Often times, public company data is used when attempting to value a privately-held firm. This comparison usually requires substantial adjustments to offset the risks inherent in the privately-held or closely-held company. These potential risk characteristics are usually elements that are overlooked by sellers, but not by potential buyers.
Sellers obviously look at their companies much differently than do prospective acquirers. Owners and company officers tend to place value on different factors than does a buyer. However, when it comes time to sell, it's important that the seller consider those factors that are important to a buyer.
Interviews with buyer prospects reveal that they are concerned with, and influenced by, the factors outlined below. They are often the basic considerations that determine whether they actually purchase the business, as well as the price they are willing to pay. It is the buyer's evaluation of these factors that can make or break a possible sale.
Buyers tend to look at these elements as risk factors. They also look at the expectation of future earnings. The following characteristics affect, both positively and negatively, the future earnings potential of and the risks involved in a target business.
Historical Earnings
The history of a company's earnings is very important to a prospective buyer. A long history of stable, and hopefully increasing, earnings is a positive factor in whether the buyer will pursue the acquisition. Conversely, a brief history or inconsistent earnings will certainly be a negative factor. A short time frame (for example, a company that has been in business for a year or less) and erratic earnings present obvious risk factors.
Entrepreneurs often underestimate the costs (and time) necessary to get the company to a profitable level. Start-ups are difficult to sell under the best of circumstances. The next time period in the life of a business is after three years, at which point there is some history, and a track record is beginning. The third period is usually after the company has been in business for a minimum of five years. Now the company has a track record and a reasonable history of performance.
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Wednesday, December 21, 2011
Tuesday, December 20, 2011
Selling Price Defined
When the time comes to sell your business, what makes up the selling price. What is it that you are selling and the buyer is buying? It is important that the selling price be defined in such a way to avoid any confusion. Below you will find some sample wording used by business intermediaries to define the selling price. Keep in mind that this is sample wording only and is presented here merely for informational purposes.
■The term “selling price” shall include (a) the selling price of the assets acquired plus any obligations assumed by the purchaser, (b) if the sale becomes one of stock, then the selling price will be all of the assets plus all of the liabilities of the corporation plus the value of any covenants not to compete, employment and/or consulting agreements plus the value of any allocations for goodwill and/or intangible assets.
■The total sale price shall consist of all consideration received by the owner and/or the company including the sum of the following:
(a) The total amount of cash received by the company and/or owner in connection with the sale, lease, or other transfer of the company, or any interest therein. Such cash consideration shall include but not be limited to purchase price, lease consideration, non-competition payments, consulting payments, license fees, royalties, retained cash, and other consideration received at or subsequent to the consummation of the sale transaction.
(b) All future, contingent or undetermined amounts in whole, such as an “earnout.” The commission shall be based on the actual amount of such future or contingent payments as and when they are received.
(c) The current fair market value of all non-cash items such as securities, notes or other property.
(d) Any amounts retained by the company for ultimate distribution to the owner, including any salaries, bonuses, deferred compensation, liquidation proceeds, or other amounts (in excess of the owner’s historic salary) received, retained or withdrawn by or for the benefit of the owner (including profits generated prior to closing) from and after the date of execution of this Listing Contract.
(e) The amount of any liabilities assumed by a purchaser (except for unsecured liabilities shown on the company’s financial statement or unsecured liabilities which arise hereafter in the ordinary course of the company’s business; i.e., any secured debt assumed by a purchaser shall be part of the sale price.
■The term “selling price” shall include (a) the selling price of the assets acquired plus any obligations assumed by the purchaser, (b) if the sale becomes one of stock, then the selling price will be all of the assets plus all of the liabilities of the corporation plus the value of any covenants not to compete, employment and/or consulting agreements plus the value of any allocations for goodwill and/or intangible assets.
■The total sale price shall consist of all consideration received by the owner and/or the company including the sum of the following:
(a) The total amount of cash received by the company and/or owner in connection with the sale, lease, or other transfer of the company, or any interest therein. Such cash consideration shall include but not be limited to purchase price, lease consideration, non-competition payments, consulting payments, license fees, royalties, retained cash, and other consideration received at or subsequent to the consummation of the sale transaction.
(b) All future, contingent or undetermined amounts in whole, such as an “earnout.” The commission shall be based on the actual amount of such future or contingent payments as and when they are received.
(c) The current fair market value of all non-cash items such as securities, notes or other property.
(d) Any amounts retained by the company for ultimate distribution to the owner, including any salaries, bonuses, deferred compensation, liquidation proceeds, or other amounts (in excess of the owner’s historic salary) received, retained or withdrawn by or for the benefit of the owner (including profits generated prior to closing) from and after the date of execution of this Listing Contract.
(e) The amount of any liabilities assumed by a purchaser (except for unsecured liabilities shown on the company’s financial statement or unsecured liabilities which arise hereafter in the ordinary course of the company’s business; i.e., any secured debt assumed by a purchaser shall be part of the sale price.
Monday, December 19, 2011
What is the Value of Your Business? It All Depends.
Why do most business owners want to know about the value of their business? This question is not intended to be flip, but it is one that needs to be answered. Of course, there is the curiosity factor, but there is usually something behind that wanting-to-know. Does an owner need to know for estate purposes? Does the bank want to know for lending purposes? Is the owner entertaining bringing in a partner or partners? Is he or she thinking of selling? Is a divorce or partnership dispute occurring? Is it for a buy-sell agreement? There are many reasons why knowing the value of the business is important.
The reason for the valuation is critical. For example, in a divorce or partnership breakup, each side has a vested interest in the value of the business. If the husband is the owner, he wants as low a value as possible, while his spouse wants the highest value. The departing partner wants as high a price as possible. If an owner is selling half of his business to a partner, he or she would want as a high a value as possible. In the case of a business loan, a lender values the business based on what he could sell and thus recapture the amount of the loan. This may be just the amount of the hard assets, namely fixtures and equipment, receivables, real estate, or other similar assets.
In almost all cases, with the possible exception of the loan value, the applicable value definition would be Fair Market Value. It is normally defined as: “The price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.” This definition is used by most courts.
It is interesting that the most common definition of value begins with the phrase “The price…” Most business owners, when using the term “value,” really mean price. “How much can I get for it if I decide to sell?” If there are legal issues, a valuation is most likely needed. In most cases, however, what the owner is looking for is a price. Unfortunately, until the business sells there really isn’t a price.
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The reason for the valuation is critical. For example, in a divorce or partnership breakup, each side has a vested interest in the value of the business. If the husband is the owner, he wants as low a value as possible, while his spouse wants the highest value. The departing partner wants as high a price as possible. If an owner is selling half of his business to a partner, he or she would want as a high a value as possible. In the case of a business loan, a lender values the business based on what he could sell and thus recapture the amount of the loan. This may be just the amount of the hard assets, namely fixtures and equipment, receivables, real estate, or other similar assets.
In almost all cases, with the possible exception of the loan value, the applicable value definition would be Fair Market Value. It is normally defined as: “The price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.” This definition is used by most courts.
It is interesting that the most common definition of value begins with the phrase “The price…” Most business owners, when using the term “value,” really mean price. “How much can I get for it if I decide to sell?” If there are legal issues, a valuation is most likely needed. In most cases, however, what the owner is looking for is a price. Unfortunately, until the business sells there really isn’t a price.
Click "HERE" to view the entire article.
Thursday, December 15, 2011
Price and Value: Any Difference?
The question most often asked by those considering placing their businesses for sale is: “What is my business worth?” The question that should be asked is: “How much can I get for my business?” Worth and value are words that in many cases are interchangeable. Leading business appraiser Shannon Pratt, in his book Business Valuation Body of Knowledge, states that “Price is the face value at which a specific transaction occurred. It may have been arrived at arbitrarily, by negotiation, by contract, by court order, or by some other means. It may or may not comport to any definition of value discussed herein.”
“Fair Market Value” is a term that sounds tailor-made for a business owner who wants to know what his or her business might sell for. The U.S.Treasury Department offers this definition of Fair Market Value: “The price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.” This might work in theory, but not in the real world. The word “negotiation” is not used, so arriving at this Fair Market Value is assumed to just happen. The sale of a business simply doesn’t work that way.
The price that a business may sell for is generally far removed from its value. Value tends to be an exact price for a specific date and must be able to be defended by the appraiser. There are many different types of value, based on the purpose of the valuation and/or the reason behind the decision to sell: divorce, insurance purposes, bank loan, partnership issues, buy-sell agreements, tax concerns, ESOPs – the list is lengthy. In many cases, each reason may result in a different valuation.
When a seller asks what he or she might receive for their business, there is no right answer. It depends, for one thing, how badly the seller wants to sell. Regardless of who places a price on the business, it will be the marketplace that ultimately determines the price. The seller may not agree with this, but he or she will have to accept it or face the fact that the business most likely will not sell, regardless of asking price or perceived value. It all boils down to a buyer’s perceived value of the business.
Professional business brokers know the marketplace, what businesses are selling for, what buyers are really looking for, why they may be buying, and most importantly how to deal with perception of value.
“Fair Market Value” is a term that sounds tailor-made for a business owner who wants to know what his or her business might sell for. The U.S.Treasury Department offers this definition of Fair Market Value: “The price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.” This might work in theory, but not in the real world. The word “negotiation” is not used, so arriving at this Fair Market Value is assumed to just happen. The sale of a business simply doesn’t work that way.
The price that a business may sell for is generally far removed from its value. Value tends to be an exact price for a specific date and must be able to be defended by the appraiser. There are many different types of value, based on the purpose of the valuation and/or the reason behind the decision to sell: divorce, insurance purposes, bank loan, partnership issues, buy-sell agreements, tax concerns, ESOPs – the list is lengthy. In many cases, each reason may result in a different valuation.
When a seller asks what he or she might receive for their business, there is no right answer. It depends, for one thing, how badly the seller wants to sell. Regardless of who places a price on the business, it will be the marketplace that ultimately determines the price. The seller may not agree with this, but he or she will have to accept it or face the fact that the business most likely will not sell, regardless of asking price or perceived value. It all boils down to a buyer’s perceived value of the business.
Professional business brokers know the marketplace, what businesses are selling for, what buyers are really looking for, why they may be buying, and most importantly how to deal with perception of value.
Wednesday, December 14, 2011
Wednesday, November 30, 2011
Difficulties in Pricing Businesses
One of the major problems in pricing businesses, especially small ones, is the record-keeping of the owner. Most owners are “chief cook and bottle-washer.” Maintaining the financial records is not necessarily high on his or her list. In many cases, the bills and receipts are tossed in an envelope and periodically dumped on a bookkeeper’s or accountant’s desk. From these documents, along with computer (or cash register) print-outs of sales, the accountant prepares tax returns, and, in some cases, monthly or quarterly income statements. The rub in all this is that the accountant can work with only what the seller provides. Small business owners are usually so busy running the day-to-day operations that they fail to spend the necessary time on the financial affairs of their business.
The sale of a business is usually “event driven.” In other words, there is generally a specific event that forces, or, at least, pushes an owner into selling. Very few business owners actually sit down to consider selling and all that it entails. The event occurs; the seller calls his local business broker and announces that he or she now needs to sell. They want to know what it will sell for. The business broker says that before a price can be suggested, he or she will need to see the financial records. The seller scurries to his accountant and says that he needs his current profit and loss statements and the last three years’ tax returns. The accountant promptly faints! When she wakes up, she tells the client that it will take a lot of time to go through the bag of receipts and bills.
When the financials are finally prepared or the tax returns given to the business broker, one thing is readily seen – the financial records or tax returns reveal that the business has not made much money over the years. After all, tax returns are not prepared to show a business in its best light. Nobody, including the small business owner, wants to pay any more taxes than he or she has to. The focus shifts now that the decision to sell has been made.
Business brokers are very good at recasting or normalizing the financial statements or tax returns. They add back such items as depreciation, owner benefits, etc., and arrive at the “real cash flow” of the business. This number is used to arrive at a recommended or suggested selling price. For anyone selling a business, using the services of a business broker professional can make the difference between a successful sale and “giving away the store.”
The sale of a business is usually “event driven.” In other words, there is generally a specific event that forces, or, at least, pushes an owner into selling. Very few business owners actually sit down to consider selling and all that it entails. The event occurs; the seller calls his local business broker and announces that he or she now needs to sell. They want to know what it will sell for. The business broker says that before a price can be suggested, he or she will need to see the financial records. The seller scurries to his accountant and says that he needs his current profit and loss statements and the last three years’ tax returns. The accountant promptly faints! When she wakes up, she tells the client that it will take a lot of time to go through the bag of receipts and bills.
When the financials are finally prepared or the tax returns given to the business broker, one thing is readily seen – the financial records or tax returns reveal that the business has not made much money over the years. After all, tax returns are not prepared to show a business in its best light. Nobody, including the small business owner, wants to pay any more taxes than he or she has to. The focus shifts now that the decision to sell has been made.
Business brokers are very good at recasting or normalizing the financial statements or tax returns. They add back such items as depreciation, owner benefits, etc., and arrive at the “real cash flow” of the business. This number is used to arrive at a recommended or suggested selling price. For anyone selling a business, using the services of a business broker professional can make the difference between a successful sale and “giving away the store.”
Monday, November 28, 2011
Is the Business Sustainable?
One of the important issues in valuing a company is the sustainability of sales and income. It is a major issue in the due diligence process. It is also one of the most difficult to assess since many of the factors are so subjective. To bring things into focus, here are some of the factors that should be considered in looking at the sustainability of sales and profits:
■proprietary products and/or services
■market share
■customer concentration/broad distribution
■quality of financial systems
■depth of management
■seasonality/cyclicality
■current appraisals on equipment & real estate
A few of the questions a buyer may be trying to answer are:
■Is the company’s market position weaker than purported?
■Is the competition weaker or stronger than represented?
■Is the market struggling or growing?
■How does the company “benchmark” against the competition?
The analysis of the above factors and questions are a necessary part of not only the valuation process, but also the areas that a prospective buyer would investigate.
■proprietary products and/or services
■market share
■customer concentration/broad distribution
■quality of financial systems
■depth of management
■seasonality/cyclicality
■current appraisals on equipment & real estate
A few of the questions a buyer may be trying to answer are:
■Is the company’s market position weaker than purported?
■Is the competition weaker or stronger than represented?
■Is the market struggling or growing?
■How does the company “benchmark” against the competition?
The analysis of the above factors and questions are a necessary part of not only the valuation process, but also the areas that a prospective buyer would investigate.
Wednesday, November 23, 2011
How Do Valuation Experts Look at Your Company?
Providing a business valuation is more than just analyzing financial statements and records. Although the process is complex, the first step is to gather the necessary information. Business owners can make this a lot easier by maintaining good records on an ongoing basis. Although audited statements are certainly preferable, most appraisers and business intermediaries are accustomed to working with the company’s own financial records. Company officials should understand that the people doing the valuation are not charged with verifying the figures but can only work with what is provided to them. Here are some of the areas that are assessed by those doing the valuation:
■The quality of earnings and the sustainability of the earnings come at the top of the list.
■The balance sheet can often show how well management is doing -- for example, by looking at inventory turns and whether there is excess inventory, etc.
