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Cultivating Your Brand Strategy

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Your brand is a customer’s perception about your business. It determines how they feel about the services and product that you offer. A consistent brand message over time will shape what clients and customers think about you and what you stand for. As a business owner, you need to be able to answer the following important question: why should customers care about you?

Every business owner has to think about the art of branding in order to build a stronger and more robust organization. This should incorporate the art of storytelling and the science of strategy in order to build a dynamic and memorable brand. 

Relationships with Your Clients

In creating a brand, it is vital to remember that brand creation ultimately takes place in the mind of the consumer. Each individual consumer will create their own version of the brand based on his or her perception. 

At the core of the entire process is building trust. The goal, both in the short-term and the long-term, is for customers to feel safe enough that they are confident in you and the products and services that you offer. Central to building that trust is demonstrating, in a clear and coherent fashion, what you are going to deliver and how you are going to deliver it.  

Learning from Branding Gurus

Seth Godin wrote, “Brand is the set of expectations, memories, stories, and relationships that, taken together, account for a consumer’s decision to choose one product or service over another.†With this in mind, you must ask yourself what you are doing to successfully cultivate and promote your brand in the marketplace.

Marty Neumeier is considered by many to be the father of modern branding. Neumeier stated that branding is centered on managing relationships between a company and people over many channels.

Allie Weaver, Co-Founder and Creative Director at Allie Weaver Productions, noted that branding is, “The act of giving people a reason to care about your business and a place to belong.â€Â 

Author Bernadette Jiwa pointed out that great companies all have something in common. Great companies win by mattering. The people who build great companies know what they stand for, and then act on those beliefs in a consistent fashion. Think for a moment about two great companies, Apple and Nike, that have been highly successful in the utilization of modern branding.

Following Your Compass

Building a great brand starts with you. You must understand your vision and be able to answer the question, “Why Me?†Think about why your company exists and matters. How are you working towards keeping a consistent brand promise? In the end, your brand needs to be your compass. If you can understand why customers should choose your business, you’ll be well on your way to utilizing modern branding in a powerful and effective way.

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An Overview of Term Sheets

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If you’re planning on a business agreement to buy or sell a business, you’ll want to know about term sheets. These non-binding agreements will help with progress for both parties. The information covered in the term sheet should include everything from pricing and terms to special considerations. You can expect it to be between one and five pages in length. 

What is the Difference Between a Term Sheet and a Contract?

When a term sheet is created, it demonstrates that there is an agreement between the buyer and seller and a business transaction is possible. However, neither party is bound to this transaction. On the other hand, a contract is typically a legally binding agreement that would hold up in a court of law. 

What are the Pros and Cons of a Term Sheet

While it can be beneficial that a term sheet is non-binding when buyers and sellers are exploring the terms of a deal, it’s also important to know that a term sheet can come with risks. Due to the fact that it covers many details about the potential deal, it can instigate either the buyer or seller pulling out of the deal if they are unsatisfied with the contents of the document.  

On the positive side, a term sheet can serve to greatly expedite negotiations and help things progress faster. Further, it can save time by making sure that the conditions of the deal are understood and accepted before formal documents are drawn up. It can play a huge role in clarifying objectives and circumventing misunderstandings that could ultimately end a deal at a later stage. 

Putting Term Sheets to Work on Your Behalf

One of your goals with your term sheet should be to create a situation that is beneficial for all parties. When a verbal agreement between a buyer and seller is put down on paper it can help a deal begin to take form and actualize in the near future. In the end, a term sheet can help a deal move along and ultimately be successful. It’s the perfect first step towards a completed deal. 

If you have questions about how a term sheet fits into your overall plan to buy or sell a business, this is a question that can be addressed with your business broker, M&A advisor, or attorney. 

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Is Your Deal Really Going to be Successful?

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If you’re selling your business and things are looking positive with your buyer, you might be tempted to start resting easy. If you have a signed letter of intent, you might be even more tempted to think that things are pretty settled. However, the fact of the matter is that much can be uncovered during the due diligence process, and that is often when deals start to fall apart. Due diligence is an essential step that protects buyers, and sellers should be well-prepared to have things in good shape far in advance. Let’s take a closer look at some areas where a deal can potentially go awry. 

