Whether you aim to sell in two years or ten, building a business that attracts buyers enhances your success now and ensures you receive maximum profit when you sell. Exit planning is critical to your business’s success; here are the things you need to do to maximize the value of your business and make it irresistible to buyers.

1. Prioritize Growth

Buyers overwhelmingly favour businesses that are growing and profitable. A lack of demonstrated growth can deter potential buyers even if a business is priced competitively. Successful businesses show steady, predictable growth, which signals to buyers that the business can sustain itself long-term.

According to recent data, businesses with an average of 10% annual growth tend to attract more buyer interest. Additionally, the most lucrative businesses often have diverse revenue streams, loyal customer bases, and solid financial forecasting.

Profit Booster: Develop a detailed five-year growth plan that includes specific revenue targets and market expansion opportunities. Consider investing in digital transformation initiatives or new product lines to future-proof your business and enhance its scalability.

2. Get Organized and Transparent

For a buyer, transparency is critical. Buyers want to understand what they are acquiring. A business that runs like a well-oiled machine, with clear and organized documentation, is far more attractive. Ensure that your legal, financial, and operational records are accurate, up-to-date, and easy to access. This includes profit and loss statements, tax filings, employee contracts, supplier agreements, and intellectual property documentation. If your records are disorganized, buyers may perceive this as a sign of instability or high risk, which can lower your business’s value.

Profit Booster: Conduct a thorough audit of your records and processes. Implement cloud-based systems for managing business documents to ensure everything is accessible and transparent. Also, consider seeking an external audit to give potential buyers added confidence in the legitimacy of your business operations.

3. Make Yourself Replaceable

Buyers see a business that is overly dependent on its owner as high-risk. If you are the only person capable of running day-to-day operations, the business will be more challenging to sell. Buyers want to know they can step in or install new management without the business skipping a beat.

Building a strong management team and cross-training employees is the best way to make your business less dependent on you. Focus on documenting processes and delegating authority to team members. This allows the company to continue running smoothly, even if you’re not involved.

Profit Booster: Begin delegating responsibilities to trusted managers or employees within your business. Establish a succession plan and ensure that critical roles are filled by individuals capable of leading without your direct involvement.

4. Diversify Your Customer Base

A diverse customer base reduces risk for buyers. A company reliant on a handful of large clients or a single sector is vulnerable to market fluctuations. By diversifying your customer base and industry sectors, you show buyers that your business is stable, resilient, and less exposed to economic shifts.

In Canada, sectors like quick service restaurants, technology, renewable energy, and healthcare are poised for strong growth, making them appealing areas to expand into. Businesses that have demonstrated adaptability to market changes are more likely to attract buyers.

Profit Booster: Identify potential markets or sectors for expansion and create strategies to diversify your revenue streams. Consider targeting different geographic areas, launching new services, or expanding your digital presence to reach more customers.

5. Build a Strong Brand and Online Presence

In today’s digital age, a strong online presence is not just a bonus, it’s a necessity. A well-established online footprint—complete with a professional website, active social media profiles, and positive customer reviews—sends a clear signal to buyers that your business is modern and has room for growth. On the flip side, a lack of digital presence may lead potential buyers to view your business as outdated or difficult to scale.

Profit Booster: Build your digital presence by optimizing your website for SEO, engaging with your audience on social media, and soliciting online reviews from happy customers. This helps establish credibility and makes your business more desirable to buyers, especially those motivated to expand your brand’s reach.

6. Streamline Operations

Efficient operations are a major selling point. Buyers want to see that your business runs smoothly and is not bogged down by inefficiencies. Whether through automating processes, reducing waste, or cutting costs, improving operational efficiency will make your business easier to sell.

Businesses with lower overhead and strong profit margins typically sell at higher prices. Streamlining operations also boosts profitability in the short term, allowing you to reinvest in other areas of your business.

Profit Booster: Review your operations for inefficiencies and identify areas where automation could streamline processes. From customer service tools to supply chain management software, leveraging technology can cut costs and improve operational efficiency.