■Many figures can be compared to industry data to see how well the company is performing compared to its peers.
■Part of the valuation process is to review the company’s past, present, and especially its future.
■The valuation process, if done correctly with management’s involvement, can show how well the company is performing with like businesses, and specifically how it can improve and add value.
■Professional business appraisers know how to properly recast the financial statement and then apply the proper method to arrive at an appropriate value.
■Business intermediaries, who do valuation work, are especially in tune with market values and conditions.
■Finally, value is not just based on the financial condition of the company. Such factors as those listed below all have a place in the valuation process. •Market share
•Products and or services—are they proprietary?
•Customer concentration and distribution geographically
•Management, their experience, their depth and their ages
•Intellectual property such as brand name, patents, etc.
•Management non-competes, employment agreements
•Dependence on a few customers, seasonality, etc.
A proper valuation, if done on a regular basis, can show any increase/decrease in value. A valuation should also be performed when considering selling.
■The quality of earnings and the sustainability of the earnings come at the top of the list.
■The balance sheet can often show how well management is doing -- for example, by looking at inventory turns and whether there is excess inventory, etc.
■Many figures can be compared to industry data to see how well the company is performing compared to its peers.
■Part of the valuation process is to review the company’s past, present, and especially its future.
■The valuation process, if done correctly with management’s involvement, can show how well the company is performing with like businesses, and specifically how it can improve and add value.
■Professional business appraisers know how to properly recast the financial statement and then apply the proper method to arrive at an appropriate value.
■Business intermediaries, who do valuation work, are especially in tune with market values and conditions.
■Finally, value is not just based on the financial condition of the company. Such factors as those listed below all have a place in the valuation process. •Market share
•Products and or services—are they proprietary?
•Customer concentration and distribution geographically
•Management, their experience, their depth and their ages
•Intellectual property such as brand name, patents, etc.
•Management non-competes, employment agreements
•Dependence on a few customers, seasonality, etc.
A proper valuation, if done on a regular basis, can show any increase/decrease in value. A valuation should also be performed when considering selling.
Monday, November 21, 2011
A Different Look at Valuing Your Company
Is there pricing elasticity?
What's proprietary?
What's the company's competitive advantage?
Status of employment agreements and non-competes?
Post-Acquisition:
Are there cost savings after purchase?
Are there significant capital expenditures pending?
Is there synergy with the seller?
Is it perceived the integration will go smoothly?
Are there substantial cross-selling possibilities?
Will the cultures blend?
The Financials: By training and education, many business appraisers emphasize the numbers. They will look at the past, current and future numbers. They will consider all the basic financial figures such as:
• growth rate
• return on investment
• gross profit percentage
• EBITDA percentage
• industry metrics
• debt to net worth
• book value
Fundamentals: Business appraisers should also consider the company’s history, its management, products, distribution, etc. The following should also be seriously considered: multi-products, different markets, wide distribution and the quality of management.
Value Drivers: These are important business elements that are most often ignored or completely overlooked by business appraisers. However, they are very important to a potential buyer.
• product differentiation
• defensible position
• technology
• dominant market share
• well-known brand(s)
• cost advantage
• proprietary customer
What's proprietary?
What's the company's competitive advantage?
Status of employment agreements and non-competes?
Post-Acquisition:
Are there cost savings after purchase?
Are there significant capital expenditures pending?
Is there synergy with the seller?
Is it perceived the integration will go smoothly?
Are there substantial cross-selling possibilities?
Will the cultures blend?
The Financials: By training and education, many business appraisers emphasize the numbers. They will look at the past, current and future numbers. They will consider all the basic financial figures such as:
• growth rate
• return on investment
• gross profit percentage
• EBITDA percentage
• industry metrics
• debt to net worth
• book value
Fundamentals: Business appraisers should also consider the company’s history, its management, products, distribution, etc. The following should also be seriously considered: multi-products, different markets, wide distribution and the quality of management.
Value Drivers: These are important business elements that are most often ignored or completely overlooked by business appraisers. However, they are very important to a potential buyer.
• product differentiation
• defensible position
• technology
• dominant market share
• well-known brand(s)
• cost advantage
• proprietary customer
Wednesday, November 16, 2011
Seller Financing -- How a Broker Can Help
Another important factor relating to the asking price is the amount of cash involved in the sale. There is an old saying that the higher the full-price, the lower the down payment - and vice-versa. The sale of almost any business involves some seller financing. The smaller the down payment, the higher likelihood of a quick sale. No seller wants to take back his or her business because the buyer wasn't successful. On the other hand, a buyer wants to make sure that the business will not only pay for itself, but also provide sufficient income for his or her family's needs.
What it all boils down to is that the seller wants the buyer to be successful and the buyer wants to buy a successful business. With the amount of capital required in today's market to buy a business, sellers should feel optimistic that they are dealing with successful buyers.
A Valuable Service
Screening and qualifying buyer prospects is perhaps the business broker's most valuable service. Business brokerage industry statistics indicate that over 90 percent of buyer prospects who call on business-for-sale ads are unqualified for some reason. The successful business broker survives by mastering qualifying and screening techniques!
Maintaining Confidentiality
Confidentiality is always a major concern. Sellers feel that maintaining confidentiality is important in safeguarding the current business. They don't want the word to leak out to customers, suppliers, competitors - and especially the employees. This is an area where a business broker professional can be especially helpful. They use non-specific descriptions, screen and qualify buyers and require buyers to sign confidentiality agreements before showing businesses or providing specific information.
However, even under the best of circumstances, rumors can fly. There are basically two ways sellers can muffle the business-for-sale problem. The first is to explain that over the years there have been people who have inquired about whether the business might be for sale. These inquiries are unavoidable and they do happen.
The other way is to handle the matter directly and to explain that you have been considering retiring and now may be the right time. The employees, especially the key ones, should be told prior to putting the business on the market so they don't hear the rumors second-hand. They should be told that they are very important to the business's success and that a new owner would most likely be happy to retain them. When the sale is complete, they can be offered a bonus for helping in the process. Sellers should do whatever it takes to keep the employees from deserting the ship and keep them on deck to maintain business as usual. Once employees have been dealt with openly and fairly, they will understand that discretion will help protect their future.
The Future of the Business
Sellers may feel that they have built the platform for the future growth of the business. It is only natural for them to want to share in any extraordinary profits in what they feel they have helped create. Sometimes, if the price is low enough and it allows a buyer to purchase the business, he or she may be willing to provide some type of earn-out or royalty based on any substantial increase in sales. The professional business broker can offer advice on how to make this work for everyone. However, everyone has to agree that no one can predict the future. As mentioned earlier, the buyer is hoping to buy the future, but is not willing to pay for it.
What Buyers Think
Many buyers think that the business they buy should be able to pay for itself. They are wary of sellers who demand all cash. Is the seller really saying that the business can't support any debt, or is he or she saying that the business isn't any good and I want my cash out of it now, just in case?
What it all boils down to is that the seller wants the buyer to be successful and the buyer wants to buy a successful business. With the amount of capital required in today's market to buy a business, sellers should feel optimistic that they are dealing with successful buyers.
A Valuable Service
Screening and qualifying buyer prospects is perhaps the business broker's most valuable service. Business brokerage industry statistics indicate that over 90 percent of buyer prospects who call on business-for-sale ads are unqualified for some reason. The successful business broker survives by mastering qualifying and screening techniques!
Maintaining Confidentiality
Confidentiality is always a major concern. Sellers feel that maintaining confidentiality is important in safeguarding the current business. They don't want the word to leak out to customers, suppliers, competitors - and especially the employees. This is an area where a business broker professional can be especially helpful. They use non-specific descriptions, screen and qualify buyers and require buyers to sign confidentiality agreements before showing businesses or providing specific information.
However, even under the best of circumstances, rumors can fly. There are basically two ways sellers can muffle the business-for-sale problem. The first is to explain that over the years there have been people who have inquired about whether the business might be for sale. These inquiries are unavoidable and they do happen.
The other way is to handle the matter directly and to explain that you have been considering retiring and now may be the right time. The employees, especially the key ones, should be told prior to putting the business on the market so they don't hear the rumors second-hand. They should be told that they are very important to the business's success and that a new owner would most likely be happy to retain them. When the sale is complete, they can be offered a bonus for helping in the process. Sellers should do whatever it takes to keep the employees from deserting the ship and keep them on deck to maintain business as usual. Once employees have been dealt with openly and fairly, they will understand that discretion will help protect their future.
The Future of the Business
Sellers may feel that they have built the platform for the future growth of the business. It is only natural for them to want to share in any extraordinary profits in what they feel they have helped create. Sometimes, if the price is low enough and it allows a buyer to purchase the business, he or she may be willing to provide some type of earn-out or royalty based on any substantial increase in sales. The professional business broker can offer advice on how to make this work for everyone. However, everyone has to agree that no one can predict the future. As mentioned earlier, the buyer is hoping to buy the future, but is not willing to pay for it.
What Buyers Think
Many buyers think that the business they buy should be able to pay for itself. They are wary of sellers who demand all cash. Is the seller really saying that the business can't support any debt, or is he or she saying that the business isn't any good and I want my cash out of it now, just in case?
Monday, November 14, 2011
Increasing the Value of Your Business
Considering selling your business? Just want to increase the value of your business? Here are some areas to look at that can fairly quickly increase profits, which are, after all, a main building block in creating value.
• PRICING: Are the prices of the products or services set too low? Owners too often continue with the same prices year after year without revisiting their pricing structure.
• CUSTOMER SERVICE: Despite all of the above Elevating the quality or amount of customer service may not only increase business and support the higher prices suggested above, but also encourage customers to pay more promptly, increasing cash flow.
• EXPENSES: Owners should review what they pay for inventory, supplies, utilities, insurance, technology and any other expenses. Are you getting the lowest price possible? Are you taking advantage of all available discounts, etc.? It may pay to check pricing from other suppliers and vendors. Every saving increase profits and subsequently profits.
• INVENTORY: In some cases inventory levels may be higher than necessary. Retail operations want their stores to look “busy,” but they don’t need a basement or warehouse full of inventory. In today’s fast-moving economy, inventory can be supplied almost on demand – in most cases. This should be balanced by still taking advantage of special pricing on certain items or stockpiling hard-to-get inventory.
• OUTSOURCING: Some services, especially in today’s environment of the self-employed, can be outsourced. While replacing workers is not pleasant, and should only be done if substantial savings can be realized, outsourcing is often worth investigating.
• EMPLOYEES: Now may be the time to get rid of any disgruntled employees. Happy and contented employees make for a profitable business.
These are just a few areas to consider to help increase profits and, subsequently, increase value.
• PRICING: Are the prices of the products or services set too low? Owners too often continue with the same prices year after year without revisiting their pricing structure.
• CUSTOMER SERVICE: Despite all of the above Elevating the quality or amount of customer service may not only increase business and support the higher prices suggested above, but also encourage customers to pay more promptly, increasing cash flow.
• EXPENSES: Owners should review what they pay for inventory, supplies, utilities, insurance, technology and any other expenses. Are you getting the lowest price possible? Are you taking advantage of all available discounts, etc.? It may pay to check pricing from other suppliers and vendors. Every saving increase profits and subsequently profits.
• INVENTORY: In some cases inventory levels may be higher than necessary. Retail operations want their stores to look “busy,” but they don’t need a basement or warehouse full of inventory. In today’s fast-moving economy, inventory can be supplied almost on demand – in most cases. This should be balanced by still taking advantage of special pricing on certain items or stockpiling hard-to-get inventory.
• OUTSOURCING: Some services, especially in today’s environment of the self-employed, can be outsourced. While replacing workers is not pleasant, and should only be done if substantial savings can be realized, outsourcing is often worth investigating.
• EMPLOYEES: Now may be the time to get rid of any disgruntled employees. Happy and contented employees make for a profitable business.
These are just a few areas to consider to help increase profits and, subsequently, increase value.
Why Seller Financing?
Many business owners would like to receive all-cash for their business when selling. And yet they are often told that this is really not possible. Why? Most people are accustomed to financing just about everything - home, car, vacation home, even college for their children. The first question business brokers are often asked is, "How much money will I have to invest to buy that business?"
Seller financing is usually necessary because of the lack of outside financing available. Certainly, some is available, but less than 90 percent of small business sales receive outside financing when selling. If you are selling, you may be one of the few lucky ones, but the business better be absolutely perfect.
If a seller is not willing to finance the sale, many buyers suspect a problem. After all, a business should be able to pay for itself and provide a reasonable income for a buyer. A buyer then wants to know what is wrong with the business that the seller wants all cash?
Aside from this, even if a buyer has all of the necessary funds, he or she may want to spend their money on improving the business, adding equipment, building inventory, or just keep it for working capital.
Another similar issue that is raised by sellers is that, if they are willing to finance the sale, they want some outside collateral to secure the loan on their business. They want to make sure that they get all of their money - with no risk. Buyers are very sensitive about this issue. Again, they raise the point about the business being able to pay for itself. They may feel that the seller wants additional security because of concerns about the business's ability to generate a reasonable profit. This is not a reassuring signal to the buyer. Most buyers are already using most of their capital for the down payment, and they generally are very reluctant about using their home or retirement funds for additional collateral.
The services of a business broker professional can usually provide guidance in the overall financing process. And financing is often the key to the successful selling of a business.
Seller financing is usually necessary because of the lack of outside financing available. Certainly, some is available, but less than 90 percent of small business sales receive outside financing when selling. If you are selling, you may be one of the few lucky ones, but the business better be absolutely perfect.
If a seller is not willing to finance the sale, many buyers suspect a problem. After all, a business should be able to pay for itself and provide a reasonable income for a buyer. A buyer then wants to know what is wrong with the business that the seller wants all cash?
Aside from this, even if a buyer has all of the necessary funds, he or she may want to spend their money on improving the business, adding equipment, building inventory, or just keep it for working capital.
Another similar issue that is raised by sellers is that, if they are willing to finance the sale, they want some outside collateral to secure the loan on their business. They want to make sure that they get all of their money - with no risk. Buyers are very sensitive about this issue. Again, they raise the point about the business being able to pay for itself. They may feel that the seller wants additional security because of concerns about the business's ability to generate a reasonable profit. This is not a reassuring signal to the buyer. Most buyers are already using most of their capital for the down payment, and they generally are very reluctant about using their home or retirement funds for additional collateral.
The services of a business broker professional can usually provide guidance in the overall financing process. And financing is often the key to the successful selling of a business.
Friday, August 5, 2011
Debunking the Myths About SBA Loans .
The Small Business Administration has been a key player through the financial crisis. But many loan officers say small-business owners don't understand exactly how the agency's programs work—and that can hurt them when it comes time for a loan.
Here are some popular myths about the SBA, along with reality checks.
It's common to hear the SBA described as a "lender of last resort." In some ways, there's good reason for this: The agency's Office of Disaster Assistance speeds funds to borrowers in regions hammered by natural disasters, and it funds Community Development Financial Institutions that make loans to borrowers with higher-risk profiles.
