Tip #12 - Buyers Will Not Pay For Future Efforts When Purchasing a Business

"My Business could be a Gold Mine for a New Owner!"

The statement, "With a little sales and marketing, a new owner could make a fortune with my business," has been heard over and over by prospective buyers. The question of course is, "Mr. Business Owner, why haven't you made that effort?" Buyers are not willing to pay the business owner for their future efforts and investment necessary to grow the business. Business owners must take those steps themselves, which would not only increase their revenues and profits, but would greatly improve the value of their business.

Performing Due Diligence When Buying a Business

Performing due diligence on a business being considered for purchase should be conducted much like a surgical procedure. The operation should be an organized examination of the vitals of the company.

This stage of buying a business begins once you have made your offer and the seller has accepted. A contractual agreement has been entered into between the buyer and seller outlining the price and terms of the sale. The contract is contingent upon the business passing "inspection," which is the due diligence period allotted to the buyer.

Since it is the buyer's responsibility to uncover any potential problem areas of the business, it is important to be prepared. This is the time to cut to the chase with checklist in hand to confirm all material facts of the business and validate what the seller has represented. The buyer, being the lead surgeon of the procedure, may call in specialists, such as an attorney to examine the legal aspects of the business and an accountant to scope the numbers. Depending on the size of the business, a buyer will typically have about two to four weeks to complete the process.

The following checklist represents vital aspects of a business that a buyer may wish to examine during the due diligence period. This checklist is not meant to fit all scenarios or to be all-inclusive, but to serve as a guideline.

•Organization and Good Standing
•Accounting and Financial Information
•Physical Assets
•Real Estate
•Intellectual Property
•Employees and Benefits
•Licenses and Permits
•Environmental Issues
•Reports, Studies, Appraisals
•Taxes
•Contracts, Agreements, Leases
•Product or Service Lines
•Customer Information
•Litigation
•Insurance Coverage
•Vendors, Suppliers, & Professional Service Providers
•Market, Marketing and PR Campaigns

Houston Small Business Acquisitions Outpace Nation

More small businesses in Houston were sold in 2009 than in any other city in the U.S. Why? Because buyers are positioning themselves for the future.

We have been bragging about Houston's economy and the engine behind it for a long time. Pick your industry, we've touted it.

Houston Business Journal last week reported, "Houston-area small business sales outpace nation," which is the message we've been delivering and the trend we've been experiencing for years.

Here's the HBJ article:

Small business owners in the Houston area who wanted to sell their companies in 2009 were more successful in finding buyers than entrepreneurs elsewhere in the United States.

Local owners also got more money for their businesses than sellers nationwide, according to statistics from BizBuySell.com, a large online marketplace for selling businesses.

A total of 107 companies in the Houston area were reported sold by business brokers in 2009, down by 7 percent from 115 sales reported to BizBuySell in 2008. In comparison, BizBuySell reports sales were down 28 percent year-over-year for the country as a whole.

The median sales price for a local business in 2009 was $155,000, up 19.2 percent from the previous year’s median price of $130,000. The median sales price nationwide was down 16 percent.

"Prices didn’t fall," says Mike Handelsman, general manager of BizBuySell. "That’s the most surprising thing to me."

Houston companies also outperformed those in other parts of the nation in revenue and cash flow, he says.

Local businesses sold in 2009 had median revenue of $366,954, as compared to $287,000 in 2008. And the companies' cash flow increased to $101,949 from $85,668.

"That’s a really unusual result," Handelsman says. "That’s different from what we’ve seen in the total United States."

Here's a partial list of our economic posts over the last few years:

Why Should You Consider Selling Your Business in 2011 (Dec. 2009)
Texas Restaurant Industry - Biggest in the Nation in 2009 (May 2009)
Why Does Houston Have the Second Most Fortune 500 Companies in the Nation? (May 2008)
Texas No. 1 Economy In The Nation, Houston Leads The Way (Feb 2009)
Houston, Keep Your Seatbelts Buckled As Our Economy Takes Off (Jun 2008)
Inc. Magazine - "It's a Seller's Market for Buying Businesses." (Apr 2008)
Got Business? Houston Does -- Here's Why!(Apr. 2008)
Selling A Business In Houston - It's Still Hot! (Feb. 2008)
Houston Logistics Industry Is Top Rated In The Nation (Oct 2007)
Houston Leads Future of Alternative Energy (Dec 2007)
Houston Economy - Manufacturing and Transportation Sectors (Dec 2007)
Houston - A World-Class City and Economic Powerhouse (Dec. 2007)
Texas Ranks In Top 10 Richest Economic States In The U.S. (Dec. 2007)
Rocketing Houston Economy -- Small Business 101 (Jul. 2007)
Houston Economy Surpasses Expectations -- Stirs Small Business Activity (Mar. 2007)
Houston is Booming -- It's Not Only the Weather That's Hot Down Here (Mar. 2007)

Why You Should Consider Selling Your Business in 2010

The 2010 new year brings with it the time when business owners review their strategic plan and business goals. Many of the owners we talk to are wondering if this is the year to consider selling the business. In Texas, there are five specific reasons why it would make sense to sell in 2010.

There are many factors that determine best timing for selling a small business -- the financial condition of the company, valuation, growth cycle, profit history, and the current market. Usually the best time to obtain the highest price occurs when sales and earnings are good and trending upward with a history of good performance. This gives buyers confidence in projected future earnings.

Value is dynamic and proper timing makes a big difference in the prices paid for business acquisitions. External factors such as the economy, industry trends, stock market volatility, competition, investor confidence, interest rates, and geopolitical considerations are cycles of constant change that impact value.

Internal conditions within a company also change. Often in combination with external factors, sometimes independent of those factors.

So how should you determine if 2010 would be the right time for you to sell your business? The following are five factors for Texas business owners to consider.

(1) First, get a business valuation to determine what your business is worth in the current market. This is an initial step in determining if a sale would meet your objectives.

