Buying a Business Articles Archive - South Florida Business Broker Russell Cohen

Business Broker Russell Cohen

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Buying a Business Articles Archive

Home Based Guidelines

If you are a home-based business owner who is ready to sell, you may have many questions and concerns regarding selling your business. You may have started a business from scratch and had much success with it, but now you are looking toward retiring, or starting a new business, or taking a break. You don’t want to simply close down shop and allow your competitors to absorb your business. If possible, you would like to make the most from all your hard work and time; you would like to sell your business for a profit. But how? Can home-based businesses be sold? If so, can they be sold for a profitable price? Should you hire a business broker in Riverside to sell your business?  There are many factors that need to be taken into consideration when selling a business. For instance, a seller needs to acquire a business valuation, prepare the business for sale, develop a marketing plan, maintain confidentiality during the sale, and finally sale negotiations. It is no wonder that many business owners consult with a business broker when embarking on the journey of selling their business. However, as a home-based business owner, many may advise you not to hire a business broker to help you sell. To be honest with you, it can be done. If you are running a profitable business, with a few intelligent steps you could promote your company yourself. Start the selling process by having casual discussion with your professional contacts, acquaintances, customers, old employee, or even your friends. There are also online marketplaces and self-serve business sale platforms to assist you... read more

Where Does Your Company Fit?

The recently released 2003 Business Reference Guide provides a breakdown of the size of businesses in the U.S. Since exact data is almost impossible to obtain, some of the following are estimates or educated guesses. For reference purposes, they are divided into Levels – an arbitrary term. Business Size by Employees % of Total # of Businesses Average Anual Revenues Average # of Employees         1 to 4 54.7% $321,000 2.1 5 to 9 20.8% $792,000 6.6 10 to 19 12.3% $1,600,000 13.4 20 to 99 10.1% $5,701,000 39.2 100 to 499 1.6% $27,056,000 192.2 500-999 less than 1% $540,467,000 688.6 Note: Percentages do not add up to 100% due to rounding. Small Business Level One – Businesses in this category have annual sales of less than $500,000 and have less than four employees. There are approximately 3.1 million of them and they represent about 55 percent of all of businesses with one employee or more. These businesses tend to sell for $500,000 or less. Level Two – These businesses have annual sales of $500,000 to $1 million and have five to nine employees. There are approximately 1.2 million of them and they represent approximately 21 percent of all businesses that have one employee or more. They tend to sell for less than $1 million. Level Three – Businesses in this category have annual sales of $1 million to $2.5 million and have 10 to 19 employees. There are approximately 690,000 of them and represent about 12 percent of all businesses with one employee or more. These businesses tend to sell for less than $2.5 million.... read more

Why Do Deals Fall Apart?

In many cases, the buyer and seller reach a tentative agreement on the sale of the business, only to have it fall apart. There are reasons this happens, and, once understood, many of the worst deal-smashers can be avoided. Understanding is the key word. Both the buyer and the seller must develop an awareness of what the sale involves–and such an awareness should include facing potential problems before they swell into floodwaters and “sink” the sale. What keeps a sale from closing successfully? In a survey of business brokers across the United States, similar reasons were cited so often that a pattern of causality began to emerge. The following is a compilation of situations and factors affecting the sale of a business. The Seller Fails To Reveal Problems When a seller is not up-front about problems of the business, this does not mean the problems will go away. They are bound to turn up later, usually sometime after a tentative agreement has been reached. The buyer then gets cold feet–hardly anyone in this situation likes surprises–and the deal promptly falls apart. Even though this may seem a tall order, sellers must be as open about the minuses of their business as they are about the pluses. Again and again, business brokers surveyed said: “We can handle most problems . . . if we know about them at the start of the selling process. The Buyer Has Second Thoughts About the Price In some cases, the buyer agrees on a price, only to discover that the business will not, in his or her opinion, support that price. Whether this “discovery”... read more

