The Advantage of Buying an Existing Business
Most people think of starting a business from scratch, developing an idea, building a company from the ground up. Starting from scratch, however, has its disadvantages including – developing a customer base, marketing the business, hiring employees and creating cash flow … without any history or reputation to rely on.
To avoid these challenges, buying an existing business may prove to be the better solution. Buying an existing business has its advantages – including, but not limited to:
The Business Is Established.
An existing business is a known entity. It has an established and historical track record. It has a customer or client base, established vendors, and suppliers. It has a physical location with furniture, fixtures, and equipment in place. The term “turnkey operation” may be overused, but an existing business is just that, and more. New franchises may offer a so-called turnkey business opportunity, but it ends there. Start-ups are starting from scratch with all the disadvantages stated above.
The Business Has Existing Relationships.
In addition to the existing relationships with customers or clients, vendors, and suppliers, most businesses also have experienced employees who are valuable assets to the company. A buyer may already have established relationships with banks, insurance companies, printers, advertisers, professional advisors, etc., but if not – the existing business/owner does, and they can readily be transferred to the buyer as part of the acquisition.
The Business Isn’t “A Pig in a Poke”.
Starting a new business is just that: “a pig in a poke.” No matter how much research, time, and money you invest, there’s still a big risk in starting a business from scratch. An existing business has a financial track record along with established policies and procedures. A prospective buyer can see the financial history of a business – when sales are high and low, what the true expenses of the business are, and how much money an owner can make, and more. Also, in almost all cases, a seller is more than willing to stay on to teach and work with a new owner – sometimes free of charge.
An Existing Business Comes with A Price and Terms.
As stated above, an existing business has everything in place. The business is in operation and typically has an established selling price. Opening a new business from scratch comes with a great degree of uncertainty and can become a proverbial “money pit”. When purchasing an established business, a buyer knows exactly what he or she is getting for their money. In many cases, a seller is also willing to take a reasonable down payment and then finance the balance of the purchase price.
The “Unwritten” Guarantee.
By financing the purchase price, a seller is saying that he or she is confident that the business will be able to pay its bills, support the new owner, plus make any required payments to the seller.
Copyright: Business Brokerage Press, Inc.
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How Understanding Psychology Can Benefit Your Deals
We work closely with our clients to preserve the integrity of deals so that they have the best chance of a successful closing. An often-overlooked aspect of the process is understanding and embracing human psychology. In this article, we will explore some of the most common ways that psychology comes into play.
The Element of Time
It is critical that both buyers and sellers feel well prepared at every stage of the process. It is also essential that a certain momentum is established through every stage of the deal. When too many delays happen, this can start to derail deals.
Think about the Buyer and the Seller
For both parties, the buying or selling of a business is a life-changing event. For this reason, it is important that you invest the time to think about the point of view of the other people involved. No doubt, buying and selling can be stressful, so it’s important to take other people’s thoughts and feelings into account. You are not the only one who may be experiencing a little stress.
The Issue of Non-Active Partners
In some deals, non-active partners can pose challenges to finalizing deals. They often have different motivations than the seller who is in the role of running the business. In a situation where two sellers have divergent goals, it can pose a challenge to a deal. The best thing to do is to try to understand the point of view of each seller and help them both reach their respective goals.
Identify Influencers
Influencers and recommenders can have a powerful sway over both buyers and sellers. By influencers, this could mean accountants, lawyers, relatives, etc. In order for a deal to go through successfully, often these influencers must be identified and their viewpoints must be addressed. On a practical level, there are also other people involved that can interfere with a deal, such as landlords. It’s important to make sure that these individuals feel as though they will benefit from the success of the deal as well.
There are many moving parts needed to get to the finishing line. Human psychology plays a huge role in what decisions get made. It’s vitally important to take the time to consider what others involved in the deal might be thinking or doing. Your Business Broker or M&A Advisor will benefit you by getting to know all parties involved and taking the appropriate actions to ensure things are done to the satisfaction of all parties.