Now is the perfect time to build a business that is attractive to buyers. You can significantly improve your chances of selling your business for maximum profit by focusing on growth, organization, scalability, customer diversity, and operational efficiency. If you’re planning on selling in the near future, consider partnering with Acuity Business Group. We specialize in working with business owners to implement growth strategies and exit plans that increase the value of your business and inspire more buyer interest.

The post Build a Business That Sells: Expert Tips for a Profitable Exit first appeared on Acuity Business Group.

1. Franchise Resale Pricing

The price of a franchise resale is primarily determined by the operating income the location is currently achieving. This income-based valuation reflects the business’s actual performance and profitability, making it a key factor in negotiations. For buyers, understanding the franchise’s financial statements and verifying income claims is crucial.

Check out our guide to understanding cash flow to learn more about business sales, expenses, and growth. 

2. Maintaining Brand Value in Franchise Resales

Franchisors have a vested interest in ensuring that franchise resale prices do not dip too low. A low resale price can negatively impact the perceived value of the franchise brand as a whole. To prevent this, franchisors often set minimum price thresholds and actively monitor resale transactions to maintain brand integrity and value. 

Due to the franchisor’s guidelines and controls, franchisees may have limited ability to independently determine the resale prices of their franchises.

3. Franchisor’s Role in the Franchise Resale Process

Buying a franchise involves significant franchisor participation in the sale process. The franchisor typically drives the sale process, requiring potential buyers to undergo a thorough vetting process. This vetting ensures that the new owner is financially stable, experienced, and capable of maintaining the franchise’s standards.

4. Demand for Significant Down Payments

To promote financial stability and reduce risk, franchisors may require buyers to make a substantial down payment, sometimes up to 50% of the purchase price. This down payment ensures that the buyer has a significant financial stake in the business and is less likely to be over-leveraged with debt, which could jeopardize the franchise’s success.

To help you get started, we’ve put together a short guide on how to finance buying a franchise. 

5. Franchise Fees on Transfers

Franchisors usually charge a franchise fee on the transfer transaction. This fee can vary but generally covers the costs associated with transferring ownership, including administrative expenses and the cost of training the new owner. Buyers must factor this fee into their overall budget.

6. Working Capital Needs for Buyers

In addition to the purchase price, buyers need sufficient working capital to cover operational expenses, inventory, and unforeseen costs during the transition period. Having adequate working capital ensures that the business can continue to operate smoothly and meet its financial obligations from day one.

7. Mandatory Upgrades Before Closing

Before a franchise resale transaction closes, the franchisor may require completing necessary upgrades to the location. These upgrades ensure that the franchise meets current brand standards. If these upgrades are not completed, the franchisor can opt to withhold estimated upgrade costs from the sale proceeds to ensure compliance.

8. Closing Documents and Funds For Franchise Resales

To protect their financial interests, franchisors might require closing documents and funds to flow through their lawyer. This ensures that outstanding fees or debts owed to the franchisor are settled before the seller receives the sale proceeds. This step helps maintain financial clarity and accountability.

9. Full-Time Franchise Owner/Operator Requirements

Franchisors often prefer that the new owner be a full-time operator. They look for individuals with relevant skills, experience, and a commitment to running the business hands-on. This approach helps ensure the new owner is fully engaged and can drive the franchise’s success through active management and leadership.

10. Adherence to the Franchise System

New franchisees must adhere strictly to the established franchise system. This includes following operational procedures, marketing guidelines, and other franchise-specific protocols. Compliance is critical to maintaining brand consistency and avoiding potential legal disputes with the franchisor.

Navigating the intricacies of franchise resales requires a keen understanding of both the franchisor’s and franchisee’s perspectives. As a business broker, my goal is to help buyers and sellers understand these nuances and facilitate smooth, successful transactions. By being aware of the franchisor’s requirements and preparing accordingly, potential buyers can confidently step into ownership, ready to take the franchise to new heights. 

If you’re considering buying or selling a franchise, contact me for expert guidance tailored to your unique situation.

The post Everything You Need To Know About Franchise Resales first appeared on Acuity Business Group.

