Tuesday 26 March 2013

Too many personal expenses will impact credibility

Burying your personal expenses so deep in your corporate statements will make it difficult to find for everyone…. including the bank and business buyers.

You’re not alone, minimizing tax liability is a strategy all business owners think about.

When it comes time to obtain financing or sell the business, buried personal expenses and assets can create a problem in determining the true cash flow.

Consider a recent seller who watched as countless qualified buyers walked away from their interest into his business when they discovered personal Brazilian courier expenses in his local retail hardware store.

Imagine how suspicious buyers became when they discovered a large local printer described her many Meals and Entertainment Expenses as personal in nature despite playing a large front-line role in the sales of the corporation.

Buyers and bankers won’t always give credit to many of these items. As a result, the cash flow can be suspect, and when you apply a multiplier to determine the value of the business, the results can be disappointing.

Plus, the underlying credibility of the seller may be jeopardized which can derail an agreement with a buyer before the train ever leaves the station.

 It is in the best interest of the business owner to show a healthy bottom line and minimize the burying of personal expenses in the years preceding the sale of their business. They will find they’ll improve the likelihood of selling at the highest price and improve the probability of a successful transfer.

Do you have a small business question you would like answered about this article or others?
Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.

 

Tuesday 19 March 2013

Get Your Credit Report Before You Buy

Many have felt the desire to do something entrepreneurial. Few prospective business buyers take the time to map out a plan that will improve the probabilities of a successful business transfer.

By purchasing an existing business you can dramatically increase your chances of success.   Existing businesses have a proven track record of profits, they may have a well-known brand, name, location, product mix, etc., and an established customer base for immediate cash flow. 

If you are considering a decision is to buy a business you will need to take an honest inventory of their skills, knowledge and interests. You need to truthfully catalogue skills and talents that can be incorporated into a business.

Plus, you will need to know how much money you are prepared to invest and how much you expect to make. Typically, these two amounts are directly related to one another.

Part of this exercise is getting a solid understanding of your credit score. Whether your eventual purchase includes all cash, Vendor financing or Third Party financing your credit report will inevitably be requested. Knowing ahead of time the information is accurate can make or break a business transaction.

A recent article in the Windsor Star by Ellen Van Wageningen http://www.windsorstar.com/Check+your+money+report+before+others/8073031/story.html provides some great insight and information to consider before you buy a business.

At this point, don’t be too concerned if you’re unable to identify exactly what type of business you’re looking for. The more focused and realistic you are in your personal review, the more attentive you can be in identifying attractive business opportunities and eliminating businesses you’re not interested in.

Having a plan for executing a successful business transfer will help you stay on track, allow you to dedicate the time and energy necessary, and get you a successful business that is ideal for you. 

Do you have a small business question you would like answered about this article or others?
Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.

 

Tuesday 12 March 2013

Time to Revise the Business Plan... Again!

The days of the 5 and 10 year business plans are long over.

In today’s business climate everything is changing at such a fast pace.  Business owners need to review their plan to determine what has already changed and forecast what could change – competition, technology, demand for the product or service of the business, etc. 

The typical business plan will include many of the following categories:

¨  Vision and Mission Statements
¨  Market Analysis
¨  Marketing/Sales Strategy
¨  Competitor Analysis
¨  Financial Plan
¨  Budget
¨  Timelines
¨  Business Model
¨  Industry Analysis
¨  Trends Analysis
¨  Action Plan
¨  Executive Summary
¨  Milestones

However, before you begin, I would suggest you challenge yourself to address the following questions and you will find the rest of your plan will become crystal clear by its conclusion:

1.    What burning need does your business resolve for your customers?

2.    What would you have to change to double your number of customers?

3.    What makes your product/service different compared to your strongest competitors?

4.    What are you doing to make your business less dependent on you personally?

5.    What are the market opportunities/threats for the Business?

6.    Who are the key employees in your business and what are you doing to find more like them?

Plans must be updated and must be realistic for the foreseeable future.  Start today and set a deadline to complete.  Business owners find that investing in strategic planning not only improves their management practices, it can improve the desirability and value of their business as well.

