Dallas’ Leading Mergers & Acquisitions Firm
for Companies with $500,000 to $50 Million in Revenue

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Finding the Perfect Buyers for Your Business

You’ve invested time, money, and countless other resources into your business, and it is understandable that you wouldn’t want to hand the business off to just anyone.  You need to be sure that your buyer is the right fit, not only someone who is willing to pay the best price, but someone that has a vision for the future of the business.  Finding the perfect buyer for your business might seem like a difficult task, but there are some things you can do now to ensure the process runs smoothly and the outcome is one that both you and your buyer will be happy with.  Consider these steps to finding the perfect buyer for your business. 

Prepare Your Business for Sale

To find the best buyer for your business, you need to put your business in the best position to sell.  Most potential buyers are looking to purchase successful, well-managed businesses.  Before you list your business for sale, be sure to tie up any loose ends the business may have.  Negotiate contracts, repair work vehicles or equipment, and fill all vacant positions with well-qualified employees.  First impressions are also important, so take the time to organize your workshop or replace worn furniture in the waiting room.  These small details do not go unnoticed by interested buyers, and they have the added benefit of increasing the value of the business as well.

In addition to preparing the tangible aspects of your business for sale, you’ll also need to prepare your financials.  To start, buyers will usually want to see profit and loss statements from the last three to five years, tax returns, and balance sheets.  Have key industry numbers and future projections on hand, and be prepared to explain the value your business adds to the market.  Clear and organized financials give buyers the overall impression that the business is well managed, an asset to those looking to make a smooth transition.

Work With a Business Broker/ Intermediary

Running a successful business takes expertise, therefore, you are most likely an expert in your industry.  You understand the value of working with industry experts, and selling your business should be no different.  The process to sell a business can be time-consuming.  An experienced business broker/intermediary will take the tasks of valuing your business and finding a buyer off your hands, so you can continue to focus on what you do best—running a successful business.

Finding the right valuation for your business can be a challenging task.  Though every business is different, business broker/intermediaries draw from a wealth of knowledge and experience to determine the best value for your business.  They know what buyers in each industry are looking for, and how to market your business to meet those needs.  They are also able to leverage their network of contacts to find and vet potential buyers, all without you needing to take time away from running your business.  While each sale is unique, working with a business broker will streamline and often shorten the process of selling your business.  Whether you plan to sell a small manufacturer or a large, multi-location business operation, an intermediary will work to ensure you have the best buyer for your business. 

Set the Right Price

After years of hard work growing a business, it’s reasonable that a business owner would want the highest valuation possible.  As previously mentioned, it can often be a difficult balancing act to find the perfect sales price.  While you don’t want potential buyers to get sticker shock and lose interest immediately, you also don’t want to miss out on profit if you price your business too low. 

Several factors go into determining the sales value of your business.  Sales, earnings, and market outlook all play an important role, but so do intangible assets like the business reputation and brand loyalty.  Buyers place value on potential for future growth, so a strong and diverse customer base is likely to greatly increase the value of the business.  Other transferable assets are also considered.  Do you own a patent or trademark?  Is real estate a part of the deal?  Be sure to clearly state everything you intend to transfer to the new owner.  This will ensure you get the best possible purchase price for your business.

Qualify the Buyers

Even when you are actively looking to sell, the thought of turning over your business to someone else may be difficult to think about.  There are many reasons people look to purchase a business, but they are generally divided into two groups.  The first group, strategic buyers, typically own one or more businesses already.  They may even be a competitor.  They are looking to see how your business will work with their existing portfolio.  Strategic buyers tend to have the resources and experience to purchase a business.  Financial buyers, on the other hand, have money to invest, and their main goal is to turn a large profit.  Financial buyers may not always have industry expertise, but they are motivated buyers that often will pay the most for the business. 

Your business broker will pre-screen potential buyers.  They will want to know that a buyer is financially qualified to purchase your business, from where they are getting financing to whether they’ve had bankruptcies in the past.  They will be looking at other factors as well, including work experience, industry knowledge, and any additional transferable skills they may have.  Intermediaries often run background checks, as well.  Once your buyer has been screened by the business broker, you can rest assured that he or she has been fully vetted and found qualified to purchase your business.

Be Patient

woman-carrying-keys-clipboard-sold-signThe best time to sell your business is when the business is going well.  One of the reasons this is true is because you have more time to find the right buyer.  Business owners often wait to sell their businesses until they have no other options, whether because of financial problems, health, or other factors.  This puts the owner in the position to take the first, not the best, offer on their business.  Placing your business for sale while things are going great not only ensures the best valuation of your business, it also gives you the time and freedom to wait for the perfect buyer.

The average length of time to sell a business is around six to nine months.  Factors like industry trends and the economy can have a great effect on how long a business is on the market.  Intermediaries typically shorten the process by finding qualified buyers and using their expertise to negotiate and close deals effectively and efficiently.  While you may be tempted to take any offer that comes to you, it is best to be patient and wait for the perfect buyer for your business.

