Key Elements for Every Partnership Agreement

You should never forget that your partnership agreement is, in fact, one of the most important business documents you will ever sign. Many people go into business with loved ones, relatives or lifelong friends only to discover (once it’s too late) that they should have had a partnership agreement. A partnership agreement protects everyone involved and can help reduce problems that may arise. Outlining what will happen during different potential situations and events in a legal framework can help your business keep running smoothly.

What Should Be in a Partnership Agreement?

Every business is, of course, different; however, with that stated, any partnership should outline, with as much clarity as possible, the rights and responsibilities of all involved. A well written and carefully considered partnership agreement will keep small problems and disagreements from evolving into more elaborate and serious concerns.

There are times to take a DIY approach and then there are times when you should always opt for a professional. When it comes to partnership agreements, it is best to opt for working with a lawyer. Finding competent legal help for drafting your partnership agreement is simply a must.

What is Typically Addressed in a Partnership Agreement?

In theory, a partnership agreement can cover a wide-array of factors. Here are a few points typically addressed in partnership agreements.

What Questions Will a Good Partnership Agreement Address?

  1. Which partner(s) are to receive a draw?
  2. How is money to be distributed?
  3. Who is contributing funds to get the business operational?
  4. What percentage will each partner receive?
  5. Who will be in charge of managerial work?
  6. What must be done in order to bring in new partners?
  7. What happens in the event of the death of a partner?
  8. How are business decisions made? Are decisions made by a unanimous vote or a majority vote?
  9. If a conflict cannot be resolved when must the conflict be resolved in court?

Thanks to partnership agreements, all partners involved can proceed and start a new business with fewer areas of concern. The simple fact is that without a partnership agreement, your business can face a range of disruptions; these would be disruptions that could ultimately spell doom for your business.

Copyright: Business Brokerage Press, Inc.

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Embracing Retirement and Selling: 4 Tips for a Smooth Transition

No one works forever. Regardless of how much you love your business, sooner or later you will have to step away. Owning a business can be very demanding. This fact can be doubly true for owner-operators of businesses. The simple fact is that you’ll have to embrace retirement at some point.

Most business owners have never sold a business before and may not know what to expect. The good news is that prospective buyers usually like the idea of buying an established business directly from a business owner. It is key, however, to do everything possible to make selling your business, as well as the transition period, as easy for a buyer as possible.

Prepping your business for sale has many diverse parts that need to be taken into consideration. Prospective buyers want to feel as though they will have a seamless transition, so it’s in your best interest to evaluate what steps you need to take to make the transition smooth.

You are the world’s greatest expert on your business. As a result, you are perfectly positioned to evaluate your business so as to ensure that it is both appealing to a prospective buyer and ready to sell. Let’s take a look at the steps you can take to ensure a smooth transition.

The Top 4 Transition Tips

1. Automate as many processes as possible.

In this way, prospective buyers are less likely to be intimidated by the level of work involved in owning a small business. The odds are good that many of your prospective buyers have never owned a business before. One of the best ways to not scare prospects away is to make owning and operating your business as streamlined as possible.

2. Work with your employees, key customers and vendors to ensure a smooth transition.

Anything that can cause a potential disruption may scare off prospective buyers. Put yourself in the shoes of prospective buyers and think about what may cause you concern if you were evaluating a business. Once you locate those areas of potential concern, do what you can start to remedy them well before placing your business on the market.

3. Pick out your “second-in-command” before you sell your business.

Having a competent and proven “right hand man or woman” that can step in and essentially operate your business is a very attractive asset to have in place when it comes time to sell your business.

4. Consider working with a business broker.

Brokers are expert in the art and craft of buying and selling businesses. They will be able to help you evaluate your business and address areas that need improvement so as to ensure a smooth transition.

Taking these steps will not just make your business easier to sell, but it will also shorten the amount of time it takes to sell. The last thing you want when you are ready to sell your business and retire is for the selling process to drag on forever.

Copyright: Business Brokerage Press

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Is It Time to Become a Business Owner? 3 Questions to Ask Yourself.

Many people know that owning a business isn’t for them. But for others, the appeal and lure of owning their own business can be powerful indeed. If you are uncertain as to whether or not this path is for you, there are a few simple questions you can ask to gain almost instant clarity. In this article, we will explore those key questions and help you determine if owning a business is in your future.

1. Are You Dedicated to Growing Your Income?

Quite often people like the idea of making more money, at least in the abstract. But when presented with what it takes, many people realize that they don’t want to do what is involved. Owning and operating a business can be a lot of work and it’s not for everyone. Yet, those who embrace it can find it rewarding in a variety of ways.

Being a business owner is radically different than being an employee. As an employee, you simply don’t exercise much control. Summed up another way, your financial fate is clearly in the hands of someone else: your employer.

However, owning a business means that you can take steps to control your own financial destiny. You can make decisions that will, ultimately, boost the success of your business and in turn increase your own income.

As an important note, statistics from 2010 show that the longer you own your business the more money you, as the business owner, will make. It is typical for those who have owned a business for ten years or more to earn upwards of six figures per year. If you have had more than one year of experience in running an organization, the yearly salary will likely range from $34,392 to $75,076. However, if you’ve owned your business for more than a decade, you will likely earn more than $105,757 per year.

While there are no guarantees, owning a business can be a path to growing one’s income and wealth.

2. Would You Like Greater Control Over Your Life?

Many opt to start their own business because they want more control. Business owners realize that unless they own their own business their financial fates rest in the hands of someone else. Some people are comforted with this feeling or don’t see a way around it and others are not so comfortable with the realization. If you want greater control over your life, then owning a business might be for you.

Owning a business increases the amount of control a business owner has over his or her life in many ways, not just financial. For example, business owners have more control over how they spend their time, where they work, when they work and who they work with on a daily basis. Instead of being part of a business, you help create, mold and shape it. Clearly, this is a lot of work and it isn’t for everyone, but again the rewards can be diverse and great.

3. What is Your Personality Like?

Owning a business translates to great control, but that control comes with a degree of risk. In the end, you’ll have to determine how comfortable you are in dealing with risk. As a business owner the “buck” stops with you. You’re risking your time, effort and, of course, money. You also don’t get a paid vacation, sick days or any of the other benefits so often associated with being an employee.

Other traits identified during a study by the Guardian Life Small Business Research Institute showed there are other ideal personality traits for business owners. These traits include collaboration, curiosity, focus on the future, and being self-fulfilled, tech savvy and action oriented.

Thinking about these three key questions is the perfect place to start when contemplating opening a business. Additionally, working with a business broker can help you gain clarity and determine if owning a business is right for you.

Copyright: Business Brokerage Press, Inc.

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The Top Two Ways to Purchase a Business without Collateral

Banks love collateral and for a very simple reason. If you have collateral, then the bank has something it can take if you fail to repay your loan. At its heart, collateral is a remarkably simple concept. However, unfortunately, many people who want to start a business lack it. All of this leads us to the simple question, “Can I start a business without a collateral.

1. Try the SBA

There are ways that you can start a business without collateral, but you will need some amount of money. The larger the business, obviously the more money you’ll need. Those interested in the zero collateral route will want to take a look at the SBA’s 7 (a) program. This program incentivizes banks to make loans to prospective buyers. Through this program, the SBA guarantees an impressive 75% of the loan amount.

Of course, the buyer still has to put up 25% of the money in order to buy the business, but for those looking to own a business without having to put up collateral, the SBA’s 7 (a) program is an impressive option. Perhaps best of all, the cash buyers used can come from investors or even a gift, helping to make this program a potentially great one for first time business owners.

2. Think about Seller Financing

Another option is seller financing. Sellers frequently get involved in financing. When a seller is motivated to sell, due to retirement or some other factor, things can get interesting. Most sellers do agree to offer some degree of financing, so asking for selling financing is not unheard of or insulting to a business owner. Prospective business owners may even be able to combine seller financing with the SBA’s 7 (a) program. Correctly used, this path could provide a powerful and useful option.

Speaking of retiring, according to The International Business Brokers Association (IBBA), M&A Source and the Pepperdine Private Capital Market Project, 33% of deals now take place when owners are retiring. This clearly demonstrates how it is in the best interest of many sellers to consider seller financing.

While the SBA’s 7 (a) program is potentially very useful to buyers, it is important to note that under the program, the seller cannot receive any payments for two years. Working around this potential problem may very well require some creativity and effort on the part of the prospective buyer. In the end, it may be necessary to offer the business owner some incentive in order to justify waiting two years for his or her money.

Attempting to buy a business without collateral may, at first, sound like too large of an obstacle to overcome. However, these kinds of purchases really do happen all the time. By staying focused, persistent and understanding your options, you will increase your odds of success. Finally, get as much professional help as possible. Prospective business owners should consult with S.C.O.R.E., experienced business brokers and others to learn the best way to buy a business without collateral.

Copyright: Business Brokerage Press, Inc.

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Fairness Opinions

Since one often hears the term “fair value” or “fair market value,” it would be easy to assume that “fairness opinion” means the same thing. A fairness opinion may be based to some degree on fair market value, but there the similarities end. Assume that you are president of a family business and the other members are not active in the business, but are stockholders; or you are president of a privately held company that has several investors/stockholders. The decision is made to sell the company; and you as president are charged with that responsibility. A buyer is found; the deal is set; it is ready to close — and, then, one of the minority stockholders comes out of the woodwork and claims the price is too low. Or, worse, the deal closes, then the minority stockholder decides to sue the president, which is you, claiming the selling price was too low. A fairness opinion may avoid this or protect you, the president, from any litigation.

A fairness opinion is a letter, usually only two to four pages, containing the factors or items considered, and a conclusion on the fairness of the selling price along with the usual caveats or limitations. These limitations usually cite that all the information on which the letter is based has been provided by others, the actual assets of the business have not been valued, and that the expert relied on information furnished by management.

