What a Buyer May Really Be Looking At

Buyers, as part of their due diligence, usually employ accountants to check the numbers and attorneys to both look at legal issues and draft or review documents. Buyers may also bring in other professionals to look at the business’ operations. The prudent buyer is also looking behind the scenes to make sure there are not any “skeletons in the closet.” It makes sense for a seller to be just as prudent. Knowing what the prudent buyer may be checking can be a big help. A business intermediary professional is a good person to help a seller look at these issues. They are very familiar with what buyers are looking for when considering a company to purchase.

Here are some examples of things that a prudent buyer will be checking:

Finance

Is the business taking all of the trade discounts available or is it late in paying its bills? This could indicate poor cash management policies.
Checking the gross margins for the past several years might indicate a lack of control, price erosion or several other deficiencies.
Has the business used all of its bank credit lines? Does the bank or any creditor have the company on any kind of credit watch?
Does the company have monthly financial statements? Are the annual financials prepared on a timely basis?
Management

Is the owner constantly interrupted by telephone calls or demands that require immediate attention? This may indicate a business in crisis.
Has the business experienced a lot of management turnover over the past few years?
If there are any employees working in the business, do they take pride in what they do and in the business itself?
Manufacturing

What is the inventory turnover? Does the company have too many suppliers?
Is the business in a stagnant or dying market, and can it shift gears rapidly to make changes or enter new markets?
Marketing

Is the business introducing new products or services?
Is the business experiencing loss of market share, especially compared to the competition? Price increases may increase dollar sales, but the real measure is unit sales.
When business owners consider selling, it will pay big dividends for them to consider the areas listed above and make whatever changes are appropriate to deal with them. It makes good business sense to not only review them, but also to resolve as many of the issues outlined above as possible.

A “Pig in a Poke"

Once a buyer has negotiated a deal and secured the necessary financing, he or she is ready for the due diligence phase of the sale. The serious buyer will have retained an accounting firm to verify inventory, accounts receivable and payables; and retained a law firm to deal with the legalities of the sale. What’s left for the buyer to do is to make sure that there are no “skeletons in the closet,” so he or she is not buying the proverbial “pig in a poke.”

The four main areas of concern are: business’ finances, management, buyer’s finances, and marketing. Buyers are usually at a disadvantage as they may not know the real reason the business is for sale. This is especially true for buyers purchasing a business in an industry they are not familiar with. The seller, because of his or her experience in a specific industry, has probably developed a “sixth sense” of when the business has peaked or is “heading south.” The buyer has to perform the due diligence necessary to smoke out the real reasons for sale.

Business’ Finances: The following areas should be investigated thoroughly. Does the firm have good cash management? Do they have solid banking relations? Are the financial statements current? Are they audited? Is the company profitable? How do the expenses compare to industry benchmarks?

Management: For a good quick read on management, the buyer should observe if management is constantly interrupted by emergency telephone calls or requests for immediate decisions by subordinates? Is there a lot of change or turn-over in key positions? On the other hand, no change in senior management may indicate stagnation. Are the employees upbeat and positive?

Buyer’s Finances: Buyers should make sure that the “money is there.” Too many sellers take for granted that the buyer has the necessary backing. Sellers have a perfect right to ask the buyer to “show me the money.”

Marketing: Price increases may increase dollar sales, but the real key is unit sales. How does the business stack up against the competition? Market share is important. Does the firm have new products being introduced on a regular basis.

By doing one’s homework and asking for the right information – and then verifying it, buying a “pig in the poke” can be avoided.

The Pre-Sale Business Tune-Up

Photo Credit: tallkev via Compfight cc

Photo Credit: tallkev via Compfight cc

Owners are often asked, “do you think you will ever sell your business?” The answer varies from, “when I can get my price” to “never” to “I don’t really know” to everything in between. Most sellers may think to themselves when asked this question, “I’ll sell when the time is right.” Obviously, misfortune can force the decision to sell. Despite the questions, most business owners just go merrily along their way conducting business as usual. They seem to believe in the old expression that basically states, “it is a good idea to sell your horse before it dies.”

Four Ways to Leave Your Business

There are really only four ways to leave your business. (1) Transfer ownership to your children or other family members. Unfortunately, many children do not want to become involved in the family business, or may not have the capability to operate it successfully. (2) Sell the business to an employee or key manager. Usually, they don’t have enough cash, or interest, to purchase the business. And, like offspring, they may not be able to manage the entire business. (3) Selling the business to an outsider is always a possibility. Get the highest price and the most cash possible and go on your way. (4) Liquidate the business – this is usually the worst option and the last resort.

When to Start Working on Your Exit Plan

There is another old adage that says, “you should start planning to exit the business the day you start it or buy it.” You certainly don’t want to plan on misfortune, but it’s never to early to plan on how to leave the business. If you have no children or other relative that has any interest in going into the business, your options are now down to three. Most small and mid-size businesses don’t have the management depth that would provide a successor. Furthermore liquidating doesn’t seem attractive. That leaves attempting to find an outsider to purchase the business as the exit plan.

The time to plan for succession is indeed, the day you begin operations. You can’t predict misfortune, but you can plan for it. Unfortunately, most sellers wait until they wake up one morning, don’t want to go to their business, drive around the block several times, working up the courage to begin the day. It is often called “burn-out” and if it is an on-going problem, it probably means it’s time to exit. Other reasons for wanting to leave is that they face family pressure to start “taking it easy” or to move closer to the grandkids.

Every business owner wants as much money as possible when the decision to sell is made. If you haven’t even thought of exiting your business, or selling it, now is the time to begin a pre-exit or pre-sale strategy.

Baby Boomers About to Spark the Turn in Businesses

Pending business sales are building as baby boomers, ages 49-67, enter the twilight of their careers.

First gradually, and then in a flood, mind-boggling assets from the sales will surge to heirs, savings accounts, luxury cars, vacation homes, pet philanthropic pursuits and anything else the generation fancies–reconfiguring the economy.

Business brokers and estate attorneys thought the sales would begin in earnest nearly a decade ago. But the baby boomers, lulled into complacency by the hot economy, lingered to eke out more profits and keep themselves employed a little while longer.

Then the recession, hardly anyone predicted, rudely swept away some of the businesses, and the surviving owners fought to keep their doors open as they watched the value of the businesses dive. Many borrowed heavily to stay afloat.

Today, conditions to spark the long-anticipated wave of sales are turning favorable because:

Click here to read this article further.

Selling Your Business: Why Won’t it Sell?

selling your businessOnce you have made the decision to sell, what are your odds on actually selling your business? Well, research shows that your annual sales dictate how well or not well that your business will sell. If your annual sales are $750,000 or less, your odds on selling your business are only 18%. If your annual sales are $750,000-$2 million, your odds increase to 25%. If your annual sales volume is above $2 million, the odds increase to 30%+. Another thing to keep in mind though is the approximately 75% of all businesses have annual sales of less than $750,000.

So what do all these stats mean? To put it sharply: if you are thinking of selling your business, you have about a one in five chance of it actually selling. The next obvious question raised is why are these odds so low? One would think that if you put your business on the market, it should sell in a reasonable length of time. Here are some reasons why businesses didn’t sell, as explained by various business brokers and intermediaries. They are excerpted from an article in INC magazine, April 2002.

