Every company has weaknesses; the trick is to fix them.  There is a saying that the test of a good company president or CEO is what happens to the company when he or she leaves.  Some companies–on paper–may look the same, but one company may be much more valuable due to weaknesses in the other company.  Not all problems or weaknesses can be resolved or fixed, but most can be mitigated.  Fixing or lessening company weaknesses can not only significantly improve the value, but also increase the chances of finding the right buyer.  Here are some common weaknesses that concern some buyers, causing them to look elsewhere for an acquisition.

“The One Man Band”

Many small companies were founded by the current president, and he has made all of the major decisions.  Since he has not developed a succession plan, there is no one in place to take over if he gets hit by the proverbial truck.  He is the typical one man band; and, as a result, the company is not an attractive target for acquisition.

Declining Industry

Companies that are in a declining market have to be smart enough to recognize the situation and make changes accordingly.  A real-life example of a “smart” company is one that made ties, and, realizing the decline in this apparel item, switched over to making personalized polo shirts.  A company can still make ties but has to have the foresight – and ability – to move into new product areas.

Customer Concentration

This is a major concern of most buyers.  It is not unusual for the one man band to focus on what made the company successful – one or two major customers.  He has built the relationships over the years.  These relationships are seldom transferable.  Finding new customers may take time and money, but the effort is absolutely necessary should the owner eventually decide to sell.

The One Product

Many one man band run companies were based, and still are, on either the manufacture and sale of one product or the creation and development of a single service.  Henry Ford made a wonderful car – the Model A – but that’s all he made.  General Motors decided that many people would like something different and were willing to pay for it.  Fortunately, for Ford, he caught on quickly, but almost went out of business with the thinking that one model fits everyone.

Aging Workforce/Decaying Culture

Young people are not entering the trades, leaving many jobs such as tool and die positions filled with “old hands” who will soon be retiring.  Technology may be able to replace them, but that decision has to made and implemented.  No one wants a business that will have idle machines with no one trained to operate them.

There are many other areas that could be considered company weaknesses.  If there is a Board of Directors or an Advisory Board, perhaps they can help the one man band create a succession plan and just as importantly – a successor.  Certainly the time to act on all of this is before the decision to sell is made.    Whether current ownership plans on staying the course or eventually selling the company, the good news is that resolving company weaknesses is a win-win situation.

If you are considering selling your company in the next year or so, the time to start is now.  Planning ahead can significantly add to the eventual selling price.  A visit with a professional Certified Business Broker is the first step.

Copyright: Business Brokerage Press, Inc.

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You’ve made the big decision to put your business on the market. Your reasons for selling are valid, carefully-considered, and “good” – the kind that won’t make a prospective buyer shy away. Now, you may tell yourself, comes the fun part. You’ll come up with a price – maybe a little high, but why not? – and let gut instinct (an attribute common to successful business owners) lead the way.

Wait just a minute. Or maybe a quarter of an hour; however long it takes you to bone up on your negotiation skills with the following steps as a guide. Being a smart negotiator is tantamount to effecting the successful sale of your business.

Gather Your Forces

The first step is to engage the help of a business broker professional. He or she understands the sales negotiation process as well as tactics for marketing the business. Before sitting down with your business broker, however, you should gather the following information: profit and loss statements (for three years), current federal income tax returns, a list of fixtures and equipment, copies of equipment leases (if any), the lease and any lease-related documents, a copy of your franchise agreement (if applicable), lists of loans (if applicable), with amounts and payment schedule, an approximate tally of inventory on hand, and the names of any outside advisors (attorney, accountant, etc.) you plan to consult.

Be Market-Smart

It’s vital to have a clear and realistic notion about the value of your business. Pricing your business intelligently is as important as impressive financial records. Your business broker will apply industry-tested valuation methods, including ratios based on the sales of similar businesses, as well as the historical data that most closely matches your type of business. He or she will also incorporate intangibles to insure that the business will not be underpriced. At the same time, your broker will make sure you understand how the price is dictated by the marketplace and that realistic pricing is an absolute must. Most buyers won’t wait for an outsized price to drop – they will just go somewhere else.

