As an entrepreneur and business owner, your partnership agreement stands as one of the most important business documents you will sign. Business structures can be as complicated as the people that create those businesses. Quite often, business owners create businesses with friends or loved ones and, as a result, will not have a proper partnership agreement in place. 

It’s important to note that not having a partnership agreement in place is a mistake. There are too many unknowns and too many variables not to have this essential document. You need a legal framework to protect your business from the vast array of potential pitfalls that may have an impact. 

The Key Elements of a Solid Partnership Agreement

At the top of the list of every partnership agreement is a clear outline and understanding of rights and responsibilities. All too often partnerships run into trouble as the rights and responsibilities of the parties aren’t clearly thought through and then outlined in a partnership agreement. 

Mapping out rights and responsibilities will help eliminate problems in the future. A partnership agreement should be seen as a serious legal document. As such, it is prudent to work with an experienced lawyer in the area of partnership agreements.

What Every Partnership Agreement Should Address

At the top of the list, every partnership agreement should address how money is to be distributed and which partner(s) will receive a draw. The issue of who will contribute funds so that the business becomes operational should be very plainly spelled out in the partnership agreement. A failure to address this issue could end the business before it even gets off the ground. 

Issues such as what percentage each partner will receive and who will be in charge are two additional key areas that should never be overlooked. In terms of issues that are frequently overlooked by those forming a partnership, it is common for those forming a partnership to overlook long-term issues such as what is to happen in the event of the death of a partner, what steps are to be taken to bring in a new partner, and how business decisions are made.

Without a solid partnership agreement in place, business owners may find themselves in the last place they want to be, namely, court. A lengthy court battle can weaken your business in a very wide range of ways including a hit to company morale as well as the loss of key customers and employees. A legal battle between business partners can destroy what would otherwise be a healthy and thriving business. 

The time you invest in the creation of a business agreement is time and money well spent. In fact, it is safe to state that a business agreement might just turn out to be one of the greatest investments you ever make.

Copyright: Business Brokerage Press, Inc.

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Most business owners are experts at running their specific businesses. They are not necessarily experts at selling businesses. This is where working with a seasoned brokerage professional can prove to be invaluable. 

As it turns out, there are endless examples of people trying to save money by simply finding an MBA to handle the sale of their business. Owners often will trust this person despite whether or not they have direct experience selling businesses. Sadly, the results from this decision can be very poor. 

Let’s take the example of a business owner who opted to let his nephew with a freshly minted MBA oversee the sale of his multi-location retail operation. The idea was that his nephew would help him save a great deal of money. Unfortunately, this idea simply didn’t work. His well-intended nephew’s inexperience proved to be a liability. 

Let’s take a look at some of the main problems that this business owner and his nephew faced:

Missing Legal Arrangements

One of the first problems is that neither the business owner nor the nephew realized how important confidentiality agreements were to the process of selling a business. This led to competitors learning that the business was for sale. Likewise, the lack of confidentiality agreements meant that everyone from key employees to clients, customers and suppliers could learn that the business was for sale.

Further, the nephew opted to use the company’s attorney instead of finding an attorney with experience in business transactions. The company attorney had never handled the sale of a large business before.

Incomplete Documentation

Another problem was that the nephew prepared what was supposed to be a Confidential Business Review/Confidential Information Summary – CBR/CIM. The review/summary prepared by the nephew failed to include proper financials, including a large sum taken by the owner. Importantly, there were no projections, ratios and other important information. This lack of information could easily lower the bids or simply cause prospective buyers to lose interest.

The way that the business owner and nephew handled the CFO was also an issue. They failed to bring in the CFO and did not execute a “stay” agreement. The nephew was confident that he could handle the financial details on his own. However, neither the owner nor the nephew realized that prospective buyers expected to meet the CFO as part of the due diligence process.

Failure to Properly Screen Candidates 

Finally, not only did the nephew not understand the importance of confidentiality agreements or the due diligence process, but he also failed to understand the importance of the screening process. The nephew failed to interview prospective buyers to discover whether or not they were serious and had the resources to buy the business. The failure to have a proper screening process served to both waste valuable time and spread the word that the business was for sale.

