The Often-Overlooked Importance of Leases
When buying or selling a business, it is critically important that you evaluate the lease. It is a strange phenomenon that otherwise savvy business people will treat leases as a secondary concern. However, problematic terms in a lease can literally force you to pack up a business and move. This would not only be a jarring experience, but a very costly one as well.
Finding a good location is of paramount importance to both the profile and profitability of your business. You may feel that there are more important issues when buying or selling a business. But by the end of this article, you’ll see the wisdom in placing a lease near the top of your “to evaluate” list.
There are three different kinds and types of leases: a new lease, an assignment lease and the sublease. All three of these options are most definitely different from one another and can potentially impact your business in different ways.
The New Lease
A new lease, as the name indicates, is the result of a lease that has expired. That means that the buyer must work with the landlord to establish a new lease. Buying a business only to discover that you don’t have a lease and the landlord isn’t interested in keeping your business at its current location is most definitely a shock that no business owners want to encounter. Buyers should be one-hundred percent certain that they have a lease in place before they buy a business.
Assignment of Lease
The second type of lease is the assignment of lease; this form of lease is quite common. It involves the buyer of a business being granted the use of the location where the business is currently located and operating. Through the assignment of the lease, the seller is able to assign the buyer the rights associated with the lease. Of course, it is important to keep in mind that the seller is not acting as the landlord, but instead, simply has the ability to assign the lease.
The Sublease
The third option for lease is the sublease. The sublease is basically a lease within a lease, and it comes with some important distinctions that must be understood. A sublease generally requires the permission of the landlord and that permission should not be viewed as a “foregone conclusion” or “automatic.”
The bottom line is that no new business owner wants to discover that their new business doesn’t have a home. There are an array of very important issues to work out when buying a business, and it is critically important that buyers never overlook what kind of lease is involved. A savvy seller will highlight what kind of lease they have, especially if the terms are favorable. But buyers should always be proactive and ask questions about the status of the lease and make certain that lease terms are clearly defined.
Copyright: Business Brokerage Press, Inc.
The post The Often-Overlooked Importance of Leases appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
Buying/Selling a Business: The External View
There is the oft-told story about Ray Kroc, the founder of McDonalds. Before he approached the McDonald brothers at their California hamburger restaurant, he spent quite a few days sitting in his car watching the business. Only when he was convinced that the business and the concept worked, did he make an offer that the brothers could not refuse. The rest, as they say, is history.
The point, however, for both buyer and seller, is that it is important for both to sit across the proverbial street and watch the business. Buyers will get a lot of important information. For example, the buyer will learn about the customer base. How many customers does the business serve? How often? When are customers served? What is the make-up of the customer base? What are the busy days and times?
The owner, as well, can sometimes gain new insights on his or her business by taking a look at the business from the perspective of a potential seller, by taking an “across the street look.”
Both owners and potential buyers can learn about the customer service, etc., by having a family member or close friend patronize the business.
Interestingly, these methods are now being used by business owners, franchisors and others. When used by these people, they are called mystery shoppers. They are increasingly being used by franchisors to check their franchisees on customer service and other operations of the business. Potential sellers might also want to have this service performed prior to putting their business up for sale.
Copyright: Business Brokerage Press, Inc.
The post Buying/Selling a Business: The External View appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
The Advantage of Buying an Existing Business
Most people think of starting a business from scratch, developing an idea, building a company from the ground up. Starting from scratch, however, has its disadvantages including – developing a customer base, marketing the business, hiring employees and creating cash flow … without any history or reputation to rely on.
To avoid these challenges, buying an existing business may prove to be the better solution. Buying an existing business has its advantages – including, but not limited to:
The Business Is Established.
An existing business is a known entity. It has an established and historical track record. It has a customer or client base, established vendors, and suppliers. It has a physical location with furniture, fixtures, and equipment in place. The term “turnkey operation” may be overused, but an existing business is just that, and more. New franchises may offer a so-called turnkey business opportunity, but it ends there. Start-ups are starting from scratch with all the disadvantages stated above.
The Business Has Existing Relationships.
In addition to the existing relationships with customers or clients, vendors, and suppliers, most businesses also have experienced employees who are valuable assets to the company. A buyer may already have established relationships with banks, insurance companies, printers, advertisers, professional advisors, etc., but if not – the existing business/owner does, and they can readily be transferred to the buyer as part of the acquisition.
The Business Isn’t “A Pig in a Poke”.
Starting a new business is just that: “a pig in a poke.” No matter how much research, time, and money you invest, there’s still a big risk in starting a business from scratch. An existing business has a financial track record along with established policies and procedures. A prospective buyer can see the financial history of a business – when sales are high and low, what the true expenses of the business are, and how much money an owner can make, and more. Also, in almost all cases, a seller is more than willing to stay on to teach and work with a new owner – sometimes free of charge.
An Existing Business Comes with A Price and Terms.
