I was reminded of this during a recent presentation by the renowned Vic Firth, the percussionist who recently sold his drumstick business to Zildjian cimbals.  The Family Business Association hosted the presentation, ably facilitated by Kevin Dunn of Dunn & Rush.

This business was not even Vic Firth’s primary occupation: he was a percussionist for almost half a century with the Boston Symphony Orchestra.

Firth enumerated his concerns for the sale in priority order:

          Reputation of the buyer;

          Impact on employees;

          Commitment and staying power;

          Culture;

          Ownership and management of the buyer; and last:

          Price

Most owners have made it their life’s work to build their business.  They care about their customers, their employees, and, as in Firth’s case, their place in the culture.  He had a Director of Performing Artists Relations.  They care about the continuity of their business. 

Please call on ROI when you’re ready to sell your business.  We are experienced business intermediaries who understand that it’s not just about the price. ROI is a Massachusetts business broker assisting buyers in Massachusetts, Rhode Island and New Hampshire.

Peter Quandt – 617 212 5115 or E: pquandt@roibusinessbrokers.com

You want to sell your business for as much as possible.  So, add value in the post-sale transition.  This could be priced at six months’ worth of your salary for example.  Let’s look at the six months after you sell, whether to an entrepreneur, a strategic acquirer, to a family member or key employee. 

You create significantly more value in the sale of your business for the new owner by making a purposeful transition out of the business.  Everyone likes the wisdom passed along on TV show “Shark Tank,” right?  Think of it as a part-time job for six months.  Place a dollar value on your work during the transition and raise the price of the company.  With a thoughtful plan for the transition, you will create even greater value for the new owner and assure the new owner that the business is well managed.  If a relative has taken over the business, the value is especially obvious.You may want to establish performance measures:  significant new business should earn you a bonus.  Although you may be asked to stay on longer, six months is a good starting point.

How?

The new management needs to know the strengths and weaknesses of the business and to set priorities and plans for addressing them. For example…

Internal Resources

If the new management is smart, they’ll have you sit down with the three or four key people to look at their contributions, past and present.  This should be completely non-threatening: you’re no longer the boss and don’t control their paycheck.  You may not be their friend but no one knows their value—current or future—to the company better than you.  Ask them, what’s the one thing that the company needs to do to grow and prosper in the future?  Ask them who they see as the key influencer within each large customer.  You and the new management may want to make this part of the process of signing the key employees to non-compete agreements, and to award a bonus for doing so.

External Resources

Then, ask to sit privately with the five or six of the largest customers.  Find out what they like and don’t like.  Do some blue-sky thinking: how can your (former) company help them achieve their long-term plans?  Maybe they need to involve your company earlier in their design process.  Maybe they need to show their customers the tight integration between them and their suppliers.    Whatever the case, after a few such meetings, you can bring back valuable intelligence to the new owner.  You might then formally introduce the new owner to each of those customers.  Properly prepared, the new owner may be able to start off his relationship with the customer in a very future-oriented way, clearly marking the end of the old regime and the beginning of the new one.

Satisfying for you, too.

What about you?  In talking with your biggest customers, you’ll find out a lot.  Maybe they need you to sit on their Board of Directors or take a leadership role in an industry-wide committee or association or lobbying effort.   What’s that, you just want to kick back?  That’s fine, too.  You earned it.

ROI Corporation can assist in planning your exit strategy. We have helped owners exit their business in MA, NH, RI, CT and VT.  ROI provides assistance in exit planning, business valuation, in family and key employee buy outs as well as selling a business to a third party.  If you are considering selling your business in New England now or in the next few years contact us at ROI for a first meeting.

Peter Quandt has over 20 years’ experience in advising business in this country and overseas, dating back to his service as a Foreign Service Officer in Rome, Italy and in Washington, DC.  He has worked in business brokerage for seven years.  He has an MBA from Georgetown University and a bachelor’s in International Economics from Lehigh University.

pquandt@roibusinessbrokers.com

There are multiple ways to transition and value a Dental Practice.

It is best to begin planning 3 to 5 years in advance.  Will you sell to an associate or to a buyer from outside the practice? Will you sell a portion of the practice now and the balance at a later date? What is the Practice worth? Will you sell it yourself or with a practice transition specialist?

