According to the results of a recent survey, most family-owned companies need family business consultants, primarily because of “succession planning” or actually the lack of it. And because the vast percentage of all companies, up and down every street in every town are considered “family owned”, it means that the majority of all companies face the distinct likelihood of losing their life’s work because they have not kept their eye on the ball when it comes to succession planning.

That’s right - succession planning is critical because it is a process that unlocks cash from the business for the departing generation of owners and creates an environment where the next generation can begin taking over. This process requires a different set of advisors - or at least a new member or two of the company’s advisory team. One of the many things that a good family business consulting team can do is help with those very important plans - creating business management transition and ownership transition simultaneously. The success of the company for future generations depends upon it.

In companies large and small, succession planning involves aligning the visions of - in most cases the founders of the business although it could be the children or even grandchildren of the founders, stakeholders and gradually handing off decision-making authority to the next generation of managers. In order to do this successfully, training and identifying potential leaders is necessary. That’s just one of the areas that family business consultants can help with.

It is far too easy to let personal opinions about children, grandchildren or other family members get in the way of choosing someone that actually has potential. Often we see our children as we saw them when they were kids, leaving their roller skates in the driveway, forgetting to lock the car at the Mall, or leaving the forklift out of gear on the loading dock. A neutral family business consulting team can look at factors that people on the “inside” may not be able to see.

100% of the businesses in the survey said that the continued involvement of family members in managing the company was important. After all, the owners of family businesses often have virtually all of their assets tied up directly or indirectly in the business - so they want folks who are committed stewards of their years of hard work. Even so, 61% said that they had spent little time on succession planning, possibly confusing succession planning with estate planing, something everyone seems to put off too long. Even CEOs that planned to retire within the next seven years were unsure about “who” would take over after they retired, maybe because the only person they see when they look at their potential successors are the people they were and not the people they have become. Six months or even a year is not sufficient time for making a successful transition. Even ten years may not be long enough.

The survey indicated that there are other areas in which a family business consulting team could help, as well. For example, 13% of owners surveyed said that high profits were not important - remember the higher the “profits” the higher their taxes become. With that ages old mindset business owners often take unwise shortcuts of all kind instead of seeking advice that can help then maximize their profits and minimize their taxes simultaneously. Family business consultants can help those members who see making a profit as being less than savvy, greedy or undesirable in some way. Making a profit is what any business-leader should focus on.

When the economy is doing poorly, the idea of hiring a family business consulting team may seem unaffordable. Or they choose the less desirable candidates thinking they can get them on the cheap, maybe because there aren’t as many consulting engagements around as there are when the economy is booming. In fact it is during recessionary times that the help of the most desirable candidates is most valuable - because they are committed to the long term success of their client’s business and not solely motivated by the paycheck today. Again, it’s about being neutral.

None of the owners surveyed said that they expected to fire or lay anyone off over the next year. Why would they say that they might fire someone - especially since they are undoubtedly related to them? Yet, there are probably a number of employees in those companies that should, in fact, be replaced or, at the least, counseled concerning productivity.

The business owners know they are not just firing their lazy nephew - they are firing their families too. In family owned companies nothing and no one is neutral and in a vacuum, everyone is connected to everyone else, so it’s easier and a lot less painful to give that nephew less responsibility and hope he won’t cause too much damage than it is to face your brother over the dinner table.

Seeing the big picture is often difficult when you are on the inside, that’s where family business consultants can help, if you’ll let them. They can call for changes you feel compelled to make, because you are smart and you hired them because they are smart. If you are both smart then the decisions made must be followed even if they are painful.

There are many challenges that family business consultants can help owners overcome. It’s easy to put things off until it’s just too late to make a difference.

Business owners and family business consultants who think strategically, plan comprehensively, and execute flawlessly will certainly outpace those who simply set goals and hope for the best. If you want to be even more successful in the future than you are today, visit family business consultants to learn how to focus more clearly on what’s important to you, you family, and your business.

[tags]family business consultants, succession planning, strategic planning for business[/tags]

Small and medium sized businesses that want to grow larger and get an edge in the market must streamline and improve business practises continually. Technological solutions are often integral to increasing efficiency and furthering key business objectives. A good example of this is helpdesk software. It has helped many companies to streamline processes and keep better track of stock and customer service activities.

As businesses grow, their dependency on IT solutions often increases. Middle sized businesses have often already automated several core business functions, as these systems become more critical to keeping the business running smoothly. Sometimes problems occur when the staff of a midsize company lack the IT staff and budgets necessary to deploy, run and manage help desk software designed for larger enterprises.

It is important when investing in a software system, that it is compatible with your computer systems and easy to use. It needs to be easy enough for the staff to use and consider internal and external helpdesk solutions. The last thing you want to do is invest in software which will end up slowing down your business or costing you money.

Consider what the most important features of your business are, like: internal and external communication, customer service, information documentation, reporting, knowledge base, automation systems, remote control and more. Having these conversations internally should help you know what you want and get what you need.

