Buying a Distressed Business 

It is safe to state that Howard Brownstein, President of The Brownstein Corporation, is a true expert in providing turnaround management and advisory services to companies, as well as their stakeholders.  Brownstein serves as an independent corporate board member for both publicly held as well as privately-owned companies and nonprofits.  During his career, he has been named a Board Leadership Fellow by the National Association of Corporate Directors (NACD) and served as Board Chair and President of its Philadelphia Chapter.  He also serves as Vice Chair of the ABA Corporate Governance Committee and has been named a Fellow of the American Bar Foundation.  He has been a speaker at many of the world’s top universities including Harvard Business School and Wharton.  Brownstein received his J.D. and M.B.A. degrees from the University of Pennsylvania.

Mr. Brownstein is considered to be one of the world’s top experts in distressed businesses.  He believes it is essential to remember that not all distressed businesses are, in fact, the same.  There is simply no way to know how bad things are for a given distressed business until one begins to “look under the hood,” and get a full view of what problems may lurk underneath. 

Brownstein firmly believes that distressed businesses can represent a real and often overlooked opportunity for buyers.  The recent economic downturn brought about by COVID-19 means that there will likely be a great deal more distressed businesses on the market in the coming months or even in the next couple of years. 

Why is a Given Business Distressed? 

Before you consider purchasing a distressed business, you absolutely must understand the core reasons for the distresses.  Without a proper and detailed understanding of why the business entered a state of distress in the first place, it is impossible to clearly articulate why the business will potentially be valuable in the future.  It is essential to be able to convey “what went wrong” and how the problems can be fixed.

Brownstein points out that while there are many reasons for a business to enter distress, two symptoms top the list.  The first is cash flow issues and the second issue relates to management.  Often it turns out that the management was simply not rigorous enough.  He also notes that companies will tend to gravitate to external issues as a way to explain away their failure.

Of course, no two distressed businesses are failing from 100% identical causes.  Brownstein suggests a series of questions that you need to ask when you begin exploring a distressed business.

  1. What is the business’ potential value?
  2. Is there something of value under the problems?
  3. Under better or different circumstances, could the business be viable?

These are all questions that your business broker or M&A advisor can assist with.  It’s important to gain a clear understanding of the business’ past, present and future. 

Copyright: Business Brokerage Press, Inc.

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Considering Generational Strategies

When you are buying or selling a business, you might very well end up making a deal with someone from another generation.  Therefore, it only makes sense to take the time to understand that individual’s background and how that might cause behavioral differences.

It is important to understand and reflect upon where many of them are coming from and the collective experiences and trends that shaped their identities and perspectives.

At the same time, you can identify your own biases, strengths and weaknesses that may be caused by your own upbringing.

The strategies in this article originated from Chuck Underwood, who is considered a leading expert in the diversity of communication styles between generations.  He is the author of a major book on the subject as well as host of the long-running “America’s Generations with Chuck Underwood” on PBS.

Generational Sensitivity 

Underwood’s perspective is that people of each generation were molded by their unique formative years.  The decisions that buyers and sellers make will be impacted by their generation.  Mostly likely, the buyers or sellers you will be coming into contact with will be either Baby Boomers, Generation Xers and Millennials.

It only makes sense to pay attention to the generation during which colleagues and/or negotiation counterparts were raised and adapt your approach accordingly.  Understanding generational differences will help you get a leg up on the competition while at the same time helping you and your interlocutor to achieve your goals.

Working with Baby Boomers

Baby Boomers (those born between 1946 and 1964) are a major force in the business world.  While they often possess a patriotic passion to improve the country, they were also witness to a time of great change via many movements including the civil rights and women’s movement.

When you’re dealing with Baby Boomers, it is important to remember that they will want to build relationships and get to know you.  Common courtesy is very important to Baby Boomers.  That means they’ll expect you to show up on time and turn your phone off during meetings.

You’ll want to keep in mind that older Baby Boomers may be experiencing hearing and eyesight loss.  As a result, you’ll want to keep your type and font size larger, and make text easy to read.

What is Generation X?

