Numbers, industry statistics, forecasts and profit margins offer a defined picture of businesses that are available for sale but the majority of today’s entrepreneurial shoppers lack the knowledge needed to interpret this data into something that can push forward their own futures as business buyers.
Half of Americans want to become business owners, yet figures and projections do little to establish a meaningful interaction when those attempting to assess them lack the experience needed to interpret them.
The negotiating process is one of the most pervasive determinants of ultimate outcome, both on a financial level and in terms of the appropriateness of the entrepreneurial landscape buyers choose to function within.
1) Analysis and Goals
During the first phase of negotiation, brokers work with buyers establish a goal-driven course. Industry speculations are often misrepresented by impressive, yet disarming, statistics.
The majority of buyers ultimately choose to enter industries they had never considered before. Brokers support the fulfilment of ultimate goals by establishing their clients’ industry preferences early on. This prevents the common but tempting practice of buying a business opportunistically.
2) Due Diligence
The weakest point in the purchasing process is generally the sub-standard practice of due diligence, yet only ten percent of buyers make use of the very tool that creates a solid foundation for meticulous research—business brokers.
These professionals ensure that due diligence is practiced at every point of the negotiation process. Books are scrutinized, profit history is analysed and paperwork is delved into by niche service providers who know how to forecast the future of a business according to its past.
3) Starting with Purpose
The goal of the initial negotiation phase is to open the field for further communication. Less successful negotiators, unwary of the phased process that negotiation entails, try to satisfy core criteria and minute details during the first meeting.
This can close doors that would otherwise lead to legitimate gains if they had been dealt with at a later date. Brokers are intimately aware of the four negotiating phases Harvard negotiation analyst, William Ury, outlined for his world-renowned program.
When buyer, seller and broker meet, data has already been collected and the second stage has been launched. At this point, only necessary data is offered to draw interest without casting aside potential deals.
4) Singleness of Purpose
When the bargaining phase of negotiation begins, anxiety levels flare and communication becomes risky. One tactical mistake can close many doors for buyers, whilst the desirability of the end result has a drastic impact on financial outcomes.
For buyers who are genuinely interested in the lifestyle a particular business offers, such losses can be life-altering. Brokers thus look for common ground between the buyer and seller so that both are moving in the same direction.
5) Closure and Red Tape
When a deal is struck, its seams must be stitched together with small print, legalities and binding agreements. Buying an existing business can be cluttered with what appears to novices as mere formalities but they are, in fact, the roots from which the new business owner will grow his market share.
Brokers have the legal backing required to seal the deal.
The success rate of company purchases lies at a dire 10 percent and it is often failures during the negotiation phase that causes those dwindling numbers.
To overcome pessimistic statistics, potential entrepreneurs benefit from knowledgeable legal and industry advice as well as the particular brand of business coaching that brokers provide.
A targeted approach that accounts for goal creation, marketplace data analyses and negotiation strength helps buyers to unveil the opportunities that best suit their pockets and passions.
This article was contributed by BusinessesForSale.com, the market-leading directory of business opportunities from Dynamis, the online media group also behind FranchiseSales.com and PropertySales.comRead More
Greetings Georgia Association of Business Brokers Members, Affiliates and Guests:
The GABB will meet July 30 to discuss Pratt’s Stats, a valuable database that helps brokers and others determine the value of a business. This discussion is intended to help brokers address one of the top reasons that businesses do not sell, unreasonable pricing on the business. Pratt’s Stats provides brokers with data that they can share with business owners to demonstrate the actual value of the company to ensure an appropriate listing price.
Using Pratt’s Stats to Value a Business: A one-year subscription to the database is $789, but your GABB membership includes access to this valuable business data. Pratt’s Stats, published by BVMarketData.comsm, collects private business transactions of main street businesses from business brokers, as well as middle market M&A deals where a public company purchases a private company. The database contains information about M&A transactions, private company deals, private M&A transactions, company guidelines, transaction guidelines, comparable sales data, business comparable and/or market data. Visit the GABB website for a detailed primer describing how to usePratt’s Stats Transaction Data for Private Company Valuations.
For more information on how to use this tool essential to M&A professionals, business appraisers, financial advisors, investment bankers and lawyers, come to the GABB meeting on Tuesday, July 30. The meeting is free and open to the public, and will be held at the South Terraces Conference Center, 115 Perimeter Center Place, Atlanta, GA, 30346. Networking begins at 9:45 a.m. with a free light breakfast before the group’s 10:30 a.m. meeting. Please bring a friend and join us.