  • The business is no longer listed for sale. The cash flow was strong, but a lot of buyers thought that the deal was overpriced.
  • There was serious interest, but the owner got distracted by an arrangement with a friend to solicit offers. None came through.
  • Buyers were intrigued, but the economics of the deal wouldn’t make sense, and the seller wouldn’t negotiate.
  • We had three offers, including an accepted bid for $4 million, but the buyer couldn’t get financing.
  • We almost had the deal, but financing was impossible to find.
  • The deal dragged on for months but fell apart for lack of financing. . .

They say that timing is everything. Many business owners wait until the economy is down  Their own business is also paying the price for the slowdown, so they elect to sell. Now they discover that the price they thought they could get for their business is is not realistic in today’s market. Sellers should keep in mind that the best time to sell is when their business is doing well.

One factor that emerges from the comments by intermediaries above is the lack of financing. This would seem to indicate that the sellers wanted all cash, or, at least, a good portion of the selling price was in cash. Three of the comments stated that the reason the deal didn’t go through was that “financing was impossible to find”,
the buyer couldn’t get financing”, and “…fell apart for lack of financing.” The reasons that obtaining financing is so difficult are (1) the business doesn’t qualify for financing, (2) the buyer doesn’t qualify for financing. and, most importantly  most small businesses are not financeable. Banks are generally not interested; the Small Business Administration (SBA), although certainly an option, only comes through in less than 10% of deals. If lenders are not interested in financing the sale of the business, there are only two choices: the buyer pays all cash or the seller finances the sale.

 

Tips for a Fast Sale!

  • Prepare a current list of fixtures and equipment
  • Have up-to-date financial information available
  • Gather all of the information a buyer might like to review
  • Maintain normal business hours
  • Spiff up the business
  • Set a realistic price
  • Be willing to negotiate

 

Want your business to be one in the five that sells? Here are two major ways to increase your odds of selling your business:

  • Make sure that you are serious before yo put your business up for sale (see our article: Are You Ready to Sell Your Business? for more on that). You should be willing to accept, within reason, what the marketplace is willing to pay. It’s not what you want for your business, or what your accountant says it’s worth–it’s what a buyer is willing to pay. Find out if the price you are asking is in the “ballpark’ before you go to the market. Your local business brokerage professional is a good place to start. He or she can tell you what similar businesses have sold for and what you might expect to receive if you sell now.
  • Be willing to finance the sale of your business. Counting on the businesses selling for all cash or assuming that the business can be financed will most likely make your business one of the four that don’t sell. By showing your willingness to assist in the financing, you reassure the buyer that you have confidence in the businesses’ ability to finance itself. Also, keep in mind that by financing the business you will be entitled to interest on the balance, thereby increasing the price you will receive by selling your business.

Following these guidelines and tips might not sell your business, but it will certainly increase the odds of selling your business. Almost any business will sell under the right circumstances. If you are serious about selling, the fist step would be to call a professional business broker. He or she can answer all of your questions about the selling process and what it takes to sell your business in today’s economic climate.

 

The Perfect Business

The perfect business, the one that would be sure to sell, has the following attributes:

  • A compelling reason to sell
  • A desired or popular industry type
  • An attractive and strategic location (if important for the business type)
  • A reasonable price
  • A reasonable down payment (hopefully 40% of the full price or less)
  • Seller financing
  • Reasonable sales (hopefully increasing each year)
  • Seller earnings of $60,000 or more

 

There is an old adage that goes something like this:

“The worst day of working for yourself is better than the best day of working for someone else.”

Buying or Selling a Business: Why Do Deals Fall Apart?

arguing businessmen selling a businessBuying or Selling a Business: Why Do Deals Fall Apart?

 

In many cases, the buyer and seller reach a tentative agreement when selling a business, only to have it all fall apart. There are some reasons this happens, and once they are understood, many of the worst deal-breakers can be avoided. Understanding is the key word. Both the buyer and seller must develop an awareness of what the sale involves–and such an awareness should include facing potential problems before they swell into the flood-waters and “sink” the sale.

Now, what keeps a sale from closing successfully? Surveyed business brokers across the United States found similar reasons that were cited so often that a pattern of causality began to emerge. A compilation of situations and factors of which affect the sale of a business are explained below.

 

The Seller Fails to Reveal Problems

If and when a seller is not up-front about any of the problems with the business, that does not mean these problems will go away when the buyer takes over. The problems are bound to show up later, usually sometimes after a tentative agreement has been reached. The buyer then gets cold feet–hardly anyone in this situation likes surprises–and the deal promptly falls apart. Event though this may seem a tall order, sellers must be as open about the negatives of their business as they are about positives. Again and again, business brokers surveyed said: “We can handle most problems…if we know about them at the start of the selling”.

 

The Buyer Has Second Thoughts About the Price

In some cases, the buyer agrees on a price, only to discover that the business will not support that price, in his or her opinion. Whether this “discovery” is based on gut reaction or a second look at the figures, it impacts seriously on the transaction at hand. The deal is in serious jeopardy when the seller wants more than the buyer feels the business is worth. It is of paramount importance that the business be fairly priced when selling a business. Once that price has been established, the documentation must support the seller’s claims so that buyers can see the “real” facts form themselves.

 

 Both the Buyer and the Seller Grow Impatient

During the process of buying or selling a business, it’s easy for either party to let impatience settle in. Buyers continue to want increasing varieties and volumes of information, and sellers grow weary of it all. Both sides need to understand that the closing process of selling a business takes time. However, it shouldn’t take so long that the deal becomes endangered. It is important that both parties should use only those knowledgeable in the business closing process if they are using outside professionals. A business broker is one of the most competent outside professionals in a given business area, and these should be given strong consideration in putting together the “team”. Seller and buyer may be inclined to use an attorney or accountant with whom they are familiar with, but these people may not have the experience to bring the sale to a successful conclusion.

 

The Buyer and the Seller are Not (Never Were) in Agreement

How does this situation arise? Unfortunately, there are business sale transactions wherein the buyer and the seller realize too late that they have not been in agreement all along–they just thought they were. Cases of miscommunication are often fatal to a successful closing. A professional business broker is skilled in making sure that both sides know exactly what the deal entails, and can reduce the chance that such misunderstandings will occur.

 

The Seller Doesn’t Really Want to Sell

In all too many instances, the seller does not really want to be selling the business. The idea had sounded so good at the start, but now that things have come down to the wire, the fire to sell has all but diminished. Therefore, it is key that prospective sellers make a firm decision to sell a business prior to going into the market with the business. If there are doubts, these ought to be quelled or resolved. Some sellers enter the marketplace just to test the waters; they want to see if they could get their “price” if they ever get really serious. This type of seller is the bane of business brokers and buyers alike. However, business brokers generally can tell when they encounter the casual (as opposed to the serious) seller. But an inexperienced buyer may not recognize the difference until it’s too late. Most business brokers will agree that a willing seller, is a good seller.