Know Your Buyer

Finding the right buyer may be more important than getting that extra-high asking price. Your business broker will determine the right buyer for the right business, focusing on those prospects who are financially qualified and are genuinely interested in your type of business. It’s important also to know something about the bargaining power of the buyer and to discover early on how he or she plans to finance the purchase of your business. Your business broker will do that and more: he or she will anticipate the buyer’s concerns and counsel you about being up-front about any problems that might make a buyer suspicious and therefore unnecessarily adversarial during the negotiation process. Steeped in knowledge about negotiating price, terms and other vital aspects of the sale, the broker will guide you each step of the way. During the early stages, while the buyer is still considering making an offer, the broker is the ideal person to follow up and keep the deal running smoothly. Working alone, you could lose bargaining effectiveness by doing the follow-up yourself. And, in general, having someone else negotiate on your behalf is the smartest way to go. The “middle man” can get your thoughts across, keeping you at a distance from the words themselves.

Be Flexible

In negotiating the sale of your business, you need to keep the ball rolling once an offer has been presented. Study it closely, and don’t automatically despair. Just because you didn’t get your asking price doesn’t mean that the offer has nothing to commend it. It may have other points to offset what you feel is a low figure, such as – if the deal is to be seller-financed – higher payments or interest, a consulting agreement, more cash than you anticipated, or the promise of a buyer relationship that will make life easier. In evaluating an offer, take the long view and look for the ways in which the offer just might accomplish your objectives. Above all, don’t think in terms of “punishing” the buyer because of a low offer. This is the worst reason for rejecting an offer – and certainly a self-defeating one for you.

Beef Up Bargaining Power

The best negotiating weapon is to have options available. For the seller, the mightiest one is lack of desperation. With any luck, you have not waited too long to sell and your business is sound. Carry this a step further: be sure, in preparing to sell, that you don’t let the business slip. It’s important that prospective buyers see your business at its best – bustling, and showing no signs of neglect. You should, for example, keep normal operating hours, repair signage and other first-impression areas of the business, repair or remove non-operating equipment, remove items not included in the sale, maintain inventory at constant levels. Make it obvious that you have not been forced to sell, and that – if necessary – you could refuse all offers and carry on the operation of your business. This may be the last thing you want to do, having made the hard decision to sell, but the buyer won’t know that.

Master the Art of Good Timing

Timing is crucial to the successful sale of a business. Any deal has a shelf-life, and it will go stale if it sits around too long. On the other hand, sometimes ideas need extra time to jell – and people sometimes need a little time-and-space to be more objective about their own positions. Your business broker will keep the process moving at the proper pace. He or she will also provide or offer advice about the specialized contracts and forms necessary for the completion of the sale.

In negotiating the sale process, you will benefit many times over from the guidance of a business broker professional. The business broker represents you, the seller, and works toward completing the transaction in a reasonable amount of time and at a price and terms acceptable to you. The broker will also present and assess offers and, at the appropriate juncture, he or she can help in structuring the sale and negotiating its successful close – helping to create a win-win situation for everyone involved.

Copyright: Business Brokerage Press, Inc.

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Who best understands my business?

When interviewing Intermediaries/Business Brokers to represent the sale of your firm, it is important that you discuss your decision process for selecting one.  Without this discussion, an Intermediaries/Business Broker can’t respond to a prospective seller’s concerns.

Are there any potential buyers?

When dealing with Intermediaries/Business Broker, it always helps to reveal any possible buyer, an individual or a company, that has shown an interest in the business for sale.  Regardless of how far in the past the interest was expressed, all possible buyers should be contacted now that your company is available for acquisition.  People who have inquired about your company are certainly top prospects.

Lack of communication?

It is critical that communication between the seller, or his or her designee, and the Intermediaries/Business Broker involved in the sale, be handled promptly.  Calls should be taken by both sides.  If either side is busy or out of the office, the call should be returned as quickly as possible.

