<div>Understanding M&A Purchasing Agreements</div>
M&A purchasing agreements can have a lot of moving parts. A recent article from Meghan Daniels entitled, “The Makings of the M&A Purchase Agreement” serves to outline a range of facts including that every M&A deal is different. The article, which serves as a general overview, raises a range of good points.
Components of the Deal
It should come as no surprise that M&A purchase agreements have various components. Everything from definitions and executive provisions to representatives, warranties and schedules, indemnifications and interim and post-closing covenants are all covered in these purchase agreements. Other key factors included in M&A purchase agreements are closing conditions and break-up fees.
Advice for Sellers
In her article, Daniels includes a range of tips for sellers. She correctly points out that negotiating a purchase agreement (as well as the different stages involved in finalizing that agreement) can be both time consuming and stressful.
As any good business broker will tell you, business owners have to be careful not to let their businesses suffer while they are going through the complex process of selling. Selling a business is hard work, and this fact underscores the importance of working with a proven broker.
Likewise, Daniels observes that any serious buyer is likely to look quite closely at your business’s financials, which is yet another reason to work with key professionals during the process. Additionally, you don’t want to wait until the last moment to get your “financial house in order.”
You can be completely certain that prospective buyers will want to examine your finances closely before making an offer. The sooner you begin working on getting your finances together, the better off you’ll be.
Use Trusted Pros
Another key point Daniels makes is that there will be tension, as every party is looking to protect their own best interests. Having an experienced negotiator in your corner is a must. Make sure your negotiator has bought and sold businesses in the past, and he or she will understand what pitfalls and potential problems may be lurking on the horizon. Daniel’s view is that the sale price isn’t the only variable of importance. Factors such as the terms of the deal must be taken into consideration.
The bottom line is that there are many reasons to work with a business broker. A business broker understands the diverse complexities of an M&A purchase agreement. They also have experience helping business owners organize their financial information and can prove invaluable during negotiations. For most business owners, selling their business is the single most important business decision they will ever make. Find someone who understands the process and can act as a guide through the process.
Key Mistakes that Could Impact Your Sale
The old saying, “an ounce of prevention is worth a pound of cure,” most definitely applies to any business owner that believes he or she will someday want to sell his or her business. The bottom line is that every business owner has to transition out of ownership at some point. In a recent Inc. article, “Four Mistakes That Could Lower Your Business’s Value and Weaken Its Salability,” author Bob House explores 4 mistakes that could spell trouble for business owners looking to sell.
No doubt House explores some excellent points in his article, such as that you should always have what he calls, “a selling mindset.” The reason this mindset is potentially invaluable for a business owner is that when operating in this way, sellers are essentially forced to stay on their toes.
Or as House writes, “a selling mindset encourages continual innovation, growth, and investment, helping your business stay ahead of the competition and at the top of its potential.” Having a “selling mindset” means that business owners have no choice but to perform periodic reality checks and access the strengths and weaknesses of their businesses.
Mistake #1 Poor Record Keeping
For House, poor record-keeping tops the list of big mistakes that business owners need to address. As House points out, both potential buyers and brokers will want to examine your books for the last few years. The odds are excellent that before anyone buys your business, they will look very closely at every aspect of your financials, ranging from your sales history to your operating costs.
Mistake #2 Failure to Innovate
The next potential mistake that business owners need to avoid is a failure to innovate. House notes that a lack of tech-savviness could make your business less attractive to prospective buyers. The simple fact is that virtually every business is now impacted in some way by its online presence, whether it is the quality of that presence or lack of it altogether.
For House, a failure to maintain an active online presence could be associated with a failure to innovate. Even if your company is innovative, if you do not maintain a coherent and robust online presence, this could portray your company in a negative light.
Mistake #3 Unstable Workforce
House also feels that having an unstable workforce could spell trouble for your business’s value and negatively impact its salability. Most prospective buyers will not be very eager to buy a business that they know has a lot of employee turnover. In general, new business owners crave stability. Attracting and keeping great employees could make all the difference when it comes time to sell your business.
