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Seller Financing

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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 to finance, 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.

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Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, or are personally interested in owning or building value in your own company or franchise, Colonial Business Brokerage offers the professional services that successfully bring buyers and sellers together.

Call Colonial Business Brokerage today at (443) 982-7332.

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Copyright: Business Brokerage Press, Inc.

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How to Structure Your Earn-Out

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An earn-out is a way to bridge the gap between what you want for your business and what a buyer is willing to pay. In an earn-out, a portion of your business’ sale price is set aside for payment in the future if you reach certain goals set by the acquirer; you’ll need to stay on for a few years as an employee of the acquiring company and lead your team to hit the earn-out goals.

Most owners would prefer all of their cash the day they sell their business and most buyers would prefer to pay the entire amount contingent on future performance. Deals get done somewhere in the middle, where some portion of your money is paid up front with another slice available if you meet your goals as a division of the acquiring company.

Traditional earn-outs are typically tied to the profitability of your company as a division of the new owner and they are fraught with problems. Buyers may thwart your ability to hit your targets in any number of ways. In this episode of Built to Sell Radio, you’ll hear from Mac Lackey, a veteran entrepreneur who took an alternative approach to structuring the earn-out that put up to 80% of the sale of his company, Kyck.com, at risk.

Listen to this week’s episode to learn the surprising approach Lackey took to structuring his earn-out in order to maximize his shot at hitting his target.

How to Minimize Your Earn-out

Generally speaking, the higher your Value Builder Score, the lower the proportion of your deal that will likely be at risk in an earn-out. To get your score, take 13 minutes and complete the Value Builder questionnaire.  Get Your Value Builder Score Today

The Power of Recurring Revenue

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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.

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What is EBITDA and Why is it Relevant to You?

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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.

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Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, or are personally interested in owning or building value in your own company or franchise, Colonial Business Brokerageoffers the professional services that successfully bring buyers and sellers together.

Call Colonial Business Brokerage today at (443) 982-7332.

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Copyright: Business Brokerage Press, Inc.

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Five Reasons Business Brokers Improve Closing Rates

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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.

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Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, or are personally interested in owning or building value in your own company or franchise, Colonial Business Brokerageoffers the professional services that successfully bring buyers and sellers together.

Call Colonial Business Brokerage today at (443) 982-7332.

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Copyright: Business Brokerage Press, Inc.

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How Three Moves Quadrupled the Value of this Business

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Are you stuck trying to figure out how to create some recurring revenue for your business?  

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: 

1. 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.

2. 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.

3. 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.

Find out how you score on the eight factors that drive your company’s value by completing the Value Builder Questionnaire:

Get Your Value Builder Score Now

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Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, or are personally interested in owning or building value in your own company or franchise, Colonial Business Brokerage offers the professional services that successfully bring buyers and sellers together.

Call Colonial Business Brokerage today at (443) 982-7332.

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The Surprising Truth About Who Will Buy Your Company

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In 1999, Andrew Weinreich sold Six Degrees, a social networking site based on the same idea that sparked the likes of LinkedIn and Facebook, for $125 million. In the following years, he went on to sell three other companies including one to IBM and another to Match.com.

Most founders are lucky to have one successful exit, but Weinreich has already had four. In this interview, you’ll learn:

  • The common denominator among all four of Weinreich’s exits.
  • Where to find the company with the highest probability of acquiring you.
  • How to hire an M&A professional for a “Dual Track” mandate.
  • The mistake most entrepreneurs make when they assemble a board.
  • The simple technique Weinreich used to let buyers know he was interested in being acquired (without sounding desperate).

Learn the common denominator among all four of Weinreich’s exits and his key strategy for successfully exiting a business — Listen now.

Get Your Score

We’ve now had 24,000 business owners leverage The Value Builder System™ to improve the value of their company. We have a 12-step process we take business owners through, and one of the most common misconceptions people have when they start our process is that they will sell their business to a stranger. That’s a misconception we work hard to erase because, in our experience, you’re much more likely to sell to someone you already know. Uncovering your Short List of potential acquirers is something we’ll do during Module 11 of The Value Builder System – get started for free by getting your Value Builder Score.

