Selling a Franchised Business: What You Need To Know

April 11th, 2014

Selling a franchised business is slightly different than selling an independently owned business. When selling a franchised business there are key things you need to know in regards to preparation, approval, right of first refusal, fees and training. Details of what is allowed by the franchisor and what isn’t are located in the franchise agreement. I recommend reading your agreement thoroughly. Work with a business broker to help navigate the sales process and consult with the franchisor upfront about your intentions to sell. Following these recommendations will make you aware of potential challenges you could face throughout the sales process. It will also help you better assess potential buyers and ensure that you meet the obligations set forth in your agreement with the franchisor. If you are considering buying a franchise you should look into the details of the business before purchasing. That will help you choose a franchise with reasonable terms as well as let you know what you are in for when it is time for you to sell.

The key to a smooth sale of a business, be it an independent business or a franchise, is preparation. Let the franchisor know you are planning to sell and make the necessary preparations. Some franchisors will provide you with a checklist or guide which is useful in navigating the sales process. Also, working with a business broker is extremely useful as they will know how to get you through the sales process beyond what the franchisor provides.

Concerning approval, some franchisors will require that they approve a buyer. They will want to review a potential buyer’s financial status as well as their skill set and qualifications to ensure they are capable of successfully running the business and that their brand is in good hands.

A business broker will assist in the screening of potential buyers. They are experienced in the buying and selling of franchised businesses and know what to look for.

Another key thing to be aware of is the “right of first refusal” which means the franchisor can buy your business even after you have accepted an offer from a buyer. The “right of first refusal” clause can discourage potential buyers because they can go through the whole process of getting financing, doing their due diligence and making an offer, only to have the business pulled out from underneath them when the franchisor decides to buy it themselves. If this clause is built into your agreement, ask your franchisor if they intend to exercise their right to act on it.

In regard to fees, a new owner may be subject to a transfer fee. The fee is typically less than what the franchisee paid to purchase the business originally. However, potential buyers will want to know what the fee is.

A benefit to purchasing a franchise is that they usually come with tested standardized operation methods and procedures. When it comes to training, it is becoming increasingly common to have the exiting owner train the new buyer and that may also be expected by the franchisor. Check with the franchisor to know what is expected of you.

In summary, knowing what is in your franchise agreement and what is expected of you by the franchisor concerning preparation, approval, right of first refusal, fees and training will be important when selling your franchised business. Make the franchisor aware of your intentions to sell and work with a business broker to assist you throughout the entire sales process.

About The Author: Peter Siegel, MBA is the Founder & President of BizBen.com, a website for businesses for sale, businesses wanted to buy, resources, & articles, and the BizBenNetwork Online Community. He advises and consults with business buyers, business sellers/owners, brokers, agents, investors, & advisors on a daily basis. Reach him direct at 866-270-6278 to discuss strategies regarding buying, selling, (or financing a purchase of) small to mid-sized businesses.

Can I Get A Loan To Purchase A Business With Less Than Perfect Credit?

April 4th, 2014

Regardless of your credit score, getting a loan to purchase a business has become harder as lenders are more selective of who they lend to than they were before the economy crashed in 2008. A FICO score of 700 is the average lending threshold. For those with scores below 700 it can be difficult to obtain financing. However, it is certainly possible to get a loan to purchase a business even if you have less than perfect credit. However, it is important to be realistic about your situation and to take several steps to make yourself more appealing in a lender’s eyes. It is important to do your research, strategize, and be prepared and to structure a smart deal. Let’s examine these steps in further detail.

Do your research and strategize. Before you get pre-qualified know your credit score. You are entitled to one free credit report per year. If your score is low find out why and address the negative aspects to help improve your score. A specialty broker or business financing specialist can be of assistance as they know what lenders are looking for and they can provide you with advice on what you need to do to improve your score.

