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Points to Ponder for Sellers

Who best understands my business?

When interviewing intermediaries to represent the sale of your firm, it is important that you discuss your decision process for selecting one. Without this discussion, an intermediary can’t respond to a prospective seller’s concerns.

Are there any potential buyers?

When dealing with intermediaries, it always helps to reveal any possible buyer, an individual or a company, that has shown an interest in the business for sale. Regardless of how far in the past the interest was expressed, all possible buyers should be contacted now that your company is available for acquisition. People who have inquired about your company are certainly top prospects.

Lack of communication?

It is critical that communication between the seller, or his or her designee, and the intermediary involved in the sale, be handled promptly. Calls should be taken by both sides. If either side is busy or out of the office, the call should be returned as quickly as possible.

Does the offering memorandum have cooperation from both sides?

This document must be as complete as possible, and some of the important sections require careful input from the seller. For example: an analysis of the competition; the company’s competitive advantages – and shortcomings; how the company can be grown and such issues as pending lawsuits and environmental, if any.

Where are the financials?

It may be easy for a seller to provide last year’s financials, but that’s just a beginning. Five years, plus current interim statements and at least one year’s projections are necessary. In addition, the current statement should be audited; although this usually presents a problem for smaller firms — better to do it now than later.

Are the attorneys deal-makers?

In most cases, transaction attorneys from reputable firms do an excellent job. However, occasionally, an attorney for one side or the other becomes a deal-breaker instead of a deal-maker. A sign of this is when an attorney attempts to take over the transaction at an early stage. Sellers, and buyers, have to take note of this and inform their attorney that they want the deal to work – or change to a counsel who is a “team player.”

Intermediaries are responsible for handling what is usually the biggest asset the owner has – and they are proud of what they do. Intermediaries realize that the sale of a business can create the financial security so important to a business owner. Even when a company is in trouble, the intermediary is committed to selling it, since by doing so, jobs will be saved – and the business salvaged.

Copyright: Business Brokerage Press, Inc.

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Priming your business for sale? 5 Things to Consider

For your business, there are many questions you need to ask yourself when deciding whether or not you are ready to sell and undertake an M&A transaction.  The obvious questions will run through your mind. Am I ready to retire? What does my future hold after the sale of my business? How will my employees react to new ownership? This list goes on and on, your mind will be racing with so many important questions, all valid and important to consider. With that being said there are higher priority questions that will need to be answered in order to determine if you are truly prepared to start the process of marketing your business for sale.
Preparation is key to ensure a smooth business sale process. Lack of preparation can and in most cases will result in costly last minute “haircuts” to the value of your company and the purchase price. “Those who fail to plan, plan to fail”. – Warren Buffet

Below are some check points to consider when measuring how primed and ready your business is for sale:

How does your financial record keeping stack up against other

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top notch acquisition targets?

What best describes your accounting practices? ( Do you hand your accountant a stack or receipts? Do you use a program like Quickbooks or Simply Accounting? Or do you have your CPA conduct a review engagement every year?)

The cleaner and more transparent your books and records are, the more corporate value it will add and the easier it will be to sell your company to a strategic of financial buyer. We highly recommend an annual review be completed by your accounting firm.

Do I have the right management team in place?

One of a company’s biggest assets is it’s people, buyers want to know that your staff is committed to maximizing the wealth of the new or pre existing shareholders. Another staff related consideration is structure of your management team.  If you don’t already have one put together, an organizational flow chart showing the chain of command will boost value as well.  If there are any gaps that prevent your organization chart from flowing properly you may want to consider filling that gap. Over reliance of day to day operations by the President/Owner is not at all conducive to your success in selling your company for the best price and terms. Buyers want a business that is self-sufficient with strong management that is capable of operating efficiently with or without the owner present.

How strong is my brand?

Image is everything and for a reasonable investment can be polished if it is outdated or just simply not appealing according to today’s digital internet standards. Start with your website. Was it built 10 years ago when the internet first started gaining traction? Web developers have come a long way and a newly updated website is absolutely necessary. Social media accounts are a must, don’t just develop them but task someone on your team with managing the content. Remember that prospective buyers are going to “Google” your company name, make sure that your company shows up and that the content is positive.

 

Are the company financials in order?

