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 … [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 … [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, … [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...]

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...]

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 … [Read more...]

Considerations When Selling… Or Buying A Business

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 … [Read more...]

Dispelling a Buyer Myth

Most prospective business buyers really don’t know from the outset the exact type of business they want to buy. Experienced business brokers and intermediaries know that many business buyers end up with what is sometimes a far cry from what first captured their imagination. Take, for example, the old story of the buyer who saw (and probably smelled) a doughnut shop in his business dreams. This was the business he was sure he wanted to own and operate – until he discovered that someone, most likely him, had to get up at 3 a.m. to make the day’s baked goods. It is important that, before making the dream a reality, those prospective buyers understand just what the business is and how it fits their personalities – what they want to do and what they don’t want to do! Obviously, if getting a good night’s sleep is important, owning a doughnut shop is not a good idea. In searching for the right business, here are some of the crucial questions a prospective business buyer might ask … [Read more...]

Why The Sale of a Business Falls Apart

When the sale of a business falls apart, everyone involved in the transaction is disappointed – usually. Sometimes the reasons are insurmountable, and other times they are minuscule – even personal. Some intermediaries report a closure rate of 80 percent; others say it is even lower. Still other intermediaries claim to close 80 percent or higher. When asked how, this last group responded that they require a three-year exclusive engagement period to sell the company. The theory is that the longer an intermediary has to work on selling the company, the better the chance they will sell it. No one can argue with this theory. However, most sellers would find this unacceptable. In many cases, prior to placing anything in a written document, the parties have to agree on price and some basic terms. However, once these important issues are agreed upon, the devil may be in the details. For example, the Reps and Warranties may kill the deal. Other areas such as employment contracts, … [Read more...]

What Are Buyers Looking for in a Company?

It has often been said that valuing companies is an art, not a science. When a buyer considers the purchase of a company, three main things are almost always considered when arriving at an offering price. Quality of the Earnings Some accountants and intermediaries are very aggressive when adding back, for example, what might be considered one-time or non-recurring expenses. A non-recurring expense could be: meeting some new governmental guidelines, paying for a major lawsuit, or adding a new roof on the factory. The argument is made that a non-recurring expense is a one-time drain on the “real” earnings of the company. Unfortunately, a non-recurring expense is almost an oxymoron. Almost every business has a non-recurring expense every year. By adding back these one-time expenses, the accountant or business appraiser is not allowing for the extraordinary expense (or expenses) that come up almost every year. These add-backs can inflate the earnings, resulting in a … [Read more...]