This letter can be prepared by an expert in business valuation such as a business appraiser or business intermediary. The content of the fairness opinion letter is limited to establishing a fair price based on the opinion of the expert. It does not provide any comment or opinion on the deal itself or how it is structured; nor does it contain any recommendations on whether the deal should be accepted or rejected.

Fairness opinions are often used in the sale of public companies by the board of directors. It helps support the fact that the board is protecting the interests of the stockholders, at least as far as the selling price is concerned. In privately held companies, the fairness opinion will serve the same purpose if there are minority shareholders or family members who may elect to challenge the price the company is being sold for.

Copyright: Business Brokerage Press, Inc.

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Are You Asking a Reasonable Price for Your Privately Held Company?

Placing a price on a privately-held company is usually more complex than placing a value, or a price, on a publicly-held company. There are many reasons for this fact, but one of the top reasons is that privately-held companies don’t have audited financial statements.

Why are Audited Financial Statements Lacking in Privately-Held Companies?

Preparing an audited financial statement is expensive and, as a result, many companies that have not gone public simply forego the expense. On the other hand, publicly held companies reveal much more information regarding their finances as well as a range of other kinds of information.

Compared to a privately-held company, a publicly held company can often seem like an “open book.” Buyers are left with the proposition of having to dig out a lot more information from a privately-held company in order to assess whether or not a valuation or price is accurate.

What Can You Do to Overcome this Factor?

You, as the seller, can help streamline this process. By having as much information available as possible and having your accountant make sure that your numbers are presented in a manner that is easy to understand and follow, you will increase your chances of selling your business.

Experts agree that there are several steps a seller of a privately-held company can make when he or she is establishing a price or a value. First, use an outside appraiser or expert to determine a value. Next, establish what your “go-to-market” price is. Third, know your “wish price.” A seller’s “wish price” is the price that he or she would ideally like to see. Finally, it is critical that sellers establish the lowest price that they are willing to take. You should know in advance how much you are willing to sell for as this can help a negotiation move along.

The Marketplace Will Ultimately Decide

It is common that the final sale price for the company be somewhere between the asking price and the bottom-dollar price established in advance by the seller. Yet, it is important to note, that on occasion a selling price may, in fact, be lower than any of the four we’ve outlined above. At the end of the day, the undeniable fact, is that the marketplace will establish the final sales price.

Here are a few of the areas that you can expect a buyer to review when establishing the price that he or she is willing to pay: stability of the market and stability of earnings, the potential of the market, product diversity, the size of the customer base, the number and seriousness of competitive threats, how broad the customer base is, the relationship with suppliers, the distribution network in place, needs for capital expenditures and other factors. The more favorable each of these points are, the more likely it is you’ll receive a higher price.

Copyright: Business Brokerage Press, Inc.

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Examining the Mind of the Serious Buyer – 5 Points to Consider

Are you looking for a way to perfect your presentation? Understanding what the typical serious buyer wants will help you get your business ready for selling.

Let’s turn our attention to looking at what these types of individuals and entities really want. After all, your time is precious.

1. An Interest in the Industry

First, prospective buyers will want to have a better understanding of your industry. Any serious buyer will want to understand the industry as a whole, as well as your existing customers, prospective customers and the strengths and weaknesses of your business. Key factors, such as threats from competition, will also be a major factor for prospective buyers.

2. Seeking Knowledge about Discretionary Costs

Secondly, expect buyers to take a long look at discretionary costs. Sellers will often look to reduce their expenses in a range of discretionary areas including advertising, research and development and public relations; this is done to help make a business appear more attractive to a buyer. However, it is important to note, that a savvy prospective buyer will notice reduction in discretionary expenses.

3. Inquiries about Wages and Salaries

Wages and salaries is another area that receives attention from buyers. If your business is paying minimum wage or offers a limited retirement program then employee turnover is likely to be high. Buyers may be concerned that employee stability may be low, which, of course, can potentially disrupt business.

4. Questions about Cash Flow and Inventory

No serious buyer will ignore the issue of cash flow. Any prospective buyer will want to know that the business they are considering buying will continue to generate profits both now and in the future.

Inventory is another area that will not be ignored. If your business is carrying a large amount of antiquated, unsalable or simply unusable inventory, then expect that to be factored into a prospective buyer’s decision-making process. It is best to disclose such inventory instead of hiding it, as it will be discovered during due diligence.

5. Seeking Capital Expenditure Details

Finally, capital expenditures will be examined by buyers. You can expect buyers to carefully evaluate machinery and equipment to ensure that there will be no expensive surprises looming on the horizon.

These give areas are definitely not the only areas that buyers will explore and investigate. Everything from financial agreements and environmental concerns to government control will be examined in depth. You should invest some time thinking about the situation from the perspective of a buyer, as this will help you discover many potential problems and try to secure viable workarounds. Working closely with a business broker is another way to ensure that you can successfully anticipate the needs of buyers.

Copyright: Business Brokerage Press, Inc.

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Is Now the Right Time to Sell Your Company?

Like many things in life, timing can be everything when it comes to selling your company. Every day more and more baby-boomers are now reaching retirement age. Soon, the market will likely be flooded with companies looking to sell.

According to a 2016 survey of business brokers, 54% plan to exit in the next ten years. We may be on the verge of a massive wave of businesses hitting the market. Getting out in front of that wave could be in your best interests. Now very well may be the time to sell.

Are You Suffering from Burnout?

If you’ve been running your business for many years, it is quite possible that you are suffering from burnout. This issue is remarkably common with business owners and it is also very dangerous. Owners suffering from burnout don’t invest as much of themselves and their creative energy into their businesses, and that has a range of implications.

Everything from losing customers to failing to keep up with the competition are all possibilities when an owner feels ready to throw in the towel. The end result is that owners, through poor decisions and inaction, can inadvertently decrease the value of their businesses. Combine this fact with the fact that a wave of businesses may soon be hitting the market and selling may start looking more and more attractive.

Jump into a Strong Economy

Further, today’s strong economy means that new and unexpected competitors may soon enter the picture. It is difficult to predict how the marketplace may change in the coming years, but a strong economy means both more opportunities for existing businesses and the potential for greater competition.

Interest rates have remained at historic lows and that could definitely help you sell your business. Working with an experienced business broker is one way to test the waters. You may determine that now is the perfect time to sell your business. There are many factors involved in selling your business, and a skilled broker can help you look at the overall situation at hand and determine when it is the right time to sell.

Copyright: Business Brokerage Press, Inc.

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If You’re Selling, Get Ready to Expect the Unexpected!

Many experts agree that the best time to prepare to sell your business is when you start your business. That may sound extreme. However, few business owners reach that level of preparedness. A simple fact of life and owning a business is that most sales are event-driven. Factors such as problems with a partnership, health issues, burnout or even divorce can drive a business owner to sell.

Once you’ve made the decision to sell, it is essential that you realize one key fact. Unexpected events and factors will always rise to the surface. In this article, we’ll explore four key questions that you’ll need to address before selling your business.

1. What is the Value of Your Time?

Meeting with prospective buyers can be a serious time sponge. One of the key benefits of working with a business broker is that a broker can take some of the pressure off of you. They can interact with buyers on your behalf.

A large percentage of business owners are also deeply involved in the day-to-day operation of the business. Business owners don’t have time to meet with every interested party or take the time to weed out the qualified prospects from the window shoppers.

2. What Do You Want Your Level of Involvement to Be?

Working with prospective buyers is obviously time consuming, but so is knowing every detail about a prospective buyer’s visit. A seasoned business broker can sift through what information is essential and what information is extraneous. In this way, you only hear about what is relevant and can skip the rest.

It is important for business owners to keep in mind that buyers expect that the business will continue to run successfully not just during the sales process but through closing as well. For this reason, you’ll want to stay as focused on the day-to-day operations of your business as possible; after all, if a deal falls through the last thing you want is to have a dip in revenue.

3. Are There Other Decision Makers?

Determining whether or not there are any other decision makers is a very smart move. Part-owners and silent partners will have to be addressed when it comes time to sell.

4. Just How Important is Confidentiality to You?

Confidentiality is important when it comes to selling your business. The more active your selling process, the greater the chances are that you’ll have a leak if you’re not extremely careful. Leaks unfortunately occur more than you might think.

How much will this issue negatively impact your business if it does occur? You should have a “leak plan” ready to go. In your plan, you should have in place what steps you should take to minimize the damage caused by the leak. Being ready to deal with key customers, employees and distributors is the cornerstone of dealing with any leak. Business brokers are experts at helping clients maintain confidentiality. This can save you a great deal of time and effort on many fronts.

By answering these four questions fully, you will save yourself time, stress and effort. Selling a business is a complex process. But with the right planning you can minimize your effort and maximize your results.

Copyright: Business Brokerage Press, Inc.

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How Your Employees Can Boost Profits and Values

The simple fact is that without employees, you don’t have a business. Given the tremendous importance of your employees, it is important to step back and reflect on the value associated with keeping those employees happy.

There is a direct relationship between happy employees and happy customers. A happy employee takes steps to ensure that your customers are satisfied. This approach in turn leads to a higher level of customer retention and helps in attracting new customers. On the flip side, unhappy employees can be quite dangerous to your company’s bottom line.

The hiring process is a key process for the health of your business and should never be overlooked or treated as a secondary process within your business. Cultivating happy employees begins at this point. Hiring can and will either make or break your business.

Offering great pay and benefits is only one important factor in keeping employees happy. A more overlooked important factor is to appreciate the contributions that employees make. If employees feel as though they are being overlooked or not appreciated, their overall happiness level will falter. Many owners unnaturally expect their employees to have the same dedication to their business that they do, and this can lead to problems.

