The Top 3 Key Factors to Consider about Earnings

Two businesses could report the same numeric value for earnings but that doesn't always tell the whole story. As it turns out, there is far more to earnings than may initially meet the eye. While two businesses might have a similar sale price, that certainly doesn't mean that they are of equal value. In order to truly understand the value of a business, we must dig deeper and look at the three key factors of earnings. In this article, we'll explore each of these three key earning factors and explore quality of earnings, sustainability of earnings after acquisition and what is involved in the verification of information. Key Factor # 1 – Quality of Earnings Determining the quality of earnings is essential. In determining the quality of earnings, you'll want to figure out if earnings are, in fact, padded. Padded earnings come in the form of a large amount of “add backs” and one-time events. These factors can greatly change earnings. For example, a one-time event, such as a real … [Read more...]

The Deeper Significance of a Listing Agreement

Listing agreements are very common when it comes to selling a business. In order to sell a business using a business broker, a listing agreement is usually required. In this article, we will explore this essential agreement and why it is so critical. Signing a listing agreement legally authorizes the sale of a business. The fact is that signing a listing agreement serves to represent the end of ownership, which for many business owners, means heading into new territory. Quite often owning a business is more than “owning a business,” as the business represented a dream and/or a way of life. Walking away from the dream or lifestyle represents a significant change. For many owners this is the end of a dream. It is not uncommon for many business owners to have started a business from “scratch,” and it is also only human to feel at least somewhat attached to the creation. Phrased another way, walking away from a business that one has worked on and cared for is often easier said than … [Read more...]

Are You Sure Your Deal is Completed?

Are you sure your deal is complete? When it comes to your deal being completed, having a signed Letter of Intent is great. While everything may seem as though it is moving along just fine, it is vital to remember that the deal isn't done until many boxes have been checked. The due diligence process should never be overlooked. It is during due diligence that a buyer truly decides whether or not to move forward with a given deal. Depending on what is discovered, a buyer may want to renegotiate the price or even withdraw from the deal altogether. In short, it is key that both sides in the transaction understand the importance of the due diligence process. Stanley Foster Reed in his book, The Art of M&A, wrote, “The basic function of due diligence is to assess the benefits and liabilities of a proposed acquisition by inquiring into all relevant aspects of the past, present, and predictable future of the business to be purchased.” Before the due diligence process begins, … [Read more...]

Gaining a Better Understanding of Leases

Gaining a Better Understanding of Leases Leases can, and do, play a significant role in the buying or selling of businesses. It can be easy to overlook the topic of leases when focusing on the higher profile particulars of a business. However, leases are a common feature of many businesses and simply can't be ignored. Leases and Working with Your Attorney Whenever a small business is sold, it is common that leases play a major role. In general, there are three different types of leasing arrangements. (If you have any questions about your lease, then you should consult with your attorney. Please note that the advice contained in this article shouldn't be used as legal advice.) Three Different Lease Options In the next section, we will examine three of the most common types of leases. The sub-lease, new lease and assignment of lease all function in different ways. It is important to note that each of these three classes of leases can have differing complicating factors, … [Read more...]

What Should Be in Your Partnership Agreement

What Should Be in Your Partnership Agreement? Partnership agreements are essential business documents, the importance of which is difficult to overstate. No matter whether your business partner is essentially a stranger or a lifelong friend, it is prudent to have a written partnership agreement.  What Should Be in Your Partnership Agreement? A good partnership agreement clearly outlines all rights and responsibilities and serves as an essential tool for dealing with fights, disagreements and unforeseen problems. With the right documentation, you can identify and eliminate a wide range of potential headaches and problems before your business even starts. Determining the Share of Profits, Regular Draw, Contributing Cash and More Partnership agreements will also outline the share of profits that each partner takes. Other important issues that a partnership agreement should address is determining whether or not each partner gets a regular draw. Invest considerable time to the … [Read more...]

