How to Save a Deal

Few business owners truly understand the complex dynamics of making a deal. Having never participated in selling a business before, the majority of business owners are blissfully unaware of what it takes to turn the dream of selling a business into a reality. Having a brokerage professional by their side is an easy way for a business owner to avoid the dangers that can easily torpedo a deal.

Keep Your Eye on the Ball

One of the most common reasons that businesses will fail to sell is that the business owner becomes obsessed with the pending transaction, and in the process, fails to keep up with the day-to-day operations of the business. The sales process can take months, or even years, and that means that the owner needs to pay attention to every aspect of their business or a prospective buyer could become very concerned.

Keep Confidentiality a Top Priority 

Another mistake that business owners can make, one that will quickly kill a deal, is a breach of confidentiality. If the sales process involves too many parties, then confidentiality often falls apart. Often the owner will call off the deal in frustration. A business broker or M&A advisor understands the tremendous importance of maintaining confidentiality and will prevent leaks from occurring. 

Seek Out Another Perspective

Being the boss for years, or even decades, means that a business owner may become rather set in their ways. Commonly, business owners may become rigid where compromises are concerned, especially when it comes to their business. As a result, a business owner may wish to negotiate every single item and detail which can send buyers running for the door. Some fights make sense and others should be avoided. Everyone can benefit from this essential third-party perspective, and this is another of the important ways that business brokers can help sellers.

Prepare Early

It can take years to properly get a business ready for sale. All too often, business owners will not prepare for the sale of their business until the 11th hour. Some business owners may even decide to sell on a whim or because of burnout. Unless a business owner prepares for the sale of their business well in advance, the business is unlikely to be ready to be sold. 

A business broker or M&A advisor knows precisely what it takes to get a business ready. For example, some areas that are particularly important for business owners considering selling a business are buying out minority stockholders, dealing with any pending lawsuits and cleaning up their balance sheet.

Keep Your Pricing Realistic

A fifth deal killer comes in the form of placing too high a price on a business. It is understandable that a business owner wants to receive top dollar as a business usually represents an owner’s life work. However, an unrealistic asking price can quickly destroy any chances a business has of being sold. A business broker can work with or without an appraiser to achieve a fair and realistic price and in the process dramatically increase the chances of a successful deal.

Buying or selling a business can have many twists and turns. Working with a brokerage professional stands as one of the simplest and most effective ways to avoid problems before they arise and, in the process, save the deal.

Copyright: Business Brokerage Press, Inc.

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How Business Owners Can Leverage AI

Artificial Intelligence has certainly received more than a bit of attention in the last two years. It’s no wonder that many business owners wonder how best to use this tool to gain an edge over the competition.

Currently, the cost of ChatGPT-4 is only $20 per month, which is a very nominal cost considering its capabilities. For that cost, users gain access to a powerful large language model or LLM. ChatGPT-4 allows users to put in a prompt and quickly receive an answer. Since ChatGPT-4 is a neural network, it is possible for you to customize how data is generated. 

An AI Virtual Assistant?

Almost anyone can appreciate the benefits a virtual assistant can bring. With ChatGPT-4, it is possible to use the technology as a digital VA that can simulate the work you might otherwise need to hire people to do. AI tools have become better and better at providing pinpointed information. More and more, business owners are viewing artificial intelligence as a tool that can serve the function of a virtual assistant or in some cases even a trusted business advisor. 

One example of how you could leverage ChatGPT-4 is to help you with your website’s SEO. Instead of hiring an expert, AI can assist you by generating lists of valuable keywords and SEO instructions. 

Other ways business people have used ChatGPT include everything from customer services and support to employee training. Its functionality is incredibly versatile and can serve many niches. 

Creating GPTs

GPT stands for “Generative Pre-Trained Transformer.” This term basically refers to a language model and framework used for artificial intelligence. This type of AI uses neural networks for tasks that involve language. 

Through GPTs, people now have the ability to create assistants or bots. To date, over 20,000 GPTs have been created. These are highly specific programs that have the ability to use internal data in ways that users deem fit. The more refined the prompt you put in, the more precise the information that you will receive. 

Another tool that could be helpful to business owners is Voice Chat GPT, which can transcribe what you are saying in real time. There is also Visual Chat GPT, which can verify visual information, for example, identifying the type of bird in a photograph.

Creating Personas 

In order to get the most out of ChatGPT-4, you can prime it and tell it what you want and need. Through ChatGPT-4, it is possible to create “personas” to bounce ideas around and get different information and feedback. For example, it is possible to create CEO and marketing manager personas, to name just two. The information you receive will differ depending on the persona you turn on. Different information and responses will then be generated via these different personas. This tool allows you to ask and receive responses on a wide variety of business-related questions. 