 

Or the Reverse: The Buyer Doesn’t Really Want to Sell

What’s true for the mixed-emotion seller can be flipped around and applied to the buyer as well. Full of excitement and optimism, buyers can enter the sale process but then begin to drag their feet as they draw nearer to the “altar”. This is especially true today with so many displaced corporate executives entering the market. Buying and owning a business is still the American dream–and for many it becomes a profitable reality. However, the entrepreneurial reality also includes risk, a lot of hard work, and long intense hours. Sometimes this is too much reality for a prospective buyer to handle.

 

None of the Above

The situations detailed above are the just the main reasons why deals fall apart. However, there can be problems beyond anyone’s control, such as Acts of God, unforeseen environmental problems, etc. But the good news is that many potential deal-crushers can be handled or dealt with prior to the marketing of the business, to help ensure that the sale will close successfully.

 

A Final Note

Remember these four components in working toward the success of the business sale:

  • Good chemistry between the parties involved
  • A mutual understanding of the agreement
  • A mutual understanding of the emotions of both buyer and seller
  • The belief, on the part of both buyer and seller, that they are involved in a good deal

Are You Ready to Sell Your Business?

Thinking to Sell Your Business?

If you’ve come this far, then the option to sell your business has aroused enough curiosity in you that you are taking the first step. You don’t have to make a commitment at this point; this is just you searching to be informed about the necessities of successfully selling your business. This article should answer a lot of your questions to help you through the maze of the process itself.

 

First Question

The first question that most readily comes to a seller’s mind is: “What is my business worth?”. Honestly, if we were sellin gour business that is the first thing we would want to know. However, there are things that need to be solved first to even get to this very important issue. Before asking this question, you have to be willing to sell your business for what the market is willing to pay. If you’re just only looking to make money, then you are not ready to sell.

 

*Insider Tip:

It does not matter what you think your business is worth, or what you want for it. It also does not matter what your accountant, banker, attorney, or best friend  thinks your business is worth. Just like home real-estate, only the marketplace can decide what your business’ value is.

 

Second Question

“Do I really want to sell this business?” is the second question to be considered.If you’re actually serious and have a real, solid reason(s) of why you want to sel, then it will most likely happen. You really increase your chances of selling if your answer is ‘yes’ to this followup question: Do you have reasonable expectations? If you answered ‘yes’ to these two questions, then you are serious about selling.

 

Taking the First Steps

Alright, let’s assume that you already decided to at least take the first few step in actually selling your business. Before you even think about placing your business up for sale in the market, some steps are required before jumping in. The first and very important step you have to complete is gathering information about your business.

The following is a checklist of the items you should get together:

  • Three years’ profit and loss statements
  • Federal Income tax returns for the business
  • List of fixtures and equipment
  • The lease and lease-related documents
  • A lost of the loans against the business (amounts and payment schedule)
  • Copies of any equipment leases
  • A copy of the franchise agreement, if applicable
  • An approximate amount of the inventory on hand, if applicable
  • The names of any outside advisors

 

Notes:

Now if you’re like most other small business owners, you will have to search for most, if not all, of the items on this checklist. Once you gather ALL of the above items (all that are applicable, that is), you should spend some time updating the information and filling in the blanks. It’s pivotal that you take a long, hard look at all of this because you have most likely forgotten much of this information. You want to have all of your information in a neat and orderly format, just as if you were going to present it to a prospective purchaser. Everything starts with this information.

You need to make sure the financial statements of the business are current and as accurate as you can get them. If you’re half way through the current year, make sure you have last year’s figures, tax returns, and also year-to-date figures. Make all of your financial statements presentable. In the long run it will pay to get outside professional help, if necessary, to put the statements in order. You want to present the business well “on paper”. Later you will see pricing a small business is usually based on cash flow. This includes the profit of the business, but also, the owner’s salary and benefits, the depreciation, and other non-cash items. If the bottom line isn’t what you think it should be, don’t panic. By the time all of the appropriate figures are added to the bottom line, the cash flow may look pretty good.

Prospective buyers eventually wan tot review your financial figures. A Balance Sheet is not normally necessary unless the sale price of your business would be well over the $1 million figure. Buyers want to see your income and expenses. They want to know if they can make the payments of the business (more on this later), and still make a living. Let’s face it, if you business is not making a living wage for someone, it probably can’t be sold, and won’t be sold. You may be able to find a buyer who is willing to take the risk, or an experienced industry professionals who only looks for location, etc., and feels that he or she can increase business.

 

*Another Insider Tip:

How much you’re willing to sell your business for is not really the big question, but rather, how much of it can you keep? The Federal Tax Laws do determine how much money you will actually be able to put in the bank. How your business is legally formed can be important in determining your tax status when selling your business. For example: Is your business a corporation, partnership, or proprietorship? If you are incorporated, is the business a C corporation or a sub-chapter S corporation? There are some new tax rules, effective January 1, 2000, that impact certain businesses on seller financing. The point: before you consider price or even selling your business, it is important you discuss the tax implications of a sale of your business with a tax advisor. You do not want to be in the middle of a transaction with a solid buyer and discover that tax implications of the sale are going to net you much less than you had figured.

Pittsburgh | Raleigh Business Brokers – Selling Your Business?

Pittsburgh | Raleigh Business Brokers – Selling Your Business?

Millions of companies are sold or transferred annually.  To most business owners, the sale of a business is a first time experience and for most a once in a lifetime event.  Accordingly, sellers should have your Pittsburgh | Raleigh Business Brokers – TM Business Brokers on your side.  Here’s some additional items to consider.

A corporate buyer, however, may have been involved in quite a few transactions – some that worked and some that did not..  What does this mean for the seller?  The acquirer may have an experienced team or have been through the business transaction process more than once resulting in a lopsided contest — the amateur (the seller) versus the professional (the acquirer).

Selling a business is not like selling real estate.  Confidentiality is, in most cases, critical.  A seller does not want employees, suppliers, and customers/clients to be aware of a possible sale.  The sales process also cannot distract the owner(s) from managing the day-to-day operation of the business.  Real estate is also much easier to finance than a business purchase, unless the acquirer is a first-rate company.

It is important that sellers do their own due diligence on a prospective acquirer to make sure that the acquirer can complete the transaction if both sides are in complete agreement on terms and conditions.  The seller has most likely retained a professional intermediary, paid that firm a retainer, retained legal and accounting professionals, etc.  Since the potential acquirer will want to do his or her own due diligence, it is important that the seller do so also.

Where is the Money?

All acquirers, whether big or little, should be able to show the seller that they have the financial resources to make the deal.  Unless the acquirer is a large and successful company, where acquisition funds are not an issue, an acquirer’s financial statements and/or the company’s financial statements should be made available.  A credit report would also be important.  An acquirer who can complete the sale, subject to due diligence, should not have difficulty supplying this information.

What do References Reveal?

A seller should check for information about any prior deals that the acquirer has made.  This would include any financing contacts or other lenders.  This list would include any previous acquisitions.  Talking to a previous seller can reveal how their deal went; how the acquirer was to work with; whether they did everything they said they would; etc.  Talking to managers of previous acquisitions by the buyer can tell a seller how employees were treated, etc.

Does the Chemistry Work?

