The Main Reasons Why the Sale of Your Business Can Fall Through
Selling any business can be complicated. Finding the right buyer is one hurdle that must be overcome. However, even once the right buyer has been found, there are still many reasons why a deal can collapse.
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Unpredicted Events
It is important to realize that you can do everything perfectly and “acts of fate” can still intervene and impede the success of your deal. For example, one issue is that you might not be able to satisfy the buyer in regards to demonstrating the earnings of the business.
A second issue is that during the sales process problems may arise with federal, state and/or local government bodies and agencies. Many of these problems may be quite difficult to predict in advance. A third issue is that the buyer’s investigation ultimately reveals some problem regarding the business that was previously unknown.
Simply stated, a seller cannot guard against every single possible unforeseen act of fate. The best any seller can do is look for potential problems and try to remedy them in advance. Working with a business broker or M&A advisor can be an excellent way to identify all types of business problems and adjust accordingly.
Buyer Issues
Another major reason that deals can fall through are issues with the buyer. Many sellers are just “testing the waters” or lack the commitment and resolve to see the sales process through, which is often much more complicated than many sellers realize. This issue marks the importance of working with an experienced business broker or M&A advisor who hopefully can weed out these uncommitted buyers in the beginning.
Often buyers will fail to be honest about their situation or how capable they are of buying the business. Business brokers are experts at assessing the potential of interested buyers, and that means they can typically save sellers a great deal of time and aggravation. But even with the best brokerage professionals on your side, it’s important to realize that buyers can still be unpredictable.
Third-Party Interference
A particular source of deal-killing frustration can be that buyers are influenced by third parties who are opposed to the purchasing of the business, for a variety of reasons, and will work to kill the deal regardless of its merits. Everyone from landlords who may not want to transfer a lease or grant a new one to outside business consultants, such as attorneys, may all intentionally or unintentionally create a range of problems that interfere with the success of the sale.
There are many pitfalls that can derail the successful sale of a business. Identifying those kinds of issues far in advance is one way to dramatically boost your chances of a successful sale. Working with an experienced business broker or M&A advisor can help to dramatically increase the odds of finding the right buyer for your business.
Copyright: Business Brokerage Press, Inc.
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Help Buyers to Understand How You Excel
No business is perfect, but when you are preparing your business to be sold, it is imperative that you lead with your strengths. That’s why it is important to work with a business broker or M&A advisor to identify, catalog, and work to remedy any weaknesses. When presenting your business to prospective buyers, focus on your key selling points first and what makes you really stand out from the crowd. You want to sell a prospective buyer on the value of your business and its long-term potential before addressing any shortcomings or areas that need to be improved.
Most business owners who are selling a business are doing so for the first time. If you’ve never sold a business befor,e then there are many mistakes and traps that can befall you. Selling a business is typically not a fast and easy process, but can instead take many months or even years.
Working with a business broker is one way to ensure that the process goes smoothly, but there are other steps that you can take to help ensure that your business sells. At the top of the list of steps business owners can take to help their business sell is to maintain normal operations. Again, it is very unlikely that your business will sell as soon as it hits the market. To protect the value of your business and to avoid financial trouble, you have to maintain normal business operations throughout the sales process.
The next key step to take is to get your business ready. It likely took years, or even decades, to get your business to where it is today. You shouldn’t expect that preparing your business to be placed on the market should be an overnight process. One of the best ways to properly present your business is to inspect every aspect of your business and its operations. In this way, you’ll discover what areas need work and what strengths are best to promote.
Brokerage professionals know where the competitive advantages of businesses reside and have an understanding of what buyers really want. An incorrectly priced business can scare away otherwise excellent potential buyers. The same holds true for poorly organized paperwork and financial records. In short, the preparation you make now to sell your business later can be invaluable for achieving the results you seek.
At the end of the day, you must remember that selling your business is a financial transaction. Like all kinds of sales, you must understand not only what the buyer needs but what they want as well. Not every business is right for every buyer.
Copyright: Business Brokerage Press, Inc.
