Where your money is concerned, myths can do damage. Tammie Miller, Managing Director of TKO Miller, explored five big M&A myths that can get you in trouble in a recent Divestopedia article, Crazy M&A Myths You Need to Stop Believing Now. Miller, who has more than 20 years of investment banking experience, says many of these myths are believed by CEOs despite having zero basis in reality.
Myth 1: Negotiating is Done After You Sign the LOI
The letter of intention is, of course, important. However, this is by no means the end of the negotiations and it is potentially dangerous to think otherwise. The negotiations are not concluded until there is a purchasing agreement in place. As Miller points out, there is a great deal that can go wrong during the due diligence process. For this reason, it is important to not see the LOI as the “end of the road.”
Myth 2: You Must Assume Seller Debt
Yyou don’t have to take a company’s debt as part of the purchase price, Miller says. Miller says her clients only “take seller paper when that debt bridges a big discrepancy in valuation.” She and other business brokers often recommend against seller paper “because it rarely comes with the appropriate protections professional debt holders (like banks) require.”
Myth 3: Everyone Who Makes an Offer Can Afford To
The idea that everyone who makes an offer has the money to follow through is, unfortunately, simply not true. Often people will make offers without securing the money to actually buy the business. Not only does it waste everyone’s time, it can derail your progress in selling your business. If you are not careful, it could actually prevent you from finding a qualified buyer. Check out any offers with an investment banker or trusted advisor.
Myth 4: I Can Sell Without a Deal Team
Somet sellers think they don’t need a deal team in order to sell their business. While it may be possible to sell your business without the assistance of an experienced M&A attorney or business broker, the odds are excellent that doing so will come at a price. Miller says working with an investment banker or business broker can add, on average, 20% more transaction value!
Additionally, there are other dangers in not having a deal team in place. A business broker can handle many of the time-consuming aspects of selling a business, so that you can keep running your business. It is not uncommon for business owners to get stretched too thin while trying to both run and sell a business and this can ultimately harm its value.
Myth 5: You Must Sell Your Entire Business
True, most buyers will want to buy 100% of a business, but a minority ownership position is still an option. There are many reasons to consider selling a minority stake, so don’t assume that selling your business is an “all or nothing” affair.
Ultimately, Miller lays out an exceptional case for the importance of working with business brokers when selling or buying a business. Business brokers can help you avoid myths. In the end, they know the lay of the land. To find a list of Georgia business brokers, visit the GABB directory.
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Before buying any business, a seller must ask questions, lots of questions. If there is ever a time where one should not be shy, it is when buying a business. In a recent article from Entrepreneur magazine entitled, “10 Questions You Must Ask Before Buying a Business”, author Jan Porter explores 10 of the single most important questions prospective buyers should be asking before signing on the dotted line. She points out to remember that “there are no stupid questions.”
The first question highlighted in this article is “What are your biggest challenges right now?” The fact is this is one of the single most prudent questions one could ask. If you want to reduce potential surprises, then ask this question.
“What would you have done differently?” is another question that can lead to great insights. Every business owner should be an expert regarding his or her own business. It only makes sense to tap into that expertise when one has the opportunity. The answers to this question may also illuminate areas of potential growth.
How a seller arrives at his or her asking price can reveal a great deal. Having to defend and outline why a business is worth a given price is a great way to determine whether or not the asking price is fair. In other words, a seller should be able to clearly defend the financials.
Porter’s fourth question is, “If you can’t sell, what will you do instead?” The answer to this question can give you insight into just how much bargaining power you may have.
A business’ financials couldn’t be any more important and will play a key role during due diligence. The question, “How will you document the financials of the business?” is key and should be asked and answered very early in the process. A clear paper trail is essential.
Buying a business isn’t all about the business or its owner. At first glance, this may sound like a strange statement, but the simple fact is that a business has to be a good fit for its buyer. That is why, Porter’s recommended question, “What skills or qualities do I need to run this business effectively?” couldn’t be any more important. A prospective buyer must be a good fit for a business or otherwise failure could result.
Now, here is a big question: “Do you have any past, pending or potential lawsuits?” Knowing whether or not you could be buying future headaches is clearly of enormous importance.