It is important that the chemistry clicks between the seller and the acquirer.  Due diligence on both sides can help build the trust necessary for the deal to work both ways.  If the seller is staying with the company for an extended period of time, it is also critical that he or she is comfortable not only with the acquirer, but also with the new management team if it’s not the people who are doing the deal.

Several million businesses change hands every year.  The vast majority of sellers are selling a business for the first time.  It’s very important that they use professional help. Without it, they may likely receive less than fair value, be involved in a difficult selling experience, and may not receive all of the monies due them.  Professional advisers such as intermediaries, lawyers (only those with deal experience) and accountants are necessary.

We have a strong backlog of buyers seeking all types of companies.  Contact your Pittsburgh | Raleigh Business Brokers – TM Business Brokers to learn whether or not you have a sellable business.  Do not make the mistake of relying on an adviser who does not sell companies for a living.  You may be delaying the sale of your business for the wrong reasons.

Now may be your time.  Contact the experienced professionals at TM Business Brokers to confidentially discuss “your” situation today!

Steps Sellers Can Take to “Sell My Business”

Steps Sellers Can Take to “Sell My Business” - Pittsburgh | Raleigh Business Brokers

A potential Seller inquired yesterday “what steps can I take to increase my chances of selling my business?”  We are often asked this question.  As our first reply, we always recommend using your professionals at Pittsburgh | Raleigh Business Brokers

In addition to using an experienced, professional business broker, there are specific steps you can take to increase the chance of a successful closing.

Know why you want to sell your business.  
Before placing your business for sale, it is important that you both know why you want to sell your business and that you are certain about this decision.

Have a plan for what you will do following the closing.

Make sure important parties are on board.  The time to discuss the sale of your business, as well as future plans, with partners, spouses, children and other involved parties is before you list.

Communicate to your outside advisors that you want the deal to work.  Protect your interests, but don’t kill the deal!

Finally, Choose your battles.  Both buyers and sellers need to be willing to compromise.  It is helpful to consider in advance the areas that are most important to you so you can come to the table with a willingness to compromise in other areas.  There must be a win-win for both seller and buyer.

We have a strong backlog of buyers seeking all types of companies.  Contact your Pittsburgh | Raleigh Business Brokers – TM Business Brokers to learn whether or not you have a sellable business.  Do not make the mistake of relying on an adviser who does not sell companies for a living.  You may be delaying the sale of your business for the wrong reasons.

Now may be your time.  Contact the experienced professionals at TM Business Brokers to confidentially discuss “your” situation today!

Pittsburgh | Raleigh Business Brokers – Americans Love Small Business

Pittsburgh | Raleigh Business Brokers – Americans Love Small Business

The following statistics support why we have so many buyers looking to purchase small and medium-size businesses.

Almost nine in 10 adults (88 percent) have a favorable view of small business, compared with the two-thirds (67 percent) who have a positive view of major companies, according to a telephone survey of 1,750 adults sponsored by the Public Affairs Council, a nonprofit group for public affairs officials.  More than half (53 percent) have a “very favorable” view of small business, in contrast to only 16 percent who hold the same view about major corporations.

Read more:

http://smallbusiness.foxbusiness.com/entrepreneurs/2012/08/20/why-americans-still-love-small-businesses/#ixzz25swlmvEK

http://www.businessnewsdaily.com/715-credit-access-small-business-growth-obama.html

We have a strong backlog of buyers seeking all types of companies.  Contact your Pittsburgh | Raleigh Business Brokers – TM Business Brokers to learn whether or not you have a sellable business.  Do not make the mistake of relying on an adviser who does not sell companies for a living.  You may be delaying the sale of your business for the wrong reasons.

Now may be your time.  Contact the experienced professionals at TM Business Brokers to confidentially discuss “your” situation today!

Pittsburgh | Raleigh Business Brokers – “Why Waiting to Sell Your Business Might Backfire”

Pittsburgh | Raleigh Business Brokers – “Why Waiting to Sell Your Business Might Backfire”

The following Wall Street Journal article is a good supplement to our prior post today regarding “The Economy Stole My Retirement”.  This second article summarizes some reasons why a business owner may not want to wait sell a business.  Your decision to do so may very well backfire on you.

http://online.wsj.com/article/SB10000872396390444506004577618054291802614.html?mod=WSJ_SmallBusiness_LEADNewsCollection

This article also does not address the fact that many small businesses simply are not sellable in any market.  The sluggish economy may not be why a company will not sell.  You may have a business that will not sell in a good economy.

We have a strong backlog of buyers seeking all types of companies.  Contact your Pittsburgh | Raleigh Business Brokers – TM Business Brokers to learn whether or not you have a sellable business.  Do not make the mistake of relying on an adviser who does not sell companies for a living.  You may be delaying your retirement for the wrong reasons.

Now may be your time.  Contact the experienced professionals at TM Business Brokers to confidentially discuss “your” situation today!

Pittsburgh | Raleigh Business Brokers – The Economy Stole My Retirement

Pittsburgh | Raleigh Business Brokers – “The Economy Stole My Retirement”

The following Wall Street Journal article summarizes some situations faced by many retirement aged business owners.  A large portion of their net worth is tied to the retirement nest egg in their business.  And, that net worth has declined over the past several years for many owners.

http://online.wsj.com/article_email/SB10000872396390444230504577615861593287688-lMyQjAxMTAyMDMwMDAzODA3Wj.html?mod=wsj_valetleft_email&goback=%2Egde_2907875_member_157100085

What the article does not address is the fact that many small businesses simply are not sellable in any market.  The sluggish economy may not be why a company will not sell.

We have a strong backlog of buyers seeking all types of companies.  Contact your Pittsburgh | Raleigh Business Brokers – TM Business Brokers to learn whether or not you have a sellable business.  Do not make the mistake of relying on an advisor who does not sell companies for a living.  You may be delaying your retirement for the wrong reasons.

Now may be your time.  Contact the experienced professionals at TM Business Brokers to confidentially discuss “your” situation today!

 

Pittsburgh | Raleigh Business Brokers – Buyer Profiles

Pittsburgh | Raleigh Business Brokers – Buyer Profiles

TM Business Brokers report a variety of business buyers are seeking small to medium sized companies.  Just as small business itself has become more sophisticated, the people interested in buying businesses have also become more divergent and complex.  The following are some of today’s most active categories of business buyers:

Family Members

Members of the seller’s own family form a traditional category of business buyer – a category of buyers that is “tried” but not always “true.”  There is something appealing about a family member taking over the business.  There is a sense of keeping the business in the family and an assumption that such an arrangement will translate into the prime advantage of continuity.  Continuity may in fact be the result as long as the family member buying the business treats the role as something akin to a hierarchical responsibility.  This can mean years of planning and diligent preparation, involving all or many members of the family in deciding who will be the “heir to the throne.”  If this has been done, the family member may be the best type of buyer.

Too often, however, the difficulty with the family member as buyer lies in the conflicts that may develop.  For example, does the family member have sufficient cash to purchase the business?  Can the selling family member really leave the business?  In too many cases, these and other conflicts result in serious disruption to the business itself and/or to the sales transaction, not to mention the impact on family relationships.  An outside buyer eliminates these often insoluble problems.

When considering a family member as a buyer, a business owner should carefully evaluate three factors: ability, family agreement, and financial worthiness.