Can I Buy a Business With No Collateral

Can I Buy a Business With No Collateral? At first glance the idea of buying a business with no collateral may seem impossible, but in reality it can be done. Let's examine your options. When it comes to achieving this goal, your greatest assets are an open mind and a commitment to hanging in there despite the odds.  Can I Buy a Business With No Collateral? The Small Business Association's 7 (a) Program is Your Friend One possible avenue for buying a business with zero collateral is to opt for the SBA's 7 (a) program, which works to incentivize the bank to make a loan to a prospective buyer. Under this program, the SBA guarantees 75%. The buyer still has to put in 25%; however, this money doesn't necessarily have to be his or her money. This is where things really get interesting. The cash that the buyer uses can come from investors or even be a gift from parents in the case of young buyers. These possibilities all fall within the SBA's guidelines. Look into Seller … [Read more...]

Should You Become a Business Owner?

Should You Become a Business Owner? While being a business owner may in the end not be for everyone, there is no denying the great rewards that come to business owners. So should you buy a business of your own? Let's take a moment and outline the diverse benefits of owning a business and help you decide whether or not this path is right for you.  Should You Become a Business Owner? Do You Want More Control? A key reason that so many business savvy people opt for owning a business is that it offers a high level of control. In particular, business owners are in control of their own destiny. If you have ever wished that you had more control over your life and decisions, then owning a business or franchise may be for you. Owning a business allows you to chart your own course. You can hire employees to reduce your workload once the business is successful and, in the process, free up time to spend doing whatever you like. This is something that you can never hope to achieve … [Read more...]

Three Overlooked Areas to Investigate Before Buying

Three Overlooked Areas to Investigate Before Buying: Before you jump in and buy any business, you'll want to do your due diligence. Buying a business is no time to make assumptions or simply wing it. The only prudent course is to carefully investigate any business before buying, as the consequences of not doing so can in fact be rather dire. Let's take a quick look at the three top overlooked areas to investigate before signing on the dotted line and buying a business.   Three Overlooked Areas to Investigate Before Buying: 1. Retirement Plans Many buyers forget all about retirement plans when investigating a business prior to purchase. However, a failure to examine what regulations have been put into place could spell out disaster. For this reason, you'll want to make certain that the business's qualified and non-qualified retirement plans are up to date with the Department of Labor. There can be many surprises when you buy a business, but this is one you want to avoid. 2. … [Read more...]

What is EBITDA and Why is it Relevant to You?

What is EBITDA and Why is it Relevant to You? If you've heard the term EBITDA thrown around and not truly understood what it means, now is the time to take a closer look, as it can be used to determine the value of your business. That stated, there are some issues that one has to keep in mind while using this revenue calculation. Here is a closer look at the EBITDA and how best to proceed in using it.  What is EBITDA and Why is it Relevant to You? EBITDA is an acronym for earnings before interest, taxes, depreciation and amortization. It can be used to compare the financial strength of two different companies. That stated, many people don't feel that EBITDA should be given the importance that is frequently attributed to it. Divided Opinion on EBITDA If there is disagreement on EBITDA being able to determine the value of a business, then why is it used so often? This calculation's somewhat ubiquitous nature is due, in part, to the fact that EBITDA takes a very complicated … [Read more...]

5 Tips for Buyers of International Businesses

5 Tips for Buyers of International Businesses: The decision to buy an international business is no doubt quite serious. There are numerous factors that must be taken into consideration when deciding whether or not an international business purchase is the right move. Let's take a closer look.   5 Tips for Buyers of International Businesses: Tip #1 – Relocating Vs. Hiring a Manager Buying an international business can also mean a substantial life change. Before jumping into the process, it is critical that you know whether you will be relocating or hiring a manager to run your newly acquired business. Obviously, owning a business is a substantial responsibility and you'll want to ensure that you know exactly what is going on with your new acquisition. Sometimes that means actually being there. The bottom line is that you will either have to relocate or hire a manager. Tip #2 – Regulations Understanding regulations, taxes and customs are another must for buyers of … [Read more...]