In a recent December 2018 article in Divestopedia entitled, “Options for Business Real Estate When Selling a Company,” the topic of business real estate was explored at length. One of the key points of the article was that understanding one’s business real estate options would ultimately help in achieving “the goals desired in a transaction.” The article is correct to point out that many, or even arguably most, business owners simply don’t know what real estate options are available to them when it comes time to sell the company. In particular, there are two big options: Sell everything including the real estate. Hold onto the real estate for the rental income. In the Divestopedia article, the authors correctly point out that if you, as the business owner, personally own the real estate in a separate entity, then you are good to go. You should have a “clear path to valuation.” However, if your company owns the real estate, then things get a little more complicated. If this is the situation you’ll want to have a third-party appraisal of the real estate so that its value is clear. The article also points out that if your business is a C-Corp and your business also owns the real estate, then it’s a good idea to talk to your accountant as there will be differences in taxation. Every situation is different. Many buyers will prefer to acquire the real estate along with the business. On the other hand, many buyers may prefer a lease, as they don’t want everything that comes along with owning real estate. Communicating with the buyer regarding his or her preference is a savvy move. Now, as Divestopedia points out, if you do plan to retain the building, then you’ll want to be certain that a strong lease is
The process of selling a business can be very complex. Whether you’ve sold a business in the past or are selling a business for the very first time, it is imperative that you work with an expert. A seasoned business broker can help you navigate through what can be some pretty rough waters. Let’s take a closer look at four issues any seller needs to keep in mind why selling a business. Number One – Overreaching If you are both simultaneously the founder, owner and operator of a business, then there is a good chance that you are involved in every single decision. And that can be a significant mistake. Business owners typically want to be involved in every aspect of selling their business, but handling the sale of your business while operating can lead to problems or even disaster. The bottom line is that you can’t handle it all. You’ll need to delegate the day-to-day operation of your business to a sales manager. Additionally, you’ll want to consider bringing on an experienced business broker to assist with the sale of your business. Simultaneously, running a business and trying to sell has gone awry for even the most seasoned multitaskers. Number Two – Money Related Issues It is quite common that once a seller has decided on a price, he or she has trouble settling for anything less. The emotional ties that business owners have to their businesses are understandable, but they can also be irrational and serve as an impediment to a sale. A business broker is an essential intermediary that can keep deals on track and emotions at a minimum. Number Three – Time When you are selling a business, the last thing you want is to waste time. Working with a business broker ensures that you avoid
A recent article from Divestopedia entitled “When is the Best Time to Sell My Business” explains that a business owner who is looking to sell should begin preparing for the sale three years before they plan to list their business on the market. The state of the market matters when listing your business, but what you can’t control this as a business owner. What you can control, however, is the state of your financial records, whether the business has any litigation outstanding, and the overall appearance and wellbeing of the business. In order to sell your business at the highest value possible, there are certain things that need to be taken care of before listing. By giving yourself about three years (the number of years of clean, verifiable financial statements you should have) to prepare your business for sale, you are giving yourself and your business the best chance on the market. Click here to read the full article. A recent article from Inc.com entitled “Small-Business Financing 102: The Latest Updates and Options Available for Funding a Business Venture” explains what each type of startup funding entails and how it’s affecting both buyers and sellers. Currently the ways to fund a new business or to purchase an existing one include: SBA Acquisition loans Peer-to-Peer lenders 401(k) business financing Crowdfunding and angel investors Each option presents its own set of obstacles and requirements that need to be met by the buyer, just as they each provide their own benefits. The increasing number of ways in which an aspiring entrepreneur can acquire the capital to start or buy a business is great news for sellers because it means more buyers on the market. Click here to read the full article. A recent article from Exit Promise entitled “Top Seven Important Deal Terms
