There is the old anecdote about the immigrant who opened his own business in the United States. Like many small business owners, he had his own bookkeeping system. He kept his accounts payable in a cigar box on the left side of his cash register, his daily receipts – cash and credit card receipts – in the cash register, and his invoices and paid bills in a cigar box on the right side of his cash register. When his youngest son graduated as a CPA, he was appalled by his father’s primitive bookkeeping system. “I don’t know how you can run a business that way,” his son said. “How do you know what your profits are?” “Well, son,” the father replied, “when I came to this country, I had nothing but the clothes I was wearing. Today, your brother is a doctor, your sister is a lawyer, and you are an accountant. Your mother and I have a nice car, a city house and a place at the beach. We have a good business and everything is paid for. Add that all together, subtract the clothes, and there’s … [Read more...]
Buying or Selling a Business: The External View
There is the oft-told story about Ray Kroc, the founder of McDonalds. Before he approached the McDonald brothers at their California hamburger restaurant, he spent quite a few days sitting in his car watching the business. Only when he was convinced that the business and the concept worked, did he make an offer that the brothers could not refuse. The rest, as they say, is history. The point, however, for both buyer and seller, is that it is important for both to sit across the proverbial street and watch the business. Buyers will get a lot of important information. For example, the buyer will learn about the customer base. How many customers does the business serve? How often? When are customers served? What is the make-up of the customer base? What are the busy days and times? The owner, as well, can sometimes gain new insights on his or her business by taking a look at the business from the perspective of a potential seller, by taking an “across the street look.” Both owners … [Read more...]
Company Weaknesses
Take two seemingly identical companies with very similar financials, but one of the companies was worth substantially more than the other company. One company will sell for $10 million “as is” or some changes can be made and the same company can be sold for $15 million. Following is a partial list of potential company weaknesses to consider in order to assess a company’s vulnerability. Customer Concentration: First, one has to analyze the situation. The U.S. Government might be considered one customer but from ten different purchasing agents. Or, GM might have one purchasing agent but be directed to ten different plants. One office product manufacturer with $20 million in sales had 75% of its business with one customer…Staples. They had three choices: 1. Cross their fingers and remain the same; 2. Acquire another company with a different customer base; or 3. Sell out to another company. They selected the third choice and took their chips off the table. The acquirer was a … [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...]
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...]