Porter believes that other key questions include: “How well documented are the procedures of the business?” and “How much does your business depend on a key customer or vendor?” as well as “What will employees do after the sale?”
When it comes to buying a business, questions are your friend. The more questions you ask, the more information you’ll have. The author quotes an experienced business owner who noted, “The more questions you ask, the less risk there will be.”
Business brokers are experts at knowing what kinds of questions to ask and when to ask them. This will help you obtain the right information so that you can ultimately make the best possible decision.
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A recent article on Businessbroker.net entitled, First Time Buyer Processes by business broker Pat Jones explores the process of buying a business in a precise step-by-step fashion. Jones notes that there are many reasons that people buy businesses including the desire to be one’s own boss. However, he is also quick to point out that buyers should refrain from buying a business that they simply don’t like. In the quest for profits, many prospective owners may opt to do this, but it could ultimately lead to failure.
Step One – Information Gathering
For Jones, there are seven steps in the business buying process. At the top of the list is to gather information on businesses so that one has an idea of what kind of businesses are appealing.
Step Two – Your Broker
The second key step is to begin working with a business broker. This point makes tremendous sense; after all, those new to the business buying process will benefit greatly from working with a guide with so much experience. Business brokers can gain access to information that prospective business owners simply cannot.
Step Three – Confidentiality and Questions
The third step in the process is to sign a confidentiality agreement so that you can learn more about a business that you find interesting. Once you have the businesses marketing package, you’ll want to have your broker schedule an appointment with the seller. It is vitally important that you prepare a list of questions on a range of topics. There is much more to buying a business than the final price tag. By asking the right questions, you’ll be able to learn more about the business and its long-term potential.
Step Four – Evaluation
In the fourth step of the business buying process, you’ll want to evaluate all the information that you have received from the seller. Once again, a business broker can be simply invaluable, thanks to years of hands-on experience, he or she will know how to evaluate a seller’s information.
Step Five – The Decision
In the fifth step, you’ll need to decide whether or not you are making an offer. If you are making an offer, you will, of course, want it to be written and include contingencies.
If your offer is accepted, then the process of due diligence begins. During due diligence, you and your business broker will look at everything from financial statements to tax returns. You will evaluate the company’s assets. Again business brokers are experts at the due diligence process.
Buying a business is an enormous commitment. Making certain that you’ve selected the right business for you is one of the most critical decisions of your life. Having as much competent and experienced help as possible is of paramount importance.
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Three CPAs from Frazier & Deeter spoke at the May 28 Georgia Association of Business Brokers meeting about the emerging cannabis industry as well as other tax programs that affect both buyers and sellers of businesses.
Matthew Foster, CPA, Tax Partner at Frazier & Deeter and the firm’s National Practice Leader for the Cannabis Industry, discussed the emerging cannabis industry in Georgia, including tax issues and obstacles to financing. Andrew Moore, CPA, Senior Manager of the Tax Department at Frazier & Deeter, discussed film credits, low income housing credits, opportunity funds, and syndicated conservation easement transactions, all of which can lower the taxes due after the sale of a business. Jennifer Gruner, CPA, tax partner in Frazier & Deeter’s Real Estate Group, covered opportunity funds.
Linked here is a copy of their presentation. Credits CPAS Cannabis Presentation To GAAB_05252019
The Georgia Association of Business Brokers meets at conference room hosted by the Georgia Association of Realtors at 6065 Barfield Road, Sandy Springs, GA, 30328. The monthly GABB meeting is free and open to the public and is preceded at 9:45 a.m. by a free light breakfast and networking session. The meeting will last from about 10:30 to somewhere between 11:30 and noon. Please fill out the form below if you are not a GABB member but wish to attend our meeting.
While Andrew specializes in working with small and middle market companies and their related owners, his background allows him to serve a broad client base from smaller “mom & pop” type establishments to much larger corporate conglomerates. He has extensive experience helping clients recognize and implement tax saving opportunities and prides himself on recognizing opportunities often missed by others. Prior to joining Frazier & Deeter, Andrew led major initiatives that include helping clients implement the IRS Tangible Property Regulations and filing related accounting method changes which resulted in his clients saving millions of dollars in taxes.
At Frazier and Detter, Andrew is an active member on the pass-through team and participates in the overall delivery of tax compliance, consulting and planning services offered by the firm.