Your employees realize that they don’t own the business. As a result, most are only willing to invest so much of themselves, their talents and their abilities into your business. Taking steps to keep your employees engaged, such as showcasing that their talents are appreciated, will help keep employees invested and happy. Research has also revealed feeling happy will make them more productive. A few years ago, Fortune Magazine wrote an article that cited a UK study connecting employee happiness and productivity. It’s definitely worth a look.

Being a positive owner is a gigantic step in the right direction where cultivating happy employees is concerned. Being a good role model is at the heart of having happy employees. It is vital that you reward people with praise and bonuses for jobs well done and fire employees that are consistently negative or failing to perform their respective duties. Special touches, such as giving employees their birthdays off, can go a long way towards cultivating the kind of climate that leads to increased satisfactions. And don’t forget, your team’s satisfaction will increase your bottom line.

When it comes time to sell a business, you can be sure that prospective buyers will be interested in your level of profits. In this way, the investment you make in the happiness of your employees can be returned many fold.

Copyright: Business Brokerage Press, Inc.

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Around the Web: A Month in Summary

A recent article posted on the Axial Forum entitled “What Do Buyers Look for in the Lower Middle Market?” explains how to make your business valuable to potential buyers and how to find the right buyers for your business. The buyers in the lower middle market are usually strategic buyers, financial buyers, private equity firms, and search fund advisors.

Buyers in this market are generally looking for the following characteristics:

  • A strong management team who has incentive and is prevented from competing against the company if their employment is terminated
  • Stability and predictability of revenue and cash flow
  • Low customer concentration
  • Other value drivers such as state-of-the-art operating systems
  • High level of preparedness

The article warns about the biggest obstacles for owners. Business owners should consult with experienced deal attorneys and investment bankers before speaking to any buyers. They should also consult with advisors before the company goes on the market to make sure the business is properly prepared for sale. A business owner’s management team may also be subject to rigorous professional assessment and background checks if a private equity or financial buyer is interested.

Currently in the marketplace, buyers are offering amounts higher than the historical norms. This means that along with the higher sale prices, sellers are subject to more scrutiny through due diligence. This is all the more reason for a seller to be prepared and to work with experienced advisors to get their business ready for sale.

Click here to read the full article.

A recent article from the Axial Forum entitled “5 Ways Sell-Side Customer Diligence Can Maximize Sale Prices” explains how third-party sell-side customer diligence has become increasingly more common and why it can help sellers maximize and justify sale prices. Here are the 5 ways this due diligence can help you get the best sale price:

  1. Determine if it’s the right time for a sale – Positive customer feedback can help reinforce the decision to sell, and neutral or negative feedback can help improve the company so it will be better prepared for a sale.
  2. Attract and persuade buyers – Your confidential information memorandum (CIM) will show how strong customer relationships are, how your market share has grown, how the business has become more competitive, and more. Thorough documentation of the health of customer relationships will also help attract buyers.
  3. Control the message – Having the seller contact their customers reduces the risk of anyone being tipped off about the sale and also allows for the seller to provide a better interpretation of the results.
  4. Prove there is a clear path for future growth – Pre-sale due diligence can help justify the ways in which the company can grow in the future.
  5. Accelerate the timeline – Having customer diligence done ahead of time will speed up the process so the buyer doesn’t have to do it.

Sell-side due diligence gives the buyer a good overall assessment of customer relationships while also allowing the seller to control the process of the findings and substantiate their asking price.

Click here to read the full article.

A recent article from Inc.com entitled “The Art of Finding the Right Buyer for Your Business” gives us three essential items to consider when selling a business.

  • Set goals – The first step is to set goals for the future of your business, yourself and your family. You’ll want to consider factors such as how the transaction will affect your employees, if you will continue on as a team member or transition out of the company, and what your overall goals for the company are. This will help you and your advisor customize the sale process.
  • Explore options – Be sure to know the difference between a private equity group and a strategic corporate buyer, and find out how they can benefit your business. There are also “family offices,” which are investors who manage the wealth of a family or multiple families, but they hold a business forever.
  • Keep an open mind – It’s especially important in the beginning to stay open to both types of buyers and find a good advisor who can help guide you towards the right buyer. Whether they are a financial buyer or a strategic buyer, you don’t know how they are going to handle the future of a company until you get to know them.

Click here to read the full article.

A recent article from the M&A Source entitled “Gold Rush: New Entrepreneurs Seek Search Funds to Finance Takeovers of Baby Boomer Businesses” explains how new entrepreneurs are looking for funding to take over businesses as the baby boomer generation starts to retire. There is currently an entrepreneurial generational gap with far less young entrepreneurs than there are baby boomers looking to sell. Healthy financial trends paired with recent tax reforms have contributed to making ideal conditions for the new generation of small business owners.

This new generation of entrepreneurs is coming from recent MBA graduates who are choosing to acquire a business instead of heading to Wall Street. Most notably, they are doing things differently when it comes to financing by turning to the search fund model which is seeing unprecedented growth as of late. This process known as entrepreneurship through acquisition (ETA) is also becoming increasingly popular in business schools which are now offering ETA programs.

It is believed that this trend is going to continue and that the timing is right. More schools are increasing awareness about it and the model will get easier as more baby boomers retire and sell their businesses. As more big money sources see this model gain popularity, there will be more money to support this growth as well.

Click here to read the full article.

A recent article posted by Divestopedia entitled “Avoiding the Biggest Deal Killer: Time” tells us that the key to a successful deal is preparation and momentum. This means that the seller should be fully ready when the business hits the marketplace, not when the first offer is made.

To keep the momentum going, there are 14 factors to consider:

  1. Know when it is a good time to sell your business
  2. Know why you want to sell
  3. Know the company’s strengths and weaknesses
  4. Know what you will do after you sell your business
  5. Know the value of your business
  6. Have a realistic asking price
  7. Be sure you are current on all taxes
  8. Make sure operational details are organized and recorded
  9. Know that the business can operate without you
  10. Know your company’s place in the market
  11. Be prepared with accurate financial statements, tax returns, and financial reports
  12. Know that your team of trusted advisors is ready
  13. Have a growth and marketing plan for your buyer
  14. Know what is most important to you so you can stay focused on the key issues and not worry too much over minor details

Click here to read the full article.

Copyright:Business Brokerage Press, Inc.

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Don’t Let the Dust Settle on Your Lease: 8 Factors to Consider

Owners often neglect understanding their leases and this can be problematic. If your business is location-sensitive, then the status of your lease could be of paramount importance. Restaurants and retail businesses, for example, are usually location-dependent and need to pay special attention to their leases. But with that stated, every business should understand in detail the terms of its leases.

There are many key factors involving leases that should not be ignored or overlooked. If you adhere to these guidelines, you’ll be much more likely to control your outcomes.

  1. At the top of the list is the factor of length. Usually, the longer your lease the better.
  1. Secondly, if the property does become available, then it is often in an owner’s best interest to try and buy the property or he or she may be forced to move.
  1. When negotiating a lease, it is best to negotiate a way out of the lease if possible; this is particularly important for new businesses where the fate of your business is still an unknown. Experts recommend opting for a one-year lease with a long option period.
  1. You may want to sell your business at some point, and this is why it is important to see if your landlord will allow for the transfer of the lease and what his or her requirements are for the transfer.
  1. Look at the big picture when signing a lease. For example, what if your business is located in a shopping center? Then attempt to have it written into your lease that you’re the only tenant that can engage in your type of business.
  1. If you’re located in a shopping center, then try to outline in your agreement a reduction of your rent if an anchor store closes.
  1. Your lease should detail what your responsibilities are and what responsibilities your landlords hold. Keep in mind that if you are a new business, it is quite possible that your landlord will likely require a personal guarantee from you, the owner.
  1. The dollar amount is necessarily the most important factor in determining the quality of your lease. It is important to carefully assess every aspect of the lease and understand all of its terms.

There are many other issues that should be taken into consideration when considering a lease.

  • For example, what happens in the event of a natural disaster or fire? Who will pay to rebuild?
  • Is there a percentage clause and, if so, is that percentage clause reasonable?
  • How are real estate taxes, grounds-keeping fees and maintenance fees handled?

Investing the time to understand every aspect of your lease will not only save you headaches in the long run, but it will also help to preserve the integrity of your business.

Copyright: Business Brokerage Press, Inc.

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The Importance of the Term Sheet

The value of the term sheet shouldn’t be overlooked. From buyers and sellers to advisors and intermediaries, the term sheet is often used before the creation of an actual purchase or sale agreement. That stated, it is important that the term sheet is actually explained in detail. Let’s take a closer look at its importance.

What is a Term Sheet?

Even though term sheets are quite important, they are rarely mentioned in books about the M&A process. In the book, Streetwise Selling Your Business by Russ Robb, a term sheet is defined as, “Stating a price range with a basic structure of the deal and whether or not it includes real estate.”

Another way of looking at a term sheet, according to attorney and author Jean Sifleet, is that a term sheet serves to answer to four key questions: Who? What? Where? And How Much?

Creating the Right Environment

A good term sheet can help keep negotiations on target and everyone focused on what is important. Sifleet warns against advisors, accountants and lawyers who rely heavily on boilerplate documents as well as those who adopt extreme positions or employ adversarial tactics. The main goal should be to maintain a “win-win” environment.

At the end of the day, if a buyer and a seller have a verbal agreement on price and terms, then it is important to put that agreement down on payment. Using the information can lead to a more formalized letter of intent. The term sheet functions to help both parties, as well as their respective advisors, begin to shape a deal, taking it from verbal discussions to the next level.