In the proverbial “perfect world,” business owners would plan three to five years ahead to sell their companies. But, as one industry expert has suggested, business owners very seldom plan to sell; rather, selling is “event driven.” Partner disputes, divorce, burn-out, health, and new competition are examples of events that can force the sale of a business. Sellers often find, after they have decided to sell, that the unexpected happens and they are “blindsided” and caught off-guard. Here are a few of the unexpected events that can occur. The Substantial Time Commitment Sellers find that the time necessary to comply with the requests of not only the intermediary, but also the potential buyers can take valuable time away from the actual running of the business. The information necessary to compile the offering memorandum takes time to collect. Many sellers are unaware of the amount of their time necessary to gather all the documents and information required for the offering memorandum, nor of its importance to the selling process. There is also the time necessary to meet and visit with prospective buyers. An intermediary will play an important role in screening prospects and separating the “prospects from the suspects.” Handling the Confidentiality Issue Owners of many companies are also the founders and creators of them. They can have difficulty in delegating and tend to want to make all of the decisions themselves. When it comes time to sell, they want to be involved in everything, thus, again, taking time away from running the business. Members of the management team, like the sales manager, have a lot of the information necessary not only for the memorandum, but also on competitive issues, possible acquirers, etc. The owner has to allow his or her managers to be part of the selling process. This is
A half million Americans have started new businesses since 2012. They’ve learned the hard truth that money indeed makes the world go ‘round. The need for capital is endless. So knowing how to shake that money tree is crucial. Before beginning your search, here are six questions to ask. How much capital do I need? You know what they say about that which sounds too good to be true. Don’t allow the popular literature to mislead you. Most businesses fail because of little or no capital. Entrepreneurs are optimists and risk takers by nature. They’ll do anything to get their ventures off the ground. But the truth is that no business can succeed without a detailed and actionable plan. Creating this plan can clarify issues you never considered and help you evaluate your progress against your expectations. As part of this planning process, you must be able to answer the question of how much capital you need, and to understand how changes in the market and your business might alter the answer to that all-important query. How can I raise new capital? Owners are the most common source of startup capital, but aren’t always the best. When you’ve exhausted loans and grants, commercial and investment banks, venture capital funds, and private investment groups may help. The investment is usually styled as debt equity. For this reason, it’s best to delay capital infusions from third parties for as long as possible. When you need them and use them intelligently, however, these third parties can mean the difference between smooth sailing and a sinking ship. How much is my company worth? The value of a company forms the basis of the cost of new capital when you seek an infusion of equity. A valuation looks at today’s value, the potential future value,
Leases should never be overlooked when it comes to buying or selling a business. After all, where your business is located and how long you can stay at that location plays a key role in the overall health of your business. It is easy to get lost with “larger” issues when buying or selling a business. But in terms of stability, few factors rank as high as that of a lease. Let’s explore some of the key facts you’ll want to keep in mind where leases are concerned. The Different Kinds of Leases In general, there are three different kinds of leases: sub-lease, new lease and the assignment of the lease. These leases clearly differ from one another, and each will impact a business in different ways. A sub-lease is a lease within a lease. If you have a sub-lease then another party holds the original lease. It is very important to remember that in this situation the seller is the landlord. In general, sub-leasing will require that permission is granted by the original landlord. With a new lease, a lease has expired and the buyer must obtain a new lease from the landlord. Buyers will want to be certain that they have a lease in place before buying a new business otherwise they may have to relocate the business if the landlord refuses to offer a new lease. The third lease option is the assignment of lease. Assignment of lease is the most common type of lease when it comes to selling a business. Under the assignment of lease, the buyer is granted the use of the location where the business is currently operating. In short, the seller assigns to the buyer the rights of the lease. It is important to note that the seller does not act as
