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OIB Business Terms

Common Transactional Terms & What they Mean!

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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

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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.

5 Myths About SBA Loans

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FIVE MYTHS ABOUT SBA LOANS

The Small Business Administration (SBA) is a federal agency established in 1953 to support entrepreneurs and small businesses. Their mission is “to maintain and strengthen the nation’s economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters.”

A big part of the support they offer is in the form of loans, and we see lots of misconceptions out there about how SBA loans work, and their pros and cons. Here are five myths about SBA loans, along with the real story.

MYTH #1: The SBA lends money to small business owners

TRUTH: Banks and credit unions make the loans, the SBA simply helps guaranty them. It’s like having a rock-solid co-signer for a personal loan. The SBA guarantees that the bank won’t lose the principal they loaned you if you default, so the bank experiences less risk and is, therefore, more likely to approve the loan, and may offer a larger amount. The SBA guarantees a large portion (between 50-85%, depending on program) of the loan.

Each institution evaluates and approves or declines loans based on their own criteria, so if you’re declined by one, you should still apply at other institutions.

Myth #2: The SBA demands extensive collateral

TRUTH: While the SBA does require that lenders take collateral when available, the lack of collateral does not automatically disqualify applicants. The SBA will help those small businesses whose collateral doesn’t meet lending standards, which also helps borrowers overcome some of the challenges linked with lower credit scores. Borrowers without real estate equity to pledge should seek out lenders who are experienced at relying on the business’s financial strength for repayment.

MYTH #3: SBA loans require a ton of burdensome paperwork

TRUTH: The SBA has revamped their process to streamline it for applicants. Today’s applications are typically processed within 3 to 5 business days, and Preferred Lender Program (PLP) institutions can provide even faster turnaround because they are qualified to approve applications in-house without SBA oversight.

Working with a PLP lender is generally recommended because they are better acquainted with all the ins and outs of the SBA loan process. They’ll know how to determine eligibility, how to optimally structure the loan, and what documents are necessary.

MYTH #4: I can only borrow once from the SBA

TRUTH: The SBA does not limit the number of loans to a single borrower or business. They do observe a limit of $5 million in loans outstanding at any time to a single guarantor. Until a borrower hits that limit, they may take out multiple loans for acquisition, working capital, real estate or other expansions.

MYTH #5: I’ve got a successful business, so I don’t need an SBA loan

TRUTH: SBA loans offer favorable terms, so they are actually very suitable for successful businesses. They offer longer terms, lower down payments, flexible payments and no balloon payments. A business seeking capital should absolutely investigate the SBA option.

If you have any questions about this article or about buying or selling your business, please give us a call at 612-331-8392.

How to Prepare Your Business to Sell

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Selling a business is a milestone most business owners will eventually encounter. Whether motivated by retirement, potential profit, or external circumstances, selling a business is a high-stakes undertaking and demands plenty of due diligence to ensure the best outcome.

Even if you’re not ready to sell, it’s smart to view your business through a buyer’s lens. Just as you’d want to keep your home in good condition in case you suddenly need to put it on the market, you benefit from a business in which loose ends are tied up and books and documents are in order.

Here are 5 steps to take to ensure that your business is ready to go on the market and attract top-value offers.

First…Obtain a business valuation. Hire an experienced professional entity to analyze your business and establish its value. Business brokers, investment banking firms and accounting firms offer this service. Find one with experience in your industry, and get an objective assessment of your business’s financial situation, market position, strengths, and weaknesses. Opportunities in Business has been doing valuations for over 30 years.

Second…Put your books in order. Buyers typically require at least a three-year financial track record, and it’s important that your taxes are up to date and in order.

Third…Review and organize all legal paperwork. Track down all permits, leases, incorporation papers, licensing agreements, vendor contracts, customer contracts, etc..

Fourth…Focus on sales and growth. Buyers will closely examine the growth potential of your company. As you ramp up to putting your business on the market, it’s a good strategy to grow your sales efforts and invest in growth initiatives. Don’t focus exclusively on gross revenue; most buyers will rely on net or EBITDA (earnings before interest, taxes, depreciation, and amortization). An attractive EBITDA is key to a higher price.

