I have been asked a thousand times what makes a good listing? My answer is simple – I want a business with potential to grow, that has three years of rising sales and profits, has perfect financial records and a highly motivated seller. If you can’t find one of them, you might take some listings that don’t quite check all the boxes.
What Makes a Business “Sellable”?
It might be easier to list the things that can make a business not sellable. We have all run into these conditions – sloppy financials, lack of customer diversity, too much family working in the business. The list is long. At the top of the list are seller motivation and seller expectations. Many of the problems can be overcome if the seller is truly motivated and his or her expectations are realistic.
So many people will only sell one business in their life. Because of our association with real estate, many view selling a business like selling a house. It is not. While we share the same license, we are not real estate agents. We are business intermediaries. Our roles are different.
It is the role of the intermediary to set expectations. You are in charge of that! In my experience, expectations must be set before taking the listing. I recently closed a transaction that I worked on for three and a half years. The sellers would not budge on their price (50% above my initial valuation). Under no circumstances would they hold a seller note. They had to have a buyer with direct industry experience. They also had no financials when I met them 3.5 years ago. I was able to keep the listing and achieve success because the seller’s expectations were set. I told them at the beginning this would not be quick. I educated them about the valuation and what was driving that number. I connected them with an accountant and told them to keep running the business. If you continue to grow the business, it will eventually be worth your asking price. They did and it worked.
Usually, the biggest expectation we deal with is price. If my valuation says $500k and the seller wants $1.5 mil, the meeting is over – call me if you need my help. I think it would be unethical – as a professional – to take a listing far above my valuation. By taking that listing you are telling the seller it is possible. That feels like misleading to me.
You can make your listings more sellable. Set reasonable expectations at the beginning. Dig in deep and find the issues that could be a deal stopper. Be prepared to explain the issues and propose solutions. Stay in close contact with your sellers. Update financials monthly. They need to show growth even if it is modest. The trend (direction) is critical.
Your knowledge and training brings a lot of value to the transaction. They can’t do this without us.
Happy selling.
About John W. Hoyt Jr.
Owner
Goldcrest Commercial
Goldcrest Commercial is owned and managed by John Hoyt, Licensed Real Estate Broker. John was first licensed in California in 1975 and obtained a Florida license in 1987. In 1995 John acquired AAA Business Brokers and merged with Goldcrest in 2001. In prior careers John was a Commercial Division Manager for a large national real estate firm overseeing the activities of 10 or more commercial and business brokers. While working as a lender John originated and closed over 500 loans – many to small business owners.
Since joining the industry John has served on State and local Boards of Directors for both Florida Business Brokers Association (FBBA) and Business Brokers of Florida (BBF). He has been recognized as a million dollar plus producer multiple times since 1996 and was recognized as Top Producer Statewide in 2006. John has owned and operated businesses in both the manufacturing and service industries.
To Co-Broke or Not to Co-Broke, Which Will It Be?
Suppose it were possible to simplify what we do as business intermediaries. In that case, we would be best described as trusted advisors or confidential facilitators between the buyers and sellers of a business deal. One of our many objectives is to help business owners sell their businesses for the best possible price while ensuring buyers get a good deal. In some cases, however, a single intermediary may find it challenging to provide their clients with the best possible service. This is where co-brokering comes in.
I understand that co-brokering is not a popular idea for many intermediaries throughout the world. However, for the Business Brokers of Florida® (BBF) is not only a governing rule of our association; it is a proven fact that co-brokering completes more deals for buyers and sellers. Additionally, this is confirmed in the numbers where almost thirty percent of the deals completed in the BBF in 2022 were co-brokered between our members.
For the unknowing public, co-brokering is a process where two or more intermediaries work together to facilitate the sale of a business. The benefits of co-brokering are numerous, and they can help both intermediaries and their principals. One of the main benefits of co-brokering is that it allows intermediaries to pool their resources and knowledge to provide better service to their buyers or sellers. For example, if one broker has more experience in a particular industry, they can share their expertise with their co-broker, allowing them to provide better advice to their principals.