What is a Contingency?*

A contingency in the sale of a business is a condition in the contract of sale or offer that must be resolved, satisfied or rectified by either a buyer or seller. If they are not satisfied then the sale will generally not go forward. Most offers on a business contain one or more contingencies. The sale may be subject to the buyer obtaining financing, or the seller repaving the parking lot. Experienced business brokers have seen just about every contingency there is. Most of these are placed in the offer by a buyer who has concerns about one or more issue and needs it or them to be satisfied before proceeding with or closing the sale. It may be as simple as the sale is contingent upon the buyer receiving a five-year extension of the lease by [a certain date]. Or, the offer to purchase may state that the sale is conditional upon the buyer’s approval of the seller’s books and records. The difference between the two examples is that in the first one, it is a specific event that must be satisfied, and a time limit is specified. The second example is open-ended, meaning that a buyer could opt out of the deal by disapproving the books and records essentially for any reason. Here are some tips on contingencies: There should be a time period in which the contingency must be satisfied. Without it the deal could go on almost forever. It, or they, as the case may be, should be reasonable. There is no point in making the sale contingent on moving the building to the next... read more

What is Goodwill?

In the practical sense, when selling a business, goodwill is all the hard work and effort the seller has put into the business over the years. When acquiring a business, goodwill is the difference between the tangible assets and the purchase price. Goodwill value should not be confused with going-concern value. There is a big difference. One leading business appraiser has defined going-concern value as, “The premise that a business will continue to operate consistent with its intended purpose as opposed to being liquidated.” In other words, the value of a business for just being in business is the going-concern value. It has nothing to do with whether the business is profitable, “on its last legs,” or merely breaking even. Essentially, if the doors are open, a business is a going concern. Most business owners view goodwill as good service, products and reputation. One dictionary defines Goodwill as, “A desire for the well-being of others; the pleasant feeling or relationship between a business and its customers.” The M&A Dictionary defines goodwill as: “An intangible fixed asset that is carried as an asset on the balance sheet, such as a recognizable company or product name or strong reputation. When one company pays more than the net book value for another, the former is typically paying for goodwill. Goodwill is often viewed as an approximation of the value of a company’s brand names, reputation, or long-term relationships that cannot otherwise be represented financially.” Some Examples of Goodwill Items Phantom Assets Local Economy Industry Ratios Custom-Built Factory Management Loyal Customer Base Supplier List Reputation Delivery Systems Location Experienced Design Staff Growing Industry... read more

What Makes a Deal Close?

For every reason that a pending sale of a business collapses, there is a positive reason why the sale closed successfully. What does it take for the sale of a business to close successfully? Certainly there are reasons that a sale might not close that are beyond anyone’s control. A fire, for example, the death of a principal, or a natural disaster such as a hurricane or tornado. There might be an environmental problem that the seller was unaware of when he or she decided to sell. Aside from these unplanned catastrophic events, deals abort because of the people involved. Here are a few examples of how a sale closes successfully. The Buyer and Seller Are in Agreement From the Beginning In too many cases, the buyer and seller really weren’t in agreement, or didn’t understand the terms of the sale. If an offer to purchase is too vague, or has too many loose ends, the sale can unravel somewhere along the line. However, if prior to the offer to purchase the loose ends are taken care of and the agreement specifically spells out the details of the sale, it has a much better chance to close. This means that a lot of answers and information are supplied prior to the offer and that many of the buyer’s questions are answered before the offer is made. The seller may also have some questions about the buyer’s financial qualifications or his or her ability to operate the business. Again, these concerns should be addressed prior to the offer or, at least, if they are part of it, both sides should... read more

When Buying or Selling: Attorneys Should Be Deal-Friendly and Sale-Wise*

Whether you are buying or selling a business, your legal counsel can make or break the deal. It is important that you emphasize to your attorney that you want the sale to go through. In many instances, the sale of the business fails to close because the attorney for one side or the other makes too many demands of the other side. Certainly, you want your attorney to protect your interests, but not to the point where the demands are so strenuous that the other party or his or her counsel balks. If your attorney understands that you really want to buy–or sell, as the case may be–he or she will be less apt to make outrageous requirements or demands. Below are some things to consider when dealing with your attorney in the buying or selling process. Both parties should understand just what is being sold–and purchased. The corporate records should be current and complete. The seller should have available the current insurance policies and the names of the insurance agents involved. If there is more than one owner, there should be a designated spokesperson representing the group. This authorization for one of the owners (or stockholders) to represent the business should be in writing and signed by all of the owners. The buyer and the seller must both have the same understanding of the sale and its terms. Too often, they each have their own perception of the deal. Each party to the sale must understand just what the deal is and who is getting what, or the sale may be doomed before it starts. To help prevent... read more