But the SBA's bread and butter is facilitating loans to viable businesses. "Do businesses need to be distressed to participate in our programs? The answer is no," says Steve Smits, associate administrator for the agency's Office of Capital Access. In 2008, during the height of the financial crisis, the SBA facilitated loans to nearly 70,000 businesses—and Mr. Smits says most of them would normally have been eligible for conventional bank loans.
Borrowers often assume banks aren't taking any risks with SBA loans and don't understand why lenders would reject them. "Folks believe the funding for loans comes from the government, but it doesn't," says Erik Back, vice president at 1st Source Corp., a lender in South Bend, Ind.
Banks issue SBA loans according to government guidelines and receive some protection against losses if the borrower defaults. But "the guarantees are never 100%," Mr. Back says. Loans issued through the popular 7a program carry a guarantee between 75% and 85%, so the bank swallows up to 25% of any losses from the loan. By contrast, loans written through the SBA Express program—primarily for veterans and businesses in economically distressed areas—carry a 50% guarantee.
Click "HERE" to view entire article.
Here are some popular myths about the SBA, along with reality checks.
It's common to hear the SBA described as a "lender of last resort." In some ways, there's good reason for this: The agency's Office of Disaster Assistance speeds funds to borrowers in regions hammered by natural disasters, and it funds Community Development Financial Institutions that make loans to borrowers with higher-risk profiles.
But the SBA's bread and butter is facilitating loans to viable businesses. "Do businesses need to be distressed to participate in our programs? The answer is no," says Steve Smits, associate administrator for the agency's Office of Capital Access. In 2008, during the height of the financial crisis, the SBA facilitated loans to nearly 70,000 businesses—and Mr. Smits says most of them would normally have been eligible for conventional bank loans.
Borrowers often assume banks aren't taking any risks with SBA loans and don't understand why lenders would reject them. "Folks believe the funding for loans comes from the government, but it doesn't," says Erik Back, vice president at 1st Source Corp., a lender in South Bend, Ind.
Banks issue SBA loans according to government guidelines and receive some protection against losses if the borrower defaults. But "the guarantees are never 100%," Mr. Back says. Loans issued through the popular 7a program carry a guarantee between 75% and 85%, so the bank swallows up to 25% of any losses from the loan. By contrast, loans written through the SBA Express program—primarily for veterans and businesses in economically distressed areas—carry a 50% guarantee.
Click "HERE" to view entire article.
Tuesday, August 2, 2011
Sales of Small Firms Are Up
More small-business owners sold their companies in the second quarter, but there's gloom surrounding the transactions.
Sales of businesses with roughly $350,000 in annual revenue rose 8% from a year earlier, reports BizBuySell.com, an online marketplace for small-business acquisitions in San Francisco. The increase marks the third year-over-year quarterly gain in a row, with brokers nationwide reporting similar gains.
Yet the growth isn't indicative of significant improvements in business performance or bank-lending volume. Instead, the main driving force is the acceptance among owners that their businesses are no longer worth what they once were. Many sellers cut their asking prices and agreed to finance a significant portion of the deals themselves.
"Sellers are finally starting to come to grips with the fact that it's not 2007," says Stephen Wain, president of Calder Associates Inc., a brokerage in Tinton Falls, N.J. He adds that the firm has completed twice as many deals so far this year as it had in the first half of last year.
According to BizBuySell.com, owners listed a median asking price of $239,000 in the second quarter, down from $249,000 a year earlier. For businesses sold in the quarter, the median selling price was $150,000, down from $155,000.
"People are getting more realistic," agrees A.J. Caro, chief executive officer of Bridge Business & Property Brokers Inc., a national brokerage based in Long Island, N.Y. Small-business sales are up 35% from a year ago, he says, and he is looking to add about 10 more brokers to his current staff of 25.
Some sellers have simply reached their breaking point. "People can only sit on the sidelines for so long," says Robert Bourgeois, chief executive of Sunbelt of Louisiana. The brokerage franchise has sold 21 small businesses throughout the Bayou State so far this year, nearly as many as in all of 2010.
Click "HERE" to view entire article.
Sales of businesses with roughly $350,000 in annual revenue rose 8% from a year earlier, reports BizBuySell.com, an online marketplace for small-business acquisitions in San Francisco. The increase marks the third year-over-year quarterly gain in a row, with brokers nationwide reporting similar gains.
Yet the growth isn't indicative of significant improvements in business performance or bank-lending volume. Instead, the main driving force is the acceptance among owners that their businesses are no longer worth what they once were. Many sellers cut their asking prices and agreed to finance a significant portion of the deals themselves.
"Sellers are finally starting to come to grips with the fact that it's not 2007," says Stephen Wain, president of Calder Associates Inc., a brokerage in Tinton Falls, N.J. He adds that the firm has completed twice as many deals so far this year as it had in the first half of last year.
According to BizBuySell.com, owners listed a median asking price of $239,000 in the second quarter, down from $249,000 a year earlier. For businesses sold in the quarter, the median selling price was $150,000, down from $155,000.
"People are getting more realistic," agrees A.J. Caro, chief executive officer of Bridge Business & Property Brokers Inc., a national brokerage based in Long Island, N.Y. Small-business sales are up 35% from a year ago, he says, and he is looking to add about 10 more brokers to his current staff of 25.
Some sellers have simply reached their breaking point. "People can only sit on the sidelines for so long," says Robert Bourgeois, chief executive of Sunbelt of Louisiana. The brokerage franchise has sold 21 small businesses throughout the Bayou State so far this year, nearly as many as in all of 2010.
Click "HERE" to view entire article.
Friday, July 29, 2011
Financing the Business Sale -- Some Questions to Answer!
Structuring the purchase of a business is an issue that should be faced early in the selling decision. Ultimately, the final structure of the sale will be determined by actual negotiations between buyer and seller, but the seller must still answer the following questions:
What is the lowest amount of cash acceptable from the sale?
Has consideration been given to paying off all unsecured creditors and a portion of the closing costs? (Both are, in most cases, the seller's responsibility.)
Is there any long-term or secured debt that can be assumed by the buyer? (This may make more cash available to the seller.)
What is an acceptable interest rate for the seller-financed sale?
Will the business be able to service the debt and still provide a return acceptable to a buyer in relation to the down payment required? (This is a particularly important question for the seller to address.)
What are the tax consequences of the sale?
Recent studies indicate that the more favorable the terms, the higher the price. In fact, one study found that offering favorable terms might increase the total selling price by 30 percent. A business broker professional can advise you on the all-important issue of seller financing.
The professional business broker is a good source for assistance in structuring the sale of a business. Although they are not able to provide legal advice, business brokers are the experts of preference when the arena is the business marketplace. Brokers will use their knowledge of previous sales, current market conditions, and outside financing strategies, if applicable or available.
A business generally represents a seller's largest financial asset. How the sale is structured may mean the difference between the success or failure of the transaction. The best sale structuring will result in the best deal possible for both buyer and seller. A business broker can be the key player in accomplishing this goal.
What is the lowest amount of cash acceptable from the sale?
Has consideration been given to paying off all unsecured creditors and a portion of the closing costs? (Both are, in most cases, the seller's responsibility.)
Is there any long-term or secured debt that can be assumed by the buyer? (This may make more cash available to the seller.)
What is an acceptable interest rate for the seller-financed sale?
Will the business be able to service the debt and still provide a return acceptable to a buyer in relation to the down payment required? (This is a particularly important question for the seller to address.)
What are the tax consequences of the sale?
Recent studies indicate that the more favorable the terms, the higher the price. In fact, one study found that offering favorable terms might increase the total selling price by 30 percent. A business broker professional can advise you on the all-important issue of seller financing.
The professional business broker is a good source for assistance in structuring the sale of a business. Although they are not able to provide legal advice, business brokers are the experts of preference when the arena is the business marketplace. Brokers will use their knowledge of previous sales, current market conditions, and outside financing strategies, if applicable or available.
A business generally represents a seller's largest financial asset. How the sale is structured may mean the difference between the success or failure of the transaction. The best sale structuring will result in the best deal possible for both buyer and seller. A business broker can be the key player in accomplishing this goal.
Tuesday, July 26, 2011
10 Ways to Increase Sales During Slow Economic Times
1. Your personal passion and leadership are the key to success. If you have a "Brand" that is well known, hype it at every occasion and show that you believe in the business and the consumer of your products. You will soon find that this passion will flow through your employees and down to your consumer as well and will become infectious throughout your organization.
2. If you do not have a "Brand" that you can associate with, let your creativity loose and ask each customer what you can do for them that will keep them coming back. Don’t be shy. Consumers like to be asked.
3. Go against "conventional wisdom" to "penny pinch" and find a few dollars here and there to spend and grow your market share. It is a proven fact that businesses that increased marketing investments during a recession grew market share, increased margins and had better long-term growth trends than their competition. It may be a simple as hand written "mark-down" signs, old inventory clearance, or call your supplier for over-stock deals, etc…. Use your imagination.
4. Find ways to trust your consumer as to what they really want. If it is within your capability to do so, offer them what that want in a short term exercise. Give them what they need to be true believers and loyal to you from this date forward.
5. Find new ways to communicate to your consumers. K-Mart did it with the "Blue Light" Special. Walmart does it today with Senior "Greeters". One may think that just being there to assist is enough, but it isn’t. Try reaching your customer base by any means that you have available, ie,…. Sales Slips, Warranty Cards, Returns, etc. Creatively deliver the same message across all platforms of communications and you will be able to quickly gauge the success of each communication.
6. Be sure to be a good accountant of your efforts and measure everything that you can. If you are not disciplined in these processes, you will become quickly frustrated and unsuccessful. Review all of your processes each week for gains and "no-gains". Adjust accordingly.
7. Do not forget to invest in your employees. You know them better than anyone and will have ideas as to how to build their skills, knowledge and ability to handle more than they do today. A weekend outing to discuss how you can grow your business with your employees may bring you surprises that even you did not consider.
8. Trust your consumers. They are your ultimate "brand consultants" in forming strategy, developing breakthrough creative and expanding media platforms. Consumer insights and experimentation can produce breakthrough ideas.
9. Strengthen your Supply Chains by "asking" … What is moving? What are others doing ? What is the best price break? Aggressive marketing with your supply chain often results in pursuing efficiencies and productivity that you never thought of. Next, watch your "cash flow" to take advantage of those easy deals and watch the dollars flow.
10. Do the right thing for your Customer. Your consumers will notice and reward you for giving back.
2. If you do not have a "Brand" that you can associate with, let your creativity loose and ask each customer what you can do for them that will keep them coming back. Don’t be shy. Consumers like to be asked.
3. Go against "conventional wisdom" to "penny pinch" and find a few dollars here and there to spend and grow your market share. It is a proven fact that businesses that increased marketing investments during a recession grew market share, increased margins and had better long-term growth trends than their competition. It may be a simple as hand written "mark-down" signs, old inventory clearance, or call your supplier for over-stock deals, etc…. Use your imagination.
4. Find ways to trust your consumer as to what they really want. If it is within your capability to do so, offer them what that want in a short term exercise. Give them what they need to be true believers and loyal to you from this date forward.
5. Find new ways to communicate to your consumers. K-Mart did it with the "Blue Light" Special. Walmart does it today with Senior "Greeters". One may think that just being there to assist is enough, but it isn’t. Try reaching your customer base by any means that you have available, ie,…. Sales Slips, Warranty Cards, Returns, etc. Creatively deliver the same message across all platforms of communications and you will be able to quickly gauge the success of each communication.
6. Be sure to be a good accountant of your efforts and measure everything that you can. If you are not disciplined in these processes, you will become quickly frustrated and unsuccessful. Review all of your processes each week for gains and "no-gains". Adjust accordingly.
7. Do not forget to invest in your employees. You know them better than anyone and will have ideas as to how to build their skills, knowledge and ability to handle more than they do today. A weekend outing to discuss how you can grow your business with your employees may bring you surprises that even you did not consider.
8. Trust your consumers. They are your ultimate "brand consultants" in forming strategy, developing breakthrough creative and expanding media platforms. Consumer insights and experimentation can produce breakthrough ideas.
9. Strengthen your Supply Chains by "asking" … What is moving? What are others doing ? What is the best price break? Aggressive marketing with your supply chain often results in pursuing efficiencies and productivity that you never thought of. Next, watch your "cash flow" to take advantage of those easy deals and watch the dollars flow.
10. Do the right thing for your Customer. Your consumers will notice and reward you for giving back.
Friday, July 22, 2011
Financing the Business Purchase
Where can buyers turn for help with what is likely to be the largest single investment of their lives? For most small to mid-sized business acquisitions, here are the best ways to go:
Personal Equity
Typically, anywhere from 20 to 50 percent of cash needed to buy a business comes from the buyer and his or her family. Buyers who invest their own capital (usually an amount between $50,000 and $150,000) are positively influencing other investors or lenders to participate in financing.
Seller Financing
This is one of the simplest and best ways to finance the acquisition, with sellers financing 50 to 60 percent--or more--of the selling price, with an interest rate below current bank rates, and with a far longer amortization. Many sellers actively prefer to do the financing themselves, thereby increasing the chances for a successful sale and the best possible price.
Venture Capital
Venture capitalists are becoming increasingly interested in established, existing entities, although this type of financing is usually supplied only to larger businesses or startups with top management and a good upside potential. They will likely want majority control, will want to cash out in three to five years, and will expect to make at least 30 percent annual rate of return on their investment.
Small Business Administration
Similar to the terms of typical seller financing, SBA loans have long amortization periods. The buyer must provide strong proof of stability--and, if necessary, personal collateral, but SBA loans are becoming more popular and more "user friendly."
Lending Institutions
Those seeking bank loans will have more success if they have a large net worth, liquid assets, or a reliable source of income. Although the terms are often attractive, the rate of rejection by banks for business acquisition loans can go higher than 80 percent.
Source of Small Business Financing (figures are approximate)
Commercial bank loans 37%
Earnings of business 27%
Credit cards 25%
Private loans 21%
Vendor credit 15%
Personal bank loans 13%
Leasing 10%
SBA-guaranteed loans 3%
Private stock 0.5%
Other 5%
Personal Equity
Typically, anywhere from 20 to 50 percent of cash needed to buy a business comes from the buyer and his or her family. Buyers who invest their own capital (usually an amount between $50,000 and $150,000) are positively influencing other investors or lenders to participate in financing.
Seller Financing
This is one of the simplest and best ways to finance the acquisition, with sellers financing 50 to 60 percent--or more--of the selling price, with an interest rate below current bank rates, and with a far longer amortization. Many sellers actively prefer to do the financing themselves, thereby increasing the chances for a successful sale and the best possible price.
Venture Capital
Venture capitalists are becoming increasingly interested in established, existing entities, although this type of financing is usually supplied only to larger businesses or startups with top management and a good upside potential. They will likely want majority control, will want to cash out in three to five years, and will expect to make at least 30 percent annual rate of return on their investment.
Small Business Administration
Similar to the terms of typical seller financing, SBA loans have long amortization periods. The buyer must provide strong proof of stability--and, if necessary, personal collateral, but SBA loans are becoming more popular and more "user friendly."
Lending Institutions
Those seeking bank loans will have more success if they have a large net worth, liquid assets, or a reliable source of income. Although the terms are often attractive, the rate of rejection by banks for business acquisition loans can go higher than 80 percent.