In this step-by-step guide, we will walk you through each section of a business plan and provide valuable tips to help you write an effective plan that stands out and inspires confidence from potential lenders.

The Importance of a Business Plan

A well-structured business plan serves as a roadmap, outlining your goals, strategies, and vision. It provides direction and clarity, ensuring everyone in your business is on the same page and working towards a common objective.

Externally, a comprehensive business plan impresses investors and lenders by showcasing your professionalism, market analysis, and financial projections. It instills confidence and increases the likelihood of securing funding or partnerships.

Internally, a business plan aligns your team, providing a solid foundation for decision-making and action. It forces you to critically evaluate your ideas, market potential, and financial feasibility, ensuring you are well-prepared to overcome challenges.

Executive Summary

The executive summary needs to be compelling in two ways; it should grab attention and provide a concise overview of your business plan. Use this section to effectively communicate your unique value proposition and outline the key points that will entice potential investors or lenders to dive deeper into your plan.

Pro tip: Craft a captivating opening sentence that hooks readers from the start.

Company Description and Vision

Tell your readers a story about your company that includes its history, mission, vision, and values. In your company story, showcase your products or services, define your target market, and highlight your competitive advantage. This section of your business plan should capture the essence of your business and demonstrate your understanding of the market landscape.

Pro tip: Clearly define your target market and address a specific need or problem that your business solves. Show how your unique value proposition sets you apart from competitors.

Market Analysis and Strategies

In this section, you dive deeper into the market landscape by identifying your target audience, assessing competitors, and analyzing industry trends. Share your marketing and sales strategies, the reasons why you’ve chosen them, and the success you’ve already had. Providing data-driven insights and actionable plans demonstrates your market expertise.

Pro tip: Conduct thorough market research to identify emerging trends, customer preferences, and potential growth opportunities.

Organization and Management

When presenting a business plan to investors, it is important to showcase the people who make up the company. Introduce yourself and your management team, and highlight relevant qualifications and experience. To help people have a better understanding of how the company works, include a clear organizational structure, and define roles and responsibilities. Showcasing a capable leadership team instills confidence in investors and demonstrates your ability to execute your business plan effectively.

Pro tip: Emphasize your team’s ability to drive the company’s success and showcase any unique skills or expertise that differentiate your team.

Product or Service Offering

Now is the time to delve into the specifics of your products or services, highlighting their unique features, benefits, and pricing. Clearly outline your value proposition and address customer pain points. If applicable, include details on your production processes, technology, and intellectual property to showcase your operational capabilities.

Pro tip: Highlight the unique features and benefits of your product or service, but also focus on the emotional appeal it brings to customers. Clearly articulate how your offering solves their pain points or improves their lives. By emphasizing the emotional connection, you grow stronger brand affinity and differentiate yourself from competitors in a meaningful way.

Sales and Marketing Strategies

This is a key section of your business plan because, without sales, your business will not be successful. Outline your sales and marketing strategies, including customer acquisition plans, pricing models, and promotional activities. Add a comprehensive marketing plan that aligns with your target audience and differentiates your business from competitors. Be sure to highlight key metrics and milestones you will use to measure success.

Pro tip: Craft engaging narratives that showcase the value of your products or services and demonstrate how they solve customer problems. Incorporating storytelling techniques into your marketing strategies helps you create a memorable and impactful impression on potential investors and lenders.  

Financial Projections and Funding Requirements

Investors and lenders will be very interested in this financial information. Objective and realistic financial projections, including sales forecasts, income statements, cash flow analysis, and break-even analysis should be included in this section. Be sure to justify your assumptions and demonstrate financial viability. Present a clear understanding of your funding requirements, showcasing your plans for utilizing investment or loan proceeds effectively.

Pro tip: Provide a well-supported explanation of your financial projections, demonstrating a thorough understanding of your industry’s trends and market conditions. Incorporate key performance indicators (KPIs) and benchmarks to track your progress and demonstrate your ability to achieve sustainable growth.

Risk Assessment and Contingency Plans

Risk is part of any business venture and should be tackled head-on, not swept under the rug until it can’t be ignored. Identify potential risks and outline strategies to mitigate them. By anticipating challenges and developing contingency plans, you will maximize your risk management capabilities and be prepared for potential hurdles.