The first step is often obtaining a dental practice valuation. Although rules of thumb such as 50-70% of revenues do have some validity, that is a wide range and you do not want to sell yourself short. The value will vary by practice. For instance if the revenue per patient is low then a buyer should be able to readily increase the sales by offering a more formalized treatment plan. If the majority of patients are senior citizens the value may be less as a buyer will have concerns over a possible decline in the near future.  Do you refer work out that could be handled in house by an associate or by working more hours? Do you keep overhead lower than most so that your income is higher than the revenue might suggest? These are all areas where a practice valuation can provide valuable insight. Obtaining a valuation a year or more prior to transitioning your practice can allow you to make changes that can increase value and salability.

Selling your Dental Practice to an Associate.This can be a great way to proceed.  The sale can take place all at once or on a percentage basis now and the balance later.  This can allow the Dentist to have a cash in flex now while continuing to work and earn a good income.  A second in flex of cash occurs when the balance of the practice is sold. This can be done at any time in the life of a practice. Valuing the dental practice and having options for financing will be important to this process.

Selling outside the Dental Practice.Third party sales are common and financing is readily available in most cases.  The period in which you stay on to assist in the transition will vary butpart time through one hygiene cycle is a minimum recommendation. We have transitioned practices where the selling Dentist is no longer practicing and does not aid in transition but this will affect value. Expect a period of 60-90 days for due diligence, financing, building inspections etc. after a buyer is found.

Selling the Real Estate with the Dental Practice? This is often done at the same time but many buyers will prefer a lease with an option to buy. The financial strength of the buyer will be a big factor here. Financing is also available in many cases with only 10% down through SBA programs.

ROI Corporation assists with the transition and valuing of Dental Practices throughout New England. Whether you are selling to a identified buyer or placing your practice confidentially on the market ROI can help. We can value, assist in obtaining financing options, assist in due diligence and negotiation while keeping the transaction amiable and professional. You can continue to do what you do best while we handle the details. For information on transitioning or valuing and selling a Dental Practice, contact Gary Rayberg at ROI Corporation. Gary can be reached at 781-682-6309 Ext 208 and by e-mail at grayberg@roibusinessbrokers.com

by Paul Corrigan

Buying a business can be a challenging and lengthy process, but an added level of complexity is a potential business sale with a seller who also owns the real estate.  When a business owner owns the property in which the business is housed, there are many more options available.  Let’s look at this from both sides: that of the seller and the buyer.

 It is very common for a business seller to have his real estate in separate entity, typically a real estate trust.   The main reasons for doing this are two-fold: tax advantages and liability protection.  A real estate trust permits the owner to protect his real estate from business liabilities as it is owned by a separate entity with the business typically paying rent to the real estate trust rent.  A good CPA maximizes tax benefits by structuring the relationship of the owner’s personal taxes with that of the trust.  Another principal advantage is the options available to the current owner.  He may choose to sell the real estate with the business, lease it out to the new owner or a combination, such as a lease with an option to purchase down the road.  If the seller is open to all of these options, so much the better as the business can likely draw upon a greater pool of interested buyers who may have their own preferences.  Many times the real estate is mortgage debt free as the owner may have been there for decades.  Some owners like leasing because the rent acts essentially as an annuity for their retirement.  Others, especially if they may be moving from the area, do not want the responsibility of maintaining a property from long distance.

 Naturally for a buyer, the more flexibility a seller offers upon the real estate adds to the attraction of the deal.  However, if a property is to be rented, the issue of a lease arises.  This can be challenging because the seller likely had no lease.  Since he owned both the business and property, the rent arrangement tends to be  informal, something perhaps only the seller’s CPA may be aware of.  The first issue is what is the fair market value for the rent?  In most cases, the rent paid by the business reflects the best tax strategy for both business and real estate trust as calculated by the CPA.  It is very common for an owner to either pay way too much or way too little rent as compared with the prevailing market conditions.  The CPA determines this and it may vary from year-to-year!  So a market analysis may need to be done and a good commercial real estate broker can be a good resource for this.  Secondly, the seller will need go to through the process of creating a lease.  If they have not done this before (and likely they haven’t), this can be a lengthy and confusing time for all parties.  An inexperienced landlord may ask for unusual or even conflicting conditions.  For a buyer entering in a lease with a ‘new’ landlord, one should definitely start early and start with professional legal counsel. 

