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When Buying a Business -- Understand the Seller's Position

In the purchase of a business, the end result of negotiation is not winning an argument, but reaching a mutually beneficial agreement between buyer and seller. The most common mistake people make in negotiation is thinking that their goal is to win at the expense of the other party. Adopting this win-lose approach almost always results in a failed, or less than optimal, negotiation. A win-win approach, where each party gets its needs met, is the most successful way to negotiate. To better accomplish this end, the prudent business Buyer should understand the Seller’s position, establish a harmonious relationship with the Seller, and pave the way for negotiations which will lead to the successful purchase of a business. Understanding the Seller's Position The buyer should seek to understand the Seller’s position as well as those circumstances which lead to the decision to sell. This is the first step in developing a sincere respect for the Seller’s objectives, which builds a found ...

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Selling a Business in Houston -- Surfs Up!

Proper planning for the sale of your business is key to an enjoyable sail into your next adventure in life.

Surfs up! A wave of business buyers has flooded the Houston marketplace looking to take part in its promising future economic growth. Houston is booming and is ranked #3 best Metro Area for business.

Texas is home to almost one million privately-held small businesses with revenues under $100 million and less than 500 employees. As the largest city in Texas, Houston is home to one quarter of those small businesses (Source: InfoUSA) and it is estimated that less than 50 percent have had a change in ownership in the last 15 years. For many of these business owners, developing and executing a timely exit strategy is key to achieving the rewarding outcome they expect.

As 80 million baby boomers around the country move toward retirement, more than 7 million business owners are expected to exit their businesses over the next 10 to 15 years.

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The Closing Table

THE SUCCESSFUL CLOSINGNow that all of the contingencies have been satisfied and removed from the Standard EarnestMoney Contract, it’s time to draft the final closing documents. These documents may beprepared by the Seller’s attorney, Buyer’s attorney or a third party attorney employed by thebusiness broker.The basic documents associated with the transfer of a small business generally include:The Bill of SaleThe Purchase/Sales AgreementThe Promissory NoteThe Security AgreementsThe UCC Financing StatementsThe Bulk Seals AffidavitsThe Board of Director’s (authorization to sell) ResolutionReal Estate Documentation (if appropriate)Lease AgreementsOther Side Bar AgreementsClosing Statements (prepared by broker and/or title company)Based on the agreement between the parties, as stated in the Standard Earnest Money Contract,the above closing documents are prepared and furnished to all parties (and their attorneys)several days prior to closing.Any other minor changes are made and agreed to prior to closing. There shou ...

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Buying A Business -- A Due Diligence Checklist

Due Diligence is the last phase in the buying process. This is the time when you will have access to all of the company's books, records and files. You will have a pre-determined period of time to investigate the information that you have been given so far to verify its accuracy. The goal of an effective due diligence is to validate what the seller has represented and to allow you adequate time to review all of the other key issues of the business. The following is a checklist of information and documents that a buyer may wish to review during the due diligence period. Organization and Good Standing Accounting and Financial Information Physical Assets Real Estate Intellectual Property Employees and Benefits Licenses and Permits Environmental Issues Reports, Studies, Appraisals Taxes Contracts, Agreements, Leases Product or Service Lines Customer Information Litigation Insurance Coverage Vendors, Suppliers, & Profe ...

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Small Business Owners: When is it Time to Sell Your Business?

The Answer -- in a Nutshell: The best time to sell a business is when the business has upward trending revenues, when the industry is in an upturn, when the economy is strong, when there is a multitude of buyers looking for business acquisitions, and when interest rates are low. There are many questions that need to be answered before an informed decision can be made. Is selling the business your best alternative? Will one of the kids want to take over the business? Timing is everything. Is now the right time? You figure that you don't have to sell or decide right now. You are quite busy so maybe you will look into it after.....or maybe tomorrow.....or next year...... Facing the issue of succession or continuation of one’s business is not addressed with much enthusiasm by the average small business owner. But only one of three eventual fates exist for a business: Transfer to family, employee, customer, or vendor Sell to an outsider Close down Although the overwhelming majo ...