Make Sure Your Term Sheet Has the Right Components

In the end, a term sheet is basically a preliminary proposal containing a variety of key information. The term sheet outlines the price, as well as the terms and any major considerations. Major considerations can include everything from consulting and employment agreements to covenants not to compete.

Term sheets are a valuable tool and when used in a judicious fashion, they can yield impressive results and help to streamline the buying and selling process. Through the proper use of term sheets, an array of misunderstandings can be avoided and this, in turn, can help increase the chances of successfully finalizing a deal.

Copyright: Business Brokerage Press, Inc.

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Your Deal is Almost Done, Then Again, Maybe Not

Having a letter of intent signed by both the buyer and the seller can be a very good feeling. Everything can seem as though it is moving along just fine, but the due diligence process must still be completed. It is during due diligence that a seller decides whether he or she is going to finalize the deal. Much depends on what is discovered during this important process, so remember the deal isn’t done until it is truly finalized.

In his book, The Art of M&A, Stanley Forster Reed noted that the purpose of due diligence is to “Assess the benefits and liabilities of a proposed acquisition by inquiring into all relevant aspects of the past, present and predictable future of the business to be purchased.”

Summed up another way, due diligence is quite comprehensive. It probably comes as no surprise that this is when deals often fall apart. Before diving in, it is critically important that you meet with such key people as appraisers, accountants, lawyers, a marketing team and other key people.

Let’s take a look at some of the main items that both buyers and sellers should have on their respective checklists.

Industry Structure

You should determine the percentage of sales by product line. Additionally, take the time to review pricing policies, product warranties and check against industry guidelines.

Human Resources

Review your key people and determine what kind of employee turnover is likely.

Manufacturing

If your business is involved in manufacturing then every aspect of the manufacturing process must be evaluated. Is the facility efficient? How old is the equipment? What is the equipment worth? Who are the key suppliers? How reliable will those suppliers be in the future?

Trademarks, Patents and Copyrights

Trademarks, patents and copyrights are intangible assets and it is important to know if those assets will be transferred. Intangible assets can be the key assets of a business.

Operations

Operations is key, so you’ll want to review all current financial statements and compare those statements to the budget. You’ll also want to check all incoming sales and at the same time analyze both the backlog and the prospects for future sales.

Environmental Issues

Environmental issues are often overlooked, but they can be very problematic. Issues such as lead paint and asbestos as well as ground and water contamination can all lead to time-consuming and costly fixes.

Marketing

Have a list of major customers ready. You’ll want to have a sales breakdown by region and country as well. If possible, you’ll want to compare your company’s market share with that of the competition.

The Balance Sheet

Accounts receivable will want to check for who is paying and who isn’t. If there is bad debt, it is vital to find that debt. Inventory should also be checked for work-in-progress as well as finished goods. Non-usable inventory, the policy for returns and the policy for write-offs should all be documented.

Finally, when buying or selling a business, it is vital that you understand what is for sale, what is not for sale and what is included whether it is machinery or intangible assets such as intellectual property. Understanding the barriers to entry, the company’s competitive advantage and what key agreements with employees and suppliers are already in place, will help ensure a smooth and stable transition. There are many important questions that must be answered during the due diligence process. Working closely with a business broker helps to ensure that none of these vital questions are overlooked.

Copyright: Business Brokerage Press, Inc.

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Around the Web: A Month in Summary

A recent article from Small Business Trends entitled “41% of Entrepreneurs Will Leave Their Small Business Behind in 5 Years” summarizes a report by a global financial services firm that looks at business ownership and entrepreneurialism in modern America. The report found that almost 60% of wealthy investors would consider starting their own business while more than 40 percent of current business owners are planning to exit their business. Of the 41% of business owners who are planning to leave their business in the next 5 years, half of them plan to sell their business.

The report highlights how heirs in the family are often reluctant to take over the family business and that many business owners underestimate what they need to reach a successful sale. The report notes that 58% of business owners have never had their business appraised and 48% have no formal exit strategy. One of the main takeaways from this should be that small business owners need to prepare for selling their business and they should create an exit plan well in advance.

Click here to read the full article.

A recent article on the Axial Forum entitled “9 Reasons Acquisitions Fail — and How to Beat the Odds” shows us how looking at why others have failed can help you to learn from their mistakes in order to have a successful acquisition. Here are 9 common causes of failed acquisitions:

  1. Strategy – Poor strategic logic was used and it was not a good fit for integration
  2. Synergy – Potential synergy between the companies is overestimated or the complexity is underestimated
  3. Culture – Incompatibility between the companies, ineffective integration, or compromising the positive aspects of one business to create uniformity
  4. Leadership – Poor leadership, not enough participation in the transaction & integration process, clashes between leaders
  5. Transaction Parameters – Paying too much, inappropriate deal structure, negotiations taking too long
  6. Due Diligence – Not enough investigation is done beforehand, failure to act on findings
  7. Communications – Lack of proper communication can result in talent loss, customer loss, and many more problems which eventually lead to failure
  8. Key Talent – Failing to identify or retain key employees
  9. Technology – Failing to identify incompatibilities or underestimating the complexity and time required for integration

Integration involves several steps starting from the initial strategic thinking, to due diligence and then carrying on into the months after the deal is made. Deal makers and business owners need to consider all steps of the process to make an acquisition successful.

Click here to read the full article.

A recent article posted by WilmingtonBiz Insights entitled “How Does Exit Planning Protect Business Value?” explains the importance of exit planning in retaining and growing business value.

The article gives an example of two similar businesses, both valued at $5 million, who take different strategies towards increasing their companies’ values before selling. The first company invests in more equipment and hiring more employees, but does not work with any advisors besides their CPA at tax time. The second company works with their CPA, an exit planning advisor and a tax specialist. They build a strong management team, cut the owner’s work week in half, and convert the company to an S corporation. They also work with a business broker to buy two smaller competitors which broadens their market.

When the Great Recession of 2008 hits, both companies are affected but in very different ways. The first company has to lay off all the new employees they hired and their new equipment sits unused. They end up selling their business for less than what it was valued at. The second company has minimal layoffs and has extra money saved from strategic tax planning. Their business is valued at $15 million because of the two businesses they bought, and they are able to exit their business with $10 million profit. No matter what unforeseen circumstances may occur, the right planning can make a huge difference.

Click here to read the full article.

A recent article from Divestopedia entitled “Constructing a Buyer List and Finding the Right Buyer for Your Company” explains how buyer lists are created and what makes a good buyer. The first step in constructing the buyer list is to determine the objectives of the seller such as leaving a legacy or retaining the local employment base.

M&A advisors will have many existing resources to start with including an in-house database, established relationships in the industry, business networks, and more. Adding your competitors to the list is another thing to consider, which will depend on the goals of the seller and the reputation of the competitors.

The ability to pay is the main qualifier to look at in finding a good buyer. Consider the following factors when looking for a buyer who can pay a premium:

  • Economies of scale
  • Economies of scope and cross-selling opportunities
  • Unlocking underutilized assets
  • Access to proprietary technology
  • Increased market power
  • Shoring up weaknesses in key business areas
  • Synergy
  • Geographical or other diversification
  • Providing an opportunistic work environment for key talent
  • To reach critical mass for an IPO or achieve post-IPO full value
  • Vertical integration

The best way to find the right buyer is to approach all potential buyers, talk to them and see if it’s a good fit.

Click here to read the full article.

A recent article from Business Sale Report entitled “Almost a quarter launch businesses with a sale in mind” summarizes the results of a new study which asked nearly 1,000 entrepreneurs about their start-up history and their motivation for launching businesses. The study found that 23% of those starting their own business have their exit as a primary goal, with 83% of those claiming that selling at a profit is their main incentive.

The top 2 answers for why they started their business were that “It was a passion of mine” and “I knew it would eventually sell well and had exit in mind.” All of the study participants said that they wished they had an exact way to know the value of their business and more than half said they had no real way of knowing the value of their business.

If you are starting a business with a main goal of selling the business for profit, it is essential to know your valuation so that you get a fair price.

Click here to read the full article.

Copyright: Business Brokerage Press, Inc.

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Three Easy & Effective Ways to Negotiate

Far too many prospective business buyers and sellers overlook just how important negotiations can be. But they can also be tricky. In general, there are three approaches to negotiations. Thinking through your negotiation strategies well before the time to buy or sell is a savvy and prudent move.

Negotiation Tactic #1 Take It or Just Leave It

In this negotiating tactic, the buyer makes an offer and the seller makes a counter-offer, then both sides leave it there. If the deal works fine. If it doesn’t work, that’s fine too.

It is usually smart to step back and ask yourself if you are comfortable with this approach. Sometimes a small degree of flexibility can go a long way towards turning a proposed deal into a reality.

Negotiation Tactic #2 Maybe Consider Splitting the Difference

Another negotiating tactic is to simply offer to split the difference. This tactic is pretty straightforward and it demonstrates a good deal of flexibility; however, the financials may not always make sense for both sides.

As always, it is important to think about all the factors involved in allowing a deal to fall apart, such as how much time will it take to find another buyer or another business to buy? Showing a willingness to split the difference is often seen as a goodwill offer that can facilitate further negotiations within an environment of lower emotional intensity.

Remember, as long as the two sides are talking, a deal may be reached. But when communication ceases, then the deal is definitely finished and not in a good way.

Negotiation Tactic #3 Negotiation from What is Most Important to Each Party

Understanding what is most important to both parties is usually critical for a successful deal. Important areas can range from allowing a relative to stay with the business to moving the business to a new location. Not all key points are directly linked to money, and it is vital to understand this all-important negotiating fact.

Negotiation Tactic #4 Bring in a Pro

In negotiations there is an old adage, “Never negotiate your own deal.” Emotions can run high when it comes to buying or selling a business and then there is the problem of perspective. Buyers and sellers are often lack the perspective that an outsider can bring.

