Buying or selling a business is a complex matter.  There is no question about it.  The complexities start from the moment a buyer and seller start interacting.  These include, for example, the buyer not having any history or knowledge about the operation of the business and so have to rely entirely on the representations of the seller.  Conversely, the seller lives and breathes the business, knows its ups and downs as well as its strengths and weaknesses.  My Golden Rule when assisting with a business transaction is for each party to put their feet in the shoes of the other party.  In other words, the seller should see things from the buyer’s perspective and the buyer should see things from the seller’s perspective.

A key way this would help the business owner run the business would be if they use a Management plan.  What you may ask is a Management plan?

From my perspective, a Management plan is where all the critical areas of a business are summarized so if the owner of the business wins the lottery and never wants to work another day in their life in the business and not come to work tomorrow, the business will survive and grow.  This plan then becomes a critical document when the owner wants to sell as they can provide it to the buyer of the business.

What are some things to include in the Management plan?  At a minimum the Management plan needs to include a summary of key business information.  This includes the following:

1. A current and monthly updated summary of all the employees in the business.  The rule should be that if any employee needs to be contacted, their information should be available in less than one minute.  This information needs to include emergency contacts of each employee, if they are willing to provide it and your State government agency allows you to collect it.
2. A current and monthly updated summary of all suppliers.  All suppliers may be too much but at least the suppliers that supply any critical materials or provide more than 5% of the company materials.
3. A current and monthly updated summary of all business support services such as the CPA, attorney(s), financial planner(s), landlord, lenders, government agencies in case any are needed urgently.
4. A critical document that would help any buyer is seeing the business Training Manual.  Again this document should be kept up to date and break down each of the current positions of the business.  If the business doesn’t currently have this document, start creating it.  It’s very easy to do.  Have the current person encumbered with that job write down what they do.  This is then presented to another member of the business with the instruction to execute what’s provided.  If they can do it then the job is done.  If they can’t, it goes back to the person who wrote it for re-writing.  If some employees don’t want to write the document as they are concerned they will be let go because anyone now knows how to do their job, hire a student from a local college to come and write things up or hire a technical writer.
5. In addition to the Training manual, put together an Operations manual.  Michael Gerber is the master of written procedures.  He’s written numerous books including The E Myth and The E Myth Revisited.  Very simply, Michael Gerber believes that being a true entrepreneur is being able to take an idea and break it down and put it in writing to the point where each person in the business clearly knows what they need to do to collectively make the business successful.

This is the purpose of the Operations manual; to clearly state the business process to achieve an outcome.  Would you like an example?  Let’s go with the example of a fast food restaurant that sells hamburgers.  Let’s choose the person that makes the fries.  The Operations manual would break down each step of that process.  It starts with where to get the fries, what to do when the quantity of fries in the storage area gets to a critical point and what to do to order more; what temperature they should be stored.  The next steps would detail what temperature the oil needs to be to cook the fries, for how long and in what container.  Now detail what to do with the fries when they are ready, how much salt to add and in what container to place the cooked fries.  Now the next step is to record where the containers are stored and what to do when you reach a minimum threshold?  You can do this in more detail but the beauty is that once this is done, it only needs to be checked say monthly and now on a consistent basis you can cook and deliver the best fries in the world.

It may seem like a lot of work putting these things together.  These suggestions are the tip of the iceberg.  What else can you document to make your business easier to operate?  Using technology can make doing this so much easier.  And remember to make sure you have a backup so all your hard work is not lost.

The most important reason to do this is that by creating this Management plan, your business will be of more interest to the right business buyer.  In real estate, there is a rule called the principle of comparison.  In simple terms it says that when a buyer is looking to buy a house, they will buy the best option not only on price, but also comparing it to other houses for sale in that area.  If the buyer wants a 3 bedroom, 2 car garage, 2 bath house in a specific school district and they have 3 to choose from, they will not necessarily make their final decision on price.  For example, a specific feature such as whether it has a swimming pool.  The bottom line is that a strong and clearly laid out Management plan adds value to a business for sale and could be the difference between a buyer choosing your business they compare to another.

If you are thinking about selling your business and would like to know its value, please give me a call on 916 570-2674 or email me at Andrew@RogersonBusinessServices.com and I can put together a Brokers Opinion of Value for you.  If you would like to see a sample document, click the following link:  http://www.rogersonbusinessservices.com/services/selling-a-business

Everyone is familiar with the Christmas song, The 12 Days of Christmas.  Without going into every verse of the song, the carol works forward with the first day of Christmas being a partridge in a pear tree, the second day of Christmas two turtle doves and so on.  The song is full of optimism and hope that the giver and receivers of the gifts will be thankful for life, the opportunity to share and hope for the future.

