Why a business sale falls apart, how buyers can prevent.

When you consider the complexities of a business sale, it’s no surprise there are a number of reasons why a transaction can fail to close.  The reason some deals unravel is caused by the seller, however, many are caused by the buyer. Unfortunately, the reasons are numerous but most can be resolved.

Buyers can often times exhibit the same tendencies as Sellers.  They may have unrealistic expectations regarding the price of a business.  Or, they may have an urgent “need” to get a business but lack the courage to take the “leap of faith” necessary to go through with the sale.  Sometimes, they may have experienced some recent financial setback that impacts their ability to meet their financial obligation as part of the deal. 

Similar to sellers, there are things buyers can do to increase the likelihood of finding a business that is right for them and increase the likelihood of a successful transaction:

·         Be open and honest about your skills and competencies.

·         Create a personal financial statement; understand your financial position.

·         Get comfortable with the amount of investment you are willing to make, and stay within your means.

·         Establish what level of risk you are willing to take.

One thing a buyer should not be concerned with, on the outset, is what type of business they are looking for. It is typical for buyers to know what they are not looking for, but not know what would be of interest to them.

Buying a business can be rewarding, but it’s not for everyone.  For buyers, using a broker allows them to follow a step-by-step process while remaining focused on choosing the right business for them and the pending matters associated with operating it.

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.

Real Stories of Two Recent Buyers

Attracting buyers for a business is no easy task.  Wide open promotions that a business is for sale can be disastrous, but the only way to find a buyer is to communicate that a business is for sale. 

As with any purchase or sale there are numerous different types of buyers.  Recently, I have been seeing more and more of the following two types who are looking at Southwestern Ontario as an area of long-term opportunity.

First, there is Dave, I would classify him as a strategic acquirer.  Not to be confused with competitors, Dave is interested in synergies that might be created by purchasing another company.  For example, his business is regional; a similar business operating in a different area such as Essex County is of interest in order to expand into a new market.  Plus, there may be other areas of interest, such as a business’s distribution channels, technology, service mix, etc., which, in Dave’s view would strengthen his current company’s infrastructure and product & service offerings.

The second, named Steve, he’s an investor.  Investors represent a growing pool of potential buyers, and Steve fits the bill exactly.  Because of the recent volatility and poor performance of the stock market, Steve has realized that as a business owner, the return on his investments can be significantly greater when successfully operating a company of his own.  Scott is currently looking at Southwestern Ontario’s housing market as a low cost opportunity to cash in on the home equity gains seen in his present residential market.  Thus giving him access to the capital necessary to buy a business while maintain a lifestyle he and his family are accustomed to. 

Seller’s must not fall into the trap of focusing all their efforts on a single prospect or target market, no matter how attractive.  Creating and managing competition helps maximize the price buyers will pay for a business. 

A big reason sellers turn to a professional business broker when deciding to sell is to open up markets of potential buyers across the province, the country, as well as throughout North America.   Brokers enable sellers to access a broader pool of prospects, so the Dave’s and Scott’s of the world can be targeted in their marketing efforts.

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.

Business Owners ‘Add value to your business’

In today’s business world it’s not just about survival, it’s also about creating sustainable value and profitability!

But what elements of your business are capable of creating value?  Or perhaps more important, what elements of your business are capable of destroying value?  Take a critical view of your business and identify what creates and drives value, with this approach focus on the key 8-10 critical areas.

There are many value drivers identified in businesses, here are a couple to get you started:

·         Proprietary Technology

Has your company developed a unique application, tool or technology?  If so, does it give you a competitive advantage?  Leveraging proprietary innovation or intellectual property can produce higher sales levels or minimize operating expenses.  Either way, positioned as a key value driver, proprietary technology and intellectual property positively affect a business’s multiple and its value to buyers.

·         Loyal Employees

A savvy business buyer will be looking for opportunities where the current staff and management will remain in place, after the current owner exits the business.  A loyal and dedicated staff will be highly valuable to a prospective buyer and thus be a value driver in your business.

·         Customer Satisfaction

Are your customers satisfaction based on great products or services, or lowest price?  Perhaps more importantly, do you have a system in place to identify those loyal customers and a means to communicate with them?  Once you can answer this question, start using the information to drive sales and value in your company.

I realize it can be easy to be distracted by all the demands on a business owner’s time.  Making a list of your company’s strengths and weaknesses doesn’t exactly produce top line sales.  Often times it’s difficult to see why spending an afternoon doing some critical thinking is ever going to produce bottom-line results.  The truth is, your strongest competitors are doing it and while in the short term you may be surviving, your long-term sustainability, profitability and businesses value depend on it.

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.

