Beware of this Buyer

One of the most difficult challenges facing the seller of a small business is finding a qualified buyer.

The key word in the preceding statement is “qualified.”

Potential buyers are easy to find, but they don’t become buyers unless a closing takes place. There are a lot of lookers around, and they are adept at draining a great deal of unrecoverable time and emotional energy from a seller.

One of the biggest advantages to working with a knowledgeable business broker is that a professional is experienced in winnowing out these tire kickers to find those few, qualified prospects. This is one of the most valuable services a broker may provide to a seller.

If you’re attempting to sell your company without a broker’s assistance, here are some warning signs to keep in mind.

  • The buyer is taking his time in order to find the “perfect” business.

o A prospect who is gainfully employed (notably for a larger corporation in a managerial role) has time on his side. He may be in love with the idea of being his own boss, but may never leave the security and familiarity of the paycheck and career he currently enjoys.

o The buyer may be taking his time because he’s incapable of making such a large, possibly life-altering, decision. Many more individuals than one might imagine fall into this category. A potential buyer may think he is ready for such a challenge, but once faced with actually choosing, finds himself paralyzed.

o If a buyer has been searching for six months or longer, he may have expectations that are impossible to fulfill.

 

  • The buyer has no financing. Although this seems obvious, a buyer might be quick to assure the seller he has the means to obtain cash, and sometimes a seller wants to believe he has indeed found a qualified buyer. Be cautious if the buyer:

o will need financing (unless it’s based on the equity in his home), especially if the buyer has not even approached an outside lender

o has no available cash to pay for closing costs or a down payment

o claims to have a wealthy relative or friend who will be financing the deal, particularly if you have yet to meet this affluent individual

 

  • The buyer’s spouse is not present during meetings or is completely unsupportive of the venture.

 

  • The buyer is immersed in detail too early in the process. He may be asking too many questions, especially relating to insignificant details; he may act as though he knows far more than you as the seller; or he may take a copious amount of notes at every meeting.

 

A savvy business broker will also cite buyer red flags of a more personal nature, such as being very young (late teens or early 20s) or too close to the typical retirement age. Brokers often mention if an individual has lived in the geographical area for quite some time, but is still a renter instead of a homeowner, it might give a seller reason to take notice.

Obviously, this is not a comprehensive list, and some buyers who exhibit these tendencies may turn out to be very well-qualified. However, these characteristics do represent consistent trends in our industry. If your prospect starts to fit the profile of a tire kicker, you may find it prudent to evaluate the time and energy you are expending, as well as the information you are sharing, with this individual.

Do You Hear What I Hear? (More on First Impressions)

When a potential customer contacts your company via telephone, what is the first impression received? Is the caller warmly welcomed by a live operator or receptionist, or does he get dumped into a frustrating, endless cycle of automated voice commands?

Sometimes the obvious is the most easily overlooked. A business owner has only one chance to make a first impression. Today, it’s common for a potential customer’s first visit to your company to be made by telephone, so make that initial contact a positive experience for your caller.

The first time a potential customer visits your company (whether in person, via telephone or through the Internet), he should immediately feel comfortable and confident about doing business with you.

Think about the image presented to someone who phones your organization for the first (or 50th) time. Will the caller feel welcomed and important? Is he likely to remain on the line to finish the transaction or call again for products and services in the future?

Telephone Doctor recently commissioned a survey that discovered the following:

  • 85% of consumers indicated that telephone courtesy makes a difference when choosing which business they will patronize
  • 65% prefer doing business with companies who have real people answering calls versus those that use an automated attendant
  • 65% stated they are frustrated when placed on hold immediately after calling a company
  • 48% refuse to conduct business with a company if they receive poor customer service over the phone
  • The most frequently noted complaint: being placed on hold

 

The nonprofit and nonpartisan research organization Public Agenda discovered that a whopping 94% of its survey sample indicated it was “very frustrating” to phone a business and be greeted with a recorded voice rather than one of a live person.
According to the Bureau of Labor Statistics, telephone operators are one of the top ten positions expected to decline within the next twelve months. Today’s voice recognition systems continue to improve dramatically, and the increase of electronic communication has considerably reduced reliance on the telephone.

Although many companies have made the transition from live operators to automated attendants for a variety of reasons (most notably to reduce overhead), the survey findings discussed in this blog should be carefully considered. Business owners may wish to ensure callers have a way to reach a live operator, and all employees interacting with customers on the telephone should be professional and courteous. Operators should be able to listen and really comprehend what the caller is requesting, so they can answer the question and fulfill the order or get the customer to someone who can.

