OIB Business Terms

Common Transactional Terms & What they Mean!

One of our main goals at Opportunities in Business is to simplify the real estate process. On this note, let us walk you through some common terms and definitions you’re likely to hear on the real estate scene! 

Add Backs: An expense that is not considered an actual expense but is added back to company profits. 

Asset Purchase Agreement (APA): A legally binding agreement between a buyer and seller that encompasses the terms and conditions of the sale. 

Asset Sale: Selling business assets to increase cash flow or to liquidate. Ownership of the parent company doesn’t change. 

Balance Sheet: A statement that lists assets, liabilities, expenditures, equity, etc. from the company start date until the present. 

Business Appraisal: The estimated value of a business. 

Bill of Sale: A document the seller gives to the buyer once a transaction is complete. It is proof of the transaction. 

Cash Flow: When expenses are deducted from net revenue, this is the remainder. 

Closing Statement: A document issued once all parties have signed on the sale and purchase and money has been distributed to the seller. 

Copyright: Legal protection to a content creator for their unique work. 

Commission: The amount a broker receives for facilitating a business sale. It is often calculated as a percentage of the sale. 

Covenant: A promise in a written contract or deed. 

Due Diligence: A period of time after signing a contract where the buyer can investigate financials and other business details in order to determine if they wish to move forward with the process. 

Deal Flow: The number of deals a broker is currently processing. 

Earnest Money Deposit: Money the buyer puts down in a transaction to clarify their intent to negotiate on the purchase. 

Escrow: Money held by a third (neutral) party on behalf of two transacting parties. 

Exclusivity: A period of time during which the seller is unable to list their property with another broker and the broker maintains the right to a commission if the property sells during this time. 

Fulfilled by Amazon (FBA): An e-commerce service in which third-party vendors store their products in Amazon warehouses and Amazon is responsible for fulfilling orders from start to finish. 

Hours to Manage: The number of weekly hours the management of a business requires – critical information for determining the valuation of a business. 

Letter of Intent (LOI): A document declaring the intent of one party to do business with another party. 

Listing Price: The price of a business listed for sale. 

Non-compete Agreement: A legally binding agreement between a buyer and seller in which the seller agrees not to compete with the buyer in a similar profession or trade for a certain duration of time. 

Non-disclosure Agreement (NDA): A legal contract between two parties that outlines the confidentiality of the business. 

Partnership: A legal business structure between two or more individuals. 

Profit and Loss Statement (P&L): A financial statement that summarizes a company’s financials over a period of time. 

Software as a Service (SAAS): A software application hosted over the internet as opposed to on a traditional desktop. 

Trailing Twelve Months (TTM): A report that details the past 12 consecutive months of a company’s performance data. 

Valuation: The actual listing price of a business. 

The brokers at OIB have the knowledge and experience to help you navigate a business purchase or facilitate the sale of your business. Reach us anytime at 612.331.8392 or by email at info@oibmn.com.

OIB Opportunities in Business

Reasons Acquisitions Fail and How to Succeed

Growth through acquisition is promising but is not without its pitfalls. There are several common, avoidable reasons acquisitions fail and learning from these mistakes and oversights can set your company up for successful future acquisitions.

Leadership: Acquisitions fail when leadership is not proactive or sufficiently involved in the acquisition process.

Due diligence: Acquisitions fail when companies do not act on due-diligence discoveries.

Technology: Acquisitions fail when buyers have unrealistic expectations of system integration.

Strategy: Acquisitions fail when a clear strategy isn’t used to determine integration goals.

Talent:  Acquisitions fail when buyers lose key talent during the process.

Financial overextension: Acquisitions fail when negotiations get dragged out and deplete financial resources.

Culture: Acquisitions fail when buyers trample the culture of the company being acquired.

Synergy: Acquisitions fail when buyers come in with too high of expectations of merger synergies.

Communication: Acquisitions fail when communication breaks down and causes a chain reaction of disconnect and disappointment.

A few tips to Succeed

  • Be thorough. Leave no stone unturned throughout the acquisition process.
  • Pay attention to mergers and acquisitions in the news. Learn from other buyers!
  • Acquisitions take time and cost money – be patient and methodical.

Your diligence will pay off and your company will grow! Considering business acquisition? Reach us anytime at 612.331.8392 or by email at info@oibmn.com.

Writing a Bullseye Business Offer

Selling a business is an extremely personal experience for the business owner. After pouring themselves into the company day after day, month after month, year after year, they’re finally ready to pass the torch.