Source of Small Business Financing (figures are approximate)
Commercial bank loans 37%
Earnings of business 27%
Credit cards 25%
Private loans 21%
Vendor credit 15%
Personal bank loans 13%
Leasing 10%
SBA-guaranteed loans 3%
Private stock 0.5%
Other 5%
Tuesday, July 19, 2011
Financing the Business Acquisition
The epidemic of corporate downsizing in the US has made owning a business a more attractive proposition than ever before. As increasing numbers of prospective buyers embark on the process of becoming independent business owners, many of them voice a common concern: how do I finance the acquisition?
Prospective buyers are aware that the credit crunch prevents the traditional lending institution from being the likely solution to their needs. Where then, can buyers turn for help with what is likely to be the largest single investment of their lives? There are a variety of financing sources, and buyers will find one that fills their particular requirements. (Small businesses - those priced under $100,000 to $150,000 - will usually depend on seller financing as the chief source.) For many businesses, here are the best routes to follow:
Buyer's Personal Equity
In most business acquisition situations, this is the place to begin. Typically, anywhere from 20 to 50 percent of cash needed to purchase a business comes from the buyer and his or her family. Buyers should decide how much capital they are able to risk, and the actual amount will vary, of course, depending on the specific business and the terms of the sale. But, on average, a buyer should be prepared to come up with something between $50,000 to $150,000 for the purchase of a small business.
The dream of buying a business by means of a highly-leveraged transaction (one requiring minimum cash) must remain a dream and not a reality for most buyers. The exceptions are those buyers who have special talents or skills sought after by investors, those whose business will directly benefit jobs that are of local public interest, or those whose businesses are expected to make unusually large profits.
One of the major reasons personal equity financing is a good starting point is that buyers who invest their own capital start the ball rolling - they are positively influencing other possible investors or lenders to participate.
Click "HERE" to view entire article.
Prospective buyers are aware that the credit crunch prevents the traditional lending institution from being the likely solution to their needs. Where then, can buyers turn for help with what is likely to be the largest single investment of their lives? There are a variety of financing sources, and buyers will find one that fills their particular requirements. (Small businesses - those priced under $100,000 to $150,000 - will usually depend on seller financing as the chief source.) For many businesses, here are the best routes to follow:
Buyer's Personal Equity
In most business acquisition situations, this is the place to begin. Typically, anywhere from 20 to 50 percent of cash needed to purchase a business comes from the buyer and his or her family. Buyers should decide how much capital they are able to risk, and the actual amount will vary, of course, depending on the specific business and the terms of the sale. But, on average, a buyer should be prepared to come up with something between $50,000 to $150,000 for the purchase of a small business.
The dream of buying a business by means of a highly-leveraged transaction (one requiring minimum cash) must remain a dream and not a reality for most buyers. The exceptions are those buyers who have special talents or skills sought after by investors, those whose business will directly benefit jobs that are of local public interest, or those whose businesses are expected to make unusually large profits.
One of the major reasons personal equity financing is a good starting point is that buyers who invest their own capital start the ball rolling - they are positively influencing other possible investors or lenders to participate.
Click "HERE" to view entire article.
Thursday, July 14, 2011
12 Ways to Increase the Value of Your Company
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 type business, an IT director. It is also beneficial to create a Board of Directors with at least two outside members. This professionalizing 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.
Click "HERE" to view entire article.
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.
Click "HERE" to view entire article.
Monday, July 11, 2011
The Value of a Business: Get to the Heart of the Matter
What is the value of your business? There are many ways to approach that question -- based on complex formulas or just a good hard look at the balance sheet, but no answer based purely on numbers is going to be exactly right. Even factoring in that most popular of abstracts -- goodwill -- the true essence of an operation is not likely to be revealed.
To find the real value of a business, we must go to its very heart: the attitude, work habits, managerial style, customer/marketplace savvy, and community reputation of the person in charge. The business owner or manager is the final, and most cogent, indicator of business worth. Check out the following healthy signs, and then listen to the heartbeat of your own business and its leadership style:
Optimistic Attitude
Many business owners today are more pragmatic and take pride in being less of an "incurable optimist." The owner of yesterday wasn't afraid to follow the words of Willy Loman in Death of a Salesman: "A salesman has got to dream, boy. It comes with the territory." A decline in optimism is an unfortunate trend. In a world driven by technology and scientific analysis, it's easy to forget the importance of the right attitude. If business owners aren't positive, how can they expect customers and employers to be? The owner who believes business is bad will probably not see it getting any better. Of course, there are always the real-life factors -- banks that won't lend, customers who stop buying, services that become obsolete. However, if these problems didn't exist, there would be something else to keep the negative thinkers occupied.
How to project a positive attitude? Begin with the easiest. Sprucing up the place of business with fresh paint, newly-cleaned carpeting, well-stocked shelves, for example, will say a lot for the health of a company. Less visible, but highly important, is a positive outlook on the future of the business. Business owners should be prepared to spend what it takes to generate new business, and should take the time to explore new possibilities for long-range success. If the company currently has no mission statement or business plan, creating one will speak volumes abut owner's enthusiasm for the future of the operation.
Click "HERE" to view entire article.
To find the real value of a business, we must go to its very heart: the attitude, work habits, managerial style, customer/marketplace savvy, and community reputation of the person in charge. The business owner or manager is the final, and most cogent, indicator of business worth. Check out the following healthy signs, and then listen to the heartbeat of your own business and its leadership style:
Optimistic Attitude
Many business owners today are more pragmatic and take pride in being less of an "incurable optimist." The owner of yesterday wasn't afraid to follow the words of Willy Loman in Death of a Salesman: "A salesman has got to dream, boy. It comes with the territory." A decline in optimism is an unfortunate trend. In a world driven by technology and scientific analysis, it's easy to forget the importance of the right attitude. If business owners aren't positive, how can they expect customers and employers to be? The owner who believes business is bad will probably not see it getting any better. Of course, there are always the real-life factors -- banks that won't lend, customers who stop buying, services that become obsolete. However, if these problems didn't exist, there would be something else to keep the negative thinkers occupied.
How to project a positive attitude? Begin with the easiest. Sprucing up the place of business with fresh paint, newly-cleaned carpeting, well-stocked shelves, for example, will say a lot for the health of a company. Less visible, but highly important, is a positive outlook on the future of the business. Business owners should be prepared to spend what it takes to generate new business, and should take the time to explore new possibilities for long-range success. If the company currently has no mission statement or business plan, creating one will speak volumes abut owner's enthusiasm for the future of the operation.
Click "HERE" to view entire article.
Thursday, July 7, 2011
Venture Financing: The Hard Facts
Government financing and venture capital financing account for less than one percent of all new business financing. Sixty-seven percent of all small to mid-sized businesses are financed by personal savings or friends; thirty-three percent are financed by lending institutions. The facts about venture capital financing are especially cold and hard...
Venture capital is limited to high-growth potential, high capital-absorbing businesses.
Venture capital benefits as few as 1000 businesses a year, and then...
The average investment is $2.3 million, divided between 3-4 venture capital funds, which take 40-50-60 percent or more of the business's equity.
Venture capital investors expect the business to grow to $25-50 million within 5 years--at which time the business will go public or be sold.
Venture capital is limited to high-growth potential, high capital-absorbing businesses.
Venture capital benefits as few as 1000 businesses a year, and then...
The average investment is $2.3 million, divided between 3-4 venture capital funds, which take 40-50-60 percent or more of the business's equity.
Venture capital investors expect the business to grow to $25-50 million within 5 years--at which time the business will go public or be sold.
Monday, June 6, 2011
Who Is Today's Buyer?
It has always been the American Dream to be independent and in control of one’s own destiny. Owning your own business is the best way to meet that goal. Many people dream about owning their own business, but when it gets right down to it, they just can’t make that leap of faith that is necessary to actually own one’s own business. Business brokers know from their experience that out of fifteen or so people who inquire about buying a business, only one will become an owner of a business.
Today’s buyer is most likely from the corporate world and well-educated, but not experienced in the business-buying process. These buyers are very number-conscious and detail-oriented. They require supporting documents for almost everything and will either use outside advisors or will do the verification themselves, but verify they will. A person who is realistic and understands that he or she can’t buy a business with a profit of millions for $10 down is probably serious. They must be able to make decisions and not depend on outside parties to do it for them. They must also have the financial resources available, have an open mind, and understand that owning one’s own business means being the proverbial chief cook and bottle washer.
Today’s buyers are usually what might be termed “event” driven. This means that the desire to own their own business is coupled with a need or reason. Maybe they have been downsized out of a job, they don’t want to be transferred, they travel too much, they see no future in their current position, etc. Many people have the desire, but not the reason. Most people don’t have the courage to quit a job and the paycheck to venture out on their own.
There are the perennial lookers. Those people who dream about owning their own business, are constantly looking, but will never leave the job to fulfill the dream. In fact, perspective business buyers who have been looking for over six months would probably fit into this category.
Business brokers spend a lot of time interviewing buyers. Here are just a few of the questions they will ask. The answers they receive will determine whether or not the prospective buyer is serious and qualified.
Click "HERE" to view entire article.
Today’s buyer is most likely from the corporate world and well-educated, but not experienced in the business-buying process. These buyers are very number-conscious and detail-oriented. They require supporting documents for almost everything and will either use outside advisors or will do the verification themselves, but verify they will. A person who is realistic and understands that he or she can’t buy a business with a profit of millions for $10 down is probably serious. They must be able to make decisions and not depend on outside parties to do it for them. They must also have the financial resources available, have an open mind, and understand that owning one’s own business means being the proverbial chief cook and bottle washer.
Today’s buyers are usually what might be termed “event” driven. This means that the desire to own their own business is coupled with a need or reason. Maybe they have been downsized out of a job, they don’t want to be transferred, they travel too much, they see no future in their current position, etc. Many people have the desire, but not the reason. Most people don’t have the courage to quit a job and the paycheck to venture out on their own.
There are the perennial lookers. Those people who dream about owning their own business, are constantly looking, but will never leave the job to fulfill the dream. In fact, perspective business buyers who have been looking for over six months would probably fit into this category.
Business brokers spend a lot of time interviewing buyers. Here are just a few of the questions they will ask. The answers they receive will determine whether or not the prospective buyer is serious and qualified.
Click "HERE" to view entire article.
Friday, June 3, 2011
Why Deals Fall Apart -- Loss of Momentum
Deals fall apart for many reasons – some reasonable, others unreasonable.
For example:
• The seller doesn’t have all his financials up to date.
• The seller doesn’t have his legal/environmental/administrative affairs up to date.
• The buyer can’t come up with the necessary financing.
• The well known “surprise” surfaces causing the deal to fall apart.
Click "HERE" to view entire article.
For example:
• The seller doesn’t have all his financials up to date.
• The seller doesn’t have his legal/environmental/administrative affairs up to date.
• The buyer can’t come up with the necessary financing.
• The well known “surprise” surfaces causing the deal to fall apart.
Click "HERE" to view entire article.
Tuesday, May 31, 2011
Ownership Transition -- Survey Results
Mass Mutual Life Insurance Company provided the following survey results based on family-owned businesses. Although the survey was conducted several years ago, the results are still quite revealing, and still applicable.
• Four out of five companies are still controlled by the founders.
• 30% of family-owned companies will change leadership within the next five years.
• 55% of companies fail to conduct regular valuations of the company.
• 55% of CEOs who are 61 or older have not chosen a successor.
• 13% of CEOs will never retire.
• 90% of businesses will continue as family owned.
• 85% of successor CEOs will be a family member.
• 20% of family owners have not completed any estate planning.
• 55% of family owners do not have a formal company valuation for estate tax estimates.
• 60% of businesses do not have a written strategic plan.
• 48% of companies rely on life insurance to cover estate taxes.
The above survey indicates that many family businesses are not optimizing their opportunities. Their insular approach to succession, leadership, planning, etc., indicates their vulnerability for the long term. These vulnerabilities suggest that many business owners should work with professional advisors to resolve these issues. A professional intermediary is an essential member of this advisor group.
• Four out of five companies are still controlled by the founders.
• 30% of family-owned companies will change leadership within the next five years.
• 55% of companies fail to conduct regular valuations of the company.
• 55% of CEOs who are 61 or older have not chosen a successor.
• 13% of CEOs will never retire.
• 90% of businesses will continue as family owned.
• 85% of successor CEOs will be a family member.
• 20% of family owners have not completed any estate planning.
• 55% of family owners do not have a formal company valuation for estate tax estimates.
• 60% of businesses do not have a written strategic plan.
• 48% of companies rely on life insurance to cover estate taxes.
The above survey indicates that many family businesses are not optimizing their opportunities. Their insular approach to succession, leadership, planning, etc., indicates their vulnerability for the long term. These vulnerabilities suggest that many business owners should work with professional advisors to resolve these issues. A professional intermediary is an essential member of this advisor group.
Friday, May 27, 2011
Seller Financing -- How a Broker Can Help
Another important factor relating to the asking price is the amount of cash involved in the sale. There is an old saying that the higher the full-price, the lower the down payment - and vice-versa. The sale of almost any business involves some seller financing. The smaller the down payment, the higher likelihood of a quick sale. No seller wants to take back his or her business because the buyer wasn't successful. On the other hand, a buyer wants to make sure that the business will not only pay for itself, but also provide sufficient income for his or her family's needs.
What it all boils down to is that the seller wants the buyer to be successful and the buyer wants to buy a successful business. With the amount of capital required in today's market to buy a business, sellers should feel optimistic that they are dealing with successful buyers.
Click "HERE" to view entire article.
What it all boils down to is that the seller wants the buyer to be successful and the buyer wants to buy a successful business. With the amount of capital required in today's market to buy a business, sellers should feel optimistic that they are dealing with successful buyers.
Click "HERE" to view entire article.
Wednesday, May 25, 2011
Don't Let Sleeping Dogs Lie
If you're considering selling your business, and you are employing a professional business broker or intermediary, it's imperative to be absolutely open with him or her. This is not the time for secrecy -- or even for subtlety, especially when it comes to problems. If you've been having trouble with your lease, one of your best customers or your fixtures and equipment, spell it out! Any one of these "sleeping dogs" is bound to wake up sometime during the process. After the first growl comes the bite. The sale will get buried deeper than last year's bone. And the buyer, scared off by the ruckus, will have long since disappeared.
Tell your broker all there is to know prior to the beginning of the marketing effort. Your broker and the buyer are aware that there is no such thing as a perfect business, and buyers are much more likely to deal with the problems of your business during the decision-making process rather than after they have decided to buy.
And it's not just the sale that's at stake. Concealing a problem or defect that adversely affects the business can lead to litigation and years in court. It's not worth it. Problems and defects don't mean your business won't command an attractive price. Your professional business broker is prepared to deal with these issues and give you competent advice.
Some sellers try to hide the problems of their business and hope the sleeping dog never wakes up. You'd be well-advised to get him on a good, strong leash instead of letting him "lie."
Click "HERE" to view entire article.
