Andrew Rogerson's Blog, page 50

Confidentiality when selling a business

Confidentiality when selling a business is generally way more important to a business seller than a business buyer. Interestingly, when professionals are involved such as landlords, lenders, escrow officers, accountants and attorneys, if they have a reasonable amount of experience they too get its importance. However, when it involves a buyer or a new professional to an industry it may not seem such a big deal…but it can be critical for different reasons.

Why confidentiality is critical

Confidentiality is critical for many reasons. The obvious reasons is that a business seller does not want key parts of their business to know they may be thinking of selling their business. For example, if a supplier finds out, they may change the current credit terms of the seller or indeed withdraw credit terms altogether. If an employee finds out, especially a key employee, they may leave and go to another employer or worse still, a competitor. If a landlord finds out, they may cancel the lease, be unwilling to renew the lease or as I have seen done, cancel the lease and tell the seller to vacate the premises so they can take over and run the business. If customers start finding out, then customers may start looking for a new business to meet their needs as they may not be sure who the new owner will be and how approachable they are.

What and when should a seller disclose?

When a seller shares information with a potential buyer they are making representations. Representations are generally warranties and indemnities.

A warranty is generally a factual statement. A buyer wants to know that what a seller says is true and accurate. Indemnities are a promise by the seller to reimburse the buyer if a certain event occurs after the close of the sale that causes a loss to the buyer. These agreements are written in the Purchase or Sales Agreement.

To be a little clear, a seller is not guaranteeing that if the buyer buys the business and runs it the same way as the seller they will have the same or better results; which is what a buyer is looking to know so they can make their decision.

However, a buyer is relying on the information the seller is disclosing and if it’s inaccurate, it naturally exposes the seller to legal action by the buyer.

For example, a buyer wants to see a set of financial statements to show the performance of the business. A buyer typically wants to see this information for the last 3 to 5 full years of the business and their preference is tax returns as the financial data is normally analyzed and corrected to roll up into the tax return.

If the information is not accurate or presented in a format consistent with a set of financial statements, a buyer will not waste their time and look further as it will concern them about what else is not being done in an acceptable manner.

As a broker, my typical process is to only share the tax returns with the buyer after an offer has been negotiated and accepted. I am however, happy to summarize and share the information of the performance of the business as I understand this is important information a buyer needs to know. A tax return contains confidential information about the sellers business and does not need to be shared too easily.

Read More: Here is more information about the steps to sell a business.

Importance of a Confidentiality Agreement

To make sure the buyer receives all the information they need to make an informed decision and to make sure the buyer agrees to only share that information with the parties the seller approves, the buyer signs a Confidentiality Agreement also known as a Non-Disclosure Agreement or NDA.

The Confidentiality Agreement is a written document. A verbal agreement would work but a written document signed by the buyer is much better as it will include the type of documents the buyer will receive, what ‘confidential’ means and how the information will be handled when it is received as well as other conditions.

How should a seller disclose

A buyer typically wants a written document that includes everything. If only it was that easy. Buying a business is not a quick process as it involves many steps and these steps are over an extended period of time. To best protect the business, the seller and to help handle buyer inquiries, a one page executive summary is a good way to provide some basic information so the buyer can decide if they have a genuine interest to move further into the transaction.

My process is to provide the one page executive summary to a buyer and also include a Confidentiality Agreement they can sign and return if they have further interest.

Once the Confidentiality Agreement is returned, I then provide a Confidential Business Review which is a document with detailed information about the business.

Value of using a third party professional

One of the values of having a third party intermediary such as a business broker handle the transaction is that they will know what representations to make to a buyer but more importantly when. A buyer wants to know anything and everything with their first phone call. It’s normally inappropriate to provide the business name or even its location until the buyer shows they have the ability to buy the business and equally agree to keep what is shared confidential to themselves and their professional advisors.

Even after a buyer signs a Confidentiality Agreement, it’s only appropriate to share certain information about the business as some details will only be shared after the sale of the business closes. For example, a buyer may wish to see a list of customer, client or patient names but this should only be disclosed after the sale closes.

Read More: Here is more information about how to value a business.

Confidentiality flows to the Purchase Agreement

It’s important to remember that once a buyer signs a Confidentiality Agreement it should include how long the information must remain confidential. This time period is generally for a minimum of two years as the seller does not want the buyer to share information for a good period of time. If the buyer breaches this part of the agreement they are exposed to the penalties that the Confidentiality Agreement will also explain.