We cant stress this value driver enough! The most painful (doesn’t have to be) portion of the acquisition process can be reviewing financials. Buyers are going to want to go back 5 years in order to determine the valuation you have placed on the business is fair and reasonable. If you don’t have a CPA on staff seek help from an outside source to review or audit your records and ensure they are in line with generally accepted accounting practices. Transparency will be key when reaching this part of due diligence with the buyer, but you must be forthcoming with information to gain trust. Strong financials help us (Business Brokers and M&A Advisers) to recast or adjust  your income statements and “paint the most profitable picture” for your business.

Is now the right time to sell?

If you have owned your business for a long period of time no one knows the trends better than you. With the average business sale taking 9 months to consummate, try to plan accordingly.  You will want your business to be thriving during the negotiation period and when buyers are in your offices. Nothing gets a buyer more excited than to see a business in motion with profits pouring in. If your business is cyclical they will know by reviewing your financials, but booming sales during the acquisition process is always a plus.

Depending on the size of your business the preparation for maximizing your valuation can take months if not years, there are many elements associated with this process. The points above are things that you as an owner can immediately seek out and improve. Just remember, this is your baby and most likely your largest asset. You owe it to yourself to make one last hard push and walk away knowing that you did everything within your power to maximize its value. We at BAE are only a phone call away from guiding you unobligingly through the business exit planning process.

New York/New Jersey Office- (646) 737-5273

South Florida Office- (772) 323-8525

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Business Acquisition Experts Top-Producing Business Brokers

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Written by Shane Mullan: Senior Vice President-BAE of South Florida

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Sell Your Business and Start Your Retirement

When the day comes to sell your business, it is important that prospective buyers understand why you have made this decision. Having a valid reason why it is time for you to sell can make your business more attractive to prospective buyers. After all, it is only natural that you will have to retire at some point even if the business is thriving. In fact, it is safe to state that buying a successful business from an owner that is retiring is just the kind of the situation that most buyers like

Owning a business and retirement, of course, is far different than retiring from a job. You likely have many friends ranging from vendors and employees to customers, clients and other business owners. It is vital that your departure does not disrupt the operation of your business and that prospective buyers understand that you have taken steps to ensure a smooth transition. In short, you want to create a situation in which everyone is happy once you have sold your business.

Helping to ensure a smooth transition has many parts. One of those parts is finding a buyer who will treat your people well. Another key aspect of a smooth transition is to automate as much of your work as possible before you leave. No one knows your business as well as you do, which means that you are the best source to automate and simplify the processes of your business. Outlining what steps you’ve taken to automate and simplify your business will help make it more attractive to buyers.

A key aspect of streamlining, simplifying and organizing your business is to pick out, well in advance, your second in command. Once you have decided on which person would be the best candidate, it is important that you begin grooming that person so they can take over day-to-day operations once you leave. Having a capable person who is committed to staying is a very attractive commodity for prospective buyers. A capable second in command can prove invaluable not just during the transition period but also for the long term operation of the business.

Finally, you should have set up a retirement account on which you can draw upon. Statistics indicate that roughly 50% of business owners do not have a retirement account set up in advance. If you don’t have an account set up, don’t panic, instead set one up as soon as possible.
Working with a business broker is one of the single best ways to handle the process of selling your business and getting ready for retirement.

A business broker can help you with everything from finding qualified prospective buyers to establishing the value of your business. The sooner you begin working with a business broker, the easier your transition will be.

Copyright: Business Brokerage Press, Inc.

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Avoiding Legal Mistakes When Selling Your Business

A common mistake that many make when preparing to buy or sell a business is to overlook all the various legal issues involved. A legal mistake can bring the entire process to a screeching halt or even worse case cost you a small fortune. For this reason, it is important to carefully evaluate the full slate of relevant legalities. This article will explore some of the key legal points one need to consider long before placing your business on the market.

Mistake #1 Neglecting to Have a Non-Disclosue Agreement

Having potential buyers sign a Non-Disclosure Agreement, or NDA, is critically important when selling your business. One benefit to having this agreement signed and sealed is that in the event that the deal falls through, which often happens, the buyer can’t disclose the details to other parties. However, if you don’t have an NDA, the buyer could reveal important aspects of your discussions. This could impact any future sales.

Mistake #2 Failing to Get an Experienced Attorney

There are times to cut corners, and then there are times when cutting corners or trying to save a dollar is a big mistake. Prepping to sell your business is one of those occasions where investing in good and proven counsel is a must. A good attorney can give you a range of legal moves you should and should not make.

