Around the Web

Around the Web: A Week in Summary

A recent article from Forbes entitled “Making An Offer To Buy A Business – 6 Key Considerations” explains six things buyers should know going into the deal process in order to best protect their interests.

Making an offer on a business for the first time can be frightening. There is a lot to keep in mind, and it can make or break the remainder of the process. Here are six things to consider when making an offer on a business:

1. It’s hard to retract the written word – A best practice is to have as many discussions and meetings face to face with the seller in order to come to agreements verbally before placing them into a written document. If there are things placed into writing before they are discussed in person it leaves room for misunderstanding and the creation of avoidable tension between you and the seller.
2. It’s YOUR offer – Ultimately, as the buyer, you are taking on the majority of the risk in this transaction and it is your money that is being spent. Therefore, if there is something you want, ask for it without hesitation.
3. Letter of Intent (LOI) or Full Purchase Agreement? – Whether you should proceed with both of these documents during the deal process or skip over the letter of intent is going to be dependent upon the deal size. Sometimes in smaller, lower middle market deals, a letter of intent is not a necessary or productive step.
4. Forget the “We have other offers” tactic – Brokers will often throw this phrase out there in order to push you into making an offer faster. While it is true that good businesses will go under contract quickly, this is not a reason to cut any corners in your preliminary research. Call their bluff and pay attention to how they respond, and then act accordingly.
5. Hurry up and wait – Once you decide that you are ready to make an offer, do so in an efficient manner. Set a reasonable expiration date on your offer and then wait for them to contact you. Do not contact them until the expiration has been reached.
6. Think before you set “deal breakers” – Saying that something is a deal breaker for you and then changing your mind later can hurt your credibility and any leverage you may have had. Therefore work to be creative and find solutions before deciding that something is a deal breaker for you. And if you do make this decision, be sure to stick to it.

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A recent article from Kiplinger entitled “What Steps Should You Take Before You Buy or Sell a Business” details the intricacies of the business buying process prior to a deal being made.

Given the state of the current economy, the market is favorable for both buyers and sellers at the moment. There is a large amount of available funding from multiple source types, as well as a multitude of healthy, valuable businesses available, creating an environment in which buyers are plentiful and businesses are selling for top dollar. In light of this, buyers and sellers both need to do their due diligence thoroughly in order to capitalize on the potential that the market conditions offer. This includes doing thorough research into the business on both sides, having a professional valuation done, carefully exploring the business structure and culture, as well as carefully drafting the sale agreement. If handled correctly, a buyer can walk away having a purchased a solid business with great potential and the seller can receive premium pricing for their hard work.

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A recent article from Entrepreneur.com entitled “5 Tips to Successfully Sell Your Company” shares an experienced seller’s advice on how to best prepare your company for a desirable sale outcome.

Oftentimes when an owner is in the midst of their daily business operations, the last thing on their mind is selling their company. However, while it’s easy to get caught in the day to day minutia of growing the business, eventually being able to sell for top dollar is ultimately the goal. Through his experience of going through this process, one owner shares how to organize your company, find the right buyer and receive the true worth of your business:

1. Keep your company’s resale value at the forefront of your mind from day one. By doing this it will keep you on track for building a long term business around principals that will one day make it sellable and reduce the amount of ‘repairs’ you need to do when you decide you’re ready to take this step.
2. Train your employees to work well with or without you. Someday, if you’re going to sell your business, they’re going to need to work without you. Therefore having a business that is staffed by employees that are able to continue without your instruction makes your business more valuable to a buyer down the road.
3. Learn how to know when you can sell your business. While it’s important to understand the current state of the market as well as your own personal outcomes and goals regarding the sale, you will also need to understand when the business is ready to be sold. For example, it needs to have shown a steady growth in revenue and profits over the past few years before it goes to market.
4. Learn how to negotiate effectively. If you want to get top dollar for your company, this skillset will be necessary, period.
5. Figure out how to say goodbye to your company. After spending years of your life building this business, it’s important to determine in what way your role will change when you sell it. Will you be staying on in a management role? Walking away entirely? Transitioning slowly as you train the new owner? All of these things need to be figured out before the sale is finalized.

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Around the Web: A Week in Summary

A recent article from Smart Business Network entitled “There’s a lot of value in using professional expertise to sell your business” explains the benefits of hiring an expert to assist in the sale of a company.

Once an ideal buyer has been identified, or an offer has been made, it can be tempting for business owners to jump into a deal hastily. Even if the proposed purchase price seems appealing, this could be a mistake. A business transaction professional is equipped with the tools and experience to negotiate and inspect the details of a business transaction in order to generate the best outcome for the owner. Failing to hire a professional to consult you in the process could result in leaving large amounts of money on the table.

