JUNE 2010 

Top 10 reasons why businesses don't Sell:

10. Business needs a remodel
Deferred maintenance and obvious required improvements just add to the buyers list of required capital investment.

9. Owner is key person
If your customers will only buy from you, this could cause serious reservations for a buyer.

8. Declining sales
In the past this was a big issue, now if your business is just down a little or flat year over year that is looked at as a positive in this economy.

7. Poor location
Lots of vacancies, poor neighborhood, and dilapidated centers all hinder the sales process.

6. No terms offered on the sale
Seller financing in today’s financial environment is almost mandatory. There is only one source of loan today to buy a business. This is from the SBA and requires the business show tax returns and enough profits to justify the loan. Cash is in scarce supply today.

5. Profit too low
If your income competes with a job at Target you may have a problem. No one wants to work for free. The good news for Restaurant owners is even with no profit you have value in the kitchen.

4. Uncertain lease terms
Some leases have been reduced, but temporarily. Buyers will want a fixed guaranty of lower rents. Landlords will fight to get rents back to high levels

3. No books and records
This may be the biggest problem I see. Inaccurate records can cause a buyer to back away. Keep good details on what comes in and out even if it does not get rung into the register.

2. Rent too high
Rents that exceed $2.00 PSF will be looked at closely by Buyers in today's market. If your rent is above $2.50 PSF now you should ask for a reduction.

1. Asking price is to high
Most Business owners do not have a good feel for the value of their business. Logic like “This is what I paid for it”. “My friend sold his business for this amount”, “I got an offer 3 years ago for this price”, “You can’t build one for this amount” will not work in this market.

All businesses are sell-able at some level, all objections can be overcome. The above is a general list to help you understand the challenges of selling a business.
 

April 2010 

Keeping the sale confidential 

When the time comes to sell your business usually keeping the sale quiet and confidential will prevent you from lost customers and employees. When you do put the business on the market you should proceed as if the business will not sell and run the business as such. Employees assume the worst even though most Buyers will want to retain the employees. Customers who feel there is an impending change may stop buying from you. 

Be sure all Buyers sign non-disclosures prior to learning the name and location of your business. 

Never put a sign in your window that you are for sale. 

Never tell vendors, distributors or other tenants you’re thinking of selling, this spreads like wildfire! 

Never tell customers or employees until the deal is actually done. Many deals fall apart right before the close. 

There is no 100% sure way to keep the sale confidential, but you can minimize the damage by being prepared. Even with vague language and minimal info some buyers may figure out who you are. My suggestion is when a Buyer approaches you and employees or customers are around, you always answer “everything is for sale” when asked “is the business for sale”? There are inherent risks when you sell your business and you must be prepared. 

Lets hope the worst of this economy is over!! 

Best of luck 

Today's tip has to do with selling your business to a competitor.

Many times when I market a business, Sellers will ask me to contact competitors because they would be good Buyers of their business. True, a competitor would be an easy sale from a "transition" standpoint, but from a “sale price” standpoint competitors will most likely want to pay the least for your business.

They simply look at the total investment and make a business decision as too which is the best use of their money. Almost always they can spend less money by doing more marketing or under cutting your pricing to take your customers away instead of your purchase price. I've also seen them hire away key employees to try and take market share.

Quite simply, those that know the least will pay the most and those that know the most will pay the least. If you were to buy a business like yours again you would most certainly be a well educated Buyer and pay a minimal price. The risk alone of letting a competitor know your thinking of selling may be too great as it is. The exception to this rule may be a strategic Buyer, who may be in a complimentary business and would acquire a business to jumpstart entry to a complimentary industry.

Competitors are usually a last resort for me when I'm looking for a Buyer.

I really hope 2010 is better than 2009!

Pricing of businesses for sale has seen a hit this year. We’ve seen drops of 20%-60% in some cases. Businesses are still selling, but Buyer’s are smart and looking closely at rent numbers and sales this year over last year. 

My tip this month will relate to personal guarantees related to your business. Many of my customers suffer sleepless nights directly related to these personal guarantees. From credit card terminals to location leases, you’ll find these in many contracts. When it does come time to sell these become a problem since most will not release you from the contract even if the business is transferred to a buyer. 

As new contracts are proposed or one’s come up for renewal, this is the time to get that guaranty dropped. You’ll find more flexibility than ever in this economy, take advantage of it! Try asking for the guarantee to drop off over time say 1-3 years of a 5-10 year contract or offer an increased deposit to offset the additional risk. For those of you who are a “Sole Proprietor”, this is a major reason to incorporate. 

I wish you the best for the balance of 2009 and into the future. 

AUG 2009 

Here we are past the midway point of 2009. Hope you're all doing well considering where we are in our economy. We are seeing some positive signs in our industry, especially in the last 90 days.

I'm compelled again to discuss rent reductions. This is the single biggest issue for us here is Socal. If you're trying to sell your business or just trying to survive this is at the top of the list for most of you.

