How to Purchase a Business Without Collateral
Many prospective business owners believe that it is impossible to purchase a business without collateral. The simple fact is that banks do expect collateral when making a loan. Since this is the core reality of the business world, it means that many who are eager to own a business will ultimately not be able to acquire one. However, while it is true that banks want collateral for loans, there are some ways that would-be business owners can still progress towards their goal of owning a business. In this article, we will explore a couple of the ways that a prospective business owner can still succeed.
First, we must make a key distinction: there is a difference between not having collateral and having no funds whatsoever. It is key to note that the larger the business you plan to buy, the more money you will ultimately need.
A great place to begin the process of buying a business without collateral is to talk to the SBA. The SBA’s 7 (a) program offers up incentives to banks to make loans to potential buyers. The SBA’s 7 (a) program is a simply fantastic program for those without collateral, as the program will cover a whopping seventy-five percent of the loan amount; this means that you, as the business owner, only need to have twenty-five percent of the price of the business. As though this program was exciting enough, the SBA’s 7 (a) program also allows prospective buyers to use money from investors or gifts towards the needed funds. Thanks to this great SBA program, you may qualify for a collateral free loan option.
A second option is seller financing. Seller financing is actually quite common in various forms. If you can find a motivated seller, such as one who is eager to retire, then seller financing becomes a potentially viable option. It may even be possible to combine seller financing with the SBA’s 7 (a) program for a powerful one-two punch. In this situation, a key part of the process is to find the right business and the right seller.
Working with a Business Broker or M&A Advisor can serve as a massive shortcut towards finding just such a business and seller. Brokerage professionals have databases of businesses for sale along with unique insights. A Business Broker or M&A Advisor may instantly know of a business that is a good fit for buyers without collateral.
Ultimately, prospective business owners shouldn’t be dissuaded by the challenges that a lack of collateral represents. It’s true that a lack of collateral is an obstacle, but it doesn’t have to be an insurmountable problem. By teaming with an experienced brokerage professional, it is possible to find a path towards owning a business even without having collateral.
Copyright: Business Brokerage Press, Inc.
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The Most Important Factors in Any Partnership Agreement
Every business has an array of important legal documents. However, the partnership agreement holds a unique and important place in your business and its future.
The facts are that many people choose to go into business with close friends or family members, and often these personal relationships lead to a forgoing of the partnership agreement. Don’t go this route, as it would be a major mistake. As a business owner, you have a responsibility to protect, maintain, and grow your business.
A well-written partnership agreement can greatly reduce the number of potential problems that your business can face down the road. Establishing a legal framework for the operation of your business is a must.
A good partnership agreement is one in which every major aspect of how the partnership should run is outlined and spelled out in detail. At the end of the day, your partnership agreement should be viewed as a legal document that serves as a key guidepost for the operation of your business. Since a partnership agreement is a legal document, it is essential that you work with a lawyer to create a contract that is specific to your company.
This type of agreement is often a more complex agreement than many business owners would initially expect, and for good reason. Due to the wide scope that a partnership can entail, the partnership agreement can address many different points.
It is important to remember that partnership agreements are designed to minimize misunderstandings and outline how the business should function. Issues such as how money is distributed, what percentage each partner will receive, and which partners are to receive a draw, should all be covered.
However, a partnership agreement does more than simply address how money is to be distributed. It should also outline key operational factors such as what happens in the event of the death of a partner. If that were to occur, for example, who will be in charge of managerial work? Issues such as how business decisions should be made, and how conflicts are to be resolved, are additional important issues that should be addressed.
A good partnership agreement, one that strives to foresee as many problems as possible, serves to protect your business against future disruptions. Every successful operation or enterprise has rules by which it operates, and your business should be no exception.
Copyright: Business Brokerage Press, Inc.
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Are You Truly Ready to Become a Business Owner?
People frequently dream of owning their own business, as ownership has a range of perks and benefits. However, it is important for prospective business owners to step back and consider if they are truly ready. In this article, we will explore three essential questions that you need to answer before taking the next step and buying a business.
Question One – Do You Have the Right Personality Type?
Truly not everyone has the right personality type to enjoy being a business owner, and it is best that you understand if you have the right set of traits before attempting a purchase. For example, you must be comfortable assuming a certain degree of risk.
Risk and business go hand-in-hand. This is true no matter how well your business may be operated. Not everyone is comfortable with this level of risk. Owning a business means that you are not only taking financial risks, but you are also giving up the stability that can come with just being an employee. Summed up, you must have the right mindset to operate a business.
Question Two – Are You Determined to Grow Your Income?