Protecting Information 

One word of caution in using these tools is to be careful regarding importing confidential information into ChatGPT or other AI tools. While efforts may be made to keep information confidential, it is still possible that other companies will use this information for training purposes. Any sensitive information about your business, employees or customers should be carefully guarded. 

The bottom line is yes, you can use AI to improve and expand your business, and you can start doing this right away. It’s important to note that artificial intelligence is a fast moving and evolving technology. For that reason, the way you can utilize it today may be entirely different in the coming years. 

Copyright: Business Brokerage Press, Inc.

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Options for Family Owned Businesses

If you own a family-owned business, you may feel as though there are more factors to consider when it’s time to sell. In this article, we’ll examine some of the best options that business owners can use. You’ll want to keep in mind that both internal and external strategies are available to you. Let’s take a closer look. 

3 Types of Internal Transactions 

One of the top options for selling a family-owned business is to simply transition the ownership of the business within the family. This is an often-exercised option for many reasons. For example, one of the benefits to this strategy is that selling a family-owned business to a relative will keep the business in the family. Oftentimes this decision best suits the emotional preferences of the owner. A major risk is that the family member will fail to operate the business successfully, and this point underscores the importance of only transferring ownership to a family member that is ready for the task.

A second option is what is known as the Employee Stock Ownership Plan (ESOP). ESOPs are often utilized in companies when selling to a third party could prove to be problematic or difficult. Architectural, construction and engineering companies are all good examples of businesses that can be difficult to sell to third parties.

Choosing to hire a CEO who manages the owners exit strategy is a third option for business owners to consider when selling. This is a time-tested strategy that many business owners have appreciated. Using this CEO strategy allows the owner to essentially retire and live off of company dividends while at the same time delaying the sale of the company for years.

External Transactions to Consider

The previous three examples specifically focused on internal transactions. Now, we’ll turn our attention to external transactions, as there are several viable external transactions that work for family-owned businesses looking to sell. 

A management buy-out or MBO, is an option that shouldn’t be overlooked. Selling to key employees with the company has many pros, for example, key employees understand the business as well as its current and future challenges and potential.  An MBO does have negative aspects to consider such as the fact that owners typically don’t receive the highest possible asking price as they have to provide financing.

A second external transaction for a family-owned business is an outright sale to a third party. One pro of a third-party sale is that an all-cash closing is possible and after the transaction is settled, the owner is free of the business. A potential downside of a third-party sale is that the sale process could be lengthy.

A third option for family-owned businesses to consider is an initial public offering (IPO). Companies with revenues of $100+ million are seen as a potential candidate for IPOs. An IPO can receive a high valuation; however, it is important to note that management will need to remain with the company.

Business brokers and M&A advisors are experts in helping family-owned businesses chart the best path forward. No two family-owned businesses are the same. An experienced brokerage professional can evaluate your business and help guide you towards the sale option that makes the most sense for your business and your personal situation.

Copyright: Business Brokerage Press, Inc.

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Understanding the Modern Buyer

A key part of the American Dream is the notion of being financially independent and controlling one’s own fate. While times have changed, the idea of the American Dream is alive and well. Entrepreneurs have long realized that one of the quickest ways of achieving this dream is to own a successful business. 

The majority of today’s buyers are well educated and come from the corporate world; however, they are typically not versed in the business buying process. Since these buyers are coming from the corporate world, they are fact-driven, meaning that they want to see the numbers and will pay attention to details both large and small. You can expect these buyers to want to see all necessary supporting documents. They will want to verify everything themselves. Additionally, you can expect them to employ many outside advisors. Summed up, today’s buyer is not an easy sale.

Another key fact about the modern buyer is that they are often what can best be termed as “event driven.” These are buyers that not only want to control their own destiny, but also need to buy a business for some other practical reason. For example, perhaps their current job was downsized or they were transferred to a location where they did not want to move. It is common that people don’t have the courage to quit their current job and say goodbye to the safety of a steady paycheck in favor of a leap into the unknown. It is quite common that there needs to be an event to stimulate the change.

Business brokers and M&A advisors seek to protect their clients while moving them closer to their goals. One of the ways that they can achieve that is by working with only serious and qualified buyers. The process of matching the right buyer to the seller involves asking a series of important questions such as the following:

  • Why is the person considering buying a business? 
  • How long have they been looking? 
  • What kind of business are they seeking? 
  • How much money do they have available? 
  • Have they ever owned a business before?