Do you have a small business question you would like answered about this article or others?
Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.

 

Tuesday 5 March 2013

How the Sale of a Business Can Go Off the Rails

Some business sales unravel because of the seller, others because of the buyer and even more due to third parties. The reasons are numerous—but most can be resolved

Like many negotiations in life, business transactions require a willingness to consider the other party’s concerns. If there is no sincere motivation on the part of both the buyer and seller of a business the likelihood that it will fail increases dramatically. There are a number of reasons why. 

Sellers may be the cause…

Some sellers do not have a reason to sell and are merely testing the waters to see if anyone would purchase their business and at what price. Because they are not legitimately interested in selling, they’re not willing to consider the buyer’s concerns or to be flexible enough to overcome the many complexities involved in the transaction.

Even when owners are motivated to sell, there can be problems if they are unrealistic about the value of their business or don’t want to offer seller financing. In either case, credible and legitimate buyers will be lost instantaneously. Unfortunately, some business brokers add fuel to the seller’s cause by sharing with them unreasonable expectations, often in an effort to secure a large upfront non-refundable fee.

Some sellers fail to be honest about their business or its situation. They will misrepresent the financial condition of the business or may not disclose the real reason for selling. Even if the error is not intentional, the sudden appearance of inaccurate information can scare off the most sincere buyer.

If you are a seller:
  • Be open, honest and accurate about all things, both good and bad.
  • Be prepared with financial documents that are up-to-date and accurate.
  • Be ready to articulate your reason for selling. Be honest and hopefully not urgent.
  • Get legal commitments in order, such as leases, permits, and contracts.
  • Get an objective, impersonal review of your business and its market value
Buyers may be the cause…

Buyers often exhibit many of these same tendencies. They may have unrealistic expectations regarding the price of a business. Or they may have an urgent “need” to get a business but lack the courage to take the leap of faith necessary to go through with the acquisition.

Some buyers have experienced a recent financial setback that impacts their ability to meet their financial obligation as part of the deal. I faced this situation recently when a large deal fell apart after the buyer was unexpectedly served with divorce papers.

If you are a buyer:
  • Be open and honest about your skills and competencies.
  • Create a personal financial statement and understand your current financial standing.
  • Get comfortable with the amount of investment you’re willing to make, and stay within your financial risk tolerance.
  • Share your acquisition intentions with your personal stakeholders before you start looking.
Third parties may be the cause…

Outside influences can also hamper the successful transfer of a business. Landlords may become difficult to deal with when it comes time to transfer a lease or grant a new one. This happened this past summer when a landlord wanted to significantly alter a longstanding lease of a buyer who wouldn’t stand for it. 

Sometimes, both buyers and sellers receive overly aggressive advice from outside advisors. Advisors should always work toward the goal of putting the deal together, not erect roadblocks to derail it. A couple of months ago, a large merger of two leading businesses almost didn’t happen when days prior to closing, an innocent letter from a lawyer almost broke the chemistry between the principals.

Accountants can also influence a deal. For instance, rarely have I met a buyer’s accountant who thought his client didn’t pay too much for a business. Conversely, you’d be hard-pressed to find a seller’s accountant who felt their client sold their business for enough money.

For your advisors to be catalysts behind a successful deal, you should:
·         Ensure your accountant has a history of working with both buyers and sellers; they will need to see things from both perspectives.
·         Confirm your lawyer has experience with business sales of a similar size and nature.
·         Understand how your business broker will be able to manage confidentiality, negotiations and both parties’ advisors.
·         Get your advisors talking and working together.

There can be endless reasons for why a business sale does not successfully close, most of which can be mitigated with some thoughtful planning and understanding. Most importantly, they can all be resolved when the parties at the table are motivated to execute a deal. Whether you’re a buyer or seller, start managing these common issues before you get involved in any negotiations and you’ll be on your way to an outcome all parties are happy with.

Do you have a small business question you would like answered about this article or others
Bill Sivell is a Business Broker with VR Windsor Inc., which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. He blogs about selling businesses at Maxbizvalue.blogspot.ca
More columns by Bill Sivell