Buyer Articles | Beacon Exit Advisors

by Beacon Exit AdvisorsFebruary 20, 2020 Blog, Business, Buyer Articles, Buyer FAQ0 comments

6 Types of People That Want To Buy A Business In Nashville

Nashville is a huge draw to people looking to buy a business. But not all buyers are the same, and sellers should be prepared to meet an eclectic mix of individuals and corporations looking to take over their operation. Here, we take a look at the six types of business buyers you might encounter if you are getting ready to sell your business.

1. The Synergistic Buyer

The synergistic buyer is often one of the most enthusiastic. This is an individual or entity that owns a business that already complements yours. Their belief is that, by acquiring your business, they can make both businesses successful while benefiting their customer base. Someone looking to buy a business as a complement to their own will have experience in your general industry and will likely have a proven track record of success. They may see something in your business that theirs desperately needs to move to the next level. One example would be a roofing company owner acquiring a window installation business. In this example, the customer base likely overlaps, and bringing these two services together may be a lucrative move.

2. The Financial Buyer

A financial buyer is looking to buy a business for one reason: Profit. There are many financial buyers searching through the Nashville market, but they may present the most challenges for a seller. Someone who wants to buy a business for profit only is not looking for a job or a way to serve their community. They are interested in cold, hard facts, and only want to know whether or not your business generates an impressive profit.

3. The Competitor

During your time in business, you have likely had many rivals that offer the same types of products and services as you. Chances are, these may be some of the first people in line when it is time to sell. Competitors often buy a business in their industry as a way to capitalize on a larger portion of the market. These are excellent buyers to consider because they already know the ins and outs of your market as well as the local area. Something to keep in mind, however, when discussing your business with a competor is that you will need a strong confidentiality agreement in place.

4. The Foreign Buyer

US money is not the only money out there, and foreign buyers often have ample amounts of cash. They are ready to buy a business in Nashville and other growing cities as a way to get their foot in the proverbial door of the US. Although these are absolutely viable purchasers, there may be difficulties. For one, a foreign buyer may have to face complicated licensing issues. And if English is not their primary language, there may be communication barriers that can make it difficult to swap information.

5. The Individual

Individual buyers are often established in their careers. They want to buy a business to supplement their retirement or to leave a legacy for their family. One of the biggest benefits of entertaining an individual buyer is that you only have one person with which to negotiate. This can make the process go along much more smoothly. Another benefit of an individual buyer is that, in most cases, they are willing to put their heart and soul into the business. If you have an emotional connection with the company you have built, an individual buyer is a good option as they will treat your business with respect when it becomes their own.

6. The Family Member

Lastly, you may consider selling your business to a family member, such as a sibling or adult child. There are significant benefits as well as looming challenges to consider. On one hand, a family member that wants to buy a business from you has likely been involved with its operation for many years. Selling this way can ensure a virtually seamless transition. On the other hand, there may be hurt feelings if they do not have enough money to make the purchase, and you have to sell to someone else.

There are many people that want to buy a business in Nashville. Whether you plan to sell to a family member, a foreign entity, or a soon-to-be retiree, it pays to know who is out there looking. For more information on how to sell or buy a business, contact Beacon Exit Advisors.

by Beacon Exit AdvisorsJanuary 31, 2020 Buyer Articles, Buyer FAQ, Buying a Business0 comments

Tackling Growth Delusions When Buying a Business

There is no doubt about it, it can be exciting to buy a new business. However, in the process, it is very important that you don’t become unrealistic about future growth. Keep in mind that in the vast majority of cases, if a business is poised to quickly grow substantially, the seller would be far less interested in selling.

Richard Parker’s recent article for Forbes entitled “Don’t Be Delusional About Growth When Buying a Business” seeks to instill a smart degree of caution into prospective buyers. Parker notes that when evaluating a business and talking to the owner, many buyers come away with a sense that enormous growth is just “sitting there” waiting to be seized. In particular, Parker cautions those buyers who are buying into an industry that they know nothing about; those individuals should be very careful.