Every business is different. It should come as no surprise that each buyer out there has a different story and different goals. A one-size-fits-all approach to buying and selling a business simply doesn’t provide optimal results. Working with a qualified business brokerage professional is the easiest way for a seller to not only find the right buyer, but do so with the least stress possible.

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The Top Four Reasons Why Deals Fall Apart

It takes a lot of work to buy or sell a business. When a once promising deal is not successful, this can be due to a wide array of reasons. However, understanding the reasons why a deal can fall apart in advance can serve to dramatically increase your odds of success.

Some of the reasons that deals fall apart are reasonable, while other reasons, to be blunt, are unreasonable. Let’s take a look at four common reasons that are seen in the world of business brokerage. 

Reason 1- Financial Issues on the Buyer’s End 

One of the most common reasons that deals fall apart is that buyers simply can’t find the needed financing. Working with a business broker or M&A advisor is a way to safeguard against this outcome, as an experienced brokerage professional knows how to pre-screen prospective buyers to increase the odds of success from a financial standpoint.

Reason 2 – Lack of Financials on the Seller’s End 

A second reason that deals fall apart is that the seller doesn’t have all of their financials in an up-to-date form. Sellers must constantly strive to put themselves in the shoes of a prospective buyer. Virtually no serious buyer would move forward with a deal without having a clear picture of the finances of the business. This is an issue that can be circumvented with the right level of planning and preparation. 

Reason 3 – Last Minute Surprises

A third common reason that deals fall apart occurs when a surprise happens at the last minute. It is almost impossible to safeguard against every possible surprise, however, an experienced business broker knows how to navigate the due diligence process so as to dramatically reduce the chances of unexpected problems. Again, brokerage professionals have tried and tested techniques which help reduce the chances of these unwanted surprises. 

Reason 4 –Business Issues Left Unaddressed 

Preparing a business to be sold isn’t something that happens overnight. Sellers should expect that any serious buyer will do more than “kick the tires,” but will instead have their experts go over every aspect of the business. Administrative, environmental, or legal issues that have not been properly addressed can serve to raise many red flags. Needless to say, this can scare prospective buyers away from a business. There is no replacement for proper preparation and meticulous due diligence months or preferably years in advance.

At the end of the day, there are many reasons that a deal can fall apart. Buyers and sellers simply can’t safeguard against them all. However, an experienced business broker or M&A advisor can often see problems on the horizon. Plus, when you work with an experienced professional, it can help keep emotions in check. It’s important to keep all parties involved focused on success. With the right team in place, it is possible to dramatically decrease the chances of surprise events ruining what would otherwise be a good deal.

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6 Critically Important Aspects of Due Diligence

Performing due diligence as a part of your company’s annual review is a smart move and one that can help your business in a range of ways. Through this means, if the day comes that you need or want to sell, then you’re ready to go. There are six key areas of due diligence that you’ll want to consider. These are aspects that most serious buyers will consider when buying a business.

 You can expect any savvy buyer to focus on the following during due diligence if they are truly interested in acquiring your business. Problems in any of these areas could spell serious trouble in the sales process.

  1. Legal
  2. Marketing 
  3. Environmental 
  4. Operational
  5. Management 
  6. Employees

Legal Issues

In terms of legal issues, you’ll want to carefully evaluate whether or not your contracts and agreements are all current. Issues such as copyrights, trademarks and patents should all be examined. Most importantly, if there is any pending litigation it would be best to resolve the matter if possible. Likewise, if there are any potential legal issues, such as lawsuits, looming on the horizon, those issues should be addressed as well. Try and think about what your own lawyer or legal team would want to see out of a business before recommending that you ink a deal. Obviously, these types of legal issues should not and will not simply be overlooked. 

Marketing Issues

Marketing issues should be dealt with as well. Business owners should understand not just their business, but the industry as a whole.

Consider the following questions:

  • Who are the industry leaders? 
  • What is the size of the market? 
  • Who are your current and future customers? 
  • What are the upsides and risks of your products or services? 

You should demonstrate to a prospective buyer that you understand the “lay of the land.” You should be able to convey a strong grasp of how the business is currently positioned and how it may be positioned in the future.

Environmental Issues

One serious environmental issue can derail a deal or even destroy a business. Prospective buyers are very wary of potential environmental issues. Identifying and addressing environmental issues, if possible, should be a key part of your preparation for due diligence.

Operational Issues 

Another key area to evaluate is operational issues. Your company should have an easy to understand program for how products or services are handled at every point of the process. How your goods or services are delivered to the customer shouldn’t be a mystery, but should instead be clearly defined to a prospective buyer.

