Home » LINK Business News » LINK Business

Category: LINK Business

Alternate Plans

Should I Pass My Company to MY Child/Children?

Building A Legacy

Many business owners nearing retirement want to pass their business to their children. You have spent blood, sweat, tears and probably years to build your company with hope that you are building a legacy to pass on to the next generation.
Your child/children may want your company, but are they prepared to run it and keep the success that you have built? Have they been in an important prominent role within the company? The most successful predecessor is the person or persons that have close knowledge of the company and the intimate running of your business.
One of the most important rules of passing on your business to your children is:

“Don’t Force Them to Take Over”.

If it is not their passion or aptitude, the chances of continuing the business success is very unlikely. As a Business Broker with Link Business, I have heard this story many times. “I passed my business to my kids and then had to take back over when they ran it to the ground.” Passing your business to an unprepared or reluctant child will only cause animosity within your family. You are all better off to sell to an outside source and continue to build your legacy with the proceeds of the sale.

When Your Children or Others Are Your Buyer

The best success of handing down or transferring ownership of your business that you built as a legacy for your family is to choose the predecessor wisely. What if you have many family members working in the company, how do you decide who will proceed you in position at the helm? It is not recommended to pass your business on based on seniority or birth order but choose the person who knows the business and has the skill level to continue the growth you have set. This may or may not be a child, it could possibly be a grandchild, other family member, or employee who has shown great aptitude and shared ideas for the future of the business.
At this point, you may wish to involve your family. Be honest and up front from the beginning. Give everyone in the family an opportunity to air their views and concerns in order to make the transaction as transparent as possible. You want your predecessor to start out with the full support of others within the company, not animosity.
Now that you decided on the person to take over and buy the business, you can retire or move on to your next opportunity. Now What? First start off with working with a third party to determine the value of the company. According to Lisa Riley, Designated Broker with LINK Business-Phoenix, “Most business owners do not know what their business is worth…many overestimating its value based on blood, sweat, tears and years!” It is in the best interest of your company and the successfulness of the business going forward, that your buyer, be it family or third party, not pay more than your company is worth. If the business cannot afford to pay for the debt burden and continue to prosper, it is not good for all parties. By getting a third party involved, it takes the personal feelings out and makes the transaction a business transaction. It is said to “Spend a nickel to get a hundred dollars”. Spend the money to hire someone to represent you in the transaction, be it a Business Broker or Business Appraiser. By utilizing a good Business Broker such as myself, I will be by your side through the whole transaction from the beginning of finding a value to the end at escrow and even through the transition of ownership. With more than 15 years’ experience with business transactions, I can help make Selling Your Business as smooth as possible.

There Will Be Challenges

There will always be challenges and minefields along the way. Prepare for these in advance by being honest and up front. Write out a business plan or plan of attack as part of the Buy / Sale Agreement. How much will you, the previous owner, be involved? Where will the company go and how will it get there? Spell out expectations for both parties and be flexible when the business is changing, because it will change.
Having a third party, family member or even a work associate buy your business can be difficult for both parties. Knowing to expect adversity in advance is always helpful. Know that if you start out with a good open relationship that is what will be reflective going forward. If you have an estranged relationship to start, it probably isn’t going to get any better in the future.

Why Utilize A Business Broker

Having a third party is imperative in order to have the transaction be a business deal and not a family squabble. The principal value of a Business Broker is to act as a guide and buffer between the buyer and the seller. As your Broker, I can say certain things to a buyer, be it one of your family members or a stranger, and to You in order to have a productive discussion. With over 25 years of management and customer communication experience, I bring my A-game to make sure that each issue is addressed in a timely and thorough manner. I will relay what has to happen to have the deal complete and steer compromises on both sides.
There are many options to consider when you are deciding if ‘I Should Pass my Company to My Child/Children’. Most importantly, keep in mind what is important to you and to the success of your company. Let’s explore your options and map out a plan!
Contact Linda Now for a Complimentary Analysis on Your Business at (480) 648-8940, Linda.Rehak@LINKBusiness.com, or infophx@LINKBusiness.com.

YOU HAVE AN EXIT STRATEGY… NOW WHAT?

