3 Overlooked Areas to Consider When Buying a Business
Without a doubt, there are a multitude of factors that go into buying a business. Since there are so many variables involved, it is easy to potentially neglect some important aspects. In this article, we will explore some of the key areas that can be overlooked when buying a business. Three areas in particular warrant special attention.
#1 Legal Documents
Upon first glance, it might seem obvious that all legal documents should be evaluated; however, many buyers forget that all legal documents are important and should be given weight. In short, there is no such thing as an irrelevant legal document, as one never knows what problems could be lurking within any given legal document.
For this reason, you’ll want to carefully examine any legal document before making a purchase. The stakes are simply too high to not evaluate everything from trademarks and copyrights to leasing agreements.
#2 W-2 and 1099 Forms
It is important to note whether or not 1099 forms were given out instead of W-2 forms. The reason is that the IRS has very specific rules regarding these forms. The last thing that any buyer of a business wants is to sign on the dotted line only to discover that there are problems with the IRS. Taking ownership of a new business only to learn that there are IRS issues is something that should clearly be avoided.
#3 Retirement Plans
Just as it is vital to look over all financial documents, including W-2 and 1099 forms, the same holds true to evaluating retirement plans. You shouldn’t buy a business unless you know if the business’s qualified and non-qualified retirement plans are completely up to date with the Department of Labor. A failure to properly evaluate a given company’s retirement plans can be a very costly mistake.
Ultimately, there are many potential topics that can be overlooked when buying a business. In this article, we outlined three areas, but in reality, there are many more. This fact underscores the tremendous importance of working closely with a business broker, as well as other trusted professionals, such as lawyers and accountants, in order to properly vet any business that you are considering. One of the key steps in buying any business is to take every possible step to perform due diligence. No business is a flawless enterprise, but a seasoned business broker or M&A advisor can help you to successfully chart a path forward.
Copyright: Business Brokerage Press, Inc.
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Disruptive Factors in Selling Your Business
At some point, every business owner will need to think about selling his or her business. This means you’ll need to be ready to overcome a range of obstacles, as the process of selling a business can be both confusing and time-consuming. This is especially true for those who have not gone through the process before. Let’s turn our attention to some of the key reasons why deals can fall apart.
Psychological Factors
Buyers, like sellers, enter the process with a variety of preconceived notions about how the process should work, as well as what they consider to be “a great deal.” The psychological factors involved in selling a business shouldn’t be overlooked.
Sellers need to understand the specific wants and desires of the buyer as well as their own psychology.
Even serious buyers may have highly unrealistic expectations regarding various aspects of a business, ranging from its price to its opportunities for future growth. In some cases, they may stall due to the fact they are not quite ready to buy a business and see no urgency in the matter.
Buyers can also be influenced by outside parties, whether advisors or friends and family. In short, sellers may discover that, for all practical purposes, buyers may actually be several people who are forming a collective opinion on issues regarding the business.
Seller Psychology
A seller’s own psychology can play a huge role in whether or not a business is successfully sold. Many sellers enter into the process without a full understanding of what is involved. This factor, of course, underscores the tremendous importance of working with professionals months, if not years, before you actually place your business on the market. These professionals should include an M&A Advisor or Business Broker.
Another major obstacle is that many sellers have unrealistic expectations about both price and the time frame in which their business can be sold. Sellers should enter the selling process with their eyes open and realistic expectations in place. Be sure to establish a fair price. It’s also important to understand that it may take a year or longer before a buyer is found.
Acts of Fate
Sellers should remember that there are many “acts of fate” that can disrupt a deal. A deal may seem like everything is moving along without problems, only to discover at the last minute that the buyer isn’t able to secure the needed funds as expected.
It is important for all parties involved to realize that until a deal is finalized, problems can still arise. In fact, they can arise from unexpected directions. But it is difficult to anticipate and spot every potential disruption. The complexity of selling a business is one of the main reasons why so many business owners opt to work with a brokerage professional.
Copyright: Business Brokerage Press, Inc.
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The Importance of Quality Negotiations
When it comes to finalizing deals, successful negotiations are at the heart of the matter. It only makes sense to think about how to improve your communication skills and to choose a Business Broker or M&A Advisor who is well versed in the art of negotiation.
Cultivating Win-Win Situations
Achieving a win-win for all parties is essential, and there are many components involved. It’s essential to understand what the other party is seeking and to help them also feel as though they succeeded in the deal.