Certain types of businesses are considered high risk to lenders whereas others are seen as less risky. If you have less than perfect credit selecting a business that is considered to be less risky ups your chances of being approved for financing.

Be prepared. After taking the necessary steps to improve your credit score be sure to have an explanation for your score. Did you go through a divorce or have a family member fall ill? Although a good explanation will not erase a poor credit score it will help build credibility with a Lender.

Prepare a business plan. A solid business plan shows how you will run the business and how the business will make money. Essentially lenders want to have confidence that you know what you are doing and that you will be able to pay back the loan.

Structure a smart deal that is going to appeal to a financial institution. Lenders prefer to see deals in which the owner is also holding a note for part of the purchase price and offering training to the new owner for a period of time after the sale closes. This demonstrates that the current owner has faith that the new owner will be able to run the business successfully which will allow the borrower to pay back the loan. You may also need to be prepared to offer up collateral in order to secure financing.

Just because you have less than perfect credit doesn’t mean you can’t secure business purchase financing. Take the necessary steps mentioned above and consult with a specialty broker or business purchase financing expert to secure financing for your business purchase.

About The Author: Peter Siegel, MBA is the Founder & President of BizBen.com a website for businesses for sale, businesses wanted to buy, resources, & articles and the BizBenNetwork Online Community. He advises and consults with business buyers, business sellers/owners, brokers, agents, investors, & advisors on a daily basis. Reach him direct at 866-270-6278 to discuss strategies regarding buying, selling, (or financing a purchase of) small to mid-sized businesses.

The Pros and Cons of Buying A Gas Station

March 24th, 2014

There will always be a need for gas stations, regardless of the type of fuel they supply or may supply in the future. People are dependent on their personal vehicles to get to work and for other travel. These vehicles need fuel to operate and stations to dispense that fuel. Gas stations that are producing the highest profits have good locations and produce high volume sales. There are both pros and cons to buying a gas station. Let’s discuss some of them.

Pros

Demand

As previously mentioned, the demand for gas is there. People need to purchase gasoline regularly to fuel their vehicles so they can get to work, school, go shopping or wherever else they may need or want to go. Gas is a consumable product people need regularly. When the price of gas goes up people try to cut back their spending on other nonessential items. They may try to drive less or use public transportation but the way our country is set up with its highways, byways, thruways and freeways it essentially requires a vehicle to get where you want to go when you want to go. Some people view the ability to drive as freedom. We are a driving society and until that changes there will always be a demand for gas stations.

Alternative fuels are slowly starting to enter the market as a result of new developments from the fuel industry. But while the type of fuel we use may change in the future there will still be a need for fuel stations to dispense these new fuels. For the foreseeable future however, gasoline will still be the main source of fuel for almost all vehicles.

Additional Opportunities

Gas stations also can generate revenue by providing additional services like car repair and by selling convenience store items. If you find a gas station you are interested in that does not have either you may want to consider adding those options.

Labor and the Owner’s Role

Labor costs are generally low for gas stations because they do not require skilled labor unless you have an attached repair shop. Many gas stations are owned and operated by absentee owners although some do choose to work themselves in order to save on employee costs.

Cons

Competition

The largest con associated with buying a gas station is the amount of competition. Larger chains are dominating the market and pushing out independent gas stations. Retailers providing the lowest price fuel will get customers to travel to them.

Fluctuation

Gas stations are a relatively stable business model due to the demand for gasoline. However, fluctuations in the economy do affect customer usage and fluctuations in the purchase price of gasoline make it difficult to estimate profits.

Hours

Another con associated with buying a gas station could be the long hours. Many gas stations are a 24/7 operation. If you choose to be as well you will either need to work yourself, which requires a sacrifice of your personal time, or hire more employees to cover all the shifts which will eat into your profits.

In summary, the pros to buying a gas station include a steady demand for fuel, the ability to generate additional revenue aside from gasoline sales, and relatively low labor costs. The cons include high competition, possible long working hours, as well as economic and price fluctuations. In general buying a gas station can be a profitable business decision. But you should always consider the circumstances of any big decision and do your due diligence in order to make sure the pros outweigh the cons for your personal situation.

