Key Elements for Every Partnership Agreement
You should never forget that your partnership agreement is, in fact, one of the most important business documents you will ever sign. Many people go into business with loved ones, relatives or lifelong friends only to discover (once it’s too late) that they should have had a partnership agreement. A partnership agreement protects everyone involved and can help reduce problems that may arise. Outlining what will happen during different potential situations and events in a legal framework can help your business keep running smoothly.
What Should Be in a Partnership Agreement?
Every business is, of course, different; however, with that stated, any partnership should outline, with as much clarity as possible, the rights and responsibilities of all involved. A well written and carefully considered partnership agreement will keep small problems and disagreements from evolving into more elaborate and serious concerns.
There are times to take a DIY approach and then there are times when you should always opt for a professional. When it comes to partnership agreements, it is best to opt for working with a lawyer. Finding competent legal help for drafting your partnership agreement is simply a must.
What is Typically Addressed in a Partnership Agreement?
In theory, a partnership agreement can cover a wide-array of factors. Here are a few points typically addressed in partnership agreements.
What Questions Will a Good Partnership Agreement Address?
- Which partner(s) are to receive a draw?
- How is money to be distributed?
- Who is contributing funds to get the business operational?
- What percentage will each partner receive?
- Who will be in charge of managerial work?
- What must be done in order to bring in new partners?
- What happens in the event of the death of a partner?
- How are business decisions made? Are decisions made by a unanimous vote or a majority vote?
- If a conflict cannot be resolved when must the conflict be resolved in court?
Thanks to partnership agreements, all partners involved can proceed and start a new business with fewer areas of concern. The simple fact is that without a partnership agreement, your business can face a range of disruptions; these would be disruptions that could ultimately spell doom for your business.
Copyright: Business Brokerage Press, Inc.
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Embracing Retirement & Selling: 4 Tips for a Smooth Transition
No one works forever. Regardless of how much you love your business, sooner or later you will have to step away. Owning a business can be very demanding. This fact can be doubly true for owner-operators of businesses. The simple fact is that you’ll have to embrace retirement at some point.
Most business owners have never sold a business before and may not know what to expect. The good news is that prospective buyers usually like the idea of buying an established business directly from a business owner. It is key, however, to do everything possible to make selling your business, as well as the transition period, as easy for a buyer as possible.
Prepping your business for sale has many diverse parts that need to be taken into consideration. Prospective buyers want to feel as though they will have a seamless transition, so it’s in your best interest to evaluate what steps you need to take to make the transition smooth.
You are the world’s greatest expert on your business. As a result, you are perfectly positioned to evaluate your business so as to ensure that it is both appealing to a prospective buyer and ready to sell. Let’s take a look at the steps you can take to ensure a smooth transition.
The Top 4 Transition Tips
1. Automate as many processes as possible.
In this way, prospective buyers are less likely to be intimidated by the level of work involved in owning a small business. The odds are good that many of your prospective buyers have never owned a business before. One of the best ways to not scare prospects away is to make owning and operating your business as streamlined as possible.
2. Work with your employees, key customers and vendors to ensure a smooth transition.
Anything that can cause a potential disruption may scare off prospective buyers. Put yourself in the shoes of prospective buyers and think about what may cause you concern if you were evaluating a business. Once you locate those areas of potential concern, do what you can start to remedy them well before placing your business on the market.
3. Pick out your “second-in-command” before you sell your business.
Having a competent and proven “right hand man or woman” that can step in and essentially operate your business is a very attractive asset to have in place when it comes time to sell your business.
4. Consider working with a business broker.
Brokers are expert in the art and craft of buying and selling businesses. They will be able to help you evaluate your business and address areas that need improvement so as to ensure a smooth transition.
Taking these steps will not just make your business easier to sell, but it will also shorten the amount of time it takes to sell. The last thing you want when you are ready to sell your business and retire is for the selling process to drag on forever.
Copyright: Business Brokerage Press
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Is It Time to Become a Business Owner? 3 Questions to Ask Yourself.
Many people know that owning a business isn’t for them. But for others, the appeal and lure of owning their own business can be powerful indeed. If you are uncertain as to whether or not this path is for you, there are a few simple questions you can ask to gain almost instant clarity. In this article, we will explore those key questions and help you determine if owning a business is in your future.
