Archive for category: What Buyers Need to Know

While confidentiality is the name of the game before a sale, openness and transparency are the watchwords once a sale is finalized. In this article we’re going to speak about what buyers need to accomplish in their first meeting with team members.

Meet in Person

Do not call employees over the weekend to “prepare” them for a Monday meeting. This will start a game of telephone that may end up with no one showing up on Monday. Make sure that you meet in person so that these team members can get to know you in person. 

Bring Food

Food makes so many events in our lives better and more memorable. A change of business ownership is certainly an event worthy of food. Find out from the seller what some popular food items have been in the past or what company traditions are regarding food. 

Explain the Continuity

Sometimes sellers arrange for the sale to be a complete exit with no transition, but that’s pretty rare. Usually the old owner is around the business in one form or another for at least 90 days. 

This meeting offers an opportunity for a feel-good “same team” moment in which the former owner mentions:

• his/her ongoing availability (when is the last day of transition, if relevant)
• positive traits of the new owner (underline that this was just as much the seller’s choice as it was the buyer’s)
• excitement about what’s to come (the seller should coordinate with the owner and mention what one or two positive changes that might be coming down the pike)

The former owner also needs to signal a changing of the guard and that decisions now need to be run by the new owner. This will take some getting used to!

This is also a chance for the new owner to return the favor. Talk about:

• what was attractive about the business in the first place
• what led to pursuing a transaction
• any interesting discoveries during the diligence and closing process

The new owners shouldn’t be afraid to lavish praise on the company and the team. There will be plenty of time to get back to work, but this is a moment to pause and celebrate. Not all businesses are worthy of a sale, and the compliment paid to the whole team in an acquisition should be driven home.

Share Enthusiasm

One of the positive changes that a new owner can offer is a pay raise. While this may not always be possible, even a very small raise would still symbolize a positive change and make sure employees realize from the start that their livelihoods are not in danger. This could also be tied together with letting everyone know that there will be a retention bonus for all who stay up to a certain date. Those bonuses can be settled in individual private meetings.

Ask for Feedback

Also prepare employees for those private meetings by letting them know you’re going to be asking them for frank feedback. What should the company stop doing? What should it start doing? How do employees see their future with the company in the short and medium term?

Apart from things related to the company, employees should be prepared to share their own personal and professional goals. This will give both the new owner and the employee a chance to see whether there’s any synergy between things that an employee is pursuing personally that might find an outlet professionally.

For example, if someone is working on being a better public speaker, could that same employee be given more opportunities to speak publicly for the company in given situations? If an employee is passionate about a particular local charity, is there a chance for that charity to offer a volunteering event for the company in general? Just because something hasn’t been done before shouldn’t rule out possibilities in the “new” company.

One of the most important aspects of any successful business is the quality of its employees. Since they probably know nothing about the new owner, this is the perfect opportunity to make a great impression on every level. Don’t ruin your first chance to make a great impression.

We’ve actually been present at a few of these meetings and can help you make yours great. Ask us how.

We’ve discussed questions buyers need to ask themselves before buying a business and we’ve also talked about three things that can help buyers make a great start after they buy a business. Today we’re going to talk about the qualities of a qualified buyer. The more of these you have, the higher your chances of being successful in business ownership.

An Entrepreneurial Spirit

You don’t have to have owned a business before or even run lemonade stands when you were a kid. Entrepreneurial spirit is about questioning the status quo (could this be better?), seeking growth and understanding (not just continuing education that you have to do, but general enrichment that you choose to do), and taking on challenges and opportunities (always being open to doing something new).

An entrepreneurial spirit, even if you’ve never been an “entrepreneur,” is key to business ownership.

A Management Background

You don’t need to have managed teams of hundreds or dozens of individuals. Even managing a handful or one person will open you up to the challenges of communicating with a different person, taking into account his/her personality, working style, and level of motivation.

Those who “don’t like managing people” won’t do well in business ownership.

A Willingness to Lead

Not every leader seeks out leadership. Cincinnatus famously was working on his small farm when he was appointed dictator to help rescue Rome. He defeated the enemy in a single day, celebrated a triumph in Rome, then went home to farming. He didn’t seek leadership, but when it came to him, he embraced it (and saved Rome).

Many consider themselves “reluctant” leaders. That’s okay; business ownership will give you the opportunity to put that reluctance aside and embrace the personal growth that comes from exercising your leadership muscles.

An Ability to Look at a Broad Range of Activities

A day/month/quarter/year of a business owner has regular cycles of things that will require knowledge and expertise you may have to develop.

Perhaps you’ve never looked forensically at books and budgets before. Or you’ve never iterated through a marketing and PR campaign for a business. Or examined SaaS products to see which has the best value for your business. Or run payroll. Or managed vendors.