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Take These Steps Before Buying a Business
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If you’re buying a business, you might be feeling overwhelmed about all the details that are involved, especially if it’s your first business. Buying a business is certainly no small task, and that’s why you’ll want to dive into the process headfirst and make sure that you’ve carefully examined the business.
Here are some of the most important elements to consider. While some of these aspects don’t immediately come to buyer’s minds, they should be high on your list of considerations.
Legal Documents
Reviewing legal documents might not seem like the most enjoyable task, but this activity should be one of the first things you will want to do before buying a business. Most worthwhile businesses will have a long list of legal documents to show, ranging from documents showing trademarks and copyrights to consulting agreements.
Tax Documents
When it comes to paperwork, tax documents are obviously also a necessary element to review. Some things that you should be watching for are forms that do not adhere to the IRS rules. It goes without saying that you don’t want to be the one taking responsibility for a previous owner’s error.
Business and Retirement Documents
The list of documents you’ll want to review doesn’t end there, as you’ll also want to check into retirement documents such as balance sheets, investment statements, and income statements. You’ll want to ensure that all of the qualified and non-qualified retirement programs run by the business are up to date. You might need to check the parameters of the Department of Labor’s rules.
Work with a Business Brokerage Professional
Your business broker or M&A advisor will take you through the due diligence process to help you make sure that all aspects of the business have been reviewed thoroughly before you sign on the dotted line. Be sure to work with an experienced individual who is proactive when it comes to making sure all of your questions have been answered to your satisfaction.
The items on your to-do list might seem overwhelming at first, but remember that a lot of focus and effort now will save you a ton of hassles and issues later. And you might end up dodging a bullet by spotting a serious issue that causes you to change your mind about a business. Always be sure to protect yourself and your best interests.
Copyright: Business Brokerage Press, Inc.
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An Overview of Term Sheets
If you’re planning on a business agreement to buy or sell a business, you’ll want to know about term sheets. These non-binding agreements will help with progress for both parties. The information covered in the term sheet should include everything from pricing and terms to special considerations. You can expect it to be between one and five pages in length.
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What is the Difference Between a Term Sheet and a Contract?
When a term sheet is created, it demonstrates that there is an agreement between the buyer and seller and a business transaction is possible. However, neither party is bound to this transaction. On the other hand, a contract is typically a legally binding agreement that would hold up in a court of law.
What are the Pros and Cons of a Term Sheet
While it can be beneficial that a term sheet is non-binding when buyers and sellers are exploring the terms of a deal, it’s also important to know that a term sheet can come with risks. Due to the fact that it covers many details about the potential deal, it can instigate either the buyer or seller pulling out of the deal if they are unsatisfied with the contents of the document.
On the positive side, a term sheet can serve to greatly expedite negotiations and help things progress faster. Further, it can save time by making sure that the conditions of the deal are understood and accepted before formal documents are drawn up. It can play a huge role in clarifying objectives and circumventing misunderstandings that could ultimately end a deal at a later stage.
Putting Term Sheets to Work on Your Behalf
One of your goals with your term sheet should be to create a situation that is beneficial for all parties. When a verbal agreement between a buyer and seller is put down on paper it can help a deal begin to take form and actualize in the near future. In the end, a term sheet can help a deal move along and ultimately be successful. It’s the perfect first step towards a completed deal.
If you have questions about how a term sheet fits into your overall plan to buy or sell a business, this is a question that can be addressed with your business broker, M&A advisor, or attorney.
Copyright: Business Brokerage Press, Inc.
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Is Your Deal Really Going to be Successful?
If you’re selling your business and things are looking positive with your buyer, you might be tempted to start resting easy. If you have a signed letter of intent, you might be even more tempted to think that things are pretty settled. However, the fact of the matter is that much can be uncovered during the due diligence process, and that is often when deals start to fall apart. Due diligence is an essential step that protects buyers, and sellers should be well-prepared to have things in good shape far in advance. Let’s take a closer look at some areas where a deal can potentially go awry.
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Products and Equipment
When the sale involves a business that handles manufacturing, equipment is carefully evaluated during due diligence. Buyers will be thinking about any potential environmental issues that could affect the business. If you’re selling a business and have loose ends with your equipment or facility, this should be handled in advance if possible.