Pro tip: Conduct a comprehensive SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis to identify potential risks and develop robust contingency plans. Show that you have considered various scenarios and have strategies to mitigate risks, ensuring your business’s long-term stability and success.

An effective business plan requires careful thought, research, and attention to detail. By following this comprehensive guide, you will be well-equipped to create a compelling business plan that captures the attention of potential investors and lenders. Your plan also serves as a roadmap for your business’s success.

Start writing your winning business plan today and pave the way for a prosperous future!

The post Mastering the Art of Writing an Effective Business Plan: A Step-by-Step Guide first appeared on Acuity Business Group.

Did you know that one-third of small businesses in Canada will change hands in the next three to five years? Getting your business ready for a new owner is crucial, even if you are not planning on selling soon. Life is unpredictable, and being prepared for an unexpected sale can help you attract the right buyer and achieve a higher sale price.

Here are three things every business owner can do today that will help their business sell in the future:

1.            Update your business growth plan

A business growth plan is a document that evolves alongside your business. It maps out the next one to two years with a focus on strategic operations and revenue generation.

An effective growth plan consists of a financial plan, an analysis of your business’s strengths, weaknesses, and opportunities, and a detailed plan for revenue-generating goals. It can be referenced regularly to identify areas that require a new approach.

Since 2020, we have learned what factors make a business more resilient and successful. According to the Business Development Bank of Canada, small business owners that adopted digital technology and were innovative during the initial phases of the COVID-19 pandemic were more likely to recover and emerge with a stronger business. Many businesses are again achieving and surpassing 2019 sales volumes.

A growth plan will help you see beyond the day-to-day activities of your business so you can focus on the strategic details that need attention for your business to grow under various circumstances. It can be used to show buyers potential avenues for growth.

2.            Document your exit strategy

An exit strategy is an important document for any business owner, yet most never draft one. Planning your exit can make your business more profitable, earn a higher sale price, and give you time to find the most tax-advantageous sale strategy.

• Selling is difficult when a business is deeply intertwined with the owner’s skills and expertise.
  • An exit strategy can show potential buyers how you will transition out and what they need to do to take over.

• An exit strategy maximizes the value of a small business.
  • Planning allows you to take the required steps to implement changes or processes that will increase profits, minimize expenses, and improve operations.

• In consultation with a qualified accountant, you can structure the exit strategy to reduce your tax burden or take advantage of tax incentives available to small business owners.

• An exit strategy makes it easier to sell your business even when you hadn’t planned to.
  • Over the past few years, many Canadian small business owners spent a lot of time dealing with unforeseen circumstances, highlighting the need to be more prepared and have a plan to navigate challenging times. If your health or other personal circumstances suddenly change, you will be better equipped to list your business for sale.  

3.            Assemble a team of qualified experts

Assembling a team of qualified experts is crucial for any small business owner who wants to sell their business successfully.

One of the most important members of your team is a lawyer who specializes in buying and selling businesses. This person can advise you on important legal considerations that may arise during the sales process. They can draft legal agreements and contracts to protect your interests throughout the sales process.

Another key member of your team is an experienced accountant. This person can prepare your financial statements, tax returns, and other documents potential buyers will review. They can advise you on important tax implications of the sale, and structure the deal in a tax-efficient manner.

In addition to a lawyer and an accountant, you should work with a qualified business broker. A broker can develop a comprehensive growth plan to make your business more attractive to potential buyers. They will market your business to a wide range of potential buyers and negotiate on your behalf to ensure that you get the best possible price.

Preparing in advance is one of the best ways to set your business up for success. It allows you to take advantage of unsolicited offers that come your way or sell sooner than expected. Even if you aren’t planning on selling for a few years, contact Acuity Business Group to find out how we can help. Your future self will thank you!

The post Maximize the value of your business first appeared on Acuity Business Group.

Background

Approximately five ago, I helped a client to buy a business. The transaction was a success and I was confident he had what it takes to do well. Last year, I received a phone call from this client. He had grown a wholesale distribution business to over $3M in annual revenue. The owner was now ready to retire and knew that Acuity Business Group could help him do that.