Are you thinking about selling your business and move to your next challenge? Would you like to know the value of your business? If you would like more information please visit my website Business valuation.

For more immediate help you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

The article Confidentiality when selling a business first appeared on Andrew Rogerson and Rogerson Business Services.

Financial Advice from Steve Zeller

Steve Zeller is a co-owner of Zeller Kern Private Wealth Management, Inc. and I am delighted to have him as my guest on Money 2.0.

Zeller Kern is a fee-based, independent financial advisory firm based in Gold River, California.

Steve talks about the firm’s background and what they look for in clients. He explains that his partner, Trevor Kern, and he made the decision to be fee-only based as it gives the maximum amount of transparency to their clients and removes conflicts of interest.

Steve says Zeller Kern’s criteria for clients is pretty straight forward. He says they look for clients that are nice, goal orientated, and coachable. He notes that their services are quite in depth so all of their clients already have significant accumulated wealth they are looking to protect and grow.

Steve talks about Zeller Kern’s point of difference. He says years ago he and his partner noticed a hole in the typical financial process. He says all too often once an investment plan was written, there was no real follow up. He says they worked to enhance systems of tracking and implementing investment plans to better help their clients reach their goals. He reminds listeners that running any business is 20% planning and 80% implementation, which is all too true in the work they do for their clients.

Steve says another point of difference is their level of communication with clients. This includes an investment monitor that Trevor and he write weekly. He says their weekly monitor has been so popular that they have a number of non-clients that subscribe to it. Steve says interested listeners can subscribe to the weekly monitor via their website.

If you would like to hear my conversation with Steve Zeller, please click here.

The article Financial Advice from Steve Zeller first appeared on Andrew Rogerson and Rogerson Business Services.

5 Things Your Small Business Needs Before You Open Your Doors

Build it and they will come. It sounds good, but that’s not exactly how it works in the business world.

Opening the doors of your business for the first time can present a host of challenges, depending on your industry. And in some instances, it gets even more complex upon discovering you’ve overlooked a pertinent step that could put your business at risk.

But don’t fret. Here are five elements you’ll need for your new business to ensure the first year goes smoothly:

1. Business Plan

You may cringe at the thought of drafting up a business plan, but don’t overlook this pertinent document. A business plan can provide you with a sense of direction along with milestones to help track and evaluate your progress. It’s also typically requested by potential investors or lenders should you seek outside funding.

Don’t know where to start? The United States Small Business Administration (SBA) recommends including the following components:

Executive SummaryCompany DescriptionMarket AnalysisOrganization and ManagementService or Product LineMarketing and SalesFunding RequestsFinancial Projections

Additional guidance on how to draft a business plan is available on their website.

2. Funding Sources

Although it definitely takes more than money to run a business, it can be difficult to get up and running without an adequate amount of cash up front. If you don’t have the funds available, securing a small business loan may be a feasible option.

Not only do you retain complete ownership of your entity once the outstanding balance of the loan is paid in-full, you’ll also develop a relationship with a bank, which can be paramount if you need additional financial products down the line, notes SurePayroll.

It may be difficult to secure a conventional loan, particularly for newer businesses. Look for places that offer less stringent qualification criteria, and be mindful of the potential damage that could result if you are unable to satisfy for your debt obligations.

3.Legalities

It’s easy to put the cart before the horse when starting a business, particularly in those instances where demand is high, but a for-profit entity has not yet been established. Avoid costly penalties or legal actions by ensuring the entity is in compliance with local, state, and federal regulations. A few important tasks to complete:

Claim your nameChoose a legal structureRetrieve an FEIN number from the Internal Revenue ServiceRegister for a Tax ID at the state and local levelSecure business permits and licenses

To make sure you are in compliance, visit the Small Business Development Center in your respective area of residence or contact your state’s department of revenue for additional guidance.

4. Spending Plan

Once you’ve secured a source of funds for your business, the planning doesn’t stop there. The next step is to create a budget. Consider all the uncertainties that accompany the start-up years. And be warned: in most instances, startups generate minimal profits in the first year.

5. Reliable Team

In order to thrive as a business owner, you will need a strong support system to help you through those rough patches. Surround yourself with a motivated and reliable staff, a network of like-minded business owners, and a business mentor to lean on for guidance through the process.