(2) Understand that the current status of the small business market place in Texas is one of the best in the nation and policies are in place for continued prosperity and growth in the State. "Texas is going to pop up on a lot of radar screens as a place to relocate or expand for businesses," reported Bloomberg.com on Dec 23 2009. Texas gained more residents than any other State as the recession deepened in 2008 and early 2009 as job seekers migrated to one of the nation's strongest labor markets. The Houston greater metro area enjoyed the second largest population growth than any other city in 2009 and has the second highest number of Fortune 500 companies. New York has the most Fortune 500's according to Fortune's last list on May 5 2008. Houston has been gaining ground over NYC for the past several years and that trend will continue, especially in light of each States' performance in today's economic climate.

(3) Buyers in every category are looking for alternatives to traditional investment avenues. They are looking for stability, better predictability and control. Business acquisitions offer all of these and can also offer a better return than traditional investment opportunities. Houston, and Texas, as a whole, are prime targets because of future economic expectations and long-term outlook.

(4) The capital gains tax rate is presently at historic lows at 15%. However, effective Jan 1 2011, this rate will increase, possibly by as much as 69%. Therefore, business owners considering a sale should sell by Dec 31 2010 in order to keep more of their proceeds. As reported in the Wall Street Journal Nov 12 2009, Congress is planning "a 5.4% surtax on incomes above $500,000 for individuals and $1 million for joint filers" to fund health care reform, which will affect both capital gains and dividends. If passed, the surtax goes into effect Jan 1 2011, the same day the Bush tax rates of 2001 and 2003 are set to expire. The current capital gains tax rate of 15% would rise to at least 20% -- 25.4% with the surtax. This represents a 69% increase overnight. This does not include any changes that might come from increases in state and local tax rates.

(5) Most importantly, even in our current economy, buyers exceed sellers and we have a robust small business exit market for now. The time will come when the flood of baby- boomer business owners ready to sell will outweigh the ready buyers.

Fueling the market are the different categories of buyers looking to put their money to work by acquiring profitable businesses in areas with a good economic future:

• Early baby-boomer corporate retirees
• Management-level refugees who have suffered a downsize who typically have severance pay or 401Ks to invest, and are looking to go into business for themselves. The stock market, or putting money in the bank, do not look attractive to these corporate refugees at this time in their lives
• Foreign buyers seeing U.S. businesses as investment opportunities while the dollar is valued lower against their own currency
• 30-something up-and-comers aggressively buying and building
• Strategic Buyers, both public and privately-held companies, are actively acquiring smaller firms as part of their strategy for quick growth and innovation. (Merrill Datasite - Dec 2009)
• Investment Buyers, such as private equity groups, "are going down-market" (Merrill Datasite - Dec 2009) and are seeking add-on acquisitions in the lower middle-market for their investment portfolios
• Blue collar workers who have been layed off are also looking to "buy a job."

If internal conditions, both business and personal, are right, 2010 is the time to consider selling a privately-held enterprise. We realize that the decision to sell is neither purely tax-driven, nor even a purely financial consideration. Business sales are usually motivated by personal factors.

However, because it can take anywhere from 4-12 months on average to sell a private company, we suggest that business owners considering a sale prepare now so they can take advantage of this exceptional, impermanent window of opportunity.

With all categories of buyers in play, historic low interest rates with the government working to make credit more readily available, the capital gains tax rate the most favorable in 30 years, and the positive future outlook of the Texas economy, it appears to be an excellent time for business owners in Texas to explore their opportunities for exit.

Cash Flow is the Kingpin When Selling Your Business

Think of the bottom line cash flow of your business as the first introduction to a buyer. If that bottom line is not attractive, buyers will not look. Pin your bets on improving cash flow to be a king in the marketplace.

Most small business owners spend their time trying to beat their competition by building the latest and greatest gadgets or providing the best customer service. They can become so focused in the daily details of working in the business that they lose sight of the end game. The most important thing an owner can build is value so they can one day sell the business. The more value created the more money a buyer will pay. So, how do you create that value?

Value is determined by available cash flow and the risks associated with obtaining it. Yes, the other aspects of the business such as product, service, market, and reputation matter too. But how will buyers judge those aspects? How will they ultimately gain perspective of all the virtues of the business? The main component will be how much cash flow it generates.

Not only is cash flow the best indication as to the quality of a business and its market, it is the single greatest reason that people go into business for themselves. It’s great to love what you do but if you can’t make money doing it, you can't make a living. Prospective buyers will evaluate a business for potential purchase based on the cash flow it generates, whether it be an individual looking for enough cash flow to support their lifestyle or a company looking for a strategic purchase that offers a return on their investment and growth potential.

You will be glad you pinned your bets on cash flow when it comes time to sell your business. Why? Because you will no longer be trying to beat your old competition for customers looking for the latest and greatest gadgets. You will be competing for buyers with every seller in the business-for-sale marketplace. But if you played your cards right, you will reign like a king among buyers by holding a crown jewel, a prized cash flow available for purchase.

SBA Update - What's Happening in Congress

On Thursday December 10th, Sens. Landrieu and Snowe introduced S. 2869, the Small Business Job Creation and Access to Capital Act. This new bill contains a series of measures that were separately introduced by Sens. Landrieu and Snowe earlier this year. The Senate Small Business Committee will mark up S. 2869 Thursday, December 17th. Highlights of the legislation include:

• Increase the loan limit on 7(a) loans from $2 million to $5 million.
• Increase the loan limit on 504 loans from $1.5 million to $5.5 million.
• Increase the loan limit on microloans from $35,000 to $50,000.
• Allow the 504 loan program to refinance short-term commercial real estate debt into, long-term, fixed rate loans.
• Extend the authorization to provide 90 percent guarantees on 7(a) loans and fee elimination for borrowers on 7(a) and 504 loans through December 31, 2010.
• Direct the SBA to create a website where small businesses can identify lenders in their communities.
• Increases the maximum guarantee on 7-A loans to $4.5 million.
• Changes the eligibility criteria to (a) a tangible net worth not to exceed $15 million and (b) the average net income after Federal Taxes over the past two full fiscal years is not more than $5,000,000.

