When buying or selling a business, it is critically important that you evaluate the lease. It is a strange phenomenon that otherwise savvy business people will treat leases as a secondary concern. However, problematic terms in a lease can literally force you to pack up a business and move. This would not only be a jarring experience, but a very costly one as well. Finding a good location is of paramount importance to both the profile and profitability of your business. You may feel that there are more important issues when buying or selling a business. But by the end of this article, you’ll see the wisdom in placing a lease near the top of your “to evaluate” list. There are three different kinds and types of leases: a new lease, an assignment lease and the sublease. All three of these options are most definitely different from one another and can potentially impact your business in different ways. The New Lease A new lease, as the name indicates, is the result of a lease that has … [Read more...]
Buying/Selling a Business: The External View
There is the oft-told story about Ray Kroc, the founder of McDonalds. Before he approached the McDonald brothers at their California hamburger restaurant, he spent quite a few days sitting in his car watching the business. Only when he was convinced that the business and the concept worked, did he make an offer that the brothers could not refuse. The rest, as they say, is history. The point, however, for both buyer and seller, is that it is important for both to sit across the proverbial street and watch the business. Buyers will get a lot of important information. For example, the buyer will learn about the customer base. How many customers does the business serve? How often? When are customers served? What is the make-up of the customer base? What are the busy days and times? The owner, as well, can sometimes gain new insights on his or her business by taking a look at the business from the perspective of a potential seller, by taking an “across the street look.” Both owners and … [Read more...]
The Advantage of Buying an Existing Business
Most people think of starting a business as developing an idea, requiring starting from scratch and building a company from the ground up. This, however, has many disadvantages including developing a customer base, marketing the business, hiring employees and creating cash flow … without any history or reputation to rely on. Buying an existing business may prove to be the better solution. The many advantages of this approach include: The Business Is Established. An existing business is a known entity. It has an established and historical track record. It has a customer or client base, established vendors, and suppliers. It has a physical location with furniture, fixtures, and equipment in place. The term “turnkey operation” may be overused, but an existing business is just that, and more. New franchises may offer a so-called turnkey business opportunity but, while some elements are established, they retain many disadvantages of a start-up. The Business Has Existing … [Read more...]
How Understanding Psychology Can Benefit Your Deals
We work closely with our clients to preserve the integrity of deals so that they have the best chance of a successful closing. In this article, we explore some of the most common ways that psychology plays into this process. The Element of Time It is critical that both buyers and sellers feel well prepared at every stage of the process. It is also essential that a certain momentum is established through every stage of the deal. When too many delays happen, this can start to derail deals. Think about the Buyer and the Seller For both parties, the buying or selling of a business is a life-changing event. For this reason, it is important that you invest the time to think about the point of view of the other people involved. No doubt, buying and selling can be stressful, so it’s important to take other people’s thoughts and feelings into account. You are not the only one who may be experiencing a little stress. The Issue of Non-Active Partners In some deals, non-active … [Read more...]
Is Your Business Charging Enough For Goods & Services?
Many businesses could charge more for their goods and services than they do, but fail to do so. A small increase in the price of your goods and services can make a tremendous difference to your bottom line. Owners often do not realize the great value of charging just slightly more. In this article, we’ll explore how charging even slightly more can dramatically impact your business. Consider a hypothetical example. A business owner tells a potential buyer that he or she could safely increase their prices by 1.5% and do so without the price increase causing any negative impact to sales or business disruption. The savvy buyer quickly realizes that the business, which has $70 million in sales, is leaving $1 million dollars on the table by not increasing its prices by 1.5%. A smart buyer realizes that after purchasing the business, all he or she has to do is institute this small price increase in order to achieve a sizable increase in profits. In The Art of Pricing, Rafi … [Read more...]
Ownership Transition Survey Results
The ownership transition survey by Mass Mutual Life Insurance, though done about a decade ago, is worth examining even today. These interesting survey results were based on feedback and answers from family-owned businesses. Let’s dive in and take a closer look at the numbers and what they can tell us for 2021 and beyond. The one important point that leaps right off the page is the fact that a whopping 80% of family-owned businesses are still controlled by their founders. A large percentage of those founders are Baby Boomers who will have little choice but to retire in the next few years. The survey indicated that 55% of CEOs over the age of 61 or older have yet to choose a successor. This fact serves to emphasize the fact that a “retirement wave” will hit family-owned businesses, and will lead to some interesting shifts and opportunities. While the survey indicated that 13% of CEOs state they will never retire, the reality of the situation is that ownership will eventually … [Read more...]
Insights from BizBuySell’s 3rd Quarter Insight Report
Wondering what 2021 and beyond will bring? Insights from BizBuySell’s 3rd Quarter Insight Report and a survey of over 2,300 business owners can help. First, the pandemic. The simple fact is that it has, unavoidably, had a major impact on the buying and selling of businesses. Diving deeper than this obvious observation, there are a range of insights to be gleaned from the report. First, owners naturally understand that COVID is a massive force in business right now. 68% of owners surveyed feel that they would have received a better price for their business in 2019 than in 2020. Only 37% of respondents felt that they would receive a better price this year. Of owners who felt that they would receive a lower price in 2020 than in 2019, 71% of these owners said that their assessment was directly tied to the pandemic and its accompanying economic impact. Second is the impact of the pandemic on exit plans. 55% of owners responded that the pandemic had not changed their exit … [Read more...]
What Makes a Deal Close?
What goes into successfully closing a sale of a business? A sale may not close for various reasons, often beyond anyone's control. For example, a fire, the death of the principal, or a natural disaster such as a hurricane or a tornado. There could be an environmental flaw that the seller was unaware of when he decided to sell. Apart from these unplanned catastrophes, deals fail because of the people involved. Here are a few scenarios where a sale closes successfully: The Buyer and Seller Are in Agreement From the Beginning If an offer to purchase is too vague or has too many loose ends, the sale can unravel somewhere along the line. However, if those loose ends are taken care of and the agreement specifically spells out the details of the sale, it has a much better chance to close. This necessitates that an extensive amount of information and answers are supplied before the offer and that many of the seller's questions are answered before the offer. If a seller has … [Read more...]
Buying a Distressed Business
Howard Brownstein, it is safe to say, is a true expert in providing turnaround management and advisory services to companies, as well as their stakeholders. Brownstein serves as an independent corporate board member for both publicly held as well as privately-owned companies and nonprofits and is considered to be one of the world’s top experts in distressed businesses. He believes it is essential to remember that not all distressed businesses are, in fact, the same. There is simply no way to know how bad things are for a given distressed business until one begins to “look under the hood,” and get a full view of what problems may lurk underneath. Brownstein firmly believes that distressed businesses can represent a real and often overlooked opportunity for buyers. Sadly, the recent economic downturn brought about by COVID-19 means that there will likely be a great deal more distressed businesses on the market in the coming months or even in the next couple of years. Why is a … [Read more...]
Considering Generational Strategies
When you are buying or selling a business, chances are high that you might end up making a deal with someone from another generation. Therefore it makes sense to take the time to understand that individual’s background and how that might cause behavioral differences. It is important to understand and reflect upon where many of them are coming from and the collective experiences and trends that shaped their identities and perspectives. At the same time, you can identify your own biases, strengths and weaknesses that may be caused by your own upbringing. The strategies in this article originated from Chuck Underwood who is considered a leading expert in the diversity of communication styles between generations. Generational Sensitivity Underwood’s perspective is that people of each generation were molded by their unique formative years. The decisions that buyers and sellers make will be impacted by … [Read more...]