Purchasing the property is may be much more straight forward.  One only needs to get the fair market purchase price value, which can usually be accomplished by analysis of comparable properties sold recently in the area.  Purchasing the real estate may make obtaining financing easier.  Banks and lending institutions love hard assets, such as real estate, and it tends to make the whole purchase look less risky to them.  A greater percentage of the total loan amount is going towards hard assets with a correspondingly lower total percentage being allocated to intangibles, such as goodwill.

 The sale of commercial real estate can be much more complicated than residential.  Typically a lending institution will require much more in-depth inspections and appraisals.  One of the big stumbling blocks is the 21E environmental report as mandated by the state Department of Environmental Protection.  If the business is a gas station, dry cleaning plant or other facility which may use, collect or process hazardous materials, the owner need to stop any thoughts of sale right there.  If one shovelful of contaminated soil is found, the owner must now clean up the entire site, at a cost of potentially hundreds of thousands of dollars.  Obviously, many sellers would be reluctant to take on such a potential liability and therefore refuse to sell the property.  It is not uncommon to see 99-year lease appear in lieu of outright sale of the property.  The environmental concerns are the leading cause for today’s 99-year leases!

 Owning the real estate that houses a business can be a very practical, smart tax-saving move for a new business owner.  There is security in being your own landlord; there is the flexibility to do as one feels is best for the business and the property.  Once the mortgage is paid off, the property becomes a real cash cow.  However, the steps to acquiring a business property can be complicated and few people complete that process more than a few times.  An experienced business broker in property sales can be one of the best resources for either a seller or a buyer.  The brokers a ROI have years of experience and dozens of transactions involving commercial real estate.  Contact one today to learn more.

Paul Corrigan

 pcorrigan@roibusinessbrokers.com

By:  Art Cormier

                Do you own commercial real estate that you want to sell together with a business operating out of that real estate?  If so, you may want to consider engaging a business broker rather than a commercial real estate broker to sell both the real estate and the business.Many business brokers have real estate licenses and expertise in selling real estate because businesses are often marketed together with the real estate out of which they operate.  Significantly, business brokers also have expertise in marketing and valuing businesses that real estate brokers often lack.  Maximizing the value of the combined real estate and business is what a business broker does.

As compared to stand-alone real estate, a business with real estate should be marketed very differently and to a different group of people.  Business brokers know how and who to target.  Unlike the case of stand-alone real estate, when a business is involved one cannot simply put up a “for sale” sign.  The business owner wants to keep the fact that the business is for sale from employees, vendors, customers and competitors.  Business brokers are experienced at marketing businesses while maintaining confidentiality.  Moreover, unlike real estate brokers, business brokers know how to connect with people who are interested in buying businesses, rather than in buying justreal estate.

Understanding the value of the asset to be sold is a critical competence of any good broker.  Valuing a business with real estate, however, requires a completely different approach than valuingstand-alone real estate.  A business broker has expertise in reviewing financial statements, industry data and other materials necessary to understand the relative cash flows of a business and its likely value.  The value of the business and the real estate can sometimes be dependent on each other.  Real estate brokers are not trained in this area.

In summary, a business broker may be better positioned to sell real estate coupled with a business than a real estate broker.  At ROI Corporation, all of our business brokers are also licensed real estate professionals.  Please consider contacting ROI if you want to sell a business with (or without) real estate.

Art Cormier is a business broker with ROI Corporation.  He also is a licensed attorney and real estate broker.  For over a decade prior to joining ROI, he helped financially distressed companies restructure their operations and balance sheets, often through Chapter 11 proceedings, asset sales, and/or renegotiating critical contractual relationships.  Art is a magna cum laude graduate of Brandeis University, where he majored in both Economics and Political Science.  He received his law degree from the University of Virginia.

