If you have done any research on buying or selling or a business, you already know that it’s not quite like buying or selling a house. The process is far more confidential and complex, and it requires the expertise of someone who specializes in this field. While there are many who claim to be “experts,” the truth is, very few individuals have actually made it their life’s work. They may have dabbled in business sales as part of a commercial investment or general real estate career. …. May have even handled a business sale on occasion here and there. But it’s not what they do, everyday, year in and year out. It’s not how they put food on their table, or what they count on for repeat business. In short, it’s a sideline. Trust me, you do not want to be someone’s sideline! Their lack of experience can cost you time, money, and often kill negotiations that otherwise would have succeeded with an experienced Broker. That’s bad news whether you’re a buyer or a … [Read more...]
What a Buyer May Really Be Looking At
Buyers, as part of their due diligence, usually employ accountants to check the numbers and attorneys to both look at legal issues and draft or review documents. Buyers may also bring in other professionals to look at the business’ operations. The prudent buyer is also looking behind the scenes to make sure there are not any “skeletons in the closet.” It makes sense for a seller to be just as prudent. Knowing what the prudent buyer may be checking can be a big help. A business intermediary professional is a good person to help a seller look at these issues. They are very familiar with what buyers are looking for when considering a company to purchase. Here are some examples of things that a prudent buyer will be checking: Finance Is the business taking all of the trade discounts available or is it late in paying its bills? This could indicate poor cash management policies. Checking the gross margins for the past several years might indicate a lack of control, price erosion or … [Read more...]
What is the Value of Your Business?
The answer to that question really is: “Why do you want to know?” Now, I realize that may sound flippant, but without the answer it's impossible to give an accurate response. Does an owner need to know for estate purposes? Does the bank want to know for lending purposes? Is the owner entertaining bringing in a partner or partners? Is the owner thinking of selling? Is a divorce or partnership dispute occurring? Is a valuation needed for a buy-sell agreement? These are just a few of the reasons why knowing the value of the business may be important. Valuing a business can be dependent on why there is a need to do so in the first place, because there are almost as many different definitions of a valuation as there are reasons for obtaining one. For example, in a divorce or partnership breakup, each side has a vested interest in the value of the business. If the husband is the owner, he wants as low a value as possible, while his spouse wants the highest value. … [Read more...]
A “Pig in a Poke"
Once a buyer and seller have a Purchase Agreement in place, the due diligence phase of the acquisition begins. Some due diligence can be accomplished by analyzing hard numbers and facts. Verifying inventory, sales, and receivables can be accomplished through closer examination of the company's books and records. Other factors, however, can require a bit more digging to insure there are no “skeletons in the closet.” No buyer wants to end up with the proverbial “pig in a poke.” The four main areas of concern are: business' finances, management, and marketing. Business' Finances: The following areas should be investigated thoroughly. Does the firm have good cash management? Do they have solid banking relations? Are the financial statements current? Are they audited..... and if not, are there sufficient records in place to cross check financial statements against transaction registers? Is the company profitable? How do expenses and sales compare to industry … [Read more...]
Strategic Buyer Services
If you are a strategic buyer or a private equity group, I understand the importance of identifying business opportunities specifically suited to your investment criteria. Over the past 15 years, I have developed extensive relationships with business owners. Those relationships have connected me with a broad range of industries. Once I have an overview of your investment criteria, I conduct a direct search campaign. Often, I already have a relationship with an owner or company that fits your criteria. In my experience, the most successful acquisitions occur when a strong buyer has strategic interests that align with the current owner's exit goals. Please contact me to learn more about Strategic Buyer Services. … [Read more...]
Rating Today’s Business Buyers
Once the decision to sell has been made, the business owner should be aware of the variety of possible business buyers. Just as small business itself has become more sophisticated, the people interested in buying them have also become more divergent and complex. The following are some of today's most active categories of business buyers: Family Members Members of the seller's own family form a traditional category of business buyer: tried but not always "true." The notion of a family member taking over is amenable to many of the parties involved because they envision continuity, seeing that as a prime advantage. And it can be, given that the family member treats the role as something akin to a hierarchical responsibility. This can mean years of planning and diligent preparation, involving all or many members of the family in deciding who will be the "heir to the throne." If this has been done, the family member may be the best type of buyer. Too often, however, the difficulty … [Read more...]
Today’s Business Buyer: A Profile
Today's independent business marketplace attracts a wide variety of buyers eager for a piece of ownership action. Buyers of small businesses are most likely replacing lost jobs or searching for a happier alternative to corporate life. Buyers of mid-sized and large operations are, typically, private investment companies seeking businesses to build and eventually sell for a profit. This is the broadest possible look at the types of buyers out there. Business owners considering putting their business on the market should be aware of the finer "distinctions" among buyers, as well as what they are looking to buy, and why. 1. Individual Buyer This is typically an individual with substantial financial resources and with the type of background or experience necessary for leading a particular operation. The individual buyer usually seeks a business that is financially healthy, indicating a sound return on the investment of both time and money. If these buyers do not have the amount of … [Read more...]
Why Do Deals Fall Apart?
In many cases, the buyer and seller reach a tentative agreement on the sale of the business, only to have it fall apart. There are reasons this happens, and, once understood, many of the worst deal-smashers can be avoided. Understanding is the key word. Both the buyer and the seller must develop an awareness of what the sale involves--and such an awareness should include facing potential problems before they swell into floodwaters and "sink" the sale. What keeps a sale from closing successfully? In a survey of business brokers across the United States, similar reasons were cited so often that a pattern of causality began to emerge. The following is a compilation of situations and factors affecting the sale of a business. The Seller Fails To Reveal Problems When a seller is not up-front about problems of the business, this does not mean the problems will go away. They are bound to turn up later, usually sometime after a tentative agreement has been reached. The buyer then gets … [Read more...]
Buying (or Selling) a Business
The following is some basic information for anyone considering purchasing a business. Is may also be of interest to anyone thinking of selling their business. The more information and knowledge both sides have about buying and selling a business, the easier the process will become. A Buyer Profile Here is a look at the make-up of the average individual buyer looking to replace a lost job or wanting to get out of an uncomfortable job situation. The chances are he is a male (however, more women are going into business for themselves, so this is rapidly changing). Almost 50 percent will have less than $100,000 in which to invest in the purchase of a business. More than 70 percent will have less than $250,000 to invest. In many cases the funds, or part of them, will come from personal savings followed by financial assistance from family members. He, or she, will never have owned a business before. Despite what he thinks he wants in the way of a business, he will most likely buy a … [Read more...]
A Buyer’s Quandary
Statistics reveal that out of about 15 would-be business buyers, only one will actually buy a business. It is important that potential sellers be knowledgeable on what buyers go through to actually become business owners. This is especially true for those who have started their own business or have forgotten what they went thorough prior to buying their business. If a prospective business buyer is employed, he or she has to make the decision to leave that job and go into business for and by himself. There is also the financial commitment necessary to actually invest in a business and any subsequent loans that are a result of the purchase. The new owner will likely need to execute a lease or assume an existing one, which is another financial commitment. These financial obligations are almost always guaranteed personally by the new owner. The prospective business owner must also be willing to make that "leap of faith" that is so necessary to becoming a business owner. There is also … [Read more...]