You’ll have to do at least some of these activities as a business owner, and that means in some cases you’ll be starting from scratch. Bring humility and a student’s attitude of “always be learning” and you’ll be fine.

Support from Your People

Sometimes you’ll have opposition to business ownership from some people in your life, and that’s healthy to an extent. You need people pushing back so you can better articulate your reasons for buying a business. But if you have opposition from a spouse, for example, that’s a red flag.

Get signoff for your major life decision of buying a business from the people who are major in your life.

Comfort with Making Decisions with Incomplete Information

While some people can make decisions before they’re even asked, and others need all of the research possible and then years to ponder that info, business owners are often in between those extremes. They will be asked to make decisions and will be given some time to make them, but they often will not have all the information they would like, sometimes because it’s not available (“Will this marketing campaign work?”).

Business owners already have, or are open to acquiring, the ability to make decisions when needed, knowing that sometimes the wrong decision will be made, and out of that should come a lesson, not regret.

Knowledge of Industry

Of all the ones we’ve listed above, this is the least necessary, but it would be foolish for us to say that industry knowledge isn’t a major advantage, if you have it. The only caution we have here goes back to the idea of continuing ed and a student’s mind. Don’t ever get complacent about “what you know” and be open to the fact that there are things you don’t, even in an industry you may have worked in for decades.

If you like what you read here and want to listen to a podcast discussion on qualified buyers, you can find that here. If you have several of these qualities, we’ve got businesses you should take a look at. Give us a call.

Sometimes a business owner isn’t interested in selling his/her entire business, but for various reasons is open to selling a portion.  While a lot of the rules and processes for a regular “entire” business transaction remain the same, a few key aspects are unique to a partial business purchase and we’ll examine them in this article.

Why Buy Part of a Business?

There are reasons for both buyers and sellers to buy part of a business.

Sellers may:

• Need financing (they haven’t cultivated a good relationship with a banker or don’t qualify for alternative financing)
• Want a strategic partner (they need your area of expertise in the business and are having difficulties hiring for it)
• Want a graduated exit plan (they consider the best way to sell their business is to someone slowly, over time)

Buyers may:

• Want a de-risked entry into a business (they like the “try before you buy” aspect of buying a portion of a business)
• Want to learn a business before buying it in full (a more technical or complicated business might require a bit more of a learning curve)
• Not have the means to buy the entire business (even with seller financing the entire purchase price may be slightly out of reach)

How to Buy Part of a Business

When buying part of a business you’re going to go through the same LOI or Offer to Purchase process.  The first difference will be in the amount of the business you are buying.  Instead of buying the entire business, you will be buying a specified portion, usually in the form of stock in the seller’s company.

The two most important aspects of the document buyer and seller will sign are the buyout clause and the rights of the buyer.

Buyout Clause

When only buying part of a business you must spell out the conditions by which you may purchase the rest of the business or by which you may sell the portion of the business you already own.  You will likely have used a valuation process to determine the share of the business you are currently buying.  Will that same valuation process be used at the time of the next purchase?  What timeline will be used to buy the rest of the company?  What flexibility will be incorporated into the timeline?

Rights of the Buyer

This aspect will be primarily determined by the reason(s) the seller has agreed to sell a portion of the business to you.  Were you brought on just as a financial partner, essentially silent?  In that case, you might only have rights to see financials at certain times of the year.  Were you brought on as a true business partner, with decision making power?  If so, how is that decision making power spelled out in relation to your ownership share?  Be as detailed and explicit as possible, covering every scenario you can imagine.

Final Thoughts

Buying part of a business can be a great opportunity to buy into a business with a lower upfront cost of capital while delivering an “on the job” learning experience to help you be a very strong owner when you do take over the business.  But this can only happen if you’ve spelled out your role and your rights in the transaction document.  Needless to say, this isn’t something you should take on your own.  A broker (cough cough) can help you stay objective and focus on what you want and what is possible, making sure the two meet on the dotted line.

We don’t often sell parts of businesses, but if this is a scenario you are contemplating, we have the expertise to assist.  Give us a call!

We continue to encourage our clients to look uncertainty in the face and move forward with plans to buy and sell a business in 2021.  But one of the new categories of business that people are asking us about are “essential” businesses, who did not have a “bad” year in 2020, but quite possibly their best ever.  In this article we’ll talk about a few of those business types.

2021 Essential Businesses to Buy and Sell

These businesses are in demand and as such may fetch a premium in the marketplace, but don’t discount the fact that there are always owners who are ready to get out, even after having a record-breaking year.  They are just looking for the right buyers.