Art Cormier

acormier@roibusinessbrokers.com

New and higher tax rates will likely go into effect in 2013, making 2012 a watershed year for succession planning. Included in the 2013 rates is a new 3.8% health care surtax.

 So, this is the time of the year to sit down with your 2009 and 2010 results and compare 2011.  Yes, that’s the only reliable way to look forward to 2012 and plan for it.

 These are unusual times with high unpredictability, but we know some businesses are doing just fine though they may be running harder just to stay in place.   

 Your salespeople have goals; you have sales and service goals; and you may have a goal to exit the business, maybe in 2012, maybe 2013, or beyond. 

 If you’re working with a Wealth Management advisor or Estate Planner, they should assemble a team, including your lawyer and accountant, and they need a business broker and business valuation expert on that team. Most CPAs are not trained in business valuation. Whether the succession plan is to sell to an outsider or gift it to a family member, valuation is key, just like planning for the tax consequences and writing the buy-sell agreement(s).

 Call us.  We’ll work with you to determine the current value of your company.  We might recommend that you obtain an independent, third-party valuation so you really know where you are.  Then we’ll define your most important goal: maximizing the value of your business.  We may verify that your various expense categories are in line with industry norms.  If not, we’ll help you plan a way to get them in line.  We may find that your rent is too high or your inventory is excessive.  You need to do this periodically, just the way you need a personal physical exam occasionally.

 We do this confidentially.  We have certified valuation professionals in our office and access to outside experts who themselves have access to comparables, the valuations and sale prices of privately-held companies similar to yours around the country.  Comparables are the mother’s milk of valuation.

 What determines the bottom line?  An acquiring company buys the ability of your company to produce cash flow.  For a successful exit, you need positive cash flow over a period of years.  Just like selling a house, you need to clean up, so the business shows a clean balance sheet and optimum cash flow.

 Call us.  Whether you are transferring the business within the family, to a key employee or competitor or anticipate a third party sale, we’ll help you develop and implement a plan for a successful exit in the years ahead.

 Have a great Holiday Season!  

 Peter Quandt

PQuandt@ROIBusinessbrokers.com

Mobile: 617.212.5115

So you have decided to leave your 9-5 job working for someone else and buy a business.  In 2001 I did just that.  After a 30 year career in banking I decided to buy a commercial printing company.   Although I had never owned my own business and did not know anything about commercial printing, this seemed like a great idea and, as it turned out, it was.  I spent the next 11 years growing a successful business and sold it in June of this year.  

Having walked the walk of owning my own business here is what I would tell anyone contemplating buying a business.  Go for it!  Is it scary? Yes.  Is it worth it? Yes.  Owning my own business was one of the best things that I could have done in my life.  The satisfaction of being my own boss and growing my business was well worth the effort.  That being said, here is a short list of items to consider when planning your business purchase.  

1. What type of business do you want to buy?  It makes sense to buy a business that builds on your prior experience and your interests.  You are going to put some very long hours into your business so it better be something you enjoy.  It will be easier to obtain financing if you have some prior knowledge of the industry.  However, if the seller is willing to provide training you may want to consider a business that allows you to learn something new.   Also, you will want to consider the size and location of the business.  Don’t overlook the hours of operation and commute time.  If you don’t want to work weekends then a 7 day a week business, i.e. retail, probably won’t work for you. 
2. What do you need to get out of the business financially?  You need to be able to live on the salary that you can earn from the business after debt service. Look very carefully at the financials.  Success in business actually has at least as much to do with cash flow as profit.  Know the difference.  If you don’t have a strong background in small business financials, get help.If you can’t pay your personal bills you won’t be able to concentrate on running and growing your business. 
3. How will you pay for the business?  Is the business you’re considering financeable? Does the seller have a business valuation in hand?The SBA has tight requirements for underwriting small business acquisition loans but the banks are definitely lending money again. You’ll probably need a minimum of 20% of the purchase price for a down payment.  Where will the down payment money come from?  Do you have the liquid assets?Can you get a “gift” for the down payment? It makes sense to talk to a business broker and the list of lenders he or she recommends to discuss what options may be available for financing.  Seller financing may be an option.
4. Why is the business being sold?  There are many reasons why business owners want to sell ranging from wanting to retire to plain old burnout.  However, it may be useful to dig a little to make sure that there are no hidden reasons for selling the business.  How you buy the business, i.e. An asset sale versus a stock sale can protect you from liabilities incurred by the business before your purchase. Be sure to ask for a period of “due diligence” to inspect the books, records and operations of the business.
5. What professional help will I need?    You may want to consider contacting a business broker to represent you as a buyer.  A business broker can prove to be valuable resources in helping you negotiate with the seller, arrange financing, understand the inspections you may want to complete and coordinating the services of your CPA and lawyer to keep the process moving along to a successful conclusion.

