It is fortunate that most offices in the Unites States are located in large office buildings, located way above the ground level. That’s not say that there aren’t offices in those places where they flooded. The office is a unique environment since the valuables which water damage restoration attempts to save, may not be totally physical material, but rather objects which represent or store intellectual property. While intellectual property is not tangible, the physical items that contain this information is what the restoration aims at saving.

Aside from the traditional material which needs to be restored through regular water damage restoration procedures, there are some specifics about the office environment which need special water damage restoration procedures. These specifics include office equipment, documents, and digital storage mediums (tapes, CDs, flash RAM, etc.) Other than these specifics, water damage restoring carpets and/or office furniture is not different from other restoration procedures.

Office equipment is highly sensitive devices with a lot of cabling, power chords, and links to the mains and to each other. The best policy for this is to not need a lot of restoration. Follow a comprehensive prevention plan will spare the most sensitive devices exposure to uncontrolled water. Let’s face it, if the flood enters an office with copiers and computers, chances are those items will not survive the ordeal. In which case, the water damage restoration would only be about furniture, carpeting, and documents (electronically stored or otherwise).

Again, with the virtually impossible task when it comes to office equipment water damage restoration, one needs to take preventive measures, prior to the disaster taking place, to make sure that these hard to salvage items are well protected and that no amount of flood could get to them.

As for the rest of the office material (documents, storage media, etc) there are many professional today to help you with drying your documents. It all depends on the amount of damage done to the documents and storage media. Preventive measures will ensure that you don’t stake your life’s work on Mother Nature’s one hand, industrial water damage restoration techniques on the other.

Important papers and documents should be copied and saved in separate places, hopefully in two different flood zones. Otherwise, there is no control over the damage which can be done to them. There are several industrial products exist, which can help you in preventing water damage to documents, drawings, blue prints, etc. One of these products is a silicon spray which you can spray on your document, creating a thin waterproof film over the document/drawing. While this may be good enough to help protect against a few droplets of water, like during a brief exposure to rain while you take the document out of the car, and walk to the office building, it is not strong enough to protect against a continuous exposure to water, like as in a flooded office. Therefore, the moral of the story remains, prevention is still the best policy.

Ramona Weisly is a water service advocate for Tampa Water Damage Restoration and Tampa Water Damage Restoration

Most business owners have a thought in back of their minds that they will at some point (hopefully), sell their business for lots of money. Who can blame them? After all, isn’t this part of the allure of getting into your own business?

While there are drastic differences between selling a business and a piece of property, there are certain common fundamentals with “market timing” being the most critical. The good news is that unlike real estate when there are cycles of seller and buyer markets, the supply/demand curve in business sales ALWAYS favors the seller. Let me explain: On the buy side, there are always tons of people looking to buy a business; most never do. On the sell side, most businesses listed for sale, never sell. However; there is ALWAYS a shortage of “good” businesses. In fact, when a “good” business hits the market, it can be under contract within days.

Now that you know you can always find a buyer for a good business, let’s get back to when it’s the best time to sell.

When Business Is Good…

Undoubtedly, the best to sell is when the business is at, or near its peak of revenue and profitability in its recent history with a few solid prior years of growth. This does not mean you think it’s at the top and will decline. The peak simply indicates that it is on an upward trend compared to prior years. Or, you feel that you have taken the business as far as you are capable of doing and someone else either with new, or different skills, can take it to the “next level”. Think of it this way: if the business were an athlete, when would be the best time to be eligible for free agency? Right after a “career year” right? The same holds true for a business. The best time to sell are when things are going well. You’ll get a higher price, better terms, and a quicker sale (on this note, you may be interested to learn that the average business takes 7-8 months to sell). Trying to sell a declining business is simply more challenging for everyone on the sell side.

While it would be ideal to sell when the business is on a high note, it is even better if the business has demonstrated several years of stable revenues/profits is also considered an excellent time to bring it to market. Keep in mind that one of the greatest unknowns to a buyer is whether the business will transition to them and continue as it was before. Having the ability to show them several prior years of stability will go a long way in soothing their worries.

What If The Business Is Not Doing Well?

There can be reasons beyond your control that force you to sell a business when things are not going well. In these cases, you need to do what you can to get the best deal possible. If getting out is the most important thing, then you’ll want to do the following:

* Address any immediate problems with the business. Without being reckless, decide what may be the one or two biggest issues/negatives that a prospective buyer may identify in the business. Then, do whatever you can do either repair it, or to lessen the severity of the problem.

* Write up a detailed and realistic business plan that you can present to prospective buyers that outlines exactly what you would do over the next one to three years if you were not “forced” to sell. By laying this out in a realistic and logical fashion, a buyer will be able to see that he can execute the plan. Above all, be realistic. This is not the time to be delusional. This plan may ultimately be your biggest sales tool.

* Be open to a deal that may involve a larger than usual seller note, or earnout/performance based term whereby you can get a higher price based upon the future, short-term performance of the business.

What Buyer’s Want and Need

The reason why people will buy existing businesses (often paying a premium) versus starting one from scratch is because there are some known factors that can mitigate their risk such as:

* Immediate cash flow
* Built in infrastructure
* Historical financial data
* Customer base
* No start up hiccups

Given this, business buyers will pay a premium for business where revenues and profits are trending up, or, at the very least, are stable. Most people do not have the experience to turn around a declining business, especially when they haven’t done so before. The typical small business buyer mentality is: “takeover on Monday, collect a paycheck on Friday” (a bit of an exaggeration, but not much). Plus, it is far easier to finance the purchase of a growing business than a declining one. This is certainly true when government loan programs are in place that may use the worst of the last 2-3 year’s of tax returns as a basis for the business to service the debt.