Tell your broker all there is to know prior to the beginning of the marketing effort. Your broker and the buyer are aware that there is no such thing as a perfect business, and buyers are much more likely to deal with the problems of your business during the decision-making process rather than after they have decided to buy.
And it's not just the sale that's at stake. Concealing a problem or defect that adversely affects the business can lead to litigation and years in court. It's not worth it. Problems and defects don't mean your business won't command an attractive price. Your professional business broker is prepared to deal with these issues and give you competent advice.
Some sellers try to hide the problems of their business and hope the sleeping dog never wakes up. You'd be well-advised to get him on a good, strong leash instead of letting him "lie."
Click "HERE" to view entire article.
Monday, May 23, 2011
When Selling Your Business: Confidentiality Is Key
You've make the big decision to sell. Your books are in order, you've spiffed up the premises. What are you waiting for?
Many sellers get to this threshold and then become concerned about confidentiality. They do not want the news of their decision to reach their customers, competitors, employees, or creditors. After all, they figure, customers may lose confidence in the business and go elsewhere, competitors might use this opportunity to spread rumors, employees might fear for their future security, and creditors might push for earlier payment. Not all of these qualms are reasonable; however, when selling a business, discretion is definitely the better part of valor. Few, if any, transactions have been wrecked due to excessive discretion. A breach of confidentiality, on the other hand, can severely alter the course of the transaction. What can you do to protect yourself against this possible deal-wrecker?
Your first step is to look for expert guidance. When a business broker is involved in the sale, he or she will channel the process to keep the transaction within safely silent bounds. You can expect your business intermediary to do the following:
1. Qualify the buyer.
Screening potential buyers is one of the most important benefits a business broker can provide for you. Keep in mind that roughly 90 percent of those who respond to business-for-sale ads are either not serious buyers or are not financially qualified. By screening prospects, the business broker will contribute to confidentiality by limiting the exposure of the business to the most promising buyers instead of to the merely curious time-wasters.
2. Use appropriate marketing strategies.
How can you advertise a business for sale without spreading the news too far? The business broker, as intermediary, is in an ideal position to do just that. Brokers place advertising and post listings that contain non-specific descriptions of the business. This \"blind ad\" approach can be phrased to attract interest in the business without revealing its name or exact location.
3. Prepare paperwork designed to promote confidentiality.
After screening prospective buyers and assessing the degree of interest and financial qualification, the business broker will also require prospects to sign a strictly-worded confidentiality agreement.
4. Manage appropriate release of information.
Until a purchase-and-sale agreement has been signed, the business broker can phase the release of information about the business to match the growing evidence of buyer sincerity and trustworthiness.
Click "HERE" to view entire article.
Many sellers get to this threshold and then become concerned about confidentiality. They do not want the news of their decision to reach their customers, competitors, employees, or creditors. After all, they figure, customers may lose confidence in the business and go elsewhere, competitors might use this opportunity to spread rumors, employees might fear for their future security, and creditors might push for earlier payment. Not all of these qualms are reasonable; however, when selling a business, discretion is definitely the better part of valor. Few, if any, transactions have been wrecked due to excessive discretion. A breach of confidentiality, on the other hand, can severely alter the course of the transaction. What can you do to protect yourself against this possible deal-wrecker?
Your first step is to look for expert guidance. When a business broker is involved in the sale, he or she will channel the process to keep the transaction within safely silent bounds. You can expect your business intermediary to do the following:
1. Qualify the buyer.
Screening potential buyers is one of the most important benefits a business broker can provide for you. Keep in mind that roughly 90 percent of those who respond to business-for-sale ads are either not serious buyers or are not financially qualified. By screening prospects, the business broker will contribute to confidentiality by limiting the exposure of the business to the most promising buyers instead of to the merely curious time-wasters.
2. Use appropriate marketing strategies.
How can you advertise a business for sale without spreading the news too far? The business broker, as intermediary, is in an ideal position to do just that. Brokers place advertising and post listings that contain non-specific descriptions of the business. This \"blind ad\" approach can be phrased to attract interest in the business without revealing its name or exact location.
3. Prepare paperwork designed to promote confidentiality.
After screening prospective buyers and assessing the degree of interest and financial qualification, the business broker will also require prospects to sign a strictly-worded confidentiality agreement.
4. Manage appropriate release of information.
Until a purchase-and-sale agreement has been signed, the business broker can phase the release of information about the business to match the growing evidence of buyer sincerity and trustworthiness.
Click "HERE" to view entire article.
Thursday, May 19, 2011
Seize the Moment -- Tips for Sellers (Option B)
If you have made the decision to sell your business, the wisest first move is to contact a qualified business broker professional, who can . . .
Advise you on pricing and structuring the sale of your business.
Prepare the marketing strategy, using professional resources.
Determine the right buyer for your particular business.
Educate buyers in the business-buying process.
Keep you informed about market reaction.
Present offers and point out strengths and weaknesses.
When it comes time to sell, one of the best decisions a business owner can make is to continue managing his or her business efficiently (and profitably), while depending on the services of a business broker to forge the steps of the sale. The business broker professional is an invaluable advisor during the entire process, offering both objectivity and negotiation skills honed through years of experience in the buying and selling of businesses.
Advise you on pricing and structuring the sale of your business.
Prepare the marketing strategy, using professional resources.
Determine the right buyer for your particular business.
Educate buyers in the business-buying process.
Keep you informed about market reaction.
Present offers and point out strengths and weaknesses.
When it comes time to sell, one of the best decisions a business owner can make is to continue managing his or her business efficiently (and profitably), while depending on the services of a business broker to forge the steps of the sale. The business broker professional is an invaluable advisor during the entire process, offering both objectivity and negotiation skills honed through years of experience in the buying and selling of businesses.
Monday, May 16, 2011
Dealing with Inexperience Can Ruin the Deal
The 65-year old owner of a multi-location retail operation doing $30 million in annual sales decided to retire. He interviewed a highly recommended intermediary and was impressed. However, he had a nephew who had just received his MBA and who told his uncle that he could handle the sale and save him some money. He would do it for half of what the intermediary said his fee would be – so the uncle decided to use his nephew. Now, his nephew was a nice young man, educated at one of the top business schools, but he had never been involved in a middle market deal. He had read a lot of case studies and was confident that he could “do the deal.”
Inexperience # 1 – The owner and the nephew agreed not to bring the CFO into the picture, nor execute a “stay” agreement. The nephew felt he could handle the financial details. Neither one of them realized that a potential purchaser would expect to meet with the CFO when it came to the finances of the business, and certainly would expect the CFO to be involved in the due diligence process.
Inexperience # 2 – It never occurred to the owner or his nephew that revealing just the name of the company to prospective buyers would send competitors and only mildly interested prospects to the various locations. There was no mention of Confidentiality Agreements. Since the owner was not in a big hurry, there were no time limits set for offers or even term sheets. It would only be a matter of time before the word that the business was on the market would be out.
Inexperience # 3 – The owner wanted to spend some time with each prospective purchaser. Confidentiality didn’t seem to be an issue. There was no screening process, no interview by the nephew.
Inexperience # 4 – The nephew prepared what was supposed to be an Offering Memorandum. He threw some financials together that had not been audited, which included a missing $500,000 that the owner took and forgot to inform his nephew about. This obviously impacted the numbers. There were no projections, no ratios, etc. This lack of information would most likely result in lower offers or bids or just plain lack of buyer interest. In addition, the mention of a pending lawsuit that could influence the sale was hidden in the Memorandum.
Inexperience # 5 – The owner and nephew both decided that their company attorney could handle the details of a sale if it ever got that far. Unfortunately, although competent, the attorney had never been involved in a business sale transaction, especially one in the $15 million range.
Click "HERE" to view entire article.
Inexperience # 1 – The owner and the nephew agreed not to bring the CFO into the picture, nor execute a “stay” agreement. The nephew felt he could handle the financial details. Neither one of them realized that a potential purchaser would expect to meet with the CFO when it came to the finances of the business, and certainly would expect the CFO to be involved in the due diligence process.
Inexperience # 2 – It never occurred to the owner or his nephew that revealing just the name of the company to prospective buyers would send competitors and only mildly interested prospects to the various locations. There was no mention of Confidentiality Agreements. Since the owner was not in a big hurry, there were no time limits set for offers or even term sheets. It would only be a matter of time before the word that the business was on the market would be out.
Inexperience # 3 – The owner wanted to spend some time with each prospective purchaser. Confidentiality didn’t seem to be an issue. There was no screening process, no interview by the nephew.
Inexperience # 4 – The nephew prepared what was supposed to be an Offering Memorandum. He threw some financials together that had not been audited, which included a missing $500,000 that the owner took and forgot to inform his nephew about. This obviously impacted the numbers. There were no projections, no ratios, etc. This lack of information would most likely result in lower offers or bids or just plain lack of buyer interest. In addition, the mention of a pending lawsuit that could influence the sale was hidden in the Memorandum.
Inexperience # 5 – The owner and nephew both decided that their company attorney could handle the details of a sale if it ever got that far. Unfortunately, although competent, the attorney had never been involved in a business sale transaction, especially one in the $15 million range.
Click "HERE" to view entire article.
Friday, April 29, 2011
Tips on Avoiding the Dealbreakers
One of the most important steps is to hire the right advisors. This begins with the right professional M&A specialist. The right attorney should be added to the team. The right one is an attorney who has been through the sales process many times - one who is a deal maker seeking solutions, not a deal breaker seeking "why not to" reasons. The accountants must be deal oriented, and if they are the firm's outside advisor, they should be aware that they may not be retained by the buyer, and must still be willing to work in the best interest of putting the deal together.
Getting through due diligence
One of the three or four times a deal can fall apart is half-way into the due diligence phase, when the buyer finds something he or she did not expect. No one likes surprises, and they can't all be anticipated. An experienced buyer will probably work his way through it, but a novice may walk away. Although sellers too often hope a potential problem doesn't surface, it always does. Avoid the surprises by putting everything on the table even if it seems inconsequential. It's much better to expose all the warts up front than to have them surface later.
Where is all the money going?
Prior to offering their business for sale, sellers should figure out what the net proceeds will be after paying off any debt not being assumed, current payables, closing costs and tax obligations. The middle of due diligence is no time for the seller to realize that the proceeds from the sale aren't what he or she anticipated. On the buyer's side, there are times when current sales and profits are suddenly going south. If the seller anticipates this happening, the buyer should be told up front the reason for the rapid decline. Otherwise, if it comes as a surprise to the buyer, it might cause some restructuring of the deal.
No chemistry between the buyer and the seller
If everything goes smoothly (a rare occurrence), the buyer and the seller don't have to be good buddies. However, if problems or surprises develop, good chemistry can save the day. Sometimes a golf outing or a good dinner can bring the parties together. If both parties want the deal to work, having them get together socially - and privately - can, many times, overcome a stubborn legal or financial issue.
Obviously, not all deals work. However, the odds of the deal closing are greatly improved if both the buyer and the seller consider the areas discussed above. Surprises can work both ways, and the buyers too should place their cards on the table. However, when all else fails, it is the desire of both parties wanting the transaction to work that will ultimately close the deal!
Mistakes that Sellers Make
Not being flexible in structuring the deal
Not checking out the prospective buyer
Not believing that time is of the essence
Negotiating to win everything
Nit-picking every item
Not maintaining confidentiality - and failing to insist that the buyer proceed on a confidential basis
Not retaining competent advisors
Not meeting the buyer halfway
Getting through due diligence
One of the three or four times a deal can fall apart is half-way into the due diligence phase, when the buyer finds something he or she did not expect. No one likes surprises, and they can't all be anticipated. An experienced buyer will probably work his way through it, but a novice may walk away. Although sellers too often hope a potential problem doesn't surface, it always does. Avoid the surprises by putting everything on the table even if it seems inconsequential. It's much better to expose all the warts up front than to have them surface later.
Where is all the money going?
Prior to offering their business for sale, sellers should figure out what the net proceeds will be after paying off any debt not being assumed, current payables, closing costs and tax obligations. The middle of due diligence is no time for the seller to realize that the proceeds from the sale aren't what he or she anticipated. On the buyer's side, there are times when current sales and profits are suddenly going south. If the seller anticipates this happening, the buyer should be told up front the reason for the rapid decline. Otherwise, if it comes as a surprise to the buyer, it might cause some restructuring of the deal.
No chemistry between the buyer and the seller
If everything goes smoothly (a rare occurrence), the buyer and the seller don't have to be good buddies. However, if problems or surprises develop, good chemistry can save the day. Sometimes a golf outing or a good dinner can bring the parties together. If both parties want the deal to work, having them get together socially - and privately - can, many times, overcome a stubborn legal or financial issue.
Obviously, not all deals work. However, the odds of the deal closing are greatly improved if both the buyer and the seller consider the areas discussed above. Surprises can work both ways, and the buyers too should place their cards on the table. However, when all else fails, it is the desire of both parties wanting the transaction to work that will ultimately close the deal!
Mistakes that Sellers Make
Not being flexible in structuring the deal
Not checking out the prospective buyer
Not believing that time is of the essence
Negotiating to win everything
Nit-picking every item
Not maintaining confidentiality - and failing to insist that the buyer proceed on a confidential basis
Not retaining competent advisors
Not meeting the buyer halfway
Wednesday, April 27, 2011
10 Questions A Seller Should Ask A Broker
· Are you a Certified and Registered Broker/Intermediary?
· Are you affiliated with any business brokerage associations or trade groups?
· Will you provide any references? (Sellers, Attorneys, etc.)
· How will you determine how much I should ask for my business?
· Will you display my business on any Internet sites? If so, how many?
· How, other than the Internet, will you market my business?
· How can you help me to qualify a potential Buyer while protecting my Confidentiality?
· Under what circumstances will you show my business?
· How often will you contact me about what is going on?
· Can you please tell me about you and your firm?
· Are you affiliated with any business brokerage associations or trade groups?
· Will you provide any references? (Sellers, Attorneys, etc.)
· How will you determine how much I should ask for my business?
· Will you display my business on any Internet sites? If so, how many?
· How, other than the Internet, will you market my business?
· How can you help me to qualify a potential Buyer while protecting my Confidentiality?
· Under what circumstances will you show my business?
· How often will you contact me about what is going on?
· Can you please tell me about you and your firm?
Tuesday, April 26, 2011
Selling Your Business -- Some Key Questions and Answers
Selling your business is a major decision! You have devoted your time, money and energy to building, running and operating your business. It may well represent your life's work. You have decided that now is the right time to sell, and you want the very best professional guidance available. This is when working in tandem with a professional business broker can make the difference between just getting rid of the business and selling it for the very best price and terms.
Below are some of the most common questions asked by sellers. The responses are based on both experience and knowledge. If you have questions of your own, ask your business broker professional.
Click "HERE" to view entire article.
Below are some of the most common questions asked by sellers. The responses are based on both experience and knowledge. If you have questions of your own, ask your business broker professional.
Click "HERE" to view entire article.
Thursday, April 21, 2011
"Loose Lips Sink Ships"
The “loose lips” tagline was a common World War II phrase and was on posters everywhere. The problem continues on the business battlefront today. Leaks of confidential information coming from, apparently, some of the Directors of HP have been in the news everywhere. This is an ongoing story. If it can happen to HP, it can happen to anyone. Leaks of confidential data are a serious issue at any time, but are especially serious if they involve the sale of a company. Sellers are very concerned because of the impact a leak can have on their company and their employees.
