19 Oct How to Ensure Confidentiality During your Sale

Selling a business is a process that depends upon professionalism and confidentiality.  Selecting a business broker who understands the critical role that confidentiality plays is simply a must.  Unfortunately, countless sellers have in fact dealt with a situation where a breach in confidentiality has caused a deal to fall apart.

A failure to maintain confidentiality can lead to a slew of negative reactions from a range of parties.  Everyone from supplies and vendors to creditors could react in a way that could harm your business, for example, vendors could change their terms and this could in turn negatively impact your cash flow.

A breach of confidentiality could also lead to negative reactions amongst both employees and customers.  The reason is that employees may begin to worry about the security of their jobs and may also become nervous about the change in management.  These fears could prompt employees to find a new job and leave you with a position that needs to be filled.  Potentially more significant is the fact that the loss of key personnel could cause your buyer to have cold feet.

As if all of these factors were not enough of a concern there is also the issue of the competition.  If your competition gets wind that you may be looking to sell they may take advantage of the situation and start attempting to steal your customers.

Finally, a breach in confidentiality could send potential buyers running.  The headaches that are often associated with a breach in confidentiality are such that potential buyers may simply drop the deal.

The best way to protect your confidentiality is to opt for a great business broker.  A business broker is an expert in prompting a business without notifying the competition, your employees, vendors or anyone else.  The process is both an art and a science.

When attempting to sell on your own there are many and diverse pitfalls.  Sellers are much more likely to accidentally reveal who you are; after all, a seller has to provide phone numbers, email addresses, physical addresses and other critical and identifying information.  Even your home phone number could be traced back to your identity and ultimately your business.

A seasoned business broker can help you bypass these potentially damaging issues, by not just shielding your business’s identify but also by ensuring that all interested parties sign confidentiality agreements and are pre-qualified.  In this way you only reveal what is absolutely necessary.  In short, it is best to work with a business broker and maintain your confidentiality at all costs.

Copyright: Business Brokerage Press, Inc.

11 Oct Can you Understand Your Buyer’s Key Motivations?

Negotiations can be tricky affairs.  One wrong move can undo a tremendous amount of work.  In negotiations, it is best to take a moment and think about where the other party is coming from.

What are their needs and how best can you meet them?  Understanding your buyer’s motivation increases the chances of a successful negotiation.

What Appeals to Most Buyers?

When it comes to selling a business, you likely will not know your buyer personally.  This means that you will not know what they value most, how exacting their standards will be, and how easy or challenging they will be during negotiations.  That’s why it is imperative to err on the side of caution and act in such a way that would appeal to most buyers.

Ensuring that your business is in strong financial health means that your business will be appealing to both a corporate executive as well as an individual buyer with a leadership/managerial background.  Keep in mind that individuals who buy businesses will want a strong ROI, and often they will want the responsibilities that accompany that investment to not interfere too greatly with their current lifestyle.

Playing into Emotions

In general, buyers tend to be the most excited at the beginning of the sale process.  It is at this point that you can expect your buyer’s passion to be its strongest.  As a result, the first stages are when you want to keep your presentation and approach the most realistic.  The reason is that once the surge of passion has worn off, your buyer may otherwise feel that you have tried to oversell your business.

Being Forthcoming with Information

It is quite common that you will not at first know if your buyer has previous experience in your market.  As a result, you shouldn’t assume that they understand anything about your business or industry.  In short, it is definitely in your best interest to be very honest about your business and what is involved in running it.  If there are issues that they will invariably discover, then it is best to go ahead and disclose those issues early on as it establishes trust and goodwill.

Understanding Expectations

Another area to consider is what a buyer may expect of you after the sale.  A buyer who already possesses a background in your niche would already be very familiar with the ins and outs of your industry.  Having you around after the sale may not be viewed as necessary or beneficial.

However, with that said, the exact opposite may also be true.  You may be dealing with a buyer who is in dire need of your expertise.  These factors could be of critical importance in what you offer your buyer in terms of your availability.  Again, that’s why it’s best to not make assumptions and make sure your terms would appeal to a wide variety of backgrounds.