Warning: Leave Some Juice in the Fruit not Cash on the Table

It can be very tempting to keep hammering away at the business when things are going well. You’ve worked hard, the fruits of your labor are paying off, the systems are in place, and you have a solid comfort with what you do each day. These are all rational thoughts. Also, when a business has experienced some ups and downs, it seems almost crazy to consider selling when things are consistently good. Yes, it may seem hard, you make hay when the sun shines so be opportunistic and sell it when you think it is at, or near the high.

A buyer must be able to see that the business has a very viable future with them as the new owner. You need to have the business operating well, with a bright outlook. You may find yourself in a situation where new business is coming in or there are some lucrative contracts pending. It would be easy to convince yourself to postpone the sale and benefit from these revenues. However, these are precisely the situations that buyers want to see, and have in place when they take over. Although these could trigger an “earnout” or performance type deal, nevertheless, providing a bright future for a buyer is very enticing to getting a deal done; which is ultimately the entire objective of this exercise.

While there is always a market for good businesses, the amount of money and deal terms you could benefit from when the business is doing well, is staggering compared to selling a declining one. I like to compare it to the toy business that I was involved with about ten years ago. We sold licensed or themed merchandise. When the license was “hot”, my dog could have gone to the major retailers and walked out with orders, but when a license’s popularity dies, I couldn’t give the product away. It could have been easy to get caught with a warehouse full of inventory that could wipe out all the profits we generated when it was popular. So, my partner and I decided that once a license hit its peak (at least in our estimation) we would be “sold out”. No more inventory. Sure we missed out a bit of profit in one or two licenses but we never had to liquidate product and wipe out all the prior profits. In all, we made a lot of money.

The same holds true for a business. Sell when it’s doing well. Better yet, sell it when it is doing great. It is much easier to convince any buyer to pay a premium when the business is thriving versus trying to even find a buyer when the business is in decline. Moreover, with the number of buyers, and the shortages of good businesses, you may wind up having several interested parties “bidding” on your business since there’s always a shortage of good businesses on the market.

Copyright Midmex All Right Reserved

Mark Heitner, MD, MBA, the founder of MidMEx, is a psychiatrist, author and software developer. Many patients have been owners of mid-sized companies with a business for sale. MidMEx helps sellers by creating a supportive community of verified buyers and expert business appraisers, brokers and attorneys. Many resources are available to help owners sell the business.

Before even asking questions about what wealth managers do and where to find one, most people will want to know if wealth management is even relevant for their business. Below are common questions, and answers, about wealth managers.

DO YOU NEED ONE?
You don’t have to have to be a Rockefeller to secure the services of a wealth manager. Any business owner who is about to have a “liquidity event” should seriously consider retaining a wealth manager.

WHAT DO THEY DO?
Wealth management is a high-touch, high-service approach to managing all things financial. A wealth advisor works with a team of experts on banking and insurance, works with a client’s attorney on issues such as power of attorney and wills, manages the client’s investments. In an a la carte approach, what ends up happening is that the left hand doesn’t talk to the right hand. The concept of a wealth manager is to have one person manage the team. Wealth management can even include a ‘family office’ where the wealth manager takes care of all the client’s financial problems or situations, perhaps obtaining mortgages or loans for them and paying bills. So even though you probably work with a financial professional, you just might be short-changing yourself if you haven’t investigated working with a wealth manager.

WEALTH MANAGEMENT ISN’T JUST ABOUT RETIREMENT.
With the sale of your business, your focus shifts. The focus of wealth management is also shifting from the accumulation of assets to the distribution of assets. Things to consider are how to pass your assets on to the next generation. Do you want them to inherit all at once or over a period of time? If you have a child with special needs, how will you protect the assets of that child? Should you set up a charitable trust? Remember, you are not just protecting your assets for yourself and perhaps a spouse, but also for your children and even for future generations, or charities.

WHY YOU SHOULD STAERT LOOKING NOW
The biggest mistake is that families and business owners wait too long before they start the process. Once you already have a successful business or you’ve sold a business, many strategies that would have been available to you are no longer available, or they are not as effective. Say you have two children who are working in the business, for example, and you want to start giving them a quarter of the business in stock. Giving a quarter of the business when it is worth $2 million can be done without paying any gift tax, but giving them a quarter of the business when it is worth $10 million cannot be done without paying gift tax.

QUESTIONS TO ASK A WEALTH MANAGER
Services Do they offer comprehensive services? Is it all in-house? Do they have strategic partnerships with other folks? How do they work with the client’s accountant or the client’s attorney? What do they do about coordinating banking services? You should feel that the advisor could actually advise you personally on several of those different issues or have a team of experts available to do that. Also look at how the routine reports and information is presented, to make sure it fits your preferences. Competence You also want to look at an advisor’s designations–Certified Financial Planner, Chartered Financial Analyst, Certified Public Account–and the experience and skill sets of the others on the team. Fees There is no industry standard regarding compensation, regarding the amount charged as well as how fees are structured. Fees can be based as a percent of assets managed, by the hour, by the year, and so forth. As in most purchase decisions, price is usually not the primary determining factor.