Unfortunately, confidentiality is a Catch—22 issue. On one side, the seller wants to maintain it; on the other side, the seller wants to get the highest price possible, which can mean exposing the business to numerous potential buyers. The more potential buyers contacted, the better the chance of a good price being obtained—and the greater chance of a leak.
Owners may be overly concerned about leaks of confidential data, but since this is a concern, the issue must be dealt with. The shorter the time table between going to market and a sale the less chance there is for a leak. The selling process should not drag on! This is one reason why the price, terms and deal structure should be as fair as possible from the very beginning. The longer negotiations take, the greater the chance for word to leak out. If all of the red flags are dealt with early on, the more likely there can be a quick closing. That way, if there is a leak, the deal can be concluded before any damage can be done. The only other alternative is to deal with just two or three potential buyers. This, of course, lessens the chance of getting the seller a better deal.
Sellers should make sure that all documents involving a sale or potential sale are kept under lock and key, marked “Confidential,” and only transmitted to buyers in a secure manner. Confidential information should only be emailed or faxed when one is absolutely sure it can’t get into the wrong hands. Buyers and sellers have to be cautioned about the confidentiality issue. Too many times when there is breach of confidentiality, the leak comes from the seller. The seller tells his golfing partner, mentions it to a neighbor at a cocktail party, reveals it to a relative – indeed, it is usually a case of “loose lips sinking ships.”
If there was ever a reason to use a professional business intermediary, this is it. They can be the conduit between the buyer, seller and the outside advisors. Business intermediaries are experienced in preventing breaches of confidentiality, e.g. by requiring buyers to sign strict non-disclosure agreements. What’s even more important, they are pros, knowledgeable about dealing with one if it happens. This is just another reason to use the services of a business intermediary.
Unfortunately, confidentiality is a Catch—22 issue. On one side, the seller wants to maintain it; on the other side, the seller wants to get the highest price possible, which can mean exposing the business to numerous potential buyers. The more potential buyers contacted, the better the chance of a good price being obtained—and the greater chance of a leak.
Owners may be overly concerned about leaks of confidential data, but since this is a concern, the issue must be dealt with. The shorter the time table between going to market and a sale the less chance there is for a leak. The selling process should not drag on! This is one reason why the price, terms and deal structure should be as fair as possible from the very beginning. The longer negotiations take, the greater the chance for word to leak out. If all of the red flags are dealt with early on, the more likely there can be a quick closing. That way, if there is a leak, the deal can be concluded before any damage can be done. The only other alternative is to deal with just two or three potential buyers. This, of course, lessens the chance of getting the seller a better deal.
Sellers should make sure that all documents involving a sale or potential sale are kept under lock and key, marked “Confidential,” and only transmitted to buyers in a secure manner. Confidential information should only be emailed or faxed when one is absolutely sure it can’t get into the wrong hands. Buyers and sellers have to be cautioned about the confidentiality issue. Too many times when there is breach of confidentiality, the leak comes from the seller. The seller tells his golfing partner, mentions it to a neighbor at a cocktail party, reveals it to a relative – indeed, it is usually a case of “loose lips sinking ships.”
If there was ever a reason to use a professional business intermediary, this is it. They can be the conduit between the buyer, seller and the outside advisors. Business intermediaries are experienced in preventing breaches of confidentiality, e.g. by requiring buyers to sign strict non-disclosure agreements. What’s even more important, they are pros, knowledgeable about dealing with one if it happens. This is just another reason to use the services of a business intermediary.
Tuesday, April 19, 2011
Selling: What Does An Intermediary Expect From You
If you are seriously considering selling your company, you have no doubt considered using the services of an intermediary. You probably have wondered what you could expect from him or her. It works both ways. To do their job, which is selling your company; maximizing the selling price, terms and net proceeds; plus handling the details effectively; there are some things intermediaries will expect from you. By understanding these expectations, you will greatly improve the chances of a successful sale. Here are just a few:
• Next to continuing to run the business, working with your intermediary in helping to sell the company is a close second. It takes this kind of partnering to get the job done. You have to return all of his or her telephone calls promptly and be available to handle any other requests. You, other key executives, and primary advisors have to be readily available to your intermediary.
• Selling a company is a group effort that will involve you, key executives, and your financial and legal advisors all working in a coordinated manner with the intermediary. Beginning with the gathering of information, through the transaction closing, you need input about all aspects of the sale. Only they can provide the necessary information.
• Keep in mind that the selling process can take anywhere from six months to a year -- or even a bit longer. An intermediary needs to know what is happening -- and changing -- within the company, the competition, customers, etc. The lines of communication must be kept open.
• The intermediary will need key management’s cooperation in preparation for the future visits from prospective acquirers. They will need to know just what is required, and expected, from such visits.
• You will rightfully expect the intermediary to develop a list of possible acquirers. You can help in several ways. First, you could offer the names of possible candidates who might be interested in acquiring your business. Second, supplying the intermediary with industry publications, magazines and directories will help in increasing the number of possible purchasers, and will help in educating the intermediary in the nature of your business.
• Keep your intermediary in the loop. Hopefully, at some point, a letter of intent will be signed and the deal turned over to the lawyers for the drafting of the final documents. Now is not the time to assume that the intermediary’s job is done. It may just be beginning as the details of financing are completed and final deal points are resolved. The intermediary knows the buyer, the seller, and what they really agreed on. You may be keeping the deal from falling apart by keeping the intermediary involved in the negotiations.
• Be open to all suggestions. You may feel that you only want one type of buyer to look at your business. For example, you may think that only a foreign company will pay you what you want for the company. Your intermediary may have some other prospects. Sometimes you have to be willing to change directions.
The time to call a business intermediary professional is when you are considering the sale of your company. He or she is a major member of your team. Selling a company can be a long-term proposition. Make sure you are willing to be involved in the process until the job is done. Maintain open communications with the intermediary. And, most of all – listen. He or she is the expert.
• Next to continuing to run the business, working with your intermediary in helping to sell the company is a close second. It takes this kind of partnering to get the job done. You have to return all of his or her telephone calls promptly and be available to handle any other requests. You, other key executives, and primary advisors have to be readily available to your intermediary.
• Selling a company is a group effort that will involve you, key executives, and your financial and legal advisors all working in a coordinated manner with the intermediary. Beginning with the gathering of information, through the transaction closing, you need input about all aspects of the sale. Only they can provide the necessary information.
• Keep in mind that the selling process can take anywhere from six months to a year -- or even a bit longer. An intermediary needs to know what is happening -- and changing -- within the company, the competition, customers, etc. The lines of communication must be kept open.
• The intermediary will need key management’s cooperation in preparation for the future visits from prospective acquirers. They will need to know just what is required, and expected, from such visits.
• You will rightfully expect the intermediary to develop a list of possible acquirers. You can help in several ways. First, you could offer the names of possible candidates who might be interested in acquiring your business. Second, supplying the intermediary with industry publications, magazines and directories will help in increasing the number of possible purchasers, and will help in educating the intermediary in the nature of your business.
• Keep your intermediary in the loop. Hopefully, at some point, a letter of intent will be signed and the deal turned over to the lawyers for the drafting of the final documents. Now is not the time to assume that the intermediary’s job is done. It may just be beginning as the details of financing are completed and final deal points are resolved. The intermediary knows the buyer, the seller, and what they really agreed on. You may be keeping the deal from falling apart by keeping the intermediary involved in the negotiations.
• Be open to all suggestions. You may feel that you only want one type of buyer to look at your business. For example, you may think that only a foreign company will pay you what you want for the company. Your intermediary may have some other prospects. Sometimes you have to be willing to change directions.
The time to call a business intermediary professional is when you are considering the sale of your company. He or she is a major member of your team. Selling a company can be a long-term proposition. Make sure you are willing to be involved in the process until the job is done. Maintain open communications with the intermediary. And, most of all – listen. He or she is the expert.
Thursday, April 14, 2011
The Advantages of Seller Financing
Business owners who want to sell their business are often told by business brokers and intermediaries that they will have to consider financing the sale themselves. Many owners would like to receive all cash, but many also understand that there is very little outside financing available from banks or other sources. The only source left is the seller of the business.
Buyers usually feel that businesses should be able to pay for themselves. They are wary of sellers who demand all cash. Is the seller really saying that the business can't support any debt or is he or she saying, "the business isn't any good and I want my cash out of it now, just in case?" They are also wary of the seller who wants the carry-back note fully collateralized by the buyer. First, the buyer has probably used most of his or her assets to assemble the down payment and additional funds necessary to go into business. Most buyers are reluctant to use what little assets they may have left to secure the seller's note. The buyer will ask, "what is the seller not telling me and/or why wouldn't the business provide sufficient collateral?"
Here are some reasons why a seller might want to consider seller financing the sale of his or her business:
There is a greater chance that the business will sell with seller financing. In fact, in many cases, the business won't sell for cash, unless the owner is willing to lower the price substantially.
The seller will usually receive a much higher price for the business by financing a portion of the sale price.
Most sellers are unaware of how much the interest on the sale increases their actual selling price. For example, a seller carry-back note at 8 percent carried over nine years will actually double the amount carried. $100,000 at 8 percent over a nine year period results in the seller receiving $200,000.
With interest rates currently the lowest in years, sellers usually get a higher rate from a buyer than they would get from any financial institution.
Sellers may also discover that, in many cases, the tax consequences of financing the sale themselves may be more advantageous than those for an all-cash sale.
Financing the sale tells the buyer that the seller has enough confidence that the business will, or can, pay for itself.
Certainly, the biggest concern the seller has is whether or not the new owner will be successful enough to pay off the loan the seller has agreed to provide as a condition of the sale. Here are some obvious, but important, factors that may indicate the stability of the buyer:
How long has the buyer lived in the same house or been a home owner?
What is the buyer's work history?
How do the buyer's personal references check out?
Does the buyer have a satisfactory banking relationship?
Advantages of Seller Financing for the Buyer
Lower interest
Longer term
No fees
Seller stays involved
Less paperwork
Easier to negotiate
Buyers usually feel that businesses should be able to pay for themselves. They are wary of sellers who demand all cash. Is the seller really saying that the business can't support any debt or is he or she saying, "the business isn't any good and I want my cash out of it now, just in case?" They are also wary of the seller who wants the carry-back note fully collateralized by the buyer. First, the buyer has probably used most of his or her assets to assemble the down payment and additional funds necessary to go into business. Most buyers are reluctant to use what little assets they may have left to secure the seller's note. The buyer will ask, "what is the seller not telling me and/or why wouldn't the business provide sufficient collateral?"
Here are some reasons why a seller might want to consider seller financing the sale of his or her business:
There is a greater chance that the business will sell with seller financing. In fact, in many cases, the business won't sell for cash, unless the owner is willing to lower the price substantially.
The seller will usually receive a much higher price for the business by financing a portion of the sale price.
Most sellers are unaware of how much the interest on the sale increases their actual selling price. For example, a seller carry-back note at 8 percent carried over nine years will actually double the amount carried. $100,000 at 8 percent over a nine year period results in the seller receiving $200,000.
With interest rates currently the lowest in years, sellers usually get a higher rate from a buyer than they would get from any financial institution.
Sellers may also discover that, in many cases, the tax consequences of financing the sale themselves may be more advantageous than those for an all-cash sale.
Financing the sale tells the buyer that the seller has enough confidence that the business will, or can, pay for itself.
Certainly, the biggest concern the seller has is whether or not the new owner will be successful enough to pay off the loan the seller has agreed to provide as a condition of the sale. Here are some obvious, but important, factors that may indicate the stability of the buyer:
How long has the buyer lived in the same house or been a home owner?
What is the buyer's work history?
How do the buyer's personal references check out?
Does the buyer have a satisfactory banking relationship?
Advantages of Seller Financing for the Buyer
Lower interest
Longer term
No fees
Seller stays involved
Less paperwork
Easier to negotiate
Tuesday, April 12, 2011
Monday, April 11, 2011
Seller Financing: It Makes Dollars and Sense
When contemplating the sale of a business, an important option to consider is seller financing. Many potential buyers don't have the necessary capital or lender resources to pay cash. Even if they do, they are often reluctant to put such a hefty sum of cash into what, for them, is a new and untried venture.
Why the hesitation? The typical buyer feels that, if the business is really all that it's "advertised" to be, it should pay for itself. Buyers often interpret the seller's insistence on all cash as a lack of confidence--in the business, in the buyer's chances to succeed, or both.
The buyer's interpretation has some basis in fact. The primary reason sellers shy away from offering terms is their fear that the buyer will be unsuccessful. If the buyer should cease payments--for any reason--the seller would be forced either to take back the business or forfeit the balance of the note.
The seller who operates under the influence of this fear should take a hard look at the upside of seller financing. Statistics show that sellers receive a significantly higher purchase price if they decide to accept terms. On average, a seller who sells for all cash receives approximately 70 percent of the asking price. This adds up to approximately 16 percent difference on a business listed for $150,000, meaning that the seller who is willing to accept terms will receive approximately $24,000 more than the seller who is asking for all cash.
Even with these compelling reasons to accept terms, sellers may still be reluctant. Selling a business can be perceived as a once-in-a-lifetime opportunity to hit the cash jackpot. Therefore, it is important to note that seller financing has advantages that, in many instances, far outweigh the immediate satisfaction of cash-in-hand.
Seller financing greatly increases the chances that the business will sell.
The seller offering terms will command a much higher price.
The interest on a seller-financed deal will add significantly to the actual selling price. (For example, a seller carry-back note at eight percent carried over nine years will double the amount carried. Over a nine-year period, $100,000 at eight percent will result in the seller receiving $200,000.)
With interest rates currently the lowest in years, sellers can get a much higher rate from a buyer than they can get from any financial institution.
The tax consequences of accepting terms can be much more advantageous than those of an all-cash sale.
Financing the sale helps assure the success of both the sale and the business, since the buyer will perceive the offer of terms as a vote of confidence.
Obviously, there are no guarantees that the buyer will be sucessful in operating the business. However, it is well to note that, in most transactions, buyers are putting a substantial amount of personal cash on the line--in many cases, their entire capital. Although this investment doesn't insure success, it does mean that the buyer will work hard to support such a commitment.
There are many ways to structure the seller-financed sale that make sense for both buyer and seller. Creative financing is an area where your business broker professional can be of help. He or she can recommend a variety of payment plans that, in many cases, can mean the difference between a successful transaction and one that is not. Serious sellers owe it to themselves to consider financing the sale. By lending a helping hand to buyers, they will, in most cases, be helping themselves as well.
Why the hesitation? The typical buyer feels that, if the business is really all that it's "advertised" to be, it should pay for itself. Buyers often interpret the seller's insistence on all cash as a lack of confidence--in the business, in the buyer's chances to succeed, or both.
The buyer's interpretation has some basis in fact. The primary reason sellers shy away from offering terms is their fear that the buyer will be unsuccessful. If the buyer should cease payments--for any reason--the seller would be forced either to take back the business or forfeit the balance of the note.