Generation X (or Gen X) had a wildly different formative experience than the Baby Boomers.  Generation X is generally defined as being born from 1965 to 1980.  This generation spent its formative years from the 1970’s through the 1990’s.  In stark contrast the relatively more pleasant and optimistic childhoods of the Baby Boomers, Gen X had a rougher ride.

America became more mobile during the time period during which Generation Xers grew up.  As a result, many children were uprooted and separated from their friends, family and hometown roots.  Growing up, these individuals witnessed a variety of scandals ranging from political and religious figures to sports figures.  Gen Xers witnessed the systematic dismantling of the American middle class and with it a general lowering of quality of life, opportunities and confidence in corporations.  In the end, Gen X was quite literally left home alone and lived as “latch key kids.”  It is no wonder that this neglected generation has some issues.

Individuals growing up during this time learned early on that they had to be ready to fend for themselves.  Since Gen Xers have been met with consistent and systematic disappointment and even wide scale institutional betrayal, this generation, on average, is more distrustful of organizations.

Gen Xers are self-reliant and independent and one of their core values is survival of the fittest.  In his view, Gen Xers are self-focused, individualistic and want everyone to skip the nonsense and get to the point.  They have no real interest in getting to know you or playing a round of golf.

Working with Millennials

Millennials spent their formative years in the 1980s and early 90s.  They are a very optimistic and tech savvy generation.  They are also the most classroom educated generation in history.

It is also very important to note that Millennials are the most adult supervised generation in history.  So-called “helicopter parents” who work to protect their children from setbacks are the norm.  Employers find that Millennials are entering adulthood, but are still relying upon their parents to help them make decisions and even career choices.

Where Gen Xers are distrustful of the “wisdom of their elders,” Millennials actively seek out such advice.  Likewise, Millennials tend to volunteer a good deal and look for ways to solve the world’s largest problems.

You will find that Millennials will enjoy building a relationship with you.  Keep in mind these individuals tend to be quite socially conscious and they may very well expect you to agree with their views.  Additionally, there is a chance that they will have their parents involved in their business dealings.

Keep in mind that the de facto tech addiction, or at the very least acute overreliance on technology, has led to issues with Millennials’ soft skills.  They can often lack the ability to read another person’s body language and adjust accordingly.

In the end, regardless of what generation you are working with, it is important that you continually adapt.  This will greatly increase the odds of cementing a successful deal.

Copyright: Business Brokerage Press, Inc.

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Tips for Buying an Essential Business

“With the idea that essential businesses can be recession-proof and even boom during a public crisis, buying one is becoming a more attractive prospect,” says franchise expert Chris Buitron in a recent Milwaukee Community Journal article.

The thought piece, “4 Factors To Consider Before Buying An Essential Business In COVID Times,” discusses a rising interest among buyers in essential businesses. The COVID-19 pandemic has many buyers rethinking what type of business they might want to own, often turning to those deemed essential such as grocery, delivery, cleaning, and home services.

When looking into buying an essential business, Buitron recommends you consider the following:

  • Focus on successful types of essential businesses, those that are more likely to succeed even when economic conditions are poor.
  • Consider franchise opportunities which offer training and support.
  • Be able to decipher between a bargain and a bad investment.
  • Make sure that owning a business is right for you and that you are right for the business.

Focus on successful types of essential businesses. Among the essential businesses  that have the potential to succeed even during difficult economic times are: delivery services, grocery stores, convenience stores, e-commerce, gas stations, cleaning services, liquor stores, auto repair, lawn care, pest control, mailing/shipping services, and contracting. “The pandemic may be with us for a while,” Buitron says. “People will be home more often, and businesses that can service their needs while home will gain customers.”

Consider franchises as ownership opportunities. While some franchises are struggling during the pandemic, others are in a better position, Buitron says. “For franchises in general, much of the industry will be entering a buyer’s market, and those with the means will find some good opportunities,” he says. “People need jobs, and franchises annually employ 9 million people in the U.S. One benefit of buying a franchise is having an organizational and management team already in place to train you and help guide you. Reach out to other franchise owners to get a sense of the company’s commitment and support.”

