Unlocking Your Potential Through Business Ownership
As a business owner, you gain freedom and the potential to earn more than you might otherwise earn. If you are ready to tackle the hard work involved in business ownership, you may be prepared to take the next step. Two main advantages to being a business owner include forging ahead with more freedom and also boosting your income. However, you must be prepared to take some risks.
Grow Your Income
Owning your own business gives you the opportunity to grow your income. While owning a business can dramatically boost your income, this typically comes with both increased risk and more work.
Generally, the longer a business owner maintains their business, the greater the potential for profits. Business owners who have operated their businesses for ten years or more generally earn over $100,000 per year. It’s important to remember that it may take years before you achieve the income level you desire. Building a successful business takes time, and increasing the profits of an existing business can also require significant effort. Regardless, being a business owner gives you much greater control over your financial destiny.
Determine Your Lifestyle
Owning a business also grants you control over your lifestyle. Working for someone else often means sacrificing some degree of freedom. Employees are typically required to show up for work at specific times and adhere to set hours. As an employee, you must abide by various rules and regulations established by your employer. In contrast, being a business owner allows you to choose when and how you work. You establish the rules and can manage your time and life in ways that an employee simply cannot.
Are You Ready?
One of the most crucial factors in determining your readiness to own a business is your willingness to assume some risk. Simply put, there is no way to be a business owner without dealing with risk. Owning a business is not the same as working for one; your fate is in your own hands, which means accepting at least a modest degree of risk.
Of course, not all businesses succeed, and it’s essential for prospective business owners to understand that, despite the money, time, and effort invested, a business may still fail. By carefully considering what kind of business is right for you and working closely with a business broker or M&A advisor, you can significantly increase your chances of selecting a business that aligns with your personality, needs, and expectations.
Being a business owner means you are ready to take both action and responsibility. You must be forward-looking, seek out opportunities, and be willing to assume risks. A business broker or M&A advisor can be an invaluable ally in determining whether you should become a business owner and helping to identify the right business for you.
Copyright: Business Brokerage Press, Inc.
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Strategic Negotiation: Essential Tactics for Deal Success
Negotiation can evoke a range of feelings: some people thrive on it, others dread it, and many fall somewhere in between. Regardless of your stance, the ultimate goal remains the same: to emerge successfully from the negotiation. Mastering effective negotiation methods and tactics can give you an edge where others might falter. The objective is to close deals effectively. Here are three negotiation strategies that have been proven to close more deals.
Leverage the Experts
One common belief is that you should never negotiate your own deal. Business owners are often too emotionally invested in their businesses, which can cloud their judgment. Buyers can also become overly emotionally attached. Engaging a professional business broker or M&A advisor can be a strategic move toward achieving a favorable outcome. A professional broker not only knows what constitutes a fair price but also understands the many factors that influence the negotiation.
Take it or Leave it
Another strategy to consider is the “take it or leave it” approach. In this method, the buyer presents their offer, the seller makes a counter-offer, and then the negotiation ends. The seller maintains their position and hopes for the best. This approach carries risks, as showing some flexibility can often lead to a successful deal. While the “take it or leave it” strategy can be high-risk, it also has the potential for high rewards. An experienced brokerage professional can assess whether this strategy is appropriate based on factors such as the business’s appeal to future buyers.
Addressing Variables
A third approach involves focusing on the most important variables for both the buyer and the seller. Understanding what matters most to both parties can be crucial in crafting a successful deal. It’s important to remember that key issues aren’t always financial; they might include commitments to retaining key employees or allowing a relative to remain involved with the business. Recognizing the complexity of buying a business and addressing these variables can facilitate a smoother negotiation process.
Reaching a Compromise
Finally, consider the strategy of splitting the difference. It’s essential for both buyers and sellers to avoid letting ego derail the deal. Quibbling over minor differences in a multi-million-dollar transaction is usually counterproductive.
Offering to meet halfway between the seller’s asking price and the buyer’s offer—provided the disparity isn’t too large—demonstrates goodwill and flexibility. By proposing to split the difference, you reduce emotional tension and show that you value reaching an agreement.
In dealmaking, don’t be afraid to think creatively. Every business, buyer, and seller is unique, and each deal presents its own challenges. A skilled business broker or M&A advisor will evaluate each situation on its own merits, rather than adhering to a rigid formula.
Copyright: Business Brokerage Press, Inc.
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Why Business Brokerage Professionals Use Term Sheets
Term sheets are invaluable in that they can serve as a point of orientation during negotiations. Thanks to term sheets it is possible to keep everyone involved, focused and on target.
What is a Term Sheet?
These nonbinding agreements detail the basic terms and conditions of a deal. It is different from a legally binding agreement, so it is often misunderstood by buyers and sellers. However, the term sheet serves the purpose of moving a deal along and helping both parties to get on the same page.
A term sheet can be thought of as a preliminary proposal that contains a range of information that is essential to the deal. A well-crafted term sheet includes more than the price, as it also includes key terms and any major considerations, such as employment agreements, consulting and more.
In Russ Robb’s book, “Streetwise Selling Your Business,” Robb concluded that a term sheet serves to include the price range along with the basic structure of a deal. Importantly, Robb also notes that a term sheet will include whether or not any real estate is included in the deal.