Does the offering memorandum have cooperation from both sides?

This document must be as complete as possible, and some of the important sections require careful input from the seller.  For example: an analysis of the competition; the company’s competitive advantages – and shortcomings; how the company can be grown and such issues as pending lawsuits and environmental, if any.

Where are the financials?

It may be easy for a seller to provide last year’s financials, but that’s just a beginning.  Five years, plus current interim statements and at least one year’s projections may be necessary.  In addition, the current statement should be audited; although this usually presents a problem for smaller firms — better to do it now than later.

Are the attorneys deal-makers?

In most cases, business - transaction attorneys from reputable firms do an excellent job.  However, occasionally, an attorney for one side or the other becomes a deal-breaker instead of a deal-maker.  A sign of this is when an attorney attempts to  take over the transaction at an early stage or provides a strong opinion without being involved in the many conversations that have taken place between the seller and buyer to understand the real issues.  Sellers, and buyers, have to take note of this and inform their attorney that they want the deal to work – or change to a counsel who is a “team player.”

Intermediaries/Business Broker are responsible for handling what is usually the biggest asset the owner has to sell. Intermediaries/Business Broker realize that the sale of a business can create the financial security that is important to a business owner.  The Intermediaries/Business Broker is committed to selling the business, since by doing so, jobs will be saved, a buyer will be able to provide for his/her family and the seller will be able to retire or move on. 

Copyright: Business Brokerage Press, Inc.

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17 Jan What Should Be in Your Partnership Agreement

Partnership agreements are essential business documents, the importance of which is difficult to overstate.  No matter whether your business partner is essentially a stranger or a lifelong friend, it is prudent to have a written partnership agreement.

A good partnership agreement clearly outlines all rights and responsibilities and serves as an essential tool for dealing with fights, disagreements and unforeseen problems.  With the right documentation, you can identify and eliminate a wide range of potential headaches and problems before your business even starts.

Determining the Share of Profits, Regular Draw, Contributing Cash and More

Partnership agreements will also outline the share of profits that each partner takes.  Other important issues that a partnership agreement should address is determining whether or not each partner gets a regular draw.  Invest considerable time to the part of the partnership agreement that outlines how money is to be distributed, as this is an area where a lot of conflict occurs.

The issue of who is contributing cash and services in order to get the business operational should also be addressed in the partnership agreement.  Likewise, the percentage that each partner receives should be clearly indicated.

Partnership Agreements Outline and Prevent Potential Problem Areas

Another area of frequent problems is in the realm of who makes business decisions.  Here are just a few of the types of questions that must be answered:

• Are business decisions made by a unanimous vote or a majority vote?
• What must take place in order to consider new partners?
• Who will be handling managerial work?
• How will the business continue and what changes will occur in the event of a death?
• At what stage would you have to go to court if a conflict cannot be resolved within the framework of your partnership agreement?

You might just want to get your business running as soon as possible, but not addressing these issues in the beginning could spell disaster down the road.

The Uniform Partnership Act

One option to consider, which is offered in all states except Louisiana, is the Uniform Partnership Act or UPA.  The UPA covers all the legal regulations that specifically apply to partnerships.

Reduce Conflict Via a Partnership Agreement

Forming a partnership can be great way to launch a new business, but it is also important to keep in mind that no matter how exciting the process may be it is still a business.  New businesses face an array of challenges, and the last thing any new business needs is internal disruption.  Mapping out via a partnership agreement the duties and expectations of all partners is an easy and logical way to reduce internal conflict within the business so that you can stay focused on building the business and making money!

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11 Jan Sell Your Business and Start Your Retirement

When the day comes to sell your business, it is important that prospective buyers understand why you have made this decision.  Having a valid reason why it is time for you to sell can make your business more attractive to prospective buyers.  After all, it is only natural that you will have to retire at some point even if the business is thriving.  In fact, it is safe to state that buying a successful business from an owner that is retiring is just the kind of the situation that most buyers like.