Key achievements

This business owner came prepared to sell. He had done his due diligence in a number of different ways. First, he interviewed other business brokers to see if there was someone else he wanted to work with. Ultimately he chose Acuity Business Group again, citing our “practice of setting realistic expectations and being reasonable throughout the valuation process” as key reasons to reengage.

Second, the owner had meticulous and accurate records about every aspect of the business and was ready to share that information. This made it easier for our team to put together a detailed overview of the business, price it accurately, and start to attract qualified buyers ready to make an offer.

Finally, the owner stepped back and let me handle as many aspects of the transaction as possible. He focused on the business while I answered inquiries, screened potential buyers, negotiated terms, and dealt with anything else that arose. By continuing to work hard during the sale process, he maintained strong revenue, inspiring buyer confidence.

Challenges overcome

As with all business for sale transactions, there were challenges. Revenues had been affected by the early months of Covid-19, and this was reflected in the financial records. However, the owner worked hard to rebound from those months and posted a significant increase in revenue in 2021 and onwards.

The business was listed for sale during the height of global and national supply chain issues. The owner quickly responded by increasing focus on customer pricing. The price increase was well accepted for a few reasons. There had not been any significant price increases since 2017, and customers were very aware of rising product transport and purchase costs. The business implemented and communicated the increases without any decrease in product demand.

Due to the overall economic climate, there were concerns that accessing financing would be a hurdle for buyers. In this transaction, the Business Development Bank of Canada (BDC) played a significant role in financing the sale. BDC is a bank that specializes in helping Canadian entrepreneurs to access small business loans with competitive rates. 

The end result   

The business sold relatively quickly and the owner was able to retire. When asked about his experience, the owner said, “The listing process and buyer vetting went very smoothly, largely in part to Ken’s facilitations. He did a great job shielding me from tire kickers and poor-quality leads, allowing me to focus on my business. As with any major negotiations, there were a few surprises, but Ken remained flexible and ensured that everything was taken care of. My business sold more quickly than I had anticipated, and the entire process went much smoother than I thought was possible. Having worked with Ken on both sides of the process, I highly recommend him to anyone looking to sell their business. You can be assured he will be completely straightforward through the entire process and will work on your behalf until the deal is closed.”

Selling a business can feel overwhelming, but preparation and the right partners can help it go smoothly. I was thrilled to have the opportunity to work with this client for a second time. My goal as your business broker is to ensure your experience is so good that you invite me to partner together when you decide to sell or grow! If you are thinking about selling your business this year, let’s talk. 

The post Why one business owner came back to Acuity Business Group first appeared on Acuity Business Group.

If you are considering selling your business in the next twelve months, you should not reduce expenses related to updating and maintaining business records.  This means no DIY accounting, no skipping legal advice, and no eliminating financial advisors.  Read on to learn how scaling back in these areas could cost you.

Accounting

Did you know that accurate accounting records can help increase the value of your business?  This is critical when you are planning to sell.  Accurate accounting records make it easy for buyers to evaluate the

• Income and expense history,
• Assets and liabilities, and
• Financial health of the business.

When working with potential buyers, presenting accounting records in a transparent and verifiable way shows the value of the business, and it goes a long way in helping them to obtain funding.  As you prepare your business for sale, a qualified accountant can provide an income statement, balance sheet, and cash flow statement.  Buyers need to review this information before they can make a reasonable offer. 

Over the past few years, more buyers have requested review engagements from accountants.  A review engagement is a thorough examination of financial information used to provide limited assurance that the data is correct.  These documents are helpful when the buyer needs a loan for $300,000 or more.   Some buyers are unwilling to move forward with the transaction without a review engagement. 

An accountant can also help owners determine the financial and tax implications of selling their business by reviewing considerations like

• A share sale versus an asset sale,
• Personal tax liability, and
• Proper reporting on personal and business tax returns. 

