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8 reasons your business won’t sell

8 reasons your business won’t sell – and what you can do about it.

Licensing Difficulty
If you are in a business that involves hard to get licenses and/or agency approval (such as the medical field) this can be problematic for a buyer.
Solution: You may be able to transition instead to a stock sale and alleviate the need for licensing and agency approval. You will need to discuss this with your attorney and CPA.

Customer Concentration
A business in which one or a few customers are responsible for the bulk of sales can be difficult to sell. What if your key customer goes out of business or takes their business elsewhere? This is a great concern for the buyer. It may also make it difficult to get Lender approval in the event a SBA loan is needed.
Solution: Diversify your customer base. Try to get key customers to sign long term contracts. This will give the buyer some assurance.

Rare skill set
Does the owner have a rare skill set? For example a certain type of engineering degree. If a new owner is required to have a specific skill set it will greatly narrow the pool of potential buyers.
Solution: It is sometimes possible for the departing owner to “sponsor” the buyer allowing him/her to continue to use the seller’s qualifications while becoming certified.

Too closely identified with owner
“Big Mike’s Pizza” sounds great. But if the customers too closely identify the business with Big Mike, a buyer will be concerned about how the business will continue when you are gone.
Solution: Consider a less personal branding for your business

Poor cash flow
Buyers are mostly concerned with net profit. This is why they buy a business. If your company is not generating sufficient positive cash flow it will be hard to sell.
Solution: Focus on growing your sales and managing your expenses. Cash flow will follow.

Declining revenue
Buyers get nervous when they see a year after year downward trend.
Solution: Never take your foot of the pedal. This is especially important when you are getting ready to sell. A record of healthy revenue growth will make your business an attractive target for acquisition.

Difficult landlord
Landlords have the power to kill a business sale. They may refuse a lease assignment or place impossible conditions on the buyer.
Solution: Get to know your landlord, develop and maintain a good relationship.

New competition
A new competitor is eating into your sales.
Solution: Be open and honest with the buyer. Don’t hide the fact that you have been facing stiffer competition. The buyer will appreciate your honesty and may purchase the business anyway.

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Why location does not matter

Location sign

In Real Estate they say Location, Location, Location! Meaning that location is everything.

But in business brokerage we do not concern ourselves much with location. We judge businesses primarily by their financial performance. A profitable business in a bad area is more valuable than a money losing business in a hip part of town.

This is because the effects of good or bad location are already factored in to the business’s performance. Of course a buyer might decide that a particular business would do better in another area of town. But future possibilities belong to the buyer. In pricing a business for sale we look at past performance as a guide.

I often encourage buyers to look beyond location and instead examine the performance and potential of a business. At the end of the day past performance and future potential should be the critical factors in your decision to purchase a particular business.

The Author Anthony John Rigney is a Business Broker and Board Certified Intermediary in Jacksonville Florida.

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Top Selling Businesses

Ten top selling businesses in Florida. Ranked by category from highest number of sales to lowest.

1. Restaurants
(Full Service, Fast Food & Take Out)

2. Beauty/Personal Care
(Salons, Day Spas, Tanning, Barber Shop etc.

3. Real Estate
(Property Management, Brokerages etc.)

4. Liquor
(Bars, Nightclubs & Package Stores)

5. Cleaning (Clothing)
(Dry Cleaners & Coin Laundries)

6. Lawn/Landscaping Service
(Residential & Commercial)

7. Medical Related
(Pharmacies, Medical Equipment, Assisted Living, Medical Practices etc.)

8. Automotive
(Auto Repair, Car Wash, Dealerships etc.)

9. Cleaning
(Carpet Cleaning, Pressure Washing, Mold Remediation etc.)

10. Pool & Spa
(Installation, Supply, Service & Sales)

Based on sales for 2013 as reported by Business Brokers of Florida (BBF).

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Ten Tips for Business Buyers

Risky Business
There is risk as well as reward in being a business owner. If you are the risk averse then business ownership may not be for you. Before you even begin to look for a business, decide if you are willing to accept the higher level of risk involved in entrepreneurship.