The seller who operates under the influence of this fear should take a hard look at the upside of seller financing. Statistics show that sellers receive a significantly higher purchase price if they decide to accept terms. On average, a seller who sells for all cash receives approximately 70 percent of the asking price. This adds up to approximately 16 percent difference on a business listed for $150,000, meaning that the seller who is willing to accept terms will receive approximately $24,000 more than the seller who is asking for all cash.
Even with these compelling reasons to accept terms, sellers may still be reluctant. Selling a business can be perceived as a once-in-a-lifetime opportunity to hit the cash jackpot. Therefore, it is important to note that seller financing has advantages that, in many instances, far outweigh the immediate satisfaction of cash-in-hand.
Seller financing greatly increases the chances that the business will sell.
The seller offering terms will command a much higher price.
The interest on a seller-financed deal will add significantly to the actual selling price. (For example, a seller carry-back note at eight percent carried over nine years will double the amount carried. Over a nine-year period, $100,000 at eight percent will result in the seller receiving $200,000.)
With interest rates currently the lowest in years, sellers can get a much higher rate from a buyer than they can get from any financial institution.
The tax consequences of accepting terms can be much more advantageous than those of an all-cash sale.
Financing the sale helps assure the success of both the sale and the business, since the buyer will perceive the offer of terms as a vote of confidence.
Obviously, there are no guarantees that the buyer will be sucessful in operating the business. However, it is well to note that, in most transactions, buyers are putting a substantial amount of personal cash on the line--in many cases, their entire capital. Although this investment doesn't insure success, it does mean that the buyer will work hard to support such a commitment.
There are many ways to structure the seller-financed sale that make sense for both buyer and seller. Creative financing is an area where your business broker professional can be of help. He or she can recommend a variety of payment plans that, in many cases, can mean the difference between a successful transaction and one that is not. Serious sellers owe it to themselves to consider financing the sale. By lending a helping hand to buyers, they will, in most cases, be helping themselves as well.
Wednesday, April 6, 2011
Financing Facts
There still aren't too many ways to finance the purchase of a business. Here are the primary methods:
Buyer Financing
Some buyers may have the cash available to purchase the business. Some may elect to use the equity in their residence, or other real estate. Others may have other assets that they can sell or borrow against.
Bank Financing
Banks may lend against a buyer's assets as described above. They may also lend against the assets of the business, assuming there is sufficient value to support the loan. The business will also have to make sense to the bank, regardless of the asset value. In fairness to the banking system, many of the figures supplied by business owners have very little relationship to the actual earning power of the business.
Venture Capital Firms
These firms do not, as a practice, lend to small or even many mid-size businesses unless tremendous growth is anticipated. They also usually expect an equity position in the company.
SBA Loans
These have become more popular. There is now some competition among lenders for these loans. Many banks offer them, but the large non-bank companies seem to have the upper hand in both acceptance and service.
Other Sources
This category includes family, friends, relatives, credit cards and leasing companies. Some suppliers have been known to assist in the financing of a small business.
Seller Financing
This is, by far, the largest source of financing available for the purchase of a business. Many industry experts say that about 90 percent of small businesses sell with, or perhaps because of, the seller financing a good portion of the sale price. Buyers have much more confidence in the decision to purchase a business when the seller is willing to assist in the financing. The buyer has confidence that the seller believes the business will service the debt, in addition to providing a living wage.
Buyer Financing
Some buyers may have the cash available to purchase the business. Some may elect to use the equity in their residence, or other real estate. Others may have other assets that they can sell or borrow against.
Bank Financing
Banks may lend against a buyer's assets as described above. They may also lend against the assets of the business, assuming there is sufficient value to support the loan. The business will also have to make sense to the bank, regardless of the asset value. In fairness to the banking system, many of the figures supplied by business owners have very little relationship to the actual earning power of the business.
Venture Capital Firms
These firms do not, as a practice, lend to small or even many mid-size businesses unless tremendous growth is anticipated. They also usually expect an equity position in the company.
SBA Loans
These have become more popular. There is now some competition among lenders for these loans. Many banks offer them, but the large non-bank companies seem to have the upper hand in both acceptance and service.
Other Sources
This category includes family, friends, relatives, credit cards and leasing companies. Some suppliers have been known to assist in the financing of a small business.
Seller Financing
This is, by far, the largest source of financing available for the purchase of a business. Many industry experts say that about 90 percent of small businesses sell with, or perhaps because of, the seller financing a good portion of the sale price. Buyers have much more confidence in the decision to purchase a business when the seller is willing to assist in the financing. The buyer has confidence that the seller believes the business will service the debt, in addition to providing a living wage.
Wednesday, March 30, 2011
Friends and Family: A Financing Option
The first job facing many prospective business owners is rounding up the cash necessary to make the purchase. They may find that banks have made borrowing difficult (or all but impossible), and that even SBA loans have requirements too stringent to meet. One viable option is obtaining financing from the seller; another is to seek help from family and friends.
Borrowing money from family members and/or friends is one of the most frequently-used methods of small business financing. The pluses are obvious--there is trust, familiarity, and a general comfort level when dealing with those you know. The drawbacks are self-evident as well: "doing business" with family and friends comes with cautionary notes of legendary proportions. Everybody knows that family ventures can be complex and stressful, stirring up "bad blood" and lingering ill will. However, by taking the right preventive steps, buyers can take advantage of friendly financial help.
1. Set up an informal meeting to introduce your ideas.
This is the time to "feel out" friends and relatives casually, being sure they understand that this is strictly a fact-finding (and fact-presenting) meeting. Anyone who is not interested or cannot afford to be involved has plenty of opportunity to say so without feeling obligated--or emotionally "blackmailed."
2. Follow up with a professional business plan.
Those who have indicated interest should now be treated with utmost professionalism. A formal business plan, including detailed financials, and a carefully-drafted business contract should be presented at this subsequent gathering. Consult a business professional for help in establishing a schedule for repayment based on the appropriate interest rates. Nothing will inspire more confidence in lenders than the care taken with this vital paperwork.
3. Be clear about the structure of the business envisioned.
How much voice are investors to have in the business? This is a vital question. Be sure that all parties understand whether this is to be a simple investment or some sort of partnership, and put this agreement in writing.
4. Take care in identifying your borrowing "targets."
Sometimes willing and eager family members can't really afford to invest. If possible, try to spread the borrowing around so that no one person bears the crux of the loan. It may take more energy to get smaller amounts from a larger circle of people, but the safety factors for all concerned will more than compensate for the time spent.
5. Keep your investors involved.
Once the buyer becomes an owner and the new business is in operation, friends and family lenders are due more than their repayment. They will want to be informed and updated about the progress of the business. Keeping in touch is a cost-free way to return the vote of confidence your friendly investors have placed in you.
Borrowing money from family members and/or friends is one of the most frequently-used methods of small business financing. The pluses are obvious--there is trust, familiarity, and a general comfort level when dealing with those you know. The drawbacks are self-evident as well: "doing business" with family and friends comes with cautionary notes of legendary proportions. Everybody knows that family ventures can be complex and stressful, stirring up "bad blood" and lingering ill will. However, by taking the right preventive steps, buyers can take advantage of friendly financial help.
1. Set up an informal meeting to introduce your ideas.
This is the time to "feel out" friends and relatives casually, being sure they understand that this is strictly a fact-finding (and fact-presenting) meeting. Anyone who is not interested or cannot afford to be involved has plenty of opportunity to say so without feeling obligated--or emotionally "blackmailed."
2. Follow up with a professional business plan.
Those who have indicated interest should now be treated with utmost professionalism. A formal business plan, including detailed financials, and a carefully-drafted business contract should be presented at this subsequent gathering. Consult a business professional for help in establishing a schedule for repayment based on the appropriate interest rates. Nothing will inspire more confidence in lenders than the care taken with this vital paperwork.
3. Be clear about the structure of the business envisioned.
How much voice are investors to have in the business? This is a vital question. Be sure that all parties understand whether this is to be a simple investment or some sort of partnership, and put this agreement in writing.
4. Take care in identifying your borrowing "targets."
Sometimes willing and eager family members can't really afford to invest. If possible, try to spread the borrowing around so that no one person bears the crux of the loan. It may take more energy to get smaller amounts from a larger circle of people, but the safety factors for all concerned will more than compensate for the time spent.
5. Keep your investors involved.
Once the buyer becomes an owner and the new business is in operation, friends and family lenders are due more than their repayment. They will want to be informed and updated about the progress of the business. Keeping in touch is a cost-free way to return the vote of confidence your friendly investors have placed in you.
Monday, March 28, 2011
Negotiating the Price Gap Between Buyers and Sellers
Sellers generally desire all-cash transactions; however, oftentimes partial seller financing is necessary in typical middle market company transactions. Furthermore, sellers who demand all-cash deals typically receive a lower purchase price than they would have if the deal were structured differently.
Although buyers may be able to pay all-cash at closing, they often want to structure a deal where the seller has left some portion of the price on the table, either in the form of a note or an earnout. Deferring some of the owner's remuneration from the transaction will provide leverage in the event that the owner has misrepresented the business. An earnout is a mechanism to provide payment based on future performance. Acquirers like to suggest that, if the business is as it is represented, there should be no problem with this type of payout. The owner's retort is that he or she knows the business is sound under his or her management, but does not know whether the buyer will be as successful in operating the business.
Moreover, the owner has taken the business risk while owning the business; why would he or she continue to be at risk with someone else at the helm? Nevertheless, there are circumstances in which an earnout can be quite useful in recognizing full value and consummating a transaction. For example, suppose that a company had spent three years and vast sums developing a new product and had just launched the product at the time of a sale. A certain value could be arrived at for the current business, and an earnout could be structured to compensate the owner for the effort and expense of developing the new product if and when the sales of the new product materialize. Under this scenario everyone wins.
The terms of the deal are extremely important to both parties involved in the transaction. Many times the buyers and sellers, and their advisors, are in agreement with all the terms of the transaction, except for the price. Although the variance on price may seem to be a "deal killer," the price gap can often be resolved so that both parties can move forward to complete the transaction.
Click "http://dnn5.bbpinc.com/marketing/articles/smid/1597/articleid/402/t/negotiating-the-price-gap-between-buyers-and-sellers.aspx" to view entire article.
Although buyers may be able to pay all-cash at closing, they often want to structure a deal where the seller has left some portion of the price on the table, either in the form of a note or an earnout. Deferring some of the owner's remuneration from the transaction will provide leverage in the event that the owner has misrepresented the business. An earnout is a mechanism to provide payment based on future performance. Acquirers like to suggest that, if the business is as it is represented, there should be no problem with this type of payout. The owner's retort is that he or she knows the business is sound under his or her management, but does not know whether the buyer will be as successful in operating the business.
Moreover, the owner has taken the business risk while owning the business; why would he or she continue to be at risk with someone else at the helm? Nevertheless, there are circumstances in which an earnout can be quite useful in recognizing full value and consummating a transaction. For example, suppose that a company had spent three years and vast sums developing a new product and had just launched the product at the time of a sale. A certain value could be arrived at for the current business, and an earnout could be structured to compensate the owner for the effort and expense of developing the new product if and when the sales of the new product materialize. Under this scenario everyone wins.
The terms of the deal are extremely important to both parties involved in the transaction. Many times the buyers and sellers, and their advisors, are in agreement with all the terms of the transaction, except for the price. Although the variance on price may seem to be a "deal killer," the price gap can often be resolved so that both parties can move forward to complete the transaction.
Click "http://dnn5.bbpinc.com/marketing/articles/smid/1597/articleid/402/t/negotiating-the-price-gap-between-buyers-and-sellers.aspx" to view entire article.
Thursday, March 24, 2011
Do the Financials Tell the Whole Story?
Many experts say no! These experts believe that only half of the valuation should be based on the financials (the number-crunching), with the other half based on non-financial information (the subjective factors).
What subjective factors are they referring to? SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats – the primary factors that make up the subjective, or non-financial, analysis. Below you will find a more detailed look at the areas that help us evaluate a company’s SWOT.
Click "HERE" to view entire article.
What subjective factors are they referring to? SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats – the primary factors that make up the subjective, or non-financial, analysis. Below you will find a more detailed look at the areas that help us evaluate a company’s SWOT.
Click "HERE" to view entire article.
Monday, March 21, 2011
Increasing the Value of Your Business
Considering selling your business? Just want to increase the value of your business? Here are some areas to look at that can fairly quickly increase profits, which are, after all, a main building block in creating value.
• PRICING: Are the prices of the products or services set too low? Owners too often continue with the same prices year after year without revisiting their pricing structure.
• CUSTOMER SERVICE: Despite all of the above Elevating the quality or amount of customer service may not only increase business and support the higher prices suggested above, but also encourage customers to pay more promptly, increasing cash flow.
• EXPENSES: Owners should review what they pay for inventory, supplies, utilities, insurance, technology and any other expenses. Are you getting the lowest price possible? Are you taking advantage of all available discounts, etc.? It may pay to check pricing from other suppliers and vendors. Every saving increase profits and subsequently profits.
• INVENTORY: In some cases inventory levels may be higher than necessary. Retail operations want their stores to look “busy,” but they don’t need a basement or warehouse full of inventory. In today’s fast-moving economy, inventory can be supplied almost on demand – in most cases. This should be balanced by still taking advantage of special pricing on certain items or stockpiling hard-to-get inventory.
• OUTSOURCING: Some services, especially in today’s environment of the self-employed, can be outsourced. While replacing workers is not pleasant, and should only be done if substantial savings can be realized, outsourcing is often worth investigating.
• EMPLOYEES: Now may be the time to get rid of any disgruntled employees. Happy and contented employees make for a profitable business.
These are just a few areas to consider to help increase profits and, subsequently, increase value.
• PRICING: Are the prices of the products or services set too low? Owners too often continue with the same prices year after year without revisiting their pricing structure.
• CUSTOMER SERVICE: Despite all of the above Elevating the quality or amount of customer service may not only increase business and support the higher prices suggested above, but also encourage customers to pay more promptly, increasing cash flow.
• EXPENSES: Owners should review what they pay for inventory, supplies, utilities, insurance, technology and any other expenses. Are you getting the lowest price possible? Are you taking advantage of all available discounts, etc.? It may pay to check pricing from other suppliers and vendors. Every saving increase profits and subsequently profits.
• INVENTORY: In some cases inventory levels may be higher than necessary. Retail operations want their stores to look “busy,” but they don’t need a basement or warehouse full of inventory. In today’s fast-moving economy, inventory can be supplied almost on demand – in most cases. This should be balanced by still taking advantage of special pricing on certain items or stockpiling hard-to-get inventory.
• OUTSOURCING: Some services, especially in today’s environment of the self-employed, can be outsourced. While replacing workers is not pleasant, and should only be done if substantial savings can be realized, outsourcing is often worth investigating.
• EMPLOYEES: Now may be the time to get rid of any disgruntled employees. Happy and contented employees make for a profitable business.
These are just a few areas to consider to help increase profits and, subsequently, increase value.