The process to find the right buyer for your business can seem daunting, but there are things you can do to make the process easier.  Begin by preparing your business to sell.  Whether you need to focus on hiring highly qualified employees or getting your financials in order, ensure all loose ends are tied before you list your business for sale.  Next, hire an intermediary who will determine the best valuation of your business and match you with the perfect buyer.  Finally, be patient.  Trust your business broker to find the right buyer for your business, and work to make the transition as smooth as possible. 

 

You Might be Dealing with a Bad Business Broker if…

Business brokerages are no different than any other businesses – there are good firms and there are bad firms. So how do you determine a bad business broker from a good one? First, don’t confuse a broker’s personality with his/her business practices. There can be very poor business brokers with likable personalities, so it’s important not to choose a broker just because you like the individual – you really need to understand if you’re dealing with a good firm.

When it comes to signs you should be looking for that point to a bad business broker, here are some important things to consider.

You might be dealing with a bad business broker if…

You’re having difficulty getting references quickly

When you ask for references, you should expect to get a minimum of three names, and you should expect to get that information immediately. A good business broker has numerous references at his/her fingertips, and doesn’t need time to look for people who will give a good recommendation.

In addition, don’t just limit yourself to references the broker provides you. See if the broker has any Google reviews, or check the specific agent’s LinkedIn account to see what people have said about him/her. Even a bad business broker can scrounge up a decent referral or two, so don’t just count on what a reference says. Take the time to do a little digging on your own also.

The broker charges upfront fees

First, a disclaimer about upfront fees: Just because a business broker charges upfront fees does not mean it’s a bad firm. With that said, if a broker is asking for money upfront, you certainly need to do your homework and understand why.

Are upfront fees typically required by brokers in your area? In some parts of the country just about every broker requires fees upfront, while in other areas most reputable brokers don’t charge anything upfront. Do enough research to know what’s standard in your market.

Does the broker apply all of your fees to the final commission at closing? You want to make sure that if you are paying a fee upfront that those dollars will be applied to the broker’s final commission. If you pay $25,000 upfront and the broker’s commission ends up being $100,000 after the sale, you should only owe him/her $75,000 at closing.

What is the broker’s “pitch?” Be leery of why a broker is asking for a fee upfront. He/she should be able to give you a clear explanation as to why a fee is justified, what it covers and how the amount is determined.

You don’t understand the marketing plan

Effectively marketing a business for sale is not easy. So it stands to reason that any good business broker will have a defined program he/she employs on every single business listing. This plan should not be a mystery to you – the broker should be able to explain his/her marketing program so that you can understand what will be done.

A bad business broker won’t have a defined and thoughtful marketing plan, or he/she won’t be able to explain the plan to you. There is a major difference between “hoping” a business sells and “selling” a business. A bad business broker hopes listings will sell and has no real plan to overcome difficulties in the process, while a good business broker knows the likelihood of selling every listing is extremely high because of the system he/she has in place to market the business.

The broker lets the buyer dictate the process

How does a buyer actually buy a business? If you’ve been involved in a business acquisition before, then you know there are literally hundreds of steps and details that need to be handled in order to close a transaction. Bad business brokers leave this process up to the buyer and allow the buyer to take charge.

Your broker needs to be the authority in this process, and should be able to walk you through how he/she manages buyers and the buying process. A good business broker provides a buyer with a detailed, step-by-step plan that guides the buyer through the entire gauntlet of the acquisition, and then works with the buyer to make sure all his/her needs are being met and questions are being addressed along the way.

Having a clear buyer plan is also imperative in order for the broker to provide adequate protection for you. By letting a buyer dictate the process, you are running a huge risk. Without proper oversight, buyers could unintentionally damage your business simply because the broker is not there to guide them.

The broker doesn’t provide you with a detailed business valuation

Anyone can quote you a value for your business. Some brokers might actually be willing to give you an estimate over the phone after asking a few simple questions, while others might look over your financial statements for a day and then give you a verbal estimate, and some may even just email you a number. These are all signs of bad business brokers.

You deserve much more than a “back-of-the-napkin” estimate when it comes to determining your business’ value – you certainly didn’t put years of blood, sweat and tears into your business only to have it reduced to a number a bad business broker spends an hour “calculating.”

valuation-paper-on-clipboard-with-glasses

You should expect a business broker to provide you with a comprehensive, detailed, written business valuation report. A good business broker should not only explain the “what,” but also the “why,” “when,” “who” and “how.” While you may not agree with the valuation you get from a broker, you should at least be able to respect the process the broker went through and the effort he/she put into the analysis.

Also, be on the lookout for a broker who gives you a high value without supporting it. Bad business brokers are notorious for presenting you with unrealistic values to get you excited so you’ll list your business with them. Their hope is that when offers start to come in at a lower, more realistic price, that you’ll break down and accept it. This is a tactic called “seller’s fatigue” and bad business brokers will use it.

The broker doesn’t seem that interested in you or your business

At its core, a business acquisition is pretty basic – one party buying something from another party. That’s exactly how a bad business broker looks at your deal. It’s just a transaction and a commission.