If you’re trying to broker the sale or purchase of a piece of environmentally impacted real estate, you want to know the worst-case scenario. How much can it cost? How long can it take? If you’ve had a deal torpedoed by an environmental contamination issue, the worst-case scenario was the veiled threat, the elephant in the middle of the closing table. To find out more, readClosing on Environmentally Impacted Real Estate by GABB affiliate and Platinum Sponsor Chris Fonzi, a Principal of Logic Environmental, Inc.,specializing in environmental assessment of real estate. Chris is an attorney and has been performing environmental consulting in Georgia for more than 20 years.
What exactly is a power of attorney? Does it give me the same power as if I were a lawyer? Do I become an attorney? What exactly does it allow me to do? Most people believe they understand powers of attorney, but many people are wrong. In an article for the GABB, business, tax and transactional attorney Germaine Curtin explains some of the nuances of Powers of Attorney Documents. Curtin JD, LLM, is a GABB Platinum sponsor.
Not crazy. . . but angry? The business marketplace is a pressure-cooker, especially with the financial demands of the last few years. Our personal lives are often very stressful as well. Former GABB Board member Kathryne A. Pusch, President/Broker ofConsultKAP, Inc., understands the stress and fear related to the career of a business broker. Read her advice on what to do if you are Mad.
GABB Fall Conference Sept. 24
Please clear your schedule for September 24, from 9 a.m. to 4 p.m. when the GABB plans to host a fall educational conference. Details of the conference are still being developed, but the conference will include two four-hour IBBA classes and earn youprofessional training credits from top quality trainers in areas critical to our business. Past topics have learning to read tax returns and convert them to financial statements; understanding the market dynamics and value drivers for pricing a business; and how to market your business.
Whether you are a seasoned broker or just beginning your career, information about SBA loan programs can help you steer your buyers and sellers in the right direction when structuring the sale of a business. Read Cornerstone Bank Senior Vice President Cheryl Beer’s SBA Tidbits as she describes the basics of the program and how an SBA-guaranteed loan may be used to finance a change of ownership that includes intangible assets. Cornerstone is a GABB Platinum Sponsor.
The GABB is the state’s only professional organization dedicated to buying and selling businesses and franchises.
For more information on GABB, please visit our website
The GABB plans to issue an electronic newsletter once a month about topics of interest to its members and affiliates. To contribute an article to the GABB Today for August, please submit it to GABB Today editor Diane Loupe email@example.com. Items must be received by Aug. 5 to be included in the newsletter.Read More
By Germaine Curtin
What exactly is a power of attorney? Does it give me the same power as if I were a lawyer? Do I become an attorney? What exactly does it allow me to do?
Most people believe they understand powers of attorney, but many people are wrong.
A power of attorney is simply a signed document that gives another person (the “agent” or “attorney in fact”) the power to act for the person giving the power (“principal”). The agent’s power is limited to the power actually given in the written instrument. The power may say “Joe has the right to sell my truck for whatever amount he believes to be fair market value.” In this case, Joe can sell the truck for $500, if he believes $500 to be the fair market value. The concept is very simple, but the law around powers of attorney has grown complicated.
The first concept that one should understand is that a power of attorney, generally, only allows the agent to act IF the principal was able to act at that time. Consequently, the power of the attorney in fact ceases when the principal no longer has the capacity to act herself.
But what good does that do? Don’t I want to act for someone only if they are unable to? My mother doesn’t want to give me power of attorney if she thinks I’ll act for her when she is able to act for herself.
While the general rules for powers of attorney provide that the power terminates when the principal loses capacity, the legal system recognized the problem, and has passed laws that allow a power of attorney to act after the principal loses capacity under a document that is called a “durable” power of attorney. This document must clearly state that the power survives even if the principal loses capacity. Georgia has created a law that includes the text of a document called a “Georgia General Durable Power of Attorney.” The form includes answers to frequently asked questions. You can find easily by googling it on the Georgia’s state website or local county websites. The Georgia form is not the exclusive power of attorney form, but it is a practical way to create a document that you know is legal and covers all necessary items.
The Georgia General Durable Power of Attorney is considered a “financial” power of attorney because the twelve separate powers granted in the document relate to financial matters, such as the ability to sell real estate, resolve legal disputes, engage in monetary transactions with the principal’s bank accounts, and others. The principal can choose which powers she wants to grant to the agent by initialing next to the appropriate numbered power on the Georgia form.