Wednesday, March 16, 2011
Creating Value in Privately Held Companies
“As shocking as it may sound, I believe that most owners of middle market private companies do not really know the value of their company and what it takes to create greater value in their company … Oh sure, the owner tracks sales and earnings on a regular basis, but there is much more to creating company value than just sales and earnings”
Russ Robb, Editor, M&A Today
Creating value in the privately held company makes sense whether the owner is considering selling the business, plans on continuing to operate the business, or hopes to have the company remain in the family. (It is interesting to note that, of the businesses held within the family, only about 30 percent survive the second generation, 11 percent survive the third generation and only 3 percent survive the fourth generation and beyond).
Building value in a company should focus on the following six components:
the industry
the management
products or services
customers
competitors
comparative benchmarks
Click "HERE" to view entire article.
Russ Robb, Editor, M&A Today
Creating value in the privately held company makes sense whether the owner is considering selling the business, plans on continuing to operate the business, or hopes to have the company remain in the family. (It is interesting to note that, of the businesses held within the family, only about 30 percent survive the second generation, 11 percent survive the third generation and only 3 percent survive the fourth generation and beyond).
Building value in a company should focus on the following six components:
the industry
the management
products or services
customers
competitors
comparative benchmarks
Click "HERE" to view entire article.
Monday, March 14, 2011
What Is a Company Worth?
This question can only be answered by addressing other related questions, specifically: Who’s asking and for what purpose?
From the perspective of the owner, prospective buyers, the IRS, lenders and divorce & bankruptcy courts, the value of a business for purposes of a sale, estate planning, orderly or forced liquidation, gifting, divorce, etc. can be vastly different.
Intrinsically tied to the various purposes of valuation are numerous definitions of “value.” Here are a few examples:
Investment Value – The value an acquirer places on a business based on a future return on investment determined by assessing past and current performance, future prospects, and other opportunities and risk factors involving the business.
Liquidation Value – The value derived from the sale of the assets of a business that is closed or expected to be closed following the sale.
Book Value – Book value is the difference between the total assets and total liabilities as accounted for on the company’s balance sheet.
Going Concern Value – Used to define the intangible value which may exist as a result of a business having such attributes as an established, trained and knowledgeable workforce, a loyal customer base, in-place operating systems, etc.
Fair Market Value
For the purpose of this article, the focus will be on transaction related valuations. Fair Market Value (“FMV”) is the most relevant definition of “value” and is of the most interest to business owners. The more knowledge business owners and prospective buyers have about the valuation process, the more likely they will come to an agreement on a purchase price.
FMV is the measure of value most used by business appraisers, as well as the Internal Revenue Service (IRS) and the courts. FMV is essentially defined as “the value for which a business would sell assuming the buyer is under no compulsion to buy and the seller is under no compulsion to sell, and both parties are aware of all of the relevant facts of the transaction.” IRS Revenue Rule 59-60 lists the following factors to consider in establishing estimates of FMV:
Click "Here" to view entire article.
From the perspective of the owner, prospective buyers, the IRS, lenders and divorce & bankruptcy courts, the value of a business for purposes of a sale, estate planning, orderly or forced liquidation, gifting, divorce, etc. can be vastly different.
Intrinsically tied to the various purposes of valuation are numerous definitions of “value.” Here are a few examples:
Investment Value – The value an acquirer places on a business based on a future return on investment determined by assessing past and current performance, future prospects, and other opportunities and risk factors involving the business.
Liquidation Value – The value derived from the sale of the assets of a business that is closed or expected to be closed following the sale.
Book Value – Book value is the difference between the total assets and total liabilities as accounted for on the company’s balance sheet.
Going Concern Value – Used to define the intangible value which may exist as a result of a business having such attributes as an established, trained and knowledgeable workforce, a loyal customer base, in-place operating systems, etc.
Fair Market Value
For the purpose of this article, the focus will be on transaction related valuations. Fair Market Value (“FMV”) is the most relevant definition of “value” and is of the most interest to business owners. The more knowledge business owners and prospective buyers have about the valuation process, the more likely they will come to an agreement on a purchase price.
FMV is the measure of value most used by business appraisers, as well as the Internal Revenue Service (IRS) and the courts. FMV is essentially defined as “the value for which a business would sell assuming the buyer is under no compulsion to buy and the seller is under no compulsion to sell, and both parties are aware of all of the relevant facts of the transaction.” IRS Revenue Rule 59-60 lists the following factors to consider in establishing estimates of FMV:
Click "Here" to view entire article.
Friday, February 11, 2011
Why Your Company Needs a Physical
Many executives of both public and private firms get a physical check-up once a year. Many of these same executives think nothing of having their investments checked over at least once a year - probably more often. Yet, these same prudent executives never consider giving their company an annual physical, unless they are required to by company rules, ESOP regulations or some other necessary reason.
A leading CPA firm conducted a survey that revealed:
65% of business owners do not know what their company is worth;
75% of their net worth is tied up in their business; and
85% have no exit strategy
There are many obvious reasons why a business owner should get a valuation of his or her company every year such as partnership issues, estate planning or a divorce; buy/sell agreements; banking relationships; etc.
Click "HERE" for entire article.
A leading CPA firm conducted a survey that revealed:
65% of business owners do not know what their company is worth;
75% of their net worth is tied up in their business; and
85% have no exit strategy
There are many obvious reasons why a business owner should get a valuation of his or her company every year such as partnership issues, estate planning or a divorce; buy/sell agreements; banking relationships; etc.
Click "HERE" for entire article.
Monday, February 7, 2011
What Makes Your Company Unique?
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.
Click "HERE" for entire article.
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.
Click "HERE" for entire article.
Thursday, February 3, 2011
The Term Sheet
Buyers, sellers, intermediaries and advisors often mention the use of a term sheet prior to the creation of an actual purchase and sale agreement. However, very rarely do you ever hear this document explained. It sounds good but what is it specifically?
Very few books about the M&A process even mention term sheet. Russ Robb's book Streetwise Selling Your Business defines term sheet as follows: "A term sheet merely states a price range with a basic structure of the deal and whether or not it includes the real estate." Attorney and author Jean Sifleet offers this explanation: "A one page 'term sheet' or simply answering the questions: Who? What? Where? and How Much? helps focus the negotiations on what's important to the parties. Lawyers, accountants and other advisors can then review the term sheet and discuss the issues." She cautions, "Be wary of professional advisors who use lots of boilerplate documents, take extreme positions or use tactics that are adversarial. Strive always to keep the negotiations 'win-win.'"
If the buyer and the seller have verbally agreed on the price and terms, then putting words on paper can be a good idea. This allows the parties to see what has been agreed on, at least verbally. This step can lead to the more formalized letter of intent based on the information contained in the term sheet. The term sheet allows the parties and their advisors to put something on paper that has been verbally discussed and tentatively agreed on prior to any documentation that requires signatures and legal review.
A term sheet is, in essence, a preliminary proposal containing the outline of the price, terms and any major considerations such as employment agreements, consulting agreements and covenants not to compete. It is a good first step to putting a deal together.
Very few books about the M&A process even mention term sheet. Russ Robb's book Streetwise Selling Your Business defines term sheet as follows: "A term sheet merely states a price range with a basic structure of the deal and whether or not it includes the real estate." Attorney and author Jean Sifleet offers this explanation: "A one page 'term sheet' or simply answering the questions: Who? What? Where? and How Much? helps focus the negotiations on what's important to the parties. Lawyers, accountants and other advisors can then review the term sheet and discuss the issues." She cautions, "Be wary of professional advisors who use lots of boilerplate documents, take extreme positions or use tactics that are adversarial. Strive always to keep the negotiations 'win-win.'"
If the buyer and the seller have verbally agreed on the price and terms, then putting words on paper can be a good idea. This allows the parties to see what has been agreed on, at least verbally. This step can lead to the more formalized letter of intent based on the information contained in the term sheet. The term sheet allows the parties and their advisors to put something on paper that has been verbally discussed and tentatively agreed on prior to any documentation that requires signatures and legal review.
A term sheet is, in essence, a preliminary proposal containing the outline of the price, terms and any major considerations such as employment agreements, consulting agreements and covenants not to compete. It is a good first step to putting a deal together.
Monday, January 31, 2011
Is This the Right Time to Sell?
The owner of a successful company is considering selling, thinking now may be a good time. However, he is told by an outside advisor that business is good and that if he holds on to it for several more years he will get a much higher price. On the surface, this makes a lot of sense. After all, when an advisor tells the owner that if he keeps it for three more years the price will double, that's a terrific incentive to keep plugging away. However, there is another side to what would appear to be sound advice.
The most dramatic downside would be that the business could go downhill rather than uphill as the advisor predicted. Although no one can predict what the economy will do, there are a couple of possible scenarios. The industry itself might be impacted by some new technology or other companies might enter the field. It is also possible that the owner, having considered selling, is just worn out and can't or won't maintain the zeal necessary to keep the business competitive. After all, after many years of running the business, the owner may be tired, "burnt out," or just plain ready to slow down.
There are other areas to consider as well. For example, equipment may need upgrading or replacement, products or services may be aging and need revitalizing. Additional capital may be necessary to keep the company up-to-date and competitive. Leases may be expiring and long obligations required to renew them. In short, what originally looked like a good strategy to increase the selling price, has backfired. The costs of continuing to operate the business have increased dramatically, the owner has lost interest - and now the company is offered for sale.
The right time to sell may be when the company's industry, product line or service is at or near the height, of its success. There comes a point when the business or its industry is peaking and everyone wants "in" - and that is the time to sell. There is the old story that the time to sell the buggy whip business was just before Ford started producing the Model-T. As they say, "timing is everything."
The right time might be when the company is at the top of its game. Sales are robust and growing, the balance sheet is squeaky clean, and the employees are productive and happy. Another good time to sell is when there is a solid buyer who is seriously interested in purchasing the company, or perhaps, when a manager within the company is ready to take over in a buy-out of some form.
So, when is the right time to sell? Perhaps when the owner first decided it might be time. However, there is really no best time to sell. No one can tell the owner when it is the time to sell. Outside advisors are well intended, but no one knows when it is time except the owner. And, when it's time - it's time!
The most dramatic downside would be that the business could go downhill rather than uphill as the advisor predicted. Although no one can predict what the economy will do, there are a couple of possible scenarios. The industry itself might be impacted by some new technology or other companies might enter the field. It is also possible that the owner, having considered selling, is just worn out and can't or won't maintain the zeal necessary to keep the business competitive. After all, after many years of running the business, the owner may be tired, "burnt out," or just plain ready to slow down.
There are other areas to consider as well. For example, equipment may need upgrading or replacement, products or services may be aging and need revitalizing. Additional capital may be necessary to keep the company up-to-date and competitive. Leases may be expiring and long obligations required to renew them. In short, what originally looked like a good strategy to increase the selling price, has backfired. The costs of continuing to operate the business have increased dramatically, the owner has lost interest - and now the company is offered for sale.
The right time to sell may be when the company's industry, product line or service is at or near the height, of its success. There comes a point when the business or its industry is peaking and everyone wants "in" - and that is the time to sell. There is the old story that the time to sell the buggy whip business was just before Ford started producing the Model-T. As they say, "timing is everything."
The right time might be when the company is at the top of its game. Sales are robust and growing, the balance sheet is squeaky clean, and the employees are productive and happy. Another good time to sell is when there is a solid buyer who is seriously interested in purchasing the company, or perhaps, when a manager within the company is ready to take over in a buy-out of some form.
So, when is the right time to sell? Perhaps when the owner first decided it might be time. However, there is really no best time to sell. No one can tell the owner when it is the time to sell. Outside advisors are well intended, but no one knows when it is time except the owner. And, when it's time - it's time!
Friday, January 28, 2011
Tips on Avoiding the Dealbreakers
One of the most important steps is to hire the right advisors. This begins with the right professional M&A specialist. The right attorney should be added to the team. The right one is an attorney who has been through the sales process many times - one who is a deal maker seeking solutions, not a deal breaker seeking "why not to" reasons. The accountants must be deal oriented, and if they are the firm's outside advisor, they should be aware that they may not be retained by the buyer, and must still be willing to work in the best interest of putting the deal together.
Getting through due diligence
One of the three or four times a deal can fall apart is half-way into the due diligence phase, when the buyer finds something he or she did not expect. No one likes surprises, and they can't all be anticipated. An experienced buyer will probably work his way through it, but a novice may walk away. Although sellers too often hope a potential problem doesn't surface, it always does. Avoid the surprises by putting everything on the table even if it seems inconsequential. It's much better to expose all the warts up front than to have them surface later.
Where is all the money going?
Prior to offering their business for sale, sellers should figure out what the net proceeds will be after paying off any debt not being assumed, current payables, closing costs and tax obligations. The middle of due diligence is no time for the seller to realize that the proceeds from the sale aren't what he or she anticipated. On the buyer's side, there are times when current sales and profits are suddenly going south. If the seller anticipates this happening, the buyer should be told up front the reason for the rapid decline. Otherwise, if it comes as a surprise to the buyer, it might cause some restructuring of the deal.
No chemistry between the buyer and the seller
If everything goes smoothly (a rare occurrence), the buyer and the seller don't have to be good buddies. However, if problems or surprises develop, good chemistry can save the day. Sometimes a golf outing or a good dinner can bring the parties together. If both parties want the deal to work, having them get together socially - and privately - can, many times, overcome a stubborn legal or financial issue.
Obviously, not all deals work. However, the odds of the deal closing are greatly improved if both the buyer and the seller consider the areas discussed above. Surprises can work both ways, and the buyers too should place their cards on the table. However, when all else fails, it is the desire of both parties wanting the transaction to work that will ultimately close the deal!
Click "HERE" to view entire article.
Getting through due diligence
One of the three or four times a deal can fall apart is half-way into the due diligence phase, when the buyer finds something he or she did not expect. No one likes surprises, and they can't all be anticipated. An experienced buyer will probably work his way through it, but a novice may walk away. Although sellers too often hope a potential problem doesn't surface, it always does. Avoid the surprises by putting everything on the table even if it seems inconsequential. It's much better to expose all the warts up front than to have them surface later.
Where is all the money going?
Prior to offering their business for sale, sellers should figure out what the net proceeds will be after paying off any debt not being assumed, current payables, closing costs and tax obligations. The middle of due diligence is no time for the seller to realize that the proceeds from the sale aren't what he or she anticipated. On the buyer's side, there are times when current sales and profits are suddenly going south. If the seller anticipates this happening, the buyer should be told up front the reason for the rapid decline. Otherwise, if it comes as a surprise to the buyer, it might cause some restructuring of the deal.
No chemistry between the buyer and the seller
If everything goes smoothly (a rare occurrence), the buyer and the seller don't have to be good buddies. However, if problems or surprises develop, good chemistry can save the day. Sometimes a golf outing or a good dinner can bring the parties together. If both parties want the deal to work, having them get together socially - and privately - can, many times, overcome a stubborn legal or financial issue.
Obviously, not all deals work. However, the odds of the deal closing are greatly improved if both the buyer and the seller consider the areas discussed above. Surprises can work both ways, and the buyers too should place their cards on the table. However, when all else fails, it is the desire of both parties wanting the transaction to work that will ultimately close the deal!
Click "HERE" to view entire article.
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