Most business consultants, financial planners and business owners recommend an Exit Strategy. What does that mean and how does it affect you? A business Exit Strategy is the strategic plan on how and when you will end your ownership of your company. As the business owner you need to know what you will need to put in your pocket at the end when you sell your business to accomplish your goals. Your goals can be another business concept, sitting on a beach or playing golf, whatever they are you want to be prepared. Basically, how long do you want to own this business and how much do you need financially for your next chapter.

The best time to formulate your exit strategy is when you start or buy your business. I have a saying “know how you are going to get out of something before you get in to anything”. When you are formulating your business plan to run your business it only makes sense to also plan to exit your business.

Now it is time to exit your business and move on to your next chapter. This is a very confusing and time-consuming endeavor and many business people don’t even know where to begin. That is where I come in as your Business Broker. With my experience I will guide you through the process and assist you to help make your transition as smooth as possible.

By utilizing a Link Business Broker, I can simplify the process and earn you a higher sales price. We act as a buffer between the buyer and the seller. There is peace of mind knowing that I will always have your back. I will take the time-consuming task of pre-screen potential buyers to finding the right buyer for your business. As your Business Broker I will also ensure that the news of the sale remains confidential and that your loyal customers, staff, vendors and suppliers don’t find out until you’re ready to let them know. Then there are administrative issues. As an experienced Link Business Broker, I know what paperwork to file and when. I will also coordinate efforts between lawyers, CPAs, bankers, insurance agents and others.

While it costs money to contract with a broker to sell your business, think of the commission you’d pay him or her as a kind of insurance. I will protect your investment in the business by placing the proper value on your business, finding the right buyer, getting you the best price possible, protecting the confidentiality of the sale, handling all negotiations, ensuring that all transactions are legal, and seeing that the transition to new ownership is as wrinkle-free as possible. While a Link Business Broker is busy securing your future, you are free to continue to run your business until the transfer of ownership has been completed.

For a business broker with experience, contact Linda Rehak with Link Business – Phoenix. Linda.Rehak@linkbusiness or 480-648-8940.

Unrealistic Valuations and How to Avoid Them

An unrealistic valuation is one of the most common mistakes business owners make. Every business owner who decides to sell has a price that they want from the sale, but unfortunately, that price often has very little to do with what can actually be achieved. An unrealistic valuation can derail the entire sales process, so it’s important to correct this mistake early in the sales process.

Harming the potential sale

Overpricing is the big mistake business owners make when selling their business. An unjustified price locks out people in your price range, and buyers who can afford the high asking price will look at the detailed numbers and see that the business isn’t worth it. This can mean your business will sit on the market and grow stale, pushing the price down anyway, possibly below the original fair price.

The best advice for sellers is not to over value. The best offer will come from being realistic in your expectations. In the end, it may be better if you’re a little less aggressive in your pricing and actually sell than going big and having to take the business off the market due to lack of interest.

Value is not determined by what you think it’s worth

Business owners need to remember that, as in every sale, a business is only worth what someone will pay for it. Unfortunately, owners tend to be biased about the value of their business. An Australian study showed that 21 percent of business owners valued their business between 10 and 25 percent higher than the fair market value, and that figure would likely be similar in the United States.

It’s easy to become emotional about your business. You’ve built it up from the ground. You’ve probably put a lot of blood, sweat, and tears into its growth. When the time comes to sell, you may want to include the value of all that time and effort in the valuation. Unfortunately, buyers aren’t going to pay for that.

The other bias of owners is their wants or needs. If you need a certain number to be able to retire happily, recoup your costs or pay down debts, that influences how you see the value of the business. But, again, this number means nothing to the buyer. They’re only interested in the actual fair value.

How do you value your business?

Buyers want to know what the business is earning and what it will continue to earn. In the end, that’s all that matters. A business with good cash flow and a diverse client base in a growing industry is worth more than a business with little profit or one that relies on a single client. Businesses in shrinking industries are also not worth much, as was seen in the video rental industry.

Additionally, a buyer won’t pay for the unrealized potential of the business. It may interest them, but they’re the ones who need to put in the capital and effort to realize any potential, so they won’t include it in their valuation of the business.

