Sellers Articles Archives - Page 3 of 29 - Infinity Business Brokers

Published January 30, 2023

Confidentiality is a big, big part of business sales.

What is confidentiality? When a business is for sale, the only people who should know that it is on the market are the seller, the business brokers and attorneys involved and qualified buyers who have signed the appropriate non-disclosure agreements. That’s it.

Most people new to the process don’t understand the importance of confidentiality. When you are buying a business, you want to know absolutely everything about the business so you can make an educated decision. When you are selling a business, you want to get the word out there so you can reach the most possible buyers. Confidentiality seems to stand in the way of those two goals, right?

It does, and it doesn’t. Sure, confidentiality makes it a little more difficult to spread the word or gather information, but there is a very big reason why confidentiality needs to be in place. Without it, a business stands to lose – a lot.

What can happen if confidentiality is breached and the for-sale status of a business gets disclosed? We’ve seen an entire staff quit and move to the competition, taking all of their regular customers with them. We’ve seen customers stop frequenting their once-favorite establishments. We’ve seen clients who are under service contracts cancel their contracts in favor of a more stable company. We’ve seen the local competition move in for the kill. Bottom line? It can be a disaster.

I signed the non-disclosure agreements and I’m not going to tell anyone, why is this such a big deal?

Here’s why. Most of the time when a business gets inappropriately disclosed it’s not because someone was shouting from the from the rooftops. A seemingly innocent conversation can derail a deal and hurt a business. Here’s an example:

A client was flying in from out of town to get a first look at a restaurant he was already very interested in buying. He had signed the appropriate non-disclosure agreements and hadn’t told anyone he knew the name of the restaurant or exactly where it was. On the plane, he strikes up a conversation with the woman sitting next to him. She tells him the name of the exclusive gated community where she lives, and he says “Hey! That’s where I’m going too! I’m thinking about buying the restaurant in that community!” She now knows that the restaurant is for sale, so when she gets off the plane a few hours later she casually mentions the conversation to a friend in the same community. “What a small world, right?” Within a few days the entire community knows about the for-sale status of the restaurant, including the restaurant staff who panic and quit en masse. This seemingly innocent conversation between complete strangers caused serious staffing issues and nightmare for both the business seller (who now has to find, hire and train almost an entirely new staff) and the buyer (who now has to take over the business without the experienced employees they were going to depend on).

The most important thing that you can do as both a buyer and a seller is keep the for-sale status of a business to yourself!

Are you a buyer who wants to know more about how you get information on a business without breaching confidentiality? Are you a seller who wants to know how you can keep your business sale a well-guarded secret? Ask us! Please leave a comment or question here, and we will be happy to help.

Michael Monnot

What An Earn-Out Is And Why It’s Probably Not For You

Published January 23, 2023

When you’re in the business-for-sale market, it can take some creative deal making to put together an agreement that makes everyone involved happy – and sometimes that creative deal making involves an earn-out.

What is an earn-out?

This type of arrangement is typical when the value of a business to a seller is much higher than the value to a buyer, usually because of expected future earnings. Here’s an example:

A small boutique clothing manufacturer has recently secured a major contract with a very large retailer, a contract that will significantly raise the value of the business over the course of the next few years. The seller of the business, who has worked long and hard to secure this deal, wants to be paid for the future value of the business. A buyer, on the other hand, only wants to pay for what the business is currently worth – not including any potential future earnings.

One way to bridge this massive valuation gap is the earn-out.

How does it work?

A buyer pays the seller an initial amount, then (as in our above example) as the boutique manufacturer reaches certain milestones with the new large retail contract, the seller gets paid for those milestones. In an earn-out the valuation gap is bridged by paying for the future earnings as they happen instead of paying for the promise that they might.

Is an earn-out for me?

Not likely. As you can see from the above example, an earn out requires a very specific set of circumstances. Most business deals involve seller financing or loans from the SBA (Small Business Administration) instead.

How do I find out if an earn-out would be appropriate for a business I’m selling or considering buying?

Ask your business broker. Any experienced and qualified business broker will be able to advise you on the right type of deal for your business or for any business you are considering.

Have more questions about creative deals? Want to know if an earn-out is for you? Ask us! Please feel free to leave us a comment or question and we would be happy to help.