Know a bargain vs. a bad investment. A relatively low sale price tempts some people into making a poor buying decision on a business. Buitron says it’s important to pore over the business’ financial numbers that it recorded before the pandemic and do all the research possible – especially of the market where the business is located – to determine if it was on a growth track and what the competition is like. “Two questions you need to ask yourself as a potential buyer of an essential business are: What can you bring new to the business to make it more successful, and why was or wasn’t it profitable?” he says.

Be sure you’re up to owning a business. “There are no guarantees with owning an essential business,” Buitron says. “The pandemic has put a spotlight on their importance, but they take lots of work and organizational skills to run. If you are someone who can’t deal well with uncertainty, buying a business any time, let alone during the most uncertain time in our history, isn’t the right choice. Buying a business and committing to it requires thorough research, a passion for the business, a solid financial foundation and a leap of faith.”

If you’re looking for the right business to buy, we can help navigate the complexities of this year’s unusual market and business environment. Check out our listings here and contact us for more information!

Essential Meeting Tips for Buyers & Sellers

The buyer-seller meeting is quite often a “make or break” meeting.  Your business broker or M&A Advisor will do everything possible to ensure that this meeting goes as well as possible. 

It is vitally important to realize that rarely is there an offer before buyers and sellers actually meet.  The all-important offer usually comes directly after this all-important meeting.  As a result, you want to ensure that meetings are as positive and productive as possible.

Buyers need to understand how the process of selling a business works and what is expected of them from the process.  Buyers also need to understand that following their broker’s advice will increase the chances of a successful outcome. 

Sellers should be ready to be honest and forthcoming during the meeting.  They also want to be sure to not say or do anything that could come across as a strong-armed sales tactic. 

Asking the Right Questions

If you are a buyer preparing to meet a business owner for the first time, you’ll want to make sure any questions you ask are appropriate and logical.  It is important for buyers to place themselves in the shoes of the other party. 

Buyers also shouldn’t show up to the buyer-seller meeting without having done their homework.  So be sure to do a little planning ahead so that you are ready to go with good questions that show you understand the business. 

Building a Positive Relationship

Buyers should, of course, plan to be polite and respectful.  They should also be prepared to avoid discussing politics and religion, which often can be flashpoints for confrontation.  When sellers don’t like prospective buyers, then the odds are good that they will also not place trust in them.  

For most sellers, their business is a legacy.  It quite often represents years, or even decades, of hard work.  Needless to say, sellers value their businesses.  Many will feel as though it reflects them personally, at least in some fashion.  Buyers should keep these facts in mind when dealing with sellers.  A failure to follow these guidelines could lead to ill will between buyers and sellers and negatively impact the chances of success.

Sellers Should Be Truthful

Sellers also have a significant role in the process.  While it is true that sellers are trying to sell their business, they don’t want to come across as a salesperson.  Instead, sellers should try to be as real and honest as possible.

Every business has some level of competition.  With this in mind, sellers should not pretend that there is zero competition.  A savvy buyer will be more than a little skeptical.

The key to a successful outcome is for business brokers and M&A Advisors to work with their buyers and sellers well in advance and make sure that they understand what is expected and how best to approach the buyer-seller meeting.  With the right preparation, the odds of success will skyrocket.

Copyright: Business Brokerage Press, Inc.

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Negotiating the Price Gap Between Buyers and Sellers

Sellers generally desire all-cash transactions; however, oftentimes partial seller financing is necessary in typical middle market company transactions.  Furthermore, sellers who demand all-cash deals typically receive a lower purchase price than they would have if the deal were structured differently.

Although buyers may be able to pay all-cash at closing, they often want to structure a deal where the seller has left some portion of the price on the table, either in the form of a note or an earnout.  Deferring some of the owner’s remuneration from the transaction will provide leverage in the event that the owner has misrepresented the business.  An earnout is a mechanism to provide payment based on future performance.  Acquirers like to suggest that, if the business is as it is represented, there should be no problem with this type of payout.  The owner’s retort is that he or she knows the business is sound under his or her management but does not know whether the buyer will be as successful in operating the business.