Financial Issues 

As there is clarity in how your goods or services reach consumers, the same holds true for financial issues. You do not want your finances to seem mysterious. Everything from your inventory and supply chain to your accounts receivable and accounts payable should be well laid out, accessible and easy to understand.

Employees and Management 

Problems with employees or management can spell doom for any company. You’ll want to take steps to cover any potential issues in these areas well before selling.

Working to address these six key areas will help keep your business in a ready to sell posture. While you might not plan on selling today or tomorrow, there is no way to know what the future may bring. It’s best to be prepared.

Copyright: Business Brokerage Press, Inc.

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7 Important Questions to Ask Yourself When Selling a Business

There is no denying the fact that for most people, the decision to buy or sell a business is one of the most important professional and financial decisions that they will ever make. Let’s turn our attention to some of the key questions you’ll need to ask.

1. What is really for sale?

You’ll need to determine what is, and is not, for sale. If you own machinery or real estate associated with the business, are those items to be included in the sale?

2. What assets bring in revenue? 

One important factor to consider when preparing a business to be sold is what assets are earning money. If you have assets that are not earning money, then it may or may not be prudent to sell those assets.

3. What is proprietary?

Buyers and sellers alike will want to consider what is proprietary. Anything from software and patents to formulations can be extremely valuable. Sellers will want to give substantial thought to how to best frame any proprietary property that they have in the best light. Buyers will want to carefully evaluate proprietary property to try to ascertain an accurate value. Outside experts may be needed to make an accurate assessment.

4. What’s your competitive advantage? 

A business’s competitive advantage should be of importance to buyers and sellers. A seller should focus on understanding their competitive advantage, whether it is a certain niche, a superior manufacturing process or product, better marketing or a range of other factors. Properly framing your competitive advantage can help buyers see the full, and even untapped, value of your business.

5. What is your growth potential?

Buyers will want to consider factors such as whether or not the business has the potential to grow. If the business can’t be grown, then buyers should include this fact in their final decision and/or offer.

6. What agreements do you have in place?

Other factors such as employee agreements, non-competes, and the depth of management are all areas of concern for a prospective buyer. Buyers will want to consider if the seller has secured agreements from key employees and how dependent the business is on an owner/manager. 

7. What relevant financial information will a buyer want to know? 

Understanding how much working capital is needed to run the business and how financial reporting is undertaken are other factors that should not be glossed over.

If you are preparing to sell your business it is worth the time to pause and think about what your business might look like to a buyer. In short, what would you think of your business if you were the buyer and what questions would you ask? 

Buying or selling a business is complex. Every single business is different and that means there is no 100% standardized approach and route towards success. A seasoned, experienced and professional business broker or M&A advisor can help guide buyers and sellers alike towards optimal outcomes.

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Steps for a Successful Closing

The closing is a pivotal moment in the history of a business as it marks the formal transfer of a business from one party to the next. Behind every successful closing is months of focus and hard work. Simply stated, a successful closing doesn’t just happen, but is instead the byproduct of extensive negotiations. 

One key document to utilize in the closing process is the Purchase and Sales Agreement. There are four key aspects to this document. 

  1. First are the terms of the agreement, which typically cover the price as well as detailed terms on how the business is to be paid. In the Purchase and Sales Agreement, you will find the status of any management that will be staying with the business. 
  2. This document also should contain conditions and covenants which include non-competes as well as agreements on what to do and what not to do moving forward. 
  3. Any good Purchase and Sales Agreement will, of course, include a description of the transaction. In other words, is the transaction a stock or asset sale? 
  4. Finally, the agreement will cover representations and warranties. This is typically negotiated after the Letter of Intent is agreed upon. In short, the warranties will provide that everything is as it has been represented.

Now, let’s look at the four key steps that are a must before the sale of a business can close. 

  1. Topping the list, is that the seller must provide satisfactory evidence that they have the full legal right to act on the behalf of the selling company. Additionally, the seller must show evidence that they have full legal authority to sell the business. 
  2. Secondly, all representations and warranties must be in place. Importantly, this will also include clearly stated remedies that are available to the buyer in the case of a seller’s breach. 
  3. Third, the buyer’s representative should have completed the due diligence process. A key part of the due diligence process is that any claims and representations made by the seller have been clearly substantiated and addressed. 
  4. Last, but certainly not least, necessary financing should have been secured. A critical part of the process is that all of the proper paperwork, as well as the appropriate liens, should be in place, as no funds can be released until these conditions have been met.