Mistake #4 Delayed Investments
The final factor that House notes as a potential issue for those looking to sell their business is delaying investments and improvements. House states that it is important for owners to continue to invest even if they know they are going to sell. Investing in your business can help it expand, grow and showcase its potential future growth.
Another excellent way to prevent making mistakes that could interfere with your ability to sell your business is to begin working with a business broker. A top-notch broker knows what mistakes you should avoid. This experience will not only save you countless headaches but also help you preserve the value of your business.
Is Now The Time To Sell 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.
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Read This If You Are Ready To Sell Your Business In Nashville
If you are ready to sell your business, and your business is in Nashville, you are in luck. Music City is a hot market, and there is a virtually endless line of buyers ready to invest in Davidson and surrounding counties. But before you stick a “for sale” sign in the window, there are a few things to consider.
Why do you want to sell?
Obviously, you want to know what your business is worth, and money is likely a driving factor in your decision to sell your business. But it should not be the only motivator. The real question is, “Do I really want to sell?” If you are truly ready to hand the reins over to someone else, you will take the time to understand the market. You will sidestep your personal feelings toward the company that you built with your own two hands to get a clear idea of what it is actually worth. Once you have this mindset, you are ready to take the first steps.
Getting started
Your financial records are the first thing you need to put your hands on before you sell your business. Nashville investors are interested in your bottom line, and that means numbers. All of them. Hopefully, you – or your accountant – are completely organized and can easily access your sales figures, profit and loss statements, tax returns, and accounts receivable. Remember, it is these numbers that determine how much you can expect to walk away with when you say sayonara.
A side note here: If you have not reviewed this information in the last few months, now is a great time to get yourself up to speed on your business’s financial standing.
Know your buyers
There are many buyers who want you to sell your Nashville business just as much as you do. But, no two buyers are alike. A huge chunk of business-owner-hopefuls plan to do so after a layoff or unwanted transfer. Some look to entrepreneurship after retirement or because they are unsatisfied with their current career. It is important to know who is looking so that you can best identify a willing buyer.
A willing buyer is one that not only has the desire and need to buy a business but also has the financial resources to do so. Most importantly, like you, they will have a reasonable expectation as to what they can expect to get out of it. This is, in part, why having your financial ducks in a row is so crucial to the selling process.
Pertinent information
Whether you have decided to sell your business or not, people looking to buy in Nashville will want to know a few things before they consider your organization. Questions you should be ready to answer include:
- What is your worst profit year?
- Are there opportunities for further growth?
- How is this business unique, and will it stand out in Nashville’s ultra-competitive markets?
- Is current inventory included in the sale?
- How much money does the business currently owe? Will this be settled beforehand?
- Has the company consistently realized an annual increase in sales and/or profits?
- How much is it going to cost?
This final question includes the cost of acquisition for the business itself, salaries of all current employees, rent, if applicable, and any other ongoing expenses associated with running the business. Remember, ultimately, what you are selling is cash flow. If you can not provide financial statistics and answer the hard questions, it is going to be much more difficult to sell your business. Nashville’s investors will not wait around for you to get this information, it has to be ready when they are.
The small things matter
Looking good on paper is only part of the puzzle. If you want to get the most out of your business, you also have to make a good physical impression. Just like selling a home, your best bet is to spruce the place up before buyers come to call. A few small improvements, such as a new copier or redecorated front desk, can make a big difference. While these may not directly affect the price, they will steer your buyer’s first impression. If you are looking to sell your business to an out-of-town buyer, add a bit of Nashville flair, such as skyline art or record displays. This will enhance the overall feel of your brick and mortar location.
Another small thing you can do – and one that will not cost you a dime – is to create an operations manual. This will leave your buyers feeling as though your business is organized and assure them that it will run as smooth as silk after the acquisition.
For help selling your business, contact Beacon Exit Advisors today at 615.649.6999.