An Investment of Value

Invest the time to understanding your buyer’s motivation.  The more you understand what it is that your buyer wants out of the transaction, the greater your chances of focusing on the areas of your business that best match those expectations.

When it comes to the motivations and concerns that prospective buyers may have, a business broker can add a new level of understanding.  The value that your broker adds to the process of selling a business is difficult to overstate.

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27 Sep Seller Financing

The majority of business sales include some form of seller financing. Typically, seller financing is when the seller provides a loan to cover part of the purchase price. The rest of the purchase price is covered by the down payment or often other financing sources are used as well. Summed up another way, the seller is essentially acting as a bank for the buyer.

When sellers offer financing, it often also helps them achieve a higher final sale price. Sellers who are not open to seller financing will likely limit their possibilities.

Performing Due Diligence

When a seller opts for seller financing, it is necessary to do much of the work that a bank would usually perform, for example, checking a potential buyer’s credit report, financial statements and other key financial information. After all, if you opt to offer seller financing, then you’ll want to ensure that your buyer will not default.

Usually contracts allow for the seller to take back a business in 30 to 60 days if financing fails. In this way, the buyer can avoid a potentially serious business problem.

There are often other contractual stipulations as well. A common clause for businesses involving inventory is that new owners need to maintain a certain level of supplies during the payment period.

Providing Benefits for Both Parties

It should also be noted that seller financing is of considerable interest to buyers. Sellers looking to attract as much attention to their business as possible will want to consider this route. Offering this type of financing sends a very clear message. When a business owner is open to seller financing, he or she is stating that he or she has great confidence that the business will generate both short term and long term revenue. That level of confidence speaks volumes to buyers about the health of the business.

What Due Terms Typically Look Like?

In terms of the length of seller financing, 5 to 7 years is typical. The issue of how much a seller is expected to finance is another issue that draws considerable attention. While there are no steadfast rules as to what percentage seller’s typically finance, it is common for sellers to finance up to 60% of the total purchase price.

Finally, seller financing does have a good deal of paperwork and points to consider. Opting to work with an attorney or business broker is absolutely essential to protect all parties involved.

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20 Sep The Power of Recurring Revenue

Buyers and sellers alike love recurring revenue.  But what is it exactly that makes it so attractive?  Recurring revenue is generally viewed as a very good factor as it indicates positive cash flow, the potential for growth, business success and business stability.  Let’s take a closer look at how it can benefit you.

Show You’re in Demand

Businesses, including IT companies, are valued higher if they can show recurring revenue, such as monthly subscriptions, SaaS subscriptions, or a transaction that consistently occurs.  If your business is centered on a subscription based platform and you have high subscription levels, then you can expect keen interest from prospective buyers.

If you want to show a prospective buyer that your business is a good bet, then recurring revenue is a great place to start.  Recurring revenue indicates that you have ongoing consumers and that means ongoing revenue.  But recurring revenue indicates something else as well, namely, it indicates that your business is providing a consistent service that is consistently in demand.

Take the Pressure Off Buyers

Buyers like predictability.  Recurring revenue means that a buyer knows that he or she can buy a business and count on income from day one.

Sellers can often forget that most buyers get nervous when they are making any kind of business buying decision.  The power of recurring revenue is, in part, psychological as it allows buyers to realize that there will be revenue no matter what.  Even if they do little to develop the business, cash will flow in.  In other words, the psychological value of recurring revenue is that it takes much of the pressure off.

Examining Your Annual Recurring Revenue

If your business has a strong annual recurring revenue or “ARR”, then you should place a good deal of focus on this fact.  Many feel that a company’s ARR number is a powerful indicator of a company’s overall health.

Ultimately, recurring revenue indicates a great deal about your company.  High recurring revenue doesn’t just mean that you have a reliable source of income every period.  It indicates that your business is providing a service that is needed and valued.  Strong recurring revenues also indicate that your business is doing many things correctly and that your goods and/or services are of such a caliber that you are generating repeat business.

Visibility and Transparency

Savvy buyers also value visibility and transparency.  Thanks to this kind of consistent income, it is easier for buyers to plan for and manage future expenses and increase a business’s overall stability.