Owning a business and retirement, of course, is far different than retiring from a job. You likely have many friends ranging from vendors and employees to customers, clients and other business owners.  It is vital that your departure does not disrupt the operation of your business and that prospective buyers understand that you have taken steps to ensure a smooth transition.  In short, you want to create a situation in which everyone is happy once you have sold your business.

Helping to ensure a smooth transition has many parts.  One of those parts is finding a buyer who will treat your people well. Another key aspect of a smooth transition is to automate as much of your work as possible before you leave.  No one knows your business as well as you do, which means that you are the best source to automate and simplify the processes of your business.  Outlining what steps you’ve taken to automate and simplify your business will help make it more attractive to buyers.

A key aspect of streamlining, simplifying and organizing your business is to pick out, well in advance, your second in command.  Once you have decided on which person would be the best candidate, it is important that you begin grooming that person so they can take over day-to-day operations once you leave.  Having a capable person who is committed to staying is a very attractive commodity for prospective buyers. A capable second in command can prove invaluable not just during the transition period but also for the long term operation of the business.

Finally, you should have set up a retirement account on which you can draw upon.  Statistics indicate that roughly 50% of business owners do not have a retirement account set up in advance.  If you don’t have an account set up, don’t panic, instead set one up as soon as possible.

Working with a Business Broker is one of the single best ways to handle the process of selling your business and getting ready for retirement.  A Business Broker can help you with everything from finding qualified prospective buyers to establishing the value of your business.  The sooner you begin working with a Business Broker, the easier your transition will be.

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03 Jan Can I Buy a Business With No Collateral

At first glance the idea of buying a business with no collateral may seem impossible, but in reality it can be done.  Let’s examine your options.  When it comes to achieving this goal, your greatest assets are an open mind and a commitment to hanging in there despite the odds.

The Small Business Association’s 7 (a) Program is Your Friend

One possible avenue for buying a business with zero collateral is to opt for the SBA’s 7 (a) program, which works to incentivize the bank to make a loan to a prospective buyer.  Under this program, the SBA guarantees 7%.  The buyer still has to put in 25%; however, this money doesn’t necessarily have to be his or her money.  This is where things really get interesting.  The cash that the buyer uses can come from investors or even be a gift from parents in the case of young buyers.  These possibilities all fall within the SBA’s guidelines.

Look into Seller Financing, You Might Be Surprised

There is a second way to buy a business with no collateral, and that comes in the form of finding a seller who is willing to finance.  Again, this might seem counter intuitive at first glance.  But the facts are that a large percentage of sellers do agree to offer some level of financing.  So in other words, seller financing is not unheard of and stands as a viable way for a prospective buyer to buy without collateral.

Combining Seller Financing and the SBA’s 7 (a) Program

Combining the SBA’s 7 (a) program with seller financing can prove to be a powerful combination.  It is important to note, however, that if you do use the SBA’s 7 (a) program the seller cannot receive his or her repayment for two years.

Persistence Pays

Ultimately, you will likely need to be rather persistent when trying to find a bank.  Rejection is likely.  But if you are persistent, it is possible to make the SBA’s 7 (a) program work for you.

One key way to keep yourself motivated is to constantly remember that jumping through some hurdles is all part of the process since you’re trying to circumvent the traditional route of using collateral.  But working relentlessly may be worth it because if you are successful, you have acquired a tangible asset without any collateral of your own.  That is no small accomplishment.

Don’t be afraid to ask for advice from S.C.O.R.E., the Small Business Administration (SBA), or an experienced business broker.  While it might sound very unlikely that you’ll be able to buy a business without collateral, plenty of people have successfully done so.

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19 Dec Should You Become a Business Owner?

While being a business owner may in the end not be for everyone, there is no denying the great rewards that come to business owners.  So should you buy a business of your own?  Let’s take a moment and outline the diverse benefits of owning a business and help you decide whether or not this path is right for you.

Do You Want More Control?

A key reason that so many business savvy people opt for owning a business is that it offers a high level of control.  In particular, business owners are in control of their own destiny.  If you have ever wished that you had more control over your life and decisions, then owning a business or franchise may be for you.