Michael Monnot

Is My Business Broker A “Good” One? What You Shouldn’t Pay For

Posted in Business Broker Why & How, Buyers Articles, Sellers Articles

Published December 12, 2022

Like any industry, there are good business brokers and there are those who should find another way to make a living. Determining if the broker you’ve chosen falls into the “good” category might seem tough, but one way you can decide is by looking at the things your broker is willing to do without you having to pay extra for that service.

Most brokers earn a commission at closing, and the amount is based on a percentage of the sale price. If you are a seller, this percentage will be negotiated at the time of listing and will be a part of the listing agreement.

Beware the broker who will forgo the listing agreement or who will drastically cut their commission percentage just to get your listing. A great broker will stand firm of their typical percentage because they know how much work they are putting into selling your business. A desperate broker who can’t get and keep regular business will be willing to do anything to get you to sign on the bottom line. Also beware of a broker who charges extra fees for something as basic as your marketing package or advertising costs. These basic elements necessary to sell your business come out of the commission your broker makes at the time of the sale, not before.

For buyers, your broker gets a chunk of the money you pay for the business, so technically you are paying them even though you don’t have an agreement. Beware the broker who forces you to pay up front for their services. This shows a lack of confidence in their ability to find you a business and get you all the way through to closing. A great broker is not going to demand a retainer, nor are they going to charge you extra for help with the things every buyer needs – like basic assistance with licensing. If you are getting billed for basic services, then you probably need a different broker.

The key here is to watch for those brokers who put the amount of money they make in front of the reason they do what they do for a living. A great broker likes their job. They like helping the small business community grow, and they live for the chase and the thrill of negotiations. They don’t live to nickel and dime their clients. They get the vast majority of their listings through the referrals by former clients and members of their local small business community. They go to bat for their clients and are willing to help.

If the things we’ve named for a great broker don’t sound anything like the broker you are currently working with – it might be time for a change. When you initially interview brokers – ask about their referral rate, what kinds of fees they charge (there shouldn’t be any besides the commission) and what kind of percentage they take for commissions. The answers to these questions will speak volumes about the motivations of your broker and give you a good idea of where they fall on the great vs. not-so-great broker divide.

Have you had a not-so-great broker experience? Do you have questions about our referral rates and typical commission percentages? Ask us! Leave a comment or question, and we would be happy to help.

Michael Monnot

Honesty Vs. Telling You What You Want To Hear – Selling Your Business With A Broker

Posted in Sellers Articles

Published November 3, 2022

If you really tried to add up all the hours you’ve put in, every penny you’ve spent, all the stress you’ve endured – it would probably mean your business is worth an absolutely insane amount of money. It would be great, right?

In reality your business is only worth what someone is willing to pay for it, so pricing your business correctly when you list is extremely important. Price it too low and you’re leaving money on the table. Price it too high and buyers probably won’t attempt to make an offer. You need to be in that sweet spot where you’re price reflects the actual cash flow of the business but isn’t delusional.

How do you figure out the sweet spot for your listing price? Talk to an experienced and qualified business broker. They’ll help you consider cash flow, your equipment and inventory, upcoming contracts, debts the business holds, your commercial lease, what comparable businesses have recently sold for, etc. and guide you to a listing price that gives you your best chance for the highest return on your investment.

Here’s the most important point. If you’ve chosen the right broker their goal is to help you sell your business successfully. The only way that’s going to happen is if the listing price is right. If you’ve got a broker who will let you list for whatever you want – that’s a problem.

Letting a client list their business for whatever they want is a way for some brokers to get listings – listings they know won’t sell. Why would they do this? Any listings they have will generate calls from buyers, so when a buyer inquires about your substantially overpriced listing that broker will use the opportunity to steer your potential buyer to another of their listings they can actually sell. Your business languishes on the market indefinitely and you don’t see the benefit of the listing – the broker does.

How do you keep this form happening to you? Hire a broker who tells you the truth. You might not like what you hear, but a broker who actually wants to sell your business isn’t going to let you list for an astronomical price. They’re going to help you hit that sweet spot – even if it’s less than you would ideally want. A good broker bases their listing prices in reality, not with the goal of getting the listing at any cost.

Ask lots of questions in your initial conversations with brokers. If you’re requesting a specific listing price and they don’t agree, ask why. If they are willing to let you choose any number you want – remember in that scenario you aren’t the one who benefits.