1. Are You Dedicated to Growing Your Income?
Quite often people like the idea of making more money, at least in the abstract. But when presented with what it takes, many people realize that they don’t want to do what is involved. Owning and operating a business can be a lot of work and it’s not for everyone. Yet, those who embrace it can find it rewarding in a variety of ways.
Being a business owner is radically different than being an employee. As an employee, you simply don’t exercise much control. Summed up another way, your financial fate is clearly in the hands of someone else: your employer.
However, owning a business means that you can take steps to control your own financial destiny. You can make decisions that will, ultimately, boost the success of your business and in turn increase your own income.
As an important note, statistics from 2010 show that the longer you own your business the more money you, as the business owner, will make. It is typical for those who have owned a business for ten years or more to earn upwards of six figures per year. If you have had more than one year of experience in running an organization, the yearly salary will likely range from $34,392 to $75,076. However, if you’ve owned your business for more than a decade, you will likely earn more than $105,757 per year.
While there are no guarantees, owning a business can be a path to growing one’s income and wealth.
2. Would You Like Greater Control Over Your Life?
Many opt to start their own business because they want more control. Business owners realize that unless they own their own business their financial fates rest in the hands of someone else. Some people are comforted with this feeling or don’t see a way around it and others are not so comfortable with the realization. If you want greater control over your life, then owning a business might be for you.
Owning a business increases the amount of control a business owner has over his or her life in many ways, not just financial. For example, business owners have more control over how they spend their time, where they work, when they work and who they work with on a daily basis. Instead of being part of a business, you help create, mold and shape it. Clearly, this is a lot of work and it isn’t for everyone, but again the rewards can be diverse and great.
3. What is Your Personality Like?
Owning a business translates to great control, but that control comes with a degree of risk. In the end, you’ll have to determine how comfortable you are in dealing with risk. As a business owner the “buck” stops with you. You’re risking your time, effort and, of course, money. You also don’t get a paid vacation, sick days or any of the other benefits so often associated with being an employee.
Other traits identified during a study by the Guardian Life Small Business Research Institute showed there are other ideal personality traits for business owners. These traits include collaboration, curiosity, focus on the future, and being self-fulfilled, tech savvy and action oriented.
Thinking about these three key questions is the perfect place to start when contemplating opening a business. Additionally, working with a business broker can help you gain clarity and determine if owning a business is right for you.
Copyright: Business Brokerage Press, Inc.
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The Top 2 Ways to Purchase a Business without Collateral
Banks love collateral and for a very simple reason. If you have collateral, then the bank has something it can take if you fail to repay your loan. At its heart, collateral is a remarkably simple concept. However, unfortunately, many people who want to start a business lack it. All of this leads us to the simple question, “Can I start a business without a collateral.
Table of Contents:
1. Try the SBA
There are ways that you can start a business without collateral, but you will need some amount of money. The larger the business, obviously the more money you’ll need. Those interested in the zero collateral route will want to take a look at the SBA’s 7 (a) program. This program incentivizes banks to make loans to prospective buyers. Through this program, the SBA guarantees an impressive 75% of the loan amount.
Of course, the buyer still has to put up 25% of the money in order to buy the business, but for those looking to own a business without having to put up collateral, the SBA’s 7 (a) program is an impressive option. Perhaps best of all, the cash buyers used can come from investors or even a gift, helping to make this program a potentially great one for first time business owners.
2. Think about Seller Financing
Another option is seller financing. Sellers frequently get involved in financing. When a seller is motivated to sell, due to retirement or some other factor, things can get interesting. Most sellers do agree to offer some degree of financing, so asking for selling financing is not unheard of or insulting to a business owner. Prospective business owners may even be able to combine seller financing with the SBA’s 7 (a) program. Correctly used, this path could provide a powerful and useful option.
Speaking of retiring, according to The International Business Brokers Association (IBBA), M&A Source and the Pepperdine Private Capital Market Project, 33% of deals now take place when owners are retiring. This clearly demonstrates how it is in the best interest of many sellers to consider seller financing.