Pepperjam CTO, Greg Shepard recently published “Planning Your Exit Should Begin When You Launch” in Entrepreneur magazine. In this article, Shepard puts forward a variety of thought-provoking ideas including that entrepreneurs should be thinking about partnering early on with those they believe will ultimately want to buy their business. Thinking Ahead Much of Shepard’s thinking centers around the fact that a large percentage of startups end in acquisitions. In particular, he notes that in 2017, “mergers and acquisitions accounted for 93 percent of the 809 ventures capital-backed exits, yielding a total of $45.6 billion in disclosed exit value.” Not too surprising, he also points out that according to a recent Silicon Valley Bank survey, over 50% of all startups are “hoping for an acquisition.” For this reason, Shepard points out that entrepreneurs should be thinking about who may potentially acquire them from day one. In particular, startups will want to build their companies in such a way that they will be attractive for acquisition at a later date. Making one’s startup attractive for acquisition means thinking about such details as the Ideal Customer Profile, Ideal Employee Profile, and Ideal Buyer Profile. This will help startups build the most attractive acquisition friendly company possible. According to Crunchbase, exit opportunities frequently present themselves well before a company’s Series B funding. Building Successful Strategies Startups simply must understand who their customer is and why their particular product is attractive to that customer. Likewise, having the right kind of employees with the right kind of training and know how is key. Hiring the best talent is definitely a way for a startup to make itself more attractive for a potential future acquisition. Shepard believes that once you understand your customer and have the right team to support your vision, you’ll want to focus in
There are a myriad of reasons why the sale of a business doesn’t close successfully; these multiple causes can, however, be broken down into four categories: those caused by the seller, those caused by the buyer, those that just happen (“acts of fate”), and those caused by third parties. The following examines the part each of these components can play in contributing to the wrecked deal: The Seller 1. In some instances, the seller doesn’t have a valid reason for entering into the sale process. Without a strong reason for selling, he or she has neither the willingness to negotiate nor the flexibility to see the sale to a conclusion. Without such a commitment, the desire to sell is not powerful enough to overcome the many complexities necessary to finalize the sales process. 2. Some sellers are merely testing the waters. As detailed above, they are not at that “hungry” stage that provides the push toward a successful transaction. These sellers merely want to see if anyone wants to buy their business at the price they would like to receive. 3. Many sellers are unrealistic about the price they want for their business. They may be sincere about wanting to sell, but they are unable to be realistic about how the marketplace will value the business. The demand for their business may not be there. 4. Some sellers fail to be honest about their business or its situation. They may be hiding the fact that new competition is entering the market, that the business has serious problems or some other reason the business is not salable under existing circumstances. Even worse, some sellers do not disclose that there is more than one owner and that they are not all in agreement about selling the business. 5. A seller may decide
The opportunity to sell your business may come as the result of a long and thoughtful process. Or it may unexpectedly appear when a buyer presents themselves through a business broker. No matter how you reach the decision to sell your business, be prepared for a process that is long and complicated. You’ll need at least six months to work on your financials to ensure they’re ready for a potential buyer. Many sellers need to start the process as early as 12-18 months ahead of time. Be prepared to give buyers at least 3-5 years of financial records. Here are 5 factors you need to look at to improve your chances of a successful sale. Team The negotiation and sale process will be less stressful if you hire the right investment banker to support the process. You’ll also need the assistance of lawyers and accountants to close the transaction. Before choosing a broker, interview several. Especially if you’re not willing to pay, it’s hard to find a quality broker who will protect your interests and help you get a better deal. You should also check with others who have recently sold businesses to see if they have someone to recommend. Confidentiality is a Must Confidentiality about the sale can make or break your business and the sale. Some potential buyers are also competitors. So when contemplating a sale, it’s critical to assess whether the buyer is truly interested in the sale, or just fishing for information. Then work with a skilled lawyer who can help you construct an airtight NDA. Due Diligence Due diligence is a key part of the sale process, and gives the buyer a chance to test the claims the seller has made about the business. So when responding to initial inquiries, only respond what is necessary.
Putting your strengths first will help you sell your business. While this may seem obvious, a surprising number of business owners will either improperly index the strengths of their business or fail to emphasize those strengths adequately. In this article, we will examine five key business strengths that you should focus on when it comes time to sell.
The time you spend evaluating your company's weaknesses is, as it turns out, one of the single best investments you can hope to make. No one should understand your company better than you. But to fully understand your company, it is essential that you invest the time to understand your company's various strengths and weakness.
The business sale process can be complex, which is part of the reason why it makes sense to have expert help in the form of a business broker. Legal mistakes can be very costly mistakes. A legal mistake can also bring the entire sale process to a sudden and complete halt.