About The Author: Peter Siegel, MBA is the Founder & President of BizBen.com a website for businesses for sale, businesses wanted to buy, resources, & articles and the BizBenNetwork Online Community. He advises and consults with business buyers, business sellers/owners, brokers, agents, investors, & advisors on a daily basis. Reach him direct at 866-270-6278 to discuss strategies regarding buying, selling, (or financing a purchase of) small to mid-sized businesses.

Tips To Help You Sell Your Business Online

March 20th, 2014

Listing a business for sale online is the primary way that businesses for sale are marketed these days. Newspaper ads are a thing of the past because fewer people read newspapers and taking out an ad large enough to include all relevant information is just too expensive compared to the cost of an online ad.

You want to make sure that you create an ad that is going to grab the attention of potential buyers.  My advice is always to put as much information as possible into the ad. Make sure to include some financial information so when you get a call about your business from a potential buyer, that buyer already knows whether they are qualified to buy it and are not calling you just because they need more information about the business.

Here are 5 tips to help you create your listing and sell your business online.

1.  Drawing Attention To Your Ad

You want to draw a picture of your business starting with your ad’s headline so potential buyers know why they should buy your business.  Think of a catchy and descriptive headline that will grab the attention of potential buyers.  Most people are visual so make sure to include photos of your business as long as they don’t impact the level of confidentiality you’ve decided to keep.

Sometimes it is better to write your headline last.  By writing out the whole ad and then reviewing it you can look for things that jump out at you and use that information to write your headline.

2.  Be As Descriptive As You Can

You need to be as descriptive as possible about your business so buyers know exactly what you are trying to sell.  Include information about the history of your business, its current situation and the potential it has for growth in the future. ­­

You should add financial information as long as it does not impact your confidentiality. For example, people like to know how much they can expect to make a year on the business they are considering purchasing and how much it will cost them to purchase it.  You may also include such things as the number of current employees, any licenses that are required and anything else about your particular business that may be helpful to a potential buyer.

3.  Be Sure To Include Contact Information

This may sound like an obvious step, but you would be surprised how many people don’t include proper contact information.  You should give potential buyers more than one way to contact you. Don’t use the company’s phone number as you should be trying to keep your sale confidential at first.  Same goes for your email.  Creating a separate free email account just for the purposes of corresponding with potential buyers is something to consider.  Again, make sure you give potential buyers multiple ways to contact you as some people prefer to use certain forms of communication over others.

4.  Don’t Include The Exact Address

While I have stated that you should provide as much information as possible there are certain things you shouldn’t add. I stated above that you shouldn’t use the company’s phone number or email address as a way of communicating to potential buyers. You also shouldn’t include the company’s exact address in the ad. The reason for this is because you should be trying to keep the sale of your business as confidential as possible so you do not upset your employees, vendors and customers. Those people will have to be told eventually, but that information should come from you when the time is right and not from potential buyers wandering in and asking questions of your employees. Your business address is information that can wait to be disclosed until you are further into the process of the sale and the buyer has signed a confidentiality agreement.

5.  Consider Working with a Professional Business Broker

While you could use the information I have provided above and craft your own Business For Sale listing, I recommend hiring a professional business broker. Not only can a broker create the best possible For Sale listing for your business, but they can offer other services and information that will help you sell your business faster and for the best possible price.

About The Author: Peter Siegel, MBA is the Founder & President of BizBen.com (businesses for sale, businesses wanted to buy, resources, & articles) and the BizBenNetwork Online Community. He advises and consults with business buyers, business sellers/owners, brokers, agents, investors, & advisors on a daily basis. Reach him direct at 866-270-6278 to discuss strategies regarding buying, selling, (or financing a purchase of) small to mid-sized businesses.

