Business Buyers Can Leverage SBA Lending

Finding the money to start your own small business can be a challenge.  Over the decades, countless people have turned to the Small Business Administration (SBA) for help.  A recent Inc. Magazine article, “Kickstart Your Business Dreams with SBA Lending,” by BizBuySell President, Bob House, explored how SBA lending can be used to the buyer’s advantage.

The article covers the basics of an SBA loan and who should try to get one.  House notes that the SBA doesn’t provide loans itself, but instead facilitates lending and even micro-lending with a range of partners.  The loans are backed by the government, which means that lenders are more willing to offer a loan to an entrepreneur who might not typically qualify for one.  The fact is that the SBA will cover 75% of a lender’s loss if the loan goes into default. 

Entrepreneurs can benefit tremendously from this program.  In some cases, an SBA loan even means skipping the need for collateral.  SBA loans can be used for those looking to open a business, expand their existing business or open a franchise.

House points out that getting an SBA loan has much in common with receiving other types of loans.  For example, it is necessary to be “bank ready.”  By “bank ready,” House means that all of your financial documentation should be organized, clear to understand and ready to go. 

Next, a buyer would need to check that he or she qualifies, find a lender and fill out the necessary SBA forms.  In order to be eligible for an SBA loan, it is necessary that the business is a for-profit venture and that it will do business in the United States.  Once the necessary forms have been submitted, it can take between 2 to 3 months for an application to be processed and potentially approved.  

The simple fact is that the SBA helps thousands of people every year.  If you are looking to buy a business or expand your current business, then working with the SBA could be exactly what you need.  Of course, business brokers are experts on what it takes to buy.  Working with a broker stands as one of the single best ways to turn the dream of owning a business into a reality.

Copyright: Business Brokerage Press, Inc.

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How Employees Factor into the Success of Your Business

Quality employees are essential for the long-term success and growth of any business.  Many entrepreneurs learn this simple fact far too late.  Regardless of what kind of business you own, a handful of key employees can either make or break you.  Sadly, businesses have been destroyed by employees that don’t care, or even worse, are actually working to undermine the business that employs them.  In short, the more you evaluate your employees, the better off you and your business will be.

Forbes’ article “Identifying Key Employees When Buying a Business”, from Richard Parker does a fine job in encouraging entrepreneurs to think more about how their employees impact their businesses and the importance of factoring in employees when considering the purchase of a business. 

As Parker states, “One of the most important components when evaluating a business for sale is investigating its employees.”  This statement does not only apply to buyers.  Of course, with this fact in mind, sellers should take every step possible to build a great team long before a business is placed on the market.

There are many variables to consider when evaluating employees.  It is critical, as Parker points out, to determine exactly how much of the work burden the owner of the business is shouldering.  If an owner is trying to “do it all, all the time” then buyers must determine who can help shoulder some of the responsibility, as this is key for growth.

In Parker’s view, one of the first steps in the buyer’s due diligence process is to identify key employees.  Parker strongly encourages buyers to determine how the business will fair if these employees were to leave or cross over to a competitor.  Assessing if an employee is valuable involves more than simply evaluating an employee’s current benefit.  Their future value and potential damage they could cause upon leaving are all factors that must be weighed.  Wisely, Parker recommends having a test period where you can evaluate employees and the business before entering into a formal agreement.

It is key to never forget that your employees help you build your business.  The importance of specific employees to any given business varies widely.  But sellers should understand what employees are key and why.  Additionally, sellers should be able to articulate how key employees can be replaced and even have a plan for doing so.  Since, savvy buyers will understand the importance of key employees and evaluate them, it is essential that sellers are prepared to have their employees placed under the microscope along with the rest of their business.

Copyright: Business Brokerage Press, Inc.

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5 M&A Myths and How to Deal with Them

Where your money is concerned, myths can do damage.  A recent Divestopedia article from Tammie Miller entitled, Crazy M&A Myths You Need to Stop Believing Now, Miller explores 5 big M&A myths that can get you in trouble.  Miller points out that many of these myths are believed by CEOs, but that they have zero basis in reality.