Why a business sale falls apart, how sellers can prevent.

There are a number of reasons why a business doesn’t close successfully.  Some deals unravel because of the seller, some because of the buyer and even more unfortunately, some are caused by third parties.  Regrettably, the reasons are numerous.  Most can be resolved.

In regards to sellers, some do not have a reason to sell and are merely testing the waters to see if anyone would purchase their business and at what price.  Because they are not legitimately interested in selling, they will not be willing to consider the buyer’s concerns or be flexible enough to overcome the many complexities involved in the transaction.

Even when owners are motivated to sell, there can be problems if they are unrealistic about the value of their business or don’t want to offer seller financing.  In either case, credibility with legitimate buyers will be lost instantaneously.  Unfortunately, some business brokers add fuel to their cause by sharing with them unreasonable expectations, often in an effort to secure a large up-front non-refundable fee.

Some sellers fail to be honest about their business or its situation.  They will try to misrepresent the financial condition of the business or they may not disclose the real reason for selling.  Even if the error is not intentional, the sudden appearance of inaccurate information can scare off the most sincere buyer. 

What can sellers do to increase the likelihood of a successful transaction?

·         Be open and honest and accurate about all things, both good and bad

·         Compile financial documents that up-to-date and accurate

·         Be able to articulate your reason for selling. Be honest and hopefully not urgent

·         Get legal commitments in order, such as leases, permits, etc.

·         Have your business broker perform an objective review of your business and it’s market value

For sellers, using a business broker means they can continue to maintain their focus on making the business as profitable and attractive as possible while the business is marketed confidentially.  In many cases sellers do not have the know-how or the resources to create and manage buyer competition.  By carefully managing the flow of information a professional business broker will help preserve confidentiality, and address the many concerns and questions buyers are often asking.

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.

Consider two paths to follow when selling a business

When business owners decide to sell their business, they have two distinctly different paths to follow:

·         Go it alone

·         Bring in a team of professionals who will assist them in making one of the most important decisions of their lives.

If sellers decide to do it themselves, they must make sure they are prepared to deal with picking up the phone and telling a short list of prospective buyers that they are thinking about selling.  More importantly, sellers must be prepared to deal with the risk associated with such a decision.

Imagine the impact the news of a pending sale would have on sellers’ businesses when their competition, customers, employees and suppliers find out.

One of the big differences with following the other path is that dealing with a professional business broker opens up the seller’s business to many potential buyers.  Just like most people don’t want to limit the sale of their house or car to one buyer, sellers shouldn’t restrict their pool of buyers.

The by-product of this is that the minutiae associated with the finding a buyer does not interrupt the sellers’ attention, enabling them to focus on increasing their cash flow to make their business even more attractive.

When business owners decide to follow this path, they need to ask themselves, “What should I look for in a business broker?”

Like any partner that sellers bring into their business, the invitee needs to possess a few fundamental characteristics.  One of the basic traits is credibility, which comes in many forms.  For example, if the broker says he can get the seller’s asking price or more, be wary.  Since owners sometimes overvalue their business, sellers must be cautious if the broker says he can meet or beat their expectations.  Related to that are the brokers who want an upfront fee.  They get owners excited by telling them what they want to hear and then have them write a check before any marketing has begun, let alone a prospect located.

The landscape is littered with owners who have surrendered significant fees only to be disappointed when the broker hasn’t delivered on his or her promises.  For example, recently I spoke with a leading industrial wholesaler who paid a “broker” $30,000 to have the business “appraised”.  Years later the business is still unsold. 

Sellers must make sure their broker represents a wide selection of businesses and, more importantly, make sure they are quality and profitable businesses.  Nothing diminishes a broker’s credibility with a legitimate buyer faster than when they present a list of unprofitable businesses for sale. 

Another trait a professional broker must have is confidentiality.  Sellers need to understand how and when their broker will share their business with prospective buyers.  As simple as it sounds, sellers also must make sure the name of their business does not appear in any collateral materials:

·         Think of the negative impact a local retailer experienced when customers flipping through the local Multiple Listing Service book saw a picture of the business being for sale.

·         Envision the damage caused to a Southern Ontario manufacturer when competitors found out this business was for sale when it was identified by name on a web site.

In both of those actual cases, the sellers were put in a position where they had no option but to sell, which is not a particularly strong negotiating position to be in. 

Finally, a broker must possess experience.  They must be licensed, but also should be focused strictly on selling businesses, not residential real estate.  They must possess expertise and the means of locating buyers, locally and nationally.  Successfully structuring a transaction that is mutually beneficial takes familiarity.  If a broker is unable to explain to the seller what makes a successful transaction, they’re not likely going to be able to explain it to a buyer.

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.