Here's hoping you hear what your customers do!

First Impressions: A Customer at Your Door

This is the first in a series of several articles on how to better position your company to potential and existing customers.

We've all heard the phrase, "First impressions count." This is a true statement that is sometimes easily overlooked by a small business owner. It seems obvious, but if you have a physical location, you should always be thinking about maximizing your curb appeal.

The first time a customer — an existing or potential one — visits your company, the customer should immediately feel comfortable and confident about doing business with you.

Residential real estate agents often request that homeowners looking to sell first spruce up their homes as much as possible in order to generate interest from potential buyers. The same is also requested from business brokers prior to listing a company for sale.

The time to think about curb appeal is not just when selling, however. Having a professional and inviting entrance is sure to help retain existing customers and attract new ones.

Stand outside the front door of your business and look at the impression you may (or may not) be making through the eyes of your customer. If a first-time visitor walks past your building, is he likely to enter your door? Here are some helpful tips:

  • Is your company name and street address clearly visible?

  • Speaking of signage, do you have enough — but not so much that it appears cluttered? And, is everything spelled correctly? You'd be surprised how often we notice poor spelling and grammar: not the best first impression.

  • Is the exterior clean and pleasing to the eye? Perhaps a coat of fresh paint or some planters at the entrance might be a good investment.

  • Does the front of the company convey the message you want to send to customers?

  • Is the entryway tidy, and is it easy for customers to reach the door and access the business?

 

Of course, first impressions don't stop there. Once the customer is inside, what does he see?

  • Does your reception area include friendly, knowledgeable staff members to greet visitors?

  • Is the lobby clean and uncluttered? (Keep an eye out for messy papers and disorganized working surfaces.)

  • If signage is present, it is helpful or distracting? Is your company's name (and/or logo) prominently displayed?

  • Does the lobby become an extension of the entryway and reflect the message you want to share with visitors?

 

Many small businesses employ the use of a welcoming sign in their reception area. If an entrepreneur knows of a visit in advance, most guests appreciate seeing their name as they enter the front door.

Comfortable seating areas, flowers and plants and the offer of a beverage are other welcoming touches that visitors notice.

Here's hoping your visitors become long-term customers!

Buying and Selling a Business or Franchise

A recent national survey confirmed what business brokers have noted for years: making money is not the primary reason buyers are interested in owning their own business.

When asked to rank 12 factors in order of importance, the majority of buyers did not place potential earnings in the first half of the list. Freedom, flexibility and control of one’s destiny are the main reasons buyers are attracted to independent businesses. Interaction with customers and clients also was consistently ranked higher in importance than personal income.

Keeping these motivating factors in mind during the business transfer process helps buyers and sellers. Qualified buyers generally possess the entrepreneurial spirit necessary to take risks and make decisions. As business brokers, we facilitate this process by interviewing prospective buyers to learn more about their educational and occupational backgrounds and why they are looking to acquire a company. Understanding a buyer’s motivation helps a good business broker suggest listings that may be of interest to the buyer and provide a good fit with the buyer’s needs.

Internet Searches are Key for Business Buyers

Recently, I’ve noticed several articles in various publications regarding changes in residential real estate marketing strategies. It seems that open houses (except those hosted for other real estate agents) are no longer a preferred way to reach potential home buyers. Today’s tech-savvy buyers prefer to research listings on the Internet, taking virtual tours when and where it is most convenient to them. Most buyers, these articles note, make a decision whether or not to contact the listing agent based on these virtual home tours.

This got me thinking about buyers looking for a business to purchase and the similarities of utilizing the Internet for research. The majority of advertising and marketing for business brokers is handled through web sites that feature businesses for sale. While a few of these sites are available to entrepreneurs looking to sell their companies themselves, the majority are available only to business brokers through professional subscriptions.
As we’ve discussed, maintaining confidentiality of the business is a key factor for a successful business transfer. After all, a small business owner does not want to announce to his customers or competitors that he is thinking of retiring or leaving the industry.

The larger sites available to business brokers offer more space for describing key points about the companies for sale, while still maintaining complete confidentiality. Business brokers are experienced in wording listing descriptions that grab attention and highlight the factors most buyers will find attractive.

You only get one chance to market your business. Most buyers will find your company’s listing by searching online. Make sure to maximize your marketing strategy when the time is right for you to sell.