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Who Would Be the Buyer of Your Small Business? Part 2

Who are the Buyers for Privately-Held Companies and What is Their Acquisition Criteria? Understanding who the buyers are and their acquisition criteria will enable business owners to be better prepared when the time comes to sell. Unrealistic expectations of value and factors that drive value result in many business owners being unable to sell their business. When a business is on the market for a long period of time, pre-disclosure to employees, customers and suppliers can be detrimental to the business. Alternatively, proper valuation, packaging and presentation to the most likely buyers enhances the probability of a sale within a reasonable period of time. Already addressed in Part 1 of this subject was the Individual Buyer Category. Discussed here will be the Financial Buyer (sometimes called investment buyer) and Synergistic Buyer categories. Each have specific identifiable acquisition criteria. THE FINANCIAL BUYER There are approximately 200 well-known financial or investment buyers ...

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Who Would Be the Buyer of Your Small Business? Part 1

The Individual Buyer Category represents the largest number of prospective buyers for small to midsize privately-held businesses. Understanding who the buyers are and their acquisition criteria will enable business owners to be better prepared when the time comes to sell. The individual buyer category encompasses a variety of buyer types that include wealthy individuals, corporate executives, engineers and salespeople working for large firms, and immigrants entrepreneurs who have recently moved to the US. There are two other buyer categories that will be discussed in a future post: Financial Buyers (sometimes called investment buyers) and Synergistic buyers. Each buyer category differs in their purpose for making an acquisition and the types of businesses they target. Wealthy Individuals often are people who have taken early retirement from corporate America and after a brief period of being nonproductive decide to get into their own business. They tend to acquire midsize companies grossing in excess of ...

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Small Business Owners: Prequalify Your Business for a SBA Loan Early in the Selling Process

Why? Because SBA prequalified businesses for sale in the marketplace sell faster. The normal train of thought for most people is that it is only the buyer's responsibility to get prequalified and get financing for the purchase of a business. Yes, the buyer must be able to qualify for a loan. However, the business must be eligible as well. No banking institution will approve a loan for a business that does not provide the cash flow needed to support the payments. Therefore, it is beneficial to the business owner to prequalify the business beforehand. So......why does is make good sense for business owners to have their financial data reviewed by a bank for SBA Loan prequalifcation purposes? Primarily, because it will result in a more speedy sale! Based on your financials and tax returns from the previous three years, you need to know if potential buyers would be eligible to get a loan to buy your business. Here are the benefits of prequalifying a business for a SBA Loan. If you find that your ...

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Houston is Booming -- It's Not Only the Weather That's Hot Down Here

"Texas is a land of buccaneering capitalism."- The Economist, 12/19/02 In addition to having a low cost of living and a great quality of life, Texas has one of the nation's most favorable business environments. By 2030 the U.S. Census Bureau projects Texas population will increase by 60 percent compared with 2000 and will be one of the three other states that account for nearly one-half of total U.S. population growth between 2000 and 2030. So........with all the environmental infrastructure in place, it's not surprising that we're off to a running start. Noted in New York Times article last week, Houston is experiencing its strongest resurgence in more than 20 years. The article cites energy, real estate development, and real estate investment as leading the way for the boom. There are, however, many other drivers contributing to the diverse economic health of Houston. The international trade and logistics sector is trucking along in the speed zone and will not be putting on the brakes anytim ...

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What Kind of Insurance is Needed for a Small Business?

It can be difficult to determine which kinds of insurance is needed for a small business. Different types of insurance have confusingly similar names. Your state, town, or county may have its own insurance requirements and many industries have coverage specific to them. To assist in determining which kind of insurance a business should have, you might want to check with the following agencies: The county or city clerk A local chapter of your industry association The state insurance office Here are three great website resources that provide helpful information regarding regulatory requirements: The Official Business Link to the U.S. Government The Official Site of Houston Texas Business Portal The basic business insurance package consists of four fundamental coverages--workers' compensation, general liability, auto and property/casualty--plus an added layer of protection over those, often called an umbrella policy. In addition to these basic needs, you may also w ...

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