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!

 

Business Buyers Can Leverage SBA Lending

Finding the money to start your own small business can be a challenge.  Over the decades, countless people have turned to the Small Business Administration (SBA) for help.  A recent Inc. Magazine article, “Kickstart Your Business Dreams with SBA Lending,” by BizBuySell President, Bob House, explored how SBA lending can be used to the buyer’s advantage.

The article covers the basics of an SBA loan and who should try to get one.  House notes that the SBA doesn’t provide loans itself, but instead facilitates lending and even micro-lending with a range of partners.  The loans are backed by the government, which means that lenders are more willing to offer a loan to an entrepreneur who might not typically qualify for one.  The fact is that the SBA will cover 75% of a lender’s loss if the loan goes into default.

Entrepreneurs can benefit tremendously from this program.  In some cases, an SBA loan even means skipping the need for collateral.  SBA loans can be used for those looking to open a business, expand their existing business or open a franchise.

House points out that getting an SBA loan has much in common with receiving other types of loans.  For example, it is necessary to be “bank ready.”  By “bank ready,” House means that all of your financial documentation should be organized, clear to understand and ready to go.

Next, a buyer would need to check that he or she qualifies, find a lender and fill out the necessary SBA forms.  In order to be eligible for an SBA loan, it is necessary that the business is a for-profit venture and that it will do business in the United States.  Once the necessary forms have been submitted, it can take between 2 to 3 months for an application to be processed and potentially approved.

The simple fact is that the SBA helps thousands of people every year.  If you are looking to buy a business or expand your current business, then working with the SBA could be exactly what you need.  Of course, business brokers are experts on what it takes to buy.  Working with a broker stands as one of the single best ways to turn the dream of owning a business into a reality.

8 Tips to Get and Keep Good Employees

“I can’t get good employees.” How often have you heard this from small business owners?

Cultivating a good team is an essential challenge. Here are some tips for attracting and retaining good employees:

  1.  Model integrity. Say what you’ll do, then do what you say.
  2. Always be respectful to employees and customers, even when you’re angry. People hear how you talk about others in moments of frustration and assume that’s how you’ll talk about them when they make mistakes.
  3. Even if you know the answer, help the employee figure it out.
  4. Let your employees make little mistakes and then show the leadership compassion when you unscramble the problem.
  5. Focus local  for employees. A short commute is high value these days.
  6. Don’t be afraid to hire people who are smarter than you. When you do, let them help you.
  7. Focus on total compensation, not just the salary. Put in place bonus plans so that when the business does well, everyone does well.
  8. Hire slow, fire fast.

If you are purchasing a business, the training and transition phase is important. Usually, the seller will assist, helping you understand the ins and outs of your new business and providing stability for both your new employees and your customers. Hopefully, your new business also comes with some veteran employees who know the ropes. Try to resist making sweeping changes right away. Employees may feel  uncertain working for a new business owner. Some consistency will help them feel comfortable to keep doing their jobs. It also gives you a chance to make more informed decisions. For more tips on setting yourself and your employees up for a smooth transition, click here.

That’s a start. There are great people out there who can help your business thrive. Now the real question is, how do you become a business owner who deserves better people?

Less Risky Business: Buy a Business

In a recent Harvard Business Review article, Harvard Business School professors Richard S. Ruback and Royce Yudkoff advocate for more aspiring entrepreneurs to pursue their goals by buying a business. They site concern over risk as the most common explanation for shying away from acquisition. They further argue that these concerns are short sighted and unfounded.

Comparing Risk

“We think that these concerns about ‘risk’ are misplaced and that searching for a business is less risky than other career paths that are traditionally considered more stable,” they write.

“Nine out of ten startups will fail. This is a hard and bleak truth,” says Forbes contributor Neil Patel. “Cold statistics like these are not intended to discourage entrepreneurs, but to encourage them to work smarter.”

Top 10 Reasons Startup Fail (by CB Insights)

Purchasing a vetted business allows you to avoid many of the reasons for this high failure rate. “Your chances of success are far greater buying an existing business than starting your own,” says Michael Greene, President of Sam Goldenberg and Associates.  “A good broker can help you find an established business that already has a proven success model, history of revenue generation, and immediate cash flow. It can also come with much more: inventory, trained employees, a customer base, operating systems, equipment, vendors, transitional support—the list goes on. It’s a more manageable risk than other options.”

“Finding an existing local business for sale can often be less risky and more satisfying and rewarding than starting completely from scratch,” says Simon Brackley, President and CEO of the Santa Fe Chamber of Commerce. “Aspiring entrepreneurs can enjoy improvements in operations, marketing and strategy rather than starting from the ground up.”

Navigating the Search for a Business

Unfamiliarity with the search process is a major source of concern, according to Ruback and Yudkoff. For many buyers, there are uncomfortably many unknowns along the way.

 

A buyer can drastically limit risk in the area of search success by working with a broker. According to an International Business Brokers’ Association Market Pulse survey, “Dating back to the earliest Market Pulse surveys in 2012, surveyed advisors consistently report that approximately 49-50% of their engagements closed in a successful transition while half are terminated. This closing ratio is approximately twice the accepted industry standard of anywhere from 18% to 30%, depending on deal size.”

Buying a Small Business

Furthermore, according to IBBA, it is an especially good time for people looking to buy a business in the range of $500,000 or less. This is the range of most small businesses for sale in New Mexico. “Small business confidence is at a record high, with the longest stream of small business optimism in history.”

A broker further helps to mitigate risk by  facilitating negotiations, advising on financing, and setting up support during the transition between business owners. Click here to find out more about how brokers support buyers throughout the search for and purchase of the right business.

Finally, Ruback and Yudkoff suggest that buying a business results in less stress, more success, and higher quality of life in the long run.

“The searcher becomes a CEO of a business. Over time the business evolves to match the CEO, the management team is picked by the CEO, the products and customer base shifts to align with the CEO’s skills and interests, and the CEO is likely to understand the business better than competitors. Plus, the CEO’s 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.”

Plus, with good exit planning, owning a business helps you create options for your next phase of life.

Get Started!

If you are considering entrepreneurship through acquisition, congratulations! Click here to get started by looking at our current listings.