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You may be dreaming of starting your own business from scratch. Or are you really dreaming of being your own boss and seizing control of your financial destiny?

Most entrepreneurs would be wise to take a look at purchasing an existing business, provided they have the financial power to do so. Most business owners and industry experts would agree with the logic behind this decision. After all, the potential for failure is huge when starting something brand new, whereas stepping into the shoes of a successful entrepreneur provides the new owner a tremendous head start.

According to the U.S. Small Business Administration, over half of all small businesses fail in the first five years. Start-ups are tricky, and that first year of operating a company can be like walking through a field of land mines. What equipment should you buy? Who is the best vendor for supplies? Will you need to hire employees? Where should the business be located? What are going to name it? Do you need to create a logo? What about establishing policies and procedures? How will you attract customers? Have you thought through an emergency plan? Those are only a few items that will need addressing in the initial stages of establishing your entity.

By purchasing an existing company, you dramatically reduce problems that generally arise within the first few months of operating a business. The company is established, and you inherit a name, location, equipment, vendors and suppliers. Perhaps most important are the customers that are in place, familiar with the business and its products or services.

When an entrepreneur buys an existing company, a training period with the former owner is generally included. The amount of training time is often negotiated when an offer is made to purchase the business. Savvy entrepreneurs use this time wisely to learn about the day-to-day operations, as well as demand, seasonal fluctuations, competitors and marketing. Ask questions and perhaps suggest that the previous owner be available via phone for a period after the training (be reasonable with this request: a question here or there is expected, not lengthy conversations on basic issues that should have been covered during initial training).

Not only are customers in place, but buying an existing business usually means there are employees in place who want to remain with the company. Having a built-in customer base, earning a profit from Day One and retaining knowledgeable employees are a great way to begin your new venture.


 

We recently presented a wish list for a typical seller of a small business. Now, it’s the buyer’s turn.

Entrepreneurs – whether they are buyers or sellers – generally agree on several factors that make the business transfer process more seamless overall.
A buyer wants:
•    A solid business – Although that phrase may be somewhat subjective, buyers are searching for stable companies with a track record of success. The savvy buyer approaches the situation just as a lender would: requiring a history of financial data that is able to be verified. Filed tax returns are the preferred record for conducting due diligence. It is also important that a business be established. Most lenders require a minimum of three consecutive years of financial history and prefer that the company was under the same ownership (the current seller) for these three years.

•    Reasonable seller expectations – This comes into play at the first moment a buyer begins looking at a business for sale. Does the seller receive an adequate income from his company? Are his revenues increasing or, in this economy, at least staying consistent from year to year? Is his business priced appropriately? Will the seller consider offering some financing?

•    Disclosure during the due diligence phase – Buyers hope sellers will share the items requested in a timely fashion and be able and available to answer questions or present further information where necessary. Courtesy and common sense should prevail during this delicate phase of the business transfer process.

•    A smooth closing – Just as the seller wishes, the buyer also wants the closing to be a positive experience for both parties involved. It is a time of celebration, not a venue for uncertainty, debate or hesitation. Closing attorneys experienced in the business transfer process assist immensely with a seamless closing. By the time everyone is seated at the closing table, all questions should have been answered, all pre-closing paperwork completed and the buyer and seller should be confident this is a win-win situation for everyone involved.

•    A seller who stays involved (for a while) – While a typical buyer probably has some new ideas for the business, almost all buyers want training and initial support from the seller. Buyers want to be successful and retain employees and customers wherever possible and practical. Buyers look for sellers who will spend a week or two showing them the ropes, and buyers are especially appreciative if a seller remains available at a later date should an unexpected question arise. Buyers generally do not want sellers to be involved for a long period of time, unless they have previously presented the seller with an offer of employment. A buyer wants to feel comfortable and prepared as he assumes control of his new enterprise.

As I mentioned in Murphy’s previous blog, my experiences working with buyers and sellers who are forthright, reasonable and agreeable have been the most enjoyable and produced the most successful closings. When buyers and sellers have realistic expectations -- initially and throughout the business transfer process -- and maintain a professional and positive attitude, they typically find the transactions to be pleasant and seamless.
 

In the spirit of the season, we offer a wish list for a typical buyer and seller of a small business. Entrepreneurs who are selling their companies, as well as those looking to purchase, generally agree on what would make the process more seamless overall.

Today’s blog focuses on what the seller wants:

•    A qualified buyer – This not only means someone with the financial resources to meet a down payment and secure financing, it also describes someone with experience owning or managing a business -- perhaps with some knowledge of the industry itself. A qualified buyer more than likely has established ties to the geographical area and if married or in a domestic relationship, has the support of his partner.

•    An appropriate offer – A seller appreciates an offer that is solid, reasonable and timely. Sellers expect contingencies to be a part of the offer, but also anticipate these to be realistic. One of the most common contingencies is a lease transfer with equitable terms for the buyer.

•    A practical due diligence phase – Sellers are pleased to answer questions and share pertinent data during the due diligence phase; however, buyers should take care not to pose queries or make statements that may be perceived as an insult to the seller. Common sense should dictate how the buyer should best introduce discussions on past decisions the seller made or how the business is run on a daily basis. Buyers should prepare their due diligence requests in writing and as soon as possible after the offer has been accepted.

