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Issue #3

Today’s Business Scene Is Provided By:

Alpine Business Brokers
Call us today at 801.224.8848 or e-mail us at sales@alpinebusinessbrokers.com





All too often, just as the sale of a business seems to be set, the deal suddenly craters. Bad karma? No. There is nothing mystical about the roadblocks to a successful sale. In fact, the chief deal-wreckers are all too real to business brokers all over the country. In responding to a survey about why sales don’t close, these professionals offered reasons so similar that a “paradigm of failure” began to appear. Buyers and sellers should be aware of the components of this paradigm and the negative role each plays in influencing a business’s sale. Fortunately, most negatives have a positive “cure.”

Of course, all the knowledge and expertise in the world can’t offset those nebulous problems beyond human control—natural disasters, environmental issues, death in the family. However, understanding the following make-or-break situations is one way to transform deal-breakers into deal-makers:

#1. Disclosure
Deal-Breaker:
Sellers who fail to disclose issues that affect the sale of the business are merely postponing the inevitable. Problems have a way of surfacing, poking up abruptly through the delicate ground of a budding agreement. This is neither the time nor place for surprises. The buyer, predictably, will beat a hasty retreat. Trust between the parties has been jeopardized, and the deal is history.

Deal-Maker:
Sellers naturally wish to maximize the value of the business for sale. However, the “pitch” must include the down side as well as the up. Being open and up-front from the outset is crucial to the success of the sale. Business brokers responding to the deal-breaker survey said repeatedly that they could work through almost any problem, as long as it was disclosed as soon as the selling process began.

#2. Price
Deal-Breaker:
All too often, the buyer agrees on price and then comes to the conclusion that the business was over-valued. What was the source of this “revelation?” Perhaps the reaction was gut-level; perhaps it resulted from a closer look at the seller’s figures. No matter: the deal is out there on the precipice. Unfortunately, the perception now is that the seller wants more for the business than the buyer feels it’s worth.

Deal-Maker:
Nothing is more conducive to the success of a sale than that the business be fairly priced. Once that price has been set, second in importance is making sure that the financials ../support the seller’s claims. The buyer must believe in the value at every stage of the selling process. In fact, both parties must feel that they are involved in a good deal. The business broker can help achieve that good—deal feel by making sure that the seller as well as the buyer understands the marketplace.

#3. Timing
Deal-Breaker:
The selling of a business is a complex and time-consuming process. It isn’t surprising, in the case of both the buyer and seller, for impatience to set in. Buyers continue to request more and different data about the business?right now!?and sellers grow increasingly tired of providing it. Both sides wonder why everything is taking so long. They have involved their attorneys and/or accountants in the process, so shouldn’t the deal be moving right along? The sale of a business isn’t going to happen overnight; however, it shouldn’t drag on to the point of putting the deal at risk. In many cases, the outside professionals that the buyer and seller are using may not have experience in the business-selling process, thus are unable to effect a timely conclusion.

Deal-Maker:
Both buyer and seller should involve only those who are knowledgeable in the business closing process. Most outside professionals, such as attorneys and accountants, are not. A business broker can assist both parties in choosing professionals who are experienced in this area; those who will make helpful instead of harmful members of the deal-making team.

#4. Communication
Deal-Breaker:
In the selling process, there will almost always be points at which the buyer and seller do not agree. In some cases, as amazing as this may seem, the two parties realize that they were never in agreement. When they thought they were on the same page, they were really chapters—or volumes—apart. The failure to communicate can be fatal to the successful closing of the sale.

Deal-Maker:
A business broker is often referred to as an “intermediary”—and for good reason. These professionals are not only experts at marketing a business; they also know how to bring both sides to the table. They are skilled at the Three Es of the selling process: educate, elucidate, and eliminate misunderstandings.

