Around the Web: A Month in Summary

A recent article posted on Business2Community.com entitled “How to Close the Deal and When to Walk Away When Buying or Selling a Business” explains the business sale process and how to differentiate between a good deal and a bad deal during the process. Closing a deal involves quite a bit of legwork, including producing a letter of intent, doing due diligence, acquiring financing, signing a purchase agreement, and actually closing the deal. These items can be easier with the help of a business advisor, broker, or attorney, but emphasis should be placed on the due diligence aspect: knowing the business inside and out is vital to a successful sale.

Walking away from a deal can be difficult for a motivated buyer, but is sometimes necessary to avoid emotional and financial disaster. The following red flags help to signify that it’s time to walk away:

  1. Inconsistencies
  2. Neglect
  3. Undisclosed Problems
  4. Poor Credit Rating
  5. The Industry is in Decline

Being prepared is one of the best things that a buyer can do in the business sale process. Whether preparation proves a business deal is worth it or uncovers red flags, it will be worth the effort.

Click here to read the full article.

A recent Axial Forum article entitled “3 Reasons an M&A Advisor is Worth the Cost” presents impressive statistics regarding the utilization of M&A advisors in the sale process. 100% of owners that used an advisor when selling their business stated that the advisor had a positive impact on the sale, with 84% of these sellers achieving a sale price equal to or higher than the advisor’s initial estimate.

While these types of statistics are expected among industry insiders, many business owners will still hesitate to hire an advisor for the sale of their businesses. As the article outlines, advisors can help to identify weak links in a business’ management team, find quick ways to increase cash flow, and whip financials into shape, among many other things.

Click here to read the full article.

A recent Forbes article entitled “The Question Every Owner Should Ask: Is Now The Right Time To Sell The Business?” explains why choosing to sell sooner is actually better in a lot of ways than putting off a business sale for a few years. The author goes on to explain how when exits are planned for some arbitrary point in the future, owners often never seem to make it there, ending up wanting to sell but never actually selling. The article goes on to explain five important reasons to consider selling now:

  1. You May Be Choking Your Business
  2. Money is Cheap
  3. Timing Your Sale is a Fool’s Errand
  4. Cyber Crime
  5. There is No Corporate Ladder

Being an owner gives so much power over the path a business takes, whether it’s a sale or acquisition or even the owner staying on to work on the business for an extended period. The beauty of this is that the owner has the choice over whether or not to sell, but also the choice on what to do after. Starting another business is a common route to take for successful first-time entrepreneurs after an exit, so the sooner a sale occurs, the sooner they can get started on another business.

Click here to read the full article.

A recent article posted on the Axial Forum entitled “7 Reasons to Perform Sell-Side Due Diligence” talks about why sell-side due diligence can be a useful and productive technique within the M&A process. While buy-side due diligence is much more common, sellers can take advantage of this practice to maximize the value presented to potential sellers so that they can ultimately get more out of the sale.

Sell-side due diligence can help to uncover and improve:

  1. Weak financial and operational data systems
  2. Overextended employee resources
  3. Unclear financial narrative
  4. Unhelpful “tax guy”
  5. Multiple entities and no consolidation
  6. Likely purchase price reductions
  7. Ineffective tax structuring

In the end, due diligence is part of any M&A process. But with so many things factoring into a successful sale, both buyers and sellers have a responsibility to know the business inside and out if they want to get the most out of a transaction.

The Rise of Women Business Owners

The National Foundation for Women Business Owners (NFWBO) identifies trends relating to the small business climate for women. New studies examining the role of female entrepreneurs by the NFWBO have yielded some surprising and eye-opening results.

A joint IBM, NFWBO study of the top fifty women business owners as well as 10 additional “up-and-coming” business owners reached several interesting conclusions. The women in the study covered a diverse array of industry categories including 27% in manufacturing, 25% in retail and 10% in real estate. 46% of the women inherited a business and over 50% started their own businesses, with 34% starting businesses themselves and another 17% starting businesses with others.

A Preference for Flexibility

One key part of the study centered on the fact that women business owners, in general, appear to prefer smaller operations. Among the 8 million women-owned businesses in the U.S., a full 75% are one person operations. Through ownership of these businesses women achieve a high level of flexibility in their work schedules. It is believed that this flexibility improves the odds of women keeping their home lives satisfying and rewarding.

Overall, millions of women are ignoring the notion that small businesses do not equate with success. While NFWBO research indicates that fewer than 1% of small women owned businesses generate over a $1 million in sales, there is no doubt that women are showing their strength in numbers.