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A recent article from Axial entitled “8 Expert Tips for New Strategic Buyers” explains 8 different ways in which buyers can improve their chances of success after an acquisition.

Statistics show that a large number of M&A deals either never go through or end up destroying shareholder value after the sale. As a new strategic acquirer, these outcomes are obviously less than desirable. Follow these expert tips to beat the odds:

1. Hire a buy-side advisor – experience and expertise go a long way.
2. Articulate your strategy – be clear on your reason for acquisition and groom your company for the merge.
3. Educate yourself on the basics – coming to the plate prepared makes a world of difference in the smoothness and success of a deal.
4. If it’s not a clear yes, it’s a no.
5. Think about integration early – and start building relationships during the due diligence process.
6. People are paramount – don’t underestimate the value of people.
7. Trust your instincts – don’t overlook red flags.
8. Understand that merging is different from running.

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A recent article from Business Sale Report entitled “What financing options do I have to support my next acquisition?” breaks down the different options available to buyers for funding the purchase of a business.

With an abundance of funding options available today, it’s important to understand the ins and outs of each type so that you can choose the best option for you. Some of the most popular options are:

• Loans – There are two options here: secured and unsecured. An unsecured loan means a higher interest rate since the lender, usually a private investor or a bank, has nothing to guarantee payment should you default on the loan. A secured loan requires some kind of collateral and usually has lower interest rates.
• Asset-based loans – Similar to a secured loan, this style of lending requires you to place an asset or a group of assets against your loan. In the event that you default, the assets will be seized by your lender. Some lenders will allow you to use the assets of the business you are buying to secure the loan.
• Peer-to-peer – With peer-to-peer lending, there are a number of investors involved in producing the funds necessary to make a purchase. Typically this is carried out by requesting a specific amount of money which you agree to pay back over a specified period at a set interest rate. In some cases, like crowdfunding, the investors will receive benefits regarding the company for contributing.
• Equity funding – This requires you to approach investors directly and pitch a proposal that explains why you’ll succeed running the business. Often these investors expect a large return on their investment.
• Your own money – This is the easiest and least expensive way to fund an acquisition. It can be carried out through the use of savings, pension, property equity, etc. The more of your business you can fund with your own money, the less interest you will be paying, but the higher the risk of capital loss as well.

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Around the Web: A Week in Summary

A recent article from Axial entitled “What Not to Do When Submitting an IOI” explains the common actions (or lack thereof) that frequently cause buyers to be overlooked by sellers and bankers.

When it comes to submitting an IOI, or Indication of Interest, there are a number of guidelines that are expected to be followed. In most scenarios, the banker will provide their specific preferences in regards to what should be included in the IOI. A quick way to find yourself dismissed as a potential buyer is to disregard any of these preferences or to fail to find them out before putting together your IOI.

Before submitting your interest, actually do a thorough due diligence check on the business in question. Failing to do so will show in the later steps of the process. Additionally, it is always a good step to introduce yourself to the banker early on and ask them some questions regarding the sale. This establishes a connection as well as shows that you are showing up and doing your research. Every step along the way, it is important to distinguish yourself as a buyer by showing an attention to detail, organization, and that you are taking the process seriously.

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A recent blog post from BusinessBroker.net entitled “Important Financial Information” explains the different financial factors that business buyers need to understand.

Clean, concise and complete financial records are an important piece to any business transaction. As a buyer it is not important that you understand absolutely everything regarding finances, just that you know where to get the information. It is important to lean on accountants, tax professionals and lawyers when you are evaluating as well as preparing to take over a new business. Working with a business broker as well can help to guide you through the processes.

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A recent article from Forbes entitled “Nine Strategies To Help You Increase The Value of Your Business” explains the reasons why many businesses may be worth less than the owner believes, and how to remedy each potential problem.

It is not uncommon for a business owner to believe that the value of their company is directly tied to either the revenue or profits that the company brings in. However, this is not the case. Ultimately, the value of a business is equal to what a buyer is willing to pay for it. In order to increase the value of your business, you must make it both attractive to a buyer and ready to be bought. To accomplish these two goals, follow these tips:

1. Create a business that is independent from the owner. The more necessary you are in the operations, the less sale-ready your business is.
2. Make sure you can show buyers a proven process that can be replicated in your absence in order to generate the consistent revenue that you are showing them is being brought in.
3. Have a solid management team in place that can maintain the business operations through a transition.
4. Ensure that your business has a well-known, respected and popular brand.
5. Showing some form of recurring revenue, whether that’s via subscriptions, service contracts or other agreements that show guaranteed future revenue will do wonders for the value of your business to a buyer.
6. Be able to show a buyer that your business is on a growth course by illustrating momentum backed up by multiple years of past growth.
7. Have clean, accurate and concise financial records.
8. Show your potential buyer that you have a diverse customer base. Having the majority of your revenue coming from one or two main clients is high risk and does not look good for a buyer.
9. Show buyers what is unique about your company and makes it stand out from the crowd. This could be in the form of location, relationships, contracts, technology or processes.