Moreover, the owner has taken the business risk while owning the business; why would he or she continue to be at risk with someone else at the helm?  Nevertheless, there are circumstances in which an earnout can be quite useful in recognizing full value and consummating a transaction.  For example, suppose that a company had spent three years and vast sums developing a new product and had just launched the product at the time of a sale.  A certain value could be arrived at for the current business, and an earnout could be structured to compensate the owner for the effort and expense of developing the new product if and when the sales of the new product materialize.  Under this scenario, everyone wins.

The terms of the deal are extremely important to both parties involved in the transaction.  Many times the buyers and sellers, and their advisors, are in agreement with all the terms of the transaction, except for the price.  Although the variance on price may seem to be a “deal killer,” the price gap can often be resolved so that both parties can move forward to complete the transaction.

Listed below are some suggestions on how to bridge the price gap:

  • If the real estate was originally included in the deal, the seller may choose to rent the premise to the acquirer rather than sell it outright.  This will decrease the price of the transaction by the value of the real estate.  The buyer might also choose to pay higher rent in order to decrease the “goodwill” portion of the sale.  The seller may choose to retain the title to certain machinery and equipment and lease it back to the buyer.
  • The purchaser can acquire less than 100% of the company initially and have the option to buy the remaining interest in the future.  For example, a buyer could purchase 70% of the seller’s stock with an option to acquire an additional 10% a year for three years based on a predetermined formula.  The seller will enjoy 30% of the profits plus a multiple of the earnings at the end of the period.  The buyer will be able to complete the transaction in a two-step process, making the purchase easier to accomplish.  The seller may also have a “put” which will force the buyer to purchase the remaining 30% at some future date.
  • A subsidiary can be created for the fastest growing portion of the business being acquired.  The buyer and seller can then share 50/50 in the part of the business that was “spun-off” until the original transaction is paid off.
  • A royalty can be structured based on revenue, gross margins, EBIT, or EBITDA.  This is usually easier to structure than an earnout.
  • Certain assets, such as automobiles or non-business-related real estate, can be carved out of the sale to reduce the actual purchase price.

Although the above suggestions will not solve all of the pricing gap problems, they may lead the participants in the necessary direction to resolve them.  The ability to structure successful transactions that satisfy both buyer and seller requires an immense amount of time, skill, experience, and most of all – imagination.

Copyright: Business Brokerage Press, Inc.

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Opportunity: Sign of the Pampered Maiden

Sign of the Pampered Maiden in Santa Fe for SaleSign of the Pampered Maiden is an iconic, enduring brand and luxury fashion destination in the heart of downtown Santa Fe, and it could be yours. A dramatically reduced price and supportive SBA programs make this a perfect opportunity to become part of the Santa Fe retail and fashion identity.

Now listed at only $180,000, Pampered Maiden’s 2019 gross revenue was $615,266, with a cash flow of $74,417. Find more information about this exceptional opportunity here.

Pampered Maiden’s collection of organic, eco-sensitive and locally-sourced clothing has won it a loyal customer base. The classic sensibility and emphasis on quality has attracted women of multiple generations. Visitors and locals alike have made a regular habit of shopping at Pampered Maiden to seasonally refresh their wardrobe.

The shop’s reputation for customer service also sets it apart. Staff is skilled at providing a personalized shopping experience and expert at visual merchandising. Santa Feans consistently rank Pampered Maiden as one of the top stores for women’s clothing, jewelry, fashion accessories, and gifts. It has been featured in the pages of The Santa Fe Guide, The Essential Guide, Trend Magazine, In-Art Design Magazine, and other local publications.

Additionally, the current owner has invested in upgrading Sign of the Pampered Maiden’s online presence. A newly updated e-commerce site and enhanced social media are important adaptations and bring the brand great sustainability and growth potential.

To help secure a smooth transition, the Seller will make personal introductions between vendors and new owners. If desired, she will accompany new owners on the initial trade shows and major buying trips. A top-notch staff also helps make this business easy to operate.

 

 

 

 

Should You Buy a Turnkey Business?