From researching the origins of the song, I came across something interesting.   One of the articles I read suggests the 12 days of Christmas is not about the 12 days prior to Christmas but in fact, the 12 days from Christmas until the beginning of Epiphany which begins on January 06.  When I thought further about this, it naturally combined with another favorite thing we do during the Holiday Season and that is to make New Year’s Resolutions.

New Year’s Resolutions are a powerful opportunity as they allow us to do three separate things.  First, look back at our experiences of the last year and decide if it’s been a good year and what we could have done differently.  Because it puts us in the mood, we also tend to go back and look at more than just the last year but initially the last couple of years and decide whether or not it has been good.  Once we start doing that, we obviously look back at our life and decide what we like and what we wish we could do differently.

Our next reflection tends to move to the present where we look at our life and what we now have.  We reflect on our family and friends and how important they are to us.  We also look at whatever means we use to sustain ourselves and put a roof over our heads, the food on the table, the clothes we wear and the myriad of other things that allow us to live our life.

This then brings us to the final reflection and probably the most exciting and powerful opportunity of all and that is to look ahead and decide what changes we’d like to make to build and enhance our life and our immediate loved ones.  This reflection, for obvious reasons, takes us to both our job and what we are currently doing or, if we own a business, how that business is performing.  Regardless of whether we have or do not have a job or own a business, it is the time to ask some questions.  These questions include whether or not what I am doing is worthwhile and fulfilling, whether it produces the income I need to live the life that I want, what changes I want to make to achieve the personal, financial and emotional goals I’ve set for myself.

So the point of this article is a couple of things.  As you embrace the Holiday Season, enjoy it as it is a special time and I wish you nothing but peace and goodwill.  If your time allows, sit down and meaningfully decide on your New Year’s resolutions.    If your New Year’s resolutions are likely to include either buying or selling a business you may want to consider a thoughtful and logical approach.

If selling your business is an option you are considering, this link will provide a simple summary of the steps.  http://www.rogersonbusinessservices.com/docs/TheManyStepsToSellingABusiness.pdf

If you would like more information then this link will allow you to buy and download a copy of my book Successfully Sell Your Business.  http://www.rogersonbusinessservices.com/book-successfully-sell-your-business

If buying a business is an option you are considering, this link will provide a simple summary of the steps.  http://www.rogersonbusinessservices.com/docs/TheManyStepsToBuyingABusiness.pdf

If you would like more information then this link will allow you to buy and download a copy of my book Successfully Buy Your Business.  http://www.rogersonbusinessservices.com/book-successfully-buy-your-business

The following article is re-printed from an email sent by Mike McGrane, an SBA lender with Wells Fargo based in Roseville, CA.

The Senate and the House have both passed various versions of the following improvements to the Small Business Admin 7a and 504 loan programs. This is a very good thing for Small Business, Entrepreneurs, Banks and Business Brokers and Developers. There is something for everyone in this Senate Bill outlines below. It still needs to be signed into law and the SBA needs to make their official guidelines public, but this should be what is coming.

Senate Bill 2869 contains several critical provisions to bolster SBA assistance to America’s nearly 30 million small businesses and aspiring entrepreneurs. Specifically, the bill would:
• Increase the loan limit on 7(a) loans from $2 million to $5 million;
• Increase the loan limit on 504 loans from $1.5 million to $5.5 million;
• Increase the loan limit on microloans from $35,000 to $50,000 and increase the maximum loan made to a microloan intermediary from $3.5 million to $5 million;
• Allow the 504 loan program to refinance short-term commercial real estate debt into, long-term, fixed rate loans;
• Extend the authorization to provide 90 percent guarantees on 7(a) loans and fee elimination for borrowers on 7(a) and 504 loans through December 31, 2010; and
• Direct the SBA to create a website where small businesses can identify lenders in their communities.

Buying or selling a business is complex task as there are so many moving parts. The moving parts obviously include the buyer and seller but may also include lenders, landlord, franchisors, attorneys, accountants, customers, suppliers, competitors, employees and others. Just as you can get help from a residential real estate to buy or sell a house, there are also business brokers or intermediaries who provide the services of an intermediary. If you are looking for the help of an intermediary or business broker, consider the following.

