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...]
Zeroing in on Goodwill
Goodwill is a relatively straight-forward concept, although it may be a confusing term for some. It is generally viewed as a term to include everything from a business’s reputation to the goods, services and products it provides. The key idea is that there is goodwill if the business is viewed as a true and functioning business that has longevity in the marketplace. The Importance of Reputation It is important to know that many of the aspects of goodwill are not easily noted on a balance sheet. One of those elements is reputation. A good reputation is an intangible asset that is hard to put an exact dollar amount on. Imagine that you had a choice between two businesses that were almost identical. However, one business enjoyed a strong reputation while the other had a reputation for poor customer service and goods and services. This decision is an easy one for most prospective buyers. Going Beyond the Numbers When a buyer pays more than the "recognized" value of a … [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...]
Let Professionals Take Care of It for You
The amount of cash on the table and the asking price are directly related. Businesses involve some level of seller financing. It is typical for both sellers and buyers to have doubts about this kind of financing; after all, sellers do not want to take the business back from the buyer. The buyer wants to make enough money to help the business flourish and prosper.The best way to ensure the profitable sale of a business is to look to the experts. Screen out Window Shoppers Choosing to work with professionals can streamline the entire sales process. Many business owners are quite busy and don’t wish to waste time with people who aren’t serious about buying. They also do not want to tell their trade secrets to people who can’t afford to buy. Business brokers and M&A advisors know that most prospective buyers are just dreamers or will ultimately fail to qualify. When you work with experienced brokers you have a shield to protect you and your valuable time. Experienced brokers … [Read more...]
Successfully Navigating Seller Financing
Only a small percentage of the population is able to go through life without using some form of financing at some point. Most people have little choice but to finance everything from their home and car purchases to their college education. Now, with that stated, most business owners would love to receive an all-cash offer for their business. But the reality of the situation is quite different. The facts are that owner financing is very common, and it is sometimes the only way to put a deal together. Sellers have to be ready and willing to entertain the idea that they may, ultimately, be called upon to handle some aspect of financing if they want to sell their business. It surprises many to learn that if a seller is not willing to finance the sale, then buyers begin to worry and may even see this as something of a “red flag.” The reason for this is that many buyers feel that if a business is a solid investment, then the business will be profitable and repaying the seller should be … [Read more...]
Four Common Seller Mistakes
Sellers can make mistakes, just like everyone else. This article explores some of the most common ones that brokers see, along with some of the repercussions. 1. Not Seeing the Buyer’s Point of View The first major mistake that sellers make is that they simply fail to look at the situation from the buyer’s perspective. One of the smartest moves any seller can make is to step back and ask themselves two key questions. “What information would I expect to see if I was thinking about buying this business? “Would I trust the information being presented to me if I was the buyer?” These two simple questions help a seller understand a buyer’s perspective. Additionally, taking the time to appreciate a buyer’s position can help avoid a range of problems and help smooth out the negotiation process. 2. Neglecting the Business During the Sales Process Another seller mistake we see is that the seller neglects the business during the sales process. This can have … [Read more...]
Unraveling the Seller’s Predicament
Selling a business is about much more than the price. It's not like selling a house where the most important factor is, generally speaking, the highest offer. In the end, for the seller to achieve the most optimal results, other variables should be considered. The idea of selling to a competitor is one that seems attractive to many business owners. A competitor has the built-in advantage of understanding the business and can theoretically understand the value of the business better than an outsider. However, selling to a competitor comes with its own problems. Selling means disclosing a great deal of confidential information, and that could prove to be very risky if the deal were to fall apart. A second avenue that sellers will often explore is selling to a financial buyer. A financial buyer is likely not to be a competitor. But on the downside, a financial buyer may be unwilling to pay the seller’s price. It is important to remember that a financial buyer is considering … [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...]
How Should Your Company Deal with an Orphaned Product?
Keeping a product or service around that isn’t pulling its weight is seldom a good idea. Although you may have invested a good deal of time and resources into its development, if that product or service no longer contributes to your bottom line, it might be time to cut it loose. Some products, despite pulling their weight, may no longer fit your overall core business and should also be considered to be an “orphaned product.” Let’s take a look at some of the reasons you might want to keep or remove, an orphan product from your company. There are four main reasons why a company might want to divest itself of a product line or service completely: An orphaned product line can be a distraction that takes away from core business operations. Funds allocated to an orphaned product could be used instead to build the core business or make improvements that are not in the current budget. Another good reason to remove an orphaned product from your lineup is that while it could … [Read more...]
Price or Terms: The Structure of the Deal
“You name the price; I name the terms.” This old saying in negotiating the sale of a business remains worthy of consideration today. It often seems that full price dominates negotiations of a business deal, but price is just one part of the equation. If a seller is willing to accept a relatively small down payment and carry the balance, a higher price can be achieved. On the other hand, the more cash the seller wants up front, the lower the total price. Experience tells us that if a seller demands all cash, barring some form of outside financing, total price is frequently lower – and in many, if not most, cases the chance of selling decreases as well. Even in cases where outside financing is used, such as through the SBA or other lenders, the lender will do everything possible to ensure that the price makes sense. “If we find you a business that nets you $250,000 a year after debt service, and you can buy it for $100 down, do you really care what the price is?”. This is … [Read more...]