When buying into an industry where one has no familiarity, there can be a range of problems. The opportunities that you see may not have been tapped into by the existing owner for a range of reasons. You couldn’t possibly guess what these reasons might be without more of a knowledge base. Since you are an outsider, you likely lack the proper perspective and understanding. In turn, this means you may see growth opportunities that may not exist, as the seller may have already tried and failed. Summed up another way, until you actually own the business and are running it on a day to day basis, you simply can’t make a proper assessment of how best to grow that business.

The seductive lure of growth shouldn’t be the determining factor when you are looking for a business. A far more important and ultimately reliable factor is stability. The real question, the foundation of whether or not a business is a good purchase option, is whether or not the business will maintain its revenue and profit levels once you’ve signed on the dotted line and taken over. You want to be sure that the business doesn’t have to grow to remain viable.

As Parker points out, the majority of small business buyers will buy in a sector where they don’t have much experience, and that is fine. What is not fine is assuming that you can greatly grow the business. Of course, if new buyers can achieve that goal, that is great and certainly icing on the cake. But don’t depend on that growth.

In the end, everyone has some ideas that work and some that don’t. You may take over a business and, thanks to having a different perspective than the previous owner, are able to find ways to make that business grow. But realize that many of your ideas for growing the business may fail completely.

A professional business broker will be able to help you determine what business is best for you. A business broker will help keep you focused on what matters most and steer you clear of the mistakes that buyers frequently make when buying a business.

winnond/BigStock.com

by Beacon Exit AdvisorsJanuary 5, 2020 Buyer Articles, Buyer FAQ, Buying a Business0 comments

Things To Think About Before You Buy A Business In Nashville

If you have dreams of becoming a business owner and wish to buy a business in Nashville (aka “Music City”), you have an opportunity to get in on the ground floor of an area experiencing explosive growth. But before you start your search, there are 10 pressing questions you should be prepared to ask the seller. Keep reading for insight into these.

Question 1: What is the most challenging aspect of owning this business?

Do not be shy about asking the current business owner about their own hurdles. This might be the most important question on the list. It is challenging to run a business, but knowing what the current owners are facing is a great way to decide if you are up to the task.

Question 2: Are there things you would do differently if you were starting out in this business today?

Ostensibly, the person you are buying from is an expert regarding that particular business. Before you buy, however, pick their brains. They can probably give you some insight into the local climate. Since Nashville is growing rapidly, you might find that keeping up with demand is one of their challenges. If that is the case, they might do something as simple as start with more capital or hire someone who knows the ins and outs of the town if they bought today.

Question 3: How Did you determine the asking price?

Chances are, their business broker helped them come up with this number. However, asking this question puts the seller in a position to defend their dollar value, so you can determine if the number is accurate. It can give you a great amount of insight and help you justify your own financial commitment.

Question 4: What will you do if you can not sell?

Just as you have reasons that you want to buy a business, the seller has circumstances that have led them to put it on the market. Asking this question can help determine if you have any bargaining power.

Question 5: Can you provide a paper trail of financials?

Do not spend a dime until you can see where every penny is going. When you buy a business, how accurate their financials are will determine if you get what you paid for. Most sellers can pretty quickly offer you a rundown of all incoming and outgoing monies. If not, keep in mind that Nashville is not exactly a small town – you can find another business.

Question 6: What are some skills or personality traits that have helped you be successful?

Buying a business is not just about the money you can make. Another point to consider is whether or not it is actually a good fit for you. You may have already run one business successfully, but that does not mean that the skills you have are the only ones you need.

Question 7: Are there any pending lawsuits, potential lawsuits, or past legal indiscretions associated with the business?

This is a big one. Although you should not be held liable for anything that happened before taking ownership, knowing about any legal action taken against the company is hugely important. In addition to avoiding headaches down the road, this can also put you on the right track toward researching the business’s reputation. When you buy a business, you usually announce that it is under new ownership. Unfortunately, if prior legal follies made Nashville’s news, you might be buying into a failing endeavor.