There are other ways of thinking about a term sheet. Author and attorney Jean Sifleet once stated that a term sheet should clearly answer the four all-important questions of: Who? Where? What? And, last but not least, How much?
The Importance of Customization
The goal of any negotiation should be to achieve a win-win for everyone involved. In order to achieve that win-win environment, it is helpful to avoid lawyers, accountants and other advisors who overutilize boilerplate documents or who use adversarial tactics or adopt extreme negotiation positions.
Putting it in Writing
Once a verbal agreement has been reached on the important variables of price and terms, it is critical to put that agreement in writing. It is through this information that the process can move on to the next stage and a more formalized letter of intent can be created. It is important to remember that the term sheet is designed to help both parties and can be used to help a deal take its final form.
Term sheets are an extremely useful and time-saving tool. They orient the thinking of all parties involved in the process and help cultivate a clearer understanding of what the final agreement will look like. Through term sheets, it is possible to avoid misunderstandings and last-minute surprises, which often sabotage deals.
Copyright: Business Brokerage Press, Inc.
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Navigating Due Diligence: Essential Steps for Successful Business Transactions
There is no denying the satisfaction that comes with obtaining a signed letter of intent from both the buyer and seller. However, it’s crucial to recognize that due diligence has yet to be completed. No deal is final until the seller undergoes this process and commits to proceeding.
In Stanley Foster Reed’s insightful book, The Art of M&A, Reed emphasizes that the goal of due diligence is to “assess the benefits and liabilities of a proposed acquisition by investigating all relevant aspects of the business’s past, present, and foreseeable future.” Reed highlights the importance of thoroughly examining every aspect of a business and its potential trajectory.
Due diligence is inherently comprehensive, and it’s no surprise that many deals falter during this critical stage. Therefore, it is prudent for both buyers and sellers to consult with key team members, such as lawyers and accountants, before embarking on due diligence.
Reviewing All Aspects of a Business
There are numerous factors that buyers and sellers should consider before initiating due diligence. A checklist addressing these areas is essential. For instance, accounts receivable should be scrutinized to identify outstanding debts. Similarly, inventory should undergo thorough examination.
Environmental concerns, often underestimated by sellers, can derail a deal swiftly. Issues such as lead or asbestos contamination, or water pollution, require careful assessment due to potentially substantial remediation costs and time commitments.
If the business holds trademarks, patents, or copyrights, these valuable assets must be properly documented and their transferability confirmed. They are critical to the business’s current and future value.
The strength of any business lies in its key employees and management. Sellers should evaluate their team for any weaknesses, while buyers must gain a comprehensive understanding of the workforce. Over-reliance on the owner or key personnel can signal risks.
For example, in manufacturing, it is imperative to evaluate all aspects of the production process. The condition of equipment, its anticipated lifespan, efficiency, and overall value are crucial considerations. Identifying key suppliers and assessing their reliability is equally essential.
Due diligence is pivotal for buyers to comprehend the true nature of the business being sold. Sellers can leverage this process to highlight their business’s strengths and address any weaknesses.
Through due diligence, stakeholders can gain insights into critical factors, such as the company’s competitive edge, long-term potential, status of team members, customer and supplier relationships, and more. Business brokers and M&A advisors are well-versed in every facet of due diligence and can guide stakeholders through this complex process.
Copyright: Business Brokerage Press, Inc.
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Why Should You Buy an Established Business?
A pre-existing business is a proven commodity. A new business, regardless of how great your idea may be, will always have a future that is uncertain. You can hire many consultants and plan meticulously. Yet, even with the best ideas and most experienced consultants, your newly minted business could still quickly fail. A business with a long track record of success provides you with a degree of security and certainty.
It’s also important to note that an existing business has a myriad of established relationships, which are invaluable. Business is all about cultivating strong relationships and developing a positive reputation. An established business will have those relationships set up and ready to go. This can be tremendously beneficial and save you a lot of time and energy.
Whether it is suppliers, customers or key employees and management, this track record can help ensure your success. It will bring with it long-term customers, as well as an established and proven supply chain. Supply chain issues should not be overlooked as a key factor in successfully operating a business. Many new businesses find themselves in ruins over unforeseen supply chain issues. Opting for an established business can help safeguard against an array of potential disruptions.
Another advantage of buying a pre-existing successful business is that it will have a proven cash flow. Statistics¹ show that 82% of businesses fail due to cash flow mismanagement. Even with exceptional ideas, it can take years for a new business to take flight, but an established business should have positive cash flow from day one. No matter how well you plan, there is no way to know with certainty that your new business will generate the revenue you expect it to. An established business can provide proven cash flow, and that is so critical for the success of any business.
Finally, a business is only as strong as the idea and people behind it. An existing business will already have key people in place. You should look for one that has proven and reliable people.
Hiring from scratch is often much harder than it sounds. All too often a resume fails to tell the full story about a potential hire. When you opt for an established business, the previous owner has already vetted key team members for you and they have experience working in the industry and performing a certain role.
Again, new businesses fail way too often. Working with a business broker or M&A advisor and choosing to buy a proven and time-tested existing business will eliminate many headaches. This approach will dramatically boost your overall chances of success and provide you with peace of mind in the process.
Copyright: Business Brokerage Press, Inc.
¹ https://www.score.org/resource/blog-post/1-reason-small-businesses-fail-and-how-avoid-it
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