If you’re still puzzled, software professionals are available to advise you. It can be a good idea to create a helpdesk think tank within the organisation to determine the businesses IT needs. This will help the software vendor get a clear idea of what you want the software to do.

With help desk software, a business does not necessarily need to expand its telephone call management system. It ensures the business offers 24 hour customer support and incorporates self-help features. It streamlines time management and several processes can be automated, like maintaining a database, stock records, movement of goods, marketing trends etc. Helpdesk software is a valuable tool for businesses that use analytics to strategise business plans for the future.

Helpdesk software can be the central point through which problems are detected and managed. It really can lead to faster growth and a more streamlined business process. Helpdesk software is often how small businesses go from medium to large. Let the computers do the work for you and watch your business benefit from technology!

Sunrise Software’s helpdesk and service desk software products provide solutions to your IT service management requirements; whether it’s improved call logging, incident management or change management functionality Sunrise can help.

[tags]helpdesk software, helpdesk services, it helpdesk, it helpdesk service[/tags]

It’s a great feeling to build and repair stuff on your own. A lot of home improvement projects require the use of power tools to get the job done. While these saws drills, grinders and Sanders make your job easier, they also make the job more dangerous. To make sure you keep all of your fingers, toes, eyes and all other body parts intact, you need to follow a few basic safety guidelines. If you follow the rules of work attire, tool use and tool maintenance, you will be able to work again another day.

Proper Attire:
What you wear while using power tools is very important to your safety. Loose clothing can easily get caught up in moving parts. The problem becomes two-fold. Not only can you really damage the machinery, but cause yourself some serious damage, you might even lose an appendage. Wear clothing that is more fitted to the body. Just like loose clothing, hair can get caught as well. Make sure to pull back or put up long hair. This keeps it out of the machinery and out of your eyes.

Make sure you wear safety glasses to keep particles and dust from getting in your eyes and impairing your vision. For most power tools, gloves are not a good idea because they make precise handling more difficult.

Proper Use:
Knowing how to use the specific machinery is essential not only for safety, but also for successfully completing your project. It may seem like a no-brainer, but read the manual or take a tutorial at your local home improvement store on using your specific power tool. Some safety rules for use are the same no matter what the machinery. Use safety guides if they are supplied and know when it is a two person job. You can really hurt yourself trying to hold something and use a power tool on it at the same time.

Another extremely important safety measure is to keep small children away while machinery is in operation. You do not need the distraction nor can you keep an eye on them the whole time so that they do not get underfoot. Even when machinery is not in use, a workshop is no place for a small child.

Proper Maintenance:
Keep the machine clean and put away when you’re not using it. This increases its lifespan and keeps it in good working order. Make sure saw blades are sharp and not nicked or warped in anyway. You also want to keep your work station clean. Piled up debris can compromise the full range of a machine as well as hinder your vision. Clutter on the ground can be hazardous too. One false move or trip and you could be on your way to the emergency room.

Follow safety guidelines while you are operating power tools during whatever project you have taken on- be it fixing something around the house, remodeling or building something. If you want your project to go smoothly and to be done right, be safe and smart with your machinery so that you can start a new project tomorrow.

While using power tools its important you follow the rules of work attire, tool use and tool maintenance, to make sure you keep all of your fingers, toes, eyes and all other body parts intact. To know more about the use ofMakita power tools visit visit http://www.tylertool.com.

[tags]makita power tool, makita power tools, makita powertools, power tools makita[/tags]

It is fortunate that most offices in the Unites States are located in large office buildings, located way above the ground level. That’s not say that there aren’t offices in those places where they flooded. The office is a unique environment since the valuables which water damage restoration attempts to save, may not be totally physical material, but rather objects which represent or store intellectual property. While intellectual property is not tangible, the physical items that contain this information is what the restoration aims at saving.

Aside from the traditional material which needs to be restored through regular water damage restoration procedures, there are some specifics about the office environment which need special water damage restoration procedures. These specifics include office equipment, documents, and digital storage mediums (tapes, CDs, flash RAM, etc.) Other than these specifics, water damage restoring carpets and/or office furniture is not different from other restoration procedures.

Office equipment is highly sensitive devices with a lot of cabling, power chords, and links to the mains and to each other. The best policy for this is to not need a lot of restoration. Follow a comprehensive prevention plan will spare the most sensitive devices exposure to uncontrolled water. Let’s face it, if the flood enters an office with copiers and computers, chances are those items will not survive the ordeal. In which case, the water damage restoration would only be about furniture, carpeting, and documents (electronically stored or otherwise).

Again, with the virtually impossible task when it comes to office equipment water damage restoration, one needs to take preventive measures, prior to the disaster taking place, to make sure that these hard to salvage items are well protected and that no amount of flood could get to them.