 Asking these questions will be just a starting point in the decision making process.  The more you know about yourself and the business you are buying the more likely you are to make the right choice and the more successful you will be.  

Please don’t hesitate to contact me if I can answer any questions or help you in any way at all.  Ask me about our “PASS Program” (Proactive Acquisition Search Service) to help represent you as a buyer in your efforts to find the right business or visit our website at www.roibusinessbrokers.com for more information.

No…I don’t mean building houses but buying and selling a business.

When the process of buying or selling a business begins, both parties soon engage outside professionals to assist in the objective, specifically a lawyer and a CPA, and this usually where the train goes off  the tracks.

The cause?

Usually because the buyer/seller is vague on just what they want that professional to do, so they begin with the question…”What do you think?”, and always a lawyer or CPA will tell you what they think, and most commonly at $100 to $300 per hour, however “what they think” may not be what you need them to do.

This is where being your own “General Contractor” comes into play. Each party has already discussed, negotiated and agreed to the financial pieces of the agreement… discussed and agreed verbally to possible employment contract or promissory note… sales definition “done the deal”. Both parties need their professionals to do specific tasks.. for the CPA, the buyer needs verification of the numbers…tax returns, P&L, bank records, Accounts payable and receivable. In the case, the buyer must specifically instruct the CPA to do just that, instead, many CPAs given vague instruction usually begin to pontificate on the worth of the business, an amount the buyer and seller have already agreed to. I recently experienced a CPA performing due diligence and he commented to his client, the buyer, that the business was worth less. I called him and asked him what matrix he was using to determine value… his answer? “I think (blank) should buy a smaller business… in other words, no facts, just an unfounded and unsolicited opinion. Fortunately the buyer in this case was acting like a General Contractor, and told the CPA to finish the bank statement tie in with the general ledger, secure in his knowledge that he was getting good value for his purchase price.

I’m not a lawyer, but I play one in the office.

Lawyers kill more deals than any single factor by drafting agreements, so one-sided no sane person would sign. Again, terms, price and mutual understandings have been agreed to and a lawyer is needed to articulate those agreements and understanding in a binding legal contract. Unfortunately like me playing  lawyer in the office, many lawyers start to play business negotiator, after buyer and seller are in agreement. This really gets out of hand and becomes as contentious as a divorce proceeding. Recently a prospective client had his lawyer review our standard (Industry) listing agreement. He deleted and added so much that it took us days to get a handle on it. Again, a lawyer attempting to craft a document so one sided that his client had zero exposure. The fact that the lawyer had no ability to market the business himself was secondary. The net result after weeks of moving commas around was essentially the same document inspirit that we had originally.

By:   Bill Hogan

GPS has changed all that.  It occurred to me that since exiting a business is a journey, complete with the occasional wrong turn, (“…recalculating”…), it might be useful to approach exit planning the way we use GPS.

So how do we use GPS?  First question, “Where are you going?”   In exit planning this translates to, “How much do you need to retire”?  A surprising number of business owners get this first question wrong.  After owning their business for 20 years or more, and believing all along that their business and their retirement plan were the same thing, owners come to the conclusion that their business is worth however much money they need to retire.  “Why do you think your pizza place is worth $2 million?”  “Because my grandchildren live in California and that’s what houses cost there.”  Your retirement goal and your business sale price are two different numbers.  At this point let’s just assume that 1) you have a rough idea of what you’ll need to retire, and 2) there may be a delta between that financial goal and the value of your business.  We’ll get to closing that gap in a minute.

