Negotiating the Price Gap Between Buyers and Sellers

The terms of the deal are extremely important to both parties involved in the transaction. Many times the buyers and sellers, and their advisors, are in agreement with all the terms of the transaction, except for the price. Although the variance on price may seem to be a "deal killer", the price gap can often be resolved so that both parties can move forward to complete the transaction.

Listed below are some suggestions on how to bridge the price gap.

• If the real estate was originally included in the purchase price, the seller may choose to rent the premises to the acquirer rather than sell it outright.
• The purchaser can acquire less than 100% of the company initially and have the option to buy the remaining interest in the future.
• A subsidiary can be created for the fastest growing portion of hte business being acquired.
• A royalty can be structured based on revenue, gross margins, EBIT, or EBITDA.
• Certain assets, such as automobiles or non-business-related real estate, can be carved out of the sale to reduce the actual purchase price.

Although the above suggestions will not solve all of the pricing gap problems, they may lead the participants in the necessary direction to resolve them. The ability to structure successful transactions that satisfy both buyer and seller requires an immense amount of time, skill, experience and most of all - imagination.

Check out this great article on financing a business from BusinessNewsDaily...

Today there was a great article on BusinessNewsDaily.com, "7 Ways to Finance a Small Business" By David Mielach, Staff Writer.

What makes this article great is not only its inciteful synopsis of the 7 ways to finance, but also the breakdown of each one including advantages and disadvantages. According to Mr. Mielach, the 7 ways to finance are...

• Small Business Administration Loan


• Friends and Family


• Home Equity Loan


• Credit Cards


• Angel Investors


• Venture Capitalists


• Strategic Investors

The only one he may have missed, is of course financing the purchase of an existing business through use of retirement funds. Other than that, this is a great read for both buyers and sellers alike to educate themselves. It is definitely worth a read.

Click here to read the full article.

MOTIVATED SELLERS, what makes them motivated?

By Ralana D. Shelley, CBI
Sunbelt Indiana Business Resource

You see this term on many business listings online or hear it from listing brokers all the time. Have you ever wondered what makes a seller a "Motivated Seller?"

There are several reasons that a Business Seller would be considered a "Motivated Seller." Generally they all have a sudden important "motivator" such as a serious personal or family health issue, or they are planning on moving out of the geographic area for reasons beyond their control. Perhaps they are just really burnt out and want to get out of the business. These are only a few of the possible reasons for a seller to be especially motivated.

Whatever th reason, the "Motivated seller" is usually spurred on by a need to sell as quickly as possible. This is good news for you as a buyer. Often it means that a seller will consider an offer that maybe they would not have considered previously, or that this business may go for a little less than others comparable to it. You want to see this term on a listing.

There are certain precautions one should take to ensure that the motivator is not a negative material fact of the business, reasons you do not want to see are poor performance, or a downturn in the industry/market that is not expected to recover, or a lease that will eventually bury the business, just to name a few. Just be prepared, good advisors such as your business broker, accountant and/or attorney can assist you in making an informed decision on any turnaround business.

Currently, Sunbelt Indiana Business Resource has over 100 businesses listed, some of which have "Motivated Sellers." To review our current listings... click here.

Tips for Business Buyers: Selling Yourself - Seller Financing

Courtesy of Business Brokerage Press
Remember that when a seller offers seller financing, he or she is taking a risk. If you are the buyer, the seller is taking a risk on you, that you will be able to run the business successfully. Therefore, other than a seller needing the cash from the sale of the business, the biggest obstacle to seller financing is the seller's concern regarding whether a new owner will be able to pay off the loan from the profits of the business. While the seller already has the best idea about the potential profits of the business, there are some additional things a seller may want to learn about a potential buyer.

You may want to consider what would best demonstrate that you are a "good" risk and have the documentation ready to sell yourself.

• Do you own your own house? If so, how long have you lived in it?
• What is your work history? What experience will help you as a business owner?
• A seller may ask to see a copy of your credit report.
• Be prepared with a list of personal references.

These are just a few ideas that will allow you to "sell yourself" to a business owner so they may feel better about offering seller financing.

Be sure to check us out every Wednesday for more useful buyer articles...

Why Deals Fall Apart -- Loss of Momentum

Deals fall apart for many reasons -- some reasonable, others unreasonable.

For example:

• The seller doesn't have all his financials up to date
• The seller doesn't have his legal/environmental/administrative affairs up to date
• The buyer can't come up with necessary financing.
• The well known "surprise" surfaces causing the deal to fall apart

The list could go on and on and this subject has been covered many times. However, there are more hidden reasons that threaten to end a deal usually half to three-quarters of the way to closing. These hidden reasons silently lead to a lack of or loss of momentum...

To read the full article... click here.

Check out our January Buyer Newsletter

Great resource for buying a business...

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October 2010 Buyer newsletter available...

CLICK HERE to view new listings, featured listings and informational resources about buying a business.

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to view our September 2010 Seller's Eye on the Market newsletter - great articles about the business sale process exit planning strategy and current market trends.










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Purchase a Business With Your 401K!

By: David Gorman (bio)
Senior Business Broker, Sunbelt Indiana

Why? Because there are NO penalties, that’s right. This 401k Rollover program lets you use your 401k and other retirement funds to invest in a business – TAX AND PENALTY FREE. This is a safe, proven plan based on long standing provisions of the Internal Revenue Service (IRC § 6501). By using pre-tax retirement dollars to fund your business, you gain equity in your business and improve cash flow from day one. Use the funds to receive a salary during startup, while accelerating profitability by eliminating or reducing interest or debt. Application, creation, and funding is fast; typically (2-3 weeks or less). You can even set aside tax deductible retirement savings up to $200,000/yr.