Tackling Loan Issues

One major obstacle women business owners have faced comes in the form of bank loan inequities. Recently, for the first-time women owned business are experiencing access to business loans on par with male owners; this may be due in part to the increasing number of women in high bank positions as well as banks now seeing the previously untapped potential of women-owned businesses. The NFWBO has also discovered that women tend to direct loans towards business growth.

Internationally Owned Businesses

On an international scale, the NFWBO studies have shown that women business owners often come from similar backgrounds and express the same concerns regarding business issues. Today, female business owners represent between one-quarter and one-third of the world’s independent business owners and have become increasingly vocal as evidenced by female participation at an international conference in Paris sponsored by the Organization for Economic Cooperation and Development (OECD).

A Trend Towards Progress

To date, many obstacles have been overcome. Simply stated, the future looks very bright for women-owned businesses around the globe.

The Tremendous Importance of Simply Saying, “Hello!”

Far too many customers have grown to expect poor customer service. Whether its rude employees and customer support or impersonal robotic phone system responses, customers are often shocked when they receive pleasant customer service. In such a climate, it is clear that businesses that simply treat customers well are taking advantage of a huge opportunity.

If you’ve ever personally called a credit card or cable company looking for help, then you already know that it can be something of a depressing and even Kafkaesque experience, leaving you feeling drained. More than likely you don’t feel too positive about any automated experience that bounces you around from one hold menu to the next. Summed up another way, hold music is never a fun or rewarding experience.

Communication is Always Changing

In the “old days” a telephone call was often a customer’s first experience with a business. Now, the game has, of course, changed, with most customers first experience being via the business’s website. While we can’t predict with 100% accuracy how businesses with be communicating with their customers in the future, we do know one fact for certain. The human touch will likely be valued for a long time to come.

Your Website is a Valuable Tool

The initial point of communication with a client, whether it is via telephone or your website, is of critical importance. If a customer has trouble finding key information about your business, such as your location, hours of operation or an easy to understand menu of what goods or services are offered, then they will take their business elsewhere. Consumers don’t generally wait for businesses to get their “act together.” They simply move on.

Simply stated, you want your business’s website to be very user-friendly, streamlined and intuitive as possible. Keep in mind that you understand your business and what it offers, which means you may not be the best judge in spotting flaws in your website presentation. For this reason, it is best to test your website designs with many different potential users who have little or no information about your business and what goods and services you provide.

In the end, every single client is valuable. For every client you lose represents both a potential loss of revenue and revenue being placed in the pocket of your competitor. Don’t let customers slip away simply because there wasn’t a friendly voice answering the phone or your website lacked clarity.

 

Three Signs You May Be Experiencing Burnout

Burnout is a strange phenomenon in that often a business owner doesn’t know that he or she is experiencing it until it is too late. Owners who feel beleaguered and over stressed frequently want to sell their business and move on. However, buyers are not so eager to accept burnout as a believable reason for why an owner wants to sell.

It is the responsibility of every business owner to be on guard against potential burnout. After all, it is better to “cash in” than to burnout. In this article, we will examine a few of the key warning signs that you may be on the verge of burning out.

Sign 1: There is No Joy in Owning Your Business

Once upon a time, you were likely excited about your business. But if those days are long gone, then it might be time to move on. Owning a business is hard work and eventually it can take a toll. If you find each day to be boring, then it is probably time to sell, move on and start a new chapter in your life.

Sign 2: You Feel Exhausted

Just as feeling no joy is a potential sign of burnout, the same holds true for feeling exhausted. If you feel exhausted all the time, then it is unlikely that you can run your business effectively over the long haul. In short, it may be time to consider selling.

Keep in mind that if your business is doing well, growing and expanding, then there will be more demands on your time, not less. If you feel exhausted a large percentage of the time and your business is expanding and seems poised to expand even more rapidly in the future, then cashing in may be your best bet.

Sign 3: You Feel Overwhelmed Almost on a Daily Basis

Business owners who frequently feel overwhelmed are likely teetering on the edge of burnout; this can be particularly true for business owners who are operating a “one-man show.” Operating a small business, especially one where you are doing most of the work, can be both mentally and physically exhausting.

There is certainly something to be said for being proactive and tackling burn out before it tackles you. In this way, you’ll be able to sell your business on your own terms. The last thing you want is to try and sell your business after you no longer have the energy to keep sales going in the right direction.