Question 8: Do the employees plan to stay?

Of course, the current owner can not speak for everyone. Sometimes, employees use a new acquisition as an opportunity to change jobs. But it is important to get to know the overall feelings about the takeover. One reason is that you will want someone to walk you through all of the daily procedures. When you buy a business, you can not just go in and change things up on day one. You will likely want to make sure that you have at least one trustworthy right hand.

Question 9: Is everything documented?

In the off chance everyone decides to bail, you will sleep better at night knowing that all of the company’s procedures, processes, and contacts are well documented.

Question 10: If a specific customer or vendor left, would that put the business in jeopardy?

Some businesses rely on a single customer or a small number of customers to survive. Do not buy a business until you know that it can sustain itself even if your biggest source of revenue disappeared. Similarly, dive deep into the current owner’s vendors of choice and make sure they can be replaced if necessary.

Nashville is growing. And people like to shop local. When you buy a business in the Athens of the South, however, you can not rely on good old-fashioned Southern hospitality to keep you afloat. You have to ask lots of questions and make sure the answers fit with your ideal vision of success.

by Beacon Exit AdvisorsDecember 3, 2019 Business, Buyer Articles, Buying a Business0 comments

Do You Dream of Being A Business Owner? Read This First

Do You Dream of Being A Business Owner? Before you buy a business in Nashville, you need to know that the area is booming. There is no sign that growth in Music City is going to slow down anytime soon, either. That is great news for you and means many customers for your enterprise. But other than money, what are the benefits of owning a business? What is involved with getting started? Keep reading as we answer these questions and many more.

Are you really ready?

This is the big question that you have to ask yourself before you buy a business. Many new Nashville business owners make the leap of faith without first answering, but it is in your best interest to self-reflect before you take the proverbial plunge. Something else to think about: nearly 9 in 10 small business purchasers went completely off the rails and acquired an enterprise that was vastly different than their original intent. If you are ready for a learning experience, then business ownership might be an ideal opportunity.

When you do buy a business, you get so much more than an income. You have an opportunity to take pride in a product or service offering. You will also be in a unique opportunity to become a leader within your community. Many small business owners are highly involved in the neighborhoods in which their customers live. In addition to this, as an entrepreneur, you are in control of your own destiny. Just as important, you get to create job opportunities that did not exist before.

On the downside, when you become a proprietor, you change not only your professional life but your personal life as well. You may get to spend less time with your friends and family, and you may, at times, feel as though you are married to your job. As you get your feet wet, you will learn the ins and outs of your business by literally getting your hands dirty; you may have to do everything from sweep the floors to take out the trash. Knowing this, ask yourself if you truly still want to buy a business. If the answer is yes, you can keep reading.

A daunting task

Being a business owner is not for the faint of heart. There are many responsibilities, and the bulk of the work will fall squarely upon your shoulders. But there is one way to bypass some growing pains. That is to buy a business that is already known in Nashville. Unlike starting from scratch, you will have a customer base and might even have inventory and experienced employees in place. But just because a business already exists does not mean you can take over without doing your homework.

First, you’ll want to identify other opportunities that might interest you. There are many businesses for sale in Nashville and the surrounding area. Do not limit yourself to a specific type of business; go into the process with an open heart and an open mind. You may be pleasantly surprised where your interests actually lie.

Once you find something that resonates with you, avoid the temptation to let your heart take over. This is a business transaction, after all, and due diligence is the key. Start by asking your broker how long the company has actually been doing business in Nashville. While you can buy a business that is still in its early stages, the longer it has been around, the better. You also need to find out how long its current owner has had the reins. If less than a year, you may want to pull back and evaluate why. As a general rule, people do not buy a business only to offload it immediately. This brings us to your next concern, which is to find out why they are selling.

