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What Goes Into a Business Sale

The optimal business deal structure is comprised of three interrelated components:

  • Negotiations
  • Payment form
  • Taxes

Each of these items is critical for creating a deal structure that addressed your goals at the present and well into the future.

When you sit down to negotiate ya business deal with a buyer, it is important to remember that a professional buyer might buy many companies in a year. They know how to negotiate the best deal for their organization; they are not going to look out for you and your interests.

Chances are good that most sellers have never sat across the table from a buyer and negotiated the sale of a company. A few tips for you to keep in mind as you prepare to sign on the dotted line:

  • Never agree on details too quickly – always take a break to think about the implications.
  • Remember this is a business. Avoid taking anything personally.
  • Do not spend so much time negotiating so that you neglect your business, your customers, and your employees.
  • Most important: Hire a good attorney and accountant who can properly represent you throughout the transaction.

David Johnson
djohnson@tbbinc.com
Office: 515-986-3377
Cell: 515-491-3160

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What a Former Business Owner Says About Knowing When to Sell

As a previous business owner, I know from experience that selling your business is the hardest decision you will ever make.

While it can be tempting to stay in business and remain as an owner as long as possible, you should consider selling while your business is on top and making money. Too often business owners sell only when something forces them to, such as divorce, illness, a split with a partner, retirement, or when they face a poor market or face the risk of bankruptcy.

Businesses that are trending downward will not attract buyers like businesses that show a solid past performance with potential for growth. The ideal time to think about the future of your business is now!

Ready to start a conversation? Let’s talk about your business! 

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What is a Structured Sale of a Business?

A Structured Sale can be a very effective tax planning tool for the sale of a business.

In a Structured Sale, a pre-determined third party receives the sale proceeds and the seller may defer the payment of capital gain taxes (Section 453 of the Internal Revenue Code) by preventing receipt of the sale proceeds until a future date, when the periodic principal payments are received by the seller.

The use of Structured Sales are a long term financial security and planning option used by many owners to manage their taxes after a sale. By using a structured sale annuity, a seller can receive payments monthly all the way to a balloon lump sum set for a future date. The Structured Sale can be designed to meet the sellers future income needs on both the income-side and the tax-side.

As with any real estate or business transaction, we always recommend you talk to your own attorney, financial advisor, and your CPA about the pros and cons to a structured sale in your unique situation.

David C. Johnson
Associate
djohnson@tbbinc.com
Office: 515-986-3377
Cell: 515-491-3160

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Broad Base Makes Businesses More Marketable

One of the lessons of the pandemic of 2020 is that a business needs two main things:

  1. Multiple Streams of Income
  2. Multiple Sources of Customers and Clients

This is what makes a business appealing to a prospective buyer.

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 if they are able to show a consistent performance of profitability.

However, sellers can get 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; and prospective buyers know and understand that.

As businesses evolve, it is extremely important to keep the following thoughts in mind:

  1. Don’t put all of your eggs in one basket. When market share becomes too concentrated, develop a plan to diversify and broaden your client base.
  2. Diversify your revenue streams. Seek out and develop new and varied product lines / services.
  3. 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.

Dan Meyer

dmeyer@tbbinc.com

515-313-1739

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Is a one-person business scalable?

Answer: Very difficult might capture a typical response.

For example, if you live in a relatively small community, most everyone uses “Joe Plumber,” who owns and operates by himself Joe’s Plumbing. Joe is reliable, has reasonable rates, does good work, and home owners are comfortable in having Joe in their home. Joe started with a bigger plumbing business in a larger town as an Apprentice plumber, then became a Journeyman plumber and finally became a Master plumber. Joe moved to his current smaller-town location, works hard, has made a good living over many years and is now ready to sell and retire.

The responses typically heard from buyers for a business like Joe’s are:

  • How do I know that customers will continue to do business with me?
  • My family does not want to move to that smaller community.
  • I do not have my Master Plumber’s license.
  • I could start a business for significantly less than Joe wants for his business.
  • I do not want to work that hard.
  • I do not want to do the accounting, marketing, scheduling, inventorying…I just want to do plumbing.

Can it be sold? Yes.

Will it be difficult? Yes.

There is an alternative that business owners in this situation might want to consider. Five to ten years from retirement and/or selling, have the business large enough so that an assistant can be hired. This assistant should be someone that over time could own and operate the business and has aspirations for ownership. Over time, work to give this assistant more responsibility, ultimately ending up where this assistant can run the business. Then, complete the transition to the new owner. This is known as strategic succession planning and it is invaluable as you plan to transition out of the business. There are many advantages to this plan, but the most important being a smooth succession plan.

Mike Schoville

mschoville@tbbinc.com

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What to Consider With Business Acquisition Loan

I’ve been in the banking and finance business for over 40 years. Over that time and then now as a business broker, I have 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 (and will) be paid back and have a plan to get whole if that does not happen. Thus, whether you are selling or buying a business, some important points to consider and remember when it comes to business acquisition loans 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 must show that a buyer can pay himself and pay the bank back based on the historical performance of the business.
  • An existing business model that suggests after the sale that good financial performance will continue for many years is essential.
  • A buyer that has the relative experience for that particular acquisition and a seller that will help in a smooth transition makes more deals successful.