Myth 1

The first major myth Miller explores is the idea that the “negotiating is over once you sign the LOI.”  The letter of intention is, of course, important. However, this is by no means the end of the negotiations and it is potentially dangerous to think otherwise.  The negotiations are not concluded until there is a purchasing agreement in place. As Miller points out, there is a great deal that can go wrong during the due diligence process.  For this reason, it is important to not see the LOI as the “end of the road.”

Myth 2

Another myth that Miller wants you to be aware of is that you don’t have to take a company’s debt as part of the purchase price.  Many business brokers, such as Miller, recommend that buyers don’t take seller paper.

Myth 3

A third myth that Miller explorers is a particularly dangerous one.  The idea that everyone who makes an offer has the money to follow through is, unfortunately, simply not true.  Oftentimes, people will make offers without securing the money to actually buy the business.  No doubt, this wastes everyone’s time.  As the business owner, it can derail your progress.  If you are not careful, it could actually prevent you from finding a qualified buyer.

Myth 4

Another myth is built around the notion that sellers don’t need a deal team in order to sell their business.  Again, this is another myth that has no real foundation in reality.  While it may be possible to sell your business without the assistance of an experienced M&A attorney or business broker, the odds are excellent that doing so will come at a price.  According to Miller, those working with an investment banker or business broker can expect, on average, 20% more transaction value!

Additionally, there are other dangers in not having a deal team in place.  A business broker can handle many of the time-consuming aspects of selling a business, so that you can keep running your business.  It is not uncommon for business owners to get stretched too thin while trying to both run and sell a business and this can ultimately harm its value.

Myth 5

Miller’s final myth to consider is that you must sell your entire business.  It is true that most buyers will want to buy 100% of a business, but a minority ownership position is still an option.  There are many reasons to consider selling a minority stake, so don’t assume that selling your business is an “all or nothing” affair.

Ultimately, Miller lays out an exceptional case for the importance of working with business brokers when selling or buying a business.  Business brokers can help you avoid myths.  In the end, they know the lay of the land.

Copyright: Business Brokerage Press, Inc.

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What Should You Evaluate When Buying a Business?

Buying a business can be an exciting prospect. For many prospective business owners, owning a business is the fulfillment of a decades long dream. With all of that excitement comes considerable emotion. For this reason, it is essential to step back and carefully evaluate several key factors to help you decide whether or not you are making the best financial and life decision for you. In this article, we’ll examine five key factors you should consider before buying a business.

What is Being Sold?

If you hate the idea of owning a clothing store, then why buy one? The bottom line is that you have to have a degree of enthusiasm about what you are buying otherwise you’ll experience burnout and lose interest in the business.

How Good is the Business Plan?

Before getting too excited about owning a business, you’ll want to take a look at the business plan. You’ll want to know the current business owner’s goals and how they plan on going about achieving those goals. If they’ve not been able to formulate a coherent business plan then that could be a red flag.

You need to see how a business can be grown in the future, and that means you need a business plan. Additionally, a business plan will outline how products and services are marketed and how the business compares to other companies.

How is Overall Performance?

A key question to have answered before signing on the bottom line is “How well is a business performing overall?” Wrapped up in this question are factors such as how many hours the owner has to work, whether or not a manager is used to oversee operations, how many employees are paid overtime, whether or not employees are living up to their potential and other factors. Answering these questions will give you a better idea of what to expect if you buy the business.

What Do the Financials Look Like?

Clearly, it is essential to understand the financials of the business. You’ll want to see everything from profit and loss statements and balance sheets to income tax returns and more. In short, don’t leave any rock unturned. Importantly, if you are not provided accurate financial information don’t hesitate, run the other way!

What are the Demographics?

Understanding your prospective customers is essential to understanding your business. If the current owner doesn’t understand the business, that is a key problem. It should be clear who the customers are, why they keep coming back and how you can potentially add and retain current customers in the future. After all, at the end of the day, the customer is what your business is all about.

Don’t rush into buying a business. Instead, carefully evaluate every aspect of the business and how owning the business will impact both your life and your long-term financial prospects.