Owning a business allows you to chart your own course.  You can hire employees to reduce your workload once the business is successful and, in the process, free up time to spend doing whatever you like.  This is something that you can never hope to achieve working for someone else; after all, you can’t outsource a job.

Keep in mind that when you own a business or franchise, you never have to worry about being downsized or having your job outsourced.  You also don’t have to worry about asking for a raise.  No doubt business owners do have to contend with market forces and unexpected turns.  But even considering those factors, business owners clearly enjoy a greater level of control over their destiny.

Are You Willing to Forgo Benefits?

As an employee, you’ll usually be able to count on a regular income and even allowances for sick days and vacation days.  However, business owners lose money if they are sick or take a vacation.  Plus, they won’t necessary have the steady salary that employees receive as they could see their income vary from one month to the next.

Do You Want to Grow Your Income?

Business owners have the potential to grow their income and take a range of proactive steps that lead to income growth.  As an employee, your fate is far different.  Employees usually exercise either minimal or no control over the course of a business and have no say in key decisions that impact its growth and stability.  Being a business owner by contrast allows you to seize that control.

The amount of income made by business owners varies widely depending on everything from the industry to the region.  But statistics show that the longer you own your business the more you’ll make.  In fact, those who have owned their businesses for greater than 10 years tend to earn upwards of 6 figures per year.

One of the best ways to determine whether or not being a business owner is right for you is to work with a business broker.  A broker understands everything that goes into owning a business and can help you determine whether or not you have the mindset to set out on the path towards business ownership.

Copyright: Business Brokerage Press, Inc.

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07 Dec Three Overlooked Areas to Investigate Before Buying

Before you jump in and buy any business, you’ll want to do your due diligence.  Buying a business is no time to make assumptions or simply wing it.  The only prudent course is to carefully investigate any business before buying, as the consequences of not doing so can in fact be rather dire.  Let’s take a quick look at the three top overlooked areas to investigate before signing on the dotted line and buying a business.

1. Retirement Plans

Many buyers forget all about retirement plans when investigating a business prior to purchase.  However, a failure to examine what regulations have been put into place could spell out disaster.  For this reason, you’ll want to make certain that the business’s qualified and non-qualified retirement plans are up to date with the Department of Labor.  There can be many surprises when you buy a business, but this is one you want to avoid.

2. 1099’s and W-2’s

Just as many prospective buyers fail to investigate the retirement plan of a business, the same is often true concerning 1099’s and W-2’s.  In short, you’ll want to be sure that if 1099’s have been given out instead of W-2’s that it has been always done within existing IRS parameters.  There is no reason to buy a business only to discover a headache with the IRS.

And speaking of employees, does the business you are interested in buying have employee handbooks?  If so, you’ll want to make sure you review it carefully.

3. All Legal Documents

The simple fact is that you never want the business you are interested in buying to have its corporate veil pierced once you take over.  You should carefully review all trademarks, copyrights and other areas of intellectual property to be sure that everything is completely in order.  You’ll want to obtain copies of all consulting agreements, documents involving inventions as well as intellectual property assignments.

Everything should be protected and on legally sound footing.  If you see any problems in this category you should run for the hills and find another business to buy.

Protect Yourself from a Potential Lifetime of Regret

Evaluating overlooked areas is essential in protecting your investment.  For most people, the purchase of a business is the largest of his or her lifetime.  It leaves little room for error.

Not only is it vital to investigate the major areas, but it is also essential to explore the smaller details.  However, the truth of the matter is that when you’re buying a business there are no “small details.”  No one realizes this fact more so than business brokers.  Business brokers are experts in what it takes to buy and sell businesses.  Working with a business broker is a significant move in the right direction.  The time you invest in properly exploring and evaluating a business is time well spent and may literally save you from a lifetime of regret.

