Do You Really Understand Your Customers?

The time you invest getting to know and understand your customers is time very well spent. The feedback you get is gold, pure gold. Yet, there are other reasons why this is a prudent move. Let's take a look at some of the key reasons you should learn more about your customers and their specific needs. Today's world has become increasingly impersonal. Most of us spend a shocking amount of time looking at one type of digital screen or another. Personal interaction isn't what it once was, and you can use that fact to help build your business. The Ultimate Form of Customer Service Good old fashioned human contact goes a long way when it comes to keeping customers happy, loyal and returning. The personal touch can go a long way towards building your business by improving customer service. Customer service has become, in general, a very impersonal experience for most people in the modern world. In most businesses, the owner is more of an impersonal theoretic concept that an actual … [Read more...]

The Top 3 Key Factors to Consider about Earnings

Two businesses could report the same numeric value for earnings but that doesn't always tell the whole story. As it turns out, there is far more to earnings than may initially meet the eye. While two businesses might have a similar sale price, that certainly doesn't mean that they are of equal value. In order to truly understand the value of a business, we must dig deeper and look at the three key factors of earnings. In this article, we'll explore each of these three key earning factors and explore quality of earnings, sustainability of earnings after acquisition and what is involved in the verification of information. Key Factor # 1 – Quality of Earnings Determining the quality of earnings is essential. In determining the quality of earnings, you'll want to figure out if earnings are, in fact, padded. Padded earnings come in the form of a large amount of “add backs” and one-time events. These factors can greatly change earnings. For example, a one-time event, such as a real … [Read more...]

The Deeper Significance of a Listing Agreement

Listing agreements are very common when it comes to selling a business. In order to sell a business using a business broker, a listing agreement is usually required. In this article, we will explore this essential agreement and why it is so critical. Signing a listing agreement legally authorizes the sale of a business. The fact is that signing a listing agreement serves to represent the end of ownership, which for many business owners, means heading into new territory. Quite often owning a business is more than “owning a business,” as the business represented a dream and/or a way of life. Walking away from the dream or lifestyle represents a significant change. For many owners this is the end of a dream. It is not uncommon for many business owners to have started a business from “scratch,” and it is also only human to feel at least somewhat attached to the creation. Phrased another way, walking away from a business that one has worked on and cared for is often easier said than … [Read more...]

Are You Sure Your Deal is Completed?

When it comes to your deal being completed, having a signed Letter of Intent is great. While everything may seem as though it is moving along just fine, it is vital to remember that the deal isn't done until many boxes have been checked. The due diligence process should never be overlooked. It is during due diligence that a buyer truly decides whether or not to move forward with a given deal. Depending on what is discovered, a buyer may want to renegotiate the price or even withdraw from the deal altogether. In short, it is key that both sides in the transaction understand the importance of the due diligence process. Stanley Foster Reed in his book, The Art of M&A, wrote, “The basic function 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.” Before the due diligence process begins, there are several steps buyers must take. … [Read more...]

Do You Really Know the Value of Your Company?

It is common for executives at companies to undergo an annual physical. Likewise, these same executives will likely examine their own investments at least once a year, if not more often. However, rather perplexingly, these same capable and responsible executives never consider giving their company an annual physical unless required to do so by rule or regulations. Most Business Owners Don't Know Recently, a leading CPA firm undertook a study that was quite revealing. In particular, this study concluded that a whopping 65% of business owners don't know the value of their company and 75% of the surveyed business owners had their net worth tied up in their businesses. Phrased another way, 75% of business owners don't know how much they are worth! Perhaps most striking of all was the fact that a full 85% of business owners have no exit strategy whatsoever. Having Recurrent Valuations is a Must Business owners should know what their businesses are worth at least on an annual basis. … [Read more...]