Mark Heitner, MD, MBA, the founder of MidMEx, is a psychiatrist, author and software developer. Many patients have been owners of mid-sized companies with a business for sale. MidMEx helps sellers by creating a supportive community of verified buyers and expert business appraisers, brokers and attorneys. Many resources are available to help owners sell the business.

Personal events involving the owners or senior management are what usually raise the question: is it time to sell the company. For the most part, the decision to sell is made for personal reasons. We discuss the most common reasons for a sale and goals of a sale below.

1) Fatigue: the owner-CEO wears several hats. After many years, some parts of the job remain enjoyable, but others are a burden. Many CEOs would like to stay active in the business, but want to devote energy only to the tasks that are in his or her “sweet spot”. One solution is to bring in a co-owner/senior manager who will one day assume complete control of the company.

2) Illness: both acute and chronic, progressive illness impact a CEO’s motivation and ability.

3) Pressure from spouse: the owner’s or CEO’s spouse may push the owner to move on to the next phase of life. Or a divorce may require liquidation of the owner’s holdings.

Pressure from heirs: Heirs, whether they intend to assume management of the firm or not, may be eager to enjoy a liquidity event. Heirs may have expressed disinterest in assuming management positions in the firm. Succession planning within the family may not be an option.

Pressure from other owners: often middle market companies have multiple owners. A number of them might like their stake liquidated, before or along with the majority owner.

4) Retirement planning: the owner may be ready to start retirement. Likewise, the non-owner CEO may be ready to retire, and the owner may not relish the job of hiring and training a replacement.

5) Business opportunity: owners may see other more lucrative business opportunities in other fields, and may need to liquidate their holding sot raise funding for the next company. Owners may wants capital to expand: owners may be interested in expanding the business, and are most interested in equity financing than in debt financing.

There is a range of buyers for each of these scenarios. Financial buyers, for example, will insist that senior management stay for a period of one - three years to help facilitate the transition. This is not an empty consulting role, but a meaningful management role. Other buyers will want to buy the company with the expectation that senior management will be largely replaced. Some buyers desire a minority position, others a majority, while others want 100% of the assets.

The critical factor in closing these transactions is for owners to be clear about their actual goals in selling or recapitalizing. Nothing frustrates buyers more completely than a seller who isn’t sure what he or she actually wants. As the middle market becomes more efficient, more buyers will be interested in acquiring your company. Besides valuation, the most sensitive deal term will involve the future roles that current management might play. All the more reason to have this issue well thought about before listing the company for sale.

Mark Heitner, MD, MBA, the founder of MidMEx, is a psychiatrist, author and software developer. Many patients have been owners of mid-sized companies with a business for sale. MidMEx helps sellers by creating a supportive community of verified buyers and expert business appraisers, brokers and attorneys. Many resources are available to help owners sell the business.

With so many other things to keep track of when selling a business it’s hard to keep in mind all of the factors that will affect purchase price and deal terms. Below I highlight and discuss some of the most important factors.

Recent Performance:

Over the past 2-3 years is the business growing, flat, or declining? For example, “Business A” made $200,000 last year and $100,000 the year before. “Business B” made the same $200,000 last year, but $300,000 in the year prior. In almost every case, Business A is worth far more in the eyes of an individual buyer. They want to acquire a business that is growing, or, at the very least, is stable.

Ease of Transition:

Interestingly enough, most small business buyers will purchase a business outside of their area of expertise or experience. As such, it is important that the transitional period after the sale is something that the buyer sees as being reasonable.

A buyer must feel confident they’ll be able to have a good grasp of things within a short time after they take over. This can only be accomplished if the business is well managed with policies, procedures and systems in place. If you want to know how easily the business will transition to a new owner, ask yourself the following question: “If I get hit by a cement truck today, what will happen to the business tomorrow?” For example, if the seller possess highly specialized skills that are critical to the business, or if the seller has long-standing personal relationships with clients that drive the sales, then these will be obstacles to a successful transition.

The Buyer Pool

Just like the transition period, there is a direct correlation between the purchase price of a business and the ease in which someone new can operate it. In the market, there are tons of people always looking to acquire a business. The greater the amount of those people who can see themselves running the business, the more demand there will be for the business, and therefore the higher the price and the better the terms a seller can get. If a business simply requires good all around business/management skills, then the buyer pool will be quite large.

Conversely, if highly specialized or certified skills/licenses are required to operate the business, the number of potential individual buyers shrinks drastically. In extreme cases, a seller may have to think about a strategic sale to someone in the industry.

Books and Records:

I cannot emphasize enough the importance of having good, clean and accurate books and records. It may very well be the single most important influencing factor of the price and terms when a business is for sale. There is no quicker way to “kill a deal” than having the buyer learn that the actual company records are not in line with what was originally represented. It is terribly upsetting when a deal falls apart, and though some may be salvaged, when it’s due to poor financial records often times the buyer will be: “out the door, see no more.”

Another aspect is unreported income. If you are taking in cash sales and not reporting it, then you cannot expect to be paid for it when the time comes to sell the business - you can”t dance at all the weddings. If you had the benefit of not paying taxes for years on this money, and you have no quantifiable means to prove the number, then surely you cannot expect anyone to pay you anything, let alone a premium for this “alleged” revenue.

Typically, a seller wants to have this factored into the price. However, one must consider the provability of this unreported income. The questions becomes:

* Can you prove it?
* How?
* Do you even want to prove it?