The article 5 Things Your Small Business Needs Before You Open Your Doors first appeared on Andrew Rogerson and Rogerson Business Services.

Is technology affecting the value of a business

A survey was recently released by BizBuySell that asked business owners if they believe the new disruptive technologies such as Amazon, Uber and Airbrb affect the value of their business.

One of the results of the survey showed that nearly 40% of business owners consider new technologies affecting their business value.

The survey also asked if online customer review websites such as Yelp, Angie’s List or Foursquare were important to business owners and if they were embracing, encouraging or ignoring their customer feedback. The results varied depending on the industry with 57% of retailers concerned that online customer reviews were affecting the value of their business. The next at 46% were hotel/lodgings, 38% of convenience store owners, 36% of manufacturers, 31% of gas station owners, 27% of restaurants, 26% of auto repair shops and 23% of dry cleaning/laundry services.

Click this link to read the full BizBuySell article about technology affecting the value of a business.

It’s a given in the business world that change is constant. There are consumers that demand and will adopt the latest because that is what is important to them. In technology terms, this is called being at the bleeding edge. There are other consumers that do not want to be at the bleeding edge as they either think the price is too high or what is being offered does not currently fit into their world and so they will adopt but only after a lot of the kinks have been ironed out and the price is a little more reasonable. These are the folks on the cutting edge. You then have the rest of the market that sees the product now having general acceptance, there are other companies making similar devices and so they feel it is safe to buy that product.

The technology challenge for a business owner is threefold. The first challenge is to understand the role of different technology products or services and how it affects the product or service you provide your customers. If you are a manufacturer, auto body shop, in the construction industry or medical industry to name a few industries, you use tools to deliver your service. This seems obvious but many owners are not hands on enough to know how or why a particular product or service works and as new iterations arrive in the market, whether they need to adopt and implement it into their business or wait. Three of the key things to look for are interest from customers, what your competitors are doing and what your employees have to say. The manufacturer or supplier will always want you to adopt the latest as they want to make a sale but in the end, you need to know the impact to your business and include in your financial statements, provision to replace and upgrade.

The second challenge is to understand the products and services you use to stay in touch with your customers. New technologies are all around us at the moment with iPhones, iPads, electric vehicles, new cell phone technologies and a constant release of either new software or upgrade of existing software with new bells and whistles. Blending with all this is the evolution we are seeing in social media and how it is opening up new ways to connect with new customers and getting better and more instant feedback on what we do or what our competitors are doing.

The third challenge is bringing this altogether in your business so your business remains competitive. This includes your employees who decide they want to stay with you rather than work for a competitor who will either pay them a little more or invest in them to train them to keep up their skills. This includes your customers who are willing to pay what the market charges as long as they are getting value for money compared to what they can get elsewhere.

The final and most critical point is that you cannot ignore these innovations and changes or you will fall behind and not only become uncompetitive but unattractive to a buyer if you decide to sell your business. Many business owners rightly see all these new technologies as a cost. However, when placed in context they are an opportunity and should appear each year as an item as you make any budgets or forecasts for the business.

If you would like more information about selling a business, please visit Successfully sell your business.

If you would like information about selling a medical practice please visit Successfully sell your medical practice.

For more immediate help you are welcome to send an email to Andrew Rogerson or give me a call on (916) 570-2674.

The article Is technology affecting the value of a business first appeared on Andrew Rogerson and Rogerson Business Services.

Strategic due diligence and buying a business

Due diligence occurs during the sale of the business when the price and basic terms of the deal have been agreed upon. Its specific purpose is to allow the buyer to verify the representations of the seller and continue with the purchase of the business or if they feel the details are not accurate, discontinue any further interest.

It’s also an opportunity for the seller to check the buyer will be able to complete the deal. For example, the buyer may need to obtain third party finance. Due diligence allows the seller to see if that’s possible. Also, the buyer will bring a down payment to buy a business and the seller can ask to see a copy of a bank statement that shows the money is readily available. Perhaps the buyer is asking the seller to carry some finance in a sellers note. The seller would therefore like to see the buyer’s credit report and credit score to make sure they are a good credit risk.

During due diligence, sometimes buyers only focus on the historical performance of the business they want to buy and forget to consider how it’s likely to perform once the deal is complete. What has occurred previously is important; a buyer needs to know the historical financial statements of the business are accurate. However, for a thorough understanding of the business including its potential success or failure, buyers are encouraged to consider conducting strategic due diligence.