Top Tips for Selling Your Business

Most entrepreneurs readily embrace new tasks and roles and are used to being in charge of everything relating to their companies.
However, before rushing in to market and sell their small businesses, business owners will want to keep the following tips in mind. The dance between buyer and seller is a delicate one, and it is very easy for one small misstep to ruin the entire deal.

Prepare in advance – General housekeeping should be scheduled well in advance of marketing the business. This includes a physical clean-up of the premises, making needed repairs on equipment and perhaps enhancing the curb appeal of the company with a new coat of paint or adding plants and shrubs to welcome guests through the front door. Housekeeping also includes getting files — particularly those relating to accounting — in order. Buyers will expect to review financials dating back at least a few years during due diligence.

Plan for due diligence – In addition to reviewing recent financials, buyers typically will want to see the lease agreement, customer lists, an accounting of inventory, information on FF&E and other similar items. Anticipating what the buyer may request and planning ahead saves time and helps make the seller appear organized.

Be realistic in pricing – You may wish to engage the services of a business broker to determine a reasonable selling price for your company. Businesses that are not priced correctly (particularly those priced too high) will not interest most buyers initially and generally do not sell at all.

Ensure confidentiality is maintained – Business owners must avoid a breach of confidentiality at all costs. Buyers should be qualified in advance and be willing to sign a non-disclosure agreement. A business broker is experienced in how to handle this situation while keeping the process moving along.

Don’t neglect the daily routines – The business transfer process rarely happens overnight, so it is important that the seller continue to focus on his business, keeping it running smoothly and successfully.

Stay flexible – Negotiation involves give-and-take. Realize the buyer is probably also an entrepreneur and may be used to being in charge of situations as well. The willingness for both parties to compromise on some issues will keep the process moving to the closing table.
These suggestions are the top recommendations from experienced business brokers around the country.

How to Sell Your Business, but Keep it a Secret

“Loose lips sink ships.” It’s a familiar phrase to Americans, originally written by the War Advertising Council during World War II as “Loose lips might sink ships.” The British also used variations of the phrase that encouraged citizens and military personnel to avoid careless talk that might serve the enemy.
The phrase is still used today to caution against thoughtless chatter in general.

When selling a company, it is vitally important that confidentiality is maintained throughout the business transfer process. A breach of confidentiality may not only kill the deal, it can cause further repercussions to the seller as employees and customers may leave, creditors may begin to scrutinize more intently and competitors may capitalize on the perceived opportunity.

If a business owner is unable to disclose information, how is he supposed to sell his company?

Business brokers are professionals in this arena and have the experience and tools in place to manage the business transfer process discreetly, helping sellers maintain the utmost confidentiality until the transaction has been completed. This is accomplished by:

  • Marketing effectively
  • Qualifying buyers
  • Using documents that require confidentiality
  • Managing the information flow

 

A business broker should prepare a customized marketing approach for each company he lists for sale. This includes describing the business in a generic fashion — one that will appeal to prospective buyers without jeopardizing the seller’s identity.

Approximately 90% of prospects who initially reply to advertisements are usually not a fit at all, generally because they lack the necessary experience or cash investment for the transaction. There are also a lot of “lookers” or “tire kickers” who can easily drain a seller’s time and tax his emotional energy. Business brokers have the skills to help qualify buyers immediately before the seller is ever involved.

Business brokers use confidentiality agreements, with wording prospective buyers must agree to, in writing, before additional information is released.
Business brokers also manage the flow of information, holding the most sensitive records secure until a formal offer to purchase (with escrow deposit) has been accepted by the seller.

The business transfer process is somewhat unique in that the details of the entity being sold are not shared initially, but rather peeled away as the buyer becomes more interested and continues to offer proof of his sincerity and qualifications.

Entrepreneurs: Trim the Fat and Boost your Profits!

Now more than ever, individuals are looking for ways to cut costs — personally and professionally. This is especially true for entrepreneurs preparing to sell their businesses. Higher profit margins naturally make a company much more attractive to potential buyers, and increased seller’s discretionary earnings generally equate to reaching the closing table faster and with a better selling price.

Most business owners today are using tried-and-true cost-cutting methods, as well as employing more creative techniques in order to reach their goals sooner.

Here are some suggestions you may wish to consider in the continuing quest to lower expenses:

Enjoy the electronic age
Try a voice mail system for your office and use email whenever possible. This may help reduce the hours needed for a receptionist or secretarial staff and could allow these employees to contribute in other areas. There is a variety of affordable software for businesses, which can help increase productivity within the office. Don’t forget to take advantage of the sales and marketing opportunities the Internet provides at little or no cost.