You may want to be very cautious about this situation.

Having said all this, there is a way for you get the best of both worlds, as long as you’re willing to make a small, short-term sacrifice. As soon as you decide to sell a business, start putting all the income on the books. The average business will sell in 7 - 8 months. During that time you can demonstrate to any buyer the increase in the top line revenue when you reported all the income. The difference in the selling price can be significant. More importantly however; it can be undeniable proof and full validation of your claim although you may need to agree to structure this portion as an earnout in order for the buyer to feel comfortable.

Customer Concentration:

Back to our example of Business A and B. Both companies generated the same profit to the owner for the past two years. Business A has one hundred clients, none of which represent more than five percent of the revenues. Business B has the same hundred clients, but two of them contribute forty percent of the revenue. Which company is worth more? Business A of course! If one or two of Business B’s clients stop buying, the business could decline by almost half.

Exclusive Products or Services

If there is an element of exclusivity to the business, whether in product or territory, this can be a huge selling factor. Naturally, the buyer will want to see this transition to them and so you need to consider this situation. For example, in a distribution business that has an exclusive territory, it will be paramount (and definitely a deal contingency) that the relationship with a particular supplier for example will continue. Conversely, if the entire business relies on this relationship, it can hurt you. It’s the supplier version of customer concentration. However, if the relationship is solid and a new contract will be granted to a buyer, it can be worth a premium in the sales price.

Recurring Revenue

Any business with a strong recurring revenue base is both highly sought after and will almost always command a premium. Examples are alarm monitoring companies, marinas, self storage facilities, and some pest control businesses. The lure is that a new buyer is almost assured of continuity and can count on revenue from day one. If any part of your business has a recurring revenue component, then play it up. If not, think about ways that you can possibly generate some; it will be well worth the effort and expense to do so.

Copyright Midmex All Right Reserved

Mark Heitner, MD, MBA, the founder of MidMEx, is a psychiatrist, author and software developer. Many patients have been owners of mid-sized companies with a business for sale. MidMEx helps sellers by creating a supportive community of verified buyers and expert business appraisers, brokers and attorneys. Many resources are available to help owners sell the business.

Most company owners sell the company themselves. Whereas homeowners use brokers (Realtors) 90% of the time, sellers of companies use brokers only about 30% of the time.

When is it a good idea to use a broker?

If the seller thinks that it will be difficult to run the company AND put in the time and effort to sell the company, then retaining a business broker is a good idea. This is the most compelling reason we know.

Other reasons to hire a broker:

1) The seller recognizes that selling is not core management strength, and should be outsourced to an expert.

2) The management team has suffered a disaster that makes the task of selling the company unbearable.

3) The seller does not know how to maintain confidentiality, and is worried that employees, customers, vendors and competitors will learn that the company is for sale. (This is the easiest problem to solve, by the way).

4) The seller does not know how to qualify potential buyers before disclosing confidential materials.*

5) The seller does not know how to realistically value the company.*

6) The seller is unfamiliar with the acquisition process.*

7) The seller does not know how to find potential buyers.*

The seller has difficulties writing high quality marketing materials for potential buyers.*

*There are many resources for sellers that can help the seller address these issues.

What is the best way to find a business broker?

Unlike realtors, business brokers are not licensed or regulated by any State or Federal agency. Virtually anyone can call himself or herself a business broker. Someone can call them self a business broker without having to graduate from college, take a certifying test, or have any actual training or experience. Few business brokers have actual business degrees.

Most firms that do business brokerage are small outfits, consisting of one to four people, and have been in business for less than five years. There are few larger firms operating in several states, however they face two substantial limitations. The first is that State Boards of Realtors require business brokers to have a real estate license in any State in which they do business. Real estate is often a substantial part of the sale of a middle market company.

The second limit is that the larger firms often focus on selling smaller companies (known as “Main Street” deals) - mom and pop companies generating $50,000 - $500,000 in annual revenue. They lack expertise in middle market deals. Would you hire a Chevy salesman to sell your Ferrari, or let a nurse take out your appendix?

Most business people have never heard of the business brokers in their communities, even if they have been in business for twenty years. Your accountant, corporate attorney or wealth manager may be able to refer you to a broker.

There is one national association of business brokers, the International Business Brokers Association. Virtually anyone can join by paying a membership fee, so that membership alone means very little. However, the IBBA offers many courses of instruction, as well as a certificate once these courses have been competed. Members of the IBBA, who are also certified business intermediaries (CBI), are likely to be well trained. Unfortunately, there are fewer than 200 CBI members at last count. [Full disclosure: author is a member].

What do business brokers charge?

Whether certified or not, brokers use a standard formula for calculating their commission. Their fees, which are often based on the successful sale of the company, are a percentage of the sale price. The commission percent rate decreases with the size of the sale, according to the schedule below. Here is an example of the calculation of a $600,000 commission on a $12 million sale:

Percent Sale price, millions Commission, $

10 First million 100,000

8 Second million 80,000

6 Third million 60,000

4 All additional millions 360,000

You can calculate the commission you will pay using this formula. You will then be able to better decide if you think you are too busy to run the company and sell it.

Mark Heitner, MD, MBA, the founder of MidMEx, is a psychiatrist, author and software developer. Many patients have been owners of mid-sized companies with a business for sale. MidMEx helps sellers by creating a supportive community of verified buyers and expert business appraisers, brokers and attorneys. Many resources are available to help owners sell the business.