For the seller, choosing the right buyer and entering into a contract is much more than just a numbers game. When it comes to purchasing a business, it’s important for the interested party to respect the owner’s journey and speak to their sense of volition, wisdom, and purpose.

Volition: Starting up and operating a business requires a strong sense of autonomy and the thought of giving it up in that capacity can be scary. Consider how you can encourage the owner’s volition when you write up your offer. One way you can approach this is through monetary compensation. Monetary compensation can help secure the owner’s financial future and keep their options open so they are able to embrace new adventures.

Wisdom: Acknowledge the owner’s hard-fought wisdom by offering to keep them on in some capacity after the sale of the business. For example, you can write a consultant role in your offer that allows the owner to stay involved in the business and utilize their wisdom and experience.

Purpose: The overarching challenge for a business owner in the process of selling their business is maintaining their sense of purpose. You can honor the owner and acknowledge this challenge by appealing to their purpose. Keeping them on as a consultant or offering an earnout provision are two effective ways to do this.

Do you want help writing up an offer that addresses more than just the bottom line? We can help you speak to the seller and write a powerful, all-encompassing offer. Reach out to us at 612.331.8392 or by email at info@oibmn.com.

Crucial Questions to Ask Before Hiring a Business Broker

Selling a business is no small beans. It’s a process that requires careful planning years in advance. Diomo Corporation reports that, at any one time, there are 15 prospective buyers on the market for every one business listed for sale. While this statistic is favorable for sellers, 50% of all transactions agreed to between the buyer and seller fall apart during the due diligence stage and never close.

Having a trusted business broker in your corner could mean the difference between selling your business for a fair price and not selling it at all. When it comes to finding the right broker for your business, there are a handful of questions you must be asking.

What’s your experience selling businesses like mine? How many have you sold?
The operational ins and outs of the restaurant business are vastly different from the ins and outs of an insurance company. For this reason, the sale of these two businesses will look very different and having a broker with the right experience is crucial. Don’t hesitate to ask your broker about their experience selling businesses within your industry including how many similar businesses they’ve sold.

Is business brokerage your full-time occupation?
It’s important that the broker you choose is dedicated to the sale of your business. Be wary of working with a broker who divides their time between a couple of different professions. Finding a buyer for a business and facilitating that transaction takes a tremendous amount of time and dedication. A broker working another job likely won’t be able to give your sale the attention it requires.

How many listings do you have right now?
If your business broker has a copious number of listings, they may be spread too thin. Conversely, if your broker has no listings, it could indicate a lack of motivation, possibly related to another source of income. A manageable number of listings for a full-time business broker is 3-7. Use this range as a benchmark for brokers you’re interviewing.

How many qualified buyers do you have?
When it comes to choosing the right broker for your business, it’s perfectly acceptable to ask each broker how many qualified buyers they have in their back pocket. You want to make sure brokers know their qualified buyers personally and aren’t just relying on a generic email list. Personal connections to qualified buyers and sellers are one of a broker’s biggest assets.

Do you help with contract preparation?
Structuring deals and drafting legal agreements are skills any experienced broker should possess. However, a good broker should also advise you to have your paperwork carefully examined by an attorney before details are finalized. Involving an attorney to review legal agreements helps reduce the liability for all involved parties.

The question isn’t: Is hiring a business broker a wise choice when it comes to selling my business? but how do I hire an experienced business broker who is motivated to represent my interests? Taking the time to interview potential brokers is a huge investment in the sale of your business.

Set Your Company Up for Success: What Top Business Leaders Do to Succeed

Success is the result of careful planning. Here are some important tips from top business leaders for growing a successful company:

Tip #1 – Be the tortoise, not the hare

Slow and steady growth is a much more sound approach than bursts of growth. Many companies scale too quickly and collapse because their infrastructure is unable to accommodate it. Get More Info to find the right infrastructure in your home.

Tip #2 – State your goals

This might sound obvious but its importance cannot be underestimated. Write down your company goals and delineate your plan for achieving them. Communicate these goals and strategies to your employees and revisit the conversation often, keeping everyone up to speed on where the company is at in the process of achieving them. This will remind your employees that their position fits into the bigger picture and it will motivate them to do their best work.

Tip #3 – Build trust through transparency

Being open about your company goals and strategies is one way to cultivate transparency within your organization. When transparency is a priority, you create an atmosphere of trust which leads to improved morale, increased connection and productivity and better employee retention – all keys to running a successful organization.