Health Care Power of Attorney. In 1990, Georgia passed a law, which was amended in 2007, to allow a principal to grant durable powers for the purpose of authorizing the agent to make health care decisions for the principal when the principal is incapacitated. This is distinct from a durable power of attorney for financial purposes, which may be exercised not only when the person is incapacitated, but also when the principal has all of her capabilities intact. A health care power of attorney can be exercised ONLY when the principal can’t act on her own behalf. By signing an Advance Directive for Health Care the principal can ensure that she may be taken off life support if that’s what she desires rather than requiring the medical staff to continue to try to keep her alive, as the medical staff is otherwise required to do.
If You Think the Durable Financial Power of Attorney for Health Care Covers Everything, You Would be Wrong.
What other powers can be granted if I covered my health and my finances including all real property and personal property? What else is there? That’s a good question; the answer lies with bureaucracy.
- Taxing authorities. To deal with any state or federal taxing authority, you must submit to that tax authority a power of attorney signed by the taxpayer, and you also need to specify what type of tax (income, sale, etc.) and for what years. Each taxing authority has its own form, and you need to provide a separate power of attorney to each taxing authority you deal with.
For example, I submitted a power of attorney to the Georgia Department of Revenue for a taxpayer to discuss what I thought were income tax issues. It turned out that the taxpayer was personally responsible for unpaid sales taxes of his company, and the matter I was dealing with was a sales tax, not an income tax, matter. I learned it was a sales tax issue by speaking with the income tax revenue agent, after I had provided my power of attorney to her. As soon as the revenue agent learned it was a sales tax issue, she transferred my call to the sales tax area. She promptly told me she couldn’t speak with me because it was a sale tax issue and my power of attorney only covered income taxes. Unfortunately, my client was out of town so I wasted several days. Now when I submit a power of attorney to any taxing authority, I make sure it covers ALL taxes for at least 10 years.
- Power of Attorney for Care of a Minor Child. Georgia also created a power of attorney form for a parent to give a grandparent or great-grandparent permission to care for their minor grandchild. I was amazed when I found that form power of attorney; I always thought that grandparents had an automatic right to care for their grandchildren. I’m sure some lawyer thought it was necessary. Other states have a similar form, but the principal can grant the power to any person, not just a grandparent or great-grandparent.
So You have been named an Attorney in Fact, What can you do now? According to most Banks: NOTHING!!
By 2006 I had been practicing laws for more than 20 years and, over the years, advised my clients to protect themselves by granting a power of attorney to another trusted person so the agent can pay bills and otherwise take care of things if the principal is hospitalized. Many estate planning attorneys will have their client sign a power of attorney to take care of things in a client’s older years.
I was named as the attorney in fact for my mother. We set up a trust for her so we could avoid probate. In 2006, just two days before she died, I discovered that she had too much cash in her name to qualify for the $20,000 small estate exemption from probate. She was getting feeble and simply forgot. Using my power of attorney, I wrote a check from her personal checking account and into her trust, to remove the money from her estate. I went to the bank, feeling lucky that I had discovered the mistake before she died. Much to my surprise, the Bank WOULD NOT RECOGNIZE my power of attorney. I tried everything to convince them, to no avail. My mother’s attorney contacted the bank and confirmed that he had drafted the power of attorney, named me as the attorney in fact, watched my mother sign it and stated that she was in sound mind at the time. The Bank STILL would not honor it.
It appears that banks have much more power than we thought. After many calls to my contacts in the banking world, it seems there is an unwritten rule that banks DO NOT RECOGNIZE a power of attorney UNLESS it is on their form AND on file at the bank. I have checked with many banks since that time and have found the policy consistent throughout the industry.
WARNING: if you are the attorney in fact under a financial power of attorney, I strongly advise you to file it with your principal’s bank and make sure the bank finds it acceptable. Otherwise, you will not be able to exercise your powers with the bank.
Germaine Curtin, JD, LLM is a business, tax and transactional attorney.
By Kathryne A. Pusch
Not crazy. . . but angry? The business marketplace is a pressure-cooker, especially with the financial demands of the last few years. Our personal lives are often very stressful as well. All this stress can sometimes lead to behavioral reactions that surprise us—we never knew we could behave that way, or think those thoughts. We see people of all ages blaming their often incredible reactions on anger. “I was so mad I could not even think” is actually TRUE. Allowing anger to take over blocks one’s ability to think rationally.