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Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, or are personally interested in owning your own company or franchise, Colonial Business Brokerage offers the professional services that successfully bring buyers and sellers together.

Call Colonial Business Brokerage today at (443) 982-7332.

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How To Quadruple The Value Of Your Business

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Intellectually, you know you need recurring revenue, but how do you build an annuity stream in an industry where subscription billing is not the standard?

Take a look at the example of Laura Steward, the founder of Guardian Angel Computer Services.  She was in the business of fixing her clients’ computer problems when a valuation specialist told her that Guardian Angel was worth less than 50% of one year’s revenue.  Determined to get more for her business, she underwent a makeover focusing on her Angel Watch subscription program.

Steward went on to sell her business two years later for four times what the valuation consultant thought it was worth.  In this interview you’ll learn how to:

  • Switch customers from hourly to subscription billing.
  • Overcome the objections hourly customers have for making the switch.
  • Ensure customers stop asking for your personal attention on their job through one simple idea.
  • Maximize the value of your contracts in the eyes of an acquirer.

Listen now to hear how Laura increased her valuation.

Get Your Score

Steward moved her business to a subscription model called Angel Watch and got 90% of her customers to move from hourly to subscription-based billing.

Figure out your ideal subscription model by completing The Automatic Customer Builder tool in The Value Builder System™.  It starts by getting your Value Builder Score.

 

How to Keep Employees Engaged During an Ownership Transition

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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.

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Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, or are personally interested in owning your own company or franchise, Colonial Business Brokerage offers the professional services that successfully bring buyers and sellers together.

Call Colonial Business Brokerage today at (443) 982-7332.

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Copyright: Business Brokerage Press, Inc.

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Is It Possible to Sell to a Business Competitor?

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A common question in the realm of buying and selling businesses is, “Is it possible to sell to a business competitor?” The short answer is yes, it is quite possible and rather common. That stated, selling to a business competitor is different than selling to a buyer who is completely new to the industry. The two types of buyers should not be treated the same way, as there are various differing variables.

A Competitor Can Be a Great Buyer

One reason is that a competitor may indeed be the right party to buy your business, is that they usually have an excellent understanding of how your business and your industry works. They may also enter the negotiation process already understanding the value of your business, and this can serve to speed up the process.

Always Proceed with Caution

Competitors, however, must be approached carefully. Unfortunately, there have been many cases where competitors acted as though they wanted to buy in order to acquire access to inside information. That’s why sensitive information like client lists and other “secrets” shouldn’t be shared until the sale is complete and the money is literally in the bank.

Working with a business broker is always a prudent move when it comes to buying and selling businesses; however, when working with a competitor is involved a business broker is even more important than normal. A business broker can act as something of a shield in the process, helping to ensure that you don’t reveal too much prized information until the sale is 100% complete.

Negotiate from a Place of Knowledge

Further, a business broker understands how much your business is worth and can back up that valuation. Having this information before discussing a potential sale with a competitor is of great importance.

Be Prepared to Accept Certain Legal Conditions

Finally, don’t be surprised if your competitor asks you to sign a non-compete or for you to stay on as a consult after he or she has acquired your business. This is a prudent step and one that makes tremendous sense. If you were buying a business from a competitor wouldn’t you want to make certain that the competitor didn’t simply “set up shop” somewhere else a few months or even a couple of years later? Likewise, tapping your expertise is another prudent move for your former competitor.

Summed up, selling your business to a competitor is a potentially great move, but it is also an opportunity that absolutely must be explored with extreme caution. Never divulge critical information to your competitor until the deal is finalized.

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Whether you are looking to exit your privately held business, represent an acquisition-minded corporation, or are personally interested in owning your own company or franchise, Colonial Business Brokerage offers the professional services that successfully bring buyers and sellers together.

Call Colonial Business Brokerage today at (443) 982-7332.

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Copyright: Business Brokerage Press, Inc.

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