Biz Broker Florida

Tuesday, September 4, 2012

3 Must-have Agreements When Selling Your Business

3 Must-have Agreements When Selling Your Business:

This article discusses the:

1. Purchase Agreement

2. Confidentiality Agreement

3. Non-compete Agreement

3 Must-have Agreements When Selling Your Business | Small Business Support:

For a complimentary consultation:
Contact Cecil Williams (cecil@bizbrokerflorida.com) or call at 888-925-5055 ext.206. Visit my personal website to search for business for sale in Florida www.bizbrokerflorida.com Also, visit our Florida Business Exchange website at www.fbxbrokers.com

Buying a Business—The Contract

Buying a Business—The Contract

The agreement used by Business Broker of Florida (BBF) have been used in thousands of transactions, and includes all the provisions cited in this articles.

Buying a Business—The Contract | The Griess Law Firm, LLC

For a complimentary consultation:
Contact Cecil Williams (cecil@bizbrokerflorida.com) or call at 888-925-5055 ext.206. Visit my personal website to search for business for sale in Florida www.bizbrokerflorida.com Also, visit our Florida Business Exchange website at www.fbxbrokers.com

Finding A Growing Business To Buy

Good Luck Finding A Growing Business To Buy

The single biggest unknown that prospective business buyers face is determining what the business will become after they take over as a new owner. Unfortunately, it is also one of those things that are extremely difficult, if not impossible to predict. Certainly, it is very important to determine how well the business will transition and to have a clear picture of what “life will look like” after it is sold. However, a greater issue is establishing realistic criteria of the fundamentals that must be in place for any business you consider purchasing.

To the latter point, one area where many business buyers make a mistake is having delusional expectations about past performance and growth (or a lack thereof), which always leads to uncertainty about the future, and quite often is the reason why a buyer cannot complete a deal.

Except for a few select industries, most businesses have had a very tough go over the past several years. The overall economy, a lack of available financing, falling revenues/profits, increases in unemployment and most importantly a decline in overall confidence in my opinion has had a massive impact on the business sale marketplace. Nevertheless, the market remains flooded with people looking to buy a business and small businesses are being bought and sold everyday albeit far less so than a few years ago.

Many buyers and especially first-timers will only target ones that have shown upward trends in the recent past yet most businesses are not growing. How then can a buyer reconcile this dilemma?

The reality is that things may not get better in the short-term. What if the current economic period remains the economy for the foreseeable future?

Should buyers simply sit on the sidelines and wait until things get better?

Absolutely not!

No true entrepreneur has ever had any success playing the “wait and see” game for a prolonged period.

Nobody can predict what the future holds (if you can, call me right away please) and so prospective business buyers have to adjust their thinking when it comes to their core criteria of what they want to see in any business they consider purchasing, and specifically, about how the business has performed in the past couple of years.

It would be wonderful if every business for sale had a ten-year track record of growth. Heck, most buyers would settle for just a couple years of historical increases in sales and profits. Even that expectation in the current environment is a stretch.

Don’t get me wrong; a “wish list” for any buyer should include demonstrative growth and they do exist, but any buyer who deems that to be priority number one and will only consider those ones is going to spend a lot of time trying to find a reasonable selection of businesses for sale which meet that hard core rule.

Consider this: instead of growth, think stability. Actually, I would go so far as to say that look at stability as the new growth. Adjust your criteria and target businesses that have been able to show consistency in the recent past. Reject the idea that a business has to have years of sales and profit increases; those are not the norm. Obviously, any company that has been able to grow in these difficult times may be ideal, but those are rare, and will likely remain so for a while.

Most entities are still experiencing declines or inconsistent performances which make the decision very difficult for a prospective business buyer and impossible for ones who will only buy a business that has been growing year after year.

If you are comfortable that a potential business can transition well to you, and the recent past dictates that sales and profits are stable, then you have in fact found a solid, “growing” business.