Owning and operating a business means that you’ll have to put in a great deal of work and potentially longer hours than you are accustomed to. This is typically necessary in order to build your business and increase your income. It is key that you ask yourself if you are ready for the amount of work that typically comes along with owning and operating a business. Statistics show that the longer you own a business, the more money you will generally earn.
Question Three – Are You Comfortable with Achieving More Control in Your Life?
At first glance, many people may instantly feel that they want more control over their professional lives. Yet in reality, this is not always the situation. Being a business owner means that you have far more control over your professional and business life. Most people will view this as a very good thing. Not having someone else control your fate is a good feeling, as you’ll be able to allocate your time as you see fit. As a business owner, you are not just part of a business, but instead are the person controlling, modeling. and guiding it. At the end of the day, there is nothing quite like being your own boss.
If you are ready for the amount of work and risk that goes along with owning a business, then it might be time to take the next step. One of the easiest ways to move forward, and begin the process of owning your own business, is to work with a Business Broker or M&A Advisor. These types of professionals have years of hands-on experience in the buying and selling of businesses and can help determine what kind of business is the best for you.
Copyright: Business Brokerage Press, Inc.
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3 Overlooked Areas to Consider When Buying a Business
Without a doubt, there are a multitude of factors that go into buying a business. Since there are so many variables involved, it is easy to potentially neglect some important aspects. In this article, we will explore some of the key areas that can be overlooked when buying a business. Three areas in particular warrant special attention.
#1 Legal Documents
Upon first glance, it might seem obvious that all legal documents should be evaluated; however, many buyers forget that all legal documents are important and should be given weight. In short, there is no such thing as an irrelevant legal document, as one never knows what problems could be lurking within any given legal document.
For this reason, you’ll want to carefully examine any legal document before making a purchase. The stakes are simply too high to not evaluate everything from trademarks and copyrights to leasing agreements.
#2 W-2 and 1099 Forms
It is important to note whether or not 1099 forms were given out instead of W-2 forms. The reason is that the IRS has very specific rules regarding these forms. The last thing that any buyer of a business wants is to sign on the dotted line only to discover that there are problems with the IRS. Taking ownership of a new business only to learn that there are IRS issues is something that should clearly be avoided.
#3 Retirement Plans
Just as it is vital to look over all financial documents, including W-2 and 1099 forms, the same holds true to evaluating retirement plans. You shouldn’t buy a business unless you know if the business’s qualified and non-qualified retirement plans are completely up to date with the Department of Labor. A failure to properly evaluate a given company’s retirement plans can be a very costly mistake.
Ultimately, there are many potential topics that can be overlooked when buying a business. In this article, we outlined three areas, but in reality, there are many more. This fact underscores the tremendous importance of working closely with a business broker, as well as other trusted professionals, such as lawyers and accountants, in order to properly vet any business that you are considering. One of the key steps in buying any business is to take every possible step to perform due diligence. No business is a flawless enterprise, but a seasoned business broker or M&A advisor can help you to successfully chart a path forward.
Copyright: Business Brokerage Press, Inc.
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The Importance of Quality Negotiations
When it comes to finalizing deals, successful negotiations are at the heart of the matter. It only makes sense to think about how to improve your communication skills and to choose a Business Broker or M&A Advisor who is well versed in the art of negotiation.
Cultivating Win-Win Situations
Achieving a win-win for all parties is essential, and there are many components involved. It’s essential to understand what the other party is seeking and to help them also feel as though they succeeded in the deal.
One tried and tested strategy is to lead people through a series of “yeses” by starting with topics and points that can be agreed upon and then working forward. In the beginning of this negotiating strategy, the yeses may come from getting others to agree on what may be seen as trivial things. However, this step works to create the right climate for moving forward so that yeses can be obtained on more important issues.
Maintaining the Flow of Information
The flow of information is a critical aspect of the negotiation process. For this reason, it’s best for negotiations between buyers and sellers to go through their brokerage professionals, rather than conducted directly.
The simple fact is that otherwise there are too many variables and opportunities for something to go wrong, ranging from egos getting in the way to miscommunications. When you choose a qualified Business Broker or M&A Advisor, you’ll be able to place trust in that person to achieve optimal outcomes.
Understand One Another
It is important to keep the other side talking and show that you understand their perspective and the issues they may have. It is in this way that you can encourage cooperation and diffuse resistance in advance.
Ultimately, great negotiations stem from proper strategy, preparation, proper education, enhanced communication, and understanding the other party’s needs. When you and your Business Broker or M&A Advisor foster good communications with the other party, it will enhance the chances of achieving the kind of cooperation you are seeking. This in turn, dramatically increases the chances of achieving win-win outcomes.
