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 should also take the time to clearly express their background and financial capabilities to the seller since this is highly important to the seller. A lot of buyers dive into questions on the business without discussing their qualifications first. As sellers get more comfortable with buyers and a rapport is built, they will be more willing to share information and provide better terms. Buyers also … [Read more...]
Buying a Business
Essential Meeting Tips for Buyers & Sellers of Businesses
Negotiating the Price Gap Between Buyers and Sellers on the Sale of a Business
Sellers generally desire all-cash transactions; however, oftentimes some form of seller financing is necessary in business sale transactions. Furthermore, sellers who demand all-cash deals typically receive a lower purchase price than they would have if the deal were structured differently. Although buyers may be able to pay all-cash at closing, they often want to structure a deal where the seller has left some portion of the price on the table, either in the form of a note or an earnout. Deferring some of the owner’s remuneration from the transaction will provide leverage in the event that the owner has misrepresented the business. An earnout is a mechanism to provide payment based on future performance. Acquirers like to suggest that, if the business is as it is represented, there should be no problem with this type of payout. The owner’s retort is that he or she knows the business is sound under his or her management but does not know whether the buyer will be as successful … [Read more...]
How Employees Factor into the Success of Your Business
Quality employees are essential for the long-term success and growth of any business. Many entrepreneurs learn this simple fact far too late. Regardless of what kind of business you own, a handful of key employees can either make or break you. Sadly, businesses have been destroyed by employees that don’t care, or even worse, are actually working to undermine the business that employs them. In short, the more you evaluate your employees, the better off you and your business will be. Forbes’ article “Identifying Key Employees When Buying a Business”, from Richard Parker does a fine job in encouraging entrepreneurs to think more about how their employees impact their businesses and the importance of factoring in employees when considering the purchase of a business. As Parker states, “One of the most important components when evaluating a business for sale is investigating its employees.” This statement does not only apply to buyers. Of course, with this fact in mind, sellers … [Read more...]
Goodwill and Its Importance When Selling a Business
What exactly does the term “goodwill” mean when it comes to buying or selling a business? Usually, the term “goodwill” is a reference to all the effort that a seller puts into a business over the years that he or she operates that business. In a sense, goodwill is the difference between an array of intangible, but important, assets and the total purchase price of the business. It is important not to underestimate the value of goodwill as it relates to both the long-term and short-term success of any given business. According to the M&A Dictionary, an intangible asset can be thought of as asset that is carried on the balance sheet, and it may include a company’s reputation or a recognized name in the market. If a company is purchased for more than its book value, then the odds are excellent that goodwill has played a role. Goodwill most definitely contrasts and should not be confused with “going concern value.” Going concern value is usually defined as the fact that a … [Read more...]
What Do Buyers Really Want to Know?
Before answering the question, it makes sense to first ask why people want to be in business for themselves. What are their motives? There have been many surveys addressing this question. The words may be different, but the idea behind them and the order in which they are listed are almost always the same. Want to do their own thing; to control their own destiny, so to speak. Do not want to work for anyone else. Want to make better use of their skills and abilities. Want to make money. These surveys indicate that by far the biggest reason people want to be in business for themselves is to be their own boss. The first three reasons listed revolve around this theme. Some may be frustrated in their current job or position. Others may not like their current boss or employer, while still others feel that their abilities are not being used properly or sufficiently. The important item to note is that money is reason number four. Although making money is certainly important and … [Read more...]
Key factors when purchasing a business
There are several key factors on the acquirer’s side of a sale, most of which are necessary to achieve a successful closing. Just as a seller has to deal with quite a few factors, the acquirer must also. Some of the more important ones on the acquisition side are: Sufficient financial resources to complete the deal as specified. Depth of capable staff to run the existing business and also execute an acquisition at the same time. A rational approach to the type, size and geographic location of target companies. The willingness to “pay-up” for acquisitions such as 6x EBITDA and, if necessary, the willingness to pay 100% cash, whether the sale is one of assets or a stock transaction. Assuming the acquisition search generates satisfactory deal flow, a willingness to stay the course for 6 to 12 months in the search process. A confirmation by the board of directors of their commitment to complete a deal. A “point person” in the search process, preferably the CEO, CFO or … [Read more...]
Advantages of Buying an Existing Business
1. Established. An existing business is a known entity. It has an established and historical track record. It has a customer or client base, established vendors, and suppliers. It has a physical location and has furniture, fixtures, and equipment all in place. The term “turnkey operation” is overused, but an existing business is just that with ALL these items in place and ready to go. For start-ups, you are starting from scratch and you need to ramp up and therefore the risk is higher. 2. Business Relationships. In addition to the existing relationships with customers or clients, vendors, and suppliers, most businesses also have experienced employees in place who are a valuable asset. Buyers may already have established relationships with banks, insurance companies, printers, advertisers, professional advisors, etc., but if not, the existing owner does have these relationships, and they can readily be transferred. 3. Not “A Pig in a Poke”. Starting a new business is … [Read more...]