People sell businesses for many reasons, but they are not always honest about them. Pay close attention to why they have decided to relinquish what is, ostensibly, something very important to them. If they are 35-years-old, just took over ownership, and say they are now suddenly ready to retire, chances are what they mean is that they are not making the money they had hoped. It is not uncommon, however, for people to burnout within five to 10 years. A 50-year-old who has been doing the same thing for the last decade may simply be ready to move on to the next adventure. If they are also looking to buy a business, that is a good sign that they are transitioning and are ready for you to take over.

Finally, you can start crunching numbers. Despite the booming economy in Nashville, when you buy a business, you’ll want to see information on incoming and outgoing money. Ask to look at all of the company’s financial records, down to depreciation on the company car. When you are ready to make an offer, you will want these numbers as a negotiating point. While many business owners will tell you they are skimming off the top, the legal income is the only one that truly matters.

Contact Beacon Exit Advisors today for more information on businesses currently for sale in Davidson and the surrounding counties.

by Beacon Exit AdvisorsNovember 13, 2019 Buyer Articles, Buyer FAQ, Buying a Business, Seller Articles, Seller FAQ, Selling a Business0 comments

Is Now The Time To Sell Your Business?

selling your business If you are a Nashville entrepreneur ready to sell your business, you probably have concerns. One of these likely revolves around the market and whether or not you can make a profit. No blog post can answer that question for you. However, there are a few facts that can help you come to the conclusion. Here are some things to think about that can lead you in the right direction.

The market is hot.

Middle Tennessee is growing at breakneck speed. This translates into a hot housing market and an equally fast-moving economy as it relates to buying existing companies. But just because there are people that want to buy a business in Nashville does not mean that you can sell your business quickly or for what you think it’s worth. Which brings us to…

You can set your price, but buyers dictate value.

According to many surveys, most small business owners feel that the mergers and acquisitions market will cool within the next two years. Many of these believe this cooldown will become apparent by the end of this year. There is a great fear that the slowdown will have a negative impact on business pricing. This is because a sluggish market almost always translates into lower selling prices. So what does this mean for you if you want to sell your business in Nashville? It means that buyers may not be as confident and will not be willing to spend the same on a business today as they might have just a year ago.

There are lots of businesses for sale.

Another factor that determines the value of your business is the amount of competition out there. Just as you want to sell your business, hundreds of other Nashville entrepreneurs want to do the same. Some estimates find that 8 out of 10 enterprises priced between $1 million and $2 million are now or are soon to be placed on the market. One of the main reasons people sell is because of retirement. The record amount of baby boomers reaching retirement age will accelerate the number of businesses for sale.

You cannot sell your business overnight.

Even in an area like Nashville, where growth is apparent in town and in every suburb, it takes time and preparation to get your business ready to sell. If you think it might be time, start by gathering your financial information. When an investor wants to buy a business, their first questions will have to do with cash flow. Next, get other documents together. If you have a franchise, for example, buyers need to see this agreement. You will also need to consult with your franchise home office to ensure you can transfer ownership.

There is a ton of paperwork.

When you want to sell your business in Nashville, Brentwood, Franklin, Hendersonville or the surrounding areas, you should be prepared to do paperwork and lots of it. This runs the gamut from a sales agreement to confidentiality contracts you might require your potential buyer to sign before they have access to proprietary processes or systems.

You cannot just walk away.

Once you find a buyer, you should sit down together and confirm your exit strategy. Remember, the transition period is often difficult, and your buyers will likely want to know how you plan to make your exit. This is particularly important if you have a large company and many employees or have owned the same business for many years.

Not all buyers are right for your business.

Just because somebody shows up on your doorstep with cash in hand does not mean they are ready to captain the proverbial ship. Your business broker can help you weed out unqualified buyers. This might be someone who lacks the experience or financial means to take over successfully. The experience issue should be one of your top priorities if your company is associated with your name and will continue to operate this way under new ownership. Even if you are retiring, you do not want your name associated with a failed or improperly run business.

Nothing replaces a good broker.