Have you tried to sell your business without any luck and now think it was because you listed it for the wrong price? Do you want to know what businesses like yours have recently sold for? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

When You Can’t Make The Rent – Why Business Owners Need An Exit Strategy

Posted in Sellers Articles

Published October 27, 2022

It happens. You own a small business and something gets in the way. A recession. A pandemic. A family emergency. Whatever the root of your business woes – it sometimes gets to a point where your only choice is to lock the doors and walk away.

It doesn’t have to get there. If you plan ahead you can sell your business and get a return on all of the investment you’ve made long before you have to make any fatal moves.

A big, big caveat here. It takes time to sell a business, even one deeply discounted out of desperation. Most buyers aren’t going to want a train wreck – so if you foresee a struggle approaching it’s better to cash out before the situation becomes unfixable. If you’re feeling nervous about the future of your business talk to an experienced and qualified business broker now. Tell them what’s happening and ask if it’s time to list or if your exit strategy can wait a bit longer.

If your heart isn’t in it anymore, if your personal life needs way more of your attention than you can successfully give while still maintaining your business, if the metrics are telling you that you are no longer making enough for the business to sustain itself – it’s time to have that serious conversation. No one wants to admit defeat, but it’s better to admit defeat before there’s nothing left.

Selling your business or walking away doesn’t mean your life as an entrepreneur is over. It just means this path isn’t the right one at the moment. You can take the proceeds from your sale and invest in a different business or you can take some time to deal with whatever issues forced you to leave. There are very few successful business owners who got it 100% right the first time out of the gate, so be realistic with yourself and don’t give up on your goals because this time something got in the way.

If you are past the point of no return and are left with just liquidating assets, you probably need to do that before the landlord takes over. Read your lease carefully to see where the line in the sand is – where the landlord has the right to lock you out. Once that happens anything inside that business now belongs to them.

The message here is failure happens, but failure doesn’t have to cost you more than it should. You can get back a return and move on to something else.

Are you a struggling business owner who isn’t sure if it’s time to pull the plug? Have you owned a business you should have sold and have an experience to share? Leave any questions or comments here, or feel free to contact us if you feel like it’s time for that serious conversation – we’re here to help.

Michael Monnot

Why You Should Keep Politics Out Of Your Business Transaction

Published October 24, 2022

This one probably seems pretty obvious. Two people who are essentially strangers are trying to put together a deal for the sale of a small business from one party to another. There are seemingly endless moving parts and points to negotiate, so just getting to a closing table sometimes feels like it takes a herculean effort. All throughout this process everyone needs to try their best to stay objective and keep their cool – but with someone’s blood, sweat and tears being exchanged for someone else’s hard earned money it can be tough to stay emotionless and not be offended.

Then someone starts talking politics.

We all know how divisive political conversations can be. They upend family gatherings and have turned into brawls on the street. Why are we talking about them? A simple political comment can snowball and end a deal.

You don’t have to be madly in love with the person on the other side of your transaction. What you do have to do is get along with that person long enough to put a deal together, close that deal and then go through a training period on the other side. The relationship between a business buyer and a business seller is so delicate intermediaries (business brokers) are needed to keep the deal on track and act as a buffer between the parties involved.

Why then would a person trying to make a deal happen for themselves throw a political grenade on the whole process? Just don’t. It’s a bad idea.

Everyone is entitled to their own political opinions. What you don’t need to do is share those opinions in an already tenuous situation that has big ramifications if the two parties reach a point where they can no longer communicate.

Ok, but what if I’m not the one who is always bringing up politics?

If you really want your deal to happen your best bet is to ignore those comments from the other side. Change the subject, walk away and communicate through your business broker as much as possible.

Are you buying or selling a business and want to know more about how business brokers can act as a buffer in a business transaction? Have you been a part of a business deal that went south because of a political clash and have a story to share? Please leave questions and comments here.

Michael Monnot

Buying/Selling A Business? When To Rebrand

Published October 10, 2022

What’s in a name? If we’re talking business names, then your name is your brand – the symbol of your reputation. As a business owner you should always have your eye on growth. Growth of your customer base, growth of your bottom line and perhaps most importantly growth of your reputation.

What if that reputation has seen better days? Whether you’re currently a business owner who is considering selling or a buyer looking at businesses to purchase a very important consideration is whether a rebranding is in order.