Before joining Frazier & Deeter, Andrew spent just over nine years working with clients in the automotive, manufacturing & distribution, trucking, legal, technology and service based industries at various other accounting firms in Atlanta.
Matthew Foster is a Partner in the Atlanta and Las Vegas office tax practices and serves as the firm’s National Practice Leader for the Cannabis Industry. He has over a decade of experience in public accounting, with the majority spent practicing at Frazier & Deeter, LLC.
Matthew’s primary areas of focus are middle market companies that are privately owned or backed by private equity. His tax expertise in this area has allowed him to help his clients with various opportunities, such as corporate structuring for tax strategies, mergers and acquisitions, joint ventures and ESOPs. His clients operate in a variety of industries including, but not limited to, manufacturing, distribution, technology, real estate and construction.
Jennifer Gruner has more than 11 years of public accounting experience, which includes five years with Ernst & Young’s real estate tax compliance department. Jennifer has a wealth of experience with tax compliance for small to large national real estate developers, builders, investors in commercial estate and the individual partners of those firms. In addition, she has signification experience with various types of investors of real estate deals, including foreign and domestic individuals, syndicators, foreign and domestic funds, including tax exempt investors and REITs.
Jennifer has extensive knowledge of limited partnerships, limited liability companies and family partnerships with multi-tier structures operating or investing in various states. She also has experience with complex partnership allocations and waterfalls, technical terminations, sale of assets, depreciation and federal and state withholding for foreign and domestic investors.
The GABB is the state’s largest and oldest association of professionals who specialize in brokering the purchase and sale of businesses and franchises. Broker members help owners determine the asking price of their business, create marketing plans and strategies for selling their business, identify and qualify buyers, and have the knowledge, experience and skills needed to help maintain the confidential nature of the process. The professionals of GABB relentlessly pursue professional development so they can provide superior, ethical services for all customers and clients. Affiliate members include bankers, lawyers, appraisers, insurers and other professionals like Mr. Moore who work closely with brokers to help owners and buyers get to the closing table.
For more information about GABB, please contact GABB President Dean Burnette at 912-247-3209 or firstname.lastname@example.org, or GABB Executive Director Diane Loupe at email@example.com or 404-374-3990.
By Peter Siegel, Founder of BizBen.com (California Businesses For Sale), the BizBen Network
When you buy a small business, you want to be successful. But to do that, you must be able to look objectively at the company and determine whether or not it is a business that will be able to grow into the future. Many small businesses have succeeded by being on the cutting edge at one time or another. Businesses that survive long term, growth industries, are those that can change and grow along with the changing needs of their consumer. Regardless of what the financials say, a business that is not adaptable may be at the end of its life cycle.
As you look at potential business opportunities, think about where the business is in terms of its life cycle and try to find a vision for future growth if the current owner doesn’t have a plan in place. If you’d like to know that the small business you are buying is going to be in demand for a while, consider buying one in an industry that is projected to grow. Here is my list of small business opportunities in industries that are expected to grow.
#1 – Green Construction
The construction industry was hit hard by the recession. The industry has had to suffer through consumer’s pulling back on doing large home improvements and from building new homes because they couldn’t afford to and because there was a level of uncertainty around what the future would hold. As the economy starts to improve, many consumers are still focused on ways to save money and live more efficiently so going green is becoming a priority.
Consumers aren’t the only ones interested in going green. Business owners are also following this trend as a means of being more efficient and spending less. With that, I anticipate that companies certified in creating green spaces will be in demand in the future. As more and more consumers go green, they will want their homes and their businesses to follow and the demand for companies that can provide green spaces will increase.
If you are considering buying into this industry, I recommend you know something about construction. Experience will be beneficial in running a successful business. Consider buying include construction companies certified in green building, companies that install solar panels or a green consulting company which evaluates a space and make recommendations on how to improve its efficiency. You can find businesses that are either franchises or independently owned in this category.
#2 – Fast Casual Dining
While fast food franchises still remain a popular option for meals on the go, a new trend in on-the-go eating has emerged over the last several years and I anticipate it will continue to grow into the future. The movement to fast casual dining is taking the restaurant industry by storm. Chains such as Panera Bread and Chipotle have grown tremendously since entering the market. Consumers seem to like the ability to be able to sit down for a casual meal that is better quality than fast food but not as time consuming as a restaurant.