Strategic due diligence specifically addresses whether a deal is realistic and not simply overly optimistic on the buyer’s part. It should be considered in addition to the usual screening processes.

Read More: Here is more information about the steps to buy a business.

Strategic due diligence evaluates a deal and explores its performance from different angles. This includes looking closely at the health of a target acquisition from a legal, financial and operational perspective to help determine value, uncover risks and establish a fair purchase price including:

Market. Is the market expected to continue growing at its current rate or is it maturing?Technology. Will technological advancements affect market activity and if so, how? Is the business using technology worse, the same or better than its competitors?Competition. How does the business compare with its main competitors be they local, regional, national or international? What is the competitive edge against new market entrants? Are there barriers to entry in this market that makes it hard for new competitors to enter? What type of consolidation or divesting activity has recently occurred in the industry?Customers. Not only identify major customers but also understand their buying decisions. Do they buy because they have a strong relationship with key personnel? Are there any negative indicators, like service or product complaints, low loyalty rates, or delinquent payments? Go on-line and research comments be they positive or negative to determine customer experiences and patterns.Pricing. Is it high volume low margin or vice-versa? Is price used as a differentiator against competitors or new market entrants? Does their pricing policy fit with the future direction of the business and where the buyer wants to go? Is the industry changing and will therefore effect future pricing and is this positive, neutral or negative?Management. Will the existing management team be able to deliver on the deal’s anticipated value? Is the answer is yes, why? Do you think the management team can adapt to change? A new owner by default brings new ideas and new ways of things being done. Look for managers who can adapt to change and are capable of implementing decisions quickly. These characteristics will be crucial during the integration period.

Businesses for sale: Search our database of businesses for sale.

Strategic due diligence is about research and good research equals more confidence in making the right acquisition decision and strategy. Strategic due diligence requires an investment of time and resources but you’ll also reap significant returns. In addition to contributing to an estimate of the company’s market value, the research results can help you communicate any strategic rationale to your investors, lenders, board of directors, employees and other stakeholders.

Strategic due diligence also paves the way for a smoother, more successful integration.

If you would like more information about buying a business please visit my webpage Buy a business or buy a copy of my book Successfully buy your business.

For more immediate help with buying a business you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

The article Strategic due diligence and buying a business first appeared on Andrew Rogerson and Rogerson Business Services.

Corporate Executives are great franchise owners

Becoming the next Warren Buffet or indeed, simply becoming a successful entrepreneur takes a lot of effort and know-how. Probably the most important ingredient for a new entrepreneur getting started is knowing themselves.

Some entrepreneurs bring a natural flair for numbers, like Warren Buffet. Apparently Mr. Buffet has the gift of being able to quickly and accurately calculate numbers in his head so when he is negotiating he knows what he is willing or unwilling to do. The party he is negotiating with generally doesn’t have that skill and so it leaves them at a disadvantage when negotiating as they don’t want to appear a poor decision maker or, if they know they have to get a deal done, are best to accept what Warren Buffet is offering or risk him moving on.

Some entrepreneurs aren’t good at numbers, but like Zig Ziglar or Lee Iacocca, have great sales and communication skills that gave them an advantage.

What makes a successful entrepreneur is knowing themselves including their strengths and weaknesses as well as their appetite for risk. For those entrepreneurs that are ready to spread their wings and move from the security (and frustrations) of working as a corporate executive, buying and operating a franchise can be the perfect choice. The reason it’s the perfect choice is that a franchise provides a basic business framework and if the corporate executive matches their skills with those of the need of the franchisor and their franchise model, it can create great success for both parties.

Read More: Here is more information about buying a franchise.

For example, what are the strengths of the corporate executive? A good corporate executive strengths include:

Ability to lead a team.Ability to manage a team and make it cohesive to achieve goals and objectives.Able to work independently while seeing the larger picture.Able to readily and easily adapt and change.Strong communication skills with the ability to communicate clearly not only with upper management but also direct reports and peers.Strong individual skills without being dominating.Disciplines that come from working in a corporate environment including a highly developed set of skills they can adapt to transition to related or different industries.Able to work in a system; that is, understand a reporting and accountability structure.

These general skills provide a starting point. What now sets the corporate executive up for success is finding a franchise model that excites and motivates them so they achieve one of their primary goals which is to get out of bed each morning to do something they love and motivates them so they don’t feel like they are going to work.