#5. Seller’s Commitment
Deal-Breaker:
The ultimate killer of a sale is the seller who has a change of heart. Enthusiastic at first, with big dreams about the next step, the seller begins to drag his feet and then plants them firmly inside the door. Selling a business taps into deep emotions, since a business often comprises the seller’s life work, and it isn’t unusual for sellers to change their minds. Or perhaps they never made up their minds in the first place. Just as some buyers are “tire-kickers,” sellers can be equally guilty of merely testing the marketplace waters. They are curious to see what price the business might bring, when—and if—they one day decide to sell. Needless to say, the latter category of seller is enemy number one to the selling process.

Deal-Maker:
Sellers must commit themselves to the decision to sell before putting their business out in the marketplace. Questions concerning this decision can often be resolved by consulting the business broker about the pros and cons. If doubt remains, the business broker can judge the seriousness of the seller’s hesitation and decide if the process should move forward. Is the seller committed, or not really ready to sell? A business broker can distinguish between the two, but the prospective buyer may not be able to?until the selling process is well underway.

#6. Buyer’s Commitment
Deal-Breaker:
Sellers aren’t the only ones susceptible to cold feet. Buyers can also change their minds. Owning a business has never been more the American Dream than in today’s shaky corporate climate; still, the financial risk, the requisite long hours and hard work, the big leap from being an employee to employer can set off the exit alarm in a buyer’s brain.

Deal-Maker:
The business broker makes it a point to understand the emotional cloud that surrounds the prospective buyer and dispel it with the clarity that comes with being properly informed. The professional intermediary has the marketplace facts, figures, and general experience to help the buyer get beyond emotions. With proper guidance and relevant information, the buyer can see that the dream and the reality aren’t mutually exclusive. Cold feet give way to the warm handshake—and to another successful sale.





When the owner of a business makes the decision to sell, he or she is taking a giant step that involves the emotions as well as the marketplace, each with its own set of complexities. Therefore, those sellers who are tempted to undertake the transaction on their own should understand both the process and the emotional environment that it’s set against. The eight must-dos outlined below?just some of the items for a successful sale?might seem daunting to the do-it-yourselfer. However, by engaging the help of a business intermediary, the seller can feel confident about what is often one of the major decisions of a lifetime.

1. Set the stage
What kind of impression will the business make on prospective buyers? The seller may be happy with a weathered sign (the rustic look) or weeds poking up through the pavement (the natural look), but the buyer might think only—what a mess! Equally problematic can be improvements planned by the seller that appeal to his or her sense of aesthetics that but will, in fact, do nothing to benefit the sale. Instead of guessing what might make a difference and what might not, sellers would be wise to seek the advice of a business broker—a professional with experience in dealing regularly with buyers and with an eye experienced in properly setting the business scene.

2. Get the record(s) straight
Although outward appearance does count, what’s inside the books is even more important. Ultimately, a business will sell according to the numbers. The business broker will offer the seller invaluable assistance in the presentation of financial records that are current and crystal clear.

3. Weigh price against value
All sellers naturally want to get the best possible price for their business. However, they also need to be realistic. To determine the best price, a business broker will use industry-tested pricing techniques that include ratios based on sales of similar businesses, as well as historical data on the type of business for sale.

4. Market professionally

Engaging the services of a business broker is the key to the successful marketing of a business. He or she will prepare a marketing strategy and offer advice about essential marketing tools—everything from a business description to media advertising. Through their professional networks and access to data on prospective buyers, business brokers can get the word out about the business far more effectively than any owner could manage on an individual basis.

5. Negotiate wisely

The business broker will be the most vital advisor to sellers during any stage of the selling transaction. This professional is an expert at negotiating price, terms, contingencies, and other key aspects of the sale. During the early stages, while the buyer is still considering making an offer, the broker is the ideal person to follow up and keep the deal running smoothly. Sellers working alone risk losing bargaining power by doing the follow-up themselves.