A realistic valuation

Unbiased advice is essential in getting a realistic valuation of your business. A business broker is a good place to start. They understand how valuations are calculated in a variety of industries and know which factors and variables may increase or decrease the base valuation. LINK business brokers may also be able to offer advice on work you can undertake on your business in order to increase its value.

Having an unrealistic valuation can be a costly mistake, but it’s easily avoided by examining your own biases and listening to objective advice. With a realistic price in mind, you can move forward in the sales process with confidence, knowing that you’re not going to lock out buyers or drive them away.

First published here: https://linkbusiness.co.nz/knowledge-center/Article/Unrealistic-Valuations-and-How-to-Avoid-Them

Losing Focus When Selling Your Business

The mistakes people make when selling their business tend to be errors in preparation, such as not normalizing their accounts or not maintaining confidentiality during the process. However, one of the biggest mistakes you can make has nothing to do with preparation and everything to do with the mindset: losing focus during the sales process.

It’s an easy thing to do. When you make the decision to sell your business, you’re bound to get caught up in thoughts of what you’ll do with the proceeds of your sale, whether that’s buy a yacht, build houses in Nepal or retire to Hawke’s Bay. The decision to sell is just the start. Selling your business is a marathon, not a sprint, and losing focus on the process could push the finish line even further out.

The Long Journey

Studies have shown that the average time to sell a business is 6 to 11 months. This is true even if all the factors, like a growth industry, strong market and profitable business, are in your favor. That’s just the time from putting the business on the market to making the sale. You must also factor in the time before then when you prepare the business, source a broker and get the marketing ready.

Losing focus during that time can affect your wages and your ability to run your business. Don’t forget that you still need to earn a living while you’re going through the sales process.

Risk to Your Sale

You also need to consider how losing focus could affect your sales. During the sales process, you will need to show potential buyers your year-to-date financial statements. If your energy hasn’t been on your business, those numbers could be lower than previous years, making it seem like your business isn’t doing well. Sales figures that are trending downward would look like a risk to potential buyers, and any offers you receive will be lower to reflect that risk.

Alternatively, the structure of your deal may change if the business seems to be struggling. Your buyer may add conditions to the sale, such as you staying to run the business for a certain period of time to make sure it reaches its potential. This will delay any post-sale plans. The buyer may also offer a lower price with earnouts, meaning you won’t get the full value of your business unless the new owner reaches certain profit milestones.

Worst-Case Scenario

The last point to consider is the worst-case scenario: not selling your business. No one likes to think about that, but it can happen. Sometimes a recession hits, and no one is buying, or you may not get the offer you want. If that happens, you may need to continue running your business until the environment improves.

If your focus has been elsewhere to the point your business has suffered, you may find it difficult to build the business back up. This is especially true if you’ve put off operational decisions about things like staffing or large purchases, choosing to let the new owner decide. You’ll have to push back post-sale plans even further while you take the time to re-establish your company before attempting a second sale.

When you decide to sell, remember that it’s only the first step in a longer journey. Although you can think about your ultimate post-goal plans, you need to keep most of your attention on the actual sale. This will allow you to continue to grow your business and take advantage of any opportunities that come your way. A growing business is one that doesn’t look risky to a buyer. It will attract more interest and ultimately help you negotiate a better price when you find the right buyer.

For further information, contact your nearest LINK Business Broking Office.

This article was reprinted from https://linkbusiness.co.nz/knowledge-center/Article/Losing-Focus-When-Selling-Your-Business

Waiting Too Long To Sell Your Business

When you’re selling your business, timing can be a difficult thing to get right. It’s important to remember that there’s no perfect time to sell. Many owners make the mistake of waiting too long to sell, either because they’re waiting for ideal market conditions or wanting to earn just a little bit more profit first. Unfortunately, this thinking is risky, as it could mean you miss your window altogether.

Waiting Until You Have to Sell

The first mistake to avoid is waiting until you have to sell. Often, owners wait to sell because they’re looking for a little more profit or a few more clients; when they realise these won’t materialise, they try to sell a business that is shrinking. If profits are declining when you decide it’s time to get out, the business’s value will be lower. After all, if you no longer want the business because it’s not making enough, why would anyone want to buy it?

The easiest way to avoid waiting too long to sell is to know your exit plan when you start your business. If you ever plan on selling, decide at the beginning what sort of profits you want to have before you sell, and how many years you want to be in the business. This can give you a good guide as to the right time for you to sell, easing some of your indecision.

The Best Market for Selling

There are some market conditions that make for a great business-selling environment. You’re looking for a strong and confident economy that makes people want to acquire businesses. It’s also important that banking conditions are right, so funding is available for people going into business.

Conversely, a recession or downturn in the economy can harm the value of your business. In a market in which banks aren’t lending money for business ventures or interest rates are high, it can be hard to sell your business at all.

If you’re planning on selling, pay attention to these factors. You want to be able to jump into the market if conditions are good, or delay and hold on to the business if the market is on a downward slope. If you’ve planned your exit strategy at the start, you’ll be better able to adjust your plans based on the prevailing market.

What if Conditions Aren’t Great?

It may be that you must sell, but the conditions aren’t great. Your business may not be healthy, or it could be your own health that is a concern, creating a need to sell during a market slump. All is not lost. You can still find buyers if you know where to look. You may not get the price you would in a better selling environment, but if you take steps to maximise the value of your business, you can still do well.

Speaking to a Broker

LINK business broker can help you get the timing right. Brokers pay attention to the market, both on a macro level and in different industries, and can advise you whether it’s a good time to sell. If you’re in a must-sell situation, contact a LINK broker and we can help you find a buyer and negotiate good terms despite the negative conditions.

When you’re timing the sale of your business, not every factor is in your control. A new technology could emerge that makes your product obsolete two days after you start advertising your business. But choosing a time when both your business and the market are healthy can help maximise the return you receive from the sale. Remember that you always want to leave on a high; it’s better to sell when your business has a healthy profit but has the potential for more, than to wait too long and try to sell it when conditions and profits are declining. Reaching out to a broker can help you identify that right time.

For further information, contact your nearest LINK Business Broking Office.

this article republished from: https://linkbusiness.co.nz/knowledge-center/Article/Waiting-Too-Long-To-Sell-Your-Business

 

What Due Diligence Is and Why It Is Important

In the context of buying and selling businesses, due diligence refers to the research required to ensure you’re getting the best possible deal and that no surprises pop up after the transaction is finalized. Any business owner in Phoenix, AZ area, that’s planning to make a move — either selling their own establishment or buying a new one — must put the work in on due diligence. You can often reduce the burden of this process by working with an experienced business broker.

Due Diligence for Buyers

For buyers, diligence in making a purchase involves fully vetting the business opportunity. One of the major questions answered during this process is whether you’re paying the right price for the business; information gleaned during due diligence lets you understand how much profit is possible and how quickly you can achieve profitability after buying a business.

You’ll need to consider legal, financial, organizational and other aspects of the business during this process. The exact aspects of due diligence important to your purchase depend on your own entrepreneurial goals, the business you’re considering and the industry, but common considerations include those below.

  • What is the organizational structure of the business? The steps in purchasing a sole proprietorship are different than those in purchasing a partnership or LLC.
  • Is the business unencumbered by legal, tax or other obligations? If not, what might you have to spend to unravel any issues? Obligations that might transfer to the new owner might include judgments or liens, and issues with zoning or licensing could become yours once you buy a company.
  • Is the company financially solvent? While poor performance on the books doesn’t necessarily keep you from purchasing a company — many entrepreneurs get great deals buying businesses that are underwater — you do need to know what the state of the finances are so you can make an appropriate offer.

Due Diligence for Sellers

Sellers should do all the same due diligence buyers are likely to do before they put their company on the market. Understanding all the legal, financial and other issues with your company lets you solve any issues you can to bring up the potential value of your business before selling it. Even if you can’t address the issue, knowing about it puts you in a stronger position as you go into negotiations. Plus, there are some things you’re legally obligated to disclose during a sale, and ignorance of an issue doesn’t always excuse you from those requirements.

You may also want to conduct due diligence on potential buyers, especially if you want your business legacy to carry on to some degree after you sell the company. For example, you may want to ensure the buyer intends to run the business and keep many of your employees rather than flip the business or sell off various parts of it for a profit.

Why Is Due Diligence So Important?

Due diligence is critical to ensuring buyers and sellers both get the best possible deal when engaging in a business sale transaction. Even if you know and trust the buyer or seller, conducting this research lets you get a better idea of what you’re dealing with and how to best approach the negotiations.

Experienced business brokers such as those at LINK Business-Phoenix help you check all the right boxes for due diligence to ensure transactions go as smoothly as possible.

If you are interested in selling or buying a business contact LINK Business-Phoenix at 480-686-8062 or email at infophx@linkbusiness.com.

How Does a Broker Keep Your Business Sale Secret?

When you’re preparing to sell your business you may think about presenting it in the best light, getting a good price and the legalities of signing it over. But have you thought about keeping the whole idea a secret?

If your plans to sell become known to the wider world, this could have repercussions on the sale. Rumours of a sale can tempt lenders and suppliers to change their terms, make customers look elsewhere and cause employees to leave; any of which can cause your sale price to go down.

There are steps you can take yourself to keep your plans quiet, but for true confidentiality, consider a business broker.

Business brokers are experienced in keeping confidentiality during every stage of the sale. From the way your business is marketed, to meeting potential buyers and through the offer and finally signing papers, a broker will work to ensure you get the best price.

That means taking all the necessary steps to keep your business sale a secret.

Marketing

It may seem like advertising your business would be difficult without naming your business. How can a buyer know they want to purchase without knowing what they’re buying?

Brokers are experienced in showing your business in the best possible light whilst not revealing exactly who you are. The business is advertised in general terms. For example, High Street Hairstyles would be referred to as “a popular hair salon on a main road”.

Details like income and expenses, customers, suppliers and employees are portrayed accurately, but vaguely at this stage of the process, allowing for possible buyers to decide if they’re interested while not revealing anything about the exact business.

Qualifying Buyers

When interested buyers step forward the broker continues to protect your confidentiality. Any interested parties will be asked to sign a confidentiality agreement. This agreement stops the possible buyer discussing information with anyone else or from approaching you or your employees, suppliers and customers.

At this stage, buyers are also assessed by brokers usually through a face-to-face meeting. In this meeting, the broker will ensure the prospective buyer can afford to purchase the business and assess their suitability. Brokers will also ensure that the purchaser has no conflicts of confidentiality, such as being a customer or competitor.

This stage all moves forward with the broker talking about your business in general terms so as not to reveal identifying details.

Sales

After your broker has determined the buyer is serious, further details will be released. This does not mean alldetails will be released. Although a more thorough overview of financial and operational details will be given, confidentiality is still maintained. Often, information is released in stages so the broker can be sure the buyer is serious about proceeding.

If the buyer does choose to make an offer, a Sale & Purchase Agreement is drafted. The agreement will normally include a period of Due Diligence where certain details are revealed. Even at this stage, it’s possible to maintain secrecy, depending on the nature of the business.

If the buyer chooses not to go ahead with the sale, any material that they have received will be collected by the broker to be destroyed. This is assured under the confidentiality agreement signed at the beginning of the process.

Your broker will take all possible precautions to ensure secrecy is maintained during the sale of your business. Their reputation depends on it and it is often essential for a successful sale.

At every stage of the process, you should feel like your broker is dedicated to the sale of your business. A good broker will have systems and procedures in place to secure confidentiality and be able to outline those procedures for you.

 

For Further Information about this article, contact your nearest LINK Business office at:

contact us

Originally published https://linkbusiness.co.nz/knowledge-center/Article/How-Does-a-Broker-Keep-Your-Business-Sale-Secret

How to Maintain Confidentiality when Selling a Business

Many business owners have experience selling: selling their products, their services, even their ideas. But selling a business is a whole new problem, and many business owners make mistakes just because they don’t understand the intricacies involved. Not keeping confidentiality is one of those mistakes. In any other sale, you would shout about it from the top of Aoraki so that everyone knows. However, if you want to sell your business with the best price possible, it’s better to keep it to yourself.

Why is confidentiality important?

One of your biggest tasks when selling your business is to keep that business running smoothly. When people know that you’re planning to sell, they may change their behaviour. Suppliers may wish to renegotiate if they’re worried their contracts aren’t safe. Clients may go somewhere else, and your staff may look for new positions if they’re worried about a new owner. If a competitor finds out, they may use this information to build up their own business.