Working with an experienced business broker is one of the easiest and quickest ways to get your business ready to sell. Don’t let burnout put the fate of your business in a vulnerable position.

The Top 3 Unexpected Events CEO’s May Encounter During the Selling Process

When it comes time to sell a business, not everything goes as planned. You may be one of the lucky ones and find that selling your business is a streamlined process with only a few unexpected occurrences. But most CEO’s looking to sell a business find they can expect the unexpected. Let’s take a closer look at some of the top surprises CEO’s experience during the sale process.

Unexpected Occurrence #1 – Surprisingly Low Bids

CEO’s looking to sell their businesses need to be ready for almost anything. One of the larger surprises that CEO’s face are surprisingly low bids. Don’t let low bids shock you.

Unexpected Occurrence #2 – A Huge Time Commitment

CEO’s have to make sure that everything from an offering memorandum to management presentation and suggestions to potential acquirers are ready to go. The offering memorandum is considered the cornerstone of the selling process and is typically at least 30 pages in length.

Most business intermediaries expect the potential acquirers to submit their initial price based on the information contained in the memorandum. Management presentations are also time consuming, but it is common to have these presentations ready before the final bids are submitted. Ideally it is best for the CEO to show the benefits involved in combining the acquirer and the seller as well as the future upside for selling the company.

Unexpected Occurrence #3 –The Need for Agreement from Other Stakeholders

You, as the CEO, are able to negotiate the transaction, but the sale isn’t authorized until certain shareholders have agreed and done so in writing. Until the Board of Directors, shareholders and financial institutions who may hold liens on key assets, have agreed to the deal, the deal simply isn’t finalized. Often this legal necessity turns out to be an issue that gets in the way of a successful deal.

Sellers can take their “eye off the ball” during the time-consuming process of selling a company, however, this can be a serious mistake. CEO’s must understand that potential acquirers will be examining monthly sales reports with great interest. If potential acquirers notice downward trends they may want to negotiate a lower price. No matter how time consuming the sales process may be, CEO’s have to maintain or even accelerate sales.

Ultimately, there can be a wide array of surprises awaiting a CEO who is looking to sell a business. Avoiding these kinds of issues is often, but not always, a matter of excellent preparation. However, it is vital that they keep in mind that even with the very best preparation and diligence, there can still be surprises when selling a business.

 

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 being; after all, how often do you meet the owners of the businesses that you frequent? As a business owner, when was the last time that you got on the phone or had lunch with a good customer? The truth is that customers and clients enjoy working directly with owners, and it makes them feel more connected with a business. An owner who is working directly with his or her customers or clients is engaged in a powerful form of customer service.

Building Relationships

Investing time to build your business’s key relationships is a prudent step. When was the last time that you took a moment to contact your accountant, banker, legal adviser or other key people that support your business, such as key suppliers? The time you invest communicating with these key people and institutions is time well-spent especially should a problem ever arise. Since most communication is now done online, a handwritten thank you note or a quick phone call can go a long way towards maintaining and building relationships.

It is important to rise above all the background noise of life. One of the best ways of doing so is to invest the time to add a personal touch.

Owning and operating a business shouldn’t be a stealthy activity. Instead, you the business owner should be out front meeting with customers, suppliers and other key people. Running a business isn’t a “backroom” operation, so go out there and meet your customers and other key people! This is how you build and protect your business.

 

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 done. Businesses become integrated into the lives of their owners in a myriad of ways. Walking away is usually easier in theory than in practice.

Now, on the flipside of the coin, a signed listing agreement is a totally different animal for buyers. It represents the beginning of a dream. The lure of owning a business may come from a desire to achieve greater personal and financial independence, a sense of pride in owning and building something, a desire to always be an owner or a combination of all three. Buyers see the business as the next phase of their lives whereas sellers see the business as the past.

The listing agreement may seem simple enough, but what it represents is an important bridge between the seller and buyer. It is the job of the business broker to understand and consider the situation of both the seller and the buyer respectively and, in the process, work closely with both parties.

The lives of both the buyer and the seller will change greatly once the sale is completed, but in radically different ways. No one understands this simple, but very important fact, better and with more clarity than a business broker.

 

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. Situations, both personal as well as in the economy at large, can change very rapidly. A failure to have a valuation leaves one exposed if issues suddenly arise involving estate planning or divorce or even partnership issues. These are just two examples of potential problems.

