Around the Web: A Week in Summary
A recent article from Forbes entitled “How Proper Exit Planning Benefits The Buyer And Seller” explains the ways in which exit planning is beneficial for both the buyer and the seller in a business transaction.
Many people hold the belief that exit planning is only beneficial for the owner of the business. The belief is that the process is one that simply beefs up the appearance of a company with the sole end goal of putting more money in the seller’s pocket. While increasing the value of the business may be one of the benefits of exit planning, the process when done correctly benefits both parties in different ways:
The Buyer: When a business is properly exited, it should be easier to run for the buyer from the start. The goal of exit planning is to build the management team, staff and operations procedures so that a new owner is able to work on the business rather than in it from day one. In essence, exit planning reduces the risk a buyer is taking on when they purchase a business.
The Seller: An exit plan is designed to give the seller a goal-oriented action plan for their last days as owner. When executed correctly, the plan first helps the owner to determine how much they need to maintain their standard of living post-exit. Then the business is evaluated for potential improvements that can be made in order to increase the business’s value to that amount.
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A recent blog post from Viking Mergers & Acquisitions entitled “How Long Does It Take to Sell A Business?” explains the most common factors that impact the length of time it takes to exit a business.
Oftentimes the first question on a business owner’s mind when faced with the exit planning process is, “How long does it take?” While the average time it takes to sell a business is about 6 to 8 months, the reality is that time can vary greatly depending on the circumstances. Most commonly, the factors affecting the timing include:
- Using a business broker (or not) – The process tends to be much quicker and smoother with a business broker on your team.
- Marketing – The broker will deploy a number of marketing tactics such as listing the business on business-for-sale websites and reaching out to previously identified buyers. The better the marketing plan, the quicker the leads can potentially come in.
- Negotiation and Due Diligence – This piece of the transaction can take anywhere from two to six weeks alone.
- Closing – Assuming the previous step went well and both parties came to an agreement, the closing process can then present its own time challenges.
- Industry – The demand for the type of company will play a large role in how quickly it sells.
- Location – The desirability of the location of the business will also impact how quickly the business sells.
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A recent article from The Tokenist entitled “When is the Best Time to Sell a Business?” explains three key questions business owners need to ask themselves in order to determine when to sell their business.
As tempting as it may be to wait for the ‘perfect’ time to sell a business, the reality is that if a perfect time were to exist you wouldn’t realize it until after the time had passed. It is recommended that instead, business owners search for a good time to sell their business. In order to do so, they should ask themselves these three questions:
- Is your business ready to sell?
- Can the current market facilitate the sale of your business?
- Are you personally prepared to sell your business?
When the answer to all of these questions is a resounding yes, then it is a good time to sell your business. In the event that you are unclear on your answer, a business broker is a well-equipped professional for helping you navigate the sometimes overwhelming world of business sales.
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Exploring the Offering Memorandum
Are you a business owner who is interested in selling? If so, there are some strategies you should undoubtedly use. At the top of the list is the all-important offering memorandum. The offering memorandum, often referred to as a selling memorandum, is a straightforward but highly effective way to help you obtain the highest possible selling price.
Shaping the Executive Summary
The offering memorandum must be factual. However, at the same time, this memorandum allows for a bit of business promotion and selling, which can be included in the executive summary portion of the document. After all, potential buyers will want to know more about your business and why buying it would be a savvy decision.
In short, the executive summary section of the offering memorandum goes over the highlights of your company. It should include an outline of several key factors. Everything from an outline of the ownership and management structure, description of the business and financial highlights to a general review of your company’s products and/or services should all be covered. Additional points to include would be variables, such as information about your market, and the reason that the business is for sale.
Your executive summary, simply stated, is extremely important. A coherent and compelling executive summary will motivate prospective buyers to learn more. In short, you want the executive summary of your offering memorandum to shine. It should capture the attention and the imagination of anyone that reads it.