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Exploring the Offering Memorandum
Are you a business owner who is interested in selling? If so, there are some strategies you should undoubtedly use. At the top of the list is the all-important offering memorandum. The offering memorandum, often referred to as a selling memorandum, is a straightforward but highly effective way to help you obtain the highest possible selling price.
Shaping the Executive Summary
The offering memorandum must be factual. However, at the same time, this memorandum allows for a bit of business promotion and selling, which can be included in the executive summary portion of the document. After all, potential buyers will want to know more about your business and why buying it would be a savvy decision.
In short, the executive summary section of the offering memorandum goes over the highlights of your company. It should include an outline of several key factors. Everything from an outline of the ownership and management structure, description of the business and financial highlights to a general review of your company’s products and/or services should all be covered. Additional points to include would be variables, such as information about your market, and the reason that the business is for sale.
Your executive summary, simply stated, is extremely important. A coherent and compelling executive summary will motivate prospective buyers to learn more. In short, you want the executive summary of your offering memorandum to shine. It should capture the attention and the imagination of anyone that reads it.
Other Essential Elements to Include
Some elements are absolutely a must to have in your offering memorandum. An overview of your company and its history as well as its markets and products are all good places to begin your offering memorandum. Other key elements ranging from distribution, customers or clients and the competition should also be included.
Factors such as management, financials and growth strategies should not be overlooked, as many prospective investors may flip to those sections first. Finally, be sure to include any competitive advantages you may have as well as a well-written conclusion and exhibits. The more polished and professional your offering memorandum, the better off you’ll be.
An easy way to improve the overall quality of your offering memorandum is to work with a seasoned business broker. A professional business broker knows what information should be included in your offering memorandum. He or she will also know what not to include. Remember that your offering memorandum may be the first point of contact between you and many prospective buyers. You’ll only get one chance to make a first impression.
Effectively Utilizing Confidentiality Agreements
Every year countless great deals, deals that would have otherwise gone through, are undone due to a failure to properly utilize and follow confidentiality agreements. A failure to adhere to this essential contract can lead to a myriad of problems. These issues range from employees discovering that a business is going to be sold and quitting to key customers learning of the potential sale and taking their business elsewhere. Needless to say, issues such as these can stand in the way of a sale successfully going through. Maintaining confidentiality throughout the sales process is of paramount importance.
Utilizing a confidentiality agreement, often referred to as a non-disclosure agreement, is a common practice and one that you should fully embrace. There are many and diverse benefits to working with a business broker; one of those benefits is that business brokers know how to properly use confidentiality agreements and what should be contained within them.
By using a confidentiality agreement, the seller gains protection from a prospective buyer disclosing confidential information during the sales process. Originally, confidentiality agreements were utilized to prevent prospective buyers from letting the world at large know that a business was for sale.
Today, these contracts have evolved and now cover an array of potential seller concerns. A good confidentiality agreement will help to ensure that a prospective buyer doesn’t disclose proprietary information, trade secrets or key information learned about the business during the sales process.
Creating a solid confidentiality agreement is serious business and should not be rushed into. They should include, first and foremost, what areas are to be covered by the agreement, or in other words what is, and is not confidential. Additional areas of concern, such as how confidential information will be shared and marked, the remedy for breaches of confidentiality and the terms of the agreement, for example, how long the agreement is to remain enforced, should also be addressed.
A key area that should not be overlooked when creating a confidentiality agreement is that the prospective buyer will not hire any key people away from the selling company. Every business and every situation is different. As a result, confidentiality agreements must be tailored to each business and each situation.
When it comes to selling a business, few factors are as critical as establishing and maintaining confidentiality. The last thing any business wants is for its confidential information to land in the hands of a key competitor. Business brokers understand the value of maintaining confidentiality and know what steps to take to ensure that it is maintained throughout the sales process.
The Hidden Benefits of Planning Your Succession Strategy
Succession planning is something that many business owners fail to think about; however, it turns out there are benefits to succession planning that might not be immediately obvious upon first glance. In this article, we’ll explore a recent Accountancy Daily article, “Succession Planning for Business Owners,” which details the wisdom and benefits of succession planning.