1. Trust and Ethics.
When selling your business you want to feel assured the intermediary has a strong commitment to trust and ethics so you know your business and its interests are fully protected. Getting an ethical and trust commitment from your business broker is the most important ingredient. It is critical and should be non-negotiable.
2. Real Estate License.
Many states in the US require a business broker to hold a real estate license in order to represent an owner of property in a sale and be paid for providing that service. In California, a license is issued by the California Department of Real Estate for two types of persons; a Broker and a Sales Agent. A Broker can either work for themselves or choose to hire Sales Agents that work under the Broker.
3. Specialization.
Does the Business intermediary you are considering hiring specialize in either residential sales, business opportunities, commercial real estate, mortgages or finance or a combination of these? Because of the complexities and differences of each markets, most Brokers or Sales Agents tend to specialize in one area. Even within these broad specializations there are specialists. For example, in business opportunities, if a transaction is greater than $5,000,000 there are there are Broker/Sales Agents that specialize in this market called M&A intermediaries.
4. Experience.
Has the Business Intermediary owned and operated a business? Business ownership teaches many skills and requires a unique understanding of what is involved in owning and operating a business. When detailed negotiations take place between the business owner and a potential buyer, all the options must be explored, fully considered and understood.
5. Accreditations.
Does the have formal training or education to support the service they provide? There are different types of accreditations with some including the Certified Business Intermediary (CBI) from the International Business Brokers Association and the Certified Business Broker (CBB) from the California Association of Business Brokers.
6. Association memberships.
Accreditations are good, staying up with the accreditations is better. To see if a Business Intermediary is a member of their industry association, check the International Business Brokers Association (IBBA) at http://www.ibba.org or search the web for “Business Broker Organization” in the state where you live.
7. Communicates and explains clearly
Selling or buying a business requires dealing in financial, legal, industry and other forms of jargon. Are you able to communicate easily and clearly with your Business Intermediary and understand what they are talking about?
8. Network of professionals.
Selling a business often brings together different professionals such as Accountants, Attorneys, Property Management Companies, Landlords, Escrow officers, Appraisers, Tax Agents, Lenders, Franchisors and Financial Planners. Does your Business Intermediary have professionals he can introduce you to if your business requires that expertise?
9. Testimonials.
What do the past customers have to say about the services of the Broker/Sales Agent?
10. Finance.
Most sellers do not wish to carry any finance or they wish to carry as little finance as possible. Is your intermediary able to introduce you to finance professionals who would finance the deal for a qualified buyer?

Buying or selling any item of value must be done properly so the value of the asset is protected. Using the services of a professional intermediary to guide you through the process and protecting your investment is good business.

As a business owner, and part of the baby boomer generation, you’ve seen your share of ups and downs in the business world.

If you are considering the sale of your business there are a growing number of brokers and mergers and acquisition specialists available to offer professional assistance to help you determine the value of your business and how the market might respond.

Most businesses track their financial performance by using balance sheets, profit and loss statements and tax returns. These reports are beneficial in determining the value of a business. In most instances it’s the cash flow that prospective buyers need to identify to better understand the health of a business. They must also understand how the money is being spent and the available opportunities to generate positive cash flow in the future.

The process of recasting financial statements is essential in determining the value of a business when the owner’s intentions are to sell. Recasting requires extensive investigation to ensure all relevant and appropriate adjustments are correctly reported. This is one of many services provided by a business broker or mergers and acquisition specialist. They will examine your financials along with the historical performance of the business, and endeavor to identify keys to future performance and market opportunities.

The recasting process identifies items such as excessive and discretionary expenses and nonrecurring revenues and expenses. Recasting provides an economic view of the company, and allows meaningful comparisons with other investment opportunities. However, the owner benefits (salary, commissions, perks, incentives, personal loans and discretionary expenses) are considered and added back into the value of the company so a future buyer can adequately assess the business, its cash flow and future earning capacity.

A great deal goes into the process of determining value and selling a business. Recasting the financial statements of a business provides an indication of the business value and helps an owner with accurate expectations. A broker or mergers and acquisition specialist will help you understand the financial statements and help you move forward toward the completion of the business sale.

If you have a question about selling or buying your business, give Andrew a call today at (916) 570 2674.

This article is reprinted as a courtesy of the International Business Brokers Association^® (IBBA.) IBBA is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of a business brokerage and mergers and acquisitions. IBBA^® has 1,950 members worldwide, with corporate headquarters in Chicago, Illinois.

As baby boomers begin to hit retirement age, many who are business owners are ready to sell. It’s created a market that has many businesses for sale.

At the same time, concerns about the economy had made it tough to get financing for many potential deals. Seller financing is one option that could be the solution to get many deals done.

