Seller Financing
The majority of business sales include some form of seller financing. Typically, seller financing is when the seller provides a loan to cover part of the purchase price. The rest of the purchase price is covered by the down payment or often other financing sources are used as well. Summed up another way, the seller is essentially acting as a bank for the buyer.
When sellers offer financing, it often also helps them achieve a higher final sale price. Sellers who are not open to seller financing will likely limit their possibilities.
Performing Due Diligence
When a seller opts for seller financing, it is necessary to do much of the work that a bank would usually perform, for example, checking a potential buyer’s credit report, financial statements and other key financial information. After all, if you opt to offer seller financing, then you’ll want to ensure that your buyer will not default.
Usually contracts allow for the seller to take back a business in 30 to 60 days if financing fails. In this way, the buyer can avoid a potentially serious business problem.
There are often other contractual stipulations as well. A common clause for businesses involving inventory is that new owners need to maintain a certain level of supplies during the payment period.
Providing Benefits for Both Parties
It should also be noted that seller financing is of considerable interest to buyers. Sellers looking to attract as much attention to their business as possible will want to consider this route. Offering this type of financing sends a very clear message. When a business owner is open to seller financing, he or she is stating that he or she has great confidence that the business will generate both short term and long term revenue. That level of confidence speaks volumes to buyers about the health of the business.
What Due Terms Typically Look Like?
In terms of the length of seller financing, 5 to 7 years is typical. The issue of how much a seller is expected to finance is another issue that draws considerable attention. While there are no steadfast rules as to what percentage seller’s typically finance, it is common for sellers to finance up to 60% of the total purchase price.
Finally, seller financing does have a good deal of paperwork and points to consider. Opting to work with an attorney or business broker is absolutely essential to protect all parties involved.
Copyright: Business Brokerage Press, Inc.
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Read MoreThe Power of Recurring Revenue When Selling Your Business
Buyers and sellers alike love recurring revenue, but what is it exactly that makes it so attractive? Recurring revenue is generally viewed as a very good factor as it indicates positive cash flow, the potential for growth, business success and business stability. Let’s take a closer look at how it can benefit you.
Show You’re in Demand
Businesses, including IT companies, are valued higher if they can show recurring revenue, such as monthly subscriptions, SaaS subscriptions, or a transaction that consistently occurs. If your business is centered on a subscription based platform and you have high subscription levels, then you can expect keen interest from prospective buyers.
If you want to show a prospective buyer that your business is a good bet, then recurring revenue is a great place to start. Recurring revenue indicates that you have ongoing consumers and that means ongoing revenue. But recurring revenue indicates something else as well, namely, it indicates that your business is providing a consistent service that is consistently in demand.
Take the Pressure Off Buyers
Buyers like predictability. Recurring revenue means that a buyer knows that he or she can buy a business and count on income from day one.
Sellers can often forget that most buyers get nervous when they are making any kind of business buying decision. The power of recurring revenue is, in part, psychological as it allows buyers to realize that there will be revenue no matter what. Even if they do little to develop the business, cash will flow in. In other words, the psychological value of recurring revenue is that it takes much of the pressure off.
Examining Your Annual Recurring Revenue
If your business has a strong annual recurring revenue or “ARR”, then you should place a good deal of focus on this fact. Many feel that a company’s ARR number is a powerful indicator of a company’s overall health.
Ultimately, recurring revenue indicates a great deal about your company. High recurring revenue doesn’t just mean that you have a reliable source of income every period. It indicates that your business is providing a service that is needed and valued. Strong recurring revenues also indicate that your business is doing many things correctly and that your goods and/or services are of such a caliber that you are generating repeat business.
Visibility and Transparency
Savvy buyers also value visibility and transparency. Thanks to this kind of consistent income, it is easier for buyers to plan for and manage future expenses and increase a business’s overall stability.