Richard Parker
author of the How To Buy A Good Business At A Great Price© series
Diomo.com

For a complimentary consultation:
Contact Cecil Williams (cecil@bizbrokerflorida.com) or call at 888-925-5055 ext.206. Visit my personal website to search for business for sale in Florida www.bizbrokerflorida.com Also, visit our Florida Business Exchange website at www.fbxbrokers.com

What Is the Most Important Number For Buyers

When doing a valuation for making a SBA 7a loan, the lender is going to utilize methods that analysis income. The most common evaluation methods are 1) Multiple of Seller's Discretionary Earning (SDE), Discounted Future Cash Flow, Capitalization of Earnings (EBITDA), and Excess Earnings Method. While I can run an spreadsheet model for all these methods for individuals selling or buying a business in Florida, I find that most businesses are valued and sell within the range of the values generated utilizing the Capitalization of Earning (EDITDA) and Multiple of Seller's Discretionary Earning (SDE) methods.

The reasons that these two methods provide the optimum valuation and selling range are:

They both evaluate cash flowing through the business

They provide the lender and buyer with enough information to know if the business generates cash to pay down debt, pay the buyer a salary after closing, and to determine ROI.

Which of these two methods is most useful? It depends.

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is the figure that offers a fairly reliable estimate of the kind of cash a business generates to pay down debt, pay taxes and offer a return to investors.

Sellers' Discretionary Earning (SDE) or Seller's Discretionary Cash Flow (SDCF), on the other hand, is a figure used more often in smaller businesses because it accounts for the salary that the company's owner pays himself, along with any other benefits or perks like a company car or life insurance policy.

In other words, SDE = EBITDA + owner's salary + perks and benefits.

3 Questions to Ask Before Selling Your Business

Running a business can be exhausting. It's no surprise that even the most successful entrepreneurs feel at times that cashing out – selling the business to someone else or another company – might be the best way to maintain their mental health as well as their financial well-being.

But is selling a business worth considering during a weak economy?

The answer, according to experts, is a resounding yes.

"I could sell a hula-hoop manufacturer if it's priced right and marketed professionally," said Philip Pearl, a Ramsey, N.J., business broker and accountant.

To get the best deal on your business in any economic environment, ask yourself these three questions:

1. Will my business be as successful when someone else owns it?

The success of certain businesses is tied unalterably to their owners' personalities and customer relationships. "Mary's cookies may be great, but can Tom sell Mary's cookies? If not, her business is less valuable to a buyer," said Pankaj Amin, a New York-based entrepreneur who purchased a telecommunications business and sold it seven years later.

Mary may change the equation, though, by agreeing to continue running the business after selling it. Self-employed professionals such as lawyers may find this method useful, said Peter Raffalski, a vice president at Gibraltar Private Bank & Trust, based in Coral Gables, Fla. For example, a small law firm that specializes in bankruptcy proceedings might garner the attention of a larger firm that focused until recently on real estate closings.

2. How will the weak economy affect my business's value?

What a business is worth – always a source of contention between a buyer and seller – is usually settled around a multiple of the business's earnings, Amin said.

Even businesses whose sales have dipped recently may prove an attractive acquisition target, even more than some businesses that are suddenly enjoying brisk sales.

Pearl said that when a business broker and client look into buying such a business, they try to determine whether its fortunes will improve in better economic times.

Owners who find a potential buyer willing to take a long view of earnings should keep in mind that such a view cuts both ways: A short-lived sales surge won't mask the years of anemic growth that preceded it.

Pearl has worked with such a business. "Their growth spurt was so high that if I were to try and market the business based on this last year, buyers wouldn't accept it," he said.

3. Would selling help me meet my personal goals?

This is one of the key questions Gibraltar's Raffalski asks of business owners seeking his advice. Preparing to sell is wise for owners who seek to retire soon and for entrepreneurs who specialize in starting a business, bringing it to profitability and handing it off, Raffalski said.

For other owners, however, acquisition offers can lead to decisions they'll later regret, Raffalski said.