Part of properly showcasing your business is to emphasize your business’s recurring revenues if they do indeed occur.  A seasoned business broker can be an invaluable ally in helping you reveal your business in the best light possible.

Copyright: Business Brokerage Press, Inc.

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12 Sep What is EBITDA and Why is it Relevant to You?

If you’ve heard the term EBITDA thrown around and not truly understood what it means, now is the time to take a closer look, as it can be used to determine the value of your business.  That stated, there are some issues that one has to keep in mind while using this revenue calculation.  Here is a closer look at the EBITDA and how best to proceed in using it.

EBITDA is an acronym for earnings before interest, taxes, depreciation and amortization.  It can be used to compare the financial strength of two different companies.  That stated, many people don’t feel that EBITDA should be given the importance that is frequently attributed to it.

Divided Opinion on EBITDA

If there is disagreement on EBITDA being able to determine the value of a business, then why is it used so often?  This calculation’s somewhat ubiquitous nature is due, in part, to the fact that EBITDA takes a very complicated subject, determining and comparing the value of businesses, and distills it down to an easy to understand and implement formula.  This formula is intended to generate a single number.

EBITDA Ignores Many Key Factors

One of the key concerns when using or considering a EBITDA number is that it is often used as something of a substitute for cash flow, which, of course, can make it dangerous.  It is vital to remember that earnings and cash earnings are not necessarily one in the same.

Adding to the potential confusion is the fact that EBITDA does not factor in interest, taxes, depreciation or amortization.  In short, a lot of vital information is ignored.

Achieving Optimal Results

In the end, you simply don’t want to place too much importance or emphasis on EBITDA when determining the strength of a business.  The calculation overlooks too many factors that could influence future growth and prosperity of a business.

Business brokers have been trained to handle valuations to determine the approximate value of a business.  Since valuations take many more factors into consideration, they also tend to be far more accurate.

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07 Sep Five Reasons Business Brokers Improve Closing Rates

It has long been a well-known fact that business brokers can help improve closing rates. In this article, we will take a closer look at the five top reasons why having a business broker on your side can make all the difference in the world.

#1 – They Reach the Most Buyers

What seller isn’t looking to reach more buyers? When more candidates are reviewing your business, the odds of selling for your desired price only go up. The simple fact is that business brokers reach the most buyers. In fact, they usually have a long list of prospective buyers waiting.

#2 – Business Brokers Know How to Navigate Negotiation Hurdles

As the old saying states, “there is no replacement for experience,” and this definitely holds true for business brokers. Business brokers know what it takes to circumvent negotiation hurdles. Their years of hands on experience means they can spot problems long before they occur, and this dramatically helps them to successfully boost closing rates.

#3 – They Know How to Present Your Business

Once again, experience matters. Business brokers specialize in buying and selling, and this means that they understand how to best present those businesses. Showcasing your business in the best light possible and working to eliminate weaknesses in presentation is a vital part of the sales process. Business brokers put their experience to work helping sellers achieve the best presentation possible.

#4 – They Stay Focused

Business brokers sell businesses for a living. You, however, by contrast have to worry about the day to day state of your business until all the paperwork is signed.

Additionally, since you are unfamiliar with the process of selling a business, you very well may become bogged down in the process; this is more dangerous than it may seem. Sellers who spend too much time getting involved in the “ins and outs” of the deal may accidentally start to neglect their own business operations. The last thing you want in the time period leading up to a sale is for your business to suddenly flounder.

#5 – Business Brokers Are Highly Invested in Your Success

Business brokers only get paid if your business sells. That means they too have a vested interest in your success. You can expect them to do everything possible to ensure that the sale of your business goes through.

Added together, these five factors help to explain why business brokers have historically enjoyed high closing rates. If you want to improve your chances of selling a business, don’t try to do it alone.

Copyright: Business Brokerage Press, Inc. 

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30 Aug 5 Tips for Buyers of International Businesses

The decision to buy an international business is no doubt quite serious.  There are numerous factors that must be taken into consideration when deciding whether or not an international business purchase is the right move.  Let’s take a closer look.