Other Essential Elements to Include
Some elements are absolutely a must to have in your offering memorandum. An overview of your company and its history as well as its markets and products are all good places to begin your offering memorandum. Other key elements ranging from distribution, customers or clients and the competition should also be included.
Factors such as management, financials and growth strategies should not be overlooked, as many prospective investors may flip to those sections first. Finally, be sure to include any competitive advantages you may have as well as a well-written conclusion and exhibits. The more polished and professional your offering memorandum, the better off you’ll be.
An easy way to improve the overall quality of your offering memorandum is to work with a seasoned business broker. A professional business broker knows what information should be included in your offering memorandum. He or she will also know what not to include. Remember that your offering memorandum may be the first point of contact between you and many prospective buyers. You’ll only get one chance to make a first impression.
Copyright: Business Brokerage Press, Inc.
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Around the Web: A Week in Summary
A recent article from Allan Taylor Mergers & Acquisitions entitled “3 Principles of Timing the Sale of Your Business” describes the conditions under which a business owner would be best positioned to sell their company.
Business brokers are in the business of selling businesses. However, their efforts can only take the sale so far without the cooperation of the business owner. In order to receive top dollar for a company, there are many things that a seller needs to do to first prepare their business for a transition. One of the important factors that contribute to a successful sale is timing. Use these three guide points to determine the best time to sell your business:
- Sell when your business is in an upswing. It is a losing battle trying to explain away poor financial records or a bad fiscal year. Get the best value out of your sale by selling during a consistent time of financial prosperity for the business.
- Sell when the market is good. There is no substitute for a healthy strong market, and given that we are currently in the midst of one, there is also no telling when it will end or when the next one will arise. Strike while the iron is hot.
- Sell when you’re ready to let go, because if your head isn’t in the game then the results will be subpar because your efforts will also be subpar. Selling a business is a process and requires a lot of your time and energy.
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A recent article from Wilmington Biz entitled “How Long Does Planning for Your Business’ Future Take?” explains the different factors that impact the length of time it takes to exit a business.
It is natural for a business owner to wonder how long it will take to sell their company. The general answer to this question is: it depends on how prepared both you and the business are for the exit. When calculating the amount of time the process will take there are two major steps to consider:
- Shaping the Exit Plan: This process is faster when the owner is clear on their goals for the company’s future as well as their own and slower when they are clouded with uncertainty. Knowing which exit path you’d like to take and why is the key to this step in the process.
- Implementing the Exit Plan: This step depends entirely on the current state of the business in comparison to the goals set forth in the plan. Building value in the business, cleaning up finances, and preparing a future owner for the position are all factors than can prolong this part of the process.
Ultimately, the amount of time it takes to craft and implement an exit plan is different for each business. What does remain constant is that it’s never too soon to start the process or to begin considering how to prepare for it now in order to save time later.
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A recent article from Smart Business Network entitled “How to get your business, and yourself, ready for a sale” briefly explains the steps a business owner needs to take in order to prepare for the sale of their business.
Eventually, every owner exits their business. In light of this reality, it is prudent to begin planning for the transition as soon as possible. While planning early on can help you to assure that you achieve the goals that you have for yourself and your company, waiting too long can create a negative impact on the outcome of the sale. Things you can do to prepare for the transition are:
- Have a third party evaluation of the business performed
- Assess and prepare the management team
- Hire an advisory team consisting of professionals such as a lawyer, business broker, accountant and investment banker
- Take time to evaluate how you’re feeling about the transition and prepare for life after the sale
- Get a clear image of what needs you have from the sale of your business
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Around the Web: A Week in Summary
A recent article from Southeast Missourian entitled “8 Ways to Make Buying a Business Less Scary” explains considerations to be made by both sellers and buyers in order to reduce the potential worry that may prevent a sale from being finalized.
Things for sellers to consider:
- Partnering with a business broker to utilize their expertise for a smoother sales process.
- Low interest rates are appealing to buyers.
- Currently there is a positive economic environment which is very encouraging to buyers. This can work in your favor.
