Making the Most Out of Your Confidentiality Agreements
Great deals can quickly be derailed when confidentiality agreements are not properly used and observed. The number of headaches that can occur due to a failure to follow the requirements of a confidentiality agreement are rather extensive. Whether it is employees discovering the potential sale, to the loss of key customers or even alerting a competitor that your business is for sale, there is no end to the headaches that can arise when a confidentiality agreement is not in place or adhered to. Simply stated, adhering to confidentiality is one of the most important aspects of the entire sales process.
Thanks to a well-constructed confidentiality agreement, sellers can enjoy protection from the disclosure of critical and confidential information during the sales process. While confidential agreements may have originated as a way to safeguard against prospective buyers revealing information about a seller’s business, these agreements have evolved to consider numerous seller concerns.
A good confidentiality agreement helps to protect all sorts of important details that may be revealed during the sales process including trade secrets and proprietary information. It can also outline the fact that a prospective buyer will not attempt to hire away key employees.
Considering the importance of a confidentiality agreement, it is well worth the time to create an agreement that covers all key areas. Everything from how confidential information should be shared to how breaches in confidentiality should be remedied must be addressed by a confidentiality agreement. It is not prudent to cut corners to save money and time when drafting a confidentiality agreement, as it is likely one of the most important business documents your business will ever create.
Just as no two businesses are the same, this fact holds true for the content of important legal documents. The sale of every business is a unique situation, and for that reason every confidentiality agreement must be tailored to fit the precise circumstances of the business.
Business brokers and M&A advisors are experts in the buying and selling of businesses. Part of that expertise extends to the creation and execution of confidentiality agreements, which are also sometimes referred to as non-disclosure agreements.
At the end of the day, the last thing any business owner wants is for key information regarding their business to be revealed. Working closely with a brokerage professional is an important way for sellers to safeguard their confidentiality throughout the process.
Copyright: Business Brokerage Press, Inc.
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Employees and the Long-Term Success of Your Business
There can be no doubt that the quality of your employees will directly impact the quality of your business and its long-term value. Employee quality and the success of your business are intrinsically linked. Unfortunately, far too many entrepreneurs learn this lesson too late, and their businesses suffer as a consequence. Employees who do not feel invested in a business and its long-term growth and success can damage your business on a daily basis.
The quality of employees stands as one of the most important factors that entrepreneurs should consider before buying a business. With this fact in mind, it is critically important that business owners do everything possible to put together a great team.
It’s important to keep in mind that your employees can be either an asset or a detriment to the success of your business. A dedicated and knowledgeable team of employees will help boost not only a business’s bottom line, but also its value when it comes time to sell.
Along similar lines, if you’re considering buying a business, you should take a careful look at how much work the current owner is responsible for and how well they are supported by the staff. If the owner is shouldering too much work and not relying on capable employees, then owner burnout can be a real possibility. Remember that the amount of work the current owner is doing could be what you’re facing down the line.
It is also important to consider the loyalty of employees and how likely it is that they may quit and join a competitor. Potential buyers should carefully evaluate employees and how they operate before signing on the dotted line.
At the end of the day, most businesses are only as strong as their employees and management. It should come as no surprise that employees who don’t feel invested and are just doing the “bare minimum” to not get fired are not the kind of employees that help build a successful business.
A successful business is one with longevity, and the future of a business depends on employees that care about the business. In doing so, they will work to ensure customer or client satisfaction and loyalty. There are many variables that you must consider before deciding to buy a business, but buyers should never overlook the strength of employees.
Copyright: Business Brokerage Press, Inc.
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How Can You Find the Ideal Buyer for Your Business?
In the day-to-day routine of running your business, it is easy to forget that eventually the day will come when you need to sell. The last thing that any business owner wishes to discover is that they are ready to exit, but they are hopelessly underprepared. One of the key ways to prevent this from happening is to prepare for the sale of your business as far in the future as possible.
1. Always Look Ahead to the Future
Many experts consider not having an exit strategy to be a risky endeavor.
So, what are some of the most important steps that business owners need in preparation for selling their business? The first step is thinking about your exit strategy on the day you found your company.
If you build your business while keeping an eye on the fact that you will one day be seeking to be acquired, then you will adjust your plans and strategies accordingly. All of this means understanding the market and knowing exactly what prospective buyers want from a business. In other words, the sale of your business should be built into its very foundation.
2. Think About Prospective Buyers
There are a variety of reasons why acquisitions occur. For example, sometimes it is an entrepreneur looking for opportunities, and sometimes it is a business in the same industry that is looking to expand. The more you can learn about the motivating factors that cause individuals and entities to buy businesses, the better positioned you will be.