Copyright: Business Brokerage Press, Inc.
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Buying/Selling a Business: The External View
There is the oft-told story about Ray Kroc, the founder of McDonalds. Before he approached the McDonald brothers at their California hamburger restaurant, he spent quite a few days sitting in his car watching the business. Only when he was convinced that the business and the concept worked, did he make an offer that the brothers could not refuse. The rest, as they say, is history.
The point, however, for both buyer and seller, is that it is important for both to sit across the proverbial street and watch the business. Buyers will get a lot of important information. For example, the buyer will learn about the customer base. How many customers does the business serve? How often? When are customers served? What is the make-up of the customer base? What are the busy days and times?
The owner, as well, can sometimes gain new insights on his or her business by taking a look at the business from the perspective of a potential seller, by taking an “across the street look.”
Both owners and potential buyers can learn about the customer service, etc., by having a family member or close friend patronize the business.
Interestingly, these methods are now being used by business owners, franchisors and others. When used by these people, they are called mystery shoppers. They are increasingly being used by franchisors to check their franchisees on customer service and other operations of the business. Potential sellers might also want to have this service performed prior to putting their business up for sale.
Copyright: Business Brokerage Press, Inc.
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How Understanding Psychology Can Benefit Your Deals
We work closely with our clients to preserve the integrity of deals so that they have the best chance of a successful closing. An often-overlooked aspect of the process is understanding and embracing human psychology. In this article, we will explore some of the most common ways that psychology comes into play.
The Element of Time
It is critical that both buyers and sellers feel well prepared at every stage of the process. It is also essential that a certain momentum is established through every stage of the deal. When too many delays happen, this can start to derail deals.
Think about the Buyer and the Seller
For both parties, the buying or selling of a business is a life-changing event. For this reason, it is important that you invest the time to think about the point of view of the other people involved. No doubt, buying and selling can be stressful, so it’s important to take other people’s thoughts and feelings into account. You are not the only one who may be experiencing a little stress.
The Issue of Non-Active Partners
In some deals, non-active partners can pose challenges to finalizing deals. They often have different motivations than the seller who is in the role of running the business. In a situation where two sellers have divergent goals, it can pose a challenge to a deal. The best thing to do is to try to understand the point of view of each seller and help them both reach their respective goals.
Identify Influencers
Influencers and recommenders can have a powerful sway over both buyers and sellers. By influencers, this could mean accountants, lawyers, relatives, etc. In order for a deal to go through successfully, often these influencers must be identified and their viewpoints must be addressed. On a practical level, there are also other people involved that can interfere with a deal, such as landlords. It’s important to make sure that these individuals feel as though they will benefit from the success of the deal as well.
There are many moving parts needed to get to the finishing line. Human psychology plays a huge role in what decisions get made. It’s vitally important to take the time to consider what others involved in the deal might be thinking or doing. Your Business Broker or M&A Advisor will benefit you by getting to know all parties involved and taking the appropriate actions to ensure things are done to the satisfaction of all parties.
Copyright: Business Brokerage Press, Inc.
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Is Your Business Charging Enough For Goods & Services?
A small increase in what you charge for your goods and services can make a tremendous difference to your bottom line. The fact is that many businesses could charge more for their goods and services than they do, but fail to do so. Owners often do not realize the great value of charging just one-percent more. In this article, we’ll explore how charging even slightly more can dramatically impact your business.
Let’s consider a hypothetical example. A business owner tells a potential buyer that he or she could safely increase their prices by 1.5% and do so without the price increase causing any negative impact to sales or business disruption. The savvy buyer quickly realizes that the business, which has $70 million in sales, is leaving $1 million dollars on the table by not increasing its prices by 1.5%. A smart buyer realizes that after purchasing the business, all he or she has to do is institute this small price increase in order to achieve a sizable increase in profits.
In his best-selling book The Art of Pricing, Rafi Mohammed explores the often-overlooked area of pricing. He keenly observes that one of the biggest fallacies in all of business is to believe that a product’s price should be based on the cost of the product. In The Art of Pricing, Mohammed points to several examples. One comes from the restaurant industry. He points to the fact that McDonald’s keeps entrée prices attractive with the idea of making up profit shortfalls in other areas, ranging from desserts to drinks and more. Or as Mohammed points out, McDonald’s profits on hamburgers is marginal. However, its profits on French fries are considerable.
Mohammed’s view is that companies should always be looking to develop a culture of producing profits. He states, “through better pricing, companies can increase profits and generate growth.” Importantly, Mohammed points out that it is through what he calls “smart pricing” that it is possible to extract hidden profits from a business. Summed up another way, pricing couldn’t matter more.