6. Attend to details
Most business owners are masters of detail—and the accompanying paperwork. However, few of them have training in or knowledge about the specialized contracts and forms required for the sale of a business. The business broker is an expert at sales transaction details. This expertise will help guard against the delays, problems, and misunderstandings that can result in a wrecked deal.

7. Qualify prospective buyers
The business broker will determine the right buyer for the right business, focusing on those prospects who are financially qualified and who are genuinely (or potentially) interested in the type of business for sale. A business broker uses electronic databases to access comprehensive lists of local, national and international buyers to increase the chances of selling a business at peak value. And almost as important—the business broker qualifies every prospect to avoid wasting the seller’s valuable time.

8. Maintain confidentiality
Until a purchase-and-sale agreement has been signed, most sellers do not want news of the process to reach their customers, competitors, employees, or in some cases, even their bankers. By involving a business broker in the transaction, sellers can more easily maintain confidentiality from beginning to end. The business broker will use nonspecific descriptions of the business, will require signatures on strict confidentiality agreements, will screen all prospects, sometimes phasing the release of information to match the growing evidence of buyer sincerity and trustworthiness, and in general will use his or her position as intermediary to provide the seller with a protective shield of privacy.

Professional business brokers help the seller perform all of these vital steps. This is a time when do-it-yourself is not a cost-effective measure. The success of the sale depends upon the seller’s dependence upon the best professional help.

 



A college history professor and his librarian wife, lifelong introverts and night-owls, buy a bed-and-breakfast establishment and find themselves chatting with strangers at eight a.m. Another couple, both corporate lawyers who’ve spent twenty-plus years in Saville Row suits, wear jeans under t-shirts emblazoned with the logo of their all-chocolate confectionary store. Buying a business, no matter what it is, is also buying a lifestyle. What better time to make a whole-life change than when one is considering the purchase of a business? Whether you want to move to the mountains or the coast, a quiet hamlet or a booming city (or change your persona instead of your backdrop)—you can do any of it and all of it when you buy a business.

Most buyers of businesses, when asked why they want to buy a business or go into business for themselves, say that they want to control their own destiny. They don’t want to work for anyone else. Making more money is far down the list; in fact, most buyers who have left the more lucrative corporate world claim that they would never go back to it. Even though they might not admit it, the decision to buy a business is primarily a lifestyle choice. In this context, the type of business or the geographical place is immaterial?it’s the switch from job-holder to business owner that makes the dramatic difference. Simply giving up “frequent flyer” out-of-town trips and endless conferences may be a lifestyle change for many. One buyer said that he saved 1000 hours a year by adding up the cost of commuting and time spent in meetings. For many new business owners, the lifestyle change offers the gift of time that can be as important as money.

As the popularity of the self-owned business grows, sellers should not assume the sale is in the bag. Instead, what they must understand is that the lifestyle of a business is determined by the buyer—not the seller. It is the buyer’s perception that gives a business its “lifestyle” quality. No matter how quaint your B&B, or how cutely quirky your candy store, buyers are not going to overlook the basics they expect before even thinking about the style of life it might provide. The buyer will continue to ask three bottom-line questions:

• “Will the cash flow ../support my debt service?”

• “Will there be enough cash to cover a reasonable salary for me?”

• “What are the prospects of a fair return on my investment?”


Some typical lifestyle businesses—the bed-and-breakfast, for instance—may be real-estate driven. That is, the real estate contains the real value of the business; the real profit lies in the equity in the real estate and its possible appreciation. Therefore, in considering these types of businesses, the buyer may be willing to take a more relaxed approach to the concerns listed above. The lifestyle decision may outweigh the normal return a prospective buyer expects of a business. There are those buyers who are willing to make less money or overpay for some lifestyle businesses.

In the most simplistic terms, every business offers a lifestyle opportunity for someone. However, only those that attract sufficient buyer interest can qualify as a true lifestyle business—ones for which buyers are willing to accept lower returns or even to overpay. The seller should understand this: “life’s work” and “lifestyle” are not synonymous terms.

 
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