This next and most important step is to therefore find a franchise in an industry that works for them. This is probably one of the best reasons to buy a franchise as there are so many choices in so many industries.

Read More: Search our database to see the different franchises for sale.

Most franchise buyers are unaware of the different franchise opportunities in such a cross section of industries. This diversity of franchise opportunities allows the corporate executive that wants to become an entrepreneur to flourish when they find the right franchise. Here are some of the many industries available with different types of franchises.

Advertising & MarketingAutomotiveB2B or Business to BusinessBuilding and storageConvenience storesCar RentalChild Care relatedCleaning and Maid ServicesCoffeeComputer and InternetDry Cleaning and LaundryEducationEmployment and PersonnelFinancial servicesFood and restaurantsFrozen Yogurt/Ice CreamGreen and Eco FriendlyHair Care and Beauty SalonsHealth, Beauty and NutritionHome ServicesMaintenanceManagement and TrainingPackaging and MailingPet relatedPrinting and CopyingReal EstateRepair and RestorationRetailSenior CareSportsTravel

If you would like more information about buying a franchise please visit my webpage Buy a franchise or buy a copy of my book: Successfully buy your franchise.

For more immediate help with buying a franchise, send an email to Andrew Rogerson or give me a call on 916 570-2674.

The article Corporate Executives are great franchise owners first appeared on Andrew Rogerson and Rogerson Business Services.

Michelle Elder CPA Talks Tax

Michelle Elder is a CPA and joins me on Money 2.0 to share some great tax and accounting tips for small business owners. Michelle owns and operates Elder Accountancy and has just completed her 30th tax year (but please don’t mention this to her.)

Michelle begins by sharing what piqued her interest about her field and how much variety her job gives her in her day to day working life. She says she views her CPA job as a very proactive and supportive role. Her clients include entrepreneurial small business owners and non-profits. She notes that she has done audit work for non-profits such as Yolo County Food Bank and for a number of preschools and daycares.

Michelle says her accountancy company is very consultative. She says her tagline is “We look at more than the numbers”. She says benchmarking is an important tool for small business owners and explains how her agency employs the tactic for clients. Michelle is also adamant that a good business plan is the basis for business growth.

Michelle and I also spend some time discussing the barriers small business owners put in front of themselves in outsourcing work.

If you would like to hear my conversation with Michelle Elder, you are welcome to listen by clicking here. Michelle was my second guests in this episode. The conversation begins 27 minutes into the recording.

The article Michelle Elder CPA Talks Tax first appeared on Andrew Rogerson and Rogerson Business Services.

Accurate financial statements

Owning and operating a business is difficult enough at the best of times and even more difficult when starting. As a business owner, whether you like it or not there are laws to follow and those include both Federal and State laws including the tax requirements of the Internal Revenue Service and state taxing agencies whether it is just to collect sales and use taxes or as we have in California, personal and business taxes.

One recurring theme I’ve learned from owning and selling businesses is to start out by keeping it simple. As the business grows and evolves, get tax advice from a professional to make sure mandatory requirements are not being missed that could jeopardize the future of the business.

At the moment I am dealing with two different businesses that the owner wants to sell but both have tax issues that threaten the very existence of the business let alone the value of the business the owners are seeking to gain from it being sold. In one case, the business grew so quickly the owners did not create an accurate set of financial statements. In their case they were exceptionally lucky as 11 months into their fiscal year I was able to see that their financial statements were not accurate. As a result, they hired a CFO and book-keeper and totally rebuilt their financial statements. The lucky part is that just on 2 months into this huge project they received a letter from the IRS saying they had put a lien in place over their business and removed money from one of their business accounts due to unpaid taxes.

If you own and operate a business and want to enjoy the rewards from your efforts, consider the following.

When a business starts, for good reasons, Keep It Simply Simple (KISS.) I know it is Keep It Simple Stupid but no business owner is Stupid so I thought I would adapt it. The best way to keep it KISS is to start as a Sole Proprietor and file a Schedule C as part of your personal tax return. Not only does it keep your legal and accounting costs down as there are no forms to complete, it saves you time worrying about which entity to choose, filing the necessary paperwork and working out what else needs to be done so you are in legal and tax compliance. For example, a bank won’t open a business account for you without a copy of your legal entity and so it goes on.Another good reason to start as a Sole Proprietor is how you pay yourself. If you are a Sole Proprietor you simply take an owners draw and don’t have to worry about payroll taxes, filing quarterly and annual payroll reports with the IRS etc.