Business Competitors

This is a category often overlooked as a source of prospective purchasers.  The obvious concern is that competitors will take advantage of the knowledge that the business is for sale by attempting to lure away customers or clients.  However, if the business is compatible, a competitor may be willing to “pay the price” to acquire a ready-made means to expand.  A business brokerage professional can be of tremendous assistance in dealing with the competitor.  They will use confidentiality agreements and will reveal the name of the business only after contacting the seller and qualifying the competitor.

The Foreign Buyer

Many foreigners arrive in the United States with ample funds and a great desire to share in the American Dream.  Many also have difficulty obtaining jobs in their previous professions, because of language barriers, licensing, and specific experience.  As owners of their own businesses, at least some of these problems can be short-circuited.

These buyers work hard and long and usually are very successful small business owners.  However, their business acumen does not necessarily coincide with that of the seller (as would be the case with any inexperienced owner).  Again, a business broker professional knows best how to approach these potential problems.

Synergistic Buyers

These are buyers who feel that a particular business would compliment their business and that combining the two would result in lower costs, new customers, and other advantages.  Synergistic buyers are more likely to pay more than other types of buyers, because they can see the results of the purchase.  Synergistic buyers seldom look at the small business, but they may find many mid-sized companies that meet their requirements.

Financial Buyers

This category of buyer comes with perhaps the longest list of criteria and demands.  These buyers want maximum leverage, but they also are the right category for the seller who wants to continue to manage his company after it is sold.  Most financial buyers offer a lower purchase price than other types, but they do often make provision for what may be important to the seller other than the money—such as selection of key employees, location, and other issues.

For a business to be of interest to a financial buyer, the profits must be sufficient not only to support existing management, but also to provide a return to the owner.

Individual Buyer

When it comes time to sell, most owners of the small to mid-sized business gravitate toward this category of buyer.  Many of these buyers are mature (aged 40 to 60) and have been well-seasoned in the corporate marketplace.  Owning a business is a dream of theirs, and one many of them can well afford.  The key to approaching this kind of buyer is to find out what it is they are really looking for.

The buyer who needs to replace a job can be an excellent prospect.  Although owning a business is more than just a job, and the risks involved can frighten this kind of buyer, the buyer without a current job will have the “hunger” necessary to take the leap.  A further advantage is that this category of buyer comes with fewer complications than many of the other types.

A Final Note

Your Pittsburgh | Raleigh Business Brokers – TM Business Brokers has the experience needed to sort out the “right” type of buyer.

Pittsburgh | Raleigh Business Brokers – What is a Term Sheet?

Pittsburgh | Raleigh Business Brokers – What is a Term Sheet?

Buyers, sellers, intermediaries and advisors often  use  a term sheet prior to the creation of a formal, legally binding purchase and sale agreement.  However, very rarely do you ever hear this document explained.  It sounds good but what is it specifically?

Very few books about the M&A process even mention term sheet.  It is typically a one page document that states the sale price along with the  deal structure and whether or not it includes the real estate.”  Attorney and author Jean Sifleet offers this explanation:  “A one page ‘term sheet’ answering the questions:  Who? What? Where? and How Much? helps focus the negotiations on what’s important to the parties.  Lawyers, accountants and other advisors can then review the term sheet and discuss the issues.”  She cautions, “Be wary of professional advisors who use lots of boilerplate documents, take extreme positions or use tactics that are adversarial.  Strive always to keep the negotiations ‘win-win.’”

If the buyer and the seller have verbally agreed on the price and terms, then putting words on paper can be a good idea.  This allows the parties to see what has been agreed on, at least verbally.  This step can lead to the more formalized letter of intent based on the information contained in the term sheet.  The term sheet allows the parties and their advisors to put something on paper that has been verbally discussed and tentatively agreed on prior to any documentation that requires signatures and legal review.

A term sheet is, in essence, a preliminary proposal containing the outline of the price, terms and any major considerations such as employment agreements, consulting agreements and covenants not to compete.  It is the initial step to putting a deal together.

Pittsburgh Business Brokers – Ten Steps for Sellers

Pittsburgh Business Brokers – Ten Steps for Sellers
 

1. Place a reasonable price on your business.  Since an inflated figure either turns off or slows down potential buyers, rely on your Pittsburgh business brokers – TM Business Brokers to help you arrive at the best “win-win” price.

2. Carry on “business as usual.”  Don’t become so obsessed with the transaction that your attention wavers from day-to-day demands, affecting sales, costs, and profits.  Since the selling process could take as long as a year, the buyer needs to keep seeing a healthy business.

3. Engage experts to insure confidentiality.  A breach of confidentiality surrounding the sale of a business can change the course of the transaction.  Pittsburgh Business Brokers – TMBB can channel the process and the parties involved to keep the sale within safely silent bounds.

4. Prepare for the sale well in advance.  Be sure your records are complete for at least several years back and do all pertinent legal or accounting “housecleaning”–as well as a literal sprucing-up of the plant or store.

5. Anticipating information the buyer may request.  In order to obtain financing, the buyer will need appraisals on all assets as well as information to satisfy environmental regulations.

6. Achieve leverage through buyer competition.  This can be tricky; you are wise to let the professional business broker, as a third party, create a competitive situation with buyers to position you better in the deal.

7. Be flexible.  Don’t be the kind of seller who wants all-cash at the closing, or who won’t accept any contingent payments or an asset transaction.  Depend on the advice of your professional business broker to keep the deal sweet instead of sour.

8. Negotiate; don’t “dominate.”  You’re used to being your own boss, but be prepared to learn that the buyer may be used to having his way, too.  With your broker’s help, decide ahead of time when “to hold” and when “to fold.”

9. Keep time from dragging down the deal.  To keep the momentum up, work with TMBB to be sure that potential buyers stay on a time schedule and that offers move in a timely fashion.

10. Be willing to stay involved.  Even if you are feeling burnt-out, realize that the buyer may want you to stay within arm’s reach for a while.  Consult with TM Business Brokers to determine how you can best effect a smooth transition.

Pittsburgh Business Brokers – Mistakes Sellers Make

Pittsburgh Business Brokers – Mistakes Sellers Make
 

• Business owners neglect to run their business during the sales process. – The owner of a business with sales under the $20 million range can get so involved in the selling process that they neglect the day-to-day operation of the business.

• Business owners don’t understand the “real” value of their business. – A business may actually command a higher price than the value determined by an appraiser.  The business may be worth more than the sum of its parts.  Pittsburgh Business Brokers – TM Business Brokers can answer the question of real value and help determine a “go-to-market” price.

• Business owners aren’t flexible in structuring the transaction. – In many cases, how the deal is structured is more important than the price or terms.

• Business owners are not looking at the business from a buyer’s perspective. – Buyers may look for different aspects of a business than those the seller looks for.  For example: growth potential, management depth, customer base, etc.

• Business owners start with too high a price. – Sellers obviously want to maximize the price they receive for their business, but today’s marketplace is difficult to fool.  A good buyer may just elect to pass because of an overly aggressive starting point.

