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The 3 Ways To Negotiate

There are three major negotiation methods.

1. Take it or leave it. A buyer makes an offer or a seller makes a counter-offer – both sides can let the “chips fall where they may.”

2. Split the difference. The buyer and seller, one or the other, or both, decide to split the difference between what the buyer is willing to offer and what the seller is willing to accept. A real oversimplification, but often used.

3. This for that. Both buyer and seller have to find out what is important to each.  So many of these important areas are non-monetary and involve personal things such as allowing the owner’s son to continue employment with the firm.  The buyer may want to move the business.

There is an old adage that advises, “Never negotiate your own deal!”

The first thing both sides have to decide on is who will represent them.  Will they have their attorney, their intermediary or will they go it alone?  Intermediaries are a good choice for a seller.  They have done it before, are good advocates for their side and they understand the company and the seller.

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What Makes Your Company Unique?

There are unique attributes of a company that make it more attractive to a possible acquirer and/or more valuable. Certainly, the numbers are important, but potential buyers will also look beyond them. Factors that make your company special or unique can often not only make the difference in a possible sale or merger, but also can dramatically increase value. Review the following to see if any of them apply to your company and if they are transferable to new ownership.

 

Brand Name or Identity

 

Do any of your products have a well recognizable name? It doesn’t have to be Kleenex or Coke, but a name that might be well known in a specific geographic region, or a name that is identified with a specific product. A product with a unique appearance, taste, or image is also a big plus. For example, Cape Cod Potato Chips have a unique regional identity, and also a distinctive taste. Both factors are big pluses when it comes time to sell.

 

Dominant Market Position

 

A company doesn’t have to be a Fortune 500 firm to have a dominant position in the market place. Being the major player in a niche market is a dominant position. Possible purchasers and acquirers, such as buy-out groups, look to the major players in a particular industry regardless of how small it is.

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Get Out Of Town: Increase The Value Of Your Business

Vacation - it's often an elusive concept for the owners of small businesses. Even when owners do take time off, chances are they're still checking in constantly, which has become increasingly easy to do in this age of the smartphone and ever-omnipresent Internet connectivity. The ironic thing is that this constant owner involvement can actually be detrimental to the value of the business from the perspective of potential buyers.

 
An owner-driven business is not an attractive asset in a buyer's eyes. An in-place team that can provide continuity and assist in the growth of the business under new ownership IS. An enterprise with infrastructure guiding its revenue-generating capacity is much more appealing than one with a singular person holding the key to the revenue engine. It is important to have systems running the business and an experienced staff running those systems.

If you want to improve your business - plan an extended vacation! Your staff and family will be glad! It can help you see where the gaps are and where improvements need to be made in order to decrease owner dependence and increase business efficiencies and value.

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What Drives The Value of a Restaurant?

The valuation of a restaurant is much like any other business valuation. But, there are certain factors unique to the restaurant industry. The universal drivers for many restaurants are pretty simple: quality, hospitality, consistency, value, cleanliness, and customer loyalty. 

You may have heard the saying that the three most important ingredients for a successful business are location, location and location. Obviously, there are other factors which are very important as well, but you cannot compromise on location.

In a 2005 publication of Cornell Hotel and Restaurant Administration Quarterly, the authors noted how successful owners were able to describe their concepts - and why people like it - in great detail - those unique reasons why people choose their restaurant over their competitor.

1. Location, Location, Location

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What Serious Buyers Look For When Looking For A Business To Purchase

Serious buyers want to carefully look at the financials of a company under consideration and all of the other major aspects of the company. However, there are a few other areas that the serious buyer will investigate that sellers may overlook. The Industry – The buyer will want to take a serious look at the industry itself, the customers, the suppliers, the competition, etc. This investigation will cover the strengths, weaknesses, threats from competition, and opportunities of the potential acquisition. With the growth of the “big box” retailers, much power has shifted from the manufacturer to the retailer. A manufacturer may want to increase prices, but if Wal-Mart says no, it’s a very powerful no. Discretionary Costs – Some sellers will reduce their expenses in discretionary areas such as advertising, public relations, research and development, thus making for a higher bottom line. However, these cuts will hurt the future bottom line, and smart buyers will take notice o ...

