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.
Friday, July 29, 2011
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.
Subscribe to:
Posts (Atom)