The International Business Brokers Association® is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of a business brokerage and mergers and acquisitions. IBBA® has 1,950 members worldwide, with corporate headquarters in Chicago, Illinois.

11 Knows Before Selling Your Business

1. Know why you want to sell your business. Having a solid reason and a committed resolve to a sale is essential in achieving a successful transaction. In addition, one of the first questions buyers ask is, "Why is the owner selling?" They want to know that it is for a good reason and not because there's something wrong with the business that might be hiding in the shadows.

2. Know what you will do with your time after your business sells. If you don't have a plan in mind, you might find yourself getting cold feet or feeling a little off balance when that first offer to buy the business comes along.

3. Know the value of your business. Get a business valuation by a reputable firm to understand what you could expect in the current marketplace. This is an initial step in determining if the sale would meet your objectives.

4. Know that you are current on all taxes. This includes sales taxes, unemployment taxes, payroll taxes, state income taxes and federal income taxes. Delinquencies in taxes of any kind can stop a deal in its tracks.

5. Know that all your policies, employee records, procedures and controls are documented. This helps a buyer feel confident that operations will continue to run smoothly under new ownership. These documented items will also help during the transition period when you train the buyer.

6. Know that your business can operate without you if necessary. A key employee or a staff who can run daily operations is more appealing than a business that is highly reliant on the owner's presence or is dependent on the owner's personal relationships with customers. This will bring more prospective buyers to the table because of the flexibility it provides. There are buyers who want to play a major role in the daily management of the business and some buyers who do not. Many businesses never get sold if the owner "IS" the business.

7. Know that your financial statements and tax returns are accurate. Deals can fall apart when discrepancies are found or distrust has a chance to percolate.

8. Know that your trusted advisors will be able to assist you in the transaction. A meeting with your attorney and/or accountant, for instance, will play a role in gathering all necessary documents for your business broker before going to market. Your team of trusted advisors needs time for preparation in order to effectively support you in the transaction.

9. Know that you have a business and marketing plan that will help a new owner understand where the opportunities for growth exist. This plan should explain why the business was started, how it progressed to its current status and what a new owner should do to take it to the next level.

10. Know that your asking price is based on reality...a reality that buyers and their lenders can believe in. The buyer will look at return on investment and their lenders will require that the deal makes sense in terms of debt repayment. A multiple of Discretionary Earnings is one method that can be used to establish a reasonable price range.

11. Know that you are willing to negotiate on price, terms or both, if necessary. Deal structure can make or break a transaction. When each party to the transaction is willing to be flexible, the odds are good that the effort will have the desired result -- a win for both parties.

Certified Business Brokers Represents US Global Mail in Sale of Business

Certified Business Brokers Handled the Transition of Ownership of US Global Mail, an Internet-Based Subscription Shipping Service Headquartered in Houston, to Randy Nibber, Former CFO of an Overseas Business Unit of Aker Solutions.

(Marketwire Press Release) Certified Business Brokers (CBB) acted as intermediary in the sale of US Global Mail, an internet-based subscription shipping service headquartered in Houston. The company provides mail forwarding and product fulfillment solutions to American expatriates, individuals living in other countries who purchase American goods, and companies both domestic and abroad that are involved in international commerce.

Barry Wisnevitz founded US Global Mail in 2002 in response to his international customer requests from his retail postal center for a "drop box" from which mail and products could be shipped, received or stored. It grew with a life of its own to a size that necessitated the leasing of a new building to support the operation. Wisnevitz, having multiple business interests, knew it was time to find the right person to acquire US Global and take it to the next level.

"I contracted with CBB to sell my business because my father worked with them when he was looking for a business to buy 20 years ago. They surpassed my expectations by selling the business in 59 days, with three offers in one week. Rose Stabler, the CBB broker who closed the deal, practically held my hand through the entire process and made it easy as 1-2-3. It went so smoothly. I'm excited about US Global's future under Randy's ownership," said Wisnevitz.

Mr. Nibber has big plans for US Global Mail. "My growth strategy is focused on corporate clients. Having spent over ten years in an international company, I intend to use my familiarity with the expat community to tailor customized solutions for them," said Nibber. "I'm in negotiations with my landlord to purchase the building and property on Memorial Drive so I will have plenty of room to expand."

"In working with Barry and Randy it was clear from the first meeting that it was a perfect match for both parties and that the future of US Global was going to be in good hands. Randy's personal and professional experience as an expat while working for a large corporation gives him an insightful understanding of the business and its growth potential," added Rose Stabler.

CBB provided valuation and marketing services and represented the seller in the sale. Doug Ashby and Rose Stabler handled the details of the transaction.

For more information, visit www.usglobalmail.com

About Certified Business Brokers (CBB):
Certified Business Brokers, headquartered in Houston, is Texas' largest business brokerage firm. CBB is a founding member of the International Business Brokers Association (IBBA) and the Texas Association of Business Brokers (TABB). They are also members of Association for Corporate Growth (ACG) and M&A Source. They are specialists in Business Brokerage, Mergers and Acquisitions, and Business Valuations and Appraisals.

The Initial Buyer Seller Meeting in the Business Sale Process

Most people will purchase or sell only one business in a lifetime. Therefore, as business brokers, a large part of what we do is educate buyers and sellers about the intricacies of the process. People rely on us to help them understand the steps involved in buying or selling a business. They understand that the better informed and prepared they are the more likely they are to achieve their goal. Therefore, in the beginning stages, we're the ones doing most of the talking.

When it comes time for the buyer seller meeting, however, our role is to make the introductions, be an observer, and be quiet for the most part. We may interject questions or comments when appropriate to guide the flow of information. This meeting is an important event for the buyer and seller. It is their time to understand each other's objectives, establish a rapport, and size each other up.