Copyright: Business Brokerage Press, Inc.
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The 12 Laws of Karma Applied to Business Ownership
You are more likely to success as a business owner if you are motivated to help solve other people’s problems, not your own. Karma describes the concept of getting back whatever you put forth, good or bad, into the universe. By definition, it’s central to Hinduism and Buddhism for determining a person’s next existence based on the ethical net of their current life. But no matter which belief system you follow (or don’t), many believe the concept of karma plays a role in our lives – and by extension, the return we will receive from our business ownership.
When you run your business in accordance with the 12 Laws of Karma, you create good karma in your business life, increasingly the likelihood for good things to happen in the future. Below, find a breakdown of what each of the laws mean, plus tips for how to harness their power for your business’ success.
1. The great law
Also known as the law of cause and effect, the great law is what comes to mind for many people when considering what karma means. It states that whatever thoughts or energy we put out, we get back—good or bad. It’s like sowing and reaping. If you truly are an ethical proprietor, the kindness, knowledge and extraordinary help you bestow on your customers will net you greater returns in terms of revenue and profits.
2. The law of creation
The law of creation is all about creating. You don’t just wait for good things to magically happen in your business; you have to actively go out there and make things happen. Highly successful businesses are prime examples of people who embody this karmic law. They are constantly searching for creative ways to identify customer needs and offer products and services to meet those customer needs.
3. The law of humility
In order to change something in your life, you first have to accept what currently exists. That is the premise of the law of humility. This is also a trait shared by many highly successful business owners. Highly successful business owners are constantly assessing their current knowledge and seeking out education, training and/or new employees that will help them to better serve their clients.
4. The law of growth
As its name suggests, the universal law of growth is about expansion, namely within ourselves. As we grow, change, and evolve internally, our external reality will change and grow as a result. This, again, is where personal development, education and training can come into play. And growth potential never ends—there are always new things to learn, and better ways to be that trusted business owner.
5. The law of responsibility
The law of responsibility is about taking ownership for everything that happens in our lives, including the not-so-good stuff. We are responsible for how we show up in the world, how we allow others to treat us, and how we treat other people. In order to put this law into action, take responsibility for the part you play in every customer interaction.
6. The law of connection
The law of connection states that everything and every person is connected in some way. For example, although the past you, the present you, and the future you may seem entirely different, they are all still you. Everything you’ve experienced has led to the next thing and the next thing and the next thing. It’s all linked. The same applies to your business. Recommendations come from past customers. Your reputation is the sum of your past actions.
7. The law of force
Although some of us may claim to be a pro at multi-tasking, the inclination to do everything at once often just slows us down. The law of force states that you cannot apply your energy toward two things simultaneously. Our days are full of distractions. Realize there are times you will need to give full attention and devotion to a customer to serve their needs.
8. The law of giving and hospitality
This law of karma is all about selflessness, giving to others, and practicing what you preach. It’s about ensuring that you’re not simply saying and thinking good thoughts, but that you also walk-the-walk and follow those beliefs with action. Some of our best referrals come from helping a customer solve a problem – even when extra time or expense was necessary.
9. The law of here and now
The law of here and now is all about being present. Many of us dwell too much on the past – to the point of distraction. If, instead, we live in the here and now and are attuned to what we are doing, seeing, and really listening, we won’t be disconnected when we are interacting with customers. You will notice that the energy is different, and the experience is more engaging and rewarding, and your mind will be more keenly focused.
10. The law of change
If you’ve found yourself experiencing the same undesirable situation over and over again, this may be due to the law of change in action. It’s the universe’s way of nudging you to learn a lesson. The pattern will continue to repeat itself until you connect your feelings and learn from the experience; and take action in order to change the pattern.
11. The law of patience and reward
This karmic law essentially translates to “hard work pays off.” It’s about showing up and doing the work and not giving up on your big goals, even when you don’t see any progress made toward them quite yet. Live in accordance with this karmic law by knowing that achieving great things requires time and persistence, not giving up, celebrating yourself, and savoring every little milestone you achieve along your journey.
