Many experts say no! These experts believe that only half of the business valuation should be based on the financials (the number-crunching), with the other half of the business valuation based on non-financial information (the subjective factors). What subjective factors are they referring to? SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats – the primary factors that make up the subjective, or non-financial, analysis. Below you will find a more detailed look at the areas that help us evaluate a company’s SWOT. Industry Status – A company’s value increases when its associated industry is expanding, and its value decreases in any of the following situations: its industry is constantly fighting technical obsolescence; its industry involves a commodity subject to ongoing price wars; its industry is severely impacted by foreign competition; or its industry is negatively impacted by governmental policies, controls, or pricing. Geographic Location – A … [Read more...]
Do You Have an Exit Plan?
"Exit strategies may allow you to get out before the bottom falls out of your industry. Well-planned exits allow you to get a better price for your business." From: Selling Your Business by Russ Robb, published by Adams Media Corporation Whether you plan to sell out in one year, five years, or never, you need an exit strategy. As the term suggests, an exit strategy is a plan for leaving your business, and every business should have one, if not two. The first is useful as a guide to a smooth exit from your business. The second is for emergencies that could come about due to poor health or partnership problems. You may never plan to sell, but you never know! The first step in creating an exit plan is to develop what is basically an exit policy and procedure manual. It may end up being only on a few sheets of paper, but it should outline your thoughts on how to exit the business when the time comes. There are some important questions to wrestle with in creating a basic plan and … [Read more...]
A Look at Today’s Business Buyers
Once you've decided to sell your business, you'll quickly learn there are a variety of possible investors. Let's take a look at some of the categories of investors that you may encounter. Family Members as Buyers You may find that you already know potential buyers in the form of your family members. Many sellers really see this as being a major advantage due to continuity. Often a family member buying a business encompasses years of preparation. While having a family member take over your business can be ideal, there are some potential hurdles as well. For example, what if your family member doesn't have enough cash? Also you may find that it is more difficult to leave behind your responsibilities. These types of issues can cause serious disruptions. If an outside party buys your business, you will avoid these types of "I told you so" situations. The key to deciding on a family member should incorporate three aspects: ability, family agreement, and financial … [Read more...]
Why Should You Consider Selling Your Company?
There is more often than not a tremendous emotional attachment to one's business. In fact making sure a seller is ready emotionally to sell is a key role for a professional intermediary. So when should you consider selling your company. Let's take a look at some of the key reasons. -Retirement Owners should have a plan for their eventual retirement and then be prepare to execute that plan with the help of a seasoned business broker. -Fatigue and Burnout According to industry experts, many owners sell their company due to burnout. After all, running a business can mean 7 day weeks and long hours. If you feel a sense of fatigue and burnout when you think of your business, it may be time to sell. -Personal Issues Every now and again life events like illness, divorce, and partnership issues do cause people to sell. Emergency sales will almost always bring in less money. As a result, be sure to plan in advance so you could potentially handle such … [Read more...]
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 … [Read more...]
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 … [Read more...]
Today’s Business Buyer: A Profile
Today's independent business marketplace attracts a wide variety of buyers eager for a piece of ownership action. Buyers of small businesses are most likely replacing lost jobs or searching for a happier alternative to corporate life. Buyers of mid-sized and large operations are, typically, private investment companies seeking businesses to build and eventually sell for a profit. This is the broadest possible look at the types of buyers out there. Business owners considering putting their business on the market should be aware of the finer "distinctions" among buyers, as well as what they are looking to buy, and why. 1. Individual Buyer This is typically an individual with substantial financial resources and with the type of background or experience necessary for leading a particular operation. The individual buyer usually seeks a business that is financially healthy, indicating a sound return on the investment of both time and money. If these buyers do not have the amount of … [Read more...]
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 … [Read more...]
Are You Buying (or Selling) a Business?
Are you considering purchasing a business? Here are some basic pointers to get you started. Incidentally, this article should also be of interest to anyone thinking of selling their business. At Provest Properties, we've found that the process becomes easier when both the buyer and seller have information and knowledge. What's the Profile of a Typical Buyer? The typical small business buyer is often looking to get out of an uncomfortable job situation or deal with a lost job. Most of these buyers have never owned a business. A buyer will more than likely have less than $100,000 in which to invest in the purchase of a business. More than 70% of buyers will have less than $250,000 to invest. A buyer's funds will usually come from personal savings and additionally from family members. Potential buyers are looking to do their own thing and they want to break free from the cycle of working for someone else. While making money is on their priority list, this typically isn't the … [Read more...]
What Can Make a Deal Fall Apart?
It goes without saying that from time to time, deals do fall apart. However, when both buyers and sellers understand potential pitfalls, they are more likely to be overcome. Let's take a look at some of the more common reasons why this happens. The following is a compilation of factors taken from a survey of business brokers across the United States. The Seller Doesn't Reveal Problems In some cases, a seller simply is not upfront about problems facing the business. These issues do show up later, and this often occurs after a tentative agreement has been reached. The buyer ends up getting cold feet and the deal falls apart. The way to solve this issue is that sellers must be upfront about any negative aspects facing the business. Ar Provest, we attempt to ferret out problems at the beginning of the process; there are steps that can taken to overcome these issues. Second Thoughts About the Price Another reason that can cause a sale to fall apart is when a buyer … [Read more...]