What Will A Business Broker Do To Help Sell My Business?

March 10th, 2014

I cannot stress enough how important it is to find the right business broker to work with when buying or selling your business.  An important thing to keep in mind is not all business brokers are the same.  There are brokers that consistently go above and beyond and do whatever it takes to sell your business.  These brokers consistently close deals and because of that they receive referrals because clients are happy with the way they do business.  There are other brokers that do their job well but rarely go above and beyond.  Then there are brokers you should probably stay away from altogether.  They may lack experience, drive or simply just aren’t good at their job.

When you’re trying to sell your small business, you want the best possible broker you can find.  Your broker is going to be the one that fights for the best possible deal for you. Not only that, but a good broker will work to understand your needs and how to meet them. Here are four things a good business broker will do for you to help you sell your business fast and for the best price.   You should use this information when interviewing potential brokers.

Valuing Your Business

 A good broker should want to be a part of helping you value your business in order to establish a fair asking price.   The value you put on your company and the asking price you set can mean the difference between attracting potential buyers and selling your business in a timely manner.  A good business broker will understand how and have experience in determining the value of your business and they will also understand your local market.  A small business in one part of the country may not sell for as much as a small business located somewhere else. Understanding your local market is very important when setting the asking price for your business for sale.

Formulating An Exit Strategy

 Sellers that have developed a good exit strategy are more attractive to potential buyers.  If you have not thought about an exit strategy yet, you should start. A good business broker will help you through the process of formulating an exit strategy.  They will make suggestions on how to inform your employees and customers about the sale of your business.  They can also help you determine which employees you should train to do certain aspects of your job to help with the transition as well as any training you plan to offer the new owner.   Having these things in place will make your business that more attractive to potential buyers.

Marketing Your Business For Sale

 Marketing a business for sale is not the same as marketing a service or product.  A good business broker will know how to present your company to potential buyers and they will have access to information and connections that you will not. Marketing a business for sale is far more involved and complicated than many sellers realize. Bottom line, you should not try to market your own business for sale even if you think you have marketing experience.

Negotiating The Deal

 A lot of deals fall apart on the negotiation table. More than you would think.  A good business broker will have plenty of experience in the negotiation process and will not only fight to get you the best price, but will also work to make the deal a win-win for both you and the buyer. The last thing you want to happen is to have a deal fall apart during negotiations after going through everything you had to go through just to get to the bargaining table.

These are four important items that a good business broker will be willing to help you with if they want the fee for helping you sell your business.  You should use this information during the process of interviewing potential business brokers.  The answers to these questions will be a good indicator of how experienced they are and how involved they will get in the process. When it comes to hiring a business broker to sell your business you need to make sure that you have the best broker possible on your side.

About The Author: Peter Siegel, MBA is the Founder & President of BizBen.com (businesses for sale, businesses wanted to buy, resources, & articles) and the BizBenNetwork Online Community. He advises and consults with business buyers, business sellers/owners, brokers, agents, investors, & advisors on a daily basis. Reach him direct at 866-270-6278 to discuss strategies regarding buying, selling, (or financing a purchase of) small to mid-sized businesses.

Four Ideas For Getting Additional Funding To Buy A Business

February 17th, 2014

When an entrepreneur begins the process of buying a business, they will more likely than not end up discovering that they will need to acquire additional funds in order to complete the deal.The extra cash may be required for working capital, or possibly to contribute to the agreed upon amount that is to be put into an escrow service for the down payment.

Here are four ideas that can be used for raising that extra money you will need.

1. Using A Traditional Lender: The first place a buyer usually goes to acquire a loan to buy a business is a bank. A good place to start would be a locally owned bank. They may be willing to loan the money needed to purchase the business if the buyer uses that same institution to handle all their business banking needs. The competitive interest rates and the speed in which the application is processed will be attractive. However the buyer will most likely be required to provide a lot of collateral in the form of the assets of the business and a trust deed in the buyer’s property.