An appointment for a buyer and seller to meet is usually made when a buyer is considering making an offer to purchase the business. The buyer would have already reviewed the business profile and financials, and asked preliminary questions that had been answered by the broker. It is common for business owners to require that all such meetings be during non operating hours to avoid premature disclosure to employees and customers.

This is the chance for the buyer to tour the facilities, to learn about the operations of the business, the employees, the growth opportunities, the financial aspects of running the business, and to get a feel for what it would be like to walk in the owner's shoes. However, this meeting is not the time to discuss the price and terms of the sale. The business broker is the intermediary and will be the liaison for the two parties on that subject.

From a buyer's perspective, purchasing a business is a huge financial risk – most likely the largest in their life. While they know they will have the right to perform all the due diligence they deem necessary, a healthy amount of trust is involved. The buyer must gain a sufficient comfort level about the seller, the business, and its sustainability under their ownership in order to take the proverbial leap of faith.

The seller, on the other hand, usually has their net worth tied up in the business. Typically, the seller has invested many years building and nurturing the business. Retirement may depend on successfully selling the business at a just price. In today's market, a seller note is usually required. Even if a buyer is well funded, a lender will often want a seller to carry a note in order to reduce their own liability and exposure. It is a huge financial risk for the seller – most likely the largest in their life – just as it is for the buyer. In order to realize full payment, the seller has to trust in the buyer's ability to manage and successfully run the business.

In our experience, the first meeting usually takes about two to three hours. First impressions will be made during this short period. Each will be making their respective judgement of the other and pondering the possibility of a deal being formulated. This is usually the time when the buyer decides if this is the business they wish to pursue. If all went well, an offer to purchase is tendered. If the seller accepts, the due diligence process begins.

Certified Business Brokers (CBB) Facilitates the Sale of Houston Balloons and Promotions

Certified Business Brokers handled the transition of ownership of Houston Balloons and Promotions to an experienced businessman and Houston resident, Mr. David Key.

(Marketwire Press Release) -- Houston Balloons and Promotions was established over 11 years ago and was founded, owned and operated by Mr. Jim Purtee. The business offers the rental of large inflatable balloon characters as an advertising medium, mostly seen on rooftops of buildings, to local Houston businesses. It is one of the largest inflatables companies along the Gulf Coast today. Customer service has been the firm's mantra and has propelled it to its current top standing in its industry.

"Though many small businesses can’t afford radio, billboard, or TV advertising, they can afford to rent an inflatable for four weeks or more for prices starting at $1200," said Purtee. "It could be Sunday evening at 7 o’clock, if one of our customers call with a problem, we solve it."

Mr. Purtee engaged Certified Business Brokers to find a buyer for Houston Balloons and Promotions that would continue his philosophy while adding value to the company after transition. Mr. Key contacted Ryan DeGennaro at CBB looking for a business that had national growth potential, had a sustainable management structure, and a highly marketable product . Houston Balloons was a perfect match.

"Ryan worked hand-in-hand with me through the entire transaction and was able to solve all the issues that arose." said Key.

Mr. Key has big plans for Houston Balloons. "Service excellence will remain unchanged in this transition. However, we have plans in motion to work with national companies to provide promotional balloon rentals across the U.S.," said Key.

CBB provided valuation and marketing services and represented the seller in the sale. Frank Stabler and Ryan DeGennaro handled the details of the transaction.

For more information, visit http://www.houston-balloons.com/

About Certified Business Brokers (CBB)
Certified Business Brokers, established in 1974, is one of the pioneers of the business brokerage profession and is Texas' largest business brokerage firm. They are a founding member of the International Business Brokers Association (IBBA), the largest business brokers association in the world. They are specialists in Business Brokerage, Mergers and Acquisitions, and Business Valuations and Appraisals.

Houston Ranks #4 Best Place to Start a Business

Houston has received several noteworthy accolades this month.

Houston may have a bad reputation for hot, humid weather and nasty traffic, but according to Fortune Small Business magazine, it’s a pretty good place to start a company.

Fortune ranked Houston the fourth best place among large metropolitan areas in the U.S. to launch a business. In addition to jobs, the city’s ability to weather the recession was noted as a reason for the pick.

Houston also ranks near the top in city income growth, as No. 5 in the nation.

Houston’s success with job growth over the past 25 years has placed the city among the top markets in the country for elevated income levels, according to a new research study.

Bizjournals, an affiliate of the Houston Business Journal, combed through 25 years of federal income data to find the nation’s 100 biggest metropolitan areas, covering the span from 1983 through 2008. The study focused on per capita income, a key indicator of earning power and economic vitality, based on figures compiled by the U.S. Bureau of Economic Analysis.

Forbes put the Houston metropolitan area at No. 4 on their new list of America’s 40 “recession proof” retirement cities. Forbes said it considered such factors as average income for seniors, current and expected home prices, job-growth predictions through 2014, the cost of living and median monthly housing cost.

But, arguably, the most important uptick in our city's rankings is Houston's move up the best sports city list! The Bayou City is ranked No. 11 this year, up from No. 12 in 2008, according to the The Sporting News rankings. Go Rockets!

Understanding Seller Financing in a Business Sale

It has traditionally been a common practice for the sale of a privately-held small business to include some seller financing as part of the deal structure. Because of the tight credit market and lender efforts to reduce their own risks, that practice has become even more common and may be the key to getting the deal done.

Seller financing can accomplish several goals beneficial to both parties. From a buyer's perspective, most buyers feel there is a risk that the success of a small business is tied to the involvement of the owners. By having the seller finance a part of the purchase price, it can give the buyer confidence in the fact that the sellers believe that the business can thrive without them. From the seller's perspective, seller financing can help a buyer pay more for the business than if the deal were financed only through traditional financing sources.

