5 Tips for Buyers of International Businesses

The decision to buy an international business is no doubt quite serious. There are numerous factors that must be taken into consideration when deciding whether or not an international business purchase is the right move. Let's take a closer look. Tip #1 – Relocating Vs. Hiring a Manager Buying an international business can also mean a substantial life change. Before jumping into the process, it is critical that you know whether you will be relocating or hiring a manager to run your newly acquired business. Obviously, owning a business is a substantial responsibility and you'll want to ensure that you know exactly what is going on with your new acquisition. Sometimes that means actually being there. The bottom line is that you will either have to relocate or hire a manager. Tip #2 – Regulations Understanding regulations, taxes and customs are another must for buyers of international businesses. A failure to factor in these elements can literally undo one's business or at the very … [Read more...]

How to Keep Employees Engaged During an Ownership Transition

Ensuring that your employees stay on course during your ownership transition should be one of your key areas of focus. There are many key steps that you should take during this delicate time. Let's explore the best tips for keeping your employees engaged throughout the entire ownership transition process. Step 1 – Establish and Implement a Training Program Early On If you are selling your business, then be certain that you train replacements early on in the process. Failure to do so can result in significant disruptions. Additionally, if you are buying a business it is of paramount importance that you are 100% confident that there are competent people staying on board after the sale. Step 2 – Address Employee Concerns No matter what your employees say or how they act, you must assume that they are worried about the future. After all, if you were them wouldn't you be concerned at the prospect of a sale? The best way to address these concerns is to meet with employees in small … [Read more...]

Is It Possible to Sell to a Business Competitor?

A common question in the realm of buying and selling businesses is, “Is it possible to sell to a business competitor?” The short answer is yes, it is quite possible and rather common. That stated, selling to a business competitor is different than selling to a buyer who is completely new to the industry. The two types of buyers should not be treated the same way, as there are various differing variables. A Competitor Can Be a Great Buyer One reason is that a competitor may indeed be the right party to buy your business, is that they usually have an excellent understanding of how your business and your industry works. They may also enter the negotiation process already understanding the value of your business, and this can serve to speed up the process. Always Proceed with Caution Competitors, however, must be approached carefully. Unfortunately, there have been many cases where competitors acted as though they wanted to buy in order to acquire access to inside information. That's why … [Read more...]

The Importance of Having a Dominant Position in the Market

In order to get top dollar for your business, it is necessary to prepare for the sale well in advance. In short, a tremendous amount of strategy and preparation goes into a successful sale. The amount you ultimately receive for your business is directly tied to how well you prepare. At the top of the list of making sure that your business is attractive to potential buyers is to make certain your business is as well positioned in the market as possible. Of course, this is often easier stated than done. Here are some of the best ways to make sure your business is optimally positioned. Tip One – Start Positioning Your Business Well in Advance Selling your business isn't something you should just do one day. You should start positioning your business at least one year before the closing. Quite often, experts say business owners should always operate as though a sale is on the horizon. This makes a great deal of sense on one hand. If you ever experience an unexpected turn of events and … [Read more...]

Are You Emotionally Ready to Sell?

Quite often sellers don't give much thought to whether or not they are ready to sell. But this can be a mistake. The emotional components of both buying and selling a business are quite significant and should never be overlooked. If you are overly emotional about selling, then this fact can have serious ramifications on your outcomes. Many sellers who are not emotionally ready, will inadvertently take steps that undermine their progress. Selling a business, especially one that you have put a tremendous amount of effort into over a period of years, can be an emotional experience even for those who feel they are more stoic by nature. Before you jump in and put your business up for sale, take a moment and reflect on how the idea of no longer owning your business makes you feel. Emotional Factor #1 – Employees It is not uncommon for business owners to form friendships and bonds with employees, especially those who have been with them long-term. However, many business owners are either … [Read more...]

5 Reasons Buying a Business is Preferable to Starting a New One

If you are considering running your own business, one of the first questions that might pop in your mind is: should I start a new one or buy an established business. In this article, we'll take a closer look at the age-old dilemma of buying an existing business verses starting a new one from scratch. 1. An Established Concept The benefits of buying an established business are no doubt huge. At the top of the list is that an existing business will have an established concept. Starting a business from scratch means taking a big risk in the form of a new idea. Will it really work? If the business fails, why did it fail? Both of these stressful questions need not be asked when you buy. An established business, especially one that has been around for years, has already shown that the concept and all the variables that go into it do, in fact, work. 2. Proven Cash Flow Another massive benefit of buying an existing business is that an existing business has proven cash flow. You can look at … [Read more...]

Learn the Dynamics and Save the Deal

Many business owners are unfamiliar with the dynamics of selling a company, because they have never done so. There are numerous possible “deal breakers.” Being aware of the following pitfalls and their remedies should help prevent the possibility of an aborted transaction. Neglecting the Running of Your Business A major reason companies with sales under $20 million become derailed during the selling process is that the owner becomes consumed with the pending transaction and neglects the day to day operation of the business. At some time during the selling process, which can take six to twelve months from beginning to end, the CEO/owner typically takes his or her eye off the ball. Since the CEO/owner is the key to all aspects of the business, his lack of attention to the business invariably affects sales, costs and profits. A potential buyer could become concerned if the business flattens out or falls off. Solution: For most CEOs/owners, selling their company is one of the most … [Read more...]