If you open for business, make sure you check with your local city or county to see if they have any business name registration or filing requirements. Once again, they are pretty simple but get them done. It’s also a time to be proud that you are opening your business and want your local community to know.Does your business require any occupational and/or business permits to operate? If you have occupational license requirements you should already know those as you would have learned during your training. Business permits are also a local government requirement so give them a call or do a Google search.Worried about lawsuits from customers or neighbors? Well done. The solution is very simple. Get an umbrella insurance policy by contacting the insurance agent that has your insurance on your home and/or vehicles.We all work from habits. It takes 21 days to change a habit. Put a simple method in place to handle your petty cash and accounting. Every business has to know its weekly numbers or at least, its monthly numbers. Those numbers tell you a story about the performance of your business. If sales numbers grow each month…great. If your expenses increase at a rate a little less than your sales numbers… that too is great. If you don’t like book-keeping, which most entrepreneurs don’t as they don’t have the time and inclination, get help and get it right. It’s that important.It’s common to hear the statistic that 80% of businesses fail in the first year. It keeps being repeated and so I think it’s a statistic that because it’s been repeated enough must be true. I’m not sure it is. By definition an entrepreneur has an idea, takes it to market and adapts accordingly. Most entrepreneurs learn being in business because there are very few classes that teach entrepreneurism. There are classes to teach medicine, law, accounting, engineering etc but these don’t teach business; they teach and pass each discipline.

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Once your business gains momentum and its future is more stable and secure, now is the time to talk with your accountant and attorney to find out your options, hear their recommendations and then for you to decide. It also triggers a bunch of paperwork to get things set up correctly and if that’s not enough, you’ll have to do reports and other notifications on a regular basis to government agencies and won’t be able to open lines of credit with supplier, bank accounts, payroll processing services and more.

Starting a business and doing all the above from scratch is intimidating. A better option can be to consider buying the rights to a franchise and following its processes and procedures. A second option is to find an existing business for sale and pick up the momentum of an existing business; but that’s another situation for another time.

If you would like more information about selling a business, buying a business, buying a franchise or a related service such as valuing a business, please visit my webpage Services and choose from the drop down menu the information you would like.

For more immediate help, you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

The article Accurate financial statements first appeared on Andrew Rogerson and Rogerson Business Services.

Attract multiple buyers when selling a business

The process of selling a business can be lengthy, frustrating, and overwhelming. If you own a business and are ready to sell, one of the best ways to achieve your goal to sell your business at the highest price and in the shortest time possible, is to know what’s important to you. This includes knowing what you will not accept so you can state it up front and not waste time sharing confidential information with that type of buyer.

To help you achieve the above, how would you answer the following questions as honestly as you can?

Are you willing to work in the business after it sells or do you want to go and do something completely different?If you are willing to stay, for how long and how much compensation will you need to make it attractive to you to stay and can the business support it?If the buyer wants to do things differently in the business compared to what you have been doing, are you OK with this? For example, the buyer may wish to move the business to a different location, fire some of your key employees, bring in his own, sell off certain pieces of the business or close down some parts of the business or more.Do you want to sell as quickly as possible and therefore take a good offer or is your preference to wait longer with the expectation of getting a higher price?

Using the above questions to clarify your thoughts allows you to start putting a clear exit plan together and just as importantly, know the type of buyer you want that you feel will meet your goals.

Does your business have value?

Now you have an honest and clearer picture on what’s important to you, let’s have a look at the business and what you are selling.

The first question to ask is; does your business have value that would be attractive to a buyer? For a buyer to have the motivation to buy a business it must come with the following.

• A set of financial statements that show a strong performing business that has enough profit for a buyer to be willing to make a down payment and generally get finance from a third party be it as equity and/or debt.Are the financial statements well presented with their net book value plus intangibles which don’t appear on the balance sheet such as good standing in the industry and community that is reflected in its brand?Does it have a competitive advantage? If so, the greater the competitive advantage the more attractive to more buyers.Does it have a loyal customer base? If so, the larger the customer base the more attractive to more buyers.Is the industry the business is in at least steady and hopefully growing? The greater the growth the more attractive it will be to more buyers.Does the business have a strong management team?How do you choose the right price for your business?