Deal directly with the source
Establish relationships with the manufacturer of products you frequently use. This may help avoid surplus charges added by third parties.

Makes vendors competitive
Sometimes business relationships can become too complacent. Check out current pricing by requesting multiple bids – especially on larger projects. Remember that sometimes the lowest-price offer may actually cost more in the long run, so be sure to examine the fine print and associated details.

Be rewarded for loyalty
For those vendors you patronize, ask about any loyalty programs they may offer. Even if none are publicly promoted, you may find a vendor will express thanks with special savings.

Outsource when appropriate
Both in terms of employees and leasing space, this is an attractive option for business owners. Outsourcing continues to grow in popularity on many levels. Temporary employees or contract workers make sense for seasonal jobs and short-term projects. Try renting or subletting space when it is needed only occasionally (such as a conference room or large space for presentations).

These are only a few of the many ways savvy business owners are making a direct, and positive, impact on their bottom lines. We’d love to hear what suggestions you might have for other entrepreneurs!

Why Business Deals Fall Apart

It is an all-too-common event for buyers and sellers of a business: the deal falls apart. After both parties have reached a tentative agreement on the sale of a business, it is emotionally and financially frustrating to watch a deal disintegrate before everyone reaches the closing table.

Why does this occur, and what can be done in advance to help prevent such a scenario? Business brokers across the country generally agree the following are the three top reasons businesses don’t sell.

Issues with pricing
Business brokers consistently encourage sellers to be realistic about the asking price of their company. A business is fairly priced when its financial records support the value perceived. During due diligence, the buyer has the opportunity to review the company’s financial data prior to closing. It is best not to give a buyer any reason to feel the original asking price was inflated.

A troublesome issue is not disclosed
Sometimes sellers feel a challenge with their business is best not disclosed initially. This represents the potential for a deal falling apart quickly down the line. Most problems will eventually surface; we all know they don’t simply disappear overnight. Once a potential buyer (either before or after an offer is made) learns about the problematic situation, what could have been handled easily becomes an off-putting surprise. The buyer feels misled – and who can blame him?

Time can easily kill a deal
This is a common observation among business brokers. Part of the value of using a business broker comes from his experience in managing the business transfer process and keeping all parties focused on the same goal. This is an emotional time for both buyer and seller, and it’s understandable that one or both can become irritated, defensive or critical when time drags on with no resolution. The closing process does take time – and certainly some deals are more complex than others. Using knowledgeable and experienced professionals will help ensure the process moves forward seamlessly and to everyone’s satisfaction.

Selling Your Business? Guidance from a Commercial Lender

In our third installment of “tips from the experts,” we discuss a topic of great importance to both buyer and seller: how will this transaction be financed?

When a buyer or seller contacts me to inquire about the business brokerage process, it has been my experience that financing is not always at the top of everyone’s mind – but it should be! Many companies listed for sale never reach the closing table, and lack of financing is almost always the reason these businesses do not sell.

While it would be a much easier process if all buyers brought 100% of the contract price and associated costs in cash to the closing table, this rarely happens.

Typically, seller financing and/or SBA loans are used for financing a sale. SBA loans are guaranteed by the Small Business Administration and are provided to small companies.

Christopher J. Kneer is vice president of commercial lending for Community Bank and specializes in both conventional and SBA loans. He explains, “Banks view business acquisitions as risky transactions for two primary reasons: change of ownership and financing of goodwill. For that reason, we utilize the SBA.”

Kneer provides these tips for potential sellers:

The time to begin preparing for the sale of your business is three years out. To get the highest price for your business, you need to have multiple and consistent years of earnings. Banks and many buyers are suspicious of one great year and dramatically different results in previous years.

Accounting quality is very important. An arm’s length CPA should be working with your company. Accounting issues and statements that do not match up from year to year are a major red flag. If there are significant line items or particular issues on your financials, be upfront and point them out. Spend the money on good accounting and it will come back twofold.

Show earnings. The time to strategically limit profits for income tax purposes is not while you are preparing to sell your business. No bank wants to see a company that loses money every year and bases its sales price on “add-backs.”

Have buyers pre-qualified. Banks want to see buyers with industry experience, proper equity injections, and liquidity. It does no good to show your businesses to those that cannot qualify for financing unless they are cash buyers.

Plan to have a seller note involved in the transaction. Due to changes in SBA financing, it is often necessary, and it also shows good faith in that you are willing to stand behind the business for sale.

Plan to stay on for a period of time. This also shows good faith that you are willing to help the new owner be successful.

Solid and sound advice.