Products and Equipment 

When the sale involves a business that handles manufacturing, equipment is carefully evaluated during due diligence. Buyers will be thinking about any potential environmental issues that could affect the business. If you’re selling a business and have loose ends with your equipment or facility, this should be handled in advance if possible. 

Buyers will also be looking at the various product lines and inventory. They will be considering how the sales are spread among the product lines. For example, if one product makes up the majority of sales, that can raise red flags in the mind of a buyer. They will also think about supplies and how likely they are to be stable once the business switches hands. 

Buyers will want to look at breakdowns of customers so they can consider the company’s market share and also where the sales are coming from. Similarly, to only having one product, if a business only has one or two key buyers, that can be a source of concern for buyers. 

Intangible Assets

When you are selling a business, your buyers will also be thinking about the assets like intellectual property. Will all trademarks, patents and copyrights be transferred during the sale? If not, it can be a big source of concern for buyers. 

Buyers will also consider the state of the human resources department. Sellers should be aware that buyers will be typically looking for established staff members who are unlikely to leave. This is another area where sellers have the opportunity to prepare in advance to achieve optimal results. 

Sales Issues

Your prospective buyer will want to carefully examine accounts receivable. So if you have bad debt, you might want to sort out these kinds of issues before the due diligence phase. They will also want to have a firm understanding of everything that is included in the sale. Oftentimes during due diligence, a buyer finds out that equipment or patents are not included with the sale, and it quickly derails the deal. 

If you’re selling a business, you’ll want to put yourself in the buyer’s shoes and consider what you would want to see if you were buying a business. Anything that you can do in advance to improve your workforce, equipment, premises, and financial records is highly recommended.  The goal is to have a smooth transition for the buyer, and anything that could stand in the way of that taking place should be analyzed and improved if possible. When you work with a business broker or M&A advisor to sell your business, you will have an expert in your corner to help sort out the details.

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When Should Sellers Proceed with Caution?

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Selling your business is typically quite an involved process that takes a series of months. Sellers typically experience a variety of ups and downs during that time. This is true even in the case of the most successful deals. That’s why you will want to keep your eyes open during the process so that you will be equipped to vet your potential buyers.

This article will take a look at various aspects of the sales transaction that could be concerning and could mean that a deal is less likely to be successful. It’s a good idea to identify these types of situations so you’ll be better prepared to notice them if they were to occur. After all, the last thing you’ll want to do is waste your time and energy dealing with a prospective buyer that is not a good candidate for buying your business. 

Signs of Lack of Interest

There are countless instances when sellers have been approached by prospective buyers, but the parties controlling the purchase are never involved. If a company expresses interest in your business, but the President or CEO seems to be too busy to talk to you, it more than likely means that there is something off about the situation. If communication starts to fizzle out during the process, it very well could also mean that your buyer is not truly interested. 

Inexperienced Buyers

What if you’re dealing with an individual buyer? If an individual says that he or she is interested in buying your business, but has no experience in your industry and no history of owning businesses in the past, this can be a red flag. Even if this buyer does have serious intentions, he or she may become nervous and start to feel overwhelmed as things progress with your deal. In the early stages when you are being approached by potential buyers it is a good idea to not get too wrapped up in buyers that do not appear to be completely legitimate. 

Withholding Information 

There are situations where caution should be warranted in the later stages of a deal as well. For example, in some instances, sellers have not been allowed to see the buyer’s financial statements. Clearly, that could mean that the buyer doesn’t have the resources actually necessary to proceed. 

When you work with a business broker or M&A advisor, you will find that you have built in protection from buyers that are not the right fit. Most brokerage professionals have seen it all and tend to be able to sense when something is too good to be true, or just simply not quite right. Also, when challenges do occur, having a third party involved can go a long way in effectively getting things back on track. 

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How Improved Negotiation Tactics Can Benefit Your Deals

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There is no underestimating the importance of negotiation when you are buying or selling a business. Let’s take a look at some of the most often used strategies and our recommendations. 