Buyers will also be looking at the various product lines and inventory. They will be considering how the sales are spread among the product lines. For example, if one product makes up the majority of sales, that can raise red flags in the mind of a buyer. They will also think about supplies and how likely they are to be stable once the business switches hands.
Buyers will want to look at breakdowns of customers so they can consider the company’s market share and also where the sales are coming from. Similarly, to only having one product, if a business only has one or two key buyers, that can be a source of concern for buyers.
Intangible Assets
When you are selling a business, your buyers will also be thinking about the assets like intellectual property. Will all trademarks, patents and copyrights be transferred during the sale? If not, it can be a big source of concern for buyers.
Buyers will also consider the state of the human resources department. Sellers should be aware that buyers will be typically looking for established staff members who are unlikely to leave. This is another area where sellers have the opportunity to prepare in advance to achieve optimal results.
Sales Issues
Your prospective buyer will want to carefully examine accounts receivable. So if you have bad debt, you might want to sort out these kinds of issues before the due diligence phase. They will also want to have a firm understanding of everything that is included in the sale. Oftentimes during due diligence, a buyer finds out that equipment or patents are not included with the sale, and it quickly derails the deal.
If you’re selling a business, you’ll want to put yourself in the buyer’s shoes and consider what you would want to see if you were buying a business. Anything that you can do in advance to improve your workforce, equipment, premises, and financial records is highly recommended. The goal is to have a smooth transition for the buyer, and anything that could stand in the way of that taking place should be analyzed and improved if possible. When you work with a business broker or M&A advisor to sell your business, you will have an expert in your corner to help sort out the details.
Copyright: Business Brokerage Press, Inc.
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When Should Sellers Proceed with Caution?
Selling your business is typically quite an involved process that takes a series of months. Sellers typically experience a variety of ups and downs during that time. This is true even in the case of the most successful deals. That’s why you will want to keep your eyes open during the process so that you will be equipped to vet your potential buyers.
This article will take a look at various aspects of the sales transaction that could be concerning and could mean that a deal is less likely to be successful. It’s a good idea to identify these types of situations so you’ll be better prepared to notice them if they were to occur. After all, the last thing you’ll want to do is waste your time and energy dealing with a prospective buyer that is not a good candidate for buying your business.
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Signs of Lack of Interest
There are countless instances when sellers have been approached by prospective buyers, but the parties controlling the purchase are never involved. If a company expresses interest in your business, but the President or CEO seems to be too busy to talk to you, it more than likely means that there is something off about the situation. If communication starts to fizzle out during the process, it very well could also mean that your buyer is not truly interested.
Inexperienced Buyers
What if you’re dealing with an individual buyer? If an individual says that he or she is interested in buying your business, but has no experience in your industry and no history of owning businesses in the past, this can be a red flag. Even if this buyer does have serious intentions, he or she may become nervous and start to feel overwhelmed as things progress with your deal. In the early stages when you are being approached by potential buyers it is a good idea to not get too wrapped up in buyers that do not appear to be completely legitimate.
Withholding Information
There are situations where caution should be warranted in the later stages of a deal as well. For example, in some instances, sellers have not been allowed to see the buyer’s financial statements. Clearly, that could mean that the buyer doesn’t have the resources actually necessary to proceed.
When you work with a business broker or M&A advisor, you will find that you have built in protection from buyers that are not the right fit. Most brokerage professionals have seen it all and tend to be able to sense when something is too good to be true, or just simply not quite right. Also, when challenges do occur, having a third party involved can go a long way in effectively getting things back on track.
Copyright: Business Brokerage Press, Inc.
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How Can You Identify a Serious Buyer?
No one wants to waste their time and energy trying to sell their business to someone who isn’t actually planning to buy. That’s why it’s so important for you and your business broker or M&A advisor to focus on the most qualified and serious buyers. But how can you really make these kinds of assessments about a buyer’s viability until they sign on the dotted line? Let’s take a look at some signs that will help you figure out your buyer well in advance.