As for the rest of the office material (documents, storage media, etc) there are many professional today to help you with drying your documents. It all depends on the amount of damage done to the documents and storage media. Preventive measures will ensure that you don’t stake your life’s work on Mother Nature’s one hand, industrial water damage restoration techniques on the other.

Important papers and documents should be copied and saved in separate places, hopefully in two different flood zones. Otherwise, there is no control over the damage which can be done to them. There are several industrial products exist, which can help you in preventing water damage to documents, drawings, blue prints, etc. One of these products is a silicon spray which you can spray on your document, creating a thin waterproof film over the document/drawing. While this may be good enough to help protect against a few droplets of water, like during a brief exposure to rain while you take the document out of the car, and walk to the office building, it is not strong enough to protect against a continuous exposure to water, like as in a flooded office. Therefore, the moral of the story remains, prevention is still the best policy.

Ramona Weisly is a water service advocate for Tampa Water Damage Restoration and Tampa Water Damage Restoration

Before even asking questions about what wealth managers do and where to find one, most people will want to know if wealth management is even relevant for their business. Below are common questions, and answers, about wealth managers.

DO YOU NEED ONE?
You don’t have to have to be a Rockefeller to secure the services of a wealth manager. Any business owner who is about to have a “liquidity event” should seriously consider retaining a wealth manager.

WHAT DO THEY DO?
Wealth management is a high-touch, high-service approach to managing all things financial. A wealth advisor works with a team of experts on banking and insurance, works with a client’s attorney on issues such as power of attorney and wills, manages the client’s investments. In an a la carte approach, what ends up happening is that the left hand doesn’t talk to the right hand. The concept of a wealth manager is to have one person manage the team. Wealth management can even include a ‘family office’ where the wealth manager takes care of all the client’s financial problems or situations, perhaps obtaining mortgages or loans for them and paying bills. So even though you probably work with a financial professional, you just might be short-changing yourself if you haven’t investigated working with a wealth manager.

WEALTH MANAGEMENT ISN’T JUST ABOUT RETIREMENT.
With the sale of your business, your focus shifts. The focus of wealth management is also shifting from the accumulation of assets to the distribution of assets. Things to consider are how to pass your assets on to the next generation. Do you want them to inherit all at once or over a period of time? If you have a child with special needs, how will you protect the assets of that child? Should you set up a charitable trust? Remember, you are not just protecting your assets for yourself and perhaps a spouse, but also for your children and even for future generations, or charities.

WHY YOU SHOULD STAERT LOOKING NOW
The biggest mistake is that families and business owners wait too long before they start the process. Once you already have a successful business or you’ve sold a business, many strategies that would have been available to you are no longer available, or they are not as effective. Say you have two children who are working in the business, for example, and you want to start giving them a quarter of the business in stock. Giving a quarter of the business when it is worth $2 million can be done without paying any gift tax, but giving them a quarter of the business when it is worth $10 million cannot be done without paying gift tax.

QUESTIONS TO ASK A WEALTH MANAGER
Services Do they offer comprehensive services? Is it all in-house? Do they have strategic partnerships with other folks? How do they work with the client’s accountant or the client’s attorney? What do they do about coordinating banking services? You should feel that the advisor could actually advise you personally on several of those different issues or have a team of experts available to do that. Also look at how the routine reports and information is presented, to make sure it fits your preferences. Competence You also want to look at an advisor’s designations–Certified Financial Planner, Chartered Financial Analyst, Certified Public Account–and the experience and skill sets of the others on the team. Fees There is no industry standard regarding compensation, regarding the amount charged as well as how fees are structured. Fees can be based as a percent of assets managed, by the hour, by the year, and so forth. As in most purchase decisions, price is usually not the primary determining factor.

Mark Heitner, MD, MBA, the founder of MidMEx, is a psychiatrist, author and software developer. Many patients have been owners of mid-sized companies with a business for sale. MidMEx helps sellers by creating a supportive community of verified buyers and expert business appraisers, brokers and attorneys. Many resources are available to help owners sell the business.

[tags]business for sale, businesses for sale, sell the business[/tags]

Most business owners have a thought in back of their minds that they will at some point (hopefully), sell their business for lots of money. Who can blame them? After all, isn’t this part of the allure of getting into your own business?

While there are drastic differences between selling a business and a piece of property, there are certain common fundamentals with “market timing” being the most critical. The good news is that unlike real estate when there are cycles of seller and buyer markets, the supply/demand curve in business sales ALWAYS favors the seller. Let me explain: On the buy side, there are always tons of people looking to buy a business; most never do. On the sell side, most businesses listed for sale, never sell. However; there is ALWAYS a shortage of “good” businesses. In fact, when a “good” business hits the market, it can be under contract within days.

Now that you know you can always find a buyer for a good business, let’s get back to when it’s the best time to sell.