Seller financing involves a seller helping to finance the sale of the business by taking back a second note on the business. It differs from a traditional Small Business Administration (SBA) loan because the seller essentially extends credit to the buyer against the purchase price of the business. However, seller financing is misunderstood by many, even though it may be the best way to sell a business during a stagnant economy.

The most common option for seller financing involves secured notes, but other options also exist, including: unsecured notes, assumption of the seller’s guaranteed credit, assumption of capital leases, a real estate lease, earnouts, notes on capital equipment and more.

There are a number of benefits for business owners who are considering seller financing:

• Faster sale
  Seller financing provide an attractive option for buyers which means that sellers can sell their business fast and at a higher price.
• Flexibility
  Seller financing enables the seller to create a payment schedule, interest rates and loan period that fit their personal needs.
• Tax breaks
  Taking a note for part of the business purchase price may provide a tax break for the seller. The seller can defer some of the tax due on the sale of the business until full payment is received, which could be several years down the road.
• Protections
  Asking the new owner to keep the seller up to date with information like monthly profit and loss statements, workforce numbers, order backlog, inventory levels or other items with the monthly payment can be in the sale contract. The additional information allows the seller to keep track of the business and step in to offer advice or help if any problems are detected.

Working with a qualified business transaction professional, like a Certified Business Broker (CBI) or Mergers & Acquisitions Master Intermediary (M&AMI) is also recommended. Certified brokers and intermediaries can provide the guidance you’re looking for when considering seller financing or other financing options. They will help potential buyers and sellers develop a deal that is fair to both parties in the acquisition process.

If you have a question about selling or buying your business, give Andrew a call today at (916) 570 2674.

This article is reprinted as a courtesy of the International Business Brokers Association^® (IBBA.) IBBA is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of a business brokerage and mergers and acquisitions. IBBA^® has 1,950 members worldwide, with corporate headquarters in Chicago, Illinois.

Selling a business and walking away can be very difficult. But in many cases, there’s a transition (“training” and/or “consulting”) period dependent on the size of the company and the role of the owner. Transitions may be as short as a month or two or as long as a year. In most situations, the buyer wants the seller to remain on board to shorten the learning curve and help with the smooth transfer of key relationships.

In the typical business sale, a transition period of four to eight weeks is included, and sometimes a “telephone consulting period” is added (e.g., 6 months of telephone consulting not to exceed 5 hours per month). Also, the seller may additionally be retained as a consultant at a negotiated rate. In some instances, a long-term employment contract is negotiated and the seller maintains daily involvement for a much longer period of time.

For the owner who wants to sell the company and leave quickly, the focus should be on the development of a strong management team. Be sure to introduce key employees/managers to your major customers and vendors and look at ways to delegate responsibilities. The more the customers think they are interacting with “the company” versus the “owner” the easier the transition.

If you’ve established a good management team, less time will be required for the transition to the new owner. In addition, a well developed team usually adds value to the sale.

Occasionally there are owners who want to sell but just aren’t ready to quit working. They may be looking to sell early to get a premium price while the market is in their favor or to get away from unwanted or overwhelming administrative and management duties.

Either way, long-term employment contracts can be included in the sale agreement. The seller can stay on board and work with the business a few more years while still drawing an income and benefits.

If you’re selling your business, in most cases you won’t be able to walk away the day after the sale and in most cases you probably don’t want to. Talk to your business intermediary about the true timeline of the sale and transition. It’s not uncommon for owners to sell while the price is right. If you’re not quite ready to leave immediately, consider the options available and maintain a role with the company.

If you have a question about selling or buying your business, give Andrew a call today at (916) 570 2674.

This article is reprinted as a courtesy of the International Business Brokers Association^® (IBBA.) IBBA is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of a business brokerage and mergers and acquisitions. IBBA^® has 1,950 members worldwide, with corporate headquarters in Chicago, Illinois.

As you prepare to put your house on the market, you get the word out to as many people as possible. The “For Sale” sign is placed in the front yard, you invite people into your home during an open house and you put ads in the newspaper and online. You want everyone to know your house is for sale.

However, that’s not the case when selling a business. Place an ad that your business is on the market and people start to wonder. It creates an air of uncertainty that can be detrimental to your bottom line and put the company in jeopardy.

To increase the likelihood of a successful sale of a business at an optimum price, keep it confidential!

What’s likely to happen if people find out the business is up for sale?

Employees get nervous. They begin to worry if their jobs will disappear or if they’ll get along with a new owner. Some may even quit before you have a chance to reassure them and it will probably be the good employees that leave. They’ll start looking for jobs that make them feel more secure.

Losing key people is serious, particularly during the sale process. Key staff members provide valuable continuity and business knowledge that buyers are looking for. Lose them and potential buyers may be lost too.