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Do They Have a History of Ownership?
When someone has owned a business in the past, they have a firm understanding of what is involved. As a result, they are more likely to be a serious buyer. It also means they are more likely to move forward. You will also find that they have the ability to make a substantial down payment and financing options. While they might want you to help them with financing, you should still be looking to ensure they will put their own capital at risk as well.
Are They Seeking Information About Your Cash Flow?
If a buyer is serious, it goes without saying that they will want to make sure the business is profitable. They should be asking a lot of questions about not only your cash flow, but also your inventory. If you have unusable inventory this could be of concern to a buyer. Be sure to disclose this information upfront, as it will likely be discovered in the due diligence process regardless.
Are They Asking About the Health of Your Staff?
Any real buyer would want a dedicated and reliable staff. If your buyer is asking about salaries, it is a good sign that they are serious. After all, if you’re only paying minimum wage, chances are that your staff will not have a lot of staying power. These days, many companies are suffering due to staffing issues, and it’s something that should be front and center in any serious buyer’s mind.
Do They Have an Interest in the Industry?
If your prospective buyer is asking questions about the industry, that is another good sign. After all, who would really want to buy a business without detailed knowledge about the industry they are about to enter? Along the same lines, if you know your buyer has experience in a given industry, it means they are more likely to go through with a purchase. If they lack experience in your industry, do they at least seem passionate about the industry? If they seem like they are not asking probing questions, this might mean they are wasting your time.
Are They Asking About Capital Expenditures?
Your prospective buyer will want to know how money is being spent. You can expect them to make sure that major expenses have already been paid for as they will want to make sure they won’t be caught off guard by large pending purchases.
Do You Have Professional Assistance?
The bottom line is that the more in-depth questions a person is asking, the more serious they are likely to be. Your business broker’s job is to screen prospective buyers. Years of experience doing so helps them know the warning signs that pop up when buyers profess to be interested, but are not likely to go through with the sale.
When you are trying to sell your business, it is critical that you focus your time wisely. Your brokerage professional will help ensure that you do not waste time working with people who are just kicking the tires.
Copyright: Business Brokerage Press, Inc.
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Are You Cut Out to Own a Business?
There are clearly qualities that make a person an ideal candidate to be a business owner. On the other side of the coin, however, it’s clear that owning a business isn’t for everyone. Let’s take a look at some of the unique personality aspects that help motivated individuals identify owning a business as a good fit for them.
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You Seek to Guide Your Destiny
A common reason people become business owners is that they want to have more control over their lives. After all, if you’re working for someone else, your fate is never truly in your own hands. You can always be fired or let go. When you are a business owner however, not only do you have control over your job itself and the tasks you accomplish on a daily basis, but you can also determine who you work with and where you work. You also need to have optimism to keep working with the belief that things are moving in a positive direction.
You are Comfortable with Risk
When you take the role of business owner, you invite a certain degree of risk into your life. That means you are responsible for the success of your business, and you will also have a team of people depending on you. That’s why it’s so important to have a clear vision for the business before you take on the responsibility. You are likely to invest a great deal of your own money into the venture. You may even have to put up valuable assets as collateral, such as your house. You may also have to make sacrifices such as taking a reduced income as the business gets off the ground. It’s important for business owners to possess the inner strength to stay motivated and on track to keep the business growing.
You are Motivated
People who make good business owners are typically inspired by the idea of growing their income, and they are willing to put in the work to achieve that goal. The idea of making key decisions to grow their business is something they find exciting. The truth is, the longer you own your business, the more money you will make. Often you will have to exercise patience in order to reap the financial benefits you’re seeking.
You are Collaborative
Not everyone is great at collaboration. As a business owner, however, you will need to work well with others for the business to be a success. It’s rare to do everything on your own. That’s why you need to be a good communicator and will need to be talented at managing others. Great business owners are bosses who are disciplined, self-aware ,and able to operate comfortably with a high degree of vulnerability.
Before you decide to own a business, it makes sense to do some self-reflection to ensure that your personality really does lend itself to being a business owner. If you have questions about what owning a business entails, be sure to discuss this topic with a business broker or M&A advisor.