With that in mind, it is important to remember that the purchase/sale of a business is a two-way street. Just as a buyer will conduct due diligence to determine the viability of the business, become comfortable with its financial and legal matters, and assess the opportunities for growth, a seller should be comfortable with the buyer as well, particularly if the offer includes a loan by the seller. The seller should understand the buyer's business background and qualifications, motivation for buying the business, and financial capacity to purchase and sustain the business.

Business owners who extend financing to a buyer for the purchase of their business often ask, "What happens if the purchaser defaults on the loan?" Should that happen, the seller would be able to exercise whatever rights are defined in the security agreement that is associated with the promissory note. The seller would usually have the right to get the business back, which may not always the best scenario if the business has declined and is not performing well. In addition, if the buyer is using the business' assets to get a bank loan, the seller will have to take a second position behind the bank. A seller should try to negotiate a personal guarantee by the buyer as part of the terms of the promissory note. The seller can also require the new owner to provide periodic reports on the performance of the business as part of the terms of the promissory note.

While it is important for a seller to protect themselves should a default occur, keep in mind that seller financing is often required for a reason, such as lack of bank financing, risks in the business, or to bridge a value gap. In other words, seller financing may be required in order to get the deal done.

Regarding the interest rate to be paid for the seller note, if the seller note is in conjuction with a bank note, it is hard to substantiate a rate much higher than the bank since a buyer is generally utilizing seller financing as a "bridge" mechanism to help the seller attain a higher price.

In the course of due diligence on the buyer, it is acceptable to ask for their credit record, particularly if the buyer is an individual. Personal credit records are available through several outside services, as long as written authorization is given by the individual. There are standardized forms that can be used whereby the buyer grants permission for the seller to obtain credit reports from specific consumer reporting agencies. Many of these credit companies can be queried via the Internet, such as Equifax, Experian, and TransUnion. If a fee is charged to obtain the reports, the buyer can be asked to cover it. The seller may also ask the buyer for a list of financial and business references.

Seller financing can accomplish the goals of, and be beneficial to, both parties as long as each feels confidence in the other.

Control Your Own Destiny and Buy a Business

Working for someone else, whether it be in a small business or in a large corporation, doesn't give people that secure, warm fuzzy feeling it did in years past. With the current unemployment rate at almost ten percent and an economy that is not yet stabilized, many find themselves in transition.

If you are one of those individuals, in considering your options be sure to consider putting your fate in your own hands instead of someone else's by working for yourself. Buy your own business.

Being in charge of your own destiny through business ownership can be both frightening and rewarding. It may be frightening as everything rests on you, yet it can be rewarding for the very same reason. There is an element of risk in every new venture and diving into business ownership is no exception. But the fact remains that being an employee these days, is hardly risk free.

There are those who are born to be business owners and for some it is a learned discipline. The most successful owners are those with a persevering spirit, believe in themselves, are committed and driven, are quick to react to change, and those who can inspire others to follow.

So, how should you begin to explore the business-for-sale opportunities that are available?

• You should educate yourself on the process of buying a business.
• Assess your finances to ascertain how much you actually have as a down payment on a business and to get you through the initial transition.
• In order to significantly reduce risk, it would be smart to target businesses that suit your background, lifestyle, knowledge base, and natural talents.

Business ownership is a worthy goal because not only do you get to invest in your own destiny, you help others, through employment, at the same time. However, in order to be successful, you need adequate funding and significant knowledge about your business. Lack of capital and lack of knowledge are two of the top reasons why businesses fail. Both of these risks can be mitigated by approaching the task of buying a business with a deep understanding of your own capacity to buy and what you would be able to do with the business once you bought it.

Here are articles that will help you on your way to business ownership:

A Road Map Is Key To Buying A Business
Six Steps in the Buying Process
14 Common Business Buyer Mistakes
Build a Business Plan When You Buy A Business
How Do Brokers Screen Buyers?
Looking For A Business to Buy in Houston? Who Do You Call?
Do You Need An Attorney When Buying A Business?
Buying A Small Business - Does The Purchase Price Make Sense?
Make Your Acquisition A Good Investment

When do entrepreneurs look to buy a small business?

Who says there’s an age limit on the question "What do I want to be?" According to a recent study, a large number of small business owners weren’t bit by the entrepreneurship bug until they graduated from college or started down a completely different career path.

Nearly one-third of respondents to Ace Hardware’s Entrepreneurship Study made the decision to become self-employed during their post-college career lives -- a time when many of their peers were immersing themselves in their chosen professions.

"I don’t think it comes as much of a surprise that small business owners decide to become their own boss later in life when you consider the benefits of financial accumulation coupled with the managerial and business insight they develop," says John Venhuizen, vice president of business development for Ace Hardware Corporation. "In general, these older entrepreneurs have a greater knowledge of the inner-workings of the business world -- in addition to strong leadership and managerial skills."

Those who wait to pursue small business ownership also may benefit from more robust financial assets. An overwhelming 75 percent of study respondents said that they used personal savings to finance start-up costs for their businesses, a move that’s not always possible for young people just gaining independence from their families, or striving to pay off student loans.

Gina Schaefer, an owner of six Ace stores in the Baltimore and Washington, D.C., areas and board member for the Ace network of 4,600 independently owned stores, launched her own business after working in information technology. "By that point in my career, I was more financially stable and able to take advantage of personal savings to become my own boss," says Schaefer.

Of course, some individuals don’t discover their entrepreneurial ambitions until after retirement age -- a situation that’s becoming more and more common as baby boomers decide they want to remain in the workforce, although not necessarily in the same job or industry. In fact, a 2008 survey by MetLife Foundation and Civic Ventures found that half of Americans ages 44 to 70 -- if not already pursuing a second career -- aspire to have one.

"Retirees with entrepreneurial ambitions usually aren’t driven by financial rewards or any of the power or prestige that some might associate with owning a business," says Venhuizen. "For them, it’s all about creating a purpose for the second part of their lives, and having the chance to live out passions and interests."'