For most people, selling a business is the single most important financial decision of their lives. For this reason, it is critical to find experienced and competent assistance for the process. An experienced business broker or M&A advisor understands what is involved in selling a business. In other words, your nephew may be a great guy and he may want to help you, but without years of experience selling businesses, he simply isn’t the right person for the job.

Copyright: Business Brokerage Press, Inc.

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Maintaining confidentiality should be placed at the top of your “to-do” list when selling a business. The tremendous importance of maintaining confidentiality is difficult to overstate and stands as one of the key reasons that any seller should opt to work with a business broker or M&A advisor. Every seller should remember that a breach in confidentiality can quickly kill a deal, and for many different reasons.

To be blunt, a breach in confidentiality is dangerous for your business. Such a breach can cause suppliers, vendors, key customers or clients, as well as employees and management, to become concerned or even alarmed. A change in the ownership of a business can translate into major changes in how it operates. 

Vendors and suppliers can worry about disruptions, and employees and management may become concerned for their jobs or positions. In turn, disruptions may take place, such as key team members finding new positions, which could make a prospective buyer nervous. These disruptions could make it more challenging to successfully sell your business.

While a breach of confidentiality may lead to a loss of confidence or concern among vendors, suppliers, employees, and management, that is only the beginning of the problems that a breach may cause. A breach in confidentiality could mean that your competition learns that your business is going to be sold. Your competitors may seize on this opportunity and try to steal your clients or customers. The end result is that your business could experience a sudden and sharp decrease in revenue as key customers go elsewhere. The loss of revenue and customers will make your business less attractive to any potential buyer. In this way, a breach of confidentiality could dramatically help your competitors grab market share and do so at your expense.

Even if all of your employees and management stay and all of your vendors, suppliers, and key customers move forward with business as usual, there is still another issue. Prospective buyers who learn that there was a breach of confidentiality may simply walk away from the deal as they are worried about potential negative outcomes due to the breach in the future.

It can be challenging to maintain confidentiality, and yet, it is remarkably important. Brokerage professionals are experts in maintaining confidentiality. Any owner looking to sell their business will be well-served by taking advantage of all that a business broker has to offer.

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By spotting your company’s weaknesses you can take steps to remedy them and improve operations, however, this is only the beginning of the benefits derived from spotting these types of issues. You should be the world’s foremost expert on your company and the investment that it represents. Identifying and repairing any negative issues will pay dividends both today and potentially for the life of your company. 

There are many areas of weakness that companies may experience. In this article, we’ll look at a few of the key areas that many share

Workforce Issues

An area of business weakness that is receiving a good deal of well-deserved attention in recent years are problems related to the workforce. Workforce headaches are varying between industries and sectors. It has been well documented that young people are not entering trades in the numbers needed to replace retiring workers. This is a fact that is causing significant headaches for many businesses. An aging workforce will impact some businesses more significantly than others. Understanding the labor situation as it pertains to your business is a critical move for any business owner.

Overreliance 

Being overly reliant on any one supplier, customer, product line or even employee or group of employees, may have an impact on your business in a number of ways.  Supply chain interruptions, disruption to income and cash flows, labor shortages and a diminishment in the perceived value of your business by future buyers are just a few of the issues you may encounter. Diversification isn’t just a smart way to handle one’s portfolio, but is also a smart way to address your business plan. If your business is overly reliant in any one area, it is a good idea to measure the risk vs. reward and seek out ways to diversify if necessary. Your business will be stronger and worth more in the end.

General Industry Decline

Nothing lasts forever. Once upon a time, the country’s landscape was littered with Blockbuster Videos, but today Blockbuster Video has joined the vast and great technological dinosaurs of the past. 

There is no escaping the fact that industries change. Being on the tail end of that change without a transition plan to meet new and potentially more profitable opportunities is not a good place to be. One of your key jobs as a business owner is to identify issues and problems within your industry and adapt, ideally ahead of the competition. Part of this adaptation may ultimately include knowing when it is time to exit your business entirely.