"Let's say someone is running an insurance business," Raffalski said. "He receives an offer to buy that he wasn't expecting. He thinks to himself, 'What would I do if I don't want to start a new business?' He can't just pick up where he left off. Sometimes the timing is wrong for personal reasons."

Monday, September 3, 2012

Why Buy An Existing Business?

Why Buy an Existing Business?

To start a business or buy an existing business - this is the key question to answer before embarking into business ownership.

Read: Why Buy an Existing Business? « Cosmic Adviser

For a complimentary consultation:
Contact Cecil Williams (cecil@bizbrokerflorida.com) or call at 888-925-5055 ext.206. Visit my personal website to search for business for sale in Florida www.bizbrokerflorida.com Also, visit our Florida Business Exchange website at www.fbxbrokers.com

Sunday, September 2, 2012

10 Tips for Buyers of a Business

Tip number 1, Buy an existing business: Sure, you can start a business from scratch, but your chance of failure is drastically increased. Buying a well established business with an existing client base and a proven cash flow is a lot less risky and your chances of “making it” are much higher.

Tip number 2, Decide what type of business to buy: It is important to buy something that you can enjoy owning at a location that you can live with. If you hate pizza, don’t buy a pizza shop. Buy something that you will be happy owning. If you hate the city of Philadelphia, don’t buy a business in the city of Philadelphia. Buy one in Florida. My office gets calls all the time from buyers who have no idea what they want to buy or where they want to buy. It seems as if they concentrate more on the cash flow number. While cash flow is undoubtedly an important variable, it should not be the single most important factor in deciding to buy a business. Decide whether you want a service based, retail based or manufacturing based company.

Tip number 3, Determine whether you can afford to buy a business: Many people never make the leap because they think that buying a business is a financial impossibility for them. The truth is, typically you do need some money, but perhaps not as much as you think. There are several options for financing the purchase of a business. An SBA (Small Business Administration Loan) can usually be acquired if you have a good credit score, some relative experience in the type of business that you want to buy and 20% of the purchase price. The purchase can also be funded with seller financing in the form of a promissory note or an installment purchase agreement. A purchase can even be funded through your 401k or IRA.

Tip number 4, Surround yourself with professionals: Buying a business is probably one of the most important events in a person’s life. It is important to surround oneself with the appropriate professionals. There are three key individuals that you should use to assist you in buying a business; they are a business broker, an attorney and an accountant. Business brokers are instrumental with identifying businesses, negotiating the price, and getting everyone to the closing table. Most business brokers have an attorney that they work closely with. You should be somewhat careful with going with that attorney. They will be torn between protecting your interest and making sure they don’t muddy the waters too bad essentially dissuading the broker from sending them more work. Regardless, you should choose an attorney that has experience with business transactions. Do not use your relative or close friend that happens to be an attorney if they specialize in something other than transactional law. You don’t need a powerful Tampa attorney, but an attorney with knowledge of Asset Purchase Agreements is a must. A CPA can be instrumental in the due diligence phase of the purchase. They will scour the books and records of the company to make sure the represented revenue and cash flow numbers are accurate. They can also educate you as to the tax implications for the allocation of the purchase price. Most major life events require the assistant of professionals, buying a business is no different.

Tip number 5, Identifying the Business: Once you have identified what kind of business that you want to own and the location you want to be in, the next step is finding a business that meets your criteria. There is no magic list of businesses that are closely held to the chest of businesses brokers. Usually, most businesses are advertised on the Internet on two key websites, www.bizbuysell.com and www.bizquest.com. While it may be true that some brokers don’t publicly advertise some businesses because some Sellers want the utmost confidentiality, most brokers list their businesses for sale on those two sites. You or your broker should complete a search to locate businesses that fit your profile. Try to find businesses of the type that you desire that are throwing off enough cash flow to sustain your personal obligations and give you the ability to grow the business.