Courtesy of ARAcontent


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EDITOR'S NOTE:

The Ace Hardware Entrepreneurship Study surveyed 538 U.S. small business owners to gain their perceptions on the motivations, challenges and benefits or entrepreneurship. The national Web-based poll was conducted in the spring.

The Five C's of Credit Analysis for Getting a Loan for Buying a Business

If you are buying a business and plan to obtain financing from a lending institution, these five tips provided by Adeline Rem, Regional Vice President of Celtic Bank, will be helpful in getting your loan approved.

1. Capacity

The capacity of the borrower to repay is the most critical of the five factors. The prospective lender will want to know exactly how you intend to repay the loan. The lender will consider the cash flow from the business, the timing of the repayment, and the probability of successful repayment of the loan. Payment history on existing credit relationships -- personal or commercial -- is considered an indicator of future payment performance. Prospective lenders also will want to know about your contingent sources of repayment.

2. Capital

Capital is the money you personally have invested in the business and is an indication of how much you have at risk should the business fail. Prospective lenders and investors will expect you to have contributed from your own assets and to have undertaken personal financial risk to establish the business before asking them to commit any funding.

3. Collateral

Collateral, or guarantees, are additional forms of security you can provide the lender. Giving a lender collateral means that you pledge an asset you own, such as your home, to the lender with the agreement that it will be the repayment source in case you can't repay the loan. A guarantee, on the other hand, is just that -- someone else signs a guarantee document promising to repay the loan if you can't. Some lenders may require such a guarantee in addition to collateral as security for a loan.

4. Conditions

Establish the focus and intended purpose of the loan. Will the money be used for working capital, additional equipment, or inventory? The lender also will consider the local economic climate and conditions both within your industry and in other industries that could affect your business.

5. Character

Character is the general impression you make on the potential lender or investor. The lender will form a subjective opinion as to whether or not you are sufficiently trustworthy to repay the loan or generate a return on funds invested in your company. Your educational background and experience in business and in your industry will be reviewed. The quality of your references and the background and experience levels of your employees also will be taken into consideration.

This article was authored by Adeline Rem, Regional Vice President of Celtic Bank, and published here with permission from the author. She can be reached at 512-215-2727.

The Three-Phase Process of Selling a Business

If you are like most business owners, you have thought about selling your business a time or two. It's perfectly normal to dream and wonder what it would be like to be free of all the trappings, headaches, and burdens of running your company. You probably also wonder how cumbersome the sale process might be and what it entails.

While we can't tell you what your imagination comes up with at the thought of freedom, we can tell you that selling your business requires a substantial commitment and should be a calculated decision. As with most endeavors, whatever you put into the process is what you will get out of it.

A fundamental element to a successful sale is preparation. Knowing what to expect, understanding the motives of your most probable buyer, anticipating their questions, and vetting potential problem areas of your business that might inhibit or delay an eventual sale are key to a sound selling experience. Once you feel comfortable with these basics you just might stop wondering and take the leap necessary to begin living that dream.

The selling process has three distinct phases and should always be performed within the confines of Confidentiality. The anonymity of your business is critical during the sale process and is important to protecting your interests. National statistics indicate that the majority of businesses sell within four to nine months.

PHASE 1 - Message

Before this phase begins, a valuation of the business would already have been performed. A valuation provides an objective price range that you can anticipate in the marketplace. Gathering the information for a valuation is not complicated or overbearing. Typically, the documents required to determine the probable price range of a company are tax returns for the most recent three to five years, a current year profit loss statement, current balance sheet, and an equipment list. Several years of financials helps paint a financial picture and current trend of the company. Knowing the value of the business also helps determine the most probable buyer, whether it be an individual, a strategic buyer, or a financial buyer,

During this initial phase the business profile is compiled. It encompasses the detailed analysis and assessment of the business for the purpose of packaging and communicating its value, its market, its assets, its strengths, its areas that can be improved (growth potential), and its financial history. The resulting profile is the Message that will introduce your business to the marketplace of appropriate buyers using a systematic methodology that protects the confidentiality of your business.

PHASE 2 - Action

This is the go phase where the business is launched into the marketplace. During this stage a rush of behind-the-scenes Action is taking place. Prospective buyers will be interviewed, confidentiality agreements will be signed, questions will be answered, and meetings will be arranged. The seller must continue to run the daily operations of the business and carry on as usual. Deviating attention away from day-to-day demands of business operations would affect employees, clients, sales, and ultimately profits -- which can mean a lower price in the marketplace.

PHASE 3 - Profit Point (Pay Day)

This is the final stretch, the closing phase of the process. It commences once a Letter of Intent or Earnest Money Contract is in place, after an offer has been made and accepted.

The first step in this stage is due diligence, which is an investigation or audit of the business by the buyer. Due diligence serves to confirm all material facts in regards to the potential sale. This includes reviewing all financial records plus anything else deemed material to the sale. Sellers could also perform a due diligence analysis on the buyer. Items that may be considered are the buyer's ability to purchase, as well as other items that would affect the purchased entity or the seller after the sale has been completed. This is especially important if the seller is financing part of the deal.

After due diligence is performed and both parties are satisfied with the results, closing activities begin. A sample of some activities that are likely to take place during this closing phase are:

• Financing / Loan arrangements
• Property lease assignments
• Environmental testing, inspections, surveys, appraisals
• Transfer of equipment leases, contracts, licenses and permits or applying for new ones
• Transfer of utilities and other services, domain name, and title to vehicles
• Establishing new corporate legal entities, merchant accounts, insurance policies
• Clearing liens and tax liabilities
• Inventory count, verification of trade receivables and payables

The closing phase is the last mile that often has bumps, curves, and detours that can obstruct the way to the goal. However, these obstacles can be overcome by an expert driver who is keenly familiar with the terrain. After thousands of excursions, we know the route well and can safely guide the way to the destination Point...the closing table...the place where you can finally realize Payment...the Profits due from years of hard work...and where you are then free to turn your dream into reality....the whole reason for the trip!