These are just a few things to consider as you look at acquiring a business with a business loan from a bank or credit union. Give me a call if you’d like to talk about business selling or buying.

 

Roger Kerndt

The Business Brokers, Inc.

rkerndt@tbbinc.com

515-707-6401

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Benefits of Serving, Connecting and Networking

Recently, I had an opportunity to connect with three other local business professionals for the purpose of developing a new networking group. The owner of a consulting firm, a banker, a business software advisor and I sat together at a local coffee shop and discussed ways we could help each other with referrals and in the process grow our own businesses.

We discussed an organizational structure and developed our vision for future work together. I made the initial contact with our business consultant partner through a connection via a local chamber of commerce event.

Small business owners are incredibly busy with the daily grind of keeping the wheels turning and the doors open. Very seldom do the majority of business owners take time to reach out and connect with other business owners. Serving your community, connecting with colleagues in your field and networking with other business owners is very important in generating new leads and expanding your business horizons.

At the Business Brokers, Inc., our agents and brokers are members of multiple chambers, service organizations, and informal networking groups. These connections have led to multiple referrals and ultimate business sales. If you are a business owner looking to expand your territory or increase your sales, these connections and contacts are critical. In addition, serving your communities through boards, chambers, and service groups just makes you feel good by paying it forward.

Happy connecting!

Dan Meyer

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We Have a Buyer For Your Business

I recently came across a cartoon with a business owner showing an employee a large file room and he said:

“This is where we store all the letters from brokers who claim to have buyers for our business.”

Unfortunately, business owners have heard this a number of times. In most cases, it is just not true. How can a buyer be interested in buying your business, when they know little about it?

Our experience in working with buyers from across Iowa, is that they may have an interest in a certain industry or business type but until they see and learn all kinds of information about your specific business, they are truly not a buyer. They are at best, a prospect.

So the old but true phrase we’ve heard numerous times of “buyer beware” also holds true for sellers!

That’s where we as true partners come in. We only bring real interested buyers to you once they have an understanding of your business, your history, and the opportunity.

Mike Schoville

mschoville@tbbinc.com

515-306-8487

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Business Owners – The Yellow Pages are Dead!!

Business and business marketing is always changing and evolving. And today, it’s a new day in the world of business!

Social Media is critical to your success. If you are not on Facebook, Twitter, and LinkedIn, it is going to be difficult for your customers to find you. Having an internet presence is essential because of how younger customers search for goods and services.

As a school principal 10-15 years ago, I remember telling my teaching staff that we needed to prepare our students for a world that did not yet exist. Times were rapidly changing, and teaching problem solving and analytical thinking skills were crucial. That was before apps and all the social media tools that exist today.

My words and predictions came home to me when our own son and daughter landed their jobs in the marketing field in social media. Both are now college graduates in their 20’s. But when they started going to school many years ago, their niche did not yet even exist.

The Millennials operate in a digital world, and the next generation will be even more reliant on their devices.

Here’s the cold, hard truth: The Yellow Pages and the phone book are dead! Small business owners need to jump on the social media bandwagon or risk being left behind. The other thing to ensure you have a pulse on for your business is the digital yellow page of Google My Business. This free tool lets you update your Google listing, map location, hours, products and services, and post company updates!

Social Media Marketing consultants are springing up everywhere today, and finding a good one can make all the difference in the future health of your business.

Dan Meyer

dmeyer@tbbinc.com

515-313-1739

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Things You Need to Know & Think About Before Buying a Business

Buying an existing business offers the opportunity to become an entrepreneur quickly. The business you’re buying often comes with a staff in already in place, they are trained and experienced in the business, and there is already an established customer base with existing relationships.

Before you embark on the long and emotional process of buying a business, there a few things to consider and keep in mind as you evaluate opportunities.

Why is the current owner selling?

This is crucial to know and understand as you evaluate opportunities.

Is the business trending up or down? Is it profitable? 

When you looked at profitability you probably got a sense of if the business was in growth-mode or declining. Once you know which direction it’s going, you can ask followup questions to understand the reasons.

Are there any outside impactors that could help or hurt the business?

You never want to be surprised by things outside your control (and sometimes you can’t control them), but you can at least be preapred for things in the marketplace.

Does the business have a good reputation?

Ask around. Ask their competitors. Check Facebook, Google, and Yelp Reviews.

What happens with accounts receivable?

Chances are, some of the business’s customers will owe the seller money on the closing date. Who will be responsible for collecting these overdue debts? There are only two ways to handle this: Either you purchase the accounts receivable at closing (for a discount, to reflect the fact that some of these folks won’t pay up), or you let the seller collect them at his leisure.

Are you getting everything you need to take over the business like customer lists, trademarks, patents, etc.?

Obviously the more you acquire, the better!

Will key employees stay?

In the early days, institutional knowledge is very valuable so you will likely want to ensure as many employees stay on as possible (if it makes sense for the business, obviously).

Who are the competitors in the area?

Take the time to understand the competition to see where there may be opportunities or challenges for you to compete should you buy the business.

 

Answers to these questions are key to making the final decision to purchase an existing business.

Connie Mendrys

cmendrys@tbbinc.com

515-986-0741

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