Another benefit of co-brokering is that it will allow intermediaries to reach a wider audience. However, this mindset could be overlooked by an intermediary who is more concerned about splitting the deal. By working with another intermediary, they can tap into a larger network of contacts and potentially reach more potential buyers. This could be particularly useful for an intermediary who may not have a strong presence in a particular geographic area or industry. This is also an added benefit when an intermediary doesn’t have a specific type of business for a buyer in their inventory, allowing options of co-brokering other firms listings.
Co-brokering can also help intermediaries manage their workload. As many of us have experienced, selling a business can be time-consuming, and it can be challenging for a single intermediary to manage all aspects of the transaction. By working with another intermediary, they can share the workload, allowing each intermediary to focus on their strengths and provide better service to their buyers and sellers.
Additionally, co-brokering can help brokers mitigate risk. Selling a business involves a significant amount of money and many legal and financial factors that are to be considered. By working with another broker, brokers can ensure that they follow all necessary procedures and that their principals and the firms, are protected throughout the process.
Co-brokering can help brokers build stronger relationships with buyers and sellers. By working with another intermediary to sell their business, buyers and sellers may feel they are getting more attention and support. It can help build trust between the principals and intermediaries, leading to future business opportunities.
In conclusion, co-brokering can be a highly beneficial arrangement for business intermediaries. It allows them to pool their resources and knowledge, reach a wider audience, manage their workload, mitigate risk, and build stronger buyer/seller relationships. By working together, intermediaries can provide better service, ensuring buyers and sellers get the best possible deal.
To all my fellow business intermediaries out there, do you co-broke? If not, why?
Joe Shemansky CBI, M&AMI, CM&AP
Chairman
Business Brokers of Florida
Why You Should Address Your Company’s Weaknesses Head On
By spotting your company’s weaknesses you can take steps to remedy them and improve operations, however, this is only the beginning of the benefits derived from spotting these types of issues. You should be the world’s foremost expert on your company and the investment that it represents. Identifying and repairing any negative issues will pay dividends both today and potentially for the life of your company.
There are many areas of weakness that companies may experience. In this article, we’ll look at a few of the key areas that many share
Workforce Issues
An area of business weakness that is receiving a good deal of well-deserved attention in recent years are problems related to the workforce. Workforce headaches are varying between industries and sectors. It has been well documented that young people are not entering trades in the numbers needed to replace retiring workers. This is a fact that is causing significant headaches for many businesses. An aging workforce will impact some businesses more significantly than others. Understanding the labor situation as it pertains to your business is a critical move for any business owner.
Overreliance
Being overly reliant on any one supplier, customer, product line or even employee or group of employees, may have an impact on your business in a number of ways. Supply chain interruptions, disruption to income and cash flows, labor shortages and a diminishment in the perceived value of your business by future buyers are just a few of the issues you may encounter. Diversification isn’t just a smart way to handle one’s portfolio, but is also a smart way to address your business plan. If your business is overly reliant in any one area, it is a good idea to measure the risk vs. reward and seek out ways to diversify if necessary. Your business will be stronger and worth more in the end.
General Industry Decline
Nothing lasts forever. Once upon a time, the country’s landscape was littered with Blockbuster Videos, but today Blockbuster Video has joined the vast and great technological dinosaurs of the past.
There is no escaping the fact that industries change. Being on the tail end of that change without a transition plan to meet new and potentially more profitable opportunities is not a good place to be. One of your key jobs as a business owner is to identify issues and problems within your industry and adapt, ideally ahead of the competition. Part of this adaptation may ultimately include knowing when it is time to exit your business entirely.
Business brokers and M&A advisors specialize in helping business owners spot weaknesses and then strategize to make significant improvements. The world of business is changing and evolving faster than ever before. Engaging with experienced advisors who can help you navigate this flurry of ongoing change could spell the difference between success and failure; while greatly improving the value of your business, rewarding you handsomely in your retirement.
Copyright: Business Brokerage Press, Inc.