Customers begin to wonder. They may become concerned whether the business has problems that could threaten their supply chain. They may start questioning if they’ll get the same quality from the new owner.

Competitors will spread the word. Once the competition finds out, rest assured they’ll let your customers know and use it as ammunition to bring that business to their company. It opens the door for them to steal business from you.

Vendors and creditors may tighten terms. You may be working with terms of net 45 or more to benefit your own cash flow. But once creditors learn that the business is for sale, you may find those terms tightening or notes unexpectedly called due.

On average, a business sale takes nine months to one year. If even some of these changes occur early on, the impact can be dramatic. You’ll find that you’re not only running a business, but you’re busy putting out fires.

A buyer wants a successful operation with few changes until he or she can make those changes. Too many question marks translate to greater risk and lower purchase offers.

Confidentiality is crucial no matter the size of the company or the type of business. To maintain confidentiality, use a professional who understands the process – use an intermediary. An intermediary will market the business in a confidential manner, while providing just enough information to attract the buyers you are looking for.

The intermediary should be diligent in screening inquiries to be sure competitors aren’t out there fishing for details. The intermediary should only be sharing your identity after determining that a potential buyer is seriously interested and is qualified. Those serious and qualified buyers should also be required to sign a binding confidentiality agreement that holds them accountable for leaking information.

You want to maintain your business as usual for as long as possible. Keeping the sale confidential until the time is right will help you to minimize uncertainty and maximize the sale.

If you have a question about selling or buying your business, give Andrew a call today at (916) 570 2674.

This article is reprinted as a courtesy of the International Business Brokers Association^® (IBBA.) IBBA is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of a business brokerage and mergers and acquisitions. IBBA^® has 1,950 members worldwide, with corporate headquarters in Chicago, Illinois.

The Merriam-Webster Dictionary defines Due Diligence as “research and analysis of a company or organization done in preparation for a business transaction.” Some even look at it as a pre-marital background check and counseling. But it should be noted that dissolving a merger is much more difficult than ending a marriage if things aren’t as they appear.

Ultimately, due diligence is the process of being sure that things are as they appear before a deal is sealed. For someone considering a merger or the purchase of an existing business, the review of documentation and the answers to your due diligence questions are critical. There’s no doubt it is a complex process that can be time-consuming. But with so much on the line with any merger or acquisition, you don’t want to make a decision without all of the information. You want to be sure everything is reviewed and all questions are answered to your satisfaction.

During the due diligence process, an often lengthy list of documents should be provided. The list of documents should cover a range of areas, including:

• Legal structure and incorporation of the company
• Internal Revenue Service (IRS) records
• Insurance policy information
• Organizational structure
• Personnel policies
• Operations
• Capital and real estate
• Contracts, licenses, agreements and affiliations
• Technology and Intellectual Property
• Current or potential legal liabilities
• Marketing materials

Today more than ever, buyers are putting more emphasis on the due diligence process. And while the financial aspect is a key component, the due diligence process should also consider organizational items. Be sure to seek documentation and ask important questions about the company’s culture, strategy, leadership and competencies.

To properly address and evaluate all of the areas of the due diligence process, you want to assemble the best possible team of people. Work with that team, including your business intermediary, throughout the process to review and evaluate the documents and information you receive. It’s also important to keep an open mind. Be sure that you get all of the information you need, but don’t assume that you will find something wrong.

Although the due diligence process may take considerable time, it’s a critical part of any transaction and should be considered the foundation of the entire deal.

If you have a question about selling or buying your business, give Andrew a call today at (916) 570 2674.

This article is reprinted as a courtesy of the International Business Brokers Association^® (IBBA.) IBBA is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of a business brokerage and mergers and acquisitions. IBBA^® has 1,950 members worldwide, with corporate headquarters in Chicago, Illinois.

As a business owner, and part of the baby boomer generation, you’ve seen your share of ups and downs in the business world. The time is coming to step back and take life in a different direction. You’ve decided it’s time to seriously consider selling your business. Where do you turn? 

Many business owners in similar circumstances look first to their accountant or their business attorney, people they’ve worked with and have developed a relationship with. But the fact of the matter is they aren’t experienced in selling a business, just as you probably would not ask them to sell your home for you (which is much easier). No doubt, you’ll consult with them as you prepare to sell your business. But an initial step should be to enlist the help of a professional business broker or intermediary. 

A business broker or intermediary works to bring together buyers and sellers of businesses. Finding the right person to fill that role is crucial to making the right deal to sell your business.
Here are some tips: