Buying a business could be your most important decision in life, but many people treat it in a cavalier fashion. Most people would consult a professional in any other major transaction, but don’t think of going to professionals for business purchases.
With that in mind, consider using a reputable business broker. A good broker can be found in your area simply by calling or emailing their professional association, the IBBA, or International Business Brokers Association. Or, asking friends who own businesses if they’ve had good or bad experience with a business broker in the area.
Business brokers who have earned their profession’s highest professional credential will have CBI after their name on business cards. This stands for Certified Business Intermediary and assures the buyer that the broker has been properly trained and is held to high ethical standards.
If you don’t use a broker and represent yourself, then you must first determine that the business is right for you. Is it something you will enjoy doing? If it is, then check the financial health of the business.
After signing a standard non-disclosure agreement the seller should be willing to show you his tax returns for the past three years and allow you a chance to visit with his CPA. Make sure that the business is bringing in enough money to pay for itself, pay you a decent salary and cover its own debt.
Determining the true value of the business and making sure that it matches the owner’s asking price is next. After looking at the tax returns and a profit and loss statement you should be able to determine true owner’s cash flow, which is net income plus discretionary spending from which the owner benefits, such as health insurance, a company car or a company owned cell phone.
Take the cash flow and multiply by two, then add in the wholesale value of any inventory, fixtures, furniture and other odds and ends. This will show you the value of the business itself. If there is real estate involved, hire an appraiser and add in that figure. These rules of thumb hold true for most businesses, but when you talk to your banker or SBA representative you may find some exceptions.
Arrange financing. If there is real estate involved this could be a 15 to 30 year loan. Without real estate, most lenders prefer seven year loans.
Determine how much of the purchase price the owner is willing to carry as owner financing, and if the amount seems reasonable, your next and final step is to find an attorney who is experienced in business closings. Have him check the contract carefully and if it meets his approval you are usually in good shape.
By: Jeff Wise
Archive for December, 2009
Types Of Brokers And Their Respective Roles
December 28th, 2009
Brokers are agents or professionals who mediate between a borrower and a lender. These agents collect all the necessary information about the borrower or lender, depending on who is their client, including medical history, employment of the person with whom his client is likely to deal, to ensure a smooth and risk-free transaction. Brokers also provide their clients’ necessary credit and financial information to the lenders, saving their clients loads of work. There are different types of brokers, whom you can approach depending on the kind of work you are planning to get done from them.
Mortgage broker: A mortgage broker guides its clients through the entire process of choosing an appropriate mortgage package with attractive package offers. They are apt at finding their client the most suitable mortgage package that suits their necessities well and help them in obtaining and filling up their mortgage form. In the US, mortgage brokers affect more than 80% of the total home loans issued. Even banks prefer to go through brokers and often outsource the work of identifying and qualifying borrowers.
Real estate broker: A real estate broker is in the business of finding buyers for those who want to sell their real estate properties. They are in this business to help their clients sell their properties at the highest possible process. If they have a buyer as their client, then they help him to buy a suitable property at the most reasonable price. Once the transaction is through, the brokers get a certain percentage of the transaction value as their commission. In the US, such a commission is generally 6% in case of real estate property mortgage and is usually paid by the seller. The commission amount is split equally between the selling and the listing agent.
Forex broker: Forex brokers are either individuals of firms who assist both individuals and firms to trade effectively in the foreign exchange marketplace. These brokers earn through pip or “spread”. Spread refers to the minimum price hike in currency. For example, in Euro/US Dollar, a shift to 0.9008 from 0.9007 is calculated as a spread, whereas in US Dollar/Japanese Yen, shift to 127.41 from 127.40 is a spread.
Stockbroker: Stockbrokers are individuals or companies engaged in buying and selling stocks on behalf of either a person or a company and try to match up the buyers with sellers. Investors pay stockbrokers to seek advice from them regarding investment decisions and finance management. These brokers also give knowledgeable guidance to their high- net worth individual clients for managing their finances well and investing in portfolios for considerable wealth creation.
Insurance broker: Like other brokers, an insurances broker is also in such for buyers, but for insurance of multiple things including life, car, accident, calamity etc. Such a broker assists its customers in choosing the best insurance program suiting their needs.
If you are an investor on look out for the best investment avenues, then a broker is the best person you can approach for suitable investment guidance.
By: William King
5 Things to Consider If You are Selling Your Business
December 28th, 2009
Selling a business has many moving parts and as a result is very complex. Here are 5 suggestions that may make the task easier.
1. Get a professional third party valuation
This may sound obvious but naturally the seller wants as much money for the business as possible and the buyer wants to pay as little as possible. The place to meet is probably the “Warren Buffet place” with apologies to Warren Buffet. He’s on record as saying or something close to it – I would sooner pay too much for a good company than get a great deal on a company that won’t be around much longer.
2. Hire a qualified professional that you trust.
Selling a business is not a quick or normally straightforward process. Each business has its own unique characteristics and is part of the dynamic global, regional and local economy as well as the specific industry it is in. Because of the complexities, ensure you have a qualified professional on your team that you trust and have complete confidence in. Apart from trust, other important components to look for include the professional qualifications from the International Business Brokers Association (IBBA) such as the CBI or Certified Business Intermediary or the state business brokers association (if one exists.) Some states require a real estate license – ensure your professional has any necessary license.
3. Make sure the business is sellable
So many owners plan on selling their business. As soon as it is on the market, they that stop doing the hard work that got the business to where it is now. Some even go on vacation. It normally takes about 6 ½ months to sell a business; if it sells. Make sure you continue advertising to your customer base, keep the employees motivated, continuing to check your customers are happy, pay your bills on time and most importantly of all, continuing to keep your landlord happy. The number one reason that a business won’t transfer from the seller to the buyer is that there is a dispute between the landlord and the seller and/or buyer. If you need a vacation, take it before putting the business on the market. Once it’s sold and you have trained the buyer, then it’s time for that trip of a lifetime.
4. List the business for sale at or near the business valuation
If you’ve owned the business for many years or recently spent a lot of money fixing a problem, it’s not uncommon for sellers to want to ask as higher price as possible so they can earn back some of that money. Buyers have a large number of businesses to choose from. Because most businesses look similar or they are not emotionally attached to the business, they have little problem in walking away. A good business for sale is fairly priced and has good potential. A buyer is looking for potential. Too many sellers want to be paid for potential but that’s the reason why the buyer is buying the business and is only willing to pay a fair price. The buyer is the one that will do all the work to take advantage of the potential; not have to pay the seller for it when they buy it.
5. Don’t forget the Golden Rule
The Golden Rule is – put yourself in the shoes of the other party. If you’re talking to your buyer, try to understand what’s important to them. If you are discussing your lease with your landlord, work out what’s important to them. And so it goes. Lenders, business brokers, franchisors (if applicable) attorneys, accountants and others all have a role to play. Even family members. Selling a business is not an easy event at the best of times. It’s even more difficult in a tough economy, if finance is tight, if key players have health issues and many other variables. Hence the value in hiring a professional you trust so to help guide you and keep all the moving parts lined up and managed.
If you would like more information about selling your business, visit my website; http://www.Andrew-Rogerson.com and order a copy of my book Successfully Sell Your Business: Expert Advice from a Business Broker.
By: Andrew Rogerson
