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

Business Broker Russell Cohen

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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...

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....

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”...

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...

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...

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...
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