Business Sellers:

One of the first things a prospective buyer will do is pop your business name into an internet search engine and see what comes up. If you are thinking about selling your business, then this is something you should do for yourself long before you list your business for sale. What does your reputation look like? What does the community at large think of your business?

If your reputation isn’t the greatest (but is salvageable), then you need to work on changing that perception of your business. Take reviews and comments from former customers and try to make the changes that would turn any bad reviews into good ones. Many review sites will let you respond to reviews, and you should – to both the good and the bad. Customers want to know that their thoughts are being heard, so acknowledge anyone who took the time to review your business. Don’t attack customers with complaints – instead let them know they were heard and that you’ve made changes that would result in a better experience if they give you another chance.

If your reputation is atrocious – then maybe a rebranding is in order. This might be the path you need to take if you’ve lost the majority of your customer base. However, renaming and relaunching your business only works if you make major changes. A new name on the sign and business as usual isn’t going to help. Update menus or inventory, swap out staff, change operating procedures – you get the idea. Revamp your business and then let your new, improved numbers shine when you list your business for sale.

Business Buyers:

If you are a buyer, then you have to decide whether or not your will keep the business name when you take over. If the business has a good reputation within the community and you won’t be making any major changes (like turning a pizza place into a fine dining seafood restaurant), then you really should consider keeping the name so you can continue the brand presence within the community.

If the business isn’t well liked, then a name change is a great way to let the community at large know that big changes have taken place and create some curiosity that may bring customers back in the door. Just be careful with the name you choose. Your business name should make it clear what the business does, as well as give a good impression of the business at first glance.

Are you a business seller who wants advice about improving the reputation of your brand before you sell? Are you a buyer who wants to change the name of a business you are considering? Please feel free to leave us a comment or question here, and we would be happy to help!

Michael Monnot

What’s Makes A Great Business Broker? Hiring The Right Help

Published September 12, 2022

If you are buying or selling a business, you will want a great broker by your side, as it will be instrumental in giving you the best chance for success.

How do you know if a broker is good? What should a great broker do? Here are a few of the things we do for our clients that mediocre or bad brokers just don’t do:

A great broker should answer the phone and return emails.

We know, this sounds crazy, but we get lots of clients simply because we were the first business brokers who actually answered the phone, returned their call or answered an email.

A great broker should talk to their clients.

Again, this might sound ludicrous, but we come across folks all the time (especially buyers) who have never had an actual conversation with their broker. Their communication has been limited to a few emails and non-disclosure agreements sent back and forth. We think it is critically important to talk to our clients. If we can talk to you and find out what you really have in mind, then we can save you time and target a search of businesses that fit with your goals. If you are selling, your broker should make themselves available to answer any questions that you have and should also know what your goals are. The only way a broker can really know this very pertinent information is to have a conversation with their clients.

A great broker should not be pushy.

Everyone has had the pushy-salesman experience, and it is never positive. Your broker is there to help you buy or sell your business, but all of the decisions in that process are yours alone. Your broker should never try to force you to make decisions that you are uncomfortable with. Many brokers behave like the quintessential bad used car salesman. They don’t get paid if the deal doesn’t close, so they force the deal at the expense of their clients. We think that’s just bad business. We get many of our new clients from referrals from past clients, and that wouldn’t happen if we didn’t keep our client’s best interest at the forefront of every transaction.

A great broker should follow through.

If a client needs information, needs documentation, wants to schedule a meeting or call – then a broker should follow through and make sure that those things are happening in a timely fashion. Business deals don’t close themselves, so a great broker needs to stay on top of what needs to be done, and needs to keep the deal moving.

If you are considering buying a business or if you are ready to sell the business you currently own, look for these qualities in the broker you work with. The difference between a great broker and a bad broker can mean success or failure for your transaction.

Would you like to know more about what we do for our clients that sets us apart from other brokers in the industry? Ask us! Please leave us a comment or question here, and we would be happy to assist you in any way we can.

Michael Monnot

Yearly, Not Monthly: Understanding The Fluctuations Of A Seasonal Business

Published September 5, 2022

Southwest Florida (and all of Florida for that matter) is a very seasonal place. Starting in October our population swells with retirees and vacationers from northern climates where the weather has just turned cold. This is great news for our local economy as businesses are packed, wait times at restaurants climb exponentially – so profits rise. It stays this way until the spring when the weather improves for the northern latitudes. Then local businesses feel the pinch of the approach of the off-season summer. The tourists and retirees are gone, so the year-round locals are all that’s left.

