The Sign Businesses For Sale Blog
How Sellers Can Boost Their Levels of Success
Many buyers view a publicly-held company as virtually being an open book with at least a modest level of transparency, whereas privately-held companies reveal much less about their inner workings, financial, and otherwise. Of course, this means that buyers of privately-held companies are left with no choice but to dig through whatever information is available in an effort to determine if a valuation or price indeed reflects reality.
Comparing Publicly and Privately Held Companies
Determining the price on a privately-held company is typically more time-consuming since privately-held companies don’t have to deal with audited financial statements. But why do most privately-held companies typically forgo the process? Audited financial statements are expensive, and it is this expense that often prevents companies from going public. A publicly-held company is expected to reveal significantly more information, including often sensitive financial information.
What Sellers Can Do
If you’re a seller, you can take steps to make the process a bit easier for buyers. One step is to work closely with your accountant in an effort to ensure that the numbers are not just accurate, but are also presented in a concise and easy to understand fashion. This move serves to boost trust between buyers and sellers and, in turn, can increase the chances of selling your business.
Determining value is another area where sellers of privately-held companies can take steps to assist buyers in determining price or value. Sellers should consider opting for an outside appraiser or expert when it comes to determining the value of their business. The opinion of an outside expert clearly carries more weight, and using an outside expert is yet another step that sellers can take to boost overall trust with buyers.
Establish Your Bottom Line
Another key step is for sellers to establish their wish price. The wish price can be thought of as what price the seller would ultimately like to receive. It is also helpful for sellers to know well in advance what their lowest possible price for their business would be.
When establishing a price, there are several areas of the business where sellers can expect buyers to pay special attention. Here are a few areas that buyers are likely to explore:
- Size and scope of customer base
- Needs for capital expenditures
- Overall stability of the market
- Stability of earnings
- The general landscape of competitors
- Businesses relationships with suppliers
As with all transactions, the marketplace will have the final word regarding the sale of any business. Sellers should expect to receive a price somewhere between their asking price and their lowest price. But taking the right steps throughout the process can definitely make the process go more smoothly and boost the chances of success.
Copyright: Business Brokerage Press, Inc.
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Not All Buyers Are Created Equal: The Mindset of the Serious Buyer
Just as every person is different, the same invariably holds true for buyers. No two buyers are the same. Further, no two buyers have the same mindset, emotional makeup, or approach to business. The simple fact is that buyers opt to buy businesses for a very wide range of reasons. The bottom line is that it is up to business brokers and M&A advisors to find serious buyers so as not to waste everyone’s time. In this article, we will examine how we zero in on serious buyers.
A serious buyer, one that wants to achieve success and isn’t just window shopping, will want to understand both the business they are considering buying and the industry as a whole. Consider this rough analogy for a moment. Someone serious about winning a game will work to understand the rules before jumping in and playing. You’ll want to look for a buyer who wants to understand the strengths and weaknesses of a business. He or she will also want to comprehend the strengths and weaknesses of competitors as well as potential industry wide problems both now and in the future.
Savvy business people realize that wages and salaries make up a huge percentage of the typical business’s operating cost. A serious buyer will endeavor to understand not just the wages and salaries of employees, but also additional related costs. These can include retirement related costs, the cost of training new employees, the rate of employee turnover and more. Smart buyers are looking for stability throughout the business, and that includes its employees.
The kind of buyers you want to attract are the ones that are not just “thinking about buying” a business. You’ll want to only deal with buyers who have carefully thought through what it means to buy a business. A key aspect of buying a business, as simple as it sounds, is to fully understand what is being sold. For example, serious buyers will dive in and understand capital expenditures. They will also examine and evaluate machinery and equipment so that they understand what kinds of equipment might need to be repaired or replaced. Replacing and repairing equipment can mean substantial costs. That’s why quality buyers can be expected to evaluate all equipment extremely carefully.
Buyers who understand what it means to buy a business will even go beyond evaluating the stability of employees and the state of machinery and equipment. You can expect a serious buyer to want to know if there are any environmental concerns, they will check and evaluate the lease, and they will want to inspect the state of all buildings. They will want to know who the key clients and key suppliers are and determine if those relationships are stable or if they put the business at long term risk.
At the end of the day, the kind of buyer that you’ll want to work with is a buyer who is proactive. Quality buyers will be accessing every aspect of a business to determine its long-term viability. A buyer who goes far beyond “kicking the tires” is exactly the kind of buyer you want.
Copyright: Business Brokerage Press, Inc.
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Important Factors to Consider in Your Lease
Owning and operating a business can be rather demanding and that means from time-to-time details can slip through the cracks. All too often, businessowners don’t fully comprehend their leases and this can lead to a variety of problems. For example, if your business location is a key part of your success, it is incredibly important that you are well aware of all the essential points in your lease. Many businesses, ranging from restaurants and service businesses to retail stores, can be very location sensitive.
Don’t Let Key Details Slip by You
Regardless what kind of business you own, it is vital that you understand every aspect of your lease. You may even have to get an attorney involved to help you understand the implications of the minor points. A failure to do so could translate to the failure of your business.
The Length of Your Lease
The length of your lease tops our list of lease related factors you need to understand. While there are many variables that will affect you, in general, the longer your lease the better. It should come as no surprise that a longer lease gives your business an increased level of stability.
Exit and Exclusivity Clauses
If you are negotiating a lease, it is prudent to include an option for getting out of the lease. Just as having a longer lease provides you with greater flexibility, the same holds true for being able to exit your lease if the need arises.
A lease is not a one-dimensional document, just as your location is not one-dimensional either. The location in which your business is located matters. If you are signing a lease to locate your business in a strip mall or shopping mall, you should try to have written into your lease agreement that you are the only business of your type that will be located in the mall. After all, the last thing you want is to see a similar business opening up nearby.
Transferring Your Lease
Negotiating a long lease and having a way out of your lease are critically important, but so is being able to transfer your lease. At some point in the future, you may need to sell your business. For this reason, it is in your interest to have a clear understanding of how, and under what circumstances, you can transfer your lease to a new owner.
It is important to discuss the possibility of selling your business with the landlord before going to market to understand if the lease will be able to convey. While the landlord cannot restrict the sale of your business, you could get left holding a personal guarantee in order for the lease to remain in place for the remainder of the existing lease term. Then the new owner would be left to negotiate the lease renewal on their own.
Assignment of Responsibilities
Rounding out our list of key factors to consider for your lease are what you are responsible for and what the landlord is responsible for handling. If you as the business owner are to shoulder responsibilities related to the property, then those responsibilities should also be clearly outlined in the lease.
There is no doubt there are many variables involved in owning and operating any business. The physical location of your business should be among your top concerns. You should do everything possible to understand your lease. When signing a new lease, try to negotiate a lease that will be as helpful to you as possible.
Copyright: Business Brokerage Press, Inc.
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