Tip #4 – Practice good financial reporting

Paying close attention to company financials is a must. The use of a financial dashboard gives you a visual sense of where your company stands in many areas and helps you better comprehend and interpret performance metrics. The up-to-date information allows you to set practical implementation strategies that keep the health of your company priority one.

Tip #5 – Focus on the big picture when hiring

Promoting internally motivates employees to work hard and produce quality work. When you interview candidates for entry-level positions, ask yourself if the candidates fit the company culture and if they possess the skills and drive necessary to take on greater roles within the company down the road. Hiring with the big picture in mind sets your organization up for both short-term and long-term success.

Want help with the purchase of your next business? You can reach us at 612.331.8392 or by email at info@oibmn.com.

Primary Components of an M&A Purchase Agreement

It’s important to familiarize yourself with the ins and outs of an M&A purchase agreement so you can go into your next transaction prepared.

Think of a purchase agreement as a more detailed LOI. While it contains the same terms as the LOI, it also includes additional terms and conditions and goes into greater depth.

Here are the primary components of an M&A purchase agreement:

Definitions: Before agreeing to the terms in a purchase agreement, it’s important to clarify the terms so everyone is on the same page. Many terms in a PA can seem ambiguous and up to individual interpretation. Taking the time to define these terms can clear up confusion upfront and is one more step towards ensuring a smooth transaction from start to finish.

Indemnifications: This part of the purchase agreement helps to protect the buyer from any issues that may arise after closing and draws a clear line of responsibility in the sand. Often heavily contested and litigated, indemnifications address which actions are covered, how long the indemnification period lasts, financial caps on damages, etc.

Representations, Warranties and Schedules: This is where the seller states what is true about the business at the time of sale. This can include up-to-date financial statements, any current environmental liabilities, ongoing litigation and employee benefits.

Execution Provisions: What money is being exchanged and in what forms? Are there any purchase price adjustments, escrows or earnouts? This is where all financial details relating to the purchase are spelled out.

Covenants: These are agreed upon behaviors between buyers and sellers. They can address the hiring of new employees as well as bonuses and raises instituted by the seller between the signing of the purchase agreement and the closing. They can also address post-closing behaviors such as non-compete agreements and D&O insurance.

Closing Conditions: This is the part of the purchase agreement where you detail requirements of both the buyer and the seller between the purchase agreement and the closing table. These requirements are specific to the transaction and can include special financing conditions, provisions stating that all representations and warranties are met, material adverse change clauses, etc.

If you want help creating a thorough M&A purchase agreement, we’d love to assist. We can be reached at 612.331.8392 or by email at info@oibmn.com.

What Not To Do When Submitting an Indication of Interest

When submitting an Indication of Interest, it’s important to put your best foot forward. Price range, financing details, a due diligence timeline, a proposed closing date…these are just a few items typically submitted with an IOI that assist in creating a solid case for business acquisition. Conversely, if you’re seriously considering an acquisition, there are also some things you must not do. 

Do not overlook the due diligence process

Instead, reach out to the banker with all of your questions. This demonstrates a high level of interest and responsibility – two important components of the business acquisition process. Communicating with the banker shows that you’re doing your homework and that you’re a serious contender for the purchase. 

Do not submit a weak offer

Instead, submit a well-calculated, competitive offer. If you’re trying to hone in on a ballpark offer, talking with the banker on the seller’s side can help. They can’t give you a number but they can inform you more about the seller’s situation and general market trends. 

Do not skimp on the details

Instead, write out your unique advantages in your offer letter. Similar to a letter a buyer encloses when they submit an offer on a private purchase, writing out your “selling points” can lead a seller to choose your offer over another competitive offer. Be sure to include information about your timeframe, financials and company culture. And the more information the better! This information can increase banker and seller confidence, reduce their uncertainty and minimize perceived risk.

Do you want help navigating the business acquisition process? We’d love to partner with you! Contact us at 612.331.8392 or by email at info@oibmn.com.

How Buyers Evaluate Risk

When it comes to purchasing a business, evaluating risk on every front is paramount. This risk assessment, known as due diligence, can take anywhere from 30-90 days or more and is comprised of assessments on multiple fronts. 

Areas to assess

Operations: Investigate answers to the following questions:

  • What is the growth trajectory of this company? 
  • Is the revenue sustainable? 
  • What is the company’s product image and how does it line up with competitors’ product images? 