Most landlords are still trying to hold on to high rents. You have to remember the average Landlord/Property Manager is being bombarded with requests for reductions. You have to make yourself standout above the rest.

Here are some suggestions to help you do that:

1. First if you have a poor working relationship with your landlord you need to mend that first. This will only increase your chances of success.

2. Before you come right out and ask you should let the landlord know you're doing everything possible to be profitable prior to asking for rent reductions.Give him examples of cost saving measures you're taking, new marketing avenues your trying. If you're first communication is give me give me, your not likely to get a favorable response.
 
3. Landlords will rarely just reduce the rent. Offer them something of value in exchange for a reduction or a concession. As an example you could offer to extend your current lease or sign a new long term lease, if you don't have % rent offer that up beyond your lease break point, Offer to make one lump sum payment at a discount on future rent. Get creative!

4. Arm yourself with examples of lower rents(if you can) in the area.

5. Make sure your proposal has a map showing how you will get back to profitability.

6. Keep communicating.

Lets keep in mind that the Landlord wants a good long term tenant.

Just a side note, if you can work in the removal of your personal guarantee and have a corporation sign the lease this would be a big bonus for you.

There is a great article on my web site that further discusses this issue. Here is the link if you're interested:
 http://images.agentcenter.com/client/0/5/5/36550/BBA_Franchise_Times_Article_2009.pdf

Tax implications of selling your business. 

Often over looked the tax implications of selling your business may be severe. Even if you’re taking a loss on the sale. As an agent I can’t advise you in that regard. You’re advised to seek help from your CPA or financial advisor. The reason I’m telling you to do so, is because finding out the implications after you accept an offer could be costly. 

There are several ways of structuring a deal to minimize your tax burden. Recently, we did a deal where the Seller took part of the sales price as a consultant, avoiding a higher tax rate. Another deal the Seller was also the landlord of the building and we worked out a higher rent in exchange for a lower selling price. Before you put your business on the market you should know what the tax consequences are of selling. We can structure the deal before an offer is written to avoid as much tax as possible. 

Keep working hard.

January 2009 

It’s that time of year again.

You work hard to build your business and when the time comes to sell, you're unprepared with financial records that cannot be deciphered. Buyers want to know how much money you make, whether it be in salary, draw, vacations, home computers, Costco, cash or ??. Most business owners engage is some form of expense write-off for the owner. Many businesses have one-time expenses in the year that will not repeat. These factors and more play a key role in valuing and selling your business.  

In February or March of each year you should review all your financial statements from the prior year and in each month identify all those expenses that are personal or one-time expenses. When the time comes to sell, you will be ready with all these expenses highlighted and ready for review by the Buyer or his advisors. The key is to stay on top of it and do it each year. Businesses with clear understandable records actually sell for more than ones without.

Happy New!

Have a great 2009 

I hope you’re all in good health. I already know how business is, so I won’t ask. 

Today’s tip can actually make you some money and improve the value of your business. Several of my clients this year have successfully negotiated lower rent payments. The landlords have finally come around and are now either temporarily lowering rent or permanently lowering rent. One client who is not in any financial trouble offered to pay 6 months of rent in advance in exchange for a reduction. Another of my clients actually signed a new longer term lease at a lower rate. I’ve seen 5%-25% reductions thus far. 

Even if you’re not thinking of selling you may take advantage of the economic crisis to benefit your business. 

Here’s to 2009 or maybe 2010 getting back to normal.

September 2008

I hope everyone is getting along in the upside-down year were having. To say things are crazy is an understatement. 

This month’s tip happened to one of my customers this year. If you have an option on your lease, listen up. Most leases have a time period you must exercise your option with-in. For example, usually the language reads you must notify your Landlord no sooner than 9 months before the expiration of your lease and no later than 3 months before the expiration of the lease. In this case my client missed the deadline and was unable to extend the lease at a fixed rate called for in the lease. They ended up paying another $1000 per month higher!!! Read your lease and circle the dates on your calendar and be sure to notify them by certified mail, get a signature!! 

Keep a stiff upper lip and we’ll get through this economic mess soon (hopefully!) 

Good luck to you all.

I hope everyone is getting along well in 2008 so far.  

Today’s tip has to do with Location Leases. If you have a business location with a lease, chances are you have personally guaranteed that lease. This could be over $500,000 in personal liability to you depending on how much your rent is and how big your space is. When it comes time to sell and transfer that lease, usually the landlord will not release you of liability of the payment. Your Buyer will make the payment directly to the landlord, but if they default you may be responsible. 

Here’s the solution. If your lease is up for renewal or you’re negotiating a lease in a new location, be sure to put the lease in the name of your Corp (if you have one). Most landlords will be unwilling to allow a new corporation to take sole liability, so try adding a clause that releases you personally of the liability in a definite amount of time, say 2 years. This gives time for the corporation to season and the landlord the opportunity to see your history as a tenant. Even in the middle of a lease the landlord may agree to make the change if you offer to add a few years to the lease or some other consideration.  This same solution should be applied to any term liability you take on, equipment leases, advertising contracts, car loans, etc. The goal is to leave the business without any liability. This will help tremendously. 