The benefits of using your 401k:
-Minimize debt
-Enhance cash flow
-Stimulate business growth
-Build equity
-Take full advantage of tax benefits

Using Technology to Increase Business Value Before a Sale or Merger

Using Technology to Increase Business Value Before a Sale or Merger

“My friend Norman Katz contributed this great article” Chris

Improvements in information technology and business processes can make an important difference in not just the perceived value of a business, but the actual value too.

Technology improvements that are visible to potential buyers are the business software applications that run the company. The Enterprise Resource Planning (ERP) system is typically the core business software application, encompassing functions such as purchasing, sales order processing, accounting, inventory control, manufacturing, and distribution. Sometimes separate applications for inventory control or fixed asset management can be implemented to gain quick control of chaotic situations. And with chaos controlled and business processes running smoother, a potential buyer will see a well-run – or at least better-run – enterprise. Further, new business software enables better reporting, showing the potential buyer information based more on fact than on fiction.

The use of barcode scanning for fixed asset management, inventory control, picking & packing, and receiving showcase a company that has kept up with available – and quite affordable – technologies and is operating more efficiently than one who still processes such information manually. In fact, such technology implementation may be required in order to provide potential buyers with satisfactory reports in regards to the company’s operations and financial position.

For companies who are required to conduct business with customers via Electronic Data Interchange (EDI) and have taken steps to integrate inbound and outbound data to business software applications (i.e. the ERP system) showcase to potential buyers that they are committed to reducing non-value-added manual processes such as data entry of information, which is also prone to errors.

And while the implementation of such up-to-date technologies does not mean that fraudulent activities have been reduced, there is an argument that the use of such technologies does go along towards the mitigation of fraud versus manual or paper-based transactions.

Advances have made these technologies achievable (affordable and available) for even small business owners to embrace and represent a worthwhile return on investment.

Norman Katz is President of Katzscan Inc., a consulting firm located near Fort Lauderdale, FL specializing in supply chain technologies, business operations, turnaround management help, and fraud & risk detection & reduction. For more information, please contact Norman through the company web site at www.katzscan.com.

Recently Sold!

SOLD!!

The undersigned assisted in the negotiations leading to the conclusion of this transaction and acted as a transaction advisor to the Seller.

Brian Knoderer

317-218-8638

Good Time To Sell

Most news for small business owners isn’t so hot. Business owners believe that waiting out the economic storm and their retirement is a prudent fiscal move. While this notion has merit, awaiting better economic times does not necessarily ensure higher value(s) when the business is sold.

The unfortunate reality is that in many instances value deteriorates due to external forces (economy) as well as internal forces (the business owner). There was a study a number of years ago that suggested that an owner actually becomes less effective over time (7+ years) as the original enthusiasm wanes. As business owners approach retirement, it is not unusual to see a decrease in revenue and profits as the business begins “retiring” before the owner does. The result is that the business owner may delay retirement but not increase value equity.

The sale of a profitable company in this environment (or any other) is a viable strategy for business owners who are committed to sell. Value is a very fluid and timing often makes a difference in acquisition prices. Quality sells in any economic environment and profitable, motivated, flexible businesses that are properly positioned are still in demand.

Despite the economic conditions, limitation on credit, and changes to government backed loans, which are forecasted to continue for the near future; we have not experienced a significant slowdown in buyer inquires. However, over the last six months we have noted the following:

• Displaced “blue collar” buyers are seeking to “buy a job”
• Middle management individuals caught in layoffs are utilizing severance or their own 401(k)s to invest in going into business for themselves. Alternative investments such as the bank or the stock market are not nearly as attractive as they once were.
• Strategic (or synergistic) buyers and Private Equity Groups (PEGs) are actively seeking add on or platform acquisitions.

The Business Brokerage Press cited that the business value for most owners equates to approximately 75% of their net worth! This is a considerable statement when evaluating the time to sell and price positioning. Our experience is that planning is key to maximizing value. We have had clients who we started dialog with years ago who heeded (and some not) our advice on the necessary preparations and will fare well as we begin confidentially exposing their business to the marketplace.


For More Information Please Contact:
Ed Mysogland
Managing Partner
317-218-8616
emysogland@sunbeltindiana.com

Recently SOLD

Purchase A Business With Your 401k!

Why? Because there are NO penalties, that’s right. This 401k Rollover program lets you use your 401k and other retirement funds to invest in a business – TAX AND PENALTY FREE. This is a safe, proven plan based on long standing provisions of the Internal Revenue Service (IRC § 6501). By using pre-tax retirement dollars to fund your business, you gain equity in your business and improve cash flow from day one. Use the funds to receive a salary during startup, while accelerating profitability by eliminating or reducing interest or debt. Application, creation, and funding is fast; typically (2-3 weeks or less). You can even set aside tax deductible retirement savings up to $200,000/yr.

The benefits of using your 401k:
-Minimize debt
-Enhance cash flow
-Stimulate business growth
-Build equity
-Take full advantage of tax benefits


Authored By:

David Gorman
Senior Business Broker
Direct: 317-218-8626
dgorman@sunbeltindiana.com