The Direct Approach

One approach in negotiations is what we often refer to as the “take it or leave it†strategy. In this scenario, the buyer makes an offer, and the seller then counters that offer. There is little negotiation work necessary, as both parties are direct and simple about the numbers and terms they propose. The drawback to this approach, however, is that when it doesn’t work, there is little to no recourse. When this “direct approach†offer isn’t accepted by one of the parties, there is little opportunity for flexibility on either side. Therefore, the direct approach can be somewhat of a risk.

Focusing on Influential Details

There are typically certain aspects of a deal where a buyer or seller is unwilling to compromise. Sometimes this aspect isn’t even financial in nature. It could be anything from the desire to move the business to a new site, to employment of a friend or relative. Once the negotiations embrace and include these non-negotiables, it can help expedite a successful deal. 

Splitting the Difference

A common approach that is seen when buying or selling businesses is that one side offers to split the difference. Unlike the direct approach, there is a good deal of flexibility here. When one party shows that they are open to split the difference, it is often seen as a way to keep negotiations going. Another point in favor of this approach is that communication continues. Obviously when one or both sides stop talking, the deal has not been successful. 

Third Party Involvement 

When it comes to finding solutions and resolutions, having a third party involved is tremendously beneficial. When you bring in a business broker or M&A advisor, that individual can then help facilitate the negotiated solutions. This third party is seen as skilled, yet also more of an impartial party. Business brokers and M&A advisors also have many years of experience encouraging buyers and sellers to understand and work with one another. 

Your brokerage professional can help both parties agree to a fair price while handling the aspects of all the small details involved in buying and selling businesses. Negotiations almost always benefit from having a professional involved, as they bring a different, and much needed, perspective to the table. 

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How Can You Identify a Serious Buyer?

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No one wants to waste their time and energy trying to sell their business to someone who isn’t actually planning to buy. That’s why it’s so important for you and your business broker or M&A advisor to focus on the most qualified and serious buyers. But how can you really make these kinds of assessments about a buyer’s viability until they sign on the dotted line? Let’s take a look at some signs that will help you figure out your buyer well in advance. 

Do they have a history of ownership?

When someone has owned a business in the past, they have a firm understanding of what is involved. As a result, they are more likely to be a serious buyer. It also means they are more likely to move forward. You will also find that they have the ability to make a substantial down payment and financing options. While they might want you to help them with financing, you should still be looking to ensure they will put their own capital at risk as well. 

Are they seeking information about your cash flow?

If a buyer is serious, it goes without saying that they will want to make sure the business is profitable. They should be asking a lot of questions about not only your cash flow, but also your inventory.  If you have unusable inventory this could be of concern to a buyer. Be sure to disclose this information upfront, as it will likely be discovered in the due diligence process regardless.  

Are they asking about the health of your staff?

Any real buyer would want a dedicated and reliable staff. If your buyer is asking about salaries, it is a good sign that they are serious. After all, if you’re only paying minimum wage, chances are that your staff will not have a lot of staying power. These days, many companies are suffering due to staffing issues, and it’s something that should be front and center in any serious buyer’s mind.

Do they have an interest in the industry?

If your prospective buyer is asking questions about the industry, that is another good sign. After all, who would really want to buy a business without detailed knowledge about the industry they are about to enter? Along the same lines, if you know your buyer has experience in a given industry, it means they are more likely to go through with a purchase. If they lack experience in your industry, do they at least seem passionate about the industry? If they seem like they are not asking probing questions, this might mean they are wasting your time.

Are they asking about capital expenditures?

Your prospective buyer will want to know how money is being spent. You can expect them to make sure that major expenses have already been paid for as they will want to make sure they won’t be caught off guard by large pending purchases.

Do you have professional assistance? 

The bottom line is that the more in-depth questions a person is asking, the more serious they are likely to be. Your business broker’s job is to screen prospective buyers. Years of experience doing so helps them know the warning signs that pop up when buyers profess to be interested, but are not likely to go through with the sale. 

When you are trying to sell your business, it is critical that you focus your time wisely. Your brokerage professional will help ensure that you do not waste time working with people who are just kicking the tires. 

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What is a Partnership Agreement?

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A partnership agreement is a legal document that provides an outline of how a business will be run. This agreement will often be used by small for-profit businesses when two or more people are involved. It’s an essential document to have, especially in the case when a dispute arises between partners. Even if you have gone into business with a friend or relative, you should have this document in place to make sure everyone is protected. Let’s take a look at some of the key elements that should be in this document. 

The Basics

It goes without saying that your partnership agreement should include the basics, such as the name of the business and the names of key parties involved.  You’ll also want to outline the goals of your partnership and how long it will last. 

Rules and Responsibilities 

When you create your partnership agreement, you’ll want to make sure it offers a lot of clarity on different points with an eye to everyone’s responsibilities. Think through what concerns or disagreements could possibly arise and then outline how you would solve them. 

Financial Issues

You’ll want to cover everything involving finances in your agreement. This should include key points on income and how it will be distributed. You will also want to clearly outline the ownership interests of each partner involved. Also be sure that the agreement includes the accounting obligations of the partners, and how you’ll handle salaries, vacation, sick leave, etc. Also think about the funds that will be necessary to operate the business. Who will be contributing these funds?

Partners and Staff

The partnership agreement should also cover points involving the work itself. Who is in charge of managing your staff? What kind of authority role does each partner have? What if you decide to bring in a new partner? The agreement should discuss the procedure for adding people to your partnership and what that entails. 

Issues Involving Key Decisions

Another important issue to explore and detail in the agreement relates to decision making. How will your company make its business decisions? What will occur if a conflict cannot be resolved? Will you go to court or take another route? What if the partnership was terminated? What would the terms and conditions of your termination be? 

When your partnership agreement is under your belt, it should empower you to feel confident in the core structure of your business and its ability to function smoothly. 

Obviously, you’ll want to avoid the DIY approach and instead work with an experienced attorney. While it might take more time and money to do so, you’ll be glad that you hired a professional if and when you run into conflicts down the line. Your business broker or M&A advisor should be able to recommend a lawyer who has experience crafting partnership agreements. 

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What Are Your Flaws?

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As a business owner, your natural inclination is likely to be considering the strengths of your business and how to perform even better in the future. However, the truth is that sitting back and thinking about your flaws can actually benefit you in the long run. When you have a full understanding of where you are lacking, it will empower you to make the best strategic decisions for the future. These changes, in turn, will help you receive top dollar when you go to sell your business. 

Here are 4 areas you should be evaluating:

1. Your Products

How diverse are your products? If you rely upon the sale of just one product, that puts your business in jeopardy. You should be thinking about additional products you could add. This will also open you up to new opportunities for customers and revenue.  

2. Your Workforce

There has been much publicity about the current trends in businesses struggling to find staff. Further, there are a variety of trades, such as tool and die, where there is a shortage of skilled workers to begin with.  However, your staff members are the core of your business, and represent its wellness and ability to thrive in the future.  

3. Your Industry

You should always be on the lookout for trends that could negatively impact your business. Sometimes things are simply out of your control, and you might find that your entire industry is in decline. When this occurs, be sure to think about new directions you can take. If you sit back and just wait for things to change, the value of your business could slip away before your eyes. 

4. Your Customers

If you only have one or two core customers, that will typically lower the value of your business. Any potential buyer will quickly realize that the health and stability of your business is somewhat fragile.  While you may feel that you don’t currently have the time and resources to obtain new customers and clients, doing so will serve you tremendously when it’s time to sell.

When you work with a business broker or M&A advisor, he or she will help you to evaluate your company and look for weaknesses. However, oftentimes it’s challenging or even impossible to turn the tides when you are under the gun to sell right away. That’s why so many business owners decide to work with a brokerage professional years before they actually plan to sell. This enables them to correct any weaknesses years in advance and be fully prepared to present their business in the best light possible. 

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BizBuySell Insight Report for 2022

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BizBuySell has issued their latest insight report, which summarizes market growth and trends from last year. In this report, they have several interesting areas to report including a summary of how lower sales prices and rate hikes impacted the value of businesses in recent months. The report can be found at https://www.bizbuysell.com/insight-report/#reportArchive.