If all of the above has you questioning whether you want to sell your business, you should know that an experienced Nashville-based broker can help you smooth out the rough edges. Mergers and acquisitions are never easy; it is a complicated process whether your business is worth $50,000 or $500 million. A single miscalculation or misstep in the process can delay the sale or cost you valuable time and money.

Contact Beacon Exit Advisors today if you have questions or are ready to sell your Nashville business.

by Beacon Exit AdvisorsNovember 8, 2019 Buyer Articles, Buyer FAQ0 comments

Should You Sell Your Life’s Work, Or Let The Kids Take Over?

If you are a Nashville business owner trying to decide whether to sell your business or leave it to your adult children, keep reading. There are many things to consider, and making any decision without a long pause for thought can result in hurt feelings, incompetent leadership, and family conflicts. All of these things are bad for business.

First things first. When you know it is time to bequeath or sell your business, you have to be prepared to let go. M&A experts at Nashville’s Beacon Exit explain that you must allow the next generation – or a complete stranger – to take over. That is not to say you have to walk away immediately or completely, and there is nothing wrong with making yourself available as a mentor for a set time. However, be prepared to walk away and watch from a distance, even if the company you have built from the ground up experiences growing pains once the papers are signed.

Hiring an heir

Another important step is to ensure that your children are fully aware of the rules. And there must be rules. Only about one-third of businesses will succeed into the next generation. If you want your heirs to be successful, you cannot let them walk into the office and take over without guidelines in place. One of these should relate to previous work experience. Although your adult children have likely grown up in your business, make a rule that they must work for another company long enough to experience the real corporate world. Think of it as a proving ground where your children can show their competence as well as their ability to overcome obstacles.

If you choose to have your children come and work for your company before deciding whether or not to sell your business, give them an actual job. As Nashville continues to grow, no business can afford to pay an extraneous employee. In other words, do not simply make up a title, and only offer your children an opportunity to compete for an established or truly needed position. Your children should go through the interview process just like other candidates. They should be hired only if they are qualified based on their past experience, education, and successes.

Once they have impressed your executive team, you may offer them a compensation package. For their benefit and that of your business, this should be competitive based on all of the above. Not because of their last name.

Sell or bequeath

As word gets out that you are looking to retire, you may be approached by investors looking to buy a business in Nashville. While it is wise to be open to the possibility of outsiders, if your children have shown interest, you can put them at the front of the line.

Your adult children may expect a free ride. However, ultimately, it makes the most sense to sell your business to the kids instead of bequeathing it outright. Nashville law does not prevent gifting, but there are some tax advantages to a cash exchange when it is time to transfer the family business. Your child or children should have the funds to back up their desire to take over. Further, giving your business to one child can create upheaval when they have siblings that feel slighted by the move. A cash sale allows you to sell your business and your child to buy a business while avoiding hurt feelings.

There is also the issue of stock. You might wish to leave shares to children who do not participate in its operation. Experience suggests, however, that this is a bad idea. More often than not, an uninvolved child wants to sell their stock and walk away with the cash. This can lead to feelings of resentment from any heirs that have done their time with the company.

A change on the horizon

Finally, whether you sell your business to a Nashville investor or to an interested child, you must understand that where they start today is not where you were in the beginning. You started your business from scratch and refined your processes over time. They have a significant head start and are leaps and bounds ahead of you in the early days. Because of this, they might see areas where change is needed. Accept this and know that they will have their own set of obstacles to overcome.

The decision to say goodbye to all that you have worked for is difficult. And although you might be tempted to give the business to your firstborn, this rarely works out unless they have worked just as hard as you. In business, there are no free rides. Your children must pay their dues, or they will steer your family company straight to its end.

Contact Nashville’s Beacon Exit Advisors today if you are ready to sell your business to an outside investor or begin the process of passing the torch onto the next generation.

by Beacon Exit AdvisorsSeptember 11, 2019 Buyer Articles, Buying a Business0 comments

A Closer Look at 3 Major Factors to Consider When You Buy a Business

The simple but undeniable fact is buying a business is one of the single greatest financial decisions a person can make. Buying a business can lead to great financial success or great financial failure. This fact helps to underscore why it is so important to work with an experienced broker who can help guide you through the often labyrinthian process of buying a business.