It is also important to note that there are two significant elements of closing that will take place simultaneously. 

  1. The first is the corporate closing which is the actual transfer of the corporate stock or assets. This step is based on the provisions set forth in the Purchase and Sales Agreement. All the paperwork that was carefully laid out in the Purchase and Sales Agreement has been completed. 
  2. The second major element is the financial closing. In the financial closing all the paperwork, as well as the legal documents needed to provide funding have successfully been executed.

While there is no doubt that closing is a joyous time, it is also vital to remember that the period leading up to closing is the time to have a laser-like focus. This is the most important time to avoid mistakes. Working with a business broker or M&A advisor can dramatically reduce your chances of experiencing mistakes during the all-important closing process.

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Lack of Experience Can Be a True Deal Killer

Most business owners are experts at running their specific businesses. They are not necessarily experts at selling businesses. This is where working with a seasoned brokerage professional can prove to be invaluable. 

As it turns out, there are endless examples of people trying to save money by simply finding an MBA to handle the sale of their business. Owners often will trust this person despite whether or not they have direct experience selling businesses. Sadly, the results from this decision can be very poor. 

Let’s take the example of a business owner who opted to let his nephew with a freshly minted MBA oversee the sale of his multi-location retail operation. The idea was that his nephew would help him save a great deal of money. Unfortunately, this idea simply didn’t work. His well-intended nephew’s inexperience proved to be a liability. 

Let’s take a look at some of the main problems that this business owner and his nephew faced:

Missing Legal Arrangements

One of the first problems is that neither the business owner nor the nephew realized how important confidentiality agreements were to the process of selling a business. This led to competitors learning that the business was for sale. Likewise, the lack of confidentiality agreements meant that everyone from key employees to clients, customers and suppliers could learn that the business was for sale.

Further, the nephew opted to use the company’s attorney instead of finding an attorney with experience in business transactions. The company attorney had never handled the sale of a large business before.

Incomplete Documentation

Another problem was that the nephew prepared what was supposed to be a Confidential Business Review/Confidential Information Summary – CBR/CIM. The review/summary prepared by the nephew failed to include proper financials, including a large sum taken by the owner. Importantly, there were no projections, ratios and other important information. This lack of information could easily lower the bids or simply cause prospective buyers to lose interest.

The way that the business owner and nephew handled the CFO was also an issue. They failed to bring in the CFO and did not execute a “stay” agreement. The nephew was confident that he could handle the financial details on his own. However, neither the owner nor the nephew realized that prospective buyers expected to meet the CFO as part of the due diligence process.

Failure to Properly Screen Candidates 

Finally, not only did the nephew not understand the importance of confidentiality agreements or the due diligence process, but he also failed to understand the importance of the screening process. The nephew failed to interview prospective buyers to discover whether or not they were serious and had the resources to buy the business. The failure to have a proper screening process served to both waste valuable time and spread the word that the business was for sale.

For most people, selling a business is the single most important financial decision of their lives. For this reason, it is critical to find experienced and competent assistance for the process. An experienced business broker or M&A advisor understands what is involved in selling a business. In other words, your nephew may be a great guy and he may want to help you, but without years of experience selling businesses, he simply isn’t the right person for the job.

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What to Consider Before Handing Your Business Over to the Next Generation

No business owner will be able to stay with their business indefinitely. For this reason, you will either have to eventually sell or hand your business off to the next generation. Let’s take a closer look at the concept of handing a business over to a family member and how you can make sure that the business is in optimal shape when the time comes. 

If you want your business to be prepared for succession and the next generation, you’ll want to repair any key problems before handing it over. Some experts advise putting your focus on evolving the business. One key recommendation is to focus on sales, marketing and distribution in the coming years, so that troublesome issues, such as sales plateaus, are properly addressed and hopefully circumvented.

Also, you’ll want to consider boosting communication with key employees so that current management understands where all the employees stand. Skilled and motivated employees are rare commodities, and they are absolutely critical to the future success of any business. For any business owner considering handing over their business to their children, employee skill level, motivation and commitment will be essential to the success of the business during a potential transition period.

Some people see their business as a form of job creation for their children, instead of being what it truly is, a business. For a wide variety of reasons, it may not be feasible for your descendants and relatives to take over the business. They may not be capable of the demands or they may simply have no interest. But if you are able to successfully pass it down, you’ll want to optimize their chances for success. 

Just as buying or selling a business involves preparation, the same holds true for handing the baton to the next generation. There is no replacement for advance planning. The sooner that you begin thinking about, and taking tangible steps to prepare for the next generation taking over the reins, the better off everyone will be.

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