Protect yourself… confirm your deal in writing

What happens when you find a business that you are interested in? 

The business broker will set up a meeting with the seller once you select a business in which you are interested. This will give you an opportunity to speak candidly with the seller and find answers to your questions.

If you are still interested in purchasing the business after a discussion with the owner, the broker will help you draft an offer based on the price and terms you feel are appropriate.

The legal language that makes up your offer needs to be thorough. It will set out the basic terms of the proposed purchase and sale. 

When an issue or concern is particularly important to either party, that concern should be specifically addressed in the offer.  By addressing those concerns at this stage of the deal continuum, each party will have an opportunity to determine early on, before both parties have incurred considerable time and expense, whether the other party takes a strongly opposite position.  In other words, the “deal killers” should be identified and resolved early on, and in writing.

The comprehensiveness of the offer depends to some extent upon the business being bought and sold and the parties involved.  However, there are a number of conditions typically standard to a business transaction.  Two of the most important clauses in our offer make the transaction contingent upon your Lawyer reviewing the legal language of the offer and your Accountant's analysis of the financial statements.

As a Buyer, you will want your Accountant to review the financial data to verify the cash flow that has been represented by the Seller.  Your Accountant will probably want to see the Seller’s General Ledger, Bank Statements, Sales Tax Reports, etc.  There will be a specific time period to execute this review, upon receipt of the required documents.

If there is a promissory note, or vendor-take back, the Seller will also ask the Buyer to supply documentation in order to review their credit worthiness.

The legal language in the offer can be binding, non-binding, or both.  Regardless, your agreement should ensure it is subject to legal review, to confirm there is no legal language harmful to you.   Plus, both the Buyer’s and Seller’s lawyers will make sure that all the legal paperwork associated with business transactions gets done, and gets done properly. 

Professional business brokers are aware of the various ‘deal killers’ causing agreements to unravel.  Further, they utilize clear, concise documents that have been reviewed by transaction
Lawyers which are designed to protect both the buyer and the seller. For both Buyers and Sellers, using a broker allows them to follow a step-by-step process, structures legal and accounting review in a timely manner and keeps each party focused on the pending matters associated with the transfer day.

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.

Buyers come in many forms

Business sellers must not fall into the trap of focusing all their efforts on a single prospect or target market, no matter how attractive they may seem.  There’s an important rule to remember when selling your business:  One buyer is the same as no buyers.  If the buyer knows he or she is the sole interested party, he or she is able to control the negotiations.  Creating and managing competition helps maximize the price buyers will pay for a business.

Also, in today’s uncertain market, it’s more important than ever to separate the time-wasters (i.e. those who think they might like to buy but aren’t ready for it) from the serious buyers.

As with any kind of marketing, when selling a business we need to understand the varying target markets.  There are numerous different types of buyers:

·         Strategic Acquirer – Not to be confused with competitors, these are buyers who may be interested in the synergy’s that might be created by purchasing another company.

·         Investors – Due to the volatility and poor performance of the stock market, many investors have realized that as a business owner, the return on their investments can be significantly greater when successfully operating their own company. 

·         Career Changers – Formally middle managers and executives who have taken early retirement packages are eyeing the advantages of being in business for themselves.  For some, it isn’t just the money they’re dreaming of; it’s the desire for more control over their investments, their time and their lives.

·         Employees – Employee Stock Ownership Plans can sometimes be beneficial to both parties, but they can easily backfire, especially if the deal falls through.  That can create hard feelings.  Another possible employee buyer is a present manager; however, he or she often doesn’t have much capital.

·         Competitors, Suppliers and Customers – Although much maligned because of the risks associated with divulging proprietary information to them, this group when handled appropriately can represent an attractive prospect list.

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. 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.   By allowing a skilled business broker to confidentially guide sellers through the sales transaction step by step, owners will be able to concentrate on their job – making their business as profitable as possible.

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 Quotes that will make you go... hmmm

On the heels of another wonderful holiday long weekend I thought it would be appropriate to share some of my favourite quotes.  The truth is these long weekends often times are more tiring than relaxing and lightening up the weekly blog seems to be the appropriate thing to do. 

Enjoy, and I would love to hear some of your favourites…

    · “When I asked my accountant if anything could get me out of this mess I am in with my business, he thought for a long time and said, ‘Yes, death would help’” – Robert Morley

·         “I don’t want any yes men around me.  I want everyone to tell me the truth…. Even if it costs him his job.” – Samuel Goldwyn

·         “I always arrive late at the office, but I make up for it by leaving early” – Charles Lamb

·         “His insomnia was so bad, he couldn’t sleep during office hours” – Arthur Baer

·         “When a man tells you that he got rich through hard work, ask him ‘Whose?’ ” – Don Marquis

·         “You’ve got to be very careful if you don’t know where you’re going, because you might not get there” – Yogi Berra

·         “We didn’t actually overspend our budget.  The allocation simply fell short of our expenditure.” – Keith Davis

·         “Be kind, for everyone you meet is fighting a harder battle” – Plato

·         “Most of what we call management consists of making it difficult for people to get their work done.” – Peter F. Drucker

And my current favourite…

·         “The definition of a consultant: Someone who borrows your watch, tells you the time and then charges you for the privilege.” – Anonymous

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.

What can I do to help sell my business?

There are many things to consider when you own your own business.  Probably the most difficult and emotional is their ‘Exit’ from the business.  Many entrepreneurs pour their heart and soul into their business, and the prospect of transitioning to retirement or other interests can be the most difficult and perhaps biggest decision of their life.  Below is a short checklist of thing you, the business owner, can do to help sell your business:

1. Ask yourself if this is the right time to sell. If a business' current financial picture doesn't match the owner's expectations, one or the other has to be adjusted.

2. As a seller, you must know your reason(s) for selling. It is one of the first questions a buyer will ask so you will need to be prepared to articulate your reason(s). Ideally, it is much better when the reason(s) are not urgent.

3. You will need to get your books in order. Prospective buyers will want to see at least three years of Tax Returns and Profit and Loss statements.

4. As part of getting your books in order, you'll need to understand your business' true profitability or cash flow. Since most businesses claim a variety of non-operational expenses (i.e. personal auto lease, personal discretionary expenses, etc.), you must make sure that you have supporting documentation for these.

5. You must also make sure all of your legal commitments are in order. You need to review all of your permits, leases, client and vendor contracts, etc. and understand their impact on the business. For example, if your business' location is key to its performance, a long term lease would be appealing to a buyer.

6. If you are absolutely vital to the business, efforts must be made to gradually delegate key responsibilities to various staff members, especially those related to customer relationships and revenue generation.

When a buyer is coming out to see your business for the first time, it’s important to make a good first impression. Buyers look for companies that show well because it can often be indicative of an orderly run business. The first impression can turn on (or off) buyers and add (or subtract) value from your business.

The common thread weaving through all of these steps is credibility. As a seller, if you want to keep buyers moving forward, you must show your respect by being open, honest and accurate about all things, both good and bad.

And finally, sellers should use a professional business broker to enable them to keep focused on successfully running it.  They can’t afford to let the business’ performance decline because they’re too focused on its sale.  This will only give buyers additional negotiating power to lower their offers.  Also, not only does having a third party represent their interests indicate that they are taking this venture seriously; it can often lead to a number of buyers being interested in their business.

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.