When buying a business one typically arranges for the financing of the purchase with a bank, preferably a local bank.
It is important not to overlook the fact that an operating loan may be needed for certain times during the year. The buyer will need to work with his accountant and banker to determine when those funds will be needed.
In many cases, the seller may have cash reserves to use when sales fluctuate during the year. This may not be the case with the buyer.
Please give me a call if you are thinking about buying or selling a business.
The business climate in Iowa is currently facing a “good news, bad news” scenario. Although the Ag economy is not great, the general business economy is doing very well. Interest rates are relatively low. Inflation for the moment is manageable and unemployment rates place the Sate of Iowa in the top five in the nation.
According to the U.S. Department of Labor, Bureau of Labor and Statistics, Iowa’s unemployment rate in March, 2018 was 2.8%. Only Hawaii, New Hampshire, North Dakota and Maine have lower unemployment rates. This is awesome news if you are looking for a job. If you are a small business owner looking for employees, it’s not great news.
Below you will find a list of ideas for business owners to consider as they develop a strategy to recruit and retain quality employees:
Promote a positive work environment
Team lunches, training opportunities, “bring your dog to work day”
Recognize and reward employees for a job well done
This can be “public” or “private” recognition, giving valued employees more responsibility.
Say “thank you”
Saying “Thank you” costs nothing but provides important recognition for a job well done, effectively compensating people in the form of social currency, which is highly valued.
Provide “benefits” beyond the “basics”
Hy-Vee recently offered even PT employees Health and Dental Insurance. Gym memberships are popular among millennials. Flexible working hours can increase productivity.
Profit sharing and including employees in future planning.
Business owners will need to continue to be creative in offering employee benefits if they intend to recruit and retain quality workers.
None of us like it, but it is said about Iowa privately owned businesses:
Many owners are at or near retirement age.
Over half have NO succession plan.
Many with NO plan will not develop a plan.
40% of the business will either change hands or close in the next five years.
What will your community look like in five years?
There are buyers out there. However, they are selective because of significant business availability. What they want is normally what you want in financing a business:
Key and trained people who will continue after the sale.
A market segment that will remain solid and grow.
Upwardly trending financial performance.
Pricing where the buyer can service debt and pay themselves appropriately.
If, in a smaller community, a business that has someone who can be the General Manager. This will enable the buyer to regularly interact with the G.M., but not necessarily move to the town.
When we visit with potential sellers, we tell them this story. If the local banker doesn’t like it, buyers generally won’t like it either.
Lastly, if you have local businesses and business owners that have no succession plan and you believe the business is saleable, just give us a call. There is never a charge unless we sell the business and then we get paid at closing, when the seller gets paid. We do it right or we don’t do it.
One method for increasing both revenues and profits can be through an acquisition. You see it all the time, one similar business buys another. Examples include corporations as large as Berkshire Hathaway Energy acquiring another energy company, to smaller twenty-man operations buying a ten-man business.
So why can this make sense and how can 1+1=3? In many acquisitions, if done properly, the revenues can continue for both entities at the same level or even higher. However, in many cases, some of the expenses are duplication. These duplicative expenses can be cut, adding to the bottom line of the combined company.
Some duplicative expenses might be:
One outside accountant, attorney, advertising agency for both companies.
Internally, a potential reduction in compensation by having one; owner, sales manager, office manager, and service manager.
Efficiency and scale can also be positively affected by:
Fully using available assets and selling unused assets.
Using existing people more efficiently.
Acquiring larger purchase volumes for lower prices.
We currently have over $40 million in listings. Check out our website and see if there is any 1+1=3 for you!
As a business broker, we will do all we can to protect the identity of the company. Buyers are first qualified. Blind profiles are available describing the business without revealing its identity. Confidentiality is always important.
Trying to sell your business is time consuming. Running a business and trying to sell it at the same time can be problematic. A business broker group can maintain a focus on your business with the goal of finding viable buyers as quickly as possible.