Part of properly showcasing your business is to emphasize your business’s recurring revenues if they do indeed occur. A seasoned business broker can be an invaluable ally in helping you reveal your business in the best light possible.
Read More
The Power of Recurring Revenue
Buyers and sellers alike love recurring revenue. But what is it exactly that makes it so attractive? Recurring revenue is generally viewed as a very good factor as it indicates positive cash flow, the potential for growth, business success and business stability. Let’s take a closer look at how it can benefit you.
Show You’re in Demand
Businesses, including IT companies, are valued higher if they can show recurring revenue, such as monthly subscriptions, SaaS subscriptions, or a transaction that consistently occurs. If your business is centered on a subscription based platform and you have high subscription levels, then you can expect keen interest from prospective buyers.
If you want to show a prospective buyer that your business is a good bet, then recurring revenue is a great place to start. Recurring revenue indicates that you have ongoing consumers and that means ongoing revenue. But recurring revenue indicates something else as well, namely, it indicates that your business is providing a consistent service that is consistently in demand.
Take the Pressure Off Buyers
Buyers like predictability. Recurring revenue means that a buyer knows that he or she can buy a business and count on income from day one.
Sellers can often forget that most buyers get nervous when they are making any kind of business buying decision. The power of recurring revenue is, in part, psychological as it allows buyers to realize that there will be revenue no matter what. Even if they do little to develop the business, cash will flow in. In other words, the psychological value of recurring revenue is that it takes much of the pressure off.
Examining Your Annual Recurring Revenue
If your business has a strong annual recurring revenue or “ARR”, then you should place a good deal of focus on this fact. Many feel that a company’s ARR number is a powerful indicator of a company’s overall health.
Ultimately, recurring revenue indicates a great deal about your company. High recurring revenue doesn’t just mean that you have a reliable source of income every period. It indicates that your business is providing a service that is needed and valued. Strong recurring revenues also indicate that your business is doing many things correctly and that your goods and/or services are of such a caliber that you are generating repeat business.
Visibility and Transparency
Savvy buyers also value visibility and transparency. Thanks to this kind of consistent income, it is easier for buyers to plan for and manage future expenses and increase a business’s overall stability.
Part of properly showcasing your business is to emphasize your business’s recurring revenues if they do indeed occur. A seasoned business broker can be an invaluable ally in helping you reveal your business in the best light possible.
Copyright: Business Brokerage Press, Inc.
Read More5 Reasons Business Brokers Improve Closing Rates
It has long been a well-known fact that business brokers can help improve closing rates. In this article, we will take a closer look at the five top reasons why having a business broker on your side can make all the difference in the world.
#1 – They Reach the Most Buyers
What seller isn’t looking to reach more buyers? When more candidates are reviewing your business, the odds of selling for your desired price only go up. The simple fact is that business brokers reach the most buyers. In fact, they usually have a long list of prospective buyers waiting.
#2 – Business Brokers Know How to Navigate Negotiation Hurdles
As the old saying states, “there is no replacement for experience,” and this definitely holds true for business brokers. Business brokers know what it takes to circumvent negotiation hurdles. Their years of hands on experience means they can spot problems long before they occur, and this dramatically helps them to successfully boost closing rates.
#3 – They Know How to Present Your Business
Once again, experience matters. Business brokers specialize in buying and selling, and this means that they understand how to best present those businesses. Showcasing your business in the best light possible and working to eliminate weaknesses in presentation is a vital part of the sales process. Business brokers put their experience to work helping sellers achieve the best presentation possible.
#4 – They Stay Focused
Business brokers sell businesses for a living. You, however, by contrast have to worry about the day to day state of your business until all the paperwork is signed.
Additionally, since you are unfamiliar with the process of selling a business, you very well may become bogged down in the process; this is more dangerous than it may seem. Sellers who spend too much time getting involved in the “ins and outs” of the deal may accidentally start to neglect their own business operations. The last thing you want in the time period leading up to a sale is for your business to suddenly flounder.