3. Constantly Network
Another good idea is to constantly network and make connections. The more people you know, the better off you will be. You may be running and developing your business for decades. During this time, get to know as many people in the industry as possible.
While it may be necessary to modify the exit strategy in the future, having one in place serves to create an invaluable framework for when the time comes to sell. A savvy business owner will have a well thought out exit strategy in place at the very beginning.
When you work with a business broker or M&A advisor, you will also benefit from their professional connections and years of networking with buyers. Selling a business is all about preparation, making connections, and finding the right advisors and partners.
Copyright: Business Brokerage Press, Inc.
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What Are the Financial Considerations of Seller Financing?
Deciding how the purchase of a business should be structured is no small task. If you are planning to help finance the sale of your business, you’ll want to tackle this issue very early in the sale process. When it comes to small business sales, a high percentage of deals include some seller financing. Here are some of the most important things you’ll want to think about beforehand.
Interest Rates
The simple fact is that interest rates cannot be overlooked. In an era where interest rates continue to climb, the future rates are far from certain. That’s why it is critically important to factor in interest rates to your buying decision. In the event that you find a buyer, you’ll need to decide what is the acceptable interest rate for a seller financed sale.
The Buyer and Debt
It is also quite important to know whether or not a buyer will assume any long-term debt or secured debt. Early in the process, you’ll want to address this topic and come to a conclusion regarding the optimal path forward. If there are favorable terms, this usually means a higher sales price.
Taxes
There will, of course, be tax implications to the sale. It is only prudent to work well in advance with a tax professional, to understand every tax implication. You should gain an understanding of how the taxes will work long before a sale takes place. You’ll also want to talk to an experienced attorney to understand the legal implications of seller financing.
Without a doubt, there will be tax implications that affect your sale. That’s why you’ll need to understand what those implications are and what it will mean for you.
Additional Costs
Just as taxes can throw a curveball into the mix, this fact holds true for additional costs. You’ll want to consider if there are any unsecured creditors that still need to be paid in full. Closing costs are another commonly overlooked issue. It is prudent to determine whether or not the seller plans on paying for part of the closing costs. Closing costs, just like taxes, can be sizable and should not be overlooked.
Knowing Your Lowest Price
Before walking into any negotiation, you need to know what is your lowest price. It can take months or even years for a business to sell. You need to know what your lowest price is for when the day comes that an offer is made.
Working with a business broker or M&A advisor is a savvy way to address all of these issues well in advance. There are many factors that go into the sale of a business and having an experienced professional by your side is simply invaluable.
Copyright: Business Brokerage Press, Inc.
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Prepare for Your Exit When You Launch Your Business
You’ll often hear business brokers and M&A advisors say that the right time to prepare for your exit is when you first launch. By that they mean that it’s important to always be thinking about how to optimize your business so that it is streamlined for an eventual sale. Some of the savviest entrepreneurs and business owners are also thinking about partnering with those who will ultimately want to buy their businesses, even if the prospective sale of their business is many years away. It is easy to see why so many top-level entrepreneurs feel this way, as it is prudent to plan for the outcome you want from the very beginning.
It Pays to Think Ahead
The simple fact is that in most endeavors in life, it pays to think ahead. Selling a business is no exception. The rate of businesses that are being acquired is rising significantly. In a recent study at the University of Maryland, researchers found that in the last three decades the rate of venture capital-backed startups that have been acquired has soared from 10% to 90%.[1]
Anyone building a business should build that company in such a way that it will be appealing for acquisition down the line. Thinking about who the ideal buyer might be will help you to properly shape your business operations.
Many owners have an eye on businesses that work to serve similar markets. You may also want to think about how your product and your business model work to address an overlooked need within the existing customer base of that larger entity. If you can clearly show that acquiring your company will instantly lead to new business, then much of the battle is already won. By finding customers that a business is overlooking, you have positioned your business to be an attractive target for acquisition.
Have a Success Oriented Strategy from Day One
In short, company founders must understand their customer, their product, and why a customer will want and need what they offer. Being able to attract the right talent is also important. If a successful staff is firmly in place, your business will be far more attractive to potential buyers.
Understanding from day one the path of your startup and where you want to go will make all the difference in your success. It is important to remember that it is much easier to build an acquisition friendly company from day one than it is to retrofit your existing company years down the road.
1. The Great Startup Sellout and the Rise of Oligopoly
Copyright: Business Brokerage Press, Inc.
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