When Business Is Good…

Undoubtedly, the best to sell is when the business is at, or near its peak of revenue and profitability in its recent history with a few solid prior years of growth. This does not mean you think it’s at the top and will decline. The peak simply indicates that it is on an upward trend compared to prior years. Or, you feel that you have taken the business as far as you are capable of doing and someone else either with new, or different skills, can take it to the “next level”. Think of it this way: if the business were an athlete, when would be the best time to be eligible for free agency? Right after a “career year” right? The same holds true for a business. The best time to sell are when things are going well. You’ll get a higher price, better terms, and a quicker sale (on this note, you may be interested to learn that the average business takes 7-8 months to sell). Trying to sell a declining business is simply more challenging for everyone on the sell side.

While it would be ideal to sell when the business is on a high note, it is even better if the business has demonstrated several years of stable revenues/profits is also considered an excellent time to bring it to market. Keep in mind that one of the greatest unknowns to a buyer is whether the business will transition to them and continue as it was before. Having the ability to show them several prior years of stability will go a long way in soothing their worries.

What If The Business Is Not Doing Well?

There can be reasons beyond your control that force you to sell a business when things are not going well. In these cases, you need to do what you can to get the best deal possible. If getting out is the most important thing, then you’ll want to do the following:

* Address any immediate problems with the business. Without being reckless, decide what may be the one or two biggest issues/negatives that a prospective buyer may identify in the business. Then, do whatever you can do either repair it, or to lessen the severity of the problem.

* Write up a detailed and realistic business plan that you can present to prospective buyers that outlines exactly what you would do over the next one to three years if you were not “forced” to sell. By laying this out in a realistic and logical fashion, a buyer will be able to see that he can execute the plan. Above all, be realistic. This is not the time to be delusional. This plan may ultimately be your biggest sales tool.

* Be open to a deal that may involve a larger than usual seller note, or earnout/performance based term whereby you can get a higher price based upon the future, short-term performance of the business.

What Buyer’s Want and Need

The reason why people will buy existing businesses (often paying a premium) versus starting one from scratch is because there are some known factors that can mitigate their risk such as:

* Immediate cash flow
* Built in infrastructure
* Historical financial data
* Customer base
* No start up hiccups

Given this, business buyers will pay a premium for business where revenues and profits are trending up, or, at the very least, are stable. Most people do not have the experience to turn around a declining business, especially when they haven’t done so before. The typical small business buyer mentality is: “takeover on Monday, collect a paycheck on Friday” (a bit of an exaggeration, but not much). Plus, it is far easier to finance the purchase of a growing business than a declining one. This is certainly true when government loan programs are in place that may use the worst of the last 2-3 year’s of tax returns as a basis for the business to service the debt.

Warning: Leave Some Juice in the Fruit not Cash on the Table

It can be very tempting to keep hammering away at the business when things are going well. You’ve worked hard, the fruits of your labor are paying off, the systems are in place, and you have a solid comfort with what you do each day. These are all rational thoughts. Also, when a business has experienced some ups and downs, it seems almost crazy to consider selling when things are consistently good. Yes, it may seem hard, you make hay when the sun shines so be opportunistic and sell it when you think it is at, or near the high.

A buyer must be able to see that the business has a very viable future with them as the new owner. You need to have the business operating well, with a bright outlook. You may find yourself in a situation where new business is coming in or there are some lucrative contracts pending. It would be easy to convince yourself to postpone the sale and benefit from these revenues. However, these are precisely the situations that buyers want to see, and have in place when they take over. Although these could trigger an “earnout” or performance type deal, nevertheless, providing a bright future for a buyer is very enticing to getting a deal done; which is ultimately the entire objective of this exercise.

While there is always a market for good businesses, the amount of money and deal terms you could benefit from when the business is doing well, is staggering compared to selling a declining one. I like to compare it to the toy business that I was involved with about ten years ago. We sold licensed or themed merchandise. When the license was “hot”, my dog could have gone to the major retailers and walked out with orders, but when a license’s popularity dies, I couldn’t give the product away. It could have been easy to get caught with a warehouse full of inventory that could wipe out all the profits we generated when it was popular. So, my partner and I decided that once a license hit its peak (at least in our estimation) we would be “sold out”. No more inventory. Sure we missed out a bit of profit in one or two licenses but we never had to liquidate product and wipe out all the prior profits. In all, we made a lot of money.

The same holds true for a business. Sell when it’s doing well. Better yet, sell it when it is doing great. It is much easier to convince any buyer to pay a premium when the business is thriving versus trying to even find a buyer when the business is in decline. Moreover, with the number of buyers, and the shortages of good businesses, you may wind up having several interested parties “bidding” on your business since there’s always a shortage of good businesses on the market.

Copyright Midmex All Right Reserved

Mark Heitner, MD, MBA, the founder of MidMEx, is a psychiatrist, author and software developer. Many patients have been owners of mid-sized companies with a business for sale. MidMEx helps sellers by creating a supportive community of verified buyers and expert business appraisers, brokers and attorneys. Many resources are available to help owners sell the business.