There are plenty of benefits to purchasing an existing business, but running a successful business can become overwhelming. If you’re considering buying a small business, but don’t know if you have enough time to commit to a significant venture, then a turnkey business model might be the right fit for you. Continue reading to discover if you’re someone who should buy a turnkey service business.

3 People Who Should Consider a Turnkey Service Business

Turnkey opportunities exist in a variety of industries including painting, cleaning, financial services, and more. Even if you’re not an expert in the industry, a true turnkey business provides everything except for staff. That means you can skip the stressful startup and jump right in. If you identify with one of the following characteristics, a turnkey service business might be the right choice for you.

  1. Entrepreneurs Looking for a Side Hustle

    As an entrepreneur, you’re continually seeking ways to earn money in addition to your current commitments. Buying a turnkey business doesn’t typically require you to drop your full-time job, or any other side hustles to be successful. Once you learn how to manage the company, you’re in control of your schedule and your workload.

    Compared to a franchise opportunity, turnkey operations often cost more to purchase initially. However, long-term costs are lower because you aren’t required to pay franchise fees, royalties, and marketing fund fees. Plus, a non-franchise, turnkey business doesn’t obligate you to follow regulations and guidelines when running your new gig. Owning and running your service-based turnkey business on your terms can help you achieve financial freedom.

  2. Seasonal Business Owners

    Whether you own an ice cream shop or a window-washing business, your goal is the same. You aim to make as much as you can during your most lucrative months. Buying an established turnkey service business can supplement your income during both your busy season and off season, creating an opportunity to drastically increase cash flow every year.

    With an established turnkey business, the services provided have already been defined and proven, so your startup phase is minimal. You may even be able to find a company that compliments a business you already own. Not only is this a fantastic way to generate additional income during your off-season, but it also provides more service variety for your existing customer base.

  3. Retirees Seeking a Job with Flexible Hours and Low Commitment

    During retirement, you can appreciate your free time without having any commitments or obligations to attend to. But sometimes, you desire additional activities and responsibilities, or you may want to supplement your savings. Investing in a turnkey business opportunity allows you to create your schedule and work as little or as much as you want. The more you work, the more chances you have to earn money, but a service-based business doesn’t have to require a high level of commitment. If you need a specific day or week off, you can always schedule around your obligations.

If any of the above descriptions make you think that you’re someone who should purchase a turnkey service business,we can help. Look through our listings to find the turnkey business for you or contact us to get started!

Smart Millennial Retirement Planning

Millennial Retirement Plans (Hashtag!)

Last week, the trending hashtag #MillennialRetirementPlans shone a darkly funny light on the despair many millennials feel regarding their financial futures. This generation (born from around 1981 to 1996 depending on the definition) has faced its share of economic challenges. The 2008 crash hit many millennials with the triple whammy of skyrocketed healthcare, student loan debt, and a dearth of paying jobs and wage stagnation. Their average net worth is less than their predecessors’, at less than $8,000, according to a study by Deloitte. They have witnessed wild volatility in the stock market–with swings of a hundred points in a day or thousands in a week—whereas the Baby Boomer generation saw the consistent climbs of the 80’s and 90’s. Research indicates that financial fears are causing this group to defer home ownership and families.

Despite the challenges, millennials are approaching financial planning with their eyes more open than their parents’ and grandparents’ generations. A study by TransAmerica found that found millennials start saving for retirement at age 24, compared to 30 for Gen X and 35 for Baby Boomers.

Business Ownership and Financial Planning

One smart way of preparing for your financial future is business ownership. As we’ve written before, entrepreneurship through acquisition allows you to mitigate the risks involved with starting a business from scratch while maximizing the personal rewards of owning a business.

“[Your] significant ownership interest adds both to rewards and stability. In the long run, we think that being a senior consultant involves much more angst than being the CEO of a small business,” write Harvard Business School professors Richard Ruback and Royce Yudkoff.

An additional benefit of business ownership is in-built, savvy financial planning. You can leverage up to 100% of your 401(k), 403(b)s, IRA, or any other retirement fund to purchase a business. IRS code allows, when structured properly, that such a roll out does not incur penalties for early withdrawal. This frees up funding without creating interest payments on loans, allowing you to launch into your business unencumbered by debt—or at least much less burdened. If you use financing from an Small Business Administration loan, which most purchases do, the terms are almost always better than banks’.