Copyright: Business Brokerage Press, Inc.
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Can You Buy a Business Without Collateral?
If you’ve ever gotten any type of substantial loan, chances are that you’re already familiar with the concept of collateral. This is when something of value is pledged as security. As a result, the lender has something of value that they could potentially take if the loan is not repaid. Collateral is designed to protect the lender. Of course, the most common example of collateral is your house when you have a mortgage.
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Oftentimes, those looking for a loan to buy a small business wonder if they can do so if they have no collateral. Let’s take a closer look at some of the most popular options in this situation.
The 7(a) Loan Assistance Program
If you’re lacking collateral and looking for a business loan, it’s a good idea to check with the Small Business Administration. The SBA 7(a) loan is one of their most popular programs. While it can be used for establishing or acquiring a new business, it’s also commonly used for long and short-term working capital, refinancing business debt, or the purchase of real estate or equipment.
The SBA guarantees up to 75 percent of the amount of the loan if you can contribute 25 percent of the money. This can be a very good option for buyers who don’t want to contribute collateral. You can even use cash that came as a gift from investors. As a result, this program is frequently used by first-time business owners. More information is available here: https://www.sba.gov/funding-programs/loans/7a-loans.
One thing you’ll want to note about the 7(a)-loan program is that the seller will not be able to receive payments for two years. As a result, the seller may request or require some other kind of incentive.
Seller Financing Options
Seller Financing happens more often than you would think and is another great way of buying a business without collateral. Most sellers are motivated and will agree to help with financing. Some buyers have even combined the SBA loan 7(a) program with seller financing for maximum results.
If you are looking for creative financing options, be sure to talk to your business broker or M&A advisor about the specifics of your situation. You can also look to S.C.O.R.E to receive information about best practices for proceeding.
If you’re looking to buy a business and have no collateral, just remember that people use ingenuity to buy businesses every day. You just need to set your goal and be determined to reach it.
Copyright: Business Brokerage Press, Inc.
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What is a Partnership Agreement?
A partnership agreement is a legal document that provides an outline of how a business will be run. This agreement will often be used by small for-profit businesses when two or more people are involved. It’s an essential document to have, especially in the case when a dispute arises between partners. Even if you have gone into business with a friend or relative, you should have this document in place to make sure everyone is protected. Let’s take a look at some of the key elements that should be in this document.
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The Basics
It goes without saying that your partnership agreement should include the basics, such as the name of the business and the names of key parties involved. You’ll also want to outline the goals of your partnership and how long it will last.
Rules and Responsibilities
When you create your partnership agreement, you’ll want to make sure it offers a lot of clarity on different points with an eye to everyone’s responsibilities. Think through what concerns or disagreements could possibly arise and then outline how you would solve them.
Financial Issues
You’ll want to cover everything involving finances in your agreement. This should include key points on income and how it will be distributed. You will also want to clearly outline the ownership interests of each partner involved. Also be sure that the agreement includes the accounting obligations of the partners, and how you’ll handle salaries, vacation, sick leave, etc. Also think about the funds that will be necessary to operate the business. Who will be contributing these funds?
Partners and Staff
The partnership agreement should also cover points involving the work itself. Who is in charge of managing your staff? What kind of authority role does each partner have? What if you decide to bring in a new partner? The agreement should discuss the procedure for adding people to your partnership and what that entails.
Issues Involving Key Decisions
Another important issue to explore and detail in the agreement relates to decision-making. How will your company make its business decisions? What will occur if a conflict cannot be resolved? Will you go to court or take another route? What if the partnership was terminated? What would the terms and conditions of your termination be?
When your partnership agreement is under your belt, it should empower you to feel confident in the core structure of your business and its ability to function smoothly.
Obviously, you’ll want to avoid the DIY approach and instead work with an experienced attorney. While it might take more time and money to do so, you’ll be glad that you hired a professional if and when you run into conflicts down the line. Your business broker or M&A advisor should be able to recommend a lawyer who has experience crafting partnership agreements.
Copyright: Business Brokerage Press, Inc.
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