Monday, June 18, 2012
Friday, March 16, 2012
Friday, March 2, 2012
Five Tips for Retooling Your Business
As a business debt solutions provider, I'm finding that there are many entrepreneurs whose companies survived the recession, but are still struggling to make the bottom line.
They never turned to the real solution, which is management by the numbers -- not by the heart or gut.
Maybe you used to give your customers 60 days to pay you, or paid a noisy creditor right away because you felt bad you couldn't pay. But you don't have that luxury any more.
You can no longer afford to be sentimental. Revenues are down, competition is fierce and thus profit is reduced. The business has been in a car wreck and needs some serious triage. It's time to get smart.
Here are some steps you can take to retool your business post-recession:
•Stop being a bank for your customers. Cash is king. That means very short-term or no term payment rules for customers. In other words, give them only a few days to pay you. You can accomplish this, too, if you're an important supplier adding value. If you are not important or valuable to your customers, you better change that – quickly. Otherwise, you are floating a loan to your customers – be it for 30 or 60 or 75 days.
Click "HERE" to read the entire article.
They never turned to the real solution, which is management by the numbers -- not by the heart or gut.
Maybe you used to give your customers 60 days to pay you, or paid a noisy creditor right away because you felt bad you couldn't pay. But you don't have that luxury any more.
You can no longer afford to be sentimental. Revenues are down, competition is fierce and thus profit is reduced. The business has been in a car wreck and needs some serious triage. It's time to get smart.
Here are some steps you can take to retool your business post-recession:
•Stop being a bank for your customers. Cash is king. That means very short-term or no term payment rules for customers. In other words, give them only a few days to pay you. You can accomplish this, too, if you're an important supplier adding value. If you are not important or valuable to your customers, you better change that – quickly. Otherwise, you are floating a loan to your customers – be it for 30 or 60 or 75 days.
Click "HERE" to read the entire article.
Tuesday, February 28, 2012
Price or Terms: The Structure of the Deal
An old saying in negotiating the sale of a business goes like this: The buyer says to the seller, "You name the price, and I get to name the terms." Another saying used to explain the actual value of the term full price: "If we could find you a business that nets you $250,000 a year after debt service, and you could buy it for $100 down, would you really care what the full price was?"
It seems that everyone is concerned only about full price. And yet, full price is just part of the equation. If a seller is willing to accept a relatively small down payment and carry the balance, a higher full price should be expected. On the other hand, the more cash the seller wants up front, the lower the full price. If the seller demands all cash, barring some form of outside financing, full price lowers - and, in most cases, the chance of selling decreases as well. Even in cases where outside financing is used, such as through SBA, etc., the lender will do everything possible to ensure that the price makes sense.
Buyers should understand that the structure of the actual sale (and how that structure meets the seller's reason for selling) can dramatically influence the asking price. Price is obviously important, but other factors may be even more important. For example, consider a seller with health issues who needs to sell as quickly as possible. In his case, timing becomes more essential than price. Another seller may place more importance on her business remaining in the community. In her case, finding a buyer who will not move the business may supersede price or certainly influence it.
Likewise, the structure of the deal can both influence price and be a more significant factor than price to either the buyer or the seller. The structure can dictate how much cash the buyer must pay up front. A low down payment may be important for some buyers. On the other hand, buyers should also be aware how much the interest on the carry-back can add up to. If the buyer can afford a higher downpayment while still retaining sufficient funds for running the business, a lower full price may be obtained with less paid in interest over the following years.
These examples all demonstrate the importance of working with a business broker professional when considering the purchase of a business. During this meeting, the broker should find out what is really important to the buyer, help the buyer understand what he or she can afford, and educate the buyer on the business transaction process.
It seems that everyone is concerned only about full price. And yet, full price is just part of the equation. If a seller is willing to accept a relatively small down payment and carry the balance, a higher full price should be expected. On the other hand, the more cash the seller wants up front, the lower the full price. If the seller demands all cash, barring some form of outside financing, full price lowers - and, in most cases, the chance of selling decreases as well. Even in cases where outside financing is used, such as through SBA, etc., the lender will do everything possible to ensure that the price makes sense.
Buyers should understand that the structure of the actual sale (and how that structure meets the seller's reason for selling) can dramatically influence the asking price. Price is obviously important, but other factors may be even more important. For example, consider a seller with health issues who needs to sell as quickly as possible. In his case, timing becomes more essential than price. Another seller may place more importance on her business remaining in the community. In her case, finding a buyer who will not move the business may supersede price or certainly influence it.
Likewise, the structure of the deal can both influence price and be a more significant factor than price to either the buyer or the seller. The structure can dictate how much cash the buyer must pay up front. A low down payment may be important for some buyers. On the other hand, buyers should also be aware how much the interest on the carry-back can add up to. If the buyer can afford a higher downpayment while still retaining sufficient funds for running the business, a lower full price may be obtained with less paid in interest over the following years.
These examples all demonstrate the importance of working with a business broker professional when considering the purchase of a business. During this meeting, the broker should find out what is really important to the buyer, help the buyer understand what he or she can afford, and educate the buyer on the business transaction process.
Friday, February 24, 2012
What are You Really Looking For?
The obvious answer is probably that most people are looking to buy a business that makes a lot of money. But the real answers may surprise you. Here is a list of just a few that buyers have mentioned:
■Pride of ownership
■A business that looks like fun to own and operate
■Happy employees
■Financial records that make sense
■Good growth prospects
■A well-known or popular business
■A good track record
■A great location
■A seller who is willing to finance the sale
■A reasonable price
Certainly, you will want to make money when buying a business, but there is more involved, as the list above indicates.