Fifth…Perform a SWOT analysis, defining your strengths, weaknesses, opportunities, and threats. Buyers will negotiate by targeting your weaknesses and threats: you’ve got to be prepared to defend yourself, and to counter with emphasis on strengths and opportunities. Identify and address problems now. If you have fires, put them out. If you have skeletons, rehearse how to explain them succinctly and clearly, and then move on.

If you’d like to talk to an expert about your business and what you need to do to sell it, please give us a call at 612-331-8392.

How to Select a Business Broker

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Smart sellers engage business brokers to maximize value and ensure a smooth transaction. As you shop for a business brokerage firm, it’s your responsibility to ask the right questions so you select the right party to sell your business.

Here are some questions to get you started, grouped into three general categories: experience, marketing, and administration. Choosing the best broker for your situation is crucial to getting top dollar with minimal headaches, so take your time interviewing candidates.

EXPERIENCE

How long have you been a business broker?

Experience is crucial in this business–it’s a huge part of the value proposition you’re paying for with your commission. If the agent you’re interviewing doesn’t have a long track record, they can still do a good job providing that they get adequate support from their highly experienced colleagues. Ask detailed questions to confirm that you’ll be benefiting from experienced professionals. Also, confirm how long they’ve been with their present firm. While it’s normal to change firms occasionally, excessive transitions suggest a problem.

In what industries have you sold businesses?

If the broker hasn’t sold any businesses in your industry, they can still do a good job if they exercise due diligence and learn about the field. Ask them to share their experience in your industry. If it’s new to them, they should explain how experience with other clients will contribute to success, and how they’ll come up to speed in your industry.   

How many listings do you have?

A qualified business broker should have a number of active listings at any time–generally between 15 and 20. If their number is on the low side, find out why. If their number is on the high side, ask them about the size and performance of their administrative and support staff.

How many businesses do you sell annually?

A typical annual volume is eight to ten businesses a year. If the number is lower, find out why. If they sell very large businesses, a smaller number may be acceptable, but it’s important to learn more.

How many businesses have you sold in total?

More sales equals more experience. Again, if your prospective broker doesn’t have extensive experience, but has excellent support from colleagues and the resources of a large, established firm, she or he may be a suitable candidate.

What is your closing ratio?

When you get an offer, you want it to close successfully. Find out the closing ratio of your candidate, and ask what pitfalls they’ve encountered in the past which have disrupted closing, and what steps they’ve taken to address the problems.

Do you have testimonials?

Ask for testimonials and contact references. However, remember that business sales are confidential and brokers cannot disclose the information on any completed transactions without the seller’s permission.

MARKETING

How do you determine the value of my business?

A professional valuation of your business is one of the main benefits of retaining a business broker. You want a brokerage which stringently determines your business’s worth. They must consult industry standards, examine business comps and run calculations to come up with an accurate and realistic number. They also need to be transparent in this process, sharing the data with you to justify their conclusions. Correct pricing is crucial to a timely sale.

Do you have a database of buyers? How big?

A digital database sorting potential buyers can speed up a sale.

ADMINISTRATION

What’s your process for qualifying buyers?

Brokers have a duty to protect your privacy, so they shouldn’t share details about your business recklessly. Before the firm shares financials on your business, what measures do they take to qualify buyers?

Do you assist with obtaining financing?

Financing has undergone big changes in recent years. Make sure your broker knows what financial institutions are interested in financing your business.

Do you have reliable attorneys, lenders and tax specialists?

Deals often disintegrate because other parties such as attorneys, lenders and tax specialists drop the ball. Seek a firm that has established relationships with these professionals. There are a lot of moving parts in a high-stakes transaction, so clear expectations and a proven sequence of steps are crucial. For example, to minimize tax liability they must engage tax specialists to assist with structuring the deal before the business changes hands.

Check-out our recent list of businesses we’ve sold! 

Replacement ink and toner cartridges

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TYPE OF BUSINESS:  This business offers replacement ink cartridges and toner cartridges for all major brands of printers, copiers, fax and postage machines.  This includes HP, Epson, Canon, Brother, Lexmark, Dell and Samsung.  They carry a full line of black ink cartridges, color ink cartridges, black toner cartridges and color toner cartridges.  This business was established in 2006 by the current owners.  The business is located in a first ring suburb of Minneapolis.  The sales are about 50% business and 50% individuals.  The owner works 4-5 days per week with very flexible hours – responsible for the “office work”, ordering, marketing and some deliveries.  New owner needs to spend more time trying to get more business accounts.