One tried and tested strategy is to lead people through a series of “yeses” by starting with topics and points that can be agreed upon and then working forward. In the beginning of this negotiating strategy, the yeses may come from getting others to agree on what may be seen as trivial things. However, this step works to create the right climate for moving forward so that yeses can be obtained on more important issues.
Maintaining the Flow of Information
The flow of information is a critical aspect of the negotiation process. For this reason, it’s best for negotiations between buyers and sellers to go through their brokerage professionals, rather than conducted directly.
The simple fact is that otherwise there are too many variables and opportunities for something to go wrong, ranging from egos getting in the way to miscommunications. When you choose a qualified Business Broker or M&A Advisor, you’ll be able to place trust in that person to achieve optimal outcomes.
Understand One Another
It is important to keep the other side talking and show that you understand their perspective and the issues they may have. It is in this way that you can encourage cooperation and diffuse resistance in advance.
Ultimately, great negotiations stem from proper strategy, preparation, proper education, enhanced communication, and understanding the other party’s needs. When you and your Business Broker or M&A Advisor foster good communications with the other party, it will enhance the chances of achieving the kind of cooperation you are seeking. This in turn, dramatically increases the chances of achieving win-win outcomes.
Copyright: Business Brokerage Press, Inc.
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Top Ways to Ensure Your Business Sells Fast
Every business owner has different reasons for selling their company. Some want to retire, some want to get out of the industry, and others need cash flow.
You might be selling your business for any number of reasons, but the primary goal is always to get that money into your hands as fast as possible. So how can you ensure a quick sale?
Here are ways to sell your business that can be fast and efficient:
Tips for Selling a Business: Be Flexible in Your Pricing
You want to sell your business, but you also need to ensure that the price is right.
Price too high, and nobody will be interested in buying it; sell for too low of a price, and you might end up giving away your company.
Finding the sweet spot means striking a balance between what’s best for both parties involved. Be willing to negotiate, and you might find a buyer quicker.
Don’t be too stubborn when it comes to negotiating terms for your company’s sale.
You might think you know exactly how much money it’s worth, but the buyer has a different valuation in mind. And they’ll pay what they feel is fair market value.
More importantly, being willing to negotiate shows that you’re flexible about selling your business which will ultimately help speed up its sale. It can also lead you toward getting top dollar if done correctly.
If you find yourself not wanting or able to negotiate with potential buyers, this could slow down the process significantly.
Clean up Financial Documents
If you sell your business, be ready to hand it over in pristine condition.
This means providing a clear and complete financial picture of the company’s sales history and current standing. And that includes all documentation for taxes owed, outstanding bills, loans taken out against the company bank account, etc.
It’s only right to be honest and straightforward about your business’s financial records. Don’t sell yourself short by lying or skimping on details that could cost you a sale in the long run.
Be sure to keep good records of all transactions, including invoices sent out and received payments for said bills/invoices.
You want the business’s financial history to be in tip-top shape for whoever is buying it. Take some time to go through all of your company’s records if need be before offering up its sale.
You also might consider hiring a CPA to help give your financials a once-over. This can be helpful in showing you where any errors or problems might lie, offering clarity on the company’s records and financial standing.
Sell to a Broker
Selling your business can be a long and arduous process.
The best way to sell it fast is through the assistance of a professional broker who knows how to get you the highest price in the least amount of time.
A good broker can sell your business at a price that’s higher than what you could ever hope to sell it for on your own. And they can do this in much less time too!
A broker will work with multiple potential buyers, narrowing down the search until only one is left standing as the highest bidder. They’ll also handle all negotiations and paperwork involved in the sale of your business, saving you time and stress in the process.
Let a broker sell your business for you so that all you have to do is agree on terms before receiving payment.
Don’t underestimate just how important working with an experienced brokerage firm is when selling your business: It’s one thing that could determine whether you sell quickly.
Be Prepared To Show Off Your Business
Be open and ready to sell your business.
This means preparing for any questions that a potential buyer might ask about the company. You don’t want them wondering why it only made $100,000 last month or asking how old some of its equipment is: The more they know upfront about your company, the faster you’ll sell.
To sell quickly, sell confidently.