How can a broker effectively represent your business if he/she hasn’t taken the time to really dive in, ask the tough questions and ultimately understand what makes your business unique and valuable? Furthermore, how can a broker expect to represent you if he/she hasn’t made the effort to understand your motivations for selling and what’s truly important for you to accomplish after the sale?

Your broker should be passionate about your business and your goals, otherwise he/she should never accept your listing.

You haven’t heard anything negative about your business

There is no perfect business. Period. Every business has problems and challenges that will make it difficult to sell. Some of these issues are quite serious, while others are minor – but in either case your broker should be discussing these topics with you and offering solutions on how to overcome them.

A bad business broker either ignores a business’ problems or chooses to avoid discussing those problems with you for fear of losing the listing. If you haven’t heard any concerns coming from a broker who is evaluating your business, that should be a major red flag. A good broker will discuss challenging aspects of your business with you, making sure you understand his/her concern.

At the end of the day, choosing a business broker is a life-changing decision because selling your business is a life-changing event. While you want to avoid “analysis paralysis,” it’s in your best interests to take the extra time to ensure that the business broker you are choosing to handle the most important transaction of your life is not only someone you can trust and feel comfortable with, but is also someone who avoids the bad business broker red flags outlined above.

 

Reasons to Consider Buying an Existing Franchise

You’ve decided you’re tired of corporate America or some other job that isn’t satisfying and you want to obtain the freedom that is only found in owning your own business. Many people in your shoes choose to buy a franchise. Often this is a good solution since franchises typically have a higher success rate than independent start-ups. 

franchise-agreement-on-clipboard

Franchises are businesses in a box.  It is being in business for yourself but not necessarily by yourself.  While statistics of the success rate of franchises are in dispute, there is no doubt that most franchises succeed over time. In fact, according to IFA Educational Foundation , more than 90 percent of owners renew their franchise agreements at the end of their contracts. This would indicate that franchise owners not only are successful but they are prosperous enough that they want to renew and continue in business. 

When looking at businesses to purchase this makes it very compelling to purchase an existing franchise.    

  • Successful Track Record: If the business is sellable it must have a successful track record. So when you combine the fact that is a franchise that has a tendency to be successful over time with the fact that you can see an established franchise’s track record you can be confident that this should continue in the future.
  • Training: All franchisors require new franchisees to be trained by them. This includes when an existing franchise is being transferred.  As a buyer you can be confident that you will clearly understand how to run the business that you are purchasing. Good franchisors provide training programs designed to bring you up to speed on the latest process techniques and marketing systems that will help you be successful in running the business. They will also have reference materials to assist you in dealing with issues or whatever comes up while you're running your business. When the franchisor is the one training you they have a proven process that works.  Sometimes business owners do not always explain the processes that they follow clearly, so this is eliminated when you buy an existing franchise.
  • Ongoing Operational Support: Unlike an independent business a franchisor has staff dedicated to providing ongoing assistance to franchisees. You can always call on experienced individuals when you hit a rough spot.
  • Purchasing Power: A quality franchise will have the connection that allows you to leverage the buying power of the entire system to negotiate prices for everything you need at significantly lower levels than you could achieve as an independent operator.
  • Brand Recognition: This is one of the main reasons that franchises succeed. When you buy an existing franchise you not only have a regionally or nationally recognized brand but you are buying an established brand and business in a specific marketplace.
  • Easier to Secure Finances: Many start-up franchises are not able to obtain financing from banks adequate enough for many business owners to complete the start-up. When you purchase an existing franchise you are more likely to be able to get the needed financing from a bank.  The reason is because the bank has the track record of success to rely on as well as their confidence that you will be able to operate the business effectively.man-and-woman-shaking-hands
  • Income From Day One: this is certainly a positive over the start-up franchise. Not only do you have a track record at this location but the day you purchase the business you will receive revenue.  As the saying goes, “revenue is king”.
  • Established Customer Base: This is important not only for established cash flow but this can be an avenue to grow the existing franchise. As in anything the previous owner may be burned out or has not promoted the business in a while.
  • Trained Employees in Place: A good franchise not only has training in place for business owners but also employees. This is helpful when purchasing an existing franchise where you are able to have employee’s that have been trained but they also have experience at this location franchise.

I think purchasing an existing franchise is genius.  Yes I said it, GENUIS!  Why?  When you purchase an existing franchise you have a proven business model with a proven track record in a specific market.  Business is not safe. When you buy and or own a business it is risky and challenging, but when you buy an existing franchise you are able to minimize the risk. You are able to have the same benefits of owning a business that you have always wanted but with lower risk. If you’re interested in buying or selling a franchise, contact Sigma for more information.

 

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Sigma Mergers & Acquisitions LLC: 18170 Dallas Parkway, Suite 203, Dallas, Texas 75287
Dallas Business Broker, Mergers & Acquisitions Dallas / Fort Worth / Texas

214-396-8100 Office
972-838-5202 Fax