Healthcare

This is the most obvious “pandemic proof” business.  In fact, it’s not just pandemic proof, it fits Nicholas Nassim Taleb’s classic definition of “antifragile” – something that improves when faced with a challenge.  Both clinical and non-clinical businesses in this field are doing well and even with the end of the pandemic in sight, there will still be plenty of opportunity in this sector even when the masks come off.

Tech

Not all tech businesses have been as fortunate as Zoom.  For perspective, this time last year Zoom was averaging around 10 million daily participants.  Today that’s around 350 million.  Its company revenue is four times what it was in 2019.  But if you’re in a tech business that is supporting remote work and learning, as Zoom does, it’s a very good time for you.  

This is because habits have been so quickly and dramatically altered that new models and ways of interacting have been created that these tech businesses will need to support long after a pandemic is over.

Real Estate

As workers were told they were allowed to work remotely for a short time, then indefinitely, we’ve been witness to a “great migration” that hasn’t been seen in America in generations.  Obviously realtors are enjoying this, but any business that supports a movement of people and their goods, like home contractors, HVAC, electrical, or moving companies, are also riding this wave.

Recurring Revenue

As people started trimming expenses to adapt to changing conditions, many businesses adapted their pricing to match.  Instead of requiring a large annual payment for a subscription or fee, companies started offering a monthly subscription where they previously had not.  Others chose to create new subscription models for their businesses as John Warrilow champions in The Automatic Customer.  In “normal” times buyers love to see consistent recurring revenue.  That revenue looks even sweeter in “bad” times.

We are working with buyers and sellers in every single one of these categories.  If you’re serious about moving forward with your life in 2021, give us a call!

We’ve seen a lot this year. We’ve seen businesses thrive and have some of their best years ever. We’ve also seen businesses go under and deals fall apart. But, we’ve also had deals move on just as usual, albeit a bit more slowly due to extra diligence from the banks. But as the year comes to a close there might be some owners who are feeling particular pressure to sell now and some buyers in the market looking for a particularly good opportunity. In this article we’ll discuss a few things for buyers to keep in mind.

What’s the Distress?

All businesses faced a new landscape in March 2020, even if they were a company that could continue doing business. Their vendors and customers may not have been in the same position. Some businesses may have already been in some distress prior to the lockdowns, and the changed landscape simply made things worse. So, a drop in sales is not the only thing you want to examine as you’re exploring a purchase of a distressed business. 

You’ll also want to see if there are:

• Any ongoing debt issues. Does the company need cycles of financing that has put it into a poor financial position pre-Covid?
• Any legal issues. Does the company have any liens or cases pending?
• Payroll problems. Did the company receive an EIDL or PPP loan? Will it be forgiven? Are there payroll issues that PPP did not solve or were systemic prior to March 2020?
• Any staff issues. Some key management and personnel may have had to leave in the last eight months. Are the right people in place to keep the business functional?

What Can You Do?

You need to have a strategy in place. It’s not enough to simply covet “a good deal” on a business during this time period. You need to think about what you bring to the situation.

Examples include:

• Can you do better than the current ownership?  
• Do you want to strip it down to essentials and possibly run that form of the business? 
• Do you want to simply buy the assets and add them to your current business?  

You should think about a distressed business the same way you might when buying anything that you weren’t particularly in the market for, say a piece of clothing that’s on sale:

• It’s not the color or fabric you want (this isn’t necessarily the business or industry you were considering). But, it has a brand and employees.
• It has a nick or two (things aren’t exactly as you would like them to be). But, the business has customers and some cash flow.
• It’s not the time of year for this item (you were maybe thinking of buying later next year). But, there’s an opportunity right now.  

Bring in your accountant and other members of your inner circle to look at the books and the opportunity to make sure you stay level headed and take on something that really makes sense, not just something financially attractive. The more coherent a plan you have that clearly states what you are going to do with the business, the better chances you have that such a plan would actually work.   

Financing

Unfortunately this is not going to be something you can get SBA funding for.

You’ve got three options if you don’t have the cash on hand to make the purchase outright:

1. Talk to the seller’s lender (if they have one). Find out if they are willing to work with you. You’re going to need to tell them what your strategy is.
2. Talk to your lender. Explain the situation and see if they are willing to give you a loan; they may be willing to put a lien on hard assets as collateral. This is yet another situation in which a quality banking relationship can come in handy.
3. Explore asset-based lending. This is the most expensive type of financing you’ll find, similar to some of the fintech solutions we’ve discussed in the past, but these types of lenders do deals all the time and might offer you something that works into your plan.

We’ve got all sorts of businesses available at the moment.  Whatever you are looking for, give us a call and let us help you find it.