Business brokers and M&A advisors specialize in helping business owners spot weaknesses and then strategize to make significant improvements. The world of business is changing and evolving faster than ever before. Engaging with experienced advisors who can help you navigate this flurry of ongoing change could spell the difference between success and failure; while greatly improving the value of your business, rewarding you handsomely in your retirement.

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The closing is a pivotal moment in the history of a business as it marks the formal transfer of a business from one party to the next. Behind every successful closing is months of focus and hard work. Simply stated, a successful closing doesn’t just happen, but is instead the byproduct of extensive negotiations. 

One key document to utilize in the closing process is the Purchase and Sales Agreement. There are four key aspects to this document. 

1. First are the terms of the agreement, which typically cover the price as well as detailed terms on how the business is to be paid. In the Purchase and Sales Agreement, you will find the status of any management that will be staying with the business. 
2. This document also should contain conditions and covenants which include non-competes as well as agreements on what to do and what not to do moving forward. 
3. Any good Purchase and Sales Agreement will, of course, include a description of the transaction. In other words, is the transaction a stock or asset sale? 
4. Finally, the agreement will cover representations and warranties. This is typically negotiated after the Letter of Intent is agreed upon. In short, the warranties will provide that everything is as it has been represented.

Now, let’s look at the four key steps that are a must before the sale of a business can close. 

1. Topping the list, is that the seller must provide satisfactory evidence that they have the full legal right to act on the behalf of the selling company. Additionally, the seller must show evidence that they have full legal authority to sell the business. 
2. Secondly, all representations and warranties must be in place. Importantly, this will also include clearly stated remedies that are available to the buyer in the case of a seller’s breach. 
3. Third, the buyer’s representative should have completed the due diligence process. A key part of the due diligence process is that any claims and representations made by the seller have been clearly substantiated and addressed. 
4. Last, but certainly not least, necessary financing should have been secured. A critical part of the process is that all of the proper paperwork, as well as the appropriate liens, should be in place, as no funds can be released until these conditions have been met.

It is also important to note that there are two significant elements of closing that will take place simultaneously. 

1. The first is the corporate closing which is the actual transfer of the corporate stock or assets. This step is based on the provisions set forth in the Purchase and Sales Agreement. All the paperwork that was carefully laid out in the Purchase and Sales Agreement has been completed. 
2. The second major element is the financial closing. In the financial closing all the paperwork, as well as the legal documents needed to provide funding have successfully been executed.

While there is no doubt that closing is a joyous time, it is also vital to remember that the period leading up to closing is the time to have a laser-like focus. This is the most important time to avoid mistakes. Working with a business broker or M&A advisor can dramatically reduce your chances of experiencing mistakes during the all-important closing process.

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As a business owner, your natural inclination is likely to be considering the strengths of your business and how to perform even better in the future. However, the truth is that sitting back and thinking about your flaws can actually benefit you in the long run. When you have a full understanding of where you are lacking, it will empower you to make the best strategic decisions for the future. These changes, in turn, will help you receive top dollar when you go to sell your business. 

Here are 4 areas you should be evaluating:

1. Your Products

How diverse are your products? If you rely upon the sale of just one product, that puts your business in jeopardy. You should be thinking about additional products you could add. This will also open you up to new opportunities for customers and revenue.  

2. Your Workforce

There has been much publicity about the current trends in businesses struggling to find staff. Further, there are a variety of trades, such as tool and die, where there is a shortage of skilled workers to begin with.  However, your staff members are the core of your business, and represent its wellness and ability to thrive in the future.  

3. Your Industry

You should always be on the lookout for trends that could negatively impact your business. Sometimes things are simply out of your control, and you might find that your entire industry is in decline. When this occurs, be sure to think about new directions you can take. If you sit back and just wait for things to change, the value of your business could slip away before your eyes. 

4. Your Customers

If you only have one or two core customers, that will typically lower the value of your business. Any potential buyer will quickly realize that the health and stability of your business is somewhat fragile.  While you may feel that you don’t currently have the time and resources to obtain new customers and clients, doing so will serve you tremendously when it’s time to sell.