Texas Restaurant Industry - Biggest in the Nation in 2009

Texas has long been the hot bed of restaurant activity in the U.S.

With roughly $35 billion in sales expected in 2009, the restaurant industry in Texas is anticipated to be the leader in the restaurant sector in growth, according to the National Restaurant Organization, as reported in the Wall Street Journal.

The $35 billion figure represents a 4 percent increase in sales year-over-year. That's down from 5.6 percent growth in 2008, but still shows that Texas restaurants are bucking the recession. The national sales growth rate is expected to be almost half the growth of Texas at 2.5 percent.

In December 2007 California was #1 in restaurant sales, with Texas in the #2 position. We all know where California stands this day. Texas has outpaced the has-been leader and is kicking butt.

“Even in these tough economic times, it is clear that the Texas restaurant industry is the best place to do business in the nation,” said Richie Jackson, executive vice president and chief executive of the Texas Restaurant Association. “While our country is coping with the weakest economy in decades, Texas restaurateurs continue to buck the trends and post positive sales and job growth. We're also seeing some commitment to capital expenditures. Some owners are seeing this as an opportunity to look into real estate that they might not have been able to touch a year ago."

Also in December 2007, the National Restaurant Association statistics projected Texas to be in the #4 position for job growth. The three states forecasted to be ahead of Texas were Arizona, Nevada, and Florida, which are three states that have been the hardest-hit by the current economic situation. Texas, on the other hand, continues to have positive growth in this arena. Texas is clearly leading the restaurant industry this year and will be serving it up into the foreseeable future.

National Restaurant Association job growth prediction by State from 2008 through 2018:

Arizona: 26.9%
Nevada: 25.8%
Florida: 23.7%
Texas: 22.9%
Alaska: 22.8%
Utah: 22.5%
North Carolina: 22.4%
South Carolina: 22.0%
New Mexico: 20.8%
Colorado: 20.4%
Georgia: 20.2%
Washington: 19.8%
Arkansas: 19.7%
Alabama: 19.5%
Oregon: 19.5%
Mississippi: 17.7%
Delaware: 17.4%
Louisiana: 17.1%
Virginia: 16.7%
Idaho: 16.6%
South Dakota: 16.3%
California: 15.8%
Tennessee: 15.6%
Oklahoma: 15.3%
Kansas: 15.0%
Maryland: 14.2%
Minnesota: 14.2%
New Hampshire: 14.2%
Kentucky: 14.1%
North Dakota: 13.8%
Maine: 13.6%
District of Columbia: 13.1%
Indiana: 13.0%
Rhode Island: 12.6%
Vermont: 12.1%
New Jersey: 11.8%
Nebraska: 11.5%
Wyoming: 11.5%
Missouri: 11.3%
Iowa: 11.0%
Illinois: 10.9%
Wisconsin: 10.9%
Montana: 10.4%
Massachusetts: 9.1%
Michigan: 8.7%
Connecticut: 8.5%
West Virginia: 8.5%
Pennsylvania: 7.0%
Hawaii: 6.7%
New York: 6.7%
Ohio: 5.6%

Selling a Business in a Down Economy

With negative economic news grabbing the headlines, business owners are inclined to believe that it is not a good time to sell their company and that they will have to put their retirement plans on hold. While this rationale makes sense for some, waiting for better economic times does not necessarily equate to a higher value when the business is sold.

The reality is, in many instances, the business value declines during this delay because the owner is not as energetic and gung ho as in previous years and the business starts retiring before the owner does. This usually results in less revenues and a lower bottom line. Consequently, the business owner can lose several years of retirement yet not add any additional value to their net worth.

The sale of a profitable company in this environment is a viable strategy for business owners who are ready to sell. Value is dynamic and proper timing makes a big difference in the prices paid for business acquisitions. Quality sells in any economic environment and profitable businesses that are properly positioned are still in demand.

Current economic conditions will most likely continue for the immediate future. We find that despite the credit crunch and economic turbulence, however, there is not a significant slow-down in buyer inquiries. Our observations are as follows:

• Strategic buyers and Private Equity Groups are plentiful and are looking for quality acquisitions.
• Management-level individuals who have experienced corporate layoffs who are typically baby-boomer age, have severance pay or 401Ks to invest, and are looking to go into business for themselves. The stock market, or putting money in the bank, do not look attractive to these corporate refugees at this time in their lives.
• Blue collar workers who have been layed off are also looking to "buy a job."
• All buyer groups are looking to Houston because of its economic position as #1 in the U.S.

Since the business value for most owners accounts for about 75% of their net worth (Business Brokerage Press 2007), this is an important financial issue where time is of the essence. For many business owners, the best strategy to enhance their wealth upon exiting their business is to improve value and not put their life on standby while waiting for the economy to turn around.

The following are 10 elements common to every business that improve value in the marketplace. Some are quite easy to implement with little effort or expense. In preparing your business as a quality acquisition opportunity and maximizing its value, the following recommendations are fundamental to achieving that goal:

1. Spruce up the facilities and check equipment to insure good working condition. Curb appeal makes an impression. A clean, organized facility gives a good feel for how the business is run.
2. Compile a list of furniture, fixtures and equipment along with applicable service records. This shows a prospective buyer that the company is well maintained.
3. Read your lease. Is it transferable? The landlord may need to approve new ownership before signing off on the lease transfer. Unfavorable lease terms can detract from value or hinder the sale altogether.
4. Streamline overhead and operational expenses to get the highest value. This can include divesting underutilized or obsolete inventory, assets and employees.
5. Minimize the business dependency on you the owner. Delegate more to key employees or managers who would stay on board under new ownership. A business with well-trained employees who can run daily operations is more appealing than a business that is highly reliant on the owner's presence or is dependent on the owner's personal relationships with customers. Buyers do not pay a premium if the business relies on the owner for its success.
6. Document how the business is run. Records and procedures make buyers more secure and confident that your success can be continued. Organize, document and update the following: training procedures, employee contracts and handbooks, job descriptions, policy manuals and operating procedures, mission statements, strategic plans, Internet presence, brochures, press releases, marketing campaigns, and customer lists.
7. Review your accounting processes. Are income statements and balance sheets well prepared and clean? Are you driving all income to the bottom line? Accurate financials add to a buyer's comfort level and will likely result in a higher sales price. Trends in accounts receivable and payable show whether or not you have good customers who pay on time. Be on the ball in contacting slow-paying clients. This shows better credit management, follow-up and attention to detail. Seasonality of cash flow and concentration of the customer base are also underlying factors that affect value.
8. Make sure patents, trademarks and other intellectual property rights are properly registered.
9. Clean up any outstanding legal, financial, or tax issues.
10. Be advised of and prepare for the questions that prospective buyers will most likely ask.

