Sellers Don’t have a valid reason for selling. Are testing the waters to check the market and the price. (They are similar to the buyer who is “just shopping.”) Are completely unrealistic about the price and the market for their business. Are not honest about their business or their situation. The reason they want to sell is that the business is not viable, it has environmental problems or some other serious issues that the seller has not revealed, or new competition is entering the market. Don’t disclose that there is more than one owner and they are not all in agreement. Have not checked with their outside advisors about possible financial, tax or legal implications of selling their business. Are unprepared to accept seller financing or now unwilling to accept it. Buyers Don’t have a valid reason to buy a business, or the reason is not strong enough to overcome the fear. Have unrealistic expectations regarding price, the business buying process, and/or small … [Read more...]
Seller Financing: The Basics
Seller financing has always been a mainstay of business brokerage. Buyers don’t have the capital necessary to pay cash, are unable to borrow the money, or are reluctant to use all of their capital. Buyers also feel that a business should pay for itself and are wary of a seller who wants all cash or who wants the carry-back note secured by additional collateral. What sellers seem to be saying, at least as perceived by the buyer, is that they don’t have a lot of confidence in the business or in the buyer or perhaps both. However, if you look at statistics, it’s apparent that sellers usually receive a much higher purchase price if they accept terms. Studies reveal that, on average, a seller who sells for all cash receives only about 80 percent of the asking price. Sellers who are willing to accept terms receive, on average, 86 percent of the asking price. The seller who asks for all cash receives, on average, a purchase price of 36 percent of annual sales while the seller who will … [Read more...]
Business Valuation: Do the Financials Tell the Whole Story?
Many experts say no! These experts believe that only half of the business valuation should be based on the financials (the number-crunching), with the other half of the business valuation based on non-financial information (the subjective factors). What subjective factors are they referring to? SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats – the primary factors that make up the subjective, or non-financial, analysis. Below you will find a more detailed look at the areas that help us evaluate a company’s SWOT. Industry Status – A company’s value increases when its associated industry is expanding, and its value decreases in any of the following situations: its industry is constantly fighting technical obsolescence; its industry involves a commodity subject to ongoing price wars; its industry is severely impacted by foreign competition; or its industry is negatively impacted by governmental policies, controls, or pricing. Geographic Location – A … [Read more...]