• Business owners are impatient. – Sellers have to understand that it can take 6 to 18 months to find a buyer and proceed through the sales process, which includes due diligence, the legal and accounting issues that must be handled, and ultimately the closing.  However, on the flip side, the longer the deal drags, the more likely it is to fall apart.  As the saying goes: Time is of the essence!

• Business owners have insufficient or inadequate documentation. – Sellers should have current real estate and equipment appraisals at the ready along with any documentation a buyer might want, such as projections, business forecasts and plans, and environmental studies.  Having all the documentation and financial records readily available will not only speed things along, but might also provide for a higher price or, even more important, save the deal.

Sell a Business – Tasks to Do

Sell a Business – Tasks to Do

Before you sell a business or decide to go to market, owners should consider completing the following items:

  • Remove any items not included in the sale of the business.  That family heirloom portrait behind the counter of Grandfather Smith, founder of the business, should be removed.
  • Remove or repair any non-functioning equipment.
  • Prepare an operations manual to show a new owner all the functions of the business, how things are done, the major customers and suppliers, samples of advertising, and any other information that would help a new owner manage and operate the business.
  • Take care of any outstanding bills and resolve any legal, tax, or governmental issues.
  • Bring your financial statements up to date, and have your accounting professional prepare them for a buyer’s inspection.
  • Clean up the business inside and out.  Fill the shelves, clean up the inventory, and paint the interior if necessary.

No one likes surprises, most of all, prospective buyers.  Review every facet of your business and remedy any problems, whether legal, financial, governmental, etc., prior to placing your business up for sale.

Your professional Pittsburgh Business Brokers – TM Business Brokers can assist in all facets of preparation.  We know what buyers are looking for and are also familiar with current market conditions.

Pittsburgh Business for Sale – Buyers Look For?

Pittsburgh Business for Sale – Buyers Look For?
 

Your Pittsburgh business for sale is just what the buyer has been looking for.  The buyer has reviewed your financial statements and has made an offer contingent on several items.  You’ve reviewed the offer and it looks fine, so what’s next?  The contingencies in the deal mean that the buyer or his or her advisors have some concerns.  In larger deals, this process might be called due diligence.  However, in the smaller Pittsburgh business for sale scenario, the items of concern are usually spelled out as opposed to a general review of everything.  The reason for this is that larger companies have a lot more areas of concern than the typical smaller Pittsburgh business for sale.

Most contingencies concern the review of financial statements and/or business tax returns.  Others may involve lease issues, the seller staying on for a set period of time, or some very specific issue such as repaving the parking lot, if the landlord will not or is not required to.

Unfortunately, some contingencies may be hiding other ones such as a list of fixtures and equipment included in the sale.  Sounds easy on the surface, but the seller forgot that two pieces of equipment currently not in use need repair or the walnut desk in the office belongs to their Grandfather and is not included.  Or, while reviewing the lease, the buyer discovers that the landlord requires that the business must close by 6:00 PM or some other restriction applies and was not disclosed.  Deals have fallen apart over similar issues.

Most contingency problems can be resolved prior to the business being placed on the market.  The seller should do all of the following:

•    Check the status of all furniture, fixtures and equipment (FF&E).  Remove any FF&E that are not included in the sale or not in use –  or make repairs.

•    Review all contracts such as the building lease and equipment leases that will be assumed by the buyer.  Make sure there aren’t “problems” in them.  If there are, disclose them to a potential buyer out front – and be sure your Pittsburgh Business Brokers – TM Business Brokers are also aware of them.

•    Be prepared to answer questions such as:

- Are there any environmental, governmental or legal issues?
- How long will you be willing to stay and work with a new buyer – at no cost?
- Will the employees stay?
- Why was last year the worst one in years?
- Why was last year the best one in years?

The list can go on and on, but sellers need to be ready.  Buyers don’t like surprises.  Pittsburgh Business Brokers – TM Business Brokers know the process like a book.  We can be invaluable in preparing the business for the marketplace.

Sale of a Business in Pittsburgh – Now a Good Time?

Timing is everything.  Are you considering the sale of a business in Pittsburgh?  We have  pent up demand of buyers seeking businesses for sale in Pittsburgh!

Tips for a fast sale of a business in Pittsburgh

  • Have up-to-date financial information available
  • Prepare a current list of fixtures & equipment
  • Maintain normal business hours
  • Spiff up the business
  • Set a realistic price
  • Be willing to negotiate
  • Gather all of the information a buyer might like to review

Here are two major ways to increase the odds of a successful sale of a business in Pittsburgh:

  • Make sure that you are serious before you put your business up for sale.  You should be willing to accept, within reason, what the marketplace is willing to pay.  It’s not what you want for your business, or what your accountant says it’s worth – it’s what a buyer is willing to pay.  Find out if the price you are asking is in the “ballpark” before you go to market.  TM Business Brokers is a good place to start.  We can tell you what you might expect to receive if you sell now.
  • Be willing to finance a portion of the sale of a business.  Counting on the business selling for all cash or assuming that the business can be financed will most likely make your business one of the four that doesn’t sell.  By showing your willingness to assist in the financing, you reassure the buyer that you have confidence in the businesses’ ability to finance itself.  Also, keep in mind that by helping in financing the business you will be entitled to interest on the balance, thereby increasing the price you will receive.

The Perfect Business

The “perfect business”, the one that would be sure to sell, has the following attributes:

  • a reasonable price
  • a reasonable down payment
  • seller financing
  • reasonable sales (hopefully steady or increasing each year)
  • a compelling reason for sale
  • a desired or popular industry type
  • attractive and strategic location (if important for business type)

Following these guidelines and tips might not sell your business, but it will certainly increase the odds.  Almost any business will sell under the right circumstances.  If you are serious about selling, the first step should be to call TM Business Brokers.  We can answer your questions about the selling process and what it takes to sell your business in today’s economic climate.

Rating Today's Business Buyers

Once the decision to sell has been made, the business owner should be aware of the variety of possible business buyers. Just as small business itself has become more sophisticated, the people interested in buying them have also become more divergent and complex. The following are some of today’s most active categories of business buyers:

Family Members

Members of the seller’s own family form a traditional category of business buyer: tried but not always “true.” The notion of a family member taking over is amenable to many of the parties involved because they envision continuity, seeing that as a prime advantage. And it can be, given that the family member treats the role as something akin to a hierarchical responsibility. This can mean years of planning and diligent preparation, involving all or many members of the family in deciding who will be the “heir to the throne.” If this has been done, the family member may be the best type of buyer.

Too often, however, the difficulty with the family buyer category lies in the conflicts that may develop. For example, does the family member have sufficient cash to purchase the business? Can the selling family member really leave the business? In too many cases, these and other conflicts result in serious disruption to the business or to the sales transaction. The result, too often, is an “I-told-you-so” situation, where there are too many opinions, but no one is really ever the wiser. An outside buyer eliminates these often insoluble problems.

The key to deciding on a family member as a buyer is threefold: ability, family agreement, and financial worthiness.

Business Competitors

This is a category often overlooked as a source of prospective purchasers. The obvious concern is that competitors will take advantage of the knowledge that the business is for sale by attempting to lure away customers or clients. However, if the business is compatible, a competitor may be willing to “pay the price” to acquire a ready-made means to expand. A business brokerage professional can be of tremendous assistance in dealing with the competitor. They will use confidentiality agreements and will reveal the name of the business only after contacting the seller and qualifying the competitor.