Most small business sales are financed, at least in part, by the sellers themselves. Offering seller financing puts the seller in a stronger position to get a better price and a faster sale.

Buyers nearly always need seller financing. Their advisors strongly recommend it. Seller financing acts like a bond for performance to assure that the seller will live up to the promises made to the buyer during the sales process. Seller financing is seen by most buyers as an indication that the seller has faith in the future of the business.

Buyers can expect, however, that sellers who offer seller financing must also act a lot like a bank! A buyer can expect to be asked to secure the loan and sign a personal guaranty.

What is Seller Financing?

Sellers of small businesses usually allow the buyer to pay some of the purchase price of the business in the form of a promissory note. This is what is known as seller financing.

Seller financing is particularly common when the business is large enough to make a cash sale difficult for the buyer (over $100,000), but too small for the mid-market venture capitalists (under $5 million). Seller financing is also common when the business, for any number of reasons, does not appeal to traditional lenders.

A rule of thumb is that sellers will typically finance from 1/3 to 2/3 of the sale price. Many do more than that. It all depends on the situation. Each transaction is unique. The interest rate of the seller note is typically at or below bank prime rates. The term of the seller note is usually similar to that of a bank.

For a service business which sells for $500,000, for example, the transaction might be structured as $150,000 down from the buyer and $350,000 in seller financing. The seller note might run for five to seven years and carry an interest rate of 8% to 10%. Monthly payments are the norm and usually start 30 days from the date of sale unless the payment schedule must be modified to allow for the seasonality of the business revenues. The seller note would also usually have a longer term if real estate were being financed.

When a seller offers seller financing, the price the buyer can afford to pay goes up as the amount of the down payment required by the seller goes down.

Why Would A Seller Offer Financing?

Sellers are nearly always reluctant to offer seller financing. Like all of us, they fear the unknown. Despite the advantages of playing bank, it is an uncomfortable role for them. They usually come around to seller financing only after some effort has been made to persuade them.

A seller’s first encounter on this issue might be with the business broker. In many cases, but not all, the business broker will bring up the issue. Most business brokers agree that sellers need to offer seller financing, but not all are willing to discuss the issue at the beginning of the listing. When the buyer is unknown, the seller’s fear of seller financing is greatest. Some brokers prefer to wait until the buyer prospect is known before suggesting the amount and terms of seller financing.

Offering seller financing up-front, however, can attract buyers and speed up the business sale. This is the major issue that usually persuades a seller to offer some type of financing.

Seller financing is seen by buyer prospects as comforting proof that the seller is not afraid of the future of the business. Buyers are more likely to believe a seller’s optimistic view of the business’ future when seller financing is offered. Some buyers can’t or won’t look at businesses for sale unless seller financing is a possibility. The more buyer prospects that look at a business, the better the chance a seller has to get an acceptable offer.

A seller can also get a better price for a business that has financing in place. As in nearly all buying situations, buyers are often focused on achieving a purchase on terms that allow them to buy with as little ‘cash in’ as possible, even if the long-run costs are higher.

Seller financing can also lead to a speedier sale. If the seller plays bank, then the deal gets done more quickly. Applying for a bank loan takes a long time for some buyers. Banks move much slower than sellers, even when they do approve a loan. A seller is more likely to grant a loan request, approve a transaction, and close it as fast as the attorney can get the agreements prepared. Banks take anywhere from thirty to 120 days to approve and close a loan.

Another drawback to a bank loan is the high rejection rate for new acquisition loans - sometimes as much as 80%! There is also the possibility that the bankers will give the buyer negative feedback about the business, so that the buyer backs out.

A seller may also see tax advantages and profitability in seller financing, but these alone are not usually compelling reasons to offer seller financing. Capital gains from a small business sale can be reported in installments if seller financing is in place. This stretches out the capital gains tax into future years. Sellers, however, are usually not as worried about tax liabilities as they should be until after the sale has taken place.

Charging interest is also profitable, however, sellers usually believe they can get better interest rates from investments than from seller notes.

Why Should A Buyer Ask For Seller Financing?

Buying a business without seller financing is like buying a home without a home owner’s warranty. The seller note is a bond for performance. This is the major reason a buyer ought to ask for seller financing.

Beyond that, sellers have a strong motive to maintain the business goodwill if they have a remaining stake in its future ability to pay back the seller note. Without such an interest, sellers may choose to question the new owner’s skills and integrity.

After a sale takes place, the seller and buyer frequently disagree about the future of the business. This disagreement is a natural outgrowth of their different positions and can become serious. If a seller note is in place, the seller has a motive to temper any irritation caused by the buyer with forbearance.

Even with a non-compete agreement in place with the seller, the fact that the business owes the seller a major amount of money may change the nature of the seller’s attitude. Instead of being indifferent or quarrelsome, a seller who is still owed money is more likely to be solicitous and genuinely helpful.

How Is Seller Financing Usually Secured?

Seller financing can be as creative as sellers and buyers want to make it. Most sellers, however, like to add security provisions in as many forms as possible. This can encompass personal guarantees as well as specific collateral, stock pledges, life and disability insurance policies and even restrictions on how the business is run.

The most common requirement is for a personal guaranty by the buyer and the buyer’s spouse. Sellers expect this. If a buyer objects, sellers immediately question their seriousness. A personal guaranty is not a specific lien on any particular buyer asset, but is the guaranty that the buyer is placing all assets at risk as needed to satisfy the loan.