Accountancy Daily polled 500 SME owners and uncovered a variety of interesting facts. At the top of the list is that one-third of owners felt more confident about the future of their businesses when they had a coherent succession strategy.
In what can only be deemed a surprising finding, the poll discovered that 17% of respondents noted that succession planning actually brought them closer to their families. In short, the Accountancy Daily poll found that succession planning came with a variety of unexpected benefits. In other words, it is about more than preparing to hand one’s business over to a new party.
Author Glen Foster makes the point that business owners frequently underestimate the level of effort and time needed to sell a business. The fact is that selling a business is usually a layered process that can even take years to complete. Importantly, business owners must understand that in the time it takes to sell, the market may have changed or their own financial or personal situations may have changed as well. Additionally, selling can be an emotional and stressful process which further complicates the entire matter.
For most business owners, selling a business represents the single greatest financial move of their lives. As such, it is often accompanied with significant stress and anxiety. It is essential not to underestimate the emotional and psychological side of the sales equation. Properly planning years in advance for the sale of a business will help business owners prepare for the emotional and psychological stress that can result from both the sales process and the eventual sale itself.
A key part of the stress of selling a business is that business owners are often left wondering “what comes next?” after selling. Developing a succession strategy is a way to think through such issues well in advance.
Another key aspect of succession planning is to take the steps necessary to make sure that your business is ready to be sold. As Foster points out, you wouldn’t put a home on the market with significant problems, and the same holds true for your business. If you want to receive the optimal price for your business, then your business should be in tip-top shape. This means diving into your books and records and getting everything in order. Working with an accountant or an experienced business broker can be invaluable in this process.
Business Owners Can’t Always Sell When They Wish
A recent and insightful Forbes article, “Study Shows Why Many Business Owners Can’t Sell When They Want To” penned by Mary Ellen Biery, generates some thought-provoking ideas. The article discusses an Exit Planning Institute (EPI) study that outlined the reality that many business owners can’t control when they are able to sell. Many business owners expect to be able to sell whenever they like. However, the reality, as outlined by the EPI study, revealed that the truth is that for business owners, selling is often easier said than done.
In the article, Christopher Snider, President and CEO of EPI, noted that a large percentage of business owners have no exit planning in place. This fact is made all the more striking by the revelation that most owners have up to 90% of their assets tied up in their businesses. Snider’s view is that most business owners will have to sell within the next 10 to 15 years, and yet, are unprepared to do so. According to the EPI only 20% to 30% of businesses that go on the market will actually sell. Snider believes that at the heart of the problem is there are not enough good businesses available for sell. In short, the problem is one of quality.
As of 2016, Baby Boomer business owners, who were expected to begin selling in record numbers, are waiting to sell. As Snider stated in Biery’s Fortune article, “Baby Boomers don’t really want to leave their businesses, and they’re not going to move the business until they have to, which is probably when they are in their early 70s.”
The EPI survey of 200+ San Diego business owners found that 53% had given little or no attention to their transition plan, 88% had no written transition to transition to the next owner, and a whopping 80% had never even sought professional advice regarding their transition. Further, a mere 58% currently had handled any form of estate planning.
Adding to the concern was the fact that most surveyed business owners don’t know the value of their business. Summed up another way, a large percentage of the business owners who will be selling their businesses are Baby Boomers who plan on holding onto their businesses until they are older. They have not charted out an exit strategy or transition plan and have no tangible idea as to the true worth of their respective businesses.
In Snider’s view, the survey indicates that many business owners are not “maximizing the transferable value of their business,” and additionally that they are not “in a position to transfer successfully so that they can harvest the wealth locked in their business.”
All business owners should be thinking about the day when they will have to sell their business. Now is the time to begin working with a Business Brokers Nashville to formulate your strategy so as to maximize your business’s value.
Great Tips for Helping You Find a Buyer for Your Business
No one keeps a business forever. At some point, you’ll either want to sell your business or have to retire. When the time comes to sell, it is important to streamline the process, experience as little stress as possible and also receive top dollar. In Alejandro Cremades’s recent Forbes magazine article, “How to Find a Buyer for Your Business,” Cremades explores the most important steps business owners should take when looking to sell.
