Time to Get Going:

Opportunity Knocks!

by Glen Cooper, CBI, CBA, BVAL

Vice President, New Hampshire Business Sales, Inc. & President, Maine Business Brokers

Adapted from the Fall 2008 issue of Business Buying & Selling

The quarterly newsletter of Maine Business Brokers

 Uncertainty creates opportunity. Times like these create tomorrow’s business legends.

      Today’s global changes in telecommunications, science, economics and politics are overwhelming. People around the globe are seeking new ways to cope with these changes. We are right in the middle of the mess that will be tomorrow’s “best thing that could have happened to us.”

      For those of us who are entrepreneurs, these are exciting times.

 And we are in America!

When I really take stock of what I have in life, I remember that I can’t complain – I get to live in America!

      Okay, I’ll admit: we have our problems. Well, actually, I would be bored if we didn’t.

      The United States, however, is still the greatest home for our investments. America is as physically, socially, politically and economically safe as anywhere else on earth. Other places may be shaky, but things still work here. We also have a great lifestyle. Who in the world doesn’t want to have what we have?

      Owning our own small business is also the best kind of investment. First, WE are in control. Second, owning our own business is the single best way to shelter income from excessive taxes, precisely BECAUSE we are in control. Maybe the best thing about owning a small business is that it is an invigorating and growth-producing experience. Yes, small business ownership is hard work. But that’s good. Because it is hard, it makes us tough.

A Once-in-a-Lifetime Market!

It is, in fact, a great time to sell OR buy.

      “How could it possibly be both a great time to sell AND a great time to buy?” you ask. Am I nuts? No, I’m a little creative sometimes, but not nuts. This really is a once-in-a-lifetime business buying and selling market.

      Today’s unique population demographics, fast-paced telecommunications, scientific advances and temporary chaos of world financial markets are all combining at once to create this one-of-a-kind market situation.

      Precisely because most people hesitate to act in a time of uncertainty, it is the ideal time to make our move, to become a leader in our field. People follow leaders. This situation offers a unique opportunity for each of us to lead the way in whatever we do.

       It’s a great time to sell IF it’s our time to do so, or if we need to sell in order to buy something else. It’s a great time to buy IF we can. So, within that context, it’s both a sellers’ and buyers’ market!

  Time to Sell?

      If it’s our time to sell, now is a good time because capital gains tax rates – now and in the near term future – are likely to remain low, or get even lower, for small businesses. They ARE low right now. Both major political parties have also indicated they favor further capital gains tax reductions for small businesses in the future. The definition of a small business differs, but it often is set at “under 50 employees.” That’s about 95% of all businesses in the U.S.

      A second reason it’s a good time to sell is that third party financing (from banks and other lenders) is still available at low interest rates and on pretty creative terms. This unsettled banking environment will bring out more alternatives, not fewer. Just watch and see!

      A third reason it’s a sellers’ market is that the hesitant sellers have withdrawn from the market, lessening the number of competing businesses for sale. Many sellers pull back in times like these, even though there really isn’t a good reason to do so.

      Finally, if our sales are up in this down economy, we will get extra amounts of buyer attention. Most businesses are experiencing a sales downturn, so the ones that are stable or growing are getting second and third “looks” by motivated buyers.

Time to Buy?

      If we are potential business buyers, there are businesses to buy that are bargains right now. It’s a great time to take that second or third “look,” especially at businesses whose sales and profits are temporarily down. Some business owners simply must sell and can’t wait. In that circumstance, most sellers will offer reasonable prices and generous seller financing.

      When available seller financing is combined with still-available loans at still-low lending rates from third parties, the resulting down payment requirement and loan package combination can be quite favorable. Lenders actually get more creative when times are tough, especially for well-qualified buyers.

      Finally, differences in technological and/or business savvy between a seller and a buyer can often create an opportunity for the buyer. Today’s rapid changes and generational differences contribute to this current phenomenon. The seller may not see a particular opportunity at all, or simply may be unwilling to pursue it.

