No one wants to waste their time and energy trying to sell their business to someone who isn’t actually planning to buy. That’s why it’s so important for you and your business broker or M&A advisor to focus on the most qualified and serious buyers. But how can you really make these kinds of assessments about a buyer’s viability until they sign on the dotted line? Let’s take a look at some signs that will help you figure out your buyer well in advance.
Do they have a history of ownership?
When someone has owned a business in the past, they have a firm understanding of what is involved. As a result, they are more likely to be a serious buyer. It also means they are more likely to move forward. You will also find that they have the ability to make a substantial down payment and financing options. While they might want you to help them with financing, you should still be looking to ensure they will put their own capital at risk as well.
Are they seeking information about your cash flow?
If a buyer is serious, it goes without saying that they will want to make sure the business is profitable. They should be asking a lot of questions about not only your cash flow, but also your inventory. If you have unusable inventory this could be of concern to a buyer. Be sure to disclose this information upfront, as it will likely be discovered in the due diligence process regardless.
Are they asking about the health of your staff?
Any real buyer would want a dedicated and reliable staff. If your buyer is asking about salaries, it is a good sign that they are serious. After all, if you’re only paying minimum wage, chances are that your staff will not have a lot of staying power. These days, many companies are suffering due to staffing issues, and it’s something that should be front and center in any serious buyer’s mind.
Do they have an interest in the industry?
If your prospective buyer is asking questions about the industry, that is another good sign. After all, who would really want to buy a business without detailed knowledge about the industry they are about to enter? Along the same lines, if you know your buyer has experience in a given industry, it means they are more likely to go through with a purchase. If they lack experience in your industry, do they at least seem passionate about the industry? If they seem like they are not asking probing questions, this might mean they are wasting your time.
Are they asking about capital expenditures?
Your prospective buyer will want to know how money is being spent. You can expect them to make sure that major expenses have already been paid for as they will want to make sure they won’t be caught off guard by large pending purchases.
Do you have professional assistance?
The bottom line is that the more in-depth questions a person is asking, the more serious they are likely to be. Your business broker’s job is to screen prospective buyers. Years of experience doing so helps them know the warning signs that pop up when buyers profess to be interested, but are not likely to go through with the sale.
When you are trying to sell your business, it is critical that you focus your time wisely. Your brokerage professional will help ensure that you do not waste time working with people who are just kicking the tires.
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There are clearly qualities that make a person an ideal candidate to be a business owner. On the other side of the coin, however, it’s clear that owning a business isn’t for everyone. Let’s take a look at some of the unique personality aspects that help motivated individuals identify owning a business as a good fit for them.
You Seek to Guide Your Destiny
A common reason people become business owners is that they want to have more control over their lives. After all, if you’re working for someone else, your fate is never truly in your own hands. You can always be fired or let go. When you are a business owner however, not only do you have control over your job itself and the tasks you accomplish on a daily basis, but you can also determine who you work with and where you work. You also need to have optimism to keep working with the belief that things are moving in a positive direction.
You are Comfortable with Risk
When you take the role of business owner, you invite a certain degree of risk into your life. That means you are responsible for the success of your business, and you will also have a team of people depending on you. That’s why it’s so important to have a clear vision for the business before you take on the responsibility. You are likely to invest a great deal of your own money into the venture. You may even have to put up valuable assets as collateral, such as your house. You may also have to make sacrifices such as taking a reduced income as the business gets off the ground. It’s important for business owners to possess the inner strength to stay motivated and on track to keep the business growing.
You are Motivated
People who make good business owners are typically inspired by the idea of growing their income, and they are willing to put in the work to achieve that goal. The idea of making key decisions to grow their business is something they find exciting. The truth is, the longer you own your business, the more money you will make. Often you will have to exercise patience in order to reap the financial benefits you’re seeking.
You are Collaborative
Not everyone is great at collaboration. As a business owner however, you will need to work well with others for the business to be a success. It’s rare to do everything on your own. That’s why you need to be a good communicator and will need to be talented at managing others. Great business owners are bosses that are disciplined, self-aware and able to operate comfortably with a high degree of vulnerability.
Before you decide to own a business, it makes sense to do some self-reflection to ensure that your personality really does lend itself to being a business owner. If you have questions about what owning a business entails, be sure to discuss this topic with a business broker or M&A advisor.
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If you’ve ever gotten any type of substantial loan, chances are that you’re already familiar with the concept of collateral. This is when something of value is pledged as security. As a result, the lender has something of value that they could potentially take if the loan is not repaid. Collateral is designed to protect the lender. Of course, the most common example of collateral is your house when you have a mortgage.
Oftentimes, those looking for a loan to buy a small business wonder if they can do so if they have no collateral. Let’s take a closer look at some of the most popular options in this situation.