Opting for help and guidance from someone who buys and sells businesses for a living, can be a huge step in the right direction. Through a professional business broker, it is possible to not only establish a fair price but also address the array of intangibles that can go into buying and selling a business.

At the end of the day, deals are put together piece by piece, and skill is involved in the process. Working with others is at the heart of successful negotiation, and that means taking into consideration what the other side wants and what the other side needs.

Copyright: Business Brokerage Press, Inc.

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Red Flags are Not a Pretty Sight

When it comes to selling a business, sellers simply must pay attention to red flags. Problems can always pop up, and that’s why they need to keep their eyes open.

Rarely does a “white knight” ride in and rescue a business with no questions asked. And if this were to happen, you should be asking, “Why?” Until a deal is officially inked, sellers need to evaluate every aspect of a transaction to make sure something isn’t happening that could wreck the deal.

Common Red Flags to Watch For

One example would be having a company express interest in your business but you are never able to directly contact key players, such as the President or CEO. The reason that this is a red flag is that it indicates that the interest level may not be as great as you initially hoped.

A second red flag example would be an individual buyer, with no experience in acquisitions or experience in your industry, looking to buy your business. The reason that this second example could prove problematic, is that even if the inexperienced buyer is enthusiastic as the deal progresses, he or she may become nervous upon learning what a deal would actually entail. In other words, the specifics and the reality of owning a business, or owning a business in your industry, could come as a shock to an inexperienced buyer.

Both of these examples above are examples of early-stage red flags. But what about issues that pop up at later stages? The simple fact is that red flags can come at any stage of the selling process.

A good example of a middle-stage red flag is when a seller is denied access to the buyer’s financial statements, which is of course essential to verify that the seller is able to actually make the acquisition. A final-stage red flag example is an apparent loss of momentum, as the buying and selling process can be a long one.

Business Sellers Need to Protect Their Assets

Sellers are usually very busy and don’t have time to waste; this is doubly true for owner/operators of businesses, as the time they invest with a prospective buyer is time that could be spent doing something else.

All too often, businesses begin to run into trouble when they place their business on the market. If this trouble negatively impacts the bottom line, then the business can become more difficult to sell and the final sale price will likely be lower.

That’s why it is so essential that sellers protect themselves from buyers that are not truly interested or are simply not a good fit. Working with a business broker is an easy and highly effective way for sellers to protect themselves from buyers that are simply not the right fit. A broker helps to “weed out” unfit candidates.

While red flags are never good, that doesn’t mean that a red flag means a deal is a definitely at an end. Especially with the guidance of an experienced business broker, many of these issues can be overcome.

In the end, if you, either as a buyer or seller, suspect that there is a problem, then you should take action. The problem will not simply go away. The single best way to deal with a red flag is to tackle it head on as soon as you recognize it.

Copyright: Business Brokerage Press, Inc.

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Buying? Selling? Seven Key Points to Consider

Buying or selling a business is one of the most important decisions that most people ever make. Before jumping in, there are several points that should be taken into consideration. Let’s take a moment to examine some of the key points involved in buying or selling a business.

Factor #1 – What are You Selling?

Whether buying or selling a business it is important to ask a few simple questions. What is for sale? What is not included with the buyer’s investment? Does the sale price include any real estate? Are vital assets, such as machinery, included in the sale price?

Factor # 2 – What are the Range of Assets?

It is very important to understand the range of assets that are included with a business. What is proprietary? Are there formulations, patents and software involved? These types of assets are often the core of the business and will be essential for its long-term success.

Factor # 3 – Evaluating Assets for Profitability

Not all assets are created equally. If assets are not earning money or are too expensive to maintain, then they should probably be sold. Determining which assets are a “drag” on a business’s bottom line takes due diligence and a degree of focus, but it is an important step and one that shouldn’t be overlooked.

Factor # 4 – Determining Competitive Advantage

What gives a business a competitive advantage? And for those looking to sell a business, if your business doesn’t have a competitive advantage, what can you do to give it an advantage? Buyers should understand where a business’s competitive advantage lies and how they can best exploit that advantage moving forward.

Factor # 5 – How Can the Business Be Grown?

Both buyers and sellers alike should strive to determine how a business can be grown. Sellers don’t necessarily need to have implemented business growth strategies upon placing a business up for sale, but they should be prepared to provide prospective buyers with ideas and potential strategies. If a business can’t be grown this is, of course, a factor that should be weighed very carefully.

Factor # 6 – Working Capital

Some businesses are far more capital intensive than others. Understand how much working capital you’ll need to run any prospective business.

Factor # 7 – Management Depth

Businesses are only as good as their people. It is important to ask just how deep your management team is, how experienced that team is and what you can expect from that team. How dependent is the business on the owner or manager? If the business may fall apart upon the leaving of the owner or a manager, then this is a fact you need to know.

Buying or selling a business is often more complex than people initially believe. There are many variables that must be taken into consideration, including a range of other factors not discussed in this article ranging from how financial reporting is undertaken to barriers of entry, labor relationships and more. Due diligence, asking the right questions and patience are all key in making your business a more attractive asset to buyers or for finding the right business for you.

Copyright: Business Brokerage Press, Inc.

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Who Exactly Owns Personal Goodwill and Why Does it Matter?

Personal goodwill can have a profound impact on both small and medium-sized businesses. In fact, it can even impact the sales of larger companies. Ultimately, understanding how personal goodwill is cultivated is of great value for any company.

During the process of building a business, a founder builds one or more of the following: a positive personal reputation, a personal relationship with key players such as large customers and suppliers and the founder’s reputation associated with the creation of products, inventions, designs and more.

What Creates Personal Goodwill?

Personal goodwill can be established in many ways, for example, professionals such as doctors, dentists and lawyers can all build personal goodwill with their clients, especially over extended periods of time. One of the most interesting aspects of building personal goodwill is that it is essentially non-transferable, as it is invariably attached to and associated with, a particular key figure, such as the founder of a company. Simply stated, personal goodwill can be a powerful force, but it does have one substantial drawback. This is as the saying goes, “the goodwill goes home at night.”

How Does It Impact Buying or Selling a Business?

Buying a business where personal goodwill has been a cornerstone of a business’s success and growth presents some obvious risks. Likewise, it can be difficult to sell a business where personal goodwill plays a key role in the business, as a buyer must take this important factor into consideration. Certain businesses such as medical, accounting or legal practices, for example, depend heavily on existing clients. If those clients don’t like the new owner, they simply may go elsewhere.

Now, with all of this stated, it is, of course, possible to sell a business built partially or mostly around personal goodwill. Oftentimes, buyers will want some protection in the event that the business faces serious problems if the seller departs.

Solutions that Work for Both Parties

One approach is to require the seller to stay with the business and remain a key public face for a period of time. An effective transition period can be pivotal for businesses built around personal goodwill. A second approach is to have some form of “earn-out.” In this model, at the end of the year lost business is factored in, and a percentage is then subtracted from monies owed to the seller. Another option is that the funds from the down payment are placed in escrow and adjustments are made to those funds. It is important to note that the courts have decided that a business does not own the goodwill, the owner of the business does.

No doubt, businesses in which personal goodwill plays a major role, present their own unique challenge. Working with an experienced professional, such as a business broker, is an exceptional way to proceed in buying or selling this type of business.

Copyright: Business Brokers Press, Inc.

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Around the Web: A Month in Summary

A recent article posted on PR Newswire entitled “Business owners’ love of work may hinder succession planning” explains the parallels between the number of business owners with no plans to retire and the lack of succession planning. In a recent poll, over 70% of business owners said they are not planning to retire, don’t know when they will retire, or do not plan to retire for at least 11 years. The survey also reported that 2 out of 3 business owners do not have a succession plan or a clear understanding of the importance of one.

Even if there are no immediate plans for retiring, business owners should have a succession plan in place to protect the business, partners, employees and customers. If something were to suddenly happen to the business owner such as serious illness or an untimely death, a succession plan would help make sure everything goes smooth with the transition of the business.

To get started with creating an exit plan, business owners can take 5 simple steps:

  1. Set goals & objectives
  2. Determine the value of your business
  3. Consider options for the business in the case of disability, retirement or death
  4. Develop a plan and documentation with an advisor, attorney and accountant
  5. Fund the plan

You never know when something unexpected could occur, so it’s never too early to start creating a succession plan.

Click here to read the full article.

A recent article posted by Forbes entitled “Baby boomers are selling their businesses to millennial entrepreneurs, and it’s a brilliant idea” highlights the fact that many baby boomers will soon be looking to sell their businesses and this creates excellent business opportunities for millennials. Many of these baby boomer businesses are well established having no debt, loyal customers and proven business models which make them a great opportunity for young entrepreneurs to take over instead of letting the businesses close down.

Here are 7 places to start looking for these baby boomer businesses:

  1. Local chamber of commerce
  2. Local CPAs
  3. Local real estate brokers
  4. Local community bankers
  5. Business brokers
  6. Go directly to the business owner
  7. Craigslist or eBay

Overall, staying connected with local professionals in your area as well as being proactive in searching out businesses for sale will help you to find a great business opportunity. Once you find a legitimate business, find out if it’s making a profit. If so, ask why the owner wants to sell and if not, find out why.

Click here to read the full article.

A recent article from Forbes entitled “Selling your business in 3 to 5 years? Buy another company now” explains how acquiring another company can significantly increase the value of your business before you decide to sell. The first thing to understand is that the multiple of earnings paid for a company increases at an accelerating rate with size. Larger EBITDA means larger multiples, and larger companies are generally less risky so a buyer is willing to pay more.