Did you ever hear a friend or client say, “Well, I would never had reacted that way if he/she/you had not done that?” People want to blame their anger and their resultant behavior on someone or something else: a broker, a buyer, a seller, a spouse, a child, or maybe just a rude driver in awful traffic. We may actually think of that event or person as the source of the anger. This is not true. No one or no thing is the source or OUR own anger. It comes from within us. We choose to give vent to our own anger. We choose our own behaviors.
Dr. Sam Peeples, an inspirational author, says “The circumstances of life, the events of life, and the people around me in life, do not make me the way I am, but reveal the way I am.” “A fool gives full vent to his anger, but a wise man keeps himself under control.” (Proverbs 29:11) I have in my office the “Attitude” sign, as I call it, and I have noticed it in many of my clients’ offices as well. Charles Swindoll, an evangelical Christian pastor, wrote “I am convinced that life is 10 percent what happens to me, and 90 percent how I react to it. And so it is with you. . . . We are in charge of our attitudes.”
Outbursts of anger can be likened to the red warning lights on your car dashboard. They are not the problem. They are the indicator that there may be a serious problem with one of the critical systems that keep your vehicle running at top performance. You know that you ignore them at your own risk. You know that it is your responsibility to investigate the source of the problem triggering the warning light. So it is with angry behaviors. You ignore the signal at your own peril. If you are angry, it would benefit you and all those around you to take the time and make the effort to discover the core issue within yourself that is the true source of that anger. Most anger is linked to fear—fear of failure, of rejection, of not getting what we believe we are entitled to, and often a fear of the unknown.
If you have stress and fears related to your career, GABB offers many support systems to ease the fear of the unknowns ahead. Take advantage of all that GABB offers to make you more professional and effective with your clients, customers, peers, and strategic partners. Your association is here to help you with your continuing education, keep you on top of changes that will affect you, and provide many opportunities for networking with true professionals who can keep some of the pressure off you as you navigate the many difficult situations inherent in the marketplace.
Kathryne A Pusch
Pres/Broker, ConsultKAP, Inc.
Cheryl Beer, Sr. Vice President
Whether you are a seasoned broker or just beginning your career, information about SBA loan programs can help you steer your buyers and sellers in the right direction when structuring the sale of a business.
The SBA 7(a) loan program is a term loan program that is generally guaranteed 75% by the U.S. Small Business Administration. A qualified bank underwrites the loan request and submits the loan to SBA for approval. The Borrower must be an operating business, be organized for profit, be located in the United States (includes territories and possessions), be small (as defined by SBA) and demonstrate a need for the desired credit. Terms are generally ten years for business acquisition loans and twenty-five years for real estate purchases. The maximum rate is Prime + 2.75%. Eligible uses of proceeds include the acquisition of real estate, equipment, inventory and goodwill and for working capital.
The SBA 504 loan program is strictly for the funding of real estate and large equipment purchases. A typical 504 structure includes a 50% loan by a Bank, a 40% SBA debenture at a favorable rate and a 10% down payment. The down payment may increase to 20% for special use properties and new businesses. The SBA debenture is a fixed rate loan for either ten years for equipment financing or twenty years for real estate financing. The February 2012 twenty year debenture rate was 4.7%.
Most SBA lenders are willing to pre-qualify your businesses assuming a strong buyer. The SBA loan program is designed to finance some goodwill, but the buyer must have liquidity and personal collateral. SBA 7(a) and 504 loans are great options for financing business acquisitions.
An SBA-guaranteed loan may be used to finance a change of ownership that includes intangible assets.
(1) If the purchase price of the business includes intangible assets (including, but not limited to, goodwill, client/customer lists, patents, copyrights, trademarks and agreements not to compete) in excess of $500,000, the borrower and/or seller must provide an equity injection of at least 25% of the purchase price of the business.
(2) (Seller equity is defined as seller take-back financing that is on full standby (principal and interest) for a minimum of 2 years.) The borrower and seller will agree how much equity each will provide. For example, the borrower and seller may each provide half of the equity or the borrower may provide 15% and the seller may provide 10%. Any seller financing that exceeds the 25% equity requirement does not have to be on full standby. It just needs to be subordinate to the Bank financing.
If there are other topics you would like me to cover, please feel free to contact me at firstname.lastname@example.org.
Cheryl Beer is senior vice president of Cornerstone Bank, which is a GABB Platinum sponsor.