EQUIPMENT:   The equipment is in good shape and is well maintained.

EMPLOYEES:  The business operates with 3 part time employees.  1 earns $13/hours and works about 35 hours/ week; 1 earns $10/hour and works about 14 hours/ week and 1 earns $5/ cartridge and works about 28 hours/week.

GROSS SALES/ CASH FLOW:  Gross sales for 2013 were $284,469; 2012 were $295,831, 2011 were $311,977, 2010 were $303,712 and $2009 were $326,696.  Cash flow to an owner operator based on 2013 sales was $80,000+. 

ASKING PRICE: The asking price for the business $175,000.00.  Included in the asking price is inventory of about $35,000.00 (at cost) and the equipment, which is valued at $5-$7,000.00.

REASON FOR SALE:  Personal reasons.  Caring for ill parents.

Autobody Shop

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This body shop was established 34 years ago in a NW suburb of Minneapolis. The current owner has operated the business for 20 years. The company has established relationship with multiple insurance companies over the years as well as auto dealers and walk in customers. The owner offers collision repair, custom p

FACILITY: The business operates from a leased facility with 9,500 square feet. The lease payments are $6,400 per month which includes the CAM charges. Currently the seller is on a yearly contract, but the landlord will do a 3 or 5 year lease.

 

EMPLOYEES: The business operates with 4 full time employees, 1 part time employee, and the owner. One employee can manage the staff and do estimating. The owners primary duties includes estimating, insurance claims, and over all management of the business.

 

 

SALES PRICE: The seller is asking $99,000 for the business which includes all the equipment and inventory. The seller will stay forainting, mechanical services, glass repair, etc.

Commercial Cleaning – only work 6 hours a week

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This is a commercial cleaning/janitorial business that was established since 1963 by the current owner. The business is selling fully equipped operating accounts to a buyer. This company provides nightly janitorial services that include trash removal, vacuuming, dusting and cleaning of the restrooms. They also provide the following specialty services: carpet cleaning, stripping and waxing floors. The buildings that are cleaned consist of both office and warehouse space. The accounts are fully staffed. This is a great way to get into business for yourself and keep your full time job.

 

A buyer would over oversee these accounts each week and works approximately 8 hours a week. The business has a time keeping system that monitors the employees time in each building.

Buys and Sells used “one of a kind” Architectural / Building / Antique items.

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TYPE OF BUSINESS: This well established salvage yard, which was established over 50 years ago by the current owner, buys and sells used “one of a kind” Architectural / Building / Antique items for residential and commercial properties. Samples of the products are lighting, fireplace mantels, buffets, lumber, hardware, doors and windows. The business is well known for their outstanding selection.  The owner’s responsibilities are to oversee the operation and purchase the used inventory.  Owner is willing to work with a new owner after the business has been sold to insure a smooth transition. Hours of operation are 8:00a.m. – 5:00p.m. Monday – Friday and Saturday 8:00a.m. – 1:00p.m. The potential to grow this business is tremendous.   A new owner would want to have all their products available through the internet. Currently, the business has a web site but needs a major upgrade.  This is the largest company of this type in Minnesota. There is a tremendous opportunity to sell these products over the internet.

 

FACILITY:  This business operates in a free standing 93,000 sq. ft. Seller willing to give new owner rent free (building only) for up to 2 years.  The business must re-locate.

 

EMPLOYEES: 6 full-time and 5 part-time employees.

 

GROSS SALES/CASH FLOW:  The gross sales for 2012 were approximately $800,000, 2011 were $792,500; 2010 were $1,008,350 and 2009 were $1,046,450. Based on 2012 sales, the owner reports that cash flow was approximately $118,000 ++.

 

ASKING PRICE: The asking price for the business is $250,000, which includes equipment, furniture and fixtures (estimated value $200,000).  The owner is willing to sell the inventory to the buyer on a consignment or floor plan basis.  The buyer will not have to pay for the inventory until it is sold.  The cost of the inventory to the buyer will be negotiated between buyer and owner.  The owner indicates that the cost of the inventory is in excess of $1,000,000.

 

REASON FOR SALE:  The owner is tired and wants to retire.

 

Important Notice:  The above information has been provided by the Seller.  Neither The 20/20 Group, Inc. (dba Opportunities In Business) nor its agents guarantee its accuracy or comprehensiveness.   7670  b.k.