Legal Advice

Lawyers can be expensive, but their expertise is worth it when selling a business.  There are two important ways that lawyers help owners sell their business.  The first is ensuring the business is compliant with industry-specific regulations and legislation.  Selling a business not in compliance can have significant legal and financial ramifications.

Lawyers must also draft, review, and execute paperwork throughout the process.  This includes offers, counteroffers, business transition details, financial documents, licensing, contracts, and final payment terms.  Skimping on any of these steps can cause a deal to fall through and cost the business owner money.  In worst-case scenarios, it can lead to legal proceedings that waste valuable time and resources.   

Financial Advice

The right financial advice can take a business for sale from precarious to successful!  A qualified financial advisor will analyze the business’s overall health and help owners optimize different areas.  They review things like

• Inventory levels,
• Obsolete stock,
• Current inventory turnover,
• Staffing levels, and
• Overall efficiencies and barriers to growth.

Working with a financial advisor helps business owners to focus on improving finances and ensure changes are properly documented. 

Without these key players, you may lose money during business operations and when you try to sell.  After helping you get the right team of advisors in place, a qualified business broker can mitigate some of these losses and enhance your return on investment by

• Providing strategic recommendations to improve the saleability of the business,
• Eliminating barriers to a successful sale,
• Determining the accurate market value of the business,
• Providing education and expertise on vendor financing,
• Working with your lawyer and accountant to draft a vendor financing agreement that benefits all parties,  and
• Determining the next steps for an eventual sale by comparing market conditions with the current state of the business. 

Selling a business is a team effort, and each member adds significant value.  Eliminating any of these players is like benching your star quarterback right before the championship game!  Instead of considering these services as expenses, reframe them as investments that will pay a return when you sell your business.  If you are considering selling your business, get in touch to learn more about how we can help.  

The post Learn about the costly mistake business owners are making (and how working with a business broker can help recoup some of those losses) first appeared on Acuity Business Group.

Phase 1 – Research and education

During the initial phases of exit planning, business owners need to learn about the exit process.  This includes learning about the different options for selling their business and understanding how each option will affect them.  During the research and education phase of the exit planning process, a qualified business broker can help by providing expertise, guidance, and the most up to date and accurate information about selling a business in a particular industry and geographic location.  A business accountant with experience in similar transactions can help owners determine the most favourable sale type for their business that will help minimize the tax burden.  The research and education phase gives business owners a unique insight into their business that can help them to create targeted and effective short and long-term strategies that will increase profitability in the present and make the business more attractive to qualified buyers when they are ready to sell.

Phase 2 – Implementing strategy

Once the research and education phase is completed, business owners have a better idea of the strategies, ideas, and processes they need to implement to help improve their business and the bottom line.  Focusing on both business processes and overall profitability make the business more appealing to qualified buyers.  Beginning to implement improved strategy a year or two prior to selling can help business owners objectively demonstrate the actual value of their business through bettered cash flow and profits.

I worked with one client who had initially been disappointed when she received the Broker Opinion of Value for her business.  Like most owners, she had unrealistic expectations of the value of her business.  Instead of becoming discouraged, she reviewed the feedback regarding changes that would improve her business and ultimately increase the value of the business.  With a renewed effort and focused strategy, she continued to build the business.  Within 18 months, the value of the business had doubled and it sold for the full asking price, which was considerably higher than the price it would have sold for a year and a half prior.

Phase 3 – Executing the deal

Most business owners think that phase 3 will demand the most amount of time on their part.  This is incorrect.  Phases one and two require the most significant effort from business owners and these phases take place long before executing the deal.  Once the research has been done and the strategies have been implemented for a period of time, business owners can formally engage with a business broker and have them take the reins and execute the deal.  A qualified business broker will handle most aspects of the transaction including advertising, qualifying potential buyers, negotiations, and finalizing the sale.  During this time, business owners should continue to focus on their business, not on the details of the sale.

Successful business sales are a marathon, not a sprint.  Ideally, exit planning should begin long before an owner needs or wants to sell.  Without strategic planning, a business misses out on opportunities to improve and create a track record of success that will appeal to potential buyers.  Exit planning can help to identify and minimize weaknesses, further improve areas of strength, demonstrate growth potential, and show a positive cash flow history.  Contact Acuity Business Group for more information on how you can start exit planning today to have a successful business sale in the future.