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Around the Web: A Week in Summary

A recent article from Inc.com entitled “5 Benefits of Getting a Business Valuation” explains the reasons why a business owner should get a valuation if they have not within the past 12 months.

Knowing what your business is worth is invaluable information for an owner to have. At least once annually, it’s a good idea to have a business valuation performed on your company for these reasons:

1. It will give you a better knowledge of the company’s assets. Guessing is not only inaccurate but not useful in important scenarios such as obtaining lending or insurance.
2. To have a good understanding of your company’s resale value. Whether you’re planning to sell or not, knowing this figure is instrumental in managing the future of your company’s value.
3. Allows you to obtain a true value of your company. This matters because it allows you to compare company growth in the future.
4. Makes life easier during a merger or acquisition.
5. Gives you access to more investors.

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A recent article from Axial entitled “Small Deals, Big Returns” examines multiple market reports to determine whether larger, mid or smaller sized buyout firms generate the best returns.

While it was popular to focus on large buyout deals in the 1980s and 1990s, the focus has recently shifted to middle market companies. According to the data provided by multiple reports, the switch in focus has proven to be a good thing for private equity funds. In general, purchasing multiple smaller businesses over time produces a larger payout than searching for fewer large deals.

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A recent article from Accountancy Daily entitled “Succession Planning for Business Owners” discusses the role that accountants play in the succession planning process.

Succession planning is an emotional process for many business owners. A trusted accountant who is experienced in the process can be instrumental to a business owner’s peace of mind and success. Here is how an accountant can be most helpful during each stage of succession planning:

• Developing an Exit Strategy – Being there to mediate any emotional decision making as well as to prepare the business owner for what to expect from the process. Once the owner is settled with these things, the accountant should work with them to determine the who, what, when and why of the sale.
• Preparing the Business for Sale – An attorney can advise on what needs to be patched up within the business and the ways the business owner can do so before passing it along to the next owner. This is also the time to discuss ways in which the business owner can increase the value of the business before selling.
• Selling the Business – Having a network of business brokers and lawyers to refer a business owner to when they are ready to sell can be extremely valuable. Accountants can take it a step further and prepare their client for what to expect during this next stage of the process.

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Around the Web: A Week in Summary

A recent article from the Dallas Business Journal entitled “Want to buy a business? Tips to get you started” explains the major factors to be considered when purchasing a business.

Becoming a business owner is a big life step that can be very satisfying, but should not be taken lightly. Before diving in, here are some things to consider before signing on the dotted line:

• Go over the pros and cons of business ownership. Failing to consider the downsides can have disastrous outcomes in the future.
• Research potential businesses thoroughly.
• Have an advisory team that you work with closely. This team of professionals can provide valuable insight regarding financial benefits and risks, insurance, legal and personal considerations.
• Comb through the prospective business with a fine toothed comb. You want to be sure that there are no hidden costs and it is an overall healthy operation that will provide a return on your investment.
• It is a good idea to lean on your team of experts for the transition to ownership after a purchase is finalized as well.

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A recent article from Radio.com entitled “3 Reasons You Should Consider Selling Your Small Business” explains three signs that it’s a great time to sell.

While it can be an emotional choice, having spent years of your life building and running a business, selling your business should never be a spontaneous decision. Given the amount of effort it takes to accomplish many business goals, it makes sense that you’d be hoping to eventually benefit from a payout for your hard work. Once you’ve made the decision and preparations to sell your business, here are three signs that it’s a good time to go for it:

1. Business is booming
2. Your heart is no longer in it
3. Trends are changing

On occasion a small business owner will receive an offer for their business, even when they weren’t planning on selling it. While this is a good position to be in, always take time to weigh your options and consider what is best for you and your company.

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A recent article from Forbes entitled “How Women Entrepreneurs Should Prepare to Sell a Business” discusses the realities that female business owners face when it comes time to make the decision of how to exit their business.

For many small business owners, their ability to retire and their financial health post-exit depend upon a profitable and smooth sale. While the specific details for each woman’s exit can vary based on her specific needs and goals, the overall approach should remain the same. Before taking the steps to sell a business, it’s important to assess what the ideal outcome is and why. Once this decision has been made, it’s imperative to create an actionable plan that will prepare you, the future owners and the business to accommodate these goals. Of course, the final step is to execute the plan. Working with a broker or advisor is recommended during this process. A trusted advisor can help to provide perspective, guidance and structure in an otherwise unknown territory for a business owner.

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