While the SBA’s 7 (a) program is potentially very useful to buyers, it is important to note that under the program, the seller cannot receive any payments for two years. Working around this potential problem may very well require some creativity and effort on the part of the prospective buyer. In the end, it may be necessary to offer the business owner some incentive in order to justify waiting two years for his or her money.
Attempting to buy a business without collateral may, at first, sound like too large of an obstacle to overcome. However, these kinds of purchases really do happen all the time. By staying focused, persistent and understanding your options, you will increase your odds of success. Finally, get as much professional help as possible. Prospective business owners should consult with S.C.O.R.E., experienced business brokers and others to learn the best way to buy a business without collateral.
Copyright: Business Brokerage Press, Inc.
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Are You Asking a Reasonable Price for Your Privately Held Company?
Placing a price on a privately-held company is usually more complex than placing a value, or a price, on a publicly-held company. There are many reasons for this fact, but one of the top reasons is that privately-held companies don’t have audited financial statements.
Table of Contents:
Why are Audited Financial Statements Lacking in Privately-Held Companies?
Preparing an audited financial statement is expensive, and many companies that have not gone public simply forego the expense. On the other hand, publicly held companies reveal much more information about their finances and a range of other kinds of information.
Compared to a privately held company, a publicly held company can often seem like an “open book.” Buyers are left with the proposition of having to dig out a lot more information from a privately held company to assess whether or not a valuation or price is accurate.
What Can You Do to Overcome this Factor?
You, as the seller, can help streamline this process. By having as much information available as possible and having your accountant make sure that your numbers are presented in a manner that is easy to understand and follow, you will increase your chances of selling your business.
Experts agree that there are several steps a seller of a privately held company can make when he or she is establishing a price or a value. First, use an outside appraiser or expert to determine a value. Next, establish what your “go-to-market” price is. Third, know your “wish price.” A seller’s “wish price” is the price that he or she would ideally like to see. Finally, sellers must establish the lowest price that they are willing to take. You should know in advance how much you are willing to sell for as this can help a negotiation move along.
The Marketplace Will Ultimately Decide
It is common that the final sale price for the company be somewhere between the asking price and the bottom-dollar price established in advance by the seller. Yet, it is important to note, that on occasion a selling price may, in fact, be lower than any of the four we’ve outlined above. At the end of the day, the undeniable fact, is that the marketplace will establish the final sales price.
Here are a few of the areas that you can expect a buyer to review when establishing the price that he or she is willing to pay: stability of the market and stability of earnings, the potential of the market, product diversity, the size of the customer base, the number and seriousness of competitive threats, how broad the customer base is, the relationship with suppliers, the distribution network in place, needs for capital expenditures and other factors. The more favorable each of these points are, the more likely it is you’ll receive a higher price.
Copyright: Business Brokerage Press, Inc.
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Examining the Mind of the Serious Buyer – 5 Points to Consider
Are you looking for a way to perfect your presentation? Understanding what the typical serious buyer wants will help you get your business ready for selling.
Let’s turn our attention to looking at what these types of individuals and entities really want. After all, your time is precious.
1. An Interest in the Industry
First, prospective buyers will want to have a better understanding of your industry. Any serious buyer will want to understand the industry as a whole, as well as your existing customers, prospective customers and the strengths and weaknesses of your business. Key factors, such as threats from competition, will also be a major factor for prospective buyers.
2. Seeking Knowledge about Discretionary Costs
Secondly, expect buyers to take a long look at discretionary costs. Sellers will often look to reduce their expenses in a range of discretionary areas including advertising, research and development and public relations; this is done to help make a business appear more attractive to a buyer. However, it is important to note, that a savvy prospective buyer will notice reduction in discretionary expenses.
3. Inquiries about Wages and Salaries
Wages and salaries is another area that receives attention from buyers. If your business is paying minimum wage or offers a limited retirement program then employee turnover is likely to be high. Buyers may be concerned that employee stability may be low, which, of course, can potentially disrupt business.
4. Questions about Cash Flow and Inventory
No serious buyer will ignore the issue of cash flow. Any prospective buyer will want to know that the business they are considering buying will continue to generate profits both now and in the future.
Inventory is another area that will not be ignored. If your business is carrying a large amount of antiquated, unsalable or simply unusable inventory, then expect that to be factored into a prospective buyer’s decision-making process. It is best to disclose such inventory instead of hiding it, as it will be discovered during due diligence.