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16 Nov Legal Mistakes to Avoid When Selling Your Business

A common mistake that many make when preparing to both buy and sell is a business is to overlook all the various legal issues involved.  A legal mistake can bring the entire process to a screeching halt or even worst cost you a small fortune.  For this reason, it is vital to carefully evaluate the full slate of relevant legalities before selling your business.  In this article, we will explore some of the key legal points you need to consider long before placing your business on the market.

Mistake #1 Neglecting to Have an NDA

Having potential buyers sign an NDA, or non-disclosure agreement, is critically important when you are selling your business.  One benefit to having this contract signed and sealed is that in the event that your deal falls through, which often happens, your buyer can’t disclose the details to other parties.  However, if you don’t have an NDA, your buyer could reveal important aspects of your discussions.  In the process, your business and its worth could be damaged.

Mistake #2 Failing to Get a Good Lawyer

There are times to cut corners, and then there are times when cutting corners is really risking cutting your own throat!  Prepping to sell your business is one of those occasions where investing in good and proven counsel is a must.  A good lawyer can give you a range of legal moves you should and should not make.

Additionally, hiring a lawyer with an established background is just what you need to create ironclad agreements.  Sellers have an array of risks that they must face when selling a business.  For example, you as the seller need protection from a potential buyer hiring away your key employees.  Without ironclad agreements and a tight NDA, a buyer could pass on buying your business, yet “steal” your employees or weaken your business in other ways.

Mistake #3 Skipping the Letter of Intent

Another legal way to protect your interests comes in the form of a letter of intent.  This letter should be one of your key tools in negotiating the deal.  Included in the letter should be a reverse termination fee for the buyer.  This applies in the event that the buyer walks away for a reason that is not the seller’s fault.

Inclusion of this clause means that the seller is far less impacted if the deal does not go through as planned.  Further, this clause goes a long way in ensuring that you attract serious buyers only.

Reap the Benefits of Ample Preparation

These are just a few of the many errors that sellers often make and regret later on.  It is a worthwhile investment to take the legal aspects of selling your business seriously.  If you prepare for the sale of your business adequately, you will have a far superior experience.  That means you should speak with a proven and competent lawyer and Business Broker long before you actually put your business on the market.

Copyright: Business Brokerage Press, Inc.

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01 Nov 5 Things to Consider When Transferring Your Business to Family Members

Letting go of a business isn’t a process that one should jump into lightly, and that fact holds true even when it comes to your loved ones.  Let’s take a look at five of the most important factors to consider when selling or transferring a business to a family member.

#1 The All-Important Buy-Sell Agreement

One of the single most valuable tools available when it comes to selling your business is a buy-sell agreement.  Simply stated, this essential document puts everything in writing.  In situations such as a family owned business, people may be tempted to skip a contract, but that doesn’t mean they should.

When transferring your business, you should have an expert created document in place that outlines the following:

• The business valuation
• Who is to be kept on the payroll and the amount he or she will receive
• The amount being paid
• What level of involvement you will have in the business once the transfer has taken place

#2 The Benefits of Gifting

Consider the option of gifting.  Gifting can actually work to reduce your taxes on real estate, while at the same time it can allow you to maintain some level of control over the business.

#3 Seller Financing and Transferring the Family Business

Selling your business to a family member is, of course, another option.  On occasion, sellers will consider a private annuity, which allows for payments to be spread out for a considerable time period, such as to the end of your life.

#4 The Self-Canceling Installment Note

Another option is to use an installment sale.  If you are a selling parent and you happen to pass away before the payments have all been made for the sale, then the remaining debt may be attached to your will.  This arrangement can keep your other children from paying excess income tax on your estate.

#5 Keep the IRS Happy

The fact of the matter is that the IRS does, in fact, look more closely into sales where the business is being sold to a family member.  This reason alone is a good enough reason to professionally establish a real and accurate valuation of your business.

A business broker can help you work out the particulars as to how best to proceed when navigating the process of selling or transferring your business to a relative.  With the right planning and preparation, selling or transferring your business to a relative doesn’t have to be an overly difficult or cumbersome process.  Work with a business broker and you’ll find that the process can be smoother than you may have expected.

Copyright: Business Brokerage Press, Inc.

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