12. The law of significance and inspiration
The law of significance and inspiration tells us that we all have value to give. By extension, your training, experience and commitment are gifts meant to be shared with your customers and you will make a positive impact. Many of our customers have less than full knowledge of your product/service. So, your expertise is critical to them. Tap into this karmic law whenever you need a boost of motivation.
There is nothing more rewarding than positive feedback, and in this modern age – positive reviews. The resulting karma you have created nets immediate financial reward, as well as likely referrals in the future. And, it is one more experience which you can catalog for the benefit of future customers.
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Buyers: Capitalize on Unprecedented Business Acquisition Opportunities in 2021
Demand for business acquisitions is accelerating, rather than being dampened by COVID-19 for many sectors. This trajectory reflects a market driven by baby boomer demographics, low interest rates, available capital, opportunity seekers and business owners either well-positioned to profit or forced to exit. Market watchers look for both Main Street and M&A deal flow to soar in 2021.
On the supply side, all businesses have been impacted by COVID-19. Some have benefited from changes in consumer demand, while others have been challenged to modify their business model. However, the underlying demographics of business ownership have not changed. Aging baby boomers will be transferring their businesses, as time does not wait for pandemics to resolve.
On the demand side, there has been a shift from a predominant seller’s market to a buyer’s market. This usually refers to a situation in which supply exceeds demand, giving purchasers an advantage over sellers in price negotiation. But, in this case the advantage is driven by buyers feeling they can buy a business for a better value, low interest rates and unemployed workers not ready for retirement turning to business ownership to seek more control of their future.
In helping buyers/sellers through ownership transition process for over 18 years, we’ve identified some tips for buyers beginning their search.
#1: Find Opportunities Where Your Abilities, Skills and Resources Overlap Your Interests
Before you start searching for a business to buy, take the time to understand yourself, and where your abilities, skills and resources overlap with your interests. It is not productive to investigate any business that isn’t a good match. For example, consider which business categories and characteristics are not a good fit, and eliminate those businesses from your search.
Start by envisioning yourself as owner/manager of a company you might consider buying. What value do you bring to the business? Do you have sufficient resources to complete the purchase, with a cushion of additional resources for working capital and/or unexpected expenses? Would you be excited to tell your friends and family about your new venture? Being able to answer these types of questions will help narrow your search to only the businesses that would be a good fit for you.
#2: Be Prepared to Sell Yourself, Not Just to Be Sold
Once you have a complete inventory of your abilities, skills, resources and interests, you can sell yourself to business owners, which is something that so many buyers neglect. Most buyers approach the business acquisition process like angel investing. They ask, “Why should I invest in this business?” But business acquisition generally works the opposite of angel investing.
Most business sellers have tremendous pride in the business they created, and the value of their years of sweat equity, risk taking and the successful navigating of economic cycles. Instead of approaching the process with a “sell me on this opportunity, then I’ll invest my money” attitude, look at the process like you’re interviewing to be the CEO of the company.
Yes, money is a big part of getting a deal worked out. But sellers are also going to make decisions based on qualitative determinants. Is this buyer capable of continuing the legacy of my company? Can this buyer step into my shoes? Will this buyer take care of my employees and customers? So, make sure you do everything you can to instill confidence in you as the buyer and your ability to be a successful owner of the business.
#3: Consider the Big Picture First
Nine out of ten people who inquire about a business for sale opportunity never pull the trigger. Many do not consider the big picture issues first, e.g., is this business really a good fit for me? Do I bring value to this business? Does the location work or can the business be relocated? Do I have sufficient resources for the purchase, or down payment if financed, and working capital?
Upon signing an NDA, they instead dive into the financials, asking why a certain expense line changed from year-to-year. Financial details are an important determinant of price and terms to be offered, but focusing first on whether a business fits with a buyer’s hierarchy of needs will lead to a more successful outcome.