5. Seeking Capital Expenditure Details
Finally, capital expenditures will be examined by buyers. You can expect buyers to carefully evaluate machinery and equipment to ensure that there will be no expensive surprises looming on the horizon.
These give areas are definitely not the only areas that buyers will explore and investigate. Everything from financial agreements and environmental concerns to government control will be examined in depth. You should invest some time thinking about the situation from the perspective of a buyer, as this will help you discover many potential problems and try to secure viable workarounds. Working closely with a business broker is another way to ensure that you can successfully anticipate the needs of buyers.
Copyright: Business Brokerage Press, Inc.
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Is Now the Right Time to Sell Your Company?
Like many things in life, timing can be everything when it comes to selling your company. Every day more and more baby-boomers are now reaching retirement age. Soon, the market will likely be flooded with companies looking to sell.
According to a 2016 survey of business brokers, 54% plan to exit in the next ten years. We may be on the verge of a massive wave of businesses hitting the market. Getting out in front of that wave could be in your best interests. Now very well may be the time to sell.
Are You Suffering from Burnout?
If you’ve been running your business for many years, it is quite possible that you are suffering from burnout. This issue is remarkably common with business owners and it is also very dangerous. Owners suffering from burnout don’t invest as much of themselves and their creative energy into their businesses, and that has a range of implications.
Everything from losing customers to failing to keep up with the competition are all possibilities when an owner feels ready to throw in the towel. The end result is that owners, through poor decisions and inaction, can inadvertently decrease the value of their businesses. Combine this fact with the fact that a wave of businesses may soon be hitting the market and selling may start looking more and more attractive.
Jump into a Strong Economy
Further, today’s strong economy means that new and unexpected competitors may soon enter the picture. It is difficult to predict how the marketplace may change in the coming years, but a strong economy means both more opportunities for existing businesses and the potential for greater competition.
Interest rates have remained at historic lows and that could definitely help you sell your business. Working with an experienced business broker is one way to test the waters. You may determine that now is the perfect time to sell your business. There are many factors involved in selling your business, and a skilled broker can help you look at the overall situation at hand and determine when it is the right time to sell.
Copyright: Business Brokerage Press, Inc.
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How Your Employees Can Boost Profits and Values
The simple fact is that without employees, you don’t have a business. Given the tremendous importance of your employees, it is important to step back and reflect on the value associated with keeping those employees happy.
There is a direct relationship between happy employees and happy customers. A happy employee takes steps to ensure that your customers are satisfied. This approach in turn leads to a higher level of customer retention and helps in attracting new customers. On the flip side, unhappy employees can be quite dangerous to your company’s bottom line.
The hiring process is a key process for the health of your business and should never be overlooked or treated as a secondary process within your business. Cultivating happy employees begins at this point. Hiring can and will either make or break your business.
Offering great pay and benefits is only one important factor in keeping employees happy. A more overlooked important factor is to appreciate the contributions that employees make. If employees feel as though they are being overlooked or not appreciated, their overall happiness level will falter. Many owners unnaturally expect their employees to have the same dedication to their business that they do, and this can lead to problems.
Your employees realize that they don’t own the business. As a result, most are only willing to invest so much of themselves, their talents and their abilities into your business. Taking steps to keep your employees engaged, such as showcasing that their talents are appreciated, will help keep employees invested and happy. Research has also revealed feeling happy will make them more productive. A few years ago, Fortune Magazine wrote an article that cited a UK study connecting employee happiness and productivity. It’s definitely worth a look.
Being a positive owner is a gigantic step in the right direction where cultivating happy employees is concerned. Being a good role model is at the heart of having happy employees. It is vital that you reward people with praise and bonuses for jobs well done and fire employees that are consistently negative or failing to perform their respective duties. Special touches, such as giving employees their birthdays off, can go a long way towards cultivating the kind of climate that leads to increased satisfactions. And don’t forget, your team’s satisfaction will increase your bottom line.
When it comes time to sell a business, you can be sure that prospective buyers will be interested in your level of profits. In this way, the investment you make in the happiness of your employees can be returned many fold.