Acquiring another business may also amount to cost savings and operational improvements when the companies are integrated. Combine these savings with organic revenue growth and a larger multiplier when the companies are combined, and this can add up to a huge increase in your company’s value. So if you’re thinking of selling within 3-5 years, this could be a good strategy to consider.

Click here to read the full article.

A recent article from the Denver Post entitled “Selling your business? Focus on the key business drivers so buyers pay top dollar” explains how focusing on certain key factors of your business can help you get the highest possible price when selling your business. Although many key business drivers vary among industries, there are four drivers that apply across the board:

  1. History of increasing revenues and profits over the past 3-5 years
  2. Strategic business plan that shows strong growth, competitive advantage, and products or services that can be sold across multiple industries
  3. Future cash flow including expected EBITDA performance, expected working capital investment requirements, and expected fixed-asset investment requirements
  4. Strong management team and strong operating systems in place

Business owners should get a detailed business audit and analysis from a business consultant so they can see where their business’s strengths and weaknesses are. This will show the owner what business drivers to focus on improving in order to get the highest price for their business.

Click here to read the full article.

A recent article posted on Divestopedia entitled “What Is Your Company Actually Worth?” explores how buyers and sellers often perceive a company’s worth differently and how business owners misjudge their company’s value. Private company valuation is a complex process and most owners have difficulty staying objective when it comes to a business in which they have put their life’s work into. On the other hand, to a buyer, the company is an asset to be acquired at the lowest possible price, which often leads to a large difference in perception between a buyer and seller.

An experience advisor can help negate these problems and make the sale process better for the owner for the following reasons:

  1. The business owner can focus on factors of the business which will increase the valuation such as EBITDA, sales, gross profit margins, customer growth and employee skills.
  2. The owner will get an extensive look at the financial health of their business from an advisor along with recommendations for improvement.
  3. An advisor will also be an experienced negotiator, helping the owner get the best sale price for the business.

The key to avoiding mistakes in selling a business starts off by getting an accurate valuation of the business and making sure everything is analyzed effectively to prepare for a profitable sale.

Click here to read the full article.

Copyright: Business Brokerage Press, Inc.

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When Selling Your Business, Play to Win

If you are an independent business owner, you are most likely also an independent business seller–if not now, you will be somewhere down the road. The Small Business Administration reports that three to five years is a long enough stretch for many business owners and that one in every three plans to sell, many of them right from the outset. With fewer cases of a business being passed on to future generations, selling has become a fact of independent business life. No matter at what stage your own business life may be, prepare now to stay ahead in the selling game.

Perhaps one of the most important rules of the selling game is learning how not to “sell.” An apt anecdote from Cary Reich’s The Life of Nelson Rockefeller shows a pro at work doing (or not doing) just that:

When the indomitable J.P. Morgan was seeking the Rockefeller’s Mesabi iron ore properties to complete his assemblage of what was to become U.S. Steel, it was Junior [John D. Rockefeller, Jr.] who went head-to-head with the financier. “Well, what’s your price?” Morgan demanded, to which Junior coolly replied, “I think there must be some mistake. I did not come here to sell. I understand you wished to buy.” Morgan ended up with the properties, but at a steep cost.

As this anecdote shows, the best approach to succeeding at the selling game is to be less of a “seller” and more of a “player.” Take a look at these tips for keeping the score in your favor:

Let Others Do the Heavy Pitching

Selling a business is an intense emotional drain; at best, a distraction. Let professional advisors do the yeoman’s duty when selling a business. A business intermediary represents the seller and is experienced in completing the transaction in a timely manner and at a price and terms acceptable to the seller. Your business broker will also present and assess offers, and help in structuring the transaction itself. If you plan to use an attorney, engage one who is seasoned in the business selling process. A former Harvard Business Review associate editor once said, “Inexperienced lawyers are often reluctant to advise their clients to take any risks, whereas lawyers who have been through such negotiations a few times know what’s reasonable.”

Stay in the Game

With the right advisors on your side, you can do the all-important work of tending to the daily life of the business. There is a tendency for sellers to let things slip once the business is officially for sale. Keeping normal operating hours, maintaining inventory at constant levels, and attention to the appearance and general good repair of the premises are ways to make the right impression on prospective buyers. Most important of all, tending to the daily running of the business will help ward off deterioration of sales and earnings.

Keep Pricing and Evaluation in the Ballpark

Like all sellers, you will want the best possible price for your business. You have probably spent years building it and have dreamed about its worth, based on your “sweat equity.” You’ll need to keep in mind that the marketplace will determine the value of the business. Ignoring that standard by asking too high a price will drive prospective buyers away, or will at the least slow the process, and perhaps to a standstill.

Play Fair with Confidentiality

Your business broker will constantly stress confidentiality to the prospects to whom he or she shows your business. They will use nonspecific descriptions of the business, require signatures on strict confidentiality agreements, screen all prospects, and sometimes phase the release of information to match the growing evidence of buyer sincerity. As the seller you must also maintain confidentiality in your day-to-day business activities, never forgetting that a breach of confidentiality can wreck the deal.

Sell Before Striking Out

Don’t wait until you are forced to sell for any reason, whether financial or personal. Instead of selling impulsively, you should plan ahead carefully by cleaning up the balance sheet, settling any litigation, providing a list of loans against the business with amounts and payment schedule, tackling any environmental problems, and by gathering in one place all pertinent paperwork, such as franchise agreement (if applicable), the lease and any lease-related documents, and an approximation of inventory on-hand. In addition, you could increase the value of your business by up to 20 percent by providing audited financial statements for one or two years in advance of selling.

Think Twice Before Retiring Your “Number”

The trend is for sellers to assume they will retire after selling the business. But consider this: agreeing to stay on in some capacity can actually help you get a better price for your business. Many buyers will pay more to have the seller stay aboard, thus helping to reduce their risk.

Keep the Ball Rolling

You need to keep the negotiation ball rolling once an offer has been presented. Even if you don’t get your asking price, the offer may have other points that will offset that disappointment, such as higher payments or interest, a consulting agreement, more cash than you anticipated, or a buyer who seems “just right.” The right buyer may be better than a higher price, especially if there is seller financing involved, and there usually is. In many cases, the structure of the deal is more important than the price. And when the ball is rolling, allow it to pick up speed. Deals that drag are too often deals that fail to close.

By following these tips, and by working closely with your business broker, you can have confidence in being a seller who, like John D. Rockefeller, Jr., doesn’t “come here to sell.” You will play the selling game–and be a winner.

Copyright: Business Brokerage Press, Inc.

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Similar Companies Can Have Huge Value Differences

Can two companies in the same industry have very different valuations? In short, the answer is a resounding, yes. Let’s take an example of two companies that both have an EBITDA of $6 million but with two very different values. In fact, Business One is valued at five times EBITDA, which prices it at $30 million whereas Business Two is valued at seven times EBITDA, meaning it has a value of $42 million.

Value Difference Checklist

  1. Revenue Size
  2. Profitability
  3. The Market
  4. Growth Rate
  5. Regional/Global Distribution
  6. Management & Employees
  7. Capital Equipment Requirements
  8. Systems/Controls
  9. Uniqueness/Proprietary
  10. Intangibles (Intellectual property/patents/brand, etc.)

There are quite a few variables on the above checklist that stand out, with the top one being that of growth rate. Growth rate is a major value driver when buyers are considering value.

Business Two, for example, with its seven times EBITDA has a growth rate of 50%, whereas Business One, with its five times EBITDA has a growth rate of just 12%.

Discovering the real growth rate story means answering some pretty important questions.

  1. Are the company’s projections achievable and believable?
  2. Where is the company’s growth coming from?
  3. Are there long-term contracts currently in place?
  4. Where is the growth originating? In other words, what services or products are driving growth? Will those services or products continue to drive growth in the future?
  5. How is the business obtaining its customers for the projected growth?
  6. How reliable are the contracts/orders?

Ultimately, finding the difference in value between two businesses, that otherwise appear similar, usually resides in growth rate. This is a factor that should not be overlooked. It is essential to know a company’s growth rate as well as the key questions to ask regarding its growth. If you are going to obtain an accurate valuation as well as understanding the valuation between different companies, this part of the process cannot be overlooked.

Copyright: Business Brokerage Press, Inc.

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There’s No Business Quite Like a Family Business

The simple fact is that family businesses are different. After all, a family business means working with family and all the good and bad that comes with it.

While an estimated 80% to 90% of all businesses are family owned, relatively few are properly planning for what happens when it comes time to sell. According to one study, a whopping 72% of family businesses lack a developed succession plan which is, of course, a recipe for confusion and potentially disaster. Additionally, there are many complicating factors, for example, studies indicate that 40% to 60% of owners of family businesses want the business to remain in the family, but only 40% of businesses are passed to a second generation and a mere 10% are passed down to a third generation.

Let’s turn our attention to a few of the key points that family business owners should consider when selling a business.

  1. Confidentiality should be placed at the top of your “to do” list. When it comes to selling a family business, it is vital that confidential is strictly observed.
  2. Remember that it may be necessary to lower your asking price if maintaining the jobs of family members is a key concern for you.
  3. Family members who stay on after the sale of the business must realize that they will no longer be in charge. In other words, after the sale of the business the power dynamic will be radically different, meaning that family members will now have to answer to new management, outside investors and an outside board of directors.
  4. Family members will want to appoint a single family member to speak for them in the negotiation process. A failure to appoint a family member could lead to confusion, poor decision making and ultimately the destruction of deals.
  5. When hiring a team to help you with selling your business, it is critical that your lawyer, accountant and business broker are all experienced and proven.
  6. Don’t hold meetings with potential buyers on-site.
  7. Every family member, regardless of whether they are an employee or an investor, must be in agreement regarding the sale of the company. Again, one of your primary goals is to avoid confusion.
  8. Family employees and family investors must be in agreement regarding the sale price or there could be problems.

