Tag Archives: business broker Minnesota

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.

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.  

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. 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.

Case Study: A Story of Nails, Plastics and Seizing Opportunities

The Motivation

In the early 80’s, Frank was in his middle 30’s and broke, out of work and trying to support his young family. Every day he would scour the classifieds looking for work that would help him put food on the table.

The Opportunity

One day Frank noticed that an insurance company was running an ad selling nails. These nails had been onboard a railcar that derailed and were purchased by the insurance company as part of the claim.

The Materials

Nails: On a hunch, Frank called the insurance company and offered to sell the nails for them for a 10% profit…and the insurance company agreed. For the next six hours, Frank called everyone he could think of that might want a deal on nails including every construction company in the Twin Cities area. By the end of the day he sold the nails, generated a $2000 profit and had enough money to buy groceries for his family.

Plastics: With no other job prospects in sight, Frank continued to offer to sell damaged goods, excess inventory and scrap materials from manufacturing companies as a way to financially survive. He began to focus on scrap – specifically plastic scrap from manufacturing companies. He made enough money to buy a used van and began picking up scrap for a fee and disposing of it.

Then he had an idea. What if he rented a warehouse and used that space to pulverize plastic scrap into pellets, bag it and sell it back to the manufacturing companies to reuse?

That is exactly what he did and within a few years he was making a good living as the owner/operator of a plastics recycling company.

Giving Back

When things were at their best, Frank decided to sell his business and that’s where OIB entered the picture. We sold the business for a substantial profit to two corporate refugees. I asked Frank at closing why he decided to sell when he did. He said that he was still young, business was booming and he would never forget the desperation he felt before things turned around for him. Once he got to the point where he had enough money to live on, he wanted to dedicate his life to helping people who were less fortunate.

Ensuring Business Survival When Divorce Hits

Launching a business has a lot in common with getting married. Both require a leap of faith, grounded in deep self reflection coupled with open-eyed due diligence.

And neither marriage nor business has a guarantee of success.

When the business is solid but the marriage is crumbling, how can you make sure the business will emerge relatively unscathed from the process?

There are many factors at play, so each couple will have to forge their own path. Here are some tips.

Enter Marriage and Business with an Exit Strategy

When launching a business or diving into marriage, an exit strategy is a good idea. While bringing up a prenuptial agreement may feel awkward, the reality is about half of marriages end in divorce, so having a thoughtful, measured conversation about the possibility of divorce is an essential step in the marriage journey. If one party already owns a business, that business needs to be discussed in detail—both how the couple will deal with it in marriage, and in potential divorce. If you feel resistant to this conversation, remember that the fall-out won’t just affect you and your spouse: it will impact employees, partners and clients.

Prenuptial Agreements Smooth the Transition

It’s important that both parties have independent legal representation when constructing a prenup. Otherwise, there’s a risk of the agreement being dismissed in court. A judge can also dismiss the agreement if she believes a party hasn’t been honest and transparent when making it.

A parallel activity is the establishment of a buy/sell agreement, which establishes guidelines governing the departure of any co-owner from the business.

Having had that conversation and put both legal and informal agreements in place will make it much easier to manage emotions should you decide to split up. Click here to learn about a Divorce attorney, that can help you find the best possible solution for your current situation.

Post-Divorce Options: One Spouse Keeps the Business

This is the most common option. It’s likely to take place when one spouse has a significantly greater interest and history with the business. Typically, the invested spouse buys out the other spouse’s interest. A professional appraisal establishes the value. Generally this method is tax-efficient: it’s considered a transfer of property incident to divorce, and therefore usually not taxable.

Other strategies include a settlement note to be paid off over time, or the company can buy back the departing spouse’s shares.

Post-Divorce Options: Both Spouses Keep the Business

When divorce is especially amicable, and both parties are equally committed to the business, they may continue to be partners in business if not in married life. Obviously it’s not for everyone, but it can be done. When successful, it is an enriching exploration of a new phase of relationship.

Post-Divorce Options: Both Spouses Sell the Business

The couple can sell the enterprise and split the proceeds. However, this may take time and undesirably lengthen the proceedings.

Professional Help to Navigate Divorce

It’s essential that couples enlist empathetic, experienced and qualified help as they navigate their transition. Find a divorce lawyer who is also versed in business issues. Make sure to get accurate, conclusive tax advice about the ramifications of transferring the business.

Consider exploring collaborative divorce with an experienced attorney. This is a form of alternative dispute resolution (ADR), which means that the lawyers agree that if a settlement is not reached, they will retreat from the process and not pursue litigation. This is a huge motivator for attorneys to seek a peaceful, constructive resolution.

Use a mediation specialist to discuss and pursue a mutually agreeable resolution, greatly enhancing the prospect of a peaceful parting of ways.

The bottom line: advance planning will help keep emotions in check and contribute to a more amicable divorce as well as a smoother business transition.

Opportunity Zones Program

It’s been over a year since Congress passed the Tax Cuts and Jobs Act of 2017. Let’s take a look at Opportunity Zones, a new community investment incentive and tool launched by the act.

The goal: encouraging long-term investments in low-income rural and urban communities nationwide.

