Your Exit Plan

There is another old adage that says, “you should start planning to exit the business the day you start it or buy it.” You certainly don’t want to plan on misfortune, but it’s never to early to plan on how to leave the business. If you have no children or other relative that has any interest in going into the business, your options are now down to three. Most small and mid-size businesses don’t have the management depth that would provide a successor. Furthermore liquidating doesn’t seem attractive. That leaves attempting to find an outsider to purchase the business as the exit plan.

The time to plan for succession is indeed, the day you begin operations. You can’t predict misfortune, but you can plan for it. Unfortunately, most sellers wait until they wake up one morning, don’t want to go to their business, drive around the block several times, working up the courage to begin the day. It is often called “burn-out” and if it is an on-going problem, it probably means it’s time to exit. Other reasons for wanting to leave is that they face family pressure to start “taking it easy” or to move closer to the grandkids.

Every business owner wants as much money as possible when the decision to sell is made. If you haven’t even thought of exiting your business, or selling it, now is the time to begin a pre-exit or pre-sale strategy.

Buying or 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.

 

Burnout: An Ever-Present Threat

Burnout is an often-used reason for an owner selling his or her business. Potential buyers may have trouble accepting this as a valid reason for sale. However, burnout is a valid reason for selling one’s business.

A business owner can experience burnout even with a business that’s successful and growing. Many independent business owners feel they’ve worked hard, made their money, and now is a good time to cash out and move on, before burnout endangers the health of the business.

The following warning signs should remind a business owner that cashing out beats burning out:

You are overwhelmed on a daily basis.

When a business owner is a one-man show, even small tasks and minor decisions can seem bigger than Mount Everest. These owners have been shouldering the burden alone for too long, and the isolation has taken its toll.

You sense a failure of imagination.

Burnt-out owners are so close to their work that they lose perspective. Prioritizing becomes a major daily challenge, and problem solving sometimes goes no further than the application of business Band-Aids that cost money in the long run rather than increasing profits.

The joy is gone.

Although owning a business is hard work, it should also provide a good measure of enjoyment. When the work day begins with dread or boredom, the owner probably needs a change of scenery and a new challenge.

You are simply exhausted.

Being “just too tired” is a complaint heard just as often from the owner of the successful business as from the business that’s struggling to survive. In fact, a business that is growing will create increased demands of time and energy.

No matter what the status of the operation, the sheer work of keeping a business going day after day, year after year, is enough to encourage a business owner to make a change. This kind of schedule is not for everyone; in fact, statistics show that it’s hardly for anyone on a long-term basis.

Key Items Necessary for Selling a Business

  • Three years of profit and loss statements
  • Federal taxes for the same three years
  • Current list of fixtures and equipment
  • The lease and related documents
  • Franchise agreement (if applicable)
  • List of encumbrances, loans, equipment leases, etc.
  • Approximate amount of inventory on hand
  • Names of outside advisors with contact information
  • Marketing materials, catalogs, promotional pieces, etc.
  • Operations Manual (if available)
  • Brief history of business