Understanding Issues Your Buyer May Face

Not every prospective buyer actually buys a business. In fact, out of 15 prospective buyers, only 1 actually makes a purchase. Sellers should remember that being a buyer can be stressful. The bottom line is that buying a business is usually one of the single largest financial decisions that a person can make. In this article, we are going to explore a few of the reasons why being a buyer can be both stressful and taxing. Keeping a buyer's perspective in mind will help you on the road to successfully selling your business. A prospective buyer has many decisions to make before he or she decides to buy a business. Many prospective buyers are employed, and that means they will have to leave their existing job in order to buy a business. Simply stated, a buyer will have to leave the safety and security of their job and “strike out on their own.” There are also other substantial financial concerns for buyers as well. The majority of buyers will, in fact, have to take out loans in … [Read more...]

The Six Most Common Types of Buyers: Pros & Cons

Business owners considering selling should realize that they have many different types of prospective buyers. Today's prospective business buyers are more sophisticated and diverse than ever before. Let's take a closer look at the different types of prospective buyers and what you should know about each of them. 1. Family Members Family members often buy businesses from other family members. There are many reasons this happens. For example, a family member is already very familiar with the business. If a family member is treating the responsibility seriously and has prepared years in advance for the responsibility of owning the business, then selling to a family member can work. However, there are many potential problems when it comes to selling a business to a family member. One problem is that the family member simply lacks the cash to buy the business. This can cause disruptions. If the family member is unprepared to run the business, then the business can suffer a range of … [Read more...]

5 Things You Need to Know About Confidentiality Agreements

Confidentiality is a major concern in virtually every business. Quite often business owners become a little nervous when it comes time to sell their business; after all, business owners usually want to keep the fact that they are selling confidential. Yet, at the same time, business owners want to receive top-dollar for their businesses and sell that business as quickly as possible. In order to sell a business quickly and receive top-dollar, it is usually necessary to present the business to a range of prospects. The simple fact is that you can't sell a business without letting prospective buyers know that it is for sale. All of this adds up to one simple conclusion: you will need a confidentiality agreement when selling a business. Let's look at a few of the key points your confidentiality agreement should cover. Type of Negotiations First, your confidentiality agreement should cover whether or not the negotiations are open or secret and exactly what kind of information can be … [Read more...]

Financing the Business Sale: 6 Questions to Know

How the purchase of a business will be structured is something that must be dealt with early on in the selling process. The simple fact is that the financing of the sale of a business is too important to treat as an afterthought. The final structure of any sale will be the result of the negotiations between buyer and seller. In order for the sale to be completed in a satisfactory manner, it is vital that the seller answers six key questions: What is your lowest “rock bottom” price? It is important for sellers to know what is the lowest price they are willing to accept before they begin negotiations. Far too often, sellers have not determined what price is their “lowest price” and this can literally cause negotiations to fall apart. What are the tax consequences of the sale? Just as sellers often don't know what their lowest price is, it is also true that sellers often don't think about the tax consequences of the sale. Interest rates are no small matter. It is important to … [Read more...]

Defining Goodwill

You may hear the word “goodwill” thrown around a lot, but what does it really mean? When it comes to selling a business, the term refers to all the effort that the seller put into a business over the year. Goodwill can be thought of as the difference between the various tangible assets that a business has and the overall purchase price. The M&A Dictionary defines goodwill in the following way, “An intangible fixed asset that is carried as an asset on the balance sheet, such as a recognizable company or product name or strong reputation. When one company pays more than the net book value for another, the former is typically paying for goodwill. Goodwill is often viewed as an approximation of the value of a company's brand names, reputation, or long-term relationships that cannot otherwise be represented financially.” Goodwill vs. Going-Concern Now, it is important not to confuse goodwill value with “going-concern value,” as the two are definitely not the same. Going-concern … [Read more...]