Copyright: Business Brokerage Press, Inc.
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3 Easy and Effective Ways to Negotiate
Far too many prospective business buyers and sellers overlook just how important negotiations can be. But they can also be tricky. In general, there are three approaches to negotiations. Thinking through your negotiation strategies well before the time to buy or sell is a savvy and prudent move.
Negotiation Tactic #1 Take It or Just Leave It
In this negotiating tactic, the buyer makes an offer and the seller makes a counter-offer, then both sides leave it there. If the deal works fine. If it doesn’t work, that’s fine too.
It is usually smart to step back and ask yourself if you are comfortable with this approach. Sometimes a small degree of flexibility can go a long way towards turning a proposed deal into a reality.
Negotiation Tactic #2 Maybe Consider Splitting the Difference
Another negotiating tactic is to simply offer to split the difference. This tactic is pretty straightforward and it demonstrates a good deal of flexibility; however, the financials may not always make sense for both sides.
As always, it is important to think about all the factors involved in allowing a deal to fall apart, such as how much time will it take to find another buyer or another business to buy? Showing a willingness to split the difference is often seen as a goodwill offer that can facilitate further negotiations within an environment of lower emotional intensity.
Remember, as long as the two sides are talking, a deal may be reached. But when communication ceases, then the deal is definitely finished and not in a good way.
Negotiation Tactic #3 Negotiation from What is Most Important to Each Party
Understanding what is most important to both parties is usually critical for a successful deal. Important areas can range from allowing a relative to stay with the business to moving the business to a new location. Not all key points are directly linked to money, and it is vital to understand this all-important negotiating fact.
Negotiation Tactic #4 Bring in a Pro
In negotiations there is an old adage, “Never negotiate your own deal.” Emotions can run high when it comes to buying or selling a business and then there is the problem of perspective. Buyers and sellers are often lack the perspective that an outsider can bring.
Opting for help and guidance from someone who buys and sells businesses for a living, can be a huge step in the right direction. Through a professional business broker, it is possible to not only establish a fair price but also address the array of intangibles that can go into buying and selling a business.
At the end of the day, deals are put together piece by piece, and skill is involved in the process. Working with others is at the heart of successful negotiation, and that means taking into consideration what the other side wants and what the other side needs.
Copyright: Business Brokerage Press, Inc.
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There’s No Business Quite Like a Family Business
The simple fact is that family businesses are different. After all, a family business means working with family and all the good and bad that comes with it.
While an estimated 80% to 90% of all businesses are family owned, relatively few are properly planning for what happens when it comes time to sell. According to one study, a whopping 72% of family businesses lack a developed succession plan which is, of course, a recipe for confusion and potentially disaster. Additionally, there are many complicating factors, for example, studies indicate that 40% to 60% of owners of family businesses want the business to remain in the family, but only 40% of businesses are passed to a second generation and a mere 10% are passed down to a third generation.
Let’s turn our attention to a few of the key points that family business owners should consider when selling a business.
- Confidentiality should be placed at the top of your “to do” list. When it comes to selling a family business, it is vital that confidential is strictly observed.
- Remember that it may be necessary to lower your asking price if maintaining the jobs of family members is a key concern for you.
- Family members who stay on after the sale of the business must realize that they will no longer be in charge. In other words, after the sale of the business the power dynamic will be radically different, meaning that family members will now have to answer to new management, outside investors and an outside board of directors.
- Family members will want to appoint a single family member to speak for them in the negotiation process. A failure to appoint a family member could lead to confusion, poor decision making and ultimately the destruction of deals.
- When hiring a team to help you with selling your business, it is critical that your lawyer, accountant and business broker are all experienced and proven.
- Don’t hold meetings with potential buyers on-site.
- Every family member, regardless of whether they are an employee or an investor, must be in agreement regarding the sale of the company. Again, one of your primary goals is to avoid confusion.
- Family employees and family investors must be in agreement regarding the sale price or there could be problems.
Working with an experienced business broker is a savvy move, especially when it comes to selling a family business. Business brokers know what it takes to make deals happen. Being able to point to a business brokers’ past success will help reduce family member resistance to adopting the strategies necessary to successfully sell a business.
Copyright: Business Brokerage Press, Inc.
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