      Many sellers, for example, just don’t want to computerize their businesses or develop a marketing strategy that involves using the Internet in what is being called “social media networking.” There are many businesses that can be re-invented and grown quickly with better use of today’s technology.

We Have More Power Today

When the system is broken, we actually have more power. That doesn’t seem intuitively correct, but it is. Let me explain.

      We are witnessing vast changes in the variables I mentioned in the first paragraph of this article – telecommunications, science, economics and politics. Nothing is likely to stop these changes because they are worldwide, interconnected and growing geometrically.

      These changes are bringing more power to each of us as individuals, no matter what else happens. A single individual can now be heard worldwide. That applies to our businesses as well.

      For the first time in human history, the whole world is linked by instant voice and visual communications. And, the most commonly shared language, lucky for us, is increasingly English! Whew! For example, did you know that there are more people in China who speak English than in the U.S.?

      Think about that for a moment. It’s scary and thrilling at the same time.

      This is just one example – albeit a major one – that predicts major economic change in our favor. From an entrepreneur’s point of view, new markets are forming!

      People from all over the globe – even though there may only be a few in any one physical location – can now get just about anything they want from an entrepreneur willing to supply their unique and special needs. Many small businesses – even very small ones – already serve worldwide specialty markets.

      That’s the power I’m talking about.

A Tipping Point?

Many people have read – or at least heard of – Malcolm Gladwell’s The Tipping Point, a well-reviewed book published in 2000. In it, he defines tipping points as “the levels at which momentum for change becomes unstoppable.” He says it’s a sociological term meaning “the moment of critical mass, the threshold, the boiling point.”

      In so many ways and in so many different fields, the changes we are witnessing are creating multiple and cascading tipping points. This is why it’s time for leaders in every field of endeavor to move forward.

      If it’s our time to sell, we should, by all means, move forward without hesitation. The buyers are there. The financing solutions are still there. The next chapter of our life beckons!

      If it’s our time to buy, the opportunities are everywhere.

      Because we now can talk to each other worldwide, maybe we can forge worldwide solutions that prevent the very large problems we seem to face.

      Because we are making unbelievable advances in biotechnology, maybe we can cure, heal and otherwise fix things we never before thought we could.

      In a world financial crisis, we may find our way to essential reform of the system.

      In our current national election, we may really get some long-needed changes.

      Not all change is good, of course. It never will be. But change is now coming faster and faster worldwide. We don’t have any choice about it.

      In the meantime, let us continue celebrate our American blessings by actively choosing to do something. We need to go ahead and take that next step now. It’s NOT time to hesitate. Opportunity is everywhere you look. It’s time to get going.

Every once in awhile we have a real disconnect with a would be seller. We work for sellers,and they become our clients when we accept an assignment to sell their businesses. But we are not mind readers,or magicians.

If you want us to help you exit your business, and realize a fair return on your investment, you have to give us the information we need to do the job. You also have to have your business ready to sell. Additionally you have to trust and communicate with us as changes occur in your situation.

That means that you have to have financial records that we can understand, you have to know and tell us what you have for assets, like equipment and fixtures as well as accounts, customer lists, and any other things of value, both tangible and intangible. Most importantly you also have to own up to problems, so we can figure out how to deal with them. I have to read the auction notices in the paper every Thursday, because every once in awhile I run into an ad for a foreclosure auction on a property where a client has told me they are up to date with mortgage payments.

Problems are going to come out during a buyers due diligence. If they have been hidden then the buyer is not going to trust us or the seller and 9 times out of 10 the sale will crash. If problems are disclosed, explained and dealt with up front, they often become non-issues, or can be dealt with effectively, and we can still have a sale.

We expect sellers to put the best possible spin on their business when they tell us about it. That is good, because it helps us figure out how to best present it in the marketplace. But it also has to be honest and realistic.