If your business has value based on the guidelines we covered above, what price do you ask for your business?

If your price is too high compared to similar businesses it will more than likely make it harder to sell. If your price is too low then obviously as the seller, you may leave money on the table. It’s my experience almost without exception that a seller thinks the price of their business is higher than others. If the price asked is too high it will discourage buyers from seriously looking and then making an offer.

If you like being different, very few sellers offer a strategic plan on the direction with the strengths of their business and potential new opportunities. If you are able to provide a written document to a buyer it may be enough to set you apart and impress a buyer who has their thoughts and ideas but when they read your plan, dovetail in very nicely to make them move forward with their offer.

Read More Here is more information about how to value a business.

Understand the different types of buyers

There are different types of buyers with different types of motivation. As the seller, if you are able to understand the different types of buyer when they first approach you about buying your business, you can then adjust your pitch accordingly.

Very simply, there are three kinds of buyers:

Financial buyersStrategic buyersOwner/operator buyers

Let’s take a quick look at each of them.

What motivates a financial buyer?

The primary motivation of a financial buyer is simply price. That’s because they want a return on their investment. They are generally professional investors such as investment companies and private equity groups. Their business model is to acquire a business at an attractive price and sell it in the future.

What motivates a strategic buyer?

The primary motivation of a strategic buyer is gaining market share and dominating it so they have pricing power. They may be one of your competitors be it directly or indirectly but the larger they make their company through acquisitions the greater their motivation.

These are companies already operating in your niche, often much larger companies than yours. Or, they could be companies with lots of positive cash flow who want to expand quickly by buying up as many smaller businesses as possible. Often a strategic buyer may pay a higher price to take you out as a competitor fits their business model but they may also make lots of changes to your business as once they buy your business it is definitely about them and the direction they wish to go.

What motivates an owner/operator buyer?

The primary motivation for an owner/operator buyer is to create an above average income that flows from their business and provides a nice lifestyle. They generally wish to run the business themselves and may get help from family members. Often this is the first business they have bought and may be very risk adverse as they move outside their comfort zone.

Read More Here is more information about the steps to sell a business.

If you are ready to sell your business, know what’s important to you, understand the value drivers of your business, have it priced correctly and know there are different types of buyer that may have an interest in buying your business your chances of success are high.

Remember the most important emotion all humans want to avoid is fear be it the fear of failure or the fear of making a mistake. As the seller, if you are able to help mitigate a buyers fears whether they are real or imagined, you have just increased your chances of success of achieving your goal.

Are you thinking about selling your business? Would you like to know the value of your business? If you would like more information please visit my website Business valuation.

For more immediate help you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

The article Attract multiple buyers when selling a business first appeared on Andrew Rogerson and Rogerson Business Services.

Buying a business starts with the buyer

If you are thinking of buying a business and want to do it as quickly and easily as you can, don’t make a list of things that are important to you and use that as a start for your search. The more important place to start is with you and how you will be received when you first approach a business seller. That is, put your feet in the shoes of the business seller and try to see things from their perspective. Selling a business is a harrowing experience at the best of times as there are so many moving parts, what gets disclosed to who and when, how much finance does the buyer have to buy my business and more.

According to the company Firm Gains, 90% of business buyers will never complete the buying of a business. I think that number is too low as the number of business owners in the United States is between 1% and 2% of the US population. Quite simply, business ownership is difficult and demanding at so many levels and as a result, it suits so few people.

If you are a serious buyer you need to prepare before you start looking. There are many businesses for sale. If a business owner is trying to sell their business on their own that’s probably a red flag. Almost without exception, a business is probably the most important asset of the business owner. Not only are they emotionally attached to their business as it provides all their emotional and financial support, they are so close to the business that they are not familiar with all the steps to sell a business. I was recently working with a business owner that thought his business was worth between $1.8 million and $1.9 million. After putting a business valuation together for him, the business value came in at $700,000. A business owner that has a motivation to sell normally use a professional to help them through the process such as a Certified Business Broker as the process is very complicated and takes a lot of time which pulls the owner away from running their business or the very asset they want to get for the maximum price.

If you have the motivation to buy a business expect to be asked a thorough set of questions so the other party not only knows that you are serious, but that you also have the ability to close the sale. According to Firm Gains, fifty percent of the deals that are agreed between a buyer and seller will never close; whatever the reason.