[tags]business for sale, businesses for sale, sell the business[/tags]

Most company owners sell the company themselves. Whereas homeowners use brokers (Realtors) 90% of the time, sellers of companies use brokers only about 30% of the time.

When is it a good idea to use a broker?

If the seller thinks that it will be difficult to run the company AND put in the time and effort to sell the company, then retaining a business broker is a good idea. This is the most compelling reason we know.

Other reasons to hire a broker:

1) The seller recognizes that selling is not core management strength, and should be outsourced to an expert.

2) The management team has suffered a disaster that makes the task of selling the company unbearable.

3) The seller does not know how to maintain confidentiality, and is worried that employees, customers, vendors and competitors will learn that the company is for sale. (This is the easiest problem to solve, by the way).

4) The seller does not know how to qualify potential buyers before disclosing confidential materials.*

5) The seller does not know how to realistically value the company.*

6) The seller is unfamiliar with the acquisition process.*

7) The seller does not know how to find potential buyers.*

8) The seller has difficulties writing high quality marketing materials for potential buyers.*

*There are many resources for sellers that can help the seller address these issues.

What is the best way to find a business broker?

Unlike realtors, business brokers are not licensed or regulated by any State or Federal agency. Virtually anyone can call himself or herself a business broker. Someone can call them self a business broker without having to graduate from college, take a certifying test, or have any actual training or experience. Few business brokers have actual business degrees.

Most firms that do business brokerage are small outfits, consisting of one to four people, and have been in business for less than five years. There are few larger firms operating in several states, however they face two substantial limitations. The first is that State Boards of Realtors require business brokers to have a real estate license in any State in which they do business. Real estate is often a substantial part of the sale of a middle market company.

The second limit is that the larger firms often focus on selling smaller companies (known as “Main Street” deals) - mom and pop companies generating $50,000 - $500,000 in annual revenue. They lack expertise in middle market deals. Would you hire a Chevy salesman to sell your Ferrari, or let a nurse take out your appendix?

Most business people have never heard of the business brokers in their communities, even if they have been in business for twenty years. Your accountant, corporate attorney or wealth manager may be able to refer you to a broker.

There is one national association of business brokers, the International Business Brokers Association. Virtually anyone can join by paying a membership fee, so that membership alone means very little. However, the IBBA offers many courses of instruction, as well as a certificate once these courses have been competed. Members of the IBBA, who are also certified business intermediaries (CBI), are likely to be well trained. Unfortunately, there are fewer than 200 CBI members at last count. [Full disclosure: author is a member].

What do business brokers charge?

Whether certified or not, brokers use a standard formula for calculating their commission. Their fees, which are often based on the successful sale of the company, are a percentage of the sale price. The commission percent rate decreases with the size of the sale, according to the schedule below. Here is an example of the calculation of a $600,000 commission on a $12 million sale:

Percent Sale price, millions Commission, $

10 First million 100,000

8 Second million 80,000

6 Third million 60,000

4 All additional millions 360,000

You can calculate the commission you will pay using this formula. You will then be able to better decide if you think you are too busy to run the company and sell it.

Mark Heitner, MD, MBA, the founder of MidMEx, is a psychiatrist, author and software developer. Many patients have been owners of mid-sized companies with a business for sale. MidMEx helps sellers by creating a supportive community of verified buyers and expert business appraisers, brokers and attorneys. Many resources are available to help owners sell the business.

[tags]business for sale, businesses for sale, sell the business[/tags]

With so many other things to keep track of when selling a business it’s hard to keep in mind all of the factors that will affect purchase price and deal terms. Below I highlight and discuss some of the most important factors.

Recent Performance:

Over the past 2-3 years is the business growing, flat, or declining? For example, “Business A” made $200,000 last year and $100,000 the year before. “Business B” made the same $200,000 last year, but $300,000 in the year prior. In almost every case, Business A is worth far more in the eyes of an individual buyer. They want to acquire a business that is growing, or, at the very least, is stable.

Ease of Transition:

Interestingly enough, most small business buyers will purchase a business outside of their area of expertise or experience. As such, it is important that the transitional period after the sale is something that the buyer sees as being reasonable.

A buyer must feel confident they’ll be able to have a good grasp of things within a short time after they take over. This can only be accomplished if the business is well managed with policies, procedures and systems in place. If you want to know how easily the business will transition to a new owner, ask yourself the following question: “If I get hit by a cement truck today, what will happen to the business tomorrow?” For example, if the seller possess highly specialized skills that are critical to the business, or if the seller has long-standing personal relationships with clients that drive the sales, then these will be obstacles to a successful transition.

The Buyer Pool

Just like the transition period, there is a direct correlation between the purchase price of a business and the ease in which someone new can operate it. In the market, there are tons of people always looking to acquire a business. The greater the amount of those people who can see themselves running the business, the more demand there will be for the business, and therefore the higher the price and the better the terms a seller can get. If a business simply requires good all around business/management skills, then the buyer pool will be quite large.