All of this can mean a stumble in your business’s income that prospective buyers will see when they look at your books. As business sales can take many months, this decrease in profits can be sustained and will mean a lower offer when someone is ready to buy. In some cases, this can even jeopardise your ability to sell at all.

How do you keep confidentiality?

The first step, of course, is to be careful who you tell. Clients and suppliers rarely need to know, and although there may be some staff members who must be advised, make sure they’re people you trust not to spread the news around.

When selling your business, you need to advertise it without any identifying features. Instead of Bob’s Repair Shop, for example, you market it as “Busy Car Repair Shop”. Make sure you don’t include any financial or location information that could easily identify your business.

Next, when people are interested and need more information, ask them to sign a confidentiality agreement before moving forward. This is standard in the business sale process, and serious buyers expect this requirement. Even at this stage, identifying information can be obscured, with more details being released as the buyer decides to go forward.

There are some exceptions to this rule. If you have a well-known brand, revealing your business name may bring in more interest and higher offers.

Role of brokers

Working with a LINK business broker adds another layer to your confidentiality protection. Your LINK business broker acts as an intermediary, interacting with any prospective buyers. This allows your identity to remain obscured on the off-chance that someone you know is interested in buying the business. Additionally, LINK brokers are experienced in speaking about businesses in vague yet accurate terms, so they can market the business while retaining confidentiality.

LINK business brokers also pre-qualify potential buyers, ensuring they are serious and have the funds to purchase before revealing any information. The fewer people who know about your plans, the less chance there is that the news will get out.

Perhaps the biggest advantage of a LINK business broker is the experience they have in protecting sellers’ confidentiality. Because they’re selling businesses all the time, they know how to obscure identifying information in advertisements and selling memorandums. They work with confidentiality agreements every day and understand them. Brokers also know how to reveal information slowly and when it’s vital to tell a prospective buyer something to secure a sale. Most importantly, they have processes and procedures in place to ensure confidentiality is maintained.

Confidentiality is one of the most important aspects of your sale. Many business owners who are selling a business for the first time aren’t aware of how essential it is in order to achieve a good price and closing a sale. Make sure you keep the sale a secret and look for help from experienced business brokers to maintain confidentiality throughout the sales process.

 

Great article from our franchisor https://linkbusiness.co.nz/knowledge-center/Article/How-to-Maintain-Confidentiality-when-Selling-a-Business

Preparing Your Business For Sale Using a Business Broker

Selling a business can take a lot of time and energy. By making LINK Business-Phoenix services you will understand more about why you need to carefully plan the sale of your business to maximize profits.

When should I sell my business?

Before you can even start thinking about selling your business you will need to go through a process of marketability. With the help of our expertise, you will gain more knowledge to assist you in the selling of your business. Any changes we suggest that you make, such as deciding on a different selling time, will raise the value of your business before it is made available on the market.

Our first meeting will cover the actions that need to be taken in preparation of a sale. When presenting information to possible buyers you will need to provide them as much detail as possible about your business.

Should I use a business broker?

Considering using a business brokerage? Take these key questions into account when selecting the right broker:

  1. What kind of sales are they specialized in? Do they specifically sell businesses or are they selling businesses on the side of a real estate operation?
  2. Will you be working with an industry-specific broker? How much experience do they have?
  3. Have they received positive feedback from previous clients?
  4. What are their views on qualifications and ethics?

You may still be unsure about using a business broker, but there are many advantages. A broker will deal with extra tasks such as answering calls, working with future buyers, and handling finances that could get in the way of your daily workload. Using a business broker will also ensure that your sale remains confidential. If you decide to sell the business yourself it may not be so easy to keep this information quiet as prospective buyers will be in direct contact with you.

Why you should use a LINK broker:

We have compiled an extensive database of qualified buyers who are serious about buying businesses.  Our registered buyers are given the opportunity to purchase businesses before they are even put on the market. Using this method we are able to move away from heavily marketing businesses, connecting buyers and sellers without having to list the business for sale.  Not only does this reduce the cost of selling, but it upholds the utmost discretion during the selling process.

GET IN TOUCH WITH LINK TODAY