#4: Trust but Verify
Ninety-nine percent of owners selling their business do not have ill intent. They do not purposely try to hide material facts, nor are they trying to get out the door before a tidal wave crushes them. But, many buyers make these assumptions about sellers, and that distrust kills deals.
Business ownership has a life cycle. When starting-up a company, an owner might leverage all or most of their personal assets. They might forego significant income in early years to reinvest in growth. Over time, they might experience ups and downs of economic cycles. At the point that they reach a steady state, they might become complacent with the size of the business and risk adverse to reinvesting in potential growth opportunities. Age, health, divorce or just the desire to do something different may bring them to consider an exit at this time.
Most small business owners do not take the time to meticulously prepare their business for sale. They simply know that it is time retire, to enjoy the fruits of their labor and step back from the day-to-day operations. So, don’t assume ill intent by the seller if they are unable to deliver audited financials, a business plan or need time to prepare reports on customers, suppliers and competitors. Take the time to meet with owners and listen to direct answers to your questions…then verify with available data.
#5: Do Your Due Diligence, but Avoid Analysis Paralysis
Once buyers get to a letter of intent (LOI) which expresses a desire to purchase a business, some of them make one of two fatal mistakes: (1) they get lazy and don’t do a thorough job of due diligence; or (2) they become so fearful of making an error that they stall the acquisition process with overthinking and extended information requests. Due diligence should include financially, legally and operationally vetting the target company. But, there is a point at which a timely decision to proceed needs to be made.
There’s always going to be a leap of faith in a business acquisition, so it’s perfectly normal to feel some nerves. But when you do a thorough job of due diligence, you will be comfortable when it comes time to put pen to paper. Nervously excited? Sure, but not uncomfortable.
Where to Find Businesses for Sale
Be mindful of these tips and you’ll be way ahead of the curve compared to other business buyers. As you begin your search, regularly check out Touchstone Business Advisors’ website at www.touchstonebiz.com for business opportunities throughout Colorado and the region. For assistance with your business acquisition process, contact a Touchstone Business Advisors broker for expert, confidential and personalized representation.
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Is Your Business Charging Enough For Goods & Services?
A small increase in what you charge for your goods and services can make a tremendous difference to your bottom line. The fact is that many businesses could charge more for their goods and services than they do, but fail to do so. Owners often do not realize the great value of charging just one-percent more. In this article, we’ll explore how charging even slightly more can dramatically impact your business.
Let’s consider a hypothetical example. A business owner tells a potential buyer that he or she could safely increase their prices by 1.5% and do so without the price increase causing any negative impact to sales or business disruption. The savvy buyer quickly realizes that the business, which has $70 million in sales, is leaving $1 million dollars on the table by not increasing its prices by 1.5%. A smart buyer realizes that after purchasing the business, all he or she has to do is institute this small price increase in order to achieve a sizable increase in profits.
In his best-selling book The Art of Pricing, Rafi Mohammed explores the often-overlooked area of pricing. He keenly observes that one of the biggest fallacies in all of business is to believe that a product’s price should be based on the cost of the product. In The Art of Pricing, Mohammed points to several examples. One comes from the restaurant industry. He points to the fact that McDonald’s keeps entrée prices attractive with the idea of making up profit shortfalls in other areas, ranging from desserts to drinks and more. Or as Mohammed points out, McDonald’s profits on hamburgers is marginal. However, its profits on French fries are considerable.
Mohammed’s view is that companies should always be looking to develop a culture of producing profits. He states, “through better pricing, companies can increase profits and generate growth.” Importantly, Mohammed points out that it is through what he calls “smart pricing” that it is possible to extract hidden profits from a business. Summed up another way, pricing couldn’t matter more.
All too often business owners, in the course of their day-to-day operations, fail to place sufficient importance of pricing. Any business looking to achieve more will be well served by first stopping and taking a good look at its pricing structure.
Likewise, buyers should be vigilant in their quest to find businesses that can safely increase prices without experiencing any disruption. At the end of the day, small changes to pricing can have a profound impact on a company’s bottom line.
Copyright: Business Brokerage Press, Inc.
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