I recently sat in a store talking to the owner and asked him for the value of his inventory. He claimed he had $150,000 worth in a store where it was obvious that there was no more than $25,000 or $30,000 worth. There are no tax returns, or QuickBooks, or any other financial records to verify the level of the booming business he claims. How can we ever convince a buyer to even look at that business? For that matter, how can I trust what he tells me and repeat it to customers without risking my own reputation?

If you are planning to sell, ask yourself “what would I want to see for information about this business if I was looking to buy it?” We need at least that much information and will probably ask for a lot more.

Also, just to repeat a frequent offer we make, if you are like most small business owners and don’t really know how to prepare a business for sale, call us to help. Plan ahead, you are not going to want to, or be able to, run the business forever. Let us help you figure out what you need to do well in advance of your need to exit the business so that we can put it on the market in the best possible light when the time comes.

One of the items we have to negotiate in almost all purchase and sale agreements is the seller assistance terms. In many very small business cases this will be a two week period, and often the buyer wants the seller to leave before the two weeks are up. However in any substantial business transition the seller involvement is a very serious concern.

The following article from the International Business Brokers Association covers the subject very well, so I have just included it in total.

Selling a business and walking away can be very difficult. But in many cases, there’s a transition (“training” and/or “consulting”) period dependent on the size of the company and the role of the owner. Transitions may be as short as a month or two or as long as a year. In most situations, the buyer wants the seller to remain on board to shorten the learning curve and help with the smooth transfer of key relationships.

In the typical business sale, a transition period of four to eight weeks is included, and sometimes a “telephone consulting period” is added (e.g., 6 months of telephone consulting not to exceed 5 hours per month). Also, the seller may additionally be retained as a consultant at a negotiated rate. In some instances, a long-term employment contract is negotiated and the seller maintains daily involvement for a much longer period of time.

For the owner who wants to sell the company and leave quickly, the focus should be on the development of a strong management team. Be sure to introduce key employees/managers to your major customers and vendors and look at ways to delegate responsibilities. The more the customers think they are interacting with “the company” versus the “owner” the easier the transition.

If you’ve established a good management team, less time will be required for the transition to the new owner. In addition, a well developed team usually adds value to the sale.

Occasionally there are owners who want to sell but just aren’t ready to quit working. They may be looking to sell early to get a premium price while the market is in their favor or to get away from unwanted or overwhelming administrative and management duties.

Either way, long-term employment contracts can be included in the sale agreement. The seller can stay on board and work with the business a few more years while still drawing an income and benefits.

If you’re selling your business, in most cases you won’t be able to walk away the day after the sale and in most cases you probably don’t want to. Talk to your business intermediary about the true timeline of the sale and transition. If you want to sell while the price is right, but you’re not quite ready to leave immediately, consider the options available to sell now and maintain a role with the company.

The International Business Brokers Association® is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of a business brokerage and mergers and acquisitions. IBBA® has 1,950 members worldwide, with corporate headquarters in Chicago, Illinois.

©2007 International Business Brokers Association® (IBBA®) all rights reserved

Permission to reuse any or all of this material should be directed to the IBBA at 888-686-4442 and is restricted to IBBA members.

One of the unique services we provide, as Business Brokers, is an intermediary negotiating “service”.

I choose the term “service” because what we do is usually not done for our own interest, but for our clients and customers.

Most people are familiar with some of the aspects of negotiation. We have all been subjected to the exhortations to always try to establish win-win situations. If you think of those instructions you have seen or heard in the past they are usually written from the point of view of a principle beneficiary of the negotiation.

A Business Brokers role is to analyze the situation from a third party viewpoint, and suggest to both parties ways to attain the “win-win” outcome everybody wants, (Keeping our own clients interests clearly in mind!). That is why we are called “Business Intermediaries”.