It is also vital to understand how your business compares to last year and previous years; after all, valuations should be increasing not decreasing. A valuation can also help you understand how your business compares to other businesses. Perhaps most importantly, an annual valuation can help you spot and fix problems.

“Buy, Sell or Get Out of the Way”

If you don’t know your valuation, then you truly don’t know where you are headed. As former Chrysler CEO, Lee Iacocca once stated, “Buy, sell or get out of the way.”

Standing still isn’t an option. You need to know your valuation in order to take full advantage of opportunities. You may feel that an acquisition isn’t the right move at the moment, but that doesn’t mean you shouldn’t be ready! Having a current valuation means you’re ready to go if opportunity does, in fact, knock!

You never know when a potential acquirer may enter the picture. Imagine missing out on a tremendous opportunity because you didn’t have a valuation in place. Often hot offers and hot opportunities depend on speed. The time it takes to get a valuation could mean that the opportunity is no longer available. An accurate annual valuation of your business provides a valuable option whether you choose to exercise it or not.

 

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 order to purchase a business. Additionally, the new owner will need to execute a lease or assume the existing list. At the end of the day there exist an array of weighty business decisions that a buyer must make.

Ultimately, a buyer has to decide whether or not he or she is ready to take a giant step and purchase a business. This is more than just a financial decision. The enormity of the decision to purchase a business is such that touches every aspect of a person’s life. Owning a business can be very time consuming and demand a great deal of one’s attention. The end result, is that buying a business has a direct impact on both one’s financial life and one’s personal life. Owning a business can be extremely time consuming and this is particularly true for new business owners.

Prospective buyers need to weigh all the factors involved in buying a business. Caution must be exercised. Buyers need to step back and fully assess whether or not owning a business is right for them both on a personal and financial level. When sellers put themselves in their buyer’s “shoes,” things begin to look a bit differently.

When it comes to buying or selling a business, the assistance of a business broker is invaluable. A business broker understands what is involved in owning a business and can help both buyers and sellers evaluate the pros and cons of any transaction.

 

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 disruptions leading to a loss of business. Any family member that buys a business must be ready for the responsibility. An outside buyer usually solves all of the problems that come along with a family member buying a business.

2. The Individual Buyer

Most owners of small to mid-size businesses like the idea of selling to an individual buyer. Often these buyers are older between the ages of 40 and 60, and bring with them a good deal of real world business experience acquired in the corporate world. For these buyers, owning a business is a dream come true. Many individual buyers have the funds necessary to buy.

An individual buyer who is looking to replace a job that has been lost or downsized is often an excellent candidate. On the downside, individual buyers quite often have not owned a business before and may be intimidated by what is involved. At the end of the day, the individual buyer is often easier to deal with than other types of buyers.

3. Business Competitor

It is quite common for business owners to look to their competitors when it comes time to sell. No doubt, the approach of selling to a competitor makes sense, as a competitor already understands the business and will likely see the value.

Additionally, a buyer may see buying a similar business as an easy way to expand and increase cash flow. That stated, it is extremely important to work with a business broker in this situation. By going through a business broker, it is possible to have a secure confidentiality agreement in place so that the prospective buyer doesn’t learn the name of the business or other details before signing the agreement.

4. The Foreign Buyer

Foreign buyers often have the funds they need and look at buying an existing business as a way of addressing such issues as language barrier, licensing difficulties and other problems. Business brokers can be very helpful when working with foreign buyers, as they have experience with the obstacles a foreign buyer may face.

5. Synergistic Buyers

A synergistic buyer is one that feels that a particular business would complement his or her existing business. The idea is that they can combine the two businesses and in the process, lower their cost and acquire new customers. These are just a few of the advantages for a synergistic buyer, and that is why they are often willing to pay more than other buyers.

6. Financial Buyers

Financial buyers can come with a long list of demands, criteria and complications, but that doesn’t mean that they should be discounted. With the assistance of a business broker, financial buyers can still be good prospective candidates.

It is, however, important to remember that these buyers want maximum leverage and are often a good option for the seller who wants to continue to manage a company after it is sold. It is common for financial buyers to offer a lower purchase price than other types of buyers. After all, buying the business is strictly for financial purposes and it isn’t attached to fulfilling a dream or a family tradition. Financial buyers are looking for a business that is generating sufficient profits so as to support the business and provide a good return to the owner.

Working with a business broker can help you find the right kind of buyer for you. Every business is different and every prospective buyer is different. A business broker can help you navigate the possibilities so you find the right buyer for your business.