A Deeper Look at Seller Financing

Buying a business requires a good deal of capital or lender resources. The bottom line is that a large percentage of buyers don't have the necessary capital or lender resources to pay cash and that is where seller financing comes into play. The fact is that seller financing is quite common. In this article, we will take a deeper look at some of the key points to remember. Is Seller Financing a Good Idea? Many buyers feel that a seller's reluctance to provide seller financing is a “red flag.” The notion is that if a business is truly as good as the seller claims it to be, then providing financing shouldn't be a “scary” proposition. The truth is that this notion does carry some weight in reality. The primary reason that many sellers are reluctant to provide seller financing is that they are concerned that the buyer will be unsuccessful. This, of course, means that if the buyer fails to make payments, that the seller could be forced to take the business back or even forfeit the … [Read more...]

Selling a Business? Be Aware of These Four Potential Issues

We've outlined below a few unexpected aspects of the business sale process that can pop up. Sometimes they severely impact the turnaround time of a sale. But if you can understand these potential issues better, you will be better prepared to try to circumvent them. 1. Do You Have Time on Your Side? It's helpful to use an intermediary who will assist with the filtering of prospects vs. “suspects.” However, the inclusion of yet another party, in addition to both the business seller and potential buyers, increases the amount of time required to navigate the process. Sellers are typically unaware of the time and documentation needed to compile the required Offering Memorandum. Once completed, the seller must provide both the intermediary and potential buyer more time to review and propose meetings and pricing. In the interim, owners are faced with the challenge of keeping their business thriving. 2. Trying to Do Too Much It's not surprising when a company owner is also its … [Read more...]

Your Company’s Undocumented Worth

The valuation is a major factor that influences the overall selling price of the property. Business appraisals are based upon a multitude of criteria and indisputable records such as comparables, projections, discount rates, EBITDA multiples, and more. While the appraiser may have all the information he or she needs, the business elements might be overlooked. That's why it's extremely helpful for business appraisers to first grasp the purpose of an appraisal prior to getting started. Unfortunately, the appraiser is often unaware of additional considerations that may enhance or even devalue a business' overall worth. Is There Unwritten Value? Business owners generally agree that prospective buyers are mostly looking for quality in depth of management, market share, and profitability. Though undoubtedly more subjective than documentation, figures, and calculations alone, information regarding key business elements such as market, operations, post-acquisition, value drivers, and … [Read more...]

Service Businesses Perform Highest When It Comes to Sales

Recently, Business Brokerage Press performed a survey of brokers across the country to see what sells at the highest rate, and what they discovered was very interesting. Retail business sold at 17%, food and drink related businesses at 14%, service oriented businesses sold at 25%, auto related businesses sold at 9%, manufacturing businesses sold at 16% and distribution businesses sold at 11%. Businesses labeled as “other” sold at 5% and professional practices at 4%. What is a Service Business? Looking at this gathered information, it is clear that “service type businesses” are very hot and doing quite well. The range for what is considered a service type business is, in fact, rather broad. It encompasses everything from a dry cleaner and hair stylist business to a massage therapy chain or dental practice. Just so long as a business is providing a service and doesn't fall into another category, it falls under the “service oriented” banner. Food and Drink Businesses One of the next … [Read more...]

Gaining a Better Understanding of Leases

Leases can, and do, play a significant role in the buying or selling of businesses. It can be easy to overlook the topic of leases when focusing on the higher profile particulars of a business. However, leases are a common feature of many businesses and simply can't be ignored. Leases and Working with Your Attorney Whenever a small business is sold, it is common that leases play a major role. In general, there are three different types of leasing arrangements. (If you have any questions about your lease, then you should consult with your attorney. Please note that the advice contained in this article shouldn't be used as legal advice.) Three Different Lease Options In the next section, we will examine three of the most common types of leases. The sub-lease, new lease and assignment of lease all function in different ways. It is important to note that each of these three classes of leases can have differing complicating factors, which again underscores the value and importance of … [Read more...]

What is Really in the Mind of Your Buyer?