•    A smooth closing – The closing should be a time of celebration for both parties, not a time for second-guessing, bickering or hesitation. Hiring a closing attorney experienced in the business transfer process helps immensely. By the time everyone is seated at the closing table, all questions should have been answered, all pre-closing paperwork completed and the buyer and seller should be confident this is a win-win situation for everyone involved.

•    An efficient transition – Most sellers, particularly those who created the business from the ground up, truly want to see the business continue to grow and prosper. Sellers want their buyers to be successful, and most will work hard to ensure the buyer is completely comfortable with all facets of the business during the training period that begins after the closing. This transition phase often involves introducing the new owner to suppliers and customers and showing the buyer everything related to running the business, from how to operate office equipment to the best way to manage employees’ schedules.

As a business broker, I have most enjoyed working with buyers and sellers who are forthright, reasonable and agreeable. Having realistic expectations on both sides and keeping a professional and positive attitude throughout the business transfer process goes a long way toward reaching a successful closing.
 

One of the most difficult challenges facing the seller of a small business is finding a qualified buyer.

The key word in the preceding statement is “qualified.”

Potential buyers are easy to find, but they don’t become buyers unless a closing takes place. There are a lot of lookers around, and they are adept at draining a great deal of unrecoverable time and emotional energy from a seller.

One of the biggest advantages to working with a knowledgeable business broker is that a professional is experienced in winnowing out these tire kickers to find those few, qualified prospects. This is one of the most valuable services a broker may provide to a seller.

If you’re attempting to sell your company without a broker’s assistance, here are some warning signs to keep in mind.
    •  The buyer is taking his time in order to find the “perfect” business.

        o  A prospect who is gainfully employed (notably for a larger corporation in a managerial role) has time on his side. He may be in love with the idea of being his own boss, but may never leave the security and familiarity of the paycheck and career he currently enjoys.

        o  The buyer may be taking his time because he’s incapable of making such a large, possibly life-altering, decision. Many more individuals than one might imagine fall into this category. A potential buyer may think he is ready for such a challenge, but once faced with actually choosing, finds himself paralyzed.

        o  If a buyer has been searching for six months or longer, he may have expectations that are impossible to fulfill.

    •  The buyer has no financing. Although this seems obvious, a buyer might be quick to assure the seller he has the means to obtain cash, and sometimes a seller wants to believe he has indeed found a qualified buyer. Be cautious if the buyer:

        o  will need financing (unless it’s based on the equity in his home), especially if the buyer has not even approached an outside lender

        o  has no available cash to pay for closing costs or a down payment

        o  claims to have a wealthy relative or friend who will be financing the deal, particularly if you have yet to meet this affluent individual

    •  The buyer’s spouse is not present during meetings or is completely unsupportive of the venture.

    •  The buyer is immersed in detail too early in the process. He may be asking too many questions, especially relating to insignificant details; he may act as though he knows far more than you as the seller; or he may take a copious amount of notes at every meeting.

A savvy business broker will also cite buyer red flags of a more personal nature, such as being very young (late teens or early 20s) or too close to the typical retirement age. Brokers often mention if an individual has lived in the geographical area for quite some time, but is still a renter instead of a homeowner, it might give a seller reason to take notice.

Obviously, this is not a comprehensive list, and some buyers who exhibit these tendencies may turn out to be very well-qualified. However, these characteristics do represent consistent trends in our industry. If your prospect starts to fit the profile of a tire kicker, you may find it prudent to evaluate the time and energy you are expending, as well as the information you are sharing, with this individual.

 

When a potential customer contacts your company via telephone, what is the first impression received? Is the caller warmly welcomed by a live operator or receptionist, or does he get dumped into a frustrating, endless cycle of automated voice commands?

Sometimes the obvious is the most easily overlooked. A business owner has only one chance to make a first impression. Today, it’s common for a potential customer’s first visit to your company to be made by telephone, so make that initial contact a positive experience for your caller.

The first time a potential customer visits your company (whether in person, via telephone or through the Internet), he should immediately feel comfortable and confident about doing business with you.

Think about the image presented to someone who phones your organization for the first (or 50th) time. Will the caller feel welcomed and important? Is he likely to remain on the line to finish the transaction or call again for products and services in the future?

Telephone Doctor recently commissioned a survey that discovered the following:
•    85% of consumers indicated that telephone courtesy makes a difference when choosing which business they will patronize
•    65% prefer doing business with companies who have real people answering calls versus those that use an automated attendant
•    65% stated they are frustrated when placed on hold immediately after calling a company
•    48% refuse to conduct business with a company if they receive poor customer service over the phone
•    The most frequently noted complaint: being placed on hold

The nonprofit and nonpartisan research organization Public Agenda discovered that a whopping 94% of its survey sample indicated it was “very frustrating” to phone a business and be greeted with a recorded voice rather than one of a live person.
According to the Bureau of Labor Statistics, telephone operators are one of the top ten positions expected to decline within the next twelve months. Today’s voice recognition systems continue to improve dramatically, and the increase of electronic communication has considerably reduced reliance on the telephone.

Although many companies have made the transition from live operators to automated attendants for a variety of reasons (most notably to reduce overhead), the survey findings discussed in this blog should be carefully considered. Business owners may wish to ensure callers have a way to reach a live operator, and all employees interacting with customers on the telephone should be professional and courteous. Operators should be able to listen and really comprehend what the caller is requesting, so they can answer the question and fulfill the order or get the customer to someone who can.

Here's hoping you hear what your customers do!