Tuesday, 27 September 2011

Why is Seller Financing so Important?

Recently, in a discussion with a business owner the subject of financing the sale of their business was a ‘hot topic’. The truth is, an improperly structured transaction can create problems for the seller years after he or she has sold the business.

Firstly, many potential buyers don't have the necessary capital or lender resources to pay cash for a business. Even if they do, they often want to leverage it into buying a larger business with greater cash flow.  When a seller demands cash, buyers interpret this insistence as a lack of confidence in the business, the buyer's chance to succeed, or both.

This interpretation has some basis in fact. The primary reason that sellers shy away from offering terms is their fear that the buyer will be unsuccessful. If the buyer should cease making the payments, the seller would be forced to take back the business.

The seller who operates under this fear should take a hard look at the positives associated with seller financing:
1) Seller financing increases the chances that the business will sell. Making the terms attractive and attainable increases the pool of qualified buyers.   A seller offering terms will command a much higher price. Buyers paying cash will demand a discount.

2) The interest on a seller-financed deal will add to the actual total sales price.   With interest rates currently as low as they are, sellers can get a much higher rate from a buyer than they can get from any financial institution.

3) The tax consequences of accepting terms can be advantageous when it comes to the Seller’s capital gains.

By lending a helping hand to the buyer, you can help yourself as well.
Finally, securing the services of a good business broker to help the Seller navigate through the structure of their business sale can be good preventative medicine.  Although there are no guarantees, sound guidance when it comes to down payment, debt service and buyer due diligence can go a long way to maximize your sale price and minimize the likelihood of getting the business back after it is sold. 

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 
William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.


Tuesday, 20 September 2011

Tip for maximizing your business value!

Tip: Don't bury those personal expenses so deep in your corporate tax returns no one can find them-not even bankers or buyers.

Minimizing tax liability is a strategy all business owners think about.  But when it comes time to obtain financing or sell the business, buried personal expenses and assests can create a problem in determining the true cash flow.  Buyers and bankers won't always give credit to many of these items.  As a result, the cash flow can be suspect.  And when you apply a multiplier to determine the value on the business, the results can be disappointing .  It is in the best interest of a business owner to show a healthy bottom line in the years preceding the sale of their business to get the highest price possible.


Tuesday, 13 September 2011

Being a Leader is more than just being in Charge

Being a business owner is no easy tasks.  Yes, the rewards can be great, but there are many sacrifices made along the way to achieve those rewards.  It’s not for everyone, but those business owners who do succeed and those aspiring entrepreneurs who will become masters of their own destiny all must become great leaders in their own way.

Recently, I found some interesting information I wanted to share with you.  I cannot take credit for the information, as it’s coming to you 3rd hand (and I don’t know it’s original source), but it was shared with me very early in my business career and I think very relevant to small business owners and aspiring entrepreneurs:

1)   Understand that, at the end of the day, leadership is all about relationship: 
People will not follow you if they don’t trust you.  Showing leadership in your work means that building high-trust relationships is Job#1.  To cultivate these bonds, peak performing leaders remember that the little things are the big things when it comes to building loyalty.  Here’s the key: if you simply fill the needs of your staff, they will remain with you until someone who can do it better comes along.  But if you deeply connect with them as an individual, they just might remain with you for life.
2)   Remember leaders strive for mastery over mediocrity.
The quality of your professional life ultimately comes down to the quality of the choices that you make every minute of every hour of every day.  Our highest personal endowment is the ability to choose our response to a given event.  We can choose to get angry with a difficult staffer, or we can see this as an opportunity to deepen the relationship by dealing with the problem in a creative, effective way so that the staffer is impressed enough to tell the world, positively, about your management style, and you.
3)   Stop doing what is easy, and focus on doing what is right.
Weak performers spend their time taking the path of least resistance.  Bold leaders are different.  They know that the tougher you are on yourself, the easier life will be on you.  When you have the courage to do what your heart tells you is the right thing to do in every instance, rather than doing what is easy, you will raise the quality of your professional life to a whole new level.
4)   Smart leaders know that the time is now.
If you don’t act on life.  Life has a habit of acting on you.  The days slip into weeks, the weeks slip into months, and the months slip into years.    You can, most assuredly, influence today and in turn tomorrow.  Those who act now, find their way to success.

Do you… or can you… master 1 through 4?  Everyone can be a good leader, and be successful in business with a little drive and perseverance. The answer ultimately rests on how committed and focused you are at achieving you goals. 

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 
William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.


Tuesday, 6 September 2011

Realistic Expectation of Business Value

Unfortunately, most business owners have a very inflated view of the value of their company.  And why not?  They have put so much money, time and heart into it.  But they need to realize the price is based on what someone else is willing to pay for it.  Periodically having an evaluation prepared by a professional is a good way to help determine what the business owner needs to do to reach his or her goals.

There are at least 3 benefits to this approach.

First, business owners need to have a complete understanding of their business’ cash flow and multiplier.  Buyers are typically confortable with reviewing businesses based on the cash flow they have attained and the relevant multiplier.  As a business owner, understanding your history of performance and how you can impact both will directly reflect in your business value. 

Cash flow is a bi-product of a business’s net profit combined with owner’s salary and personal perks, plus interest and depreciation.  Multipliers vary depending on the type of business.  The industry and local market help determine a multiple, plus things like new product developments, market share, location, diversified customer base, etc. can also positively impact the multiplier.  Business owners need to know what they can impact and how they can ensure a higher multiplier for their business.

Secondly, most sellers know their finish line.  It is usually defined by time or money, and in many cases both.  If you know you want to sell by the time you are 60 years old, then you need to start positioning your company to sell by your 60th birthday.  Waiting for that day to start planning usually means extra time or less value, or worse… both.  Evaluating your company periodically will help you understand where you stand relative to your finish line.  You may be closer, or further than you think.

Finally, having an outside professional business broker review your business and its value will help depersonalize the exercise and make the analysis credible and realistic.  Access to industry statistics and an examination of the factors that positively or negatively affect your multiplier are not necessarily tools at a business owner’s finger tips.  Plus the value added process of an explanation of their impact and ways to leverage their role can affect your bottom-line today and when you’re ready to sell. 

Business owners don’t want to be distracted from running their business.  When you put the analysis in a professional business brokers hands, you get the best of both worlds.  You don’t need to do the work and you will get assistance in focusing on the tools that will help you get to your finish-line.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 
William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.