Here’s a very basic set of questions you can expect to be asked. Your answers will determine how seriously you are taken as well as how much time and effort will be made to try and help you close the transaction.

1. Who are you?

This may seem very basic but make sure all your full contact information is correct and up to date. I recently had a buyer present a signed offer to the seller with an accompanying credit report and the credit report was not in the name as the offer from the buyer. The buyer had a last name with two words and for ease had chosen to drop one of his last names. However, he’d made that decision after records were kept of his shortened name and so it was confusing to the sellers and whether or not to take the offer seriously.

2. Prepare a resume.

A good buyer asks the seller lots of questions to know this is the right business to buy. A good seller and their professional help want to know the same thing about the buyer including their previous industry and management experience. Having a resume that can readily be presented is a great tool. It’s also a great ice-breaker as it shows places lived, companies worked, positions held and more which allows each party to talk about their history and build a good relationship.

3. How long have you been looking to buy a business?

A good buyer question for the seller is how long the business has been on the market. A good seller question for the buyer is how long the buyer has been looking to buy a business.

If a buyer has been looking to buy a business for more than 12 months it’s unlikely they will ever buy as they have simply developed a routine of looking for businesses to buy in case the “perfect” business comes along. There is no such thing as the ‘perfect’ business as it will not make it to the market of businesses for sale as it will have already been bought. The longer a buyer has been looking to buy a business the less likely they are to buy.

Read More Here is more information about how to value a business.

4. How much is your down payment?

The first thing a motivated buyer wants to see is the financial statements of the business to know how well it is doing. The first thing a motivated seller wants to know is how much downpayment a buyer has available and is that downpayment in cash or need to come from an investment that needs to be liquidated.

I recently had a buyer who said he had a genuine interest in buying a business, any business, as long as he could buy it with no downpayment. No seller with a good business will sell without any ‘skin in the game’ from the buyer. It’s the ‘skin in the game’ that makes the business owner get out of bed and go to work every day to pay their bills and make some extra.

5. How much do you need to meet your immediate financial responsibilities?

Everyone has bills to pay, the immediate need of money to put food on the table, buy gas and pay rent or the mortgage to name a few expenses. A good business buyer will understand their immediate financial needs so they know if the business they wish to buy can meet those needs. If not, it’s time to look for another opportunity.

6. When do you want to be in business?

If a business owner has their business on the market, the chances are high that they wish to sell as soon as possible. That is, they are a motivated seller.

If the buyer is unable to explain how quickly they would like to be in business and why, they will not be perceived as a motivated buyer and not taken as seriously as they may like.

7. Why do you want to buy this business?

A good buyer question is why the seller is selling. A good seller question to a buyer is why do you think you would be a good owner of this business? If the seller does not like the answer they will not be interested in disclosing any confidential information about their most important asset.

Read More Here is more information about the steps to buy a business.

8. What changes do you plan to make?

Once the seller knows why you want to buy, they often want to know what changes you plan to make. The answer to this question reveals how serious the buyer is thinking about buying the business, how much they know about the industry the business is in and if the ideas they are thinking, in the sellers opinion, will work. If the changes are dramatic that may worry the seller. If the buyer sees no need for any changes, that too may worry the seller.

9. Do you plan to keep the existing employees?

Different sellers will have a different reaction as to whether the buyer plans to keep or change existing employees. If the changes are too many it may make a seller uncomfortable.

10. What do you expect from the seller after the sale closes?

One of the first things most sellers plan to do is take time off after the sale closes or the business transitions to the buyer. If a buyer is so nervous they need the seller around for an extended period of time, the seller will also get nervous to the point of not being willing to provide more information as they expect the deal will not get done.

11. Have you bought a business before?

This is not a critical question but the answer can help a seller or make them uncomfortable. Doing anything the first time is hard. Buying a business is certainly in that category.

Some sellers like there to be a personality fit with the buyer. If the buyer and seller have different personalities that can mean the end of the deal. One of the most basic ingredients of any deal getting completed is trust. If trust is missing the deal won’t get done as it takes too long and there are too many items that both buyer and seller need to agree upon.

If you would like more information about buying a business please visit my webpage Buy a business or buy a copy of my book Successfully buy your business.

For more immediate help with buying a business you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

The article Buying a business starts with the buyer first appeared on Andrew Rogerson and Rogerson Business Services.