MARKETING AND POTENTIAL BUYERS
We have several marketing tools. The internet, direct mailers, internal buyer lists and our website are a few that we use.
VALUING YOUR BUSINESS
Putting a value on your business is very different. Our entire team will evaluate your business. First, we will determine whether we think we can sell it or not. Then, if we believe that we can find a qualified buyer, we will determine a likely selling price range. This price should enable the business to cash flow such that a banker would be interested in financing the transaction, rather than the seller financing the transaction.
No two sales are the same. As a team, we will confront challenges and work toward a smooth transition.
CLOSING A DEAL
Our sole function is to find a qualified buyer for a motivated seller. We only get paid if we are successful. We know that time is of the essence.
What makes a business appealing to buyers? Obviously, a consistently profitable business is the most appealing. However, a business that is consistently profitable, but sees its’ revenue stream concentrated in one area, can send up red flags to potential buyers.
In our experience in working with potential sellers, The Business Brokers, Inc. has seen many kinds of small businesses and a variety of revenue distribution models. Business owners can feel very good about the success of their business because they can show a consistent performance of profitability. However, sellers get a little defensive when we point out that their business may not be as appealing as they would like because 80% or more of their revenues are concentrated with one client. If that “one client” were to go away, so do the profits.
As businesses evolve, it is extremely important to keep the following thoughts in mind:
Don’t put all of your eggs in one basket. When market share becomes too concentrated, develop a plan to diversify and broaden base.
Diversify your revenue streams. Seek out and develop new and varied product lines / services.
Continuously cultivate and recruit a broad customer base.
Business owners who spread their profits across a broad market and provide a variety of products and services will be much more appealing to potential buyers when it comes time for them to transition to new ownership.
I’ve been in banking for over 40 years. Over that time and then as a business broker, I’ve seen a lot of businesses change hands. Most business sellers do not want to finance the transaction and risk getting the business back. Most banks want to know that they can be paid back and have a plan to get whole if that does not happen. Thus, whether your selling or buying, some important points are:
A good and positively trending business financial performance according to the business tax returns for the most recent few years is critical.
A selling price with an adequate down payment that shows that a buyer can pay himself and pay the bank back based on the historical performance of the business.
A existing business model that suggests after the sale that good financial performance will continue for many years.
A buyer that has the relative experience for that particular acquisition and a seller that will help in a smooth transition.
Thanks and give me a call if you’d like to talk about business selling or buying
Some advice before you sell a business- “It’s not what you sell it for, it’s what you get to keep after the sale.” When starting to think about selling, owners should take steps to “dress up” their business.
…Reduce unnecessary assets
…Address environmental issues
…Direct responsibilities to qualified employees
…Understand tax strategies
…Identify your weaknesses as well as your strengths
Both price and tax consequences can be crucial in maximizing the proceeds of a business sale. For most owners, their business is their most valuable asset. Having a valuation done if you are planning a sale in the future is the first step. We can help with that.
If you need a heart transplant, a brain surgeon is not the right specialist. The same can be said for running and transitioning a business. The expert, the one that does the work regularly, is likely your best person.
As a business owner, there are lots of issues to consider as your business moves toward that successor. Some of those topics might be:
Who can best train that selected Assistant General Manager, soon to be the owner, especially on the most current management skills?
How can I save on taxes, especially considering that the business tax basis is low? What about the concepts floating around like Structured Sale, ESOP, Charitable Remainder Trust, and Charitable Lead Trust? Or, is it simply better to take the cash and pay the taxes? Do you need to make decisions before closing or can it be done in that taxable year?
Is a Stock Sale or an Asset Sale best? Should some be of the sale be financed by the Seller? And, how should the selling price be allocated?
What if there is no successor? What are the options?
Working “on” the business, in addition to working “in” the business is hard. Make sure you’re spending time preparing and the Specialists can help. And, when is a good time to start? Now!