How to Circumvent Three Legal Mistakes Sellers Make

After decades of hard work, selling your business can be an exciting and rewarding time. Yet, many business owners overlook the importance of focusing on the legal matters associated with sales. In this article, we’ll explore three of the most significant mistakes sellers make. 

1. Use an NDA

The first critical mistake that business owners should be guarding against is skipping the use of a non-disclosure agreement. Simply stated, a business owner should always make sure that a non-disclosure agreement is in place before disclosing to any buyers that a business is on the market.

NDA’s stand as an invaluable way to restrict who does and does not know your business is for sale. After all, the last thing any business owner looking to sell his or her business wants is for competitors or employees to learn confidential information. 

2. Hire an Attorney

The second critical mistake that many business owners make is they skip working with an attorney. There is no way around the fact that if you are selling a business, or for that matter anything of significant value, you need to work with a lawyer experienced in the area of sales. 

Business owners become accustomed to doing a great many things themselves and learning on the job. There is no doubt that this is a personality trait that has served them well over the years. However, when it comes time to sell your business, there is zero room for “on the job training” or relying on your own instincts. One of the best ways that you as a business owner can protect your future is to work with a lawyer when selling your business. In fact, a Business Broker or M&A Advisor can be a vital resource for helping you to find a proven lawyer with a background in the buying and selling of businesses. 

3. Get a Letter of Intent

A third significant mistake that business owners frequently make when selling their business is that they fail to get a letter of intent. Much like an NDA, a letter of intent is a key legal document in the process of selling a business. All too often business owners will skip requesting a letter of intent out of fear of slowing down the process and potentially disrupting a deal. 

The letter of intent is designed to both clearly spell out expectations, while simultaneously protecting your interests as a business owner. When a buyer signs a letter of intent, it indicates that he or she is taking the process seriously. This will protect you from wasting your time. 

The process of buying or selling a business is complex in many different ways. Whether it is dealing with human psychology, organizing your books, thinking about what information prospective buyers are likely to want to see, or addressing a wide array of legal issues, it is a complex and time-consuming process. Working closely with a Business Broker or M&A Advisor is one of the fastest ways that you can increase your chances of a successful sale.

Copyright: Business Brokerage Press, Inc.

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The Often-Overlooked Importance of Leases

When buying or selling a business, it is critically important that you evaluate the lease. It is a strange phenomenon that otherwise savvy business people will treat leases as a secondary concern. However, problematic terms in a lease can literally force you to pack up a business and move. This would not only be a jarring experience, but a very costly one as well. 

Finding a good location is of paramount importance to both the profile and profitability of your business. You may feel that there are more important issues when buying or selling a business. But by the end of this article, you’ll see the wisdom in placing a lease near the top of your “to evaluate” list.

There are three different kinds and types of leases: a new lease, an assignment lease and the sublease. All three of these options are most definitely different from one another and can potentially impact your business in different ways.

The New Lease

A new lease, as the name indicates, is the result of a lease that has expired. That means that the buyer must work with the landlord to establish a new lease. Buying a business only to discover that you don’t have a lease and the landlord isn’t interested in keeping your business at its current location is most definitely a shock that no business owners want to encounter. Buyers should be one-hundred percent certain that they have a lease in place before they buy a business.

Assignment of Lease 

The second type of lease is the assignment of lease; this form of lease is quite common. It involves the buyer of a business being granted the use of the location where the business is currently located and operating. Through the assignment of the lease, the seller is able to assign the buyer the rights associated with the lease. Of course, it is important to keep in mind that the seller is not acting as the landlord, but instead, simply has the ability to assign the lease. 

The Sublease 

The third option for lease is the sublease. The sublease is basically a lease within a lease, and it comes with some important distinctions that must be understood. A sublease generally requires the permission of the landlord and that permission should not be viewed as a “foregone conclusion” or “automatic.”

The bottom line is that no new business owner wants to discover that their new business doesn’t have a home. There are an array of very important issues to work out when buying a business, and it is critically important that buyers never overlook what kind of lease is involved. A savvy seller will highlight what kind of lease they have, especially if the terms are favorable. But buyers should always be proactive and ask questions about the status of the lease and make certain that lease terms are clearly defined.

Copyright: Business Brokerage Press, Inc.

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Buying/Selling a Business: The External View

There is the oft-told story about Ray Kroc, the founder of McDonalds. Before he approached the McDonald brothers at their California hamburger restaurant, he spent quite a few days sitting in his car watching the business. Only when he was convinced that the business and the concept worked, did he make an offer that the brothers could not refuse. The rest, as they say, is history.

The point, however, for both buyer and seller, is that it is important for both to sit across the proverbial street and watch the business. Buyers will get a lot of important information. For example, the buyer will learn about the customer base. How many customers does the business serve? How often? When are customers served? What is the make-up of the customer base? What are the busy days and times?