In a July 2019 article from Smallbusiness.co.uk, author Kyle Carins explores three key factors that everyone should consider before they buy a business. The first factor covered in Carins’ article, “3 Things to Consider When Buying a Business,” is appeal vs. viability.

Appeal Vs. Viability

Not surprising, the most important variable for most prospective owners is that the business is indeed viable. Not being able to differentiate between an appealing business and one that is viable can lead to financial disaster.

As Carins points out, “Do you want to make money or do you want to fulfill a dream?” Sometimes those two variables can intersect, but not always and not often. In the end, it is vital to know whether a given business is, in fact, potentially lucrative.

However, as Carins points out, it is also important that you choose a business that you will enjoy. Nothing can be more spirit crushing than running a business that you truly hate, even if it is lucrative. Selecting the right business for you is something of a balancing act that must take in a variety of often competing variables.

Considering Hidden Costs

The second factor that Carins looks at is the issue of “hidden costs.” One of the key reasons that it is so important to work with a business broker is that a business broker understands these kinds of factors that you might otherwise overlook. Due diligence is amazingly important. For those who have never bought a business before, working with a business broker offers substantial protection against making a potentially serious mistake.

Second Opinions

The third factor examined in Carins article is “Getting a second opinion.” For Carins, getting a second opinion is actually linked to due diligence. He feels that additional opinions regarding a given business should go beyond working with professionals and should also include talking to friends and family who know you well. Additional opinions can help one see angles that might otherwise be missed.

Again, buying a business is complicated and will take up a good deal of one’s time and mental energy. Your friends and relatives, understand your personality and your wants and desires. Their input can be particularly beneficial.

Finding an experienced business broker can help you do more than simply establish whether or not a given business is a “good deal.” Brokers with years of proven experience can also help you determine whether or not a specific business is a good fit for you and your lifestyle.

Yacobchuk/BigStock.com

by Beacon Exit AdvisorsJuly 17, 2019 Buyer Articles, Seller Articles0 comments

Do You Know What Kind of Business Owner You Really Are?

Does your business have real, long-lasting longevity or is your business a temporary entity that will vanish the second you stop working on it? In his insightful article in The Business Journals entitled, “Are You Living for Today as a Business Owner or Building Value?” author Kent Bernhard asks a very important question of readers, “Are you a lifestyle business owner or a value accelerator?”

Many business owners have never stopped to ask this very important, yet basic, question regarding their businesses. So, let’s turn our attention to this key question that all business owners must stop and ask at some point.

As Bernhard points out the core issue here is how a given business owner defines the idea of success for him or herself. As Chuck Richards, the CEO of CoreValue Software notes, “At the end of the day, a lifestyle business is just a job.”

Richards goes on to note that this is fine for many people. But if this is the case, it is a choice that one is making. Therefore, lifestyle business owners should be aware that they are, in fact, clearly making a choice.

Business owners who are lawyers, consultants and accountants often fall into the category of those with a “business as a job.” They fail to accumulate enough assets for their business to really be more than a job. Summed up in another fashion, the business generates enough revenue to provide a comfortable lifestyle. However, it does not have the infrastructure or equity to remain profitable, or even in existence, once they walk away. As the owner and operator of the business, they are vital to its very existence. This means that the business only has value so long as the owner is working in the business on a regular basis. As a result, the owner may never really be able to exit the business.

As Bernhard points out, “To build a business as an asset, you have to become a value accelerator who looks beyond whether the business’ profits are sufficient to maintain your lifestyle. It means looking at the business as an entity outside yourself.” Those who fall into the value accelerator category, focus on figuring out creating value for the business as a financial asset that can operate independently.

Making sure that your business can continue on without you means that you have to build it, and that involves having a coherent and focused plan. Plan in advance and know how you will exit your business. To ultimately create value for the business entity itself, a plan must be in place that allows for your successful exit.