Working with an experienced business broker is a savvy move, especially when it comes to selling a family business. Business brokers know what it takes to make deals happen. Being able to point to a business brokers’ past success will help reduce family member resistance to adopting the strategies necessary to successfully sell a business.

Copyright: Business Brokerage Press, Inc.

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Around the Web: A Month in Summary

A recent article posted by The National Law Review entitled “Thinking of Selling? Start Early, Build Your Team” explains the importance of putting together a good team of trusted advisors well in advance of selling your business. Your team should include an attorney, accountant, investment banker, and wealth manager. This team will help you with various aspects of selling your business such as:

  • Setting a realistic valuation on the business
  • Finding potential buyers
  • Handling due diligence and information requests from buyers
  • Structuring a transaction for tax & liability protection
  • Dealing with the sale proceeds and making sure your goals are met

It is a good idea to put this team together as soon as possible if you’re thinking of selling, so everyone has time to prepare. There are so many aspects to a business sale and it is essential to have an experienced team of professionals to guide you in the process.

Click here to read the full article.

A recent article from The San Angelo Standard-Times entitled “Business tips: Don’t neglect due diligence when buying a business” emphasizes the important of due diligence when buying a business, which consists of looking into and understanding the important aspects and fine details of the business before closing.

The first aspect to consider is if the business is right for you and your personal circumstances. Taking over a new business will require some help from the previous owner who has knowledge of the business and the industry. You will also want to take into account how many hours are needed, if the job will involve a lot of physical work, and if your family supports you in the purchase of this type of business.

Reviewing and analyzing the seller’s numbers and documents is also a huge part of due diligence. Consider using the help of a CPA, consultant or business broker to go over the financials of the business. You will also want to look into things such as if there are any claims on the business or if the business owes back taxes. Doing your due diligence now will ensure that there are no surprises later on in the process.

Click here to read the full article.

A recent article posted by the Smart Business Network entitled “Planning an exit when a succession plan isn’t an option” explains that selling your business should be part of your exit strategy when creating a succession plan is not an option. To prepare a business for sale, the business owner should recognize the strengths of the business which would appeal to potential buyers and should also have a good understanding of the business’ financials.

Business owners may also want to work with a bank that is experienced in exit planning. The bank can assist with providing insight into how buyers will view their business and what obstacles may occur while a buyer is trying to finance the acquisition. Banks will also be able to work with the buyer in assisting them with financing.

It’s important for a business owner to work with experienced professionals who have worked with sales, acquisitions and exit strategies to help them prepare for a business sale.

Click here to read the full article.

A recent article posted by Business.com entitled “Why It’s Prime Time to Buy a Business from a Retiring Baby Boomer” gives several good reasons why it is a good idea to consider purchasing an existing business, as a flood of baby boomers will be looking to sell their businesses and retire over the next decade.

There are many benefits to purchasing an existing business:

  1. Minimal upfront costs and you not only purchase the business but also the brand, customer-base, management policies and more.
  2. Low risk because the business is already established and has a proven track record.
  3. Steady cash flow along with employees and equipment.

With the generation of baby boomers looking to sell, there will be ample opportunities available for buyers. It’s important to stay in the loop and keep an eye out on available businesses by staying connected to your professional network, brushing up on local & industry publications, looking at online marketplaces, and working with a business broker.

Click here to read the full article.

A recent article written by Live Oak Bank entitled “6 Business Acquisition Tips from SBA Loan Experts” outlines six factors that lenders review for loans financing mergers and acquisitions.

  1. Stable or Positive Trend – Not only a positive trend but stability in these trends are what lenders look at to make sure that any recent growth or improvement is sustainable. A decrease in revenue is a red flag and a negative trend should be stabilized or reversed.
  2. Business Plan – Buyers need to have a business and transition plan for the business they are acquiring so lenders can see they have a good understanding of the business and plans for improvement.
  3. Key Employees – Lenders like to see that key employees will stay on with the new owner, which helps lower the risk and make the transition easier.
  4. Seller Transition Period – Make sure you have a transition plan in place where the seller is able to help train and assist the new owner.
  5. Seller Financing – The seller financing a portion of the deal shows the lender that they are confident in the new owner and lowers the risk factors.
  6. Working Capital – M&A lenders will review the financials of the business to see what working capital is needed. The buyer should demonstrate a clear understanding of how much and what type of working capital is needed for the business transition.

Click here to read the full article.

Copyright: Business Brokerage Press, Inc.

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The Difficult Issues Often Attached to Valuing a Business

There is little doubt that valuing a business is often complex. In part, this complexity is due to the fact that business evaluation is subjective. The simple fact is that the value of a business is often left to the mercy of the person conducting the evaluation. Adding yet another level of complexity is the fact that the person conducting the valuation has no choice but to assume that all the information provided is, in fact, correct and accurate.

In this article, we will explore the six key issues that must be considered when determining the value of a business. As you will see, determining the value of a business involves taking in several factors.

Factor #1 – Intangible Assets

Intangible assets can make determining the value of a business quite tricky. Intellectual property ranging from patents to trademarks and copyrights can impact the value of a business. These intangible assets are notoriously difficult to value.

Factor #2 – Product Diversity

One of the truisms of valuing a business is that businesses with only one product or service are at much greater risk than a business that has multiple products or services. Product or service diversity will play a role in most valuations.

Factor #3 – ESOP Ownership

A company that is owned by its employees can present evaluators with a real challenge. Whether partially or completely owned by employees, this situation can restrict marketability and in turn impact value.

Factor #4 – Critical Supply Sources

If a business is particularly vulnerable to supply disruptions, for example, using a single supplier in order to achieve a low-cost competitive advance, then expect the evaluator to take notice. The reason is that a supply disruption could mean that a business’ competitive edge is subject to change and thus vulnerable. When supply is at risk then there could be a disruption of delivery and evaluators will notice this factor.

Factor #5 – Customer Concentration

If a company has just one or two key customers, which is often the situation with many small businesses, this can be seen as a serious problem.

Factor #6 – Company or Industry Life Cycle

A business, who by its very nature, may be reaching the end of an industry life cycle, for example, typewriter repair, will also face challenges during the evaluation process. A business that is facing obsolescence usually has bleak prospects.

There are other issues that can also impact the valuation of a company. Some factors can include out of date inventory, as well as reliance on short contracts and factors such as third-party or franchise approvals being necessary for selling a company. The list of factors that can negatively impact the value of a company are indeed long. Working with a business broker is one way to address these potential problems before placing a business up for sale.

Copyright: Business Brokerage Press, Inc.

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What Do Buyers Want in a Company?

Selling your business doesn’t have to feel like online dating, but for many sellers this is exactly what it can feel like. Many sellers are left wondering, “What exactly do buyers want to see in order to buy my company?” Working with a business broker is an excellent way to take some of the mystery out of this often elusive equation. In general, there are three areas that buyers should give particular attention to in order to make their businesses more attractive to sellers.

Area #1 – The Quality of Earnings

The bottom line, no pun intended, is that many accountants and intermediaries can be rather aggressive when it comes to adding back one-time or non-recurring expenses. Obviously, this can cause headaches for sellers. Here are a few examples of non-recurring expenses: a building undergoing foundation repairs, expenses related to meeting new government guidelines or legal fees involving a lawsuit or actually paying for a major lawsuit.

Buyers will want to emphasize that a non-recurring expense is just that, a one-time expense that will not recur, and are not in fact, a drain on the actual, real earnings of a company. The simple fact is that virtually every business has some level of non-recurring expenses each and every year; this is just the nature of business. However, by adding back these one-time expenses, an accountant or business appraiser can greatly complicate a deal as he or she is not allowing for extraordinary expenses that occur almost every year. Add-backs can work to inflate the earnings and lead to a failure to reflect the real earning power of the business.

Area #2 – Buyers Want to See Sustainability of Earnings

It is only understandable that any new owner will be concerned that the business in question will have sustainable earnings after the purchase. No one wants to buy a business only to see it fail due to a lack of earnings a short time later or buy a business that is at the height of its earnings or buy a business whose earnings are the result of a one-time contract. Sellers can expect that buyers will carefully examine whether or not a business will grow in the same rate, or a faster rate, than it has in the past.

Area #3 – Buyers Will Verify Information

Finally, sellers can expect that buyers will want to verify that all information provided is accurate. No buyer wants an unexpected surprise after they have purchased a business. Sellers should expect buyers to dig deep in an effort to ensure that there are no skeletons hiding in the closet. Whether its potential litigation issues or potential product returns or a range of other potential issues, you can be certain that serious buyers will carefully evaluate your business and verify all the information you’ve provided.

By stepping back and putting yourself in the shoes of a prospective buyer, you can go a long way towards helping ensure that the deal is finalized. Further, working with an experienced business broker is another way to help ensure that you anticipate what a buyer will want to see well in advance.

Copyright: Business Brokerage Press, Inc.

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A Short Story All Family-Owned Businesses Should Read

When it comes to selling a family-owned business there are no shortage of complicating factors, but one in particular pops up quite often. This article contains a true story about a popular family business that was built up from the ground up only to later meet a very sad ending. While this is just one story, there are countless similar situations all across the country.

Once upon a time, there was a family-owned pizza dough company that had millions in sales. They sold their pizza dough to a range of businesses including restaurants and supermarkets. The founder had five children and split the business equally amongst them. Complicating matters was the fact that the children didn’t feel compelled to work in the family business. As a result, they turned the operation of the business over to two members of the third generation.