Good luck in the balance of 2008.  

January 2008

It’s that time of year again.

You work hard to build your business and when the time comes to sell, you're unprepared with financial records that cannot be deciphered. Buyers want to know how much money you make, whether it be in salary, draw, vacations, home computers, Costco, cash or ??. Most businesses engage is some form of expense write-off for the owner. Many businesses have one-time expenses in the year that will not repeat. These factors and more play a key role in valuing and selling your business.  

In February or March of each year you should review all your financial statements from the prior year and in each month identify all those expenses that are personal or one-time expenses. When the time comes to sell you will be ready with all these expenses highlighted and ready for review by the Buyer or his advisor's. The key is to stay on top of it and do it each year. Businesses with clear understandable records actually sell for more than ones without.

Happy New Year!

Have a great 2008 Let me know if you need my help.    

September 2007 

Businesses are still selling even with the current economic conditions we’re experiencing. The biggest issue today is sales are down for many businesses causing a drop in their overall value. Businesses that have increasing profits actually are selling for more than ever. 

Today’s tip is something I’m seeing more and more in the last few years.  Owners of businesses are becoming more creative than ever with their compensation. Paying themselves rent, commissions, bonuses, vacations, etc to reduce the companies overall net. This is fine, except when you go to sell, it must be clear and traceable for the buyer to prove the numbers, furthermore, banks will not always consider some of these avenues for reducing taxable income in their calculation for a loan.

My most recent example is the seller was paying his daughter a salary, even though she didn’t work there. The bank would not consider it an addback. If you’re not willing to finance a portion of the sale you may need to be sure the business will qualify for outside financing. You may want to consider reporting the income differently the year before you sell to help alleviate any potential issues. Some banks will want more than one year, so you may even want to start earlier. As always consult your CPA or Attorney for what may be best for you. 

Have a great balance of 2007.

Call if you need anything.  

Today’s tip has to deal with retail leases.

If you have a retail lease please read. Recently I have come across more instances of Landlords inserting clauses in leases that allow them to renegotiate, recapture or charge outrageous fees when you request a “Lease Assignment” to a potential Buyer. If you attempt to sell your business and your current lease has 1 year or more left, chances are you will have to do an “Assignment” of your lease to your Buyer. Most retail businesses live and die by their location, so your lease can make or break your sale. 

My most recent two examples involve a Drink Franchise and a small café.  The drink franchise had the recapture clause. The landlord told me that instead of recapturing the location and releasing it for more money they would just offer the new Buyer the same lease at a higher rate. They raised the rent 17% and the Buyer ultimately backed out of the transaction due to the rent increase. 

The Café lease calls for a $10,000 transfer fee!!!! While the buyer didn’t have to pay the fee, since it was the Seller’s responsibility, the Buyer did realize he would have to pay that fee when he eventually sold and he ultimately backed out as well. 

The moral here is, please read your “Lease Assignment” clause in your lease. You must be prepared for the terms they require. For those of you who will not be selling soon, take this opportunity to review and possibly revise that part of your lease or at least when negotiating an extension or a new lease, you can be better prepared for the impact of some of those clauses in your lease. 

Hope everyone is doing well.

Have a great 2007  

Today’s tip has to do with personal relationships with your customers. 

It just makes good sense to have relationships with your customers. Unfortunately, when it comes time to sell it may be a liability. If your customers will only buy from you or speak to you on the phone this is a great concern for the Buyer of your business. The Buyer may believe that your customer will not want to buy from him and business will naturally go down. This adds downward pressure to the perceived value of your business. The year before you sell your business, you should try and back away from direct contact with customers on the phone and in person. Make sure there is someone on staff that has a good relationship with customers so both the Buyer of your business and your customers don’t feel you’ve abandoned them.

Many small businesses do not have the benefit of a large staff that can be trained to take over. In this case be sure detailed records exist that outline each customers wants and needs, past issues, hot buttons and more. This will be impressive to a Buyer and may be the difference between selling for what you want and what they will pay. I wish everyone a great 2007.  

Sep 2006

Today's tip has to do with selling your business to a competitor.

Many times when I market a business, Sellers will ask me to contact competitors because they would be good buyers of their business. True, a competitor would be an easy sale from a training standpoint, but from a sale price standpoint competitor's will most likely want to pay the least for your business.

They simply look at the total investment and make a business decision as too which is the best use of their money. Almost always they can spend less money by doing more marketing or under cutting your pricing to take your customers away instead of your purchase price. I've also seen them hire away key employees to try and take market share.

Quite simply, those that know the least will pay the most and those that know the most will pay the least. If you were to buy a business like your's again you would most certainly be a well educated Buyer and pay a minimal price. The risk of just letting a competitor know your thinking of selling may be too great as it is.

Competitors are usually a last resort for me when I'm looking for a Buyer.

Hope business is well and if I can help you with anything just let me know.  

July 2006