Second question, “What’s your current location?”  Translation: “What’s your business worth today?”  This can’t be a guess.  It’s not a story about a guy you knew who sold a similar business across town, or a rule of thumb that says businesses in your industry typically sell for x% of sales.  This needs to be an objective and justifiable number.  Your best approach is to have a certified business appraiser complete an independent valuation of your business. While valuations are not free, good valuations uncover problems that are undermining your value and suggest strategies to increase value. They pay for themselves.  After all, you have no hope of reaching your destination unless you know your starting point.

If you know where you’re going and where you are, your instincts may suggest that the next best question is “How do I get there?”  It’s not. A better question is, “How long do I have to get there?” Do you want the fastest route?  Least traffic?  Avoid toll roads?  Your planning horizon speaks to that gap between what you need to retire and what your business is worth.  You can get almost anywhere if you have enough time.  The tragedy is that the vast majority of business owners don’t start planning early enough.  They wait until family issues, or health issues, or partner problems, or simple exhaustion requires that they sell in 12 to 24 months.  That’s not much time to close a significant gap between your retirement goal and your business’ value.

Once you know how long you have to get there, you’re in a position to make an informed choice about the right route to your goal.  More time gives you more options.  A few of the longer term options include:

• ESOPs – Employee Stock Ownership Plans are most commonly used to create a market for the departing owner’s shares of stock and significant tax benefits for the owner.
•  Acquisitions – Owners can grow their firms by acquiring compatible competitors.  The right acquisition will pay for itself out of the cash flow of the acquired company.
• PEGs – Private Equity Groups will buy a portion of the owners stock and invest in the company’s growth.  The value of the owners retained stake grows as the company grows and the owner approaches retirement. You get two bites at the apple.

If you need to exit sooner than that you’re still not lost!  A few of your routes to increased value include:

• Finding a strategic buyer – The right strategic buyer will pay more for your company than a hypothetical financial buyer in order to achieve growth synergies and improve cash flow by wringing out redundant costs.
•  Reducing inventory – In some cases the sale of excess inventory can significantly increase the owner’s proceeds at sale.
•  Selling non-operating assets – Much like reductions to excess inventory the sale of assets that are not contributing to earnings can increase effective sale price.
•  Reporting all income – How do we say this politely?  Some owners, often in retail, describe something we’ll call “unrecognized income”.  The truth is that practice costs you a fortune when it’s time to sell the business.  We can prove it to you.  Stop doing it.
•  Adjusting the capital structure – Some owners consider it a badge of honor to be able to say they have “zeeero debt”.  While it might feel good to say it, in practice some debt can leverage performance, improve cash flow, and increase selling price.

Let’s switch from “Map” mode to “List” mode to summarize:

1. Know where you’re going.  What do you need to retire? Your retirement goal and the value of your business are two different numbers.
2.  Know you current location.  Get a professional valuation done on your business.
3.  Give yourself enough time to get there.  Five to eight years is a practical planning horizon, particularly if you have a long way to go. Even if you don’t have that far to go a longer planning horizon gives you a little extra time to recover from a bad year or a wrong turn (“..recalculating”..).  And if you have less time than that, start now!
4. Select your route. You probably have more options than you think you have.  Travel with someone who’s been there before.  ROI can work the GPS while you keep your eyes on the road!

Contact Michael at ROI today for a no cost evaluation of your Exit goals. 

 Michael Thames  

Michael has been a highly successful Business Intermediary at ROI for three years.  Prior to joining the firm Michael was a VP Business Development for a $6B transportation company where he lead a sales force.  Michael also searched out and evaluated corporate acquisition candidates for entry into new markets for his firm. Michael has managed sales organizations for training and relocation companies. Earlier in his career Michael owned a promotional products company in Massachusetts. His experiences as an entrepreneur and in helping his prior employer acquire the competition are invaluable assets in helping business owners to value and sell their firms. Michael received an MBA from Northeastern University. He and his wife Linda live in St Petersburg FL where he is in the process of opening ROI’s Florida office. He is a member of the Institute of Business Appraisers (IBA) in good standing.

