Around the Web: A Month in Summary

A recent article posted on Business2Community.com entitled “How to Close the Deal and When to Walk Away When Buying or Selling a Business” explains the business sale process and how to differentiate between a good deal and a bad deal during the process. Closing a deal involves quite a bit of legwork, including producing a letter of intent, doing due diligence, acquiring financing, signing a purchase agreement, and actually closing the deal. These items can be easier with the help of a business advisor, broker, or attorney, but emphasis should be placed on the due diligence aspect: knowing the business inside and out is vital to a successful sale. Walking away from a deal can be difficult for a motivated buyer, but is sometimes necessary to avoid emotional and financial disaster. The following red flags help to signify that it's time to walk away: Inconsistencies Neglect Undisclosed Problems Poor Credit Rating The Industry is in Decline Being prepared is one of the best things that a … [Read more...]

Around the Web: A Month in Summary

A recent article posted on Business2Community.com entitled “How to Close the Deal and When to Walk Away When Buying or Selling a Business” explains the business sale process and how to differentiate between a good deal and a bad deal during the process. Closing a deal involves quite a bit of legwork, including producing a letter of intent, doing due diligence, acquiring financing, signing a purchase agreement, and actually closing the deal. These items can be easier with the help of a business advisor, broker, or attorney, but emphasis should be placed on the due diligence aspect: knowing the business inside and out is vital to a successful sale. Walking away from a deal can be difficult for a motivated buyer, but is sometimes necessary to avoid emotional and financial disaster. The following red flags help to signify that it's time to walk away: Inconsistencies Neglect Undisclosed Problems Poor Credit Rating The Industry is in Decline Being prepared is one of the best things that a … [Read more...]

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 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?

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, there are several steps buyers must take. … [Read more...]

Are You Sure Your Deal is Completed?

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, there are several steps buyers must take. First of … [Read more...]

Defining Goodwill

You may hear the word “goodwill” thrown around a lot, but what does it really mean? When it comes to selling a business, the term refers to all the effort that the seller put into a business over the year. Goodwill can be thought of as the difference between the various tangible assets that a business has and the overall purchase price. The M&A Dictionary defines goodwill in the following way, “An intangible fixed asset that is carried as an asset on the balance sheet, such as a recognizable company or product name or strong reputation. When one company pays more than the net book value for another, the former is typically paying for goodwill. Goodwill is often viewed as an approximation of the value of a company's brand names, reputation, or long-term relationships that cannot otherwise be represented financially.” Goodwill vs. Going-Concern Now, it is important not to confuse goodwill value with “going-concern value,” as the two are definitely not the same. Going-concern … [Read more...]

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, which again underscores the value and importance of … [Read more...]

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, which again underscores the value and importance of … [Read more...]

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