This seasonal rise and fall in business happens in many places, so if you are trying to buy or sell a business, you will need to understand what this seasonality means in terms of a business deal.

Buyers

You will have to realize that the numbers during a peak month are not the numbers for every month, and likewise the months on the low end of the profit spectrum shouldn’t necessarily scare you away. Buyers who are coming to a seasonal area from an area without such fluctuation need to look at the numbers on a yearly basis instead of on a month-to-month basis. If every year the business is slow in July and August, but then rebounds and does well for the remainder of the year, then the business is probably in good shape.

Sellers

Most sellers want to sell their business in the slow months, just after the busy season has ended – thereby taking the lion’s share of the yearly profits when they go. Although this is a smart move financially, most buyers won’t agree to take the wheel with a handful of bad months directly in their path. As a seller, you will need to be realistic about a closing date and be willing to negotiate with a buyer so that both parties end up happy. This is especially true if you will be offering seller financing, as you won’t get paid if the business folds in the first few months after the ownership transition. You will likely need to give up a few lucrative months so the new owner will have enough cash flow to keep the doors open.

The message here is you will need to consider the cycles of businesses in a seasonal area before misinterpreting numbers or trying to set closing dates that will benefit you alone. By allowing some room for negotiation both sides can end up with a fair deal.

Do you have a seasonal business that seems to scare away buyers when they look at the slow months? Are you looking at businesses in a seasonal area and want to know what is acceptable in terms of fluctuation? Please feel free to leave us a comment or question, and we would be happy to help.

Michael Monnot

What Do We Do About The Employees? Suggestions For Business Buyers & Sellers

Published August 18, 2022

A business is for sale, and this business has employees. The employees have been kept in the dark about the for-sale status in order to protect the integrity of the business throughout the transaction process, but now that a buyer and seller have come to an initial agreement and the sale is moving forward – how do you handle the employees?

This is one of the most important (and by nature carefully handled) aspects of the sale of a business. The sale of any business that has employees (especially a business with critical “key employees”) will need to be handled delicately.

As a buyer, do you demand that you meet with employees before closing as you feel they are critical to the business? As a seller, do you let this happen? What if the buyer walks away or approaches the employees the wrong way?

Although a seller might feel that their employees will only be loyal to their ownership and won’t accept a new boss, in most cases employees can view a new owner as a positive – if the transition is handled properly.

How? Focus your discussions with employees on the benefits a new owner will bring – and wait to tell them until after the sale.

Here’s a few thoughts:

Long term businesses often become stale as sales efforts and marketing may have lagged or become non-existent leaving the business just gliding. A new owner can bring that new energy, marketing ideas, additional employees, new clients and just a new way of doing things which can invigorate a business and push it to the next level. As the business grows and changes for the better those employees who stay can reap the benefits of those changes. This is especially true if the business is being acquired by a larger firm or if the business is ripe for expansion.

One of the reasons why you don’t tell employees too early is most of the time the employees really do want or need to keep their job. Telling employees too soon can make them feel very insecure and can leave them wondering if they will have a job after the sale closes. They might worry that they will be replaced, they might have concerns about getting along with a new owner or they may worry that they won’t be able to handle the changes a new owner will make. These worries can cause an employee to panic and quit – which is bad news for both sides of the deal. This is why both sides should wait until after the sale to tell the employees. Knowing that they’ve made it past the end of the transaction will assure an employee that their job is safe. Buyers should let their new staff know that no major changes are planned and immediately set expectations.

The message here is typically the loyalty of employees is to the business or their job and not necessarily to the seller. It’s also critically important to wait until after the sale to tell employees anything.

Instead (after the sale), both sides should focus on open and honest communication, ask for input about what the business can do better, be clear on new roles and reinforce that the new owner is counting on the existing staff. Hopefully that will build confidence and loyalty on both sides, thereby creating a positive environment as the business moves forward to the future.

Have you sold a business and told your employees too early about the sale? Are you buying a business and want to know more about why it’s a bad idea to talk to the key employees before closing? Please feel free to share your story or ask questions here.

Michael Monnot