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...]
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...]
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...]
Confidential Business Reviews Should Establish Trust
When you are selling a business, your business broker or M&A Advisor will likely create a Comprehensive Business Review, or CBR. This comprehensive document can then be presented to prospective buyers once they have signed all necessary confidentiality documentation. It is essential that this document builds trust between both parties, as this will go a long way towards achieving a successful deal. Be Honest The bottom line is that your CBR will be 95% positive. The majority of the document will be dedicated towards selling and promoting your business. Therefore, it only makes sense to disclose some potential problems. When handled correctly, the disclosure of problems can actually be a strong asset. For example, current weaknesses of your business could become strengths in the mind of the buyer. For example, a business with a very poor online presence represents a substantial opportunity for a buyer to improve marketing and … [Read more...]
What You Need to Know About Foreign Buyers
There is a potentially lucrative group of buyers that many sellers don’t initially think about. We are talking about foreign buyers. While there are some hurdles to working with these types of buyers, it is important to note that there are many huge advantages as well. Let’s take a closer look. How Are Foreign Buyers Different? At the top of the list of ways in which foreign buyers are different is that they are often seeking a visa. Another commonality among foreign buyers, one that will surprise many, is that they may want access to the U.S. educational system. It is common for foreign buyers to want to buy a business so that they can get their children into a particular U.S. school district or college. Sometimes the desire to be eligible for state tuition also plays a role in the selection of a business and the decision-making process. In this sense, business location takes on a level of importance that it might not have … [Read more...]
Essential Meeting Tips for Buyers & Sellers
The buyer-seller meeting is quite often a “make or break” meeting. Your business broker or M&A Advisor will do everything possible to ensure that this meeting goes as well as possible. It is vitally important to realize that rarely is there an offer before buyers and sellers actually meet. The all-important offer usually comes directly after this all-important meeting. As a result, you want to ensure that meetings are as positive and productive as possible. Buyers need to understand how the process of selling a business works and what is expected of them from the process. Buyers also need to understand that following their broker’s advice will increase the chances of a successful outcome. Sellers should be ready to be honest and forthcoming during the meeting. They also want to be sure to not say or do anything that could come across as a strong-armed sales tactic. Asking the Right Questions If you are a buyer … [Read more...]
The Main Street Lending Program
There is no doubt that the COVID-19 situation seems to change with each and every day. The disruption and chaos that the pandemic has injected into both daily life and business is obvious. Just as it is often difficult to keep track of the ebbs and flows of the pandemic, the same can be stated for keeping up to speed on the government’s response and what options exist to assist companies of all sizes. In this article, we’ll turn our attention to an overlooked area of the government’s pandemic response and how businesses can use a whole new lending platform to navigate the choppy waters. As the pandemic continues, you will want to be aware of the main street lending program, which is a whole new lending platform. It was designed for businesses that were financially sound prior to the pandemic. Authorized under the CARE Act, the main street lending program is quite attractive for an array of reasons. Let’s take a … [Read more...]