Copyright: Business Brokerage Press, Inc.

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Interested in Buying a Business? Check Out These 3 Commonly Overlooked Areas

When it comes to buying a business, nothing is more important than the factor of due diligence. For most people, this investment is the single largest financial decision that they will ever make. And with this important fact in mind, you’ll want to leave absolutely no stone unturned.

Let’s examine the three most commonly overlooked areas when it comes to buying a business: retirement plans, 1099’s and W-2’s, and legal documents.

1. Examine All Legal Documents

While it may sound like a “pain” to investigate all the legal documents relating to a business that you are vetting for purchase, that is exactly what you have to do. The very last thing you want is to buy a business only to have the corporate veil pierced. Everything from trademarks and copyrights to other areas of intellectual property should be carefully examined. You should be quite sure that you receive copies of everything from consulting agreements to documentation on intellectual property.

2. Retirement Plans

Don’t forget about retirement plans when you’re buying a business, as this mistake can quietly translate into disaster. Before signing on the dotted line and taking ownership, be sure that both the business’s qualified and non-qualified retirement plans are 100% up to date with the Department of Labor and ready to go.

3. W-2’s and 1099’s

If 1099 forms were given out instead of W-2’s, you’ll want to know about that and be certain that it was done within the bounds of IRS rules. Imagine for a moment that you fail to do your due diligence, buy a business and then discover that you have problems with the IRS. No one wants IRS problems, but a failure to perform due diligence can quickly result in just that. So do your homework!

Never forget what is at stake when you are buying a business. If there has ever been a time to have laser-like focus, this is that time. There can be many skeletons hiding in a business, and you want to be sure that you protect yourself from any unwanted surprises. Not performing your due diligence can lead to a shockingly large array of problems. One exceptional way to protect yourself is to work with a business broker. A business broker knows what to look for when buying a business and what kinds of documents should be examined. There is no replacement for the expertise and experience that a business broker brings to the table.

Copyright: Business Brokerage Press, Inc.

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Interested in Buying a Business? Check Out These 3 Commonly Overlooked Areas

When it comes to buying a business, nothing is more important than the factor of due diligence. For most people, this investment is the single largest financial decision that they will ever make. And with this important fact in mind, you’ll want to leave absolutely no stone unturned.

Let’s examine the three most commonly overlooked areas when it comes to buying a business: retirement plans, 1099’s and W-2’s, and legal documents.

1. Examine All Legal Documents

While it may sound like a “pain” to investigate all the legal documents relating to a business that you are vetting for purchase, that is exactly what you have to do. The very last thing you want is to buy a business only to have the corporate veil pierced. Everything from trademarks and copyrights to other areas of intellectual property should be carefully examined. You should be quite sure that you receive copies of everything from consulting agreements to documentation on intellectual property.

2. Retirement Plans

Don’t forget about retirement plans when you’re buying a business, as this mistake can quietly translate into disaster. Before signing on the dotted line and taking ownership, be sure that both the business’s qualified and non-qualified retirement plans are 100% up to date with the Department of Labor and ready to go.

3. W-2’s and 1099’s

If 1099 forms were given out instead of W-2’s, you’ll want to know about that and be certain that it was done within the bounds of IRS rules. Imagine for a moment that you fail to do your due diligence, buy a business and then discover that you have problems with the IRS. No one wants IRS problems, but a failure to perform due diligence can quickly result in just that. So do your homework!

Never forget what is at stake when you are buying a business. If there has ever been a time to have laser-like focus, this is that time. There can be many skeletons hiding in a business, and you want to be sure that you protect yourself from any unwanted surprises. Not performing your due diligence can lead to a shockingly large array of problems. One exceptional way to protect yourself is to work with a business broker. A business broker knows what to look for when buying a business and what kinds of documents should be examined. There is no replacement for the expertise and experience that a business broker brings to the table.

Copyright: Business Brokerage Press, Inc.

