Low Ball Offers

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Low Ball Offers2There are various ways to go about buying a business, but all of them require making a deal with the current owner. As mentioned in prior blogs, before a deal can move forward, a written offer needs to be presented. Keep in mind that offers are based on information supplied from the seller to buyer at this point and more information is probably forthcoming with an accepted offer.

A seller needs to feel comfortable with the person who is interested in taking over their business (their baby), and a relationship needs to develop between buyer and seller during the process. For a strong relationship to be maintained there needs to be fair give and take during negotiation.  Negotiation is expected.

A proper offer needs to be made unless the buyer just wants to play hard-ball and present a low-ball offer. Most sellers of good businesses are not desperate and may have multiple interested parties. A low-ball offer will most likely offend the seller and could compromise any future communication between the parties.

There are times when low-ball offers seem to make sense, e.g., the IRS has shut down the business, bankruptcy is at hand, or there is only one customer and future business is at risk.  Otherwise, be reasonable and success will follow.  If a buyer feels the business is way overpriced, there could be some missing information.  The buyer should discuss pricing concerns with the broker before making an offer.

Please discuss any questions you have about buying or selling a business with your Apex Business Advisor.

Doug Hubler
President

Cash Is King

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CashKingBusinesses large and small depend on cash. Cash is the main measuring tool of financial stability and health. Cash production is also the main element in most business valuations. Wealth Advisors will analyze cash on the balance sheets of publicly traded companies to help make investment decisions. Cash is King! Small companies also have advisors who will focus their efforts on calculating cash balances, cash used, and cash generated by the business.

It’s very important to listen to the advisors, such as CPAs because they have experience in dealing with cash crunches and how to avoid them. Cash is critical to support businesses in good times and bad. When times are good, cash is required to build inventory, buy equipment, pay suppliers, and pay employees, etc, etc. When times are bad, cash is still required to operate the machines, maintain inventory levels, and keep the doors open.

Too often, cash balances are used to pay for boats, cars, and other fun stuff that does not support business operations. Owners can get too complacent and spend versus preserve. Of course, business ownership is a terrific way to build wealth, but keeping it is very important too!

Contact an Apex Business Advisor to assist in the sale or purchase of a business.

Doug Hubler
President

Buying A Business Requires Financial Readiness

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OrderlyRecordsBuying a Business is a process. Much like a business owner preparing a business for sale, buyers also have to plan ahead for an acquisition.

Besides focusing on the right type of business to match background and personality, the business also has to be the right size for the buyer. There needs to be enough income to meet personal and family needs while still having enough cash flow to support debt and working capital requirements of the ongoing business.

If the business is too big for the buyer’s pocketbook, there will probably be too much debt, which in turn will stress the working capital and personal needs part of the equation.

Once the right business is found and the seller has accepted the buyer’s offer (we are optimistic), the banking process starts. Getting an acquisition loan from a bank will require a buyer to be completely open with their financial situation. The bank will also be assessing the buyer’s background and the fit with the business, and evaluating the financial history of both buyer and seller.

Buyers will have to submit a detailed list of investments, liquid assets, and real estate that will be used as a down payment and collateral. Also, the buyer will have to submit proof of income in the form of tax returns, check stubs, bank statements, etc. This piece of the process isn’t difficult if you have good records. So have your financial house in order before hunting for a business.

Apex Business Advisors holds monthly “Buying A Business” seminars, so if you are interested in more information, contact your Apex Business Advisor.

Due Diligence

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Due DiligenceOnce an offer has been accepted on a business, what’s next for buyer and seller?

There are now some steps that need to be followed by the buyer and seller to ensure a successful transaction. It’s an exciting time that can also be stressful for both parties. Since an offer has been accepted, much more information about the business can flow from seller to buyer. The buyer will want to learn a great deal more about the business operations and will also want to verify financial records.

The buyer’s list of items for discovery will vary in size and detail depending on the size of the transaction, the concerns of the buyer, and the thoroughness of the seller’s recordkeeping.   Every deal is different and the detail required by the buyer is specific to the contemplated purchase.

Likely, the first thing a buyer will want to verify is the financial statements and net owner benefit of the business.  The buyer may request copies of bank statements, review the general ledger and the QuickBooks files, and sample related source documents.  The seller will need to be as forthcoming as possible to prove that financial statements are accurate to the comfort level of the buyer. Updated and accurate financial statements will also be required for the bank to approve a loan for the buyer.

It is very typical for a buyer to have their attorney and accountant involved in due diligence. The seller can either deal with these advisors directly or have their own advisors assist in answering questions. Typically, the most sensitive information, such as customer and vendor lists and pricing strategy, are revealed at the very end of due diligence, perhaps after lender approval has been secured.

To lessen disruption during this due diligence period, disclosure of the sale of the business is usually made to customers, suppliers, or employees only after the closing of the transaction has taken place.

Contact any one of our Apex Business Advisors for help with buying or selling a business.

**Watch for an email invitation early next week to register for our next seminar on September 24th to discuss the due diligence process.

Doug Hubler
President