Around the Web

Around the Web: A Week in Summary

A recent article from The Enterprise entitled “Steps to take before buying a business” explains the five things that every buyer needs to do before completing the purchase of a business.

Buying a business versus starting one from scratch has its benefits. However, it also has some major financial implications that are imperative to consider. While either choice is a major commitment to make, here are five steps to take before signing on the dotted line on a purchase agreement:

1. Determine the type of business you are interested in.
2. Take the time to complete your due diligence.
3. Enlist the help of an experienced attorney.
4. Develop a plan to finance the purchase.
5. Review your personal financial position in detail.

If you are indeed going to opt for purchasing an already existing business over the choice to start a new one from scratch, then it’s important to have your ducks in a row. You want to make sure that you’re choosing a business you’ll be passionate about running, or at least knowledgeable about, and that your financial and legal protections are in place. A wonderful place to start when you’re beginning to look at businesses is with a business broker who can help you to find the right fit for you.

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A recent article from Albuquerque Journal entitled “On reporting the deal ‘consistently’ on returns” provides a business brokers’ detailed answer to a business owner’s question regarding how to report their business sale on their taxes.

When a small business is sold to a larger company, there is always the matter of taxes for the buyer and the seller at the end of the year. The way that the purchase price is reported to the IRS holds implications, that are often conflicting, for each party. However, to avoid the tax returns being challenged by the IRS it is best that both party’s returns report the allocations the same way. To resolve this issue, a clause is commonly added to the purchase agreement that states that neither party will file their tax return until both agree upon the allocation of the value and assets of the business. According to Jim Hamill, this clause is a good thing to have added to the agreement, but how things will be allocated should be agreed upon before the agreement is signed.

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A recent article from Journal Enterprise entitled “A Brief Guide to Selling a Business” explains the best practices for selling a business for an inexperienced seller.

There are many reasons to sell a business. While some individuals may sell what’s left of a failing business, others may have only started the business to sell it for a profit or may sell a perfectly thriving company in order to retire. Whatever the reason for the business sale, there are many potential problems that remain consistent across the board. For a smooth business sale, follow these pieces of advice:

• Seek professional help – Working with a business broker can help you to navigate the more time consuming and complicated aspects of selling a business such as negotiations, finding interested buyers, preparing your business for sale, and otherwise guiding you through the process.
• Organize the paperwork – Without easy-to-read, complete and properly prepared financial, tax and other documents, your business will not be easy to sell. A diligent buyer will want to see all of these papers while they are performing their due diligence so having them prepared and organized before they are requested will make for smoother sailing.
• Plan your offer and recheck business details – In other words be clear on what you are looking for in the sale of your business and make sure you are up-to-date on the goings on within your company. It would be very problematic to have an interested buyer bring problems within your business to your attention that you are not already aware of or are in the process of handling.

Many factors go into the sale of a business and the process can be time consuming and lengthy. For these reasons, a seller should step into the process with preparation and professional assistance.

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Around the Web: A Week in Summary

A recent article from M&A Source entitled “Risk Of Recession: Should I Sell My Business Now” discusses the considerations a business owner should take when deciding whether or not to push through a recession.

With many financial professionals predicting a recession in the near future, it is expected that business owners will be wondering what to do. If you’re torn between selling your business now before the recession hits or staying on board and weathering the storm, here are some things to consider:

• It’s important to get clear with yourself about why you’re looking to sell your business. If you’re feeling burnt out or no longer share a passion for your company, it is less likely to survive an economic downturn.
• Ask yourself whether or not your business is recession proof. This is dependent upon the industry, but if you are not a recession proof luxury business, then it may be best to exit sooner rather than later.
• If your drive for the business remains intact, and you believe the company is able to survive a recession, then it may actually increase the company’s value when the temporary downturn has ended.

Determining when to sell a business, to whom, or whether to sell it at all can be a complex decision. For the best outcome, be sure to consult multiple professionals and be aware of all of your options.

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A recent article from Heating Ventilating & Plumbing (HVP) magazine entitled “Selling your business? Don’t fall for attractive high valuations” explains the reasons why it’s important for business owners to avoid choosing the business broker they work with simply based on who provides the highest valuation.

After the years of hard work and dedication it takes to build a company, it is understandable why one may be wooed by a high valuation number. To an owner, the value that their company holds is often limitless. However, in the marketplace, an extremely high multiple can cause serious buyers not to take the listing seriously. Therefore it is important that when receiving a valuation, business owners make sure that the individual performing the valuation uses a wide range of assessment criteria. This will provide a fair, accurate valuation of the business and increase the chances of completing a transaction with a serious buyer that is ideal for all involved parties.

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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:

1. Using a business broker (or not) – The process tends to be much quicker and smoother with a business broker on your team.
2. 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.
3. Negotiation and Due Diligence – This piece of the transaction can take anywhere from two to six weeks alone.
4. Closing – Assuming the previous step went well and both parties came to an agreement, the closing process can then present its own time challenges.
5. Industry – The demand for the type of company will play a large role in how quickly it sells.
6. 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:

1. Is your business ready to sell?
2. Can the current market facilitate the sale of your business?
3. 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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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:

1. 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.
2. 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.
3. 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:

1. 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.
2. 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:

1. Partnering with a business broker to utilize their expertise for a smoother sales process.
2. Low interest rates are appealing to buyers.
3. Currently there is a positive economic environment which is very encouraging to buyers. This can work in your favor.

Things for buyers to consider:

1. Look for a consistent increase in earnings in a business. If their financial reports don’t show this, dig deeper to understand why.
2. A business with a strong management team already in place translates to a support system for you once you take over.
3. Finding a business to buy that has recurring revenue streams and long term contracts can help to stabilize your income through a transition.
4. 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:

1. Provide quality photos to make your business stand out.
2. Be descriptive, and highlight the business’s unique features.
3. Make a creative headline to grab the buyer’s attention.
4. Include key financials in your ad to avoid losing potential buyers.
5. Proofread your work.

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