IT: Evaluate security vulnerabilities and assess the ownership and setup of any custom software. Also, take an inventory of all IT devices among the company’s employees and economy advisers, so to find our best rates click here and learn more.

Legal: Hire a lawyer to review all organizational documents, contracts, leases, past litigation, etc. for the purpose of addressing possible legal liabilities. 

Accounting: Conduct an assessment of the seller’s financial statements to help predict the company’s future earnings.

Environmental: Conduct an assessment of all business sites to determine any possible environmental contamination and litigation risks. 

Documents to evaluate

During the due diligence process, you’ll want to explore all the documents you can get your hands on in order to flush out all possible risks. These documents may include but are certainly not limited to licenses and permits, information on any past and current litigation, articles of incorporation, insurance coverage and information concerning any recent claims, employee contract details, information on company assets, tax records and financial statements. 

Take your time with this process. It’s not possible to be too thorough. If, after you’ve evaluated the risks, you determine you’re ready to move forward, it’s time to draft and sign a formal agreement. Should you dredge up current or potential risks that you’re not willing to assume, you can part ways with the seller, thankful you did your due diligence and avoided an unhealthy business transaction.

If you’re thinking about buying or selling a business, we would be happy to connect with you. We can be reached at 612.331.8392 or by email at info@oibmn.com.

It’s a Small World After All!

Opportunities in Business has been around since 1981. Our original owners, Tom Green and Bob Griesgraber, still operate our company today and work with our great sales team. We bring tremendous experience to every transaction and client we work with.

We were reminded of our longevity recently when we agreed to sell a business in St. Paul. Part of the deal involved a lease agreement with a St. Paul property owner who turned out to be the grandson of a man we sold a business for in the mid 1980’s.

Back in the 80’s, we were called on by this man’s grandfather to sell some businesses for him. He wanted to retire. We successfully sold the businesses. 12 years later, the retiree’s son contacted Opportunities in Business to sell a chain of stores he developed and we successfully sold all 11 small businesses for him. Then we sold two other businesses for him in 2010. The son’s goal was to acquire commercial real estate, it allows you to slash your premium which he was able to do with the proceeds from the sale of his businesses. And you can sell your property with the help of our friends. For more information visit website here.

His grandson used our services as well to sell a small business he developed. As the real estate holdings grew and the son of the original owner aged, the grandson assumed more of the day-to-day property management duties.

A small business operating in one of the buildings decided to sell and contacted Opportunities in Business. Part of that transaction involved negotiating a lease for the buyer of the business…with the grandson of the man we sold a business for 34 years ago!

It is indeed a small world after all!

How to Determine what your Business is Worth

With the amount of privately held businesses, there should be an easy way to determine the worth of a privately held business. If you are looking for the “fair market value” of a public business, you would be able to find it’s valuation on the stock market. That is not the case for private businesses.

Financial statements and tax returns are not enough to base your businesses value on. Prices paid for similar businesses are often times hard to find as the sales agreements are usually kept private. And public company valuations may provide some context, but are hard to translate even when you take into account the difference in size, stability, liquidity, and a number of other factors.

There are two valuation methods you could look into. The Discounted Cash Flow (DCF) method tries to estimate the future cash flows and use that to determine the current value. The EBITDA valuation method takes into account the EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, multiple to come up with the current value. The issue with these methods is that they are both just estimates, and your estimates may differ from your buyers. And if you’re someone who uses Salesforce integration services by Coral Team, then it becomes a whole different ball game, as services like these vary a lot of factors. They also do not take into account additional factors that could affect an offer, like cash versus earn-outs, working capital, or warranties, to name a few.

The most reliable indicator of the value of a business comes by finding out what people will pay for your business. This means taking into consideration multiple offers and juggling them until you can come to an agreement with a buyer. Buyers will decide what to pay based on what they believe your company will make them. That means you may have to prepare to represent your business in the best possible way with well-presented documentation, an investment thesis, and knowledge on how to counter price-chipping, a common strategy buyers use to reduce the price based on identifying possible issues with your business.

At the end of the day, evaluating a business is a complex process. Even if you follow all the guidelines and advice, there are probably assets or issues that you are going to miss.

That is why the easiest course of action is to call in a professional, like Opportunities in Business, all of this is first and then with the possibility of a good business the chance to take it to a physical office, with an office space rentals you can have your business booming fast. With our experience, specialized knowledge, and tools, we will give you the most accurate estimate of your business’s worth and help you find the buyers you need.