We make sure all parties to a negotiation understand the issues. We have to be sensitive to the communication process and understand the facts, laws and regulations, and desires and objectives of each party to a negotiation.

We have to explain to each party what is possible, and help each party establish reasonable objectives.

And in some cases we have to understand when there is no further possibility of coming to any successful conclusion of the issues being negotiated, and gracefully tell the parties that they are too far apart to make a deal, and help terminate the expenditure of time and effort on something that is not going to work.

When things go the way we always try to have them go we end up with satisfied parties on both sides.

There is a great deal of satisfaction in being able to walk out of a closing with both the buyers and sellers satisfied with the outcome.

One of the really significant problems with our business is that sellers wait too long to call us.

Small business owners are mostly people like us who work long hours and have a lot of pending things to do on their wish lists. Long range planning and exit strategy planning usually gets put down the list a ways.

BUT - The appropriate time to start planning for the sale of a business is when you buy or start it! And if you didn’t start planning then, any time now is not too late to start.

Particularly if your books are not in order, start keeping good records three years before you want to sell, if you want to be able to get out with bank financing for a buyer so you don’t have to finance the sale.

There are a lot of other things to check on that can really hurt you if you wait too long to deal with them. Little things like making sure your Trade name is properly registered, or that your LLC or Corporate annual reports have been properly filed with the Secretary of State.

We recently had a meeting with a good business lawyer who is offering a pre-sale audit to make sure that the things buyers lawyers will be looking for are in order before you get into the due diligence phase with a buyer and turn up something for them to use as a negotiating point to cost you money or time. We would be happy to give you a reference to him.

We like to talk with potential sellers well before they run into any one of the many things that cause a need to sell. We like to have the time to do a thorough review of the situation and come up with recommendations that would make a business sell for a higher price, and on better terms. We normally don’t charge you anything to do that but ask that you take the time to talk with us and show us your records.

As an additional benefit sometimes we are dealing with customers having a hard time to find something to buy, and may be able to bring you a buyer without your having to be put on the market for sale. That doesn’t happen often, but when it does, the deal usually involves a higher value for the sale.

If we can establish a relationship of mutual trust with a Seller well in advance of the need to sell, we are more confident of our ability to make a sale. Many businesses are not salable, or cannot bring the value they should, because of things that don’t seem important to sellers, but are very important to buyers and their accountants and lawyers. Often in a rush to bring a new listing to market, we will not find out about such problems until we, and the would-be seller, have put a lot of effort into marketing the business. Such things can easily kill a deal.

Call us for a visit, well in advance of your need to sell. And remember, the need to sell is often caused by unplanned events, like a death, divorce, or illness; all events that can significantly change a long range plan, and preclude adequate time to “get things in order”.

Membership in the International Business Brokers Association provides us with a variety of resources. The following article is from a group they have written for us to share about the selling process. It is too good not to share in it’s entirety. As a company of Business Intermediaries we sure hope that if you have a business to sell you will follow the advice in the last paragraph and engage us to be a part of your team. If you engage us early in the process we can help point out some of the things you can do in the different categories mentioned below.

Adding Value to Your Business

If you’re looking to sell a business, it’s critical to look at the value of the business. But a typical business really has two values. The “academic” value is the one determined by a professional business valuation. The other is the “true market” value. The academic value is arrived at with a formula based on the firms’ hard assets, cash flow, industry averages and multiples. The fair market value also takes those items into consideration, but then considers what buyers are really willing to pay.

For many small and mid-sized businesses hard assets like equipment, vehicles, land, buildings, and inventory may be limited. For some small businesses there may be no hard assets at all. Instead, their value is based on intangibles like employees, business processes, customer lists, location and business relationships.

To maximize the fair market value of your business, it’s vital that you capitalize on those intangible assets.