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Getting the Most out of a Partnership Agreement
As an entrepreneur and business owner, your partnership agreement stands as one of the most important business documents you will sign. Business structures can be as complicated as the people that create those businesses. Quite often, business owners create businesses with friends or loved ones and, as a result, will not have a proper partnership agreement in place.
It’s important to note that not having a partnership agreement in place is a mistake. There are too many unknowns and too many variables not to have this essential document. You need a legal framework to protect your business from the vast array of potential pitfalls that may have an impact.
The Key Elements of a Solid Partnership Agreement
At the top of the list of every partnership agreement is a clear outline and understanding of rights and responsibilities. All too often partnerships run into trouble as the rights and responsibilities of the parties aren’t clearly thought through and then outlined in a partnership agreement.
Mapping out rights and responsibilities will help eliminate problems in the future. A partnership agreement should be seen as a serious legal document. As such, it is prudent to work with an experienced lawyer in the area of partnership agreements.
What Every Partnership Agreement Should Address
At the top of the list, every partnership agreement should address how money is to be distributed and which partner(s) will receive a draw. The issue of who will contribute funds so that the business becomes operational should be very plainly spelled out in the partnership agreement. A failure to address this issue could end the business before it even gets off the ground.
Issues such as what percentage each partner will receive and who will be in charge are two additional key areas that should never be overlooked. In terms of issues that are frequently overlooked by those forming a partnership, it is common for those forming a partnership to overlook long-term issues such as what is to happen in the event of the death of a partner, what steps are to be taken to bring in a new partner, and how business decisions are made.
Without a solid partnership agreement in place, business owners may find themselves in the last place they want to be, namely, court. A lengthy court battle can weaken your business in a very wide range of ways including a hit to company morale as well as the loss of key customers and employees. A legal battle between business partners can destroy what would otherwise be a healthy and thriving business.
The time you invest in the creation of a business agreement is time and money well spent. In fact, it is safe to state that a business agreement might just turn out to be one of the greatest investments you ever make.
Copyright: Business Brokerage Press, Inc.
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The Tremendous Importance of Maintaining Confidentiality When Selling Any Business
When the time comes to sell a business, any business, confidentiality must be placed at the top of the list. One of the quickest ways to damage any business that is for sale is for confidentiality to be breached. Once confidentiality is breached it can be difficult, or even impossible, to contain or repair the damage. No business in any industry is exempt from this rule.
It is no accident that savvy and experienced entrepreneurs, business owners, attorneys, accountants and business brokers are dedicated to maintaining seller confidentiality. A single breach of confidentiality can potentially destroy a business or, at the very least, negatively impact its value. A breach of confidentiality, even if it doesn’t destroy a business, can tarnish its reputation and ultimately deflate its value.
When it becomes public that a business is for sale, there are many potential negative ramifications. Key employees, customers and suppliers may all think that it is time to begin looking elsewhere. The loss of even one key employee, customer or supplier could have significant ramifications for your business. Employees may worry about the stability of their position and begin looking for employment elsewhere. Worst of all, employees may take their knowledge and expertise to a competitor and, in the process, weaken your business.
Employees in management positions may leave and, in the process, create a massive hole in your organization that will be difficult to fill, especially in a timely manner. Key customers and suppliers, worried about disruptions, may take their business elsewhere. All of these variables can combine to negatively impact your bottom line and potentially decrease the value of your business overnight.
As if all of this wasn’t bad enough, there is the very real problem of the competition. If the competition discovers that your business is for sale, they may share this information with your key suppliers and customers. Your competitors may become very aggressive in their quest to steal your customers and take advantage of the situation.
A breach of confidentiality can severely hamper your ability to sell your business. Business brokers and M&A advisors are experts at maintaining confidentiality through all stages of the sales process. We do more than simply have prospective buyers sign confidentiality agreements. Experienced business brokerage professionals will vet potential buyers to ensure that they are not just window shopping or gathering information, but are instead, truly serious about buying your business.
Working on your behalf to ensure that a prospective buyer is a serious buyer is one of the best ways that we can protect confidentiality. The process of selling a business is a complex one, and at its foundation is taking steps to maintain confidentiality.
Copyright: Business Brokerage Press, Inc.
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