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Ho-hum, you may be thinking. Or, boring. Maybe even, when can I possibly fit this into my hectic week?

As an entrepreneur, you are an extremely busy individual who probably shoots from the hip more often than not. So, do you really need to take the time and effort to put a business plan in writing?

Almost every CEO and business consultant in the country would answer with a resounding, “Yes!” The importance of a business plan cannot be overemphasized; however, the plan should be carefully considered and comprehensive and objective in nature.

Many entrepreneurs are quick to write a plan if they are seeking external financing, but the reality is every company needs a plan.
Having a good business plan in place will help you stay focused and achieve the goals you have set.

The U.S. Small Business Administration notes that “a business plan should be a work in progress.” Conditions change every day. Our national economic climate is not what it was ten years ago, and your local business environment has more than likely changed in the last few years. Factor progress or decline in your specific industry into this mix as well.

Focus on what makes your company special: what niche does it serve? Think about where you want your business to be in one year, five years, ten years.
What should be included? An executive summary that states the intent and purpose of the company; a thorough description of the business (including information on marketing, human resources, policies, procedures and competition); financial data (P&L statements, balance sheet, list of equipment); and any supporting exhibits (including resumes of principals, lease agreements and other legal documents).

Time spent today creating a business plan is definitely a solid investment in your company’s future.
 

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.
 

Recently, I've noticed several articles in various publications regarding changes in residential real estate marketing strategies. It seems that open houses (except those hosted for other real estate agents) are no longer a preferred way to reach potential home buyers. Today's tech-savvy buyers prefer to research listings on the Internet, taking virtual tours when and where it is most convenient to them. Most buyers, these articles note, make a decision whether or not to contact the listing agent based on these virtual home tours.

This got me thinking about buyers looking for a business to purchase and the similarities of utilizing the Internet for research. The majority of advertising and marketing for business brokers is handled through web sites that feature businesses for sale. While a few of these sites are available to entrepreneurs looking to sell their companies themselves, the majority are available only to business brokers through professional subscriptions.
As we've discussed, maintaining confidentiality of the business is a key factor for a successful business transfer. After all, a small business owner does not want to announce to his customers or competitors that he is thinking of retiring or leaving the industry.

The larger sites available to business brokers offer more space for describing key points about the companies for sale, while still maintaining complete confidentiality. Business brokers are experienced in wording listing descriptions that grab attention and highlight the factors most buyers will find attractive.

You only get one chance to market your business. Most buyers will find your company's listing by searching online. Make sure to maximize your marketing strategy when the time is right for you to sell.
 

“Loose lips sink ships.” It’s a familiar phrase to Americans, originally written by the War Advertising Council during World War II as “Loose lips might sink ships.” The British also used variations of the phrase that encouraged citizens and military personnel to avoid careless talk that might serve the enemy.
The phrase is still used today to caution against thoughtless chatter in general.

When selling a company, it is vitally important that confidentiality be maintained throughout the business transfer process. A breach of confidentiality may not only kill the deal, it can cause further repercussions to the seller as employees and customers may leave, creditors may begin to scrutinize more intently and competitors may capitalize on the perceived opportunity.

If a business owner is unable to disclose information, how is he supposed to sell his company?

Business brokers are professionals in this arena and have the experience and tools in place to manage the business transfer process discreetly, helping sellers maintain the utmost confidentiality until the transaction has been completed. This is accomplished by:
•    Marketing effectively
•    Qualifying buyers
•    Using documents that require confidentiality
•    Managing the information flow

A business broker should prepare a customized marketing approach for each company he lists for sale. This includes describing the business in a generic fashion -- one that will appeal to prospective buyers without jeopardizing the seller’s identity.

Approximately 90% of prospects who initially reply to advertisements are usually not a fit at all, generally because they lack the necessary experience or cash investment for the transaction. There are also a lot of “lookers” or “tire kickers” who can easily drain a seller’s time and tax his emotional energy. Business brokers have the skills to help qualify buyers immediately, before the seller is ever involved.

Business brokers use confidentiality agreements, with wording prospective buyers must agree to, in writing, before additional information is released.
Business brokers also manage the flow of information, holding the most sensitive records secure until a formal offer to purchase (with escrow deposit) has been accepted by the seller.

The business transfer process is somewhat unique in that the details of the entity being sold are not shared initially, but rather peeled away as the buyer becomes more interested and continues to offer proof of his sincerity and qualifications.