Natee Meeplan/BigStock.com

by Beacon Exit AdvisorsJuly 3, 2019 Buyer Articles, Buyer FAQ, Buying a Business0 comments

Business Buyers Can Leverage SBA Lending

Finding the money to start your own small business can be a challenge. Over the decades, countless people have turned to the Small Business Administration (SBA) for help. A recent Inc. Magazine article, “Kickstart Your Business Dreams with SBA Lending,” by BizBuySell President, Bob House, explored how SBA lending can be used to the buyer’s advantage.

The article covers the basics of an SBA loan and who should try to get one. House notes that the SBA doesn’t provide loans itself, but instead facilitates lending and even micro-lending with a range of partners. The loans are backed by the government, which means that lenders are more willing to offer a loan to an entrepreneur who might not typically qualify for one. The fact is that the SBA will cover 75% of a lender’s loss if the loan goes into default.

Entrepreneurs can benefit tremendously from this program. In some cases, an SBA loan even means skipping the need for collateral. SBA loans can be used for those looking to open a business, expand their existing business or open a franchise.

House points out that getting an SBA loan has much in common with receiving other types of loans. For example, it is necessary to be “bank ready.” By “bank ready,” House means that all of your financial documentation should be organized, clear to understand and ready to go.

Next, a buyer would need to check that he or she qualifies, find a lender and fill out the necessary SBA forms. In order to be eligible for an SBA loan, it is necessary that the business is a for-profit venture and that it will do business in the United States. Once the necessary forms have been submitted, it can take between 2 to 3 months for an application to be processed and potentially approved.

The simple fact is that the SBA helps thousands of people every year. If you are looking to buy a business or expand your current business, then working with the SBA could be exactly what you need. Of course, business brokers are experts on what it takes to buy. Working with a broker stands as one of the single best ways to turn the dream of owning a business into a reality.

wrangler/BigStock.com

by Beacon Exit AdvisorsJune 25, 2019 Buyer Articles, Buying a Business, Seller Articles, Selling a Business0 comments

How Employees Factor into the Success of Your Business

Quality employees are essential for the long-term success and growth of any business. Many entrepreneurs learn this simple fact far too late. Regardless of what kind of business you own, a handful of key employees can either make or break you. Sadly, businesses have been destroyed by employees that don’t care, or even worse, are actually working to undermine the business that employs them. In short, the more you evaluate your employees, the better off you and your business will be.

Forbes’ article “Identifying Key Employees When Buying a Business”, from Richard Parker does a fine job in encouraging entrepreneurs to think more about how their employees impact their businesses and the importance of factoring in employees when considering the purchase of a business.

As Parker states, “One of the most important components when evaluating a business for sale is investigating its employees.” This statement does not only apply to buyers. Of course, with this fact in mind, sellers should take every step possible to build a great team long before a business is placed on the market.

There are many variables to consider when evaluating employees. It is critical, as Parker points out, to determine exactly how much of the work burden the owner of the business is shouldering. If an owner is trying to “do it all, all the time” then buyers must determine who can help shoulder some of the responsibility, as this is key for growth.

In Parker’s view, one of the first steps in the buyer’s due diligence process is to identify key employees. Parker strongly encourages buyers to determine how the business will fair if these employees were to leave or cross over to a competitor. Assessing if an employee is valuable involves more than simply evaluating an employee’s current benefit. Their future value and potential damage they could cause upon leaving are all factors that must be weighed. Wisely, Parker recommends having a test period where you can evaluate employees and the business before entering into a formal agreement.

It is key to never forget that your employees help you build your business. The importance of specific employees to any given business varies widely. But sellers should understand what employees are key and why. Additionally, sellers should be able to articulate how key employees can be replaced and even have a plan for doing so. Since, savvy buyers will understand the importance of key employees and evaluate them, it is essential that sellers are prepared to have their employees placed under the microscope along with the rest of their business.

fizkes/BigStock.com