Another trend in this industry is the birth of the food truck. We’ve been hearing about them for a while now and some food trucks have really gained quite a large following of loyal customers. Small business opportunities in this industry for you to consider buying include food trucks and restaurant franchises. Even though fast casual dining is a bit different than a full blown restaurant, you should still understand what you are getting into before you buy into this industry so do your due diligence before making any decisions.
#3 – Professional Services — Accounting, Healthcare, Consulting
As the world that we live in gets more complex, the need for professional services increases and I’m seeing a particular demand in accounting businesses, consulting, and private healthcare practices. Accounting may not be the “sexiest” occupation, but accountants and their services are in demand. As people’s finances become more complex we are seeing less do it yourself accounting and more individuals turning to a professional to help with everything from monthly accounting to annual tax preparation. Most businesses use a professional accountant in one way or another but again, as the complexity of our global economy increases, more businesses are requiring additional services from professional Accountants.
As Baby Boomers continue to age, they are creating a demand for more healthcare-related professional service businesses. This includes everything from private healthcare practices to healthcare specialists like physical therapists to home healthcare aides. The population is going to continue to age and need these services. On top of that, with the introduction of the Affordable Healthcare Act more Americans will have access to health insurance so the demand for healthcare professionals may again increase as a result.
Let’s not forget about Consultants! Starting a business and staying open is becoming harder and harder as the economy, consumers and technology continues to change. Businesses are hiring Consultants to help them navigate this unique business environment and you can find a Consultant that specializes in just about everything these days. This increasing demand for professional guidance in specific areas of business is causing this to be a growing segment of the professional services industry.
While buying a professional services practice may sound like a great idea, these are three areas where I’d definitely recommend you have experience before buying. So what I am saying is if you are a restaurant owner looking for change, buying an accounting practice probably isn’t going to be the right fit but if you’ve just become a CPA and the practice you interned at is up for sale, you should consider buying it because it is likely to be a business that will be around in the future.
When it comes to the professional services industry, many of the small business opportunities that are available for you to purchase are likely to be independently owned. Also, be aware a lot of professional practices don’t get sold on the open market. Many change hands by being passed down to family or employees so finding one for sale may be more difficult than finding other types of businesses.
#4 – Repair Services
Consumers are hesitating to buy new. Instead of replacing it, they are repairing it. For millions of Americans who are still recovering from the recession, repairing has become a way of life. Repair businesses from home improvement companies to car repair businesses have seen an improvement in their business when other companies were slowing down.
Small business opportunities in this industry for you to consider buying include home repair businesses, auto repair shops, a clothing repair or alterations business and computer repair.
#5 – Self-Help and Individual and Family Services
We have become a nation of people who are constantly trying to better than themselves. A group of people trying to do more, be more and live better, Americans are looking for help in finding out how they can be the best they can be. The result is that the self-help industry is booming, and I anticipate its growth to continue well into the future. Self-help and self-improvement initiatives started gaining momentum as early as the 1930s and today Americans spend around $11 billion on this industry. Falling into this category is everything from motivational speaking seminars, networking and wealth-building instructional DVDs, guidance books and more. This segment of the industry presents an opportunity for a solopreneur to write a book, produce a DVD or become a speaker so if you have experience and are successful in an area of life that many people struggle in, you may have an opportunity to create a small business out of it.
Also growing in popularity is the individual and family services industry. In my opinion, self-help and this industry go hand in hand because they are both focused on improving lives. When it comes to individual and family services, more and more people are going to start hiring professionals to help them get through whatever is plaguing them; drug addiction, marital problems, mental issues, etc.
This presents an increasing demand for another branch of professional service businesses that are going to grow into the future. As I said before, these are businesses that you should really have some experience in before buying one.
About The Author: Peter Siegel, MBA, is the Founder of BizBen.com (California Businesses For Sale), the BizBen Network, and is the Director of the successful BizBen ProBuy Program (90% success rate) for business buyers. He has recently published an eBook on How To Buy A California Small Business that is available online. If you need assistance in your search to buy (or finance the purchase of) a California business and would like to speak with Peter Siegel, phone him direct at 866-270-6278.Read More