You sell your business by pitching it to potential buyers, proving that you know everything about what makes it such a great buy and how much money can be made with the right owner at the helm. Show them why they want to make an offer as soon as possible.
Do Not Hesitate
There is no one perfect time to sell a business.
The best way to sell your company fast and for the most amount of money possible? Sell it when you’re ready. There’s never going to be a better time than now, so don’t hesitate!
Don’t wait until your business fails or starts making less money because that could cost you in terms of both speed and price. Be willing to sell at any point regardless if things are going well or not.
Be open about wanting/needing to sell your company as soon as possible to anyone interested in buying it. Don’t play games by stringing them along or dragging your feet.
The sooner you sell, the more money you’ll likely get out of it. Make that a priority from day one, and find buyers who are willing to pay top dollar for your company as soon as they know about its availability.
Streamline Operations
To sell a business quickly and for top dollar, you need to make it as attractive as possible.
Take the time to streamline operations so that your startup can be sold in its most appealing state.
This means focusing on profitability by reducing expenses and increasing revenue wherever possible. The more money your company makes per month/quarter, the higher potential buyers will value it. And they’ll pay accordingly!
This is one of the best ways to ensure you get a fast sale when ready to sell.
Selling Your Business Made Easy
Selling your business can be challenging and time-consuming.
However, with this guide to selling your business, you’ll increase the chances of selling your company fast at the best possible price. Sell it now to be on your way to a new chapter.
Are you looking to sell your business? Contact Fusion Business Services today to find out how we can guide you through the process of selling your company fast.
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How Changing Market Conditions Can Impact Your Business
Recently, the International Business Brokers Association (IBBA) released its Q2 survey report, The IBBA and M&A Source Market Pulse. This survey features feedback from an impressive 301 brokerage professionals across 44 states with 266 transactions taking place in the quarter. The report had numerous key findings that will be of interest to those looking to buy or sell a business.
The Emergence of Covid-Proof Businesses
One key fact of interest is that a full 25% of businesses are still operating below capacity due to the pandemic’s enduring impact. The Market Pulse survey concluded that a quarter of all small and medium sized businesses are either in a position where they are temporarily closed or are operating below capacity. On the other side of the equation, the survey noted that 29% of businesses have either emerged as “Covid proof” or have actually benefited from the pandemic.
For sellers with Covid resistant businesses, now could be an excellent time to sell. For buyers, there are potential deals to be had, especially for those who are willing to look beyond the current pandemic fueled environment and towards the future.
Why are Sellers Selling?
The report also noted that burnout is a major factor impacting deal activity. Retirement continues to be the leading reason why businesses are selling, but burnout has become a quickly rising secondary reason.
The top five reasons that sellers are putting their business on the market are: retirement (35%), burnout (27%), health (15%), tax increases (7%) and general Covid fatigue (7%). The pandemic is still likely playing a role in the minds of many business owners who are looking to sell, which means that buyers could find good deals due to the pandemic. It is important for buyers to note that as pandemic conditions improve, many of today’s good deals will likely vanish.
While the IBBA and M&A Source Market Pulse report noted that over the last year it took longer for deals to close in most sections, there were exceptions to that rule. For example, in the $5 million to $50 million sector, there has actually been an acceleration. On average, deals in that range are taking a mere ten months to close.
Top Buyers in 5 Sectors
Sellers will be pleased to hear that the report concludes that buyers are indeed active, noting that in the Main Street market, personal services were trending. In the lower middle market, it was manufacturing and construction/engineering that dominated industry transactions.
The top buyers in the $0 to $500,000 sector were first time buyers (39%), in the $500K to $1MM range, the top buyers were first time buyers (37%), and in the $1MM to $2MM range, entrepreneurs (29%) lead the way. For the $2MM to $5MM range, it was first time buyers (36%) and serial entrepreneurs (28%) who led the way. For the $5MM to $50MM range, PE firms seeking a platform deal (33%) were the most represented group of buyers. It is interesting to note that with the exception of the $5MM to $50MM range, first time buyers topped the list.
Buyers and sellers will be pleased to learn that the IBBA and M&A Source Market Pulse report clearly outlines just how much the climate has changed from 2020 to 2021. Today’s market conditions are different than they were a year ago. If you’re looking to purchase a business, you can still find great deals. Those looking to sell should find increased interest from an array of buyers, especially first-time buyers.
Copyright: Business Brokerage Press, Inc.
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