Additionally, hiring an attorney with an established experience is just what you need to create ironclad agreements. Sellers have an array of risks that they must face when selling a business. For example, the seller needs protection from a potential buyer hiring away key employees. Without ironclad agreements and a tight NDA, a buyer could pass on buying the business, yet “steal” employees or weaken business in other ways.

Mistake #3 Skipping the Letter of Intent

Another legal way to protect your interests comes in the form of a letter of intent. This letter should be one of your key tools in negotiating the deal. Included in this letter should be a termination fee for the buyer. This applies in the event that the buyer walks away for a reason that is not the seller’s fault. Inclusion of this clause means that the seller is far less impacted if the deal does not go through as planned. Further, this clause goes a long way in ensuring that only serious buyers are attracted.

Reap the Benefits of Ample Preparation

These are just a few of the many errors that sellers often make and regret later on. It is a worthwhile investment to take the legal aspects of selling your business seriously. If you prepare for the sale of your business, you will have a much more successful experience. That means you should work with a proven and competent attorney and business broker before you put your business on the market.

Copyright: Business Brokerage Press, Inc.

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5 Things to Consider When Transferring Your Business to Family Members

Letting go of a business isn’t a process that one should jump into lightly, and that fact holds true even when it comes to your loved ones. Let’s take a look at five of the most important factors to consider when selling or transferring a business to a family member.

#1 The All-Important Buy-Sell Agreement

One of the single most valuable tools available when it comes to selling your business is a buy-sell agreement. Simply stated, this essential document puts everything in writing. In situations such as a family owned business, people may be tempted to skip a contract, but that doesn’t mean they should.

When transferring your business, you should have an expert created document in place that outlines the following:

  • The business valuation
  • Who is to be kept on the payroll and the amount he or she will receive
  • The amount being paid
  • What level of involvement you will have in the business once the transfer has taken place

#2 The Benefits of Gifting

Consider the option of gifting. Gifting can actually work to reduce your taxes on real estate, while at the same time it can allow you to maintain some level of control over the business.

#3 Seller Financing and Transferring the Family Business

Selling your business to a family member is, of course, another option. On occasion, sellers will consider a private annuity, which allows for payments to be spread out for a considerable time period, such as to the end of your life.

#4 The Self-Canceling Installment Note

Another option is to use an installment sale. If you are a selling parent and you happen to pass away before the payments have all been made for the sale, then the remaining debt may be attached to your will. This arrangement can keep your other children from paying excess income tax on your estate.

#5 Keep the IRS Happy

The fact of the matter is that the IRS does, in fact, look more closely into sales where the business is being sold to a family member. This reason alone is a good enough reason to professionally establish a real and accurate valuation of your business.

A business broker can help you work out the particulars as to how best to proceed when navigating the process of selling or transferring your business to a relative. With the right planning and preparation, selling or transferring your business to a relative doesn’t have to be an overly difficult or cumbersome process. Work with a business broker and you’ll find that the process can be smoother than you may have expected.

Copyright: Business Brokerage Press, Inc.

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How to Ensure Confidentiality During your Sale

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

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

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

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

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

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

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

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

Copyright: Business Brokerage Press, Inc.

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Can you Understand Your Buyer’s Key Motivations?

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

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

What Appeals to Most Buyers?

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

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

Playing into Emotions

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

Being Forthcoming with Information

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

Understanding Expectations

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

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

An Investment of Value

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

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

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Seller Financing

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

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

Performing Due Diligence

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

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

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

Providing Benefits for Both Parties

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

What Due Terms Typically Look Like?

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

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

Copyright: Business Brokerage Press, Inc.

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The Power of Recurring Revenue

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

Show You’re in Demand

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

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

Take the Pressure Off Buyers

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

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

Examining Your Annual Recurring Revenue

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

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

Visibility and Transparency

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

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

Copyright: Business Brokerage Press, Inc.

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Five Reasons Business Brokers Improve Closing Rates

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

#1 – They Reach the Most Buyers

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

#2 – Business Brokers Know How to Navigate Negotiation Hurdles

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

#3 – They Know How to Present Your Business

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

#4 – They Stay Focused

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

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

#5 – Business Brokers Are Highly Invested in Your Success

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

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

Copyright: Business Brokerage Press, Inc.

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