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Key Elements for Every Partnership Agreement

You should never forget that your partnership agreement is, in fact, one of the most important business documents you will ever sign. Many people go into business with loved ones, relatives or lifelong friends only to discover (once it’s too late) that they should have had a partnership agreement. A partnership agreement protects everyone involved and can help reduce problems that may arise. Outlining what will happen during different potential situations and events in a legal framework can help your business keep running smoothly.

What Should Be in a Partnership Agreement?

Every business is, of course, different; however, with that stated, any partnership should outline, with as much clarity as possible, the rights and responsibilities of all involved. A well written and carefully considered partnership agreement will keep small problems and disagreements from evolving into more elaborate and serious concerns.

There are times to take a DIY approach and then there are times when you should always opt for a professional. When it comes to partnership agreements, it is best to opt for working with a lawyer. Finding competent legal help for drafting your partnership agreement is simply a must.

What is Typically Addressed in a Partnership Agreement?

In theory, a partnership agreement can cover a wide-array of factors. Here are a few points typically addressed in partnership agreements.

What Questions Will a Good Partnership Agreement Address?

  1. Which partner(s) are to receive a draw?
  2. How is money to be distributed?
  3. Who is contributing funds to get the business operational?
  4. What percentage will each partner receive?
  5. Who will be in charge of managerial work?
  6. What must be done in order to bring in new partners?
  7. What happens in the event of the death of a partner?
  8. How are business decisions made? Are decisions made by a unanimous vote or a majority vote?
  9. If a conflict cannot be resolved when must the conflict be resolved in court?

Thanks to partnership agreements, all partners involved can proceed and start a new business with fewer areas of concern. The simple fact is that without a partnership agreement, your business can face a range of disruptions; these would be disruptions that could ultimately spell doom for your business.

Copyright: Business Brokerage Press, Inc.

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Key Elements for Every Partnership Agreement

You should never forget that your partnership agreement is, in fact, one of the most important business documents you will ever sign. Many people go into business with loved ones, relatives or lifelong friends only to discover (once it’s too late) that they should have had a partnership agreement. A partnership agreement protects everyone involved and can help reduce problems that may arise. Outlining what will happen during different potential situations and events in a legal framework can help your business keep running smoothly.

What Should Be in a Partnership Agreement?

Every business is, of course, different; however, with that stated, any partnership should outline, with as much clarity as possible, the rights and responsibilities of all involved. A well written and carefully considered partnership agreement will keep small problems and disagreements from evolving into more elaborate and serious concerns.

There are times to take a DIY approach and then there are times when you should always opt for a professional. When it comes to partnership agreements, it is best to opt for working with a lawyer. Finding competent legal help for drafting your partnership agreement is simply a must.

What is Typically Addressed in a Partnership Agreement?

In theory, a partnership agreement can cover a wide-array of factors. Here are a few points typically addressed in partnership agreements.

What Questions Will a Good Partnership Agreement Address?

  1. Which partner(s) are to receive a draw?
  2. How is money to be distributed?
  3. Who is contributing funds to get the business operational?
  4. What percentage will each partner receive?
  5. Who will be in charge of managerial work?
  6. What must be done in order to bring in new partners?
  7. What happens in the event of the death of a partner?
  8. How are business decisions made? Are decisions made by a unanimous vote or a majority vote?
  9. If a conflict cannot be resolved when must the conflict be resolved in court?

Thanks to partnership agreements, all partners involved can proceed and start a new business with fewer areas of concern. The simple fact is that without a partnership agreement, your business can face a range of disruptions; these would be disruptions that could ultimately spell doom for your business.

Copyright: Business Brokerage Press, Inc.

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Is It Time to Become a Business Owner? 3 Questions to Ask Yourself.

Many people know that owning a business isn’t for them. But for others, the appeal and lure of owning their own business can be powerful indeed. If you are uncertain as to whether or not this path is for you, there are a few simple questions you can ask to gain almost instant clarity. In this article, we will explore those key questions and help you determine if owning a business is in your future.

1. Are You Dedicated to Growing Your Income?

Quite often people like the idea of making more money, at least in the abstract. But when presented with what it takes, many people realize that they don’t want to do what is involved. Owning and operating a business can be a lot of work and it’s not for everyone. Yet, those who embrace it can find it rewarding in a variety of ways.