As you consider buying a business, you need to know what is truly important to you. What are you looking for? What do you hope to gain from business ownership?
A business brokerage professional can help you think through and prioritize your reasons for buying. This, in turn, will help you better evaluate how well different businesses for sale fit what you are really looking for.
■Pride of ownership
■A business that looks like fun to own and operate
■Happy employees
■Financial records that make sense
■Good growth prospects
■A well-known or popular business
■A good track record
■A great location
■A seller who is willing to finance the sale
■A reasonable price
Certainly, you will want to make money when buying a business, but there is more involved, as the list above indicates.
As you consider buying a business, you need to know what is truly important to you. What are you looking for? What do you hope to gain from business ownership?
A business brokerage professional can help you think through and prioritize your reasons for buying. This, in turn, will help you better evaluate how well different businesses for sale fit what you are really looking for.
Wednesday, February 22, 2012
Can I Afford to Buy a Business?
Where there is a will....there is usually a way to make it happen !
Most likely, the answer is yes. There are several avenues we can recommend to assist the buyer with financing the purchase. It will probably take a combination of the following:
1. Get a SBA loan. This is a government backed loan that will lend up to 80% of the purchase price, providing the buyer has other assets to use for collateral.
2. Use your 401K or IRA without penalty.
3. Owner finance part of the purchase, if the seller agrees.
3. The buyer can pay cash. Yes, occasionally it happens.
Most likely, the answer is yes. There are several avenues we can recommend to assist the buyer with financing the purchase. It will probably take a combination of the following:
1. Get a SBA loan. This is a government backed loan that will lend up to 80% of the purchase price, providing the buyer has other assets to use for collateral.
2. Use your 401K or IRA without penalty.
3. Owner finance part of the purchase, if the seller agrees.
3. The buyer can pay cash. Yes, occasionally it happens.
Monday, February 20, 2012
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.
The list could go on and on and this subject has been covered many times. However, there are more hidden reasons that threaten to end a deal usually half to three-quarters of the way to closing. These hidden reasons silently lead to a lack of or loss of momentum.
This essentially means a lack of forward progress. No one notices at first. Even the advisors who are busy doing the necessary due diligence and paperwork don’t notice the waning or missing momentum. Even though a slow-down in momentum may not be noticeable at first, an experienced business intermediary will catch it.
Let’s say a buyer can’t get through to the seller. The buyer leaves repeated messages, but the calls are not returned. (The reverse can also happen, but for our example we’ll assume the seller is unresponsive.) The buyer then calls the intermediary. The intermediary assures the buyer that he or she will call the seller and have him or her get in touch. The intermediary calls the seller and receives the same response. Calls are not returned. Even if calls are returned the seller may fail to provide documents, financial information, etc.
To the experienced intermediary the “red flag” goes up. Something is wrong. If not resolved immediately, the deal will lose its momentum and things can fall apart quite rapidly. What is this hidden element that causes a loss of momentum? It is generally not price or anything concrete.
It often boils down to an emotional issue. The buyer or seller gets what we call “cold feet.” Often it is the seller who has decided that he really doesn’t want to sell and doesn’t know what to do. It may also be that the buyer has discovered something that is quite concerning and doesn’t know how to handle it. Maybe the chemistry between buyer and seller is just not there for one or the other of them. Whatever the reason, the reluctant party just tries to ignore the proceedings and lack of momentum occurs.
The sooner this loss of momentum is addressed, the better the chance for the deal to continue to closing. Because the root of the problem is often an emotional issue, it has to be faced directly. An advisor, the intermediary or someone close to the person should immediately make a personal visit. Another suggestion is to get the buyer and seller together for lunch or dinner, preferably the latter. Regardless of how it happens, the loss of momentum should be addressed if the sale has any chance of closing.
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.
The list could go on and on and this subject has been covered many times. However, there are more hidden reasons that threaten to end a deal usually half to three-quarters of the way to closing. These hidden reasons silently lead to a lack of or loss of momentum.
This essentially means a lack of forward progress. No one notices at first. Even the advisors who are busy doing the necessary due diligence and paperwork don’t notice the waning or missing momentum. Even though a slow-down in momentum may not be noticeable at first, an experienced business intermediary will catch it.
Let’s say a buyer can’t get through to the seller. The buyer leaves repeated messages, but the calls are not returned. (The reverse can also happen, but for our example we’ll assume the seller is unresponsive.) The buyer then calls the intermediary. The intermediary assures the buyer that he or she will call the seller and have him or her get in touch. The intermediary calls the seller and receives the same response. Calls are not returned. Even if calls are returned the seller may fail to provide documents, financial information, etc.
To the experienced intermediary the “red flag” goes up. Something is wrong. If not resolved immediately, the deal will lose its momentum and things can fall apart quite rapidly. What is this hidden element that causes a loss of momentum? It is generally not price or anything concrete.
It often boils down to an emotional issue. The buyer or seller gets what we call “cold feet.” Often it is the seller who has decided that he really doesn’t want to sell and doesn’t know what to do. It may also be that the buyer has discovered something that is quite concerning and doesn’t know how to handle it. Maybe the chemistry between buyer and seller is just not there for one or the other of them. Whatever the reason, the reluctant party just tries to ignore the proceedings and lack of momentum occurs.
The sooner this loss of momentum is addressed, the better the chance for the deal to continue to closing. Because the root of the problem is often an emotional issue, it has to be faced directly. An advisor, the intermediary or someone close to the person should immediately make a personal visit. Another suggestion is to get the buyer and seller together for lunch or dinner, preferably the latter. Regardless of how it happens, the loss of momentum should be addressed if the sale has any chance of closing.
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