Things for buyers to consider:
- Look for a consistent increase in earnings in a business. If their financial reports don’t show this, dig deeper to understand why.
- A business with a strong management team already in place translates to a support system for you once you take over.
- Finding a business to buy that has recurring revenue streams and long term contracts can help to stabilize your income through a transition.
- Be sure that you can understand the financial statements clearly before agreeing to anything to avoid unpleasant surprises.
Transitioning business ownership doesn’t have to be a scary process if you know what to look for and have proper support in place. Working with a business broker is a great way to accomplish both of these.
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A recent article from The Tokenist entitled “How to Use the Best Tax Structure When Selling Your Business” explains how to understand and determine the most beneficial way to structure your business sale with regards to the taxes you will have to pay on the sale.
Due to a simple lack of knowledge, some owners will end up paying up to fifty percent in taxes on the sale profits of their business. How taxes are charged depends on a number of factors including the way your business is structured, how the proceeds from your sale are labeled and what type of sale you conduct. Ultimately, the details of the sale need to be agreed upon by both the buyer and seller. This is because as a general rule what benefits one party will typically hurt the bottom line of the other.
For these reasons, it’s incredibly important to be well-educated and have a good understanding of the way taxes impact your business sale.
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A recent article from Inc. entitled “How to Create an Effective Business for Sale Ad and Ensure It Gets the Best Results” details the six strategies a broker or seller should use to produce a winning business for sale ad.
Considering all of the components of a business sale, it is easy to overlook the importance of creating the for sale ad and to push it to the bottom of your to-do list. However, with an increasing level of activity in the market, it is very important for sellers to thing strategically. Using these six tips will help to attract stronger offers and serious buyers while allowing for maximum exposure in a busy marketplace:
- Provide quality photos to make your business stand out.
- Be descriptive, and highlight the business’s unique features.
- Make a creative headline to grab the buyer’s attention.
- Include key financials in your ad to avoid losing potential buyers.
- Proofread your work.
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Effectively Utilizing Confidentiality Agreements
Every year countless great deals, deals that would have otherwise gone through, are undone due to a failure to properly utilize and follow confidentiality agreements. A failure to adhere to this essential contract can lead to a myriad of problems. These issues range from employees discovering that a business is going to be sold and quitting to key customers learning of the potential sale and taking their business elsewhere. Needless to say, issues such as these can stand in the way of a sale successfully going through. Maintaining confidentiality throughout the sales process is of paramount importance.
Utilizing a confidentiality agreement, often referred to as a non-disclosure agreement, is a common practice and one that you should fully embrace. There are many and diverse benefits to working with a business broker; one of those benefits is that business brokers know how to properly use confidentiality agreements and what should be contained within them.
By using a confidentiality agreement, the seller gains protection from a prospective buyer disclosing confidential information during the sales process. Originally, confidentiality agreements were utilized to prevent prospective buyers from letting the world at large know that a business was for sale.
Today, these contracts have evolved and now cover an array of potential seller concerns. A good confidentiality agreement will help to ensure that a prospective buyer doesn’t disclose proprietary information, trade secrets or key information learned about the business during the sales process.
Creating a solid confidentiality agreement is serious business and should not be rushed into. They should include, first and foremost, what areas are to be covered by the agreement, or in other words what is, and is not confidential. Additional areas of concern, such as how confidential information will be shared and marked, the remedy for breaches of confidentiality and the terms of the agreement, for example, how long the agreement is to remain enforced, should also be addressed.
A key area that should not be overlooked when creating a confidentiality agreement is that the prospective buyer will not hire any key people away from the selling company. Every business and every situation is different. As a result, confidentiality agreements must be tailored to each business and each situation.
When it comes to selling a business, few factors are as critical as establishing and maintaining confidentiality. The last thing any business wants is for its confidential information to land in the hands of a key competitor. Business brokers understand the value of maintaining confidentiality and know what steps to take to ensure that it is maintained throughout the sales process.