It is always important to try and put yourself “in the other person's shoes.” This fact is of paramount importance when dealing with prospective buyers. Thinking like a prospective buyer could, in fact, be the difference between selling your business and not selling your business. Yet, it is important to continue to put yourself in your buyer's shoes during the entire sales process. It is easy to think that because everything is going smoothly with the sale of your business that the tough part is behind you. That may be true, but then again there could still be problems ahead. Issues can come up at a moment's notice when either your prospective buyer or his or her advisor raises a red flag. Additionally, the larger the business, the greater the complexity. This translates to the greater the risk of problems arising. The “Little Things” that Could End Up Quite Big Financial statements are of considerable importance. Quite often you'll see contingencies regarding financial … [Read more...]

Does Your Asking Price Truly Matter?

It is no great secret that sellers often aim high. The logic sellers use is simple, “I can always reduce my price.” While that is true, sellers do need to remember that if the asking price is initially too high, buyers won't even take a serious look. In short, your selling price must be bound by reality and what the market will bear. Pricing Does Matter When an asking price is too high buyers will simply move on. But in the meantime, you may have lost a qualified buyer that would have been very interested at a lower price. Pricing isn't a factor that should be played with, instead it should always be treated in as professional of a manner as possible. Instant Millionaire? Maybe and Maybe Not Some sellers want to become instant millionaires and sell their business for top dollar. Sometimes this is warranted and sometimes the numbers don't support lofty valuations. Every situation and every business is different. It pays to be realistic. Studies have shown that there is usually … [Read more...]

Strong Selling Points: Let Your Strengths Work for You

“Independent business owner” is a phrase with two meanings. Of course, it means being the owner of an independent business. But another way to look at “independent business owner” is to let this phrase define the very personality of the person at the helm. Independent. Confident. Self-assured. Strong-willed. These are vital entrepreneurial attributes, but, ironically, they can sometimes work against the business owner when it comes time to sell. Since business owners are the type who know about selling — either products or services– and about making deals — haven't they had to cope with suppliers, customers, and competitors throughout their business careers? — it's not surprising that owners approach selling their businesses with these tried-and-true tactics and ideas. Sellers who have spent years building a business are often unaware of how completely different the process of selling a business is. Savvy sellers, realizing the importance of a selling approach equal to this very … [Read more...]

What Are Your Company’s Weaknesses?

Every company has weaknesses; the trick is to fix them. There is a saying that the test of a good company president or CEO is what happens to the company when he or she leaves. Some companies–on paper–may look the same, but one company may be much more valuable due to weaknesses in the other company. Not all problems or weaknesses can be resolved or fixed, but most can be mitigated. Fixing or lessening company weaknesses can not only significantly improve the value, but also increase the chances of finding the right buyer. Here are some common weaknesses that concern some buyers, causing them to look elsewhere for an acquisition. “The One Man Band” Many small companies were founded by the current president, and he has made all of the major decisions. Since he has not developed a succession plan, there is no one in place to take over if he gets hit by the proverbial truck. He is the typical one man band; and, as a result, the company is not an attractive target for … [Read more...]

Be a Winning Seller: Good Negotiation is the Key

You've made the big decision to put your business on the market. Your reasons for selling are valid, carefully-considered, and “good” – the kind that won't make a prospective buyer shy away. Now, you may tell yourself, comes the fun part. You'll come up with a price – maybe a little high, but why not? – and let gut instinct (an attribute common to successful business owners) lead the way. Wait just a minute. Or maybe a quarter of an hour; however long it takes you to bone up on your negotiation skills with the following steps as a guide. Being a smart negotiator is tantamount to effecting the successful sale of your business. Gather Your Forces The first step is to engage the help of a business broker professional. He or she understands the sales negotiation process as well as tactics for marketing the business. Before sitting down with your business broker, however, you should gather the following information: profit and loss statements (for three years), current federal income tax … [Read more...]