CBB Deal Closed -- Front Page Feature of Houston Business Journal

Dragging economy revs up auto shops

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Certified Business Brokers, Houston, closed the deal between Buyer, Tariq Aziz, and Seller, Wayne Ray, of Mr. Transmission, on February 27, 2009.
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Published February 27, 2009 -- Houston Business Journal - by Allison Wollam

Tariq Aziz owned a health care software services company for 14 years. He considered the current economy, decided to change careers, and has purchased a Mr. Transmission/Milex Complete Auto Care shop.

“When I look at the economy, I’m thinking that people are choosing to maintain and repair theirs cars in case, God forbid, they lose their jobs,” says Aziz. “People are willing to spend a couple-hundred dollars to maintain their cars in order to get back and forth to work. It’s a scary time right now.”

A lot of concerned consumers are giving more business to local auto shops by putting off new car purchases.

Lee Gault, service manager for Montrose Automotive Center, says the 50-year-old shop on Montrose Boulevard is off to a record start in 2008 due to customers coming in for minor repairs and maintenance services.

“People never used to come in when they were supposed to for maintenance services, and now they’re coming in and demanding those services,” says Gault.

He notes more customers are coming in for 30,000-mile, 60,000-mile, and 90,000-mile checkups than he’s ever seen before.

Dan Proctor, general manager of Houston Automotive Center, has seen business surge over the past two months.

“We’re seeing a big increase in the business of fixing existing repairs and doing the little things that people were putting off in the past,” says Proctor. “People are much more willing to make the small repairs immediately to make sure that it doesn’t turn into a bigger problem.”

Proctor has stayed busy replacing training belts, hoses and repairing small coolant leaks since the beginning of the year.

Houston Automotive Center was established in 1999 and moved to 3707 Las Palmas St. in August 2007. Proctor says the past two months have been, by far, the busiest the shop has been since relocating.

Business has gotten an indirect boost from the exit of area auto dealerships such as Bill Heard Chevrolet and Lawrence Marshall in Hempstead. New-car owners want to make sure their dealerships will still be in business in the near future, according to Proctor.

“I feel bad for the people who feel compelled to do this, but it is good for business,” he says. “People feel like they have to take care of their cars now because they are afraid they can’t afford a new car, not because they want to take care of them.”

Bad news for car dealerships apparently is good news for auto shops not only in Houston, but also across the country.

Overall aftermarket sales were $286 billion in 2007, a 4 percent increase from 2006.

Potential for growth is driving entrepreneurs such as Aziz. His Mr. Transmission shop at 4802 Larkin keeps three mechanics and a manager hopping.

Aziz says he receives phone calls every day from other shops asking if he has any transmission builders who can help with the demand for services.

Mr. Transmission handles both retail and wholesale accounts, including used-car dealerships.

“We work with used-car dealerships that are selling 120 cars a month,” says Aziz. “Luckily for us, people seem to be buying older cars or just taking care of the ones that they have. This is a booming business right now.”

Aziz expects this trend to continue through the credit crunch affecting potential new car buyers.

“Banks aren’t loaning anyone money anymore, so even if you do want to buy a new car, you’re probably not going to be able to get the credit to purchase one any time soon,” says Aziz.

Proctor of Houston Automotive Center doesn’t see consumer apprehension going away in the near future.

“As long as people are keeping an eye on the stock markets fearing a recession, and are seeing the Big Three in the automotive industry struggle, no one is going to rush out to buy a new car,” says Proctor.

SBA Loans for Small Business Acquisitions Improving

The Small Business Administration today announced their support of the Federal Reserve Bank of New York and the Treasury Department to improve the TALF Program, which will help unclog the secondary market for asset-backed securities, including SBA 7(a) backed loans which is the vehicle used for small business acquisitions.

“We are pleased that terms for SBA loans are continuing to improve, and TALF is moving into the implementation stage where loans will be made,” said SBA Acting Administrator Darryl K. Hairston. “SBA welcomes the recent announcement from TALF and supports its continued efforts to modify the terms to help unfreeze the secondary market for SBA loans, thus making it easier for our lending partners to make new loans to America’s small
businesses.”

“Three specific changes should be especially helpful to the secondary market for SBA loans. The lower collateral requirements for pools with longer expected lives; the creation of a federal funds-based rate; and the reduction in spreads over the base should all combine to make SBA guarantees a more attractive asset class for investors,” added Acting Administrator Hairston.

The Term Asset-Backed Securities Loan Facilities, or TALF, was announced in November 2008 to inject new life into a secondary market that had virtually ground to a halt in October, making it very difficult for lenders to sell loans they make – including SBA-backed loans – and use the proceeds to make more loans. TALF is intended to help unclog the secondary market for SBA loans by making funds available to investors and brokers to purchase loan pools.

About $4 billion in securities backed by SBA-guaranteed 7(a) loans are bought and sold in the secondary market each year, with the total outstanding amounting to about $15 billion. At present, an estimated $3 billion of that amount is essentially frozen thus hampering the ability of some of SBA’s lending partners to make new SBA-backed loans.

The loans that investors will receive from TALF can be used to purchase these securities from brokers, which would inject much needed liquidity for lenders to be able to make new loans.