Like so many things in life, finding a buyer for your business is about preparation. As Cremades notes, you should think about selling your business on the day you found your company. Creating a business but having no exit strategy is simply not a good idea, and it’s certainly not a safe strategy either. Instead you should “build and plan to be acquired.”
For Cremades, it is vital to decide in the beginning if your preferred exit strategy is to be acquired. If you know from the beginning that you wish to be acquired, then you should build your business accordingly from day one. That means it’s essential to understand your market and know what prospective buyers would be looking for.
According to the Leadership Development Program, Kauffman Fellows, acquirers buy businesses for a range of reasons including:
- Driving their own growth
- Expanding their market
- Accelerating time to market
- Consolidating the market
Some of the more potentially interesting reasons that acquirers buy a business include to reinvent their own business and even to respond to a disruption. At the end of the day, there is no one monolithic reason why a given party decides to buy a business. But there are indeed some general factors that acquirers are known to commonly seek out.
Additionally, Cremades believes that for those serious about finding a buyer, it is critical to make connections. Or as Cremades states, “strategic acquisitions are about who you know, and who knows you. Start making those connections early.” He also points out that buyers are not always who one expects in the beginning of the process. Keeping this fact in mind, it is important to stay open and always look to build solid relationships and keep those relationships up to date regarding your status. Getting your company acquired won’t happen overnight. Instead, it is a process that can take years. Therefore, networking years in advance is a must.
Like many seasoned business professionals, Cremades realizes how important it is to work with a business broker. If you have failed to network properly over the years, then a broker is an amazingly valuable ally. They are about more than offering sage advice, as business brokers can also make potentially invaluable introductions and help you navigate every stage of the acquisition process.
Copyright: Business Brokerage Press, Inc.
Q2 Small Business Transactions Take a Dip but Strong Market Remains
Small business transactions have been enjoying record numbers. But as of the second quarter of 2019, the numbers have begun to take a small dip. Experts feel that the trade war with China is playing a role, according to a recent article, “Q2 Small Business Transactions Down as Trade War Questions Remain.”
The numbers don’t lie, as the number of transactions stood at 2,444 for Q2, which is a drop of 9.6%. But the simple fact remains that businesses are still selling at record levels. As BizBuySell points out, there were 4,948 transactions reported in just the first half of 2019. That means that 2019 could be the second most active business-for-sale market since BizBuySell began tracking data back in 2007. In other words, the Q2 9.6% drop certainly doesn’t mean that the sky is falling.
Deals per broker are declining, and many are looking to the current trade war between the U.S. and China for answers. Increased tariffs and associated worries are, according to many experts, behind the Q2 dip.
A recent BizBuySell poll of business owners noted that 43% are experiencing rising costs as a result of tariffs on Chinese goods. Summed up another way, the trade war with China is impacting small businesses across the board.
Ultimately, consumers will also feel the pinch as well with a whopping 64% of businesses noting that they will raise prices in order to address rising supplier costs. Another attention-grabbing statistic is that 65% of small business owners are considering switching to suppliers not based in China, and 54% are looking for U.S. based supplies. If this trend continues it could mark a dramatic shift.
There is, however, ample good news. According to BizBuySell, buyers looking for a business will discover that the supply of quality listings on the market is increasing. In short, now is a good time to buy a business, as the number of businesses listed as “for sale” grew by a healthy 5.2% in Q2 when compared to the same time last year.
The “business for sale” inventory is growing. According to Bob House, President of BizBuySell, “Businesses are performing better than ever.”
Some of the top performing markets by sales included Baltimore, Portland, Seattle, Austin and Dallas. Those interested in buying a business will find that now is truly a historically good time to do so. Working with a seasoned business broker can help you find a business that is right for you. While the trade war has injected some uncertainty into the overall climate, there is no doubt that now is a historically unique time to buy a business.