Once the founder’s children reached retirement age, they decided that they wanted to sell. So, they hired a business broker. The business broker began the search for an appropriate buyer, however, there was little interest. After considerable effort, the business broker found a successful businessman who offered to buy the pizza dough business for 50% of the sales, which was a good price. The business broker took the offer to the five owners and that is when the problems began.

A huge family argument was unleashed and the business broker was cut out of the loop. Later the offer was turned down flat and worst of all there was no counter-proposal, no attempt to negotiate price, terms, conditions or anything else. In short, the offer was finished and done. In the end, the business broker had lost several months of hard work.

Wondering what had happened, the business broker learned that two of the third-generation members who had been operating the business didn’t want to sell out of fear of losing their jobs. Over two decades later, the business has experienced almost no growth and is essentially breaking even. The owners, now in their 70s will likely never receive anything for their equity.

What you have just read is a true story, although the specific business type has been changed. This story serves to outline the problems that can arise when it comes time to sell a family business, especially if there is no agreement in place. Passing on this deal meant that the five children lost a considerable amount of money; this would have of course been money that could have made their retirement much more pleasant.

The story is both tragic and cautionary, in that this great business built from scratch by its founder was, in the end, left to flounder.

There is a moral to this story. Family-owned businesses need to have strict guidelines in place concerning issues such as salaries, benefits, what happens when one member wants to cash out and more. Such issues should be worked out with professionals, such as business brokers, years in advance.

Around the Web: A Month in Summary

A recent article from Divestopedia entitled “To Sell Your Business, Start with the End in Mind” explains the importance of planning your exit strategy in the early stages of your business. The article points out that emotion plays a big part in humans’ decision making process, and when a potential buyer perceives that the owner has not prepared a company for sale, they associate this with uncertainty, effort and stress that will accompany rebuilding the business.

Focusing on building your company’s culture is also very important for exit planning because a well-established company culture will continue to endure after you’re gone. Creating a self-sustaining culture that involves talented employees, succession plans for key people, talent acquisition and talent retention can help your business be seen as more valuable in the future.

Click here to read the full article.

A recent article posted on BizJournals.com entitled “How to know when the ride is over and it’s time to get off” gives an overview of how to know when to exit your business and how to be prepared when the time is right. Here are 4 signs that it might be time to sell your business:

  1. Your health is declining or your business is negatively affecting your health
  2. You’ve lost your passion for the business
  3. Your priorities have changed and the business is no longer your top priority
  4. You are hesitant or unable to invest money in the growth of your business

Business owners should periodically review these factors and ask themselves if they are still the right person for the job. It’s also good to consult with a trusted advisor to start planning an exit strategy now so you’re prepared when the time comes to sell all or part of your business.

Click here to read the full article.

A recent article posted on Forbes.com entitled “Business Value And Lottery Tickets” explains how you have to be realistic about your goals for your business especially in how they relate to your exit plan in the future. Take a look at how your business is doing and then quantify your goals for your business by asking yourself questions such as “How much money do I need to have when I leave my business?”

Next, you need to figure out a plan for your business to grow enough to reach those goals. The article states three common problems that owners have in this situation:

  1. Relying on assumptions instead of consulting with an exit-planning advisor
  2. Trying to do everything instead of delegating
  3. Remaining stagnant instead of taking on new roles to ignite change in the business

It is also important to have a good management team in place to help you achieve your goals. It’s not luck, and you have to look at the numbers and facts to get your business where you need it to be for a successful exit.

Click here to read the full article.

A recent article from the Axial Forum entitled “How to Handle Risky Customer Concentration in an M&A Target” explains the best practices to follow if a potential acquisition has a lot of customer concentration. In many companies, it’s common for 20% of customers to account for 80% of the company’s revenue. In this case, it is vital to talk to multiple people within these important accounts and ask a variety of questions to make sure you find out how their relationship with the company is really structured.

Most importantly, you want to ask the contact how likely they would be to recommend the target company to another colleague, which in turn will help you determine the Net Promoter Score (NPS) rating of the company. The NPS is very useful because it has statistically shown that higher rated companies are more profitable, outpace their competitors, and have stronger cross-selling opportunities.

It’s a good practice to look deeper into a company’s relationships with its customers when acquiring a business that you’ll want to eventually grow.

Click here to read the full article.

A recent article posted on The Standard entitled “Do you have a business you are eyeing? Consider these tips before taking the leap” explores a variety of factors to take into consideration before buying a business. Here are some things to think about when making the decision to buy:

  1. Evaluate yourself and make sure you have the skills to take on the specific type of business
  2. Find out why the business is being sold
  3. Carry out due diligence in screening the business so there’s no surprises along the way
  4. Obtain a professional valuation of the business
  5. Close the deal and consider using a legal officer for the final process

Always be sure to find out the good and the bad before you decide to purchase a business.

Click here to read the full article.

Copyright: Business Brokerage Press, Inc.

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Around the Web: A Month in Summary

A recent article posted on BizJournals.com entitled “Top 5 rules on preparing your company for sale” explains how the best time to begin preparing your business for sale is right now. The article highlights these main rules to follow:

  1. Start auditing your financial statements now as these will be required by the purchaser.
  2. Keep appropriate, complete corporate books and records so everything is ready to be presented to a buyer when the time comes.
  3. Obtain a professional valuation of your company so you can use this as a roadmap for growing your company and ultimately maximizing the exit price.
  4. Use the valuation of your company to determine what assets are superfluous and will not be valued. This can also help you make future decisions with your business strategy.
  5. Start the process now for finding a second in command who could easily replace the founder of the company. This will be very valuable to the future buyer after the sale is made.

Starting to prepare your business for sale now will help make the sale process much easier when you decide it’s time to sell.

Click here to read the full article.

A recent article from The Axial Forum entitled “Maximizing Your Business Value Before a Sale” gives insight into how to get the most out of a business sale. According to the article, the key to a successful sale comes in driving business value before selling the business. This can be done in a wide variety of areas of the business, from aiming to increase sales growth to product innovation, improvement of backend systems, and more.

Many of the methods and value-driving factors can take many months, if not several years, to implement and improve, so proper thought and planning is necessary to get the most out of the process. In the ideal situation, maximizing business value ahead of and in preparation for a sale will make a business much more attractive to a potential buyer.

Click here to read the full article.

A recent article from Divestopedia.com entitled “5 Essential Steps to Ensure Due Diligence in Private Company Acquisitions” explains the necessity of due-diligence during the acquisition process. Due diligence cannot be stressed enough and the fact that it is always popping up just shows its importance and relevance to a successful deal process. The following steps outline critical components of completing due diligence for an acquiring company:

  1. Construct an Investment Thesis
  2. Analyze Your Competitive Position
  3. Measure the Strength and Stability of the Acquired Company
  4. Revenue Synergy
  5. Integration

While this is not an exhaustive list, the aforementioned steps outline an important process necessary for any acquirer to ensure they are best prepared for a successful acquisition.

Click here to read the full article.

A recent article posted on The Axial Forum entitled “Capital Superabundance is Transforming Middle-Market M&A” explores the effect that the abundance of cheap capital is having on middle-market transactions. This “capital superabundance” is having effects across the middle-market sector among private equity firms, corporate buyers, investment bankers, and middle market companies alike. Brand value is more important than ever in the eyes of private equity companies and corporate buyers, investment bankers are using data and advanced technological systems to find clients, and for sellers, there has never been a better time to sell a business.

The fact of the matter is the market is hot right now. Though capital superabundance is just one of many varying parts of this market change, it is a driving factor behind much of the success we’re seeing.

Click here to read the full article.

A recent article posted on Divestopedia.com entitled “Know Your Buyer” outlines the importance of knowing and understanding potential buyers in the market when putting a business up for sale. This is important because knowing the different types of potential buyers will give an owner insight into how to approach and appeal to the types of buyers they want to take over their company.

Different types of buyers will likely have different motivations and therefore produce different outcomes for a business transaction, so knowing and understanding them will help to give an owner better control over the future of their company and ideally help make the right decision on who to sell to.

Click here to read the full article.

Copyright: Business Brokerage Press, Inc.

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When Two Million Dollars is Just Not Enough

Not everyone wants to sell when they feel as though they have to sell. Life changes, such as divorce or illness, can trigger the sale of a business. Everything from declining business revenue to partnership problems and more can send business owners scrambling for the exit sign. However, selling isn’t always an option, especially for small businesses. In this article, we will take a closer look at just such a situation.

The business under consideration is a successful distribution business, which is also a classic example of a value-enhanced business. The two owners each draw several hundred thousand from the business each year to go along with a range of other benefits. If hypothetically, the business was to sell for $2 million dollars, each of the owners would receive approximately $1 million. Of course, this sounds like a sizable amount. So, what is the problem?

When one stops to factor in such variables as taxes, closing expenses and debt, that $1 million-dollar number has shrunk dramatically, leaving each owner with much less, perhaps as little as just two years of income. In such a situation, selling isn’t a great idea. Many owners of small companies want to “cash in” and retire only to discover that their business isn’t worth enough to do so.

Owners who want to retire but can’t afford to do so are in a difficult position. Such owners may have already “checked out” mentally and in the process, have lost their focus resulting in a failure to both invest financially and creatively in the business. In turn, this decreases the value of the business even more, as competitors may likely move in to fill the void.

So, what does all of this mean for business owners? Business owners don’t want to get stuck in the position we discussed thus far. Instead, business owners want to sell at the optimal moment, when a business is at its high point and the owners are not considering retiring and feel as though they have to sell.

Determining when is the best time to sell can be one of the single smartest business decisions that a business owner ever makes. Working with a professional and experienced business broker is a fast and simple way to determine if the time is right to sell your business or if you should wait. Waiting until the optimal moment to sell has passed you by could be a painful experience.

Copyright: Business Brokerage Press, Inc.

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