The Foreign Buyer

Many foreigners arrive in the United States with ample funds and a great desire to share in the American Dream. Many also have difficulty obtaining jobs in their previous professions, because of language barriers, licensing, and specific experience. As owners of their own businesses, at least some of these problems can be short-circuited.

These buyers work hard and long and usually are very successful small business owners. However, their business acumen does not necessarily coincide with that of the seller (as would be the case with any inexperienced owner). Again, a business broker professional knows best how to approach these potential problems.

Important to note is that many small business owners think that foreign companies and independent buyers are willing to pay top dollar for the business. In fact, foreign companies are usually interested only in businesses or companies with sales in the millions.

Synergistic Buyers

These are buyers who feel that a particular business would compliment theirs and that combining the two would result in lower costs, new customers, and other advantages. Synergistic buyers are more likely to pay more than other types of buyers, because they can see the results of the purchase. Again, as with the foreign buyer, synergistic buyers seldom look at the small business, but they may find many mid-sized companies that meet their requirements.

Financial Buyers

This category of buyer comes with perhaps the longest list of criteria–and demands. These buyers want maximum leverage, but they also are the right category for the seller who wants to continue to manage his company after it is sold. Most financial buyers offer a lower purchase price than other types, but they do often make provision for what may be important to the seller other than the money–such as selection of key employees, location, and other issues.

For a business to be of interest to a financial buyer, the profits must be sufficient not only to support existing management, but also to provide a return to the owner.

Individual Buyer

When it comes time to sell, most owners of the small to mid-sized business gravitate toward this buyer. Many of these buyers are mature (aged 40 to 60) and have been well-seasoned in the corporate marketplace. Owning a business is a dream, and one many of them can well afford. The key to approaching this kind of buyer is to find out what it is they are really looking for.

The buyer who needs to replace a job is can be an excellent prospect. Although owning a business is more than a job, and the risks involved can frighten this kind of buyer, they do have the “hunger”–and the need. A further advantage is that this category of buyer comes with fewer “strings” and complications than many of the other types.

A Final Note

Sorting out the “right” buyer is best left to the professionals who have the experience necessary to decide who are the best prospects.

Why Sell Your Company?

Selling one’s business can be a traumatic and emotional event. In fact, “seller’s remorse” is one of the major reasons that deals don’t close. The business may have been in the family for generations. The owner may have built it from scratch or bought it and made it very successful. However, there are times when selling is the best course to take. Here are a few of them.

  • Burnout – This is a major reason, according to industry experts, why owners consider selling their business. The long hours and 7-day workweeks can take their toll. In other cases, the business may just become boring – the challenge gone. Losing interest in one’s business usually indicates that it is time to sell.
  • No one to take over – Sons and daughters can be disenchanted with the family business by the time it’s their turn to take over. Family members often wish to move on to their own lives and careers.
  • Personal problems – Events such as illness, divorce, and partnership issues do occur and many times force the sale of a company. Unfortunately, one cannot predict such events, and too many times, a forced sale does not bring maximum value. Proper planning and documentation can preclude an emergency sale.
  • Cashing-out – Many company owners have much of their personal net worth invested in their business. This can present a lack of liquidity. Other than borrowing against the assets of the business, an owner’s only option is to sell it. They have spent years building, and now it’s time to cash-in.
  • Outside pressure – Successful businesses create competition. It may be building to the point where it is easier to join it, than to fight it. A business may be standing still, while larger companies are moving in.
  • An offer from “out of the blue” – The business may not even be on the market, but someone or some other company may see an opportunity. An owner answers the telephone and the voice on the other end says, “We would like to buy your company.”

There are obviously many other reasons why businesses are sold. The paramount issue is that they should not be placed on the market if the owner or principals are not convinced it’s time. And consider an old law that says, “The time to prepare to sell is the day you start or take over the business.”

Who Is the Buyer?

Buyers buy a business for many of the same reasons that sellers sell businesses. It is important that the buyer is as serious as the seller when it comes time to purchase a business. If the buyer is not serious, the sale will never close. Here are just a few of the reasons that buyers buy businesses:

  • Laid-off, fired, being transferred (or about to be any of them)
  • Early retirement (forced or not)
  • Job dissatisfaction
  • Desire for more control over their lives
  • Desire to do their own thing

A Buyer Profile

Here is a look at the make-up of the average individual buyer looking to replace a lost job or wanting to get out of an uncomfortable job situation. The chances are he is a male (however, more and more women are going into business for themselves, so this is rapidly changing). Almost 50 percent will have less than $100,000 in which to invest in the purchase of a business. In many cases the funds, or part of them, will come from personal savings followed by financial assistance from family members. The buyer will never have owned a business before, and most likely will buy a business he or she had never considered until being introduced to it.

Their primary reason for going into business is to get out of their present situation, be it unemployment or job disagreement (or discouragement). Prospective buyers want to do their own thing, be in charge of their own destiny, and they don’t want to work for anyone. Money is important, but it’s not at the top of the list, in fact, it probably is in fourth or fifth place in the overall list. In order to pursue the dream of owning one’s own business, buyers must be able to make that “leap of faith” necessary to take the risk of purchasing and operating their own business.

Buyers who want to go into business strictly for the money usually are not realistic buyers for small businesses. Keep in mind the following traits of a willing buyer:

  • The desire to buy a business
  • The need and urgency to buy a business
  • The financial resources
  • The ability to make his or her own decisions
  • Reasonable expectations of what business ownership can do for him or her

What Do Buyers Want to Know?

This may be a bit premature since you may not have decided to sell, but it may help in your decision-making process to understand not only who the buyer is, but also what he or she will want to know in order to buy your business. Here are some questions that you might be asked and should be prepared to answer:

  • How much money is required to buy the business?
  • What is the annual increase in sales?
  • How much is the inventory?
  • What is the debt?
  • Will the seller train and stay on for awhile?
  • What makes the business different/special/unique?
  • What further defines the product or service? Bid work? Repeat business?
  • What can be done to grow the business?
  • What can the buyer do to add value?
  • What is the profit picture in bad times as well as good?

Buying (or Selling) a Business

The following is some basic information for anyone considering purchasing a business. Is may also be of interest to anyone thinking of selling their business. The more information and knowledge both sides have about buying and selling a business, the easier the process will become.

A Buyer Profile

Here is a look at the make-up of the average individual buyer looking to replace a lost job or wanting to get out of an uncomfortable job situation. The chances are he is a male (however, more women are going into business for themselves, so this is rapidly changing). Almost 50 percent will have less than $100,000 in which to invest in the purchase of a business. More than 70 percent will have less than $250,000 to invest. In many cases the funds, or part of them, will come from personal savings followed by financial assistance from family members. He, or she, will never have owned a business before. Despite what he thinks he wants in the way of a business, he will most likely buy a business that he never considered until it was introduced, perhaps by a business broker.