The 7(a) Loan Assistance Program
If you’re lacking collateral and looking for a business loan, it’s a good idea to check with the Small Business Administration. The SBA 7(a) loan is one of their most popular programs. While it can be used for establishing or acquiring a new business, it’s also commonly used for long and short-term working capital, refinancing business debt, or the purchase of real estate or equipment.
The SBA guarantees up to 75 percent of the amount of the loan if you can contribute 25 percent of the money. This can be a very good option for buyers who don’t want to contribute collateral. You can even use cash that came as a gift from investors. As a result, this program is frequently used by first time business owners. More information is available here: https://www.sba.gov/funding-programs/loans/7a-loans.
One thing you’ll want to note about the 7(a)-loan program is that the seller will not be able to receive payments for two years. As a result, the seller may request or require some other kind of incentive.
Seller Financing Options
Seller Financing happens more often than you would think and is another great way of buying a business without collateral. Most sellers are motivated and will agree to help with financing. Some buyers have even combined SBA loan 7(a) program with seller financing for maximum results.
If you are looking for creative financing options, be sure to talk to your business broker or M&A advisor about the specifics of your situation. You can also look to S.C.O.R.E to receive information about best practices for proceeding.
If you’re looking to buy a business and have no collateral, just remember that people use ingenuity to buy businesses every day. You just need to set your goal and be determined to reach it.
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A partnership agreement is a legal document that provides an outline of how a business will be run. This agreement will often be used by small for-profit businesses when two or more people are involved. It’s an essential document to have, especially in the case when a dispute arises between partners. Even if you have gone into business with a friend or relative, you should have this document in place to make sure everyone is protected. Let’s take a look at some of the key elements that should be in this document.
It goes without saying that your partnership agreement should include the basics, such as the name of the business and the names of key parties involved. You’ll also want to outline the goals of your partnership and how long it will last.
Rules and Responsibilities
When you create your partnership agreement, you’ll want to make sure it offers a lot of clarity on different points with an eye to everyone’s responsibilities. Think through what concerns or disagreements could possibly arise and then outline how you would solve them.
You’ll want to cover everything involving finances in your agreement. This should include key points on income and how it will be distributed. You will also want to clearly outline the ownership interests of each partner involved. Also be sure that the agreement includes the accounting obligations of the partners, and how you’ll handle salaries, vacation, sick leave, etc. Also think about the funds that will be necessary to operate the business. Who will be contributing these funds?
Partners and Staff
The partnership agreement should also cover points involving the work itself. Who is in charge of managing your staff? What kind of authority role does each partner have? What if you decide to bring in a new partner? The agreement should discuss the procedure for adding people to your partnership and what that entails.
Issues Involving Key Decisions
Another important issue to explore and detail in the agreement relates to decision making. How will your company make its business decisions? What will occur if a conflict cannot be resolved? Will you go to court or take another route? What if the partnership was terminated? What would the terms and conditions of your termination be?
When your partnership agreement is under your belt, it should empower you to feel confident in the core structure of your business and its ability to function smoothly.
Obviously, you’ll want to avoid the DIY approach and instead work with an experienced attorney. While it might take more time and money to do so, you’ll be glad that you hired a professional if and when you run into conflicts down the line. Your business broker or M&A advisor should be able to recommend a lawyer who has experience crafting partnership agreements.
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As a business owner, your natural inclination is likely to be considering the strengths of your business and how to perform even better in the future. However, the truth is that sitting back and thinking about your flaws can actually benefit you in the long run. When you have a full understanding of where you are lacking, it will empower you to make the best strategic decisions for the future. These changes, in turn, will help you receive top dollar when you go to sell your business.
Here are 4 areas you should be evaluating:
1. Your Products
How diverse are your products? If you rely upon the sale of just one product, that puts your business in jeopardy. You should be thinking about additional products you could add. This will also open you up to new opportunities for customers and revenue.
2. Your Workforce
There has been much publicity about the current trends in businesses struggling to find staff. Further, there are a variety of trades, such as tool and die, where there is a shortage of skilled workers to begin with. However, your staff members are the core of your business, and represent its wellness and ability to thrive in the future.
3. Your Industry
You should always be on the lookout for trends that could negatively impact your business. Sometimes things are simply out of your control, and you might find that your entire industry is in decline. When this occurs, be sure to think about new directions you can take. If you sit back and just wait for things to change, the value of your business could slip away before your eyes.
4. Your Customers
If you only have one or two core customers, that will typically lower the value of your business. Any potential buyer will quickly realize that the health and stability of your business is somewhat fragile. While you may feel that you don’t currently have the time and resources to obtain new customers and clients, doing so will serve you tremendously when it’s time to sell.
When you work with a business broker or M&A advisor, he or she will help you to evaluate your company and look for weaknesses. However, oftentimes it’s challenging or even impossible to turn the tides when you are under the gun to sell right away. That’s why so many business owners decide to work with a brokerage professional years before they actually plan to sell. This enables them to correct any weaknesses years in advance and be fully prepared to present their business in the best light possible.
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