Conversely, if highly specialized or certified skills/licenses are required to operate the business, the number of potential individual buyers shrinks drastically. In extreme cases, a seller may have to think about a strategic sale to someone in the industry.

Books and Records:

I cannot emphasize enough the importance of having good, clean and accurate books and records. It may very well be the single most important influencing factor of the price and terms when a business is for sale. There is no quicker way to “kill a deal” than having the buyer learn that the actual company records are not in line with what was originally represented. It is terribly upsetting when a deal falls apart, and though some may be salvaged, when it’s due to poor financial records often times the buyer will be: “out the door, see no more.”

Another aspect is unreported income. If you are taking in cash sales and not reporting it, then you cannot expect to be paid for it when the time comes to sell the business - you can”t dance at all the weddings. If you had the benefit of not paying taxes for years on this money, and you have no quantifiable means to prove the number, then surely you cannot expect anyone to pay you anything, let alone a premium for this “alleged” revenue.

Typically, a seller wants to have this factored into the price. However, one must consider the provability of this unreported income. The questions becomes:

* Can you prove it?
* How?
* Do you even want to prove it?

You may want to be very cautious about this situation.

Having said all this, there is a way for you get the best of both worlds, as long as you’re willing to make a small, short-term sacrifice. As soon as you decide to sell a business, start putting all the income on the books. The average business will sell in 7 - 8 months. During that time you can demonstrate to any buyer the increase in the top line revenue when you reported all the income. The difference in the selling price can be significant. More importantly however; it can be undeniable proof and full validation of your claim although you may need to agree to structure this portion as an earnout in order for the buyer to feel comfortable.

Customer Concentration:

Back to our example of Business A and B. Both companies generated the same profit to the owner for the past two years. Business A has one hundred clients, none of which represent more than five percent of the revenues. Business B has the same hundred clients, but two of them contribute forty percent of the revenue. Which company is worth more? Business A of course! If one or two of Business B’s clients stop buying, the business could decline by almost half.

Exclusive Products or Services

If there is an element of exclusivity to the business, whether in product or territory, this can be a huge selling factor. Naturally, the buyer will want to see this transition to them and so you need to consider this situation. For example, in a distribution business that has an exclusive territory, it will be paramount (and definitely a deal contingency) that the relationship with a particular supplier for example will continue. Conversely, if the entire business relies on this relationship, it can hurt you. It’s the supplier version of customer concentration. However, if the relationship is solid and a new contract will be granted to a buyer, it can be worth a premium in the sales price.

Recurring Revenue

Any business with a strong recurring revenue base is both highly sought after and will almost always command a premium. Examples are alarm monitoring companies, marinas, self storage facilities, and some pest control businesses. The lure is that a new buyer is almost assured of continuity and can count on revenue from day one. If any part of your business has a recurring revenue component, then play it up. If not, think about ways that you can possibly generate some; it will be well worth the effort and expense to do so.

Copyright Midmex All Right Reserved

Mark Heitner, MD, MBA, the founder of MidMEx, is a psychiatrist, author and software developer. Many patients have been owners of mid-sized companies with a business for sale. MidMEx helps sellers by creating a supportive community of verified buyers and expert business appraisers, brokers and attorneys. Many resources are available to help owners sell the business.

[tags]business for sale, businesses for sale, sell the business[/tags]

Personal events involving the owners or senior management are what usually raise the question: is it time to sell the company. For the most part, the decision to sell is made for personal reasons. We discuss the most common reasons for a sale and goals of a sale below.

1) Fatigue: the owner-CEO wears several hats. After many years, some parts of the job remain enjoyable, but others are a burden. Many CEOs would like to stay active in the business, but want to devote energy only to the tasks that are in his or her “sweet spot”. One solution is to bring in a co-owner/senior manager who will one day assume complete control of the company.

2) Illness: both acute and chronic, progressive illness impact a CEO’s motivation and ability.

3) Pressure from spouse: the owner’s or CEO’s spouse may push the owner to move on to the next phase of life. Or a divorce may require liquidation of the owner’s holdings.

Pressure from heirs: Heirs, whether they intend to assume management of the firm or not, may be eager to enjoy a liquidity event. Heirs may have expressed disinterest in assuming management positions in the firm. Succession planning within the family may not be an option.

Pressure from other owners: often middle market companies have multiple owners. A number of them might like their stake liquidated, before or along with the majority owner.

4) Retirement planning: the owner may be ready to start retirement. Likewise, the non-owner CEO may be ready to retire, and the owner may not relish the job of hiring and training a replacement.

5) Business opportunity: owners may see other more lucrative business opportunities in other fields, and may need to liquidate their holding sot raise funding for the next company. Owners may wants capital to expand: owners may be interested in expanding the business, and are most interested in equity financing than in debt financing.