#5 – Business Brokers Are Highly Invested in Your Success
Business brokers only get paid if your business sells. That means they too have a vested interest in your success. You can expect them to do everything possible to ensure that the sale of your business goes through.
Added together, these five factors help to explain why business brokers have historically enjoyed high closing rates. If you want to improve your chances of selling a business, don’t try to do it alone.
Read More
What is EBITDA and Why is it Relevant to You?
If you’ve heard the term EBITDA thrown around and not truly understood what it means, now is the time to take a closer look, as it can be used to determine the value of your business. That stated, there are some issues that one has to keep in mind while using this revenue calculation. Here is a closer look at the EBITDA and how best to proceed in using it.
EBITDA is an acronym for earnings before interest, taxes, depreciation and amortization. It can be used to compare the financial strength of two different companies. That stated, many people don’t feel that EBITDA should be given the importance that is frequently attributed to it.
Divided Opinion on EBITDA
If there is disagreement on EBITDA being able to determine the value of a business, then why is it used so often? This calculation’s somewhat ubiquitous nature is due, in part, to the fact that EBITDA takes a very complicated subject, determining and comparing the value of businesses, and distills it down to an easy to understand and implement formula. This formula is intended to generate a single number.
EBITDA Ignores Many Key Factors
One of the key concerns when using or considering a EBITDA number is that it is often used as something of a substitute for cash flow, which, of course, can make it dangerous. It is vital to remember that earnings and cash earnings are not necessarily one in the same.
Adding to the potential confusion is the fact that EBITDA does not factor in interest, taxes, depreciation or amortization. In short, a lot of vital information is ignored.
Achieving Optimal Results
In the end, you simply don’t want to place too much importance or emphasis on EBITDA when determining the strength of a business. The calculation overlooks too many factors that could influence future growth and prosperity of a business.
Business brokers have been trained to handle valuations to determine the approximate value of a business. Since valuations take many more factors into consideration, they also tend to be far more accurate.
Copyright: Business Brokerage Press, Inc.
Read MoreHow To Keep Employees Engaged When Selling Your Business
Ensuring that your employees stay on course during your ownership transition should be one of your key areas of focus. There are many key steps that you should take during this delicate time. Let’s explore the best tips for keeping your employees engaged throughout the entire ownership transition process.
Step 1 – Establish and Implement a Training Program Early On
If you are selling your business, then be certain that you train replacements early on in the process. Failure to do so can result in significant disruptions. Additionally, if you are buying a business it is of paramount importance that you are 100% confident that there are competent people staying on board after the sale.
Step 2 – Address Employee Concerns
No matter what your employees say or how they act, you must assume that they are worried about the future. After all, if you were them wouldn’t you be concerned at the prospect of a sale? The best way to address these concerns is to meet with employees in small groups and discuss their concerns.
Step 3 – Don’t Make Drastic Changes
Above all else, you want a smooth and fluid transition period. A key way to ensure that this time is as trouble-free as possible is to refrain from making any drastic changes before or after the transition. Remember the sale of the business is, in and of itself, shocking enough.
You don’t want to add yet more disruption into the process by making changes that could be confusing or unsettling. In other words, keep the waters as calm as possible. Drastic changes could lead to employees quitting or worst of all, going to work for a competitor.
Step 4 – Focus on the Benefits
If possible focus on the benefits to your employees. It is your job as the new business owner to outline how the sale will benefit everyone. Don’t let your employees’ imaginations run wild with speculation. Unfortunately, this is exactly what happens when employees and management feel as though they are not receiving any information about the sale. So don’t be mysterious or cryptic. Instead provide your employees with information, and keep the focus on how the changes will benefit them both personally and professionally.
Implementing these four steps will go a very long way towards helping to ensure a smooth transition period. Transition periods can be handled adeptly; it just takes preparation and patience.