When you work with a business broker or M&A advisor, he or she will help you to evaluate your company and look for weaknesses. However, oftentimes it’s challenging or even impossible to turn the tides when you are under the gun to sell right away. That’s why so many business owners decide to work with a brokerage professional years before they actually plan to sell. This enables them to correct any weaknesses years in advance and be fully prepared to present their business in the best light possible. 

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If you’re buying a business, you might be feeling overwhelmed about all the details that are involved, especially if it’s your first business. Buying a business is certainly no small task, and that’s why you’ll want to dive into the process headfirst and make sure that you’ve carefully examined the business. 

Here are some of the most important elements to consider. While some of these aspects don’t immediately come to buyer’s minds, they should be high on your list of considerations. 

Legal Documents

Reviewing legal documents might not seem like the most enjoyable task, but this activity should be one of the first things you will want to do before buying a business. Most worthwhile businesses will have a long list of legal documents to show, ranging from documents showing trademarks and copyrights to consulting agreements.

Tax Documents

When it comes to paperwork, tax documents are obviously also a necessary element to review. Some things that you should be watching for are forms that do not adhere to the IRS rules. It goes without saying that you don’t want to be the one taking responsibility for a previous owner’s error. 

Business & Retirement Documents

The list of documents you’ll want to review doesn’t end there, as you’ll also want to check into retirement documents such as balance sheets, investment statements, and income statements. You’ll want to ensure that all of the qualified and non-qualified retirement programs run by the business are up to date. You might need to check the parameters of the Department of Labor’s rules. 

Work with a Business Brokerage Professional

Your business broker or M&A advisor will take you through the due diligence process to help you make sure that all aspects of the business have been reviewed thoroughly before you sign on the dotted line. Be sure to work with an experienced individual who is proactive when it comes to making sure all of your questions have been answered to your satisfaction. 

The items on your to-do list might seem overwhelming at first, but remember that a lot of focus and effort now will save you a ton of hassles and issues later. And you might end up dodging a bullet by spotting a serious issue that causes you to change your mind about a business. Always be sure to protect yourself and your best interests. 

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There is no denying the fact that for most people, the decision to buy or sell a business is one of the most important professional and financial decisions that they will ever make. Let’s turn our attention to some of the key questions you’ll need to ask.

1. What is really for sale?

You’ll need to determine what is, and is not, for sale. If you own machinery or real estate associated with the business, are those items to be included in the sale?

2. What assets bring in revenue? 

One important factor to consider when preparing a business to be sold is what assets are earning money. If you have assets that are not earning money, then it may or may not be prudent to sell those assets.

3. What is proprietary?

Buyers and sellers alike will want to consider what is proprietary. Anything from software and patents to formulations can be extremely valuable. Sellers will want to give substantial thought to how to best frame any proprietary property that they have in the best light. Buyers will want to carefully evaluate proprietary property to try to ascertain an accurate value. Outside experts may be needed to make an accurate assessment.

4. What’s your competitive advantage? 

A business’s competitive advantage should be of importance to buyers and sellers. A seller should focus on understanding their competitive advantage, whether it is a certain niche, a superior manufacturing process or product, better marketing or a range of other factors. Properly framing your competitive advantage can help buyers see the full, and even untapped, value of your business.

5. What is your growth potential?

Buyers will want to consider factors such as whether or not the business has the potential to grow. If the business can’t be grown, then buyers should include this fact in their final decision and/or offer.

6. What agreements do you have in place?

Other factors such as employee agreements, non-competes, and the depth of management are all areas of concern for a prospective buyer. Buyers will want to consider if the seller has secured agreements from key employees and how dependent the business is on an owner/manager. 

7. What relevant financial information will a buyer want to know? 

Understanding how much working capital is needed to run the business and how financial reporting is undertaken are other factors that should not be glossed over.

If you are preparing to sell your business it is worth the time to pause and think about what your business might look like to a buyer. In short, what would you think of your business if you were the buyer and what questions would you ask? 

Buying or selling a business is complex. Every single business is different and that means there is no 100% standardized approach and route towards success. A seasoned, experienced and professional business broker or M&A advisor can help guide buyers and sellers alike towards optimal outcomes.

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