All too often business owners, in the course of their day-to-day operations, fail to place sufficient importance of pricing. Any business looking to achieve more will be well served by first stopping and taking a good look at its pricing structure.
Likewise, buyers should be vigilant in their quest to find businesses that can safely increase prices without experiencing any disruption. At the end of the day, small changes to pricing can have a profound impact on a company’s bottom line.
Copyright: Business Brokerage Press, Inc.
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Insights from BizBuySell’s 3rd Quarter Insight Report
Most business buyers and sellers are wondering what 2021 and beyond will bring. BizBuySell and BizQuest President Bob House provided a range of insights stemming from BizBuySell’s 3rd Quarter Insight Report and a survey of over 2,300 business owners.
The simple fact is that the pandemic has most definitely had a major impact on the buying and selling of businesses. This fact is obvious. But diving deeper, there are a range of insights that can be gleaned.
First, owners do understand that COVID is a massive force in business right now. According to the survey, 68% of owners feel that they would have received a better price for their business in 2019 than in 2020. Only 37% of respondents felt that they would receive a better price this year. Of owners who felt that they would receive a lower price in 2020 than in 2019, 71% of these owners said that their assessment was directly tied to the pandemic and its accompanying economic impact.
A question on the survey asked owners if the pandemic had impacted their exit plans. 55% responded that the pandemic had not changed their exit plans. Additionally, 22% said that they now planned on exiting later, and 12% stated that they planned on exiting earlier. In short, the majority of business owners were not changing their exit plans.
On the other side of the coin, buyers are acknowledging that the present seems to be a very good time to buy. A staggering 81% of buyers stated that they felt confident that they would be able to find an acceptable price point. In terms of their purchasing timeline, 72% of respondents stated that they were planning on buying a business soon. Survey follow-ups indicated that large numbers of buyers were also planning on buying in 2021.
Generational differences are playing a role as well. Baby Boomers tend to be more optimistic than non-boomers as far as their overall views on the recovery. 43% of Baby Boomers now expect the economy to recover within the next year as compared to just 30% of non-Boomers. House pointed out, “Baby Boomers are the generation that did not plan, which makes it harder for them to adjust transition plans if they were preparing to retire, as small businesses don’t have the infrastructure and management teams in place to wait out a bad cycle.”
Based on the information collected by BizBuySell’s 3rd Quarter Insight Report and their survey, it is clear that there is a new wave of buyers on the horizon. The report supports the notion that the pandemic has made small business ownership an attractive option for new entrepreneurs. Factors driving new entrepreneurs into the marketplace include everything from being unemployed and wanting more control over their own futures to a desire to capitalize on opportunities.
Finally, House notes that 2021 could be a “perfect storm for business sales,” as 10,000 Americans will turn 65 each and every day. This means that the supply of excellent businesses entering the marketplace will likely increase dramatically.
Copyright: Business Brokerage Press, Inc.
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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 understand exactly what needs to be done and when. The key ingredient of the offer to purchase is that both sides completely understand the terms and are comfortable with them. Too many sales fall apart because of a misunderstanding on one side or the other.
The Buyer and Seller Don’t Lose Their Patience
Both sides need to understand that the closing process takes time. There is a myriad of details that must take place for the sale to close successfully, or to close at all. If the parties are using outside advisors, they should make sure that they are deal-oriented. In other words, unless the deal is illegal or unethical, the parties should insist that the deal works. The buyer and seller should understand that the outside advisors work for them and that most decisions concerning the sale are business related and should be decided by the buyer and seller themselves. The buyer and seller should also insist that the outside advisors keep to the scheduled closing date, unless they, not the outside advisors, delay the timing. Prior to engaging the outside advisors, the buyer and seller should make sure that their advisors can work within the schedule. However, the buyer and seller have to also understand that nothing can be done overnight and the closing process does take some time.
No One Likes Surprises
The seller has to be up front about his or her business. Nothing is perfect and buyers understand this. The minuses should be revealed at the outset because sooner or later they will be exposed. For example, the seller should consult with his or her accountant about any tax implications prior to going to market. The same is true for the buyer. If financing is an issue it should be mentioned at the beginning. If all of the concerns and problems are dealt with initially, the closing will be just a technicality.
The Buyer and Seller Must Both Feel Like They Got a Good Deal
If they do, the closing should be a simple matter. If the chemistry works, and everyone understands and accepts the terms of the agreement, and feels that the sale is a win-win, the closing is a mere formality.
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