Develop key employees. Buyers generally aren’t interested in paying a premium if the business relies on you for its success. Remember to delegate responsibility to key employees and involve your key staff members in the decision making process. Demonstrating that your company’s success is reliant on your capable, well-trained employees – not just you – will pay off at the time of sale.

Document what you do. Be sure that job descriptions, operation processes, and strategic plans are documented. Documented records and plans give a buyer greater comfort that he or she will be able to emulate your successful growth and will help your buyer obtain financing. Also, be sure to keep business records like sales and expense reports, internal profit and loss statements/balance sheet, and tax returns clean and well-organized.

Build relationships. Name recognition, customer awareness and your reputation are all part of your business value. Even if your company doesn’t have many hard assets, your relationships are key. Consider diversifying both supplier and customer accounts.

Improve cash flows. A potential buyer wants to see the “true cash flow.” And, of course, in the business world cash is king. Be sure you are driving all income to the bottom line.

Review your assets. Sell off or dispose of unproductive assets or unsalable inventory. Remove or buy off any assets that are primarily for your personal use.

Find and build your niche. You don’t have to be everything to everyone. Buyers will pay a premium for a niche that has barriers to competitive entry.

Remodel, clean, and organize. What’s the first thing anyone does when they put their home on the market? They spruce things up and make sure everything is in its right place. Yet, in business, that’s rarely considered. A well-maintained facility will get the best price. Even businesses that lease space can benefit from a thorough cleaning and organization to convey a feeling of quality and efficiency.

Keep these important intangible assets in mind if you’re looking to sell your business. They convey a value that financial statements alone do not. If you are looking to sell, make a plan. Start working on the intangibles well in advance of putting your business on the market. For many business owners, they reach a point where they burn out and psychologically retire early, before a sale is made. It’s important to work to keep your focus right until the sale is complete.

Finally, when the time to put your business on the market arrives, consider lining up key specialists who will help you make the most of the sale – an attorney, an accountant, and a business intermediary to name a few. Remember, you only have one chance to sell your business, so you want to do it right.

A CBI is a Certified Business Intermediary. This designation is a professional credential earned by Business Brokers who are members of the International Business Brokers Association. They have to pass a rigorous course of 60 credit hours of classes, attend IBBA Conferences for professional development, demonstrate experience, and pass a difficult exam, and pledge to uphold the Association Code of Ethic’s to earn the designation. It is also not a “lifetime” award. It has to be re-earned thru course work and other professional activities every three years.

When choosing a Business Brokerage look for one that has leaders who hold the CBI designation. They can provide the leadership, organization and training for their organizations to provide you with the best service.

Simple answer - Because we are worth it! All our fees are negotiable, but we have a range that is acceptable to us. It is considerably higher than real estate commissions in most cases.

Selling businesses is complex. It requires attention to a lot of details. Selling businesses takes a long time and that leads to a lot of advertising and overhead. (Times range from 6 months to several years, with many measured in years.)

Sellers want things done confidentially, so we have to sell the businesses without identifying them or giving customers enough information initially to be able to really identify the opportunity. Often a buyer may be located almost next door, but confidentiality keeps them from learning of the opportunity.

Qualifying customers, handling showings, getting offers from the customers, and dealing with lawyers, accountants and bankers is often a real challenge. We often have to resell an opportunity several times in the course of getting from offer to closing, as buyers get cold feet, or discover things sellers hadn’t disclosed, or after the buyers get turned down for financing and have to be convinced to try again.

And after all our work a significant percentage of businesses never sell, often because sellers don’t tell us everything that is going on in the business, or because of market forces being against us.

In the final analysis, if you are a seller we earn our commission, by acting as the intermediary and handling the negotiation of offers, but also because of all the time and effort we save you from having to do advertising, screening and qualifying customers, negotiations, financing arrangements, sales details with the buyers, and dealing with the buyers lawyers concerns.

Frankly, for small deals even our minimum commission is not enough, but we do them to keep the cash flowing, and we don’t negotiate our minimum commission.