Being a business owner is radically different than being an employee. As an employee, you simply don’t exercise much control. Summed up another way, your financial fate is clearly in the hands of someone else: your employer.

However, owning a business means that you can take steps to control your own financial destiny. You can make decisions that will, ultimately, boost the success of your business and in turn increase your own income.

As an important note, statistics from 2010 show that the longer you own your business the more money you, as the business owner, will make. It is typical for those who have owned a business for ten years or more to earn upwards of six figures per year. If you have had more than one year of experience in running an organization, the yearly salary will likely range from $34,392 to $75,076. However, if you’ve owned your business for more than a decade, you will likely earn more than $105,757 per year.

While there are no guarantees, owning a business can be a path to growing one’s income and wealth.

2. Would You Like Greater Control Over Your Life?

Many opt to start their own business because they want more control. Business owners realize that unless they own their own business their financial fates rest in the hands of someone else. Some people are comforted with this feeling or don’t see a way around it and others are not so comfortable with the realization. If you want greater control over your life, then owning a business might be for you.

Owning a business increases the amount of control a business owner has over his or her life in many ways, not just financial. For example, business owners have more control over how they spend their time, where they work, when they work and who they work with on a daily basis. Instead of being part of a business, you help create, mold and shape it. Clearly, this is a lot of work and it isn’t for everyone, but again the rewards can be diverse and great.

3. What is Your Personality Like?

Owning a business translates to great control, but that control comes with a degree of risk. In the end, you’ll have to determine how comfortable you are in dealing with risk. As a business owner the “buck” stops with you. You’re risking your time, effort and, of course, money. You also don’t get a paid vacation, sick days or any of the other benefits so often associated with being an employee.

Other traits identified during a study by the Guardian Life Small Business Research Institute showed there are other ideal personality traits for business owners. These traits include collaboration, curiosity, focus on the future, and being self-fulfilled, tech savvy and action oriented.

Thinking about these three key questions is the perfect place to start when contemplating opening a business. Additionally, working with a business broker can help you gain clarity and determine if owning a business is right for you.

Copyright: Business Brokerage Press, Inc.

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The Importance of the Term Sheet

The value of the term sheet shouldn’t be overlooked. From buyers and sellers to advisors and intermediaries, the term sheet is often used before the creation of an actual purchase or sale agreement. That stated, it is important that the term sheet is actually explained in detail. Let’s take a closer look at its importance.

What is a Term Sheet?

Even though term sheets are quite important, they are rarely mentioned in books about the M&A process. In the book, Streetwise Selling Your Business by Russ Robb, a term sheet is defined as, “Stating a price range with a basic structure of the deal and whether or not it includes real estate.”

Another way of looking at a term sheet, according to attorney and author Jean Sifleet, is that a term sheet serves to answer to four key questions: Who? What? Where? And How Much?

Creating the Right Environment

A good term sheet can help keep negotiations on target and everyone focused on what is important. Sifleet warns against advisors, accountants and lawyers who rely heavily on boilerplate documents as well as those who adopt extreme positions or employ adversarial tactics. The main goal should be to maintain a “win-win” environment.

At the end of the day, if a buyer and a seller have a verbal agreement on price and terms, then it is important to put that agreement down on payment. Using the information can lead to a more formalized letter of intent. The term sheet functions to help both parties, as well as their respective advisors, begin to shape a deal, taking it from verbal discussions to the next level.

Make Sure Your Term Sheet Has the Right Components

In the end, a term sheet is basically a preliminary proposal containing a variety of key information. The term sheet outlines the price, as well as the terms and any major considerations. Major considerations can include everything from consulting and employment agreements to covenants not to compete.

Term sheets are a valuable tool and when used in a judicious fashion, they can yield impressive results and help to streamline the buying and selling process. Through the proper use of term sheets, an array of misunderstandings can be avoided and this, in turn, can help increase the chances of successfully finalizing a deal.

Copyright: Business Brokerage Press, Inc.

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