Selling: What Does An Intermediary Expect From You

If you are seriously considering selling your company, you have no doubt considered using the services of an intermediary. You probably have wondered what you could expect from him or her. It works both ways. To do their job, which is selling your company; maximizing the selling price, terms and net proceeds; plus handling the details effectively; there are some things intermediaries will expect from you. By understanding these expectations, you will greatly improve the chances of a successful sale. Here are just a few: • Next to continuing to run the business, working with your intermediary in helping to sell the company is a close second. It takes this kind of partnering to get the job done. You have to return all of his or her telephone calls promptly and be available to handle any other requests. You, other key executives, and primary advisors have to be readily available to your intermediary. • Selling a company is a group effort that will involve you, key executives, and … [Read more...]

Family-Owned Businesses Do Have Choices

Family-owned businesses do have some options when it comes time to sell. Selling the entire business may not be the best choice when there are no other family members involved. Here are some choices to be considered: Internal Transactions Hire a CEO – This approach is a management exit strategy in which the owner retires, lives off the company's dividends and possibly sells the company many years later. Transition ownership within the family – Keeping the business in the family is a noble endeavor, but the parent seldom liquefies his investment in the short-term, and the son or daughter may run the company into the ground. Recapitalization – By recapitalizing the company by increasing the debt to as much as 70 percent of the capitalization, the owner(s) is/are able to liquefy most of their investment now with the intent to pay down the debt and sell the company later on. Employee Stock Ownership Plan (ESOP) – Many types of companies such as construction, engineering, and … [Read more...]

Who Is Today’s Buyer?

It has always been the American Dream to be independent and in control of one's own destiny. Owning your own business is the best way to meet that goal. Many people dream about owning their own business, but when it gets right down to it, they just can't make that leap of faith that is necessary to actually own one's own business. Business brokers know from their experience that out of fifteen or so people who inquire about buying a business, only one will become an owner of a business. Today's buyer is most likely from the corporate world and well-educated, but not experienced in the business-buying process. These buyers are very number-conscious and detail-oriented. They require supporting documents for almost everything and will either use outside advisors or will do the verification themselves, but verify they will. A person who is realistic and understands that he or she can't buy a business with a profit of millions for $10 down is probably serious. They must be able to … [Read more...]

Why Deals Fall Apart — Loss of Momentum

Deals fall apart for many reasons – some reasonable, others unreasonable. For example: • The seller doesn't have all his financials up to date. • The seller doesn't have his legal/environmental/administrative affairs up to date. • The buyer can't come up with the necessary financing. • The well known “surprise” surfaces causing the deal to fall apart. The list could go on and on and this subject has been covered many times. However, there are more hidden reasons that threaten to end a deal usually half to three-quarters of the way to closing. These hidden reasons silently lead to a lack of or loss of momentum. This essentially means a lack of forward progress. No one notices at first. Even the advisors who are busy doing the necessary due diligence and paperwork don't notice the waning or missing momentum. Even though a slow-down in momentum may not be noticeable at first, an experienced business intermediary will catch it. Let's say a buyer can't get through to the seller. The buyer … [Read more...]

Personal Goodwill: Who Owns It?

Personal Goodwill has always been a fascinating subject, impacting the sale of many small to medium-sized businesses – and possibly even larger companies. How is personal goodwill developed? An individual starts a business and, during the process, builds one or more of the following: • A positive personal reputation • A personal relationship with many of the largest customers and/or suppliers • Company products, publications, etc., as the sole author, designer, or inventor The creation of personal goodwill occurs far beyond just customers and suppliers. Over the years, personal goodwill has been established through relationships with tax advisors, doctors, dentists, attorneys, and other personal service providers. While these relationships are wonderful benefits, they are, unfortunately, non-transferable. There is an old saying: In businesses built around personal goodwill, the goodwill goes home at night. It can be difficult to sell a business, regardless of size, where personal … [Read more...]

The Three Ways to Negotiate

Basically, there are three major negotiation methods. 1. Take it or leave it. A buyer makes an offer or a seller makes a counter-offer – both sides can let the “chips fall where they may.” 2. Split the difference. The buyer and seller, one or the other, or both, decide to split the difference between what the buyer is willing to offer and what the seller is willing to accept. A real oversimplification, but often used. 3. This for that. Both buyer and seller have to find out what is important to each. So many of these important areas are non-monetary and involve personal things such as allowing the owner's son to continue employment with the firm. The buyer may want to move the business. There is an old adage that advises, “Never negotiate your own deal!” The first thing both sides have to decide on is who will represent them. Will they have their attorney, their intermediary or will they go it alone? Intermediaries are a good choice for a seller. They have done it before, are good … [Read more...]

Due Diligence — Do It Now!