2. An SBA Loan: If the buyer is short on collateral but has experience with the type of business they want to purchase then an SBA loan may be an option. The lenders who work with the SBA make these kinds of loans because they are sure of being repaid as the SBA will guarantee a large portion of the loan if the borrower defaults. The buyer applying for an SBA loan will have to provide detailed information about their work history as well as the financial health of the company they want to purchase. The SBA has strict lending guidelines so the lending institution can be satisfied that the business will generate enough revenue to cover the loan payments.

3. Private Lenders: Using a private lender is an option. There are groups and individuals willing to lend money for business purchases. However, these types of loans are not as highly regulated as regular lending institutions. This means that the interest rates will probably be much higher and the amount of collateral the borrower will have to provide will need to meet or exceed the total amount of the loan. The borrower also may have to offer a second deed of trust in their home. The upside to these loans is quick turnaround from the application to receiving the funding as well as the possibility of getting funding for a deal that doesn’t fit the strict guidelines followed by SBA backed and conventional lending institutions.

4. Using a Retirement Account: You may not be aware of this, but the IRS allows a person to take funds from their retirement account and put it into a corporation for the purpose of buying a business. This normally isn’t something a buyer should do themselves however. They will need the expertise of a tax attorney or an accountant to ensure that the strict IRS rules regarding this kind of funding are followed properly so as not to incur a penalty.

These are some of the methods a business buyer can utilize to acquire the additional funds that may be needed to complete a deal as well as have working capital available to actually run the business. The buyer will want to seek the consultation of a financial advisor or a specialty loan broker to help with the funding part of the buying process.

About The Author: Peter Siegel, MBA is the Founder & President of BizBen.com (businesses for sale, businesses wanted to buy, resources, & articles) and the BizBenNetwork Online Community. He advises and consults with business buyers, business sellers/owners, brokers, agents, investors, & advisors on a daily basis. Reach him direct at 866-270-6278 to discuss strategies regarding buying, selling, (or financing a purchase of) small to mid-sized businesses.

Business Purchase Financing: Working With The SBA And Owner Training

February 4th, 2014

The Small Business Administration or SBA recognizes that owner training is critical. The SBA provides guidance and assistance to Entrepreneurs throughout the process of buying a business including securing financing as well as through the transition of ownership phase and training. Focusing on the transition of ownership phase and the training aspect, the SBA provides training and in some cases requires the owner to stay on for a period of time to train the new owner in order to secure a business purchase loan and to ensure the success of the business. It can be beneficial for the owner to spend time with the new owner to go over day to day operations and become familiar with the staff, vendors and customers.

A Major Part of Buying A Business Is Securing Funding.

In the new economy of today, the scope of borrowing has changed and lenders are more stringent about what and who they lend to. The SBA has followed this trend and has tightened their criteria and implemented new standards to ensure that the businesses they choose to support will thrive.

The SBA has always been focused on providing training for small business owners and entrepreneurs to ensure that they could efficiently own and operate the business they wanted to buy or start. Today, the SBA continues to offer programming to support training initiatives but has taken their efforts a step further by enlisting the help of business owners. Depending on what type of loan you are applying for, the SBA now requires buyers seeking funding from them to include what is referred to as a Transition Management Plan. The plan typically requires that the selling owner agree to stay on board for a period of time to train the new owner.

The process of transitioning ownership, if done right, can contribute to the success of a business. This process can sometimes be more difficult than building a business from the ground up. It is crucial to develop a plan to manage this phase of the sale. Having the owner on hand to train the new owner after he or she takes ownership is another way of ensuring that the business remains in good standing, as it was when it was approved for funding. It can also help with employee retention and vendor and customer relations.

People generally do not like change and react to change in different ways. Concerning employees, some employees have trouble coping with change and will have an adjustment period to get used to a new owner and the way he/she wants things done. Having the previous owner around for a while can help the staff get to know the new owner and build trust.