The Opportunity Zones program offers a tax incentive for investors to re-invest their unrealized capital gains into dedicated Opportunity Funds. It offers some tax breaks parallel to the popular 1031capital gains exchange, but with more restrictions. Do the benefits make it a good trade-off?

Tax Incentives Offered

The Economic Innovation Group (EIG), a bipartisan public policy organization, has useful online resources for investors wanting to learn more. They are not necessarily entirely objective, however, having helped develop this legislation.

Briefly, here three tax incentives offered by the program, as expressed by the EIG:

  • A temporary deferral of inclusion in taxable income for capital gains reinvested into an Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is disposed of or December 31, 2026
  • A step-up in basis for capital gains reinvested in an Opportunity Fund. The basis is increased by 10% if the investment in the Opportunity Fund is held by the taxpayer for at least 5 years and by an additional 5% if held for at least 7 years, thereby excluding up to 15% of the original gain from taxation
  • A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years. This exclusion only applies to gains accrued after an investment in an Opportunity Fund

On their fact sheet, EIG offers a useful side-by-side comparison of investment returns in a standard portfolio versus an Opportunity Fund, based on 5, 7 and 10 year durations.

While the dual potentials of the program—benefiting struggling neighborhoods while offering tax deferral—are attractive, some details of the program are leaving investors wary.

Some Rules Remain Unclear

On Valentine’s Day 2019, the IRS held a 5-hour-long hearing on the Opportunity Zones, at which 150 people were turned away. Clearly, investors are curious, but the end date of 2026 represents a fairly short investment window, and some rules remain unclear.

Forbes’ February 22 headline “Opportunity Zones – Look Great For Everybody Except Investors” is a sobering example of the possible limitations of the program. Author Peter J. Reilly, a self-described “cynical bastard,” advises investors “forget about it. It really doesn’t make much sense at all.” However, he acknowledges potential upsides for developers and property owners.

With nearly 8,700 designated Opportunity Zones in the US, the program is certainly worth exploring. Due diligence is a must, however, for a program this young whose rules are still being solidified.

How to Exit Your Business Positively & Profitably

The time will come for everyone: one way or another, you’ll be ready to exit your business.
After devoting years, possibly decades, of blood, sweat and tears into building your company, you might be counting on a payoff. You might be depending on selling your business to fund your retirement. But what if you can’t sell?

The irony is that the more personally involved you are in your business, the harder it is to transfer operations to someone else. To maximize your company’s appeal, build a business that can run without you.

Running a business on autopilot demands systems, discipline and consistency, no matter what type, right now the best options go with the small business definition, which has the same running system, and maybe more profitable chances depending in the marketing movement you use. Now, TheMarketingHeaven.com have been of great help when it comes to youtube clicks for many companies in their marketing campaigns, as they claim. Those values are crucial to business success, and they’re often central features of franchise operations.

Consider the statistics on business survival. 80-90% of independent businesses fail in five years, whereas 80-90% of franchises are successful five years in. After failing their business

What Do Franchises Have in Common?

They’ve had tremendous opportunity to make a lot mistakes and learn from them. If 100 franchise restaurants are pursuing improvement for five years, that’s 500 combined years of experience. Their strength is the combined experience and wisdom of legions of owners and managers, all wrapped up in a network which has honed the art of learning from trial and error, and perfected analyzing and communicating the results. Franchise restaurants usually cooperate with professional employment organization like Nominak HR which means they do not need to manage employees and can concentrate on growing business.

They harness the power of consistency. They have highly developed systems and processes ranging from employee handbooks to accounting templates. These enable them to operate profitably and reliably without the constant presence of ownership.

If you plan on exiting your business someday, it’s up to you to multiply its value by building it to operate profitably without your day-to-day engagement. By escaping the routine grind, you’ll free up time and energy to devote to concrete improvements with the best polished concrete in Perth. At the same time, you’ll build a business which is exponentially more attractive to buyers.

Lessons from the Franchise Arena

Franchises provide buyers with a handbook for success.

Your handbook for success has to include documented and repeatable systems for every element of your company, from sales and marketing to bookkeeping to inventory to shipping. Every task has to be systemized, every element has to be documented so employees can be trained accordingly. SOPs (Standard Operation Procedures) must clearly explain tasks, and employee manuals must clearly express responsibilities. Without these, consistent training is impossible.

Management must also conform to consistent, repeatable, trainable responsibilities and routines.

When these systems are successfully established, they’re nearly guaranteed to boost profits and increase efficiency. By documenting your strategies and procedures, you’ll reassure potential buyers that your success can be replicated.

Even if you don’t anticipate trying to sell for a few decades, these efforts will pay dividends.
When the owner is relieved of daily responsibilities and can focus on big-picture, process-oriented improvements, the possibility for real growth blossoms. Additionally, unexpected circumstances can confront any of us at any time, and having the option to sell your business keeps you flexible. Lastly, by the time many owners are ready to sell, they’re often too burned out to transform their business, so they’re forced to accept a lowball offer, or to shut their doors entirely.

Even if you’re convinced your business is one-of-a-kind, embracing a franchise mentality will boost its value and make your exit a financial success.