“Instead of investing your money in mutual funds or stocks over which you have no management control, you can invest your savings in your business and grow your equity,” says SGA President Michael Greene. “Your business becomes your retirement fund. With good management and a strong growth record, you can usually sell it for more than you paid for it when you’re ready.”

Opportunities

Click here to see the business listings currently on the market to launch you on the path to a rewarding, independent future.

Tumbleweeds, Beloved Community Resource, on the Market

Tumbleweeds, an early and mid-childhood development magazine loved by parents and educators, is now on the market. Long-time owner Claudette Sutton is ready to move onto her next projects after decades of growing the publication into a staple resource for northern New Mexico families.

Listed at $95,000 with a cash flow of $50,000, this home-based business allows for a flexible, part time schedule and engagement with a passionate, grateful community. The publication enjoys an established advertising base, strong distribution, and a dedicated team of writers, designers, and editors.

A recent article in Santa Fe New Mexican highlights community appreciation for the publication’s helpful content:

“Where would parents and teachers be without Tumbleweeds?” said Joani Kennedy, who has operated the Wee Spirit Preschool in Santa Fe since 1984. She’s been a Tumbleweeds reader since the beginning [in 1995].

“There are profound articles for teachers and people to solve the wonderful problems that come with working with children,” Kennedy added.

Tumbleweeds grew out of a four-page newsletter, Tot’s Hot News, that Sutton started in 1991 focusing on early childhood. By 1995, it had grown to 16 or 20 pages and was addressing increasingly older children. Sutton upgraded to a magazine format with Tumbleweeds.

“I was realizing a lot of articles were not just for parents of young children but children in elementary school and approaching teens,” she said.

 

4 Tips to Build Managerial Confidence

A lot of people know the symptoms: feeling overwhelmed, unworthy, overly lucky, terror at being “found out.” If you’ve wrestled with Impostor Syndrome, you know the struggle is real—even when your lack of qualifications isn’t!

Impostor Syndrome is a pervasive sense of self-doubt, a belief that one’s successes have not been earned. While this insecurity can strike at any level of professional experience, research indicates that it is more common when starting a new endeavor, such as managing a new business.

In a recent article on Fast Company, writer and senior strategist Jackie Berkery shares four tips tailored for new managers dealing with confidence issues.

Claim Your Success

“Take time to contemplate what’s been accomplished and the role you played,” Berkery suggests. Acknowledge what your team did well, but also what you, as their manager, did to facilitate and foster that success. “When you don’t have a concrete sense of how your individual behaviors generate certain outcomes,” she points out, “you can’t learn from either your failures or your successes—and, for the record, the latter is just as important as the former.”

Vulnerability in Moderation

“The benefits of vulnerability get sidelined when your team hears you doubt your own management skills,” says Berkery. “Most of the time, your team needs someone who can inspire confidence, display composure and consistency, and lead by example. While there’s still ample room for showing empathy, owning your mistakes, and developing an approachable, open management style, expressing doubt in your abilities as a manager is not an effective strategy.”

Get Specific Positive Feedback

Receiving and responding to constructive criticism is an important part of growth. Positive feedback is an important part of the learning process too! “Ask for two to three specific things you’ve done that have been helpful or had a positive impact,” Berkery suggests.

Embrace a Growth Mindset

It’s OK that you don’t know it all yet! “There will be a learning curve and skills you need to develop over time. It’s only natural you’ll second-guess yourself along the way,” says Berkery. “Recognizing your imperfections while putting in the work to improve isn’t the same as the paralyzing downward spiral of self-doubt triggered by Impostor Syndrome. If you don’t feel confident in your abilities right now, be confident in your ability to learn and grow and just plain work hard instead. Confidence as a manager and leader will come.”

In another article, we discuss the value of a training and transition phase as well. When you buy a business, this phase is a great learning opportunity. The seller, as well as veteran employees, will often help you settle in. Take this chance to learn as much as you can. You got this!