Read More
Five Reasons Business Brokers Improve Closing Rates
It has long been a well-known fact that business brokers can help improve closing rates. In this article, we will take a closer look at the five top reasons why having a business broker on your side can make all the difference in the world.
#1 – They Reach the Most Buyers
What seller isn’t looking to reach more buyers? When more candidates are reviewing your business, the odds of selling for your desired price only go up. The simple fact is that business brokers reach the most buyers. In fact, they usually have a long list of prospective buyers waiting.
#2 – Business Brokers Know How to Navigate Negotiation Hurdles
As the old saying states, “there is no replacement for experience,” and this definitely holds true for business brokers. Business brokers know what it takes to circumvent negotiation hurdles. Their years of hands on experience means they can spot problems long before they occur, and this dramatically helps them to successfully boost closing rates.
#3 – They Know How to Present Your Business
Once again, experience matters. Business brokers specialize in buying and selling, and this means that they understand how to best present those businesses. Showcasing your business in the best light possible and working to eliminate weaknesses in presentation is a vital part of the sales process. Business brokers put their experience to work helping sellers achieve the best presentation possible.
#4 – They Stay Focused
Business brokers sell businesses for a living. You, however, by contrast have to worry about the day to day state of your business until all the paperwork is signed.
Additionally, since you are unfamiliar with the process of selling a business, you very well may become bogged down in the process; this is more dangerous than it may seem. Sellers who spend too much time getting involved in the “ins and outs” of the deal may accidentally start to neglect their own business operations. The last thing you want in the time period leading up to a sale is for your business to suddenly flounder.
#5 – Business Brokers Are Highly Invested in Your Success
Business brokers only get paid if your business sells. That means they too have a vested interest in your success. You can expect them to do everything possible to ensure that the sale of your business goes through.
Added together, these five factors help to explain why business brokers have historically enjoyed high closing rates. If you want to improve your chances of selling a business, don’t try to do it alone.
Copyright: Business Brokerage Press, Inc.
Read MoreHow Three Moves Quadrupled the Value of this Business
Are you stuck trying to figure out how to create some recurring revenue for your business? Here’s how one business owner quadrupled the value of their business in three moves.
You know those automatic sales will make your business more valuable and predictable, but the secret to transforming your company is to think less about what’s in it for you and more about coming up with a reason for customers to agree to a monthly bill.
Take a look at the transformation of Laura Steward’s company, Guardian Angel. Steward had gotten her IT consulting firm up to $400,000 in revenue when she called in a valuation consultant to help her put a price on her business. Steward was disappointed to learn her company was worth less than fifty percent of one year’s sales because she had no recurring revenue and what sales she did have were dependent on her personally.
Steward set about to transform her business into a more valuable company and made three big moves:
- Angel Watch
The first thing Steward did was to design a monthly program called Angel Watch, which offered her business clients ongoing protection from technology problems. Steward offered her Angel Watch customers ongoing remote monitoring of their networks, pre-emptive virus protection and staff on call if there was ever a problem.
Steward approached her clients with a calculation of what they had spent with her firm over the most recent 12-month period, including the cost of her customer’s downtime. She made the case that by signing up for Angel Watch, they would save money when taking into consideration both the hard costs of her firm’s time and the soft costs associated with downtime.
90% of her customers switched from hourly billing to the Angel Watch program.
- Doubling Rates
Next Steward doubled her personal consulting rates. That way, when one of the customers who decided not to opt into Angel Watch called her firm, they were quoted one rate for a technician’s time or twice the price to have Steward herself. Not surprisingly, most customers opted for the cheaper option and others chose to re-consider their decision not to sign up for Angel Watch.
- Survivor Clause
Steward also credits a small legal manoeuvre for further driving up the value of her business. She included a “survivor clause” in her Angel Watch contracts, which stipulated that the obligations of the agreement would “survive” a change of ownership of her company.
Steward went on to successfully sell her business at a price that was more than four times the original valuation she had received just two years prior to launching Angel Watch.
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