ROI Corporation Provides Business Brokerage, Mergers and Acquisition services, Business Family and Key Employee  Transition Services, Exit Planning Consulting and Business Valuation Services principally in MA, NH, VT, RI, CT, NY, ME and FL as well as nationally. ROI has been involved in assisting clients in the sale of businesses and real estate in 39 states.

One of the less common areas in the business brokerage industry is the idea of growing a business by corporate acquisition, in essence buying a competitor. This same approach also works well for an individual looking to buy a small or mid size business.  Many business owners have thought of this – but few will complete an acquisition.  Why? Often it is the difference between proactive and reactive buyers.  Let’s look at the differences between reactive and proactive approaches to buying a business.

A reactive buyer is one who waits and hopes a good acquisition opportunity will come along at the right time.  The buyer may actively search listings of businesses for sale, yet even this is reactive as they are only looking at businesses who have already decided to sell.  Alternatively, they could approach a business intermediary and say: “If you come across something I might be interested in let me know and I will take a look at it.”   There are good business intermediaries who do keep an ear to the ground for his potential buyer.  Bear in mind that this business intermediary will likely need to have the buyer’s industry as a specialty niche, one who knows the majority of businesses in the appropriate geographic area and understands the industry business parameters.  This is virtually the definition of reactive!  The buyer is waiting for the phone to ring.  Is that the way their sales team brings in new customers?

The odds of acquiring a firm or competitor this way are slim.  When a good buying opportunity surfaces, how likely is it will be a good time for the buyer?  “Something’s come up and I can’t do this now…”  Is it even a good opportunity?  In a typical geographic area there are rarely more than 2 or 3 similar businesses for sale out of what may be hundreds of firms.  That is not much a cross section to measure a business’ strength with regards to the industry.  Does the buyer have the time and wherewithal to concentrate on this effort when the opportunity knocks?  Is there a financing plan in place?  How does this affect the business and pro forma plans? There are likely very few successful businesspeople that would pursue any other goal in this manner.

What does a proactive buyer look like?  A proactive buyer commits him or herself to making an acquisition.  The commitment to acquire should be part of a strategic plan, including parameters that define the acquisition: industry vertical, revenue size, geographic area to mention a few.  Is the buyer expanding geographically or moving into new product/services areas or reaching out to a new customer demographic?  A clearly defined picture of the acquisition raises the chances that an acquisition can be absorbed smoothly into the existing organization.  The buyer also should mentally set aside time and energy to devote to the acquisition effort, say 5% of his time.  There needs to be some thought given as to how the down payment and financing will take place.  In most cases, the financing may be covered in the cash flow of the acquired business.  Strategic acquisitions are more attractive to third party lenders, because the acquirer has industry experience and their own cash flow to add additional strength to the deal.

A program with a plan has a higher chance of success.  But if the buyer has not done this before, it usually makes sense to retain a business intermediary who has this unique experience and track record.  The intermediary  will have a well-defined program to coach the buyer through the entire process, including such items as defining the search parameters, scripting the outreach dialogue, assembling the list of pre-qualified candidates, collecting information to qualify the candidate, and determining if both buyer and seller should move forward.  The business intermediary can initiate a conversation with a potential seller to determine on a macro level if a seller is a good match.  Questions may involve percentages of revenue along product/service lines, staffing, service area, client/customer demographics, etc.  An effective campaign can act as a survey on the local industry revealing local industry ratios, trends and practices, enabling the proactive buyer to effectively evaluate his own firm and others. With the additional information an attractive deal may be quickly identified.  Perhaps more importantly is the issue of maintaining confidentiality.  In fact many times a third party is required to initiate any such sensitive discussions.  After all, can you call up your competitors and say, “Do you mind if I take a quick look at your financials?”

Because you are reaching a much broader audience as opposed to the number of available businesses publically listed, finding a successful match is much more likely.  Contact an ROI intermediary or go to our website, www.roibusinessbrokers.com, to learn more about our unique Proactive Acquisition Search Service (PASS) Our service not only helps firms grow by acquisition but also works for first time buyers targeting their  ideal business.  Let us show you how this strategy can be faster, less risky and less expensive than trying to grow by standard organic sales force methods or starting from scratch.  Such a solution may produce a positive reaction in many a business owner!

By: Paul Corrigan