Tip #1 – Relocating Vs. Hiring a Manager

Buying an international business can also mean a substantial life change.  Before jumping into the process, it is critical that you know whether you will be relocating or hiring a manager to run your newly acquired business.

Obviously, owning a business is a substantial responsibility and you’ll want to ensure that you know exactly what is going on with your new acquisition.  Sometimes that means actually being there.  The bottom line is that you will either have to relocate or hire a manager.

Tip #2 – Regulations

Understanding regulations, taxes and customs are another must for buyers of international businesses.  A failure to factor in these elements can literally undo one’s business or at the very least place you at a competitive disadvantage.  The time and money you invest in learning how regulations, taxes and customs work in this new territory is time and money well spent.

Tip #3 – Research Similar Businesses

You will want to invest your time into research.  In particular, you will want to research similar businesses that already exist in the place where you are investing.  Why are those businesses successful?  What could you do to improve on their model or approach?  Don’t assume that just because you know how businesses fare in the United States that this knowledge will always translate over to other countries.

Tip #4 – Be Aware of Potential Cultural Differences

It is important to be aware of cultural differences during the negotiation process, but this is really just the beginning.  Cultural differences do not end once the negotiation process is over.  They have ramifications in areas including everything from dealing with your staff and vendors to getting professional assistance from people such as local accountants and lawyers.  You will need to be aware of cultural differences and perhaps even learn to speak the language if you want your business to be a thriving success.

Tip #5 – Hire a Business Broker

Business brokers are experts in buying and selling all kinds of businesses and that includes international businesses.  There are many layers to owning an international business and business brokers can help you navigate the waters.  The sizable expertise that a business broker brings to the table can help save you considerable amount of frustration and confusion.

These five tips are invaluable for helping you determine whether you should opt for an international business and/or how to proceed once you’ve decided to move forward.  There can be big opportunities in owning an international business, but it is critical to proceed with a clear cut strategy.

Copyright: Business Brokerage Press, Inc.

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11 Aug How to Keep Employees Engaged During an Ownership Transition

Ensuring that your employees stay on course during your ownership transition should be one of your key areas of focus.  There are many key steps that you should take during this delicate time.  Let’s explore the best tips for keeping your employees engaged throughout the entire ownership transition process.

Step 1 – Establish and Implement a Training Program Early On

If you are selling your business, then be certain that you train replacements early on in the process.  Failure to do so can result in significant disruptions.  Additionally, if you are buying a business it is of paramount importance that you are 100% confident that there are competent people staying on board after the sale.

Step 2 – Address Employee Concerns

No matter what your employees say or how they act, you must assume that they are worried about the future.  After all, if you were them wouldn’t you be concerned at the prospect of a sale?  The best way to address these concerns is to meet with employees in small groups and discuss their concerns.

Step 3 – Don’t Make Drastic Changes

Above all else, you want a smooth and fluid transition period.  A key way to ensure that this time is as trouble-free as possible is to refrain from making any drastic changes before or after the transition.  Remember the sale of the business is, in and of itself, shocking enough.

You don’t want to add yet more disruption into the process by making changes that could be confusing or unsettling.  In other words, keep the waters as calm as possible.  Drastic changes could lead to employees quitting or worst of all, going to work for a competitor.

Step 4 – Focus on the Benefits

If possible focus on the benefits to your employees.  It is your job as the new business owner to outline how the sale will benefit everyone.  Don’t let your employees’ imaginations run wild with speculation.  Unfortunately, this is exactly what happens when employees and management feel as though they are not receiving any information about the sale.  So don’t be mysterious or cryptic.  Instead provide your employees with information, and keep the focus on how the changes will benefit them both personally and professionally.

Implementing these four steps will go a very long way towards helping to ensure a smooth transition period.  Transition periods can be handled adeptly; it just takes preparation and patience.

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01 Aug Is It Possible to Sell to a Business Competitor?