There is a range of buyers for each of these scenarios. Financial buyers, for example, will insist that senior management stay for a period of one - three years to help facilitate the transition. This is not an empty consulting role, but a meaningful management role. Other buyers will want to buy the company with the expectation that senior management will be largely replaced. Some buyers desire a minority position, others a majority, while others want 100% of the assets.

The critical factor in closing these transactions is for owners to be clear about their actual goals in selling or recapitalizing. Nothing frustrates buyers more completely than a seller who isn’t sure what he or she actually wants. As the middle market becomes more efficient, more buyers will be interested in acquiring your company. Besides valuation, the most sensitive deal term will involve the future roles that current management might play. All the more reason to have this issue well thought about before listing the company for sale.

Mark Heitner, MD, MBA, the founder of MidMEx, is a psychiatrist, author and software developer. Many patients have been owners of mid-sized companies with a business for sale. MidMEx helps sellers by creating a supportive community of verified buyers and expert business appraisers, brokers and attorneys. Many resources are available to help owners sell the business.

[tags]business for sale, businesses for sale, sell the business[/tags]

Most small business sales are financed, at least in part, by the sellers themselves. Offering seller financing puts the seller in a stronger position to get a better price and a faster sale.

Buyers nearly always need seller financing. Their advisors strongly recommend it. Seller financing acts like a bond for performance to assure that the seller will live up to the promises made to the buyer during the sales process. Seller financing is seen by most buyers as an indication that the seller has faith in the future of the business.

Buyers can expect, however, that sellers who offer seller financing must also act a lot like a bank! A buyer can expect to be asked to secure the loan and sign a personal guaranty.

What is Seller Financing?

Sellers of small businesses usually allow the buyer to pay some of the purchase price of the business in the form of a promissory note. This is what is known as seller financing.

Seller financing is particularly common when the business is large enough to make a cash sale difficult for the buyer (over $100,000), but too small for the mid-market venture capitalists (under $5 million). Seller financing is also common when the business, for any number of reasons, does not appeal to traditional lenders.

A rule of thumb is that sellers will typically finance from 1/3 to 2/3 of the sale price. Many do more than that. It all depends on the situation. Each transaction is unique. The interest rate of the seller note is typically at or below bank prime rates. The term of the seller note is usually similar to that of a bank.

For a service business which sells for $500,000, for example, the transaction might be structured as $150,000 down from the buyer and $350,000 in seller financing. The seller note might run for five to seven years and carry an interest rate of 8% to 10%. Monthly payments are the norm and usually start 30 days from the date of sale unless the payment schedule must be modified to allow for the seasonality of the business revenues. The seller note would also usually have a longer term if real estate were being financed.

When a seller offers seller financing, the price the buyer can afford to pay goes up as the amount of the down payment required by the seller goes down.

Why Would A Seller Offer Financing?

Sellers are nearly always reluctant to offer seller financing. Like all of us, they fear the unknown. Despite the advantages of playing bank, it is an uncomfortable role for them. They usually come around to seller financing only after some effort has been made to persuade them.

A seller’s first encounter on this issue might be with the business broker. In many cases, but not all, the business broker will bring up the issue. Most business brokers agree that sellers need to offer seller financing, but not all are willing to discuss the issue at the beginning of the listing. When the buyer is unknown, the seller’s fear of seller financing is greatest. Some brokers prefer to wait until the buyer prospect is known before suggesting the amount and terms of seller financing.

Offering seller financing up-front, however, can attract buyers and speed up the business sale. This is the major issue that usually persuades a seller to offer some type of financing.

Seller financing is seen by buyer prospects as comforting proof that the seller is not afraid of the future of the business. Buyers are more likely to believe a seller’s optimistic view of the business’ future when seller financing is offered. Some buyers can’t or won’t look at businesses for sale unless seller financing is a possibility. The more buyer prospects that look at a business, the better the chance a seller has to get an acceptable offer.

A seller can also get a better price for a business that has financing in place. As in nearly all buying situations, buyers are often focused on achieving a purchase on terms that allow them to buy with as little ‘cash in’ as possible, even if the long-run costs are higher.

Seller financing can also lead to a speedier sale. If the seller plays bank, then the deal gets done more quickly. Applying for a bank loan takes a long time for some buyers. Banks move much slower than sellers, even when they do approve a loan. A seller is more likely to grant a loan request, approve a transaction, and close it as fast as the attorney can get the agreements prepared. Banks take anywhere from thirty to 120 days to approve and close a loan.

Another drawback to a bank loan is the high rejection rate for new acquisition loans - sometimes as much as 80%! There is also the possibility that the bankers will give the buyer negative feedback about the business, so that the buyer backs out.

A seller may also see tax advantages and profitability in seller financing, but these alone are not usually compelling reasons to offer seller financing. Capital gains from a small business sale can be reported in installments if seller financing is in place. This stretches out the capital gains tax into future years. Sellers, however, are usually not as worried about tax liabilities as they should be until after the sale has taken place.