The post Exit planning is critical to business success first appeared on Acuity Business Group.

Underestimating how long it takes to sell a business

Many business owners assume that selling their business will take a few weeks or a few short months.  In actuality, selling a business can take months and sometimes years.  Without knowing how long the process can take, many owners wait too long to put their business up for sale and are inadequately prepared for the process.  This puts the business at risk for dissolution and the owners at risk of a very disappointing outcome.

One way to avoid this common mistake is to draft an exit strategy.  Ideally, exit planning should begin long before selling.  Without strategic planning, a business misses out on opportunities to improve and create a track record of success that will appeal to potential buyers.  Exit planning can help to identify and minimize weaknesses, further improve areas of strength, demonstrate growth potential, and show a positive cash flow history.

Assuming the “right buyer” will walk through the door

Business owners presume their successor will be similar to themselves in terms of background and business goals.  They are confident that the perfect person is just waiting to put in an offer when the business is listed for sale.

This is a very dangerous mindset.  It eliminates any sense of urgency to market the business creatively to a wide variety of potential buyers.

While the buyer may fit the owner’s ideal image, they may also be

• A competitor looking to grow by acquisition,
• A business that is expanding into new products or service offerings, or
• Someone who wants to take the business in a new direction.

Finding and qualifying a buyer is one of the most labour intensive aspects of the business for sale purchase.  At the end of the day, the right buyer is the person who has liquid cash to invest in the business and can meet the other terms listed in the business for sale contract.

Misunderstanding the value of the business

Perhaps the most common and detrimental mistake business owners make is failing to understand the value of their business.  Accurately determining the fair market value of a business is one of the most misunderstood parts of the selling process.  Business owners often overestimate the value of things like goodwill, assets, niche markets, and potential.

Business owners are also guilty of pricing their business based on what they need or want to see as a return on their investment.  These considerations are meaningless to a potential buyer and will rarely align with how much a buyer is willing to pay.

Fair market value and the asking price are determined after analyzing several factors, including industry and local economic factors, and completing a specialized calculation.  Following an objective process highlights the true value of the business and makes it easy for potential buyers to understand how the asking price was determined.

Pricing a business accurately and objectively will help a business sell more quickly and close to the asking price.

There are three things every business owner needs to remember when they decide to sell their business.

• It will take time and it is important to plan accordingly.
• Owners need to be open-minded and remember the “right buyer” may not be who they imagined for their business.
• In order to sell, the business must be priced based on fair market value.

Business owners that understand these aspects of the business for sale process will be more likely to have a successful sale with far less stress and disappointment.  If you are ready to sell your business, contact Acuity Business Group to learn more about how we can help.

The post 3 mistakes that prevent businesses from selling first appeared on Acuity Business Group.

Here is how they do it.

Expertise

Certified business brokers undergo extensive education, both to earn their certification and as a requirement for maintaining it.  Business brokers are better able to do things like

• Accurately value a business.
• Identify changes that will help improve the value of the business.
• Set the right price that takes into account multiple factors including the current market, regional influences, and the true value of the business.

In order to set the asking price, business brokers take many factors into account and complete a specialized calculation.  This process makes it easy for buyers to understand how the asking price was determined and helps them see the value in paying that amount for the business. Buying and selling a business can be emotional. The broker opinion of value is logical and follows international standards taking into account the industry and the local economy.

Coordination

There are many moving parts when it comes to selling a business and it is akin to a full-time job.  Business owners are busy enough and will not have the time to manage the sale process in a timely manner.  Here are just a few of the tasks that a business broker will handle:

• The business valuation process,
• Identifying and facilitating tasks to be done before listing the business,
• Preparing marketing materials,
• Launching and managing the marketing plan,
• Buyer screening,
• Initial buyer interviews,
• Ensuring potential buyers have liquid cash available to finance the purchase,
• Arranging showings,
• Negotiating the deal,
• Coordinating the preparation of sale documents by the lawyers
• Managing the various aspects of due diligence,
• Managing timely communication across all involved parties, and
• Closing the deal.