If the seller note payments are not made, the seller has to proceed with the long process of formal foreclosure. But, to satisfy the foreclosure, the seller will have access to all buyer assets. The spouse’s signature is required to prevent the transfer of assets to the spouse’s name to dilute the buyer’s net worth.

Specific collateral is the other common source of security. If no bank financing is involved, the seller wants a first mortgage on any real estate and first security agreements on all personal property involved in the sale. Sometimes, the seller will require that the buyer offer additional security in the form of additional mortgages and security agreements on real and personal property that the buyer owns. If a bank is involved, the seller must usually settle for second place in the line of secured creditors behind the bank.

A third type of security is the ’stock pledge.’ The buyer is required to form a corporation and give the seller the rights to ‘vote the stock’ in case of seller note default. This allows the seller a speedier solution than foreclosure. If the terms of the seller note are not met, the seller can vote to require that payments be made and can even vote to replace management of the business. This threat is usually enough to guarantee seller note payments are not missed.

Life and disability insurance policies on key members of the buyer’s new management team are less frequently used methods of adding security to a seller-financed transaction. Term life insurance is available at rates which are relatively low, so this is most common. Disability insurance is used less often because it is more expensive. The seller will typically want the business to pay for these policies up to the amount of the seller note. These policies stay in effect until the seller note is paid.

Restrictions on how the business is run are sometimes added. These restrictions can be in the form of requiring that the new owner preserve certain account or employment relationships, that certain operating ratios of the business are maintained, that the new owner’s pay is limited, or that other important operating benchmarks are met until the seller note is paid. Most sellers won’t use this form of adding to their own security as a creditor. They usually readily identify with buyer objections to any controls placed on the new business owner.

How Can Both Buyer and Seller Benefit?

If you are a buyer or seller and this all seems a bit intimidating to you, take heart! It’s just as intimidating for the other party! Don’t lose site of the fact that this is just a normal transaction between two parties who must each benefit if a deal is to be struck.

Buyers are just looking for a fair chance to buy a job and a reasonable return on investment. They usually have modest goals about what they need to earn for the job they are buying. They are usually fair about how they define what they need to receive as a return on investment for the business risks they are assuming.

Sellers are mostly just ordinary people who once bought or started a business and now want to sell it. They want to get the most they can, but they have learned to be practical. They are usually persuaded by fairness and reasonableness. If not that, then they are at least eventually persuaded by the reality of what’s possible.

If you are a buyer, seller financing can offer you better terms and a friendlier lender. You will be able to buy the business quicker because you won’t have to wait a month for the bank’s loan committee to meet. There are no loan processing or guarantee fees and, usually, no invasive lender controls or audits.

If you are a seller, I would advise an early commitment to seller financing. It will save you a lot of time. You’ll get a better price because you’ll see more buyer prospects. There are many more buyers who can afford to take a chance when the admission price is reasonable.

Seller financing, properly understood and employed, can really benefit both buyer and seller.

Mark Heitner, MD, MBA, the founder of MidMEx, is a psychiatrist, author and software developer. Many patients have been owners of mid-sized companies with a business for sale. MidMEx helps sellers by creating a supportive community of verified buyers and expert business appraisers, brokers and attorneys. Many resources are available to help owners sell the business.

Like everything else in life, the answers to these two questions are more complicated than most people expect. The principles of selecting a business appraiser, however, are fairly straight forward.

Both sellers and buyers need business appraisals. There are many varied reasons for needing to know what a business is worth. They range from selling to divorce, from tax planning to partnership disputes.

Chances are that you already need a business appraisal, or you wouldn’t be reading this article. And, you probably don’t know where to turn. Most people — even bankers, lawyers and accountants — don’t understand the ins and outs of choosing a business appraiser. Here are some suggestions to point you in the right direction.

Hire the Right Type of Appraiser

To appraise a business, you need a business appraiser. People get business appraisers confused with real estate appraisers and equipment appraisers. They are not the same.

Each of these major categories of appraisers (business, real estate and equipment) has its own separate discipline. There are even sub-disciplines and specialists within these three categories. Sometimes, an individual appraiser will wear more than one hat, especially in rural areas. However, when you need a business appraiser, you don’t want to hire a real estate or equipment appraiser by mistake.

The problem is that almost all businesses have equipment and many also have real estate. So, it can be difficult to determine what type of appraiser is appropriate. There are even times when you need more than one type of appraiser.

To determine the type of appraiser you need, start by asking yourself just what it is that you need to have appraised. Is it mostly equipment, mostly real estate, or are you in need of determining your business value above and beyond the equipment and real estate value?

Look for a ‘Professional Designation’

Let’s assume that you decide you need a business appraiser. You will want to hire the best business appraiser you can afford. There is, however, confusion in the marketplace about what credentials a business appraiser ought to have. The key is to look for the appraiser’s ‘professional designation.’

Business appraisers appear to have widely different backgrounds. To an outsider, it’s confusing. Different capabilities result from each appraiser’s unique experience and specialized educational background.