Charging interest is also profitable, however, sellers usually believe they can get better interest rates from investments than from seller notes.

Why Should A Buyer Ask For Seller Financing?

Buying a business without seller financing is like buying a home without a home owner’s warranty. The seller note is a bond for performance. This is the major reason a buyer ought to ask for seller financing.

Beyond that, sellers have a strong motive to maintain the business goodwill if they have a remaining stake in its future ability to pay back the seller note. Without such an interest, sellers may choose to question the new owner’s skills and integrity.

After a sale takes place, the seller and buyer frequently disagree about the future of the business. This disagreement is a natural outgrowth of their different positions and can become serious. If a seller note is in place, the seller has a motive to temper any irritation caused by the buyer with forbearance.

Even with a non-compete agreement in place with the seller, the fact that the business owes the seller a major amount of money may change the nature of the seller’s attitude. Instead of being indifferent or quarrelsome, a seller who is still owed money is more likely to be solicitous and genuinely helpful.

How Is Seller Financing Usually Secured?

Seller financing can be as creative as sellers and buyers want to make it. Most sellers, however, like to add security provisions in as many forms as possible. This can encompass personal guarantees as well as specific collateral, stock pledges, life and disability insurance policies and even restrictions on how the business is run.

The most common requirement is for a personal guaranty by the buyer and the buyer’s spouse. Sellers expect this. If a buyer objects, sellers immediately question their seriousness. A personal guaranty is not a specific lien on any particular buyer asset, but is the guaranty that the buyer is placing all assets at risk as needed to satisfy the loan.

If the seller note payments are not made, the seller has to proceed with the long process of formal foreclosure. But, to satisfy the foreclosure, the seller will have access to all buyer assets. The spouse’s signature is required to prevent the transfer of assets to the spouse’s name to dilute the buyer’s net worth.

Specific collateral is the other common source of security. If no bank financing is involved, the seller wants a first mortgage on any real estate and first security agreements on all personal property involved in the sale. Sometimes, the seller will require that the buyer offer additional security in the form of additional mortgages and security agreements on real and personal property that the buyer owns. If a bank is involved, the seller must usually settle for second place in the line of secured creditors behind the bank.

A third type of security is the ’stock pledge.’ The buyer is required to form a corporation and give the seller the rights to ‘vote the stock’ in case of seller note default. This allows the seller a speedier solution than foreclosure. If the terms of the seller note are not met, the seller can vote to require that payments be made and can even vote to replace management of the business. This threat is usually enough to guarantee seller note payments are not missed.

Life and disability insurance policies on key members of the buyer’s new management team are less frequently used methods of adding security to a seller-financed transaction. Term life insurance is available at rates which are relatively low, so this is most common. Disability insurance is used less often because it is more expensive. The seller will typically want the business to pay for these policies up to the amount of the seller note. These policies stay in effect until the seller note is paid.

Restrictions on how the business is run are sometimes added. These restrictions can be in the form of requiring that the new owner preserve certain account or employment relationships, that certain operating ratios of the business are maintained, that the new owner’s pay is limited, or that other important operating benchmarks are met until the seller note is paid. Most sellers won’t use this form of adding to their own security as a creditor. They usually readily identify with buyer objections to any controls placed on the new business owner.

How Can Both Buyer and Seller Benefit?

If you are a buyer or seller and this all seems a bit intimidating to you, take heart! It’s just as intimidating for the other party! Don’t lose site of the fact that this is just a normal transaction between two parties who must each benefit if a deal is to be struck.

Buyers are just looking for a fair chance to buy a job and a reasonable return on investment. They usually have modest goals about what they need to earn for the job they are buying. They are usually fair about how they define what they need to receive as a return on investment for the business risks they are assuming.

Sellers are mostly just ordinary people who once bought or started a business and now want to sell it. They want to get the most they can, but they have learned to be practical. They are usually persuaded by fairness and reasonableness. If not that, then they are at least eventually persuaded by the reality of what’s possible.

If you are a buyer, seller financing can offer you better terms and a friendlier lender. You will be able to buy the business quicker because you won’t have to wait a month for the bank’s loan committee to meet. There are no loan processing or guarantee fees and, usually, no invasive lender controls or audits.

If you are a seller, I would advise an early commitment to seller financing. It will save you a lot of time. You’ll get a better price because you’ll see more buyer prospects. There are many more buyers who can afford to take a chance when the admission price is reasonable.

Seller financing, properly understood and employed, can really benefit both buyer and seller.

Mark Heitner, MD, MBA, the founder of MidMEx, is a psychiatrist, author and software developer. Many patients have been owners of mid-sized companies with a business for sale. MidMEx helps sellers by creating a supportive community of verified buyers and expert business appraisers, brokers and attorneys. Many resources are available to help owners sell the business.

[tags]business for sale, businesses for sale, sell the business[/tags]