A common question in the realm of buying and selling businesses is, “Is it possible to sell to a business competitor?” The short answer is yes, it is quite possible and rather common. That stated, selling to a business competitor is different than selling to a buyer who is completely new to the industry. The two types of buyers should not be treated the same way, as there are various differing variables.

A Competitor Can Be a Great Buyer

One reason is that a competitor may indeed be the right party to buy your business, is that they usually have an excellent understanding of how your business and your industry works. They may also enter the negotiation process already understanding the value of your business, and this can serve to speed up the process.

Always Proceed with Caution

Competitors, however, must be approached carefully. Unfortunately, there have been many cases where competitors acted as though they wanted to buy in order to acquire access to inside information. That’s why sensitive information like client lists and other “secrets” shouldn’t be shared until the sale is complete and the money is literally in the bank.

Working with a Business Broker is always a prudent move when it comes to buying and selling businesses; however, when working with a competitor is involved a business broker is even more important than normal. A Business Broker can act as something of a shield in the process, helping to ensure that you don’t reveal too much prized information until the sale is 100% complete.

Negotiate from a Place of Knowledge

Further, a Business Broker understands how much your business is worth and can back up that valuation. Having this information before discussing a potential sale with a competitor is of great importance.

Be Prepared to Accept Certain Legal Conditions

Finally, don’t be surprised if your competitor asks you to sign a non-compete or for you to stay on as a consult after he or she has acquired your business. This is a prudent step and one that makes tremendous sense. If you were buying a business from a competitor wouldn’t you want to make certain that the competitor didn’t simply “set up shop” somewhere else a few months or even a couple of years later? Likewise, tapping your expertise is another prudent move for your former competitor.

Summed up, selling your business to a competitor is a potentially great move, but it is also an opportunity that absolutely must be explored with extreme caution. Never divulge critical information to your competitor until the deal is finalized and use a professional Business Broker. 

Copyright: Business Brokerage Press, Inc.

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26 Jul The Importance of Having a Dominant Position in the Market

In order to get top dollar for your business, it is necessary to prepare for the sale well in advance. In short, a tremendous amount of strategy and preparation goes into a successful sale. The amount you ultimately receive for your business is directly tied to how well you prepare.

At the top of the list of making sure that your business is attractive to potential buyers is to make certain your business is as well positioned in the market as possible. Of course, this is often easier stated than done. Here are some of the best ways to make sure your business is optimally positioned.

Tip One – Start Positioning Your Business Well in Advance

Selling your business isn’t something you should just do one day. You should start positioning your business at least one year before the closing.

Quite often, experts say business owners should always operate as though a sale is on the horizon. This makes a great deal of sense on one hand. If you ever experience an unexpected turn of events and need to sell, then you will certainly be ready. Another reason that this advice is solid is due to the fact that operating as though a sale is on the horizon helps you make certain that your business is running as effectively and efficiently as possible.

Tip Two – Always Think About Growth

Another way to ensure optimal position in the market is to always stay focused on growth. Asking yourself what steps you can take to grow your business in both the short term and the long term is a prudent move. You should always know what it takes to launch a new growth stage.

Tip Three – Customers, Lots of Customers/Clients

You don’t want a prospective buyer to see that you have only one or two key customers or clients. Understandably, this situation should make a buyer quite nervous. It comes across as extreme vulnerability. Having many varied customers or clients is a step in the right direction.

Tip Four – Be Ready for Due Diligence

Whatever you do, don’t overlook due diligence. Neglecting or waiting to prepare for the buyer’s due diligence stage until the eleventh hour is quite risky. Have all of your financial, legal and operations documents ready to go. A failure to properly handle due diligence could derail a deal or even reduce the amount you receive.

Tip Five – Understand Your Business’s Strengths and Weaknesses

Every business has strengths and weaknesses. Don’t attempt to hide your weaknesses or overplay your strengths. Be transparent!

A Business Broker is an expert at handling investors and even writing a business plan that you can hand to potential buyers.

Think about boosting your market position while simultaneously increasing the odds that you receive top dollar for your sale. Instead of rushing, take the time to prepare and work with a Business Broker to achieve the best market position and sale price possible.

Copyright: Business Brokerage Press, Inc.

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