Most business appraisers will have a ‘professional designation.’ They will have initials after their names that indicate the designation(s) they have earned. The ones you are most likely to see (*1) that require serious study and actual appraisal experience and which are issued from reputable and recognized trade associations include:

Initials Which means: Earned from:
CBA Certified Business Appraiser Institute of Business Appraisers (IBA)
ASA Accredited Senior Appraiser American Society of Appraisers (ASA)
CPA/ABV Certified Public Accountant
Accredited in Business Valuation American Institute of Certified Public Accountants (AICPA)
CVA Certified Valuation Analyst National Association of Certified Valuation Analysts (NACVA)
CBV Chartered Business Valuator Canadian Institute of Chartered Business Valuators (CICBV)

(*1) We have excluded the rarer, most senior fellowship designations (FIBA and FASA) of the IBA and ASA. The industry gurus have these designations, usually as high honors for a distinguished career spent in business appraisal. We have also omitted the advanced “Business Valuator Accredited for Litigation (BVAL)” designation being introduced by the IBA this year.

Lack of a designation does not, by itself, indicate incompetence. A failure to have one of these designations probably means that your would-be appraiser has either just started working in the field or is, perhaps, not active on a full-time basis.

Particularly if your business is small, an experienced business broker can help you set an asking price without being a business appraiser. If you need a written report or anticipate litigation, though, you definitely need a business appraiser with a professional designation.

You need to ask more questions of the business appraiser who has never earned a designation. While none of these designations is easy to earn, a full-time business appraiser of any tenure will most likely have at least one such professional designation.

Understand the Costs

There are several levels of service that business appraisers offer. Business appraisal costs can range from $295 to $35,000 and more! An oral appraisal for $295 is a bargain! A written appraisal for $35,000 is, in most cases, a - ! The price you will have to pay is likely to be in between somewhere.

Discuss your needs with your advisors and with the appraisers you interview. Set the minimum level of report that you need. Ask each appraiser for a cost estimate for that type of minimum effort.

The oral appraisal is much more cost effective than the written report. You still get the appraiser’s professional conclusion without making the appraiser write the big report you may not need. Most appraisers will then give you credit for the oral appraisal cost against the cost of any written report needed later.

A simple oral appraisal can cost as little as $295. There is a business broker (with no appraisal designation) in my state doing oral appraisals for this amount. It’s the lowest figure I have ever heard of from anybody. As far as I know, he is accurate enough for setting the asking price of a small business. Accredited business appraisers will also offer to sell you their time based upon a minimum amount. $500 is a more typical minimum charge for this type of service.

Most accredited business appraisers charge at least $100 per hour and will need to spend at least two to four hours doing the minimal homework required for an oral appraisal. It also takes an hour or two to explain it to the client. An oral appraisal can take as little as three, or as many as six, hours for the appraiser to complete.

A written business appraisal is going to cost between $2,500 and $5,000 in most parts of the U.S. It will typically take an appraiser from 20 to 50 hours of work to complete the appraisal. It will run anywhere from 15 to over 100 pages in length.

The cost can easily increase to well over $10,000, depending upon the circumstances. The highest fee that I know of for a straight-forward report is from a national company that charges $35,000 for the same thing that most appraisers would do for $2,500 to $5,000. So, beware! Appraisal work can vary so much that you really need to get some estimates for your specific project.

If the reason for the appraisal is litigation, the costs can skyrocket when the interrogatories and depositions start. Appraisers usually charge a premium hourly rate for litigation preparation and testimony because the time it takes is always lengthy, totally unpredictable and out of their control. $150 to $250 per hour is a typical appraisal fee for such court battles. Under these circumstances, the appraisal fees can reach dizzying heights.

Keep in mind, that whenever you ask an appraiser to put an appraisal in writing or to testify on the record, you require the appraiser to enter a whole new level of preparation.

The public record in the U.S. court system is researchable and appraisers’ written opinions and testimony on the record must be precise and accurate. The smallest details have to be considered. The words have to be carefully chosen. Mistakes could prove in another case many years later! This type of preparation simply takes more time and costs the client more money.

Insist Upon Independence

The business appraiser’s opinion about the value of your business must be totally independent to maintain credibility. You need to know this, and to insist upon it, to preserve the value of the appraisal itself.

Business owners often incorrectly assume that the business appraiser they hire is, like their attorney, a ‘hired gun.’ If this were so, then the business appraiser’s opinion and report would be worthless and without credibility.

You do not want an appraiser who compromises independence and credibility by becoming your advocate. Many real estate appraisers did this in the late 1980s. They ‘pumped up’ the real estate projections so that the banks they worked for could make larger loans. The entire appraisal community was called to task for this practice after the real estate crash of the early 1990s. Both real estate and business appraisers are now more sensitive than ever to this issue.

Every business appraiser with a professional designation subscribes to a code of ethics which requires independence. The appraiser must not become the employee, agent or advocate of the client. A professional appraiser is hired only as an independent expert and is to be an advocate only of his/her own professional opinion.

Before you actually hire a business appraiser, you will be asked to read and sign an appraisal agreement or engagement letter. This agreement will clearly describe the independent nature of the appraiser’s opinion.
Any report you receive will also have this independence clearly described.

Use Common Sense

When selecting your business appraiser, use common sense. Determine what you need appraised and choose the right type of specialist. Learn about your business appraiser’s credentials. Don’t agree to any fee without checking around.

The business appraisal field is complicated. You can become distracted by the details. The process of selection, however, is as simple as taking time to interview several candidates and asking about their credentials, experience and costs.

If all you are trying to book is an oral appraisal, don’t expect the appraiser to meet with you personally before a commitment. You will have to make-do with a phone interview and a review of credentials and/or references the appraiser might be able to send to you. If you are choosing an appraiser for litigation, however, a free initial consultation is in order and most will accommodate an initial meeting without obligation.