If even just one of these aspects of the business for sale transaction falls off track, the entire deal can be jeopardized.

Handling involved parties

Selling a business is never a simple transaction that is between just a buyer and a seller.  In addition to the buyer and the seller, there can be lawyers, accountants, business partners, investors, bank representatives, landlords, buyer agents, and family members involved.  That is a lot of individuals to keep moving towards the finish line.  It is not uncommon for personality conflicts and misunderstandings to arise during a poorly managed transaction.  Left unchecked, these can derail a business for sale transaction and leave involved parties feeling frustrated, angry, and unwilling to move forward.  A qualified business broker can help all parties move forward together by

• Keeping everyone up to date,
• Checking in with individual parties on a regular basis,
• Being available to field questions and concerns in a timely manner,
• Acting as a point of contact for all parties,
• Keeping track of each individual’s roles and responsibilities throughout the process, and
• Holding all parties accountable.

In addition, a great business broker will continually finesse the process by quickly diffusing negative emotions and keeping all parties focused on successfully completing the transaction.

A qualified business broker is one of the best assets any business owner has when they decide to sell their business.  Throughout the past few decades, the standards for the industry have continued to grow and brokers have consistently demonstrated the benefits their expertise can provide.

If you are getting ready to sell your business, contact Acuity Business Broker to learn even more about how we can help.

The post Why every business for sale needs a business broker first appeared on Acuity Business Group.

Traditionally, a business is considered sold and ownership is transferred after the seller is paid in full.  Today many buyers are not willing to make a lump sum payment to finalize the transaction.  To achieve their asking price, sellers have to be flexible and creative in their terms concerning payment and closing.  Two methods sellers have been using to close deals are earnouts and vendor financing.

Earnouts

Earnouts are a flexible option where terms and conditions are unique to each circumstance.  In an earnout agreement, the buyer agrees on a purchase price and commits to additional compensation to the seller if pre-determined criteria and performance targets are met.  This type of deal is a good option when a business for sale has recently experienced a period of exceptional profits as well as when a business has entered a new market or has new offerings. 

Earnouts help to eliminate some of the uncertainty buyers are feeling.  The structure shows that the seller believes strongly in the future success of the business.  It also reduces the financial burden on the new owner.  Most importantly, earnouts motivate the buyer and seller to work together to help the business reach peak performance before, during, and after the sale is completed.    

Vendor financing

Vendor financing is a second option that encourages buyers to make an offer.  It is no secret that it can be difficult to obtain financing to buy a business.  While there are some alternatives to traditional financing options, these can be extremely expensive.  Some business owners may be able to offer financing, also known as a vendor take back.  In this type of deal, the buyer agrees to pay the seller a percentage of the sale price over an agreed-upon period.  The payments include interest and the rate can be negotiated between the buyer and the seller.  It offers an added layer of protection for buyers because they can easily recover costs that were not properly disclosed before the sale was finalized.  This structure keeps the owner engaged throughout the transition period which can be very beneficial for the buyer as they learn the ropes.  I recently closed a deal using vendor financing over three years at an interest rate of prime plus 1%.  Both parties were pleased with the terms of the agreement and that helped to propel the transaction over the finish line. 

Protection for all parties

When considering a deal using earnouts or vendor financing, due diligence is still extremely important.  My top three recommendations to anyone entering into an earnout or vendor financing agreement are as follows:

• Document everything in writing, including the terms of the deal and all relevant accounting assumptions;
• Have the deal drafted and reviewed by experts, including a business broker, accountant, and lawyer experienced in handling business for sale transactions; and
• Be sure the agreement includes a dispute resolution process.

One certainty that impacts all business for sale transactions is that no one knows what the future holds.  When we are open to alternative financing arrangements like earnouts and vendor financing, we can overcome buyer hesitancy and structure transactions where everyone walks away a winner.  If you would like to talk about buying or selling a business using either of these strategies, please reach out and book a time to chat!

The post Flexible payment plans help close the deal first appeared on Acuity Business Group.