As stated above, an existing business has everything in place. The business is in operation and typically has an established selling price. Opening a new business from scratch comes with a great degree of uncertainty and can become a proverbial “money pit”. When purchasing an established business, a buyer knows exactly what he or she is getting for their money. In many cases, a seller is also willing to take a reasonable down payment and then finance the balance of the purchase price.
The “Unwritten” Guarantee.
By financing the purchase price, a seller is saying that he or she is confident that the business will be able to pay its bills, support the new owner, plus make any required payments to the seller.
Copyright: Business Brokerage Press, Inc.
monkeybusinessimages/BigStock.com
The post The Advantage of Buying an Existing Business appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
How Understanding Psychology Can Benefit Your Deals
We work closely with our clients to preserve the integrity of deals so that they have the best chance of a successful closing. An often-overlooked aspect of the process is understanding and embracing human psychology. In this article, we will explore some of the most common ways that psychology comes into play.
The Element of Time
It is critical that both buyers and sellers feel well prepared at every stage of the process. It is also essential that a certain momentum is established through every stage of the deal. When too many delays happen, this can start to derail deals.
Think about the Buyer and the Seller
For both parties, the buying or selling of a business is a life-changing event. For this reason, it is important that you invest the time to think about the point of view of the other people involved. No doubt, buying and selling can be stressful, so it’s important to take other people’s thoughts and feelings into account. You are not the only one who may be experiencing a little stress.
The Issue of Non-Active Partners
In some deals, non-active partners can pose challenges to finalizing deals. They often have different motivations than the seller who is in the role of running the business. In a situation where two sellers have divergent goals, it can pose a challenge to a deal. The best thing to do is to try to understand the point of view of each seller and help them both reach their respective goals.
Identify Influencers
Influencers and recommenders can have a powerful sway over both buyers and sellers. By influencers, this could mean accountants, lawyers, relatives, etc. In order for a deal to go through successfully, often these influencers must be identified and their viewpoints must be addressed. On a practical level, there are also other people involved that can interfere with a deal, such as landlords. It’s important to make sure that these individuals feel as though they will benefit from the success of the deal as well.
There are many moving parts needed to get to the finishing line. Human psychology plays a huge role in what decisions get made. It’s vitally important to take the time to consider what others involved in the deal might be thinking or doing. Your Business Broker or M&A Advisor will benefit you by getting to know all parties involved and taking the appropriate actions to ensure things are done to the satisfaction of all parties.
Copyright: Business Brokerage Press, Inc.
Wavebreak Media Ltd/BigStock.com
The post How Understanding Psychology Can Benefit Your Deals appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
How to Achieve High Buyer Success Rates
Both buyers and sellers have a lot of emotion wrapped up in their respective decisions. It’s completely natural to feel that way. Business Brokers and M&A Advisors can assist clients with their concerns and fears by giving them more information about how the sales process works and also discussing common pitfalls to avoid. In this article, we’ll go over some of the various issues impacting buyers. If you are able to anticipate potential issues that could interfere with the deal, you’ll be more likely to be able to overcome those issues.
The Initial Intake Process
Buyers should understand that they will need to sign an NDA and treat the non-disclosure process seriously. Brokers representing a seller will be requiring a good deal of information, including financial details, and often even your resume. So don’t be surprised when you’re asked for this information. It’s all a normal part of the process.
The Lending Process
It’s important to realize ahead of time that the lending process can be slow. It is also very common for lenders to ask for more and more information before the approval goes through. If this happens to you, don’t panic or worry. This too is a standard method of operation.
Working with Lawyers
While lawyers are obviously necessary in the process of buying and selling a business, they can also be a source of anxiety. In their efforts to protect their clients, they also can often kill a deal. Of course, get the facts and logistical information that you need from a lawyer, but always remember that lawyers and other business advisors are not the decision makers. If you’re buying a business, the decision is ultimately yours.
The Non-Binding Offer
A non-binding offer allows both the buyer and seller to walk away from a deal if terms cannot be agreed upon in a set amount of time. A non-binding offer shows the seller that the buyer is interested in acquiring the business, but this form of agreement isn’t legally binding. The benefit of the non-binding offer is that it allows discussions and negotiations to move forward.
The Due Diligence Process
The due diligence process is another aspect that allows the buyer to move forward, while simultaneously having protection. At this point, the buyer will receive confidential and sensitive information about a business, such as the financials, inventory, and legal matters. Buyers will also have the ability to conduct additional research and ask the sellers questions. Like the non-binding offer, the due diligence process also means that you have the right to walk away. It is important to have this step available so that buyers can make the most informed decisions possible.
Business brokers and M&A advisors are essential in order to help buyers find the best fit. We not only save our buyers time and energy, but we also help to ensure that the transaction goes as smoothly as possible.
Copyright: Business Brokerage Press, Inc.
The post How to Achieve High Buyer Success Rates appeared first on Deal Studio – Automate, accelerate and elevate your deal making.