Tip number 6, Prepare questions for the Seller. There are several key questions that a potential buyer should ask every Seller. The first, why are you selling? This is the most common question of the initial meeting. Sellers decide to sell for a variety of different reasons. The best-case scenario is that they are retiring. Some are forced out by partnership disputes or divorces. Others legitimately want to pursue other business opportunities. Some business owners spend so much time and effort getting a business off the ground that they are simply burnt out and want to cash in. A buyer should be leery of any business with a historic downtrend in revenues or cash flow. Sometime Sellers want to get out because they foresee a continued decline in their business or because they know of some impending event that will undoubtedly harm their business. Whatever the reason, make sure it is a good one. Secondly, ask the Seller if they know of any reason that business will downtrend in the near future. Find out if there is a major competitor coming to the area or some regulation that is poised to impact the industry. Third, find out who the key employees are, what their roles are and if they would be likely to continue to work under a new owner. Fourth, ask about the immediate competition, who they are, where they are and what percentage of market share they have. Fifth, find out how long the owner is willing to stay on to assist with the transition. There are many questions that a Buyer should pose to the Seller. The most important thing is being prepared with questions.

Tip number 7, Make an Offer. You have located your dream business and now you are ready to make an offer. There are several key things to know before doing so. Do not sign an Asset Purchase Agreement at this point. Buyers want to sign something less committal such as an Offer to Purchase or a Letter of Intent. You want to make sure that you offer has a due diligence contingency, a financing contingency if applicable, a lease transfer contingency if applicable, a liquor license transfer contingency if applicable. You also want to make sure that your offer contains the key terms of the transaction so that the drafting of the Asset Purchase Agreement is more of a formality. Be careful with making an offer that is too low. You do not want to insult the Seller and potentially kill the deal on the spot. Make a reasonable offer and leave yourself some room to negotiate with the Seller.

Tip number 8, Perform thorough Due Diligence: This is a Buyer’s chance to really open up a business to confirm that it is as financially healthy as claimed. Most due diligence is done simply by looking at a Seller’s tax returns and profit and loss statements. The represented revenues are easily discernable by simply looking at the tax returns. Where things get a more challenging is when a buyer tries to vet the represented cash flow. If a business is being marketed at 2 million in revenues with a $500,000 cash flow, buyers want to make sure that the cash flow number is accurate. Most of the time, the purchase price is based on some multiple of cash flow. If you determine that the number is less than being represented you have reason to renegotiate the purchase price or cancel the transaction. Although tax returns and profit and loss statements are good tools to perform an initial due diligence, buyers should go beyond that by checking merchant account histories, internal revenue reports, bank accounts, etc. The typical due diligence period is somewhere between 15 to 30 days. If a Seller is having a hard time getting you the requested information and it seems as if they are dragging their feet, this may be a good indication that there is something wrong with the representations made. This is the Buyer’s time to make sure they are getting what they are paying for.

Tip number 9, The Closing: After completing a thorough due diligence it will be time to move toward the closing. The closing should be a mere formality. All negotiations should be done and all documents should be prepared in advance of the actual closing date. You don’t want to be sitting at the closing table with a negotiating posture. The parties may potentially have to sign a myriad of documents. Those documents may include: an Asset Purchase Agreement, Bill of Sale, Promissory Note, Employment Agreement, Stock Purchase Agreement, a Property Lease, Personal Guarantees, and a whole host of paperwork from the bank financing the transaction. The attorney and bankers should take charge of the closing. Buyers and Sellers usually sign away and collect their checks or keys. This should be an exciting day for both the Seller and the Buyer.

Tip number 10, Now you own it, do not make any drastic changes: The biggest mistake a new Buyer can make is making drastic changes to the business. If the business that you purchased has a strong history of revenues and cash flow then there is no reason to make immediate major changes to the business. You risk alienating customers and your revenue stream. I have seen this happen time and time again with business buyers. Try to make as little of an impact on the face of the business as possible. Of course new owners have their own ideas and want to make changes. If that is the case, make the changes as subtle as possible and over time. It is a totally different situation if the buyer has purchased a distressed business. If that is the case, then the new Buyer has to make drastic changes to turn things around.