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Is It The Age Of Aquarius For Selling Businesses?

You may have been reading or hearing that conditions in the business-for-sale marketplace have been synchronizing and harmonizing. The stars are aligning, charting an agreeable economic climate in the acquisition universe for Baby-Boomer Business Owners.

 
Anyone reading our newsletters has been kept aware of the stats, and the numerous articles written on this subject recently from all the big-name business magazines, media news outlets, and others like us: "There's a perfect storm approaching for exiting business owners," "Why you should consider selling your business now," "Small businesses are selling faster than ever," and "Get set for greater intensity by serious buyers." 

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Supplier Concentration And Business Value

Concentration in the acquisition world is a bad word. Businesses with high supplier concentration attract fewer buyers and this lowers the price. What’s too high? Having a supplier with 40% of your business is too high. Diversify if at all possible.

When buyers look at a company for sale, they look at risk. Supplier concentration is one of the top risk factors that are examined. Why? Because if customers push the throttle, the suppliers furnish the gas. A company cannot sell its products to customers if it cannot secure what it needs from suppliers. Any adverse change in a company’s relationships with its key suppliers, or loss of the supply of one of the company’s key products, could have an adverse effect on the business. Therefore, the nature and stability of suppliers is an important consideration in identifying a company’s risk.

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Don’t Fall For It: The 5 Mistakes Business Owners Make When Dreaming Of Selling Their Company

If there’s one thing I’ve learned in my years of working as a Certified Financial Planner™, it’s that entrepreneurs are a special breed of people. They’re motivated. They’re inspired. They’re incredibly tenacious. They’re smart. They’re optimistic. And they know how to get what they want.

 

On the flip side, many entrepreneurs are guilty of being a little pie-in-the-sky—especially when it comes to their own businesses. Unrealistic expectations of the exit process can both hinder the sale of a company and affect the morale of an entrepreneur getting ready to sell. Be wary of the mistakes below and you’ll enter the exit-planning process better informed, better equipped strategically, and more likely to enjoy your sale process.

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The Best Time To Sell A Business Could be Right Now!

By Jim Stauder The Dow Jones closed at an all-time high on Friday, September 19, 2014. And the NASDAQ and S&P were within ¼ of 1% of their all-time highs. As a result, corporations, private equity groups, and individual investors are flush with cash – trillions of dollars. Where can they go with all that cash? Interest rates are so low that fixed income investments are not attractive. Whereas it’s typical to have a stock market correction (10% tumble) about once every 1 1/2 years, it’s been almost 3 years since the last correction. With international tensions in Ukraine, Russia, Iran and the Islamic radical group ISIS setting its sights on terrorizing the US economy, how much longer can the (stock market) good times last? Where can that cash best be used to achieve adequate returns on investment? The answer – business acquisitions. The buyer demand for good businesses with good cash flow has always exceeded the supply of good businesses available for acquisi ...

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Business Goodwill vs. Personal Goodwill & How They Impact The Sale Price Of Your Business

Let’s start by defining the word “goodwill,” in the context of valuing a business.  The fair market value of any business is made up of the value of tangible assets (inventory, accounts receivable, equipment, land and buildings, etc.) and the value of intangible assets (customer lists, brand awareness, proprietary processes, etc.).  Some intangible assets are specifically identifiable and can be valued; the rest make up “goodwill.”  In most business valuations, the amount by which the fair market value of the business exceeds the value of its tangible and identifiable intangible assets is considered “goodwill.” 
 
From a purchaser’s perspective, goodwill is the premium they are willing to pay for a particular business, rather than just buying the tangible assets directly and starting the business themselves.  It represents the investment they are willing to make to buy an existing business, based upon the incremental income and cash flow it generates over starting the same business from scratch.
 
Valuing goodwill is by far the most challenging aspect of determining the fair market value of any business.  And it generally makes up the majority of the difference between what a seller is hoping to be paid, and what a buyer is prepared to pay, for any business.

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