Overall Trends in 2022

Buyers currently appear to have some leverage when it comes to the prices of businesses on the market. When comparing 2022 with 2021, we see a 4.7% increase in closed transactions. Comparing it to the year prior, there is a 19% gain. Obviously, 2020 sales were negatively impacted by COVID. 

While sales grew substantially in the first half of 2022, there was a decrease in momentum in the second half of the year due to inflation and interest rate increases. 

The number of transactions recorded by BizBuySell.com in 2022 are actually fairly comparable to 2021, with numbers of 9054 and 8647, respectively. While the transactions raised 27% and then 14% in the first and second quarters, transactions then lagged in the second half, dropping by 2% and then 12.7%.

Trends Among Business Owners

BizBuySell’s surveys showed that the majority of owners are concerned about rate hikes and inflation. In fact, 53% say that the rate hikes are having a negative impact on them. They also reported concerns about rising SBA loan rates, as many business owners utilize their lines of credit. In addition to that aspect, there are still supply chain issues that are negatively impacting businesses. 

The main takeaways from 2022 seem to be a steady but slow progression in growth. Moving into 2023, interest rate hikes and inflation seem to be on everyone’s mind as a prevailing factor that will have an impact on sales and growth.  

It’s Never Too Early to Create an Exit Plan 

The report also reveals that according to data acquired by BizBuySell, only 53% of business owners say they have an exit plan. Only 58% of owners reported knowing what their business is worth. If you are a business owner and would like to find out more about what your business is worth, a business broker or M&A advisor can assist you with that information. 

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Expectations for Business in 2023

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BizBuySell just released its latest insight report, which tracked sales and growth in 2022 and compared it to the prior year. Overall, we are seeing a high demand for service-based businesses as well as an increase in restaurant business sales. The insight report also reveals what business brokers across the country are expecting for 2023 and beyond. 

Data on Service Business Sales

In 2022, 39% of the acquisitions tracked by BizBuySell were service businesses, and their transactions were 7% higher than 2021. The service sector typically includes predominantly financial and healthcare related businesses. These types of companies are usually considered to be low-risk. 

Across the map, buyers were willing to pay more for service businesses last year. In fact, the median sales price for service businesses rose 4% over 2021. It’s interesting to note that the sales prices were even higher than the pre-pandemic levels. Also, there is a trend towards buyers seeking out socially responsible and environmentally conscious businesses. 

Data on Restaurant Businesses 

Restaurant businesses also did quite well in 2022. In fact, the acquisitions of restaurants jumped 20% over 2021. They previously had plummeted 38% in 2020. While these numbers are strong, they are still 21% lower than before COVID. 

Restaurant businesses also had less time on the market. The median days were 169 instead of 176 the year before. Restaurants also sold for more money. The median revenue for closed transactions was up 7% and the cash flow was up 13%. It seems that the general consensus is that dining out is popular again after years of struggles due to people avoiding meals in public. 

Expectations for 2023

The conclusion of this data collected about 2022 is that buyers no longer will benefit from sitting it out. Higher interest rates are expected to be more and more of an impact for buyers in 2023. The good news is that most experts are expecting rates to get better in 2024. 

Business brokers surveyed by BizBuySell expect that the market in 2023 will continue at the same place as it did in 2022. Many sellers will seek to retire. The concern of a recession should also motivate more baby boomers to sell. In fact, 45% of owners are saying they are selling to retire. At the same time, buyers will be looking for profitable companies that will grow.

The data revealed by BizBuySell indicates that those who are buying businesses may currently have the upper hand. In fact, 47% of brokers say that their view is that the market has shifted towards buyers. They attribute this to rate increases. They are finding that the majority of buyers are saying that current businesses are overpriced. 

Sellers Must Be Flexible

The insight report shows that overall business brokers believe there is pressure on sellers to be more flexible in their pricing and terms. As always, seller financing is essential. In fact, 90% of buyers are saying it’s important for owners to offer this option to them. 95% of brokers echo this sentiment. 

It should come as no surprise that businesses with strong financials are in high demand. When these businesses are considered recession proof, this fact is even more true. But even sellers with the strongest businesses may still have to consider offering financing or adjust prices due to the higher rates. Sellers who want to sell in the near future, of course, should begin preparing their exit now. 

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