His, or her primary reason for going into business is to get out of his or her present situation, be it unemployment, job disagreement, or dissatisfaction. The potential buyers now want to do their own thing, be in charge of their own destiny, and they don’t want to work for anyone. Money is important, but it’s not at the top of the list, in fact, it is probably fourth or fifth on their priority list. In order to pursue the dream of owning one’s own business, the buyer must be able to make that “leap of faith” necessary to take the plunge. Once that has been made, the buyer should review the following tips.

Importance of Information 

Understand that in looking at small businesses, you will have to dig up a lot of information. Small business owners are not known for their record-keeping. You want to make sure you don’t overlook a “gem” of a business because you don’t or won’t take the time it takes to find the information you need to make an informed decision. Try to get an understanding of the real earning power of the business. Once you have found a business that interests you, learn as much as you can about that particular industry.

Negotiating the Deal 

Understand, going into the deal, that your friendly banker will tell you his bank is interested in making small business loans; however, his “story” may change when it comes time to put his words into action. The seller finances the vast majority of small business transactions. If your credit is good, supply a copy of your credit report with the offer. The seller may be impressed enough to accept a lower-than-desired down payment.

Since you can’t expect the seller to cut both the down payment and the full price, decide which is more important to you. If you are attempting to buy the business with as little cash as possible, don’t try to substantially lower the full price. On the other hand, if cash is not a problem (this is very seldom the case), you can attempt to reduce the full price significantly. Make sure you can afford the debt structure–don’t obligate yourself to making payments to the seller that will not allow you to build the business and still provide a living for you and your family.

Furthermore, don’t try to push the seller to the wall. You want to have a good relationship with him or her. The seller will be teaching you the business and acting as a consultant, at least for a while. It’s all right to negotiate on areas that are important to you, but don’t negotiate over a detail that really isn’t key. Many sales fall apart because either the buyer or the seller becomes stubborn, usually over some minor detail, and refuses to bend.

Due Diligence 

The responsibility of investigating the business belongs to the buyer. Don’t depend on anyone else to do the work for you. You are the one who will be working in the business and must ultimately take responsibility for the decision to buy it. There is not much point in undertaking due diligence until and unless you and the seller have reached at least a tentative agreement on price and terms. Also, there usually isn’t reason to bring in your outside advisors, if you are using them, until you reach the due diligence stage. This is another part of the “leap of faith” necessary to achieve business ownership. Outside professionals normally won’t tell you that you should buy the business, nor should you expect them to. They aren’t going to go out on a limb and tell you that you should buy a particular business. In fact, if pressed for an answer, they will give you what they consider to be the safest one: “no.” You will want to get your own answers–an important step for anyone serious about entering the world of independent business ownership.

Why Do Deals Fall Apart?

In many cases, the buyer and seller reach a tentative agreement on the sale of the business, only to have it fall apart. There are reasons this happens, and, once understood, many of the worst deal-smashers can be avoided. Understanding is the key word. Both the buyer and the seller must develop an awareness of what the sale involves–and such an awareness should include facing potential problems before they swell into floodwaters and “sink” the sale.

What keeps a sale from closing successfully? In a survey of business brokers across the United States, similar reasons were cited so often that a pattern of causality began to emerge. The following is a compilation of situations and factors affecting the sale of a business.

The Seller Fails To Reveal Problems 
When a seller is not up-front about problems of the business, this does not mean the problems will go away. They are bound to turn up later, usually sometime after a tentative agreement has been reached. The buyer then gets cold feet–hardly anyone in this situation likes surprises–and the deal promptly falls apart. Even though this may seem a tall order, sellers must be as open about the minuses of their business as they are about the pluses. Again and again, business brokers surveyed said: \”We can handle most problems . . . if we know about them at the start of the selling process.

The Buyer Has Second Thoughts About the Price 
In some cases, the buyer agrees on a price, only to discover that the business will not, in his or her opinion, support that price. Whether this “discovery” is based on gut reaction or a second look at the figures, it impacts seriously on the transaction at hand. The deal is in serious jeopardy when the seller wants more than the buyer feels the business is worth. It is of prime importance that the business be fairly priced. Once that price has been established, the documentation must support the seller\’s claims so that buyers can see the “real” facts for themselves.

Both the Buyer and the Seller Grow Impatient 
During the course of the selling process, it\’s easy–in the case of both parties–for impatience to set in. Buyers continue to want increasing varieties and volumes of information, and sellers grow weary of it all. Both sides need to understand that the closing process takes time. However, it shouldn’t take so much time that the deal is endangered. It is important that both parties, if they are using outside professionals, should use only those knowledgeable in the business closing process. Most are not. A business broker is aware of most of the competent outside professionals in a given business area, and these should be given strong consideration in putting together the “team.” Seller and buyer may be inclined to use an attorney or accountant with whom they are familiar, but these people may not have the experience to bring the sale to a successful conclusion.

The Buyer and the Seller Are Not (Never Were) in Agreement 
How does this situation happen? Unfortunately, there are business sale transactions wherein the buyer and the seller realize belatedly that they have not been in agreement all along–they just thought they were. Cases of communications failure are often fatal to the successful closing. A professional business broker is skilled in making sure that both sides know exactly what the deal entails, and can reduce the chance that such misunderstandings will occur.

The Seller Doesn\’t Really Want To Sell 
In all too many instances, the seller does not really want to sell the business. The idea had sounded so good at the outset, but now that things have come down to the wire, the fire to sell has all but gone out. Selling a business has many emotional ramifications; a business often represents the seller\’s life work. Therefore, it is key that prospective sellers make a firm decision to sell prior to going to market with the business. If there are doubts, these should quelled or resolved. Some sellers enter the marketplace just to test the waters; to see if they could get their “price,” should they ever get really serious. This type of seller is the bane of business brokers and buyers alike. Business brokers generally can tell when they encounter the casual (as opposed to serious) category of seller. However, an inexperienced buyer may not recognize the difference until it\’s too late. Most business brokers will agree that a willing seller is a good seller.

Or…the Buyer Doesn’t Really Want To Buy 
What\’s true for the mixed-emotion seller can be turned right around and applied to the buyer as well. Buyers can enter the sale process full of excitement and optimism, and then begin to drag their feet as they draw closer to the “altar.” This is especially true today, with many displaced corporate executives entering the market. Buying and owning a business is still the American dream–and for many it becomes a profitable reality. However, the entrepreneurial reality also includes risk, a lot of hard work, and long intense hours. Sometimes this is too much reality for a prospective buyer to handle.

And None of the Above 
The situations detailed above are the main reasons why deals fall apart. However, there can be problems beyond anyone’s control, such as Acts of God, and unforeseen environmental problems. However, many potential deal-breakers can be handled or dealt with prior to the marketing of the business, to help ensure that the sale will close successfully.

A Final Note 
Remember these components in working toward the success of the business sale:

  • Good chemistry between the parties involved.
  • A mutual understanding of the agreement.
  • A mutual understanding of the emotions of both buyer and seller.
  • The belief, on the part of both buyer and seller, that they are involved in a good deal
DISCLAIMER: TM Business Brokers, LLC does not offer securities for sale, real estate brokerage services, accounting, tax or legal advice, or financing negotiations. TM Business Brokers, LLC does not audit / verify any information provided by business owners and their third party advisers, and we make no representations or warranties thereto.