You want a person who adapts to your unique situation. Their ability and willingness to listen is critical. Their ability to be timely may be important. You want the proper credentials. You want a person who can speak and write in a way you can understand.

The ideal business appraiser is a person who can deliver a reasonably accurate, understandable and clearly independent appraisal to you in a cost-effective and timely manner.

Mark Heitner, MD, MBA, the founder of MidMEx, is a psychiatrist, author and software developer. Many patients have been owners of mid-sized companies with a business for sale. MidMEx helps sellers by creating a supportive community of verified buyers and expert business appraisers, brokers and attorneys. Many resources are available to help owners sell the business.

Recently there has been a tremendous outcry in the Office community swirling around the rumour that Microsoft is removing Visual Basic for Applications from future versions of Office. Business managers are wondering if they should bother with Excel VBA training programs if the macro language is on its way out.

To paraphrase Mark Twain, the rumours of VBA’s death have been greatly exaggerated.

Office 2008 Ships Without VBA

The controversy began when the latest version of the software suite for the Macintosh, Office 2008, was released without VBA support.

The reasons for the change were rooted in the Macintosh itself. It has always been difficult to keep VBA compatible with the Macintosh processors. It would have required a great deal of effort to maintain support for something that is used by no other application than Office.

Instead, the Macintosh version of Office supports AppleScript for macro creation. The object models of the two languages are equivalent so it is a simple matter of changing syntax. However “simple” doesn’t mean “easy” and workbooks with large, complicated macros are going to be difficult to upgrade.

VBA Is Safe in Windows Office

Recently, The Register reported that Office 2009, the next Windows release of Office, would also not include VBA. This was an incorrect report and The Register has since retracted the statement, but not before creating an online firestorm.

The reasons for the removal of VBA from Mac Office are irrelevant to a Windows environment. Microsoft has stated definitively that VBA will be in Office 2009 and they have no plans to remove it from future versions.

Should VBA Be Deprecated?

There is good reason for Microsoft to consider abandoning VBA in favour of a more secure macro environment. VBA is one of the biggest security holes in the Office suite and Microsoft is working to protect Office from all vulnerabilities. However the balance between future needs and backward compatibility has always been a tough decision for software developers.

Although VBA may eventually be deprecated from the Windows Office environment, that doesn’t mean the macros well become obsolete. For example, Microsoft removed XLM macros in favour of VBA in 1995 and yet they still function even in Excel 2007.

If Microsoft introduces a new, more secure macro language in Office 2009, VBA will still be an available tool and that means there will always be a place for Excel VBA training in your organization.

Even if your business uses only Macs, VBA is still part of the picture. Most organizations don’t immediately upgrade so older versions of Office are in use well after they cease to be the leading edge. When you do upgrade to Office Mac 2008, you are going to need Excel VBA training to understand those obsolete macros so that you can rewrite them in AppleScript.

Author is a trainer with a Microsoft Office training company, the UK industry leader in its sector. For more information on Excel VBA Training, please visit
www.MicrosoftTraining.net

Managing cash flow has always been a bit of a headache for small businesses when taking care of their business banking. Customers often leave payments until the last minute or even overdue and this means that forward planning with money management is near on impossible.

Many small businesses leave financial planning and tax matters until the last minute because of this which can cause problems and incur financial penalties for the 35% of companies that miss deadlines through this practice.

However, there are things that the small business owner can do to simplify his business banking and even make themselves that little bit richer.

Changes being phased in as part of the new banking code governing small and medium enterprises (SME’s) mean that once a business cheque is paid you, you can be sure it will be cleared within six days. This will enable financial planning to run a little more smoothly and company bosses can rest assured that that cheque will not bounce.

Many businesses, particularly small ones, organise their business banking by setting up their current account and putting all finances through this with no further consideration as to how it can work for them. With a significant amount of money in a SME current account, it would be better to pay it into a business deposit account.

With a minimum deposit of 50,000, pounds interest rates are much more attractive and your money will grow without you having to touch it. Banks offer a fixed rate of interest for a fixed term on a ‘Term of Time’ deposit. The longer you can afford to have your money tied up for, the better the interest rate.

If you are not keen on having your money completely inaccessible for any length of time, try incorporating a ‘Restricted Access Deposit Account’ in your business banking. This will offer a better interest rate than your average current account and will allow you a limited amount of withdrawals before incurring penalty charges.

When it comes to SME’s, it is reported that only four of the high street banks hold up to 90% of the business banking accounts. With complicated systems for switching between banks and very little incentive to do so, competition has been weak. In fact, only 8% of small businesses had moved their business banking account in the last three years.

On top of this, price controls were set in place by the Competition Commission after investigations into the SME banking market in 2003.

An Office of Fair Trading study has revealed that there really needs to be more competition in the business banking market to ensure customers are getting the best deal with the choice to shop around.

Price controls are now to be lifted with banks still under an obligation to advertise and inform their account holders of any price changes. The process of switching your business banking to a different bank has also been made easier and banks will now have to work harder to keep your custom.

So, with all these new measures in place, business banking should be simpler, more competitive and more profitable.

Expert banker Catherine Harvey looks at some of the answers to business banking difficulties. To find out more please visit http://www.lloydstsbbusiness.com/accounts/index.asp/