The owner, as well, can sometimes gain new insights on his or her business by taking a look at the business from the perspective of a potential seller, by taking an “across the street look.”

Both owners and potential buyers can learn about the customer service, etc., by having a family member or close friend patronize the business.

Interestingly, these methods are now being used by business owners, franchisors and others. When used by these people, they are called mystery shoppers. They are increasingly being used by franchisors to check their franchisees on customer service and other operations of the business. Potential sellers might also want to have this service performed prior to putting their business up for sale.

Copyright: Business Brokerage Press, Inc.

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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.

Copyright: Business Brokerage Press, Inc.

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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.

Copyright: Business Brokerage Press, Inc.

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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 broker to formulate your strategy so as to maximize your business’s value.

Copyright: Business Brokerage Press, Inc.

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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.

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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.

Copyright: Business Brokerage Press, Inc.

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Is Your Business Really Worth Handing Over to the Next Generation?

Before you begin your business, you should be thinking about how you will hand that business over to someone else.  No one runs a business forever.  Whether you sell your business or let a relative inherit it, at some point you will need to step away. 

When you finally do separate from your business, it is critical that you are certain that it is worth handing over.  In his January 2019 article in Forbes magazine entitled “Make Sure Your Business is Worth Handing Over,” author Francois Botha dives in and explores this very topic.

In this article, Botha emphasizes that family businesses should not “fall into the trap of prioritizing job creation for their children.”  Instead, that the priority should be to perpetuate the business.  Botha cites the co-founder and chairman of The Leadership Pipeline Institute, Stephen Drotter, who feels that the main goal of any business needs to be its suitability.

Drotter established five principles designed to assist family businesses as they seek to prepare for succession.  The first principle is to “Identify and Fix Your Problems.”  Current ownership should deal promptly with any business problems before passing a business on to a new generation.

The second principle Drotter covers is to “Adjust Your Management to the Strategic Evolution of Your Business.”  Businesses evolve from the creation of a product to sell to focusing on sales, marketing and distribution to finally addressing a plateau in sales which facilitates the need for multi-functional management.

The third principle cited by Drotter is “Talk to Your People About Them.”  In this principle, communication with employees is key.  Getting to know and understand employees is vital.

“Be on the Lookout for Talent Everywhere,” is the fourth principle.  There is no replacement for skilled and motivated employees, and you never know where you may find them.

Finally, the fifth principle, “Provide Development” emphasizes that “almost everything is learned, and somebody often taught that which is learned.”  Employee skill must be seen as a key priority.

Making sure that a business is ready for transition to the next generation involves careful preparation and a good deal of advanced planning.  The sooner that you begin asking the right kind of thoughtful questions about the current state of your business and what will benefit it moving forward, the better off everyone will be.

Copyright: Business Brokerage Press, Inc.

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Erase the Stress of Selling Your Business by Finding the Right Buyer

There is no denying the fact that life is much, much easier when one can find the right buyer for his or her business.  Buying or selling a business can be a stressful affair, but much of that stress can be eliminated by getting the right support.

The Concept of the “Right Buyer” 

In the recent Inc. article entitled, “How to Find the Right Buyer for Your Business and Avoid Negative Consequences,” Bob House builds his article around a relatively simple and straightforward, but powerful, concept.  House’s notion is, “the right buyer is worth more than a big check.”

House correctly points out that far too many sellers become fixated on exiting their business and grabbing a big pay day.  In their focused interest in the sum they will receive, these sellers ignore a range of other important details.  In part, sellers often miss the single greatest variable in the entire process: finding the most qualified buyer.  The simple fact is that if sellers want to reduce their long-term stress, then there is no replacement for finding the most qualified buyer, as the wrong buyer can be “headache city!”

Plan in Advance

As House points out, it is only prudent to determine what you want out of a buyer well before you put your business up for sale.  For example, if you don’t want to offer financing, then that is a decision you need to make well before you begin the process. 

Additionally, House wisely places considerable interest on pre-screening potential buyers.  Pre-screening is a great reason to work with an experienced and proven business broker who can assist with the process.  As a business owner your time is precious.  The last thing you want are a lot of window shoppers wasting your time. 

Keep Your Focus on Your Business 

Remember, while your business is up for sale, you still have to run your business.  Quite often, business owners have difficulty running their business and navigating the complex sales process simultaneously.  The end result can be disastrous, as revenue can drop and business problems can arise.

Working with a business broker means that you are dramatically reducing your potential stressors throughout the sales process.  A business broker will ensure that potential buyers are pre-screened and that only serious buyers are brought to you for consideration. 

Currently, the market conditions are great for sellers.  If you are considering selling, now is the time to find a business broker and jump into the market!

Copyright: Business Brokerage Press, Inc.

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