Under-Reporting Comes Under Fire

What is the true income of an independent business? This is a question of interest to many parties–including prospective buyers, investors, and lenders–but nobody is more determined to know the answer than the Internal Revenue Service. What makes the “truth” about a company’s income so elusive? Isn’t this what financial record-keeping is all about? Yes and no. Business owners have been known to go from minor figure-fudging to major-league cheating, in an effort to lower the amount of income necessary to report to the IRS in any given fiscal year. In fact, the IRS estimates that two out of three business owners regularly under-report income. “Unreported income” is the official phrase for this practice; however, in the trade, the word often heard is “skim.” It sounds light, healthy, and maybe good for you. But is it? Consider an item from a newspaper in a typical Main Street town, bearing the headline “Business Owners Sentenced”: Two Myrtle Beach business owners were sentenced in federal court in Florence [S.C.] for not declaring money received from poker machines in their bar on their income tax returns, according to a statement by the US Department of Justice. Roy Gipson of Charlotte and Ann Willis of Myrtle Beach, former operators of Players, a sports bar in the Galleria Shopping Center, were indicted by the federal grand jury in September. They pleaded guilty in October to filing false income tax returns. (Sun-News, Myrtle Beach, SC) This is a depressing story, resulting in the sentencing of one of the defendents to three years’ probation, three months in a halfway house, several months of home detention, and... read more

Today’s Business Buyer: A Profile

Today’s independent business marketplace attracts a wide variety of buyers eager for a piece of ownership action. Buyers of small businesses are most likely replacing lost jobs or searching for a happier alternative to corporate life. Buyers of mid-sized and large operations are, typically, private investment companies seeking businesses to build and eventually sell for a profit. This is the broadest possible look at the types of buyers out there. Business owners considering putting their business on the market should be aware of the finer "distinctions" among buyers, as well as what they are looking to buy, and why. 1. Individual Buyer This is typically an individual with substantial financial resources, and with the type of background or experience necessary for leading a particular operation. The individual buyer usually seeks a business that is financially healthy, indicating a sound return on the investment of both money and time. If these buyers do not have the amount of personal equity required for acquisition, they most likely will turn to family members or venture capital sources for financing. (Buyers and sellers should be aware that, in many cases, seller financing will be an essential element, benefitting both parties in the long run.) Even when such sources are available, the individual buyer will hit a strong bottom line when it comes to price. Therefore, these buyers will usually limit themselves to transactions involving less than $1 million, cash. 2. Strategic Buyer This buyer is almost always a company, having as its goal entering new markets, increasing market share, gaining new technology, or eliminating some element of competition. In essence, it is part... read more

Today’s Business Buyer

For a business to sell, there has to be a seller – and a buyer. The buyer of today is a bit different than the one of yesterday. Today’s buyer is not a risk-taker, is concerned about the financials and seems to be overly concerned about price. Unfortunately, buyers have to understand that they cannot buy someone else’s financial statements. They might be a good indication of what a new buyer can do with the business, but everyone does things differently. It is these differences that ultimately determine how the business will do. The price may not be the right question for the buyer to ask. What is usually the most important question is how much cash is required to buy it. Today’s buyer is finicky, due certainly in part to the fact that, he or she is not a risk taker. Quite a few buyers enter the business buying process and, at the last minute, cannot make the leap of faith that is necessary to conclude the sale. The primary reason that buyers actually buy is not for the reason one might think. Money or income is about third, maybe even fourth on the list. Buyers buy because they are tired of working for someone else. They want to control their own lives. In some cases, they have lost their job, or are being transferred to a place that they don’t want to move to, or are very unhappy in their job. Surveys indicate that about half of the people in the county are unhappy in their jobs. People buy a business to change their lifestyle. A recent... read more
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