Due diligence is generally considered an activity that takes place as part of the selling process. It might be wise to take a look at the business from a buyer's perspective in performing due diligence as part of an annual review of the business. Performing due diligence does two things: (1) It provides a valuable assessment of the business by company management, and (2) It offers the company an accurate profile of itself, just in case the decision is made to sell, or an acquirer suddenly appears at the door. This process, when performed by a serious acquirer, is generally broken down into five basic areas: • Marketing due diligence • Financial due diligence • Legal due diligence • Environmental due diligence • Management/Employee due diligence Marketing Issues It has been said that many company officers/CEOs have never taken a look at the broad picture of their industry; in other words, they know their customers, but not their industry. For example, here are just a few questions … [Read more...]

Considerations When Selling…Or Buying

Important questions to ask when looking at a business…or preparing to have your business looked at by prospective buyers. • What's for sale? What's not for sale? Does it include real estate? Are some of the machines leased instead of owned? • What assets are not earning money? Perhaps these assets should be sold off. • What is proprietary? Formulations, patents, software, etc.? • What is their competitive advantage? A certain niche, superior marketing or better manufacturing. • What is the barrier of entry? Capital, low labor, tight relationships. • What about employment agreements/non-competes? Has the seller failed to secure these agreements from key employees? • How does one grow the business? Maybe it can't be grown. • How much working capital does one need to run the business? • What is the depth of management and how dependent is the business on the owner/manager? • How is the financial reporting undertaken and recorded and how does management adjust the business … [Read more...]

Keys to a Successful Closing

The closing is the formal transfer of a business. It usually also represents the successful culmination of many months of hard work, extensive negotiations, lots of give and take, and ultimately a satisfactory meeting of the minds. The document governing the closing is the Purchase and Sale Agreement. It generally covers the following: • A description of the transaction – Is it a stock or asset sale? • Terms of the agreement – This covers the price and terms and how it is to be paid. It should also include the status of any management that will remain with the business. • Representations and Warranties – These are usually negotiated after the Letter of Intent is agreed upon. Both buyer and seller want protection from any misrepresentations. The warranties provide assurances that everything is as represented. • Conditions and Covenants – These include non-competes and agreements to do or not to do certain things. There are four key steps that must be undertaken before the sale of … [Read more...]

“Red Flags” in the Sunset

Unlike that poetic title of an old-time standard song, Red Sails in the Sunset, red flags are not a pretty sight. They can cause a deal to crater. Sellers have to learn to recognize situations indicating there might be a problem in their attempt to sell their business. Very, very seldom does a white knight in shining armor riding a white horse gallop up, write a large check and take over the business – no questions asked. And, if he did, it probably should raise the red flag – because that only happens in fairy tales. Now, if the check clears – then fairy tales can come true. Sellers need to step back and examine every element of the transaction to make sure something isn't happening that might sink the deal. For example, if a company appears interested in your business, and you can't get through to the CEO, President, or, even the CFO, there most likely is a problem. Perhaps the interest level is not what you have been led to believe. A seller does not want to waste time on buyers … [Read more...]

The Confidentiality Myth

When it comes time to sell the company, a seller's prime concern is one of confidentiality. Owners are afraid that “if the word gets out” they will lose employees, customers and suppliers. Not to downplay confidentiality, but these incidents seldom happen if the process is properly managed. There is always the chance that a “leak” will occur, but when handled correctly, serious damage is unlikely. Nevertheless, a seller should still be very careful about maintaining confidentiality since avoiding problems is always better than dealing with them. Here are some suggestions: Understand that there is a “Catch 22” involved. The seller wants the highest price and the best deal, and this usually means contacting numerous potential buyers. Obviously, the more prospective buyers that are contacted, the greater the opportunity for a breach of confidentiality to occur. Business intermediaries understand that buyers have to be contacted, but they also realize the importance of confidentiality and … [Read more...]

A Selling Memorandum

A sellers memorandum includes all those points one would normally expect to see in any business plan, to wit: an executive summary, a business description, financial requirements, target market niche, identification of top management, an operations review, analysis of strengths and weaknesses, and current financial statements and projections. Guide to Mergers and Acquisitions published by PPC A proposed sale of a middle-market company almost always begins with a selling memorandum. This document is called many things, including offering memorandum, confidential descriptive memorandum or simply the book. Regardless of what you choose to call it, its purpose is to encourage prospective buyers to take a further look at the company. For the seller, it has a secondary side benefit. It forces them to take a hard look at the company, its strengths and its weaknesses. Upon reviewing the information necessary to prepare a selling memorandum, the seller may, in fact, decide that it's not such a … [Read more...]

Common Seller Questions

How long does it take to sell my business? It generally takes, on average, between five to eight months to sell most businesses. Keep in mind that an average is just that. Some businesses will take longer to sell, while others will sell in a shorter period of time. The sooner you have all the information needed to begin the marketing process, the shorter the time period should be. It is also important that the business be priced properly right from the start. Some sellers, operating under the premise that they can always come down in price, overprice their business. This theory often backfires, because buyers often will refuse to look at an overpriced business. It has been shown that the amount of the down payment may be the key ingredient to a quick sale. The lower the down payment (generally 40 percent of the asking price or less), the shorter the time to a successful sale. A reasonable down payment also tells a potential buyer that the seller has confidence in the business's ability … [Read more...]