When it comes to vendors and customers, some vendors and customers may react negatively to new ownership. People build trust and relationships with one owner and may be apprehensive to continue the relationship with the new owner. Again, having the previous owner working by the buyer’s side for a period of time can help everyone adjust to the change in ownership.

I agree with the SBA that training the new owner is essential. It is important for the buyer to see how and why the seller has done things in the past so they can better assess how they will do business going forward. Also, having the seller train the buyer can help manage important relationships during a time of transition. Make sure you take this information into consideration when applying for business purchase financing with the SBA.

About The Author: Peter Siegel, MBA is the Founder & President of BizBen.com (businesses for sale, businesses wanted to buy, resources, & articles) and the BizBenNetwork Online Community. He advises and consults with business buyers, business sellers/owners, brokers, agents, investors, & advisors on a daily basis. Reach him direct at 866-270-6278 to discuss strategies regarding buying, selling, (or financing a purchase of) small to mid-sized businesses.

5 Ways To Raise Extra Money When Buying A Small Business

January 23rd, 2014

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A surprise that some entrepreneurs encounter when buying a small business is that the amount of money expected to go into the purchase will not cover every expense involved in becoming the new owner. Not only is it necessary to come up with the down payment, but in order for the business to succeed the buyer will need working capital when taking over. Smart strategies for raising that extra money include:

1. Seller Financing: If the deal calls for an all cash purchase, and the buyer is emptying his bank account to pay off the seller, perhaps the agreement can be modified to include a promissory note to be used by the buyer for part of the price being paid. That will free up some of the cash originally intended for the down payment. The seller may find tax benefits to this arrangement. Besides, making sure the buyer has sufficient working capital is an important way to help her succeed.

2. Inventory On Consignment: The buyer can save the money that would ordinarily go for purchase of the inventory at close of escrow, by paying the seller the wholesale costs for inventory items only as they are sold to customers of the business. Rather than the buyer’s several hundreds or thousands of dollars tied up with parts or products, it can be used for other expenses and the seller will be paid for each item of inventory as the buyer sells it.

3. Earn-Out Agreement: Another way for buyer and seller to work together to make sure the business won’t run into trouble for lack of working funds, is their agreement to establish a lower selling price than was originally planned. That can call for a lower down payment than the amount stated in the sales agreement. The seller will be compensated later, under the earn-out provision of the sales contract. It would specify that the price is linked, by an agreed-on formula, to a specific low performance level for the business. As the business outperforms this initial projection, the price would rise according to that formula. That means the seller sacrifices at first, with lower payments for the balance of the price than he wanted. But as the price of the business goes up, so will the amount owed to the seller, as expressed in larger payments.

4. Borrow From Financial Institution: The buyer may be able to get extra money from a bank or other financial institution. If there is seller financing involved in the deal, another lender is more likely to agree to approve an application for a loan to help fund working capital. And it’s a good idea for the buyer to start shopping among financial institutions before he or she finds a business to buy. That way the buyer will know which company is likely to offer the needed cash.

5. Assume Seller’s Debt: If the seller will need cash at close of escrow to pay off business creditors and deliver the business free and clear of debt, the buyer may be able to assume that debt instead. That will require the cooperation of the vendors to the business. Some or all are likely to go along with the plan as it will insure their continued relationship with the business.
A shortage of cash to take over a business need not stop a buyer from proceeding if he or she can use one or more of these methods to raise additional funds before taking over the business.

About The Author: Peter Siegel, MBA is the Founder & President of BizBen.com (businesses for sale, businesses wanted to buy, resources, & articles) and the BizBenNetwork Online Community. He advises and consults with business buyers, business sellers/owners, brokers, agents, investors, & advisors on a daily basis. Reach him direct at 866-270-6278 to discuss strategies regarding buying, selling, (or financing a puchase of) small to mid-sized businesses.

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