Know your strengths
Determine the type of business that best suits your abilities. Know your strengths and look for a business that will best utilize them. Don’t try to do something outside your comfort zone. We are best at doing the things we enjoy.

Select a business broker
Your next step should be to find a qualified business broker to help you in your search. A good business broker will be an invaluable guide through the process.

Chose your advisors well
Uncle David might be an attorney. But does he have experience with business acquisition transactions? Make sure that the professionals you choose to help you have the appropriate experience. I have seen deals go under because of bad advice from well meaning people.

Make a fair offer
If you find a business you like. Do your research, decide on a fair price and make your offer. By all means leave yourself a little room to negotiate. But don’t lowball the seller. A lowball offer will only insult the seller and convince him/her that you are not serious.

Trust but verify
During the negotiation phase buyers should trust the numbers being presented by the seller. After a deal has been struck however it’s time to dig into the books. Make sure you perform a thorough due diligence. Be polite but persistent. If the numbers don’t add up you can either renegotiate the deal or back out altogether.

Look for improvements
Look for the things the seller does not do well. This can be a big positive for you. You are paying for how the business looks today. If you can make improvements to its operation and bottom line – that belongs to you.

Negotiate the lease
Most businesses are sold without the property. As such you will need to complete a lease assignment or renegotiate a new lease with the landlord. Decide what your goals are in advance. If the location of the business is critical then you will want to negotiate the longest lease possible (ask for end of lease options). If on the other hand you plan on relocating the business then a short term lease will better suit your needs.

If it’s not broken don’t fix it
If you are purchasing a well run and successful business think twice before making any changes. In fact I recommend buyers wait at least six months before they make changes to the operation. Of course if you are buying a “fixer upper” then you may want to start making changes right away.

Prepare to sell
The day you close is the day you should start thinking about selling your business. Always run the business with the thought in mind that one day you will need to sell it. The earlier you start the better the position you will be in when that day arrives.

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Buying a Franchise – what they won’t tell you

Isaac Singer whose name became synonymous with the sewing machine began one of the first franchises in the United States 160 years ago. By 2007 the Census Bureau was reporting that 10.5% of the businesses with employees were franchises. This model of entrepreneurship has become increasingly popular. One reason is that it offers “easy” access into the world of business ownership.

And it appears an attractive proposition at first. Franchisors put on lavish presentations. Nervous investors find the promise of training and franchise support to be a great comfort. But there is one thing that the Franchisor won’t tell you. In many cases the start up costs of these franchises are more the resale value.

Here are some examples that I have come across in my own career.

1.A sub sandwich franchise. Start up cost $150,000. Priced at $50,000 and did not sell.
2.Restaurant franchise. Start up cost of $1M. Sold for $650,000 with a large seller held note.
3.National Restaurant franchise. Start up cost $1.5M. Sold for $670,000.
4.Massage therapy franchise. Start up Cost $450,000. Sold for $392,000.

These examples are not unique. Opening a franchise can be expensive. Franchise fees are just the beginning. There are travel, training and accommodation costs. There follows buildout expenses, furniture, fixtures, equipment, marketing costs and inventory. Staff must be interviewed and hired. The time and effort put in by the owner is another cost not typically itemized. And on day one, when you open the door – after all this expense – you start with zero customers. It can often take 1-2 years before you break even. During this time you are pouring more of your precious reserves into the business.

Compare this to the advantage of purchasing a resale franchise. The groundwork has been done for you. You walk in to a business with location, staff, equipment, inventory and customers already in place. Furthermore the Franchise Transfer Fee is typically a fraction of the original fee and can often be negotiated with the seller. You still benefit from franchise training and support. In addition you can negotiate training and support from the current owner. Hopefully if you have selected well you are making a profit from day one.

So before you invest your hard earned money I recommend you take a look at the franchise resale market. Your local friendly Business Broker will be happy to help.
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Buying or selling a business is a complex process. Make sure you have the right team on your side. Contact us today!